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GLOSSARY OF TERMS AND ABBREVIATIONS

PPL Corporation and its ~~current and former~~ subsidiaries

Central Networks - collectively, Central Networks East plc, Central Networks Limited and certain other related assets and liabilities. On April 1, 2011, PPL WEM Holdings plc (formerly WPD Investment Holdings Limited) purchased all of the outstanding ordinary share capital of these companies from E.ON AG subsidiaries. Central Networks West plc (subsequently renamed Western Power Distribution (West Midlands) plc), wholly owned by Central Networks Limited (subsequently renamed WPD Midlands Holdings Limited), and Central Networks East plc (subsequently renamed Western Power Distribution (East Midlands) plc) are British regional electricity distribution utility companies.

Kentucky Registrants - LKE, LG&E and KU, collectively, SEC Registrants that directly or through subsidiaries own or control operations primarily in Kentucky.

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. ~~Within the context of this document, references to LKE also relate to the consolidated entity.~~

LKS - LG&E and KU Services Company, a subsidiary of LKE that provides services ~~for~~to LKE and its subsidiaries.

PPL - PPL Corporation, the parent holding company of PPL Electric, PPL Energy Funding, PPL Capital Funding, LKE and other subsidiaries.

PPL Brunner Island - PPL Brunner Island, LLC, a subsidiary of PPL Generation that owns generating operations in Pennsylvania.

PPL Capital Funding - PPL Capital Funding, Inc., a ~~wholly owned~~ financing subsidiary of PPL that provides financing for the operations of PPL and certain subsidiaries.

PPL Electric - PPL Electric Utilities Corporation, a public utility subsidiary of PPL ~~that transmits~~engaged in the regulated transmission and ~~distributes~~distribution of electricity in its Pennsylvania service area and that provides electric supply to its retail customers ~~in this area~~ as a PLR.

PPL Energy Funding - PPL Energy Funding Corporation, a subsidiary of PPL and the parent holding company of PPL Energy Supply, PPL Global and other subsidiaries.

PPL EnergyPlus - PPL EnergyPlus, LLC, a subsidiary of PPL Energy Supply that markets and trades wholesale and retail electricity and gas, and supplies energy and energy services in competitive markets.

PPL Energy Supply - PPL Energy Supply, LLC, a subsidiary of PPL Energy Funding and the parent company of PPL Generation, PPL EnergyPlus and other subsidiaries.

PPL Generation - PPL Generation, LLC, a subsidiary of PPL Energy Supply that owns and operates U.S. generating facilities through various subsidiaries.

PPL Global - PPL Global, LLC, a subsidiary of PPL Energy Funding that primarily, through its subsidiaries, owns and operates WPD, ~~the~~PPL's regulated electricity distribution businesses in the U.K. ~~that are focused on the regulated distribution of electricity.~~

PPL Ironwood - PPL Ironwood, LLC, an indirect ~~subsidiary of PPL Generation that owns generating operations in Pennsylvania.~~

~~PPL Martins Creek~~ ~~- PPL Martins Creek, LLC, a~~ subsidiary of PPL Generation that owns generating operations in Pennsylvania.

PPL Montana - PPL Montana, LLC, an indirect subsidiary of PPL Generation that generates electricity for wholesale sales in Montana and the Pacific Northwest.

PPL Montour - PPL Montour, LLC, a subsidiary of PPL Generation that owns generating operations in Pennsylvania.

PPL Services - PPL Services Corporation, a subsidiary of PPL that provides services ~~for~~to PPL and its subsidiaries.

PPL Susquehanna - PPL Susquehanna, LLC, ~~the nuclear generating~~a subsidiary of PPL ~~Generation.~~Generation that owns a nuclear-powered generating station.

PPL WEM - PPL WEM Holdings plc (formerly WPD Investment Holdings Limited), an indirect, U.K. subsidiary of PPL Global. PPL WEM indirectly owns both WPD (East Midlands) and WPD (West Midlands).

PPL WW - PPL WW Holdings Limited (formerly Western Power Distribution Holdings Limited), an indirect, U.K. subsidiary of PPL Global. PPL WW Holdings indirectly owns WPD (South Wales) and WPD (South West).

Registrant(s) - refers to the Registrants named on the cover of this Report (each a "Registrant" and collectively, the "Registrants").

Subsidiary Registrant(s) - the Registrants that are subsidiaries of PPL. PPL Energy Supply, PPL Electric, LKE, LG&E and KU.

WPD - refers to PPL WW and PPL WEM and their subsidiaries.

WPD (East Midlands) - Western Power Distribution (East Midlands) plc, a British regional electricity distribution utility company. The company (formerly Central Networks East plc) was acquired and renamed in April 2011.

WPD Midlands - refers to WPD (East Midlands) and WPD (West Midlands), collectively.

WPD (South Wales) - Western Power Distribution (South Wales) plc, a British regional electricity distribution utility company.

WPD (South West) - Western Power Distribution (South West) plc, a British regional electricity distribution utility company.

WPD (West Midlands) - Western Power Distribution (West Midlands) plc, a British regional electricity distribution utility company. The company (formerly Central Networks West plc) was acquired and renamed in April 2011.

WKE - Western Kentucky Energy Corp., a subsidiary of LKE that leased certain non-utility generating plants in western Kentucky until July 2009.

Other terms and abbreviations

£ - British pound sterling.

2010 Equity Unit(s) - a PPL equity unit, issued in June 2010, consisting of a 2010 Purchase Contract and, initially, a 5.0% undivided beneficial ownership interest in $1,000 principal amount of PPL Capital Funding 4.625% Junior Subordinated Notes due 2018.

2010 Purchase Contract(s) - a contract that is a component of a 2010 Equity Unit ~~that requires~~requiring holders to purchase shares of PPL common stock on or prior to July 1, 2013.

2011 Equity Unit(s) - a PPL equity unit, issued in April 2011, consisting of a 2011 Purchase Contract and, initially, a 5.0% undivided beneficial ownership interest in $1,000 principal amount of PPL Capital Funding 4.32% Junior Subordinated Notes due 2019.

2011 Purchase Contract(s) - a contract that is a component of a 2011 Equity Unit ~~that requires~~requiring holders to purchase shares of PPL common stock on or prior to May 1, 2014.

2012 Form 10-K - Annual Report to the SEC on Form 10-K for the year ended December 31, 2012.

Act 11 - Act 11 of 2012 that became effective on April 16, 2012. The Pennsylvania legislation authorizes the PUC to approve two specific ratemaking mechanisms: the use of a fully projected future test year in base rate proceedings and, subject to certain conditions, a DSIC.

Act 129 - Act 129 of 2008 that became effective in October 2008. The law amends the Pennsylvania Public Utility Code and creates an energy efficiency and conservation program and smart metering technology requirements, adopts new PLR electricity supply procurement rules, provides remedies for market misconduct and ~~makes~~ changes to the existing Alternative Energy Portfolio Standard.

AEPS - Alternative Energy Portfolio Standard.

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.

Baseload generation - includes the output provided by PPL's nuclear, coal, hydroelectric and qualifying facilities.

Basis - when used in the context of derivatives and commodity trading, the commodity price differential between two locations, products or time periods.

~~BREC~~ ~~- Big Rivers Electric Corporation, a power-generating rural electric cooperative in western Kentucky.~~

CAIR - ~~the EPA's~~ Clean Air Interstate Rule.

Cane Run Unit 7 - a combined-cycle natural gas unit under construction in Kentucky, jointly owned by LG&E and KU, which is expected to provide additional electric generating capacity of 141 MW and 499 MW to LG&E and KU by 2015.

CCR - Coal Combustion Residuals. CCRs include fly ash, bottom ash and sulfur dioxide scrubber wastes.

Clean Air Act - federal legislation enacted to address certain environmental issues related to air emissions, including acid rain, ozone and toxic air emissions.

COLA - license application for a combined construction permit and operating license from the NRC for a nuclear plant.

CSAPR - Cross-State Air Pollution Rule.

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.

Depreciation not normalized - the flow-through income tax impact related to the state regulatory treatment of depreciation-related timing differences.

DPCR4 - Distribution Price Control Review 4, the U.K. 5-year rate review period applicable to WPD that commenced April 1, 2005.

DRIP - Dividend Reinvestment and Direct Stock Purchase Plan.

DSIC - ~~a distribution system improvement charge~~Distribution System Improvement Charge authorized under Act 11, which is an alternative ratemaking mechanism providing more-timely cost recovery of qualifying distribution system capital expenditures.

DSM - Demand Side Management. Pursuant to Kentucky Revised Statute 278.285, the KPSC may determine the reasonableness of DSM plans proposed by any utility under its jurisdiction. Proposed DSM mechanisms may seek full recovery of DSM programs and revenues lost by implementing those programs and/or incentives designed to provide financial rewards to the utility for implementing cost-effective DSM programs. The cost of such programs shall be assigned only to the class or classes of customers which benefit from the programs.

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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 which apply to coal combustion and by-products from the production of energy from coal.

EEI - Electric Energy, Inc., owns and operates a coal-fired plant and a natural gas facility in southern Illinois. KU's 20% ownership interest in EEI is accounted for as an equity method investment.

EPA - Environmental Protection Agency, a U.S. government agency.

EPS - earnings per share.

Equity Units - refers collectively to the 2011 and 2010 Equity Units.

ESOP - Employee Stock Ownership Plan.

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~~Euro~~ ~~- the basic monetary unit among participating members of the European Union.~~

FERC - Federal Energy Regulatory Commission, the federal agency that regulates, among other things, interstate transmission and wholesale sales of electricity, hydroelectric power projects and related matters.

Fitch - Fitch, Inc., a credit rating agency.

FTRs - financial transmission rights, which are financial instruments established to manage price risk related to electricity transmission congestion that ~~they~~ entitle the holder to receive compensation or require the holder to remit payment for certain congestion-related transmission charges based on the level of congestion ~~in the transmission grid.~~between two pricing locations (source and sink).

GAAP - Generally Accepted Accounting Principles in the U.S.

GBP - British pound sterling.

GHG - greenhouse gas(es).

GLT - Gas Line Tracker. The KPSC approved LG&E's recovery of costs associated with gas service lines, gas risers, leak mitigation, and gas main replacements. Rate recovery became effective on January 1, 2013.

If-Converted Method - ~~When~~A method applicable for calculating diluted EPS for a company ~~has~~with convertible debt ~~outstanding the following~~outstanding. The method ~~needs to be~~is applied ~~to calculate diluted EPS:~~as follows: Interest charges ~~(after tax)~~(after-tax) applicable to the convertible debt ~~shall be~~are added back to net income and the convertible debt ~~shall be~~is assumed to have been converted to equity at the beginning of the period and the resulting common shares ~~shall be included with~~are treated as outstanding shares. Both adjustments are made only ~~done~~ for purposes of calculating diluted EPS. This method was applied to PPL's Equity Units prior to settlement beginning in the first quarter of 2013.

Intermediate and peaking generation - includes the output provided by PPL's competitive oil- and natural gas-fired units.

Ironwood Acquisition - In April 2012, PPL Ironwood Holdings, LLC, an indirect, wholly owned subsidiary of PPL Energy Supply, completed the acquisition from a subsidiary of The AES Corporation of all of the equity interests of AES Ironwood, L.L.C. (subsequently renamed PPL Ironwood, LLC) and AES Prescott, L.L.C. (subsequently renamed PPL Prescott, LLC), which together own and operate, ~~respectively,~~ a natural gas-fired power plant in Lebanon, Pennsylvania.

IRS - Internal Revenue Service, a U.S. government agency.

ISO - Independent System Operator.

KPSC - Kentucky Public Service Commission, the state agency that has jurisdiction over the regulation of rates and service of utilities in Kentucky.

kV - Kilovolt

LIBOR - London Interbank Offered Rate.

LTIIP - Long Term Infrastructure Improvement Plan.

MATS - Mercury and Air Toxics Standards.

MDEQ - Montana Department of Environmental Quality.

MEIC - Montana Environmental Information Center.

MMBtu - One million British Thermal Units.

Montana Power - The Montana Power Company, a Montana-based company that sold its generating assets to PPL Montana in December 1999. Through a series of transactions consummated during the first quarter of 2002, Montana Power sold its electricity delivery business to NorthWestern.

Moody's - Moody's Investors Service, Inc., a credit rating agency.

MW - megawatt, one thousand kilowatts.

MWh - megawatt-hour, one thousand kilowatt-hours.

NDT - PPL Susquehanna's nuclear plant decommissioning trust.

NERC - North American Electric Reliability Corporation.

NorthWestern - NorthWestern Corporation, a Delaware corporation, and successor in interest to Montana Power's electricity delivery business, including Montana Power's rights and obligations under contracts with PPL Montana.

~~NPDES~~ ~~- National Pollutant Discharge Elimination System.~~

NPNS - the normal purchases and normal sales exception as permitted by derivative accounting rules. Derivatives that qualify for this exception receive accrual accounting treatment.

NRC - Nuclear Regulatory Commission, the U.S. federal agency that regulates nuclear power facilities.

OCI - other comprehensive income or loss.

Ofgem - Office of Gas and Electricity Markets, the British agency that regulates transmission, distribution and wholesale sales of electricity and related matters.

Opacity - the degree to which emissions reduce the transmission of light and obscure the view of an object in the background. There are emission regulations that limit the opacity inof power plant stack gas emissions.

OVEC - Ohio Valley Electric Corporation, located in Piketon, Ohio, an entity in which LKE indirectly owns an 8.13% interest (consists of LG&E's 5.63% and KU's 2.50% interests), which is accounted for as a cost-method investment. OVEC owns and operates two coal-fired power plants, the Kyger Creek plant in Ohio and the Clifty Creek plant in Indiana, with combined nameplate capacities of 2,390 MW.

PADEP - the Pennsylvania Department of Environmental Protection, a state government agency.

PJM - PJM Interconnection, L.L.C., operator of the electric transmission network and electric 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 ~~to retail customers~~ within its delivery area to retail customers who have not chosen to select an alternative electricity supplier under the Customer Choice Act.

PP&E - property, plant and equipment.

PUC - Pennsylvania Public Utility Commission, the state agency that regulates certain ratemaking, services, accounting and operations of Pennsylvania utilities.

~~PUC Final Order~~ ~~- final order issued by the PUC on August 27, 1998, approving the settlement of PPL Electric's restructuring proceeding.~~

Purchase Contract(s) - refers collectively to the 2010 and 2011 Purchase Contracts (which are components of the 2010 and 2011 Equity Units.)

RAV - regulatory asset value. This term, used within the U.K. regulatory environment, is also commonly known as RAB or regulatory asset base.

RECs - renewable energy credits.

Regional Transmission Line Expansion Plan - PJM conducts a long-range Regional Transmission Expansion Planning process that identifies what changes and additions to the grid are needed to ensure future needs are met for both the reliability and the economic performance of the grid. Under PJM agreements, transmission owners are obligated to build transmission projects assigned to them by the PJM Board that are needed to maintain reliability ~~standards and that are reviewed and approved by the PJM Board.~~

~~Registrants~~ ~~- PPL, PPL Energy Supply, PPL Electric, LKE, LG&E and KU, collectively.~~standards.

Regulation S-X - SEC regulation governing the form and content of and requirements for financial statements required to be filed pursuant to the federal securities laws.

RFC - Reliability First Corporation, one of eight regional entities with delegated authority from NERC that work to safeguard the reliability of the bulk power systems throughout North America.

RMC - Risk Management Committee.

S&P - Standard & Poor's Ratings Services, a credit rating agency.

Sarbanes-Oxley - Sarbanes-Oxley Act of 2002, which sets requirements for management's assessment of internal controls for financial ~~reporting. It also~~reporting and requires an independent auditor to make its own assessment.

SCR - selective catalytic reduction, a pollution control process for the removal of nitrogen oxide from exhaust gases.

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 ~~whose primary mission is~~primarily responsible to protect investors and maintain the integrity of the securities markets.

SERC - SERC Reliability Corporation, one of eight regional entities with delegated authority from NERC that work to safeguard the reliability of the bulk power systems throughout North America.

SIFMA Index - the Securities Industry and Financial Markets Association Municipal Swap Index.

Smart meter - an electric meter that utilizes smart metering technology.

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.

SMGT - Southern Montana Electric Generation & Transmission Cooperative, Inc., a Montana cooperative and purchaser of electricity under a long-term supply contract with PPL EnergyPlus that was terminated effective April 1, 2012.

SNCR - selective non-catalytic reduction, a pollution control process for the removal of nitrogen oxide from exhaust gases using ammonia.

Spark Spread - a measure of gross margin representing the price of power on a per MWh basis less the equivalent measure of the natural gas cost to produce that power. This measure is used to describe the gross margin of PPL and its subsidiaries' competitive natural gas-fired generating fleet. This term is also used to describe a derivative contract in which PPL and its subsidiaries sell power and buy natural gas on a forward basis in the same contract.

Superfund - federal environmental legislation that addresses remediation of contaminated sites; states also have similar statutes.

TC2 - Trimble County Unit 2, a coal-fired plant located in Kentucky with a net summer capacity of 732 MW. LKE indirectly owns a 75% interest (consists of LG&E's 14.25% and KU's 60.75% interests) in TC2 or 549 MW of the capacity.

Tolling agreement - agreement whereby the owner of an electric generating facility agrees to use that facility to convert fuel provided by a third party into electricity for delivery back to the third party.

~~TRA~~ ~~- Tennessee Regulatory Authority, the state agency that has jurisdiction over the regulation of rates and service of utilities in Tennessee.~~

VaR - value-at-risk, a statistical model that attempts to estimate the value of potential loss over a given holding period under normal market conditions at a given confidence level.

VIE - variable interest entity.

Volumetric risk - the risk that the actual load volumes provided under full-requirement sales contracts could vary significantly from forecasted volumes.

VSCC - Virginia State Corporation Commission, the state agency that has jurisdiction over the regulation of Virginia corporations, including utilities.

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FORWARD-LOOKING INFORMATION

Statements contained in this Form 10-Q concerning expectations, beliefs, plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements which are other than statements of historical fact are "forward-looking statements" within the meaning of the federal securities laws. Although the Registrants believe that the expectations and assumptions reflected in these statements are reasonable, there can be no assurance that these expectations will prove to be correct. Forward-looking statements are subject to many risks and uncertainties, and actual results may differ materially from the results discussed in forward-looking statements. In addition to the specific factors discussed in each Registrant's 2012 Form 10-K and in "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Form 10-Q, the following are among the important factors that could cause actual results to differ materially from the forward-looking statements.

·	fuel supply cost and availability;

·	continuing ability to recover fuel costs and environmental expenditures in a timely manner at LG&E and KU, and natural gas supply costs at LG&E;

·	weather conditions affecting generation, customer energy use and operating costs;

·	operation, availability and operating costs of existing generation facilities;

·	the duration of and cost, including lost revenue, associated with scheduled and unscheduled outages at our generating facilities;

·	transmission and distribution system conditions and operating costs;

·	expansion of alternative sources of electricity generation;

·	laws or regulations to reduce emissions of "greenhouse" gases or the physical effects of climate change;

·	collective labor bargaining negotiations;

·	the outcome of litigation against the Registrants and their subsidiaries;

·	potential effects of threatened or actual terrorism, war or other hostilities, cyber-based intrusions or natural disasters;

·	the commitments and liabilities of the Registrants and their subsidiaries;

·	volatility in market demand and prices for energy, capacity, transmission services, emission allowances and RECs;

·	competition in retail and wholesale power and natural gas markets;

·	liquidity of wholesale power markets;

·	defaults by counterparties under energy, fuel or other power product contracts;

·	market prices of commodity inputs for ongoing capital expenditures;

·	capital market conditions, including the availability of capital or credit, changes in interest rates and certain economic indices, and decisions regarding capital structure;

·	stock price performance of PPL;

·	volatility in the fair value of debt and equity securities and its impact on the value of assets in the NDT funds and in defined benefit plans, and the potential cash funding requirements if fair value declines;

·	interest rates and their effect on pension, retiree medical, nuclear decommissioning liabilities and interest payable on certain debt securities;

·	volatility in or the impact of other changes in financial or commodity markets and economic conditions;

·	new accounting requirements or new interpretations or applications of existing requirements;

·	changes in securities and credit ratings;

·	changes in foreign currency exchange rates for British pound sterling;

·	current and future environmental conditions, regulations and other requirements and the related costs of compliance, including environmental capital expenditures, emission allowance costs and other expenses;

·	legal, regulatory, political, market or other reactions to the 2011 incident at the nuclear generating facility at Fukushima, Japan, including additional NRC requirements;

·	changes in political, regulatory or economic conditions in states, regions or countries where the Registrants or their subsidiaries conduct business;

·	receipt of necessary governmental permits, approvals and rate relief;

·	new state, federal or foreign legislation or regulatory developments;

·	the outcome of any rate cases or other cost recovery filings by PPL Electric, ~~at the PUC~~LG&E, KU or ~~the FERC, by LG&E at the KPSC or the FERC, by KU at the KPSC, VSCC, TRA or the FERC, or by WPD at Ofgem in the U.K.;~~WPD;

·	the impact of any state, federal or foreign investigations applicable to the Registrants and their subsidiaries and the energy industry;

·	the effect of any business or industry restructuring;

·	development of new projects, markets and technologies;

·	performance of new ventures; and

·	business dispositions or acquisitions and our ability to successfully operate acquired businesses and realize expected benefits from business acquisitions.

Any such forward-looking statements should be considered in light of such important factors and in conjunction with other documents of the Registrants on file with the SEC.

New factors that could cause actual results to differ materially from those described in forward-looking statements emerge from time to time, and it is not possible for the Registrants to predict all such factors, or the extent to which any such factor or combination of factors may cause actual results to differ from those contained in any forward-looking statement. Any forward-looking statement speaks only as of the date on which such statement is made, and the Registrants undertake no obligation to update the information contained in such statement to reflect subsequent developments or information.

PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements

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

				Three Months Ended				Nine Months Ended
				September 30,				September 30,
				2013		2012		2013		2012
Operating Revenues
	Utility			$	1,739	$	1,693	$	5,344	$	5,012
	Unregulated retail electric and gas				264		218		758		620
	Wholesale energy marketing
		Realized			980		1,076		2,767		3,367
		Unrealized economic activity (Note 14)			(49)		(716)		(281)		(322)
	Net energy trading margins				12		(11)		1		7
	Energy-related businesses				159		143		423		380
	Total Operating Revenues				3,105		2,403		9,012		9,064

Operating Expenses
	Operation
		Fuel			494		570		1,464		1,405
		Energy purchases
			Realized		592		583		1,855		2,253
			Unrealized economic activity (Note 14)		(37)		(569)		(192)		(420)
		Other operation and maintenance			669		650		2,043		2,095
	Depreciation				289		278		859		813
	Taxes, other than income				90		90		272		268
	Energy-related businesses				151		137		403		363
	Total Operating Expenses				2,248		1,739		6,704		6,777

Operating Income					857		664		2,308		2,287

Other Income (Expense) - net					(116)		(44)		19		(31)

Other-Than-Temporary Impairments					1				1		1

Interest Expense					246		248		755		714

Income from Continuing Operations Before Income Taxes					494		372		1,571		1,541

Income Taxes					84		17		344		364

Income from Continuing Operations After Income Taxes					410		355		1,227		1,177

Income (Loss) from Discontinued Operations (net of income taxes)					1				2		(6)

Net Income					411		355		1,229		1,171

Net Income Attributable to Noncontrolling Interests					1				1		4

Net Income Attributable to PPL Shareowners				$	410	$	355	$	1,228	$	1,167

Amounts Attributable to PPL Shareowners:
	Income from Continuing Operations After Income Taxes			$	409	$	355	$	1,226	$	1,173
	Income (Loss) from Discontinued Operations (net of income taxes)				1				2		(6)
	Net Income			$	410	$	355	$	1,228	$	1,167

Earnings Per Share of Common Stock:
	Income from Continuing Operations After Income Taxes Available to PPL
	Common Shareowners:
		Basic		$	0.65	$	0.61	$	2.03	$	2.01
		Diluted		$	0.62	$	0.61	$	1.90	$	2.01
	Net Income Available to PPL Common Shareowners:
		Basic		$	0.65	$	0.61	$	2.03	$	2.00
		Diluted		$	0.62	$	0.61	$	1.90	$	2.00

Dividends Declared Per Share of Common Stock				$	0.3675	$	0.36	$	1.1025	$	1.08

Weighted-Average Shares of Common Stock Outstanding (in thousands)
		Basic			631,046		580,585		601,275		579,847
		Diluted			664,343		582,636		662,094		580,930

The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.

PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements

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

Three Months Ended March 31,
2013 2012
Operating Revenues

Utility
$ 1,950 $ 1,714

Unregulated retail electric and gas
237 223
Wholesale energy marketing

Realized
976 1,208

Unrealized economic activity (Note 14)
(822) 852

Net energy trading margins
(11) 8

Energy-related businesses
127 107

Total Operating Revenues
2,457 4,112

Operating Expenses
Operation

Fuel
529 424
Energy purchases

Realized
691 883

Unrealized economic activity (Note 14)
(634) 591

Other operation and maintenance
676 706

Depreciation
284 264

Taxes, other than income
96 91

Energy-related businesses
122 102

Total Operating Expenses
1,764 3,061

Operating Income
693 1,051

Other Income (Expense) - net
122 (17)

Interest Expense
251 230

Income Before Income Taxes
564 804

Income Taxes
151 259

Net Income
413 545

Net Income Attributable to Noncontrolling Interests
4

Net Income Attributable to PPL Shareowners
$ 413 $ 541

Earnings Per Share of Common Stock:

Basic
$ 0.70 $ 0.93

Diluted
$ 0.65 $ 0.93

Dividends Declared Per Share of Common Stock
$ 0.3675 $ 0.3600

Weighted-Average Shares of Common Stock Outstanding (in thousands)

Basic
582,640 579,041

Diluted
657,020 579,527

The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
PPL Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)

				Three Months Ended				Nine Months Ended
				September 30,				September 30,
				2013		2012		2013		2012

Net income				$	411	$	355	$	1,229	$	1,171

Other comprehensive income (loss):
Amounts arising during the period - gains (losses), net of tax (expense)
	benefit:
		Foreign currency translation adjustments, net of tax of $8, $1, $1, $1			87		152		(165)		49
		Available-for-sale securities, net of tax of ($15), ($14), ($42), ($32)			15		13		40		30
		Qualifying derivatives, net of tax of $2, $14, ($41), ($29)			(9)		(41)		77		39
		Equity investees' other comprehensive income (loss), net of
			tax of $0, $0, $0, $2								(3)
		Defined benefit plans:
			Net actuarial gain (loss), net of tax of $0, $0, $0, $28								(85)
Reclassifications from AOCI - (gains) losses, net of tax expense
	(benefit):
		Available-for-sale securities, net of tax of $1, $0, $2, $1							(2)		(6)
		Qualifying derivatives, net of tax of $11, $51, $68, $210			(6)		(61)		(122)		(335)
		Equity investees' other comprehensive (income) loss, net of
			tax of $0, $0, $0, $0		(1)				(1)
		Defined benefit plans:
			Prior service costs, net of tax of ($1), ($1), ($3), ($4)		2		1		5		6
			Net actuarial loss, net of tax of ($12), ($6), ($37), ($17)		33		17		101		54
Total other comprehensive income (loss) attributable to PPL
	Shareowners				121		81		(67)		(251)

Comprehensive income (loss)					532		436		1,162		920
		Comprehensive income attributable to noncontrolling interests			1				1		4

Comprehensive income (loss) attributable to PPL Shareowners				$	531	$	436	$	1,161	$	916

The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
PPL Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)

Three Months Ended March 31,
2013 2012

Net income
$ 413 $ 545

Other comprehensive income (loss):
Amounts arising during the period - gains (losses), net of tax (expense) benefit:

Foreign currency translation adjustments, net of tax of ($6), $2
(245) 76

Available-for-sale securities, net of tax of ($25), ($26)
23 24

Qualifying derivatives, net of tax of ($20), ($50)
62 78

Equity investees' other comprehensive income (loss), net of tax of $0, $2
(4)
Reclassifications from AOCI - (gains) losses, net of tax expense (benefit):

Available-for-sale securities, net of tax of $1, $0
(1) (5)

Qualifying derivatives, net of tax of $35, $75
(80) (134)
Defined benefit plans:

Prior service costs, net of tax of ($1), ($1)
1 3

Net actuarial loss, net of tax of ($13), ($4)
34 20

Total other comprehensive income (loss) attributable to PPL Shareowners
(206) 58

Comprehensive income (loss)
207 603

Comprehensive income attributable to noncontrolling interests
4

Comprehensive income (loss) attributable to PPL Shareowners
$ 207 $ 599

The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
PPL Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)

				Nine Months Ended September 30,
				2013		2012
Cash Flows from Operating Activities
	Net income			$	1,229	$	1,171
	Adjustments to reconcile net income to net cash provided by operating activities
		Depreciation			859		813
		Amortization			164		144
		Defined benefit plans - expense			135		123
		Deferred income taxes and investment tax credits			301		298
		Unrealized (gains) losses on derivatives, and other hedging activities			126		21
		Other			92		34
	Change in current assets and current liabilities
		Accounts receivable			(79)		19
		Accounts payable			(140)		(175)
		Unbilled revenues			197		121
		Counterparty collateral			(77)		13
		Taxes payable			76		29
		Uncertain tax positions			(104)		(4)
		Accrued interest			8		43
		Other			(111)		8
	Other operating activities
		Defined benefit plans - funding			(505)		(526)
		Other assets			(59)		1
		Other liabilities			111		(39)
			Net cash provided by operating activities		2,223		2,094
Cash Flows from Investing Activities
	Expenditures for property, plant and equipment				(2,768)		(2,078)
	Ironwood Acquisition, net of cash acquired						(84)
	Purchases of nuclear plant decommissioning trust investments				(102)		(112)
	Proceeds from the sale of nuclear plant decommissioning trust investments				92		102
	Net (increase) decrease in restricted cash and cash equivalents				13		62
	Other investing activities				(23)		(6)
			Net cash provided by (used in) investing activities		(2,788)		(2,116)
Cash Flows from Financing Activities
	Issuance of long-term debt				862		824
	Retirement of long-term debt				(309)		(105)
	Repurchase of common stock				(74)
	Issuance of common stock				1,409		54
	Payment of common stock dividends				(645)		(623)
	Redemption of preference stock of a subsidiary						(250)
	Debt issuance and credit facility costs				(37)		(10)
	Contract adjustment payments				(72)		(71)
	Net increase (decrease) in short-term debt				(148)		(51)
	Other financing activities				(20)		(8)
			Net cash provided by (used in) financing activities		966		(240)
Effect of Exchange Rates on Cash and Cash Equivalents					(11)		6
Net Increase (Decrease) in Cash and Cash Equivalents					390		(256)
Cash and Cash Equivalents at Beginning of Period					901		1,202
Cash and Cash Equivalents at End of Period				$	1,291	$	946


The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
PPL Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)

Three Months Ended March 31,
2013 2012
Cash Flows from Operating Activities

Net income
$ 413 $ 545
Adjustments to reconcile net income to net cash provided by operating activities

Depreciation
284 264

Amortization
64 55

Defined benefit plans - expense
51 42

Deferred income taxes and investment tax credits
80 257

Unrealized (gains) losses on derivatives, and other hedging activities
98 (235)

Other
30 20
Change in current assets and current liabilities

Accounts receivable
(187) 32

Accounts payable
(138) (99)

Unbilled revenues
137 59

Prepayments
(117) (100)

Counterparty collateral
(64) 65

Taxes
122 66

Other
(74) (8)
Other operating activities

Defined benefit plans - funding
(429) (208)

Other assets
33 (12)

Other liabilities
(59) (15)

Net cash provided by operating activities
244 728
Cash Flows from Investing Activities

Expenditures for property, plant and equipment
(828) (682)

Purchases of nuclear plant decommissioning trust investments
(28) (38)

Proceeds from the sale of nuclear plant decommissioning trust investments
24 34

Proceeds from the sale of other investments
16

Net (increase) decrease in restricted cash and cash equivalents
(52) (22)

Other investing activities
(15) (19)

Net cash provided by (used in) investing activities
(899) (711)
Cash Flows from Financing Activities

Issuance of long-term debt
450

Retirement of long-term debt
(8)

Issuance of common stock
20 16

Payment of common stock dividends
(210) (203)

Debt issuance and credit facility costs
(18) (3)

Contract adjustment payments
(24) (23)

Net increase (decrease) in short-term debt
416 93

Other financing activities
(5) (4)

Net cash provided by (used in) financing activities
621 (124)
Effect of Exchange Rates on Cash and Cash Equivalents
(14) 8
Net Increase (Decrease) in Cash and Cash Equivalents
(48) (99)
Cash and Cash Equivalents at Beginning of Period
901 1,202
Cash and Cash Equivalents at End of Period
$ 853 $ 1,103

The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.

CONDENSED CONSOLIDATED BALANCE SHEETS	CONDENSED CONSOLIDATED BALANCE SHEETS						CONDENSED CONSOLIDATED BALANCE SHEETS
PPL Corporation and Subsidiaries													(Unaudited)	(Millions of Dollars, shares in thousands)
			March 31,		December 31,				September 30,		December 31,
			2013		2012				2013		2012
Assets	Assets						Assets

Current Assets	Current Assets						Current Assets
	Cash and cash equivalents		$	853	$	901	Cash and cash equivalents		$	1,291	$	901
	Restricted cash and cash equivalents			119		54	Restricted cash and cash equivalents			52		54
	Accounts receivable (less reserve: 2013, $64; 2012, $64)						Accounts receivable (less reserve: 2013, $65; 2012, $64)
		Customer		936		745		Customer		857		745
		Other		60		79		Other		117		79
	Unbilled revenues			708		857	Unbilled revenues			652		857
	Fuel, materials and supplies			616		673	Fuel, materials and supplies			686		673
	Prepayments			281		166	Prepayments			173		166
	Price risk management assets			1,284		1,525	Price risk management assets			1,045		1,525
	Regulatory assets			37		19	Regulatory assets			31		19
	Other current assets			95		49	Other current assets			67		49
	Total Current Assets			4,989		5,068	Total Current Assets			4,971		5,068

Investments	Investments						Investments
	Nuclear plant decommissioning trust funds			764		712	Nuclear plant decommissioning trust funds			804		712
	Other investments			48		47	Other investments			47		47
	Total Investments			812		759	Total Investments			851		759

Property, Plant and Equipment	Property, Plant and Equipment						Property, Plant and Equipment
	Regulated utility plant			25,054		25,196	Regulated utility plant			26,498		25,196
	Less: accumulated depreciation - regulated utility plant			4,258		4,164	Less: accumulated depreciation - regulated utility plant			4,636		4,164
		Regulated utility plant, net		20,796		21,032		Regulated utility plant, net		21,862		21,032
	Non-regulated property, plant and equipment						Non-regulated property, plant and equipment
		Generation		11,545		11,295		Generation		11,653		11,295
		Nuclear fuel		666		524		Nuclear fuel		590		524
		Other		737		726		Other		834		726
	Less: accumulated depreciation - non-regulated property, plant and equipment			6,039		5,942	Less: accumulated depreciation - non-regulated property, plant and equipment			6,173		5,942
		Non-regulated property, plant and equipment, net		6,909		6,603		Non-regulated property, plant and equipment, net		6,904		6,603
	Construction work in progress			2,270		2,397	Construction work in progress			2,822		2,397
	Property, Plant and Equipment, net (a)			29,975		30,032	Property, Plant and Equipment, net (a)			31,588		30,032

Other Noncurrent Assets	Other Noncurrent Assets						Other Noncurrent Assets
	Regulatory assets			1,464		1,483	Regulatory assets			1,423		1,483
	Goodwill			3,995		4,158	Goodwill			4,050		4,158
	Other intangibles (a)			910		925	Other intangibles			932		925
	Price risk management assets			598		572	Price risk management assets			550		572
	Other noncurrent assets			598		637	Other noncurrent assets			623		637
	Total Other Noncurrent Assets			7,565		7,775	Total Other Noncurrent Assets			7,578		7,775

Total Assets	Total Assets		$	43,341	$	43,634	Total Assets		$	44,988	$	43,634

(a)

At ~~March 31,~~September 30, 2013 and December 31, 2012, includes ~~$426~~$413 million and $428 million of PP&E, consisting primarily of "Generation," including leasehold improvements ~~and both periods include $10 million of "Other intangibles"~~ from the consolidation of a VIE that is the owner/lessor of the Lower Mt. Bethel plant.

The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.

CONDENSED CONSOLIDATED BALANCE SHEETS													PPL Corporation and Subsidiaries	(Unaudited)	(Millions of Dollars, shares in thousands)
			March 31,		December 31,				September 30,		December 31,
			2013		2012				2013		2012
Liabilities and Equity	Liabilities and Equity						Liabilities and Equity

Current Liabilities	Current Liabilities						Current Liabilities
	Short-term debt		$	1,061	$	652	Short-term debt		$	499	$	652
	Long-term debt due within one year			751		751	Long-term debt due within one year			751		751
	Accounts payable			1,071		1,252	Accounts payable			1,079		1,252
	Taxes			138		90	Taxes			170		90
	Interest			352		325	Interest			325		325
	Dividends			215		210	Dividends			232		210
	Price risk management liabilities			972		1,065	Price risk management liabilities			823		1,065
	Regulatory liabilities			61		61	Regulatory liabilities			68		61
	Other current liabilities			1,029		1,219	Other current liabilities			1,001		1,219
	Total Current Liabilities			5,650		5,625	Total Current Liabilities			4,948		5,625

Long-term Debt	Long-term Debt			18,881		18,725	Long-term Debt			19,092		18,725

Deferred Credits and Other Noncurrent Liabilities	Deferred Credits and Other Noncurrent Liabilities						Deferred Credits and Other Noncurrent Liabilities
	Deferred income taxes			3,577		3,387	Deferred income taxes			3,777		3,387
	Investment tax credits			340		328	Investment tax credits			345		328
	Price risk management liabilities			533		629	Price risk management liabilities			538		629
	Accrued pension obligations			1,596		2,076	Accrued pension obligations			1,529		2,076
	Asset retirement obligations			540		536	Asset retirement obligations			678		536
	Regulatory liabilities			1,016		1,010	Regulatory liabilities			1,054		1,010
	Other deferred credits and noncurrent liabilities			666		820	Other deferred credits and noncurrent liabilities			665		820
	Total Deferred Credits and Other Noncurrent Liabilities			8,268		8,786	Total Deferred Credits and Other Noncurrent Liabilities			8,586		8,786

Commitments and Contingent Liabilities (Notes 5, 6 and 10)	Commitments and Contingent Liabilities (Notes 5, 6 and 10)						Commitments and Contingent Liabilities (Notes 5, 6 and 10)

Equity	Equity						Equity
	PPL Shareowners' Common Equity						PPL Shareowners' Common Equity
		Common stock - $0.01 par value (a)		6		6		Common stock - $0.01 par value (a)		6		6
		Additional paid-in capital		6,988		6,936		Additional paid-in capital		8,305		6,936
		Earnings reinvested		5,676		5,478		Earnings reinvested		6,040		5,478
		Accumulated other comprehensive loss		(2,146)		(1,940)		Accumulated other comprehensive loss		(2,007)		(1,940)
		Total PPL Shareowners' Common Equity		10,524		10,480		Total PPL Shareowners' Common Equity		12,344		10,480
	Noncontrolling Interests			18		18	Noncontrolling Interests			18		18
	Total Equity			10,542		10,498	Total Equity			12,362		10,498

Total Liabilities and Equity	Total Liabilities and Equity		$	43,341	$	43,634	Total Liabilities and Equity		$	44,988	$	43,634

(a)	780,000 shares authorized; ~~583,214~~630,239 and 581,944 shares issued and outstanding at ~~March 31,~~September 30, 2013 and December 31, 2012.

The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY	CONDENSED CONSOLIDATED STATEMENTS OF EQUITY														CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
PPL Corporation and Subsidiaries																													(Unaudited)	(Millions of Dollars)
		PPL Shareowners														PPL Shareowners
		Common														Common
		stock								Accumulated						stock								Accumulated
		shares				Additional				other		Non-				shares				Additional				other		Non-
		outstanding		Common		paid-in		Earnings		comprehensive		controlling				outstanding		Common		paid-in		Earnings		comprehensive		controlling
		(a)		stock		capital		reinvested		loss		interests		Total		(a)		stock		capital		reinvested		loss		interests		Total

June 30, 2013 (b)															June 30, 2013 (b)	591,622	$	6	$	7,195	$	5,863	$	(2,128)	$	18	$	10,954
Common stock issued (c)															Common stock issued (c)	40,117				1,151								1,151
Common stock repurchased (d)															Common stock repurchased (d)	(1,500)				(46)								(46)
Stock-based compensation (e)															Stock-based compensation (e)					5								5
Net income															Net income							410				1		411
Dividends, dividend equivalents,															Dividends, dividend equivalents,
															redemptions and distributions (f)							(233)				(1)		(234)
Other comprehensive															Other comprehensive
															income (loss)									121				121
September 30, 2013 (b)															September 30, 2013 (b)	630,239	$	6	$	8,305	$	6,040	$	(2,007)	$	18	$	12,362

December 31, 2012 (b)	December 31, 2012 (b)	581,944	$	6	$	6,936	$	5,478	$	(1,940)	$	18	$	10,498	December 31, 2012 (b)	581,944	$	6	$	6,936	$	5,478	$	(1,940)	$	18	$	10,498
Common stock issued (c)	Common stock issued (c)	1,270				37								37	Common stock issued (c)	50,725				1,433								1,433
Stock-based compensation (d)						15								15
Common stock repurchased (d)															Common stock repurchased (d)	(2,430)				(74)								(74)
Cash settlement of equity forward															Cash settlement of equity forward
															agreements (d)					(13)								(13)
Stock-based compensation (e)															Stock-based compensation (e)					23								23
Net income															Net income							1,228				1		1,229
Dividends, dividend equivalents,															Dividends, dividend equivalents,
															redemptions and distributions (f)							(666)				(1)		(667)
Other comprehensive															Other comprehensive
															income (loss)									(67)				(67)
September 30, 2013 (b)															September 30, 2013 (b)	630,239	$	6	$	8,305	$	6,040	$	(2,007)	$	18	$	12,362

June 30, 2012															June 30, 2012	580,213	$	6	$	6,886	$	5,190	$	(1,120)	$	18	$	10,980
Common stock issued (c)															Common stock issued (c)	757				21								21
Stock-based compensation (e)															Stock-based compensation (e)					5								5
Net income	Net income							413						413	Net income							355						355
Dividends, dividend equivalents	Dividends, dividend equivalents														Dividends, dividend equivalents
	and distributions (e)							(215)						(215)	redemptions and distributions (f)							(210)						(210)
Other comprehensive	Other comprehensive														Other comprehensive
	income (loss)									(206)				(206)	income (loss)									81				81
March 31, 2013 (b)		583,214	$	6	$	6,988	$	5,676	$	(2,146)	$	18	$	10,542
September 30, 2012															September 30, 2012	580,970	$	6	$	6,912	$	5,335	$	(1,039)	$	18	$	11,232

December 31, 2011	December 31, 2011	578,405	$	6	$	6,813	$	4,797	$	(788)	$	268	$	11,096	December 31, 2011	578,405	$	6	$	6,813	$	4,797	$	(788)	$	268	$	11,096
Common stock issued (c)	Common stock issued (c)	1,115				32								32	Common stock issued (c)	2,565				71								71
Stock-based compensation (d)						17								17
Stock-based compensation (e)															Stock-based compensation (e)					28								28
Net income	Net income							541				4		545	Net income							1,167				4		1,171
Dividends, dividend equivalents	Dividends, dividend equivalents														Dividends, dividend equivalents
	and distributions (e)							(209)				(4)		(213)	redemptions and distributions (f)							(629)				(254)		(883)
Other comprehensive	Other comprehensive														Other comprehensive
	income (loss)									58				58	income (loss)									(251)				(251)
March 31, 2012		579,520	$	6	$	6,862	$	5,129	$	(730)	$	268	$	11,535
September 30, 2012															September 30, 2012	580,970	$	6	$	6,912	$	5,335	$	(1,039)	$	18	$	11,232

(a)	Shares in thousands. Each share entitles the holder to one vote on any question presented at any shareowners' meeting.

(b)	See Note 18 for disclosure of balances of each component of AOCI.

(c)	Each period includes shares of common stock issued through various stock and incentive compensation plans. The 2013 periods include the April and July issuances of shares of common stock. See Note 7 for additional information.

(d)	See Note 7 for additional information.

(e)

The three and nine months ended ~~March 31,~~September 30, 2013 include $8 million and $44 million and the three and nine months ended September 30, 2012 include ~~$28~~$7 million and ~~$29~~$42 million of stock-based compensation expense related to new and existing unvested equity awards. ~~These periods also~~The three and nine months ended September 30, 2013 include ~~$(13)~~$(3) million and ~~$(12)~~$(21) million and the three and nine months ended September 30, 2012 include $(2) million and $(14) million related primarily to the reclassification from "Stock-based compensation" to "Common stock issued" for the issuance of common stock after applicable equity award vesting periods and tax adjustments related to stock-based compensation.

~~(e)~~(f)

"Earnings reinvested" includes dividends and dividend equivalents on PPL ~~Corporation~~ common stock and restricted stock units. "Noncontrolling interests" includes dividends, redemptions and distributions to noncontrolling interests. In June 2012, PPL Electric redeemed all of its outstanding preference stock at par value, which was classified as noncontrolling interest.

The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
PPL Energy Supply, LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)

				Three Months Ended				Nine Months Ended
				September 30,				September 30,
				2013		2012		2013		2012
Operating Revenues
	Wholesale energy marketing
		Realized		$	980	$	1,076	$	2,767	$	3,367
		Unrealized economic activity (Note 14)			(49)		(716)		(281)		(322)
	Wholesale energy marketing to affiliate				11		23		37		61
	Unregulated retail electric and gas				266		219		761		623
	Net energy trading margins				12		(11)		1		7
	Energy-related businesses				143		128		378		336
	Total Operating Revenues				1,363		719		3,663		4,072

Operating Expenses
	Operation
		Fuel			258		321		780		728
		Energy purchases
			Realized		425		421		1,277		1,715
			Unrealized economic activity (Note 14)		(37)		(569)		(192)		(420)
		Energy purchases from affiliate			1		1		3		2
		Other operation and maintenance			243		220		748		769
	Depreciation				80		73		237		206
	Taxes, other than income				18		18		51		53
	Energy-related businesses				138		125		366		326
	Total Operating Expenses				1,126		610		3,270		3,379

Operating Income					237		109		393		693

Other Income (Expense) - net					2		5		18		16

Other-Than-Temporary Impairments					1				1		1

Interest Expense					39		43		131		123

Income Before Income Taxes					199		71		279		585

Income Taxes					74		16		106		202

Net Income					125		55		173		383

Net Income Attributable to Noncontrolling Interests					1		1		1		1

Net Income Attributable to PPL Energy Supply Member				$	124	$	54	$	172	$	382

The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
PPL Energy Supply, LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)
��
Three Months Ended March 31,
2013 2012
Operating Revenues
Wholesale energy marketing

Realized
$ 976 $ 1,208

Unrealized economic activity (Note 14)
(822) 852

Wholesale energy marketing to affiliate
14 21

Unregulated retail electric and gas
238 224

Net energy trading margins
(11) 8

Energy-related businesses
113 96

Total Operating Revenues
508 2,409

Operating Expenses
Operation

Fuel
298 211
Energy purchases

Realized
434 659

Unrealized economic activity (Note 14)
(634) 591

Energy purchases from affiliate
1 1

Other operation and maintenance
235 255

Depreciation
78 64

Taxes, other than income
17 18

Energy-related businesses
110 92

Total Operating Expenses
539 1,891

Operating Income (Loss)
(31) 518

Other Income (Expense) - net
4 5

Interest Expense
46 37

Income (Loss) Before Income Taxes
(73) 486

Income Taxes
(35) 177

Net Income (Loss) Attributable to PPL Energy Supply Member
$ (38) $ 309

The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
PPL Energy Supply, LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)

				Three Months Ended				Nine Months Ended
				September 30,				September 30,
				2013		2012		2013		2012

Net income				$	125	$	55	$	173	$	383

Other comprehensive income (loss):
Amounts arising during the period - gains (losses), net of tax (expense)
	benefit:
		Available-for-sale securities, net of tax of ($15), ($14), ($42), ($32)			15		13		40		30
		Qualifying derivatives, net of tax of $0, ($1), $0, ($41)					(1)				58
Reclassifications from AOCI - (gains) losses, net of tax expense
	(benefit):
		Available-for-sale securities, net of tax of $1, $0, $2, $1							(2)		(6)
		Qualifying derivatives, net of tax of $19, $62, $63, $218			(29)		(92)		(96)		(351)
		Defined benefit plans:
			Prior service costs, net of tax of ($1), ($1), ($2), ($2)		1		1		3		4
			Net actuarial loss, net of tax of ($2), ($1), ($7), ($1)		3		2		11		8
Total other comprehensive income (loss) attributable to
	PPL Energy Supply Member				(10)		(77)		(44)		(257)

Comprehensive income (loss)					115		(22)		129		126
		Comprehensive income attributable to noncontrolling interests			1		1		1		1
Comprehensive income (loss) attributable to PPL Energy
	Supply Member			$	114	$	(23)	$	128	$	125

The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
PPL Energy Supply, LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)

Three Months Ended March 31,
2013 2012

Net income (loss)
$ (38) $ 309

Other comprehensive income (loss):
Amounts arising during the period - gains (losses), net of tax (expense) benefit:

Available-for-sale securities, net of tax of ($25), ($26)
23 24

Qualifying derivatives, net of tax of $0, ($45)
68
Reclassifications from AOCI - (gains) losses, net of tax expense (benefit):

Available-for-sale securities, net of tax of $1, $0
(1) (5)

Qualifying derivatives, net of tax of $21, $81
(30) (151)
Defined benefit plans:

Prior service costs, net of tax of ($1), ($1)
1 1

Net actuarial loss, net of tax of ($2), $2
4 5

Total other comprehensive income (loss) attributable to PPL Energy Supply

Member
(3) (58)

Comprehensive income (loss) attributable to PPL Energy Supply Member
$ (41) $ 251

The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
PPL Energy Supply, LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)

				Nine Months Ended September 30,
				2013		2012
Cash Flows from Operating Activities
	Net income			$	173	$	383
	Adjustments to reconcile net income to net cash provided by operating activities
		Depreciation			237		206
		Amortization			111		93
		Defined benefit plans - expense			39		33
		Deferred income taxes and investment tax credits			112		132
		Unrealized (gains) losses on derivatives, and other hedging activities			98		(37)
		Other			32		33
	Change in current assets and current liabilities
		Accounts receivable			71		(26)
		Accounts payable			(131)		(110)
		Unbilled revenues			135		78
		Fuel, materials and supplies			(18)		(20)
		Counterparty collateral			(77)		12
		Other			(32)		(28)
	Other operating activities
		Defined benefit plans - funding			(107)		(70)
		Other assets			(32)		(16)
		Other liabilities			(28)		11
			Net cash provided by operating activities		583		674
Cash Flows from Investing Activities
	Expenditures for property, plant and equipment				(341)		(460)
	Ironwood Acquisition, net of cash acquired						(84)
	Expenditures for intangible assets				(33)		(36)
	Purchases of nuclear plant decommissioning trust investments				(102)		(112)
	Proceeds from the sale of nuclear plant decommissioning trust investments				92		102
	Net (increase) decrease in notes receivable from affiliates						198
	Net (increase) decrease in restricted cash and cash equivalents				9		70
	Other investing activities				24		14
			Net cash provided by (used in) investing activities		(351)		(308)
Cash Flows from Financing Activities
	Retirement of long-term debt				(309)		(6)
	Contributions from member				980		472
	Distributions to member				(408)		(733)
	Net increase (decrease) in short-term debt				(356)		(45)
	Other financing activities				(1)		(1)
			Net cash provided by (used in) financing activities		(94)		(313)
Net Increase (Decrease) in Cash and Cash Equivalents					138		53
	Cash and Cash Equivalents at Beginning of Period				413		379
	Cash and Cash Equivalents at End of Period			$	551	$	432

The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
PPL Energy Supply, LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)

Three Months Ended March 31,
2013 2012
Cash Flows from Operating Activities

Net income (loss)
$ (38) $ 309
Adjustments to reconcile net income (loss) to net cash provided by operating activities

Depreciation
78 64

Amortization
44 38

Defined benefit plans - expense
12 10

Deferred income taxes and investment tax credits
(21) 161

Unrealized (gains) losses on derivatives, and other hedging activities
214 (260)

Other
19 17
Change in current assets and current liabilities

Accounts receivable
71 37

Accounts payable
(108) (24)

Unbilled revenues
123 6

Fuel, materials and supplies
11 (51)

Prepayments
(104) (7)

Counterparty collateral
(64) 65

Other
23 (29)
Other operating activities

Defined benefit plans - funding
(105) (69)

Other assets
44 (12)

Other liabilities
(74) (1)

Net cash provided by operating activities
125 254
Cash Flows from Investing Activities

Expenditures for property, plant and equipment
(124) (199)

Expenditures for intangible assets
(10) (13)

Purchases of nuclear plant decommissioning trust investments
(28) (38)

Proceeds from the sale of nuclear plant decommissioning trust investments
24 34

Net (increase) decrease in notes receivable from affiliates
198

Net (increase) decrease in restricted cash and cash equivalents
(59) (19)

Other investing activities
2 (4)

Net cash provided by (used in) investing activities
(195) (41)
Cash Flows from Financing Activities

Retirement of long-term debt
(8)

Distributions to member
(313) (557)

Net increase (decrease) in short-term debt
125 100

Net cash provided by (used in) financing activities
(196) (457)
Net Increase (Decrease) in Cash and Cash Equivalents
(266) (244)

Cash and Cash Equivalents at Beginning of Period
413 379

Cash and Cash Equivalents at End of Period
$ 147 $ 135

The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.

CONDENSED CONSOLIDATED BALANCE SHEETS	CONDENSED CONSOLIDATED BALANCE SHEETS						CONDENSED CONSOLIDATED BALANCE SHEETS
PPL Energy Supply, LLC and Subsidiaries													(Unaudited)	(Millions of Dollars)
			March 31,		December 31,				September 30,		December 31,
			2013		2012				2013		2012
Assets	Assets						Assets

Current Assets	Current Assets						Current Assets
	Cash and cash equivalents		$	147	$	413	Cash and cash equivalents		$	551	$	413
	Restricted cash and cash equivalents			105		46	Restricted cash and cash equivalents			37		46
	Accounts receivable (less reserve: 2013, $22; 2012, $23)						Accounts receivable (less reserve: 2013, $20; 2012, $23)
		Customer		209		183		Customer		203		183
		Other		37		31		Other		104		31
	Accounts receivable from affiliates			56		125	Accounts receivable from affiliates			37		125
	Unbilled revenues			246		369	Unbilled revenues			234		369
	Fuel, materials and supplies			316		327	Fuel, materials and supplies			345		327
	Prepayments			119		15	Prepayments			22		15
	Price risk management assets			1,194		1,511	Price risk management assets			961		1,511
	Other current assets			21		10	Other current assets			22		10
	Total Current Assets			2,450		3,030	Total Current Assets			2,516		3,030

Investments	Investments						Investments
	Nuclear plant decommissioning trust funds			764		712	Nuclear plant decommissioning trust funds			804		712
	Other investments			42		41	Other investments			41		41
	Total Investments			806		753	Total Investments			845		753

Property, Plant and Equipment	Property, Plant and Equipment						Property, Plant and Equipment
	Non-regulated property, plant and equipment						Non-regulated property, plant and equipment
		Generation		11,555		11,305		Generation		11,663		11,305
		Nuclear fuel		666		524		Nuclear fuel		590		524
		Other		295		294		Other		307		294
	Less: accumulated depreciation - non-regulated property, plant and equipment			5,908		5,817	Less: accumulated depreciation - non-regulated property, plant and equipment			6,025		5,817
		Non-regulated property, plant and equipment, net		6,608		6,306		Non-regulated property, plant and equipment, net		6,535		6,306
	Construction work in progress			659		987	Construction work in progress			739		987
	Property, Plant and Equipment, net (a)			7,267		7,293	Property, Plant and Equipment, net (a)			7,274		7,293

Other Noncurrent Assets	Other Noncurrent Assets						Other Noncurrent Assets
	Goodwill			86		86	Goodwill			86		86
	Other intangibles (a)			255		252	Other intangibles			262		252
	Price risk management assets			482		557	Price risk management assets			519		557
	Other noncurrent assets			361		404	Other noncurrent assets			362		404
	Total Other Noncurrent Assets			1,184		1,299	Total Other Noncurrent Assets			1,229		1,299

Total Assets	Total Assets		$	11,707	$	12,375	Total Assets		$	11,864	$	12,375

(a)

The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.

CONDENSED CONSOLIDATED BALANCE SHEETS												PPL Energy Supply, LLC and Subsidiaries	(Unaudited)	(Millions of Dollars)
		March 31,		December 31,				September 30,		December 31,
		2013		2012				2013		2012
Liabilities and Equity	Liabilities and Equity					Liabilities and Equity

Current Liabilities	Current Liabilities					Current Liabilities
	Short-term debt	$	481	$	356	Short-term debt				$	356
	Long-term debt due within one year		741		751	Long-term debt due within one year		$	741		751
	Accounts payable		344		438	Accounts payable			328		438
	Accounts payable to affiliates		25		31	Accounts payable to affiliates			3		31
	Taxes		31		62	Taxes			19		62
	Interest		57		31	Interest			53		31
	Price risk management liabilities		951		1,010	Price risk management liabilities			773		1,010
	Deferred income taxes		59		158	Deferred income taxes			45		158
	Other current liabilities		251		319	Other current liabilities			264		319
	Total Current Liabilities		2,940		3,156	Total Current Liabilities			2,226		3,156

Long-term Debt	Long-term Debt		2,523		2,521	Long-term Debt			2,221		2,521

Deferred Credits and Other Noncurrent Liabilities	Deferred Credits and Other Noncurrent Liabilities					Deferred Credits and Other Noncurrent Liabilities
	Deferred income taxes		1,311		1,232	Deferred income taxes			1,429		1,232
	Investment tax credits		200		186	Investment tax credits			207		186
	Price risk management liabilities		481		556	Price risk management liabilities			462		556
	Accrued pension obligations		193		293	Accrued pension obligations			203		293
	Asset retirement obligations		370		365	Asset retirement obligations			388		365
	Other deferred credits and noncurrent liabilities		195		218	Other deferred credits and noncurrent liabilities			180		218
	Total Deferred Credits and Other Noncurrent Liabilities		2,750		2,850	Total Deferred Credits and Other Noncurrent Liabilities			2,869		2,850
							��
Commitments and Contingent Liabilities (Note 10)	Commitments and Contingent Liabilities (Note 10)					Commitments and Contingent Liabilities (Note 10)

Equity	Equity					Equity
	Member's equity		3,476		3,830	Member's equity			4,530		3,830
	Noncontrolling interests		18		18	Noncontrolling interests			18		18
	Total Equity		3,494		3,848	Total Equity			4,548		3,848

Total Liabilities and Equity	Total Liabilities and Equity	$	11,707	$	12,375	Total Liabilities and Equity		$	11,864	$	12,375

The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY	CONDENSED CONSOLIDATED STATEMENTS OF EQUITY							CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
PPL Energy Supply, LLC and Subsidiaries															(Unaudited)	(Millions of Dollars)

				Non-							Non-
		Member's		controlling					Member's		controlling
		equity		interests		Total			equity		interests		Total

June 30, 2013 (a)									$	3,541	$	18	$	3,559
Net income										124		1		125
Other comprehensive income (loss)										(10)				(10)
Contributions from member										875				875
Distributions												(1)		(1)
September 30, 2013 (a)									$	4,530	$	18	$	4,548

December 31, 2012 (a)		$	3,830	$	18	$	3,848		$	3,830	$	18	$	3,848
Net income (loss)			(38)				(38)
Net income										172		1		173
Other comprehensive income (loss)			(3)				(3)			(44)				(44)
Distributions to member			(313)				(313)
March 31, 2013 (a)		$	3,476	$	18	$	3,494
Contributions from member										980				980
Distributions										(408)		(1)		(409)
September 30, 2013 (a)									$	4,530	$	18	$	4,548

June 30, 2012									$	3,982	$	18	$	4,000
Net income										54		1		55
Other comprehensive income (loss)										(77)				(77)
Distributions										(76)		(1)		(77)
September 30, 2012									$	3,883	$	18	$	3,901

December 31, 2011		$	4,019	$	18	$	4,037		$	4,019	$	18	$	4,037
Net income (loss)			309				309
Net income										382		1		383
Other comprehensive income (loss)			(58)				(58)			(257)				(257)
Distributions to member			(557)				(557)
March 31, 2012		$	3,713	$	18	$	3,731
Contributions from member										472				472
Distributions										(733)		(1)		(734)
September 30, 2012									$	3,883	$	18	$	3,901

(a)	See Note 18 for disclosure of balances of each component of AOCI.

The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.

(THIS PAGE LEFT BLANK INTENTIONALLY.)

CONDENSED CONSOLIDATED STATEMENTS OF INCOME	CONDENSED CONSOLIDATED STATEMENTS OF INCOME						CONDENSED CONSOLIDATED STATEMENTS OF INCOME
PPL Electric Utilities Corporation and Subsidiaries
(Unaudited)	(Unaudited)						(Unaudited)
(Millions of Dollars)	(Millions of Dollars)						(Millions of Dollars)

									Three Months Ended				Nine Months Ended
			Three Months Ended March 31,						September 30,				September 30,
			2013		2012				2013		2012		2013		2012
Operating Revenues	Operating Revenues						Operating Revenues
	Retail electric		$	512	$	457	Retail electric		$	463	$	443	$	1,388	$	1,303
	Electric revenue from affiliate			1		1	Electric revenue from affiliate			1		1		3		3
	Total Operating Revenues			513		458	Total Operating Revenues			464		444		1,391		1,306

Operating Expenses	Operating Expenses						Operating Expenses
	Operation						Operation
		Energy purchases		172		153		Energy purchases		144		137		436		410
		Energy purchases from affiliate		14		21		Energy purchases from affiliate		11		23		37		61
		Other operation and maintenance		133		140		Other operation and maintenance		134		148		391		431
	Depreciation			43		39	Depreciation			45		41		132		119
	Taxes, other than income			30		26	Taxes, other than income			25		24		77		72
	Total Operating Expenses			392		379	Total Operating Expenses			359		373		1,073		1,093

Operating Income	Operating Income			121		79	Operating Income			105		71		318		213

Other Income (Expense) - net	Other Income (Expense) - net			1		1	Other Income (Expense) - net			2		3		5		6

Interest Income from Affiliate						1

Interest Expense	Interest Expense			25		24	Interest Expense			30		25		80		73

Income Before Income Taxes	Income Before Income Taxes			97		57	Income Before Income Taxes			77		49		243		146

Income Taxes	Income Taxes			33		20	Income Taxes			26		16		83		47

Net Income (a)	Net Income (a)			64		37	Net Income (a)			51		33		160		99

Distributions on Preference Stock	Distributions on Preference Stock					4	Distributions on Preference Stock									4

Net Income Available to PPL	Net Income Available to PPL		$	64	$	33	Net Income Available to PPL		$	51	$	33	$	160	$	95

(a)	Net income approximates comprehensive income.

