UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 |
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FORM 10-Q |
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[X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended SeptemberJune 30, 20132014 |
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. |
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1-11459 | PPL Corporation (Exact name of Registrant as specified in its charter) (Pennsylvania) Two North Ninth Street Allentown, PA 18101-1179 (610) 774-5151 | 23-2758192 |
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1-32944 | 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 |
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1-905 | PPL Electric Utilities Corporation (Exact name of Registrant as specified in its charter) (Pennsylvania) Two North Ninth Street Allentown, PA 18101-1179 (610) 774-5151 | 23-0959590 |
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333-173665 | LG&E and KU Energy LLC (Exact name of Registrant as specified in its charter) (Kentucky) 220 West Main Street Louisville, KY 40202-1377 (502) 627-2000 | 20-0523163 |
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1-2893 | Louisville Gas and Electric Company (Exact name of Registrant as specified in its charter) (Kentucky) 220 West Main Street Louisville, KY 40202-1377 (502) 627-2000 | 61-0264150 |
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1-3464 | Kentucky Utilities Company (Exact name of Registrant as specified in its charter) (Kentucky and Virginia) One Quality Street Lexington, KY 40507-1462 (502) 627-2000 | 61-0247570 |
Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days.
| PPL Corporation | Yes X | No | |
| PPL 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 | |
Indicate by check mark whether the registrants have submitted electronically and posted on their corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrants were required to submit and post such files).
| PPL Corporation | Yes X | No | |
| PPL 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 | |
Indicate by check mark whether the registrants are large accelerated filers, accelerated filers, non-accelerated filers, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
| | Large accelerated filer | Accelerated filer | Non-accelerated filer | Smaller reporting company |
| PPL Corporation | [ X ] | [ ] | [ ] | [ ] |
| PPL 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 ] | [ ] |
Indicate by check mark whether the registrants are shell companies (as defined in Rule 12b-2 of the Exchange Act).
| PPL Corporation | Yes | No X | |
| PPL 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 | |
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
| PPL Corporation | Common stock, $0.01 par value, 630,249,634664,381,143 shares outstanding at OctoberJuly 25, 2013.2014. |
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| PPL Energy Supply, LLC | PPL Corporation indirectly holds all of the membership interests in PPL Energy Supply, LLC. |
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| PPL Electric Utilities Corporation | Common stock, no par value, 66,368,056 shares outstanding and all held by PPL Corporation at OctoberJuly 25, 2013.2014. |
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| LG&E and KU Energy LLC | PPL Corporation directly holds all of the membership interests in LG&E and KU Energy LLC. |
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| 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 OctoberJuly 25, 2013.2014. |
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| Kentucky Utilities Company | Common stock, no par value, 37,817,878 shares outstanding and all held by LG&E and KU Energy LLC at OctoberJuly 25, 2013.2014. |
This document is available free of charge at the Investor Center on PPL Corporation's website at www.pplweb.com. However, information on this website does not constitute a part of this Form 10-Q.
PPL CORPORATION
PPL ENERGY SUPPLY, LLC
PPL ELECTRIC UTILITIES CORPORATION
LG&E AND KU ENERGY LLC
LOUISVILLE GAS AND ELECTRIC COMPANY
KENTUCKY UTILITIES COMPANY
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBERJUNE 30, 20132014
Table of Contents
This combined Form 10-Q is separately filed by the following Registrants in their individual capacity: PPL Corporation, PPL Energy Supply, LLC, PPL Electric Utilities Corporation, LG&E and KU Energy LLC, Louisville Gas and Electric Company and Kentucky Utilities Company. Information contained herein relating to any individual Registrant is filed by such Registrant solely on its own behalf, and no Registrant makes any representation as to information relating to any other Registrant, except that information under "Forward-Looking Information" relating to subsidiaries of PPL Corporation is also attributed to PPL Corporation and information relating to the subsidiaries of LG&E and KU Energy LLC is also attributed to LG&E and KU Energy LLC.
Unless otherwise specified, references in this Report, individually, to PPL Corporation, PPL Energy Supply, LLC, PPL Electric Utilities Corporation, LG&E and KU Energy LLC, Louisville Gas and Electric Company and Kentucky Utilities Company are references to such entities directly or to one or more of their subsidiaries, as the case may be, the financial results of which subsidiaries are consolidated into such Registrants' financial statementsRegistrants in accordance with GAAP. This presentation has been applied where identification of particular subsidiaries is not material to the matter being disclosed, and to conform narrative disclosures to the presentation of financial information on a consolidated basis.
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PART I. FINANCIAL INFORMATION | | |
| Item 1. Financial Statements | | |
| | PPL Corporation and Subsidiaries | | |
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| | | | 4 | |
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| | PPL Energy Supply, LLC and Subsidiaries | | |
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| | | | 11 | |
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| | PPL Electric Utilities Corporation and Subsidiaries | | |
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| | | | 17 | |
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| | | | 20 | |
| | LG&E and KU Energy LLC and Subsidiaries | | |
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| | | | 26 | |
| | Louisville Gas and Electric Company | |
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| | Kentucky Utilities Company | |
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| Combined Notes to Condensed Financial Statements (Unaudited) | |
| | | 39 |
| | | 39 |
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| | | 42 |
| | | 4644 |
| | | 5047 |
| | | 5350 |
| | | 5652 |
| | | 5753 |
| | | 7167 |
| | | 7368 |
| | | 7469 |
| | | 8276 |
| | | 9488 |
| | | 9488 |
| | | 9588 |
| | | 9689 |
| | | 9891 |
| Item 2. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations | |
| | | 9993 |
| | | | 9993 |
| | | | 10195 |
| | | | 10296 |
| | | | | 10296 |
| | | | | 10397 |
| | | | | 10498 |
| | | 107101 |
| | | | 108102 |
| | | | 120112 |
| | | | 122115 |
| | | | 124117 |
| | | | 126119 |
| | | | 128120 |
| | | 130122 |
| | | | 130122 |
| | | | 135128 |
| | | | 139132 |
| | | | 139132 |
| | | | 139133 |
| | | | 139133 |
| | | 142136 |
| | | 142136 |
| | 143137 |
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PART II. OTHER INFORMATION | |
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| | 144 |
| | 144137 |
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| 147142 |
| 148143 |
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| 154149 |
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GLOSSARY OF TERMS AND ABBREVIATIONS
PPL Corporation and its 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.
LKS - LG&E and KU Services Company, a subsidiary of LKE that provides services 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 financing subsidiary of PPL that provides financing for the operations of PPL and certain subsidiaries. Debt issued by PPL Capital Funding is guaranteed as to payment by PPL.
PPL Electric - PPL Electric Utilities Corporation, a public utility subsidiary of PPL engaged in the regulated transmission and distribution of electricity in its Pennsylvania service area and that provides electricelectricity 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, PPL's regulated electricity distribution businesses in the U.K.
PPL Ironwood - PPL Ironwood, LLC, an indirect 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 to PPL and its subsidiaries.
PPL Susquehanna - PPL Susquehanna, LLC, a subsidiary of PPL Generation that owns a nuclear-powered generating station.
PPL WEM - PPL WEM Holdings plc (formerly WPD Investment Holdings Limited),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 direct or indirect wholly owned subsidiaries of PPL.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 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 requiring holders to purchase shares of PPL common stock on or prior to May 1, 2014.
20122013 Form 10-K - Annual Report to the SEC on Form 10-K for the year ended December 31, 2012.2013.
Act 11 - Act 11 of 2012 that became effective on April 16, 2012. The Pennsylvania legislation authorizes the PUC to approve two specific ratemaking mechanisms: the use of a fully projected future test year in base rate proceedings and, subject to certain conditions, a DSIC.
Act 129 - Act 129 of 2008 that became effective in October 2008. The law amends the Pennsylvania Public Utility Code and creates an energy efficiency and conservation program and smart metering technology requirements, adopts new PLR electricity supply procurement rules, provides remedies for market misconduct and changes to the existing Alternative Energy Portfolio Standard.AEPS.
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.
CAIR - the EPA's Clean Air Interstate Rule.
Cane Run Unit 7 - a combined-cycle natural gas combined-cycle unit under construction in Kentucky, jointly owned by LG&E and KU, which is expected to provide additional electric generating capacity of 141640 MW (141 MW and 499 MW to LG&E and KU byKU) in 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.
COLACOBRA - Consolidated Omnibus Budget Reconciliation Act, which provides individuals the option to temporarily continue employer group health insurance coverage after termination of employment.
CPCN - license applicationCertificate of Public Convenience and Necessity. Authority granted by the KPSC pursuant to Kentucky Revised Statute 278.020 to provide utility service to or for a combinedthe public or the construction permit and operating license fromof certain plant, equipment, property or facility for the NRC for a nuclear plant.furnishing of utility service to the public.
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.
DNO - Distribution Network Operator.
DOJ - U.S. Department of Justice.
DPCR4 - Distribution Price Control Review 4, the U.K. 5-yearfive-year rate review period applicable to WPD that commenced April 1, 2005.
DPCR5 - Distribution Price Control Review 5, the U.K. five-year rate review period applicable to WPD that commenced April 1, 2010.
DRIP - Dividend Reinvestment and Direct Stock Purchase Plan.
DSIC - Distribution System Improvement Chargethe 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 programscosts and revenues lost by implementing thoseDSM programs and/or incentives designed to provide financial rewards to the utility for implementing cost-effective DSM programs. The cost of such programs shall be assigned only to the class or classes of customers which benefit from the programs.
ECR - Environmental Cost Recovery. Pursuant to Kentucky Revised Statute 278.183, Kentucky electric utilities are entitled to the current recovery of costs of complying with the Clean Air Act, as amended, and those federal, state or local environmental requirements whichthat apply to coal combustion wastes 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.
ERCOT - the Electric Reliability Council of Texas, operator of the electricity transmission network and electricity energy market in most of Texas.
ESOP - Employee Stock Ownership Plan.
FERC - Federal Energy Regulatory Commission, the U.S. federal agency that regulates, among other things, interstate transmission and wholesale sales of electricity, hydroelectric power projects and related matters.
Fitch - Fitch, Inc., a credit rating agency.
FTRs - financial transmission rights, which are financial instruments established to manage price risk related to electricity transmission congestion that entitle the holder to receive compensation or require the holder to remit payment for certain congestion-related transmission charges based on the level of congestion between two pricing locations, (sourceknown as source and sink).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.
Green River Unit 5 - a natural gas combined-cycle unit proposed to be built in Kentucky, jointly owned by LG&E and KU, which is expected to provide additional electric generating capacity of 700MW (280 MW and 420 MW of LG&E and KU, respectively).
IBEW - International Brotherhood of Electrical Workers.
If-Converted Method - A method applicable for calculatingapplied to calculate diluted EPS for a company with outstanding convertible debt outstanding.debt. The method is applied as follows: Interest charges (after-tax)(after tax) applicable to the convertible debt are added back to net income and the convertible debt is assumed to have been converted to equity at the beginning of the period, and the resulting common shares are treated as outstanding shares. Both adjustments are made only for purposes of calculating diluted EPS. This method was applied in 2013 and 2014 to PPL's Equity Units prior to settlement beginning in the first quarter of 2013.settlement.
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, 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.
MPSC - Montana Public Service Commission.
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.
NGCC - Natural gas-fired combined-cycle generating plant.
NorthWestern - NorthWestern Corporation, a Delaware corporation, and successor in interest to Montana Power's electricity delivery business, including Montana Power's rights and obligations under contracts with PPL Montana.
NPNS - the normal purchases and normal sales exception as permitted by derivative accounting rules. Derivatives that qualify for this exception may receive accrual accounting treatment.
NRC - Nuclear Regulatory Commission, the U.S. federal agency that regulates nuclear power facilities.
OCI - other comprehensive income or loss.
Ofgem - 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 of 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 nameplatesummer rating capacities of 2,3902,120 MW.
PADEP - the Pennsylvania Department of Environmental Protection, a state government agency.
PJM - PJM Interconnection, L.L.C., operator of the electricelectricity transmission network and electricelectricity energy market in all or parts of Delaware, Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia and the District of Columbia.
PLR - Provider of Last Resort, the role of PPL Electric in providing default electricity supply within its delivery area to retail customers who have not chosen to select an alternative electricity supplier under the Customer Choice Act.
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.
Purchase Contract(s) - refers collectively to the 2010 and 2011 Purchase Contracts, (whichwhich 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. RAV is based on historical investment costs at time of privatization, plus subsequent allowed additions less annual regulatory depreciation, and represents the value on which DNOs earn a return in accordance with the regulatory cost of capital. RAV is indexed to Retail Price Index in order to allow for the effects of inflation. Since the beginning of DPCR5 in April 2010, RAV additions have been based on a percentage of annual total expenditures.
RCRA - Resource Conservation and Recovery Act of 1976.
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 needednecessary 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.Board.
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 - ReliabilityFirst 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.
RIIO-ED1 - RIIO represents "Revenues = Incentive + Innovation + Outputs - Electricity Distribution." RIIO-ED1 refers to the initial eight-year rate review period applicable to WPD commencing April 1, 2015.
Riverstone - Riverstone Holdings LLC, a Delaware limited liability company and ultimate parent company of the entities that own the electricity generating assets to be contributed to Talen Energy other than those assets to be contributed by virtue of the spinoff of PPL Energy Supply.
RJS Power - RJS Power Holdings LLC, a Delaware limited liability company controlled by Riverstone, currently expected to hold the competitive generation assets to be contributed to Talen Energy other than those assets to be contributed by virtue of the spinoff of PPL Energy Supply.
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 andreporting. It also 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 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 legislationstatute that addresses remediation of contaminated sites; states also have similar statutes.
Talen Energy - Talen Energy Corporation, the Delaware corporation formed to be the publicly traded company and owner of the competitive generation assets of PPL Energy Supply and certain affiliates of Riverstone.
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 electricelectricity 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.
Treasury Stock Method - A method applied to calculate diluted EPS that assumes any proceeds that could be obtained upon exercise of options and warrants (and their equivalents) would be used to purchase common stock at the average market price during the relevant period.
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 whichthat 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 20122013 Form 10-K and in "Item 2. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Form 10-Q, the following are among the important factors that could cause actual results to differ materially 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 or revenue filings by PPL Electric, LG&E, KU or WPD; |
· | the impact of any state, federal or foreign investigations applicable to the Registrants and their subsidiaries and the energy industry; |
· | the effect of any business or industry restructuring; |
· | development of new projects, markets and technologies; |
· | performance of new ventures; and |
· | business dispositions or acquisitions, including the PPL Energy Supply spinoff transaction with Riverstone and the anticipated formation of Talen Energy and our ability to successfully operate acquired businesses and realize expected benefits from such business acquisitions.transactions. |
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 | PART I. FINANCIAL INFORMATION | PART I. FINANCIAL INFORMATION |
ITEM 1. Financial Statements | | | | | | | | | | | | | | | | | | | | | | | | | |
CONDENSED CONSOLIDATED STATEMENTS OF INCOME | PPL Corporation and Subsidiaries | (Unaudited) | (Unaudited) | | | | | | | | | | | (Unaudited) | | | | | | | | | | |
(Millions of Dollars, except share data) | (Millions of Dollars, except share data) | | | | | (Millions of Dollars, except share data) | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended | | Nine Months Ended | | | | Three Months Ended | | Six Months Ended |
| | | | September 30, | | September 30, | | | | June 30, | | June 30, |
| | | | 2013 | | 2012 | | 2013 | | 2012 | | | | 2014 | | 2013 | | 2014 | | 2013 |
Operating Revenues | Operating Revenues | | | | | | | | | Operating Revenues | | | | | | | | |
| Utility | | $ | 1,739 | | $ | 1,693 | | $ | 5,344 | | $ | 5,012 | Utility | | $ | 1,830 | | $ | 1,655 | | $ | 3,992 | | $ | 3,605 |
| Unregulated retail electric and gas | | | 264 | | 218 | | | 758 | | 620 | Unregulated wholesale energy | | | 591 | | 1,401 | | | (838) | | 1,544 |
| Wholesale energy marketing | | | | | | | | | | | Unregulated retail energy | | | 280 | | 257 | | | 629 | | 494 |
| | Realized | | | 980 | | 1,076 | | | 2,767 | | 3,367 | Energy-related businesses | | | 173 | | | 137 | | | 314 | | | 264 |
| | Unrealized economic activity (Note 14) | | | (49) | | (716) | | | (281) | | (322) | Total Operating Revenues | | | 2,874 | | | 3,450 | | | 4,097 | | | 5,907 |
| 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 | Operating Expenses | | | | | | | | | | | Operating Expenses | | | | | | | | | | |
| Operation | | | | | | | | | | | |
| | Fuel | | | 494 | | 570 | | | 1,464 | | 1,405 | |
| | Energy purchases | | | | | | | | | | | Operation | | | | | | | | | | |
| | Realized | | | 592 | | 583 | | | 1,855 | | 2,253 | | Fuel | | | 491 | | 441 | | | 1,249 | | 970 |
| | Unrealized economic activity (Note 14) | | | (37) | | (569) | | | (192) | | (420) | | Energy purchases | | | 351 | | 1,051 | | | (1,143) | | 1,108 |
| | Other operation and maintenance | | | 669 | | 650 | | | 2,043 | | 2,095 | | Other operation and maintenance | | | 741 | | 698 | | | 1,438 | | 1,374 |
| Depreciation | | | 289 | | 278 | | | 859 | | 813 | Depreciation | | | 312 | | 286 | | | 617 | | 570 |
| Taxes, other than income | | | 90 | | 90 | | | 272 | | 268 | Taxes, other than income | | | 93 | | 86 | | | 197 | | 182 |
| Energy-related businesses | | | 151 | | | 137 | | | 403 | | | 363 | Energy-related businesses | | | 168 | | | 130 | | | 306 | | | 252 |
| Total Operating Expenses | | | 2,248 | | | 1,739 | | | 6,704 | | | 6,777 | Total Operating Expenses | | | 2,156 | | | 2,692 | | | 2,664 | | | 4,456 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Operating Income | Operating Income | | | 857 | | 664 | | | 2,308 | | 2,287 | Operating Income | | | 718 | | 758 | | | 1,433 | | 1,451 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Other Income (Expense) - net | Other Income (Expense) - net | | | (116) | | (44) | | | 19 | | (31) | Other Income (Expense) - net | | | (82) | | 13 | | | (105) | | 135 |
| | | | | | | | | | | | | | | | | | | | | | | |
Other-Than-Temporary Impairments | | | 1 | | | | | 1 | | 1 | |
| | | | | | | | | | | | | |
Interest Expense | Interest Expense | | | 246 | | | 248 | | | 755 | | | 714 | Interest Expense | | | 258 | | | 258 | | | 522 | | | 509 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Income from Continuing Operations Before Income Taxes | Income from Continuing Operations Before Income Taxes | | | 494 | | 372 | | | 1,571 | | 1,541 | Income from Continuing Operations Before Income Taxes | | | 378 | | 513 | | | 806 | | 1,077 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Income Taxes | Income Taxes | | | 84 | | | 17 | | | 344 | | | 364 | Income Taxes | | | 149 | | | 109 | | | 261 | | | 260 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Income from Continuing Operations After Income Taxes | Income from Continuing Operations After Income Taxes | | | 410 | | 355 | | | 1,227 | | 1,177 | Income from Continuing Operations After Income Taxes | | | 229 | | 404 | | | 545 | | 817 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Income (Loss) from Discontinued Operations (net of income taxes) | Income (Loss) from Discontinued Operations (net of income taxes) | | | 1 | | | | | | 2 | | | (6) | Income (Loss) from Discontinued Operations (net of income taxes) | | | | | | 1 | | | | | | 1 |
| | | | | | | | | | | | | |
Net Income | | | 411 | | 355 | | | 1,229 | | 1,171 | |
| | | | | | | | | | | | | |