The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
PPL Electric Utilities Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)

				Nine Months Ended
				September 30,
				2013		2012
Cash Flows from Operating Activities
	Net income			$	160	$	99
	Adjustments to reconcile net income to net cash provided by operating activities
		Depreciation			132		119
		Amortization			13		13
		Defined benefit plans - expense			16		17
		Deferred income taxes and investment tax credits			103		72
		Other			2		3
	Change in current assets and current liabilities
		Accounts receivable			(14)		48
		Accounts payable			(51)		(43)
		Unbilled revenues			34		18
		Taxes payable			24
		Other			(19)		(4)
	Other operating activities
		Defined benefit plans - funding			(88)		(54)
		Other assets			6
		Other liabilities			9		(27)
			Net cash provided by operating activities		327		261

Cash Flows from Investing Activities
	Expenditures for property, plant and equipment				(688)		(407)
	Net (increase) decrease in notes receivable from affiliates						(210)
	Other investing activities				(9)		3
			Net cash provided by (used in) investing activities		(697)		(614)

Cash Flows from Financing Activities
	Issuance of long-term debt				348		249
	Contributions from parent				205		150
	Redemption of preference stock						(250)
	Payment of common stock dividends to parent				(94)		(75)
	Other financing activities				(4)		(10)
			Net cash provided by (used in) financing activities		455		64

Net Increase (Decrease) in Cash and Cash Equivalents					85		(289)
Cash and Cash Equivalents at Beginning of Period					140		320
Cash and Cash Equivalents at End of Period				$	225	$	31

The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
PPL Electric Utilities Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)

Three Months Ended March 31,
2013 2012
Cash Flows from Operating Activities

Net income
$ 64 $ 37
Adjustments to reconcile net income to net cash provided by (used in) operating activities

Depreciation
43 39

Amortization
5 4

Defined benefit plans - expense
7 9

Deferred income taxes and investment tax credits
45 58

Other
3 5
Change in current assets and current liabilities

Accounts receivable
(87) (11)

Accounts payable
(40) (25)

Unbilled revenues
5 23

Prepayments
(28) (70)

Taxes
15

Other
(26) (1)
Other operating activities

Defined benefit plans - funding
(88) (54)

Other assets
8

Other liabilities
(3) (24)

Net cash provided by (used in) operating activities
(77) (10)

Cash Flows from Investing Activities

Expenditures for property, plant and equipment
(189) (121)

Other investing activities
(3) (1)

Net cash provided by (used in) investing activities
(192) (122)

Cash Flows from Financing Activities

Contributions from parent
60

Payment of common stock dividends to parent
(25) (35)

Net increase (decrease) in short-term debt
125

Other financing activities
(4)

Net cash provided by (used in) financing activities
160 (39)

Net Increase (Decrease) in Cash and Cash Equivalents
(109) (171)
Cash and Cash Equivalents at Beginning of Period
140 320
Cash and Cash Equivalents at End of Period
$ 31 $ 149

The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.

CONDENSED CONSOLIDATED BALANCE SHEETS
PPL Electric Utilities Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars, shares in thousands)

			September 30,		December 31,
			2013		2012
Assets

Current Assets
	Cash and cash equivalents		$	225	$	140
	Accounts receivable (less reserve: 2013, $20; 2012, $18)
		Customer		273		249
		Other		14		5
	Accounts receivable from affiliates			4		29
	Unbilled revenues			76		110
	Materials and supplies			35		39
	Prepayments			67		76
	Deferred income taxes			46		45
	Other current assets			18		4
	Total Current Assets			758		697

Property, Plant and Equipment
	Regulated utility plant			6,771		6,286
	Less: accumulated depreciation - regulated utility plant			2,421		2,316
		Regulated utility plant, net		4,350		3,970
	Other, net			2		2
	Construction work in progress			519		370
	Property, Plant and Equipment, net			4,871		4,342

Other Noncurrent Assets
	Regulatory assets			857		853
	Intangibles			208		171
	Other noncurrent assets			35		55
	Total Other Noncurrent Assets			1,100		1,079

Total Assets			$	6,729	$	6,118

The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.

CONDENSED CONSOLIDATED BALANCE SHEETS
PPL Electric Utilities Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars, shares in thousands)

March 31, December 31,
2013 2012
Assets

Current Assets

Cash and cash equivalents
$ 31 $ 140
Accounts receivable (less reserve: 2013, $19; 2012, $18)

Customer
325 249

Other
4 5

Accounts receivable from affiliates
30 29

Unbilled revenues
105 110

Materials and supplies
40 39

Prepayments
104 76

Deferred income taxes
49 45

Other current assets
17 4

Total Current Assets
705 697

Property, Plant and Equipment

Regulated utility plant
6,416 6,286

Less: accumulated depreciation - regulated utility plant
2,354 2,316

Regulated utility plant, net
4,062 3,970

Other, net
2 2

Construction work in progress
427 370

Property, Plant and Equipment, net
4,491 4,342

Other Noncurrent Assets

Regulatory assets
860 853

Intangibles
176 171

Other noncurrent assets
35 55

Total Other Noncurrent Assets
1,071 1,079

Total Assets
$ 6,267 $ 6,118

The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.

CONDENSED CONSOLIDATED BALANCE SHEETS											PPL Electric Utilities Corporation and Subsidiaries	(Unaudited)	(Millions of Dollars, shares in thousands)

		March 31,		December 31,			September 30,		December 31,
		2013		2012			2013		2012
Liabilities and Equity	Liabilities and Equity					Liabilities and Equity

Current Liabilities	Current Liabilities					Current Liabilities
	Short-term debt	$	125
	Long-term debt due within one year		10			Long term debt due within one year	$	10
	Accounts payable		241	$	259	Accounts payable		244	$	259
	Accounts payable to affiliates		60		63	Accounts payable to affiliates		46		63
	Taxes		17		12	Taxes		36		12
	Interest		19		26	Interest		23		26
	Regulatory liabilities		57		52	Regulatory liabilities		51		52
	Other current liabilities		99		93	Other current liabilities		94		93
	Total Current Liabilities		628		505	Total Current Liabilities		504		505

Long-term Debt	Long-term Debt		1,957		1,967	Long-term Debt		2,305		1,967

Deferred Credits and Other Noncurrent Liabilities	Deferred Credits and Other Noncurrent Liabilities					Deferred Credits and Other Noncurrent Liabilities
	Deferred income taxes		1,274		1,233	Deferred income taxes		1,334		1,233
	Investment tax credits		3		3	Investment tax credits		3		3
	Accrued pension obligations		152		237	Accrued pension obligations		157		237
	Regulatory liabilities		13		8	Regulatory liabilities		14		8
	Other deferred credits and noncurrent liabilities		79		103	Other deferred credits and noncurrent liabilities		79		103
	Total Deferred Credits and Other Noncurrent Liabilities		1,521		1,584	Total Deferred Credits and Other Noncurrent Liabilities		1,587		1,584

Commitments and Contingent Liabilities (Notes 6 and 10)	Commitments and Contingent Liabilities (Notes 6 and 10)					Commitments and Contingent Liabilities (Notes 6 and 10)

Stockholder's Equity	Stockholder's Equity					Stockholder's Equity
	Common stock - no par value (a)		364		364	Common stock - no par value (a)		364		364
	Additional paid-in capital		1,195		1,135	Additional paid-in capital		1,340		1,135
	Earnings reinvested		602		563	Earnings reinvested		629		563
	Total Equity		2,161		2,062	Total Equity		2,333		2,062

Total Liabilities and Equity	Total Liabilities and Equity	$	6,267	$	6,118	Total Liabilities and Equity	$	6,729	$	6,118

(a)	170,000 shares authorized; 66,368 shares issued and outstanding at ~~March 31,~~September 30, 2013 and December 31, 2012.

The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREOWNERS' EQUITY	CONDENSED CONSOLIDATED STATEMENTS OF SHAREOWNERS' EQUITY												CONDENSED CONSOLIDATED STATEMENTS OF SHAREOWNERS' EQUITY
PPL Electric Utilities Corporation and Subsidiaries																									(Unaudited)	(Millions of Dollars)

		Common												Common
		stock												stock
		shares					Additional							shares					Additional
		outstanding	Preference		Common		paid-in		Earnings					outstanding	Preference		Common		paid-in		Earnings
		(a)	stock		stock		capital		reinvested		Total			(a)	stock		stock		capital		reinvested		Total

June 30, 2013													June 30, 2013	66,368			$	364	$	1,340	$	606	$	2,310
Net income													Net income									51		51
Cash dividends declared on common stock													Cash dividends declared on common stock									(28)		(28)
September 30, 2013													September 30, 2013	66,368			$	364	$	1,340	$	629	$	2,333

December 31, 2012	December 31, 2012	66,368			$	364	$	1,135	$	563	$	2,062	December 31, 2012	66,368			$	364	$	1,135	$	563	$	2,062
Net income	Net income									64		64	Net income									160		160
Capital contributions from PPL	Capital contributions from PPL							60				60	Capital contributions from PPL							205				205
Cash dividends declared on common stock	Cash dividends declared on common stock									(25)		(25)	Cash dividends declared on common stock									(94)		(94)
March 31, 2013		66,368			$	364	$	1,195	$	602	$	2,161
September 30, 2013													September 30, 2013	66,368			$	364	$	1,340	$	629	$	2,333

June 30, 2012													June 30, 2012	66,368			$	364	$	979	$	538	$	1,881
Net income													Net income									33		33
Capital contributions from PPL													Capital contributions from PPL							150				150
Cash dividends declared on common stock													Cash dividends declared on common stock									(19)		(19)
September 30, 2012													September 30, 2012	66,368			$	364	$	1,129	$	552	$	2,045

December 31, 2011	December 31, 2011	66,368	$	250	$	364	$	979	$	532	$	2,125	December 31, 2011	66,368	$	250	$	364	$	979	$	532	$	2,125
Net income	Net income									37		37	Net income									99		99
Cash dividends declared on
	preference stock									(4)		(4)
Redemption of preference stock (b)													Redemption of preference stock (b)			(250)								(250)
Capital contributions from PPL													Capital contributions from PPL							150				150
Cash dividends declared on preference stock													Cash dividends declared on preference stock									(4)		(4)
Cash dividends declared on common stock	Cash dividends declared on common stock									(35)		(35)	Cash dividends declared on common stock									(75)		(75)
March 31, 2012		66,368	$	250	$	364	$	979	$	530	$	2,123
September 30, 2012													September 30, 2012	66,368	$		$	364	$	1,129	$	552	$	2,045

(a)	Shares in thousands. All common shares of PPL Electric stock are owned by PPL.

(b)	In June 2012, PPL Electric redeemed all of its outstanding preference stock.

The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.

(THIS PAGE LEFT BLANK INTENTIONALLY.)

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
LG&E and KU Energy LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)

			Three Months Ended				Nine Months Ended
			September 30,				September 30,
			2013		2012			2013		2012

Operating Revenues			$	744	$	732	$	2,226	$	2,095

Operating Expenses
	Operation
		Fuel		237		249		684		677
		Energy purchases		23		27		146		135
		Other operation and maintenance		188		186		582		589
	Depreciation			84		87		249		259
	Taxes, other than income			12		11		36		34
	Total Operating Expenses			544		560		1,697		1,694

Operating Income				200		172		529		401

Other Income (Expense) - net				(4)		(4)		(6)		(14)

Interest Expense				37		37		110		112

Interest Expense with Affiliate								1

Income from Continuing Operations Before Income Taxes				159		131		412		275

Income Taxes				59		48		153		89

Income from Continuing Operations After Income Taxes				100		83		259		186

Income (Loss) from Discontinued Operations (net of income taxes)								1		(6)

Net Income (a)			$	100	$	83	$	260	$	180

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
LG&E and KU Energy LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)

Three Months Ended March 31,
2013 2012

Operating Revenues
$ 800 $ 705

Operating Expenses
Operation

Fuel
231 213

Energy purchases
86 74

Other operation and maintenance
197 206

Depreciation
82 86

Taxes, other than income
12 11

Total Operating Expenses
608 590

Operating Income
192 115

Other Income (Expense) - net
(2) (3)

Interest Expense
37 38

Income Before Income Taxes
153 74

Income Taxes
57 21

Net Income (a)
$ 96 $ 53

(a) Net income approximates comprehensive income.

The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.

(a)	Net income approximates comprehensive income.

The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
LG&E and KU Energy LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)

				Nine Months Ended September 30,
				2013		2012
Cash Flows from Operating Activities
	Net income			$	260	$	180
	Adjustments to reconcile net income to net cash provided by operating activities
		Depreciation			249		259
		Amortization			19		20
		Defined benefit plans - expense			38		30
		Deferred income taxes and investment tax credits			99		92
		Other			6		(5)
	Change in current assets and current liabilities
		Accounts receivable			(78)		(25)
		Accounts payable			34		4
		Accounts payable to affiliates			1
		Unbilled revenues			19		26
		Fuel, materials and supplies			1		4
		Income tax receivable					3
		Taxes payable			83		51
		Accrued interest			30		29
		Other					19
	Other operating activities
		Defined benefit plans - funding			(159)		(66)
		Settlement of interest rate swaps			98
		Other assets			(1)		(3)
		Other liabilities			14		28
			Net cash provided by operating activities		713		646
Cash Flows from Investing Activities
	Expenditures for property, plant and equipment				(891)		(525)
	Net (increase) decrease in notes receivable from affiliates						9
	Net (increase) decrease in restricted cash and cash equivalents				10		(3)
	Other investing activities				2
			Net cash provided by (used in) investing activities		(879)		(519)
Cash Flows from Financing Activities
	Net increase (decrease) in notes payable with affiliates				27
	Net increase (decrease) in short-term debt				87
	Debt issuance and credit facility costs						(1)
	Distributions to member				(116)		(95)
	Contributions from member				146
			Net cash provided by (used in) financing activities		144		(96)
Net Increase (Decrease) in Cash and Cash Equivalents					(22)		31
Cash and Cash Equivalents at Beginning of Period					43		59
Cash and Cash Equivalents at End of Period				$	21	$	90

The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
LG&E and KU Energy LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)

Three Months Ended March 31,
2013 2012
Cash Flows from Operating Activities

Net income
$ 96 $ 53
Adjustments to reconcile net income to net cash provided by operating activities

Depreciation
82 86

Amortization
7 7

Defined benefit plans - expense
17 10

Deferred income taxes and investment tax credits
45 32

Other
1 (1)
Change in current assets and current liabilities

Accounts receivable
(78)

Accounts payable
31 16

Accounts payable to affiliates
1 4

Unbilled revenues
29

Fuel, materials and supplies
47 29

Accrued interest
30 30

Taxes
(2) 9

Other
(29) (19)
Other operating activities

Defined benefit plans - funding
(154) (58)

Other assets
2 (1)

Other liabilities
(11) 6

Net cash provided by operating activities
85 232
Cash Flows from Investing Activities

Expenditures for property, plant and equipment
(271) (174)

Net (increase) decrease in notes receivable from affiliates
10

Net (increase) decrease in restricted cash and cash equivalents
4 2

Net cash provided by (used in) investing activities
(267) (162)
Cash Flows from Financing Activities

Net increase (decrease) in notes payable with affiliates
60

Net increase (decrease) in short-term debt
60

Distributions to member
(4) (25)

Contributions from member
75

Net cash provided by (used in) financing activities
191 (25)
Net Increase (Decrease) in Cash and Cash Equivalents
9 45
Cash and Cash Equivalents at Beginning of Period
43 59
Cash and Cash Equivalents at End of Period
$ 52 $ 104

The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.

CONDENSED CONSOLIDATED BALANCE SHEETS
LG&E and KU Energy LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)

			September 30,		December 31,
			2013		2012
Assets

Current Assets
	Cash and cash equivalents		$	21	$	43
	Accounts receivable (less reserve: 2013, $22; 2012, $19)
		Customer		216		133
		Other		18		20
	Unbilled revenues			137		156
	Accounts receivable from affiliates					1
	Fuel, materials and supplies			275		276
	Prepayments			24		28
	Price risk management assets from affiliates					14
	Deferred income taxes			20		13
	Regulatory assets			29		19
	Other current assets			6		4
	Total Current Assets			746		707

Property, Plant and Equipment
	Regulated utility plant			8,434		8,073
	Less: accumulated depreciation - regulated utility plant			713		519
		Regulated utility plant, net		7,721		7,554
	Other, net			3		3
	Construction work in progress			1,341		750
	Property, Plant and Equipment, net			9,065		8,307

Other Noncurrent Assets
	Regulatory assets			566		630
	Goodwill			996		996
	Other intangibles			232		271
	Other noncurrent assets			97		108
	Total Other Noncurrent Assets			1,891		2,005

Total Assets			$	11,702	$	11,019

The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.

CONDENSED CONSOLIDATED BALANCE SHEETS
LG&E and KU Energy LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)

March 31, December 31,
2013 2012
Assets

Current Assets

Cash and cash equivalents
$ 52 $ 43
Accounts receivable (less reserve: 2013, $18; 2012, $19)

Customer
218 133

Other
10 20

Unbilled revenues
156 156

Accounts receivable from affiliates
1 1

Fuel, materials and supplies
229 276

Prepayments
23 28

Price risk management assets from affiliates
24 14

Deferred income taxes
13 13

Regulatory assets
32 19

Other current assets
5 4

Total Current Assets
763 707

Property, Plant and Equipment

Regulated utility plant
8,137 8,073

Less: accumulated depreciation - regulated utility plant
578 519

Regulated utility plant, net
7,559 7,554

Other, net
3 3

Construction work in progress
917 750

Property, Plant and Equipment, net
8,479 8,307

Other Noncurrent Assets

Regulatory assets
604 630

Goodwill
996 996

Other intangibles
258 271

Other noncurrent assets
104 108

Total Other Noncurrent Assets
1,962 2,005

Total Assets
$ 11,204 $ 11,019

The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.

CONDENSED CONSOLIDATED BALANCE SHEETS											LG&E and KU Energy LLC and Subsidiaries	(Unaudited)	(Millions of Dollars)
		March 31,		December 31,			September 30,		December 31,
		2013		2012			2013		2012
Liabilities and Equity	Liabilities and Equity					Liabilities and Equity

Current Liabilities	Current Liabilities					Current Liabilities
						Short-term debt	$	212	$	125
	Short-term debt	$	185	$	125	Notes payable with affiliates		52		25
	Notes payable with affiliates		85		25	Accounts payable		312		283
	Accounts payable		291		283	Accounts payable to affiliates		2		1
	Accounts payable to affiliates		2		1	Customer deposits		49		48
	Customer deposits		49		48	Taxes		109		26
	Taxes		24		26	Price risk management liabilities		4		5
	Price risk management liabilities		5		5	Price risk management liabilities with affiliates		14
	Regulatory liabilities		4		9	Regulatory liabilities		17		9
	Interest		51		21	Interest		51		21
	Other current liabilities		79		100	Other current liabilities		104		100
	Total Current Liabilities		775		643	Total Current Liabilities		926		643

Long-term Debt	Long-term Debt		4,075		4,075	Long-term Debt		4,076		4,075

Deferred Credits and Other Noncurrent Liabilities	Deferred Credits and Other Noncurrent Liabilities					Deferred Credits and Other Noncurrent Liabilities
	Deferred income taxes		587		541	Deferred income taxes		651		541
	Investment tax credits		138		138	Investment tax credits		136		138
	Accrued pension obligations		265		414	Accrued pension obligations		267		414
	Asset retirement obligations		127		125	Asset retirement obligations		245		125
	Regulatory liabilities		1,003		1,002	Regulatory liabilities		1,040		1,002
	Price risk management liabilities		49		53	Price risk management liabilities		37		53
	Other deferred credits and noncurrent liabilities		233		242	Other deferred credits and noncurrent liabilities		249		242
	Total Deferred Credits and Other Noncurrent Liabilities		2,402		2,515	Total Deferred Credits and Other Noncurrent Liabilities		2,625		2,515

Commitments and Contingent Liabilities (Notes 6 and 10)	Commitments and Contingent Liabilities (Notes 6 and 10)					Commitments and Contingent Liabilities (Notes 6 and 10)

Member's equity	Member's equity		3,952		3,786	Member's equity		4,075		3,786

Total Liabilities and Equity	Total Liabilities and Equity	$	11,204	$	11,019	Total Liabilities and Equity	$	11,702	$	11,019

The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
LG&E and KU Energy LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)

		Member's
		Equity

June 30, 2013	$	4,022
Net income		100
Distributions to member		(47)
September 30, 2013	$	4,075

December 31, 2012	$	3,786
Net income		96260
Contributions from member		75146
Distributions to member		~~(4)~~(116)
Other comprehensive income (loss)		(1)
~~March 31,~~September 30, 2013	$	~~3,952~~4,075

June 30, 2012	$	3,774
Net income		83
Distributions to member		(35)
September 30, 2012	$	3,822

December 31, 2011	$	3,741
Net income		53180
Distributions to member		~~(25)~~(95)
Other comprehensive income (loss)		(4)
~~March 31,~~September 30, 2012	$	~~3,765~~3,822

The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.

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CONDENSED STATEMENTS OF INCOME
Louisville Gas and Electric Company
(Unaudited)
(Millions of Dollars)

			Three Months Ended				Nine Months Ended
			September 30,				September 30,
			2013		2012		2013		2012
Operating Revenues
	Retail and wholesale		$	332	$	324	$	1,003	$	939
	Electric revenue from affiliate			11		9		46		51
	Total Operating Revenues			343		333		1,049		990

Operating Expenses
	Operation
		Fuel		100		100		284		281
		Energy purchases		18		18		129		110
		Energy purchases from affiliate		2		3		6		9
		Other operation and maintenance		93		87		278		277
	Depreciation			37		38		110		114
	Taxes, other than income			6		6		18		17
	Total Operating Expenses			256		252		825		808

Operating Income				87		81		224		182

Other Income (Expense) - net				(1)		(3)		(3)		(3)

Interest Expense				10		10		30		31

Income Before Income Taxes				76		68		191		148

Income Taxes				27		25		69		54

Net Income (a)			$	49	$	43	$	122	$	94

CONDENSED STATEMENTS OF INCOME
Louisville Gas and Electric Company
(Unaudited)
(Millions of Dollars)

Three Months Ended March 31,
2013 2012
Operating Revenues

Retail and wholesale
$ 369 $ 329

Electric revenue from affiliate
21 24

Total Operating Revenues
390 353

Operating Expenses
Operation

Fuel
96 89

Energy purchases
80 69

Energy purchases from affiliate
1 4

Other operation and maintenance
91 98

Depreciation
36 38

Taxes, other than income
6 5

Total Operating Expenses
310 303

Operating Income
80 50

Other Income (Expense) - net
(1) 1

Interest Expense
10 11

Income Before Income Taxes
69 40

Income Taxes
25 15

Net Income (a)
$ 44 $ 25

(a) Net income equals comprehensive income.

The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.

(a)	Net income equals comprehensive income.

The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.

CONDENSED STATEMENTS OF CASH FLOWS
Louisville Gas and Electric Company
(Unaudited)
(Millions of Dollars)

				Nine Months Ended September 30,
				2013		2012
Cash Flows from Operating Activities
	Net income			$	122	$	94
	Adjustments to reconcile net income to net cash provided by operating activities
		Depreciation			110		114
		Amortization			9		8
		Defined benefit plans - expense			13		14
		Deferred income taxes and investment tax credits			22		40
		Other			10		(11)
	Change in current assets and current liabilities
		Accounts receivable			(20)		(5)
		Accounts payable			18		2
		Accounts payable to affiliates			7
		Unbilled revenues			10		16
		Fuel, materials and supplies			2		(10)
		Taxes payable			32		21
		Other			12		13
	Other operating activities
		Defined benefit plans - funding			(45)		(26)
		Settlement of interest rate swaps			49
		Other assets			(1)		(2)
		Other liabilities			2		(1)
			Net cash provided by operating activities		352		267
Cash Flows from Investing Activities
	Expenditures for property, plant and equipment				(376)		(193)
	Net (increase) decrease in restricted cash and cash equivalents				10		(3)
			Net cash provided by (used in) investing activities		(366)		(196)
Cash Flows from Financing Activities
	Net increase (decrease) in short-term debt				17
	Debt issuance and credit facility costs						(1)
	Payment of common stock dividends to parent				(67)		(47)
	Contributions from parent				54
			Net cash provided by (used in) financing activities		4		(48)
Net Increase (Decrease) in Cash and Cash Equivalents					(10)		23
Cash and Cash Equivalents at Beginning of Period					22		25
Cash and Cash Equivalents at End of Period				$	12	$	48

The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.

CONDENSED STATEMENTS OF CASH FLOWS
Louisville Gas and Electric Company
(Unaudited)
(Millions of Dollars)

Three Months Ended March 31,
2013 2012
Cash Flows from Operating Activities

Net income
$ 44 $ 25
Adjustments to reconcile net income to net cash provided by operating activities

Depreciation
36 38

Amortization
3

Defined benefit plans - expense
6 4

Deferred income taxes and investment tax credits
11 16

Other
(5) (1)
Change in current assets and current liabilities

Accounts receivable
(37) (9)

Accounts payable
9 14

Accounts payable to affiliates
(7) (10)

Unbilled revenues
1 16

Fuel, materials and supplies
37 19

Taxes
17 5

Other
11 8
Other operating activities

Defined benefit plans - funding
(43) (24)

Other liabilities
2 1

Net cash provided by operating activities
85 102
Cash Flows from Investing Activities

Expenditures for property, plant and equipment
(98) (60)

Net (increase) decrease in restricted cash and cash equivalents
4 2

Net cash provided by (used in) investing activities
(94) (58)
Cash Flows from Financing Activities

Net increase (decrease) in short-term debt
15

Payment of common stock dividends to parent
(19) (15)

Contributions from parent
25

Net cash provided by (used in) financing activities
21 (15)
Net Increase (Decrease) in Cash and Cash Equivalents
12 29
Cash and Cash Equivalents at Beginning of Period
22 25
Cash and Cash Equivalents at End of Period
$ 34 $ 54

The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.

CONDENSED BALANCE SHEETS
Louisville Gas and Electric Company
(Unaudited)
(Millions of Dollars, shares in thousands)

			September 30,		December 31,
			2013		2012
Assets

Current Assets
	Cash and cash equivalents		$	12	$	22
	Accounts receivable (less reserve: 2013, $2; 2012, $1)
		Customer		93		59
		Other		9		16
	Unbilled revenues			62		72
	Accounts receivable from affiliates			8		14
	Fuel, materials and supplies			140		142
	Prepayments			4		7
	Price risk management from affiliates					7
	Deferred income taxes			3
	Regulatory assets			19		19
	Other current assets			1		1
	Total Current Assets			351		359

Property, Plant and Equipment
	Regulated utility plant			3,340		3,187
	Less: accumulated depreciation - regulated utility plant			309		220
		Regulated utility plant, net		3,031		2,967
	Other, net			1
	Construction work in progress			490		259
	Property, Plant and Equipment, net			3,522		3,226

Other Noncurrent Assets
	Regulatory assets			359		400
	Goodwill			389		389
	Other intangibles			126		144
	Other noncurrent assets			33		44
	Total Other Noncurrent Assets			907		977

Total Assets			$	4,780	$	4,562

The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.

CONDENSED BALANCE SHEETS
Louisville Gas and Electric Company
(Unaudited)
(Millions of Dollars, shares in thousands)

March 31, December 31,
2013 2012
Assets

Current Assets

Cash and cash equivalents
$ 34 $ 22
Accounts receivable (less reserve: 2013, $1; 2012, $1)

Customer
99 59

Other
6 16

Unbilled revenues
71 72

Accounts receivable from affiliates
12 14

Fuel, materials and supplies
105 142

Prepayments
9 7

Price risk management assets from affiliates
12 7

Regulatory assets
21 19

Other current assets
1

Total Current Assets
369 359

Property, Plant and Equipment

Regulated utility plant
3,226 3,187

Less: accumulated depreciation - regulated utility plant
251 220

Regulated utility plant, net
2,975 2,967

Construction work in progress
319 259

Property, Plant and Equipment, net
3,294 3,226

Other Noncurrent Assets

Regulatory assets
388 400

Goodwill
389 389

Other intangibles
138 144

Other noncurrent assets
39 44

Total Other Noncurrent Assets
954 977

Total Assets
$ 4,617 $ 4,562

The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.

CONDENSED BALANCE SHEETS											Louisville Gas and Electric Company	(Unaudited)	(Millions of Dollars, shares in thousands)
		March 31,		December 31,			September 30,		December 31,
		2013		2012		��	2013		2012
Liabilities and Equity	Liabilities and Equity					Liabilities and Equity

Current Liabilities	Current Liabilities					Current Liabilities
						Short-term debt	$	72	$	55
	Short-term debt	$	70	$	55	Accounts payable		147		117
	Accounts payable		131		117	Accounts payable to affiliates		30		23
	Accounts payable to affiliates		16		23	Customer deposits		24		23
	Customer deposits		24		23	Taxes		34		2
	Taxes		19		2	Price risk management liabilities		4		5
	Price risk management liabilities		5		5	Price risk management liabilities with affiliates		7
	Regulatory liabilities		3		4	Regulatory liabilities		11		4
	Interest		11		5	Interest		10		5
	Other current liabilities		29		34	Other current liabilities		34		34
	Total Current Liabilities		308		268	Total Current Liabilities		373		268

Long-term Debt	Long-term Debt		1,112		1,112	Long-term Debt		1,112		1,112

Deferred Credits and Other Noncurrent Liabilities	Deferred Credits and Other Noncurrent Liabilities					Deferred Credits and Other Noncurrent Liabilities
	Deferred income taxes		555		544	Deferred income taxes		577		544
	Investment tax credits		40		40	Investment tax credits		39		40
	Accrued pension obligations		59		102	Accrued pension obligations		56		102
	Asset retirement obligations		57		56	Asset retirement obligations		69		56
	Regulatory liabilities		471		471	Regulatory liabilities		489		471
	Price risk management liabilities		49		53	Price risk management liabilities		37		53
	Other deferred credits and noncurrent liabilities		106		106	Other deferred credits and noncurrent liabilities		109		106
	Total Deferred Credits and Other Noncurrent Liabilities		1,337		1,372	Total Deferred Credits and Other Noncurrent Liabilities		1,376		1,372

Commitments and Contingent Liabilities (Notes 6 and 10)	Commitments and Contingent Liabilities (Notes 6 and 10)					Commitments and Contingent Liabilities (Notes 6 and 10)

Stockholder's Equity	Stockholder's Equity					Stockholder's Equity
	Common stock - no par value (a)		424		424	Common stock - no par value (a)		424		424
	Additional paid-in capital		1,303		1,278	Additional paid-in capital		1,332		1,278
	Earnings reinvested		133		108	Earnings reinvested		163		108
	Total Equity		1,860		1,810	Total Equity		1,919		1,810

Total Liabilities and Equity	Total Liabilities and Equity	$	4,617	$	4,562	Total Liabilities and Equity	$	4,780	$	4,562

(a)	75,000 shares authorized; 21,294 shares issued and outstanding at ~~March 31,~~September 30, 2013 and December 31, 2012.

The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.

CONDENSED STATEMENTS OF EQUITY	CONDENSED STATEMENTS OF EQUITY										CONDENSED STATEMENTS OF EQUITY
Louisville Gas and Electric Company	Louisville Gas and Electric Company										Louisville Gas and Electric Company
(Unaudited)	(Unaudited)										(Unaudited)									��
(Millions of Dollars)	(Millions of Dollars)										(Millions of Dollars)

		Common										Common
		stock										stock
		shares			Additional							shares				Additional
		outstanding	Common		paid-in		Earnings					outstanding		Common		paid-in		Earnings
		(a)	stock		capital		reinvested		Total			(a)		stock		capital		reinvested		Total

June 30, 2013											June 30, 2013	21,294	$	424	$	1,332	$	133	$	1,889
Net income											Net income							49		49
Cash dividends declared on common stock											Cash dividends declared on common stock							(19)		(19)
September 30, 2013											September 30, 2013	21,294	$	424	$	1,332	$	163	$	1,919

December 31, 2012		21,294	$	424	$	1,278	$	108	$	1,810	December 31, 2012	21,294	$	424	$	1,278	$	108	$	1,810
Net income								44		44	Net income							122		122
Capital contributions from LKE						25				25	Capital contributions from LKE					54				54
Cash dividends declared on common stock								(19)		(19)	Cash dividends declared on common stock							(67)		(67)
March 31, 2013		21,294	$	424	$	1,303	$	133	$	1,860
September 30, 2013											September 30, 2013	21,294	$	424	$	1,332	$	163	$	1,919

June 30, 2012											June 30, 2012	21,294	$	424	$	1,278	$	80	$	1,782
Net income											Net income							43		43
Cash dividends declared on common stock											Cash dividends declared on common stock							(16)		(16)
September 30, 2012											September 30, 2012	21,294	$	424	$	1,278	$	107	$	1,809

December 31, 2011		21,294	$	424	$	1,278	$	60	$	1,762	December 31, 2011	21,294	$	424	$	1,278	$	60	$	1,762
Net income								25		25	Net income							94		94
Cash dividends declared on common stock								(15)		(15)	Cash dividends declared on common stock							(47)		(47)
March 31, 2012		21,294	$	424	$	1,278	$	70	$	1,772
September 30, 2012											September 30, 2012	21,294	$	424	$	1,278	$	107	$	1,809

(a)	Shares in thousands. All common shares of LG&E stock are owned by LKE.

The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.

(THIS PAGE LEFT BLANK INTENTIONALLY.)

CONDENSED STATEMENTS OF INCOME
Kentucky Utilities Company
(Unaudited)
(Millions of Dollars)

			Three Months Ended				Nine Months Ended
			September 30,				September 30,
			2013		2012		2013		2012
Operating Revenues
	Retail and wholesale		$	412	$	408	$	1,223	$	1,156
	Electric revenue from affiliate			2		3		6		9
	Total Operating Revenues			414		411		1,229		1,165

Operating Expenses
	Operation
		Fuel		137		149		400		396
		Energy purchases		5		9		17		25
		Energy purchases from affiliate		11		9		46		51
		Other operation and maintenance		91		93		286		286
	Depreciation			46		49		138		145
	Taxes, other than income			6		5		18		17
	Total Operating Expenses			296		314		905		920

Operating Income				118		97		324		245

Other Income (Expense) - net				(2)		1		(1)		(5)

Interest Expense				17		18		51		52

Income Before Income Taxes				99		80		272		188

Income Taxes				36		30		101		70

Net Income (a)			$	63	$	50	$	171	$	118

CONDENSED STATEMENTS OF INCOME
Kentucky Utilities Company
(Unaudited)
(Millions of Dollars)

Three Months Ended March 31,
2013 2012
Operating Revenues

Retail and wholesale
$ 431 $ 376

Electric revenue from affiliate
1 4

Total Operating Revenues
432 380

Operating Expenses
Operation

Fuel
135 124

Energy purchases
6 5

Energy purchases from affiliate
21 24

Other operation and maintenance
97 95

Depreciation
46 48

Taxes, other than income
6 6

Total Operating Expenses
311 302

Operating Income
121 78

Other Income (Expense) - net
(1) (1)

Interest Expense
17 17

Income Before Income Taxes
103 60

Income Taxes
39 22

Net Income (a)
$ 64 $ 38

(a) Net income approximates comprehensive income.

The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.

(a)	Net income equals comprehensive income.

The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.

CONDENSED STATEMENTS OF CASH FLOWS
Kentucky Utilities Company
(Unaudited)
(Millions of Dollars)

				Nine Months Ended September 30,
				2013		2012
Cash Flows from Operating Activities
	Net income			$	171	$	118
	Adjustments to reconcile net income to net cash provided by operating activities
		Depreciation			138		145
		Amortization			9		9
		Defined benefit plans - expense			16		9
		Deferred income taxes and investment tax credits			73		78
		Other			(3)		1
	Change in current assets and current liabilities
		Accounts receivable			(46)		(34)
		Accounts payable			25		9
		Accounts payable to affiliates			(9)		(4)
		Unbilled revenues			9		10
		Fuel, materials and supplies			(1)		16
		Taxes payable			39		26
		Accrued interest			15		14
		Other			(3)		18
	Other operating activities
		Defined benefit plans - funding			(62)		(20)
		Settlement of interest rate swaps			49
		Other assets			(2)		(1)
		Other liabilities			1		16
			Net cash provided by operating activities		419		410
Cash Flows from Investing Activities
	Expenditures for property, plant and equipment				(512)		(331)
	Other investing activities				2
			Net cash provided by (used in) investing activities		(510)		(331)
Cash Flows from Financing Activities
	Net increase (decrease) in short-term debt				70
	Payment of common stock dividends to parent				(83)		(68)
	Contributions from parent				92
			Net cash provided by (used in) financing activities		79		(68)
Net Increase (Decrease) in Cash and Cash Equivalents					(12)		11
Cash and Cash Equivalents at Beginning of Period					21		31
Cash and Cash Equivalents at End of Period				$	9	$	42

The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.

CONDENSED STATEMENTS OF CASH FLOWS
Kentucky Utilities Company
(Unaudited)
(Millions of Dollars)

Three Months Ended March 31,
2013 2012
Cash Flows from Operating Activities

Net income
$ 64 $ 38
Adjustments to reconcile net income to net cash provided by operating activities

Depreciation
46 48

Amortization
4

Defined benefit plans - expense
5 3

Deferred income taxes and investment tax credits
35 25

Other
9 6
Change in current assets and current liabilities

Accounts receivable
(31) (7)

Accounts payable
32 10

Accounts payable to affiliates
8 3

Unbilled revenues
(1) 13

Fuel, materials and supplies
10 10

Taxes
(17) 4

Accrued interest
15 15

Other
(20) (3)
Other operating activities

Defined benefit plans - funding
(60) (17)

Other assets
1 (1)

Other liabilities
(15) 5

Net cash provided by operating activities
85 152
Cash Flows from Investing Activities

Expenditures for property, plant and equipment
(172) (113)

Net cash provided by (used in) investing activities
(172) (113)
Cash Flows from Financing Activities

Net increase (decrease) in short-term debt
45

Payment of common stock dividends to parent
(13) (24)

Contributions from parent
50

Net cash provided by (used in) financing activities
82 (24)
Net Increase (Decrease) in Cash and Cash Equivalents
(5) 15
Cash and Cash Equivalents at Beginning of Period
21 31
Cash and Cash Equivalents at End of Period
$ 16 $ 46

The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.

CONDENSED BALANCE SHEETS
Kentucky Utilities Company
(Unaudited)
(Millions of Dollars, shares in thousands)

			September 30,		December 31,
			2013		2012
Assets

Current Assets
	Cash and cash equivalents		$	9	$	21
	Accounts receivable (less reserve: 2013, $4; 2012, $2)
		Customer		123		74
		Other		8		13
	Unbilled revenues			75		84
	Accounts receivable from affiliates			10		7
	Fuel, materials and supplies			135		134
	Prepayments			11		10
	Price risk management assets from affiliates					7
	Deferred income taxes			3		3
	Regulatory assets			10
	Other current assets			5		3
	Total Current Assets			389		356

Property, Plant and Equipment
	Regulated utility plant			5,094		4,886
	Less: accumulated depreciation - regulated utility plant			404		299
		Regulated utility plant, net		4,690		4,587
	Other, net			1		1
	Construction work in progress			849		490
	Property, Plant and Equipment, net			5,540		5,078

Other Noncurrent Assets
	Regulatory assets			207		230
	Goodwill			607		607
	Other intangibles			106		127
	Other noncurrent assets			57		57
	Total Other Noncurrent Assets			977		1,021

Total Assets			$	6,906	$	6,455

The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.

CONDENSED BALANCE SHEETS
Kentucky Utilities Company
(Unaudited)
(Millions of Dollars, shares in thousands)

March 31, December 31,
2013 2012
Assets

Current Assets

Cash and cash equivalents
$ 16 $ 21
Accounts receivable (less reserve: 2013, $2; 2012, $2)

Customer
119 74

Other
3 13

Unbilled revenues
85 84

Accounts receivable from affiliates
1 7

Fuel, materials and supplies
124 134

Prepayments
7 10

Price risk management assets from affiliates
12 7

Deferred income taxes
3 3

Regulatory assets
11

Other current assets
5 3

Total Current Assets
386 356

Property, Plant and Equipment

Regulated utility plant
4,911 4,886

Less: accumulated depreciation - regulated utility plant
327 299

Regulated utility plant, net
4,584 4,587

Other, net
1 1

Construction work in progress
596 490

Property, Plant and Equipment, net
5,181 5,078

Other Noncurrent Assets

Regulatory assets
216 230

Goodwill
607 607

Other intangibles
120 127

Other noncurrent assets
58 57

Total Other Noncurrent Assets
1,001 1,021

Total Assets
$ 6,568 $ 6,455

The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.

CONDENSED BALANCE SHEETS											Kentucky Utilities Company	(Unaudited)	(Millions of Dollars, shares in thousands)
		March 31,		December 31,			September 30,		December 31,
		2013		2012			2013		2012
Liabilities and Equity	Liabilities and Equity					Liabilities and Equity

Current Liabilities	Current Liabilities					Current Liabilities
						Short-term debt	$	140	$	70
	Short-term debt	$	115	$	70	Accounts payable		155		147
	Accounts payable		151		147	Accounts payable to affiliates		24		33
	Accounts payable to affiliates		41		33	Customer deposits		25		25
	Customer deposits		25		25	Taxes		65		26
	Taxes		9		26	Price risk management liabilities with affiliates		7
	Regulatory liabilities		1		5	Regulatory liabilities		6		5
	Interest		25		10	Interest		25		10
	Other current liabilities		27		33	Other current liabilities		31		33
	Total Current Liabilities		394		349	Total Current Liabilities		478		349

Long-term Debt	Long-term Debt		1,842		1,842	Long-term Debt		1,843		1,842

Deferred Credits and Other Noncurrent Liabilities	Deferred Credits and Other Noncurrent Liabilities					Deferred Credits and Other Noncurrent Liabilities
	Deferred income taxes		621		587	Deferred income taxes		660		587
	Investment tax credits		98		98	Investment tax credits		97		98
	Accrued pension obligations		45		104	Accrued pension obligations		45		104
	Asset retirement obligations		70		69	Asset retirement obligations		176		69
	Regulatory liabilities		532		531	Regulatory liabilities		551		531
	Other deferred credits and noncurrent liabilities		82		92	Other deferred credits and noncurrent liabilities		93		92
	Total Deferred Credits and Other Noncurrent Liabilities		1,448		1,481	Total Deferred Credits and Other Noncurrent Liabilities		1,622		1,481

Commitments and Contingent Liabilities (Notes 6 and 10)	Commitments and Contingent Liabilities (Notes 6 and 10)					Commitments and Contingent Liabilities (Notes 6 and 10)

Stockholder's Equity	Stockholder's Equity					Stockholder's Equity
	Common stock - no par value (a)		308		308	Common stock - no par value (a)		308		308
	Additional paid-in capital		2,398		2,348	Additional paid-in capital		2,440		2,348
	Accumulated other comprehensive income (loss)		1		1	Accumulated other comprehensive income (loss)		1		1
	Earnings reinvested		177		126	Earnings reinvested		214		126
	Total Equity		2,884		2,783	Total Equity		2,963		2,783

Total Liabilities and Equity	Total Liabilities and Equity	$	6,568	$	6,455	Total Liabilities and Equity	$	6,906	$	6,455

(a)	80,000 shares authorized; 37,818 shares issued and outstanding at ~~March 31,~~September 30, 2013 and December 31, 2012.

The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.

CONDENSED STATEMENTS OF EQUITY	CONDENSED STATEMENTS OF EQUITY												CONDENSED STATEMENTS OF EQUITY
Kentucky Utilities Company	Kentucky Utilities Company												Kentucky Utilities Company
(Unaudited)	(Unaudited)												(Unaudited)
(Millions of Dollars)	(Millions of Dollars)												(Millions of Dollars)

		Common							Accumulated					Common							Accumulated
		stock							other					stock							other
		shares			Additional				comprehensive					shares			Additional				comprehensive
		outstanding	Common		paid-in		Earnings		income					outstanding	Common		paid-in		Earnings		income
		(a)	stock		capital		reinvested		(loss)		Total			(a)	stock		capital		reinvested		(loss)		Total

June 30, 2013														37,818	$	308	$	2,440	$	179	$	1	$	2,928
Net income																				63				63
Cash dividends declared on common stock																				(28)				(28)
September 30, 2013														37,818	$	308	$	2,440	$	214	$	1	$	2,963

December 31, 2012		37,818	$	308	$	2,348	$	126	$	1	$	2,783		37,818	$	308	$	2,348	$	126	$	1	$	2,783
Net income								64				64								171				171
Capital contributions from LKE						50						50						92						92
Cash dividends declared on common
stock								(13)				(13)
March 31, 2013		37,818	$	308	$	2,398	$	177	$	1	$	2,884
Cash dividends declared on common stock																				(83)				(83)
September 30, 2013														37,818	$	308	$	2,440	$	214	$	1	$	2,963

June 30, 2012														37,818	$	308	$	2,348	$	109	$	(4)	$	2,761
Net income																				50				50
Cash dividends declared on common stock																				(20)				(20)
September 30, 2012														37,818	$	308	$	2,348	$	139	$	(4)	$	2,791

December 31, 2011		37,818	$	308	$	2,348	$	89			$	2,745		37,818	$	308	$	2,348	$	89			$	2,745
Net income								38				38								118				118
Cash dividends declared on common
stock								(24)				(24)
Cash dividends declared on common stock																				(68)				(68)
Other comprehensive income (loss)									$	(4)		(4)									$	(4)		(4)
March 31, 2012		37,818	$	308	$	2,348	$	103	$	(4)	$	2,755
September 30, 2012														37,818	$	308	$	2,348	$	139	$	(4)	$	2,791

(a)	Shares in thousands. All common shares of KU stock are owned by LKE.

The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.

Combined Notes to Condensed Financial Statements (Unaudited)

1. Interim Financial Statements

(~~PPL, PPL Energy Supply, PPL Electric, LKE, LG&E and KU)~~All Registrants)

Capitalized terms and abbreviations appearing in the unaudited combined notes to condensed financial statements are defined in the glossary. Dollars are in millions, except per share data, unless otherwise noted. The specific Registrant to which disclosures are applicable is identified in parenthetical headings in italics above the applicable disclosure or within the applicable disclosure for their related activities and disclosures. Within combined disclosures, amounts are disclosed for any Registrant when significant.

The accompanying unaudited condensed financial statements have been prepared in accordance with ~~accounting principles generally accepted in the U.S.~~GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X and, therefore, do not include all of the information and footnotes required by ~~accounting principles generally accepted in the U.S.~~GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation in accordance with ~~accounting principles generally accepted in the U.S.~~GAAP are reflected in the condensed financial statements. All adjustments are of a normal recurring nature, except as otherwise disclosed. Each Registrant's Balance Sheet at December 31, 2012 is derived from that Registrant's 2012 audited Balance Sheet. The financial statements and notes thereto should be read in conjunction with the financial statements and notes contained in each Registrant's 2012 Form 10-K. The results of operations for the three and nine months ended ~~March 31,~~September 30, 2013, are not necessarily indicative of the results to be expected for the full year ending December 31, 2013, or other future periods, because results for interim periods can be disproportionately influenced by various factors, developments and seasonal variations.

The classification of certain prior period amounts has been changed to conform to the presentation in the ~~March 31,~~September 30, 2013 financial statements.

2.2. Summary of Significant Accounting Policies

(~~PPL, PPL Energy Supply, PPL Electric, LKE, LG&E and KU)~~All Registrants)

The following accounting policy disclosures represent updates to Note 1 in each Registrant's 2012 Form 10-K and should be read in conjunction with those disclosures.

Accounts Receivable (PPL, PPL Energy Supply and PPL Electric)

In accordance with a PUC-approved purchase of accounts receivable program, PPL Electric purchases certain accounts receivable from alternative suppliers (including PPL EnergyPlus) at a discount, which reflects a provision for uncollectible accounts. The alternative suppliers have no continuing involvement or interest in the purchased accounts receivable. The purchased accounts receivable are initially recorded at fair value using a market approach based on the purchase price paid and are classified as Level 2 in the fair value hierarchy. During the three and nine months ended ~~March 31,~~September 30, 2013, PPL Electric purchased $259 million and $738 million of accounts receivable from unaffiliated third parties and ~~$77~~$75 million and $222 million from PPL EnergyPlus. During the three and nine months ended ~~March 31,~~September 30, 2012, PPL Electric purchased ~~$238~~$225 million and $647 million of accounts receivable from unaffiliated third parties and ~~$82~~$81 million and $237 million from PPL EnergyPlus.

Depreciation (PPL ~~LKE, LG&E~~ and ~~KU)~~Kentucky Registrants)

The KPSC approved new lower depreciation rates for LG&E and KU as part of the rate-case settlement agreement reached in ~~November~~

2012. The new rates became effective January 1, 2013 and will result in lower depreciation of approximately $19 million ($9 million for LG&E and $10 million for KU) in 2013, exclusive of net additions to PP~~&E.~~&E since the rate case.

New Accounting Guidance Adopted (~~PPL, PPL Energy Supply, PPL Electric, LKE, LG&E and KU)~~All Registrants)

Improving Disclosures about Offsetting Balance Sheet Items

Effective January 1, 2013, the Registrants retrospectively adopted accounting guidance issued to enhance disclosures about derivative instruments that either (1) offset on the balance sheet or (2) are subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset on the balance sheet.

The adoption of this guidance resulted in enhanced disclosures but did not have a significant impact on the Registrants. See Note 14 for the new disclosures.

Testing Indefinite-Lived Intangible Assets for Impairment

Effective January 1, 2013, the Registrants prospectively adopted accounting guidance that allows an entity to elect the option to first make a qualitative evaluation about the likelihood of an impairment of an indefinite-lived intangible asset. If, based on this assessment, the entity determines that it is more likely than not that the fair value of the indefinite-lived intangible asset exceeds the carrying amount, a quantitative impairment test does not need to be performed. If the entity concludes otherwise, a quantitative impairment test must be performed by determining the fair value of the asset and comparing it with the carrying value. The entity would record an impairment charge, if necessary.

The adoption of this guidance did not have a significant impact on the Registrants.

Reporting Amounts Reclassified Out of AOCI

Effective January 1, 2013, the Registrants prospectively adopted accounting guidance issued to improve the reporting of reclassifications out of AOCI. The Registrants are required to provide information about the effects on net income of significant amounts reclassified out of AOCI by their respective statement of income line item, if the item is required to be reclassified to net income in its entirety. For items not reclassified to net income in their entirety, the Registrants are required to reference other disclosures that provide greater detail about these reclassifications.

The adoption of this guidance resulted in enhanced disclosures but did not have a significant impact on the Registrants. See Note 18 for the new disclosures.

3.3. Segment and Related Information

(PPL)

See Note 2 in PPL's 2012 Form 10-K for a discussion of reportable segments. "Corporate and Other" primarily ~~represents~~includes financing and certain other costs incurred at the corporate level that have not been allocated or assigned to the segments, as well as certain unallocated assets, which is presented to reconcile segment information to PPL's consolidated results. For 2012, there were no significant costs or assets in this category.

~~Beginning in~~In 2013, ~~PPL anticipates more~~ costs ~~to be~~ included in the Corporate and Other category increased, as anticipated, primarily due to an ~~anticipated~~ increase in financing at PPL Capital Funding not directly attributable to a particular segment. PPL's ~~recent~~ growth in rate-regulated businesses provides the organization an enhanced corporate-level financing alternative, through PPL Capital Funding, that further enables PPL to cost-effectively support targeted credit profiles ~~cost effectively~~ across all of PPL's rated companies. As a result, PPL plans to further utilize PPL Capital Funding in addition to continued direct financing by the operating ~~companies, as appropriate.~~companies. The financing costs associated primarily with PPL Capital Funding's ~~future~~new securities issuances, ~~are~~with certain exceptions including the remarketing of the debt component of the Equity Units, have not ~~expected to be~~been directly ~~assignable~~assigned or ~~allocable~~allocated to any segment and generally ~~will be~~have been reflected in Corporate and Other ~~beginning~~ in 2013.

~~Financial~~For the periods ended September 30, financial data for the segments ~~for the periods ended March 31~~ are:

		Three Months					Three Months				Nine Months
		2013		2012			2013		2012		2013		2012
Income Statement Data	Income Statement Data					Income Statement Data
Revenues from external customers	Revenues from external customers					Revenues from external customers
	Kentucky Regulated	$	800	$	705	U.K. Regulated	$	543	$	528	$	1,763	$	1,647
	U.K. Regulated		648		562	Kentucky Regulated		744		732		2,226		2,095
	Pennsylvania Regulated		512		457	Pennsylvania Regulated		463		443		1,388		1,303
	Supply (a)		494		2,388	Supply (a)		1,352		700		3,626		4,019
	Corporate and Other		3			Corporate and Other		3				9
Total	Total	$	2,457	$	4,112	Total	$	3,105	$	2,403	$	9,012	$	9,064

Intersegment electric revenues	Intersegment electric revenues					Intersegment electric revenues
	Pennsylvania Regulated	$	1	$	1	Pennsylvania Regulated	$	1	$	1	$	3	$	3
	Supply		14		21	Supply		11		23		37		61

Net Income Attributable to PPL Shareowners
	Kentucky Regulated	$	85	$	42
	U.K. Regulated (a)		313		165
	Pennsylvania Regulated		64		33
	Supply (a)		(46)		301
	Corporate and Other		(3)
Total		$	413	$	541

March 31, December 31,
2013 2012
Balance Sheet Data
Assets
Kentucky Regulated $ 10,870 $ 10,670
U.K. Regulated 13,816 14,073
Pennsylvania Regulated 6,267 6,023
Supply 12,041 12,868
Corporate and Other (b) 347
Total assets $ 43,341 $ 43,634

		Three Months				Nine Months
		2013		2012		2013		2012
Net Income Attributable to PPL Shareowners
	U.K. Regulated (a)	$	183	$	202	$	741	$	563
	Kentucky Regulated		93		72		227		148
	Pennsylvania Regulated		51		33		160		95
	Supply (a)		91		48		122		361
	Corporate and Other		(8)				(22)
Total		$	410	$	355	$	1,228	$	1,167

		September 30,		December 31,
		2013		2012
Balance Sheet Data
Assets
	U.K. Regulated	$	14,329	$	14,073
	Kentucky Regulated		11,368		10,670
	Pennsylvania Regulated		6,729		6,023
	Supply		12,198		12,868
	Corporate and Other (b)		364
Total assets		$	44,988	$	43,634

(a)	Includes unrealized gains and losses from economic activity. See Note 14 for additional information.

(b)	Primarily consists of unallocated assets, including cash, PP&E and the elimination of inter-segment transactions.

4. 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 or ~~the~~ If-Converted Method, as applicable. The If-Converted Method was applied to the Equity Units prior to settlement beginning in the first quarter of 2013. Incremental non-participating securities that have a dilutive impact are detailed in the table below.

See Note 7 for information on the April and May 2013 settlements of forward sale agreements and the July 2013 issuance of PPL common stock to settle the 2010 Purchase Contracts.

Reconciliations of the amounts of income and shares of PPL common stock (in thousands) for the periods ended ~~March 31~~September 30 used in the EPS calculation are:

			Three Months					Three Months				Nine Months
			2013		2012			2013		2012		2013		2012
Income (Numerator)	Income (Numerator)						Income (Numerator)
Income from continuing operations after income taxes attributable to PPL							Income from continuing operations after income taxes attributable to PPL
							shareowners	$	409	$	355	$	1,226	$	1,173
Less amounts allocated to participating securities							Less amounts allocated to participating securities		2		2		6		7
Income from continuing operations after income taxes available to PPL							Income from continuing operations after income taxes available to PPL
							common shareowners - Basic		407		353		1,220		1,166
Plus interest charges (net of tax) related to Equity Units							Plus interest charges (net of tax) related to Equity Units		7				37
Income from continuing operations after income taxes available to PPL							Income from continuing operations after income taxes available to PPL
							common shareowners - Diluted	$	414	$	353	$	1,257	$	1,166

Income (loss) from discontinued operations (net of income taxes) available							Income (loss) from discontinued operations (net of income taxes) available
							to PPL common shareowners - Basic and Diluted	$	1	$		$	2	$	(6)

Net income attributable to PPL shareowners	Net income attributable to PPL shareowners		$	413	$	541	Net income attributable to PPL shareowners	$	410	$	355	$	1,228	$	1,167
Less amounts allocated to participating securities	Less amounts allocated to participating securities			2		3	Less amounts allocated to participating securities		2		2		6		7
Net income available to PPL common shareowners - Basic	Net income available to PPL common shareowners - Basic			411		538	Net income available to PPL common shareowners - Basic		408		353		1,222		1,160
Plus interest charges (net of tax) related to Equity Units	Plus interest charges (net of tax) related to Equity Units			15			Plus interest charges (net of tax) related to Equity Units		7				37
Net income available to PPL common shareowners - Diluted	Net income available to PPL common shareowners - Diluted		$	426	$	538	Net income available to PPL common shareowners - Diluted	$	415	$	353	$	1,259	$	1,160

Shares of Common Stock (Denominator)
Weighted-average shares - Basic EPS				582,640		579,041
Add incremental non-participating securities:
		Share-based payment awards		810		486
		Equity Units		71,990
		Forward sale agreements		1,580
Weighted-average shares - Diluted EPS				657,020		579,527

Basic EPS
		Net Income Available to PPL common shareowners	$	0.70	$	0.93

Diluted EPS
		Net Income Available to PPL common shareowners	$	0.65	$	0.93

		Three Months				Nine Months
		2013		2012		2013		2012
Shares of Common Stock (Denominator)
Weighted-average shares - Basic EPS			631,046		580,585		601,275		579,847
Add incremental non-participating securities:
	Share-based payment awards		1,163		635		1,035		522
	Equity Units		32,134		439		59,171		146
	Forward sale agreements				977		613		415
Weighted-average shares - Diluted EPS			664,343		582,636		662,094		580,930

Basic EPS
Available to PPL common shareowners:
	Income from continuing operations after income taxes	$	0.65	$	0.61	$	2.03	$	2.01
	Income (loss) from discontinued operations (net of income taxes)								(0.01)
	Net Income	$	0.65	$	0.61	$	2.03	$	2.00

Diluted EPS
Available to PPL common shareowners:
	Income from continuing operations after income taxes	$	0.62	$	0.61	$	1.90	$	2.01
	Income (loss) from discontinued operations (net of income taxes)								(0.01)
	Net Income	$	0.62	$	0.61	$	1.90	$	2.00

For the periods ended ~~March 31,~~September 30, PPL issued common stock related to stock-based compensation plans, ESOP and DRIP as follows:

(Shares in thousands)	(Shares in thousands)	Three Months		(Shares in thousands)	Three Months				Nine Months
					2013		2012		2013		2012
		2013	2012
Stock-based compensation plans (a)	Stock-based compensation plans (a)	446	277	Stock-based compensation plans (a)		85		159		1,469		512
ESOP	ESOP	275	280	ESOP						275		280
DRIP	DRIP	549	558	DRIP				598		549		1,773

(a)	Includes stock options exercised, vesting of restricted stock and restricted stock units and conversion of stock units granted to directors.

~~In April 2013, PPL settled certain forward sale agreements.~~ See Note 7 for ~~additional information.~~information on the repurchase of shares of PPL common stock that offset the 2013 issuances of common stock under stock-based compensation plans, ESOP and DRIP.

For the periods ended ~~March 31,~~September 30, the following were excluded from the computations of diluted EPS because the effect would have been antidilutive.

	Three Months				Three Months				Nine Months
(Shares in thousands)	2013		2012		2013		2012		2013		2012

Stock options		6,589		5,682		1,136		4,935		4,793		5,622
Performance units		206		195		1				73		76
Restricted stock units		116								39

5.5. Income Taxes

Reconciliations of income taxes for the periods ended ~~March 31~~September 30 are:

(PPL)

Three Months
2013 2012
Federal income tax on Income Before Income Taxes at statutory tax rate - 35% $ 197 $ 281
Increase (decrease) due to:
State income taxes, net of federal income tax benefit 3 24
Impact of lower U.K. income tax rates (38) (21)
U.S. income tax on foreign earnings - net of foreign tax credit 2 2
Foreign tax reserve adjustments 3
Federal income tax credits (3) (4)
Amortization of investment tax credit (3) (2)
Depreciation not normalized (3) (2)
State deferred tax rate change (a) (11)
Net operating loss carryforward adjustments (b) (6)
Other (4) (5)
Total increase (decrease) (46) (22)
Total income taxes $ 151 $ 259

(PPL)

		Three Months				Nine Months
		2013		2012		2013		2012

Federal income tax on Income from Continuing Operations Before
	Income Taxes at statutory tax rate - 35%	$	173	$	130	$	550	$	539

			Three Months				Nine Months
			2013		2012		2013		2012
Increase (decrease) due to:
	State income taxes, net of federal income tax benefit			12		6		29		38
	State valuation allowance adjustments (a)			38		2		38		2
	Impact of lower U.K. income tax rates (b)			(38)		(30)		(101)		(75)
	U.S. income tax on foreign earnings - net of foreign tax credit (c)			10		1		5		2
	Federal and state tax reserve adjustments (d)			(1)		(2)		(41)		(7)
	Foreign tax reserve adjustments			(2)				(2)		(5)
	Federal and state income tax return adjustments			(4)				(4)
	Enactment of the U.K.'s Finance Acts 2013 and 2012 (b)			(93)		(74)		(93)		(74)
	Federal income tax credits			(4)		(5)		(9)		(12)
	Amortization of investment tax credit			(1)		(2)		(6)		(7)
	Depreciation not normalized			(2)		(2)		(6)		(6)
	State deferred tax rate change (e)					(6)				(17)
	Net operating loss carryforward adjustments (f)									(9)
	Intercompany interest on U.K. financing entities (g)			(2)		(3)		(7)		(8)
	Other			(2)		2		(9)		3
		Total increase (decrease)		(89)		(113)		(206)		(175)
Total income taxes from continuing operations			$	84	$	17	$	344	$	364

(a)

During the three and nine months ended ~~March 31,~~September 30, 2013, PPL recorded an increase in state deferred income tax expense related to a deferred tax valuation allowance primarily due to a decrease in projected future taxable income over the remaining carryforward period of Pennsylvania net operating losses.

(b)

The U.K. Finance Act 2013, enacted in July 2013, reduced the U.K. statutory income tax rate from 23% to 21% effective April 1, 2014 and from 21% to 20% effective April 1, 2015. As a result, PPL reduced its net deferred tax liabilities and recognized a deferred tax benefit in the third quarter of 2013 related to both rate decreases.

The U.K. Finance Act 2012, enacted in July 2012, reduced the U.K. statutory income tax rate from 25% to 24% retroactive to April 1, 2012 and from 24% to 23% effective April 1, 2013. As a result, PPL reduced its net deferred tax liabilities and recognized a deferred tax benefit in the third quarter of 2012 related to both rate decreases.

(c)	During the three and nine months ended September 30, 2013, PPL recorded a $10 million and $24 million increase to income tax expense primarily attributable to a revision in the expected taxable amount of cash repatriation in 2013.

During the nine months ended September 30, 2013, PPL recorded a tax benefit of $19 million associated with a ruling obtained from the IRS impacting the recalculation of 2010 U.K. earnings and profits that was reflected on an amended 2010 U.S. tax return.

(d)

In 1997, the U.K. imposed a Windfall Profits Tax (WPT) on privatized utilities, including WPD. PPL filed its tax returns for years subsequent to its 1997 and 1998 claims for refund on the basis that the U.K. WPT was creditable. In September 2010, the U.S. Tax Court (Tax Court) ruled in PPL's favor in a dispute with the IRS, concluding that the U.K. WPT is a creditable tax for U.S. tax purposes. In January 2011, the IRS appealed the Tax Court's decision to the U.S. Court of Appeals for the Third Circuit (Third Circuit). In December 2011, the Third Circuit issued its opinion reversing the Tax Court's decision, holding that the U.K. WPT is not a creditable tax. As a result of the Third Circuit's adverse determination, PPL recorded a $39 million expense in the fourth quarter of 2011. In June 2012, the U.S. Court of Appeals for the Fifth Circuit issued a contrary opinion in an identical case involving another company. In July 2012, PPL filed a petition for a writ of certiorari seeking U.S. Supreme Court review of the Third Circuit's opinion. The Supreme Court granted PPL's petition and oral argument was held in February 2013. On May 20, 2013, the Supreme Court reversed the Third Circuit's opinion and ruled that the WPT is a creditable tax. As a result of the Supreme Court ruling, PPL recorded a tax benefit of $44 million during the nine months ended September 30, 2013, of which $19 million relates to interest.

(e)	During the three and nine months ended September 30, 2012, PPL recorded adjustments related to state deferred tax liabilities.

~~(b)~~(f)

During the ~~three~~nine months ended ~~March 31,~~September 30, 2012, PPL recorded adjustments to deferred taxes related to net operating loss carryforwards of LKE based on income tax return adjustments.

(g)	PPL recorded foreign income tax benefits related to interest expense on intercompany loans for which there was no domestic income tax expense.

(PPL Energy Supply)

Three Months
2013 2012
Federal income tax on Income (Loss) Before Income Taxes at statutory tax rate - 35% $ (26) $ 170
Increase (decrease) due to:
State income taxes, net of federal income tax benefit (6) 23
Federal income tax credits (3) (4)
State deferred tax rate change (a) (11)
Other (1)
Total increase (decrease) (9) 7
Total income taxes $ (35) $ 177

(PPL Energy Supply)

				Three Months				Nine Months
				2013		2012		2013		2012
Federal income tax on Income Before Income Taxes at statutory
	tax rate - 35%			$	70	$	25	$	98	$	205
Increase (decrease) due to:
		State income taxes, net of federal income tax benefit			7		1		10		25
		State valuation allowance adjustments			4		2		4		2
		Federal and state tax reserve adjustments (a)							6
		Federal income tax credits			(4)		(4)		(7)		(10)
		State deferred tax rate change (b)					(6)				(17)
		Other			(3)		(2)		(5)		(3)
			Total increase (decrease)		4		(9)		8		(3)
Total income taxes				$	74	$	16	$	106	$	202

(a)

During the ~~three~~nine months ended ~~March 31,~~September 30, 2013, PPL Energy Supply reversed $3 million in tax benefits related to a 2008 change in method of accounting for certain expenditures for tax purposes and recorded $4 million in federal tax reserves related to differences in over (under) payment interest rates applied to audit claims as a result of the U.S. Supreme Court decision related to Windfall Profits Tax.

(b)	During the three and nine months ended September 30, 2012, PPL Energy Supply recorded adjustments related to state deferred tax liabilities.

(PPL Electric)

Three Months
2013 2012
Federal income tax on Income Before Income Taxes at statutory tax rate - 35% $ 34 $ 20
Increase (decrease) due to:
State income taxes, net of federal income tax benefit 5 2
Federal and state tax reserve adjustments (2) (1)
Depreciation not normalized (3) (1)
Other (1)
Total increase (decrease) (1)
Total income taxes $ 33 $ 20

4243

(PPL Electric)

				Three Months				Nine Months
				2013		2012		2013		2012

Federal income tax on Income Before Income Taxes at statutory
	tax rate - 35%			$	27	$	17	$	85	$	51
Increase (decrease) due to:
		State income taxes, net of federal income tax benefit			5		2		13		7
		Federal and state tax reserve adjustments			(2)		(2)		(6)		(5)
		Depreciation not normalized			(2)		(1)		(6)		(5)
		Other			(2)				(3)		(1)
			Total increase (decrease)		(1)		(1)		(2)		(4)
Total income taxes				$	26	$	16	$	83	$	47

(LKE)	(LKE)						(LKE)

			Three Months							Three Months				Nine Months
			2013		2012					2013		2012		2013		2012
Federal income tax on Income Before Income Taxes at statutory tax rate - 35%			$	54	$	26

Federal income tax on Income from Continuing Operations Before							Federal income tax on Income from Continuing Operations Before
							Income Taxes at statutory tax rate - 35%			$	56	$	46	$	144	$	96
Increase (decrease) due to:	Increase (decrease) due to:						Increase (decrease) due to:
	State income taxes, net of federal income tax benefit			5		2		State income taxes, net of federal income tax benefit			6		5		14		7
	Net operating loss carryforward adjustments (a)					(6)		Amortization of investment tax credit			(1)		(1)		(3)		(4)
	Other			(2)		(1)		Net operating loss carryforward adjustments (a)									(9)
		Total increase (decrease)		3		(5)		Other			(2)		(2)		(2)		(1)
Total income taxes			$	57	$	21
									Total increase (decrease)		3		2		9		(7)
Total income taxes from continuing operations							Total income taxes from continuing operations			$	59	$	48	$	153	$	89

(a)	During the ~~three~~nine months ended ~~March 31,~~September 30, 2012, LKE recorded adjustments to deferred taxes related to net operating loss carryforwards based on income tax return adjustments.

(LG&E)	(LG&E)						(LG&E)

			Three Months							Three Months				Nine Months
			2013		2012					2013		2012		2013		2012
Federal income tax on Income Before Income Taxes at statutory tax rate - 35%			$	24	$	14

Federal income tax on Income Before Income Taxes at statutory							Federal income tax on Income Before Income Taxes at statutory
							tax rate - 35%			$	27	$	24	$	67	$	52
Increase (decrease) due to:	Increase (decrease) due to:						Increase (decrease) due to:
	State income taxes, net of federal income tax benefit			3		1		State income taxes, net of federal income tax benefit			3		2		7		5
	Other			(2)				Other			(3)		(1)		(5)		(3)
		Total increase (decrease)		1		1			Total increase (decrease)				1		2		2
Total income taxes	Total income taxes		$	25	$	15	Total income taxes			$	27	$	25	$	69	$	54

(KU)	(KU)						(KU)

			Three Months							Three Months				Nine Months
			2013		2012					2013		2012		2013		2012
Federal income tax on Income Before Income Taxes at statutory tax rate - 35%			$	36	$	21

Federal income tax on Income Before Income Taxes at statutory							Federal income tax on Income Before Income Taxes at statutory
							tax rate - 35%			$	35	$	28	$	95	$	66
Increase (decrease) due to:	Increase (decrease) due to:						Increase (decrease) due to:
	State income taxes, net of federal income tax benefit			4		2		State income taxes, net of federal income tax benefit			4		3		10		6
	Other			(1)		(1)		Other			(3)		(1)		(4)		(2)
		Total increase (decrease)		3		1			Total increase (decrease)		1		2		6		4
Total income taxes	Total income taxes		$	39	$	22	Total income taxes			$	36	$	30	$	101	$	70

Unrecognized Tax Benefits (~~PPL, PPL Energy Supply, PPL Electric, LKE, LG&E and KU)~~All Registrants)

Changes to unrecognized tax benefits for the periods ended ~~March 31~~September 30 were as ~~follows:~~follows.

Three Months
2013 2012
PPL
Beginning of period $ 92 $ 145
Additions based on tax positions of prior years 4
Reductions based on tax positions of prior years (27)
Additions based on tax positions related to the current year 1
Lapse of applicable statutes of limitations (2) (2)
End of period $ 90 $ 121

PPL Energy Supply
Beginning of period $ 30 $ 28
Additions based on tax positions of prior years 4
Reductions based on tax positions of prior years (1)
End of period $ 30 $ 31

PPL Electric
Beginning of period $ 26 $ 73
Reductions based on tax positions of prior years (26)
Additions based on tax positions related to the current year 1
Lapse of applicable statutes of limitations (2) (2)
End of period $ 24 $ 46

4344

			Three Months				Nine Months
			2013		2012		2013		2012
PPL
	Beginning of period		$	36	$	113	$	92	$	145
	Additions based on tax positions of prior years					2				6
	Reductions based on tax positions of prior years							(26)		(31)
	Additions based on tax positions related to the current year	��						4
	Reductions based on tax positions related to the current year					(1)				(2)
	Settlements							(30)
	Lapse of applicable statutes of limitations			(5)		(2)		(9)		(6)
	End of period		$	31	$	112	$	31	$	112

PPL Energy Supply
	Beginning of period		$	15	$	31	$	30	$	28
	Additions based on tax positions of prior years									4
	Reductions based on tax positions of prior years							(15)		(1)
	End of period		$	15	$	31	$	15	$	31

PPL Electric
	Beginning of period		$	12	$	43	$	26	$	73
	Reductions based on tax positions of prior years					(1)		(10)		(28)
	Additions based on tax positions related to the current year									1
	Lapse of applicable statutes of limitations			(3)		(2)		(7)		(6)
	End of period		$	9	$	40	$	9	$	40

LKE's, LG&E's and KU's unrecognized tax benefits and changes in those unrecognized tax benefits ~~are~~were insignificant for the three and nine months ended ~~March 31,~~September 30, 2013 and 2012.

At ~~March 31,~~September 30, 2013, it was reasonably possible that during the next 12 months the total amount of unrecognized tax benefits could increase or decrease by the following amounts. ~~For LKE, LG&E and KU, no significant changes in unrecognized tax benefits are projected over the next 12 months.~~

		Increase		Decrease			Increase		Decrease

PPL	PPL	$	10	$	88	PPL	$	16	$	30
PPL Energy Supply	PPL Energy Supply				30	PPL Energy Supply				15
PPL Electric	PPL Electric		10		22	PPL Electric		16		8

These potential changes could result from subsequent recognition, derecognition and/or changes in the measurement of uncertain tax positions related to the creditability of foreign taxes, the timing and utilization of foreign tax credits and the related impact on alternative minimum tax and other credits, the timing and/or valuation of certain deductions, intercompany transactions and unitary filing groups. The events that could cause these changes are direct settlements with taxing authorities, litigation, legal or administrative guidance by relevant taxing authorities and the lapse of an applicable statute of limitation.

For LKE, LG&E and KU, no significant changes in unrecognized tax benefits are projected over the next 12 months.

At ~~March 31,~~September 30, the total unrecognized tax benefits and related indirect effects that, if recognized, would decrease the effective income tax rate were as follows.

The amounts for PPL Electric, LKE, LG&E and KU were insignificant.

2013 2012

PPL $ 37 $ 41
PPL Energy Supply 13 14
PPL Electric 3 6

Other (PPL, PPL Energy Supply and PPL Electric)

PPL changed its method of accounting for repair expenditures for tax purposes effective for its 2008 tax year for Pennsylvania operations. PPL made the same change for its Montana operations for ~~2009.~~the 2009 tax year. In 2011, the IRS issued guidance on repair expenditures related to network assets providing a safe harbor method of determining whether the repair expenditures can be currently deducted for tax purposes. On April 30, 2013, the IRS issued Revenue Procedure 2013-24 providing guidance to taxpayers to determine whether expenditures to maintain, replace or improve steam or electric generation property must be capitalized for tax purposes. ~~PPL is evaluating the impact of this guidance.~~ The IRS may assert, and ultimately conclude, that PPL's deduction

for generation-related expenditures should be ~~disallowed in whole or in part.~~less than the amount determined by PPL. PPL believes that it has established an adequate ~~reserve~~reserves for this contingency.

~~Tax Litigation(PPL)~~

In 1997, the U.K. imposed a Windfall Profits Tax (WPT) on privatized utilities, including WPD. PPL filed its tax returns for years subsequent to its 1997 and 1998 claims for refund on the basis that the U.K. WPT was creditable. In September 2010, the U.S. Tax Court (Tax Court) ruled in PPL's favor in a dispute with the IRS, concluding that the U.K. WPT is a creditable tax for U.S. tax purposes. As a result, and with finalization of other issues, PPL recorded a $42 million tax benefit in 2010. In January 2011, the IRS appealed the Tax Court's decision to the U.S. Court of Appeals for the Third Circuit (Third Circuit). In December 2011, the Third Circuit issued its opinion reversing the Tax Court's decision, holding that the U.K. WPT is not a creditable tax. As a result of the Third Circuit's adverse determination, PPL recorded a $39 million expense in the fourth quarter of 2011. In February 2012, PPL filed a petition for rehearing of the Third Circuit's opinion. In March 2012, the Third Circuit denied PPL's petition. In June 2012, the U.S. Court of Appeals for the Fifth Circuit issued a contrary opinion in an identical case involving another company. In July 2012, PPL filed a petition for a writ of certiorari seeking U.S. Supreme Court review of the Third Circuit's opinion. The Supreme Court granted PPL's petition on October 29, 2012, and oral argument was held on February 20, 2013. PPL expects the case to be decided before the end of the Supreme Court's current term in June 2013 and cannot predict the outcome of this matter.

6. Utility Rate Regulation

(All Registrants except PPL ~~PPL Electric, LKE, LG&E and KU)~~Energy Supply)

The following table provides information about the regulatory assets and liabilities of cost-based rate-regulated utility operations.

PPL PPL Electric
March 31, December 31, March 31, December 31,
2013 2012 2013 2012
Current Regulatory Assets:
Transmission formula rate $ 5 $ 5
Gas supply clause 12 $ 11
Fuel adjustment clause 14 6
Other 6 2
Total current regulatory assets $ 37 $ 19 $ 5

Noncurrent Regulatory Assets:
Defined benefit plans $ 714 $ 730 $ 356 $ 362
Taxes recoverable through future rates 295 293 295 293
Storm costs 163 168 58 59
Unamortized loss on debt 94 96 63 65
Interest rate swaps 62 67
Accumulated cost of removal of utility plant 85 71 85 71
AROs 30 26
Other 21 32 3 3
Total noncurrent regulatory assets $ 1,464 $ 1,483 $ 860 $ 853

Current Regulatory Liabilities:
Generation supply charge $ 28 $ 27 $ 28 $ 27
ECR 4
Gas supply clause 1 4
Transmission service charge 12 6 12 6
Universal service rider 15 17 15 17
Other 5 3 2 2
Total current regulatory liabilities $ 61 $ 61 $ 57 $ 52

Noncurrent Regulatory Liabilities:
Accumulated cost of removal of utility plant $ 687 $ 679
Coal contracts (a) 130 141
Power purchase agreement - OVEC (a) 107 108
Net deferred tax assets 33 34
Act 129 compliance rider 13 8 $ 13 $ 8
Defined benefit plans 17 17
Interest rate swaps 24 14
Other 5 9
Total noncurrent regulatory liabilities $ 1,016 $ 1,010 $ 13 $ 8

		PPL				PPL Electric
		September 30,		December 31,		September 30,		December 31,
		2013		2012		2013		2012

Current Regulatory Assets:
	ECR	$	7
	Gas supply clause		13	$	11
	Fuel adjustment clause				6
	Other		11		2	$	2
Total current regulatory assets		$	31	$	19	$	2

Noncurrent Regulatory Assets:
	Defined benefit plans	$	683	$	730	$	345	$	362
	Taxes recoverable through future rates		302		293		302		293
	Storm costs		152		168		55		59
	Unamortized loss on debt		88		96		58		65
	Interest rate swaps		49		67
	Accumulated cost of removal of utility plant		95		71		95		71
	AROs		37		26
	Other		17		32		2		3
Total noncurrent regulatory assets		$	1,423	$	1,483	$	857	$	853

LKE LG&E KU
March 31, December 31, March 31, December 31, March 31, December 31,
2013 2012 2013 2012 2013 2012
Current Regulatory Assets:
Gas supply clause $ 12 $ 11 $ 12 $ 11
Fuel adjustment clause 14 6 7 6 $ 7
Other 6 2 2 2 4
Total current regulatory assets $ 32 $ 19 $ 21 $ 19 $ 11

Noncurrent Regulatory Assets:
Defined benefit plans $ 358 $ 368 $ 225 $ 232 $ 133 $ 136
Storm costs 105 109 57 59 48 50
Unamortized loss on debt 31 31 20 20 11 11
Interest rate swaps 62 67 62 67
AROs 30 26 17 15 13 11
Other 18 29 7 7 11 22
Total noncurrent regulatory assets $ 604 $ 630 $ 388 $ 400 $ 216 $ 230

Current Regulatory Liabilities:
	Generation supply charge	$	21	$	27	$	21	$	27
	ECR				4
	Gas supply clause		2		4
	Transmission service charge		9		6		9		6
	Transmission formula rate		9				9
	Universal service rider		11		17		11		17
	Gas line tracker		6
	Other		10		3		1		2
Total current regulatory liabilities		$	68	$	61	$	51	$	52

Noncurrent Regulatory Liabilities:
	Accumulated cost of removal of utility plant	$	690	$	679
	Coal contracts (a)		108		141
	Power purchase agreement - OVEC (a)		102		108
	Net deferred tax assets		32		34
	Act 129 compliance rider		14		8	$	14	$	8
	Defined benefit plans		18		17
	Interest rate swaps		84		14
	Other		6		9
Total noncurrent regulatory liabilities		$	1,054	$	1,010	$	14	$	8

		LKE				LG&E				KU
		September 30,		December 31,		September 30,		December 31,		September 30,		December 31,
		2013		2012		2013		2012		2013		2012

Current Regulatory Assets:
	ECR	$	7			$	2			$	5
	Gas supply clause		13	$	11		13	$	11
	Fuel adjustment clause				6				6
	Other		9		2		4		2		5
Total current regulatory assets		$	29	$	19	$	19	$	19	$	10

4546

LKE LG&E KU
March 31, December 31, March 31, December 31, March 31, December 31,
2013 2012 2013 2012 2013 2012
Current Regulatory Liabilities:
ECR $ 4 $ 4
DSM $ 1 $ 1
Gas supply clause 1 4 $ 1 $ 4
Gas line tracker 2 2
Other 1 1
Total current regulatory liabilities $ 4 $ 9 $ 3 $ 4 $ 1 $ 5

Noncurrent Regulatory Liabilities:
Accumulated cost of removal
of utility plant $ 687 $ 679 $ 299 $ 297 $ 388 $ 382
Coal contracts (a) 130 141 57 61 73 80
Power purchase agreement - OVEC (a) 107 108 74 75 33 33
Net deferred tax assets 33 34 27 28 6 6
Defined benefit plans 17 17 17 17
Interest rate swaps 24 14 12 7 12 7
Other 5 9 2 3 3 6
Total noncurrent regulatory liabilities $ 1,003 $ 1,002 $ 471 $ 471 $ 532 $ 531

		LKE				LG&E				KU
		September 30,		December 31,		September 30,		December 31,		September 30,		December 31,
		2013		2012		2013		2012		2013		2012

Noncurrent Regulatory Assets:
	Defined benefit plans	$	338	$	368	$	212	$	232	$	126	$	136
	Storm costs		97		109		53		59		44		50
	Unamortized loss on debt		30		31		19		20		11		11
	Interest rate swaps		49		67		49		67
	AROs		37		26		20		15		17		11
	Other		15		29		6		7		9		22
Total noncurrent regulatory assets		$	566	$	630	$	359	$	400	$	207	$	230

Current Regulatory Liabilities:
		ECR			$	4							$	4
		Gas supply clause	$	2		4	$	2	$	4
		Gas line tracker		6				6
		Other		9		1		3			$	6		1
Total current regulatory liabilities			$	17	$	9	$	11	$	4	$	6	$	5

Noncurrent Regulatory Liabilities:
	Accumulated cost of removal
		of utility plant	$	690	$	679	$	300	$	297	$	390	$	382
	Coal contracts (a)			108		141		47		61		61		80
	Power purchase agreement - OVEC (a)			102		108		71		75		31		33
	Net deferred tax assets			32		34		26		28		6		6
	Defined benefit plans			18		17						18		17
	Interest rate swaps			84		14		42		7		42		7
	Other			6		9		3		3		3		6
Total noncurrent regulatory liabilities			$	1,040	$	1,002	$	489	$	471	$	551	$	531

(a)	~~Recorded~~These liabilities were recorded as offsets to certain intangible assets that were recorded at fair value upon the acquisition of ~~LKE.~~ LKE by PPL.

Regulatory Matters

Kentucky Activities (PPL ~~LKE, LG&E~~ and ~~KU)~~Kentucky Registrants)

Rate Case Proceedings

In December 2012, the KPSC approved a rate case settlement agreement providing for increases in annual base electricity rates of $34 million for LG&E and $51 million for KU and an increase in annual base gas rates of $15 million for LG&E using a 10.25% return on equity. The approved rates became effective January 1, 2013.

Pennsylvania Activities (PPL and PPL ~~Electric)~~Electric)

Rate Case Proceeding

In December 2012, the PUC approved a total distribution revenue increase of about $71 million for PPL Electric, using a ~~10.4%~~10.40% return on equity. The approved rates became effective January 1, 2013.

Storm Damage Expense Rider

In its December 28, 2012 final rate case ~~proceeding~~ order, the PUC directed PPL Electric to file a proposed Storm Damage Expense Rider ~~within 90 days following the order.~~(SDER). PPL Electric filed its proposed ~~Storm Damage Expense Rider with the PUC~~SDER on March 28, 2013, including requested recovery of the 2012 qualifying storm costs related to Hurricane Sandy, which ~~were~~the PUC previously approved ~~by the PUC~~ for deferral. PPL Electric proposed that the ~~Storm Damage Expense Rider~~SDER become effective on January 1, 2013 for storm costs incurred in 2013, with those costs and the 2012 Hurricane Sandy costs included in rates effective on January 1, 2014. Several parties ~~have~~ filed comments opposing the ~~Storm Damage Expense Rider.~~SDER. PPL Electric ~~will file~~and several other parties filed reply comments byin May 6, 2013. In October 2013, the PUC adopted an Order requesting submission of additional comments and reply comments on PPL Electric's proposal. This matter remains pending before the PUC.

~~ACT~~

Act 129

Act 129 requires Pennsylvania Electric Distribution Companies (EDCs) to meet specified goals for reduction in customer electricity usage and peak demand by specified dates. EDCs not meeting the requirements of Act 129 are ~~exposed~~subject to significant penalties.

Under Act 129, EDCs must file an energy efficiency and conservation plan (EE&C Plan) with the PUC and contract with conservation service providers to implement all or a portion of the EE&C Plan. EDCs are able to recover the costs (capped at 2.0% of the EDC's 2006 revenue) of implementing their EE&C Plans. In October 2009, the PUC approved PPL Electric's Phase 1 EE&C Plan ending May 31, 2013.

Act 129 requires EDCs to reduce overall electricity consumption by 1.0% by May 2011 and by 3.0% by May 2013, ~~reduce overall electricity consumption by 3.0%~~ and reduce peak demand by 4.5%. ~~Although PPL Electric believes it has met~~The overall consumption reduction is measured against PUC-forecasted consumption for the twelve months ended May ~~2011 requirement, the PUC is not expected formally to determine compliance for any EDC before the first quarter of 2014.~~31, 2010. The peak demand reduction must occur for the 100 hours of highest demand, which is determined by actual demand reduction during the June 2012 through September 2012 period. ~~EDCs are able to recover~~PPL Electric believes it has met the ~~costs (capped at 2.0% of the EDC's 2006 revenue) of implementing their EE&C Plans. In October 2009, the PUC approved PPL Electric's EE&C Plan. PPL Electric~~May 2011 requirement and will determine if it met the May 2013 peak demand reduction ~~target~~ and ~~the May 2013~~ energy reduction ~~target~~targets after it completes the final program evaluation in the fourth quarter of 2013. PPL Electric does not expect the PUC to formally determine compliance for either the 2011 or 2013 requirements before the first quarter of 2014.

Act 129 requires the PUC to evaluate the costs and benefits of the EE&C program by November 30, 2013 and adopt additional reductions if the benefits of the program exceed the costs. In August 2012, after receiving input from stakeholders, the PUC issued a Final Implementation Order establishing a three-year Phase II program, ending May 31, 2016, with individual consumption reduction targets for each EDC. PPL Electric's Phase II reduction target is 2.1% of the total energy consumption forecasted by the PUC for the ~~June 1, 2009 through~~twelve months ended May 31, ~~2010 baseline year.~~2010. The PUC did not establish demand reduction targets for the Phase II program. PPL Electric filed its Phase II EE&C Plan with the PUC on November 15, 2012 and, ~~the PUC issued its decision~~ in March 2013, ~~approving~~the PUC approved PPL Electric's Phase II ~~program~~EE&C Plan with minor ~~modifications~~modifications. PPL Electric filed a Revised Phase II EE&C Plan on May 13, 2013 pursuant to ~~a related tariff provision.~~the PUC's March Order. On July 11, 2013, the PUC issued an Order approving PPL Electric's Revised Phase II EE&C Plan. PPL Electric began its Phase II Plan implementation on June 1, 2013.

Act 129 also requires ~~the~~ Default Service ~~Provider~~Providers (DSP) to provide electric generation supply service to customers pursuant to a PUC-approved default service procurement plan through auctions, requests for proposal and bilateral contracts at the sole discretion of the DSP. Act 129 requires a mix of spot market purchases, short-term contracts and long-term contracts (4 to 20 years), with long-term contracts limited to 25% of load unless otherwise approved by the PUC. ~~The~~A DSP ~~will be~~is able to recover the costs associated with ~~a competitive~~its default service procurement plan.

The PUC has approved PPL Electric's DSP procurement plan for the period January 1, 2011 through May 31, 2013, and PPL Electric has concluded all competitive solicitations to procure power for its PLR obligations under that plan.

The PUC has directed all EDCs to file default service procurement plans for the period June 1, 2013 through May 31, 2015. PPL Electric filed its plan in May 2012. In that plan, PPL Electric proposed a process to obtain supply for its default service customers and a number of initiatives designed to encourage more customers to purchase electricity from the competitive retail market. In ~~its~~ January ~~24,~~ 2013, ~~final order,~~ the PUC approved PPL Electric's plan with modifications and directed PPL Electric to establish collaborative processes to address several retail competition issues. In February 2013, PPL Electric filed a revised Default Service Supply Master Agreement and a revised Request for Proposals Process and Rules which the PUC approved. PPL Electric ~~has~~ filed revised retail competition initiatives and a revised plan consistent with the PUC's January ~~order. These filings remain pending before~~order, and in May 2013, the ~~PUC.~~PUC approved PPL Electric's most recent filing with minor changes. PPL Electric began implementing its revised plan on June 1, 2013. See Note 10 for additional information.

Smart Meter Rider

Act 129 also requires installation of smart meters for new construction, upon the request of consumers and at their cost, or on a depreciation schedule not exceeding 15 years. Under Act 129, EDCs are able to recover the costs of providing smart metering technology. All of PPL Electric's metered customers currently have advanced meters installed at their service locations capable of many of the functions required under Act 129. PPL Electric continues to conduct pilot projects to ~~determine if~~evaluate additional applications of its current advanced metering technology ~~satisfies~~pursuant to the requirements of Act 129. PPL Electric recovers the cost of its pilot projects through a cost recovery mechanism, the Smart Meter Rider (SMR). In August ~~2012,~~2013, PPL Electric filed with the PUC an annual report describing the actions it was taking under its Smart Meter Plan ~~in 2012~~during 2013 and its planned actions for ~~2013.~~2014. PPL Electric also submitted revised SMR charges ~~which became~~that will become effective January 1, ~~2013.~~2014. PPL Electric will submit its final Smart Meter Plan by June 30, 2014.

PUC Investigation of Retail Electricity Market

In April 2011, the PUC opened an investigation of Pennsylvania's retail electricity market to be conducted in two phases. Phase one addressed the status of the existing retail market and explored potential changes. Questions issued by the PUC for phase one of the investigation focused primarily on default service issues. Phase two was initiated in July 2011 to develop specific proposals for changes to the retail market and default service model. From December 2011 through the end of 2012, the PUC issued several orders and other pronouncements related to the investigation. A final implementation order was issued onin February ~~15, 2013.~~2013, and the PUC created several working groups to address continuing competitive issues. Although the final implementation order contains provisions that will require numerous modifications to PPL Electric's current default service model for retail customers, those modifications are not expected to have a material adverse effect on PPL Electric's results of operations.

~~Legislation - Regulatory Procedures and Mechanisms~~Distribution System Improvement Charge

Act 11 authorizes the PUC to approve two specific ratemaking ~~mechanisms -~~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 begins a period of significant capital investment to maintain and enhance the reliability of its delivery system, including the replacement of aging distribution assets. In August 2012, the PUC issued a Final Implementation Order adopting procedures, guidelines and a model tariff for the implementation of Act 11. Act 11 requires utilities to file an LTIIP as a prerequisite to filing for recovery through the DSIC. The LTIIP is mandated to be a five- to ten-year plan describing projects eligible for inclusion in the DSIC.

In September 2012, PPL Electric filed its LTIIP describing projects eligible for inclusion in the DSIC.

The PUC approved the LTIIP on January 10, 2013 and, on January 15, 2013, PPL Electric filed a petition requesting permission to establish a DSIC. Several parties ~~have~~ filed responses to PPL Electric's petition. In an order entered on May 23, 2013, the PUC approved PPL Electric's proposed DSIC with an initial rate effective July 1, 2013, subject to refund after hearings. The PUC also assigned four specific issues to the Office of Administrative Law Judge for hearing and preparation of a recommended decision. The Judge's recommended decision is expected in early 2014. The case remains pending before the PUC. ~~PPL Electric does not expect any new rates to be effective before the third quarter of 2013.~~

Federal Matters

FERC ~~Formula Rates~~Audit Proceedings ( ~~(PPL~~All Registrants except PPL Energy Supply)

In November 2011, the FERC commenced an audit of PPL and its subsidiaries, including an audit of the FERC transmission formula rate mechanisms at PPL Electric,) LG&E and KU beginning in April 2012. The audit identified several matters related to separate aspects of formula rate mechanics at PPL Electric, LG&E and KU. As previously reported, among the audit matters related to PPL Electric was the determination that PPL Electric had not obtained a waiver of the equity method accounting requirement with respect to its wholly owned subsidiary, PPL Receivables Corporation, which was formed in 2004 to purchase eligible accounts receivable and unbilled revenue from PPL Electric to collateralize commercial paper issuances and reduce borrowing costs. PPL, PPL Electric, LKE, LG&E and KU currently believe that the total amount of refunds, if any, that may be required with respect to the formula rate and all other issues identified during the course of the audit will not be material to any of these Registrants. PPL, PPL Electric, LKE, LG&E and KU, however, cannot predict the ultimate outcome of these matters.

Transmission rates are regulated by the FERC. PPL Electric's transmission revenues are billed in accordance with a FERC-approved PJM open access transmission tariff that utilizes a formula-based rate recovery mechanism. The formula rate is calculated, in part, based on financial results as reported in PPL Electric's annual FERC Form No. 1, filed under the FERC's Uniform System of Accounts (USOA). PPL Electric must follow FERC's USOA, which requires subsidiaries to be presented, for FERC reporting purposes, using the equity method of accounting unless a waiver has been issued. The FERC has granted waivers of this requirement to other utilities when such waiver would more accurately present the integrated operations of the utilities and their subsidiaries. In March 2013, as part of a routine FERC audit of PPL and its subsidiaries, PPL Electric determined that it never obtained a waiver of the use of the equity method of accounting for PPL Receivables Corporation (PPL Receivables). PPL Receivables is a wholly owned subsidiary of PPL Electric, formed in 2004 to purchase eligible accounts receivable and unbilled revenue of PPL Electric to collateralize commercial paper issuances to reduce borrowing costs. In March 2013, PPL Electric filed a request for waiver with FERC that, if approved, would allow it to continue to consolidate the results of PPL Receivables with the results of PPL Electric, as it has done since 2004. While PPL Electric may ultimately be successful in obtaining a waiver from FERC, FERC may require PPL Electric to re-issue one or more of its prior FERC Form No. 1 filings in either the audit proceeding or the waiver proceeding. If re-issuance of FERC Form No. 1 filings were required by FERC, PPL Electric's revenue requirement calculated under the formula rate could be negatively impacted. The impact, if any, is not known at this time but could range between $0 and $40 million, pre-tax. PPL Electric cannot predict the outcome of the waiver or audit proceedings, which remain pending before the FERC.

Accounts. PPL Electric has initiated ~~its~~separate formula rate ~~2012,~~Annual Updates for each of the years 2010-2013. The 2010, 2011, and ~~2010 Annual Updates. Each update has been~~2012 updates were subsequently challenged by a group of municipal customers, which challenges ~~have been opposed by~~ PPL ~~Electric.~~Electric has opposed. In August 2011, the FERC issued an order substantially rejecting the 2010 formal challenge and the municipal customers filed a request for rehearing of that order. In September 2012, the FERC issued an order setting for evidentiary hearings and settlement judge procedures a number of issues raised in the 2010 and 2011 formal challenges. Settlement conferences were held in late 2012 and early 2013. In February 2013, the FERC set for evidentiary hearings and settlement judge procedures a number of issues in the 2012 formal challenge and consolidated that challenge with the 2010 and 2011 challenges. PPL Electric filed a request for rehearing of the February Order which remains pending before the FERC. PPL Electric and the group of municipal customers have exchanged confidential settlement proposals and PPL Electric anticipates that there will be additional settlement conferences held in 2013. ~~Several of the municipal customers have filed Notice of Withdrawal of Intervention.~~ PPL and PPL Electric cannot predict the outcome of the foregoing proceedings, which remain pending before the FERC.

~~U.K.~~U. K. Activities ~~(PPL)~~(PPL)

Ofgem Review of Line Loss Calculation

Ofgem is currently consulting on the methodology to be used by all network operators to calculate the final line loss incentive/penalty for the DPCR4. ~~In April~~On July 12, 2013, Ofgem ~~stated that their current expectation was to issue~~issued a decision paper on the process to follow for closing out the line loss incentive/penalty. Subsequent to the July 2013 decision paper, WPD received additional information from Ofgem and as a result revised the estimated potential loss exposure to be in the ~~second half~~range of $93 million to $226 million as of September 30, 2013. ~~PPL cannot predict when this matter will be resolved.~~On October 21, 2013, Ofgem issued a further consultation paper requesting additional information. During the three and nine months ended September 30, 2013, WPD ~~had an $89~~recorded $21 million and $45 million increases to the liability ~~recorded at March 31,~~with reductions to "Utility" revenue on the Statement of Income. At September 30, 2013, the liability was $93 million compared with $94 million at December 31, ~~2012, related~~2012. Other changes to ~~the close-out~~this line loss liability included reductions of ~~line losses for the DPCR4, with the change due to~~$41 million resulting from refunds being included in tariffs and foreign exchange ~~movements.~~ movements during the nine months ended September 30, 2013. PPL cannot predict the outcome of this matter.

7. Financing Activities

Credit Arrangements and Short-term Debt

(~~PPL, PPL Energy Supply, PPL Electric, LKE, LG&E and KU)~~All Registrants)

The Registrants maintain credit facilities to enhance liquidity, provide credit support, and provide a backstop to commercial paper programs. For reporting purposes, on a consolidated basis, the credit facilities and commercial paper programs of PPL Energy Supply, PPL Electric, LG&E and KU also apply to PPL and the credit facilities and commercial paper programs of LG&E and KU also apply to LKE. The amounts borrowed below are recorded as "Short-term debt" on the Balance Sheets. The following credit facilities were in place at:

				March 31, 2013										December 31, 2012							September 30, 2013										December 31, 2012
										Letters of						Letters of											Letters of						Letters of
										Credit Issued						Credit Issued											Credit Issued						Credit Issued
										and						and											and						and
										Commercial						Commercial											Commercial						Commercial
				Expiration				Borrowed		Paper		Unused		Borrowed		Paper					Expiration						Paper		Unused				Paper
				Date		Capacity		(a)		Backup		Capacity		(a)		Backup					Date		Capacity		Borrowed		Backup		Capacity		Borrowed		Backup
PPL	PPL																	PPL
	WPD Credit Facilities																	WPD Credit Facilities
		PPL WW Syndicated																	PPL WW Syndicated
			Credit Facility (b) (c)		Dec. 2016	£	210	£	109		n/a	£	101	£	106		n/a			Credit Facility (a) (b)		Dec. 2016	£	210	£	106		n/a	£	104	£	106		n/a
		WPD (South West)																	WPD (South West)
			Syndicated Credit Facility		Jan. 2017		245				n/a		245				n/a			Syndicated Credit Facility		Jan. 2017		245				n/a		245				n/a
		WPD (East Midlands)																	WPD (East Midlands)
			Syndicated Credit Facility (c)		Apr. 2016		300		65				235							Syndicated Credit Facility (b)		Apr. 2016		300		44				256
		WPD (West Midlands)																	WPD (West Midlands)
			Syndicated Credit Facility		Apr. 2016		300						300							Syndicated Credit Facility (b)		Apr. 2016		300		34				266
		Uncommitted Credit Facilities					84			£	4		80			£	4		Uncommitted Credit Facilities					84			£	5		79			£	4
			Total WPD Credit Facilities (d)			£	1,139	£	174	£	4	£	961	£	106	£	4			Total WPD Credit Facilities (c)			£	1,139	£	184	£	5	£	950	£	106	£	4

PPL Energy Supply	PPL Energy Supply																	PPL Energy Supply
	Syndicated Credit Facility				Nov. 2017	$	3,000			$	641	$	2,359			$	499	Syndicated Credit Facility				Nov. 2017	$	3,000			$	61	$	2,939			$	499
	Letter of Credit Facility (e)				Mar. 2014		200		n/a		123		77		n/a		132	Letter of Credit Facility (d)				Mar. 2014		150		n/a		109		41		n/a		132
	Uncommitted Credit Facilities						200		n/a		88		112		n/a		40	Uncommitted Credit Facilities (e)						175		n/a		51		124		n/a		40
			Total PPL Energy Supply Credit Facilities			$	3,400			$	852	$	2,548			$	671			Total PPL Energy Supply Credit Facilities			$	3,325			$	221	$	3,104			$	671

PPL Electric	PPL Electric																	PPL Electric
	Syndicated Credit Facility				Oct. 2017	$	300			$	126	$	174			$	1	Syndicated Credit Facility				Oct. 2017	$	300			$	1	$	299			$	1
	Asset-backed Credit Facility (f)				Sept. 2013		100				n/a		100				n/a
			Total PPL Electric Credit Facilities			$	400			$	126	$	274			$	1

LG&E	LG&E																	LG&E
	Syndicated Credit Facility				Nov. 2017	$	500			$	70	$	430			$	55	Syndicated Credit Facility				Nov. 2017	$	500			$	72	$	428			$	55

KU	KU																	KU
	Syndicated Credit Facility				Nov. 2017	$	400			$	115	$	285			$	70	Syndicated Credit Facility				Nov. 2017	$	400			$	140	$	260			$	70
	Letter of Credit Facility (g)				Apr. 2014		198				198						198	Letter of Credit Facility (f)				May 2016		198				198						198
			Total KU Credit Facilities			$	598			$	313	$	285			$	268			Total KU Credit Facilities			$	598			$	338	$	260			$	268

(a)	~~Amounts borrowed are recorded as "Short-term debt" on the Balance Sheets.~~

~~(b)~~

In December 2012, the PPL WW syndicated credit facility that was set to expire in January 2013 was replaced and the capacity was increased from £150 million.

~~(c)~~(b)

PPL WW's amounts borrowed at ~~March 31,~~September 30, 2013 and December 31, 2012 were USD-denominated borrowings of $166 million and $171 million, which equated to ~~£109 million and~~ £106 million at the time of borrowings and bore interest at ~~1.9034%~~1.89% and ~~0.8452%~~0.85%. WPD (East Midlands) amount borrowed at ~~March 31,~~September 30, 2013 was a GBP-denominated borrowing of ~~£65~~£44 million, which equated to ~~$99~~$68 million and bore interest at 1.30%. WPD (West Midlands) amount borrowed at September 30, 2013 was a GBP-denominated borrowing of £34 million, which equated to $53 million and bore interest at 1.30%.

~~(d)~~(c)

At ~~March 31,~~September 30, 2013, the USD equivalent of unused capacity under WPD's credit facilities was $1.5 billion.

~~(e)~~(d)

In February 2013, PPL Energy Supply extended the expiration date from March 2013 and, effective April 2013, the capacity was reduced ~~to $150~~from $200 million.

~~(f)~~(e)

PPL Electric participates in an asset-backed commercial paper program through which PPL Electric obtains financing by selling and contributing its eligible accounts receivable and unbilled revenue to a special purpose, wholly owned subsidiary on an ongoing basis. The subsidiary has pledged these assets to secure loansIn August 2013, the capacity was reduced from ~~a commercial paper conduit sponsored by a financial institution.~~$200 million.

At March 31, 2013 and December 31, 2012, $277 million and $238 million of accounts receivable and $98 million and $106 million of unbilled revenue were pledged by the subsidiary under the credit agreement related to PPL Electric's and the subsidiary's participation in the asset-backed commercial paper program. Based on the accounts receivable and unbilled revenue pledged at March 31, 2013, the amount available for borrowing under the facility was $100 million. PPL Electric's sale to its subsidiary of the accounts receivable and unbilled revenue is an absolute sale of assets, and PPL Electric does not retain an interest in these assets. However, for financial reporting purposes, the subsidiary's financial results are consolidated in PPL Electric's financial statements. PPL Electric performs certain record-keeping and cash collection functions with respect to the assets in return for a servicing fee from the subsidiary.

~~(g)~~(f)

In May 2013, KU extended the letter of credit facility ~~to May 2016.~~ from April 2014.

In September 2013, PPL Electric terminated its asset-backed commercial paper program sponsored by a financial institution. See Note 7 in PPL's and PPL Electric's 2012 Form 10-K for more information regarding the asset-backed commercial paper program.

In October 2013, LKE entered into a $75 million syndicated credit facility that expires in October 2018.

PPL Energy Supply, PPL Electric, LG&E and KU maintain commercial paper programs to provide an additional financing source to fund their short-term liquidity needs, if and when necessary. Commercial paper issuances, included in "Short-term debt" on the Balance Sheets, are supported by the respective Registrant's Syndicated Credit Facility. The following commercial paper programs were in place at:

		September 30, 2013								December 31, 2012
		Weighted -				Commercial				Weighted -		Commercial
		Average				Paper		Unused		Average		Paper
		Interest Rate		Capacity		Issuances		Capacity		Interest Rate		Issuances

PPL Energy Supply				$	750			$	750		0.50%	$	356
PPL Electric					300				300
LG&E (a)			0.28%		350	$	72		278		0.42%		55
KU (a)			0.28%		350		140		210		0.42%		70
	Total			$	1,750	$	212	$	1,538			$	481

(a)	In April 2013, the capacity was increased from $250 million.

(PPL and PPL Energy Supply)

PPL Energy Supply maintains a $500 million Facility Agreement expiring June 2017, whereby PPL Energy Supply has the ability to request up to $500 million of committed letter of credit capacity at fees to be agreed upon at the time of each request, based on certain market conditions. At ~~March 31,~~September 30, 2013, PPL Energy Supply had not requested any capacity for the issuance of letters of credit under this arrangement.

PPL Energy Supply, PPL EnergyPlus, PPL Montour and PPL Brunner Island maintain an $800 million secured energy marketing and trading facility, whereby PPL EnergyPlus will receive credit to be applied to satisfy collateral posting obligations related to its energy marketing and trading activities with counterparties participating in the facility. The credit amount is guaranteed by PPL Energy Supply, PPL Montour and PPL Brunner Island. PPL Montour and PPL Brunner Island have granted liens on their respective generating facilities to secure any amount they may owe under their guarantees. The facility expires in November 2017, but is subject to automatic one-year renewals under certain conditions. There were no secured obligations outstanding under this facility at ~~March 31,~~September 30, 2013.

PPL Energy Supply maintains a commercial paper program for up to $750 million to provide an additional financing source to fund its short-term liquidity needs, if and when necessary. Commercial paper issuances are supported by PPL Energy Supply's Syndicated Credit Facility. At March 31, 2013 and December 31, 2012, PPL Energy Supply had $481 million and $356 million of commercial paper outstanding, included in "Short-term debt" on the Balance Sheets, at weighted-average interest rates of 0.38% and 0.50%.

~~(PPL and PPL Electric)~~

PPL Electric maintains a commercial paper program for up to $300 million to provide an additional financing source to fund its short-term liquidity needs, if and when necessary. Commercial paper issuances are supported by PPL Electric's Syndicated Credit Facility. At March 31, 2013, PPL Electric had $125 million of commercial paper outstanding, included in "Short-term debt" on the Balance Sheet, at a weighted-average interest rate of 0.39%. PPL Electric had no commercial paper outstanding at December 31, 2012.

~~(PPL, LKE, LG&E and KU)~~

In April 2013, LG&E and KU each increased the capacity of their commercial paper programs from $250 million to $350 million to provide an additional financing source to fund their short-term liquidity needs, if and when necessary. Commercial paper issuances are supported by LG&E's and KU's Syndicated Credit Facilities. At March 31, 2013 and December 31, 2012, LG&E had $70 million and $55 million of commercial paper outstanding, included in "Short-term debt" on the Balance Sheets, at weighted-average interest rates of 0.36% and 0.42%. At March 31, 2013 and December 31, 2012, KU had $115 million and $70 million of commercial paper outstanding, included in "Short-term debt" on the Balance Sheets, at weighted-average interest rates of 0.36% and 0.42%.

(LKE)

See Note 11 for discussion of intercompany borrowings.

Long-term Debt and Equity Securities

(PPL)

In connection with an April 2012 registered public offering of 9.9 million shares of PPL common stock, PPL entered into forward sale agreements with two counterparties. In conjunction with that offering, the underwriters exercised an overallotment option and PPL entered into additional forward sale agreements covering 591 thousand shares of PPL common stock.

In April 2013, PPL settled the initial forward sale agreements by ~~the issuance of~~issuing 8.4 million shares of PPL common stock and cash ~~settlement of~~settling the remaining 1.5 million shares. PPL received net cash proceeds of $205 million, which was calculated based on an initial forward price of $27.02 per share, reduced during the period the contracts were outstanding as specified in the forward sale agreements. PPL used the net proceeds to repay short-term debt obligations and for other general corporate purposes. ~~Settlement of~~In May 2013, PPL cash settled the forward sale agreements covering the 591 thousand remaining shares ~~will occur no later than July 2013. PPL may elect to issue common stock, cash settle or net share settle all or a portion of its rights or obligations under the forward sale agreements.~~for $4 million.

The forward sale agreements ~~are~~were classified as equity transactions. As a result, no amounts were recorded in the consolidated financial statements until the April 2013 settlement of the initial forward sale agreements. However, prior to ~~the April 2013~~ settlement, incremental shares were included within the calculation of diluted EPS using the treasury stock method. See Note 4 for the impact on the calculation of diluted EPS.

In March 2013, PPL Capital Funding issued $450 million of ~~its~~ 5.90% Junior Subordinated Notes due 2073. PPL Capital Funding received proceeds of $436 million, net of underwriting fees, which ~~will be~~was loaned to or invested in affiliates of PPL Capital Funding and used to fund their capital expenditures and for other general corporate purposes.

In May 2013, PPL Capital Funding remarketed $1.150 billion of 4.625% Junior Subordinated Notes due 2018 that were originally issued in June 2010 as a component of PPL's 2010 Equity Units. In connection with the remarketing, PPL Capital Funding issued $300 million of 2.04% Junior Subordinated Notes due 2016 and $850 million of 2.77% Junior Subordinated Notes due 2018, which were simultaneously exchanged into three tranches of Senior Notes. As a result of the exchange, the new Senior Notes include $250 million of 1.90% Senior Notes due 2018, $600 million of 3.40% Senior Notes due 2023 and $300 million of 4.70% Senior Notes due 2043. The transaction was accounted for as a debt extinguishment, resulting in a $10 million loss on extinguishment of the Junior Subordinated Notes, which was recorded to "Interest Expense" on the Statement of Income. The transaction was considered non-cash activity that was excluded from the 2013 Statement of Cash Flows.

In July 2013, PPL issued 40 million shares of common stock at $28.73 per share to settle the 2010 Purchase Contracts. PPL received net cash proceeds of $1.150 billion, which will be used to repay short-term and long-term debt obligations and for other general corporate purposes.

During the nine months ended September 30, 2013, PPL repurchased 2.4 million shares of its common stock for $74 million to offset the 2013 issuances of common stock under stock-based compensation plans, ESOP and DRIP. These repurchases were recorded as a reduction to "Additional paid-in capital" on the Balance Sheet.

In September 2013, WPD (East Midlands) issued £40 million aggregate principal amount of 1.676% Index-linked Senior Notes due 2052. WPD (East Midlands) received proceeds of £40 million, which equated to $64 million at the time of issuance. The proceeds will be used for general corporate purposes. Although WPD's results are generally recorded on a one-month lag, this transaction was recognized in the current period financial statements.

In October 2013, WPD (East Midlands) issued £25 million aggregate principal amount of 1.676% Index-linked Senior Notes due 2052. WPD (East Midlands) received proceeds of £25 million, which equated to $40 million at the time of issuance. The proceeds will be used for general corporate purposes.

In October 2013, WPD (West Midlands) issued £400 million aggregate principal amount of 3.875% Senior Notes due 2024. WPD (West Midlands) received proceeds of £394 million, which equated to $637 million at the time of issuance, net of a discount and underwriting fees. The net proceeds will be used for general corporate purposes.

See Note 7 in PPL's 2012 Form 10-K for information on the ~~2010~~2011 Equity Units (with respect to which the related ~~$1.150 billion~~$978 million of Notes are expected to be remarketed inas early as the ~~second~~first quarter of ~~2013) and the 2011 Equity Units.~~2014).

(PPL and PPL Energy Supply)

In February 2013, PPL Energy Supply completed an offer to exchange up to all, but not less than a majority, of PPL Ironwood's 8.857% Senior Secured Bonds due 2025, (Ironwood Bonds), for newly issued PPL Energy Supply Senior Notes, Series 4.60% due 2021. A total of $167 million aggregate principal amount of outstanding Ironwood Bonds was exchanged for $212 million aggregate principal amount of Senior Notes, Series 4.60% due 2021. This transaction was accounted for as a modification of the existing ~~debt. As a result, no~~debt; therefore, the amount of debt on the Balance Sheet remained at $167 million and will be accreted to $212 million over the life of the new Senior Notes. No gain or loss was recorded and the exchange was considered non-cash activity that was excluded from the 2013 Statement of Cash Flows.

In July 2013, PPL Energy Supply repaid the entire $300 million principal amount of its 6.30% Senior Notes upon maturity.

(PPL and PPL Electric)

In July 2013, PPL Electric issued $350 million of 4.75% First Mortgage Bonds due 2043. PPL Electric received proceeds of $345 million, net of a discount and underwriting fees, which will be used for capital expenditures, to fund pension obligations and for other general corporate purposes.

Legal Separateness

(~~PPL, PPL Energy Supply, PPL Electric and LKE)~~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, absent a specific contractual undertaking or as required by applicable law or regulation, 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 such creditors or as required by applicable law or regulation.

Similarly, the subsidiaries of PPL Energy Supply, PPL Electric and LKE are each separate legal entities. These subsidiaries are not liable for the debts of PPL Energy Supply, PPL Electric and LKE. Accordingly, creditors of PPL Energy Supply, PPL Electric and LKE may not satisfy their debts from the assets of their subsidiaries absent a specific contractual undertaking by a subsidiary to pay the creditors or as required by applicable law or regulation. Similarly, absent a specific contractual undertaking or as required by applicable law or regulation, PPL Energy Supply, PPL Electric and LKE are not liable for the debts of their subsidiaries, nor are their subsidiaries liable for the debts of one another. Accordingly, creditors of these subsidiaries may not satisfy their debts from the assets of PPL Energy Supply, PPL Electric and LKE (or their other subsidiaries) absent a specific contractual undertaking by that parent or other subsidiary to pay such creditors or as required by applicable law or regulation.

Distributions and Capital Contributions

(PPL)

In ~~February~~August 2013, PPL declared its quarterly common stock dividend, payable ~~April~~October 1, 2013, at 36.75 cents per share (equivalent to $1.47 per annum). Future dividends, declared at the discretion of the Board of Directors, will be dependent upon future earnings, cash flows, financial and legal requirements and other factors.

(~~PPL Energy Supply, PPL Electric, LKE, LG&E and KU)~~All Registrants except PPL)

During the ~~three~~nine months ended ~~March 31,~~September 30, 2013, the following distributions and capital contributions occurred:

		PPL Energy											PPL Energy
		Supply		PPL Electric		LKE		LG&E		KU			Supply		PPL Electric		LKE		LG&E		KU

Dividends/distributions paid to parent/member	Dividends/distributions paid to parent/member	$	313	$	25	$	4	$	19	$	13	Dividends/distributions paid to parent/member	$	408	$	94	$	116	$	67	$	83
Capital contributions received from parent/member	Capital contributions received from parent/member				60		75		25		50	Capital contributions received from parent/member		980		205		146		54		92

8.8. Acquisitions, Development and Divestitures

(~~PPL, PPL Energy Supply, PPL Electric, LKE, LG&E and KU)~~All Registrants)

The Registrants from time to time evaluate opportunities for potential acquisitions, divestitures and development projects. Development projects are reexamined based on market conditions and other factors to determine whether to proceed with the projects, sell, cancel or expand them, execute tolling agreements or pursue other options. Any resulting transactions may impact future financial results.

Acquisitions

Ironwood Acquisition (PPL and PPL Energy Supply)

See Note 10 in PPL's and PPL Energy Supply's 2012 Form 10-K for information on the April 13, 2012 Ironwood Acquisition. See Note 7 for information on the February 2013 exchange of a portion of long-term debt assumed through consolidation as a result of the acquisition.

Development

Future Capacity Needs(PPL and Kentucky Registrants)

Construction activity continues on the previously announced natural gas combined-cycle generating unit at the Cane Run station, scheduled to be operational in May 2015. In October 2013, LG&E and KU announced plans to build a second natural gas combined-cycle generating unit at KU's Green River generating site. Subject to finalizing details, regulatory applications, permitting and construction schedules, the facility is expected to have approximately 700 MW of capacity at an estimated cost of $700 million and is planned to be operational in 2018. At the same time, LG&E and KU also announced plans for a potential 10 MW solar generation facility to be operational in 2016 at an estimated cost of $25 million.

(PPL and PPL Energy Supply)

Bell Bend COLA

The NRC continues to review the COLA submitted by a PPL Energy Supply subsidiary, PPL Bell Bend, LLC (PPL Bell Bend) for the proposed construction of the Bell Bend nuclear generating unit (Bell Bend) ~~to be built~~ adjacent to ~~the~~PPL's Susquehanna nuclear generating plant. PPL Bell Bend does not expect to complete the COLA review process with the NRC prior to ~~2015.~~2016. PPL Bell Bend has made no decision to proceed with construction of Bell Bend and expects that such decision will not be made for several years given the anticipated lengthy NRC license approval process. Additionally, PPL Bell Bend does not expect to proceed with construction absent favorable economics, a joint arrangement with other interested parties and a federal loan guarantee or other acceptable financing. PPL Bell Bend is currently authorized to spend up to $205 million ~~through 2015~~ on the COLA and other permitting costs necessary for construction, which is expected to be sufficient to fund the project through receipt of the license. At ~~March 31,~~September 30, 2013 and December 31, 2012, ~~$159~~$169 million and $154 million of costs, which includes capitalized interest, associated with the licensing application were capitalized and are included on the Balance Sheets in noncurrent "Other intangibles." PPL Bell Bend believes that the estimated fair value of the COLA currently exceeds the costs expected to be capitalized associated with the licensing application. See Note 8 in PPL's and PPL Energy Supply's 2012 Form 10-K for additional information.

Hydroelectric Expansion Project

In the first quarter of 2013, the ~~redevelopment of the~~63 MW Rainbow hydroelectric ~~facility at~~redevelopment project in Great Falls, Montana was placed in ~~service and added 28 MW of capacity to the facility.~~service.

Regional Transmission Line Expansion Plan (PPL and PPL Electric)

Susquehanna-Roseland

On October 1, 2012, the National Park Service (NPS) issued its Record of Decision (ROD) on the proposed Susquehanna-Roseland transmission line affirming the route chosen by PPL Electric and Public Service Electric & Gas Company (PSE&G) as the preferred alternative under the NPS's National Environmental Policy Act review. OnIn October ~~15,~~ 2012, a complaint was filed in the ~~United States~~U.S. District Court for the District of Columbia by various environmental groups, including the Sierra Club, challenging the ROD and seeking to prohibit its ~~implementation, and on December 6, 2012, the groups filed a petition for injunctive relief seeking to prohibit all construction activities until the court issues a final decision on the complaint.~~implementation. PPL Electric ~~has~~and PSE&G intervened in the lawsuit. On February 25, 2013, the District Court denied Plaintiffs' Motion for Preliminary Injunction and set a briefing schedule. However, plaintiffs have the right to reinstate the motion if the District Court has not ruled on the lawsuit and construction is imminent. The chosen route had previously been approved by the PUC and the New Jersey Board of Public Utilities.

OnIn December ~~13,~~ 2012, PPL Electric received federal construction and right of way permits to build on National Park Service lands.

On August 19, 2013, the environmental groups filed a petition for injunctive relief seeking to prohibit all construction activities until the court issued a final decision on the complaint. On August 30, 2013, the District Court ruled in favor of PPL Electric, PSE&G and the U.S. Government and dismissed the lawsuit filed by the environmental groups. The environmental groups have publicly stated that they do not intend to appeal the District Court decision. PPL Electric began construction on the National Park Service lands in Pennsylvania on October 1, 2013.

5254

Construction activities have ~~begun~~been underway on other portions of the 101-mile route in ~~Pennsylvania.~~Pennsylvania since 2012. The line is expected to be completed before the peak summer demand period of 2015. At ~~March 31,~~September 30, 2013, PPL Electric's estimated share of the project cost was $630 million.

PPL and PPL Electric cannot predict ~~the ultimate outcome or timing of~~ any future legal challenges to the project or what additional actions, if any, PJM might take in the event of a further delay to the scheduled in-service date for the new line.

Northeast/Pocono

In October 2012, the FERC issued an order in response to PPL Electric's December 2011 request for ratemaking incentives for the Northeast/Pocono Reliability project (a new 58-mile 230 kV transmission line that includes three new substations and upgrades to adjacent facilities). The FERC granted the incentive for inclusion in rate base of all prudently incurred construction work in progress (CWIP) costs ~~in rate base~~ but denied the ~~request~~incentive for a 100 basis point adder to the return on ~~equity incentive.~~equity. The order required a follow-up compliance filing from PPL Electric to ensure proper accounting treatment of AFUDC and CWIP for the project, which PPL Electric submitted to the FERC in March 2013 and the FERC subsequently approved in April 2013.

In December 2012, PPL Electric submitted an application to the PUC requesting permission to site and construct the project. A number of parties have protested the application, which has been assigned to an Administrative Law ~~Judge.~~Judge (ALJ). Evidentiary hearings ~~are scheduled~~were held in July 2013. In October 2013, the ALJ concluded that PPL met its burden on all issues, and recommended that the PUC approve the siting application, two zoning petitions, and the remaining eminent domain applications. A final ~~Commission~~PUC order is expected in the first quarter of 2014. PPL Electric expects the project to be completed in 2017. At ~~March 31,~~September 30, 2013, PPL ~~Electric estimates~~Electric's estimated cost of the project was $335 million, an increase from its original estimate of $200 million at December 31, 2012. The increased cost is primarily related to higher material and labor costs and additional scope due to revised construction standards. Of the total ~~project costs to be approximately $200~~estimated cost, $308 million ~~with approximately $190 million qualifying~~qualifies for the CWIP ~~incentive.~~treatment.

See Note 8 in PPL's and PPL Electric's 2012 Form 10-K for additional information.

Other (PPL and PPL Energy Supply)

Montana Transactions

In September 2013, PPL Montana executed a definitive agreement to sell 633 MW of hydroelectric facilities to NorthWestern for $900 million in cash, subject to certain adjustments. The sale, which is not expected to close before the second half of 2014, includes 11 hydroelectric power facilities and related assets. The sale is subject to closing conditions, including receipt of regulatory approvals by the FERC and Montana Public Service Commission and certain third-party consents. Due to the uncertainties related to certain of these conditions as of September 30, 2013, the sale did not meet the applicable accounting criteria for the assets and liabilities included in the transaction to be classified as held for sale on the Balance Sheet.

In a related transaction, in September 2013, PPL Montana negotiated and entered into an agreement to pay $271 million to terminate a sale-leaseback arrangement and reacquire its interests in the Colstrip coal-fired facilities. See Note 11 in PPL's and PPL Energy Supply's 2012 Form 10-K for additional information on the sale-leaseback. This transaction is anticipated to occur by the end of the first quarter of 2014, subject to approval by the FERC. At lease termination, in addition to recording a charge for the cash payment, a non-cash charge is expected to be recorded related to the existing lease-related assets on PPL's and PPL Energy Supply's Balance Sheets. The book value of these assets was approximately $450 million at September 30, 2013. These lease-related assets will be written-off and the reacquired Colstrip assets will be recorded at fair value as of the acquisition date. The total loss is currently estimated at between $310 million and $430 million, after-tax, which is dependent on the fair value assigned to the reacquired Colstrip assets.

Lower Mt. Bethel Plant Transaction

In December 2001, a subsidiary of PPL Energy Supply entered into an operating lease arrangement, as lessee, for the development, construction and operation of the Lower Mt. Bethel plant. The owner/lessor of the Lower Mt. Bethel plant was determined to be a VIE and has been consolidated in PPL's and PPL Energy Supply's financial statements since December 31, 2003. See Note 22 in PPL's and PPL Energy Supply's 2012 Form 10-K for additional information on the VIE. A subsidiary of PPL Energy Supply now intends to purchase the Lower Mt. Bethel plant for $455 million at the lease termination date in December 2013, subject to approval by the FERC. The proceeds are expected to be used by the VIE to repay outstanding debt and make a distribution to its equity investors (currently presented as noncontrolling interests in PPL's and PPL Energy Supply's financial statements). The transaction will not result in any gain or loss as it will be treated as a

transfer of assets between entities under common control and will not result in any change to the presentation of the Lower Mt. Bethel plant assets as they are currently included in PPL's and PPL Energy Supply's consolidated financial statements.