Net Income Attributable to Noncontrolling Interests | | | 1 | | | | | | 1 | | | 4 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net Income Attributable to PPL Shareowners | Net Income Attributable to PPL Shareowners | | $ | 410 | | $ | 355 | | $ | 1,228 | | $ | 1,167 | Net Income Attributable to PPL Shareowners | | $ | 229 | | $ | 405 | | $ | 545 | | $ | 818 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Amounts Attributable to PPL Shareowners: | Amounts Attributable to PPL Shareowners: | | | | | | | | | | | Amounts Attributable to PPL Shareowners: | | | | | | | | | | |
| Income from Continuing Operations After Income Taxes | | $ | 409 | | $ | 355 | | $ | 1,226 | | $ | 1,173 | Income from Continuing Operations After Income Taxes | | $ | 229 | | $ | 404 | | $ | 545 | | $ | 817 |
| Income (Loss) from Discontinued Operations (net of income taxes) | | | 1 | | | | | | 2 | | | (6) | Income (Loss) from Discontinued Operations (net of income taxes) | | | | | | 1 | | | | | | 1 |
| Net Income | | $ | 410 | | $ | 355 | | $ | 1,228 | | $ | 1,167 | Net Income | | $ | 229 | | $ | 405 | | $ | 545 | | $ | 818 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Earnings Per Share of Common Stock: | Earnings Per Share of Common Stock: | | | | | | | | | | | Earnings Per Share of Common Stock: | | | | | | | | | | |
| Income from Continuing Operations After Income Taxes Available to PPL | | | Income from Continuing Operations After Income Taxes Available to PPL | | |
| Common Shareowners: | | | | | | | | | | | Common Shareowners: | | | | | | | | | | |
| | Basic | | $ | 0.65 | | $ | 0.61 | | $ | 2.03 | | $ | 2.01 | | Basic | | $ | 0.35 | | $ | 0.68 | | $ | 0.84 | | $ | 1.39 |
| | Diluted | | $ | 0.62 | | $ | 0.61 | | $ | 1.90 | | $ | 2.01 | | Diluted | | $ | 0.34 | | $ | 0.63 | | $ | 0.83 | | $ | 1.28 |
| Net Income Available to PPL Common Shareowners: | | | | | | | | | | | Net Income Available to PPL Common Shareowners: | | | | | | | | | | |
| | Basic | | $ | 0.65 | | $ | 0.61 | | $ | 2.03 | | $ | 2.00 | | Basic | | $ | 0.35 | | $ | 0.68 | | $ | 0.84 | | $ | 1.39 |
| | Diluted | | $ | 0.62 | | $ | 0.61 | | $ | 1.90 | | $ | 2.00 | | Diluted | | $ | 0.34 | | $ | 0.63 | | $ | 0.83 | | $ | 1.28 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Dividends Declared Per Share of Common Stock | Dividends Declared Per Share of Common Stock | | $ | 0.3675 | | $ | 0.36 | | $ | 1.1025 | | $ | 1.08 | Dividends Declared Per Share of Common Stock | | $ | 0.3725 | | $ | 0.3675 | | $ | 0.7450 | | $ | 0.7350 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Weighted-Average Shares of Common Stock Outstanding (in thousands) | Weighted-Average Shares of Common Stock Outstanding (in thousands) | | | | | | | | | | | Weighted-Average Shares of Common Stock Outstanding (in thousands) | | | | | | | | | | |
| | Basic | | | 631,046 | | 580,585 | | | 601,275 | | 579,847 | | Basic | | | 653,132 | | 589,834 | | | 642,002 | | 586,683 |
| | Diluted | | | 664,343 | | 582,636 | | | 662,094 | | 580,930 | | Diluted | | | 665,792 | | 664,615 | | | 664,927 | | 661,263 |
| | | | | | | | | | | | | |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements. |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME |
PPL Corporation and Subsidiaries | (Unaudited) | (Millions of Dollars) | | | | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended | | Nine Months Ended | | | | Three Months Ended | | Six Months Ended |
| | | | September 30, | | September 30, | | | | June 30, | | June 30, |
| | | | 2013 | | 2012 | | 2013 | | 2012 | | | | 2014 | | 2013 | | 2014 | | 2013 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net income | Net income | | $ | 411 | | $ | 355 | | $ | 1,229 | | $ | 1,171 | Net income | | $ | 229 | | $ | 405 | | $ | 545 | | $ | 818 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Other comprehensive income (loss): | Other comprehensive income (loss): | | | | | | | | | | Other comprehensive income (loss): | | | | | | | | | |
Amounts arising during the period - gains (losses), net of tax (expense) | Amounts arising during the period - gains (losses), net of tax (expense) | | | | | | | | | | | Amounts arising during the period - gains (losses), net of tax (expense) | | | | | | | | | | |
| benefit: | | | | | | | | | | | benefit: | | | | | | | | | | |
| | Foreign currency translation adjustments, net of tax of $8, $1, $1, $1 | | 87 | | 152 | | | (165) | | | 49 | | Foreign currency translation adjustments, net of tax of $5, ($1), $6, ($7) | | (3) | | (7) | | | 128 | | | (252) |
| | Available-for-sale securities, net of tax of ($15), ($14), ($42), ($32) | | 15 | | 13 | | | 40 | | | 30 | | Available-for-sale securities, net of tax of ($15), ($2), ($21), ($27) | | 14 | | 2 | | | 19 | | | 25 |
| | Qualifying derivatives, net of tax of $2, $14, ($41), ($29) | | (9) | | (41) | | | 77 | | | 39 | | Qualifying derivatives, net of tax of $4, ($23), $29, ($43) | | (1) | | 24 | | | (47) | | | 86 |
| | Equity investees' other comprehensive income (loss), net of | | | | | | | | | | Defined benefit plans: | | | | | | | | | | |
| | tax of $0, $0, $0, $2 | | | | | | | | | | (3) | | Net actuarial gain (loss), net of tax of $2, $0, $2, $0 | | (2) | | | | | (2) | | | |
| | 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) | |
Reclassifications from AOCI - (gains) losses, net of tax expense (benefit): | | Reclassifications from AOCI - (gains) losses, net of tax expense (benefit): | | | | | | | | | | |
| | Equity investees' other comprehensive (income) loss, net of | | | | | | | | | | Available-for-sale securities, net of tax of $1, $0, $2, $1 | | (1) | | (1) | | | (2) | | | (2) |
| | tax of $0, $0, $0, $0 | | (1) | | | | | (1) | | | | | Qualifying derivatives, net of tax of $5, $22, $1, $57 | | (5) | | (36) | | | 14 | | | (116) |
| | Defined benefit plans: | | | | | | | | | | | | Defined benefit plans: | | | | | | | | | | |
| | | Prior service costs, net of tax of ($1), ($1), ($3), ($4) | | 2 | | 1 | | | 5 | | | 6 | | | Prior service costs, net of tax of ($1), ($1), ($2), ($2) | | 1 | | 2 | | | 2 | | | 3 |
| | | Net actuarial loss, net of tax of ($12), ($6), ($37), ($17) | | 33 | | 17 | | | 101 | | | 54 | | | Net actuarial loss, net of tax of ($8), ($12), ($17), ($25) | | | 28 | | | 34 | | | 55 | | | 68 |
Total other comprehensive income (loss) attributable to PPL | Total other comprehensive income (loss) attributable to PPL | | | | | | | | | | | | | Total other comprehensive income (loss) attributable to PPL | | | | | | | | | | |
| Shareowners | | | 121 | | | 81 | | | (67) | | | (251) | Shareowners | | | 31 | | | 18 | | | 167 | | | (188) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Comprehensive income (loss) | | 532 | | 436 | | | 1,162 | | | 920 | |
| | Comprehensive income attributable to noncontrolling interests | | | 1 | | | | | | 1 | | | 4 | |
| | | | | | | | | | | | | | |
Comprehensive income (loss) attributable to PPL Shareowners | Comprehensive income (loss) attributable to PPL Shareowners | | $ | 531 | | $ | 436 | | $ | 1,161 | | $ | 916 | Comprehensive income (loss) attributable to PPL Shareowners | | $ | 260 | | $ | 423 | | $ | 712 | | $ | 630 |
| | | | | | | | | | | | | | | | | | | | | | |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements. |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
PPL Corporation and Subsidiaries | (Unaudited) | (Millions of Dollars) | | | | | | | | | | | | | | | |
| | | | Nine Months Ended September 30, | | | | Six Months Ended June 30, |
| | | | 2013 | | 2012 | | | | 2014 | | 2013 |
Cash Flows from Operating Activities | Cash Flows from Operating Activities | | | | | | Cash Flows from Operating Activities | | | | | |
| Net income | | $ | 1,229 | | $ | 1,171 | Net income | | $ | 545 | | $ | 818 |
| Adjustments to reconcile net income to net cash provided by operating activities | | | | | | Adjustments to reconcile net income to net cash provided by operating activities | | | | | |
| | Depreciation | | | 859 | | 813 | | Depreciation | | | 617 | | 570 |
| | Amortization | | | 164 | | 144 | | Amortization | | | 112 | | 113 |
| | Defined benefit plans - expense | | | 135 | | 123 | | Defined benefit plans - expense | | | 59 | | 91 |
| | Deferred income taxes and investment tax credits | | | 301 | | 298 | | Deferred income taxes and investment tax credits | | | 133 | | 291 |
| | Unrealized (gains) losses on derivatives, and other hedging activities | | | 126 | | 21 | | Unrealized (gains) losses on derivatives, and other hedging activities | | | 301 | | (11) |
| | Other | | | 92 | | 34 | | Adjustment to WPD line loss accrual | | | 65 | | 24 |
| Change in current assets and current liabilities | | | | | | | Other | | | 51 | | 26 |
| | Accounts receivable | | | (79) | | 19 | Change in current assets and current liabilities | | | | | |
| | Accounts payable | | | (140) | | (175) | | Accounts receivable | | | (73) | | (189) |
| | Unbilled revenues | | | 197 | | 121 | | Accounts payable | | | (99) | | (75) |
| | Counterparty collateral | | | (77) | | 13 | | Unbilled revenues | | | 161 | | 144 |
| | Taxes payable | | | 76 | | 29 | | Fuel, materials and supplies | | | 52 | | 29 |
| | Uncertain tax positions | | | (104) | | (4) | | Prepayments | | | (35) | | (64) |
| | Accrued interest | | | 8 | | 43 | | Counterparty collateral | | | (15) | | (61) |
| | Other | | | (111) | | 8 | | Taxes payable | | | 51 | | 128 |
| Other operating activities | | | | | | | Uncertain tax positions | | | | | (98) |
| | Defined benefit plans - funding | | | (505) | | (526) | | Accrued interest | | | (107) | | (119) |
| | Other assets | | | (59) | | 1 | | Other | | | (82) | | (142) |
| | Other liabilities | | | 111 | | | (39) | Other operating activities | | | | | |
| | Net cash provided by operating activities | | | 2,223 | | | 2,094 | | Defined benefit plans - funding | | | (218) | | (468) |
| | | Other assets | | | 1 | | (64) |
| | | Other liabilities | | | 64 | | | 4 |
| | | Net cash provided by operating activities | | | 1,583 | | | 947 |
Cash Flows from Investing Activities | Cash Flows from Investing Activities | | | | | | Cash Flows from Investing Activities | | | | | |
| | Expenditures for property, plant and equipment | | | (1,854) | | (1,797) |
| Expenditures for property, plant and equipment | | | (2,768) | | (2,078) | Expenditures for intangible assets | | | (48) | | (40) |
| Ironwood Acquisition, net of cash acquired | | | | | (84) | Purchases of nuclear plant decommissioning trust investments | | | (73) | | (66) |
| Purchases of nuclear plant decommissioning trust investments | | | (102) | | (112) | Proceeds from the sale of nuclear plant decommissioning trust investments | | | 65 | | 59 |
| Proceeds from the sale of nuclear plant decommissioning trust investments | | | 92 | | 102 | Proceeds from the receipt of grants | | | 56 | | 4 |
| Net (increase) decrease in restricted cash and cash equivalents | | | 13 | | 62 | Net (increase) decrease in restricted cash and cash equivalents | | | (251) | | (17) |
| Other investing activities | | | (23) | | | (6) | Other investing activities | | | 2 | | | 23 |
| | Net cash provided by (used in) investing activities | | | (2,788) | | | (2,116) | | Net cash provided by (used in) investing activities | | | (2,103) | | | (1,834) |
Cash Flows from Financing Activities | Cash Flows from Financing Activities | | | | | | Cash Flows from Financing Activities | | | | | |
| Issuance of long-term debt | | | 862 | | 824 | Issuance of long-term debt | | | 296 | | 450 |
| Retirement of long-term debt | | | (309) | | (105) | Retirement of long-term debt | | | (239) | | (9) |
| Repurchase of common stock | | | (74) | | | Repurchase of common stock | | | | | (28) |
| Issuance of common stock | | | 1,409 | | 54 | Issuance of common stock | | | 1,017 | | 259 |
| Payment of common stock dividends | | | (645) | | (623) | Payment of common stock dividends | | | (470) | | (426) |
| Redemption of preference stock of a subsidiary | | | | | (250) | Contract adjustment payments | | | (21) | | (48) |
| Debt issuance and credit facility costs | | | (37) | | (10) | Net increase (decrease) in short-term debt | | | 107 | | 563 |
| Contract adjustment payments | | | (72) | | (71) | Other financing activities | | | (19) | | | (51) |
| Net increase (decrease) in short-term debt | | | (148) | | (51) | | | Net cash provided by (used in) financing activities | | | 671 | | | 710 |
| Other financing activities | | | (20) | | | (8) | |
| | | Net cash provided by (used in) financing activities | | | 966 | | | (240) | |
Effect of Exchange Rates on Cash and Cash Equivalents | Effect of Exchange Rates on Cash and Cash Equivalents | | | (11) | | | 6 | Effect of Exchange Rates on Cash and Cash Equivalents | | | 16 | | | (13) |
Net Increase (Decrease) in Cash and Cash Equivalents | Net Increase (Decrease) in Cash and Cash Equivalents | | | 390 | | (256) | Net Increase (Decrease) in Cash and Cash Equivalents | | | 167 | | (190) |
Cash and Cash Equivalents at Beginning of Period | Cash and Cash Equivalents at Beginning of Period | | | 901 | | | 1,202 | Cash and Cash Equivalents at Beginning of Period | | | 1,102 | | | 901 |
Cash and Cash Equivalents at End of Period | Cash and Cash Equivalents at End of Period | | $ | 1,291 | | $ | 946 | Cash and Cash Equivalents at End of Period | | $ | 1,269 | | $ | 711 |
| | | | | | | | |
| | | | | | | |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements. |
CONDENSED CONSOLIDATED BALANCE SHEETS |
PPL Corporation and Subsidiaries |
(Unaudited) |
(Millions of Dollars, shares in thousands) |
| | | | | September 30, | | December 31, |
| | | | | 2013 | | 2012 |
Assets | | | | | | |
| | | | | | | | | |
Current Assets | | | | | | |
| Cash and cash equivalents | | $ | 1,291 | | $ | 901 |
| Restricted cash and cash equivalents | | | 52 | | | 54 |
| Accounts receivable (less reserve: 2013, $65; 2012, $64) | | | | | | |
| | Customer | | | 857 | | | 745 |
| | Other | | | 117 | | | 79 |
| Unbilled revenues | | | 652 | | | 857 |
| Fuel, materials and supplies | | | 686 | | | 673 |
| Prepayments | | | 173 | | | 166 |
| Price risk management assets | | | 1,045 | | | 1,525 |
| Regulatory assets | | | 31 | | | 19 |
| Other current assets | | | 67 | | | 49 |
| Total Current Assets | | | 4,971 | | | 5,068 |
| | | | | | | | | |
Investments | | | | | | |
| Nuclear plant decommissioning trust funds | | | 804 | | | 712 |
| Other investments | | | 47 | | | 47 |
| Total Investments | | | 851 | | | 759 |
| | | | | | | | | |
Property, Plant and Equipment | | | | | | |
| Regulated utility plant | | | 26,498 | | | 25,196 |
| Less: accumulated depreciation - regulated utility plant | | | 4,636 | | | 4,164 |
| | Regulated utility plant, net | | | 21,862 | | | 21,032 |
| Non-regulated property, plant and equipment | | | | | | |
| | Generation | | | 11,653 | | | 11,295 |
| | Nuclear fuel | | | 590 | | | 524 |
| | Other | | | 834 | | | 726 |
| Less: accumulated depreciation - non-regulated property, plant and equipment | | | 6,173 | | | 5,942 |
| | Non-regulated property, plant and equipment, net | | | 6,904 | | | 6,603 |
| Construction work in progress | | | 2,822 | | | 2,397 |
| Property, Plant and Equipment, net (a) | | | 31,588 | | | 30,032 |
| | | | | | | | | |
Other Noncurrent Assets | | | | | | |
| Regulatory assets | | | 1,423 | | | 1,483 |
| Goodwill | | | 4,050 | | | 4,158 |
| Other intangibles | | | 932 | | | 925 |
| Price risk management assets | | | 550 | | | 572 |
| Other noncurrent assets | | | 623 | | | 637 |
| Total Other Noncurrent Assets | | | 7,578 | | | 7,775 |
| | | | | | |
Total Assets | | $ | 44,988 | | $ | 43,634 |
(a) | At September 30, 2013 and December 31, 2012, includes $413 million and $428 million of PP&E, consisting primarily of "Generation," including leasehold improvements from the consolidation of a VIE that is the owner/lessor of the Lower Mt. Bethel plant. |
CONDENSED CONSOLIDATED BALANCE SHEETS |
PPL Corporation and Subsidiaries |
(Unaudited) |
(Millions of Dollars, shares in thousands) |
| | | | | June 30, | | December 31, |
| | | | | 2014 | | 2013 |
Assets | | | | | | |
| | | | | | | | | |
Current Assets | | | | | | |
| Cash and cash equivalents | | $ | 1,269 | | $ | 1,102 |
| Restricted cash and cash equivalents | | | 332 | | | 83 |
| Accounts receivable (less reserve: 2014, $47; 2013, $64) | | | | | | |
| | Customer | | | 981 | | | 923 |
| | Other | | | 115 | | | 97 |
| Unbilled revenues | | | 680 | | | 835 |
| Fuel, materials and supplies | | | 651 | | | 702 |
| Prepayments | | | 160 | | | 153 |
| Deferred income taxes | | | 317 | | | 246 |
| Price risk management assets | | | 954 | | | 942 |
| Regulatory assets | | | 29 | | | 33 |
| Other current assets | | | 49 | | | 37 |
| Total Current Assets | | | 5,537 | | | 5,153 |
| | | | | | | | | |
Investments | | | | | | |
| Nuclear plant decommissioning trust funds | | | 911 | | | 864 |
| Other investments | | | 39 | | | 43 |
| Total Investments | | | 950 | | | 907 |
| | | | | | | | | |
Property, Plant and Equipment | | | | | | |
| Regulated utility plant | | | 29,473 | | | 27,755 |
| Less: accumulated depreciation - regulated utility plant | | | 5,291 | | | 4,873 |
| | Regulated utility plant, net | | | 24,182 | | | 22,882 |
| Non-regulated property, plant and equipment | | | | | | |
| | Generation | | | 11,858 | | | 11,881 |
| | Nuclear fuel | | | 624 | | | 591 |
| | Other | | | 864 | | | 834 |
| Less: accumulated depreciation - non-regulated property, plant and equipment | | | 6,294 | | | 6,172 |
| | Non-regulated property, plant and equipment, net | | | 7,052 | | | 7,134 |
| Construction work in progress | | | 3,197 | | | 3,071 |
| Property, Plant and Equipment, net | | | 34,431 | | | 33,087 |
| | | | | | | | | |
Other Noncurrent Assets | | | | | | |
| Regulatory assets | | | 1,242 | | | 1,246 |
| Goodwill | | | 4,301 | | | 4,225 |
| Other intangibles | | | 952 | | | 947 |
| Price risk management assets | | | 423 | | | 337 |
| Other noncurrent assets | | | 357 | | | 357 |
| Total Other Noncurrent Assets | | | 7,275 | | | 7,112 |
| | | | | | |
Total Assets | | $ | 48,193 | | $ | 46,259 |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
CONDENSED CONSOLIDATED BALANCE SHEETS | PPL Corporation and Subsidiaries | (Unaudited) | (Millions of Dollars, shares in thousands) | | | | | September 30, | | December 31, | | | | June 30, | | December 31, |
| | | | 2013 | | 2012 | | | | 2014 | | 2013 |
Liabilities and Equity | Liabilities and Equity | | | | | | Liabilities and Equity | | | | | |
| | | | | | | | | | | | | | |
Current Liabilities | Current Liabilities | | | | | | Current Liabilities | | | | | |
| Short-term debt | | $ | 499 | | $ | 652 | Short-term debt | | $ | 808 | | $ | 701 |
| Long-term debt due within one year | | | 751 | | 751 | Long-term debt due within one year | | | 304 | | 315 |
| Accounts payable | | | 1,079 | | 1,252 | Accounts payable | | | 1,178 | | 1,308 |
| Taxes | | | 170 | | 90 | Taxes | | | 124 | | 114 |
| Interest | | | 325 | | 325 | Interest | | | 223 | | 325 |
| Dividends | | | 232 | | 210 | Dividends | | | 248 | | 232 |
| Price risk management liabilities | | | 823 | | 1,065 | Price risk management liabilities | | | 1,259 | | 829 |
| Regulatory liabilities | | | 68 | | 61 | Regulatory liabilities | | | 82 | | 90 |
| Other current liabilities | | | 1,001 | | | 1,219 | Other current liabilities | | | 930 | | | 998 |
| Total Current Liabilities | | | 4,948 | | | 5,625 | Total Current Liabilities | | | 5,156 | | | 4,912 |
| | | | | | | | | | | | | | |
Long-term Debt | Long-term Debt | | | 19,092 | | | 18,725 | Long-term Debt | | | 20,819 | | | 20,592 |
| | | | | | | | | | | | | | |
Deferred Credits and Other Noncurrent Liabilities | Deferred Credits and Other Noncurrent Liabilities | | | | | | Deferred Credits and Other Noncurrent Liabilities | | | | | |
| Deferred income taxes | | | 3,777 | | 3,387 | Deferred income taxes | | | 4,261 | | 3,928 |
| Investment tax credits | | | 345 | | 328 | Investment tax credits | | | 278 | | 342 |
| Price risk management liabilities | | | 538 | | 629 | Price risk management liabilities | | | 498 | | 415 |
| Accrued pension obligations | | | 1,529 | | 2,076 | Accrued pension obligations | | | 1,080 | | 1,286 |
| Asset retirement obligations | | | 678 | | 536 | Asset retirement obligations | | | 712 | | 687 |
| Regulatory liabilities | | | 1,054 | | 1,010 | Regulatory liabilities | | | 1,026 | | 1,048 |
| Other deferred credits and noncurrent liabilities | | | 665 | | | 820 | Other deferred credits and noncurrent liabilities | | | 628 | | | 583 |
| Total Deferred Credits and Other Noncurrent Liabilities | | | 8,586 | | | 8,786 | Total Deferred Credits and Other Noncurrent Liabilities | | | 8,483 | | | 8,289 |
| | | | | | | | | | | | | | |
Commitments and Contingent Liabilities (Notes 5, 6 and 10) | | | | | | |
Commitments and Contingent Liabilities (Notes 6 and 10) | | Commitments and Contingent Liabilities (Notes 6 and 10) | | | | | |
| | | | | | | | | | | | | | |
Equity | Equity | | | | | | Equity | | | | | |
| PPL Shareowners' Common Equity | | | | | | | Common stock - $0.01 par value (a) | | | 7 | | 6 |
| | Common stock - $0.01 par value (a) | | | 6 | | 6 | | Additional paid-in capital | | | 9,358 | | 8,316 |
| | Additional paid-in capital | | | 8,305 | | 6,936 | | Earnings reinvested | | | 5,768 | | 5,709 |
| | Earnings reinvested | | | 6,040 | | 5,478 | | Accumulated other comprehensive loss | | | (1,398) | | | (1,565) |
| | Accumulated other comprehensive loss | | | (2,007) | | | (1,940) | Total Equity | | | 13,735 | | | 12,466 |
| | Total PPL Shareowners' Common Equity | | | 12,344 | | 10,480 | | | | | | | |
| Noncontrolling Interests | | | 18 | | | 18 | |
| Total Equity | | | 12,362 | | | 10,498 | |
| | | | | | | | |
Total Liabilities and Equity | Total Liabilities and Equity | | $ | 44,988 | | $ | 43,634 | Total Liabilities and Equity | | $ | 48,193 | | $ | 46,259 |
(a) | 780,000 shares authorized; 630,239664,018 and 581,944630,321 shares issued and outstanding at SeptemberJune 30, 20132014 and December 31, 2012.2013. |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY |
PPL Corporation and Subsidiaries |
(Unaudited) |
(Millions of Dollars) |
| | | | PPL Shareowners | | | | | | |
| | | | Common | | | | | | | | | | | | | | | | | | |
| | | | stock | | | | | | | | | | | | Accumulated | | | | | | |
| | | | shares | | | | | | Additional | | | | | | other | | | Non- | | | |
| | | | outstanding | | | Common | | | paid-in | | | Earnings | | | comprehensive | | | controlling | | | |
| | | | (a) | | | stock | | | capital | | | reinvested | | | loss | | | interests | | | Total |
| | | | | | | | | | | | | | | | | | | |
June 30, 2013 (b) | | 591,622 | | $ | 6 | | $ | 7,195 | | $ | 5,863 | | $ | (2,128) | | $ | 18 | | $ | 10,954 |
Common stock issued (c) | | 40,117 | | | | | | 1,151 | | | | | | | | | | | | 1,151 |
Common stock repurchased (d) | | (1,500) | | | | | | (46) | | | | | | | | | | | | (46) |
Stock-based compensation (e) | | | | | | | | 5 | | | | | | | | | | | | 5 |
Net income | | | | | | | | | | | 410 | | | | | | 1 | | | 411 |
Dividends, dividend equivalents, | | | | | | | | | | | | | | | | | | | | |
| redemptions and distributions (f) | | | | | | | | | | | (233) | | | | | | (1) | | | (234) |
Other comprehensive | | | | | | | | | | | | | | | | | | | | |
| income (loss) | | | | | | | | | | | | | | 121 | | | | | | 121 |
September 30, 2013 (b) | | 630,239 | | $ | 6 | | $ | 8,305 | | $ | 6,040 | | $ | (2,007) | | $ | 18 | | $ | 12,362 |
| | | | | | | | | | | | | | | | | | | | | | |
December 31, 2012 (b) | | 581,944 | | $ | 6 | | $ | 6,936 | | $ | 5,478 | | $ | (1,940) | | $ | 18 | | $ | 10,498 |
Common stock issued (c) | | 50,725 | | | | | | 1,433 | | | | | | | | | | | | 1,433 |
Common stock repurchased (d) | | (2,430) | | | | | | (74) | | | | | | | | | | | | (74) |
Cash settlement of equity forward | | | | | | | | | | | | | | | | | | | | |
| agreements (d) | | | | | | | | (13) | | | | | | | | | | | | (13) |
Stock-based compensation (e) | | | | | | | | 23 | | | | | | | | | | | | 23 |
Net income | | | | | | | | | | | 1,228 | | | | | | 1 | | | 1,229 |
Dividends, dividend equivalents, | | | | | | | | | | | | | | | | | | | | |