9. Defined Benefits

(All Registrants except PPL ~~PPL Energy Supply, LKE~~Electric and ~~LG&E)~~KU)

Certain net periodic defined benefit costs are applied to accounts that are further distributed between capital and expense, including certain costs allocated to applicable subsidiaries for plans sponsored by PPL Services and LKE. Following are the net periodic defined benefit costs (credits) of the plans sponsored by PPL, PPL Energy Supply, LKE and LG&E for the periods ended ~~March 31:~~ September 30:

			Pension Benefits								Other Postretirement Benefits						Pension Benefits
			U.S.				U.K.										Three Months								Nine Months
			Three Months														U.S.				U.K.				U.S.				U.K.
			2013		2012		2013		2012		2013		2012				2013		2012		2013		2012		2013		2012		2013		2012
PPL	PPL														PPL
Service cost	Service cost		$	31	$	26	$	18	$	13	$	4	$	3	Service cost		$	31	$	25	$	18	$	13	$	94	$	77	$	52	$	40
Interest cost	Interest cost			54		56		81		84		7		8	Interest cost			53		55		79		85		160		165		238		254
Expected return on plan assets	Expected return on plan assets			(74)		(66)		(118)		(111)		(6)		(6)	Expected return on plan assets			(73)		(65)		(115)		(115)		(220)		(195)		(346)		(340)
Amortization of:	Amortization of:														Amortization of:
		Transition obligation												1		Prior service cost		6		6				1		17		18				3
		Prior service cost		6		6				1						Actuarial (gain) loss		20		11		37		19		60		32		112		59
		Actuarial (gain) loss		20		10		38		20		1		1
Net periodic defined benefit	Net periodic defined benefit														Net periodic defined benefit
	costs (credits)		$	37	$	32	$	19	$	7	$	6	$	7	costs (credits)		$	37	$	32	$	19	$	3	$	111	$	97	$	56	$	16

		Pension Benefits
		Three Months				Nine Months
		2013		2012		2013		2012
PPL Energy Supply
Service cost		$	1	$	1	$	5	$	4
Interest cost			2		2		6		6
Expected return on plan assets			(2)		(2)		(7)		(7)
Amortization of:
	Actuarial (gain) loss		1		1		2		2
Net periodic defined benefit costs (credits)		$	2	$	2	$	6	$	5

LKE
Service cost		$	6	$	5	$	19	$	16
Interest cost			16		16		47		48
Expected return on plan assets			(20)		(17)		(61)		(52)
Amortization of:
	Prior service cost		1		2		3		4
	Actuarial (gain) loss		8		5		25		16
Net periodic defined benefit costs (credits)		$	11	$	11	$	33	$	32

LG&E
Service cost		$	1			$	2	$	1
Interest cost			3	$	4		10		11
Expected return on plan assets			(5)		(5)		(15)		(14)
Amortization of:
	Prior service cost		1		1		2		2
	Actuarial (gain) loss		3		3		10		8
Net periodic defined benefit costs (credits)		$	3	$	3	$	9	$	8

			Pension Benefits					Other Postretirement Benefits
			Three Months					Three Months				Nine Months
			2013		2012			2013		2012		2013		2012
PPL Energy Supply
PPL							PPL
Service cost	Service cost		$	2	$	1	Service cost	$	4	$	3	$	11	$	9
Interest cost	Interest cost			2		2	Interest cost		7		7		21		23
Expected return on plan assets	Expected return on plan assets			(3)		(2)	Expected return on plan assets		(6)		(6)		(18)		(17)
Amortization of:	Amortization of:						Amortization of:
		Actuarial (gain) loss		1		1	Transition obligation								1
							Prior service cost				1				1
							Actuarial (gain) loss		1		1		4		3
Net periodic defined benefit costs (credits)	Net periodic defined benefit costs (credits)		$	2	$	2	Net periodic defined benefit costs (credits)	$	6	$	6	$	18	$	20

5356

~~The U.K. Regulated segment consists of WPD's regulated electricity distribution operations and PPL Global. In addition,~~

Increase at the U.K. Regulated segment ~~includes certain U.S.~~for the three-month period primarily due to higher electricity delivery prices and lower U.K. income taxes, partially offset by an accrual for over-recovery of current-year revenues, lower sales volume due to weather and higher operation and maintenance expense. Increase at the U.K. Regulated segment for the nine-month period primarily due to higher electricity delivery prices, increased sales volume due to weather, and lower U.K.

102

income taxes, partially offset by an accrual for over-recovery of current-year revenues, higher operation and maintenance expense and higher depreciation.

·	Increases at the Kentucky Regulated segment for both periods primarily due to higher base rates that became effective January 1, 2013 and returns from additional environmental capital investments. The three-month period was also partially offset by lower sales volume due to weather.

Increases at the Pennsylvania Regulated segment for both periods primarily due to higher electricity base rates that became effective January 1, 2013 and higher transmission margins from additional capital investments. The increase for the nine-month period was also due to lower operation and maintenance expense, partially offset by higher depreciation.

Decrease at the Supply segment for the three-month period primarily due to lower baseload energy prices, lower baseload generation, higher operation and maintenance expense and higher income taxes. The decline in segment earnings was partially offset by higher capacity prices. Decrease at the Supply segment for the nine-month period primarily due to lower baseload energy prices, higher fuel costs, higher income taxes and ~~certain administrative costs, as well as allocated financing costs.~~

~~Net Income Attributable to PPL Shareowners~~higher depreciation. The decline in segment earnings was partially offset by higher capacity prices, higher intermediate and peaking margins and higher baseload generation. The higher income taxes for ~~the~~both periods ~~ended March 31 includes the following results:~~

Three Months
2013 2012 % Change

Utility revenues $ 638 $ 552 16
Energy-related businesses 10 10
Total operating revenues 648 562 15
Other operation and maintenance 117 113 4
Depreciation 74 67 10
Taxes, other than income 37 36 3
Energy-related businesses 7 5 40
Total operating expenses 235 221 6
Other Income (Expense) - net 120 (20) 700
Interest Expense 107 103 4
Income Taxes 113 53 113
Net Income Attributable to PPL Shareowners $ 313 $ 165 90

~~The changes in the components~~resulted primarily from a non-cash adjustment of the U.K. Regulated segment's results between these periods were due to the following factors, which reflect reclassifications for certain items that management considers special. See additional detail of these special items in the table below.

		~~Three Months~~

~~U.K.~~
	~~Utility revenues~~	$	75
	~~Other operation and maintenance~~		~~(6)~~
	~~Interest expense~~		~~(3)~~
	~~Other~~		~~(3)~~
	~~Income taxes~~		~~(10)~~
~~U.S.~~
	~~Income taxes~~		1
~~Foreign currency exchange rates, after-tax (a)~~			1
~~Special items, after-tax~~			93
~~Total~~		$	~~148~~ deferred tax assets.

~~(a)~~

~~Includes the effect of realized gains (losses) on foreign currency economic hedges.~~

~~U.K.~~See "Results of Operations" below for further discussion of PPL's reportable segments and analysis of results of operations.

Higher utility revenues due to the April 1, 2012 price increases that resulted in $57 million of higher utility revenues, $8 million of additional third-party engineering work, $5 million of higher volumes due primarily to weather and a $5 million reduction of regulatory over-recovery2013 Outlook

(PPL)

Excluding special items, higher earnings are expected in 2013 compared with 2012. However, 2013 earnings are expected to decline on a diluted EPS basis due to higher average shares treated as outstanding. The factors underlying these projections by segment and Subsidiary Registrant are reflected below (on an after-tax basis).

(PPL's U.K. Regulated Segment)

Excluding special items, higher earnings are projected in 2013 compared with 2012, primarily driven by higher electricity delivery prices and lower income taxes, partially offset by higher operation and maintenance expense, higher depreciation and higher interest expense.

(PPL's Kentucky Regulated Segment and Kentucky Registrants)

Excluding special items, higher earnings are projected in 2013 compared with 2012, primarily driven by base rate increases and returns on additional environmental capital investments.

(PPL's Pennsylvania Regulated Segment and PPL Electric)

Excluding special items, higher earnings are projected in 2013 compared with 2012, primarily driven by higher distribution revenues from the January 1, 2013 base rate increase and higher transmission margins due to additional capital investment, partially offset by higher depreciation and higher interest expense.

(PPL's Supply Segment and PPL Energy Supply)

Excluding special items, lower earnings are projected in 2013 compared with 2012, primarily driven by lower energy prices, higher fuel costs, higher depreciation, higher taxes and higher financing costs, partially offset by lower operation and maintenance expense, higher capacity prices and higher baseload generation output.

(All Registrants)

Earnings in future periods are subject to various risks and uncertainties. See "Forward-Looking Information," the rest of this Item 2, and Notes 6 and 10 to the Financial Statements in this Form 10-Q (as applicable) and "Item 1. Business" and "Item 1A. Risk Factors" in the Registrants' 2012 Form 10-K for a discussion of the risks, uncertainties and factors that may impact future earnings.

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Other Financial and Operational Developments

Economic and Market Conditions

(PPL and PPL Energy Supply)

Current depressed wholesale market prices for electricity and natural gas have resulted from general weak economic conditions and other factors, including the impact of expanded domestic shale gas development and additional renewable energy sources, primarily wind in the western U.S. Unregulated Gross Energy Margins associated with PPL Energy Supply's competitive generation and marketing business are impacted by changes in energy and capacity market prices and demand for electricity and natural gas, power plant availability, competition in the markets for retail customers, fuel costs and availability, transmission constraints that impact the locational pricing of electricity at PPL Energy Supply's power plants, fuel transportation costs and the level and price of hedging activities. As a result of these factors, lower future energy margins are expected when compared to the 2012 energy margins. See "Changes in Non-GAAP Financial Measures - Unregulated Gross Energy Margins in Statement of Income Analysis" below for additional information on energy margins. As has been PPL Energy Supply's practice in periods of changing business conditions, PPL Energy Supply continues to review its future business and operational plans, including capital and operation and maintenance expenditures, its hedging strategies and potential plant modifications to burn lower cost fuels.

(All Registrants except PPL Electric)

As previously disclosed, the businesses of PPL Energy Supply, LKE, LG&E and KU are subject to extensive federal, state and local environmental laws, rules and regulations, including those pertaining to coal combustion residuals, GHG, effluent limitation guidelines and MATS. See "Financial Condition - Environmental Matters" below for additional information on these requirements. These and other stringent environmental requirements, combined with low energy margins for competitive generation, have led several energy companies, including PPL, PPL Energy Supply, LKE, LG&E and KU, to announce plans to either temporarily or permanently close, or place in long-term reserve status, certain of their coal-fired generating plants.

(PPL and PPL Energy Supply)

In 2012, PPL Energy Supply announced its intention, beginning in April 2015, to place its Corette plant in long-term reserve status, suspending the plant's operation due to expected market conditions and the costs to comply with MATS. PPL Energy Supply continues to monitor its Corette plant for potential impairment. The Corette plant asset group's carrying value at September 30, 2013 was $67 million. See "Environmental Matters - Domestic - Air - MATS" in Note 10 to the Financial Statements for additional information.

PPL Energy Supply believes its remaining competitive coal-fired generation assets are well positioned to meet the environmental requirements described above based on prior and planned investments. Management continues to monitor energy and PJM capacity prices. A further decline in energy and/or capacity prices could negatively impact PPL Energy Supply's operations and potentially result in future asset impairment charges for coal-fired plants or goodwill.

(PPL and Kentucky Registrants)

The environmental requirements discussed above have also resulted in LKE's projected $2.2 billion ($1.1 billion each at LG&E and KU) in capital investment over the next five years and the anticipated retirement by 2015 of five coal-fired units (three at LG&E and two at KU) with a combined summer capacity rating of 726 MW (563 MW at LG&E and 163 MW at KU). KU retired the 71 MW unit at the Tyrone plant in February 2013. The retirement of these coal-fired units is not expected to have a material impact on the financial condition or results of operations of PPL, LKE, LG&E and KU. See Note 8 to the Financial Statements in the 2012 Form 10-K for PPL, LKE, LG&E and KU for additional information regarding the anticipated retirement of these units as well as plans to build a combined-cycle natural gas facility in Kentucky.

The KPSC has adopted a series of regulatory mechanisms (ECR, DSM, GLT, fuel adjustment clause, gas supply clause and recovery on certain construction work-in-progress) that provide for recovery of prudently incurred costs. The Kentucky utility businesses are impacted by changes in customer usage levels which can be driven by a number of factors including weather conditions and economic factors that impact the load utilized by industrial and commercial customers.

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(All Registrants)

The Registrants cannot predict the future impact that economic and market conditions and changes in regulatory requirements may have on their financial condition or results of operations.

(PPL)

Ofgem Review of Line Loss Calculation

Ofgem is currently consulting on the methodology to be used by all network operators to calculate the final line loss incentive/penalty for the DPCR4. Based on information received from Ofgem in 2013, WPD currently estimates the potential loss exposure for this matter to be in the range of $93 million to $226 million as of September 30, 2013. During the three and nine months ended September 30, 2013, WPD recorded $21 million and $45 million of increases to the liability with reductions to "Utility" revenue on the Statement of Income. PPL cannot predict the outcome of this matter. See Note 6 to the Financial Statements for additional information.

RIIO-ED1

In October 2010, Ofgem announced changes to the regulatory framework that will be effective for the U.K. electricity distribution sector, including WPD, beginning April 2015. The framework, known as RIIO (Revenues = Incentives + Innovation + Outputs), is intended to encourage investment in regulated infrastructure. The next electricity distribution price control review is referred to as RIIO-ED1. Key components of the RIIO-ED1 are: an extension of the price review period to eight years, increased emphasis on outputs and incentives, enhanced stakeholder engagement including network customers, a stronger incentive framework to encourage more efficient investment and innovation, and continued use of a single weighted average cost of capital. Ofgem has also indicated that the depreciation of the RAV, for RAV additions after April 1, 2015, will change from 20 years to 45 years, but that it will consider transition arrangements.

As previously reported, on July 1, 2013, WPD filed its business plans with Ofgem for the RIIO-ED1 period and gave a webcast presentation to highlight the contents of the plans as well as provide potential earnings ranges of the U.K. Regulated segment for the first two years of the RIIO-ED1 period. The ranges provided are subject to certain assumptions including foreign currency exchange rates, interest rates, inflation rates and WPD being "fast-tracked" through the price control review process and therefore earning the fast-track bonus revenue. These assumptions and other future events affecting the potential earnings ranges are subject to significant uncertainties. Although management believes that the business plans submitted by WPD meet the criteria to be fast-tracked, management cannot predict the outcome of the price control review process or the future financial effect on WPD's businesses of the RIIO-ED1 regulatory framework. Ofgem has notified WPD that it intends to announce preliminary fast-track determinations on November 22, 2013 with a final determination to be announced in February 2014. See "Item 1. Business - Background - U.K. Regulated Segment - Revenue and Regulation" in the 2012 Form 10-K for additional information.

Equity Forward Agreements

In the second quarter of 2013, PPL settled forward sale agreements for 10.5 million shares of PPL common stock by issuing 8.4 million shares and cash settling the remaining 2.1 million shares. PPL received net cash proceeds of $201 million, which was used to repay short-term debt obligations and for other general corporate purposes. See Note 7 to the Financial Statements for additional information. Prior to settlement, incremental shares were included within the calculation of diluted EPS using the treasury stock method. See Note 4 to the Financial Statements for the impact on the calculation of diluted EPS.

Equity Units

During 2013, several events occurred related to the components of the 2010 Equity Units. During the first quarter of 2013, financing plans were finalized to remarket the Junior Subordinated Notes component of the 2010 Equity Units and in the second quarter, PPL Capital Funding completed the remarketing of the Junior Subordinated Notes and simultaneously exchanged the remarketed notes for three tranches of Senior Notes. The transaction resulted in a $10 million loss on extinguishment of the Junior Subordinated Notes. Additionally, in July 2013, PPL issued 40 million shares of common stock at $28.73 per share to settle the 2010 Purchase Contracts. PPL received net cash proceeds of $1.150 billion, which will be used to repay short-term and long-term debt obligations and for other general corporate purposes. See Note 7 to the Financial Statements for additional information.

The If-Converted Method of calculating diluted EPS was applied to the Equity Units prior to settlement beginning in the first quarter of 2013. This resulted in $7 million and $37 million of interest charges (after-tax) being added back to income

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available to PPL common shareowners, and 32 million and 59 million weighted-average incremental shares of PPL common stock being treated as outstanding for purposes of the diluted EPS calculation for the three and nine months ended September 30, 2013. See Note 4 to the Financial Statements for the impact on the calculation of diluted EPS.

Tax Litigation

In May 2013, the U.S. Supreme Court reversed the December 2011 ruling of the U. S. Court of Appeals for the Third Circuit, on the creditability for U.S. income tax purposes of the U.K. Windfall Profits Tax paid by a U.K. subsidiary of PPL. As a result of this decision, PPL recorded an income tax benefit of $44 million for the nine months ended September 30, 2013. See Note 5 to the Financial Statements for additional information.

U.K. Tax Rate Change

In July 2013, the U.K. Finance Act 2013 was enacted, which reduces the U.K.'s statutory income tax rate from 23% to 21%, effective April 1, 2014 and from 21% to 20%, effective April 1, 2015. As a result of these changes, PPL reduced its net deferred tax liabilities and recognized a deferred tax benefit of $93 million in the third quarter of 2013.

Pennsylvania Net Operating Loss Valuation Allowance

PPL assesses the realizability of its deferred tax assets for Pennsylvania's net operating loss carryforwards based on, among other things, projections of future taxable income for the net operating loss carryforward periods. In the third quarter of 2013, PPL determined that its projected future taxable income would likely decrease, resulting in an increase to the valuation allowance related to Pennsylvania net operating loss carryforwards. As a result, PPL recorded a $38 million increase in state deferred income tax expense.

FERC Audit Proceedings (All Registrants except PPL Energy Supply)

In November 2011, the FERC commenced an audit of PPL and its subsidiaries, including an audit of the FERC transmission formula rate mechanisms at PPL Electric, LG&E and KU beginning in April 2012. The audit identified several matters related to separate aspects of formula rate mechanics at PPL Electric, LG&E and KU. As previously reported, among the audit matters related to PPL Electric was the determination that PPL Electric had not obtained a waiver of the equity method accounting requirement with respect to its wholly owned subsidiary, PPL Receivables Corporation, which was formed in 2004 to purchase eligible accounts receivable and unbilled revenue from PPL Electric to collateralize commercial paper issuances and reduce borrowing costs. PPL, PPL Electric, LKE, LG&E and KU currently believe that the total amount of refunds, if any, that may be required with respect to the formula rate and all other issues identified during the course of the audit will not be material to any of these Registrants. PPL, PPL Electric, LKE, LG&E and KU, however, cannot predict the ultimate outcome of these matters.

(PPL and PPL Energy Supply)

Montana Transactions

In September 2013, PPL Montana executed a definitive agreement to sell 633MW of hydroelectric facilities to NorthWestern for $900 million in cash, subject to certain adjustments. The sale is not expected to close before the second half of 2014. The sale is subject to closing conditions, including receipt of regulatory approvals by the FERC and Montana Public Service Commission and certain third-party consents. In a related transaction, in September 2013, PPL Montana negotiated and entered into an agreement to pay $271 million to terminate a sale-leaseback arrangement and reacquire its interests in the Colstrip coal-fired facilities. This transaction is anticipated to occur by the end of the first quarter of 2014, subject to approval by the FERC. At lease termination, in addition to recording a charge for the cash payment, a non-cash charge is expected to be recorded related to the existing lease-related assets on PPL's and PPL Energy Supply's Balance Sheets. The book value of these assets was approximately $450 million at September 30, 2013. These lease-related assets will be written-off and the reacquired Colstrip assets will be recorded at fair value as of the acquisition date. The total loss is currently estimated at between $310 million and $430 million, after-tax, which is dependent on the fair value assigned to the reacquired Colstrip assets. See Note 8 to the Financial Statements for additional information.

Susquehanna Turbine Blade Inspection

In the spring of 2013, PPL Susquehanna made modifications to address the causes of turbine blade cracking at the PPL Susquehanna nuclear plant that was first identified in 2011. The modifications were made during the Unit 2 refueling outage and an additional planned outage for Unit 1. In September 2013, data from the extensive vibration monitoring equipment installed on the turbine blades identified cracks in a small number of the blades on both units. Unit 2 completed a blade

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inspection and replacement outage on September 23, 2013. Based upon the evaluation of the conditions on Unit 1 and the latest inspection of previously removed blades, PPL Susquehanna will continue to operate Unit 1 and monitor the blades through the vibration monitoring equipment. The financial impact of the Unit 2 outage is not material. PPL Susquehanna continues to work with the turbine manufacturer to identify and resolve the issues causing the blade cracking.

Colstrip Unit 4 Outage (PPL Energy Supply)

On July 1, 2013, Colstrip Unit 4 automatically shut down as a result of damage that occurred in the unit's generator. The repair to Unit 4 is estimated to cost between $30 million and $40 million and is expected to take at least six months to complete. Property damage insurance for Unit 4 is subject to a $2.5 million self-insured retention. PPL Montana operates Unit 4 pursuant to an agreement with the owners and, pursuant to a separate agreement with NorthWestern, is entitled to receive 15% of Unit 4's electricity output and is responsible for 15% of the capital, operating, maintenance and repair costs associated with Unit 4. PPL Montana's estimated pre-tax loss of earnings attributable to the Unit 4 outage is between $5 million and $10 million.

(PPL and PPL Electric)

Distribution System Improvement Charge

Rate Case Proceedings

(PPL and PPL Electric)

In December 2012, the PUC approved a total distribution revenue increase of about $71 million for PPL Electric, using a 10.4% return on equity. The approved rates became effective January 1, 2013.

(PPL and Kentucky Registrants)

(KU)

In September 2013, KU filed an application with the FERC to adjust the formula rate under which KU provides wholesale requirements power sales to 12 municipal customers. Among other changes, the application requests an amended formula whereby KU would recover costs based on forward-looking estimates with a subsequent true-up, replacing the current formula which uses prior-year cost amounts. KU's application proposed an authorized 10.7% return on equity. Subject to regulatory approval, the new formula rate may become effective during mid-2014.

In April 2013, KU filed an application with the VSCC to increase annual Virginia base electricity revenue by approximately $7 million, representing an increase of 9.6%. KU proposed an authorized 10.8% return on equity. In October 2013, KU filed a stipulation reached with VSCC staff proposing a revenue increase of $4.7 million, representing an increase of 6.9%. If approved by the VSCC, new base rates would go into effect on December 1, 2013.

Results of Operations

(PPL)

The discussion for PPL provides a review of results by reportable segment and concludes with a "Statement of Income Analysis," which includes explanations of Kentucky Gross Margins, Pennsylvania Gross Delivery Margins and Unregulated Gross Energy Margins. The "Statement of Income Analysis" also addresses significant changes in principal line items on PPL's Statements of Income, comparing the three and nine months ended September 30, 2013 with the same periods in 2012. "Segment Earnings and Statement of Income Analysis" is presented separately for PPL.

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Tables analyzing changes in amounts between periods within "Segment Earnings" and "Statement of Income Analysis" are presented on a constant U.K. foreign currency exchange rate basis, where applicable, in order to isolate the impact of the change in the exchange rate on the item being explained. Results computed on a constant U.K. foreign currency exchange rate basis are calculated by translating current year results at the prior year weighted-average U.K. foreign currency exchange rate.

(Subsidiary Registrants)

The discussion for each of PPL Energy Supply, PPL Electric, LKE, LG&E and KU provides a summary of earnings and concludes with a "Statement of Income Analysis," which includes a reconciliation of a non-GAAP financial measure to "Operating Income" and significant changes in principal line items on the Statements of Income, comparing the three and nine months ended September 30, 2013 with the same periods in 2012. "Earnings and Statement of Income Analysis" is presented separately for PPL Energy Supply, PPL Electric, LKE, LG&E and KU.

(All Registrants)

The results for interim periods can be disproportionately influenced by numerous factors and developments and by seasonal variations. As such, the results of operations for interim periods do not necessarily indicate results or trends for the year or future periods.

PPL: Segment Earnings and Statement of Income Analysis

Segment Earnings

U.K. Regulated Segment

The U.K. Regulated segment consists of PPL Global which primarily includes WPD's regulated electricity distribution operations and certain costs, such as U.S. income taxes, administrative costs and allocated financing costs. The U.K. Regulated segment represents 60% of Net Income Attributable to PPL Shareowners for nine months ended September 30, 2013 and 32% of PPL's assets at September 30, 2013.

Net Income Attributable to PPL Shareowners for the periods ended September 30 includes the following results:

		Three Months					Nine Months
		2013		2012		% Change	2013		2012		% Change

Utility revenues		$	534	$	518	3	$	1,731	$	1,613	7
Energy-related businesses			9		10	(10)		32		34	(6)
	Total operating revenues		543		528	3		1,763		1,647	7
Other operation and maintenance			111		101	10		340		326	4
Depreciation			73		69	6		219		206	6
Taxes, other than income			36		36			109		108	1
Energy-related businesses			7		8	(13)		21		24	(13)
	Total operating expenses		227		214	6		689		664	4
Other Income (Expense) - net			(117)		(50)	134		7		(39)	(118)
Interest Expense			102		106	(4)		313		314
Income Taxes			(86)		(44)	95		27		67	(60)
Net Income Attributable to PPL Shareowners		$	183	$	202	(9)	$	741	$	563	32

The changes in the components of the U.K. Regulated segment's results between these periods were due to the factors set forth below, which reflect reclassifications for certain items that management considers special. See below for additional detail of these special items.

		Three Months		Nine Months

U.K.
	Utility revenues	$	44	$	187
	Other operation and maintenance		(9)		(19)
	Depreciation		(6)		(17)
	Interest expense		3		(4)
	Other		2		2
	Income taxes		8		(13)
U.S.
	Interest expense and other				1
	Income taxes		(5)		4

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	Three Months		Nine Months

Foreign currency exchange rates, after-tax (a)		1		(2)
Special items, after-tax		(57)		39
Total	$	(19)	$	178

(a)	Includes the effect of realized gains (losses) on foreign currency economic hedges.

U.K.

·	Higher utility revenues for the three-month period primarily due to $74 million from the April 1, 2013 price increase, partially offset by a $22 million accrual for over-recovered revenue and $10 million of lower volume due primarily to weather.

Higher utility revenues for the nine-month period primarily due to $187 million from the April 1, 2013 and 2012 price increases and $18 million of higher volume due primarily to weather, partially offset by a $22 million accrual for over-recovered revenue.

·	Higher other operation and maintenance for the three- and nine-month periods primarily due to higher network maintenance expense.

·	Higher depreciation for the three- and nine-month periods primarily due to PP&E additions.

·	Lower income taxes for the three-month period due to $16 million from U.K. tax rate changes, partially offset by higher pre-tax income, which increased income taxes by $8 million.

Higher income taxes for the nine-month period primarily due to higher pre-tax income, which increased income taxes by $38 million, and $13 million from a benefit recorded in 2012 due to the tax deductibility of interest on the acquisition financing for WPD Midlands, partially offset by $27 million from U.K. tax rate changes and $6 million of prior year adjustments.

U.S.

·	Higher income taxes for the three-month period due to an $8 million increase to income tax expense attributable to a revision in the expected taxable amount of cash repatriation in 2013.

Lower income taxes for the nine-month period due to a $19 million 2013 adjustment primarily related to an IRS ruling regarding 2010 U.K. earnings and profits calculations and $11 million of lower income taxes on intercompany loans, partially offset by a $23 million increase to income tax expense attributable to a revision in the expected taxable amount of cash repatriation in 2013.

·	Higher other operation and maintenance due to $8 million of additional third-party engineering work and $7 million of higher network maintenance expense, primarily tree trimming, partially offset by $4 million of lower employee-related expenses.

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

·	~~Higher income taxes due to higher pre-tax income, which increased income taxes by $16 million, partially offset by $6 million of lower income taxes due to lower tax rates.~~

~~The following after-tax gains (losses), which management considers special items, also impacted the U.K. Regulated segment's results during the periods ended March 31.~~

		Income Statement	Three Months					Income Statement	Three Months				Nine Months
		Line Item	2013		2012			Line Item	2013		2012		2013		2012

Foreign currency-related economic hedges, net of tax of ($42), $7 (a)		Other Income (Expense)-net	$	78	$	(14)
								Other Income
Foreign currency-related economic hedges, net of tax of $44, $18, $5, $17 (a)							Foreign currency-related economic hedges, net of tax of $44, $18, $5, $17 (a)	(Expense)-net	$	(82)	$	(30)	$	(8)	$	(28)
WPD Midlands acquisition-related adjustments:	WPD Midlands acquisition-related adjustments:						WPD Midlands acquisition-related adjustments:
	Separation benefits, net of tax of $1, $2	Other Operation and Maintenance		(1)		(4)		Other Operation
	Other acquisition-related adjustments, net of tax of $0, $0	Other Operation and Maintenance		(2)			Separation benefits, net of tax of $1, $1, $1, $3	and Maintenance		(2)		(1)		(4)		(9)
								Other Operation
							Other acquisition-related adjustments, net of tax of $0, $0, $0, ($1)	and Maintenance				(2)		(2)		2
Other:							Other:
							Windfall Profits Tax litigation (b)	Income Taxes						43
							Change in WPD line loss accrual, net of tax of $5, $0, $10, $0 (c)	Utility		(16)				(35)
							Change in U.K. tax rate (d)	Income Taxes		84		74		84		74
Total	Total		$	75	$	(18)	Total		$	(16)	$	41	$	78	$	39

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

(b)

In May 2013, ~~Outlook~~

~~Excluding special items,~~the U.S. Supreme Court reversed the December 2011 ruling, by the U.S. Court of Appeals for the Third Circuit, on the creditability for income tax purposes of the U.K. Windfall Profits Tax. As a result of the U.S. Supreme Court ruling, PPL ~~projects higher segment earnings in~~recorded an income tax benefit during the nine-month 2013 compared with 2012, primarily driven by higher electricity delivery revenue and lower income taxes, partially offset by higher operation and maintenance expense, higher depreciation and higher interest expense.

~~Earnings in future periods are subject to various risks and uncertainties.~~period. See ~~"Forward-Looking Information," the rest of this Item 2, and Notes~~Note 5 ~~6 and 10~~ to the Financial Statements for additional information.

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(c)

WPD Midlands recorded adjustments to its line loss accrual based on information provided by Ofgem regarding the calculation of line loss incentive/penalty for all network operators related to DPCR4, a price control period that ended prior to PPL's acquisition of WPD Midlands. See Note 6 to the Financial Statements for additional information.

(d)

The U.K. Finance Act of 2013, enacted in ~~this Form 10-Q~~July 2013, reduced the U.K.'s statutory income tax rate from 23% to 21%, effective April 1, 2014 and ~~"Item 1. Business"~~from 21% to 20%, effective April 1, 2015. The U.K. Finance Act of 2012, enacted in July 2012, reduced the U.K. statutory income tax rate from 25% to 24% retroactive to April 1, 2012 and ~~"Item 1A. Risk Factors"~~from 24% to 23% effective April 1, 2013. As a result, PPL reduced its net deferred tax liability and recognized a deferred tax benefit in ~~PPL's 2012 Form 10-K for a discussion~~the three and nine-month periods of ~~the risks, uncertainties~~2013 and ~~factors that may impact future earnings.~~2012.

Pennsylvania Regulated Segment

Supply

The Pennsylvania Regulated segment includes PPL Electric's regulated electricity transmission and distribution operations. In addition, the Pennsylvania Regulated segment is allocated certain financing costs.Segment

PPL's reportable segments' results primarily represent the results of its related Subsidiary Registrant(s), except that the reportable segments are also allocated certain corporate level financing and other costs that are not included in the results of the applicable Subsidiary Registrant. The U.K. Regulated segment does not have a related Subsidiary Registrant.

(PPL Energy Supply)

PPL Energy Supply, headquartered in Allentown, Pennsylvania is an energy company that through its principal subsidiaries is primarily engaged in the competitive generation and marketing of electricity in two key markets - the northeastern and northwestern U.S. PPL Energy Supply's principal subsidiaries are PPL EnergyPlus, its marketing and trading subsidiary, and PPL Generation, the owner of its generating facilities in Pennsylvania and Montana.

(PPL Electric)

PPL Electric, headquartered in Allentown, Pennsylvania, is an electricity transmission and distribution service provider in eastern and central Pennsylvania. PPL Electric is subject to regulation as a public utility by the PUC, and certain of its transmission activities are subject to the jurisdiction of FERC under the Federal Power Act. PPL Electric delivers electricity in its Pennsylvania service area and provides electricity supply to retail customers in that area as a PLR under the Customer Choice Act.

(LKE)

LKE, headquartered in Louisville, Kentucky, is a holding company and a wholly owned subsidiary of PPL. LKE owns regulated utility operations through its subsidiaries, LG&E and KU, which constitute substantially all of LKE's assets. LG&E and KU are engaged in the generation, transmission, distribution and sale of electricity. LG&E also engages in the distribution and sale of natural gas. LG&E and KU maintain their separate identities and serve customers in Kentucky under their respective names. KU also serves customers in Virginia under the Old Dominion Power name and in Tennessee under the KU name.

(LG&E)

LG&E, headquartered in Louisville, Kentucky, is a regulated utility engaged in the generation, transmission, distribution and sale of electricity and distribution and sale of natural gas in Kentucky. LG&E is subject to regulation as a public utility by the KPSC, and certain of its transmission activities are subject to the jurisdiction of FERC under the Federal Power Act. LG&E is a wholly owned subsidiary of LKE.

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(KU)

KU, headquartered in Lexington, Kentucky, is a regulated utility engaged in the generation, transmission, distribution and sale of electricity in Kentucky, Virginia and Tennessee. KU is subject to regulation as a public utility by the KPSC, the VSCC and the TRA, and certain of its transmission and wholesale power activities are subject to the jurisdiction of FERC under the Federal Power Act. KU is a wholly owned subsidiary of LKE.

(All Registrants except PPL Electric)

The capacity (summer rating) of regulated and competitive electricity generation facilities at September 30, 2013 was:

		Ownership or Lease Interest in MW (a)
			PPL Energy
Primary Fuel		PPL	Supply	LKE	LG&E	KU

Regulated
	Coal (c)	5,940		5,940	2,656	3,284
	Natural Gas/Oil (b)	2,098		2,098	644	1,454
	Hydro	78		78	54	24

Total Regulated		8,116		8,116	3,354	4,762

Competitive
	Coal (b) (c)	4,146	4,146
	Natural Gas/Oil	3,316	3,316
	Nuclear (c)	2,275	2,275
	Hydro (d)	807	807
	Other (e)	70	70

Total Competitive		10,614	10,614

Total		18,730	10,614	8,116	3,354	4,762

Net Income Attributable to PPL Shareowners for the periods ended March 31 includes the following results:

Three Months
2013 2012 % Change
Utility revenues
External $ 512 $ 457 12
Intersegment 1 1
Total utility revenues 513 458 12
Energy purchases
External 172 153 12
Intersegment 14 21 (33)
Other operation and maintenance 133 140 (5)
Depreciation 43 39 10
Taxes, other than income 30 26 15
Total operating expenses 392 379 3
Other Income (Expense) - net 1 2 (50)
Interest Expense 25 24 4
Income Taxes 33 20 65
Net Income 64 37 73
Net Income Attributable to Noncontrolling Interests 4 (100)
Net Income Attributable to PPL Shareowners $ 64 $ 33 94

(a)

The ~~changes~~capacity of generation units is based on a number of factors, including the operating experience and physical conditions of the units, and may be revised periodically to reflect changed circumstances. See "Item 2. Properties" in the ~~components~~2012 Form 10-K for additional information on ownership percentages.

(b)	Includes leasehold interests. See Note 11 to the Financial Statements in the 2012 Form 10-K for additional information.

(c)

Includes units that are jointly owned or subject to a power purchase agreement. Each owner is entitled to its proportionate share of the ~~Pennsylvania Regulated segment's results between these~~unit's total output and funds its proportionate share of fuel and other operating costs. See Notes 14 and 15 to the Financial Statements in the 2012 Form 10-K for additional information.

(d)

In September 2013, PPL Montana executed a definitive agreement to sell its 11 hydroelectric facilities, which have a combined generating capacity of 633 MW, to NorthWestern for $900 million in cash, subject to certain adjustments. The sale is not expected to close before the second half of 2014 and is subject to closing conditions, including receipt of regulatory approvals by the FERC and Montana Public Service Commission and certain third party consents. See Note 8 to the Financial Statements for additional information.

(e)	Includes facilities owned, controlled or for which PPL Energy Supply has the rights to the output.

Business Strategy

(PPL and PPL Energy Supply)

The strategy for PPL Energy Supply is to achieve disciplined optimization of energy supply margins while mitigating near-term volatility in both cash flows and earnings. More specifically, the strategy is to optimize the value from its competitive generation and marketing portfolios. PPL Energy Supply endeavors to do this by matching energy supply with load, or customer demand, under contracts of varying durations with creditworthy counterparties to capture profits while effectively managing exposure to energy and fuel price volatility, counterparty credit risk and operational risk. PPL Energy Supply is focused on maintaining profitability during the current and projected period of low commodity prices. See "Financial and Operational Developments - Economic and Market Conditions" below for additional information.

(All Registrants except PPL Energy Supply)

The strategy for the regulated businesses of WPD, PPL Electric, LKE, LG&E and KU is to achieve stable, long-term growth in earnings and rate base, or RAV, as applicable. Both rate base and RAV are expected to grow as a result of significant capital expenditure programs to maintain existing assets and improving system reliability and, for LKE, LG&E and KU, to comply with federal and state environmental regulations related to electric generation facilities. These regulated businesses

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focus on timely recovery of costs, efficient, reliable and safe operations, strong customer service and constructive regulatory relationships.

Recovery of capital project costs is attained through various rate-making mechanisms, including periodic base rate case proceedings, FERC formula rate mechanisms, and other regulatory agency-approved recovery mechanisms. In Kentucky, the KPSC has adopted a series of regulatory mechanisms (ECR, DSM, GLT, fuel adjustment clause, gas supply clause and recovery on certain construction work-in-progress) that reduce regulatory lag and provide for timely recovery of prudently incurred costs. In Pennsylvania, the recently approved DSIC mechanism will help PPL Electric reduce regulatory lag and provide for timely recovery of distribution reliability-related capital investment. See "Distribution System Improvement Charge" below for additional information on the implementation of the DSIC mechanism in 2013 and "RIIO-ED1" below for changes to the regulatory framework intended to encourage investment in regulated infrastructure applicable to WPD in 2015.

(All Registrants)

To manage financing costs and access to credit markets and to fund capital expenditure programs, a key objective for the Registrants is to maintain strong credit profiles and liquidity positions. In addition, the Registrants have financial and operational risk management programs that, among other things, are designed to monitor and manage exposure to earnings and cash flow volatility related to, as applicable, changes in energy and fuel prices, interest rates, foreign currency exchange rates, counterparty credit quality and the operating performance of their generating units.

Financial and Operational Developments

Earnings (PPL)

Earnings by component of PPL's reportable segments for the periods ended September 30 were as follows.

		Three Months						Nine Months
		2013		2012		% Change		2013		2012		% Change

	U.K. Regulated	$	183	$	202		(9)	$	741	$	563		32
	Kentucky Regulated		93		72		29		227		148		53
	Pennsylvania Regulated		51		33		55		160		95		68
	Supply		91		48		90		122		361		(66)
	Corporate and Other (a)		(8)				n/a		(22)				n/a
Net Income Attributable to
	PPL Shareowners	$	410	$	355		15	$	1,228	$	1,167		5

EPS - basic		$	0.65	$	0.61		7	$	2.03	$	2.00		2
EPS - diluted (b)		$	0.62	$	0.61		2	$	1.90	$	2.00		(5)

(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. For 2012, there were no significant amounts in this category.

(b)	See "Equity Units" below for information on the Equity Units' impact on the calculation of 2013 diluted EPS.

The following after-tax gains (losses), in total, which management considers special items, impacted PPL's reportable segments results during the periods ended September 30. See PPL's "Results of Operations - Segment Earnings" for details of these special items.

	Three Months						Nine Months
	2013		2012		Change		2013		2012		Change

U.K. Regulated	$	(16)	$	41	$	(57)	$	78	$	39	$	39
Kentucky Regulated								2		(1)		3
Supply		(6)		(105)		99		(49)		3		(52)
Total PPL	$	(22)	$	(64)	$	42	$	31	$	41	$	(10)

The changes in PPL's reportable segments results for the three and nine-month periods, excluding the impact of special items, were due to the following factors (on an after-tax basis):

Increase at the U.K. Regulated segment for the three-month period primarily due to higher electricity delivery prices and lower U.K. income taxes, partially offset by an accrual for over-recovery of current-year revenues, lower sales volume due to weather and higher operation and maintenance expense. Increase at the U.K. Regulated segment for the nine-month period primarily due to higher electricity delivery prices, increased sales volume due to weather, and lower U.K.

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income taxes, partially offset by an accrual for over-recovery of current-year revenues, higher operation and maintenance expense and higher depreciation.

·	Increases at the Kentucky Regulated segment for both periods primarily due to higher base rates that became effective January 1, 2013 and returns from additional environmental capital investments. The three-month period was also partially offset by lower sales volume due to weather.

Decrease at the Supply segment for the three-month period primarily due to lower baseload energy prices, lower baseload generation, higher operation and maintenance expense and higher income taxes. The decline in segment earnings was partially offset by higher capacity prices. Decrease at the Supply segment for the nine-month period primarily due to lower baseload energy prices, higher fuel costs, higher income taxes and higher depreciation. The decline in segment earnings was partially offset by higher capacity prices, higher intermediate and peaking margins and higher baseload generation. The higher income taxes for both periods resulted primarily from a non-cash adjustment of deferred tax assets.

See "Results of Operations" below for further discussion of PPL's reportable segments and analysis of results of operations.

2013 Outlook

(PPL)

(PPL's U.K. Regulated Segment)

(PPL's Kentucky Regulated Segment and Kentucky Registrants)

Excluding special items, higher earnings are projected in 2013 compared with 2012, primarily driven by base rate increases and returns on additional environmental capital investments.

(PPL's Pennsylvania Regulated Segment and PPL Electric)

(PPL's Supply Segment and PPL Energy Supply)

(All Registrants)

103

Other Financial and Operational Developments

Economic and Market Conditions

(PPL and PPL Energy Supply)

(All Registrants except PPL Electric)

(PPL and PPL Energy Supply)

(PPL and Kentucky Registrants)

104

(All Registrants)

The Registrants cannot predict the future impact that economic and market conditions and changes in regulatory requirements may have on their financial condition or results of operations.

(PPL)

Ofgem Review of Line Loss Calculation

RIIO-ED1

Equity Forward Agreements

Equity Units

105

Tax Litigation

U.K. Tax Rate Change

Pennsylvania Net Operating Loss Valuation Allowance

FERC Audit Proceedings (All Registrants except PPL Energy Supply)

(PPL and PPL Energy Supply)

Montana Transactions

In September 2013, PPL Montana executed a definitive agreement to sell 633MW of hydroelectric facilities to NorthWestern for $900 million in cash, subject to certain adjustments. The sale is not expected to close before the second half of 2014. The sale is subject to closing conditions, including receipt of regulatory approvals by the FERC and Montana Public Service Commission and certain third-party consents. In a related transaction, in September 2013, PPL Montana negotiated and entered into an agreement to pay $271 million to terminate a sale-leaseback arrangement and reacquire its interests in the Colstrip coal-fired facilities. This transaction is anticipated to occur by the end of the first quarter of 2014, subject to approval by the FERC. At lease termination, in addition to recording a charge for the cash payment, a non-cash charge is expected to be recorded related to the existing lease-related assets on PPL's and PPL Energy Supply's Balance Sheets. The book value of these assets was approximately $450 million at September 30, 2013. These lease-related assets will be written-off and the reacquired Colstrip assets will be recorded at fair value as of the acquisition date. The total loss is currently estimated at between $310 million and $430 million, after-tax, which is dependent on the fair value assigned to the reacquired Colstrip assets. See Note 8 to the Financial Statements for additional information.

Susquehanna Turbine Blade Inspection

106

Colstrip Unit 4 Outage (PPL Energy Supply)

(PPL and PPL Electric)

Distribution System Improvement Charge

Rate Case Proceedings

(PPL and PPL Electric)

In December 2012, the PUC approved a total distribution revenue increase of about $71 million for PPL Electric, using a 10.4% return on equity. The approved rates became effective January 1, 2013.

(PPL and Kentucky Registrants)

(KU)

Results of Operations

(PPL)

107

(Subsidiary Registrants)

(All Registrants)

PPL: Segment Earnings and Statement of Income Analysis

Segment Earnings

U.K. Regulated Segment

Net Income Attributable to PPL Shareowners for the periods ended September 30 includes the following results:

		Three Months					Nine Months
		2013		2012		% Change	2013		2012		% Change

Utility revenues		$	534	$	518	3	$	1,731	$	1,613	7
Energy-related businesses			9		10	(10)		32		34	(6)
	Total operating revenues		543		528	3		1,763		1,647	7
Other operation and maintenance			111		101	10		340		326	4
Depreciation			73		69	6		219		206	6
Taxes, other than income			36		36			109		108	1
Energy-related businesses			7		8	(13)		21		24	(13)
	Total operating expenses		227		214	6		689		664	4
Other Income (Expense) - net			(117)		(50)	134		7		(39)	(118)
Interest Expense			102		106	(4)		313		314
Income Taxes			(86)		(44)	95		27		67	(60)
Net Income Attributable to PPL Shareowners		$	183	$	202	(9)	$	741	$	563	32

		Three Months		Nine Months

U.K.
	Utility revenues	$	44	$	187
	Other operation and maintenance		(9)		(19)
	Depreciation		(6)		(17)
	Interest expense		3		(4)
	Other		2		2
	Income taxes		8		(13)
U.S.
	Interest expense and other				1
	Income taxes		(5)		4

108

	Three Months		Nine Months

Foreign currency exchange rates, after-tax (a)		1		(2)
Special items, after-tax		(57)		39
Total	$	(19)	$	178

(a)	Includes the effect of realized gains (losses) on foreign currency economic hedges.

U.K.

·	Higher utility revenues for the three-month period primarily due to $74 million from the April 1, 2013 price increase, partially offset by a $22 million accrual for over-recovered revenue and $10 million of lower volume due primarily to weather.

·	Higher other operation and maintenance for the three- and nine-month periods primarily due to higher network maintenance expense.

·	Higher depreciation for the three- and nine-month periods primarily due to PP&E additions.

·	Lower income taxes for the three-month period due to $16 million from U.K. tax rate changes, partially offset by higher pre-tax income, which increased income taxes by $8 million.

U.S.

·	Higher income taxes for the three-month period due to an $8 million increase to income tax expense attributable to a revision in the expected taxable amount of cash repatriation in 2013.

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

		Income Statement	Three Months				Nine Months
		Line Item	2013		2012		2013		2012

		Other Income
Foreign currency-related economic hedges, net of tax of $44, $18, $5, $17 (a)		(Expense)-net	$	(82)	$	(30)	$	(8)	$	(28)
WPD Midlands acquisition-related adjustments:
		Other Operation
	Separation benefits, net of tax of $1, $1, $1, $3	and Maintenance		(2)		(1)		(4)		(9)
		Other Operation
	Other acquisition-related adjustments, net of tax of $0, $0, $0, ($1)	and Maintenance				(2)		(2)		2
Other:
	Windfall Profits Tax litigation (b)	Income Taxes						43
	Change in WPD line loss accrual, net of tax of $5, $0, $10, $0 (c)	Utility		(16)				(35)
	Change in U.K. tax rate (d)	Income Taxes		84		74		84		74
Total			$	(16)	$	41	$	78	$	39

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

(b)

In May 2013, the U.S. Supreme Court reversed the December 2011 ruling, by the U.S. Court of Appeals for the Third Circuit, on the creditability for income tax purposes of the U.K. Windfall Profits Tax. As a result of the U.S. Supreme Court ruling, PPL recorded an income tax benefit during the nine-month 2013 period. See Note 5 to the Financial Statements for additional information.

109

(c)

(d)

The U.K. Finance Act of 2013, enacted in July 2013, reduced the U.K.'s statutory income tax rate from 23% to 21%, effective April 1, 2014 and from 21% to 20%, effective April 1, 2015. The U.K. Finance Act of 2012, enacted in July 2012, reduced the U.K. statutory income tax rate from 25% to 24% retroactive to April 1, 2012 and from 24% to 23% effective April 1, 2013. As a result, PPL reduced its net deferred tax liability and recognized a deferred tax benefit in the three and nine-month periods of 2013 and 2012.

Kentucky Regulated Segment

The Kentucky Regulated segment consists primarily of LKE's regulated electricity generation, transmission and distribution operations. This segment also includes LKE's regulated distribution and sale of natural gas. In addition, certain financing costs are allocated to the Kentucky Regulated segment. The Kentucky Regulated segment represents 19% of Net Income Attributable to PPL Shareowners for the nine months ended September 30, 2013 and 25% of PPL's assets at September 30, 2013.

Net Income Attributable to PPL Shareowners for the periods ended September 30 includes the following results:

		Three Months					Nine Months
		2013		2012		% Change	2013		2012		% Change

Utility revenues		$	744	$	732	2	$	2,226	$	2,095	6
Fuel			237		249	(5)		684		677	1
Energy purchases			23		27	(15)		146		135	8
Other operation and maintenance			188		186	1		582		589	(1)
Depreciation			84		87	(3)		249		259	(4)
Taxes, other than income			12		11	9		36		34	6
	Total operating expenses		544		560	(3)		1,697		1,694
Other Income (Expense) - net			(4)		(4)			(6)		(14)	(57)
Interest Expense			49		54	(9)		165		163	1
Income Taxes			54		42	29		132		70	89
Income (Loss) from Discontinued Operations						n/a		1		(6)	(117)
Net Income Attributable to PPL Shareowners		$	93	$	72	29	$	227	$	148	53

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 reclassifications for items included in Kentucky Gross Margins and certain items that management considers special. See below for additional detail of these special items.

	Three Months		Nine Months

Kentucky Gross Margins	$	42	$	151
Other operation and maintenance		(4)		4
Depreciation		(9)		(26)
Taxes, other than income		(1)		(2)
Other Income (Expense) - net				7
Interest Expense		5		(2)
Income Taxes		(12)		(56)
Special items, after-tax				3
Total	$	21	$	79

·	See "Statement of Income Analysis - Margins - Changes in Non-GAAP Financial Measures" for an explanation of Kentucky Gross Margins.

Lower other operation and maintenance for the nine-month period primarily due to $18 million of lower costs due to the timing and scope of scheduled coal plant maintenance outages. This decrease was partially offset by $8 million of higher administrative and general expenses and $4 million of adjustments to regulatory assets and liabilities.

Higher depreciation for the three and nine-month periods primarily due to environmental costs related to the 2005 and 2006 ECR plans now being included in base rates, which added $13 million and $39 million to depreciation that is excluded from Kentucky Gross Margins. This increase was partially offset by lower depreciation of $5 and $16 million due to revised rates that were effective January 1, 2013. Both events are the result of the 2012 rate case proceedings.

·	Higher other income (expense) - net for the nine-month period primarily due to losses from the EEI investment recorded in 2012. The EEI investment was fully impaired in the fourth quarter of 2012.

110

·	Higher income taxes for the three and nine-month periods primarily due to the change in pre-tax income at current period tax rates.

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

		Income Statement	Three Months		Nine Months
		Line Item	2013	2012	2013		2012

LKE acquisition-related adjustments:
		Income Taxes and Other
	Net operating loss carryforward and other tax-related adjustments	Operation and Maintenance					$	4
Other:
	LKE discontinued operations (a)	Discontinued Operations			$	1		(5)
	EEI adjustments, net of tax of $0, $0, $0, $0 (b)	Other Income (Expense)-net				1
Total					$	2	$	(1)

(a)	2012 period includes an adjustment to an indemnification liability.

(b)	Impact recorded at KU.

Pennsylvania Regulated Segment

The Pennsylvania Regulated segment includes PPL Electric's regulated electricity transmission and distribution operations. In addition, certain financing costs are allocated to the Pennsylvania Regulated segment. The Pennsylvania Regulated segment represents 13% of Net Income Attributable to PPL Shareowners for the nine months ended September 30, 2013 and 15% of PPL's assets at September 30, 2013.

Net Income Attributable to PPL Shareowners for the periods ended September 30 includes the following results:

		Three Months					Nine Months
		2013		2012		% Change	2013		2012		% Change
Utility revenues
	External	$	463	$	443	5	$	1,388	$	1,303	7
	Intersegment		1		1			3		3
	Total utility revenues		464		444	5		1,391		1,306	7
Energy purchases
	External		144		137	5		436		410	6
	Intersegment		11		23	(52)		37		61	(39)
Other operation and maintenance			134		148	(9)		391		431	(9)
Depreciation			45		41	10		132		119	11
Taxes, other than income			25		24	4		77		72	7
	Total operating expenses		359		373	(4)		1,073		1,093	(2)
Other Income (Expense) - net			2		3	(33)		5		6	(17)
Interest Expense			30		25	20		80		73	10
Income Taxes			26		16	63		83		47	77
Net Income			51		33	55		160		99	62
Net Income Attributable to Noncontrolling Interests						n/a				4	(100)
Net Income Attributable to PPL Shareowners		$	51	$	33	55	$	160	$	95	68

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 reclassifications for items included in Pennsylvania Gross Delivery Margins.

~~Three Months~~

	Three Months		Nine Months

Pennsylvania Gross Delivery Margins	$	31	$	92
Other operation and maintenance		8		28
Depreciation		(4)		(13)
Interest Expense		(5)		(7)
Other		(2)		(3)
Income Taxes		(10)		(36)
Noncontrolling Interests				4
Total	$	18	$	65

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

~~Pennsylvania Gross Delivery Margins~~		$	40
~~Other operation and maintenance~~			7
~~Depreciation~~			~~(4)~~
~~Other~~			~~(3)~~
~~Income Taxes~~			~~(13)~~
~~Noncontrolling Interests~~			4
~~Total~~		$	31

111

·	Lower other operation and maintenance for the three-month period primarily due to lower storm costs of $8 million, lower corporate service costs of $3 million and lower rent expense of $3 million, partially offset by higher vegetation management expense of $6 million.

·	~~See "Statement of Income Analysis - Margins - Changes in Non-GAAP Financial Measures" for an explanation of Pennsylvania Gross Delivery Margins.~~

·	~~Lower other operation and maintenance primarily due to lower corporate service costs.~~

Lower other operation and maintenance for the nine-month period primarily due to lower storm costs of $9 million, lower corporate service costs of $13 million and lower rent expense of $4 million.

Higher depreciation ~~due to PP&E additions.~~

·	~~Higher income taxes~~for the three and nine-month periods primarily due to the impact of PP&E additions related to the ongoing efforts to ensure the reliability of the delivery system and replace aging infrastructure.

·	Higher interest expense for the three and nine-month periods primarily due to the issuance of first mortgage bonds in August 2012 and July 2013.

·	Higher income taxes for the three and nine-month periods primarily due to higher pre-tax income.

·	~~Lower noncontrolling interests due to PPL Electric's June 2012 redemption of all 2.5 million shares of its preference stock.~~

~~2013 Outlook~~

Excluding special items, PPL projects higher segment earnings in 2013 compared with 2012, primarily driven by higher distribution revenues from a distribution base rate increase and higher transmission margins, partially offset by higher depreciation.

Earnings in future periods are subject to various risks and uncertainties. See "Forward-Looking Information," the rest of this Item 2, and Notes 6 and 10 to the Financial Statements in this Form 10-Q and "Item 1. Business" and "Item 1A. Risk Factors" in PPL's 2012 Form 10-K for a discussion of the risks, uncertainties and factors that may impact future earnings.

Supply Segment

The Supply segment primarily consists of PPL Energy Supply's energy marketing and trading activities, as well as its competitive generation operations. In addition, certain financing costs are allocated to the Supply segment. The Supply segment ~~is allocated certain financing costs.~~represents 10% of Net Income Attributable to PPL Shareowners for the nine months ended September 30, 2013 and 27% of PPL's assets at September 30, 2013.

Net Income Attributable to PPL Shareowners for the periods ended March 31 includes the following results:
Net Income Attributable to PPL Shareowners for the periods ended September 30 includes the following results:							Net Income Attributable to PPL Shareowners for the periods ended September 30 includes the following results:

		Three Months						Three Months					Nine Months
		2013		2012		% Change		2013		2012		% Change	2013		2012		% Change
Energy revenues	Energy revenues						Energy revenues
	External (a)	$	381	$	2,290	(83)	External (a)	$	1,209	$	567	113	$	3,248	$	3,673	(12)
	Intersegment		14		21	(33)	Intersegment		11		23	(52)		37		61	(39)
Energy-related businesses	Energy-related businesses		113		98	15	Energy-related businesses		143		133	8		378		346	9
	Total operating revenues		508		2,409	(79)	Total operating revenues		1,363		723	89		3,663		4,080	(10)
Fuel (a)	Fuel (a)		298		211	41	Fuel (a)		258		321	(20)		780		728	7
Energy purchases	Energy purchases						Energy purchases
	External (a)		(200)		1,247	(116)	External (a)		388		(150)	(359)		1,085		1,288	(16)
	Intersegment		1		1		Intersegment		1		1			3		2	50
Other operation and maintenance	Other operation and maintenance		235		248	(5)	Other operation and maintenance		243		221	10		748		769	(3)
Depreciation	Depreciation		78		72	8	Depreciation		80		75	7		237		210	13
Taxes, other than income	Taxes, other than income		17		18	(6)	Taxes, other than income		18		19	(5)		51		54	(6)
Energy-related businesses	Energy-related businesses		110		97	13	Energy-related businesses		138		129	7		366		339	8
	Total operating expenses		539		1,894	(72)	Total operating expenses		1,126		616	83		3,270		3,390	(4)
Other Income (Expense) - net	Other Income (Expense) - net		4		5	(20)	Other Income (Expense) - net		2		6	(67)		18		15	20
Other-Than-Temporary Impairments							Other-Than-Temporary Impairments		1			n/a		1		1
Interest Expense	Interest Expense		60		48	25	Interest Expense		54		62	(13)		174		163	7
Income Taxes	Income Taxes		(41)		171	(124)	Income Taxes		92		3	2,967		113		180	(37)
Net Income (Loss) Attributable to PPL Shareowners		$	(46)	$	301	(115)
Net Income Attributable to Noncontrolling Interests							Net Income Attributable to Noncontrolling Interests		1			n/a		1			n/a
Net Income Attributable to PPL Shareowners							Net Income Attributable to PPL Shareowners	$	91	$	48	90	$	122	$	361	(66)

(a)	Includes the impact from energy-related economic activity. See "Commodity Price Risk (Non-trading) - Economic Activity" in Note 14 to the Financial Statements for additional information.

~~100~~

The changes in the components of the Supply segment's results between these periods were due to the ~~following~~ factors set forth below, which reflect reclassifications for items included in Unregulated Gross Energy Margins and certain items that management considers special. See below for additional detail of these special ~~items in the table below.~~items.

	~~Three Months~~

~~Unregulated Gross Energy Margins~~	$	~~(107)~~
~~Other operation and maintenance~~		6
~~Depreciation~~		~~(6)~~
~~Interest expense~~		~~(12)~~
~~Other~~		2
~~Income Taxes~~		33
~~Special items, after-tax~~		~~(263)~~
~~Total~~	$	~~(347)~~

	Three Months		Nine Months

Unregulated Gross Energy Margins	$	(9)	$	(204)
Other operation and maintenance		(18)		11
Depreciation		(5)		(27)
Taxes, other than income		(1)		3
Other Income (Expense) - net		(4)		6
Interest expense		8		(11)
Other		(4)		(2)
Income Taxes		(23)		37
Special items, after-tax		99		(52)
Total	$	43	$	(239)

112

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

~~Lower~~Higher other operation and maintenance for the three-month period primarily due to ~~$15 million of lower~~Montour outage costs ~~at eastern fossil and hydroelectric plants largely due to outages~~ in ~~2012, partially offset by $3 million of additional costs due to the Ironwood Acquisition.~~2013 with no comparable outage in 2012.

Lower other operation and maintenance for the nine-month period primarily due to $23 million of outage costs at Brunner Island mainly due to timing and $9 million due to lower project costs at PPL Susquehanna, partially offset by $13 million of Montour outage costs in 2013 with no comparable outage in 2012 and $6 million of Ironwood outage costs in 2013 with no comparable outage in 2012.

·	Higher depreciation for the three and nine-month periods primarily due to PP&E additions. The nine-month period also includes $6 million attributable to the Ironwood Acquisition.

Higher interest expense for the nine-month period primarily due to ~~financings associated with PPL Ironwood, acquired~~lower capitalized interest in ~~April 2012, which increased interest expense by $4 million, and $4 million due to the allocation of interest from a June 2012 PPL Capital Funding debt issuance.~~2013.

~~Lower~~Higher income taxes for the three-month period primarily due to $26 million of higher adjustments to valuation allowances in 2013 on Pennsylvania net operating loss carryforwards and a $6 million benefit from a state tax rate change recorded in 2012, partially offset by lower pre-tax income in 2013, which reduced income taxes by ~~$47 million, partially offset by an $11~~$10 million.

Lower income taxes for the nine-month period primarily due to lower pre-tax income in 2013, which reduced income taxes by $87 million, partially offset by $26 million of higher adjustments to valuation allowances in 2013 on Pennsylvania net operating loss carryforwards and a $17 million benefit from a state tax rate change recorded in 2012.

The following after-tax gains (losses), which management considers special items, also impacted the Supply segment's results during the periods ended ~~March 31.~~September 30.

		Income Statement	Three Months					Income Statement	Three Months				Nine Months
		Line Item	2013		2012			Line Item	2013		2012		2013		2012

Adjusted energy-related economic activity, net, net of tax of $79, ($102)		(a)	$	(117)	$	150
Adjusted energy-related economic activity - net, net of tax of $4, $63, $32, ($16)							Adjusted energy-related economic activity - net, net of tax of $4, $63, $32, ($16)	(a)	$	(6)	$	(95)	$	(47)	$	23
Impairments:	Impairments:						Impairments:
	Adjustments - nuclear decommissioning trust investments, net of tax of $0, ($1)	Other Income (Expense)-net				1	Adjustments - nuclear decommissioning trust investments, net of tax of $0, $0, $0, ($2)	Other Income-net								1
Other:	Other:						Other:
	Counterparty bankruptcy, net of tax of $0, $5 (b)	Other Operation and Maintenance				(6)	Change in tax accounting method related to repairs	Income Taxes						(3)
	Ash basin leak remediation adjustment, net of tax of $0, ($1)	Other Operation and Maintenance				1		Other Operation
							Counterparty bankruptcy, net of tax of $0, $0, ($1), $5 (b)	and Maintenance						1		(6)
							Wholesale supply cost reimbursement, net of tax of $0, $0, $0, $0	(c)								1
								Other Operation
							Ash basin leak remediation adjustment, net of tax of $0, $0, $0, ($1)	and Maintenance								1
							Coal contract modification payments, net of tax of $0, $7, $0, $12 (d)	Fuel				(10)				(17)
Total	Total		$	(117)	$	146	Total		$	(6)	$	(105)	$	(49)	$	3

(a)	See "Reconciliation of Economic Activity" below.

(b)

In October 2011, a wholesale customer, SMGT, filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy code. In 2012, PPL EnergyPlus recorded an additional allowance for unpaid amounts under the long-term power contract. In March 2012, the U.S. Bankruptcy Court for the District of Montana approved the request to terminate the contract, effective April 1, 2012. In June 2013, PPL EnergyPlus received an approval for an administrative claim in the amount of $2 million.

(c)	Recorded in "Wholesale energy marketing - Realized" on the Statement of Income.

(d)	As a result of lower electricity and natural gas prices, coal-fired generation output decreased during 2012. Contract modification payments were incurred to reduce 2012 and 2013 contracted coal deliveries.

Reconciliation of Economic Activity

The following table reconciles unrealized pre-tax gains (losses) for the periods ended ~~March 31, from the table within "Commodity Price Risk (Non-trading) - Economic Activity" in Note 14 to the Financial Statements~~September 30, to the special item identified as "Adjusted energy-related economic activity - net."