| redemptions and distributions (f) | | | | | | | | | | | (666) | | | | | | (1) | | | (667) |
Other comprehensive | | | | | | | | | | | | | | | | | | | | |
| income (loss) | | | | | | | | | | | | | | (67) | | | | | | (67) |
September 30, 2013 (b) | | 630,239 | | $ | 6 | | $ | 8,305 | | $ | 6,040 | | $ | (2,007) | | $ | 18 | | $ | 12,362 |
| | | | | | | | | | | | | | | | | | | | | | |
June 30, 2012 | | 580,213 | | $ | 6 | | $ | 6,886 | | $ | 5,190 | | $ | (1,120) | | $ | 18 | | $ | 10,980 |
Common stock issued (c) | | 757 | | | | | | 21 | | | | | | | | | | | | 21 |
Stock-based compensation (e) | | | | | | | | 5 | | | | | | | | | | | | 5 |
Net income | | | | | | | | | | | 355 | | | | | | | | | 355 |
Dividends, dividend equivalents | | | | | | | | | | | | | | | | | | | | |
| redemptions and distributions (f) | | | | | | | | | | | (210) | | | | | | | | | (210) |
Other comprehensive | | | | | | | | | | | | | | | | | | | | |
| income (loss) | | | | | | | | | | | | | | 81 | | | | | | 81 |
September 30, 2012 | | 580,970 | | $ | 6 | | $ | 6,912 | | $ | 5,335 | | $ | (1,039) | | $ | 18 | | $ | 11,232 |
| | | | | | | | | | | | | | | | | | | | | | |
December 31, 2011 | | 578,405 | | $ | 6 | | $ | 6,813 | | $ | 4,797 | | $ | (788) | | $ | 268 | | $ | 11,096 |
Common stock issued (c) | | 2,565 | | | | | | 71 | | | | | | | | | | | | 71 |
Stock-based compensation (e) | | | | | | | | 28 | | | | | | | | | | | | 28 |
Net income | | | | | | | | | | | 1,167 | | | | | | 4 | | | 1,171 |
Dividends, dividend equivalents | | | | | | | | | | | | | | | | | | | | |
| redemptions and distributions (f) | | | | | | | | | | | (629) | | | | | | (254) | | | (883) |
Other comprehensive | | | | | | | | | | | | | | | | | | | | |
| income (loss) | | | | | | | | | | | | | | (251) | | | | | | (251) |
September 30, 2012 | | 580,970 | | $ | 6 | | $ | 6,912 | | $ | 5,335 | | $ | (1,039) | | $ | 18 | | $ | 11,232 |
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY |
PPL Corporation and Subsidiaries |
(Unaudited) |
(Millions of Dollars) |
| | | | PPL Shareowners | | | | | | |
| | | | Common | | | | | | | | | | | | | | | | | | |
| | | | stock | | | | | | | | | | | | Accumulated | | | | | | |
| | | | shares | | | | | | Additional | | | | | | other | | | Non- | | | |
| | | | outstanding | | | Common | | | paid-in | | | Earnings | | | comprehensive | | | controlling | | | |
| | | | (a) | | | stock | | | capital | | | reinvested | | | loss | | | interests | | | Total |
| | | | | | | | | | | | | | | | | | | |
March 31, 2014 | | 631,417 | | $ | 6 | | $ | 8,352 | | $ | 5,788 | | $ | (1,429) | | | | | $ | 12,717 |
Common stock issued (b) | | 32,601 | | | 1 | | | 997 | | | | | | | | | | | | 998 |
Stock-based compensation (c) | | | | | | | | 9 | | | | | | | | | | | | 9 |
Net income | | | | | | | | | | | 229 | | | | | | | | | 229 |
Dividends and dividend | | | | | | | | | | | | | | | | | | | | |
| equivalents (d) | | | | | | | | | | | (249) | | | | | | | | | (249) |
Other comprehensive | | | | | | | | | | | | | | | | | | | | |
| income (loss) | | | | | | | | | | | | | | 31 | | | | | | 31 |
June 30, 2014 | | 664,018 | | $ | 7 | | $ | 9,358 | | $ | 5,768 | | $ | (1,398) | | | | | $ | 13,735 |
| | | | | | | | | | | | | | | | | | | | | | |
December 31, 2013 | | 630,321 | | $ | 6 | | $ | 8,316 | | $ | 5,709 | | $ | (1,565) | | | | | $ | 12,466 |
Common stock issued (b) | | 33,697 | | | 1 | | | 1,027 | | | | | | | | | | | | 1,028 |
Stock-based compensation (c) | | | | | | | | 15 | | | | | | | | | | | | 15 |
Net income | | | | | | | | | | | 545 | | | | | | | | | 545 |
Dividends and dividend | | | | | | | | | | | | | | | | | | | | |
| equivalents (d) | | | | | | | | | | | (486) | | | | | | | | | (486) |
Other comprehensive | | | | | | | | | | | | | | | | | | | | |
| income (loss) | | | | | | | | | | | | | | 167 | | | | | | 167 |
June 30, 2014 | | 664,018 | | $ | 7 | | $ | 9,358 | | $ | 5,768 | | $ | (1,398) | | | | | $ | 13,735 |
| | | | | | | | | | | | | | | | | | | | | | |
March 31, 2013 | | 583,214 | | $ | 6 | | $ | 6,988 | | $ | 5,676 | | $ | (2,146) | | $ | 18 | | $ | 10,542 |
Common stock issued (b) | | 9,338 | | | | | | 245 | | | | | | | | | | | | 245 |
Common stock repurchased | | (930) | | | | | | (28) | | | | | | | | | | | | (28) |
Cash settlement of equity forward | | | | | | | | | | | | | | | | | | | | |
| agreements | | | | | | | | (13) | | | | | | | | | | | | (13) |
Stock-based compensation (c) | | | | | | | | 3 | | | | | | | | | | | | 3 |
Net income | | | | | | | | | | | 405 | | | | | | | | | 405 |
Dividends and dividend | | | | | | | | | | | | | | | | | | | | |
| equivalents (d) | | | | | | | | | | | (218) | | | | | | | | | (218) |
Other comprehensive | | | | | | | | | | | | | | | | | | | | |
| income (loss) | | | | | | | | | | | | | | 18 | | | | | | 18 |
June 30, 2013 | | 591,622 | | $ | 6 | | $ | 7,195 | | $ | 5,863 | | $ | (2,128) | | $ | 18 | | $ | 10,954 |
| | | | | | | | | | | | | | | | | | | | | | |
December 31, 2012 | | 581,944 | | $ | 6 | | $ | 6,936 | | $ | 5,478 | | $ | (1,940) | | $ | 18 | | $ | 10,498 |
Common stock issued (b) | | 10,608 | | | | | | 282 | | | | | | | | | | | | 282 |
Common stock repurchased | | (930) | | | | | | (28) | | | | | | | | | | | | (28) |
Cash settlement of equity forward | | | | | | | | | | | | | | | | | | | | |
| agreements | | | | | | | | (13) | | | | | | | | | | | | (13) |
Stock-based compensation (c) | | | | | | | | 18 | | | | | | | | | | | | 18 |
Net income | | | | | | | | | | | 818 | | | | | | | | | 818 |
Dividends and dividend | | | | | | | | | | | | | | | | | | | | |
| equivalents (d) | | | | | | | | | | | (433) | | | | | | | | | (433) |
Other comprehensive | | | | | | | | | | | | | | | | | | | | |
| income (loss) | | | | | | | | | | | | | | (188) | | | | | | (188) |
June 30, 2013 | | 591,622 | | $ | 6 | | $ | 7,195 | | $ | 5,863 | | $ | (2,128) | | $ | 18 | | $ | 10,954 |
(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 20132014 periods include the April and July issuancesMay issuance of shares of common stock.stock to settle the 2011 Purchase Contracts. See Note 7 for additional information. The 2013 periods include the April issuance of shares of common stock to settle the forward sales agreements. |
(d) | See Note 7 for additional information. |
(e)(c) | The three and ninesix months ended SeptemberJune 30, 2014 include $12 million and $39 million and the three and six months ended June 30, 2013 include $8 million and $44 million and the three and nine months ended September 30, 2012 include $7 million and $42$36 million of stock-based compensation expense related to new and existing unvested equity awards. The three and ninesix months ended SeptemberJune 30, 20132014 include $(3) million and $(21)$(24) million and the three and ninesix months ended SeptemberJune 30, 20122013 include $(2)$(5) million and $(14)$(18) 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. |
(f)(d) | "Earnings reinvested" includesIncludes dividends and dividend equivalents on PPL 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 | CONDENSED CONSOLIDATED STATEMENTS OF INCOME | CONDENSED CONSOLIDATED STATEMENTS OF INCOME |
PPL Energy Supply, LLC and Subsidiaries | (Unaudited) | (Unaudited) | | | | | (Unaudited) | | | | |
(Millions of Dollars) | (Millions of Dollars) | | | | | (Millions of Dollars) | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended | | Nine Months Ended | | | | Three Months Ended | | Six Months Ended |
| | | | September 30, | | September 30, | | | | June 30, | | June 30, |
| | | | 2013 | | 2012 | | 2013 | | 2012 | | | | 2014 | | 2013 | | 2014 | | 2013 |
Operating Revenues | Operating Revenues | | | | | | | | | 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 wholesale energy | | $ | 591 | | $ | 1,401 | | $ | (838) | | $ | 1,544 |
| Unregulated retail electric and gas | | | 266 | | 219 | | | 761 | | 623 | Unregulated wholesale energy to affiliate | | | 21 | | 12 | | | 48 | | 26 |
| Net energy trading margins | | | 12 | | (11) | | | 1 | | 7 | Unregulated retail energy | | | 281 | | 257 | | | 632 | | 495 |
| Energy-related businesses | | | 143 | | | 128 | | | 378 | | | 336 | Energy-related businesses | | | 155 | | | 122 | | | 280 | | | 235 |
| Total Operating Revenues | | | 1,363 | | | 719 | | | 3,663 | | | 4,072 | Total Operating Revenues | | | 1,048 | | | 1,792 | | | 122 | | | 2,300 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Operating Expenses | Operating Expenses | | | | | | | | | | Operating Expenses | | | | | | | | | |
| Operation | | | | | | | | | | | Operation | | | | | | | | | | |
| | Fuel | | | 258 | | 321 | | | 780 | | 728 | | Fuel | | | 259 | | 224 | | | 741 | | 522 |
| | Energy purchases | | | | | | | | | | | | Energy purchases | | | 203 | | 898 | | | (1,601) | | 699 |
| | Realized | | 425 | | 421 | | | 1,277 | | 1,715 | | Other operation and maintenance | | | 296 | | 270 | | | 554 | | 505 |
| | Unrealized economic activity (Note 14) | | | (37) | | (569) | | | (192) | | (420) | Depreciation | | | 82 | | 79 | | | 162 | | 157 |
| | Energy purchases from affiliate | | | 1 | | 1 | | | 3 | | 2 | Taxes, other than income | | | 16 | | 16 | | | 37 | | 33 |
| | Other operation and maintenance | | | 243 | | 220 | | | 748 | | 769 | Energy-related businesses | | | 155 | | | 118 | | | 279 | | | 228 |
| Depreciation | | | 80 | | 73 | | | 237 | | 206 | Total Operating Expenses | | | 1,011 | | | 1,605 | | | 172 | | | 2,144 |
| 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 | |
Operating Income (Loss) | | Operating Income (Loss) | | 37 | | 187 | | | (50) | | 156 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Other Income (Expense) - net | Other Income (Expense) - net | | | 2 | | 5 | | | 18 | | 16 | Other Income (Expense) - net | | | 8 | | 12 | | | 14 | | 16 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Other-Than-Temporary Impairments | | | 1 | | | | | 1 | | 1 | |
| | | | | | | | | | | | | |
Interest Expense | Interest Expense | | | 39 | | | 43 | | | 131 | | | 123 | Interest Expense | | | 35 | | | 46 | | | 69 | | | 92 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Income Before Income Taxes | | 199 | | 71 | | | 279 | | 585 | |
Income (Loss) Before Income Taxes | | Income (Loss) Before Income Taxes | | 10 | | 153 | | | (105) | | 80 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Income Taxes | Income Taxes | | | 74 | | | 16 | | | 106 | | | 202 | Income Taxes | | | (3) | | | 67 | | | (52) | | | 32 |
| | | | | | | | | | | | | | | | | | | | | | | | |
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 | |
Net Income (Loss) Attributable to PPL Energy Supply Member | | Net Income (Loss) Attributable to PPL Energy Supply Member | | $ | 13 | | $ | 86 | | $ | (53) | | $ | 48 |
| | | | | | | | | | | | | | | | | | | | | | |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements. |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME |
PPL Energy Supply, LLC and Subsidiaries | (Unaudited) | (Millions of Dollars) | | | | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended | | Nine Months Ended | | | | Three Months Ended | | Six Months Ended |
| | | | September 30, | | September 30, | | | | June 30, | | June 30, |
| | | | 2013 | | 2012 | | 2013 | | 2012 | | | | 2014 | | 2013 | | 2014 | | 2013 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | $ | 125 | | $ | 55 | | $ | 173 | | $ | 383 | |
Net income (loss) | | Net income (loss) | | $ | 13 | | $ | 86 | | $ | (53) | | $ | 48 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Other comprehensive income (loss): | Other comprehensive income (loss): | | | | | | | | | | | Other comprehensive income (loss): | | | | | | | | | | |
Amounts arising during the period - gains (losses), net of tax (expense) | Amounts arising during the period - gains (losses), net of tax (expense) | | | | | | | | | | | Amounts arising during the period - gains (losses), net of tax (expense) | | | | | | | | | | |
| benefit: | | | | | | | | | | | benefit: | | | | | | | | | | |
| | Available-for-sale securities, net of tax of ($15), ($14), ($42), ($32) | | | 15 | | 13 | | | 40 | | 30 | | Available-for-sale securities, net of tax of ($15), ($2), ($21), ($27) | | | 14 | | 2 | | | 19 | | 25 |
| | Qualifying derivatives, net of tax of $0, ($1), $0, ($41) | | | | | (1) | | | | | 58 | |
Reclassifications from AOCI - (gains) losses, net of tax expense | | | | | | | | | | | |
| (benefit): | | | | | | | | | | | |
Reclassifications from AOCI - (gains) losses, net of tax expense (benefit): | | Reclassifications from AOCI - (gains) losses, net of tax expense (benefit): | | | | | | | | | | |
| | Available-for-sale securities, net of tax of $1, $0, $2, $1 | | | | | | | | (2) | | (6) | | Available-for-sale securities, net of tax of $1, $0, $2, $1 | | | (1) | | (1) | | | (2) | | (2) |
| | Qualifying derivatives, net of tax of $19, $62, $63, $218 | | | (29) | | (92) | | | (96) | | (351) | | Qualifying derivatives, net of tax of $5, $23, $9, $44 | | | (8) | | (37) | | | (13) | | (67) |
| | Defined benefit plans: | | | | | | | | | | | | Defined benefit plans: | | | | | | | | | | |
| | | Prior service costs, net of tax of ($1), ($1), ($2), ($2) | | | 1 | | 1 | | | 3 | | 4 | | | Prior service costs, net of tax of $0, $0, ($1), ($1) | | | | | 1 | | | 1 | | 2 |
| | | Net actuarial loss, net of tax of ($2), ($1), ($7), ($1) | | | 3 | | | 2 | | | 11 | | | 8 | | | Net actuarial loss, net of tax of ($1), ($3), ($2), ($5) | | | 2 | | | 4 | | | 3 | | | 8 |
Total other comprehensive income (loss) attributable to | Total other comprehensive income (loss) attributable to | | | | | | | | | | | Total other comprehensive income (loss) attributable to | | | | | | | | | | |
| PPL Energy Supply Member | | | (10) | | | (77) | | | (44) | | | (257) | PPL Energy Supply Member | | | 7 | | | (31) | | | 8 | | | (34) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Comprehensive income (loss) | | | 115 | | (22) | | | 129 | | 126 | |
| | Comprehensive income attributable to noncontrolling interests | | | 1 | | | 1 | | | 1 | | | 1 | |
Comprehensive income (loss) attributable to PPL Energy | Comprehensive income (loss) attributable to PPL Energy | | | | | | | | | | | Comprehensive income (loss) attributable to PPL Energy | | | | | | | | | | |
| Supply Member | | $ | 114 | | $ | (23) | | $ | 128 | | $ | 125 | Supply Member | | $ | 20 | | $ | 55 | | $ | (45) | | $ | 14 |
| | | | | | | | | | | | | | | | | | | | |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements. |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
PPL Energy Supply, LLC and Subsidiaries | (Unaudited) | (Millions of Dollars) | | | | | | | | | | | | | | | |
| | | | Nine Months Ended September 30, | | | | Six Months Ended June 30, |
| | | | 2013 | | 2012 | | | | 2014 | | 2013 |
Cash Flows from Operating Activities | Cash Flows from Operating Activities | | | | | Cash Flows from Operating Activities | | | | |
| | Net income (loss) | | $ | (53) | | $ | 48 |
| | Adjustments to reconcile net income (loss) to net cash provided by operating activities | | | | | |
| Net income | | $ | 173 | | $ | 383 | | Depreciation | | | 162 | | 157 |
| Adjustments to reconcile net income to net cash provided by operating activities | | | | | | | Amortization | | | 77 | | 71 |
| | Depreciation | | | 237 | | 206 | | Defined benefit plans - expense | | | 32 | | 26 |
| | Amortization | | | 111 | | 93 | | Deferred income taxes and investment tax credits | | | (120) | | 98 |
| | Defined benefit plans - expense | | | 39 | | 33 | | Impairment of assets | | | 18 | | |
| | Deferred income taxes and investment tax credits | | | 112 | | 132 | | Unrealized (gains) losses on derivatives, and other hedging activities | | | 232 | | 91 |
| | Unrealized (gains) losses on derivatives, and other hedging activities | | | 98 | | (37) | | Other | | | 10 | | 5 |
| | Other | | | 32 | | 33 | Change in current assets and current liabilities | | | | | |
| Change in current assets and current liabilities | | | | | | | Accounts receivable | | | 25 | | 6 |
| | Accounts receivable | | | 71 | | (26) | | Accounts payable | | | (55) | | (62) |
| | Accounts payable | | | (131) | | (110) | | Unbilled revenues | | | 67 | | 96 |
| | Unbilled revenues | | | 135 | | 78 | | Prepayments | | | (16) | | (67) |
| | Fuel, materials and supplies | | | (18) | | (20) | | Counterparty collateral | | | (15) | | (61) |
| | Counterparty collateral | | | (77) | | 12 | | Price risk management assets and liabilities | | | (33) | | (2) |
| | Other | | | (32) | | (28) | | Other | | | (20) | | (15) |
| Other operating activities | | | | | | Other operating activities | | | | | |
| | Defined benefit plans - funding | | | (107) | | (70) | | Defined benefit plans - funding | | | (32) | | (106) |
| | Other assets | | | (32) | | (16) | | Other assets | | | (1) | | (38) |
| | Other liabilities | | | (28) | | | 11 | | Other liabilities | | | 12 | | | (20) |
| | Net cash provided by operating activities | | | 583 | | | 674 | | Net cash provided by operating activities | | | 290 | | | 227 |
Cash Flows from Investing Activities | Cash Flows from Investing Activities | | | | | | Cash Flows from Investing Activities | | | | | |
| Expenditures for property, plant and equipment | | | (341) | | (460) | Expenditures for property, plant and equipment | | | (176) | | (241) |
| Ironwood Acquisition, net of cash acquired | | | | | (84) | Expenditures for intangible assets | | | (24) | | (23) |
| Expenditures for intangible assets | | | (33) | | (36) | Purchases of nuclear plant decommissioning trust investments | | | (73) | | (66) |
| Purchases of nuclear plant decommissioning trust investments | | | (102) | | (112) | Proceeds from the sale of nuclear plant decommissioning trust investments | | | 65 | | 59 |
| Proceeds from the sale of nuclear plant decommissioning trust investments | | | 92 | | 102 | Proceeds from the receipt of grants | | | 56 | | 3 |
| Net (increase) decrease in notes receivable from affiliates | | | | | 198 | Net (increase) decrease in restricted cash and cash equivalents | | | (258) | | (24) |
| Net (increase) decrease in restricted cash and cash equivalents | | | 9 | | 70 | Other investing activities | | | 7 | | | 10 |
| Other investing activities | | | 24 | | | 14 | | Net cash provided by (used in) investing activities | | | (403) | | | (282) |
| | Net cash provided by (used in) investing activities | | | (351) | | | (308) | |
Cash Flows from Financing Activities | Cash Flows from Financing Activities | | | | | | Cash Flows from Financing Activities | | | | | |
| Retirement of long-term debt | | | (309) | | (6) | |
| Contributions from member | | | 980 | | 472 | Contributions from member | | | 730 | | 105 |
| Distributions to member | | | (408) | | (733) | Distributions to member | | | (914) | | (408) |
| Net increase (decrease) in short-term debt | | | (356) | | (45) | Net increase (decrease) in short-term debt | | | 324 | | 219 |
| Other financing activities | | | (1) | | | (1) | Other financing activities | | | (2) | | | (9) |
| | Net cash provided by (used in) financing activities | | | (94) | | | (313) | | Net cash provided by (used in) financing activities | | | 138 | | | (93) |
Net Increase (Decrease) in Cash and Cash Equivalents | Net Increase (Decrease) in Cash and Cash Equivalents | | 138 | | 53 | Net Increase (Decrease) in Cash and Cash Equivalents | | 25 | | (148) |
| Cash and Cash Equivalents at Beginning of Period | | | 413 | | | 379 | Cash and Cash Equivalents at Beginning of Period | | | 239 | | | 413 |
| Cash and Cash Equivalents at End of Period | | $ | 551 | | $ | 432 | Cash and Cash Equivalents at End of Period | | $ | 264 | | $ | 265 |
| | | | | | | |
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) |
| | | | | September 30, | | December 31, |
| | | | | 2013 | | 2012 |
Assets | | | | | | |
| | | | | | | | | |
Current Assets | | | | | | |
| Cash and cash equivalents | | $ | 551 | | $ | 413 |
| Restricted cash and cash equivalents | | | 37 | | | 46 |
| Accounts receivable (less reserve: 2013, $20; 2012, $23) | | | | | | |
| | Customer | | | 203 | | | 183 |
| | Other | | | 104 | | | 31 |
| Accounts receivable from affiliates | | | 37 | | | 125 |
| Unbilled revenues | | | 234 | | | 369 |
| Fuel, materials and supplies | | | 345 | | | 327 |
| Prepayments | | | 22 | | | 15 |
| Price risk management assets | | | 961 | | | 1,511 |
| Other current assets | | | 22 | | | 10 |
| Total Current Assets | | | 2,516 | | | 3,030 |
| | | | | | | |
Investments | | | | | | |
| Nuclear plant decommissioning trust funds | | | 804 | | | 712 |
| Other investments | | | 41 | | | 41 |
| Total Investments | | | 845 | | | 753 |
| | | | | | | |
Property, Plant and Equipment | | | | | | |
| Non-regulated property, plant and equipment | | | | | | |
| | Generation | | | 11,663 | | | 11,305 |
| | Nuclear fuel | | | 590 | | | 524 |
| | Other | | | 307 | | | 294 |
| Less: accumulated depreciation - non-regulated property, plant and equipment | | | 6,025 | | | 5,817 |
| | Non-regulated property, plant and equipment, net | | | 6,535 | | | 6,306 |
| Construction work in progress | | | 739 | | | 987 |
| Property, Plant and Equipment, net (a) | | | 7,274 | | | 7,293 |
| | | | | | | |
Other Noncurrent Assets | | | | | | |
| Goodwill | | | 86 | | | 86 |
| Other intangibles | | | 262 | | | 252 |
| Price risk management assets | | | 519 | | | 557 |
| Other noncurrent assets | | | 362 | | | 404 |
| Total Other Noncurrent Assets | | | 1,229 | | | 1,299 |
| | | | | | | |
Total Assets | | $ | 11,864 | | $ | 12,375 |
(a) | At September 30, 2013 and December 31, 2012, includes $413 million and $428 million of PP&E, consisting primarily of "Generation," including leasehold improvements from the consolidation of a VIE that is the owner/lessor of the Lower Mt. Bethel plant. |
|
PPL Energy Supply, LLC and Subsidiaries |
(Unaudited) |
(Millions of Dollars) |
| | | | | June 30, | | December 31, |
| | | | | 2014 | | 2013 |
Assets | | | | | | |
| | | | | | | | | |
Current Assets | | | | | | |
| Cash and cash equivalents | | $ | 264 | | $ | 239 |
| Restricted cash and cash equivalents | | | 326 | | | 68 |
| Accounts receivable (less reserve: 2014, $2; 2013, $21) | | | | | | |
| | Customer | | | 206 | | | 233 |
| | Other | | | 102 | | | 97 |
| Accounts receivable from affiliates | | | 42 | | | 45 |
| Unbilled revenues | | | 219 | | | 286 |
| Fuel, materials and supplies | | | 349 | | | 358 |
| Prepayments | | | 36 | | | 20 |
| Deferred income taxes | | | 105 | | | |
| Price risk management assets | | | 954 | | | 860 |
| Other current assets | | | 31 | | | 27 |
| Total Current Assets | | | 2,634 | | | 2,233 |
| | | | | | | |
Investments | | | | | | |
| Nuclear plant decommissioning trust funds | | | 911 | | | 864 |
| Other investments | | | 34 | | | 37 |
| Total Investments | | | 945 | | | 901 |
| | | | | | | |
Property, Plant and Equipment | | | | | | |
| Non-regulated property, plant and equipment | | | | | | |
| | Generation | | | 11,866 | | | 11,891 |
| | Nuclear fuel | | | 624 | | | 591 |
| | Other | | | 291 | | | 288 |
| Less: accumulated depreciation - non-regulated property, plant and equipment | | | 6,139 | | | 6,046 |
| | Non-regulated property, plant and equipment, net | | | 6,642 | | | 6,724 |
| Construction work in progress | | | 386 | | | 450 |
| Property, Plant and Equipment, net | | | 7,028 | | | 7,174 |
| | | | | | | |
Other Noncurrent Assets | | | | | | |
| Goodwill | | | 86 | | | 86 |
| Other intangibles | | | 267 | | | 266 |
| Price risk management assets | | | 420 | | | 328 |
| Other noncurrent assets | | | 79 | | | 86 |
| Total Other Noncurrent Assets | | | 852 | | | 766 |
| | | | | | | |
Total Assets | | $ | 11,459 | | $ | 11,074 |
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) | | | | | September 30, | | December 31, | | | | June 30, | | December 31, |
| | | | 2013 | | 2012 | | | | 2014 | | 2013 |
Liabilities and Equity | Liabilities and Equity | | | | | | Liabilities and Equity | | | | | |
| | | | | | | | | | | | | | | | |
Current Liabilities | Current Liabilities | | | | | | Current Liabilities | | | | | |
| Short-term debt | | | | $ | 356 | |
| Long-term debt due within one year | | $ | 741 | | | 751 | Short-term debt | | $ | 324 | | | |
| Accounts payable | | 328 | | | 438 | Long-term debt due within one year | | 304 | | $ | 304 |
| Accounts payable to affiliates | | 3 | | | 31 | Accounts payable | | 309 | | | 393 |
| Taxes | | 19 | | | 62 | Accounts payable to affiliates | | 2 | | | 4 |
| Interest | | 53 | | | 31 | Taxes | | 30 | | | 31 |
| Price risk management liabilities | | 773 | | | 1,010 | Interest | | 22 | | | 22 |
| Deferred income taxes | | 45 | | | 158 | Price risk management liabilities | | 1,133 | | | 750 |
| Other current liabilities | | | 264 | | | 319 | Other current liabilities | | | 229 | | | 278 |
| Total Current Liabilities | | | 2,226 | | | 3,156 | Total Current Liabilities | | | 2,353 | | | 1,782 |
| | | | | | | | | | | | | | |
Long-term Debt | Long-term Debt | | | 2,221 | | | 2,521 | Long-term Debt | | | 2,219 | | | 2,221 |
| | | | | | | | | | | | | | |
Deferred Credits and Other Noncurrent Liabilities | Deferred Credits and Other Noncurrent Liabilities | | | | | | Deferred Credits and Other Noncurrent Liabilities | | | | | |
| Deferred income taxes | | 1,429 | | | 1,232 | Deferred income taxes | | 1,183 | | | 1,114 |
| Investment tax credits | | 207 | | | 186 | Investment tax credits | | 144 | | | 205 |
| Price risk management liabilities | | 462 | | | 556 | Price risk management liabilities | | 347 | | | 320 |
| Accrued pension obligations | | 203 | | | 293 | Accrued pension obligations | | 104 | | | 111 |
| Asset retirement obligations | | 388 | | | 365 | Asset retirement obligations | | 406 | | | 393 |
| Other deferred credits and noncurrent liabilities | | | 180 | | | 218 | Other deferred credits and noncurrent liabilities | | | 134 | | | 130 |
| Total Deferred Credits and Other Noncurrent Liabilities | | | 2,869 | | | 2,850 | Total Deferred Credits and Other Noncurrent Liabilities | | | 2,318 | | | 2,273 |
| | | �� | | | | | | | | | | | | |
Commitments and Contingent Liabilities (Note 10) | Commitments and Contingent Liabilities (Note 10) | | | | | | Commitments and Contingent Liabilities (Note 10) | | | | | |
| | | | | | | | | | | | | | |
Equity | | | | | | | |
| Member's equity | | | 4,530 | | | 3,830 | |
| Noncontrolling interests | | | 18 | | | 18 | |
| Total Equity | | | 4,548 | | | 3,848 | |
Member's Equity | | Member's Equity | | | 4,569 | | | 4,798 |
| | | | | | | | | | | | | | | | |
Total Liabilities and Equity | Total Liabilities and Equity | | $ | 11,864 | | $ | 12,375 | Total Liabilities and Equity | | $ | 11,459 | | $ | 11,074 |
| | | | | | | | | | | | |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements. |
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY |
PPL Energy Supply, LLC and Subsidiaries |
(Unaudited) |
(Millions of Dollars) |
| | | | | | | | | |
| | | | | Non- | | | |
| | Member's | | controlling | | | |
| | 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 |
Net income | | | 172 | | | 1 | | | 173 |
Other comprehensive income (loss) | | | (44) | | | | | | (44) |
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 |
Net income | | | 382 | | | 1 | | | 383 |
Other comprehensive income (loss) | | | (257) | | | | | | (257) |
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. |
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY |
PPL Energy Supply, LLC and Subsidiaries |
(Unaudited) |
(Millions of Dollars) |
| | | | | | | | | |
| | | | | Non- | | | |
| | Member's | | controlling | | | |
| | equity | | interests | | Total |
| | | | | | | | | |
March 31, 2014 | | $ | 4,079 | | | | | $ | 4,079 |
Net income (loss) | | | 13 | | | | | | 13 |
Other comprehensive income (loss) | | | 7 | | | | | | 7 |
Contributions from member | | | 730 | | | | | | 730 |
Distributions | | | (260) | | | | | | (260) |
June 30, 2014 | | $ | 4,569 | | | | | $ | 4,569 |
| | | | | | | | | |
December 31, 2013 | | $ | 4,798 | | | | | $ | 4,798 |
Net income (loss) | | | (53) | | | | | | (53) |
Other comprehensive income (loss) | | | 8 | | | | | | 8 |
Contributions from member | | | 730 | | | | | | 730 |
Distributions | | | (914) | | | | | | (914) |
June 30, 2014 | | $ | 4,569 | | | | | $ | 4,569 |
| | | | | | | | | |
March 31, 2013 | | $ | 3,476 | | $ | 18 | | $ | 3,494 |
Net income | | | 86 | | | | | | 86 |
Other comprehensive income (loss) | | | (31) | | | | | | (31) |
Contributions from member | | | 105 | | | | | | 105 |
Distributions | | | (95) | | | | | | (95) |
June 30, 2013 | | $ | 3,541 | | $ | 18 | | $ | 3,559 |
| | | | | | | | | |
December 31, 2012 | | $ | 3,830 | | $ | 18 | | $ | 3,848 |
Net income | | | 48 | | | | | | 48 |
Other comprehensive income (loss) | | | (34) | | | | | | (34) |
Contributions from member | | | 105 | | | | | | 105 |
Distributions | | | (408) | | | | | | (408) |
June 30, 2013 | | $ | 3,541 | | $ | 18 | | $ | 3,559 |
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 | | Six Months Ended |
| | | | September 30, | | September 30, | | | | June 30, | | June 30, |
| | | | 2013 | | 2012 | | 2013 | | 2012 | | | | 2014 | | 2013 | | 2014 | | 2013 |
| | | | | | | | | | | |
Operating Revenues | Operating Revenues | | | | | | | | | | Operating Revenues | | $ | 449 | | $ | 414 | | $ | 1,041 | | $ | 927 |
| Retail electric | | $ | 463 | | $ | 443 | | $ | 1,388 | | $ | 1,303 | |
| Electric revenue from affiliate | | | 1 | | | 1 | | | 3 | | | 3 | |
| Total Operating Revenues | | | 464 | | | 444 | | | 1,391 | | | 1,306 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Operating Expenses | Operating Expenses | | | | | | | | | | | | Operating Expenses | | | | | | | | | | | |
| Operation | | | | | | | | | | | | | Operation | | | | | | | | | | | | |
| | Energy purchases | | | 144 | | | 137 | | | 436 | | | 410 | | Energy purchases | | | 114 | | | 120 | | | 303 | | | 292 |
| | Energy purchases from affiliate | | | 11 | | | 23 | | | 37 | | | 61 | | Energy purchases from affiliate | | | 21 | | | 12 | | | 48 | | | 26 |
| | Other operation and maintenance | | | 134 | | | 148 | | | 391 | | | 431 | | Other operation and maintenance | | | 135 | | | 124 | | | 269 | | | 257 |
| Depreciation | | | 45 | | | 41 | | | 132 | | | 119 | Depreciation | | | 45 | | | 44 | | | 90 | | | 87 |
| Taxes, other than income | | | 25 | | | 24 | | | 77 | | | 72 | Taxes, other than income | | | 23 | | | 22 | | | 55 | | | 52 |
| Total Operating Expenses | | | 359 | | | 373 | | | 1,073 | | | 1,093 | Total Operating Expenses | | | 338 | | | 322 | | | 765 | | | 714 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Operating Income | Operating Income | | 105 | | | 71 | | | 318 | | | 213 | Operating Income | | 111 | | | 92 | | | 276 | | | 213 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Other Income (Expense) - net | Other Income (Expense) - net | | | 2 | | | 3 | | | 5 | | | 6 | Other Income (Expense) - net | | | 1 | | | 2 | | | 3 | | | 3 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest Expense | Interest Expense | | | 30 | | | 25 | | | 80 | | | 73 | Interest Expense | | | 29 | | | 25 | | | 58 | | | 50 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Income Before Income Taxes | Income Before Income Taxes | | 77 | | | 49 | | | 243 | | | 146 | Income Before Income Taxes | | 83 | | | 69 | | | 221 | | | 166 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Income Taxes | Income Taxes | | | 26 | | | 16 | | | 83 | | | 47 | Income Taxes | | | 31 | | | 24 | | | 84 | | | 57 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net Income (a) | Net Income (a) | | 51 | | | 33 | | | 160 | | | 99 | Net Income (a) | | $ | 52 | | $ | 45 | | $ | 137 | | $ | 109 |
| | | | | | | | | | | | | | | |
Distributions on Preference Stock | | | | | | | | | | | | 4 | |
| | | | | | | | | | | | | | | |
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 | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
PPL Electric Utilities Corporation and Subsidiaries | (Unaudited) | (Millions of Dollars) | | | | | | | | | | | | | | | |
| | | | Nine Months Ended | | | | Six Months Ended |
| | | | September 30, | | | | June 30, |
| | | | 2013 | | 2012 | | | | 2014 | | 2013 |
Cash Flows from Operating Activities | Cash Flows from Operating Activities | | | | | Cash Flows from Operating Activities | | | | |
| Net income | | $ | 160 | | $ | 99 | Net income | | $ | 137 | | $ | 109 |
| Adjustments to reconcile net income to net cash provided by operating activities | | | | | | Adjustments to reconcile net income to net cash provided by operating activities | | | | | |
| | Depreciation | | | 132 | | 119 | | Depreciation | | | 90 | | 87 |
| | Amortization | | | 13 | | 13 | | Amortization | | | 9 | | 10 |
| | Defined benefit plans - expense | | | 16 | | 17 | | Defined benefit plans - expense | | | 11 | | 10 |
| | Deferred income taxes and investment tax credits | | | 103 | | 72 | | Deferred income taxes and investment tax credits | | | 44 | | 81 |
| | Other | | | 2 | | 3 | | Other | | | (17) | | (5) |
| Change in current assets and current liabilities | | | | | | Change in current assets and current liabilities | | | | | |
| | Accounts receivable | | | (14) | | 48 | | Accounts receivable | | | (80) | | (56) |
| | Accounts payable | | | (51) | | (43) | | Accounts payable | | | (33) | | (37) |
| | Unbilled revenues | | | 34 | | 18 | | Unbilled revenues | | | 34 | | 36 |
| | Taxes payable | | | 24 | | | | Prepayments | | | (40) | | (18) |
| | Other | | | (19) | | (4) | | Taxes payable | | | 8 | | 18 |
| Other operating activities | | | | | | | Other | | | 2 | | (38) |
| | Defined benefit plans - funding | | | (88) | | (54) | Other operating activities | | | | | |
| | Other assets | | | 6 | | | | Defined benefit plans - funding | | | (19) | | (88) |
| | Other liabilities | | | 9 | | | (27) | | Other assets | | | 5 | | |
| | Net cash provided by operating activities | | | 327 | | | 261 | | Other liabilities | | | (3) | | | 6 |
| | | | | | | | | Net cash provided by operating activities | | | 148 | | | 115 |
| | | | | | | | |
Cash Flows from Investing Activities | Cash Flows from Investing Activities | | | | | Cash Flows from Investing Activities | | | | |
| | Expenditures for property, plant and equipment | | | (436) | | (451) |
| Expenditures for property, plant and equipment | | | (688) | | (407) | Expenditures for intangible assets | | | (22) | | (13) |
| Net (increase) decrease in notes receivable from affiliates | | | | | (210) | Net (increase) decrease in notes receivable from affiliates | | | 150 | | |
| Other investing activities | | | (9) | | | 3 | Other investing activities | | | 13 | | | 9 |
| | Net cash provided by (used in) investing activities | | | (697) | | | (614) | | Net cash provided by (used in) investing activities | | | (295) | | | (455) |
| | | | | | | | | | | | | | |
Cash Flows from Financing Activities | Cash Flows from Financing Activities | | | | | Cash Flows from Financing Activities | | | | |
| Issuance of long-term debt | | | 348 | | 249 | Issuance of long-term debt | | | 296 | | |
| Contributions from parent | | | 205 | | 150 | Retirement of long-term debt | | | (10) | | |
| Redemption of preference stock | | | | | (250) | Contributions from parent | | | 95 | | 205 |
| Payment of common stock dividends to parent | | | (94) | | (75) | Payment of common stock dividends to parent | | | (87) | | (66) |
| Other financing activities | | | (4) | | | (10) | Net increase (decrease) in short-term debt | | | (20) | | 85 |
| | Net cash provided by (used in) financing activities | | | 455 | | | 64 | Other financing activities | | | (3) | | | |
| | | | | | | | | Net cash provided by (used in) financing activities | | | 271 | | | 224 |
| | | | | | | | |
Net Increase (Decrease) in Cash and Cash Equivalents | Net Increase (Decrease) in Cash and Cash Equivalents | | 85 | | (289) | Net Increase (Decrease) in Cash and Cash Equivalents | | 124 | | (116) |
Cash and Cash Equivalents at Beginning of Period | Cash and Cash Equivalents at Beginning of Period | | | 140 | | | 320 | Cash and Cash Equivalents at Beginning of Period | | | 25 | | | 140 |
Cash and Cash Equivalents at End of Period | Cash and Cash Equivalents at End of Period | | $ | 225 | | $ | 31 | Cash and Cash Equivalents at End of Period | | $ | 149 | | $ | 24 |
| | | | | | | | |
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 Electric Utilities Corporation and Subsidiaries | (Unaudited) | (Millions of Dollars, shares in thousands) | | | | | | | | | | | | | |
| | | | September 30, | | December 31, | | | | June 30, | | December 31, |
| | | | 2013 | | 2012 | | | | 2014 | | 2013 |
Assets | Assets | | | | | | | Assets | | | | | | |
| | | | | | | | | | | | | | | | |
Current Assets | Current Assets | | | | | | | Current Assets | | | | | | |
| | Cash and cash equivalents | | $ | 149 | | $ | 25 |
| Cash and cash equivalents | | $ | 225 | | $ | 140 | Accounts receivable (less reserve: 2014, $17; 2013, $18) | | | | | | |
| Accounts receivable (less reserve: 2013, $20; 2012, $18) | | | | | | | | Customer | | | 361 | | | 284 |
| | Customer | | | 273 | | | 249 | | Other | | | 8 | | | 5 |
| | Other | | | 14 | | | 5 | Accounts receivable from affiliates | | | 4 | | | 4 |
| Accounts receivable from affiliates | | | 4 | | | 29 | Notes receivable from affiliate | | | | | | 150 |
| Unbilled revenues | | | 76 | | | 110 | Unbilled revenues | | | 82 | | | 116 |
| Materials and supplies | | | 35 | | | 39 | Materials and supplies | | | 35 | | | 35 |
| Prepayments | | | 67 | | | 76 | Prepayments | | | 51 | | | 40 |
| Deferred income taxes | | | 46 | | | 45 | Deferred income taxes | | | 84 | | | 85 |
| Other current assets | | | 18 | | | 4 | Other current assets | | | 13 | | | 22 |
| Total Current Assets | | | 758 | | | 697 | Total Current Assets | | | 787 | | | 766 |
| | | | | | | | | | | | | | |
Property, Plant and Equipment | Property, Plant and Equipment | | | | | | | Property, Plant and Equipment | | | | | | |
| Regulated utility plant | | | 6,771 | | | 6,286 | Regulated utility plant | | | 7,168 | | | 6,886 |
| Less: accumulated depreciation - regulated utility plant | | | 2,421 | | | 2,316 | Less: accumulated depreciation - regulated utility plant | | | 2,488 | | | 2,417 |
| | Regulated utility plant, net | | | 4,350 | | | 3,970 | | Regulated utility plant, net | | | 4,680 | | | 4,469 |
| Other, net | | | 2 | | | 2 | Other, net | | | 2 | | | 2 |
| Construction work in progress | | | 519 | | | 370 | Construction work in progress | | | 744 | | | 591 |
| Property, Plant and Equipment, net | | | 4,871 | | | 4,342 | Property, Plant and Equipment, net | | | 5,426 | | | 5,062 |
| | | | | | | | | | | | | | | | |
Other Noncurrent Assets | Other Noncurrent Assets | | | | | | Other Noncurrent Assets | | | | | |
| Regulatory assets | | 857 | | | 853 | Regulatory assets | | 771 | | | 772 |
| Intangibles | | | 208 | | | 171 | Intangibles | | | 233 | | | 211 |
| Other noncurrent assets | | | 35 | | | 55 | Other noncurrent assets | | | 35 | | | 35 |
| Total Other Noncurrent Assets | | | 1,100 | | | 1,079 | Total Other Noncurrent Assets | | | 1,039 | | | 1,018 |
| | | | | | | | | | | | | | | | |
Total Assets | Total Assets | | $ | 6,729 | | $ | 6,118 | Total Assets | | $ | 7,252 | | $ | 6,846 |
| | | | | | | | | | | | | | |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements. |
CONDENSED CONSOLIDATED BALANCE SHEETS | PPL Electric Utilities Corporation and Subsidiaries | (Unaudited) | (Millions of Dollars, shares in thousands) | | | | | | | | | | | | | |
| | | | September 30, | | December 31, | | | | June 30, | | December 31, |
| | | | 2013 | | 2012 | | | | 2014 | | 2013 |
Liabilities and Equity | Liabilities and Equity | | | | | | | Liabilities and Equity | | | | | | |
| | | | | | | | | | | | | | | | |
Current Liabilities | Current Liabilities | | | | | | | Current Liabilities | | | | | | |
| Long term debt due within one year | | $ | 10 | | | | Short-term debt | | | | $ | 20 |
| Accounts payable | | 244 | | $ | 259 | Long term debt due within one year | | | | | 10 |
| Accounts payable to affiliates | | 46 | | | 63 | Accounts payable | | $ | 292 | | | 295 |
| Taxes | | 36 | | | 12 | Accounts payable to affiliates | | 50 | | | 57 |
| Interest | | 23 | | | 26 | Taxes | | 15 | | | 51 |
| Regulatory liabilities | | 51 | | | 52 | Interest | | 34 | | | 34 |
| Other current liabilities | | | 94 | | | 93 | Regulatory liabilities | | 72 | | | 76 |
| Total Current Liabilities | | | 504 | | | 505 | Other current liabilities | | | 75 | | | 82 |
| | | | | | | | | Total Current Liabilities | | | 538 | | | 625 |
| | | | | | | | | |
Long-term Debt | Long-term Debt | | | 2,305 | | | 1,967 | Long-term Debt | | | 2,602 | | | 2,305 |
| | | | | | | | | | | | | | | | |
Deferred Credits and Other Noncurrent Liabilities | Deferred Credits and Other Noncurrent Liabilities | | | | | | Deferred Credits and Other Noncurrent Liabilities | | | | | |
| Deferred income taxes | | 1,334 | | | 1,233 | |
| Investment tax credits | | 3 | | | 3 | Deferred income taxes | | 1,463 | | | 1,399 |
| Accrued pension obligations | | 157 | | | 237 | Accrued pension obligations | | 85 | | | 96 |
| Regulatory liabilities | | 14 | | | 8 | Regulatory liabilities | | 12 | | | 15 |
| Other deferred credits and noncurrent liabilities | | | 79 | | | 103 | Other deferred credits and noncurrent liabilities | | | 58 | | | 57 |
| Total Deferred Credits and Other Noncurrent Liabilities | | | 1,587 | | | 1,584 | Total Deferred Credits and Other Noncurrent Liabilities | | | 1,618 | | | 1,567 |
| | | | | | | | | | | | | | | | |
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 | | 1,340 | | | 1,135 | Additional paid-in capital | | 1,435 | | | 1,340 |
| Earnings reinvested | | | 629 | | | 563 | Earnings reinvested | | | 695 | | | 645 |
| Total Equity | | | 2,333 | | | 2,062 | Total Equity | | | 2,494 | | | 2,349 |
| | | | | | | | | | | | | | |
Total Liabilities and Equity | Total Liabilities and Equity | | $ | 6,729 | | $ | 6,118 | Total Liabilities and Equity | | $ | 7,252 | | $ | 6,846 |
(a) | 170,000 shares authorized; 66,368 shares issued and outstanding at SeptemberJune 30, 20132014 and December 31, 2012.2013. |
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 STOCKHOLDER'S EQUITY | | CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDER'S 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 | | Common | | paid-in | | Earnings | | |
| | | | (a) | | stock | | stock | | capital | | reinvested | | Total | | | (a) | | stock | | capital | | reinvested | | Total |
| | | | | | | | | | | | | | | | | | | | | | | | | |
March 31, 2014 | | March 31, 2014 | | 66,368 | | $ | 364 | | $ | 1,405 | | $ | 698 | | $ | 2,467 |
Net income | | Net income | | | | | | | | 52 | | 52 |
Capital contributions from PPL | | Capital contributions from PPL | | | | | | 30 | | | | 30 |
Cash dividends declared on common stock | | Cash dividends declared on common stock | | | | | | | | | | | (55) | | | (55) |
June 30, 2014 | | June 30, 2014 | | 66,368 | | $ | 364 | | $ | 1,435 | | $ | 695 | | $ | 2,494 |
| | | | | | | | | | | | |
December 31, 2013 | | December 31, 2013 | | 66,368 | | $ | 364 | | $ | 1,340 | | $ | 645 | | $ | 2,349 |
Net income | | Net income | | | | | | | | 137 | | 137 |
Capital contributions from PPL | | Capital contributions from PPL | | | | | | 95 | | | | 95 |
Cash dividends declared on common stock | | Cash dividends declared on common stock | | | | | | | | | | | (87) | | | (87) |
June 30, 2014 | | June 30, 2014 | | 66,368 | | $ | 364 | | $ | 1,435 | | $ | 695 | | $ | 2,494 |
| | | | | | | | | | | | |
March 31, 2013 | | March 31, 2013 | | 66,368 | | $ | 364 | | $ | 1,195 | | $ | 602 | | $ | 2,161 |
Net income | | Net income | | | | | | | | 45 | | 45 |
Capital contributions from PPL | | Capital contributions from PPL | | | | | | 145 | | | | 145 |
Cash dividends declared on common stock | | Cash dividends declared on common stock | | | | | | | | | | | (41) | | | (41) |
June 30, 2013 | June 30, 2013 | | 66,368 | | | | $ | 364 | | $ | 1,340 | | $ | 606 | | $ | 2,310 | June 30, 2013 | | 66,368 | | $ | 364 | | $ | 1,340 | | $ | 606 | | $ | 2,310 |
Net income | | | | | | | | | | 51 | | 51 | |
Cash dividends declared on common stock | | | | | | | | | | | | | | (28) | | | (28) | |
September 30, 2013 | | 66,368 | | | | | $ | 364 | | $ | 1,340 | | $ | 629 | | $ | 2,333 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2012 | 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 | | | | | | | | | | 160 | | 160 | Net income | | | | | | | | 109 | | 109 |
Capital contributions from PPL | Capital contributions from PPL | | | | | | | | 205 | | | | 205 | Capital contributions from PPL | | | | | | 205 | | | | 205 |
Cash dividends declared on common stock | Cash dividends declared on common stock | | | | | | | | | | | | | | (94) | | | (94) | Cash dividends declared on common stock | | | | | | | | | | | (66) | | | (66) |
September 30, 2013 | | 66,368 | | | | | $ | 364 | | $ | 1,340 | | $ | 629 | | $ | 2,333 | |
| | | | | | | | | | | | | | | |
June 30, 2012 | | 66,368 | | | | $ | 364 | | $ | 979 | | $ | 538 | | $ | 1,881 | |
Net income | | | | | | | | | | 33 | | 33 | |
Capital contributions from PPL | | | | | | | | 150 | | | | 150 | |
Cash dividends declared on common stock | | | | | | | | | | | | | | (19) | | | (19) | |
September 30, 2012 | | 66,368 | | | | | $ | 364 | | $ | 1,129 | | $ | 552 | | $ | 2,045 | |
| | | | | | | | | | | | | | | |
December 31, 2011 | | 66,368 | | $ | 250 | | $ | 364 | | $ | 979 | | $ | 532 | | $ | 2,125 | |
Net income | | | | | | | | | | 99 | | 99 | |
Redemption of preference stock (b) | | | | (250) | | | | | | | | (250) | |
Capital contributions from PPL | | | | | | | | 150 | | | | 150 | |
Cash dividends declared on preference stock | | | | | | | | | | (4) | | (4) | |
Cash dividends declared on common stock | | | | | | | | | | | | | | (75) | | | (75) | |
September 30, 2012 | | 66,368 | | $ | | | $ | 364 | | $ | 1,129 | | $ | 552 | | $ | 2,045 | |
June 30, 2013 | | June 30, 2013 | | 66,368 | | $ | 364 | | $ | 1,340 | | $ | 606 | | $ | 2,310 |
(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 | CONDENSED CONSOLIDATED STATEMENTS OF INCOME | CONDENSED CONSOLIDATED STATEMENTS OF INCOME |
LG&E and KU Energy LLC and Subsidiaries | (Unaudited) | (Unaudited) | | | | | | | | | (Unaudited) | | | | | | | | |
(Millions of Dollars) | (Millions of Dollars) | | | | | (Millions of Dollars) | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended | | Nine Months Ended | | | | Three Months Ended | | Six Months Ended |
| | | | September 30, | | September 30, | | | | June 30, | | June 30, |
| | | | 2013 | | 2012 | | | 2013 | | | 2012 | | | | 2014 | | 2013 | | | 2014 | | | 2013 |
| | | | | | | | | | | | | | | | | | | | | | |
Operating Revenues | Operating Revenues | | $ | 744 | | $ | 732 | | $ | 2,226 | | $ | 2,095 | Operating Revenues | | $ | 722 | | $ | 682 | | $ | 1,656 | | $ | 1,482 |
| | | | | | | | | | | | | | | | | | | | | | |
Operating Expenses | Operating Expenses | | | | | | | | | | | Operating Expenses | | | | | | | | | | |
| Operation | | | | | | | | | | | Operation | | | | | | | | | | |
| | Fuel | | | 237 | | 249 | | | 684 | | 677 | | Fuel | | | 231 | | 216 | | | 508 | | 447 |
| | Energy purchases | | | 23 | | 27 | | | 146 | | 135 | | Energy purchases | | | 36 | | 37 | | | 160 | | 123 |
| | Other operation and maintenance | | | 188 | | 186 | | | 582 | | 589 | | Other operation and maintenance | | | 206 | | 197 | | | 412 | | 394 |
| Depreciation | | | 84 | | 87 | | | 249 | | 259 | Depreciation | | | 87 | | 83 | | | 173 | | 165 |
| Taxes, other than income | | | 12 | | | 11 | | | 36 | | | 34 | Taxes, other than income | | | 13 | | | 12 | | | 26 | | | 24 |
| Total Operating Expenses | | | 544 | | | 560 | | | 1,697 | | | 1,694 | Total Operating Expenses | | | 573 | | | 545 | | | 1,279 | | | 1,153 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Operating Income | Operating Income | | | 200 | | 172 | | | 529 | | 401 | Operating Income | | | 149 | | 137 | | | 377 | | 329 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Other Income (Expense) - net | Other Income (Expense) - net | | | (4) | | (4) | | | (6) | | (14) | Other Income (Expense) - net | | | (2) | | | | | (4) | | (2) |