		Three Months				Nine Months
		2013		2012		2013		2012
Operating Revenues
	Unregulated retail electric and gas	$	(2)	$	(13)	$	10	$	(15)
	Wholesale energy marketing		(49)		(716)		(281)		(322)
Operating Expenses
	Fuel		3		3		(2)		(11)
	Energy Purchases		37		569		192		420
Energy-related economic activity (a)			(11)		(157)		(81)		72

~~101~~113

Three Months
2013 2012
Operating Revenues
Unregulated retail electric and gas $ (8) $ 10
Wholesale energy marketing (822) 852
Operating Expenses
Fuel (1) 2
Energy Purchases 634 (591)
Energy-related economic activity (a) (197) 273
Option premiums 1
Adjusted energy-related economic activity (196) 273
Less: Economic activity realized, associated with the monetization of certain
full-requirement sales contracts in 2010 21
Adjusted energy-related economic activity, net, pre-tax $ (196) $ 252

Adjusted energy-related economic activity, net, after-tax $ (117) $ 150

		Three Months				Nine Months
		2013		2012		2013		2012
Option premiums			1				2		1
Adjusted energy-related economic activity			(10)		(157)		(79)		73
Less: Economic activity realized, associated with the monetization of
	certain full-requirement sales contracts in 2010				1				34
Adjusted energy-related economic activity - net, pre-tax		$	(10)	$	(158)	$	(79)	$	39

Adjusted energy-related economic activity - net, after-tax		$	(6)	$	(95)	$	(47)	$	23

(a)	See Note 14 to the Financial Statements for additional information.

~~2013 Outlook~~

Excluding special items, PPL projects lower segment earnings in 2013 compared with 2012, primarily driven by lower energy prices, higher fuel costs, higher operation and maintenance expense, higher depreciation, and higher financing costs, partially offset by higher capacity prices and higher nuclear generation output despite scheduled outages for both Susquehanna units to implement a long-term solution to turbine blade issues.

Earnings in future periods are subject to various risks and uncertainties. See "Forward-Looking Information," the rest of this Item 2, and Note 10 to the Financial Statements in this Form 10-Q and "Item 1. Business" and "Item 1A. Risk Factors" in PPL's 2012 Form 10-K for a discussion of the risks, uncertainties and factors that may impact future earnings.

Statement of Income Analysis --

Margins

Non-GAAP Financial Measures

~~The~~Management utilizes the following discussion includes financial information prepared in accordance with GAAP, as well as three non-GAAP financial measures: "Kentucky Gross Margins," "Pennsylvania Gross Delivery Margins" and "Unregulated Gross Energy Margins." 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 to report on the results of their operations. PPL believes that these measures provide additional criteria to make investment decisions. These performance measures are used, in conjunction with other information, internally by senior management and the Board of Directors to manage the Kentucky Regulated, Pennsylvania Regulated and Supply segment operations, analyze each respective segment's actual results compared with budget and, in certain cases, to measure certain corporate financial goals used in determining variable compensation.

~~PPL's three~~ non-GAAP financial measures ~~include:~~as indicators of performance for its businesses.

"Kentucky Gross Margins" is a single financial performance measure of ~~the Kentucky Regulated segment's~~LKE's, LG&E's and KU's electricity generation, transmission and distribution operations as well as its distribution and sale of natural gas. In calculating this measure, fuel and energy purchases are deducted from revenues. In addition, utility revenues and expenses associated with approved cost recovery mechanisms are offset. These mechanisms allow for recovery of certain expenses, ~~returns~~return on capital investments and performance incentives. Certain costs associated with these mechanisms, primarily ECR, DSM and GLT, are recorded as "Other operation and maintenance" and "Depreciation." As a result, this measure represents the net revenues from the ~~Kentucky Regulated segment's~~electric and gas operations.

"Pennsylvania Gross Delivery Margins" is a single financial performance measure of ~~the Pennsylvania Regulated segment's~~PPL Electric's electric delivery operations, which includes transmission and distribution activities. In calculating this measure, utility revenues and expenses associated with approved recovery mechanisms, including energy provided as a PLR, are offset with minimal impact on earnings. Costs associated with these mechanisms are recorded in "Energy purchases," "Other operation and maintenance," which is primarily Act 129 costs, and "Taxes, other than income," which is primarily gross receipts tax. This performance measure includes PLR energy purchases by PPL Electric from PPL EnergyPlus, which are reflected in "PLR intersegment utility revenue (expense)" in the reconciliation table below (in "Energy purchases from affiliate" in PPL Electric's reconciliation table). As a result, this measure represents the net revenues from PPL Electric's electric delivery operations.

~~102~~

EnergyPlus, which are reflected in "PLR intersegment utility revenue (expense)" in the table below. As a result, this measure represents the net revenues from the Pennsylvania Regulated segment's electric delivery operations.

"Unregulated Gross Energy Margins" is a single financial performance measure of ~~the Supply segment's~~PPL Energy Supply's competitive energy non-trading and trading activities. Non-trading activities are managed on a geographic basis that is aligned with the generation fleet. In calculating this measure, ~~the Supply segment's~~ energy revenues are offset by the cost of fuel, energy purchases and certain other operation and maintenance expenses, primarily ancillary charges and gross receipts tax, which is recorded in "Taxes, other than ~~income".~~income." This performance measure is relevant to PPL due to the volatility in the individual revenue and expense lines on the Statements of Income that comprise "Unregulated Gross Energy Margins." This volatility stems from a number of factors, including the required netting of certain transactions with ISOs and significant fluctuations in unrealized gains and losses. Such factors could result in gains or losses being recorded in either "Wholesale energy marketing" or "Energy purchases" on the Statements of Income. This performance measure includes PLR revenues from energy sales to PPL Electric by PPL EnergyPlus, which are recorded in "PLR intersegment utility revenue (expense)" in the reconciliation table ~~below.~~below (in "Wholesale energy marketing to affiliate" in PPL ~~excludes from~~Energy Supply's reconciliation table). "Unregulated Gross Energy Margins" ~~the Supply segment's~~excludes adjusted energy-related economic activity, which includes the changes in fair value of positions used to economically hedge a portion of the economic value of ~~PPL's~~the competitive generation assets, full-requirement sales contracts and retail activities. This economic value is subject to changes in fair value due to market price volatility of the input and output commodities (e.g., fuel and power) prior to the delivery period that was hedged. ~~Also included in adjusted~~Adjusted energy-related economic activity isalso includes the premium amortization associated with options and for 2012 the ineffective portion of qualifying cash flow hedges and realized economic activity ~~realized~~ associated with the monetization of certain ~~full requirement~~full-requirement sales contracts in 2010. This economic activity iswas deferred, with the exception of the full-requirement sales contracts that were monetized, and included in ~~Unregulated~~"Unregulated Gross Energy ~~Margins~~Margins" over the delivery period that was hedged or upon realization.

114

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 to report on the results of their operations. Management believes that these measures provide additional criteria to make investment decisions. These performance measures are used, in conjunction with other information, internally by senior management and PPL's Board of Directors to manage the operations, analyze actual results compared with budget and, in certain cases, to measure certain corporate financial goals used in determining variable compensation.

Reconciliation of Non-GAAP Financial Measures

The following ~~table reconciles PPL's three~~tables contain the components from the Statement of Income that are included in the non-GAAP financial measures and a reconciliation to PPL's "Operating Income" for the periods ended ~~March 31.~~September 30.

					2013 Three Months												2012 Three Months
									Unregulated												Unregulated												2013 Three Months												2012 Three Months
					Kentucky		PA Gross			Gross							Kentucky		PA Gross			Gross															Unregulated												Unregulated
					Gross		Delivery			Energy					Operating		Gross		Delivery			Energy					Operating						Kentucky		PA Gross			Gross					Operating		Kentucky		PA Gross			Gross					Operating
					Margins		Margins			Margins		Other (a)			Income (b)		Margins		Margins			Margins		Other (a)			Income (b)						Gross		Delivery			Energy					Income		Gross		Delivery			Energy					Income
																																	Margins		Margins			Margins		Other (a)			(b)		Margins		Margins			Margins		Other (a)			(b)
Operating Revenues	Operating Revenues																												Operating Revenues
	Utility				$	800	$	512				$	638	(c)	$	1,950	$	705	$	457				$	552	(c)	$	1,714	Utility				$	744	$	463				$	532	(c)	$	1,739	$	732	$	443				$	518	(c)	$	1,693
	PLR intersegment utility																												PLR intersegment utility
		revenue (expense) (d)						(14)		$	14									(21)		$	21							revenue (expense) (d)						(11)		$	11									(23)		$	23
	Unregulated retail																												Unregulated retail
		electric and gas									246		(9)	(f)		237							214		9	(f)		223		electric and gas									267		(3)	(f)		264							232		(14)	(f)		218
	Wholesale energy marketing																												Wholesale energy marketing
			Realized								977		(1)			976							1,204		4	(e)		1,208			Realized								981		(1)			980							1,074		2	(e)		1,076
			Unrealized economic																												Unrealized economic
				activity									(822)	(f)		(822)									852	(f)		852				activity									(49)	(f)		(49)									(716)	(f)		(716)
	Net energy trading margins										(11)					(11)							8					8	Net energy trading margins										12					12							(11)					(11)
	Energy-related businesses												127			127									107			107	Energy-related businesses												159			159									143			143
			Total Operating Revenues			800		498			1,226		(67)			2,457		705		436			1,447		1,524			4,112			Total Operating Revenues			744		452			1,271		638			3,105		732		420			1,318		(67)			2,403

Operating Expenses	Operating Expenses																												Operating Expenses
	Fuel					231					299		(1)	(f)		529		213					214		(3)	(f)		424	Fuel					237					256		1			494		249					310		11	(g)		570
	Energy purchases																												Energy purchases
			Realized			86		172			436		(3)			691		74		153			636		20	(e)		883			Realized			23		144			427		(2)			592		27		137			418		1	(e)		583
			Unrealized economic																												Unrealized economic
				activity									(634)	(f)		(634)									591	(f)		591				activity									(37)	(f)		(37)									(569)	(f)		(569)
	Other operation and																												Other operation and
		maintenance				25		22			5		624			676		22		22			4		658			706		maintenance				26		19			5		619			669		28		25			1		596			650
	Depreciation												284			284		13							251			264	Depreciation					1							288			289		13							265			278
	Taxes, other than income							28			8		60			96				25			8		58			91	Taxes, other than income							23			9		58			90				23			11		56			90
	Energy-related businesses												122			122									102			102	Energy-related businesses										5		146			151									137			137
	Intercompany eliminations							(1)			1									(1)			1						Intercompany eliminations							(1)			1									(1)			1
			Total Operating Expenses			342		221			749		452			1,764		322		199			863		1,677			3,061			Total Operating Expenses			287		185			703		1,073			2,248		317		184			741		497			1,739
Total	Total				$	458	$	277		$	477	$	(519)		$	693	$	383	$	237		$	584	$	(153)		$	1,051	Total				$	457	$	267		$	568	$	(435)		$	857	$	415	$	236		$	577	$	(564)		$	664

					2013 Nine Months												2012 Nine Months
									Unregulated												Unregulated
					Kentucky		PA Gross			Gross					Operating		Kentucky		PA Gross			Gross					Operating
					Gross		Delivery			Energy					Income		Gross		Delivery			Energy					Income
					Margins		Margins			Margins		Other (a)			(b)		Margins		Margins			Margins		Other (a)			(b)
Operating Revenues
	Utility				$	2,226	$	1,388				$	1,730	(c)	$	5,344	$	2,095	$	1,303				$	1,614	(c)	$	5,012
	PLR intersegment utility
		revenue (expense) (d)						(37)		$	37									(61)		$	61
	Unregulated retail
		electric and gas									750		8	(f)		758							638		(18)	(f)		620
	Wholesale energy marketing
			Realized								2,770		(3)			2,767							3,353		14	(e)		3,367
			Unrealized economic
				activity									(281)	(f)		(281)									(322)	(f)		(322)
	Net energy trading margins										1					1							7					7
	Energy-related businesses												423			423									380			380
			Total Operating Revenues			2,226		1,351			3,558		1,877			9,012		2,095		1,242			4,059		1,668			9,064

115

					2013 Nine Months												2012 Nine Months
									Unregulated												Unregulated
					Kentucky		PA Gross			Gross					Operating		Kentucky		PA Gross			Gross					Operating
					Gross		Delivery			Energy					Income		Gross		Delivery			Energy					Income
					Margins		Margins			Margins		Other (a)			(b)		Margins		Margins			Margins		Other (a)			(b)
Operating Expenses
	Fuel					684					778		2			1,464		677					695		33	(g)		1,405
	Energy purchases
			Realized			146		436			1,282		(9)			1,855		135		410			1,669		39	(e)		2,253
			Unrealized economic
				activity									(192)	(f)		(192)									(420)	(f)		(420)
	Other operation and
		maintenance				74		62			13		1,894			2,043		76		74			12		1,933			2,095
	Depreciation					3							856			859		39							774			813
	Taxes, other than income							70			27		175			272				67			27		174			268
	Energy-related businesses										5		398			403									363			363
	Intercompany eliminations							(3)			3									(3)			2		1
			Total Operating Expenses			907		565			2,108		3,124			6,704		927		548			2,405		2,897			6,777
Total					$	1,319	$	786		$	1,450	$	(1,247)		$	2,308	$	1,168	$	694		$	1,654	$	(1,229)		$	2,287

(a)	Represents amounts excluded from Margins.

(b)	As reported on the Statements of Income.

(c)	Primarily represents WPD's utility revenue.

(d)	Primarily related to PLR supply sold by PPL EnergyPlus to PPL Electric.

~~103~~

(e)

Represents energy-related economic activity as described in "Commodity Price Risk (Non-trading) - Economic Activity" within Note 14 to the Financial Statements. For the three and nine months ended ~~March 31,~~September 30, 2012, "Wholesale energy marketing - Realized" and "Energy purchases - Realized" ~~includes a~~include net pre-tax ~~loss~~losses of ~~$21~~$1 million and $34 million related to the monetization of certain full-requirement sales contracts.

(f)	Represents energy-related economic activity, which is subject to fluctuations in value due to market price volatility, as described in "Commodity Price Risk (Non-trading) - Economic Activity" within Note 14 to the Financial Statements.

(g)

Includes economic activity related to fuel as described in "Commodity Price Risk (Non-trading) - Economic Activity" within Note 14 to the Financial Statements. The three and nine months ended September 30, 2012 include a pre-tax loss of $17 million and $29 million related to coal contract modification payments.

Changes in Non-GAAP Financial Measures

The following table shows ~~PPL's three~~the non-GAAP financial measures by PPL's reportable segment and by component, as applicable, for the periods ended ~~March 31~~September 30 as well as the change between periods. The factors that gave rise to the changes are described below the table.

		Three Months								Three Months						Nine Months
		2013		2012		Change				2013		2012		Change		2013		2012		Change

Kentucky Regulated								Kentucky Regulated
Kentucky Gross Margins	Kentucky Gross Margins	$	458	$	383	$	75	Kentucky Gross Margins
PA Gross Delivery Margins by Component
								LKE		$	457	$	415	$	42	$	1,319	$	1,168	$	151
									LG&E		210		198		12		595		552		43
									KU		247		216		31		724		616		108

Pennsylvania Regulated								Pennsylvania Regulated
PA Gross Delivery Margins								PA Gross Delivery Margins
	Distribution	$	224	$	189	$	35		Distribution	$	201	$	185	$	16	$	607	$	544	$	63
	Transmission		53		48		5		Transmission		66		51		15		179		150		29
Total	Total	$	277	$	237	$	40	Total		$	267	$	236	$	31	$	786	$	694	$	92

Unregulated Gross Energy Margins by Region
Supply								Supply
Unregulated Gross Energy Margins								Unregulated Gross Energy Margins
Non-trading	Non-trading							Non-trading
	Eastern U.S.	$	430	$	489	$	(59)		Eastern U.S.	$	504	$	521	$	(17)	$	1,283	$	1,417	$	(134)
	Western U.S.		58		87		(29)		Western U.S.		52		67		(15)		166		230		(64)
Net energy trading	Net energy trading		(11)		8		(19)	Net energy trading			12		(11)		23		1		7		(6)
Total	Total	$	477	$	584	$	(107)	Total		$	568	$	577	$	(9)	$	1,450	$	1,654	$	(204)

Kentucky Gross Margins

Kentucky Gross Margins increased $42 million for the three months ended ~~March 31,~~September 30, 2013 compared with 2012, primarily due to higher base rates of ~~$31~~$23 million ~~higher volumes of $19~~($10 million at LG&E and $13 million at KU), environmental ~~costs~~cost recoveries added to base rates of $13 million (at KU), returns from additional environmental capital investments of $8 million ($3 million at LG&E and $5 million at KU) and higher fuel recoveries of $6 million ($3 million at LG&E and $3 million at KU), partially offset by lower volumes of $13 million ($7 million at LG&E and $6 million at KU). The change in volumes was primarily attributable to weather, as cooling degree days decreased 16% compared to the same period in 2012.

116

Kentucky Gross Margins increased $151 million for the nine months ended September 30, 2013 compared with 2012, primarily due to higher base rates of $72 million ($31 million at LG&E and $41 million at KU), environmental cost recoveries added to base rates of $45 million ($3 million at LG&E and $42 million at KU), returns from additional environmental capital investments of $18 million ($9 million at LG&E and ~~increased environmental investments~~$9 million at KU) and higher fuel recoveries of ~~$7 million.~~$11 million ($3 million at LG&E and $8 million at KU).

The increase in base rates was the result of new KPSC rates ~~going into effect on~~effective January 1, ~~2013. The increase in volumes was attributable to colder weather in~~ 2013 ~~compared with 2012. Total heating degree days increased 41%.~~at LG&E and KU. The environmental ~~costs~~cost recoveries added to base rates ~~was~~were due to the ~~elimination~~transfer of the 2005 and 2006 ECR plans into base rates as a result of the 2012 Kentucky rate ~~case.~~cases for LG&E and KU. This ~~elimination~~transfer results in depreciation and other operation and maintenance expenses associated with the 2005 and 2006 ECR plans being excluded from Kentucky Gross Margins in ~~2013.~~2013, while the recovery of such costs remain in Kentucky Gross Margins through base rates.

Pennsylvania Gross Delivery Margins

Distribution

~~Margins~~Distribution margins increased for the three months ended ~~March 31,~~September 30, 2013 compared with 2012, primarily due to ~~a $13~~an $18 million favorable effect of ~~mild~~price as a result of higher base rates, effective January 1, 2013, partially offset by unfavorable weather inof $4 million.

Distribution margins increased for the nine months ended September 30, 2013 compared with 2012 ~~and~~due to a ~~$19~~$50 million favorable effect of price, largely comprised of higher base rates, effective January 1, 2013, as a ~~result~~favorable weather effect of ~~the 2012 rate case~~$9 million and higher volumes of $3$4 million.

Transmission

~~Margins~~Transmission margins increased for the three and nine months ended ~~March 31,~~September 30, 2013 compared with 2012, primarily due to increased ~~investment in plant~~capital investments and the recovery of additional costs through the FERC formula-based rates.

~~104~~

	~~Three Months~~

~~Baseload energy prices~~	$	~~(125)~~
~~Coal prices~~		~~(10)~~
~~Nuclear fuel prices~~		~~(6)~~
~~Full-requirement sales contracts~~		5
~~Intermediate and peaking capacity prices~~		5
~~Baseload capacity prices~~		6
~~Intermediate and peaking Spark Spreads~~		14
~~Ironwood acquisition which eliminated tolling expense~~		15
~~Net economic availability of coal and hydroelectric plants~~		32
~~Other~~		5
~~Total~~	$	~~(59)~~

~~Western U.S.~~

~~Non-trading margins for the three months ended March 31, 2013 compared with 2012 were lower due to $43 million of lower wholesale prices, partially offset by $12 million of higher wholesale volumes.~~

~~Net Energy Trading Margins~~

~~Net energy trading margins for the three months ended March 31, 2013 compared with 2012 decreased as a result of lower margins of $16 million on gas positions due to higher prices.~~

~~Utility Revenues~~

~~The increase (decrease) in utility revenues for the period ended March 31, 2013 compared with 2012 was due to:~~

		~~Three Months~~
~~Domestic:~~
	~~PPL Electric (a)~~	$	55
	~~LKE (b)~~		95
	~~Total Domestic~~		~~150~~

~~U.K.:~~
	~~Price (c)~~		57
	~~Volume~~		5
	~~Recovery of allowed revenues~~		5
	~~Foreign currency exchange rates~~		10
	~~Other (d)~~		9
	~~Total U.K.~~		86
~~Total~~		$	~~236~~

~~(a)~~

~~See "Pennsylvania Gross Delivery Margins" for further information.~~

~~(b)~~

~~See "Kentucky Gross Margins" for further information.~~

~~(c)~~

~~Due to price increases effective April 1, 2012.~~

~~(d)~~

~~This increase is primarily due to $8 million of third-party engineering work, which is offset by expenses in "Other operation and maintenance".~~

~~Other Operation and Maintenance~~

~~The increase (decrease) in other operation and maintenance for the period ended March 31, 2013 compared with 2012 was due to:~~


		~~Three Months~~
~~Domestic:~~
	~~Uncollectible accounts (a)~~	$	~~(16)~~
	~~LKE coal plant outages (b)~~		~~(14)~~
	~~Costs at eastern fossil and hydroelectric plants (c)~~		~~(11)~~
	~~Pension and postretirement costs~~		4
	~~Other~~		2
~~U.K.:~~
	~~Third-party engineering work (d)~~		8
	~~Network maintenance expense (e)~~		7
	~~Employee related expenses~~		~~(4)~~
	~~Severance compensation~~		~~(4)~~
	~~Other~~		~~(2)~~
~~Total~~		$	~~(30)~~

~~(a)~~

~~The decrease is primarily due to SMGT filing for protection under Chapter 11 of the U.S. Bankruptcy Code in 2011. $11 million of damages billed to SMGT were fully reserved in 2012.~~

~~105~~

~~(b)~~

~~The decrease is primarily due to the timing and scope of scheduled outages.~~

~~(c)~~

The decrease is primarily due to Brunner Island Unit 3 outage costs of $15 million in 2012 compared with no major outage costs in 2013, partially offset by $3 million of additional costs due to the Ironwood Acquisition.

~~(d)~~

~~These expenses are offset by revenues reflected in "Utility" on the Statements of Income.~~

~~(e)~~

~~The increase is primarily due to higher tree trimming expense.~~

~~Depreciation~~

~~The increase (decrease) in depreciation for the period ended March 31, 2013 compared with 2012 was due to:~~

	~~Three Months~~

~~Additions to PP&E~~	$	21
~~LKE lower depreciation rates effective January 1, 2013~~		~~(5)~~
~~Ironwood Acquisition~~		6
~~Other~~		~~(2)~~
~~Total~~	$	20

~~Other Income (Expense) - net~~

The $139 million increase in other income (expense) - net for the three months ended March 31, 2013 compared with 2012 was primarily due to $119 million of realized and unrealized gains on economic foreign currency contracts compared with losses in 2012 of $18 million.

~~See Note 12 to the Financial Statements for further details.~~

~~Interest Expense~~

~~The increase (decrease) in interest expense for the period ended March 31, 2013 compared with 2012 was due to:~~

	~~Three Months~~

~~Long-term debt interest expense (a)~~	$	14
~~Ironwood Acquisition (b)~~		4
~~Other~~		3
~~Total~~	$	21

~~(a)~~

The increase was primarily due to PPL Capital Funding's June 2012 issuance of $400 million, 4.2% Senior Notes due 2022 and October 2012 issuance of $400 million, 3.5% Senior Notes due 2022. Also, contributing to the increase was higher accretion expense on WPD index linked bonds and interest on WPD (East Midlands') April 2012 issuance of £100 million, 5.25% Senior Notes due 2023.

~~(b)~~

~~The increase was due to financings associated with the Ironwood Acquisition.~~

~~Income Taxes~~

~~The increase (decrease) in income taxes for the period ended March 31, 2013 compared with 2012 was due to:~~

	~~Three Months~~

~~Lower pre-tax book income~~	$	~~(119)~~
~~Foreign tax reserve adjustments~~		~~(3)~~
~~Net operating loss carryforward adjustments (a)~~		6
~~State deferred tax rate change (b)~~		11
~~Other~~		~~(3)~~
~~Total~~	$	~~(108)~~

~~(a)~~

~~During the three months ended March 31, 2012, PPL recorded adjustments to deferred taxes related to net operating loss carryforwards of LKE based on income tax return adjustments.~~

~~(b)~~

~~During the three months ended March 31, 2012, PPL recorded adjustments related to state deferred tax liabilities.~~

~~See Note 5 to the Financial Statements for additional information on income taxes.~~

~~106~~

March 31, 2013 December 31, 2012

Cash and cash equivalents $ 853 $ 901
Short-term debt $ 1,061 $ 652

At March 31, 2013, $335 million of cash and cash equivalents were denominated in GBP. If these amounts would be remitted as dividends, PPL may be subject to additional U.S. taxes, net of allowable foreign tax credits. Historically, dividends paid by foreign subsidiaries have been distributions of the current year's earnings. See Note 5 to the Financial Statements in PPL's 2012 Form 10-K for additional information on undistributed earnings of WPD.

~~The $48 million decrease in PPL's cash and cash equivalents position was primarily the net result of:~~

·	~~capital expenditures of $828 million;~~

·	~~the payment of $210 million of common stock dividends;~~

·	~~a $52 million net increase in restricted cash and cash equivalents; and~~

·	~~$24 million of contract adjustment payments; partially offset by~~

·	~~proceeds of $432 million from the issuance of long-term debt, net of costs;~~

·	~~net increase in short-term debt of $416 million; and~~

·	~~net cash provided by operating activities of $244 million.~~

~~PPL's cash provided by operating activities decreased by $484 million for the three months ended March 31, 2013 compared with 2012. The decrease was primarily due to:~~

·	a $336 million increase in cash used by components of working capital (primarily due to changes in accounts receivable of $219 million resulting from higher base rates and favorable effects of weather and counterparty collateral of $129 million); and

·	~~a $221 million increase in defined benefit plans funding; partially offset by~~

·	~~a $72 million increase in net income, when adjusted for non-cash components.~~

Capital expenditures increased by $146 million for the three months ended March 31, 2013 compared with 2012, primarily due to the Susquehanna-Roseland transmission project and environmental projects at Mill Creek and Ghent, and construction of Cane Run Unit 7.

~~Credit Facilities~~

PPL maintains credit facilities to provide liquidity and to backstop commercial paper issuances. At March 31, 2013, PPL's total committed borrowing capacity under its credit facilities and the use of this borrowing capacity were:

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

PPL Energy Supply Credit Facilities (a) $ 3,200 $ 764 $ 2,436
PPL Electric Credit Facilities (b) 400 126 274
LG&E Syndicated Credit Facility 500 70 430
KU Credit Facilities (c) 598 313 285
Total Domestic Credit Facilities (d) $ 4,698 $ 1,273 $ 3,425

PPL WW Syndicated Credit Facility (e) £ 210 £ 109 n/a £ 101
WPD (South West) Syndicated Credit Facility 245 n/a 245
WPD (East Midlands) Syndicated Credit Facility (f) 300 65 235
WPD (West Midlands) Syndicated Credit Facility 300 300
Total WPD Credit Facilities (g) £ 1,055 £ 174 £ 881

~~(a)~~

~~In February 2013, PPL Energy Supply extended a letter of credit facility expiration date from March 2013 and, effective April 2013, the capacity was reduced to $150 million.~~

~~(b)~~

Committed capacity includes a $100 million credit facility related to an asset-backed commercial paper program through which PPL Electric obtains financing by selling and contributing its eligible accounts receivable and unbilled revenue to a special purpose, wholly owned subsidiary on an ongoing basis. The subsidiary pledges these assets to secure loans of up to an aggregate of $100 million from a commercial paper conduit sponsored by a financial institution. At March 31, 2013, based on accounts receivable and unbilled revenue pledged, the amount available for borrowing under the facility was $100 million.

~~(c)~~

~~In May 2013, KU extended its $198 million letter of credit facility to May 2016.~~

~~(d)~~

The commitments under PPL's domestic credit facilities are provided by a diverse bank group, with no one bank and its affiliates providing an aggregate commitment of more than 9% of the total committed capacity.

~~107~~

~~(e)~~

In December 2012, the PPL WW syndicated credit facility that was set to expire in January 2013 was replaced and the capacity was increased from £150 million. The amount borrowed at March 31, 2013 was a USD-denominated borrowing of $171 million, which equated to £109 million at the time of borrowing and bore interest at 1.9034%.

~~(f)~~

~~The amount borrowed at March 31, 2013 was a GBP-denominated borrowing of £65 million, which equated to $99 million and bore interest at 1.30%.~~

~~(g)~~

At March 31, 2013, the USD equivalent of unused capacity under WPD's committed credit facilities was $1.3 billion. The commitments under WPD's credit facilities are provided by a diverse bank group with no one bank providing more than 13% of the total committed capacity.

~~See Note 7 to the Financial Statements for further discussion of PPL's credit facilities.~~

~~Commercial Paper~~

~~Long-term Debt and Equity Securities~~

~~See "Overview" above for information regarding equity forward agreements and the 2010 Equity Units.~~

In March 2013, PPL Capital Funding issued $450 million of its 5.90% Junior Subordinated Notes due 2073. PPL Capital Funding received proceeds of $436 million, net of underwriting fees, which will be loaned to or invested in affiliates of PPL Capital Funding and used to fund their capital expenditures and other general corporate purposes.

~~In addition, PPL has reduced the estimate of its plans to issue new shares of common stock in 2013 by $100 million from the $350 million reported in its 2012 Form 10-K.~~

~~Common Stock Dividends~~

In February 2013, PPL declared its quarterly common stock dividend, payable April 1, 2013, at 36.75 cents per share (equivalent to $1.47 per annum). Future dividends, declared at the discretion of the Board of Directors, will be dependent upon future earnings, cash flows, financial and legal requirements and other factors.

~~Rating Agency Actions~~

Moody's, S&P and Fitch periodically review the credit ratings on the debt securities of PPL and its 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 PPL and its subsidiaries are based on information provided by PPL and other sources. The ratings of Moody's, S&P and Fitch are not a recommendation to buy, sell or hold any securities of PPL or its 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.

~~108~~

A downgrade in PPL's or its subsidiaries' credit ratings could result in higher borrowing costs and reduced access to capital markets. PPL and its subsidiaries have no credit rating triggers that would result in the reduction of access to capital markets or the acceleration of maturity dates of outstanding debt.

~~The rating agencies took the following actions related to PPL and its subsidiaries during 2013:~~

~~In February 2013, Moody's upgraded its rating, from B2 to Ba1, and revised the outlook from under review to stable for PPL Ironwood.~~

In March 2013, S&P, Moody's and Fitch assigned ratings of BB+, Ba1 and BB+ to PPL Capital Funding's $450 million 5.90% Junior Subordinated Notes due 2073. Fitch also assigned a stable outlook to these notes.

~~In April 2013, Fitch affirmed the BBB- rating and stable outlook at PPL Montana.~~

~~Ratings Triggers~~

PPL and PPL Energy Supply have various contracts, including contracts for the sale and purchase of electricity and fuel, commodity transportation and storage, tolling agreements and interest rate and foreign currency instruments, which contain provisions that require PPL and PPL Energy Supply to post additional collateral or permit the counterparty to terminate the contract, if PPL's or PPL Energy Supply's credit rating were to fall below investment grade. See Note 14 to the Financial Statements for a discussion of "Credit Risk-Related Contingent Features," including a discussion of the potential additional collateral that would have been required for derivative contracts in a net liability position at March 31, 2013.

~~For additional information on PPL's liquidity and capital resources, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," in PPL's 2012 Form 10-K.~~

~~Risk Management~~

~~Market Risk~~

~~See Notes 13 and 14 to the Financial Statements for information about PPL's risk management objectives, valuation techniques and accounting designations.~~

The forward-looking information presented below provides estimates of what may occur in the future, assuming certain adverse market conditions and model assumptions. Actual future results may differ materially from those presented. These disclosures are not precise indicators of expected future losses, but only indicators of possible losses under normal market conditions at a given confidence level.

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

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

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

The following table sets forth the changes in the net fair value of non-trading commodity derivative contracts for the periods ended March 31. See Notes 13 and 14 to the Financial Statements for additional information.

~~109~~

Gains (Losses)
Three Months
2013 2012

Fair value of contracts outstanding at the beginning of the period $ 473 $ 1,082
Contracts realized or otherwise settled during the period (137) (279)
Fair value of new contracts entered into during the period (a) 9 (1)
Other changes in fair value (116) 413
Fair value of contracts outstanding at the end of the period $ 229 $ 1,215

~~(a)~~

~~Represents the fair value of contracts at the end of the quarter of their inception.~~

~~The following table segregates the net fair value of non-trading commodity derivative contracts at March 31, 2013, based on the observability of the information used to determine the fair value.~~

Net Asset (Liability)
Maturity Maturity
Less Than Maturity Maturity in Excess Total Fair
1 Year 1-3 Years 4-5 Years of 5 Years Value
Source of Fair Value
Prices based on significant observable inputs (Level 2) $ 238 $ (21) $ (8) $ 6 $ 215
Prices based on significant unobservable inputs (Level 3) (1) 12 3 14
Fair value of contracts outstanding at the end of the period $ 237 $ (9) $ (5) $ 6 $ 229

PPL sells electricity, capacity and related services and buys fuel on a forward basis to hedge the value of energy from its generation assets. If PPL were unable to deliver firm capacity and energy or to accept the delivery of fuel under its agreements, under certain circumstances it could be required to pay liquidating damages. These damages would be based on the difference between the market price and the contract price of the commodity. Depending on price changes in the wholesale energy markets, such damages could be significant. Extreme weather conditions, unplanned power plant outages, transmission disruptions, nonperformance by counterparties (or their counterparties) with which it has energy contracts and other factors could affect PPL's ability to meet its obligations, or cause significant increases in the market price of replacement energy. Although PPL attempts to mitigate these risks, there can be no assurance that it will be able to fully meet its firm obligations, that it will not be required to pay damages for failure to perform, or that it will not experience counterparty nonperformance in the future.

~~Commodity Price Risk (Trading)~~

PPL's trading commodity derivative contracts range in maturity through 2017. The following table sets forth changes in the net fair value of trading commodity derivative contracts for the periods ended March 31. See Notes 13 and 14 to the Financial Statements for additional information.

Gains (Losses)
Three Months
2013 2012

Fair value of contracts outstanding at the beginning of the period $ 29 $ (4)
Contracts realized or otherwise settled during the period (2)
Fair value of new contracts entered into during the period (a) (12) 6
Fair value of contracts outstanding at the end of the period $ 15 $ 2

~~(a)~~

~~Represents the fair value of contracts at the end of the quarter of their inception.~~

~~The following table segregates the net fair value of trading commodity derivative contracts at March 31, 2013, based on the observability of the information used to determine the fair value.~~

Net Asset (Liability)
Maturity Maturity
Less Than Maturity Maturity in Excess Total Fair
1 Year 1-3 Years 4-5 Years of 5 Years Value
Source of Fair Value
Prices quoted in active markets for identical instruments (Level 1) $ 1 $ 1
Prices based on significant observable inputs (Level 2) 5 $ 9 14
Fair value of contracts outstanding at the end of the period $ 6 $ 9 $ 15

~~110~~

~~VaR Models~~

A VaR model is utilized to measure commodity price risk in unregulated gross energy margins for the non-trading and trading portfolios. VaR is a statistical model that attempts to estimate the value of potential loss over a given holding period under normal market conditions at a given confidence level. VaR is calculated using a Monte Carlo simulation technique based on a five-day holding period at a 95% confidence level. Given the company's disciplined hedging program, the non-trading VaR exposure is expected to be limited in the short-term. The VaR for portfolios using end-of-month results for the periods was as follows.

Trading VaR Non-Trading VaR
Three Months Three Months
Ended Ended
March 31, March 31,
2013 2013
95% Confidence Level, Five-Day Holding Period
Period End $ 6 $ 8
Average for the Period 5 9
High 6 9
Low 3 8

The trading portfolio includes all proprietary trading positions, regardless of the delivery period. All positions not considered proprietary trading are considered non-trading. The non-trading portfolio includes the entire portfolio, including generation, with delivery periods through the next 12 months. Both the trading and non-trading VaR computations exclude FTRs due to the absence of reliable spot and forward markets. The fair value of the non-trading and trading FTR positions was insignificant at March 31, 2013.

~~Interest Rate Risk~~

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

~~At March 31, 2013, PPL's potential annual exposure to increased interest expense, based on a 10% increase in interest rates, was not significant.~~

PPL is also exposed to changes in the fair value of its domestic and international debt portfolios. PPL estimated that a 10% decrease in interest rates at March 31, 2013 would increase the fair value of its debt portfolio by $563 million.

~~At March 31, 2013, PPL had the following interest rate hedges outstanding:~~

Effect of a
Fair Value, 10% Adverse
Exposure Net - Asset Movement
Hedged (Liability) (a) in Rates (b)
Cash flow hedges
Interest rate swaps (c) $ 1,148 $ 12 $ (35)
Cross-currency swaps (d) 1,262 82 (171)
Economic activity
Interest rate swaps (e) 179 (55) (3)

~~(a)~~

~~Includes accrued interest, if applicable.~~

~~(b)~~

Effects of adverse movements decrease assets or increase liabilities, as applicable, which could result in an asset becoming a liability. Sensitivities represent a 10% adverse movement in interest rates, except for cross-currency swaps which also includes foreign currency exchange rates.

~~(c)~~

PPL utilizes various risk management instruments to reduce its exposure to the expected future cash flow variability of its debt instruments. These risks include exposure to adverse interest rate movements for outstanding variable rate debt and for future anticipated financing. While PPL is exposed to changes in the fair value of these instruments, any changes in the fair value of such cash flow hedges are recorded in equity or as regulatory assets or liabilities, if recoverable through regulated rates. The changes in fair value of these instruments are then reclassified into earnings in the same period during which the item being hedged affects earnings. The positions outstanding at March 31, 2013 mature through 2043.

~~(d)~~

PPL utilizes cross-currency swaps to hedge the interest payments and principal of WPD's U.S. dollar-denominated senior notes. While PPL is exposed to changes in the fair value of these instruments, any change in the fair value of these instruments is recorded in equity and reclassified into earnings in the same period during which the item being hedged affects earnings. The positions outstanding at March 31, 2013 mature through 2028.

~~(e)~~

PPL utilizes various risk management instruments to reduce its exposure to the expected future cash flow variability of its debt instruments. These risks include exposure to adverse interest rate movements for outstanding variable rate debt and for future anticipated financing. While PPL is exposed to changes in the fair value of these instruments, any realized changes in the fair value of such economic positions are recoverable through regulated rates and any subsequent changes in fair value of these derivatives are included in regulatory assets or liabilities. The positions outstanding at March 31, 2013 mature through 2033.

~~111~~

~~Foreign Currency Risk~~

PPL is exposed to foreign currency risk, primarily through investments in U.K. affiliates. In addition, PPL's domestic operations may make purchases of equipment in currencies other than U.S. dollars.

PPL has adopted a foreign currency risk management program designed to hedge certain foreign currency exposures, including firm commitments, recognized assets or liabilities, anticipated transactions and net investments. In addition, PPL enters into financial instruments to protect against foreign currency translation risk of expected earnings.

~~PPL had the following foreign currency hedges outstanding March 31, 2013:~~

Effect of a
10%
Adverse
Movement
in Foreign
Fair Value, Currency
Exposure Net - Asset Exchange
Hedged (Liability) Rates (a)

Net investment hedges (b) £ 162 $ 15 $ (25)
Economic activity (c) 1,175 78 (167)

~~(a)~~

~~Effects of adverse movements decrease assets or increase liabilities, as applicable, which could result in an asset becoming a liability.~~

~~(b)~~

To protect the value of a portion of its net investment in WPD, PPL executes forward contracts to sell GBP. The positions outstanding at March 31, 2013 mature through 2013. Excludes the amount of an intercompany loan classified as a net investment hedge. See Note 14 to the Financial Statements for additional information.

~~(c)~~

To economically hedge the translation of expected income denominated in GBP to U.S. dollars, PPL enters into a combination of average rate forwards and average rate options to sell GBP. The forwards and options outstanding at March 31, 2013 mature through 2015.

~~NDT Funds - Securities Price Risk~~

In connection with certain NRC requirements, PPL Susquehanna maintains trust funds to fund certain costs of decommissioning the PPL Susquehanna nuclear plant (Susquehanna). At March 31, 2013, these funds were invested primarily in domestic equity securities and fixed-rate, fixed-income securities and are reflected at fair value on the Balance Sheet. The mix of securities is designed to provide returns sufficient to fund Susquehanna's decommissioning and to compensate for inflationary increases in decommissioning costs. However, the equity securities included in the trusts are exposed to price fluctuation in equity markets, and the values of fixed-rate, fixed-income securities are primarily exposed to changes in interest rates. PPL actively monitors the investment performance and periodically reviews asset allocation in accordance with its nuclear decommissioning trust policy statement. At March 31, 2013, a hypothetical 10% increase in interest rates and a 10% decrease in equity prices would have resulted in an estimated $55 million reduction in the fair value of the trust assets. See Notes 13 and 17 to the Financial Statements for additional information regarding the NDT funds.

~~Credit Risk~~

~~See Notes 13 and 14 to the Financial Statements in this Form 10-Q and "Risk Management - Energy Marketing & Trading and Other - Credit Risk" in PPL's 2012 Form 10-K for additional information.~~

~~Foreign Currency Translation~~

The value of the British pound sterling fluctuates in relation to the U.S. dollar. Changes in this exchange rate resulted in a foreign currency translation loss of $256 million for the three months ended March 31, 2013, which primarily reflected a $696 million decrease to PP&E and goodwill offset by a decrease of $440 million to net liabilities. Changes in this exchange rate resulted in a foreign currency translation gain of $76 million for the three months ended March 31, 2012, which primarily reflected a $188 million increase to PP&E and goodwill offset by an increase of $112 million to net liabilities. The impact of foreign currency translation is recorded in AOCI.

~~Related Party Transactions~~

PPL is not aware of any material ownership interests or operating responsibility by senior management of PPL, PPL Energy Supply, PPL Electric, LKE, LG&E or KU in outside partnerships, including leasing transactions with variable interest entities or other entities doing business with PPL.

~~112~~

~~Acquisitions, Development and Divestitures~~

PPL from time to time evaluates opportunities for potential acquisitions, divestitures and development projects. Development projects are reexamined based on market conditions and other factors to determine whether to proceed with the projects, sell, cancel or expand them, execute tolling agreements or pursue other options. See Note 8 to the Financial Statements for information on the more significant activities.

~~Environmental Matters~~

Extensive federal, state and local environmental laws and regulations are applicable to PPL's air emissions, water discharges and the management of hazardous and solid waste, as well as other aspects of PPL's business. The cost of compliance or alleged non-compliance cannot be predicted with certainty but could be material. In addition, costs may increase significantly if the requirements or scope of environmental laws or regulations, or similar rules, are expanded or changed by the relevant agencies. 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 PPL's services.

Physical effects associated with climate change could include the impact of changes in weather patterns, such as storm frequency and intensity, and the resultant potential damage to PPL's generation assets, electricity transmission and distribution systems, as well as impacts on customers. In addition, changed weather patterns could potentially reduce annual rainfall in areas where PPL has hydro generating facilities or where river water is used to cool its fossil and nuclear powered generators. PPL cannot currently predict whether its businesses will experience these potential climate change-related risks or estimate the potential cost of their related consequences.

~~The following is a discussion of the more significant environmental matters.~~

~~Coal Combustion Residuals (CCRs)~~

In June 2010, the EPA proposed two approaches to regulating the disposal and management of CCRs (as either hazardous or non-hazardous) under existing solid waste regulations. A final rulemaking is currently expected before the end of 2015. However, the timing of the final regulations could be accelerated by certain litigation that could require the EPA to issue its regulations sooner. Regulations could impact handling, disposal and/or beneficial use of CCRs. The financial impact could be material if CCRs are regulated as hazardous waste, and significant if regulated as non-hazardous, in accordance with the proposed rule.

~~Effluent Limitation Guidelines~~

On April 19, 2013, the EPA issued proposed regulations to revise discharge limitations for steam electric generation wastewater permits. The proposed limitations are based on the EPA review of available treatment technologies and their capacity for reducing pollutants and include new requirements for fly ash and bottom ash handling and metal cleaning wastes, as well as new limits for scrubber wastewater, gasification wastewater and landfill leachate. The proposal contains several alternative approaches, some of which could significantly impact PPL's coal-fired plants. PPL will work with industry groups to comment on the proposed regulation. The final regulation is expected in May 2014. At the present time, PPL is unable to predict the outcome of this matter or estimate a range of reasonably possible costs, but the costs could be significant.

~~316(b) Cooling Water Intake Structure Rule~~

In April 2011, the EPA published a draft regulation under Section 316(b) of the Clean Water Act, which regulates cooling water intakes for power plants. The draft rule has two provisions: one requires installation of Best Technology Available (BTA) to reduce mortality of aquatic organisms that are pulled into the plant cooling water system (entrainment), and the second imposes standards for reduction of mortality of aquatic organisms trapped on water intake screens (impingement). A final rule is expected in June 2013. The proposed regulation would apply to nearly all PPL-owned steam electric plants in Pennsylvania, Kentucky, and Montana, potentially even including those equipped with closed-cycle cooling systems. PPL's compliance costs could be significant, especially if the final rule requires closed-cycle systems at plants that do not currently have them or conversions of once-through systems to closed-cycle.

~~113~~

~~GHG Regulations~~

In 2013, the EPA is expected to finalize limits on GHG emissions from new power plants and to begin working on a proposal for such emissions from existing power plants. The EPA's proposal on GHG emissions from new power plants would effectively preclude construction of any coal-fired plants and could even be difficult for new gas-fired plants to meet. With respect to existing power plants, the impact could be significant, depending on the structure and stringency of the final rule. PPL, along with others in the industry, filed comments on the EPA's proposal related to GHG emissions from new plants.

~~MATS~~

The EPA finalized MATS requiring fossil-fuel fired plants to reduce emissions of mercury and other hazardous air pollutants by April 16, 2015. The rule is being challenged by industry groups and states. The EPA has subsequently proposed changes to the rule with respect to new sources to address the concern that the rule effectively precludes construction of any new coal-fired plants. PPL is generally well-positioned to comply with MATS, primarily due to recent investments in environmental controls and approved ECR plans to install additional controls at some of its Kentucky plants. Additionally, PPL is evaluating chemical additive systems for mercury control at Brunner Island, and modifications to existing controls at Colstrip for improved particulate matter reductions. In September 2012, PPL announced its intention to place its Corette plant in long-term reserve status beginning in April 2015 due to expected market conditions and costs to comply with MATS. The anticipated retirements of certain coal-fired electric generating units are in response to this and other environmental regulations.

~~CSAPR and CAIR~~

In 2011, the EPA finalized its CSAPR regulating emissions of nitrous oxide and sulfur dioxide through new allowance trading programs which were to be implemented in two phases (2012 and 2014). Like its predecessor, the CAIR, CSAPR targeted sources in the eastern United States. In December 2011, the U.S. Court of Appeals for the District of Columbia Circuit (the Court) stayed implementation of CSAPR, leaving CAIR in place. Subsequently, in August 2012, the Court vacated and remanded CSAPR back to the EPA for further rulemaking, again leaving CAIR in place. PPL plants in Pennsylvania and Kentucky will continue to comply with CAIR through optimization of existing controls, balanced with emission allowance purchases. The Court's August decision leaves plants in CSAPR-affected states potentially exposed to more stringent emission reductions due to regional haze implementation (it was previously determined that CSAPR or CAIR participation satisfies regional haze requirements), and/or petitions to the EPA by downwind states under Section 126 of the Clean Air Act requesting the EPA to require plants that allegedly contribute to downwind non-attainment to take action to reduce emissions.

~~Regional Haze - Montana~~

The EPA signed its final Federal Implementation Plan of the Regional Haze Rules for Montana in September 2012, with tighter emissions limits for Colstrip Units 1 & 2 based on the installation of new controls (no limits or additional controls were specified for Colstrip Units 3 & 4), and tighter emission limits for Corette (which are not based on additional controls). The cost of the potential additional controls for Colstrip Units 1 & 2, if required, could be significant. PPL expects to meet the tighter permit limits at Corette without any significant changes to operations, although other requirements have led to the planned suspension of operations at Corette beginning in April 2015 (see "MATS" discussion above).

~~See Note 10 to the Financial Statements in this Form 10-Q and "Item 1. Business - Environmental Matters" in PPL's 2012 Form 10-K for a discussion of environmental matters.~~

~~New Accounting Guidance~~

~~See Notes 2 and 19 to the Financial Statements for a discussion of new accounting guidance adopted and pending adoption.~~

~~Application of Critical Accounting Policies~~

Financial condition and results of operations are impacted by the methods, assumptions and estimates used in the application of critical accounting policies. The following accounting policies are particularly important to the financial condition or results of operations, and require estimates or other judgments of matters inherently uncertain: price risk management, defined benefits, asset impairment (excluding investments), loss accruals, AROs, income taxes, and regulatory assets and liabilities. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in PPL's 2012 Form 10-K for a discussion of each critical accounting policy.

~~114~~

~~PPL ENERGY SUPPLY, LLC AND SUBSIDIARIES~~

~~Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations~~

The following should be read in conjunction with PPL Energy Supply's Condensed Consolidated Financial Statements and the accompanying Notes and with PPL Energy Supply's 2012 Form 10-K. Capitalized terms and abbreviations are defined in the glossary. Dollars are in millions, unless otherwise noted.

~~"Management's Discussion and Analysis of Financial Condition and Results of Operations" includes the following information:~~

·	"Overview" provides a description of PPL Energy Supply and its business strategy, a summary of Net Income Attributable to PPL Energy Supply Member and a discussion of certain events related to PPL Energy Supply's results of operations and financial condition.

"Results of Operations" provides a summary of PPL Energy Supply's earnings and a description of key factors expected to impact future earnings. This section ends with explanations of significant changes in principal line items on PPL Energy Supply's Statements of Income, comparing the three months ended March 31, 2013 with 2012.

·	"Financial Condition - Liquidity and Capital Resources" provides an analysis of PPL Energy Supply's liquidity position and credit profile. This section also includes a discussion of rating agency actions.

·	~~"Financial Condition - Risk Management" provides an explanation of PPL Energy Supply's risk management programs relating to market and credit risk.~~

~~Overview~~

~~Introduction~~

PPL Energy Supply is an energy company with headquarters in Allentown, Pennsylvania. Through its subsidiaries, PPL Energy Supply is primarily engaged in the competitive generation and marketing of electricity in two key markets - the northeastern and northwestern U.S.

~~Business Strategy~~

PPL Energy Supply's strategy is to achieve disciplined optimization of energy supply margins while mitigating volatility in both cash flows and earnings. More specifically, PPL Energy Supply's strategy is to optimize the value from its competitive generation and marketing portfolios. PPL Energy Supply endeavors to do this by matching energy supply with load, or customer demand, under contracts of varying durations with creditworthy counterparties to capture profits while effectively managing exposure to energy and fuel price volatility, counterparty credit risk and operational risk. PPL Energy Supply is focused on maintaining profitability during the current and projected period of low commodity prices by controlling its capital and operation and maintenance expenditures.

To manage financing costs and access to credit markets, a key objective for PPL Energy Supply is to maintain a strong credit profile and liquidity position. In addition, PPL Energy Supply has financial and operational risk management programs that, among other things, are designed to monitor and manage exposure to earnings and cash flow volatility related to changes in energy and fuel prices, interest rates, counterparty credit quality and the operating performance of its generating units.

~~Financial and Operational Developments~~

~~Net Income (Loss) Attributable to PPL Energy Supply Member~~

~~Net Income (Loss) Attributable to PPL Energy Supply Member for the three months ended March 31, 2013 was $(38) million compared to $309 million in 2012, representing a 112% decrease.~~

~~See "Results of Operations" below for further discussion and analysis of the consolidated results of operations.~~

~~115~~

~~Economic and Market Conditions~~

Unregulated Gross Energy Margins associated with PPL Energy Supply's competitive generation and marketing business are impacted by changes in market prices and demand for electricity and natural gas, power plant availability, competition in the markets for retail customers, fuel costs and availability, fuel transportation costs and other costs. Current depressed wholesale market prices for electricity and natural gas have resulted from general weak economic conditions and other factors, including the impact of expanded domestic shale gas development. As a result of these factors, lower future energy margins are expected to continue compared to the energy margins in 2012. As has been PPL Energy Supply's practice in periods of changing business conditions, PPL Energy Supply continues to review its future business and operational plans, including capital and operation and maintenance expenditures, as well as its hedging strategies.

PPL Energy Supply continues to monitor its Corette plant (which as previously announced will be placed in long-term reserve status, suspending the plant's operation due to expected market conditions and the costs to comply with the MATS beginning in April 2015) for impairment. The Corette plant asset group's carrying value at March 31, 2013 was $65 million. Although the Corette plant was not impaired at March 31, 2013, it is reasonably possible that an impairment could occur in future periods, as higher priced sales contracts settle, adversely impacting projected cash flows.

~~PPL Energy Supply cannot predict the future impact that economic and market conditions and regulatory requirements may have on its financial condition or results of operations.~~

~~Susquehanna Turbine Blade Inspection~~

In the spring of 2013, PPL Energy Supply will begin making modifications to address the causes of turbine blade cracking at the Susquehanna nuclear plant that was first identified in 2011. The modifications will be made during the Unit 2 refueling outage and an additional planned outage for Unit 1. Following completion of the modifications, PPL Energy Supply plans to continue monitoring the turbine blades using enhanced diagnostic equipment.

~~Results of Operations~~

The following discussion provides a summary of PPL Energy Supply's earnings and a description of key factors that are expected to impact future earnings. This section ends with "Statement of Income Analysis," which includes explanations of significant changes in Unregulated Gross Energy Margins by region and principal line items on PPL Energy Supply's Statements of Income, comparing the three months ended March 31, 2013 with 2012.

Earnings

Net Income (Loss) Attributable to PPL Energy Supply Member for the periods ended March 31 was:

Three Months
2013 2012

Net Income (Loss) Attributable to PPL Energy Supply Member $ (38) $ 309

The changes in the components of Net Income (Loss) Attributable to PPL Energy Supply Member between these periods were due to the following factors, which reflect reclassifications for items included in Unregulated Gross Energy Margins and certain items that management considers special. See additional detail of these special items in the tables below.

	~~Three Months~~

~~Unregulated Gross Energy Margins~~	$	~~(107)~~
~~Other operation and maintenance~~		13
~~Depreciation~~		~~(14)~~
~~Interest Expense~~		~~(9)~~
~~Income Taxes~~		33
~~Special items, after-tax~~		~~(263)~~
~~Total~~	$	~~(347)~~

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

~~116~~

·	Lower other operation and maintenance primarily due to $15 million of lower costs at eastern fossil and hydroelectric plants largely due to outages in 2012, partially offset by $3 million of additional costs due to the Ironwood Acquisition.

·	~~Higher depreciation primarily due to the Ironwood Acquisition.~~

·	Higher interest expense primarily due to financings associated with PPL Ironwood, acquired in April 2012, which increased interest expense by $4 million and $3 million due to lower capitalized interest.

·	~~Lower income taxes due to lower pre-tax income in 2013, which reduced income taxes by $47 million, partially offset by an $11 million benefit from a state tax rate change recorded in 2012.~~

~~The following after-tax gains (losses), which management considers special items, also impacted the results during the periods ended March 31.~~

Income Statement Three Months
Line Item 2013 2012

Adjusted energy-related economic activity, net, net of tax of $79, ($102) (a) $ (117) $ 150
Impairments:
Adjustments - nuclear decommissioning trust investments, net of tax of $0, ($1) Other Income (Expense)-net 1
Other:
Counterparty bankruptcy, net of tax of $0, $5 (b) Other Operation and Maintenance (6)
Ash basin leak remediation adjustment, net of tax of $0, ($1) Other Operation and Maintenance 1
Total $ (117) $ 146

~~(a)~~

~~See "Reconciliation of Economic Activity" below.~~

~~(b)~~

~~Reconciliation of Economic Activity~~

The following table reconciles unrealized pre-tax gains (losses) for the periods ended March 31, from the table within "Commodity Price Risk (Non-trading) - Economic Activity" in Note 14 to the Financial Statements to the special item identified as "Adjusted energy-related economic activity, net."

~~(a)~~

~~See Note 14 to the Financial Statements for additional information.~~

~~2013 Outlook~~

Excluding special items, PPL Energy Supply projects lower earnings in 2013 compared with 2012, primarily driven by lower energy prices, higher fuel costs, higher operation and maintenance expense, higher depreciation, and higher financing costs, partially offset by higher capacity prices and higher nuclear generation output despite scheduled outages for both Susquehanna units to implement a long-term solution to turbine blade issues.

Earnings in future periods are subject to various risks and uncertainties. See "Forward-Looking Information," the rest of this Item 2, and Note 10 to the Financial Statements in this Form 10-Q and "Item 1. Business" and "Item 1A. Risk Factors" in PPL Energy Supply's 2012 Form 10-K for a discussion of the risks, uncertainties and factors that may impact future earnings.

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~~Statement of Income Analysis --~~

~~Unregulated~~Pennsylvania Gross ~~Energy~~Delivery Margins

~~Non-GAAP Financial Measure~~Distribution

The following discussion includes financial information prepared in accordance with GAAP, as well as a non-GAAP financial measure, "Unregulated Gross Energy Margins." "Unregulated Gross Energy Margins" is a single financial performance measure of PPL Energy Supply's competitive energy non-trading and trading activities. In calculating this measure, PPL Energy Supply's energy revenues are offset by the cost of fuel, energy purchases, certain other operation and maintenance expenses, primarily ancillary charges, and gross receipts tax, which is recorded in "Taxes, other than income". This performance measure is relevant to PPL Energy Supply due to the volatility in the individual revenue and expense lines on the Statements of Income that comprise "Unregulated Gross Energy Margins." This volatility stems from a number of factors, including the required netting of certain transactions with ISOs and significant fluctuations in unrealized gains and losses. Such factors could result in gains or losses being recorded in either "Wholesale energy marketing" or "Energy purchases" on the Statements of Income. This performance measure includes PLR revenues from energy sales to PPL Electric by PPL EnergyPlus, which are recorded in "Wholesale energy marketing to affiliate" revenue. PPL Energy Supply excludes from "Unregulated Gross Energy Margins" adjusted energy-related economic activity, which includes the changes in fair value of positions used to economically hedge a portion of the economic value of PPL Energy Supply's competitive generation assets, full-requirement sales contracts and retail activities. This economic value is subject to changes in fair value due to market price volatility of the input and output commodities (e.g., fuel and power) prior to the delivery period that was hedged. Also included in adjusted energy-related economic activity is the premium amortization associated with options and for 2012 the ineffective portion of qualifying cash flow hedges and economic activity realized associated with the monetization of certain full-requirement sales contracts in 2010. This economic activity is deferred, with the exception of the full-requirement sales contracts that were monetized, and included in "Unregulated Gross Energy Margins" over the delivery period that was hedged or upon realization. This measure is 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 to report on the results of their operations. PPL Energy Supply believes that "Unregulated Gross Energy Margins" provides another criterion to make investment decisions. This performance measure is used, in conjunction with other information, internally by senior management to manage PPL Energy Supply's operations, analyze actual results compared with budget and measure certain corporate financial goals used in determining variable compensation.

~~Reconciliation of Non-GAAP Financial Measures~~

~~The following table reconciles "Unregulated Gross Energy Margins" as defined by PPL Energy Supply to "Operating Income" for the periods ended March 31.~~

2013 Three Months 2012 Three Months
Unregulated Unregulated
Gross Energy Operating Gross Energy Operating
Margins Other (a) Income (b) Margins Other (a) Income (b)

Operating Revenues
Wholesale energy marketing
Realized $ 977 $ (1) $ 976 $ 1,204 $ 4 (c) $ 1,208
Unrealized economic activity (822) (d) (822) 852 (d) 852
Wholesale energy marketing
to affiliate 14 14 21 21
Unregulated retail electric and gas 246 (8) (d) 238 214 10 (d) 224
Net energy trading margins (11) (11) 8 8
Energy-related businesses 113 113 96 96
Total Operating Revenues 1,226 (718) 508 1,447 962 2,409

Operating Expenses
Fuel 299 (1) (d) 298 214 (3) (d) 211
Energy purchases
Realized 436 (2) 434 636 23 (c) 659
Unrealized economic activity (634) (d) (634) 591 (d) 591
Energy purchases from affiliate 1 1 1 1
Other operation and maintenance 5 230 235 4 251 255
Depreciation 78 78 64 64
Taxes, other than income 8 9 17 8 10 18
Energy-related businesses 110 110 92 92
Total Operating Expenses 749 (210) 539 863 1,028 1,891
Total $ 477 $ (508) $ (31) $ 584 $ (66) $ 518

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~~(a)~~

~~Represents amounts excluded from Margins.~~

~~(b)~~

~~As reported on the Statements of Income.~~

~~(c)~~

Represents energy-related economic activity as described in "Commodity Price Risk (Non-trading) - Economic Activity" within Note 14 to the Financial Statements. For the three months ended March 31, 2012, "Wholesale energy marketing - Realized" and "Energy purchases - Realized" includes a net pre-tax loss of $21 million related to the monetization of certain full-requirement sales contracts.

~~(d)~~

Represents energy-related economic activity, which is subject to fluctuations in value due to market price volatility, as described in "Commodity Price Risk (Non-trading) - Economic Activity" within Note 14 to the Financial Statements.

~~Changes in Non-GAAP Financial Measures~~

Unregulated Gross Energy Margins are generated through PPL Energy Supply's competitive non-trading and trading activities. PPL Energy Supply's non-trading energy business is managed on a geographic basis that is aligned with its generation fleet. The following table shows PPL Energy Supply's non-GAAP financial measure, Unregulated Gross Energy Margins, for the periods ended March 31, as well as the change between periods. The factors that gave rise to the changes are described below the table.

Three Months
2013 2012 Change

Non-trading
Eastern U.S. $ 430 $ 489 $ (59)
Western U.S. 58 87 (29)
Net energy trading (11) 8 (19)
Total $ 477 $ 584 $ (107)

~~Unregulated Gross Energy Margins~~

~~Eastern U.S.~~

~~The change in non-trading margins for the period ended March 31, 2013 compared with 2012 was due to:~~

	~~Three Months~~

~~Baseload energy prices~~	$	~~(125)~~
~~Coal prices~~		~~(10)~~
~~Nuclear fuel prices~~		~~(6)~~
~~Full-requirement sales contracts~~		5
~~Intermediate and peaking capacity prices~~		5
~~Baseload capacity prices~~		6
~~Intermediate and peaking Spark Spreads~~		14
~~Ironwood acquisition which eliminated tolling expense~~		15
~~Net economic availability of coal and hydroelectric plants~~		32
~~Other~~		5
~~Total~~	$	~~(59)~~

~~Western U.S.~~

~~Non-trading~~Distribution margins increased for the three months ended ~~March 31, 2013 compared with 2012 were lower due to $43 million of lower wholesale prices, partially offset by $12 million of higher wholesale volumes.~~

~~Net Energy Trading Margins~~

~~Net energy trading margins for the three months ended March 31, 2013 compared with 2012 decreased as a result of lower margins of $16 million on gas positions due to higher prices.~~

~~Other Operation and Maintenance~~

~~The increase (decrease) in other operation and maintenance for the period ended March 31, 2013 compared with 2012 was due to:~~

	~~Three Months~~

~~Uncollectible accounts (a)~~	$	~~(11)~~
~~Costs at eastern fossil and hydroelectric plants (b)~~		~~(11)~~
~~Other~~		2
~~Total~~	$	~~(20)~~

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~~(a)~~

~~The decrease is primarily due to SMGT filing for protection under Chapter 11 of the U.S. Bankruptcy Code in 2011. $11 million of damages billed to SMGT were fully reserved in 2012.~~

~~(b)~~

~~Depreciation~~

~~Depreciation increased by $14 million for the three months ended March 31,~~September 30, 2013 compared with 2012, primarily due to ~~$10~~an $18 million ~~related to PP&E additions and $6 million attributable to the Ironwood Acquisition.~~

~~Interest Expense~~

~~The increase (decrease) in interest expense for the period ended March 31, 2013 compared with 2012 was due to:~~

	~~Three Months~~

~~Ironwood Acquisition (a)~~	$	4
~~Capitalized interest~~		3
~~Other~~		2
~~Total~~	$	9

~~(a)~~

~~The increase was due to financings associated with the Ironwood Acquisition.~~

~~Income Taxes~~

~~The increase (decrease) in income taxes for the period ended March 31, 2013 compared with 2012 was due to:~~


	~~Three Months~~

~~Lower pre-tax book income~~	$	~~(225)~~
~~State deferred tax rate change (a)~~		11
~~Other~~		2
~~Total~~	$	~~(212)~~

~~(a)~~

~~During the three months ended March 31, 2012, PPL Energy Supply recorded adjustments related to state deferred tax liabilities.~~

~~See Note 5 to the Financial Statements for additional information on income taxes.~~

Financial Condition

Liquidity and Capital Resources

PPL Energy Supply had the following at:

March 31, 2013 December 31, 2012

Cash and cash equivalents $ 147 $ 413
Short-term debt $ 481 $ 356

~~The $266 million decrease in PPL Energy Supply's cash and cash equivalents position was primarily the net result of:~~

·	~~distributions to member of $313 million;~~

·	~~capital expenditures of $124 million;~~

·	~~a net increase in restricted cash and cash equivalents of $59 million;~~

·	~~net cash provided by operating activities of $125 million; and~~

·	~~a net increase in short-term debt of $125 million.~~

PPL Energy Supply's cash provided by operating activities decreased by $129 million for the three months ended March 31, 2013, compared with 2012. This was primarily due to a $45 million increase in cash used by working capital components, a decrease in net income when adjusted for non-cash componentsfavorable effect of ~~$31 million and a $36 million increase in defined benefit plans funding.~~

~~120~~

~~Credit Facilities~~

PPL Energy Supply maintains credit facilities to provide liquidity and to backstop commercial paper issuances. At March 31, 2013, PPL Energy Supply's total committed borrowing capacity under its credit facilities and the use of this borrowing capacity were:

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

Syndicated Credit Facility $ 3,000 $ 641 $ 2,359
Letter of Credit Facility (a) 200 n/a 123 77
Total PPL Energy Supply Credit Facilities (b) $ 3,200 $ 764 $ 2,436

~~(a)~~

~~In February 2013, PPL Energy Supply extended the expiration date from March 2013 and, effective April 2013, the capacity was reduced to $150 million.~~

~~(b)~~

The commitments under PPL Energy Supply's credit facilities are provided by a diverse bank group, with no one bank and its affiliates providing an aggregate commitment of more than 11% of the total committed capacity.

~~See Note 7 to the Financial Statements for further discussion of PPL Energy Supply's credit facilities.~~

~~Commercial Paper~~

PPL Energy Supply maintains a commercial paper program up to $750 million to provide an additional financing source to fund its short-term liquidity needs, if and when necessary. Commercial paper issuances are supported by PPL Energy Supply's Syndicated Credit Facility. At March 31, 2013 and December 31, 2012, PPL Energy Supply had $481 million and $356 million of commercial paper outstanding, included in "Short-term debt" on the Balance Sheets, at weighted-average interest rates of 0.38% and 0.50%.

~~Rating Agency Actions~~

Moody's, S&P and Fitch periodically review the credit ratings on the debt securities of PPL Energy Supply and its 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 PPL Energy Supply and its subsidiaries are based on information provided by PPL Energy Supply and other sources. The ratings of Moody's, S&P and Fitch are not a recommendation to buy, sell or hold any securities of PPL Energy Supply or its 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.

A downgrade in PPL Energy Supply's or its subsidiaries' credit ratings could result in higher borrowing costs and reduced access to capital markets. PPL Energy Supply and its subsidiaries have no credit rating triggers that would result in the reduction of access to capital markets or the acceleration of maturity dates of outstanding debt.

~~The rating agencies took the following actions related to PPL Energy Supply and its subsidiaries in 2013:~~

~~In February 2013, Moody's upgraded its rating, from B2 to Ba1, and revised the outlook from under review to stable for PPL Ironwood.~~

~~In April 2013, Fitch affirmed the BBB- rating and stable outlook at PPL Montana.~~

~~Ratings Triggers~~

PPL Energy Supply has various contracts, including contracts for the sale and purchase of electricity and fuel, commodity transportation and storage, tolling agreements and interest rate instruments, which contain provisions that require PPL Energy Supply to post additional collateral or permit the counterparty to terminate the contract if PPL Energy Supply's credit rating were to fall below investment grade. See Note 14 to the Financial Statements for a discussion of "Credit Risk-Related Contingent Features," including a discussion of the potential additional collateral that would have been required for derivative contracts in a net liability position at March 31, 2013.

~~121~~

For additional information on PPL Energy Supply's liquidity and capital resources, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," in PPL Energy Supply's 2012 Form 10-K.

~~Risk Management~~

~~Market Risk~~

~~See Notes 13 and 14 to the Financial Statements for information about PPL Energy Supply's risk management objectives, valuation techniques and accounting designations.~~

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

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

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

The following table sets forth the changes in the net fair value of non-trading commodity derivative contracts for the period ended March 31. See Notes 13 and 14 to the Financial Statements for additional information.

~~(a)~~

~~Represents the fair value of contracts at the end of the quarter of their inception.~~

~~The following table segregates the net fair value of non-trading commodity derivative contracts at March 31, 2013, based on the observability of the information used to determine the fair value.~~

~~122~~

PPL Energy Supply sells electricity, capacity and related services and buys fuel on a forward basis to hedge the value of energy from its generation assets. If PPL Energy Supply were unable to deliver firm capacity and energy or to accept the delivery of fuel under its agreements, under certain circumstances it could be required to pay liquidating damages. These damages would be based on the difference between the market price and the contract price of the commodity. Depending on price changes in the wholesale energy markets, such damages could be significant. Extreme weather conditions, unplanned power plant outages, transmission disruptions, nonperformance by counterparties (or their counterparties) with which it has energy contracts and other factors could affect PPL Energy Supply's ability to meet its obligations, or cause significant increases in the market price of replacement energy. Although PPL Energy Supply attempts to mitigate these risks, there can be no assurance that it will be able to fully meet its firm obligations, that it will not be required to pay damages for failure to perform, or that it will not experience counterparty nonperformance in the future.

~~Commodity Price Risk (Trading)~~

PPL Energy Supply's trading commodity derivative contracts range in maturity through 2017. The following table sets forth changes in the net fair value of trading commodity derivative contracts for the period ended March 31. See Notes 13 and 14 to the Financial Statements for additional information.

Three Months
2013 2012

Fair value of contracts outstanding at the beginning of the period $ 29 $ (4)
Contracts realized or otherwise settled during the period (2)
Fair value of new contracts entered into during the period (a) (12) 6
Fair value of contracts outstanding at the end of the period $ 15 $ 2

~~(a)~~

~~Represents the fair value of contracts at the end of the quarter of their inception.~~

~~The following table segregates the net fair value of trading commodity derivative contracts at March 31, 2013, based on the observability of the information used to determine the fair value.~~

~~VaR Models~~

~~123~~

~~Interest Rate Risk~~

PPL Energy Supply and its subsidiaries issue debt to finance their operations, which exposes them to interest rate risk. PPL and PPL Energy Supply utilize various financial derivative instruments to adjust the mix of fixed and floating interest rates in PPL Energy Supply's debt portfolio, adjust the duration of its debt portfolio and lock in benchmark interest rates in anticipation of future financing, when appropriate. Risk limits under the risk management program are designed to balance risk exposure to volatility in interest expense and changes in the fair value of PPL Energy Supply's debt portfolio due to changes in the absolute level of interest rates. PPL Energy Supply had no interest rate hedges outstanding at March 31, 2013.

~~At March 31, 2013, PPL Energy Supply's potential annual exposure to increased interest expense, based on a 10% increase in interest rates, was not significant.~~

PPL Energy Supply is also exposed to changes in the fair value of its debt portfolio. PPL Energy Supply estimated that a 10% decrease in interest rates at March 31, 2013 would increase the fair value of its debt portfolio by $47 million.

~~NDT Funds - Securities Price Risk~~

~~Credit Risk~~

See Notes 11, 13 and 14 to the Financial Statements in this Form 10-Q and "Risk Management - Energy Marketing & Trading and Other - Credit Risk" in PPL Energy Supply's 2012 Form 10-K for additional information.

~~Related Party Transactions~~

PPL Energy Supply is not aware of any material ownership interests or operating responsibility by senior management of PPL Energy Supply in outside partnerships, including leasing transactions with variable interest entities or other entities doing business with PPL Energy Supply. See Note 11 to the Financial Statements for additional information on related party transactions.

~~Acquisitions, Development and Divestitures~~

PPL Energy Supply from time to time evaluates opportunities for potential acquisitions, divestitures and development projects. Development projects are reexamined based on market conditions and other factors to determine whether to proceed with the projects, sell, cancel or expand them, execute tolling agreements or pursue other options. See Note 8 to the Financial Statements for information on the more significant activities.

~~Environmental Matters~~

Extensive federal, state and local environmental laws and regulations are applicable to PPL Energy Supply's air emissions, water discharges and the management of hazardous and solid waste, as well as other aspects of PPL Energy Supply's business. The cost of compliance or alleged non-compliance cannot be predicted with certainty but could be material. In addition, costs may increase significantly if the requirements or scope of environmental laws or regulations, or similar rules, are expanded or changed by the relevant agencies. 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 of their products or their demand for PPL Energy Supply's services.

~~124~~

Physical effects associated with climate change could include the impact of changes in weather patterns, such as storm frequency and intensity, and the resultant potential damage to PPL Energy Supply's generation assets as well as impacts on customers. In addition, changed weather patterns could potentially reduce annual rainfall in areas where PPL Energy Supply has hydro generating facilities or where river water is used to cool its fossil and nuclear powered generators. PPL Energy Supply cannot currently predict whether its businesses will experience these potential climate change-related risks or estimate the potential cost of their related consequences.

~~The following is a discussion of the more significant environmental matters.~~

~~Coal Combustion Residuals (CCRs)~~

~~Effluent Limitation Guidelines~~

On April 19, 2013, the EPA issued proposed regulations to revise discharge limitations for steam electric generation wastewater permits. The proposed limitations are based on the EPA review of available treatment technologies and their capacity for reducing pollutants and include new requirements for fly ash and bottom ash handling and metal cleaning wastes, as well as new limits for scrubber wastewater, gasification wastewater and landfill leachate. The proposal contains several alternative approaches, some of which could significantly impact PPL Energy Supply's coal-fired plants. PPL Energy Supply will work with industry groups to comment on the proposed regulation. A final regulation is expected in May 2014. At the present time, PPL Energy Supply is unable to predict the outcome of this matter or estimate a range of reasonably possible costs, but the costs could be significant.

~~316(b) Cooling Water Intake Structures Rule~~

In April 2011, the EPA published a draft regulation under Section 316(b) of the Clean Water Act, which regulates cooling water intakes for power plants. The draft rule has two provisions: one requires installation of Best Technology Available (BTA) to reduce mortality of aquatic organisms that are pulled into the plants cooling water system (entrainment), and the second imposes standards for reduction of mortality of aquatic organisms trapped on water intake screens (impingement). A final rule is expected in June 2013. The proposed regulation would apply to nearly all PPL Energy Supply-owned steam electric plants in Pennsylvania and Montana, potentially even including those equipped with closed-cycle cooling systems. PPL Energy Supply's compliance costs could be significant, especially if the final rule requires closed-cycle systems at plants that do not currently have them or conversions of once-through systems to closed-cycle.

~~GHG Regulations~~

In 2013, the EPA is expected to finalize limits on GHG emissions from new power plants and to begin working on a proposal for such emissions from existing power plants. The EPA's proposal on GHG emissions from new power plants would effectively preclude construction on any coal-fired plants and could even be difficult for new gas-fired plants to meet. With respect to existing power plants, the impact could be significant, depending on the structure and stringency of the final rule. PPL Energy Supply, along with others in the industry, filed comments on the EPA's proposal related to GHG emissions from new plants.

~~MATS~~

The EPA finalized MATS requiring fossil-fuel fired plants to reduce emissions of mercury and other hazardous air pollutants by April 16, 2015. The rule is being challenged by industry groups and states. The EPA has subsequently proposed changes to the rule with respect to new sources to address the concern that the rule effectively precludes construction of any new coal-fired plants. PPL Energy Supply is generally well-positioned to comply with MATS due to its recent investment in, and installation of, environmental controls such as wet flue gas desulfurization systems. PPL Energy Supply is evaluating chemical additive systems for mercury control at Brunner Island, and modifications to existing controls at Colstrip for improved particulate matter reductions. In September 2012, PPL Energy Supply announced its intention to place its Corette plant in long-term reserve status beginning in April 2015 due to expected market conditions and costs to comply with MATS.

~~CSAPR and CAIR~~

~~125~~

plants in Pennsylvania will continue to comply with CAIR through optimization of existing controls, balanced with emission allowance purchases. The Court's August decision leaves plants in CSAPR-affected states potentially exposed to more stringent emission reductions due to regional haze implementation (it was previously determined that CSAPR or CAIR participation satisfies regional haze requirements), and/or petitions to the EPA by downwind states under Section 126 of the Clean Air Act requesting the EPA to require plants that allegedly contribute to downwind non-attainment to take action to reduce emissions.

~~Regional Haze - Montana~~

The EPA signed its final Federal Implementation Plan of the Regional Haze Rules for Montana in September 2012, with tighter emissions limits for Colstrip Units 1 & 2 based on the installation of new controls (no limits or additional controls were specified for Colstrip Units 3 & 4), and tighter emission limits for Corette (which are not based on additional controls). The cost of the potential additional controls for Colstrip Units 1 & 2, if required, could be significant. PPL Energy Supply expects to meet the tighter permit limits at Corette without any significant changes to operations, although other requirements have led to the planned suspension of operations at Corette beginning in April 2015 (see "MATS" discussion above).

~~See Note 10 to the Financial Statements in this Form 10-Q and "Item 1. Business - Environmental Matters" in PPL Energy Supply's 2012 Form 10-K for a discussion of environmental matters.~~

~~New Accounting Guidance~~

~~See Notes 2 and 19 to the Financial Statements for a discussion of new accounting guidance adopted and pending adoption.~~

~~Application of Critical Accounting Policies~~

Financial condition and results of operations are impacted by the methods, assumptions and estimates used in the application of critical accounting policies. The following accounting policies are particularly important to the financial condition or results of operations, and require estimates or other judgments of matters inherently uncertain: price risk management, defined benefits, asset impairment (excluding investments), loss accruals, AROs and income taxes. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in PPL Energy Supply's 2012 Form 10-K for a discussion of each critical accounting policy.

~~126~~

~~PPL ELECTRIC UTILITIES CORPORATION AND SUBSIDIARIES~~

~~Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations~~

The following should be read in conjunction with PPL Electric's Condensed Consolidated Financial Statements and the accompanying Notes and with PPL Electric's 2012 Form 10-K. Capitalized terms and abbreviations are defined in the glossary. Dollars are in millions, unless otherwise noted.

~~"Management's Discussion and Analysis of Financial Condition and Results of Operations" includes the following information:~~

·	"Overview" provides a description of PPL Electric and its business strategy, a summary of Net Income Available to PPL and a discussion of certain events related to PPL Electric's results of operations and financial condition.

"Results of Operations" provides a summary of PPL Electric's earnings and a description of key factors expected to impact future earnings. This section ends with explanations of significant changes in principal line items on PPL Electric's Statements of Income, comparing the three months ended March 31, 2013 with 2012.

·	"Financial Condition - Liquidity and Capital Resources" provides an analysis of PPL Electric's liquidity position and credit profile. This section also includes a discussion of rating agency actions.

·	~~"Financial Condition - Risk Management" provides an explanation of PPL Electric's risk management programs relating to market and credit risk.~~

~~Overview~~

~~Introduction~~

PPL Electric is an electricity transmission and distribution service provider in eastern and central Pennsylvania with headquarters in Allentown, Pennsylvania. PPL Electric is subject to regulation as a public utility by the PUC, and certain of its transmission activities are subject to the jurisdiction of FERC under the Federal Power Act. PPL Electric delivers electricity in its Pennsylvania service area and provides electricity supply to retail customers in that area as a PLR under the Customer Choice Act.

~~Business Strategy~~

PPL Electric's strategy for its regulated electricity delivery business is to provide safe, reliable service to its customers and achieve stable, long-term growth in earnings and rate base. Rate base is expected to grow as a result of ~~significant capital expenditure programs aimed at maintaining existing assets and improving system reliability. PPL Electric is focused on timely recovery~~higher base rates, effective January 1, 2013, partially offset by unfavorable weather of ~~costs, efficient operations, strong customer service and constructive regulatory relationships.~~$4 million.

~~To manage financing costs~~Distribution margins increased for the nine months ended September 30, 2013 compared with 2012 due to a $50 million favorable effect of price, largely comprised of higher base rates, effective January 1, 2013, a favorable weather effect of $9 million and ~~access to credit markets and to fund its capital expenditure program, a key objective for PPL Electric is to maintain a strong credit profile and strong liquidity position.~~higher volumes of $4 million.

Timely recovery of costs to maintain and enhance the reliability of its delivery system, including the replacement of aging distribution assets, is required in order to maintain strong cash flows and a strong credit profile. Traditionally, such cost recovery would be pursued through periodic base rate case proceedings with the PUC. As such costs continue to increase, more frequent rate case proceedings may be required or an alternative rate making process would need to be implemented in order to achieve more timely recovery. See "Legislation - Regulatory Procedures and Mechanisms" below for information on Pennsylvania's new alternative rate-making mechanism.Transmission

Transmission ~~costs are recovered through a FERC Formula Rate mechanism, which is updated annually for costs incurred and assets placed in service. Accordingly,~~margins increased ~~costs, including those related to the replacement of aging transmission assets and the PJM-approved Regional Transmission Line Expansion Plan, are recovered on a timely basis.~~

~~127~~

~~Financial and Operational Developments~~

~~Net Income Available to PPL~~

~~Net Income Available to PPL~~ for the three and nine months ended ~~March 31, 2013 was $64 million compared to $33 million in 2012, representing a 94% increase.~~

~~See "Results of Operations" below for further discussion and analysis of PPL Electric's earnings.~~

~~Rate Case Proceeding~~

~~In December 2012, the PUC approved a total distribution revenue increase of about $71 million, using a 10.4% return on equity. The approved rates became effective January 1, 2013.~~

~~Legislation - Regulatory Procedures and Mechanisms~~

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 begins a period of significant capital investment to maintain and enhance the reliability of its delivery system, including the replacement of aging distribution assets. In August 2012, the PUC issued a final implementation order adopting procedures, guidelines and a model tariff for the implementation of Act 11. Act 11 requires utilities to file an LTIIP as a prerequisite to filing for recovery through the DSIC. The LTIIP is mandated to be a five- to ten-year plan describing projects eligible for inclusion in the DSIC. In September ~~2012, PPL Electric filed its LTIIP describing projects eligible for inclusion in the DSIC.~~

The PUC approved the LTIIP on January 10, 2013 and, on January 15, 2013, PPL Electric filed a petition requesting permission to establish a DSIC. Several parties have filed responses to PPL Electric's petition. The case remains pending before the PUC. PPL Electric does not expect any new rates to be effective before the third quarter of 2013.

~~FERC Formula Rates~~

Transmission rates are regulated by the FERC. PPL Electric's transmission revenues are billed in accordance with a FERC-approved PJM open access transmission tariff that utilizes a formula-based rate recovery mechanism. The formula rate is calculated, in part, based on financial results as reported in PPL Electric's annual FERC Form No. 1, filed under FERC's Uniform System of Accounts (USOA). PPL Electric must follow FERC's USOA, which requires subsidiaries to be presented, for FERC reporting purposes, using the equity method of accounting unless a waiver has been issued. The FERC has granted waivers of this requirement to other utilities when such waiver would more accurately present the integrated operations of the utilities and their subsidiaries. In March 2013, as part of a routine FERC audit of PPL and its subsidiaries, PPL Electric determined that it never obtained a waiver of the use of the equity method of accounting for PPL Receivables Corporation (PPL Receivables). PPL Receivables is a wholly owned subsidiary of PPL Electric, formed in 2004 to purchase eligible accounts receivable and unbilled revenue of PPL Electric to collateralize commercial paper issuances to reduce borrowing costs. In March 2013, PPL Electric filed a request for waiver with FERC that, if approved, would allow it to continue to consolidate the results of PPL Receivables with the results of PPL Electric, as it has done since 2004. While PPL Electric may ultimately be successful in obtaining a waiver from FERC, FERC may require PPL Electric to re-issue one or more of its prior FERC Form No. 1 filings in either the audit proceeding or the waiver proceeding. If re-issuance of FERC Form No. 1 filings were required by FERC, PPL Electric's revenue requirement calculated under the formula rate could be negatively impacted. The impact, if any, is not known at this time but could range between $0 and $40 million, pre-tax. PPL Electric cannot predict the outcome of the waiver or audit proceedings, which remain pending before the FERC.

~~Results of Operations~~

The following discussion provides a summary of PPL Electric's earnings and a description of key factors that are expected to impact future earnings. This section ends with "Statement of Income Analysis," which includes explanations of significant changes in Pennsylvania Gross Delivery Margins by component and principal line items on PPL Electric's Statements of Income, comparing the three months ended March 31, 2013 with 2012.

~~128~~

Earnings

Net Income Available to PPL for the periods ended March 31 was:

Three Months
2013 2012

Net Income Available to PPL $ 64 $ 33

The changes in the components of Net Income Available to PPL between these periods were due to the following factors which reflect reclassifications for items included in Pennsylvania Gross Delivery Margins.

	~~Three Months~~

~~Pennsylvania Gross Delivery Margins~~	$	40
~~Other operation and maintenance~~		7
~~Depreciation~~		~~(4)~~
~~Other~~		~~(3)~~
~~Income Taxes~~		~~(13)~~
~~Distributions on Preference Stock~~		4
~~Total~~	$	31

·	~~See "Statement of Income Analysis - Pennsylvania Gross Delivery Margins - Changes in Non-GAAP Financial Measures" for an explanation of Pennsylvania Gross Delivery Margins.~~

·	~~Lower other operation and maintenance primarily due to lower corporate service costs.~~

· ~~Higher depreciation due to PP&E additions.~~

·	~~Higher income taxes primarily due to the impact of higher pre-tax income.~~

·	~~Lower distributions on preference stock due to the June 2012 redemption of all 2.5 million shares of preference stock.~~

~~2013 Outlook~~

~~Excluding special items, PPL Electric projects higher earnings in~~30, 2013 compared with 2012, primarily ~~driven by higher distribution revenues from a distribution base rate increase~~due to increased capital investments and ~~higher transmission margins, partially offset by higher depreciation.~~the recovery of additional costs through the FERC formula-based rates.

Earnings in future periods are subject to various risks and uncertainties. See "Forward-Looking Information," the rest of this Item 2, and Notes 6 and 10 to the Financial Statements in this Form 10-Q and "Item 1. Business" and "Item 1A. Risk Factors" in PPL Electric's 2012 Form 10-K for a discussion of the risks, uncertainties and factors that may impact future earnings.

~~Statement of Income Analysis --~~

Pennsylvania Gross Delivery Margins

~~Non-GAAP Financial Measure~~Distribution

~~The following discussion includes financial information prepared in accordance~~Distribution margins increased for the three months ended September 30, 2013 compared with ~~GAAP, as well~~2012, primarily due to an $18 million favorable effect of price as a ~~non-GAAP financial measure, "Pennsylvania~~result of higher base rates, effective January 1, 2013, partially offset by unfavorable weather of $4 million.

Distribution margins increased for the nine months ended September 30, 2013 compared with 2012 due to a $50 million favorable effect of price, largely comprised of higher base rates, effective January 1, 2013, a favorable weather effect of $9 million and higher volumes of $4 million.

Transmission

Transmission margins increased for the three and nine months ended September 30, 2013 compared with 2012, primarily due to increased capital investments and the recovery of additional costs through the FERC formula-based rates.

Unregulated Gross Delivery Margins." "Pennsylvania Gross Delivery Margins" is a single financial performance measure of PPL Electric's Pennsylvania regulated electric delivery operations, which includes transmission and distribution activities. In calculating this measure, utility revenues and expenses associated with approved recovery mechanisms, including energy provided as a PLR, are offset with minimal impact on earnings. Costs associated with these mechanisms are recorded in "Energy purchases," "Energy purchases from affiliate," "Other operation and maintenance," which is primarily Act 129 costs, and "Taxes, other than income" which is primarily gross receipts tax. As a result, this measure represents the net revenues from PPL Electric's Pennsylvania regulated electric delivery operations. This measure is 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 to report on the results of their operations. PPL Electric believes that "Pennsylvania Gross Delivery Margins" provides another criterion to make investment decisions. This performance measure is used, in conjunction with other information, internally by senior management to manage PPL Electric's operations and analyze actual results to budget.Energy Margins

The increase (decrease) in unregulated gross energy margins for the periods ended September 30, 2013 compared with 2012 was due to:
		Three Months		Nine Months
Eastern U.S.
	Baseload energy prices	$	(64)	$	(310)
	Coal prices		(5)		(14)
	Nuclear fuel prices		(4)		(14)
	Retail electric		(10)		(10)
	Nuclear generation volume		(12)		(3)
	Full-requirement sales contracts		(6)		4
	Gas optimization and storage		5		16
	Ironwood acquisition which eliminated tolling expense				17
	Intermediate and peaking Spark Spreads and availability		11		18
	Net economic availability of coal and hydroelectric plants		(10)		29
	Capacity prices		77		124
	Other		1		9
	Total	$	(17)	$	(134)

Western U.S.
	Wholesale energy prices	$	(10)	$	(67)
	Net economic availability of coal and hydroelectric plants		(8)		(1)
	Other		3		4
	Total	$	(15)	$	(64)

Net Energy Trading Margins
	Gas positions	$	(3)	$	(17)
	Power positions		15		5
	FTRs		9		7
	Other		2		(1)
	Total	$	23	$	(6)

~~129~~117

Utility Revenues

The increase (decrease) in utility revenues for the periods ended September 30, 2013 compared with 2012 was due to:

		Three Months		Nine Months
Domestic:
	PPL Electric (a)	$	20	$	85
	LKE (b)		12		131
	Total Domestic		32		216

U.K.:
	Price (c)		74		187
	Volume (d)		(10)		18
	DPCR4 accrual adjustments (e)		(21)		(45)
	Recovery of allowed revenues (f)		(22)		(22)
	Foreign currency exchange rates		(9)		(25)
	Other		2		3
	Total U.K.		14		116
Total		$	46	$	332

~~Reconciliation of Non-GAAP Financial Measures~~

(a)	See "Pennsylvania Gross Delivery Margins" for further information.

(b)	See "Kentucky Gross Margins" for further information.

(c)	The three and nine-month periods were impacted by a price increase effective April 1, 2013. The nine-month period was also impacted by a price increase effective April 1, 2012.

(d)	The increase for the nine-month period was primarily due to the favorable effect of weather.

(e)	The decrease for the three and nine-month periods was due to a reduction in revenue based on information provided by Ofgem regarding the calculation of line loss incentive/penalty for all network operators related to DPCR4. See Note 6 to the Financial Statements for additional information.

(f)

The decrease for the three and nine-month period was due to an accrual for over-recovered revenues as a result of price and weather related volume effects that is not expected to reverse within the regulatory year ending March 31, 2014. Therefore, a liability was recorded and utility revenue was reduced for the amount of the over-recovery in September 2013. These amounts are expected to be refunded within the regulatory year beginning April 1, 2014.

Other Operation and Maintenance

The increase (decrease) in other operation and maintenance for the periods ended September 30, 2013 compared with 2012 was due to:


		Three Months		Nine Months
Domestic:
	Brunner Island outage timing	$	(4)	$	(23)
	Uncollectible accounts (a)				(23)
	LKE coal plant outages (b)		(1)		(18)
	Montour outage in 2013		15		13
	Act 129 costs (c)		(7)		(13)
	PUC-reportable storm costs, net of insurance recovery		(8)		(9)
	PPL Susquehanna projects				(9)
	PPL Susquehanna outages		1		(6)
	Ironwood outage in 2013		3		6
	LKE adjustments to regulatory assets and liabilities				4
	Other generation plants		4		4
	Other		8		9
U.K.:
	Third-party engineering (d)		3		5
	Network maintenance (e)		10		23
	Insurance claim provision release				6
	Severance compensation (f)				(8)
	Employee related expenses		(1)		(6)
	Foreign currency exchange rates		(2)		(4)
	Other		(2)		(3)
Total		$	19	$	(52)

(a)	The decrease for the nine-month period is primarily due to SMGT filing for protection under Chapter 11 of the U.S. Bankruptcy Code in 2011. $11 million of damages billed to SMGT were fully reserved in 2012.

(b)	The decrease for the three and nine month periods is due to the timing and scope of scheduled outages.

(c)	The decrease for the three and nine month periods is due to a reduction in Act 129 energy efficiency and conservation plan costs for Phase 1 programs. Phase 1 ended May 31, 2013.

(d)	These costs are offset by revenues reflected in "Utility" on the Statement of Income.

(e)	The increase for the three and nine month periods is primarily due to higher vegetation management costs.

(f)	The decrease for the nine month period is primarily due to costs incurred in 2012 related to the WPD Midlands reorganization.

118

Depreciation

The increase (decrease) in depreciation for the periods ended September 30, 2013 compared with 2012 was due to:

	Three Months		Nine Months

Additions to PP&E	$	20	$	64
LKE lower depreciation rates effective January 1, 2013		(5)		(16)
Ironwood Acquisition				6
Other		(4)		(8)
Total	$	11	$	46

Other Income (Expense) - net

The ~~following table reconciles "Pennsylvania Gross Delivery Margins" as defined~~$72 million decrease in other income (expense) - net for the three months ended September 30, 2013 compared with 2012 was primarily due to a decrease of $70 million from realized and unrealized gains on foreign currency contracts to economically hedge GBP denominated earnings from WPD.

The $50 million increase in other income (expense) - net for the nine months ended September 30, 2013 compared with 2012 was primarily due to an increase of $46 million from realized and unrealized gains on foreign currency contracts to economically hedge GBP denominated earnings from WPD.

See Note 12 to the Financial Statements for additional information on other income (expense) - net.

Interest Expense

The increase (decrease) in interest expense for the periods ended September 30, 2013 compared with 2012 was due to:

	��	Three Months		Nine Months

Long-term debt interest expense (a)		$	5	$	32
Loss on extinguishment of debt (b)					10
Net amortization of debt discounts, premiums and issuance costs			(4)		(4)
Other			(3)		3
Total		$	(2)	$	41

(a)	The increase for the three and nine-month periods was due to debt issuances by PPL Capital Funding in March 2013 and October 2012, and by PPL Electric in July 2013 and August 2012, partially offset by the impact of lower interest rates resulting from the remarketing of the 2010 Equity Units.

The nine-month period also increased due to debt issuances by PPL Capital Funding in June 2012 and by WPD (East Midlands) in April 2012, as well as higher accretion expense on WPD index linked notes and three additional months of interest on debt assumed as part of the Ironwood Acquisition. Partially offsetting these increases was PPL Energy Supply's debt maturity in July 2013.

(b)	In May 2013, PPL Capital Funding remarketed and exchanged junior subordinate notes that were originally issued in June 2010 as a component of PPL's 2010 Equity Units.

See Note 7 to the Financial Statements in this Form 10-Q for information on 2013 long-term debt activity and PPL's 2012 Form 10-K for information on 2012 activity.

Income Taxes

The increase (decrease) in income taxes for the periods ended September 30, 2013 compared with 2012 was due to:

	Three Months		Nine Months

Change in pre-tax income at current period tax rates	$	36	$	(31)
State valuation allowance adjustments (a)		36		36
Federal and state tax reserve adjustments (b)		1		(34)
Federal and state tax return adjustments		(4)		(4)
U.S. income tax on foreign earnings net of foreign tax credit (c)		9		3
U.K. Finance Act adjustments (d)		(19)		(19)
Foreign tax reserve adjustments		(2)		3
Net operating loss carryforward adjustments (e)				9
Intercompany Interest on WPD Financing Entities		2		2
State deferred tax rate change (f)		6		17
Other		2		(2)
Total	$	67	$	(20)

119

(a)

During the three and nine months ended September 30, 2013, PPL recorded a $38 million increase in state deferred income tax expense related to a deferred tax valuation allowance primarily due to a decrease in projected future taxable income over the remaining carryforward period of Pennsylvania net operating losses.

(b)

In May 2013, the U.S. Supreme Court reversed the December 2011 ruling of the U.S. Court of Appeals for the Third Circuit on the creditability of U.K. Windfall Profits Tax for tax purposes. As a result of this decision, PPL recorded a tax benefit of $44 million during the nine months ended September 30, 2013. See Note 5 to the Financial Statements for additional information.

(c)	During the three and nine months ended September 30, 2013, PPL recorded a $10 million and $24 million increase to income tax expense primarily attributable to a revision in the expected taxable amount of cash repatriation in 2013.

(d)

The U.K.'s Finance Act 2013, enacted in July 2013, reduced the U.K. statutory income tax rate from 23% to 21%, effective April 1, 2014 and from 21% to 20% effective April 1, 2015. As a result, PPL reduced its net deferred tax liabilities and recognized a $93 million deferred tax benefit in the third quarter of 2013 related to both rate decreases.

The U.K.'s Finance Act 2012, enacted in July 2012, reduced the U.K. statutory income tax rate from 25% to 24% retroactive to April 1, 2012 and from 24% to 23% effective April 1, 2013. As a result, PPL reduced its net deferred tax liabilities and recognized a $74 million deferred tax benefit in the third quarter of 2012 related to both rate decreases.

(e)	During the nine months ended September 30, 2012, PPL recorded adjustments to deferred taxes related to net operating loss carryforwards of LKE based on income tax return adjustments.

(f)	During the three and nine months ended September 30, 2012, PPL recorded adjustments related to state deferred tax liabilities.

See Note 5 to the Financial Statements for additional information on income taxes.

PPL Energy Supply: Earnings and Statement of Income Analysis

Earnings
	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2013		2012		2013		2012

Net Income Attributable to PPL Energy Supply Member	$	124	$	54	$	172	$	382
Special items, after-tax		(6)		(105)		(49)		3

Excluding special items, the decrease in earnings for the three-month period was primarily due to lower baseload energy prices, lower baseload generation and higher operation and maintenance expense, partially offset by higher capacity prices. The decrease for the nine-month period was primarily due to lower baseload energy prices, higher fuel costs and higher depreciation, partially offset by higher capacity prices, higher intermediate and peaking margins, higher baseload generation and lower income taxes.

The table below quantifies the changes in the components of Net Income Attributable to PPL Energy Supply Member between these periods, which reflect reclassifications for items included in Unregulated Gross Energy Margins and certain items that management considers special. See PPL's "Results of Operations - Segment Earnings - Supply Segment" for the details of special items.

	Three Months		Nine Months

Unregulated Gross Energy Margins	$	(9)	$	(204)
Other operation and maintenance		(19)		11
Depreciation		(7)		(31)
Taxes, other than income		(2)		2
Other Income (Expense) - net		(3)		5
Interest Expense		4		(8)
Other		(1)		1
Income Taxes		8		66
Special items, after-tax		99		(52)
Total	$	70	$	(210)

Statement of Income Analysis --

Unregulated Gross Energy Margins

"Unregulated Gross Energy Margins" is a non-GAAP financial performance measure that management utilizes as an indicator of the performance of its business. See PPL's "Results of Operations - Income Statement Analysis - Margins" for information on why management believes this measure is useful and for explanations of the underlying drivers of the changes between periods.

120

The following tables contain the components from the Statements of Income that are included in this non-GAAP financial measure and a reconciliation to "Operating Income" for the periods ended ~~March 31.~~September 30.

																			2013 Three Months							2012 Three Months
																			Unregulated							Unregulated
																			Gross Energy					Operating		Gross Energy					Operating
																			Margins		Other (a)			Income (b)		Margins		Other (a)			Income (b)
Operating Revenues															Operating Revenues
			2013 Three Months						2012 Three Months						Wholesale energy marketing
			PA Gross						PA Gross									Realized	$	981	$	(1)		$	980	$	1,074	$	2	(c)	$	1,076
			Delivery				Operating		Delivery				Operating					Unrealized economic activity				(49)	(d)		(49)				(716)	(d)		(716)
			Margins		Other (a)		Income (b)		Margins		Other (a)		Income (b)		Wholesale energy marketing
																to affiliate				11					11		23					23
Operating Revenues
															Unregulated retail electric and gas					267		(1)	(d)		266		232		(13)	(d)		219
	Retail electric		$	512			$	512	$	457			$	457	Net energy trading margins					12					12		(11)					(11)
	Electric revenue from affiliate			1				1		1				1	Energy-related businesses							143			143				128			128
		Total Operating Revenues		513				513		458				458			Total Operating Revenues			1,271		92			1,363		1,318		(599)			719

Operating Expenses	Operating Expenses														Operating Expenses
	Energy purchases			172				172		153				153	Fuel					256		2			258		310		11	(e)		321
	Energy purchases from affiliate			14				14		21				21	Energy purchases
	Other operation and maintenance			22	$	111		133		22	$	118		140				Realized		427		(2)			425		418		3	(c)		421
	Depreciation					43		43				39		39				Unrealized economic activity				(37)	(d)		(37)				(569)	(d)		(569)
	Taxes, other than income			28		2		30		25		1		26	Energy purchases from affiliate					1					1		1					1
		Total Operating Expenses		236		156		392		221		158		379	Other operation and maintenance					5		238			243		1		219			220
															Depreciation							80			80				73			73
															Taxes, other than income					9		9			18		11		7			18
															Energy-related businesses					5		133			138				125			125
																	Total Operating Expenses			703		423			1,126		741		(131)			610
Total	Total		$	277	$	(156)	$	121	$	237	$	(158)	$	79	Total				$	568	$	(331)		$	237	$	577	$	(468)		$	109

					2013 Nine Months							2012 Nine Months
					Unregulated							Unregulated
					Gross Energy					Operating		Gross Energy					Operating
					Margins		Other (a)			Income (b)		Margins		Other (a)			Income (b)
Operating Revenues
	Wholesale energy marketing
				Realized	$	2,770	$	(3)		$	2,767	$	3,353	$	14	(c)	$	3,367
				Unrealized economic activity				(281)	(d)		(281)				(322)	(d)		(322)
	Wholesale energy marketing
		to affiliate				37					37		61					61
	Unregulated retail electric and gas					750		11	(d)		761		638		(15)	(d)		623
	Net energy trading margins					1					1		7					7
	Energy-related businesses							378			378				336			336
			Total Operating Revenues			3,558		105			3,663		4,059		13			4,072

Operating Expenses
	Fuel					778		2			780		695		33	(e)		728
	Energy purchases
				Realized		1,282		(5)			1,277		1,669		46	(c)		1,715
				Unrealized economic activity				(192)	(d)		(192)				(420)	(d)		(420)
	Energy purchases from affiliate					3					3		2					2
	Other operation and maintenance					13		735			748		12		757			769
	Depreciation							237			237				206			206
	Taxes, other than income					27		24			51		27		26			53
	Energy-related businesses					5		361			366				326			326
			Total Operating Expenses			2,108		1,162			3,270		2,405		974			3,379
Total					$	1,450	$	(1,057)		$	393	$	1,654	$	(961)		$	693

(a)	Represents amounts excluded from Margins.

(b)	As reported on the Statements of Income.

(c)

Represents energy-related economic activity as described in "Commodity Price Risk (Non-trading) - Economic Activity" within Note 14 to the Financial Statements. For the three and nine months ended September 30, 2012 "Wholesale energy marketing - Realized" and "Energy purchases - Realized" include net pre-tax losses of $1 million and $34 million related to the monetization of certain full-requirement sales contracts.

~~Changes in Non-GAAP Financial Measures~~

(d)	Represents energy-related economic activity, which is subject to fluctuations in value due to market price volatility, as described in "Commodity Price Risk (Non-trading) - Economic Activity" within Note 14 to the Financial Statements.

(e)

Includes economic activity related to fuel as described in "Commodity Price Risk (Non-trading) - Economic Activity" within Note 14 to the Financial Statements. The three and nine months ended September 30, 2012 include pre-tax losses of $17 million and $29 million related to coal contract modification payments.

121

Other Operation and Maintenance

The increase (decrease) in other operation and maintenance for the periods ended September 30, 2013 compared with 2012 was due to:
	Three Months		Nine Months

Brunner Island outage timing	$	(4)	$	(23)
Uncollectible accounts (a)				(15)
PPL Susquehanna projects				(9)
PPL Susquehanna outages		1		(6)
Ironwood outage in 2013		3		6
Montour outage in 2013		15		13
Other generation plants		4		4
Other		4		9
Total	$	23	$	(21)

The following table shows PPL Electric's non-GAAP financial measure, "Pennsylvania Gross Delivery Margins" for the periods ended March 31, as well as the change between periods. The factors that gave rise to the change are described below the table.

Three Months
2013 2012 Change
PA Gross Delivery Margins by Component
Distribution $ 224 $ 189 $ 35
Transmission 53 48 5
Total $ 277 $ 237 $ 40

(a)	The decrease for the nine-month period is primarily due to SMGT filing for protection under Chapter 11 of the U.S. Bankruptcy Code in 2011. $11 million of damages billed to SMGT were fully reserved in 2012.

~~Distribution~~Depreciation

~~Margins~~Depreciation increased by $7 million and $31 million for the three and nine months ended ~~March 31,~~September 30, 2013 compared with 2012, primarily due to ~~a $13~~$8 million ~~favorable effect~~and $28 million related to PP&E additions, and $6 million attributable to the Ironwood Acquisition for the nine-month period.

Interest Expense

For the nine months ended September 30, 2013 compared with 2012, interest expense increased by $8 million, primarily due to $6 million of ~~mild weather~~lower capitalized interest related to the Rainbow hydroelectric redevelopment project.

Income Taxes

The increase (decrease) in income taxes for the periods ended September 30, 2013 compared with 2012 was due to:

	Three Months		Nine Months

Change in pre-tax income at current period tax rates	$	50	$	(122)
State valuation allowance adjustments		2		2
Federal and state tax reserve adjustments (a)				6
Federal and state tax return adjustments		(1)		(1)
State deferred tax rate change (b)		6		17
Other		1		2
Total	$	58	$	(96)

(a)

During the nine months ended September 30, 2013, PPL Energy Supply reversed $3 million in tax benefits related to a 2008 change in method of accounting for certain expenditures for tax purposes and recorded $4 million in federal tax reserves related to differences in over (under) payment interest rates applied to audit claims as a result of the U.S. Supreme Court decision related to the Windfall Profits tax.

(b)	During the three and nine months ended September 30, 2012, PPL Energy Supply recorded adjustments related to state deferred tax liabilities.

See Note 5 to the Financial Statements for additional information on income taxes.

PPL Electric: Earnings and Statement of Income Analysis

Earnings
	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2013		2012		2013		2012

Net Income Available to PPL	$	51	$	33	$	160	$	95

The increase in ~~2012 and a $19 million favorable effect of price, largely comprised of~~earnings for both periods was primarily due to higher electricity base rates that became effective January 1, 2013 and higher transmission margins from additional capital investments, partially offset by higher income taxes. The increase for the nine-month period was also due to lower operation and maintenance expense, partially offset by higher depreciation.

122

The table below quantifies the changes in the components of Net Income Available to PPL between these periods, which reflect reclassifications for items included in Pennsylvania Gross Delivery Margins.

		Three Months		Nine Months

Pennsylvania Gross Delivery Margins	��	$	31	$	92
Other operation and maintenance			8		28
Depreciation			(4)		(13)
Interest Expense			(5)		(7)
Other			(2)		(3)
Income Taxes			(10)		(36)
Distributions on preference stock					4
Total		$	18	$	65

Statement of Income Analysis --

Pennsylvania Gross Delivery Margins

"Pennsylvania Gross Delivery Margins" is a non-GAAP financial performance measure that management utilizes as ~~a result~~an indicator of the ~~2012 rate case~~performance of its business. See PPL's "Results of Operations - Income Statement Analysis - Margins" for information on why management believes this measure is useful and ~~higher volumes~~for explanations of ~~$3 million.~~the underlying drivers of the changes between periods.

~~Transmission~~The following tables contain the components from the Statements of Income that are included in this non-GAAP financial measure and a reconciliation to "Operating Income" for the periods ended September 30.

Margins increased for the three months ended March 31, 2013 compared with 2012 primarily due to increased investment in plant and the recovery of additional costs through the FERC formula-based rates.

			2013 Three Months						2012 Three Months
			PA Gross						PA Gross
			Delivery				Operating		Delivery				Operating
			Margins		Other (a)		Income (b)		Margins		Other (a)		Income (b)
Operating Revenues
	Retail electric		$	463			$	463	$	443			$	443
	Electric revenue from affiliate			1				1		1				1
		Total Operating Revenues		464				464		444				444

Operating Expenses
	Energy purchases			144				144		137				137
	Energy purchases from affiliate			11				11		23				23
	Other operation and maintenance			19	$	115		134		25	$	123		148
	Depreciation					45		45				41		41
	Taxes, other than income			23		2		25		23		1		24
		Total Operating Expenses		197		162		359		208		165		373
Total			$	267	$	(162)	$	105	$	236	$	(165)	$	71

			2013 Nine Months						2012 Nine Months
			PA Gross						PA Gross
			Delivery				Operating		Delivery				Operating
			Margins		Other (a)		Income (b)		Margins		Other (a)		Income (b)
Operating Revenues
	Retail electric		$	1,388			$	1,388	$	1,303			$	1,303
	Electric revenue from affiliate			3				3		3				3
		Total Operating Revenues		1,391				1,391		1,306				1,306

Operating Expenses
	Energy purchases			436				436		410				410
	Energy purchases from affiliate			37				37		61				61
	Other operation and maintenance			62	$	329		391		74	$	357		431
	Depreciation					132		132				119		119
	Taxes, other than income			70		7		77		67		5		72
		Total Operating Expenses		605		468		1,073		612		481		1,093
Total			$	786	$	(468)	$	318	$	694	$	(481)	$	213

~~Other Operation and Maintenance~~

~~The increase (decrease) in other operation and maintenance for the period ended March 31, 2013 compared with 2012 was due to:~~

	~~Three Months~~


~~Uncollectible accounts~~	$	~~(2)~~
~~Corporate service costs~~ (a)		~~(5)~~
~~Total~~	$	~~(7)~~Represents amounts excluded from Margins.

(b)	As reported on the Statements of Income.

123

Other Operation and Maintenance

The increase (decrease) in other operation and maintenance for the periods ended September 30, 2013 compared with 2012 was due to:

	Three Months		Nine Months


Vegetation management	$	6	$	3
PUC-reportable storm costs, net of insurance recovery		(8)		(9)
Act 129 costs (a)		(7)		(13)
Uncollectible accounts				(3)
Corporate service (b)		(2)		(13)
Rent		(3)		(4)
Other				(1)
Total	$	(14)	$	(40)

(a)	The decrease iswas due to a reduction in Act 129 energy efficiency and conservation plan costs for Phase 1 programs. Phase 1 ended May 31, 2013.

(b)	The decrease was partially due to ~~$2 million of~~ storm insurance policy premiums for coverage that was in place in 2012 but was not renewed in 2013.

~~130~~

Depreciation

Depreciation increased by $4 million and $13 million for the three and nine months ended ~~March 31,~~September 30, 2013 compared with 2012, primarily due to PP&E additions as part of ongoing investments to enhance system reliability.

Taxes, Other Than Income

Taxes, other than income increased by $4$5 million for the ~~three~~nine months ended ~~March 31,~~September 30, 2013 compared with 2012, primarily due to higher Pennsylvania gross receipts tax expense due to higher retail electricity revenue. This tax is included in "Pennsylvania Gross Delivery Margins."

~~Financing Costs~~

Financing Costs

The increase (decrease) in financing costs for the periods ended September 30, 2013 compared with 2012 was due to:

	Three Months		Nine Months

Long-term debt interest expense (a)	$	5	$	8
Distributions on Preference Stock (b)				(4)
Other				(1)
Total	$	5	$	3

~~Financing~~

(a)	The increase was due to debt issuances in August 2012 and July 2013.

(b)	The decrease was due to the June 2012 redemption of all 2.5 million shares of preference stock.

Income Taxes

The increase (decrease) in income taxes for the periods ended September 30, 2013 compared with 2012 was due to:

	Three Months		Nine Months

Change in pre-tax income at current period tax rates	$	12	$	39
Other		(2)		(3)
Total	$	10	$	36

See Note 5 to the Financial Statements for additional information on income taxes.

LKE: Earnings and Statement of Income Analysis

Earnings
	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2013		2012		2013		2012

Net Income	$	100	$	83	$	260	$	180
Special items, after-tax						2		(1)

124

Excluding special items, the increases in earnings for both periods were primarily due to higher electricity and gas base rates that went into effect January 1, 2013, returns from additional environmental capital investments and higher fuel recovery, partially offset by higher depreciation (due to environmental costs related to the 2005 and 2006 ECR plans now being included in base rates and excluded from Margins) and higher income taxes. The increase for the three-month period was partially offset by lower sales volumes.

The table below quantifies the components of Net Income between these periods, which ~~consist~~reflect reclassifications for items included in Margins and certain items that management considers special. See PPL's "Results of ~~"Interest Expense"~~Operations - Segment Earnings - Kentucky Regulated Segment" for details of special items.

	Three Months		Nine Months

Margins	$	42	$	151
Other operation and maintenance		(4)		4
Depreciation		(9)		(26)
Taxes, other than income		(1)		(2)
Other Income (Expense) - net				7
Interest Expense				1
Income Taxes		(11)		(58)
Special items, after-tax				3
Total	$	17	$	80

Statement of Income Analysis --

Margins

"Margins" is a non-GAAP financial performance measure that management utilizes as an indicator of the performance of its business. See PPL's "Results of Operations - Income Statement Analysis - Margins" for information on why management believes this measure is useful and ~~"Distributions on Preference Stock,~~explanations of the underlying drivers of the changes between periods. Within PPL's discussion, LKE's Margins are referred to as "Kentucky Gross Margins." ~~decreased~~

			2013 Three Months						2012 Three Months
							Operating						Operating
			Margins		Other (a)		Income (b)		Margins		Other (a)		Income (b)

Operating Revenues			$	744			$	744	$	732			$	732
Operating Expenses
	Fuel			237				237		249				249
	Energy purchases			23				23		27				27
	Other operation and maintenance			26	$	162		188		28	$	158		186
	Depreciation			1		83		84		13		74		87
	Taxes, other than income					12		12				11		11
		Total Operating Expenses		287		257		544		317		243		560
Total			$	457	$	(257)	$	200	$	415	$	(243)	$	172

			2013 Nine Months						2012 Nine Months
							Operating						Operating
			Margins		Other (a)		Income (b)		Margins		Other (a)		Income (b)

Operating Revenues			$	2,226			$	2,226	$	2,095			$	2,095
Operating Expenses
	Fuel			684				684		677				677
	Energy purchases			146				146		135				135
	Other operation and maintenance			74	$	508		582		76	$	513		589
	Depreciation			3		246		249		39		220		259
	Taxes, other than income			��		36		36				34		34
		Total Operating Expenses		907		790		1,697		927		767		1,694
Total			$	1,319	$	(790)	$	529	$	1,168	$	(767)	$	401

(a)	Represents amounts excluded from Margins.

(b)	As reported on the Statements of Income.

125

Other Operation and Maintenance

The increase (decrease) in other operation and maintenance expense for the periods ended September 30, 2013 compared with 2012 was due to:

	Three Months		Nine Months

Coal plant outages (a)	$	(1)	$	(18)
Administrative and general (b)		3		8
Adjustments to regulatory assets and liabilities				4
Coal plant operations				3
Other				(4)
Total	$	2	$	(7)

(a)	Decrease is due to the timing and scope of scheduled outages.

(b)	Increase for the nine-month period is primarily due to an increase in outside services of $8 million.

Depreciation

The increase (decrease) in depreciation for the periods ended September 30, 2013 compared with 2012 was due to:

	Three Months		Nine Months

Lower depreciation rates effective January 1, 2013	$	(5)	$	(16)
Additions to PP&E		2		6
Total	$	(3)	$	(10)

Other Income (Expense) - net

Other income (expense) - net increased by $3$8 million for the nine months ended September 30, 2013 compared with 2012 primarily due to losses from the EEI investment recorded in 2012. The EEI investment was fully impaired in the fourth quarter of 2012.

Income Taxes

Income taxes increased by $11 million and $64 million for the three and nine months ended ~~March 31,~~September 30, 2013 compared with ~~2012. The decrease was~~2012 primarily due to the ~~June 2012 redemption of all 2.5 million shares of preference stock.~~change in pre-tax income at current period tax rates.

~~Income Taxes~~	��

~~The increase (decrease) in income taxes for the period ended March 31, 2013 compared with 2012 was due to:~~


		~~Three Months~~

~~Higher pre-tax book income~~		$	16
~~Depreciation not normalized~~			~~(2)~~
~~Other~~			~~(1)~~
~~Total~~		$	13

See Note 5 to the Financial Statements for additional information on income taxes.

Financial Condition

Liquidity and Capital Resources

PPL Electric had the following at:

March 31, 2013 December 31, 2012

Cash and cash equivalents $ 31 $ 140
Short-term debt $ 125
Income (Loss) from Discontinued Operations (net of income taxes)

~~The $109 million decrease in PPL Electric's cash and cash equivalents position was primarily the net result of:~~

·	~~capital expenditures of $189 million;~~

·	~~net cash used in operating activities of $77 million;~~

·	~~the payment of $25 million of common stock dividends to parent; partially offset by~~

·	~~a net increase in short-term debt of $125 million; and~~

·	~~contributions from parent of $60 million.~~

~~PPL Electric's cash used in operating activities~~Income (loss) from discontinued operations increased by ~~$67~~$7 million for the ~~three~~nine months ended ~~March 31,~~September 30, 2013 compared with 2012. The increase was ~~a net effect of:~~

·	a $77 million increase in cash used by components of working capital (primarily due to a $76 million change in accounts receivable resulting from higher base rates and favorable effects of weather); and

·	~~a $34 million increase in defined benefit plan funding; partially offset by~~

·	~~a $27 million increase in net income.~~

~~131~~

~~Credit Facilities~~

~~PPL Electric maintains credit facilities~~primarily related to provide liquidity and to backstop commercial paper issuances. At March 31, 2013, PPL Electric's total committed borrowing capacity under its credit facilities and the use of this borrowing capacity were:

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

Syndicated Credit Facility (a) $ 300 $ 126 $ 174
Asset-backed Credit Facility (b) 100 n/a 100
Total PPL Electric Credit Facilities $ 400 $ 126 $ 274

~~(a)~~

~~The commitments under this credit facility are provided by a diverse bank group, with no one bank and its affiliates providing an aggregate commitment of more than 5% of the total committed capacity.~~

~~(b)~~

PPL Electric obtains financing by selling and contributing its eligible accounts receivable and unbilled revenue to a special purpose, wholly owned subsidiary on an ongoing basis. The subsidiary pledges these assets to secure loans of up to an aggregate of $100 million from a commercial paper conduit sponsored by a financial institution. At March 31, 2013, based on accounts receivable and unbilled revenue pledged, the amount available for borrowing under the facility was $100 million.

~~See Note 7~~an adjustment to the ~~Financial Statements~~estimated liability for ~~further discussion of PPL Electric's credit facilities.~~

~~Commercial Paper~~

~~PPL Electric maintains a commercial paper program for up~~indemnifications related to $300 million to provide an additional financing source to fund its short-term liquidity needs, if and when necessary. Commercial paper issuances are supported by PPL Electric's Syndicated Credit Facility. At March 31, 2013, PPL Electric had $125 million of commercial paper outstanding, included in "Short-term debt" on the ~~Balance Sheet, at a weighted-average interest rate of 0.39%. PPL Electric had no commercial paper outstanding at December 31, 2012.~~

~~Rating Agency Actions~~

Moody's, S&P and Fitch periodically review the credit ratings on the debt securities of PPL Electric. 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~~2009 termination of the creditworthiness associated with an issuer and particular securities that it issues. The credit ratings of PPL Electric are based on information provided by PPL Electric and other sources. The ratings of Moody's, S&P and Fitch are not a recommendation to buy, sell or hold any securities of PPL Electric. 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.

~~A downgrade~~WKE lease recorded in PPL Electric's credit ratings could result in higher borrowing costs and reduced access to capital markets. PPL Electric does not have credit rating triggers that would result in the reduction of access to capital markets or the acceleration of maturity dates of outstanding debt.

~~The rating agencies did not take any actions related to PPL Electric in 2013.~~

For additional information on PPL Electric's liquidity and capital resources, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," in PPL Electric's 2012 Form 10-K.

~~Risk Management~~

~~Market Risk and Credit Risk~~

PPL Electric issues debt to finance its operations, which exposes it to interest rate risk. At March 31, 2013, PPL Electric's potential annual exposure to increased interest expense, based on a 10% increase in interest rates, was not significant.

PPL Electric is also exposed to changes in the fair value of its debt portfolio. PPL Electric estimated that a 10% decrease in interest rates at March 31, 2013 would increase the fair value of its debt portfolio by $71 million.

~~See Notes 13 and 14 to the Financial Statements in this Form 10-Q and "Risk Management" in PPL Electric's 2012 Form 10-K for additional information on market and credit risk.~~

~~132~~

~~Related Party Transactions~~

PPL Electric is not aware of any material ownership interests or operating responsibility by senior management of PPL Electric in outside partnerships, including leasing transactions with variable interest entities or other entities doing business with PPL Electric. See Note 11 to the Financial Statements for additional information on related party transactions.

~~Environmental Matters~~

~~See Note 10 to the Financial Statements in this Form 10-Q and "Item 1. Business - Environmental Matters" in PPL Electric's 2012 Form 10-K for a discussion of environmental matters.~~

~~New Accounting Guidance~~

~~See Notes 2 and 19 to the Financial Statements for a discussion of new accounting guidance adopted and pending adoption.~~

~~Application of Critical Accounting Policies~~

Financial condition and results of operations are impacted by the methods, assumptions and estimates used in the application of critical accounting policies. The following accounting policies are particularly important to the financial condition or results of operations, and require estimates or other judgments of matters inherently uncertain: defined benefits, loss accruals, income taxes, regulatory assets and liabilities, and revenue recognition - unbilled revenue. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in PPL Electric's 2012 Form 10-K for a discussion of each critical accounting policy.

~~133~~

~~LG&E~~ ~~AND KU ENERGY LLC AND SUBSIDIARIES~~

~~Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations~~2012.

~~The following should be read in conjunction with LKE's Condensed Consolidated Financial Statements~~LG&E: Earnings and ~~the accompanying Notes and with LKE's 2012 Form 10-K. Capitalized terms and abbreviations are defined in the glossary. Dollars are in millions, unless otherwise noted.~~Statement of Income Analysis

~~"Management's Discussion and Analysis of Financial Condition and Results of Operations" includes the following information:~~

·	~~"Overview" provides a description of LKE and its business strategy, a summary of Net Income and a discussion of certain events related to LKE's results of operations and financial condition.~~

"Results of Operations" provides a summary of LKE's earnings and a description of key factors expected to impact future earnings. This section ends with explanations of significant changes in principal line items on LKE's Statements of Income, comparing the three months ended March 31, 2013 with 2012.

·	~~"Financial Condition - Liquidity and Capital Resources" provides an analysis of LKE's liquidity position and credit profile. This section also includes a discussion of rating agency actions.~~

·	~~"Financial Condition - Risk Management" provides an explanation of LKE's risk management programs relating to market and credit risk.~~

~~Overview~~

~~Introduction~~

LKE, headquartered in Louisville, Kentucky, is a holding company and a wholly owned subsidiary of PPL. LKE has 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 electric energy. LG&E also engages in the distribution and sale of natural gas. LG&E and KU maintain their separate identities and serve customers in Kentucky under their respective names. KU also serves customers in Virginia under the Old Dominion Power name and in Tennessee under the KU name.

~~Business Strategy~~

~~LKE's overall strategy is to provide reliable, safe, competitively priced energy to its customers and reasonable returns on regulated investments to its member.~~

A key objective for LKE is to maintain a strong credit profile through managing financing costs and access to credit markets. LKE continually focuses on maintaining an appropriate capital structure and liquidity position.

~~Financial and Operational Developments~~

~~Net Income~~

~~Net Income for the three months ended March 31, 2013 was $96 million compared to $53 million in 2012 representing an 81% increase over 2012.~~

~~See "Results of Operations" for a discussion and analysis of LKE's earnings.~~

~~Rate Case Proceedings~~

~~134~~

~~Results of Operations~~

Earnings
	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2013		2012		2013		2012

Net Income	$	49	$	43	$	122	$	94

The ~~following discussion provides a summary of LKE's~~increases in earnings for both periods were primarily due to higher electricity and ~~a description of key factors expected to impact future earnings. This section ends with "Statement of Income Analysis," which includes explanations of significant changes in Margins~~gas base rates that went into effect January 1, 2013, returns from additional environmental capital investments and ~~principal line items on LKE's Statements of Income, comparing~~higher fuel recovery. The increase for the ~~three months ended March 31, 2013 with 2012.~~three-month period was partially offset by lower sales volumes. The increase for the nine-month period was partially offset by higher income taxes.

The ~~results for interim periods can be disproportionately influenced by numerous factors and developments and by seasonal variations. As such,~~table below quantifies the ~~results of operations for interim periods do not necessarily indicate results or trends for the year or for future periods.~~

Earnings

Net Income for the period ended March 31 was:

Three Months
2013 2012

Net Income $ 96 $ 53

~~The~~ changes in the components of Net Income between these periods, ~~were due to the following factors,~~ which reflect reclassifications for items included in ~~Margins and certain items that management considers special. See additional detail of these special items in the table below.~~Margins.

	~~Three Months~~

~~Margins~~	$	75
~~Other operation and maintenance~~		10
~~Depreciation~~		~~(9)~~
~~Taxes, other than income~~		~~(1)~~
~~Interest Expense~~		1
~~Income Taxes~~		~~(30)~~
~~Special items, after-tax~~		~~(3)~~
~~Total~~	$	43

·	~~See "Statement of Income Analysis - Margins - Changes in Non-GAAP Financial Measures" for an explanation of Margins.~~

·	Lower other operation and maintenance primarily due to $14 million of lower costs due to the timing and scope of scheduled coal plant maintenance outages, partially offset by $4 million of adjustments to regulatory assets and liabilities.

Higher depreciation due to environmental costs related to the elimination of the 2005 and 2006 ECR plans now being included in base rates, which added $13 million to depreciation that is excluded from Margins, partially offset by lower depreciation of $5 million due to revised rates that were effective January 1, 2013. Both of these events are the result of the 2012 Kentucky rate case proceedings.

·	~~Higher income taxes primarily due to higher pre-tax income.~~

~~The following after-tax gains (losses), which management considers special items, also impacted earnings during the periods ended March 31.~~

Income Statement Three Months
Line Item 2013 2012

EEI adjustments Other Income (Expense) - net $ 1
Net operating loss carryforward and other tax-related adjustments Income Taxes and Other O&M $ 4
Total $ 1 $ 4

~~2013 Outlook~~

Excluding special items, LKE projects higher earnings in 2013 compared with 2012, primarily driven by electric and gas base rate increases, returns on additional environmental capital investments and load growth, partially offset by higher operation and maintenance expense.