| | | | | | | | | | | | | | | | | | | | | | |
Interest Expense | Interest Expense | | | 37 | | 37 | | | 110 | | 112 | Interest Expense | | | 41 | | 36 | | | 83 | | 73 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Interest Expense with Affiliate | Interest Expense with Affiliate | | | | | | | | | 1 | | | | Interest Expense with Affiliate | | | | | | 1 | | | | | | 1 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Income from Continuing Operations Before Income Taxes | Income from Continuing Operations Before Income Taxes | | | 159 | | 131 | | | 412 | | 275 | Income from Continuing Operations Before Income Taxes | | | 106 | | 100 | | | 290 | | 253 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Income Taxes | Income Taxes | | | 59 | | | 48 | | | 153 | | | 89 | Income Taxes | | | 41 | | | 37 | | | 110 | | | 94 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Income from Continuing Operations After Income Taxes | Income from Continuing Operations After Income Taxes | | | 100 | | 83 | | | 259 | | 186 | Income from Continuing Operations After Income Taxes | | | 65 | | 63 | | | 180 | | 159 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Income (Loss) from Discontinued Operations (net of income taxes) | Income (Loss) from Discontinued Operations (net of income taxes) | | | | | | | | | 1 | | | (6) | Income (Loss) from Discontinued Operations (net of income taxes) | | | | | | 1 | | | | | | 1 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net Income (a) | Net Income (a) | | $ | 100 | | $ | 83 | | $ | 260 | | $ | 180 | Net Income (a) | | $ | 65 | | $ | 64 | | $ | 180 | | $ | 160 |
(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 | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
LG&E and KU Energy LLC and Subsidiaries | (Unaudited) | (Millions of Dollars) | | | | | | | | | | | | |
| | | Nine Months Ended September 30, | | | Six Months Ended June 30, |
| | | | 2013 | | | 2012 | | | | 2014 | | | 2013 |
Cash Flows from Operating Activities | Cash Flows from Operating Activities | | | | | | | 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 | Net income | | $ | 180 | | | $ | 160 |
| | Defined benefit plans - expense | | | 38 | | | 30 | Adjustments to reconcile net income to net cash provided by operating activities | | | | | | |
| | Deferred income taxes and investment tax credits | | | 99 | | | 92 | | Depreciation | | | 173 | | | 165 |
| | Other | | | 6 | | | (5) | | Amortization | | | 12 | | | 14 |
| Change in current assets and current liabilities | | | | | | | | Defined benefit plans - expense | | | 12 | | | 27 |
| | Accounts receivable | | | (78) | | | (25) | | Deferred income taxes and investment tax credits | | | 149 | | | 95 |
| | Accounts payable | | | 34 | | | 4 | | Other | | | 1 | | | (6) |
| | Accounts payable to affiliates | | | 1 | | | | Change in current assets and current liabilities | | | | | | |
| | Unbilled revenues | | | 19 | | | 26 | | Accounts receivable | | | (24) | | | (62) |
| | Fuel, materials and supplies | | | 1 | | | 4 | | Accounts payable | | | (5) | | | 36 |
| | Income tax receivable | | | | | | 3 | | Accounts payable to affiliates | | | (2) | | | |
| | Taxes payable | | | 83 | | | 51 | | Unbilled revenues | | | 27 | | | (2) |
| | Accrued interest | | | 30 | | | 29 | | Fuel, materials and supplies | | | 43 | | | 25 |
| | Other | | | | | | 19 | | Taxes payable | | | (10) | | | |
| Other operating activities | | | | | | | | Other | | | 1 | | | 2 |
| | Defined benefit plans - funding | | | (159) | | | (66) | Other operating activities | | | | | | |
| | Settlement of interest rate swaps | | | 98 | | | | | Defined benefit plans - funding | | | (40) | | | (156) |
| | Other assets | | | (1) | | | (3) | | Other assets | | | (3) | | | (3) |
| | Other liabilities | | | 14 | | | | 28 | | Other liabilities | | | 2 | | | | 2 |
| | Net cash provided by operating activities | | | 713 | | | | 646 | | Net cash provided by operating activities | | | 516 | | | | 297 |
Cash Flows from Investing Activities | Cash Flows from Investing Activities | | | | | | | Cash Flows from Investing Activities | | | | | | |
| Expenditures for property, plant and equipment | | | (891) | | | (525) | Expenditures for property, plant and equipment | | | (556) | | | (579) |
| Net (increase) decrease in notes receivable from affiliates | | | | | | 9 | Net (increase) decrease in notes receivable from affiliates | | | 54 | | | |
| Net (increase) decrease in restricted cash and cash equivalents | | 10 | | | (3) | Net (increase) decrease in restricted cash and cash equivalents | | 1 | | | 10 |
| Other investing activities | | | 2 | | | | | Other investing activities | | | | | | | 1 |
| | Net cash provided by (used in) investing activities | | | (879) | | | | (519) | | Net cash provided by (used in) investing activities | | | (501) | | | | (568) |
Cash Flows from Financing Activities | Cash Flows from Financing Activities | | | | | | | Cash Flows from Financing Activities | | | | | | |
| Net increase (decrease) in notes payable with affiliates | | | 27 | | | | Net increase (decrease) in notes payable with affiliates | | | | | | 47 |
| Net increase (decrease) in short-term debt | | | 87 | | | | Net increase (decrease) in short-term debt | | | 75 | | | 127 |
| Debt issuance and credit facility costs | | | | | | (1) | Distributions to member | | (221) | | | (69) |
| Distributions to member | | (116) | | | (95) | Contributions from member | | | 119 | | | | 146 |
| Contributions from member | | | 146 | | | | | | | Net cash provided by (used in) financing activities | | | (27) | | | | 251 |
| | | Net cash provided by (used in) financing activities | | | 144 | | | | (96) | |
Net Increase (Decrease) in Cash and Cash Equivalents | Net Increase (Decrease) in Cash and Cash Equivalents | | | (22) | | | 31 | Net Increase (Decrease) in Cash and Cash Equivalents | | | (12) | | | (20) |
Cash and Cash Equivalents at Beginning of Period | Cash and Cash Equivalents at Beginning of Period | | | 43 | | | | 59 | Cash and Cash Equivalents at Beginning of Period | | | 35 | | | | 43 |
Cash and Cash Equivalents at End of Period | Cash and Cash Equivalents at End of Period | | $ | 21 | | | $ | 90 | Cash and Cash Equivalents at End of Period | | $ | 23 | | | $ | 23 |
| | | | | | | |
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 |
LG&E and KU Energy LLC and Subsidiaries | (Unaudited) | (Millions of Dollars) | | | | | | | | | | | | | |
| | | | September 30, | | December 31, | | | | June 30, | | December 31, |
| | | | 2013 | | 2012 | | | | 2014 | | 2013 |
Assets | Assets | | | | | | | Assets | | | | | | |
| | | | | | | | | | | | | | | | |
Current Assets | Current Assets | | | | | | | Current Assets | | | | | | |
| Cash and cash equivalents | | $ | 21 | | $ | 43 | |
| Accounts receivable (less reserve: 2013, $22; 2012, $19) | | | | | | | Cash and cash equivalents | | $ | 23 | | $ | 35 |
| | Customer | | | 216 | | | 133 | Accounts receivable (less reserve: 2014, $26; 2013, $22) | | | | | | |
| | Other | | | 18 | | | 20 | | Customer | | | 238 | | | 224 |
| Unbilled revenues | | | 137 | | | 156 | | Other | | | 23 | | | 20 |
| Accounts receivable from affiliates | | | | | | 1 | Unbilled revenues | | | 153 | | | 180 |
| Fuel, materials and supplies | | | 275 | | | 276 | Fuel, materials and supplies | | | 235 | | | 278 |
| Prepayments | | | 24 | | | 28 | Prepayments | | | 27 | | | 21 |
| Price risk management assets from affiliates | | | | | | 14 | Notes receivable from affiliates | | | 16 | | | 70 |
| Deferred income taxes | | | 20 | | | 13 | Deferred income taxes | | | 108 | | | 159 |
| Regulatory assets | | | 29 | | | 19 | Regulatory assets | | | 27 | | | 27 |
| Other current assets | | | 6 | | | 4 | Other current assets | | | 4 | | | 3 |
| Total Current Assets | | | 746 | | | 707 | Total Current Assets | | | 854 | | | 1,017 |
| | | | | | | | | | | | | | |
Property, Plant and Equipment | Property, Plant and Equipment | | | | | | | Property, Plant and Equipment | | | | | | |
| Regulated utility plant | | | 8,434 | | | 8,073 | Regulated utility plant | | | 9,036 | | | 8,526 |
| Less: accumulated depreciation - regulated utility plant | | | 713 | | | 519 | Less: accumulated depreciation - regulated utility plant | | | 922 | | | 778 |
| | Regulated utility plant, net | | | 7,721 | | | 7,554 | | Regulated utility plant, net | | | 8,114 | | | 7,748 |
| Other, net | | | 3 | | | 3 | Other, net | | | 3 | | | 3 |
| Construction work in progress | | | 1,341 | | | 750 | Construction work in progress | | | 1,809 | | | 1,793 |
| Property, Plant and Equipment, net | | | 9,065 | | | 8,307 | Property, Plant and Equipment, net | | | 9,926 | | | 9,544 |
| | | | | | | | | | | | | | | | |
Other Noncurrent Assets | Other Noncurrent Assets | | | | | | Other Noncurrent Assets | | | | | |
| Regulatory assets | | 566 | | | 630 | Regulatory assets | | 471 | | | 474 |
| Goodwill | | | 996 | | | 996 | Goodwill | | | 996 | | | 996 |
| Other intangibles | | | 232 | | | 271 | Other intangibles | | | 197 | | | 221 |
| Other noncurrent assets | | | 97 | | | 108 | Other noncurrent assets | | | 101 | | | 98 |
| Total Other Noncurrent Assets | | | 1,891 | | | 2,005 | Total Other Noncurrent Assets | | | 1,765 | | | 1,789 |
| | | | | | | | | | | | | | | | |
Total Assets | Total Assets | | $ | 11,702 | | $ | 11,019 | Total Assets | | $ | 12,545 | | $ | 12,350 |
| | | | | | | | | | | | | | |
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, | | | | June 30, | | December 31, |
| | | | 2013 | | 2012 | | | | 2014 | | 2013 |
Liabilities and Equity | Liabilities and Equity | | | | | | Liabilities and Equity | | | | | |
| | | | | | | | | | | | | | | | |
Current Liabilities | Current Liabilities | | | | | | Current Liabilities | | | | | |
| Short-term debt | | $ | 212 | | $ | 125 | |
| Notes payable with affiliates | | 52 | | | 25 | |
| Accounts payable | | 312 | | | 283 | Short-term debt | | $ | 320 | | $ | 245 |
| Accounts payable to affiliates | | 2 | | | 1 | Accounts payable | | 335 | | | 346 |
| Customer deposits | | 49 | | | 48 | Accounts payable to affiliates | | 1 | | | 3 |
| Taxes | | 109 | | | 26 | Customer deposits | | 50 | | | 50 |
| Price risk management liabilities | | 4 | | | 5 | Taxes | | 29 | | | 39 |
| Price risk management liabilities with affiliates | | 14 | | | | Price risk management liabilities | | 4 | | | 4 |
| Regulatory liabilities | | 17 | | | 9 | Regulatory liabilities | | 10 | | | 14 |
| Interest | | 51 | | | 21 | Interest | | 23 | | | 23 |
| Other current liabilities | | | 104 | | | 100 | Other current liabilities | | | 121 | | | 111 |
| Total Current Liabilities | | | 926 | | | 643 | Total Current Liabilities | | | 893 | | | 835 |
| | | | | | | | | | | | | | |
Long-term Debt | Long-term Debt | | | 4,076 | | | 4,075 | Long-term Debt | | | 4,566 | | | 4,565 |
| | | | | | | | | | | | | | |
Deferred Credits and Other Noncurrent Liabilities | Deferred Credits and Other Noncurrent Liabilities | | | | | | Deferred Credits and Other Noncurrent Liabilities | | | | | |
| Deferred income taxes | | 651 | | | 541 | Deferred income taxes | | 1,065 | | | 965 |
| Investment tax credits | | 136 | | | 138 | Investment tax credits | | 133 | | | 135 |
| Accrued pension obligations | | 267 | | | 414 | Accrued pension obligations | | 114 | | | 152 |
| Asset retirement obligations | | 245 | | | 125 | Asset retirement obligations | | 255 | | | 245 |
| Regulatory liabilities | | 1,040 | | | 1,002 | Regulatory liabilities | | 1,014 | | | 1,033 |
| Price risk management liabilities | | 37 | | | 53 | Price risk management liabilities | | 38 | | | 32 |
| Other deferred credits and noncurrent liabilities | | | 249 | | | 242 | Other deferred credits and noncurrent liabilities | | | 242 | | | 238 |
| Total Deferred Credits and Other Noncurrent Liabilities | | | 2,625 | | | 2,515 | Total Deferred Credits and Other Noncurrent Liabilities | | | 2,861 | | | 2,800 |
| | | | | | | | | | | | | | |
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 | | | 4,075 | | | 3,786 | Member's equity | | | 4,225 | | | 4,150 |
| | | | | | | | | | | | | | | | |
Total Liabilities and Equity | Total Liabilities and Equity | | $ | 11,702 | | $ | 11,019 | Total Liabilities and Equity | | $ | 12,545 | | $ | 12,350 |
| | | | | | | | | | | | |
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, 2013March 31, 2014
| | $ | 4,0224,200 |
Net income | | | 10065 |
Contributions from member | | | 79 |
Distributions to member | | | (47)(117) |
SeptemberOther comprehensive income (loss)
| | | (2) |
June 30, 2014 | | $ | 4,225 |
| | | |
December 31, 2013 | | $ | 4,150 |
Net income | | | 180 |
Contributions from member | | | 119 |
Distributions to member | | | (221) |
Other comprehensive income (loss) | | | (3) |
June 30, 2014 | | $ | 4,225 |
| | | |
March 31, 2013 | | $ | 3,952 |
Net income | | | 64 |
Contributions from member | | | 71 |
Distributions to member | | | (65) |
June 30, 2013 | | $ | 4,0754,022 |
| | | |
December 31, 2012 | | $ | 3,786 |
Net income | | | 260160 |
Contributions from member | | | 146 |
Distributions to member | | | (116)(69) |
Other comprehensive income (loss) | | | (1) |
SeptemberJune 30, 2013
| | $ | 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
| | | 180 |
Distributions to member
| | | (95) |
Other comprehensive income (loss)
| | | (4) |
September 30, 2012
| | $ | 3,8224,022 |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
(THIS PAGE LEFT BLANK INTENTIONALLY.)
CONDENSED STATEMENTS OF INCOME | CONDENSED STATEMENTS OF INCOME | CONDENSED STATEMENTS OF INCOME |
Louisville Gas and Electric Company | (Unaudited) | (Unaudited) | | | | | | | | | (Unaudited) | | | | | | | | |
(Millions of Dollars) | (Millions of Dollars) | | | | | (Millions of Dollars) | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended | | Nine Months Ended | | | | Three Months Ended | | Six Months Ended |
| | | | September 30, | | September 30, | | | | June 30, | | June 30, |
| | | | 2013 | | 2012 | | 2013 | | 2012 | | | | 2014 | | 2013 | | 2014 | | 2013 |
Operating Revenues | Operating Revenues | | | | | | | | | | | Operating Revenues | | | | | | | | | | |
| Retail and wholesale | | $ | 332 | | $ | 324 | | $ | 1,003 | | $ | 939 | Retail and wholesale | | $ | 320 | | $ | 302 | | $ | 762 | | $ | 671 |
| Electric revenue from affiliate | | | 11 | | | 9 | | | 46 | | | 51 | Electric revenue from affiliate | | | 24 | | | 14 | | | 61 | | | 35 |
| Total Operating Revenues | | | 343 | | | 333 | | | 1,049 | | | 990 | Total Operating Revenues | | | 344 | | | 316 | | | 823 | | | 706 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Operating Expenses | Operating Expenses | | | | | | | | | | | Operating Expenses | | | | | | | | | | |
| Operation | | | | | | | | | | | Operation | | | | | | | | | | |
| | Fuel | | | 100 | | 100 | | | 284 | | 281 | | Fuel | | | 104 | | 88 | | | 221 | | 184 |
| | Energy purchases | | | 18 | | 18 | | | 129 | | 110 | | Energy purchases | | | 29 | | 31 | | | 147 | | 111 |
| | Energy purchases from affiliate | | | 2 | | 3 | | | 6 | | 9 | | Energy purchases from affiliate | | | 2 | | 3 | | | 8 | | 4 |
| | Other operation and maintenance | | | 93 | | 87 | | | 278 | | 277 | | Other operation and maintenance | | | 94 | | 94 | | | 192 | | 185 |
| Depreciation | | | 37 | | 38 | | | 110 | | 114 | Depreciation | | | 39 | | 37 | | | 77 | | 73 |
| Taxes, other than income | | | 6 | | | 6 | | | 18 | | | 17 | Taxes, other than income | | | 7 | | | 6 | | | 13 | | | 12 |
| Total Operating Expenses | | | 256 | | | 252 | | | 825 | | | 808 | Total Operating Expenses | | | 275 | | | 259 | | | 658 | | | 569 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Operating Income | Operating Income | | | 87 | | 81 | | | 224 | | 182 | Operating Income | | | 69 | | 57 | | | 165 | | 137 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Other Income (Expense) - net | Other Income (Expense) - net | | | (1) | | (3) | | | (3) | | (3) | Other Income (Expense) - net | | | (1) | | (1) | | | (3) | | (2) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Interest Expense | Interest Expense | | | 10 | | | 10 | | | 30 | | | 31 | Interest Expense | | | 12 | | | 10 | | | 24 | | | 20 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Income Before Income Taxes | Income Before Income Taxes | | | 76 | | 68 | | | 191 | | 148 | Income Before Income Taxes | | | 56 | | 46 | | | 138 | | 115 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Income Taxes | Income Taxes | | | 27 | | | 25 | | | 69 | | | 54 | Income Taxes | | | 21 | | | 17 | | | 51 | | | 42 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net Income (a) | Net Income (a) | | $ | 49 | | $ | 43 | | $ | 122 | | $ | 94 | Net Income (a) | | $ | 35 | | $ | 29 | | $ | 87 | | $ | 73 |
(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 | CONDENSED STATEMENTS OF CASH FLOWS | CONDENSED STATEMENTS OF CASH FLOWS |
Louisville Gas and Electric Company | (Unaudited) | (Millions of Dollars) | | | | | | | | | | | | | | |
| | | Nine Months Ended September 30, | | | Six Months Ended June 30, |
| | | | 2013 | | | 2012 | | | | 2014 | | | 2013 |
Cash Flows from Operating Activities | Cash Flows from Operating Activities | | | | | | | Cash Flows from Operating Activities | | | | | | |
| Net income | | $ | 122 | | | $ | 94 | |
| Adjustments to reconcile net income to net cash provided by operating activities | | | | | | | Net income | | $ | 87 | | | $ | 73 |
| | Depreciation | | | 110 | | | 114 | Adjustments to reconcile net income to net cash provided by operating activities | | | | | | |
| | Amortization | | | 9 | | | 8 | | Depreciation | | | 77 | | | 73 |
| | Defined benefit plans - expense | | | 13 | | | 14 | | Amortization | | | 6 | | | 6 |
| | Deferred income taxes and investment tax credits | | | 22 | | | 40 | | Defined benefit plans - expense | | | 5 | | | 9 |
| | Other | | | 10 | | | (11) | | Deferred income taxes and investment tax credits | | | 20 | | | 21 |
| Change in current assets and current liabilities | | | | | | | | Other | | | (4) | | | |
| | Accounts receivable | | | (20) | | | (5) | Change in current assets and current liabilities | | | | | | |
| | Accounts payable | | | 18 | | | 2 | | Accounts receivable | | | (25) | | | (9) |
| | Accounts payable to affiliates | | | 7 | | | | | Accounts payable | | | (5) | | | 13 |
| | Unbilled revenues | | | 10 | | | 16 | | Accounts payable to affiliates | | | (4) | | | (2) |
| | Fuel, materials and supplies | | | 2 | | | (10) | | Unbilled revenues | | | 19 | | | 2 |
| | Taxes payable | | | 32 | | | 21 | | Fuel, materials and supplies | | | 44 | | | 25 |
| | Other | | | 12 | | | 13 | | Taxes payable | | | 2 | | | 12 |
| Other operating activities | | | | | | | | Other | | | (4) | | | 6 |
| | Defined benefit plans - funding | | | (45) | | | (26) | Other operating activities | | | | | | |
| | Settlement of interest rate swaps | | | 49 | | | | | Defined benefit plans - funding | | | (10) | | | (44) |
| | Other assets | | | (1) | | | (2) | | Other assets | | | (2) | | | (1) |
| | Other liabilities | | | 2 | | | | (1) | | Other liabilities | | | (4) | | | | 2 |
| | Net cash provided by operating activities | | | 352 | | | | 267 | | Net cash provided by operating activities | | | 202 | | | | 186 |
Cash Flows from Investing Activities | Cash Flows from Investing Activities | | | | | | | Cash Flows from Investing Activities | | | | | | |
| Expenditures for property, plant and equipment | | | (376) | | | (193) | Expenditures for property, plant and equipment | | | (249) | | | (236) |
| Net (increase) decrease in restricted cash and cash equivalents | | | 10 | | | | (3) | Net (increase) decrease in restricted cash and cash equivalents | | | 1 | | | | 10 |
| | Net cash provided by (used in) investing activities | | | (366) | | | | (196) | | Net cash provided by (used in) investing activities | | | (248) | | | | (226) |
Cash Flows from Financing Activities | Cash Flows from Financing Activities | | | | | | | Cash Flows from Financing Activities | | | | | | |
| Net increase (decrease) in short-term debt | | | 17 | | | | Net increase (decrease) in short-term debt | | | 50 | | | 25 |
| Debt issuance and credit facility costs | | | | | | (1) | Payment of common stock dividends to parent | | | (60) | | | (48) |
| Payment of common stock dividends to parent | | | (67) | | | (47) | Contributions from parent | | | 53 | | | | 54 |
| Contributions from parent | | | 54 | | | | | | | Net cash provided by (used in) financing activities | | | 43 | | | | 31 |
| | | Net cash provided by (used in) financing activities | | | 4 | | | | (48) | |
Net Increase (Decrease) in Cash and Cash Equivalents | Net Increase (Decrease) in Cash and Cash Equivalents | | | (10) | | | 23 | Net Increase (Decrease) in Cash and Cash Equivalents | | | (3) | | | (9) |
Cash and Cash Equivalents at Beginning of Period | Cash and Cash Equivalents at Beginning of Period | | | 22 | | | | 25 | Cash and Cash Equivalents at Beginning of Period | | | 8 | | | | 22 |
Cash and Cash Equivalents at End of Period | Cash and Cash Equivalents at End of Period | | $ | 12 | | | $ | 48 | Cash and Cash Equivalents at End of Period | | $ | 5 | | | $ | 13 |
| | | | | | | |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements. |
| | |
Louisville Gas and Electric Company | (Unaudited) | (Millions of Dollars, shares in thousands) | | | | | | | | | | | | | |
| | | | September 30, | | December 31, | | | | June 30, | | December 31, |
| | | | 2013 | | 2012 | | | | 2014 | | 2013 |
Assets | Assets | | | | | | | Assets | | | | | | |
| | | | | | | | | | | | | | | | |
Current Assets | Current Assets | | | | | | | Current Assets | | | | | | |
| Cash and cash equivalents | | $ | 12 | | $ | 22 | Cash and cash equivalents | | $ | 5 | | $ | 8 |
| Accounts receivable (less reserve: 2013, $2; 2012, $1) | | | | | | | Accounts receivable (less reserve: 2014, $2; 2013, $2) | | | | | | |
| | Customer | | | 93 | | | 59 | | Customer | | | 102 | | | 102 |
| | Other | | | 9 | | | 16 | | Other | | | 14 | | | 9 |
| Unbilled revenues | | | 62 | | | 72 | Unbilled revenues | | | 66 | | | 85 |
| Accounts receivable from affiliates | | | 8 | | | 14 | Accounts receivable from affiliates | | | 17 | | | |
| Fuel, materials and supplies | | | 140 | | | 142 | Fuel, materials and supplies | | | 110 | | | 154 |
| Prepayments | | | 4 | | | 7 | Prepayments | | | 9 | | | 7 |
| Price risk management from affiliates | | | | | | 7 | Regulatory assets | | | 24 | | | 17 |
| Deferred income taxes | | | 3 | | | | Other current assets | | | 3 | | | 3 |
| Regulatory assets | | | 19 | | | 19 | Total Current Assets | | | 350 | | | 385 |
| Other current assets | | | 1 | | | 1 | | | | | | | |
| Total Current Assets | | | 351 | | | 359 | |
| | | | | | | | |
Property, Plant and Equipment | Property, Plant and Equipment | | | | | | | Property, Plant and Equipment | | | | | | |
| Regulated utility plant | | | 3,340 | | | 3,187 | |
| Less: accumulated depreciation - regulated utility plant | | | 309 | | | 220 | Regulated utility plant | | | 3,564 | | | 3,383 |
| | Regulated utility plant, net | | | 3,031 | | | 2,967 | Less: accumulated depreciation - regulated utility plant | | | 397 | | | 332 |
| Other, net | | | 1 | | | | | Regulated utility plant, net | | | 3,167 | | | 3,051 |
| Construction work in progress | | | 490 | | | 259 | Construction work in progress | | | 750 | | | 651 |
| Property, Plant and Equipment, net | | | 3,522 | | | 3,226 | Property, Plant and Equipment, net | | | 3,917 | | | 3,702 |
| | | | | | | | | | | | | | | | |
Other Noncurrent Assets | Other Noncurrent Assets | | | | | | Other Noncurrent Assets | | | | | |
| Regulatory assets | | 359 | | | 400 | Regulatory assets | | 306 | | | 303 |
| Goodwill | | | 389 | | | 389 | Goodwill | | | 389 | | | 389 |
| Other intangibles | | | 126 | | | 144 | Other intangibles | | | 108 | | | 120 |
| Other noncurrent assets | | | 33 | | | 44 | Other noncurrent assets | | | 35 | | | 35 |
| Total Other Noncurrent Assets | | | 907 | | | 977 | Total Other Noncurrent Assets | | | 838 | | | 847 |
| | | | | | | | | | | | | | | | |
Total Assets | Total Assets | | $ | 4,780 | | $ | 4,562 | Total Assets | | $ | 5,105 | | $ | 4,934 |
| | | | | | | | | | | | | | |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements. |
CONDENSED BALANCE SHEETS | Louisville Gas and Electric Company | (Unaudited) | (Millions of Dollars, shares in thousands) | | | | | September 30, | | December 31, | | | | June 30, | | December 31, |
| �� | | | | 2013 | | 2012 | | | | 2014 | | 2013 |
Liabilities and Equity | Liabilities and Equity | | | | | | Liabilities and Equity | | | | | |
| | | | | | | | | | | | | | | | |
Current Liabilities | Current Liabilities | | | | | | Current Liabilities | | | | | |
| Short-term debt | | $ | 72 | | $ | 55 | |
| Accounts payable | | | 147 | | | 117 | Short-term debt | | $ | 70 | | $ | 20 |
| Accounts payable to affiliates | | | 30 | | | 23 | Accounts payable | | | 200 | | | 166 |
| Customer deposits | | | 24 | | | 23 | Accounts payable to affiliates | | | 20 | | | 24 |
| Taxes | | | 34 | | | 2 | Customer deposits | | | 24 | | | 24 |
| Price risk management liabilities | | | 4 | | | 5 | Taxes | | | 13 | | | 11 |
| Price risk management liabilities with affiliates | | | 7 | | | | Price risk management liabilities | | | 4 | | | 4 |
| Regulatory liabilities | | | 11 | | | 4 | Regulatory liabilities | | | 9 | | | 9 |
| Interest | | | 10 | | | 5 | Interest | | | 6 | | | 6 |
| Other current liabilities | | | 34 | | | 34 | Other current liabilities | | | 30 | | | 32 |
| Total Current Liabilities | | | 373 | | | 268 | Total Current Liabilities | | | 376 | | | 296 |
| | | | | | | | | | | | | | |
Long-term Debt | Long-term Debt | | | 1,112 | | | 1,112 | Long-term Debt | | | 1,353 | | | 1,353 |
| | | | | | | | | | | | | | |
Deferred Credits and Other Noncurrent Liabilities | Deferred Credits and Other Noncurrent Liabilities | | | | | | Deferred Credits and Other Noncurrent Liabilities | | | | | |
| Deferred income taxes | | 577 | | | 544 | Deferred income taxes | | 603 | | | 582 |
| Investment tax credits | | 39 | | | 40 | Investment tax credits | | 37 | | | 38 |
| Accrued pension obligations | | 56 | | | 102 | Accrued pension obligations | | 10 | | | 19 |
| Asset retirement obligations | | 69 | | | 56 | Asset retirement obligations | | 70 | | | 68 |
| Regulatory liabilities | | 489 | | | 471 | Regulatory liabilities | | 472 | | | 482 |
| Price risk management liabilities | | 37 | | | 53 | Price risk management liabilities | | 38 | | | 32 |
| Other deferred credits and noncurrent liabilities | | | 109 | | | 106 | Other deferred credits and noncurrent liabilities | | | 106 | | | 104 |
| Total Deferred Credits and Other Noncurrent Liabilities | | | 1,376 | | | 1,372 | Total Deferred Credits and Other Noncurrent Liabilities | | | 1,336 | | | 1,325 |
| | | | | | | | | | | | | | |
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 | | | 1,332 | | | 1,278 | Additional paid-in capital | | | 1,417 | | | 1,364 |
| Earnings reinvested | | | 163 | | | 108 | Earnings reinvested | | | 199 | | | 172 |
| Total Equity | | | 1,919 | | | 1,810 | Total Equity | | | 2,040 | | | 1,960 |
| | | | | | | | | | | | | | | | |
Total Liabilities and Equity | Total Liabilities and Equity | | $ | 4,780 | | $ | 4,562 | Total Liabilities and Equity | | $ | 5,105 | | $ | 4,934 |
(a) | 75,000 shares authorized; 21,294 shares issued and outstanding at SeptemberJune 30, 20132014 and December 31, 2012.2013. |
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 |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
March 31, 2014 | | March 31, 2014 | | 21,294 | | $ | 424 | | $ | 1,364 | | $ | 197 | | $ | 1,985 |
Net income | | Net income | | | | | | | | 35 | | 35 |
Capital contributions from LKE | | Capital contributions from LKE | | | | | | 53 | | | | 53 |
Cash dividends declared on common stock | | Cash dividends declared on common stock | | | | | | | | | | | (33) | | | (33) |
June 30, 2014 | | June 30, 2014 | | 21,294 | | $ | 424 | | $ | 1,417 | | $ | 199 | | $ | 2,040 |
| | | | | | | | | | | | | |
December 31, 2013 | | December 31, 2013 | | 21,294 | | $ | 424 | | $ | 1,364 | | $ | 172 | | $ | 1,960 |
Net income | | Net income | | | | | | | | 87 | | 87 |
Capital contributions from LKE | | Capital contributions from LKE | | | | | | 53 | | | | 53 |
Cash dividends declared on common stock | | Cash dividends declared on common stock | | | | | | | | | | | (60) | | | (60) |
June 30, 2014 | | June 30, 2014 | | 21,294 | | $ | 424 | | $ | 1,417 | | $ | 199 | | $ | 2,040 |
| | | | | | | | | | | | | |
March 31, 2013 | | March 31, 2013 | | 21,294 | | $ | 424 | | $ | 1,303 | | $ | 133 | | $ | 1,860 |
Net income | | Net income | | | | | | | | 29 | | 29 |
Capital contributions from LKE | | Capital contributions from LKE | | | | | | 29 | | | | 29 |
Cash dividends declared on common stock | | Cash dividends declared on common stock | | | | | | | | | | | (29) | | | (29) |
June 30, 2013 | June 30, 2013 | | 21,294 | | $ | 424 | | $ | 1,332 | | $ | 133 | | $ | 1,889 | June 30, 2013 | | 21,294 | | $ | 424 | | $ | 1,332 | | $ | 133 | | $ | 1,889 |
Net income | | | | | | | | 49 | | 49 | |
Cash dividends declared on common stock | | | | | | | | | | | (19) | | | (19) | |
September 30, 2013 | | 21,294 | | $ | 424 | | $ | 1,332 | | $ | 163 | | $ | 1,919 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2012 | December 31, 2012 | | 21,294 | | $ | 424 | | $ | 1,278 | | $ | 108 | | $ | 1,810 | December 31, 2012 | | 21,294 | | $ | 424 | | $ | 1,278 | | $ | 108 | | $ | 1,810 |
Net income | Net income | | | | | | | | 122 | | 122 | Net income | | | | | | | | 73 | | 73 |
Capital contributions from LKE | Capital contributions from LKE | | | | | | 54 | | | | 54 | Capital contributions from LKE | | | | | | 54 | | | | 54 |
Cash dividends declared on common stock | Cash dividends declared on common stock | | | | | | | | | | | (67) | | | (67) | Cash dividends declared on common stock | | | | | | | | | | | (48) | | | (48) |
September 30, 2013 | | 21,294 | | $ | 424 | | $ | 1,332 | | $ | 163 | | $ | 1,919 | |
| | | | | | | | | | | | | |
June 30, 2012 | | 21,294 | | $ | 424 | | $ | 1,278 | | $ | 80 | | $ | 1,782 | |
Net income | | | | | | | | 43 | | 43 | |
Cash dividends declared on common stock | | | | | | | | | | | (16) | | | (16) | |
September 30, 2012 | | 21,294 | | $ | 424 | | $ | 1,278 | | $ | 107 | | $ | 1,809 | |
| | | | | | | | | | | | | | |
December 31, 2011 | | 21,294 | | $ | 424 | | $ | 1,278 | | $ | 60 | | $ | 1,762 | |
Net income | | | | | | | | 94 | | 94 | |
Cash dividends declared on common stock | | | | | | | | | | | (47) | | | (47) | |
September 30, 2012 | | 21,294 | | $ | 424 | | $ | 1,278 | | $ | 107 | | $ | 1,809 | |
June 30, 2013 | | June 30, 2013 | | 21,294 | | $ | 424 | | $ | 1,332 | | $ | 133 | | $ | 1,889 |
(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 | CONDENSED STATEMENTS OF INCOME | CONDENSED STATEMENTS OF INCOME |
Kentucky Utilities Company | (Unaudited) | (Unaudited) | | | | | | | | | (Unaudited) | | | | | | | | |
(Millions of Dollars) | (Millions of Dollars) | | | | | (Millions of Dollars) | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended | | Nine Months Ended | | | | Three Months Ended | | Six Months Ended |
| | | | September 30, | | September 30, | | | | June 30, | | June 30, |
| | | | 2013 | | 2012 | | 2013 | | 2012 | | | | 2014 | | 2013 | | 2014 | | 2013 |
Operating Revenues | Operating Revenues | | | | | | | | | | | | | Operating Revenues | | | | | | | | | | | | |
| Retail and wholesale | | $ | 412 | | $ | 408 | | $ | 1,223 | | $ | 1,156 | Retail and wholesale | | $ | 402 | | $ | 380 | | $ | 894 | | $ | 811 |
| Electric revenue from affiliate | | | 2 | | | 3 | | | 6 | | | 9 | Electric revenue from affiliate | | | 2 | | | 3 | | | 8 | | | 4 |
| Total Operating Revenues | | | 414 | | | 411 | | | 1,229 | | | 1,165 | Total Operating Revenues | | | 404 | | | 383 | | | 902 | | | 815 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Operating Expenses | Operating Expenses | | | | | | | | | | | | | Operating Expenses | | | | | | | | | | | | |
| Operation | | | | | | | | | | | | | Operation | | | | | | | | | | | | |
| | Fuel | | | 137 | | | 149 | | | 400 | | | 396 | | Fuel | | | 127 | | | 128 | | | 287 | | | 263 |
| | Energy purchases | | | 5 | | | 9 | | | 17 | | | 25 | | Energy purchases | | | 7 | | | 6 | | | 13 | | | 12 |
| | Energy purchases from affiliate | | | 11 | | | 9 | | | 46 | | | 51 | | Energy purchases from affiliate | | | 24 | | | 14 | | | 61 | | | 35 |
| | Other operation and maintenance | | | 91 | | | 93 | | | 286 | | | 286 | | Other operation and maintenance | | | 107 | | | 98 | | | 205 | | | 195 |
| Depreciation | | | 46 | | | 49 | | | 138 | | | 145 | Depreciation | | | 47 | | | 46 | | | 95 | | | 92 |
| Taxes, other than income | | | 6 | | | 5 | | | 18 | | | 17 | Taxes, other than income | | | 6 | | | 6 | | | 13 | | | 12 |
| Total Operating Expenses | | | 296 | | | 314 | | | 905 | | | 920 | Total Operating Expenses | | | 318 | | | 298 | | | 674 | | | 609 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Operating Income | Operating Income | | | 118 | | | 97 | | | 324 | | | 245 | Operating Income | | | 86 | | | 85 | | | 228 | | | 206 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Other Income (Expense) - net | Other Income (Expense) - net | | | (2) | | | 1 | | | (1) | | | (5) | Other Income (Expense) - net | | | | | | 2 | | | | | | 1 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest Expense | Interest Expense | | | 17 | | | 18 | | | 51 | | | 52 | Interest Expense | | | 20 | | | 17 | | | 39 | | | 34 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Income Before Income Taxes | Income Before Income Taxes | | | 99 | | | 80 | | | 272 | | | 188 | Income Before Income Taxes | | | 66 | | | 70 | | | 189 | | | 173 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Income Taxes | Income Taxes | | | 36 | | | 30 | | | 101 | | | 70 | Income Taxes | | | 26 | | | 26 | | | 72 | | | 65 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net Income (a) | Net Income (a) | | $ | 63 | | $ | 50 | | $ | 171 | | $ | 118 | Net Income (a) | | $ | 40 | | $ | 44 | | $ | 117 | | $ | 108 |
(a) | Net income equalsapproximates comprehensive income. |
| The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements. |
CONDENSED STATEMENTS OF CASH FLOWS | CONDENSED STATEMENTS OF CASH FLOWS | CONDENSED STATEMENTS OF CASH FLOWS |
Kentucky Utilities Company | (Unaudited) | (Millions of Dollars) | | | | | | | | | | | | | | |
| | | Nine Months Ended September 30, | | | Six Months Ended June 30, |
| | | | 2013 | | | 2012 | | | | 2014 | | | 2013 |
Cash Flows from Operating Activities | Cash Flows from Operating Activities | | | | | | | Cash Flows from Operating Activities | | | | | | |
| Net income | | $ | 171 | | | $ | 118 | |
| Adjustments to reconcile net income to net cash provided by operating activities | | | | | | | |
| | Depreciation | | | 138 | | | 145 | Net income | | $ | 117 | | | $ | 108 |
| | Amortization | | | 9 | | | 9 | Adjustments to reconcile net income to net cash provided by operating activities | | | | | | |
| | Defined benefit plans - expense | | | 16 | | | 9 | | Depreciation | | | 95 | | | 92 |
| | Deferred income taxes and investment tax credits | | | 73 | | | 78 | | Amortization | | | 4 | | | 7 |
| | Other | | | (3) | | | 1 | | Defined benefit plans - expense | | | 2 | | | 12 |
| Change in current assets and current liabilities | | | | | | | | Deferred income taxes and investment tax credits | | | 89 | | | 72 |
| | Accounts receivable | | | (46) | | | (34) | | Other | | | 5 | | | (2) |
| | Accounts payable | | | 25 | | | 9 | Change in current assets and current liabilities | | | | | | |
| | Accounts payable to affiliates | | | (9) | | | (4) | | Accounts receivable | | | (44) | | | (39) |
| | Unbilled revenues | | | 9 | | | 10 | | Accounts payable | | | 10 | | | 33 |
| | Fuel, materials and supplies | | | (1) | | | 16 | | Accounts payable to affiliates | | | 13 | | | (7) |
| | Taxes payable | | | 39 | | | 26 | | Unbilled revenues | | | 8 | | | (4) |
| | Accrued interest | | | 15 | | | 14 | | Fuel, materials and supplies | | | (1) | | | |
| | Other | | | (3) | | | 18 | | Taxes payable | | | (19) | | | (10) |
| Other operating activities | | | | | | | | Other | | | 16 | | | 5 |
| | Defined benefit plans - funding | | | (62) | | | (20) | Other operating activities | | | | | | |
| | Settlement of interest rate swaps | | | 49 | | | | | Defined benefit plans - funding | | | (3) | | | (61) |
| | Other assets | | | (2) | | | (1) | | Other assets | | | (1) | | | (3) |
| | Other liabilities | | | 1 | | | | 16 | | Other liabilities | | | 6 | | | | (13) |
| | Net cash provided by operating activities | | | 419 | | | | 410 | | Net cash provided by operating activities | | | 297 | | | | 190 |
Cash Flows from Investing Activities | Cash Flows from Investing Activities | | | | | | | Cash Flows from Investing Activities | | | | | | |
| Expenditures for property, plant and equipment | | | (512) | | | (331) | Expenditures for property, plant and equipment | | | (305) | | | (341) |
| Other investing activities | | | 2 | | | | | Other investing activities | | | | | | | 1 |
| | Net cash provided by (used in) investing activities | | | (510) | | | | (331) | | Net cash provided by (used in) investing activities | | | (305) | | | | (340) |
Cash Flows from Financing Activities | Cash Flows from Financing Activities | | | | | | | Cash Flows from Financing Activities | | | | | | |
| Net increase (decrease) in short-term debt | | | 70 | | | | Net increase (decrease) in short-term debt | | | 25 | | | 102 |
| Payment of common stock dividends to parent | | | (83) | | | (68) | Payment of common stock dividends to parent | | | (86) | | | (55) |
| Contributions from parent | | | 92 | | | | | Contributions from parent | | | 66 | | | | 92 |
| | | Net cash provided by (used in) financing activities | | | 79 | | | | (68) | | | Net cash provided by (used in) financing activities | | | 5 | | | | 139 |
Net Increase (Decrease) in Cash and Cash Equivalents | Net Increase (Decrease) in Cash and Cash Equivalents | | | (12) | | | 11 | Net Increase (Decrease) in Cash and Cash Equivalents | | | (3) | | | (11) |
Cash and Cash Equivalents at Beginning of Period | Cash and Cash Equivalents at Beginning of Period | | | 21 | | | | 31 | Cash and Cash Equivalents at Beginning of Period | | | 21 | | | | 21 |
Cash and Cash Equivalents at End of Period | Cash and Cash Equivalents at End of Period | | $ | 9 | | | $ | 42 | Cash and Cash Equivalents at End of Period | | $ | 18 | | | $ | 10 |
| | | | | | | |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements. |
| | |
Kentucky Utilities Company | (Unaudited) | (Millions of Dollars, shares in thousands) | | | | | | | | | | | | | |
| | | | September 30, | | December 31, | | | | June 30, | | December 31, |
| | | | 2013 | | 2012 | | | | 2014 | | 2013 |
Assets | Assets | | | | | | | Assets | | | | | | |
| | | | | | | | | | | | | | | | |
Current Assets | Current Assets | | | | | | | Current Assets | | | | | | |
| Cash and cash equivalents | | $ | 9 | | $ | 21 | |
| Accounts receivable (less reserve: 2013, $4; 2012, $2) | | | | | | | |
| | Customer | | | 123 | | | 74 | |
| | Other | | | 8 | | | 13 | Cash and cash equivalents | | $ | 18 | | $ | 21 |
| Unbilled revenues | | | 75 | | | 84 | Accounts receivable (less reserve: 2014, $4; 2013, $4) | | | | | | |
| Accounts receivable from affiliates | | | 10 | | | 7 | | Customer | | | 136 | | | 122 |
| Fuel, materials and supplies | | | 135 | | | 134 | | Other | | | 34 | | | 9 |
| Prepayments | | | 11 | | | 10 | Unbilled revenues | | | 87 | | | 95 |
| Price risk management assets from affiliates | | | | | | 7 | Fuel, materials and supplies | | | 125 | | | 124 |
| Deferred income taxes | | | 3 | | | 3 | Prepayments | | | 8 | | | 4 |
| Regulatory assets | | | 10 | | | | Regulatory assets | | | 3 | | | 10 |
| Other current assets | | | 5 | | | 3 | Other current assets | | | 5 | | | 6 |
| Total Current Assets | | | 389 | | | 356 | Total Current Assets | | | 416 | | | 391 |
| | | | | | | | | | | | | | |
Property, Plant and Equipment | Property, Plant and Equipment | | | | | | | Property, Plant and Equipment | | | | | | |
| Regulated utility plant | | | 5,094 | | | 4,886 | Regulated utility plant | | | 5,472 | | | 5,143 |
| Less: accumulated depreciation - regulated utility plant | | | 404 | | | 299 | Less: accumulated depreciation - regulated utility plant | | | 525 | | | 446 |
| | Regulated utility plant, net | | | 4,690 | | | 4,587 | | Regulated utility plant, net | | | 4,947 | | | 4,697 |
| Other, net | | | 1 | | | 1 | Other, net | | | 1 | | | 1 |
| Construction work in progress | | | 849 | | | 490 | Construction work in progress | | | 1,055 | | | 1,139 |
| Property, Plant and Equipment, net | | | 5,540 | | | 5,078 | Property, Plant and Equipment, net | | | 6,003 | | | 5,837 |
| | | | | | | | | | | | | | | | |
Other Noncurrent Assets | Other Noncurrent Assets | | | | | | Other Noncurrent Assets | | | | | |
| Regulatory assets | | 207 | | | 230 | Regulatory assets | | 165 | | | 171 |
| Goodwill | | | 607 | | | 607 | Goodwill | | | 607 | | | 607 |
| Other intangibles | | | 106 | | | 127 | Other intangibles | | | 89 | | | 101 |
| Other noncurrent assets | | | 57 | | | 57 | Other noncurrent assets | | | 59 | | | 56 |
| Total Other Noncurrent Assets | | | 977 | | | 1,021 | Total Other Noncurrent Assets | | | 920 | | | 935 |
| | | | | | | | | | | | | | | | |
Total Assets | Total Assets | | $ | 6,906 | | $ | 6,455 | Total Assets | | $ | 7,339 | | $ | 7,163 |
| | | | | | | | | | | | | | |
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, | | | | June 30, | | December 31, |
| | | | 2013 | | 2012 | | | | 2014 | | 2013 |
Liabilities and Equity | Liabilities and Equity | | | | | | Liabilities and Equity | | | | | |
| | | | | | | | | | | | | | | | |
Current Liabilities | Current Liabilities | | | | | | Current Liabilities | | | | | |
| Short-term debt | | $ | 140 | | $ | 70 | |
| Accounts payable | | | 155 | | | 147 | Short-term debt | | $ | 175 | | $ | 150 |
| Accounts payable to affiliates | | 24 | | | 33 | Accounts payable | | | 125 | | | 159 |
| Customer deposits | | 25 | | | 25 | Accounts payable to affiliates | | 38 | | | 25 |
| Taxes | | 65 | | | 26 | Customer deposits | | 26 | | | 26 |
| Price risk management liabilities with affiliates | | 7 | | | | Taxes | | 14 | | | 33 |
| Regulatory liabilities | | 6 | | | 5 | Regulatory liabilities | | 1 | | | 5 |
| Interest | | 25 | | | 10 | Interest | | 11 | | | 11 |
| Other current liabilities | | | 31 | | | 33 | Other current liabilities | | | 58 | | | 36 |
| Total Current Liabilities | | | 478 | | | 349 | Total Current Liabilities | | | 448 | | | 445 |
| | | | | | | | | | | | | | |
Long-term Debt | Long-term Debt | | | 1,843 | | | 1,842 | Long-term Debt | | | 2,091 | | | 2,091 |
| | | | | | | | | | | | | | |
Deferred Credits and Other Noncurrent Liabilities | Deferred Credits and Other Noncurrent Liabilities | | | | | | Deferred Credits and Other Noncurrent Liabilities | | | | | |
| Deferred income taxes | | 660 | | | 587 | Deferred income taxes | | 747 | | | 658 |
| Investment tax credits | | 97 | | | 98 | Investment tax credits | | 96 | | | 97 |
| Accrued pension obligations | | 45 | | | 104 | Accrued pension obligations | | 2 | | | 11 |
| Asset retirement obligations | | 176 | | | 69 | Asset retirement obligations | | 185 | | | 177 |
| Regulatory liabilities | | 551 | | | 531 | Regulatory liabilities | | 542 | | | 551 |
| Other deferred credits and noncurrent liabilities | | | 93 | | | 92 | Other deferred credits and noncurrent liabilities | | | 88 | | | 89 |
| Total Deferred Credits and Other Noncurrent Liabilities | | | 1,622 | | | 1,481 | Total Deferred Credits and Other Noncurrent Liabilities | | | 1,660 | | | 1,583 |
| | | | | | | | | | | | | | |
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 | | | 2,440 | | | 2,348 | Additional paid-in capital | | | 2,571 | | | 2,505 |
| Accumulated other comprehensive income (loss) | | | 1 | | | 1 | Accumulated other comprehensive income (loss) | | | | | | 1 |
| Earnings reinvested | | | 214 | | | 126 | Earnings reinvested | | | 261 | | | 230 |
| Total Equity | | | 2,963 | | | 2,783 | Total Equity | | | 3,140 | | | 3,044 |
| | | | | | | | | | | | | | | | |
Total Liabilities and Equity | Total Liabilities and Equity | | $ | 6,906 | | $ | 6,455 | Total Liabilities and Equity | | $ | 7,339 | | $ | 7,163 |
(a) | 80,000 shares authorized; 37,818 shares issued and outstanding at SeptemberJune 30, 20132014 and December 31, 2012.2013. |
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 |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
March 31, 2014 | | | 37,818 | | $ | 308 | | $ | 2,545 | | $ | 270 | | | | | $ | 3,123 |
Net income | | | | | | | | | 40 | | | | 40 |
Capital contributions from LKE | | | | | | | 26 | | | | | | 26 |
Cash dividends declared on common stock | | | | | | | | | | | | (49) | | | | | | (49) |
June 30, 2014 | | | 37,818 | | $ | 308 | | $ | 2,571 | | $ | 261 | | | | | $ | 3,140 |
| | | | | | | | | | | | | |
December 31, 2013 | | | 37,818 | | $ | 308 | | $ | 2,505 | | $ | 230 | | $ | 1 | | $ | 3,044 |
Net income | | | | | | | | | 117 | | | | 117 |
Capital contributions from LKE | | | | | | | 66 | | | | | | 66 |
Cash dividends declared on common stock | | | | | | | | | (86) | | | | (86) |
Other comprehensive income (loss) | | | | | | | | | | | | | | | (1) | | | (1) |
June 30, 2014 | | | 37,818 | | $ | 308 | | $ | 2,571 | | $ | 261 | | $ | | | $ | 3,140 |
| | | | | | | | | | | | | |
March 31, 2013 | | | 37,818 | | $ | 308 | | $ | 2,398 | | $ | 177 | | $ | 1 | | $ | 2,884 |
Net income | | | | | | | | | 44 | | | | 44 |
Capital contributions from LKE | | | | | | | 42 | | | | | | 42 |
Cash dividends declared on common stock | | | | | | | | | | | | (42) | | | | | | (42) |
June 30, 2013 | | 37,818 | | $ | 308 | | $ | 2,440 | | $ | 179 | | $ | 1 | | $ | 2,928 | | 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 | | | | | | | | 171 | | | | 171 | | | | | | | | 108 | | | | 108 |
Capital contributions from LKE | | | | | | 92 | | | | | | 92 | | | | | | 92 | | | | | | 92 |
Cash dividends declared on common stock | | | | | | | | | | | (83) | | | | | | (83) | | | | | | | | | | | (55) | | | | | | (55) |
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 | |
Net income | | | | | | | | 118 | | | | 118 | |
Cash dividends declared on common stock | | | | | | | | (68) | | | | (68) | |
Other comprehensive income (loss) | | | | | | | | | | | | | $ | (4) | | | (4) | |
September 30, 2012 | | 37,818 | | $ | 308 | | $ | 2,348 | | $ | 139 | | $ | (4) | | $ | 2,791 | |
June 30, 2013 | | | 37,818 | | $ | 308 | | $ | 2,440 | | $ | 179 | | $ | 1 | | $ | 2,928 |
(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
(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 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 GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation in accordance with GAAP are reflected in the condensed financial statements. All adjustments are of a normal recurring nature, except as otherwise disclosed. Each Registrant's Balance Sheet at December 31, 20122013 is derived from that Registrant's 20122013 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 20122013 Form 10-K. The results of operations for the three and ninesix months ended SeptemberJune 30, 2013,2014 are not necessarily indicative of the results to be expected for the full year ending December 31, 2013,2014 or other future periods, because results for interim periods can be disproportionately influenced by various factors, developments and seasonal variations.
The classification of certain prior period amounts has been changed to conform to the presentation in the SeptemberJune 30, 20132014 financial statements.