~~135~~126

Earnings in future periods are subject to various risks and uncertainties. See "Forward-Looking Information," the rest of this Item 2, Notes 6 and 10 to the Financial Statements in this Form 10-Q and "Item 1. Business" and "Item 1A. Risk Factors" in LKE's 2012 Form 10-K for a discussion of the risks, uncertainties and factors that may impact future earnings.

	Three Months		Nine Months

Margins	$	12	$	43
Other operation and maintenance		(6)		(3)
Depreciation				3
Taxes, other than income				(1)
Other Income (Expense) - net		2
Interest Expense				1
Income Taxes		(2)		(15)
Total	$	6	$	28

Statement of Income Analysis --

Margins

~~Non-GAAP Financial Measure~~"Margins" is a non-GAAP financial performance measure that management utilizes as an indicator of the performance of its business. See PPL's "Results of Operations - Income Statement Analysis - Margins" for information on why management believes this measure is useful and explanations of the underlying drivers of the changes between periods. Within PPL's discussion, LG&E's Margins are included in "Kentucky Gross Margins."

The following ~~discussion includes financial information prepared~~tables contain the components from the Statements of Income that are included in ~~accordance with GAAP, as well as a~~this non-GAAP financial measure "Margins." Margins is 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 ~~to report on the results of their operations. Margins is~~ a single financial performance measure of LKE's electricity generation, transmission and distribution operations as well as its distribution and sale of natural gas. In calculating this measure, fuel and energy purchases are deducted from revenues. In addition, utility revenues and expenses associated with approved cost recovery mechanisms are offset. These mechanisms allow for recovery of certain expenses, returns on capital investments and performance incentives. Certain costs associated with these mechanisms, primarily ECR, DSM and GLT, are recorded as "Other operation and maintenance" and "Depreciation." As a result, this measure represents the net revenues from LKE's operations. This performance measure is used, in conjunction with other information, internally by senior management to manage operations and analyze actual results compared with budget.

~~Reconciliation of Non-GAAP Financial Measures~~

~~The following table reconciles "Margins"~~reconciliation to "Operating Income" ~~as defined by LKE~~ for the periods ended ~~March 31.~~September 30.

			2013 Three Months						2012 Three Months								2013 Three Months						2012 Three Months
							Operating						Operating								Operating						Operating
			Margins		Other (a)		Income (b)		Margins		Other (a)		Income (b)				Margins		Other (a)		Income (b)		Margins		Other (a)		Income (b)

Operating Revenues	Operating Revenues		$	800			$	800	$	705			$	705	Operating Revenues		$	343			$	343	$	333			$	333
Operating Expenses	Operating Expenses														Operating Expenses
	Fuel			231				231		213				213	Fuel			100				100		100				100
	Energy purchases			86				86		74				74	Energy purchases			20				20		21				21
	Other operation and maintenance			25	$	172		197		22	$	184		206	Other operation and maintenance			13	$	80		93		13	$	74		87
	Depreciation					82		82		13		73		86	Depreciation					37		37		1		37		38
	Taxes, other than income					12		12				11		11	Taxes, other than income					6		6				6		6
		Total Operating Expenses		342		266		608		322		268		590		Total Operating Expenses		133		123		256		135		117		252
Total	Total		$	458	$	(266)	$	192	$	383	$	(268)	$	115	Total		$	210	$	(123)	$	87	$	198	$	(117)	$	81

			2013 Nine Months						2012 Nine Months
							Operating						Operating
			Margins		Other (a)		Income (b)		Margins		Other (a)		Income (b)

Operating Revenues			$	1,049			$	1,049	$	990			$	990
Operating Expenses
	Fuel			284				284		281				281
	Energy purchases			135				135		119				119
	Other operation and maintenance			34	$	244		278		36	$	241		277
	Depreciation			1		109		110		2		112		114
	Taxes, other than income					18		18				17		17
		Total Operating Expenses		454		371		825		438		370		808
Total			$	595	$	(371)	$	224	$	552	$	(370)	$	182

(a)	Represents amounts excluded from Margins.

(b)	As reported on the Statements of Income.

~~Changes in Non-GAAP Financial Measures~~

Margins increased by $75 million for the three months ended March 31, 2013 compared with 2012 due to higher base rates of $31 million, higher volumes of $19 million, environmental costs added to base rates of $18 million and increased environmental investments of $7 million.

The increase in base rates was the result of new KPSC rates going into effect on January 1, 2013. The increase in volumes was attributable to colder weather in 2013 compared with 2012. Total heating degree days increased 41%. The environmental costs added to base rates was due to the elimination of the 2005 and 2006 ECR plans as a result of the 2012 Kentucky rate case. This elimination results in depreciation and other operation and maintenance expenses associated with the 2005 and 2006 ECR plans being excluded from Margins in 2013.

~~136~~

	~~Three Months~~

~~Coal plant outages (a)~~	$	~~(14)~~
~~Bad debt expense~~		~~(3)~~
~~Adjustments to regulatory assets and liabilities~~		4
~~Other~~		4
~~Total~~	$	~~(9)~~

Other Operation and Maintenance

The increase (decrease) in other operation and maintenance expense for the periods ended September 30, 2013 compared with 2012 was due to:

	Three Months		Nine Months

Coal plant outages (a)	$	1	$	(6)
Administrative and general (b)		1		6
Distribution maintenance		2		2
Other		2		(1)
Total	$	6	$	1

(a)	~~Decrease~~Increase (decrease) is ~~primarily~~ due to the timing and scope of scheduled outages.

127

~~Depreciation~~(b)

~~The increase (decrease) in depreciation~~Increase for the nine-month period ~~ended March 31, 2013 compared with 2012 was~~is primarily due ~~to:~~

	~~Three Months~~

~~Lower depreciation rates effective January 1, 2013~~	$	~~(5)~~
~~Additions~~ to ~~PP&E~~		2
~~Other~~		~~(1)~~
~~Total~~	$	~~(4)~~an increase in outside services of $5 million.

Depreciation

The increase (decrease) in depreciation for the periods ended September 30, 2013 compared with 2012 was due to:

	Three Months		Nine Months

Lower depreciation rates effective January 1, 2013	$	(2)	$	(6)
Additions to PP&E		1		2
Total	$	(1)	$	(4)

Income Taxes

Income taxes increased by ~~$36~~$15 million for the ~~three~~nine months ended ~~March 31,~~September 30, 2013 compared with 2012 primarily due to ~~higher~~the change in pre-tax ~~income.~~income at current period tax rates.

See Note 5 to the Financial Statements for additional information on income taxes.

Financial Condition

Liquidity and Capital Resources

LKE had the following at:

March 31, 2013 December 31, 2012

Cash and cash equivalents $ 52 $ 43

Short-term debt (a) $ 185 $ 125

Notes payable with affiliates $ 85 $ 25

KU: Earnings and Statement of Income Analysis

Earnings
	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2013		2012		2013		2012

Net Income	$	63	$	50	$	171	$	118

Excluding special items, the increases in earnings for both periods were primarily due to higher electricity base rates that went into effect January 1, 2013, returns from additional environmental capital investments and higher fuel recovery, partially offset by higher depreciation (due to environmental costs related to the 2005 and 2006 ECR plans now being included in base rates and excluded from Margins) and higher income taxes. The increase for the three-month period was partially offset by lower sales volumes.

The table below quantifies the changes in the components of Net Income between these periods, which reflect reclassifications for items included in Margins and an item that management considers special.

	Three Months		Nine Months

Margins	$	31	$	108
Other operation and maintenance		(1)		(1)
Depreciation		(8)		(27)
Taxes, other than income		(1)		(1)
Other Income (Expense) - net		(3)		3
Interest Expense		1		1
Income Taxes		(6)		(31)
Special item - EEI adjustments, after-tax				1
Total	$	13	$	53

Statement of Income Analysis --

Margins

"Margins" is a non-GAAP financial performance measure that management utilizes as an indicator of the performance of its business. See PPL's "Results of Operations - Income Statement Analysis - Margins" for information on why management believes this measure is useful and explanations of the underlying drivers of the changes between periods. Within PPL's discussion, KU's Margins are included in "Kentucky Gross Margins."

128

			2013 Three Months						2012 Three Months
							Operating						Operating
			Margins		Other (a)		Income (b)		Margins		Other (a)		Income (b)

Operating Revenues			$	414			$	414	$	411			$	411
Operating Expenses
	Fuel			137				137		149				149
	Energy purchases			16				16		18				18
	Other operation and maintenance			13	$	78		91		16	$	77		93
	Depreciation			1		45		46		12		37		49
	Taxes, other than income					6		6				5		5
		Total Operating Expenses		167		129		296		195		119		314
Total			$	247	$	(129)	$	118	$	216	$	(119)	$	97

			2013 Nine Months						2012 Nine Months
							Operating						Operating
			Margins		Other (a)		Income (b)		Margins		Other (a)		Income (b)

Operating Revenues			$	1,229			$	1,229	$	1,165			$	1,165
Operating Expenses
	Fuel			400				400		396				396
	Energy purchases			63				63		76				76
	Other operation and maintenance			40	$	246		286		41	$	245		286
	Depreciation			2		136		138		36		109		145
	Taxes, other than income					18		18				17		17
		Total Operating Expenses		505		400		905		549		371		920
Total			$	724	$	(400)	$	324	$	616	$	(371)	$	245

(a)	Represents ~~borrowings under LG&E's and KU's commercial paper programs. See Note 7 to~~amounts excluded from Margins.

(b)	As reported on the ~~Financial~~ Statements ~~for additional information.~~of Income.

~~The $9 million increase in LKE's cash and cash equivalents position was primarily the net result of:~~

Other Operation and Maintenance

The increase (decrease) in other operation and maintenance expense for the periods ended September 30, 2013 compared with 2012 was due to:

	Three Months		Nine Months

Coal plant outages (a)	$	(2)	$	(12)
Administrative and general (b)		2		6
Coal plant operations				4
Adjustments to regulatory assets and liabilities				4
Other		(2)		(2)
Total	$	(2)	$

·(a)	~~cash provided by operating activities~~Decrease is due to the timing and scope of ~~$85 million;~~scheduled outages.

·(b)	Increase for the nine-month period is primarily due to an increase in ~~short term debt~~outside services of ~~$60 million;~~

·	~~an increase in notes payable with affiliates of $60 million; and~~

·	~~capital contributions from member of $75 million; offset by~~

·	~~capital expenditures of $271~~$5 million.

~~LKE's cash provided by operating activities decreased by $147 million~~Depreciation

The increase (decrease) in depreciation for the ~~three months~~periods ended ~~March 31,~~September 30, 2013 compared with 2012 ~~primarily as a result of:~~was due to:

·	~~an increase in cash outflows from other operating activities of $110 million driven by a $96 million increase in discretionary defined benefit plan contributions; and~~

	Three Months		Nine Months

Lower depreciation rates effective January 1, 2013	$	(4)	$	(10)
Additions to PP&E		1		4
Other				(1)
Total	$	(3)	$	(7)

a decline in working capital cash flow changes of $98 million driven primarily by changes in accounts receivable and unbilled revenues due to higher sales volumes, higher rates and extended payment terms, offset by lower inventory levels in 2013 compared with 2012 driven by increased generation; offset by

~~an increase in~~Other Income (Expense) - net

Other income (expense) - net income adjusted for non-cash items of $61 million (deferred income taxes and investment tax credits of $13 million, defined benefit plans - expense of $7 million and other non-cash items of $2 million, offset by depreciation of $4 million).

~~137~~

~~Capital expenditures~~ increased by ~~$97~~$4 million ~~during~~for the ~~three~~nine months ended ~~March 31,~~September 30, 2013 compared with 2012 primarily due to losses from the EEI investment recorded in 2012. The EEI investment was fully impaired in the fourth quarter of 2012.

129

Income Taxes

Income taxes increased by $6 million and $31 million for the three and nine months ended September 30, 2013 compared with 2012 primarily due to the change in pre-tax income at current period tax rates.

See Note 5 to the Financial Statements for additional information on income taxes.

Financial Condition

Financial Condition and the remainder of this Item 2 are presented on a combined basis, providing information, as
applicable, for all Registrants.

Liquidity and Capital Resources

(All Registrants)

The Registrants had the following at:
			PPL
	PPL		Energy Supply		PPL Electric		LKE		LG&E		KU
September 30, 2013
Cash and cash equivalents	$	1,291	$	551	$	225	$	21	$	12	$	9
Short-term debt		499						212		72		140
Notes payable with affiliates								52

December 31, 2012
Cash and cash equivalents	$	901	$	413	$	140	$	43	$	22	$	21
Short-term debt		652		356				125		55		70
Notes payable with affiliates								25

At September 30, 2013, PPL's cash and cash equivalents included $231 million denominated in GBP. If these amounts would be remitted as dividends, PPL may be subject to additional U.S. income taxes, net of allowable foreign income tax credits. Historically, dividends paid by foreign subsidiaries have been distributions of the current year's earnings. See Note 5 to the Financial Statements in PPL's 2012 Form 10-K for additional information on undistributed earnings of WPD.

Net cash provided by (used in) operating, investing and financing activities for the nine-month periods ended September 30, and the changes between periods were as follows.

			PPL Energy
	PPL		Supply		PPL Electric		LKE		LG&E		KU
2013
Operating activities	$	2,223	$	583	$	327	$	713	$	352	$	419
Investing activities		(2,788)		(351)		(697)		(879)		(366)		(510)
Financing activities		966		(94)		455		144		4		79

2012
Operating activities	$	2,094	$	674	$	261	$	646	$	267	$	410
Investing activities		(2,116)		(308)		(614)		(519)		(196)		(331)
Financing activities		(240)		(313)		64		(96)		(48)		(68)

Change - Cash Provided (Used)
Operating activities	$	129	$	(91)	$	66	$	67	$	85	$	9
Investing activities		(672)		(43)		(83)		(360)		(170)		(179)
Financing activities		1,206		219		391		240		52		147

Operating Activities

The components of the change in cash provided by (used in) operating activities for the nine months ended September 30, 2013 compared with 2012 were as follows.

130

						PPL Energy
				PPL		Supply		PPL Electric		LKE		LG&E		KU

Change - Cash Provided (Used)
		Net income		$	58	$	(210)	$	61	$	80	$	28	$	53
		Non-cash components			244		169		42		15		(1)		(9)
		Net income, adjusted for non-cash
			components		302		(41)		103		95		27		44
		Working capital			(284)		42		(45)		(21)		24		(26)
		Defined benefit funding			21		(37)		(34)		(93)		(19)		(42)
		Other operating activities			90		(55)		42		86		53		33
	Total			$	129	$	(91)	$	66	$	67	$	85	$	9

For PPL, non-cash components of net income primarily consisted of $105 million related to non-cash hedging activities, $46 million related to increased depreciation and $45 million related to 2013 charges to adjust WPD's line loss accrual. The decrease in cash from changes in components of working capital was primarily due to increases in accounts receivable (primarily due to extended payment terms at LG&E and KU and base rate increases effective in 2013 at PPL Electric, LG&E and KU), returns of counterparty collateral and changes to certain tax-related accounts. The increase in cash from other operating activities was primarily due to $98 million in proceeds from the settlement of forward-starting interest rate swaps.

For PPL Energy Supply, non-cash components of net income primarily consisted of $135 million related to non-cash hedging activities and $31 million related to increased depreciation. The increase in cash from changes in components of working capital was primarily due to decreases in accounts receivable (primarily affiliate receivables), and lower unbilled revenue (primarily due to decreases in power swap sales), partially offset by returns of counterparty collateral. The decrease in cash from other operating activities was partially due to changes to certain tax-related accounts.

For PPL Electric, non-cash components of net income primarily consisted of $31 million related to an increase in deferred tax expense and $13 million related to increased depreciation. The decrease in cash from changes in components of working capital was primarily due to increases in accounts receivable (primarily due to the base rate increase effective January 1, 2013, partially offset by a decrease in affiliate receivables). The increase in cash from other operating activities was partially due to changes to certain tax-related accounts.

LKE's decrease in working capital was driven primarily by increases in accounts receivable and unbilled revenues due to extended payment terms and higher rates, offset by an increase in accounts payable due to timing of fuel purchase commitments and payments. The increase in cash from LKE's other operating activities was driven primarily by $98 million in proceeds from the settlement of interest rate swaps.

LG&E's increase in working capital was driven primarily by lower fuel inventory purchases in 2013 and an increase in accounts payable due to timing of fuel purchase commitments and payments, offset by increases in accounts receivable and unbilled revenues due to extended payment terms and higher rates. The increase in cash from LG&E's other operating activities was driven primarily by $49 million in proceeds from the settlement of interest rate swaps.

KU's decrease in working capital was driven primarily by higher fuel inventory purchases in 2013 and increases in accounts receivable and unbilled revenues due to extended payment terms and higher rates, offset by an increase in accounts payable due to timing of fuel purchase commitments and payments. The increase in cash from KU's other operating activities was driven primarily by $49 million in proceeds from the settlement of interest rate swaps.

Investing Activities

The primary use of cash within investing activities is expenditures for PP&E. The change in these expenditures for the nine months ended September 30, 2013 compared with 2012 was as follows.

			PPL Energy
	PPL		Supply		PPL Electric		LKE		LG&E		KU

(Increase) Decrease	$	(690)	$	119	$	(281)	$	(366)	$	(183)	$	(181)

The increase in expenditures for PP&E was primarily due to projects to enhance system reliability at WPD and PPL Electric, the Susquehanna-Roseland transmission project at PPL Electric, environmental ~~air~~ projects at LG&E's Mill Creek and KU's Ghent plants and construction of Cane Run Unit 7.7 for LG&E and KU.

131

Expenditures for PP&E decreased at PPL Energy Supply primarily related to the Rainbow hydroelectric redevelopment and Holtwood expansion projects and timing of nuclear fuel purchases.

For PPL Energy Supply and PPL Electric, the change in cash provided by (used in) investing activities was also impacted primarily by the change in notes receivable from affiliates of ($198) million and $210 million.

Financing Activities

The components of the change in cash provided by (used in) financing activities for the nine months ended September 30, 2013 compared with 2012 was as follows.

				PPL Energy
		PPL		Supply		PPL Electric		LKE		LG&E		KU

Change - Cash Provided (Used)
	Debt issuances/retirements, net	$	(166)	$	(303)	$	99
	Stock issuances/redemptions, net		1,531				250
	Dividends		(22)				(19)			$	(20)	$	(15)
	Capital contributions/distributions, net				833		55	$	125		54		92
	Change in short-term debt, net		(97)		(311)				87		17		70
	Other financing activities		(40)				6		28		1
	Total	$	1,206	$	219	$	391	$	240	$	52	$	147

See Note 7 to the Financial Statements in this Form 10-Q for information on 2013 short and long-term debt activity, equity transactions and dividends. See the Registrant's 2012 Form 10-K for information on 2012 activity.

Credit Facilities

~~At March 31, 2013, LKE's~~The Registrants maintain credit facilities to provide liquidity and to backstop commercial paper issuances. The total committed borrowing capacity ~~under its credit facilities~~ and the use of ~~this borrowing capacity were:~~the borrowings under these facilities at September 30, 2013 was as follows.

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

LKE Credit Facility with a subsidiary of PPL Energy Funding Corporation $ 300 $ 85 $ 215
LG&E Credit Facility (a) 500 $ 70 430
KU Credit Facilities (a) (b) 598 313 285
Total Credit Facilities (c) $ 1,398 $ 85 $ 383 $ 930
External (All Registrants)

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

PPL Energy Supply Credit Facilities (a)		$	3,150			$	170	$	2,980
PPL Electric Credit Facilities (a)			300				1		299

LG&E Syndicated Credit Facility (a)			500				72		428
KU Credit Facilities (a)			598				338		260
Total LKE (a) (b)			1,098				410		688
	Total PPL Domestic Credit Facilities (a)	$	4,548			$	581	$	3,967

Total WPD Credit Facilities (c)		£	1,055	£	184			£	871

(a)	Each company pays customary fees under their respective syndicated credit facilities, as well as KU's letter of credit facility, and borrowings generally bear interest at LIBOR-based rates plus an applicable margin.

~~(b)~~

~~In May 2013, KU extended its $198 million letter of credit facility to May 2016.~~

~~(c)~~

The ~~$1.098 billion of~~ commitments under ~~LG&E's and KU's domestic~~ credit facilities are provided by a diverse bank group with no one bank and its affiliates providing an aggregate commitment of more than ~~11%~~the following percentages of the total committed ~~capacity; however,~~capacity: 8% for PPL's domestic credit facilities, 9% for PPL Energy Supply, 5% for PPL Electric, 13% for LKE, 6% for LG&E and 22% for KU.

(b)	In October 2013, LKE entered into a $75 million syndicated credit facility that expires in October 2018.

(c)

At September 30, 2013, the ~~PPL affiliate~~USD equivalent of unused capacity under WPD's committed credit facilities was $1.3 billion. The commitments under WPD's credit facilities are provided by a ~~commitment of approximately 21%~~diverse bank group with no one bank providing more than 13% of the total facilities listed above. The syndicated credit facilities, as well as KU's letter of credit facility, each contain a financial covenant requiring debt to total capitalization not to exceed 70% for LG&E or KU, as calculated in accordance with the facility, and other customary covenants.committed capacity.

See Note 7 to the Financial Statements for further discussion of ~~LKE's~~the Registrants' credit facilities.

132

Intercompany (All Registrants except PPL)

	Committed				Unused
	Capacity		Borrowed		Capacity

PPL Energy Supply Credit Facility	$	200			$	200
PPL Electric Credit Facility		100				100
LKE Credit Facility (a)		300	$	52		248
LG&E Money Pool (b)		500				500
KU Money Pool (b)		500				500

(a)	In October 2013, LKE reduced the size of the intercompany credit facility by $75 million.

(b)	LG&E and KU participate in an intercompany money pool agreement whereby LKE, LG&E and/or KU make available funds up to $500 million at an interest rate based on a market index of commercial paper issues.

See Note 11 to the Financial Statements for further discussion of intercompany credit facilities.

Commercial Paper(All Registrants)

PPL Energy Supply, PPL Electric, LG&E and KU maintain commercial paper programs to provide an additional financing source to fund their short-term liquidity needs, if and when necessary. Commercial paper issuances are supported by the respective Registrant's Syndicated Credit Facility.

When outstanding, the amounts are reflected in "Short-term debt" on the Balance Sheets. The following amounts were outstanding at:

		September 30, 2013							December 31, 2012
					Commercial				Commercial
					Paper		Unused		Paper
			Capacity		Issuances		Capacity		Issuances

PPL Energy Supply			$	750			$	750	$	356
PPL Electric				300				300

LG&E (a)				350	$	72		278		55
KU (a)				350		140		210		70
Total LKE				700		212		488		125
	Total PPL		$	1,750	$	212	$	1,538	$	481

(a)	In April 2013, the capacity was increased from $250 million.

Long-term Debt and Equity Securities

(PPL and Kentucky Registrants)

During 2012, LG&E and KU ~~currently plan~~received KPSC and other state approvals to issue ~~subject to market conditions,~~ up to $350 million for LG&E and $300 million for KU of first mortgage bond indebtedness in ~~2013, the~~2013. The proceeds ~~of which~~ will be used to fund capital expenditures and for other general corporate purposes.

(PPL, PPL Energy Supply and PPL Electric)

The long-term debt and equity securities activity through September 30, 2013 was:

		Debt				Net Stock
		Issuances (a)		Retirements		Issuances (b)
Cash Flow Impact:
	PPL	$	862	$	(309)	$	1,335
	PPL Energy Supply				(309)
	PPL Electric		348

Non-cash Transactions:
	PPL (c)	$	1,317

(a)	Issuances are net of pricing discounts, where applicable and exclude the impact of debt issuance costs.

(b)

Net stock issuances include activity related to various stock and incentive compensation plans and other equity transactions. See Overview - "Financial and Operational Developments" for information regarding equity forward agreements and the 2010 Equity Units. PPL has no plans to issue new shares of common stock for the remainder of 2013. The activity is net of the 2013 repurchase of PPL common stock.

133

(c)	The debt issuances primarily include $1.150 billion relating to the remarketing of Junior Subordinated Notes that were issued as a component of PPL's 2010 Equity Units and simultaneously exchanged into Senior Notes.

See Note 7 to the Financial Statements for ~~additional information about long-term debt securities.~~further discussion of Long-term Debt and Equity Securities.

Common Stock Dividends(PPL)

In August 2013, PPL declared its quarterly common stock dividend, payable October 1, 2013, at 36.75 cents per share (equivalent to $1.47 per annum). Future dividends, declared at the discretion of the Board of Directors, will be dependent upon future earnings, cash flows, financial and legal requirements and other factors.

Rating Agency Actions

(All Registrants)

Fitch, Moody's and S&P ~~and Fitch~~ periodically review the credit ratings on the debt securities of ~~LKE~~the Registrants and ~~its~~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 ~~LKE~~the Registrants and ~~its~~their subsidiaries are based on information provided by ~~LKE~~the Registrants and other sources. The ratings of Fitch, Moody's and S&P ~~and Fitch~~ are not a recommendation to buy, sell or hold any securities of ~~LKE~~the Registrants or ~~its~~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~~

A downgrade in the Registrants' or their subsidiaries' credit ratings ~~of LKE~~could result in higher borrowing costs and ~~its~~reduced access to capital markets. The Registrants and their subsidiaries ~~affect its liquidity,~~have no credit rating triggers that would result in the reduction of access to capital markets ~~and cost~~or the acceleration of ~~borrowing under its credit facilities.~~maturity dates of outstanding debt.

The rating agencies ~~did not take any~~took the following actions related to the Registrants and their subsidiaries during 2013:

(PPL)

In March 2013, Fitch, Moody's and S&P assigned ratings of BB+, Ba1 and BB+ to PPL Capital Funding's $450 million 5.90% Junior Subordinated Notes due 2073. Fitch also assigned a stable outlook to these notes.

In May 2013, Fitch, Moody's and S&P assigned ratings of BBB, Baa3 and BBB- to PPL Capital Funding's $250 million 1.90% Senior Notes due 2018, $600 million 3.40% Senior Notes due 2023 and $300 million 4.70% Senior Notes due 2043. Fitch also assigned a stable outlook to these notes.

In September 2013, Fitch affirmed the BBB-, issuer default rating, BBB, senior unsecured rating and stable outlook at PPL WW.

In September 2013, Fitch affirmed the BBB+, issuer default rating, A-, senior unsecured rating, F2 short-term issuer default rating and stable outlook at WPD (South Wales) WPD (South West).

In September 2013, Moody's and S&P assigned ratings of Baa1 and BBB to WPD (East Midlands') £65 million 1.676% Index-Linked Senior Notes due 2052.

In October 2013, Moody's and S&P assigned ratings of Baa1 and BBB to WPD (West Midlands') £400 million 3.875% Senior Notes due 2024.

(PPL and PPL Energy Supply)

In February 2013, Moody's upgraded its rating, from B2 to Ba1, and revised the outlook from under review to stable for PPL Ironwood.

In April 2013, Fitch affirmed the BBB- rating and stable outlook on PPL Montana's pass-through trust certificates due 2020.

In July 2013, Moody's withdrew its rating and outlook for PPL Ironwood.

134

In July 2013, S&P lowered its rating, from BBB- to BB+ and retained the negative outlook for PPL Montana's pass-through trust certificates due 2020.

In August 2013, Moody's affirmed the Baa3 rating and revised the outlook from stable to negative for PPL Montana's pass through trust certificates due 2020.

In September 2013, S&P affirmed the BB+ rating and revised the outlook from negative to stable for PPL Montana's pass through trust certificates due 2020.

(PPL and PPL Electric)

In July 2013, Fitch, Moody's and S&P assigned ratings of A-, A3 and A- to PPL Electric's $350 million 4.75% First Mortgage Bonds due 2043. Fitch also assigned a stable outlook to these notes and S&P assigned a recovery rating of 1+.

(PPL, LKE and ~~its subsidiaries during~~KU)

In July 2013, S&P confirmed the ~~first quarter of 2013.~~AA+ ratings for KU's 2000 Series A Solid Waste Disposal Facility Revenue Bonds and KU's 2004 Series A, 2006 Series B and 2008 Series A Environmental Facilities Revenue Bonds. S&P also confirmed the A-1+ short term rating on these Bonds.

Ratings Triggers

~~LKE and its subsidiaries have various~~(All Registrants except PPL Electric)

Various derivative and non-derivative contracts, including contracts for the sale and purchase of electricity and fuel, commodity transportation and storage, tolling agreements (for PPL and PPL Energy Supply) and interest rate and foreign currency (for PPL) instruments, ~~which~~ contain provisions ~~requiring LKE and its subsidiaries to post~~that require the posting of additional collateral or ~~permitting~~permit the counterparty to terminate the contract, if PPL's, PPL Energy Supply's, LKE's, LG&E's or ~~its~~KU's or their subsidiaries' credit ~~ratings~~rating, as applicable, were to fall below investment grade. See Note 14 to the Financial Statements for a discussion of "Credit Risk-Related Contingent Features," including a discussion of the potential additional collateral that would have been required for derivative contracts in a net liability position at ~~March 31,~~September 30, 2013.

~~138~~(All Registrants)

For additional information on the Registrants' liquidity and capital resources, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," in the Registrants' 2012 Form 10-K.

Risk Management

Market Risk

(All Registrants)

See Notes 13 and 14 to the Financial Statements for information about ~~LKE's~~the Registrants' risk management objectives, valuation techniques and accounting designations.

Commodity Price Risk (Non-trading)

(PPL and PPL Energy Supply)

135

Although they do not receive hedge accounting treatment, these transactions are considered non-trading activity. See Note 14 to the Financial Statements for additional information.

The following table sets forth the changes in the net fair value of non-trading commodity derivative contracts for the periods ended September 30. See Notes 13 and 14 to the Financial Statements for additional information.

	Gains (Losses)
	Three Months				Nine Months
	2013		2012		2013		2012

Fair value of contracts outstanding at the beginning of the period	$	285	$	961	$	473	$	1,082
Contracts realized or otherwise settled during the period		(95)		(224)		(332)		(764)
Fair value of new contracts entered into during the period (a)		2		(11)		48		1
Other changes in fair value		25		(101)		28		306
Fair value of contracts outstanding at the end of the period	$	217	$	625	$	217	$	625

(a)	Represents the fair value of contracts at the end of the quarter of their inception.

The following table segregates the net fair value of non-trading commodity derivative contracts at September 30, 2013, based on the observability of the information used to determine the fair value.

	Net Asset (Liability)
	Maturity						Maturity
	Less Than		Maturity		Maturity		in Excess		Total Fair
	1 Year		1-3 Years		4-5 Years		of 5 Years		Value
Source of Fair Value
Prices based on significant observable inputs (Level 2)	$	166	$	11	$	(2)	$	5	$	180
Prices based on significant unobservable inputs (Level 3)		12		21		4				37
Fair value of contracts outstanding at the end of the period	$	178	$	32	$	2	$	5	$	217

(PPL and Kentucky Registrants)

LG&E's and KU's rates are set by regulatory commissions and the fuel costs incurred are directly recoverable from customers. As a result, LG&E and KU are subject to commodity price risk for only a small portion of on-going business operations. ~~LKE sells~~LG&E and KU sell excess economic generation to maximize the value of the physical assets at times when the assets are not required to serve LG&E's or KU's customers. See Note 14 to the Financial Statements for additional disclosures.

(PPL and PPL Energy Supply)

Commodity Price Risk (Trading)

PPL Energy Supply's trading commodity derivative contracts range in maturity through 2020. The following table sets forth changes in the net fair value of trading commodity derivative contracts for the periods ended September 30. See Notes 13 and 14 to the Financial Statements for additional information.

136

	Gains (Losses)
	Three Months				Nine Months
	2013		2012		2013		2012

Fair value of contracts outstanding at the beginning of the period	$	18	$	17	$	29	$	(4)
Contracts realized or otherwise settled during the period		(3)		17		(5)		16
Fair value of new contracts entered into during the period (a)		12		13		(4)		18
Other changes in fair value		1		(15)		8		2
Fair value of contracts outstanding at the end of the period	$	28	$	32	$	��28	$	32

(a)	Represents the fair value of contracts at the end of the quarter of their inception.

The following table segregates the net fair value of trading commodity derivative contracts at September 30, 2013, based on the observability of the information used to determine the fair value.

	Net Asset (Liability)
	Maturity						Maturity
	Less Than		Maturity		Maturity		in Excess		Total Fair
	1 Year		1-3 Years		4-5 Years		of 5 Years		Value
Source of Fair Value
Prices quoted in active markets for identical instruments (Level 1)	$	3							$	3
Prices based on significant observable inputs (Level 2)		5	$	8	$	2				15
Prices based on significant unobservable inputs (Level 3)		2		4		1	$	3		10
Fair value of contracts outstanding at the end of the period	$	10	$	12	$	3	$	3	$	28

VaR Models

				Non-Trading
		Trading VaR		VaR
95% Confidence Level, Five-Day Holding Period
	Period End	$	6	$	6
	Average for the Period		4		8
	High		7		10
	Low		2		5

Interest Rate Risk (All Registrants)

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

~~At March 31, 2013, LKE's potential annual exposure to increased interest expense, based on a 10% increase in interest rates, was not significant.~~

The following interest rate hedges were outstanding at September 30, 2013.

137

LKE is also exposed to changes in the fair value of its debt portfolio. LKE estimated that a 10% decrease in interest rates at March 31, 2013, would increase the fair value of its debt portfolio by $111 million.

At March 31, 2013, LKE had the following interest rate hedges outstanding:
													Effect of a
						Effect of a					Fair Value,		10% Adverse		Maturities
						10% Adverse			Exposure		Net - Asset		Movement		Ranging
				Fair Value,		Movement			Hedged		(Liability) (a)		in Rates (b)		Through
PPL								PPL
Cash flow hedges								Cash flow hedges
		Exposure		Net - Asset		in Interest		Interest rate swaps (c)	$	2,264	$	68	$	(92)	2044
		Hedged		(Liability) (a)		Rates		Cross-currency swaps (d)		1,262		26		(171)	2028
Economic activity	Economic activity							Economic activity
	Interest rate swaps (b)	$	179	$	(55)	$	(3)	Interest rate swaps (e)		179		(41)		(3)	2033
LKE								LKE
Cash flow hedges	Cash flow hedges							Cash flow hedges
	Interest rate swaps (b)		300		24		(17)	Interest rate swaps (c)		500		(14)		(36)	2043
Economic activity								Economic activity
								Interest rate swaps (e)		179		(41)		(3)	2033
LG&E								LG&E
Cash flow hedges								Cash flow hedges
								Interest rate swaps (c)		250		(7)		(18)	2043
Economic activity								Economic activity
								Interest rate swaps (e)		179		(41)		(3)	2033
KU								KU
Cash flow hedges								Cash flow hedges
								Interest rate swaps (c)		250		(7)		(18)	2043

(a)	Includes accrued ~~interest.~~interest, if applicable.

(b)

~~LKE utilizes various risk management instruments to reduce its exposure to~~Effects of adverse movements decrease assets or increase liabilities, as applicable, which could result in an asset becoming a liability. Sensitivities represent a 10% adverse movement in interest rates, except for cross-currency swaps which also includes foreign currency exchange rates.

(c)

Changes in the ~~expected future~~fair value of such cash flow ~~variability~~hedges are recorded in equity or as regulatory assets or liabilities, if recoverable through rates. The changes in fair value of ~~its debt instruments. These risks include exposure~~these instruments are then reclassified into earnings in the same period during which the item being hedged affects earnings.

(d)

Cross-currency swaps are utilized to ~~adverse~~hedge the interest ~~rate movements for outstanding variable rate debt~~payments and ~~for future anticipated financing. While LKE is exposed to changes~~principal of WPD's U.S. dollar-denominated senior notes. Changes in the fair value of these instruments ~~any realized~~are recorded in equity and reclassified into earnings in the same period during which the item being hedged affects earnings.

(e)

Realized changes in the fair value of such economic ~~positions and cash flow~~ hedges are recoverable through regulated rates and any subsequent changes in fair value of these derivatives are included in regulatory assets or liabilities. ~~The positions outstanding at March 31, 2013 mature through 2043.~~

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 at September 30, 2013 is shown below.

PPL Energy

PPL

Supply

Electric

LKE

LG&E

Increase to interest expense of 10%

Not

increase in interest rates

Significant

Increase in fair value of 10% decrease

in interest rates

682

120

111

Foreign Currency Risk (PPL)

The following foreign currency hedges were outstanding at September 30, 2013.

					Effect of a
					10%
					Adverse
					Movement
					in Foreign
			Fair Value,		Currency		Maturities
	Exposure		Net - Asset		Exchange		Ranging
	Hedged		(Liability)		Rates (a)		Through

Net investment hedges (b)	£	320	$	(11)	$	(51)	2015
Economic activity (c)		1,350		(55)		(208)	2015

(a)	Effects of adverse movements decrease assets or increase liabilities, as applicable, which could result in an asset becoming a liability.

138

(b)	To protect the value of a portion of its net investment in WPD, PPL executes forward contracts to sell GBP. The positions outstanding exclude the amount of intercompany loans classified as net investment hedges. See Note 14 to the Financial Statements for additional information.

(c)	To economically hedge the translation of expected income denominated in GBP to U.S. dollars, PPL enters into a combination of average rate forwards and average rate options to sell GBP.

NDT Funds - Securities Price Risk (PPL and PPL Energy Supply)

In connection with certain NRC requirements, PPL Susquehanna maintains trust funds to fund certain costs of decommissioning the PPL Susquehanna nuclear plant (Susquehanna). At September 30, 2013, these funds were invested primarily in domestic equity securities and fixed-rate, fixed-income securities and are reflected at fair value on the Balance Sheet. The mix of securities is designed to provide returns sufficient to fund Susquehanna's decommissioning and to compensate for inflationary increases in decommissioning costs. However, the equity securities included in the trusts are exposed to price fluctuation in equity markets, and the values of fixed-rate, fixed-income securities are primarily exposed to changes in interest rates. PPL actively monitors the investment performance and periodically reviews asset allocation in accordance with its nuclear decommissioning trust policy statement. At September 30, 2013, a hypothetical 10% increase in interest rates and a 10% decrease in equity prices would have resulted in an estimated $60 million reduction in the fair value of the trust assets. See Notes 13 and 17 to the Financial Statements for additional information regarding the NDT funds.

Credit Risk(All Registrants)

See Notes 13 and 14 to the Financial Statements in this Form 10-Q and "Risk Management - Energy Marketing & Trading and Other - Credit Risk" in PPL's, PPL Energy Supply's, LKE's, LG&E's and KU's 2012 Form 10-K and "Risk Management" in PPL Electric's 2012 Form 10-K for additional information.

Foreign Currency Translation (PPL)

The value of the British pound sterling fluctuates in relation to the U.S. dollar. Changes in this exchange rate resulted in a foreign currency translation loss of $159 million for the nine months ended September 30, 2013, which primarily reflected a $454 million reduction to PP&E and goodwill offset by a reduction of $295 million to net liabilities. Changes in this exchange rate resulted in a foreign currency translation gain of $53 million for the nine months ended September 30, 2012, which primarily reflected a $123 million increase to PP&E and goodwill offset by an increase of $70 million to net liabilities. The impact of foreign currency translation is recorded in AOCI.

Related Party Transactions(All Registrants)

~~LKE is~~The Registrants are not aware of any material ownership ~~interest~~interests or operating responsibility by senior management of ~~LKE, LG&E or KU~~the Registrants in outside partnerships, including leasing transactions with variable interest entities or other entities doing business with ~~LKE.~~ the Registrants.

See Note 11 to the Financial Statements for additional information on related party ~~transactions.~~transactions for PPL Energy Supply, PPL Electric, LKE, LG&E and KU.

~~139~~Acquisitions, Development and Divestitures(All Registrants)

The Registrants from time to time evaluate opportunities for potential acquisitions, divestitures and development projects. Development projects are reexamined based on market conditions and other factors to determine whether to proceed with the projects, sell, cancel or expand them, execute tolling agreements or pursue other options. See Note 8 to the Financial Statements for information on the more significant activities.

Environmental Matters

(All Registrants)

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

139

The following is a discussion of the more significant environmental matters. See Note 10 to the Financial Statements in this Form 10-Q and ~~KU's services.~~"Item 1. Business - Environmental Matters" in the Registrants' 2012 Form 10-K for additional information on environmental matters.

GHG Regulations

In June 2013, President Obama released his Climate Action Plan which reiterates the goal of reducing greenhouse gas emissions in the U.S. "in the range of" 17% below 2005 levels by 2020 through such actions as regulating power plant emissions, promoting increased use of renewables and clean energy technology, and establishing tighter energy efficiency standards. Also, by Presidential Memorandum the EPA was directed to issue a new proposal for new power plants by September 20, 2013, with a final rule to be issued in a timely fashion thereafter, and to issue proposed standards for existing power plants by June 1, 2014 with a final rule by June 1, 2015. The EPA was further directed to require that states develop implementation plans for existing plants by June 2016.

The EPA's re-proposal for new power plants was released on September 20, 2013. The EPA's dependence on carbon capture and sequestration, a technology which is not presently commercially viable, effectively precludes the construction of new coal plants. The proposal is further problematic as the proposed standards for new gas plants may not be achievable at all times. PPL will comment on the rule to this effect. Regulation of existing plants could have a significant industry-wide impact depending on the structure and stringency of the final rule and state implementation plans.

Additionally, the Administration's recent increase in its estimate of the "social cost of carbon" (which is used to calculate benefits associated with proposed regulations) from $23.80 to $38 per metric ton in 2015 may lead to more costly regulatory requirements. Additionally, the Climate Action Plan requirements related to preparing the U.S. for the impacts of climate change could affect PPL, PPL Electric, LKE, LG&E and KU and others in the industry as transmission system modifications to improve the ability to withstand major storms may be needed in order to meet those requirements.

Climate Change

Physical effects associated with possible climate change could include the impact of changes in weather patterns, such as storm frequency and intensity, and the resultant potential damage, as applicable, to ~~LG&E's and KU's~~the Registrants' generation assets, electricity transmission and distribution systems, as well as impacts on the Registrants' customers. In addition, changed weather patterns could potentially reduce annual rainfall in areas where PPL, PPL Energy Supply, LKE, LG&E and KU have ~~hydro~~hydroelectric generating facilities or where river water is used to cool ~~its fossil-powered~~their fossil and nuclear (as applicable) powered generators. ~~LKE~~The Registrants cannot currently predict whether ~~its~~their businesses will experience these potential climate change-related risks or estimate the potential ~~costs~~cost of their related consequences.

~~The following is a discussion of the more significant environmental matters.~~(All Registrants except PPL Electric)

Coal Combustion Residuals (CCRs)

In June 2010, the EPA proposed two approaches to regulating the disposal and management of CCRs (as either hazardous or ~~non-hazardous)~~non-hazardous waste) under existing solid waste regulations. A final rulemaking is currently expected ~~before~~by the end of ~~2015. However, the timing~~2014, as a result of ~~the final regulations could be accelerated~~litigation by ~~certain litigation that could require the EPA to issue its regulations sooner.~~environmental groups. Regulations could impact handling, disposal and/or beneficial use of CCRs. The financial and operational impact ~~could~~is expected to be material if CCRs are regulated as hazardous waste, and significant if regulated as non-hazardous, in accordance with the proposed rule.

In July 2013, the U.S. House of Representatives passed House Bill H.R. 2218, the Coal Residuals and Reuse Management Act of 2013, which would preempt the EPA from issuing final CCR regulations and would set non-hazardous CCR standards under RCRA and authorize state permit programs. It remains uncertain whether similar legislation will likely be passed by the U.S. Senate.

Effluent Limitation Guidelines (ELGs)

~~On April 19,~~In June 2013, the EPA ~~issued~~published proposed regulations to revise discharge limitations for steam electric generation wastewater permits. The proposed limitations are based on the EPA review of available treatment technologies and their capacity for reducing pollutants and include new requirements for fly ash and bottom ash ~~handling~~transport water and metal cleaning ~~wastes~~waste waters, as well as new limits for scrubber wastewater ~~gasification wastewater~~ and landfill leachate. The EPA's proposed ELG regulations also contain some requirements that would affect the inspection and operation of CCR facilities, if finalized. The proposal contains several alternative approaches, some of which could significantly impact PPL's, PPL Energy Supply's, LKE's, LG&E's and KU's coal-fired plants. PPL, PPL Energy Supply, LKE, LG&E and KU ~~will~~worked with industry groups to comment on the proposed ~~regulation.~~regulation on September 20, 2013. The final regulation is expected in May 2014. At the present time, PPL, PPL Energy Supply, LKE, isLG&E and KU are unable to predict the outcome of this matter or estimate a range of reasonably possible costs, but the costs could be significant.

140

316(b) Cooling Water Intake Structure Rule

In April 2011, the EPA published a draft regulation under Section 316(b) of the Clean Water Act, which regulates cooling water intakes for power plants. The draft rule has two provisions: ~~one requires~~requiring installation of Best Technology Available (BTA) to reduce mortality of aquatic organisms that are pulled into the plant cooling water system (entrainment), and ~~the second imposes~~imposing standards for reduction of mortality of aquatic organisms trapped on water intake screens (impingement). A final rule is expected to be issued in ~~June~~November 2013. The proposed regulation would apply to nearly all ~~LG&E and KU-owned~~PPL-owned steam electric generation plants in Pennsylvania, Kentucky, and Montana, potentially even including those equipped with closed-cycle cooling systems.

~~GHG Regulations~~

~~In 2013, the EPA is expected to finalize limits on GHG emissions from new power plants~~ PPL's, PPL Energy Supply's, LKE's, LG&E's and to begin working on a proposal for such emissions from existing power plants. The EPA's proposal on GHG emissions from new power plants would effectively preclude construction of any coal-fired plants and could even be difficult for new gas-fired plants to meet. With respect to existing power plants, the impactKU's compliance costs could be ~~very~~ significant, ~~depending on the structure and stringency of~~especially if the final ~~rule. On behalf~~rule requires closed-cycle systems at plants that do not currently have them or conversions of ~~LG&E and KU, PPL, along with others in the industry, filed comments on the EPA's proposal related~~once-through systems to ~~GHG emissions from new plants.~~closed-cycle.

~~140~~

MATS

The EPA finalized MATS requiring fossil-fuel fired plants to reduce emissions of mercury and other hazardous air pollutants by April 16, 2015. The rule is being challenged by industry groups and states. The EPA has subsequently proposed changes to the rule with respect to new sources to address the concern that the rule effectively precludes construction of any new coal-fired plants. PPL, PPL Energy Supply, LKE, LG&E and KU are generally well-positioned to comply with MATS, primarily due to recent investments in environmental controls at PPL Energy Supply and approved ECR plans to install additional controls at some of ~~their~~LG&E's and KU's Kentucky plants. Additionally, PPL Energy Supply is evaluating chemical additive systems for mercury control at Brunner Island, and modifications to existing controls at Colstrip for improved particulate matter reductions. In September 2012, PPL Energy Supply announced its intention to place its Corette plant in long-term reserve status beginning in April 2015 due to expected market conditions and costs to comply with MATS. Also, PPL has received approval for two compliance extensions in Kentucky, and has requested an extension for one of its plants in Pennsylvania. Other extension requests are under consideration.

In connection with a unanimous settlement agreement filed with the KPSC in November 2011, KU agreed to defer the requested approval for certain environmental upgrades to Units 1 and 2 at its E.W. Brown generating plant which represented approximately $200 million in capital costs. LG&E and KU are evaluating, among other measures, chemical additive systems for mercury control at Trimble County and Brown plants. These measures, combined with the completion of recent feasibility studies conducted based on current market conditions, provide alternative compliance options for KU on Units 1 and 2 at the E.W. Brown station.

The anticipated retirements of certain coal-fired ~~electric~~electricity generating units isare in response to this and other environmental regulations.

CSAPR and CAIR

In 2011, the EPA finalized its CSAPR regulating emissions of ~~nitrous~~nitrogen oxide and sulfur dioxide through new allowance trading programs which were to be implemented in two phases (2012 and 2014). Like its predecessor, the CAIR, CSAPR targeted sources in the eastern ~~United States.~~U.S. In December 2011, the U.S. Court of Appeals for the District of Columbia Circuit ~~(the~~ (D.C. Circuit Court) stayed implementation of CSAPR, leaving CAIR in place. Subsequently, in August 2012, the D.C. Circuit Court vacated and remanded CSAPR back to the EPA for further rulemaking, again leaving CAIR in ~~place.~~place in the interim, and in June 2013 the U.S. Supreme Court granted the EPA's petition for review of the D.C. Circuit Court's decision. Oral argument before the U.S. Supreme Court has been scheduled for December 2013. Prior to a revised rule from the EPA, coal-fired generating plants could face tighter nitrous oxide emission limitations through state action.

The PPL, PPL Energy Supply, LKE, LG&E and KU plants in Pennsylvania and Kentucky will continue to comply with CAIR through optimization of existing controls, balanced with emission allowance purchases. The D.C. Circuit Court's August 2012 decision leaves plants in CSAPR-affected states potentially exposed to more stringent emission reductions due to regional haze implementation (it was previously determined that CSAPR or CAIR participation satisfies regional haze requirements), and/or petitions to the EPA by downwind states under Section 126 of the Clean Air Act requesting the EPA to require plants that allegedly contribute to downwind non-attainment to take action to reduce emissions.

Regional Haze

Under the EPA's regional haze programs (developed to eliminate man-made visibility degradation by 2064), states are required to make reasonable progress every decade, including the application of Best Available Retrofit Technology (BART) on power plants commissioned between 1962 and 1977. For the eastern U.S., the EPA had determined that region-wide reductions under the CAIR or CSAPR trading program could be utilized by state programs to satisfy BART requirements. However, the August 2012 decision by the D.C. Circuit Court to vacate and remand CSAPR exposes power plants located in the eastern U.S., including PPL Energy Supply's plants in Pennsylvania and PPL's plants in Kentucky, to reductions in sulfur dioxide and nitrogen oxides as required by BART.

141

The EPA signed its final Federal Implementation Plan of the Regional Haze Rules for Montana in September 2012, with tighter emissions limits for PPL Energy Supply's Colstrip Units 1 & 2 based on the installation of new controls (no limits or additional controls were specified for Colstrip Units 3 & 4), and tighter emission limits for PPL Energy Supply's Corette plant (which are not based on additional controls). The cost of the potential additional controls for Colstrip Units 1 & 2, if required, could be significant. PPL Energy Supply expects to meet the tighter permit limits at Corette without any significant changes to operations, although other requirements have led to the planned suspension of operations at Corette beginning in April 2015 (see "MATS" discussion above). PPL is participating in litigation regarding this matter before the U.S. Court of Appeals for the Ninth Circuit.

National Ambient Air Quality Standards(Kentucky Registrants)

During 2010 and 2012, the EPA issued new ambient air standards for sulfur dioxide and particulates, respectively. In 2013, the EPA preliminarily designated Jefferson County, Kentucky, as a partial non-attainment area for sulfur dioxide. Final designations of non-attainment areas may occur in 2013 and 2014, respectively. Existing environmental plans for LG&E's and KU's Kentucky plants, including announced retirements of certain plants and ECR-approved new or upgraded scrubbers or baghouses at other plants, may aid in achievement of eventual ambient air requirements. However, depending upon the specifics of final non-attainment designations and consequent compliance plans, additional controls may be required, the financial impact of which could be significant.

~~See Note 10 to the Financial Statements in this Form 10-Q report and "Item 1. Business - Environmental Matters" in LKE's 2012 Form 10-K for a discussion of environmental matters.~~

New Accounting Guidance (All Registrants)

See Notes 2 and 19 to the Financial Statements for a discussion of new accounting guidance adopted and pending adoption.

Application of Critical Accounting Policies(All Registrants)

Financial condition and results of operations are impacted by the methods, assumptions and estimates used in the application of critical accounting policies. The following table summarizes the accounting policies by Registrant that are particularly important to the financial condition or results of operations, and require estimates or other judgments of matters inherently ~~uncertain: revenue recognition - unbilled revenue, defined benefits, asset impairment (excluding investments), loss accruals, AROs, income taxes, and regulatory assets and liabilities.~~uncertain. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in ~~LKE's~~each Registrant's 2012 Form 10-K for a discussion of each critical accounting policy.

~~141~~

~~LOUISVILLE GAS AND ELECTRIC COMPANY~~

~~Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations~~

The following should be read in conjunction with LG&E's Condensed Financial Statements and the accompanying Notes and with LG&E's 2012 Form 10-K. Capitalized terms and abbreviations are defined in the glossary. Dollars are in millions, unless otherwise noted.

~~"Management's Discussion and Analysis of Financial Condition and Results of Operations" includes the following information:~~

~~"Overview" provides a description of LG&E and its business strategy, a summary of Net Income and a discussion of certain events related to LG&E's results of operations and financial condition.~~

"Results of Operations" provides a summary of LG&E's earnings and a description of key factors expected to impact future earnings. This section ends with explanations of significant changes in principal line items on LG&E's Statements of Income, comparing the three months ended March 31, 2013 with 2012.

~~"Financial Condition - Liquidity and Capital Resources" provides an analysis of LG&E's liquidity position and credit profile. This section also includes a discussion of rating agency actions.~~

~~"Financial Condition - Risk Management" provides an explanation of LG&E's risk management programs relating to market and credit risk.~~

~~Overview~~

~~Introduction~~

LG&E, headquartered in Louisville, Kentucky, is a regulated utility engaged in the generation, transmission, distribution and sale of electric energy and distribution and sale of natural gas in Kentucky. LG&E and its affiliate, KU, are wholly owned subsidiaries of LKE. LKE is an intermediary holding company in PPL's group of companies.

~~Business Strategy~~

~~LG&E's overall strategy is to provide reliable, safe, competitively priced energy to its customers and reasonable returns on regulated investments to its shareowner.~~

A key objective for LG&E is to maintain a strong credit profile through managing financing costs and access to credit markets. LG&E continually focuses on maintaining an appropriate capital structure and liquidity position.

~~Financial and Operational Developments~~

~~Net Income~~

~~Net Income for the three months ended March 31, 2013 was $44 million compared to $25 million in 2012 representing a 76% increase over 2012.~~

~~See "Results of Operations" for a discussion and analysis of LG&E's earnings.~~

~~Rate Case Proceedings~~

In December 2012, the KPSC approved a rate case settlement agreement providing for increases in annual base electricity rates of $34 million and an increase in annual base gas rates of $15 million using a 10.25% return on equity. The approved rates became effective January 1, 2013.

~~142~~

~~Results of Operations~~

The following discussion provides a summary of LG&E's earnings and a description of key factors expected to impact future earnings. This section ends with "Statement of Income Analysis," which includes explanations of significant changes in Margins and principal line items on LG&E's Statements of Income, comparing the three months ended March 31, 2013 with 2012.

Earnings

Net Income for the periods ended March 31 was:

Three Months
2013 2012

Net Income $ 44 $ 25

~~The changes in the components of Net Income between these periods were due to the following factors, which reflect reclassifications for items included in Margins.~~

		~~Three Months~~
			PPL
~~Margins~~	PPL			$	22
~~Other operation and maintenance~~			8
~~Depreciation~~			1
~~Taxes, other than income~~			~~(1)~~
~~Other Income (Expense) - net~~			~~(2)~~
~~Interest Expense~~			1
~~Income Taxes~~			~~(10)~~
~~Total~~		$	19

·	~~See "Statement of Income Analysis - Margins - Changes in Non-GAAP Financial Measures" for an explanation of Margins.~~

·	~~Lower other operation and maintenance primarily due to the timing and scope of scheduled coal plant maintenance outages.~~

·	~~Higher income taxes primarily due to higher pre-tax income.~~

~~2013 Outlook~~

LG&E projects higher earnings in 2013 compared with 2012, primarily driven by electric and gas base rate increases, returns on additional environmental capital investments and retail load growth, partially offset by higher operation and maintenance expense.

Earnings in future periods are subject to various risks and uncertainties. See "Forward-Looking Information," the rest of this Item 2, Notes 6 and 10 to the Financial Statements in this Form 10-Q and "Item 1. Business" and "Item 1A. Risk Factors" in LG&E's 2012 Form 10-K for a discussion of the risks, uncertainties and factors that may impact future earnings.

~~Statement of Income Analysis --~~

~~Margins~~

~~Non-GAAP Financial Measure~~

~~143~~

and energy purchases are deducted from revenues. In addition, utility revenues and expenses associated with approved cost recovery mechanisms are offset. These mechanisms allow for recovery of certain expenses, returns on capital investments and performance incentives. Certain costs associated with these mechanisms, primarily ECR, DSM and GLT, are recorded as "Other operation and maintenance" and "Depreciation." As a result, this measure represents the net revenues from LG&E's operations. This performance measure is used, in conjunction with other information, internally by senior management to manage operations and analyze actual results compared with budget.

~~Reconciliation of Non-GAAP Financial Measures~~

~~The following table reconciles "Margins" to "Operating Income" as defined by LG&E for the periods ended March 31.~~

2013 Three Months 2012 Three Months
Operating Operating
Margins Other (a) Income (b) Margins Other (a) Income (b)

Operating Revenues $ 390 $ 390 $ 353 $ 353
Operating Expenses
Fuel 96 96 89 89
Energy purchases 81 81 73 73
Other operation and maintenance 11 $ 80 91 10 $ 88 98
Depreciation 36 36 1 37 38
Taxes, other than income 6 6 5 5
Total Operating Expenses 188 122 310 173 130 303
Total $ 202 $ (122) $ 80 $ 180 $ (130) $ 50

~~(a)~~

~~Represents amounts excluded from Margins.~~

~~(b)~~

~~As reported on the Statements of Income.~~

~~Changes in Non-GAAP Financial Measures~~

Margins increased by $22 million for the three months ended March 31, 2013 compared with 2012 due to higher base rates of $13 million, higher volumes of $6 million, increased environmental investments of $2 million and environmental costs added to base rates of $1 million.

The increase in base rates was the result of new KPSC rates going into effect on January 1, 2013. The increase in volumes was attributable to colder weather in 2013 compared with 2012. Total heating degree days increased 48%. The environmental costs added to base rates was due to the elimination of the 2005 and 2006 ECR plans as a result of the 2012 Kentucky rate case. This elimination results in depreciation and other operation and maintenance expenses associated with the 2005 and 2006 ECR plans being excluded from Margins in 2013.

~~Other Operation and Maintenance~~
		PPL
~~The increase (decrease) in other operation and maintenance expense for the period ended March 31, 2013 compared with 2012 was due to:~~
Energy Supply
Electric	LKE		~~Three Months~~LG&E		KU

~~Coal plant outages (a)~~			$	~~(8)~~
~~Other~~				1
~~Total~~			$	~~(7)~~

~~(a)~~

~~Decrease is due to the timing and scope of scheduled outages.~~

~~Income Taxes~~

~~Income taxes increased by $10 million for the three months ended March 31, 2013 compared with 2012 primarily due to higher pre-tax income.~~

~~See Note 5 to the Financial Statements for additional information on income taxes.~~

~~144~~

Financial Condition

Liquidity and Capital Resources

LG&E had the following at:

March 31, 2013 December 31, 2012

Cash and cash equivalents $ 34 $ 22

Short-term debt (a) $ 70 $ 55

~~(a)~~

~~Represents borrowings under LG&E's commercial paper program. See Note 7 to the Financial Statements for additional information.~~

~~The $12 million increase in LG&E's cash and cash equivalents position was primarily the net result of:~~

·	~~cash provided by operating activities of $85 million;~~

·	~~capital contributions from parent of $25 million; and~~

·	~~an increase in short term debt of $15 million; partially offset by~~

·	~~capital expenditures of $98 million; and~~

·	~~the payment of common stock dividends to parent of $19 million.~~

~~LG&E's cash provided by operating activities decreased by $17 million for the three months ended March 31, 2013, compared with 2012, primarily due to:~~

·	~~an increase in cash outflows from other operating activities of $18 million driven by a $19 million increase in discretionary defined benefit plan contributions; and~~

a decline in working capital cash flow changes of $12 million driven primarily by changes in accounts receivable and unbilled revenues due to higher sales volume, higher rates and extended payment terms, partially offset by lower fuel levels in 2013 compared with 2012 driven by increased generation and a higher federal income tax accrual in 2013; offset by

·	an increase in net income adjusted for non-cash items of $13 million (amortization of $3 million and defined benefit plans - expense of $2 million partially offset by deferred income taxes and investment tax credits of $5 million, other non-cash items of $4 million and depreciation of $2 million).

Capital expenditures increased by $38 million during the three months ended March 31, 2013 compared with 2012 primarily due to environmental air projects at Mill Creek, and construction of Cane Run Unit 7.

~~Credit Facilities~~

~~At March 31, 2013, LG&E's committed borrowing capacity under its credit facilities and the use of this borrowing capacity were:~~

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

Syndicated Credit Facility (a) (b) $ 500 $ 70 $ 430

~~(a)~~

The commitments under LG&E's Syndicated Credit Facility are provided by a diverse bank group, with no one bank and its affiliates providing an aggregate commitment of more than 6% of the total committed capacity available to LG&E.

~~(b)~~

~~LG&E pays customary fees under its syndicated credit facility, and borrowings generally bear interest at LIBOR-based rates plus an applicable margin.~~

LG&E participates in an intercompany money pool agreement whereby LKE and/or KU make available to LG&E funds up to $500 million at an interest rate based on a market index of commercial paper issues. At March 31, 2013 and December 31, 2012, there was no balance outstanding.

~~See Note 7 to the Financial Statements for further discussion of LG&E's credit facilities.~~

~~145~~

~~Long-term Debt Securities~~

LG&E currently plans to issue, subject to market conditions, up to $350 million of first mortgage bond indebtedness in 2013, the proceeds of which will be used to fund capital expenditures and for other general corporate purposes.

~~See Note 7 to the Financial Statements for additional information about long-term debt securities.~~

~~Rating Agency Actions~~

Moody's, S&P and Fitch periodically review the credit ratings on the debt securities of LG&E. 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 LG&E are based on information provided by LG&E and other sources. The ratings of Moody's, S&P and Fitch are not a recommendation to buy, sell or hold any securities of LG&E. 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 LG&E affect its liquidity, access to capital markets and cost of borrowing under its credit facilities.

~~The rating agencies did not take any actions related to LG&E during the first quarter of 2013.~~

~~Ratings Triggers~~

LG&E has various derivative and non-derivative contracts, including contracts for the sale and purchase of electricity, fuel, commodity transportation and storage and interest rate instruments, which contain provisions requiring LG&E to post additional collateral, or permitting the counterparty to terminate the contract, if LG&E's credit rating were to fall below investment grade. See Note 14 to the Financial Statements for a discussion of "Credit Risk-Related Contingent Features," including a discussion of the potential additional collateral that would have been required for derivative contracts in a net liability position at March 31, 2013.

~~Risk Management~~

~~Market Risk~~

~~See Notes 13 and 14 to the Financial Statements for information about LG&E's risk management objectives, valuation techniques and accounting designations.~~

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

LG&E's rates are set by regulatory commissions and the fuel costs incurred are directly recoverable from customers. As a result, LG&E is subject to commodity price risk for only a small portion of on-going business operations. LG&E sells excess economic generation to maximize the value of the physical assets at times when the assets are not required to serve LG&E's or KU's customers. See Note 14 to the Financial Statements for additional disclosures.