2. Summary of Significant Accounting Policies
(All Registrants)
The following accounting policy disclosures represent updates to Note 1 in each Registrant's 20122013 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 designed to facilitate competitive markets for electricity in Pennsylvania, PPL Electric purchases certain accounts receivable from alternative electricity suppliers (including PPL EnergyPlus) at a discount, which reflects a provision for uncollectible accounts. The alternative electricity suppliers have no continuing involvement or interest in the purchased accounts receivable. The purchased accounts receivable are initially recorded at fair value using a market approach based on the purchase price paid and are classified as Level 2 in the fair value hierarchy. During the three and ninesix months ended SeptemberJune 30, 2013,2014, PPL Electric purchased $259$253 million and $738$614 million of accounts receivable from unaffiliated third parties and $75$79 million and $222$184 million from PPL EnergyPlus. During the three and ninesix months ended SeptemberJune 30, 2012,2013, PPL Electric purchased $225$220 million and $647$479 million of accounts receivable from unaffiliated third parties and $81$70 million and $237$147 million from PPL EnergyPlus.
Depreciation (PPL and Kentucky Registrants)
The KPSC approved new lower depreciation rates for LG&E and KU as part of the rate-case settlement agreement reached in
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 since the rate case.
New Accounting Guidance Adopted (All Registrants)
Improving Disclosures about Offsetting Balance Sheet ItemsAccounting for Obligations Resulting from Joint and Several Liability Arrangements
Effective January 1, 2013,2014, the Registrants retrospectively adopted accounting guidance issuedfor the recognition, measurement and disclosure of certain obligations resulting from joint and several liability arrangements when the amount of the obligation is fixed at the reporting date. If the obligation is determined to enhance disclosures about derivative instruments that either (1) offset onbe in 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 adoptionscope of this guidance, resulted in enhanced disclosures but did not have a significant impactit will be measured as the sum of the amount the reporting entity agreed to pay on the Registrants. See Note 14basis of its arrangements among its co-obligors and any additional amount the reporting entity expects to pay on behalf of its co-obligors. This guidance also requires additional disclosures for 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.these obligations.
The adoption of this guidance did not have a significant impact on the Registrants.
Reporting Amounts Reclassified OutAccounting for the Cumulative Translation Adjustment upon Derecognition of AOCICertain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity
Effective January 1, 2013,2014, PPL prospectively adopted accounting guidance that requires a cumulative translation adjustment to be released into earnings when an entity ceases to have a controlling financial interest in a subsidiary or group of assets within a consolidated foreign entity and the sale or transfer results in the complete or substantially complete liquidation of the foreign entity. For the step acquisition of previously held equity method investments that are foreign entities, this guidance clarifies that the amount of accumulated other comprehensive income that is reclassified and included in the calculation of a gain or loss shall include any foreign currency translation adjustment related to that previously held investment.
The initial adoption of this guidance did not have a significant impact on PPL; however, the impact in future periods could be material.
Presentation of Unrecognized Tax Benefits When Net Operating Loss Carryforwards, Similar Tax Losses, or Tax Credit Carryforwards Exist
Effective January 1, 2014, the Registrants prospectively adopted accounting guidance issuedthat requires an unrecognized tax benefit, or a portion of an unrecognized tax benefit, to improvebe presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of reclassifications outthe applicable jurisdiction to settle any additional income taxes that would result from the disallowance of AOCI. The Registrants are requireda tax position, or the tax law of the applicable jurisdiction does not require the entity to provide information aboutuse, and the effects on net income of significant amounts reclassified out of AOCI by their respective statement of income line item, ifentity does not intend to use, the item is required todeferred tax asset for such purpose, the unrecognized tax benefit should be reclassified to net incomepresented in its entirety. For itemsthe financial statements as a liability and should not reclassified to net income in their entirety, the Registrants are required to reference other disclosures that provide greater detail about these reclassifications.be combined with deferred tax assets.
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. Segment and Related Information
(PPL)
See Note 2 in PPL's 20122013 Form 10-K for a discussion of reportable segments. "Corporatesegments and Other" primarily 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.related information.
In 2013, costs included in the CorporateJune 2014, PPL and Other category increased, as anticipated,PPL Energy Supply, which primarily duerepresents PPL's Supply segment, executed definitive agreements with affiliates of Riverstone to an increase in financing atcombine their competitive power generation businesses into a new, stand-alone, publicly traded, independent power producer named Talen Energy. Upon completion of this transaction, PPL Capital Funding not directly attributable towill no longer have a particularSupply segment. PPL's 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 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. The financing costs associated primarily with PPL Capital Funding's new securities issuances, with certain exceptions including the remarketing of the debt component of the Equity Units, have not been directly assigned or allocated to any segment and generally have been reflected in Corporate and Other in 2013.See Note 8 for additional information.
For the periods ended September 30, financialFinancial data for the segments and reconciliation to PPL's consolidated results for the periods ended June 30 are:
| | | | Three Months | | Nine Months | | | | Three Months | | Six Months |
| | | 2013 | | 2012 | | 2013 | | 2012 | | | 2014 | | 2013 | | 2014 | | 2013 |
Income Statement Data | Income Statement Data | | | | | | | | | | | | | Income Statement Data | | | | | | | | | | | | |
Revenues from external customers | Revenues from external customers | | | | | | | | | Revenues from external customers | | | | | | | | |
| U.K. Regulated | | $ | 543 | | $ | 528 | | $ | 1,763 | | $ | 1,647 | U.K. Regulated | | $ | 672 | | $ | 572 | | $ | 1,320 | | $ | 1,220 |
| Kentucky Regulated | | 744 | | 732 | | 2,226 | | 2,095 | Kentucky Regulated | | 722 | | 682 | | 1,656 | | 1,482 |
| Pennsylvania Regulated | | 463 | | 443 | | 1,388 | | 1,303 | Pennsylvania Regulated | | 448 | | 413 | | 1,039 | | 925 |
| Supply (a) | | 1,352 | | 700 | | 3,626 | | 4,019 | Supply (a) | | 1,027 | | 1,780 | | 74 | | 2,274 |
| Corporate and Other | | | 3 | | | | | | 9 | | | | Corporate and Other | | | 5 | | | 3 | | | 8 | | | 6 |
Total | Total | | $ | 3,105 | | $ | 2,403 | | $ | 9,012 | | $ | 9,064 | Total | | $ | 2,874 | | $ | 3,450 | | $ | 4,097 | | $ | 5,907 |
| | | | | | | | | | | | | | | | | | | | |
Intersegment electric revenues | Intersegment electric revenues | | | | | | | | | Intersegment electric revenues | | | | | | | | |
| Pennsylvania Regulated | | $ | 1 | | $ | 1 | | $ | 3 | | $ | 3 | Supply | | $ | 21 | | $ | 12 | | $ | 48 | | $ | 26 |
| Supply | | 11 | | 23 | | 37 | | 61 | | | | | | | | | | |
Net Income Attributable to PPL Shareowners | | Net Income Attributable to PPL Shareowners | | | | | | | | |
| | U.K. Regulated (a) | | $ | 187 | | $ | 245 | | $ | 393 | | $ | 558 |
| | Kentucky Regulated | | 58 | | 49 | | 165 | | 134 |
| | Pennsylvania Regulated | | 52 | | 45 | | 137 | | 109 |
| | Supply (a) | | 5 | | 77 | | (70) | | 31 |
| | Corporate and Other (c) | | | (73) | | | (11) | | | (80) | | | (14) |
Total | | Total | | $ | 229 | | $ | 405 | | $ | 545 | | $ | 818 |
| | | | | | 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, | | | June 30, | | December 31, |
| | | 2013 | | 2012 | | | 2014 | | 2013 |
Balance Sheet Data | Balance Sheet Data | | | | | | | Balance Sheet Data | | | | | | |
Assets | Assets | | | | | | Assets | | | | | |
| U.K. Regulated | | $ | 14,329 | | $ | 14,073 | U.K. Regulated | | $ | 16,496 | | $ | 15,895 |
| Kentucky Regulated | | 11,368 | | | 10,670 | Kentucky Regulated | | 12,211 | | | 12,016 |
| Pennsylvania Regulated | | 6,729 | | | 6,023 | Pennsylvania Regulated | | 7,252 | | | 6,846 |
| Supply | | 12,198 | | | 12,868 | Supply | | 11,793 | | | 11,408 |
| Corporate and Other (b) | | | 364 | | | | Corporate and Other (b) | | | 441 | | | 94 |
Total assets | Total assets | | $ | 44,988 | | $ | 43,634 | Total assets | | $ | 48,193 | | $ | 46,259 |
(a) | Includes unrealized gains and losses from economic activity. See Note 14 for additional information. |
(b) | Primarily consists of unallocated assets,items, including cash, PP&E and the elimination of inter-segment transactions. |
(c) | 2014 includes certain costs related to the anticipated spinoff of PPL Energy Supply, including deferred income tax expense and third party costs. See Note 8 for additional information. |
(PPL)
Basic EPS is computed by dividing income available to PPL common shareowners by the weighted-average number of common shares outstanding during the applicable period. Diluted EPS is computed by dividing income available to PPL common shareowners by the weighted-average number of common shares outstanding, increased by incremental shares that would be outstanding if potentially dilutive non-participating securities were converted to common shares as calculated using the treasury stockTreasury 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 SeptemberJune 30 used in the EPS calculation are:
| | | | | Three Months | | Nine Months | | | | | Three Months | | Six Months |
| | | | | 2013 | | 2012 | | 2013 | | 2012 | | | | | 2014 | | 2013 | | 2014 | | 2013 |
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 | | | | | | | | | | Income from continuing operations after income taxes attributable to PPL | | | | | | | | | |
| shareowners | | $ | 409 | | $ | 355 | | $ | 1,226 | | $ | 1,173 | shareowners | | $ | 229 | | $ | 404 | | $ | 545 | | $ | 817 |
Less amounts allocated to participating securities | Less amounts allocated to participating securities | | | 2 | | | 2 | | | 6 | | | 7 | Less amounts allocated to participating securities | | | 1 | | | 2 | | | 3 | | | 4 |
Income from continuing operations after income taxes available to PPL | 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 | common shareowners - Basic | | 228 | | 402 | | | 542 | | 813 |
Plus interest charges (net of tax) related to Equity Units | | | 7 | | | | | | 37 | | | | |
Plus interest charges (net of tax) related to Equity Units (a) | | Plus interest charges (net of tax) related to Equity Units (a) | | | | | | 15 | | | 9 | | | 30 |
Income from continuing operations after income taxes available to PPL | 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 | common shareowners - Diluted | | $ | 228 | | $ | 417 | | $ | 551 | | $ | 843 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Income (loss) from discontinued operations (net of income taxes) available | 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) | to PPL common shareowners - Basic and Diluted | | $ | | | $ | 1 | | $ | | | $ | 1 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net income attributable to PPL shareowners | Net income attributable to PPL shareowners | | $ | 410 | | $ | 355 | | $ | 1,228 | | $ | 1,167 | Net income attributable to PPL shareowners | | $ | 229 | | $ | 405 | | $ | 545 | | $ | 818 |
Less amounts allocated to participating securities | Less amounts allocated to participating securities | | | 2 | | | 2 | | | 6 | | | 7 | Less amounts allocated to participating securities | | | 1 | | | 2 | | | 3 | | | 4 |
Net income available to PPL common shareowners - Basic | Net income available to PPL common shareowners - Basic | | 408 | | 353 | | | 1,222 | | 1,160 | Net income available to PPL common shareowners - Basic | | 228 | | 403 | | | 542 | | 814 |
Plus interest charges (net of tax) related to Equity Units | | | 7 | | | | | | 37 | | | | |
Plus interest charges (net of tax) related to Equity Units (a) | | Plus interest charges (net of tax) related to Equity Units (a) | | | | | | 15 | | | 9 | | | 30 |
Net income available to PPL common shareowners - Diluted | Net income available to PPL common shareowners - Diluted | | $ | 415 | | $ | 353 | | $ | 1,259 | | $ | 1,160 | Net income available to PPL common shareowners - Diluted | | $ | 228 | | $ | 418 | | $ | 551 | | $ | 844 |
| | | | | | | | | | | | | | |
Shares of Common Stock (Denominator) | | Shares of Common Stock (Denominator) | | | | | | | | | | |
Weighted-average shares - Basic EPS | | Weighted-average shares - Basic EPS | | 653,132 | | 589,834 | | | 642,002 | | 586,683 |
Add incremental non-participating securities: | | Add incremental non-participating securities: | | | | | | | | | |
| | | Share-based payment awards | | 2,100 | | 1,133 | | | 1,806 | | 971 |
| | | Equity Units (a) | | 10,560 | | 73,388 | | | 21,119 | | 72,689 |
| | | Forward sale agreements | | | | | | 260 | | | | | | 920 |
Weighted-average shares - Diluted EPS | | Weighted-average shares - Diluted EPS | | | 665,792 | | | 664,615 | | | 664,927 | | | 661,263 |
| | | | | | | | | | | | | |
Basic EPS | | Basic EPS | | | | | | | | | | |
| | | Net Income Available to PPL common shareowners | | $ | 0.35 | | $ | 0.68 | | $ | 0.84 | | $ | 1.39 |
| | | | | | | | | | | | | |
Diluted EPS | | Diluted EPS | | | | | | | | | | |
| | | Net Income Available to PPL common shareowners | | $ | 0.34 | | $ | 0.63 | | $ | 0.83 | | $ | 1.28 |
(a) | The If-Converted Method was applied to the Equity Units prior to settlement. See Note 7 for additional information on the 2011 Equity Units, including the issuance of PPL common stock on May 1, 2014 to settle the 2011 Purchase Contracts. |
| | | | | 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 SeptemberJune 30, PPL issued common stock related to stock-based compensation plans, ESOP and DRIP as follows:follows (in thousands):
(Shares in thousands) | | Three Months | | Nine Months | |
| | | | Three Months | | Six Months |
| | | | 2013 | | 2012 | | 2013 | | 2012 | | | | 2014 | | 2013 | | 2014 | | 2013 |
| | | | | | | | | | | | | | | | | | | | | | |
Stock-based compensation plans (a) | Stock-based compensation plans (a) | | 85 | | 159 | | 1,469 | | 512 | Stock-based compensation plans (a) | | 922 | | 938 | | 2,018 | | 1,384 |
ESOP | ESOP | | | | | | 275 | | 280 | ESOP | | | | | | | | 275 |
DRIP | DRIP | | | | 598 | | 549 | | 1,773 | DRIP | | | | | | | | 549 |
(a) | Includes stock options exercised, vesting of restricted stock and restricted stock units and conversion of stock units granted to directors. |
See Note 7 for 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 SeptemberJune 30, the following shares (in thousands) were excluded from the computations of diluted EPS because the effect would have been antidilutive.
| | Three Months | | Nine Months | | Three Months | | Six Months |
(Shares in thousands) | | 2013 | | 2012 | | 2013 | | 2012 | |
| | | 2014 | | 2013 | | 2014 | | 2013 |
| | | | | | | | | | | | | | | | |
Stock options | | 1,136 | | 4,935 | | 4,793 | | 5,622 | | 790 | | 2,192 | | 2,060 | | 5,486 |
Performance units | | 1 | | | | 73 | | 76 | | 1 | | 5 | | 1 | | 108 |
Restricted stock units | | | | | | 39 | | | | | | | | 61 | | 58 |
Reconciliations of income taxes for the periods ended SeptemberJune 30 are:
(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 |
(PPL) |
| | | | | | | | | | | | | | | | |
| | | | | | Three Months | | Six Months |
| | | | | | 2014 | | 2013 | | 2014 | | 2013 |
| | | | | | | | | | | | |
Federal income tax on Income from Continuing Operations Before | | | | | | | | | | | | |
| Income Taxes at statutory tax rate - 35% | | $ | 132 | | $ | 180 | | $ | 282 | | $ | 377 |
Increase (decrease) due to: | | | | | | | | | | | | |
| | State income taxes, net of federal income tax benefit | | | (7) | | | 14 | | | (5) | | | 17 |
| | State valuation allowance adjustments (a) | | | 46 | | | | | | 46 | | | |
| | Impact of lower U.K. income tax rates | | | (31) | | | (25) | | | (76) | | | (63) |
| | U.S. income tax on foreign earnings - net of foreign tax credit (b) | | | 10 | | | (7) | | | 21 | | | (5) |
| | Federal and state tax reserve adjustments (c) | | | | | | (39) | | | | | | (40) |
| | Federal income tax credits | | | (1) | | | (2) | | | (2) | | | (5) |
| | Amortization of investment tax credit | | | (1) | | | (2) | | | (3) | | | (5) |
| | Depreciation not normalized | | | (2) | | | (1) | | | (4) | | | (4) |
| | State deferred tax rate change | | | 3 | | | | | | 3 | | | |
| | Other | | | | | | (9) | | | (1) | | | (12) |
| | | Total increase (decrease) | | | 17 | | | (71) | | | (21) | | | (117) |
Total income taxes | | $ | 149 | | $ | 109 | | $ | 261 | | $ | 260 |
| | | | | | 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) | DuringAs a result of the three and nine months ended September 30, 2013,spinoff announcement, PPL recorded an increase in state deferred income tax expense relatedduring the three and six months ended June 30, 2014 to aadjust valuation allowances on deferred tax valuation allowanceassets primarily due to a decrease in projected future taxable income over the remaining carryforward period of Pennsylvaniafor state net operating losses.loss carryforwards that were previously supported by the future earnings of PPL Energy Supply. See Note 8 for additional information on the anticipated spinoff. |
(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 ninesix months ended SeptemberJune 30, 2013,2014, 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 2013.2014. |
During the ninethree and six months ended SeptemberJune 30, 2013, PPL recorded a $14 million increase to income tax expense primarily attributable to a revision in the expected taxable amount of cash repatriation in 2013 offset by a $19 million income 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.returns.
(d)(c) | 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. OnIn 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 ninethree and six months ended SeptemberJune 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. |
(f) | 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. |
(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 | | 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 |
42
(PPL Energy Supply) | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | Three Months | | Six Months |
| | | | | | 2014 | | 2013 | | 2014 | | 2013 |
Federal income tax on Income (Loss) Before Income Taxes at statutory | | | | | | | | | | | | |
| tax rate - 35% | | $ | 4 | | $ | 54 | | $ | (37) | | $ | 28 |
Increase (decrease) due to: | | | | | | | | | | | | |
| | State income taxes, net of federal income tax benefit (a) | | | (9) | | | 9 | | | (18) | | | 3 |
| | Federal and state tax reserve adjustments | | | 1 | | | 7 | | | 1 | | | 6 |
| | Federal income tax credits | | | | | | | | | (1) | | | (3) |
| | State deferred tax rate change | | | 3 | | | | | | 3 | | | |
| | Other | | | (2) | | | (3) | | | | | | (2) |
| | | Total increase (decrease) | | | (7) | | | 13 | | | (15) | | | 4 |
Total income taxes | | $ | (3) | | $ | 67 | | $ | (52) | | $ | 32 |
(a) | During the nine months ended September 30, 2013, PPL Energy Supply reversed $3 million in tax benefits related to a 2008 change in methodsecond quarter 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, 2012,2014, PPL Energy Supply recorded adjustmentsa $9 million credit to income tax expense, comprised of a $4 million credit to income tax expense recorded in 2013 and a $5 million credit related to state deferredan adjustment to the annual estimated effective income tax liabilities.rate utilized to calculate income tax expense for the three months ended March 31, 2014. The adjustment to the annual estimated effective income tax rate had no impact on income tax expense for the six months ended June 30, 2014. The adjustment related to 2013 is not material to previously-issued financial statements and is not expected to be material to the full year results for 2014. |
(PPL Electric) | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | Three Months | | Six Months |
| | | | | | 2014 | | 2013 | | 2014 | | 2013 |
| | | | | | | | | | | | |
Federal income tax on Income Before Income Taxes at statutory | | | | | | | | | | | | |
| tax rate - 35% | | $ | 29 | | $ | 24 | | $ | 77 | | $ | 58 |
Increase (decrease) due to: | | | | | | | | | | | | |
| | State income taxes, net of federal income tax benefit | | | 4 | | | 3 | | | 12 | | | 8 |
| | Federal and state tax reserve adjustments | | | (1) | | | (2) | | | (1) | | | (4) |
| | Depreciation not normalized | | | (1) | | | (1) | | | (3) | | | (4) |
| | Other | | | | | | | | | (1) | | | (1) |
| | | Total increase (decrease) | | | 2 | | | | | | 7 | | | (1) |
Total income taxes | | $ | 31 | | $ | 24 | | $ | 84 | | $ | 57 |
(LKE) | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | Three Months | | Six Months |
| | | | | | 2014 | | 2013 | | 2014 | | 2013 |
| | | | | | | | | | | | |
Federal income tax on Income from Continuing Operations Before | | | | | | | | | | | | |
| Income Taxes at statutory tax rate - 35% | | $ | 37 | | $ | 35 | | $ | 102 | | $ | 89 |
Increase (decrease) due to: | | | | | | | | | | | | |
| | State income taxes, net of federal income tax benefit | | | 4 | | | 3 | | | 10 | | | 8 |
| | Other | | | | | | (1) | | | (2) | | | (3) |
| | | Total increase (decrease) | | | 4 | | | 2 | | | 8 | | | 5 |
Total income taxes from continuing operations | | $ | 41 | | $ | 37 | | $ | 110 | | $ | 94 |
(LG&E) | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | Three Months | | Six Months |
| | | | | | 2014 | | 2013 | | 2014 | | 2013 |
| | | | | | | | | | | | |
Federal income tax on Income Before Income Taxes at statutory | | | | | | | | | | | | |
| tax rate - 35% | | $ | 20 | | $ | 16 | | $ | 48 | | $ | 40 |
Increase (decrease) due to: | | | | | | | | | | | | |
| | State income taxes, net of federal income tax benefit | | | 2 | | | 1 | | | 5 | | | 4 |
| | Other | | | (1) | | | | | | (2) | | | (2) |
| | | Total increase (decrease) | | | 1 | | | 1 | | | 3 | | | 2 |
Total income taxes | | $ | 21 | | $ | 17 | | $ | 51 | | $ | 42 |
(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) | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | Three Months | | Nine Months |
| | | | | | 2013 | | 2012 | | 2013 | | 2012 |
| | | | | | | | | | | | |
Federal income tax on Income from Continuing Operations Before | | | | | | | | | | | | |
| Income Taxes at statutory tax rate - 35% | | $ | 56 | | $ | 46 | | $ | 144 | | $ | 96 |
Increase (decrease) due to: | | | | | | | | | | | | |
| | State income taxes, net of federal income tax benefit | | | 6 | | | 5 | | | 14 | | | 7 |
| | Amortization of investment tax credit | | | (1) | | | (1) | | | (3) | | | (4) |
| | Net operating loss carryforward adjustments (a) | | | | | | | | | | | | (9) |
| | Other | | | (2) | | | (2) | | | (2) | | | (1) |
| | | Total increase (decrease) | | | 3 | | | 2 | | | 9 | | | (7) |
Total income taxes from continuing operations | | $ | 59 | | $ | 48 | | $ | 153 | | $ | 89 |
(a) | During the nine months ended September 30, 2012, LKE recorded adjustments to deferred taxes related to net operating loss carryforwards based on income tax return adjustments. |
(LG&E) | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | Three Months | | Nine Months |
| | | | | | 2013 | | 2012 | | 2013 | | 2012 |
| | | | | | | | | | | | |
Federal income tax on Income Before Income Taxes at statutory | | | | | | | | | | | | |
| tax rate - 35% | | $ | 27 | | $ | 24 | | $ | 67 | | $ | 52 |
Increase (decrease) due to: | | | | | | | | | | | | |
| | State income taxes, net of federal income tax benefit | | | 3 | | | 2 | | | 7 | | | 5 |
| | Other | | | (3) | | | (1) | | | (5) | | | (3) |
| | | Total increase (decrease) | | | | | | 1 | | | 2 | | | 2 |
Total income taxes | | $ | 27 | | $ | 25 | | $ | 69 | | $ | 54 |
(KU) | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | Three Months | | Nine Months |
| | | | | | 2013 | | 2012 | | 2013 | | 2012 |
| | | | | | | | | | | | |
Federal income tax on Income Before Income Taxes at statutory | | | | | | | | | | | | |
| tax rate - 35% | | $ | 35 | | $ | 28 | | $ | 95 | | $ | 66 |
Increase (decrease) due to: | | | | | | | | | | | | |
| | State income taxes, net of federal income tax benefit | | | 4 | | | 3 | | | 10 | | | 6 |
| | Other | | | (3) | | | (1) | | | (4) | | | (2) |
| | | Total increase (decrease) | | | 1 | | | 2 | | | 6 | | | 4 |
Total income taxes | | $ | 36 | | $ | 30 | | $ | 101 | | $ | 70 |
Unrecognized Tax Benefits(All Registrants)
Changes to unrecognized tax benefits for the periods ended September 30 were as follows.
| | | 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 were insignificant for the three and nine months ended September 30, 2013 and 2012.
At 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.
| | | | Increase | | Decrease |
| | | | | | | | |
PPL | | $ | 16 | | $ | 30 |
PPL Energy Supply | | | | | | 15 |
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 September 30, the total unrecognized tax benefits and related indirect effects that, if recognized, would decrease the effective income tax rate were as follows.
| | | | | | |
| | 2013 | | 2012 |
| | | | | | |
PPL | | $ | 21 | | $ | 34 |
PPL Energy Supply | | | 14 | | | 14 |
The amounts for PPL Electric, LKE, LG&E and KU were insignificant.
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 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. The IRS may assert, and ultimately conclude, that PPL's deduction
for generation-related expenditures should be less than the amount determined by PPL. PPL believes that it has established adequate reserves for this contingency.