~~Interest Rate Risk~~

LG&E issues debt to finance its operations, which exposes it to interest rate risk. LG&E utilizes various financial derivative instruments to adjust the mix of fixed and floating interest rates in its debt portfolio when appropriate. Risk limits under LG&E's risk management program are designed to balance risk, exposure to volatility in interest expense and changes in the fair value of LG&E's debt portfolio due to changes in the absolute level of interest rates.

~~At March 31, 2013, LG&E's potential annual exposure to increased interest expense, based on a 10% increase in interest rates, was not significant.~~

LG&E is also exposed to changes in the fair value of its debt portfolio. LG&E estimated that a 10% decrease in interest rates at March 31, 2013, would increase the fair value of its debt portfolio by $27 million.

~~146~~

At March 31, 2013, LG&E had the following interest rate hedges outstanding:

Effect of a
10% Adverse
Fair Value, Movement
Exposure Net - Asset in Interest
Hedged (Liability) (a) Rates
Economic activity
Interest rate swaps (b) $ 179 $ (55) $ (3)
Cash flow hedges
Interest rate swaps (b) 150 12 (8)

~~(a)~~

~~Includes accrued interest.~~

~~(b)~~

LG&E utilizes various risk management instruments to reduce its exposure to the expected future cash flow variability of its debt instruments. These risks include exposure to adverse interest rate movements for outstanding variable rate debt and for future anticipated financing. While LG&E is exposed to changes in the fair value of these instruments, any realized changes in the fair value of such economic positions and cash flow hedges are recoverable through regulated rates and any subsequent changes in fair value of these derivatives are included in regulatory assets or liabilities. The positions outstanding at March 31, 2013 mature through 2043.

~~Credit Risk~~

~~See Notes 13 and 14 to the Financial Statements in this Form 10-Q and "Risk Management - Energy Marketing & Trading and Other - Credit Risk" in LG&E's 2012 Form 10-K for additional information.~~

~~Related Party Transactions~~

LG&E is not aware of any material ownership interest or operating responsibility by senior management of LG&E in outside partnerships, including leasing transactions with variable interest entities, or other entities doing business with LG&E. See Note 11 to the Financial Statements for additional information on related party transactions.

~~Environmental Matters~~

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

Physical effects associated with climate change could include the impact of changes in weather patterns, such as storm frequency and intensity, and the resultant potential damage to LG&E's generation assets, electricity transmission and distribution systems, as well as impacts on customers. In addition, changed weather patterns could potentially reduce annual rainfall in areas where LG&E has hydro generating facilities or where river water is used to cool its fossil-powered generators. LG&E cannot currently predict whether its businesses will experience these potential climate change-related risks or estimate the potential costs of their related consequences.

~~The following is a discussion of the more significant environmental matters.~~

~~Coal Combustion Residuals (CCRs)~~

~~147~~

~~Effluent Limitation Guidelines~~

On April 19, 2013, the EPA issued proposed regulations to revise discharge limitations for steam electric generation wastewater permits. The proposed limitations are based on the EPA review of available treatment technologies and their capacity for reducing pollutants and include new requirements for fly ash and bottom ash handling and metal cleaning wastes as well as new limits for scrubber wastewater, gasification wastewater and landfill leachate. The proposal contains several alternative approaches, some of which could significantly impact LG&E's coal-fired plants. LG&E will comment on the proposed regulation. The final regulation is expected in May 2014. At the present time, LG&E is unable to predict the outcome of this matter or estimate a range of reasonably possible costs, but the costs could be significant.

~~316(b) Cooling Water Intake Structure Rule~~

In April 2011, the EPA published a draft regulation under Section 316(b) of the Clean Water Act, which regulates cooling water intakes for power plants. The draft rule has two provisions: one requires installation of Best Technology Available (BTA) to reduce mortality of aquatic organisms that are pulled into the plant cooling water system (entrainment), and the second imposes standards for reduction of mortality of aquatic organisms trapped on water intake screens (impingement). A final rule is expected in June 2013. The proposed regulation would apply to nearly all LG&E-owned steam electric plants in Kentucky, potentially even including those equipped with closed-cycle cooling systems.

~~GHG Regulations~~

In 2013, the EPA is expected to finalize limits on GHG emissions from new power plants and to begin working on a proposal for such emissions from existing power plants. The EPA's proposal on GHG emissions from new power plants would effectively preclude construction of any coal-fired plants and could even be difficult for new gas-fired plants to meet. With respect to existing power plants, the impact could be very significant, depending on the structure and stringency of the final rule. On behalf of LG&E, PPL, along with others in the industry, filed comments on the EPA's proposal related to GHG emissions from new plants.

~~MATS~~

~~CSAPR and CAIR~~

In 2011, the EPA finalized its CSAPR regulating emissions of nitrous oxide and sulfur dioxide through new allowance trading programs which were to be implemented in two phases (2012 and 2014). Like its predecessor, the CAIR, CSAPR targeted sources in the eastern United States. In December 2011, the U.S. Court of Appeals for the District of Columbia Circuit (the Court) stayed implementation of CSAPR, leaving CAIR in place. Subsequently, in August 2012, the Court vacated and remanded CSAPR back to the EPA for further rulemaking, again leaving CAIR in place. LG&E plants in Kentucky will continue to comply with CAIR through optimization of existing controls, balanced with emission allowance purchases. The Court's August decision leaves plants in CSAPR-affected states potentially exposed to more stringent emission reductions due to regional haze implementation (it was previously determined that CSAPR or CAIR participation satisfies regional haze requirements), and/or petitions to the EPA by downwind states under Section 126 of the Clean Air Act requesting the EPA to require plants that allegedly contribute to downwind non-attainment to take action to reduce emissions.

~~National Ambient Air Quality Standards~~

During 2010 and 2012, the EPA issued new ambient air standards for sulfur dioxide and particulates, respectively. In 2013, the EPA preliminarily designated Jefferson County, Kentucky, as a partial non-attainment area for sulfur dioxide. Final designations of non-attainment areas may occur in 2013 and 2014, respectively. Existing environmental plans for LG&E's Kentucky plants, including announced retirements of certain plants and ECR-approved new or upgraded scrubbers or baghouses at other plants, may aid in achievement of eventual ambient air requirements. However, depending upon the specifics of final non-attainment designations and consequent compliance plans, additional controls may be required, the financial impact of which could be significant.

~~See Note 10 to the Financial Statements in this Form 10-Q report and "Item 1. Business - Environmental Matters" in LG&E's 2012 Form 10-K for a discussion of environmental matters.~~

~~148~~

~~New Accounting Guidance~~

~~See Notes 2 and 19 to the Financial Statements for a discussion of new accounting guidance adopted and pending adoption.~~

~~Application of Critical Accounting Policies~~

Financial condition and results of operations are impacted by the methods, assumptions and estimates used in the application of critical accounting policies. The following accounting policies are particularly important to the financial condition or results of operations and require estimates or other judgments of matters inherently uncertain: revenue recognition - unbilled revenue, defined benefits, asset impairment (excluding investments), loss accruals, AROs, income taxes, and regulatory assets and liabilities. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in LG&E's 2012 Form 10-K for a discussion of each critical accounting policy.

~~149~~

~~KENTUCKY~~ ~~UTILITIES COMPANY~~

~~Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations~~

The following should be read in conjunction with KU's Condensed Financial Statements and the accompanying Notes and with KU's 2012 Form 10-K. Capitalized terms and abbreviations are defined in the glossary. Dollars are in millions, unless otherwise noted.

~~"Management's Discussion and Analysis of Financial Condition and Results of Operations" includes the following information:~~

·	~~"Overview" provides a description of KU and its business strategy, a summary of Net Income and a discussion of certain events related to KU's results of operations and financial condition.~~

"Results of Operations" provides a summary of KU's earnings and a description of key factors expected to impact future earnings. This section ends with explanations of significant changes in principal line items on KU's Statements of Income, comparing the three months ended March 31, 2013 with 2012.

·	~~"Financial Condition - Liquidity and Capital Resources" provides an analysis of KU's liquidity position and credit profile. This section also includes a discussion of rating agency actions.~~

·	~~"Financial Condition - Risk Management" provides an explanation of KU's risk management programs relating to market and credit risk.~~

~~Overview~~

~~Introduction~~

KU, headquartered in Lexington, Kentucky, is a regulated utility engaged in the generation, transmission, distribution and sale of electric energy in Kentucky, Virginia and Tennessee. KU and its affiliate, LG&E, are wholly owned subsidiaries of LKE. LKE is an intermediary holding company in PPL's group of companies.

~~Business Strategy~~

~~KU's overall strategy is to provide reliable, safe, competitively priced energy to its customers and reasonable returns on regulated investments to its shareowner.~~

A key objective for KU is to maintain a strong credit profile through managing financing costs and access to credit markets. KU continually focuses on maintaining an appropriate capital structure and liquidity position.

~~Financial and Operational Developments~~

~~Net Income~~

~~Net Income for the three months ended March 31, 2013 was $64 million compared to $38 million in 2012 representing a 68% increase over 2012.~~

~~See "Results of Operations" for a discussion and analysis of KU's earnings.~~

~~Rate Case Proceedings~~

In December 2012, the KPSC approved a rate case settlement agreement providing for increases in annual base electricity rates of $51 million using a 10.25% return on equity. The approved rates became effective January 1, 2013.

~~Results of Operations~~

The following discussion provides a summary of KU's earnings and a description of key factors expected to impact future earnings. This section ends with "Statement of Income Analysis," which includes explanations of significant changes in Margins and principal line items on KU's Statements of Income, comparing the three months ended March 31, 2013 with 2012.

~~150~~

Earnings

Net Income for the periods ended March 31 was:

Three Months
2013 2012

Net Income $ 64 $ 38

~~The changes in the components of Net Income between these periods were due to the following factors, which reflect reclassifications for items included in Margins.~~

~~Three Months~~

~~Margins~~Defined Benefits

~~Depreciation~~X

~~(10)~~

~~Other Income (Expense) - net~~X

Loss Accruals

~~(1)~~X

Income Taxes

Asset Impairments (Excluding Investments)

~~(17)~~X

~~Special item - EEI adjustments, after-tax~~AROs

��X

~~Total~~X

Price Risk Management

·	~~See "Statement of Income Analysis - Margins - Changes in Non-GAAP Financial Measures" for an explanation of Margins.~~

Higher depreciation due to environmental costs related to the elimination of the 2005 and 2006 ECR plans now being included in base rates, which added $12 million to depreciation that is excluded from Margins, partially offset by lower depreciation of $3 million due to revised rates that were effective January 1, 2013. Both of these events are the result of the 2012 Kentucky rate case proceedings.

·	~~Higher income taxes primarily due to higher pre-tax income.~~

~~2013 Outlook~~

Excluding special items, KU projects higher earnings in 2013 compared with 2012, primarily driven by electric base rate increases, returns on additional environmental capital investments and load growth, partially offset by higher operation and maintenance expense.

Earnings in future periods are subject to various risks and uncertainties. See "Forward-Looking Information," the rest of this Item 2, Notes 6 and 10 to the Financial Statements in this Form 10-Q and "Item 1. Business" and "Item 1A. Risk Factors" in KU's 2012 Form 10-K for a discussion of the risks, uncertainties and factors that may impact future earnings.

~~Statement of Income Analysis --~~

~~Margins~~

~~Non-GAAP Financial Measure~~

The following discussion includes financial information prepared in accordance with GAAP, as well as a non-GAAP financial measure, "Margins." Margins is 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 to report on the results of their operations. Margins is a single financial performance measure of KU's electricity generation, transmission and distribution operations. In calculating this measure, fuel and energy purchases are deducted from revenues. In addition, utility revenues and expenses associated with approved cost recovery mechanisms are offset. These mechanisms allow for recovery of certain expenses, returns on capital investments and performance incentives. Certain costs associated with these mechanisms, primarily ECR and DSM, are recorded as "Other operation and maintenance" and "Depreciation." As a result, this measure represents the net revenues from KU's operations. This performance measure is used, in conjunction with other information, internally by senior management to manage operations and analyze actual results compared with budget.

~~151~~

~~Reconciliation of Non-GAAP Financial Measures~~

~~The following table reconciles "Margins" to "Operating Income" as defined by KU for the periods ended March 31.~~

2013 Three Months 2012 Three Months
Operating Operating
Margins Other (a) Income (b) Margins Other (a) Income (b)

Operating Revenues $ 432 $ 432 $ 380 $ 380
Operating Expenses
Fuel 135 135 124 124
Energy purchases 27 27 29 29
Other operation and maintenance 14 $ 83 97 12 $ 83 95
Depreciation 46 46 12 36 48
Taxes, other than income 6 6 6 6
Total Operating Expenses 176 135 311 177 125 302
Total $ 256 $ (135) $ 121 $ 203 $ (125) $ 78

~~(a)~~

~~Represents amounts excluded from Margins.~~

~~(b)~~

~~As reported on the Statements of Income.~~

~~Changes in Non-GAAP Financial Measures~~

Margins increased by $53 million for the three months ended March 31, 2013 compared with 2012, due to higher base rates of $18 million, environmental costs added to base rates of $16 million, higher volumes of $13 million and increased environmental investments of $5 million.

The increase in base rates was the result of new KPSC rates going into effect on January 1, 2013. The increase in volumes was attributable to colder weather in 2013 compared with 2012. Total heating degree days increased 35%. The environmental costs added to base rates was due to the elimination of the 2005 and 2006 ECR plans as a result of the 2012 Kentucky rate case. This elimination results in depreciation and other operation and maintenance expenses associated with the 2005 and 2006 ECR plans being excluded from Margins in 2013.

~~Other Operation and Maintenance~~X

~~The increase (decrease) in other operation~~Regulatory Assets and ~~maintenance expense for the period ended March 31, 2013 compared with 2012 was due to:~~

Liabilities

~~Three Months~~X

Revenue Recognition - unbilled revenue

~~Coal plant outages (a)~~X

~~(5)~~

~~Adjustments to regulatory assets and liabilities~~X

~~Other~~

~~Total~~

2 X

~~(a)~~

~~Decrease is due to the timing and scope of scheduled outages.~~

~~Income Taxes~~

~~Income taxes increased by $17 million for the three months ended March 31, 2013 compared with 2012 primarily due to higher pre-tax income.~~

~~See Note 5 to the Financial Statements for additional information on income taxes.~~

Financial Condition

Liquidity and Capital Resources

KU had the following at:

March 31, 2013 December 31, 2012

Cash and cash equivalents $ 16 $ 21

Short-term debt (a) $ 115 $ 70

~~152~~142

~~(a)~~

~~Represents borrowings made under KU's commercial paper program. See Note 7 to the Financial Statements for additional information.~~

~~The $5 million decrease in KU's cash and cash equivalents position was the net result of:~~

·	~~capital expenditures of $172 million; and~~

·	~~the payment of common stock dividends to parent of $13 million; partially offset by~~

·	~~cash provided by operating activities of $85 million;~~

·	~~capital contributions from parent of $50 million; and~~

·	~~an increase in short term debt of $45 million.~~

~~KU's cash provided by operating activities decreased by $67 million for the three months ended March 31, 2013, compared with 2012, primarily due to:~~

·	~~an increase in cash outflows from other operating activities of $61 million driven by a $43 million increase in discretionary defined benefit plan contributions; and~~

a decline in working capital cash flow changes of $49 million driven primarily by changes in accounts receivable and unbilled revenues due to higher sales volumes, higher rates and extended payment terms and a lower federal income tax accrual in 2013 as a result of federal settlement payment, offset by an increase in cash from accounts payable primarily due to timing of fuel purchase commitments and payments; offset by

·	an increase in net income adjusted for non-cash items of $43 million (deferred income taxes and investment tax credits of $10 million, amortization of $4 million, other non-cash items of $3 million and defined benefit plans - expense of $2 million offset by depreciation of $2 million)

~~Capital expenditures increased by $59 million during the three months ended March 31, 2013 compared with 2012 primarily due to environmental air projects at Ghent and construction of Cane Run Unit 7.~~

~~Credit Facilities~~

~~At March 31, 2013, KU's committed borrowing capacity under its credit facilities and the use of this borrowing capacity were:~~

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

Syndicated Credit Facility (a) $ 400 $ 115 $ 285
Letter of Credit Facility (a) (b) 198 198
Total Credit Facilities (c) $ 598 $ 313 $ 285

~~(a)~~

~~KU pays customary fees under its syndicated credit facility as well as its letter of credit facility, and borrowings generally bear interest at LIBOR-based rates plus an applicable margin.~~

~~(b)~~

~~In May 2013, KU extended its $198 million letter of credit facility to May 2016.~~

~~(c)~~

The commitments under KU's credit facilities are provided by a diverse bank group, with no one bank and its affiliates providing an aggregate commitment of more than 19% of the total committed capacity available to KU.

KU participates in an intercompany money pool agreement whereby LKE and/or LG&E make available to KU funds up to $500 million at an interest rate based on a market index of commercial paper issues. At March 31, 2013 and December 31, 2012, there was no balance outstanding.

~~See Note 7 to the Financial Statements for further discussion of KU's credit facilities.~~

~~Long-term Debt Securities~~

KU currently plans to issue, subject to market conditions, up to $300 million of first mortgage bond indebtedness in 2013, the proceeds of which will be used to fund capital expenditures and for other general corporate purposes.

~~See Note 7 to the Financial Statements for additional information about long-term debt securities.~~

~~153~~

~~Rating Agency Actions~~

Moody's, S&P and Fitch periodically review the credit ratings on the debt securities of KU. 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 KU are based on information provided by KU and other sources. The ratings of Moody's, S&P and Fitch are not a recommendation to buy, sell or hold any securities of KU. 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 KU affect its liquidity, access to capital markets and cost of borrowing under its credit facilities.

~~The rating agencies did not take any actions related to KU during the first quarter of 2013.~~

~~Ratings Triggers~~

KU has various derivative and non-derivative contracts, including contracts for the sale and purchase of electricity, fuel, and commodity transportation and storage, which contain provisions requiring KU to post additional collateral, or permitting the counterparty to terminate the contract, if KU's credit rating were to fall below investment grade. See Note 14 to the Financial Statements for a discussion of "Credit Risk-Related Contingent Features," including a discussion of the potential additional collateral that would have been required for derivative contracts in a net liability position at March 31, 2013.

~~Risk Management~~

~~Market Risk~~

~~See Notes 13 and 14 to the Financial Statements for information about KU's risk management objectives, valuation techniques and accounting designations.~~

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

KU's rates are set by regulatory commissions and the fuel costs incurred are directly recoverable from customers. As a result, KU is subject to commodity price risk for only a small portion of on-going business operations. KU sells excess economic generation to maximize the value of the physical assets at times when the assets are not required to serve LG&E's or KU's customers. See Note 14 to the Financial Statements for additional disclosures.

~~Interest Rate Risk~~

KU issues debt to finance its operations, which exposes it to interest rate risk. KU utilizes various financial derivative instruments to adjust the mix of fixed and floating interest rates in its debt portfolio when appropriate. Risk limits under KU's risk management program are designed to balance risk, exposure to volatility in interest expense and changes in the fair value of KU's debt portfolio due to changes in the absolute level of interest rates.

~~At March 31, 2013, KU's potential annual exposure to increased interest expense, based on a 10% increase in interest rates, was not significant.~~

KU is also exposed to changes in the fair value of its debt portfolio. KU estimated that a 10% decrease in interest rates at March 31, 2013, would increase the fair value of its debt portfolio by $68 million.

At March 31, 2013, KU had the following interest rate hedges outstanding:

Effect of a
10% Adverse
Fair Value, Movement
Exposure Net - Asset in Interest
Hedged (Liability) Rates
Cash flow hedges
Interest rate swaps (a) $ 150 $ 12 $ (8)

~~154~~

~~(a)~~

KU utilizes various risk management instruments to reduce its exposure to the expected future cash flow variability of its debt instruments. These risks include exposure to adverse interest rate movements for outstanding variable rate debt and for future anticipated financing. While KU is exposed to changes in the fair value of these instruments, any realized changes in the fair value of such cash flow hedges are recoverable through regulated rates and any subsequent changes in fair value of these derivatives are included in regulatory assets or liabilities. The positions outstanding at March 31, 2013 mature through 2043.

~~Credit Risk~~

~~See Notes 13 and 14 to the Financial Statements in this Form 10-Q and "Risk Management - Energy Marketing & Trading and Other - Credit Risk" in KU's 2012 Form 10-K for additional information.~~

~~Related Party Transactions~~

KU is not aware of any material ownership interest or operating responsibility by senior management of KU in outside partnerships, including leasing transactions with variable interest entities, or other entities doing business with KU. See Note 11 to the Financial Statements for additional information on related party transactions.

~~Environmental Matters~~

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

Physical effects associated with climate change could include the impact of changes in weather patterns, such as storm frequency and intensity, and the resultant potential damage to KU's generation assets, electricity transmission and distribution systems, as well as impacts on customers. In addition, changed weather patterns could potentially reduce annual rainfall in areas where KU has hydro generating facilities or where river water is used to cool its fossil-powered generators. KU cannot currently predict whether its businesses will experience these potential climate change-related risks or estimate the potential costs of their related consequences.

~~The following is a discussion of the more significant environmental matters.~~

~~Coal Combustion Residuals (CCRs)~~

~~Effluent Limitation Guidelines~~

On April 19, 2013, the EPA issued proposed regulations to revise discharge limitations for steam electric generation wastewater permits. The proposed limitations are based on the EPA review of available treatment technologies and their capacity for reducing pollutants and include new requirements for fly ash and bottom ash handling and metal cleaning wastes as well as new limits for scrubber wastewater, gasification wastewater and landfill leachate. The proposal contains several alternative approaches, some of which could significantly impact KU's coal-fired plants. KU will comment on the proposed regulation. The final regulation is expected in May 2014. At the present time, KU is unable to predict the outcome of this matter or estimate a range of reasonably possible costs, but the costs could be significant.

~~316(b) Cooling Water Intake Structure Rule~~

In April 2011, the EPA published a draft regulation under Section 316(b) of the Clean Water Act, which regulates cooling water intakes for power plants. The draft rule has two provisions: one requires installation of Best Technology Available (BTA) to reduce mortality of aquatic organisms that are pulled into the plant cooling water system (entrainment), and the second imposes standards for reduction of mortality of aquatic organisms trapped on water intake screens (impingement). A final rule is expected in June 2013. The proposed regulation would apply to nearly all KU-owned steam electric plants in Kentucky, potentially even including those equipped with closed-cycle cooling systems.

~~155~~

~~GHG Regulations~~

In 2013, the EPA is expected to finalize limits on GHG emissions from new power plants and to begin working on a proposal for such emissions from existing power plants. The EPA's proposal on GHG emissions from new power plants would effectively preclude construction of any coal-fired plants and could even be difficult for new gas-fired plants to meet. With respect to existing power plants, the impact could be very significant, depending on the structure and stringency of the final rule. On behalf of KU, PPL, along with others in the industry, filed comments on the EPA's proposal related to GHG emissions from new plants.

~~MATS~~

~~CSAPR and CAIR~~

In 2011, the EPA finalized its CSAPR regulating emissions of nitrous oxide and sulfur dioxide through new allowance trading programs which were to be implemented in two phases (2012 and 2014). Like its predecessor, the CAIR, CSAPR targeted sources in the eastern United States. In December 2011, the U.S. Court of Appeals for the District of Columbia Circuit (the Court) stayed implementation of CSAPR, leaving CAIR in place. Subsequently, in August 2012, the Court vacated and remanded CSAPR back to the EPA for further rulemaking, again leaving CAIR in place. KU plants in Kentucky will continue to comply with CAIR through optimization of existing controls, balanced with emission allowance purchases. The Court's August decision leaves plants in CSAPR-affected states potentially exposed to more stringent emission reductions due to regional haze implementation (it was previously determined that CSAPR or CAIR participation satisfies regional haze requirements), and/or petitions to the EPA by downwind states under Section 126 of the Clean Air Act requesting the EPA to require plants that allegedly contribute to downwind non-attainment to take action to reduce emissions.

~~National Ambient Air Quality Standards~~

During 2010 and 2012, the EPA issued new ambient air standards for sulfur dioxide and particulates, respectively. In 2013, the EPA preliminarily designated Jefferson County, Kentucky, as a partial non-attainment area for sulfur dioxide. Final designations of non-attainment areas may occur in 2013 and 2014, respectively. Existing environmental plans for KU's Kentucky plants, including announced retirements of certain plants and ECR-approved new or upgraded scrubbers or baghouses at other plants, may aid in achievement of eventual ambient air requirements. However, depending upon the specifics of final non-attainment designations and consequent compliance plans, additional controls may be required, the financial impact of which could be significant.

~~See Note 10 to the Financial Statements in this Form 10-Q report and "Item 1. Business - Environmental Matters" in KU's 2012 Form 10-K for a discussion of environmental matters.~~

~~New Accounting Guidance~~

~~See Notes 2 and 19 to the Financial Statements for a discussion of new accounting guidance adopted and pending adoption.~~

~~Application of Critical Accounting Policies~~

Financial condition and results of operations are impacted by the methods, assumptions and estimates used in the application of critical accounting policies. The following accounting policies are particularly important to the financial condition or results of operations and require estimates or other judgments of matters inherently uncertain: revenue recognition - unbilled revenue, defined benefits, asset impairment (excluding investments), loss accruals, AROs, income taxes, and regulatory assets and liabilities. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in KU's 2012 Form 10-K for a discussion of each critical accounting policy.

~~156~~

PPL Corporation

PPL Energy Supply, LLC

PPL Electric Utilities Corporation

LG&E and KU Energy LLC

Louisville Gas and Electric Company

Kentucky Utilities Company

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Reference is made to "Risk Management" in ~~each Registrant's~~ "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations."

Item 4. Controls and Procedures

(a) Evaluation of disclosure controls and procedures.

PPL Corporation, PPL Energy Supply, LLC, PPL Electric Utilities Corporation, LG&E and KU Energy LLC, Louisville Gas and Electric Company, and Kentucky Utilities Company

The ~~registrants'~~Registrants' principal executive officers and principal financial officers, based on their evaluation of the ~~registrants'~~Registrants' disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934) have concluded that, as of ~~March 31,~~September 30, 2013, the ~~registrants'~~Registrants' disclosure controls and procedures are effective to ensure that material information relating to the ~~registrants~~Registrants and their consolidated subsidiaries is recorded, processed, summarized and reported within the time periods specified by the SEC's rules and forms, particularly during the period for which this quarterly report has been prepared. The aforementioned principal officers have concluded that the disclosure controls and procedures are also effective to ensure that information required to be disclosed in reports filed under the Exchange Act is accumulated and communicated to management, including the principal executive and principal financial officers, to allow for timely decisions regarding required disclosure.

(b) Change in internal controls over financial reporting.

PPL Corporation, PPL Energy Supply, LLC, PPL Electric Utilities Corporation, LG&E and KU Energy LLC, Louisville Gas and Electric Company, and Kentucky Utilities Company

As reported in the June 30, 2013 Form 10-Q, the principal executive officers and principal financial officers of the Registrants concluded that the implementation of a financial consolidation and reporting system for PPL and its primary U.S. subsidiaries resulted in a material change to the Registrants' internal control over financial reporting. The ~~registrants'~~new system enhances the consolidation of subsidiary accounts, provides reporting tools for analysis and automates certain aspects of financial statement preparation for each of the Registrants. Processes and controls over the consolidation and reporting processes that were previously considered to be effective were replaced with new or modified controls that were also determined to be effective.

The new consolidation and reporting system was subject to extensive testing and data reconciliation during implementation. Post-implementation reviews have been and will continue to be conducted to enable us to determine the effectiveness of the internal controls relating to the system implementation processes and to key business processes.

The Registrants' principal executive officers and principal financial officers have concluded that there were no other changes in the ~~registrants'~~Registrants' internal control over financial reporting during the ~~registrants' first~~Registrants' third fiscal quarter that have materially affected, or are reasonably likely to materially affect, the ~~registrants'~~Registrants' internal control over financial reporting.

PPL Corporation

As reported in the June 30, 2013 Form 10-Q, PPL's principal executive officer and principal financial officer concluded that the implementation of a new general ledger system and a financial reporting system at WPD resulted in a material change to its internal control over financial reporting. The general ledger system that was implemented at WPD replaced the existing mainframe system and resulted in more automation and enhanced controls over

143

general ledger processing and consolidation. The reporting system that was implemented at WPD improves and automates controls over data transfer included in PPL's consolidation process and improves controls over GAAP and foreign currency adjustments. In each of the WPD system implementations, controls that were previously determined to be effective were replaced with new or modified controls that were also determined to be effective.

The general ledger and reporting systems were subject to extensive testing and data reconciliation during their implementation. Post-implementation reviews have been and will continue to be conducted to enable us to determine the effectiveness of the internal controls relating to the system implementation processes and to key business processes remain effective. Risks related to the system implementations at WPD were also partially mitigated by PPL's existing policy of consolidating foreign subsidiaries on a one-month lag, which provided management additional time for review and analysis of WPD results and their incorporation into PPL's consolidated financial statements.

The Registrant's principal executive officer and principal financial officer have concluded that there were no other changes in the Registrant's internal control over financial reporting during the Registrant's third fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Registrant's internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

For additional information regarding ~~various~~ pending administrative and judicial proceedings involving regulatory, environmental and other matters, which information is incorporated by reference into this Part II, see:

	·		"Item 3. Legal Proceedings" in each Registrant's 2012 Form 10-K; and
	·		Notes 5, 6 and 10 to the Financial Statements.

Item 1A. Risk Factors

There have been no material changes in the ~~Registrant's~~Registrants' risk factors from those disclosed in "Item 1A. Risk Factors" of the 2012 Form 10-K.

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

Issuer Purchase of Equity Securities during the Third Quarter of 2013:

(a)

(b)

(c)

(d)

Maximum Number (or

Approximate Dollar

Total Number of

Value) of Shares

Shares (or Units)

(or Units) that May

Total Number of

Average Price

Purchased as Part of

Yet Be Purchased

Shares (or Units)

Paid per Share

Publicly Announced

Under the Plans

Period

Purchased (1)

(or Unit)

Plans of Programs

or Programs

July 1 to July 31, 2013

August 1 to August 31, 2013

750,000

$30.81

September 1 to September 30, 2013

750,000

$31.00

Total

1,500,000

$30.91

(1)

Represents shares of common stock repurchased in the open market to offset a portion of shares issued under stock based compensation plans.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

PPL Electric Utilities Corporation

Effective October 31, 2013, PPL Electric amended and restated its Articles of Incorporation and Bylaws, copies of which are filed as exhibits 3(a) and 3(b), respectively, to this report.

~~157~~144

Item 6. Exhibits

The following Exhibits indicated by an asterisk preceding the Exhibit number are filed herewith. The balance of the Exhibits have heretofore been filed with the Commission and pursuant to Rule 12(b)-32 are incorporated herein by reference. Exhibits indicated by a [_] are filed or listed pursuant to Item 601(b)(10)(iii) of Regulation S-K.

~~4(a)~~1(a)	-	~~Supplemental Indenture No. 4, dated as~~Final Terms of ~~March 15, 2013, among PPL Capital Funding, Inc., PPL Corporation and The Bank of New York Mellon (formerly known as The Bank of New York), as Trustee~~the WPD West Midlands £400 million 3.875% Senior Unsecured Notes due October 17, 2024 (Exhibit ~~4(b)~~1.1 to PPL Corporation Form 8-K Report (File No. 1-11459) dated ~~March 15,~~October 18, 2013)
1(b)	-	Final Terms of WPD East Midlands £40 million 1.676% Notes due 2052 (Exhibit 1.2 to PPL Corporation Form 8-K Report (File No. 1-11459) dated October 18, 2013)
1(c)	-	Final Terms of WPD East Midlands £25 million 1.676% Notes due 2052 (Exhibit 1.3 to PPL Corporation Form 8-K Report (File No. 1-11459) dated October 18, 2013)
2(a)	-	Purchase and Sale Agreement by and between PPL Montana, LLC and NorthWestern Corporation, dated as of September 26, 2013 (Exhibit 2.1 to PPL Corporation Form 8-K Report (File No. 1-11459) dated September 27, 2013)
2(b)	-	Lease Termination Agreement by and between PPL Montana, LLC, Montana OL3 LLC and Montana OP3 LLC, dated as of September 26, 2013 (Exhibit 2.2 to PPL Corporation Form 8-K Report (File No. 1-11459) dated September 27, 2013)
2(c)	-	Lease Termination Agreement by and between PPL Montana, LLC, Montana OL4 LLC and Montana OP4 LLC, dated as of September 26, 2013 (Exhibit 2.3 to PPL Corporation Form 8-K Report (File No. 1-11459) dated September 27, 2013)
2(d)	-	Lease Termination Agreement by and between PPL Montana, LLC, Montana OL1 LLC and Montana OP1 LLC, dated as of September 26, 2013 (Exhibit 2.4 to PPL Corporation Form 8-K Report (File No. 1-11459) dated September 27, 2013)
2(e)	-	Lease Termination Agreement by and between PPL Montana, LLC, Montana OL1 LLC and Montana OP1 LLC, dated as of September 26, 2013 (Exhibit 2.5 to PPL Corporation Form 8-K Report (File No. 1-11459) dated September 27, 2013)
*3(a)	-	Amended and Restated Articles of Incorporation of PPL Electric Utilities Corporation, effective as of October 31, 2013
*3(b)	-	Amended and Restated Bylaws of PPL Electric Utilities Corporation, effective as of October 31, 2013
*4(a)	-	Amendment No. 10 to Employee Stock Ownership Plan, dated September 16, 2013
4(b)	-	Amended and Restated Trust Deed, dated September 10, 2013, by and among Western Power Distribution (East Midlands) plc, Western Power Distribution (West Midlands) plc, Western Power Distribution (South West) plc and Western Power Distribution (South Wales) plc as Issuers, and HSBC Corporate Trustee Company (UK) Limited as Note Trustee (Exhibit 4.1 to PPL Corporation Form 8-K Report (File No. 1-11459) dated October 18, 2013)
*~~10(a)~~12(a)	-	Amendment No. 1, dated as of May 1, 2013, to $198,309,583.05 Amended and Restated Letter of Credit Agreement dated as of August 16, 2012 among Kentucky Utilities Company, the Lenders from time to time party thereto, and Banco Bilbao Vizcaya Argentaria, S.A., New York Branch, as Administrative Agent and Sumitomo Mitsui Banking Corporation, New York Branch as Issuing Lender
*10(b)	-	Amendment No. 2, dated as of May 1, 2013, to $198,309,583.05 Amended and Restated Letter of Credit Agreement dated as of August 16, 2012 among Kentucky Utilities Company, the Lenders from time to time party thereto, Sumitomo Mitsui Banking Corporation, New York Branch, as successor Administrative Agent and Sumitomo Mitsui Banking Corporation, New York Branch as Issuing Lender
*12(a)	-	PPL Corporation and Subsidiaries Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends
*12(b)	-	PPL Energy Supply, LLC and Subsidiaries Computation of Ratio of Earnings to Fixed Charges
*12(c)	-	PPL Electric Utilities Corporation and Subsidiaries Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends
*12(d)	-	LG&E and KU Energy LLC and Subsidiaries Computation of Ratio of Earnings to Fixed Charges
*12(e)	-	Louisville Gas and Electric Company Computation of Ratio of Earnings to Fixed Charges
*12(f)	-	Kentucky Utilities Company Computation of Ratio of Earnings to Fixed Charges

Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, for the quarterly period ended ~~March 31,~~September 30, 2013, filed by the following officers for the following companies:

*31(a)	-	PPL Corporation's principal executive officer
*31(b)	-	PPL Corporation's principal financial officer
*31(c)	-	PPL Energy Supply, LLC's principal executive officer

145

*31(d)	-	PPL Energy Supply, LLC's principal financial officer
*31(e)	-	PPL Electric Utilities Corporation's principal executive officer
*31(f)	-	PPL Electric Utilities Corporation's principal financial officer
*31(g)	-	LG&E and KU Energy LLC's principal executive officer
*31(h)	-	LG&E and KU Energy LLC's principal financial officer
*31(i)	-	Louisville Gas and Electric Company's principal executive officer
*31(j)	-	Louisville Gas and Electric Company's principal financial officer
*31(k)	-	Kentucky Utilities Company's principal executive officer
*31(l)	-	Kentucky Utilities Company's principal financial officer

~~158~~


Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, for the quarterly period ended ~~March 31,~~September 30, 2013, furnished by the following officers for the following companies:

*32(a)	-	PPL Corporation's principal executive officer and principal financial officer
*32(b)	-	PPL Energy Supply, LLC's principal executive officer and principal financial officer
*32(c)	-	PPL Electric Utilities Corporation's principal executive officer and principal financial officer
*32(d)	-	LG&E and KU Energy LLC's principal executive officer and principal financial officer
*32(e)	-	Louisville Gas and Electric Company's principal executive officer and principal financial officer
*32(f)	-	Kentucky Utilities Company's principal executive officer and principal financial officer

101.INS	-	XBRL Instance Document for PPL Corporation, PPL Energy Supply, LLC, PPL Electric Utilities Corporation, LG&E and KU Energy LLC, Louisville Gas and Electric Company and Kentucky Utilities Company
101.SCH	-	XBRL Taxonomy Extension Schema for PPL Corporation, PPL Energy Supply, LLC, PPL Electric Utilities Corporation, LG&E and KU Energy LLC, Louisville Gas and Electric Company and Kentucky Utilities Company
101.CAL	-	XBRL Taxonomy Extension Calculation Linkbase for PPL Corporation, PPL Energy Supply, LLC, PPL Electric Utilities Corporation, LG&E and KU Energy LLC, Louisville Gas and Electric Company and Kentucky Utilities Company
101.DEF	-	XBRL Taxonomy Extension Definition Linkbase for PPL Corporation, PPL Energy Supply, LLC, PPL Electric Utilities Corporation, LG&E and KU Energy LLC, Louisville Gas and Electric Company and Kentucky Utilities Company
101.LAB	-	XBRL Taxonomy Extension Label Linkbase for PPL Corporation, PPL Energy Supply, LLC, PPL Electric Utilities Corporation, LG&E and KU Energy LLC, Louisville Gas and Electric Company and Kentucky Utilities Company
101.PRE	-	XBRL Taxonomy Extension Presentation Linkbase for PPL Corporation, PPL Energy Supply, LLC, PPL Electric Utilities Corporation, LG&E and KU Energy LLC, Louisville Gas and Electric Company and Kentucky Utilities Company

~~159~~146

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized. The signature for each undersigned company shall be deemed to relate only to matters having reference to such company or its subsidiaries.

	PPL Corporation
	(Registrant)

	PPL Energy Supply, LLC
	(Registrant)



Date: ~~May 3,~~November 1, 2013	/s/ Vincent Sorgi
	Vincent Sorgi
	Vice President and Controller
	(Principal Accounting Officer)



	PPL Electric Utilities Corporation
	(Registrant)



Date: ~~May 3,~~November 1, 2013	/s/ ~~Vincent Sorgi~~Dennis A. Urban, Jr.
	~~Vincent Sorgi~~Dennis A. Urban, Jr.
	~~Vice President and~~
	~~Chief Accounting Officer~~Controller
	(Principal Financial Officer and Principal Accounting Officer)

	LG&E and KU Energy LLC
	(Registrant)

	Louisville Gas and Electric Company
	(Registrant)

	Kentucky Utilities Company
	(Registrant)



Date: ~~May 3,~~November 1, 2013	/s/ Kent W. Blake
	Kent W. Blake Chief Financial Officer
	(Principal Financial Officer and Principal Accounting Officer)

147

~~160~~

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549

FORM 10-Q

[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended ~~March 31,~~September 30, 2013
OR
[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from _________ to ___________

Commission File Number	Registrant; State of Incorporation; Address and Telephone Number	IRS Employer Identification No.

1-11459	PPL Corporation (Exact name of Registrant as specified in its charter) (Pennsylvania) Two North Ninth Street Allentown, PA 18101-1179 (610) 774-5151	23-2758192

1-32944	PPL Energy Supply, LLC (Exact name of Registrant as specified in its charter) (Delaware) Two North Ninth Street Allentown, PA 18101-1179 (610) 774-5151	23-3074920

1-905	PPL Electric Utilities Corporation (Exact name of Registrant as specified in its charter) (Pennsylvania) Two North Ninth Street Allentown, PA 18101-1179 (610) 774-5151	23-0959590

333-173665	LG&E and KU Energy LLC (Exact name of Registrant as specified in its charter) (Kentucky) 220 West Main Street Louisville, KY 40202-1377 (502) 627-2000	20-0523163

1-2893	Louisville Gas and Electric Company (Exact name of Registrant as specified in its charter) (Kentucky) 220 West Main Street Louisville, KY 40202-1377 (502) 627-2000	61-0264150

1-3464	Kentucky Utilities Company (Exact name of Registrant as specified in its charter) (Kentucky and Virginia) One Quality Street Lexington, KY 40507-1462 (502) 627-2000	61-0247570

	Large accelerated filer	Accelerated filer	Non-accelerated filer	Smaller reporting company
PPL Corporation	[ X ]	[ ]	[ ]	[ ]
PPL Energy Supply, LLC	[ ]	[ ]	[ X ]	[ ]
PPL Electric Utilities Corporation	[ ]	[ ]	[ X ]	[ ]
LG&E and KU Energy LLC	[ ]	[ ]	[ X ]	[ ]
Louisville Gas and Electric Company	[ ]	[ ]	[ X ]	[ ]
Kentucky Utilities Company	[ ]	[ ]	[ X ]	[ ]

PPL Corporation	Yes	No X
PPL Energy Supply, LLC	Yes	No X
PPL Electric Utilities Corporation	Yes	No X
LG&E and KU Energy LLC	Yes	No X
Louisville Gas and Electric Company	Yes	No X
Kentucky Utilities Company	Yes	No X

	Item 3. Quantitative and Qualitative Disclosures About Market Risk	~~157~~ 143
	Item 4. Controls and Procedures	~~157~~ 143
PART II. OTHER INFORMATION
	Item 1. Legal Proceedings	~~157~~ 144
	Item 1A. Risk Factors	144
	~~157~~Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	144
	Item 4. Mine Safety Disclosures	144
	~~157~~Item 5. Other Information	144
	Item 6. Exhibits	~~158~~ 145
SIGNATURES		~~160~~ 147
COMPUTATIONS OF RATIO OF EARNINGS TO FIXED CHARGES		~~161~~ 148
CERTIFICATES OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002		~~167~~ 154
CERTIFICATES OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002		~~179~~ 166

PPL Corporation	Yes X	No
PPL Energy Supply, LLC	Yes X	No
PPL Electric Utilities Corporation	Yes X	No
LG&E and KU Energy LLC	Yes X	No
Louisville Gas and Electric Company	Yes X	No
Kentucky Utilities Company	Yes X	No

	PPL Corporation	Common stock, $0.01 par value, ~~592,339,687~~630,249,634 shares outstanding at ~~April 30,~~October 25, 2013.

	PPL Energy Supply, LLC	PPL Corporation indirectly holds all of the membership interests in PPL Energy Supply, LLC.

	PPL Electric Utilities Corporation	Common stock, no par value, 66,368,056 shares outstanding and all held by PPL Corporation at ~~April 30,~~October 25, 2013.

	LG&E and KU Energy LLC	PPL Corporation directly holds all of the membership interests in LG&E and KU Energy LLC.

	Louisville Gas and Electric Company	Common stock, no par value, 21,294,223 shares outstanding and all held by LG&E and KU Energy LLC at ~~April 30,~~October 25, 2013.

	Kentucky Utilities Company	Common stock, no par value, 37,817,878 shares outstanding and all held by LG&E and KU Energy LLC at ~~April 30,~~October 25, 2013.

	Exposure at			Expiration
	March 31, 2013 (a)			Date
PPL
Indemnifications related to the WPD Midlands acquisition			(b)
WPD indemnifications for entities in liquidation and sales of assets	$	10	(c)	2018
WPD guarantee of pension and other obligations of unconsolidated entities		85	(d)	2015

PPL Energy Supply
Other Income
	Earnings on securities in NDT funds	$	4	$	5	$	14	$	17
	Interest income		1				3		1
	Miscellaneous				2		7		5
	Total Other Income		5		7		24		23
Other Expense
	Charitable contributions		1		1		3		2
	Miscellaneous		2		1		3		5
	Total Other Expense		3		2		6		7
Other Income (Expense) - net		$	2	$	5	$	18	$	16

A reconciliation of net assets and liabilities classified as Level 3 for the three months ended March 31 is as follows:
A reconciliation of net assets and liabilities classified as Level 3 for the periods ended September 30, 2013 is as follows:																					A reconciliation of net assets and liabilities classified as Level 3 for the periods ended September 30, 2013 is as follows:

					Fair Value Measurements Using Significant Unobservable Inputs (Level 3)																				Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
					2013								2012												Three Months								Nine Months
					Energy		Auction		Cross-				Energy		Auction		Cross-								Energy		Auction		Cross-				Energy		Auction		Cross-
					Commodities,		Rate		Currency				Commodities,		Rate		Currency								Commodities,		Rate		Currency				Commodities,		Rate		Currency
					net		Securities		Swaps		Total		net		Securities		Swaps		Total						net		Securities		Swaps		Total		net		Securities		Swaps		Total
PPL	PPL																				PPL
Balance at beginning of	Balance at beginning of																				Balance at beginning of
																					period				$	40	$	19	$	3	$	62	$	22	$	16	$	1	$	39
	period				$	22	$	16	$	1	$	39	$	13	$	24	$	4	$	41		Total realized/unrealized
		Total realized/unrealized																					gains (losses)
			gains (losses)																					Included in earnings		18						18		23						23
				Included in earnings		(8)						(8)		18						18				Included in OCI (a)						(2)		(2)						1		1
				Included in OCI (a)						3		3		2				2		4		Sales												(2)						(2)
		Settlements				(1)						(1)		(6)						(6)		Settlements				(2)						(2)		1						1
		Transfers into Level 3				1						1										Transfers into Level 3				(7)						(7)		1		3		3		7
		Transfers out of Level 3								(4)		(4)		(8)				(3)		(11)		Transfers out of Level 3				(2)				(1)		(3)		2				(5)		(3)
Balance at end of period	Balance at end of period				$	14	$	16	$		$	30	$	19	$	24	$	3	$	46	Balance at end of period				$	47	$	19	$		$	66	$	47	$	19	$		$	66

PPL Energy Supply	PPL Energy Supply																				PPL Energy Supply
Balance at beginning of	Balance at beginning of																				Balance at beginning of
	period				$	22	$	13			$	35	$	13	$	19			$	32	period				$	40	$	16			$	56	$	22	$	13			$	35
		Total realized/unrealized																				Total realized/unrealized
			gains (losses)																				gains (losses)
				Included in earnings		(8)						(8)		18						18				Included in earnings		18						18		23						23
				Included in OCI (a)										2						2		Sales												(2)						(2)
		Settlements				(1)						(1)		(6)						(6)		Settlements				(2)						(2)		1						1
		Transfers into Level 3				1						1										Transfers into Level 3				(7)						(7)		1		3				4
		Transfers out of Level 3												(8)						(8)		Transfers out of Level 3				(2)						(2)		2						2
Balance at end of period	Balance at end of period				$	14	$	13			$	27	$	19	$	19			$	38	Balance at end of period				$	47	$	16			$	63	$	47	$	16			$	63

																			Three Months

		Three Months																	Energy Commodities, net

		Energy Commodities, net																	Unregulated				Wholesale
		Unregulated Retail					Wholesale Energy				Net Energy			Energy					Retail				Energy				Net Energy							Energy
		Electric and Gas					Marketing				Trading Margins			Purchases					Electric and Gas				Marketing				Trading Margins				Fuel			Purchases
		2013		2012			2013		2012		2013	2012		2013		2012			2013		2012		2013		2012		2013		2012		2013		2012	2013		2012
PPL and PPL Energy Supply	PPL and PPL Energy Supply																	PPL and PPL Energy Supply

Total gains (losses) included in earnings	Total gains (losses) included in earnings	$	(7)	$	16		$	(2)	$	4		$	(1)	$	1	$	(1)	Total gains (losses) included in earnings	$	3	$	(3)	$	(8)	$	(4)	$	11	$	(8)	$	3		$	9	$	(2)
Change in unrealized gains (losses) relating to
Change in unrealized gains (losses) relating																		Change in unrealized gains (losses) relating
	positions still held at the reporting date		(7)		46	��		(2)		(18)			(1)		1		(5)	to positions still held at the reporting date		3		(2)				(1)		17		2

		Nine Months
																					Cross-Currency
		Energy Commodities, net																			Swaps

		Unregulated				Wholesale
		Retail				Energy				Net Energy							Energy
		Electric and Gas				Marketing				Trading Margins				Fuel			Purchases				Interest Expense
		2013		2012		2013		2012		2013		2012		2013		2012	2013		2012		2013	2012
PPL
Total gains (losses) included
	in earnings	$	18	$	16	$	(15)	$	(7)	$	8	$	(9)	$	3		$	9	$	(1)		$	(1)
Change in unrealized gains
	(losses) relating to positions
	still held at the reporting date		18		29		(1)				8		2					5		1

PPL Energy Supply
Total gains (losses) included
	in earnings	$	18	$	16	$	(15)	$	(7)	$	8	$	(9)	$	3		$	9	$	(1)
Change in unrealized gains
	(losses) relating to positions
	still held at the reporting date		18		29		(1)				8		2					5		1

		March 31, 2013				December 31, 2012
		Carrying				Carrying
		Amount		Fair Value		Amount		Fair Value
PPL
	Contract adjustment payments (a)	$	81	$	82	$	105	$	106
	Long-term debt		19,632		21,872		19,476		21,671
PPL Energy Supply
	Long-term debt		3,264		3,568		3,272		3,556
PPL Electric
	Long-term debt		1,967		2,304		1,967		2,333

		Volume (a)					Volume (a)
Commodity	Unit of Measure	2013 (b)	2014	2015	Thereafter	Unit of Measure	2013 (b)	2014	2015	Thereafter

Power	MWh	(27,422,031)	(22,385,959)	(490,995)	1,415,573	MWh	(9,950,950)	(28,280,182)	(4,110,530)	10,991,752
Capacity	MW-Month	(11,655)	(6,630)	(13)	525	MW-Month	(5,114)	(14,418)	(309)	1,990
Gas	MMBtu	(5,339,243)	(25,106,607)	(4,091,856)	(3,678,883)	MMBtu	12,653,279	18,794,545	(3,852,725)	5,320,453
Coal	Tons	(186,000)	186,000			Tons		(30,000)
FTRs	MW-Month	14,224	5,063	1,465		MW-Month	5,056	8,724	1,465
Oil	Barrels	46,118	240,000	300,000	240,000	Barrels	(15,335)	300,000	384,334	371,466

									2013				2012
											Gain (Loss)				Gain (Loss)
											Recognized				Recognized
											in Income				in Income
											on Derivative		Gain (Loss)		on Derivative
									Gain (Loss)		(Ineffective		Reclassified		(Ineffective
							Location of		Reclassified		Portion and		from AOCI		Portion and
			Derivative Gain				Gain (Loss)		from AOCI		Amount		into		Amount
			(Loss) Recognized in				Recognized		into Income		Excluded from		Income		Excluded from
Derivative			OCI (Effective Portion)					in Income	(Effective		Effectiveness		(Effective		Effectiveness
Relationships			2013		2012		on Derivative		Portion)		Testing)		Portion)		Testing)
Cash Flow Hedges:
	Interest rate swaps		$	9	$	3	Interest expense		$	(5)			$	(4)
	Cross-currency swaps			73		12	Interest expense							(1)
							Other income
								(expense) - net		69				(19)
	Commodity contracts					113	Wholesale energy
								marketing		67	$	1		272	$	4
							Depreciation							1
							Energy purchases			(16)				(40)		(4)
Total			$	82	$	128			$	115	$	1	$	209

Net Investment Hedges:
		Foreign currency contracts	$	16	$	(3)

Derivatives Not Designated as	Location of Gain (Loss) Recognized in
Hedging Instruments	Income on Derivative	Three Months		Nine Months

Foreign currency contracts	Other income (expense) - net	$	(117)	$	6
Interest rate swaps	Interest expense		(2)		(6)
Commodity contracts	Unregulated retail electric and gas		3		18
	Wholesale energy marketing		104		144
	Net energy trading margins (a)		14		8
	Fuel		4		2
	Energy purchases		(86)		(99)
	Total	$	(80)	$	73

Derivatives Not Designated as	Location of Gain (Loss) Recognized as
Hedging Instruments	Regulatory Liabilities/Assets	Three Months		Nine Months

Interest rate swaps	Regulatory assets - noncurrent	$	2	$	18

Derivatives Not Designated as	Location of Gain (Loss) Recognized in
Hedging Instrument	Income on Derivative	Three Months		Nine Months

Commodity contracts	Unregulated retail electric and gas	$	3	$	18
	Wholesale energy marketing		104		144
	Net energy trading margins (a)		14		8
	Fuel		4		2
	Energy purchases		(86)		(99)
	Total	$	39	$	73

					March 31, 2013						December 31, 2012
					Derivatives designated as			Derivatives not designated			Derivatives designated as			Derivatives not designated
					hedging instruments			as hedging instruments			hedging instruments			as hedging instruments
					Assets		Liabilities	Assets	Liabilities		Assets		Liabilities	Assets	Liabilities
Current:
	Price Risk Management
		Assets/Liabilities (a):
			Interest rate swaps		$	24			$	5	$	14			$	5
				Total current		24				5		14				5
Noncurrent:
	Price Risk Management
		Assets/Liabilities (a):
			Interest rate swaps							49						53
				Total noncurrent						49						53
Total derivatives					$	24			$	54	$	14			$	58

Derivatives Not Designated as	Location of Gain (Loss) Recognized in
Hedging Instruments:	Income on Derivatives	2013		2012

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


Derivatives Not Designated as	Location of Gain (Loss) Recognized as
Hedging Instruments:	Regulatory Liabilities/Assets	2013		2012

Interest rate swaps	Regulatory assets - noncurrent	$	4	$	7


Derivatives Designated as	Location of Gain (Loss) Recognized as
Cash Flow Hedges	Regulatory Liabilities/Assets	2013		2012

Interest rate swaps	Regulatory liabilities - noncurrent	$	10

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

Interest rate swaps	Regulatory liabilities - noncurrent	$	12	$	70

		Assets								Liabilities
				Eligible for Offset								Eligible for Offset
						Cash								Cash
				Derivative		Collateral						Derivative		Collateral
		Gross		Instruments		Received		Net		Gross		Instruments		Pledged		Net
March 31, 2013
PPL
	Energy Commodities	$	1,676	$	1,306	$	48	$	322	$	1,432	$	1,306	$	15	$	111
	Treasury Derivatives		206		16				190		73		16		26		31
Total		$	1,882	$	1,322	$	48	$	512	$	1,505	$	1,322	$	41	$	142

PPL Energy Supply
	Energy Commodities	$	1,676	$	1,306	$	48	$	322	$	1,432	$	1,306	$	15	$	111

December 31, 2012
PPL
	Energy Commodities	$	2,068	$	1,413	$	111	$	544	$	1,566	$	1,413	$	9	$	144
	Treasury Derivatives		29		19				10		128		19		30		79
Total		$	2,097	$	1,432	$	111	$	554	$	1,694	$	1,432	$	39	$	223

PPL Energy Supply
	Energy Commodities	$	2,068	$	1,413	$	111	$	544	$	1,566	$	1,413	$	9	$	144

16. Asset Retirement Obligations
16. Asset Retirement Obligations												16. Asset Retirement Obligations

(PPL, PPL Energy Supply, LKE, LG&E and KU)
(All Registrants except PPL Electric)												(All Registrants except PPL Electric)

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

				PPL											PPL
		PPL		Energy Supply		LKE		LG&E		KU			PPL		Energy Supply		LKE		LG&E		KU

Balance at December 31, 2012	Balance at December 31, 2012	$	552	$	375	$	131	$	62	$	69	Balance at December 31, 2012	$	552	$	375	$	131	$	62	$	69
	Accretion expense		9		7		2		1		1	Accretion expense		27		22		4		2		2
	Effect of foreign currency exchange rates		(2)									Obligations incurred		6		6
	Obligations settled		(3)		(2)		(1)		(1)			Changes in estimated cash flow or settlement date		123		1		122		17		105
Balance at March 31, 2013		$	556	$	380	$	132	$	62	$	70
												Effect of foreign currency exchange rates		(2)
												Obligations settled		(12)		(6)		(6)		(6)
Balance at September 30, 2013												Balance at September 30, 2013	$	694	$	398	$	251	$	75	$	176

		Foreign		Unrealized gains (losses)						Defined benefit plans									Foreign		Unrealized gains (losses)						Defined benefit plans
		currency		Available-				Equity		Prior		Actuarial		Transition					currency		Available-				Equity		Prior		Actuarial		Transition
		translation		for-sale		Qualifying		investees'		service		gain		asset					translation		for-sale		Qualifying		investees'		service		gain		asset
		adjustments		securities		derivatives		AOCI		costs		(loss)		(obligation)		Total			adjustments		securities		derivatives		AOCI		costs		(loss)		(obligation)		Total
PPL	PPL																	PPL
June 30, 2013																		June 30, 2013	$	(401)	$	135	$	102	$	1	$	(11)	$	(1,955)	$	1	$	(2,128)
Amounts arising during the period																		Amounts arising during the period		87		15		(9)										93
Reclassifications from AOCI																		Reclassifications from AOCI						(6)		(1)		2		33				28
Net OCI during the period																		Net OCI during the period		87		15		(15)		(1)		2		33				121
September 30, 2013																		September 30, 2013	$	(314)	$	150	$	87	$		$	(9)	$	(1,922)	$	1	$	(2,007)

December 31, 2012	December 31, 2012	$	(149)	$	112	$	132	$	1	$	(14)	$	(2,023)	$	1	$	(1,940)	December 31, 2012	$	(149)	$	112	$	132	$	1	$	(14)	$	(2,023)	$	1	$	(1,940)
Amounts arising during the period	Amounts arising during the period		(245)		23		62										(160)	Amounts arising during the period		(165)		40		77										(48)
Reclassifications from AOCI	Reclassifications from AOCI				(1)		(80)				1		34				(46)	Reclassifications from AOCI				(2)		(122)		(1)		5		101				(19)
Net OCI during the period	Net OCI during the period		(245)		22		(18)				1		34				(206)	Net OCI during the period		(165)		38		(45)		(1)		5		101				(67)
March 31, 2013		$	(394)	$	134	$	114	$	1	$	(13)	$	(1,989)	$	1	$	(2,146)

PPL Energy Supply
December 31, 2012				$	112	$	211			$	(10)	$	(265)			$	48
Amounts arising during the period					23												23
Reclassifications from AOCI					(1)		(30)				1		4				(26)
Net OCI during the period					22		(30)				1		4				(3)
March 31, 2013				$	134	$	181			$	(9)	$	(261)			$	45
September 30, 2013																		September 30, 2013	$	(314)	$	150	$	87	$		$	(9)	$	(1,922)	$	1	$	(2,007)

																	Three Months
		Affected Line Item on the Statements of Income															Affected Line Item on the Statements of Income
						Other																	Other
		Wholesale				Income											Wholesale						Income
		energy		Energy		(Expense),		Interest		Total		Income		Total			energy		Energy				(Expense),		Interest		Total		Income		Total
Details about AOCI	Details about AOCI	marketing		purchases		net		Expense		Pre-tax		Taxes		After-tax		Details about AOCI	marketing		purchases		Depreciation		net		Expense		Pre-tax		Taxes		After-tax
PPL	PPL															PPL
Available-for-sale securities	Available-for-sale securities					$	2			$	2	$	(1)	$	1	Available-for-sale securities							$	1			$	1	$	(1)
Qualifying derivatives	Qualifying derivatives															Qualifying derivatives
	Interest rate swaps							$	(5)		(5)		2		(3)	Interest rate swaps									$	(5)		(5)		2	$	(3)
	Cross-currency swaps						69				69		(17)		52	Cross-currency swaps								(25)		(1)		(26)		7		(19)
	Energy Commodities	$	67	$	(16)						51		(20)		31	Energy commodities	$	58	$	(11)	$	1						48		(20)		28
	Total	$	67	$	(16)	$	69	$	(5)		115		(35)		80	Total	$	58	$	(11)	$	1	$	(25)	$	(6)		17		(11)		6
Equity investees' AOCI																Equity investees' AOCI							$	1				1				1
Defined benefit plans	Defined benefit plans															Defined benefit plans
	Prior service costs										(2)		1		(1)	Prior service costs												(3)		1		(2)
	Net actuarial loss										(47)		13		(34)	Net actuarial loss												(45)		12		(33)
	Total									$	(49)	$	14		(35)	Total											$	(48)	$	13		(35)

Total reclassifications during the period														$	46
Total reclassifications																Total reclassifications
																during the period															$	(28)

PPL Energy Supply	PPL Energy Supply															PPL Energy Supply
Available-for-sale securities	Available-for-sale securities					$	2			$	2	$	(1)	$	1	Available-for-sale securities							$	1			$	1	$	(1)
Qualifying derivatives	Qualifying derivatives															Qualifying derivatives
	Energy Commodities	$	67	$	(16)						51		(21)		30
	Total	$	67	$	(16)						51		(21)		30	Energy commodities	$	58	$	(11)	$	1						48		(19)	$	29
Defined benefit plans	Defined benefit plans															Defined benefit plans
	Prior service costs										(2)		1		(1)	Prior service costs												(2)		1		(1)
	Net actuarial loss										(6)		2		(4)	Net actuarial loss												(5)		2		(3)
	Total									$	(8)	$	3		(5)	Total											$	(7)	$	3		(4)

Total reclassifications during the period														$	26
Total reclassifications																Total reclassifications
																during the period															$	25

																	Nine Months
																	Affected Line Item on the Statements of Income
																							Other
																	Wholesale						Income
																	energy		Energy				(Expense),		Interest		Total		Income		Total
Details about AOCI																Details about AOCI	marketing		purchases		Depreciation		net		Expense		Pre-tax		Taxes		After-tax
PPL																PPL
Available-for-sale securities																Available-for-sale securities							$	4			$	4	$	(2)	$	2
Qualifying derivatives																Qualifying derivatives
																Interest rate swaps									$	(14)		(14)		6		(8)
																Cross-currency swaps								45				45		(10)		35
																Energy commodities	$	198	$	(41)	$	2						159		(64)		95
																Total	$	198	$	(41)	$	2	$	45	$	(14)		190		(68)		122
Equity investees' AOCI																Equity investees' AOCI							$	1				1				1
Defined benefit plans																Defined benefit plans
																Prior service costs												(8)		3		(5)
																Net actuarial loss												(138)		37		(101)
																Total											$	(146)	$	40		(106)

Total reclassifications																Total reclassifications
																during the period															$	19

PPL Energy Supply																PPL Energy Supply
Available-for-sale securities																Available-for-sale securities							$	4			$	4	$	(2)	$	2
Qualifying derivatives																Qualifying derivatives
																Energy commodities	$	198	$	(41)	$	2						159		(63)		96
Defined benefit plans																Defined benefit plans
																Prior service costs												(5)		2		(3)
																Net actuarial loss												(18)		7		(11)
																Total											$	(23)	$	9		(14)

Total reclassifications																Total reclassifications
																during the period															$	84

	~~Three Months~~
		Supply Segment
~~Kentucky Gross Margins~~	$	75
~~Other operation and maintenance~~		10
~~Depreciation~~		~~(9)~~
~~Taxes, other than income~~		~~(1)~~
~~Income Taxes~~		~~(29)~~
~~Special items, after-tax~~		~~(3)~~
~~Total~~	$	43

PPL Energy Supply