(KU) | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | Three Months | | Six Months |
| | | | | | 2014 | | 2013 | | 2014 | | 2013 |
| | | | | | | | | | | | |
Federal income tax on Income Before Income Taxes at statutory | | | | | | | | | | | | |
| tax rate - 35% | | $ | 23 | | $ | 25 | | $ | 66 | | $ | 61 |
Increase (decrease) due to: | | | | | | | | | | | | |
| | State income taxes, net of federal income tax benefit | | | 2 | | | 2 | | | 7 | | | 6 |
| | Other | | | 1 | | | (1) | | | (1) | | | (2) |
| | | Total increase (decrease) | | | 3 | | | 1 | | | 6 | | | 4 |
Total income taxes | | $ | 26 | | $ | 26 | | $ | 72 | | $ | 65 |
6. Utility Rate Regulation
(All Registrants except PPL Energy Supply)
The following table provides information about the regulatory assets and liabilities of cost-based rate-regulated utility operations.
| | | PPL | | PPL Electric | | | PPL | | PPL Electric |
| | | September 30, | | December 31, | | September 30, | | December 31, | | | June 30, | | December 31, | | June 30, | | December 31, |
| | | 2013 | | 2012 | | 2013 | | 2012 | | | 2014 | | 2013 | | 2014 | | 2013 |
| | | | | | | | | | | | | | | | | | |
Current Regulatory Assets: | Current Regulatory Assets: | | | | | | | | | Current Regulatory Assets: | | | | | | | | |
| | Environmental cost recovery | | $ | 1 | | $ | 7 | | | | |
| ECR | | $ | 7 | | | | | | | Gas supply clause | | 20 | | 10 | | | | |
| Gas supply clause | | 13 | | $ | 11 | | | | | Fuel adjustment clause | | | | 2 | | | | |
| Fuel adjustment clause | | | | 6 | | | | | Demand side management | | 3 | | 8 | | | | |
| Other | | | 11 | | | 2 | | $ | 2 | | | | Other | | | 5 | | | 6 | | $ | 2 | | $ | 6 |
Total current regulatory assets | Total current regulatory assets | | $ | 31 | | $ | 19 | | $ | 2 | | | | Total current regulatory assets | | $ | 29 | | $ | 33 | | $ | 2 | | $ | 6 |
| | | | | | | | | | | | | | | | | | |
Noncurrent Regulatory Assets: | Noncurrent Regulatory Assets: | | | | | | | | | Noncurrent Regulatory Assets: | | | | | | | | |
| Defined benefit plans | | $ | 683 | | $ | 730 | | $ | 345 | | $ | 362 | Defined benefit plans | | $ | 493 | | $ | 509 | | $ | 252 | | $ | 257 |
| Taxes recoverable through future rates | | 302 | | 293 | | 302 | | 293 | Taxes recoverable through future rates | | 312 | | 306 | | 312 | | 306 |
| Storm costs | | 152 | | 168 | | 55 | | 59 | Storm costs | | 135 | | 147 | | 49 | | 53 |
| Unamortized loss on debt | | 88 | | 96 | | 58 | | 65 | Unamortized loss on debt | | 80 | | 85 | | 53 | | 57 |
| Interest rate swaps | | 49 | | 67 | | | | | Interest rate swaps | | 51 | | 44 | | | | |
| Accumulated cost of removal of utility plant | | 95 | | 71 | | 95 | | 71 | Accumulated cost of removal of utility plant | | 105 | | 98 | | 105 | | 98 |
| AROs | | 37 | | 26 | | | | | AROs | | 58 | | 44 | | | | |
| Other | | | 17 | | | 32 | | | 2 | | | 3 | Other | | | 8 | | | 13 | | | | | | 1 |
Total noncurrent regulatory assets | Total noncurrent regulatory assets | | $ | 1,423 | | $ | 1,483 | | $ | 857 | | $ | 853 | Total noncurrent regulatory assets | | $ | 1,242 | | $ | 1,246 | | $ | 771 | | $ | 772 |
Current Regulatory Liabilities: | Current Regulatory Liabilities: | | | | | | | | | Current Regulatory Liabilities: | | | | | | | | |
| | Generation supply charge | | $ | 30 | | $ | 23 | | $ | 30 | | $ | 23 |
| | Environmental cost recovery | | 1 | | | | | | |
| Generation supply charge | | $ | 21 | | $ | 27 | | $ | 21 | | $ | 27 | Gas supply clause | | 2 | | 3 | | | | |
| ECR | | | | 4 | | | | | Transmission service charge | | 6 | | 8 | | 6 | | 8 |
| Gas supply clause | | 2 | | 4 | | | | | Fuel adjustment clause | | | | 4 | | | | |
| Transmission service charge | | 9 | | 6 | | 9 | | 6 | Transmission formula rate | | 32 | | 20 | | 32 | | 20 |
| Transmission formula rate | | 9 | | | | 9 | | | Universal service rider | | | | 10 | | | | 10 |
| Universal service rider | | 11 | | 17 | | 11 | | 17 | Storm damage expense | | 2 | | 14 | | 2 | | 14 |
| Gas line tracker | | 6 | | | | | | | Gas line tracker | | 7 | | 6 | | | | |
| Other | | | 10 | | | 3 | | | 1 | | | 2 | Other | | | 2 | | | 2 | | | 2 | | | 1 |
Total current regulatory liabilities | Total current regulatory liabilities | | $ | 68 | | $ | 61 | | $ | 51 | | $ | 52 | Total current regulatory liabilities | | $ | 82 | | $ | 90 | | $ | 72 | | $ | 76 |
| | | | | | | | | | | | | | | | | | |
Noncurrent Regulatory Liabilities: | Noncurrent Regulatory Liabilities: | | | | | | | | | Noncurrent Regulatory Liabilities: | | | | | | | | |
| Accumulated cost of removal of utility plant | | $ | 690 | | $ | 679 | | | | | Accumulated cost of removal of utility plant | | $ | 694 | | $ | 688 | | | | |
| Coal contracts (a) | | 108 | | 141 | | | | | Coal contracts (a) | | 78 | | 98 | | | | |
| Power purchase agreement - OVEC (a) | | 102 | | 108 | | | | | Power purchase agreement - OVEC (a) | | 96 | | 100 | | | | |
| Net deferred tax assets | | 32 | | 34 | | | | | Net deferred tax assets | | 28 | | 30 | | | | |
| Act 129 compliance rider | | 14 | | 8 | | $ | 14 | | $ | 8 | Act 129 compliance rider | | 12 | | 15 | | $ | 12 | | $ | 15 |
| Defined benefit plans | | 18 | | 17 | | | | | Defined benefit plans | | 28 | | 26 | | | | |
| Interest rate swaps | | 84 | | 14 | | | | | Interest rate swaps | | 84 | | 86 | | | | |
| Other | | | 6 | | | 9 | | | | | | | Other | | | 6 | | | 5 | | | | | | |
Total noncurrent regulatory liabilities | Total noncurrent regulatory liabilities | | $ | 1,054 | | $ | 1,010 | | $ | 14 | | $ | 8 | Total noncurrent regulatory liabilities | | $ | 1,026 | | $ | 1,048 | | $ | 12 | | $ | 15 |
| | | 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 | | | |
| | | LKE | | LG&E | | KU | | | LKE | | LG&E | | KU |
| | | September 30, | | December 31, | | September 30, | | December 31, | | September 30, | | December 31, | | | June 30, | | December 31, | | June 30, | | December 31, | | June 30, | | December 31, |
| | | 2013 | | 2012 | | 2013 | | 2012 | | 2013 | | 2012 | | | 2014 | | 2013 | | 2014 | | 2013 | | 2014 | | 2013 |
| | | | | | | | | | | | | | |
Current Regulatory Assets: | | Current Regulatory Assets: | | | | | | | | | | | | |
| | Environmental cost recovery | | $ | 1 | | $ | 7 | | $ | 1 | | $ | 2 | | | | $ | 5 |
| | Gas supply clause | | 20 | | 10 | | 20 | | 10 | | | | |
| | Fuel adjustment clause | | | | 2 | | | | 2 | | | | |
| | Demand side management | | 3 | | 8 | | 2 | | 3 | | $ | 1 | | 5 |
| | Other | | | 3 | | | | | | 1 | | | | | | 2 | | | |
Total current regulatory assets | | Total current regulatory assets | | $ | 27 | | $ | 27 | | $ | 24 | | $ | 17 | | $ | 3 | | $ | 10 |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Noncurrent Regulatory Assets: | Noncurrent Regulatory Assets: | | | | | | | | | | | | | Noncurrent Regulatory Assets: | | | | | | | | | | | | |
| Defined benefit plans | | $ | 338 | | $ | 368 | | $ | 212 | | $ | 232 | | $ | 126 | | $ | 136 | Defined benefit plans | | $ | 241 | | $ | 252 | | $ | 162 | | $ | 164 | | $ | 79 | | $ | 88 |
| Storm costs | | 97 | | 109 | | 53 | | 59 | | 44 | | 50 | Storm costs | | 86 | | 94 | | 47 | | 51 | | 39 | | 43 |
| Unamortized loss on debt | | 30 | | 31 | | 19 | | 20 | | 11 | | 11 | Unamortized loss on debt | | 27 | | 28 | | 18 | | 18 | | 9 | | 10 |
| Interest rate swaps | | 49 | | 67 | | 49 | | 67 | | | | | Interest rate swaps | | 51 | | 44 | | 51 | | 44 | | | | |
| AROs | | 37 | | 26 | | 20 | | 15 | | 17 | | 11 | AROs | | 58 | | 44 | | 25 | | 21 | | 33 | | 23 |
| Other | | | 15 | | | 29 | | | 6 | | | 7 | | | 9 | | | 22 | Other | | | 8 | | | 12 | | | 3 | | | 5 | | | 5 | | | 7 |
Total noncurrent regulatory assets | Total noncurrent regulatory assets | | $ | 566 | | $ | 630 | | $ | 359 | | $ | 400 | | $ | 207 | | $ | 230 | Total noncurrent regulatory assets | | $ | 471 | | $ | 474 | | $ | 306 | | $ | 303 | | $ | 165 | | $ | 171 |
Current Regulatory Liabilities: | Current Regulatory Liabilities: | | | | | | | | | | | | | Current Regulatory Liabilities: | | | | | | | | | | | | |
| | | Environmental cost recovery | | $ | 1 | | | | | | | | $ | 1 | | |
| | ECR | | | | $ | 4 | | | | | | | | $ | 4 | | Gas supply clause | | 2 | | $ | 3 | | $ | 2 | | $ | 3 | | | | |
| | Gas supply clause | | $ | 2 | | 4 | | $ | 2 | | $ | 4 | | | | | | Fuel adjustment clause | | | | 4 | | | | | | | | $ | 4 |
| | Gas line tracker | | 6 | | | | 6 | | | | | | | | Gas line tracker | | 7 | | 6 | | 7 | | 6 | | | | |
| | Other | | | 9 | | | 1 | | | 3 | | | | | $ | 6 | | | 1 | | Other | | | | | | 1 | | | | | | | | | | | | 1 |
Total current regulatory liabilities | Total current regulatory liabilities | | $ | 17 | | $ | 9 | | $ | 11 | | $ | 4 | | $ | 6 | | $ | 5 | Total current regulatory liabilities | | $ | 10 | | $ | 14 | | $ | 9 | | $ | 9 | | $ | 1 | | $ | 5 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Noncurrent Regulatory Liabilities: | Noncurrent Regulatory Liabilities: | | | | | | | | | | | | | Noncurrent Regulatory Liabilities: | | | | | | | | | | | | |
| Accumulated cost of removal | | | | | | | | | | | | | Accumulated cost of removal | | | | | | | | | | | | |
| | of utility plant | | $ | 690 | | $ | 679 | | $ | 300 | | $ | 297 | | $ | 390 | | $ | 382 | | of utility plant | | $ | 694 | | $ | 688 | | $ | 303 | | $ | 299 | | $ | 391 | | $ | 389 |
| Coal contracts (a) | | 108 | | 141 | | 47 | | 61 | | 61 | | 80 | Coal contracts (a) | | 78 | | 98 | | 34 | | 43 | | 44 | | 55 |
| Power purchase agreement - OVEC (a) | | 102 | | 108 | | 71 | | 75 | | 31 | | 33 | Power purchase agreement - OVEC (a) | | 96 | | 100 | | 66 | | 69 | | 30 | | 31 |
| Net deferred tax assets | | 32 | | 34 | | 26 | | 28 | | 6 | | 6 | Net deferred tax assets | | 28 | | 30 | | 25 | | 26 | | 3 | | 4 |
| Defined benefit plans | | 18 | | 17 | | | | | | 18 | | 17 | Defined benefit plans | | 28 | | 26 | | | | | | 28 | | 26 |
| Interest rate swaps | | 84 | | 14 | | 42 | | 7 | | 42 | | 7 | Interest rate swaps | | 84 | | 86 | | 42 | | 43 | | 42 | | 43 |
| Other | | | 6 | | | 9 | | | 3 | | | 3 | | | 3 | | | 6 | Other | | | 6 | | | 5 | | | 2 | | | 2 | | | 4 | | | 3 |
Total noncurrent regulatory liabilities | Total noncurrent regulatory liabilities | | $ | 1,040 | | $ | 1,002 | | $ | 489 | | $ | 471 | | $ | 551 | | $ | 531 | Total noncurrent regulatory liabilities | | $ | 1,014 | | $ | 1,033 | | $ | 472 | | $ | 482 | | $ | 542 | | $ | 551 |
(a) | These liabilities were recorded as offsets to certain intangible assets that were recorded at fair value upon the acquisition of LKE by PPL. |
Regulatory Matters
U. K. Activities(PPL)
Ofgem Review of Line Loss Calculation
In March 2014, Ofgem issued its final decision on the DPCR4 line loss incentives and penalties mechanism. As a result, during the first quarter of 2014 WPD increased its existing liability by $65 million for over-recovery of line losses with a reduction to "Utility" revenues on the Statement of Income. The total recorded liability at June 30, 2014 was $106 million, all of which will be refunded to customers from April 1, 2015 through March 31, 2019. The recorded liability at December 31, 2013 was $74 million. Other activity impacting the liability included reductions in the liability that have been included in tariffs during the first half of 2014 and foreign exchange movements. In June 2014, WPD applied for judicial review of certain of Ofgem's decisions related to closing out the DPCR4 line loss mechanism. The primary relief sought is for Ofgem to reconsider the overall proportionality of penalties imposed on WPD. The entire process could last through the second quarter of 2015. PPL cannot predict the outcome of this matter.
Kentucky Activities (PPL, LKE, LG&E and Kentucky Registrants)KU)
Rate Case ProceedingsCPCN Filings
In December 2012,January 2014, LG&E and KU filed an application for a CPCN with the KPSC approvedrequesting approval to build a rate case settlement agreement providing for increases in annual base electricity rates of $34 million forNGCC generating unit at KU's Green River generating site and a solar generating facility at the E. W. Brown generating site. In April 2014, LG&E and $51 millionKU filed a motion to hold further proceedings in abeyance for up to 90 days in order to allow the companies to assess the potential impact of certain events on their future capacity needs, including the receipt of termination
notices to be generally effective in 2019 from certain KU municipal wholesale customers. In May 2014, the KPSC granted that request and scheduled an increase in annual base gas rates of $15 millioninformal conference for August 2014. LG&E using a 10.25% return on equity. The approved rates became effective January 1, 2013. and KU continue to evaluate their future capacity requirements, with the possibility that reduced or delayed capacity needs may result in adjustments to the CPCN filing. See "Federal Matters - FERC Formula Rates" below for additional information relating to the municipal wholesale customers.
Pennsylvania Activities (PPL and PPL Electric)
Rate Case Proceeding
In December 2012, the PUC approved a total distribution revenue increase of about $71 million for PPL Electric, using a 10.40% return on equity. The approved rates became effective January 1, 2013.
Storm Damage Expense Rider
In its December 28, 2012 final rate case order, the PUC directed PPL Electric to file a proposed Storm Damage Expense Rider (SDER). In March 2013, PPL Electric filed its proposed SDER on March 28, 2013, includingwith the PUC and, as part of that filing, requested recovery of the 2012 qualifying storm costs related to Hurricane Sandy, which the PUC previously approved for deferral.Sandy. PPL Electric proposed that the SDER become effective January 1, 2013 forat a zero rate with qualifying storm costs incurred in 2013 with those costs and the 2012 Hurricane Sandy costs included in rates effective January 1, 2014. Several parties filed comments opposingAs of December 31, 2013, PPL Electric had a $14 million regulatory liability balance for amounts expected to be refunded to customers for revenues collected to cover storm costs in excess of actual storm costs incurred during 2013. On April 3, 2014, the PUC issued a final order approving the SDER. The SDER will be effective January 1, 2015 and will initially include actual storm costs compared to collections from December 2013 through November 2014. As a result of the order, PPL Electric and several other partiesreduced its regulatory liability by $12 million. Also, as part of the order, PPL Electric can recover Hurricane Sandy storm damage costs through the SDER over a three-year period beginning January 2015. On June 20, 2014, the Office of Consumer Advocate filed reply comments in May 2013. a petition for review of the April 2014 order with the Commonwealth Court of Pennsylvania. The case remains pending. See "Storm Costs" below for additional information on Hurricane Sandy costs.
Storm Costs
In OctoberFebruary 2013, PPL Electric received an order from the PUC adopted an Order requesting submissiongranting permission to defer qualifying costs in excess of additional commentsinsurance recoveries associated with Hurricane Sandy. At June 30, 2014 and reply commentsDecember 31, 2013, $29 million was included on PPL Electric's proposal. This matter remains pending before the PUC.Balance Sheets as a regulatory asset.
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 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, and reduce peak demand by 4.5%. The overall consumption reduction is measured against PUC-forecasted consumption for the twelve months ended May 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. PPL Electric believes it has met the May 2011 requirement and will determine if it met the May 2013 peak demand reduction and energy reduction 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 twelve months ended May 31, 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, in March 2013, the PUC approved PPL Electric's Phase II EE&C Plan with minor modifications. PPL Electric filed a Revised Phase II EE&C Plan on May 13, 2013 pursuant to 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 Default Service Providers (DSP) to provide electricelectricity generation supply service to customers pursuant to a PUC-approved default service procurement plan through auctions, requests for proposal and bilateral contracts at the sole discretion of the DSP. Act 129 requires a mix of spot market purchases, short-term contracts and long-term contracts (4 to 20 years), with long-term contracts limited to 25% of load unless otherwise approved by the PUC. A DSP is able to recover the costs associated with its default service procurement plan.
TheIn January 2013, 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 January 2013, 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,April 2014, PPL Electric filed a revised Default Service Supply Master Agreement and a revised Request for Proposals Process and Rules whichnew DSP procurement plan with the PUC approved.for the period June 1, 2015 through May 31, 2017. Hearings before the PUC are scheduled for August 2014. PPL Electric filed revised retail competition initiatives and a revised plan consistent withcannot predict the PUC's January order, and in May 2013,outcome of this proceeding, which remains pending before the 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.PUC.
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 conductconducted pilot projects to evaluate additional applicationsand technical evaluations of its current advanced metering technology pursuant toand concluded that the requirementscurrent technology does not meet all of the Act 129.129 requirements. PPL Electric recoversrecovered the cost of its pilot projectsevaluations through a cost recovery mechanism, the Smart Meter Rider (SMR). In August 2013, PPL Electric filed with the PUC an annual report describing the actions it was taking under its Smart Meter Plan during 2013 and its planned actions for 2014. PPL Electric also submitted revised SMR charges that will becomebecame effective January 1, 2014. On June 30, 2014, PPL Electric will submitfiled its final Smart Meter Plan with the PUC. In that plan, PPL Electric proposes to replace all of its current meters with advanced meters that meet the Act 129 requirements. Full deployment of the new meters is expected to be complete by June 30, 2014.the end of 2019. The total cost of the project is estimated to be approximately $450 million. PPL Electric proposes to recover these costs through the SMR which the PUC previously has approved for recovery of such costs. PPL Electric cannot predict the outcome of this proceeding.
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 in February 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.
Distribution System Improvement Charge
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, 2013DSIC and on January 15, 2013, PPL Electric filed a petition requesting permission to establish a DSIC. Several parties filed responses to PPL Electric's petition. Inin 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 specifictechnical recovery calculation 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.
Federal Matters
FERC Audit Proceedings (Formula RatesAll Registrants except (PPL and PPL Energy SupplyElectric))
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.
PPL Electric has initiated separateits formula rate Annual Updates for each of the years 2010-2013. The 2010,2012, 2011 and 2012 updates were2010 Annual Updates. Each update was subsequently challenged by a group of municipal customers, whichwhose challenges were opposed by PPL Electric has opposed. In AugustElectric. Between 2011 and 2013, numerous hearings before 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 raisedconferences were convened in an attempt to resolve these matters. Beginning in the 2010 and 2011 formal challenges. Settlement conferences were held in late 2012 and early 2013. In Februarysecond half of 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.proposals. PPL and PPL Electric cannot predict the outcome of the foregoing proceedings, which remain pending before the FERC.
U. K. ActivitiesFERC Wholesale Formula Rates (PPL)LKE and KU)
Ofgem ReviewIn September 2013, KU filed an application with the FERC to adjust the formula rate under which KU provides wholesale requirements power sales to 12 municipal customers. Among other changes, the application requests an amended formula whereby KU would charge cost-based rates with a subsequent true-up to actual costs, replacing the current formula which does not include a true-up. KU's application proposed an authorized return on equity of Line Loss Calculation
Ofgem is currently consulting on10.7%. Certain elements, including the methodologynew formula rate, became effective April 23, 2014 subject to refund. In April 2014, nine municipalities submitted notices of termination, under the original notice period provisions, to cease taking power under the wholesale requirements contracts, such terminations to be used by all network operators to calculate the final line loss incentive/penalty for the DPCR4. On July 12, 2013, Ofgem 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 beeffective in 2019, except in the rangecase of $93 millionone municipality with a 2017 effective date. In July 2014, KU agreed on settlement terms with the two municipal customers that did not provide termination notices and filed the settlement proposal with the FERC for its approval. If approved, the settlement agreement will resolve the rate case with respect to $226 million asthese two municipalities, including an authorized return on equity of September 30, 2013. On October 21, 2013, Ofgem issued10% or the return on equity awarded to other parties in this case, whichever is lower. Also in July 2014, KU made a further consultation paper requesting additional information. Duringcontractually required filing with the three andFERC that addressed certain rate recovery matters affecting the nine months ended September 30, 2013, WPD recorded $21 million and $45 million increases to the liability 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. Other changes to this line loss liability included reductions of $41 million resulting from refunds being included in tariffs and foreign exchange movementsterminating municipalities during the nine months ended September 30, 2013. PPLremaining term of their contracts. KU cannot currently predict the outcome of this matter.its FERC applications regarding its wholesale power agreements with the municipalities.
Credit Arrangements and Short-term Debt
(All Registrants)
The Registrants maintain credit facilities to enhance liquidity, provide credit support and provide a backstop to commercial paper programs. For reporting purposes, on a consolidated basis, the credit facilities and commercial paper programs of PPL Energy Supply, PPL Electric, LKE, LG&E and KU also apply to PPL and the credit facilities and commercial paper programs of LG&E and KU also apply to LKE. The amounts borrowed below are recorded as "Short-term debt" on the Balance Sheets. The following credit facilities were in place at:
| | | | | | | September 30, 2013 | | December 31, 2012 |
| | | | | | | | | | | | | | | | Letters of | | | | | | | Letters of |
| | | | | | | | | | | | | | | | Credit Issued | | | | | | | | Credit Issued |
| | | | | | | | | | | | | | | | and | | | | | | | | and |
| | | | | | | | | | | | | | | | Commercial | | | | | | | | Commercial |
| | | | | | | Expiration | | | | | | | Paper | | Unused | | | | Paper |
| | | | | | | Date | | Capacity | | Borrowed | | Backup | | Capacity | | Borrowed | | Backup |
PPL | | | | | | | | | | | | | | | | | | | | |
| WPD Credit Facilities | | | | | | | | | | | | | | | | | | | | |
| | PPL WW Syndicated | | | | | | | | | | | | | | | | | | | | |
| | | Credit Facility (a) (b) | | Dec. 2016 | | £ | 210 | | £ | 106 | | | n/a | | £ | 104 | | £ | 106 | | | n/a |
| | WPD (South West) | | | | | | | | | | | | | | | | | | | | |
| | | Syndicated Credit Facility | | Jan. 2017 | | | 245 | | | | | | n/a | | | 245 | | | | | | n/a |
| | WPD (East Midlands) | | | | | | | | | | | | | | | | | | | | |
| | | Syndicated Credit Facility (b) | | Apr. 2016 | | | 300 | | | 44 | | | | | | 256 | | | | | | |
| | WPD (West Midlands) | | | | | | | | | | | | | | | | | | | | |
| | | Syndicated Credit Facility (b) | | Apr. 2016 | | | 300 | | | 34 | | | | | | 266 | | | | | | |
| | Uncommitted Credit Facilities | | | | | 84 | | | | | £ | 5 | | | 79 | | | | | £ | 4 |
| | | Total WPD Credit Facilities (c) | | | | £ | 1,139 | | £ | 184 | | £ | 5 | | £ | 950 | | £ | 106 | | £ | 4 |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
PPL Energy Supply | | | | | | | | | | | | | | | | | | | | |
| Syndicated Credit Facility | | Nov. 2017 | | $ | 3,000 | | | | | $ | 61 | | $ | 2,939 | | | | | $ | 499 |
| Letter of Credit Facility (d) | | Mar. 2014 | | | 150 | | | n/a | | | 109 | | | 41 | | | n/a | | | 132 |
| Uncommitted Credit Facilities (e) | | | | | 175 | | | n/a | | | 51 | | | 124 | | | n/a | | | 40 |
| | | Total PPL Energy Supply Credit Facilities | | $ | 3,325 | | | | | $ | 221 | | $ | 3,104 | | | | | $ | 671 |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
PPL Electric | | | | | | | | | | | | | | | | | | | | |
| Syndicated Credit Facility | | Oct. 2017 | | $ | 300 | | | | | $ | 1 | | $ | 299 | | | | | $ | 1 |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
LG&E | | | | | | | | | | | | | | | | | | | | |
| Syndicated Credit Facility | | Nov. 2017 | | $ | 500 | | | | | $ | 72 | | $ | 428 | | | | | $ | 55 |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
KU | | | | | | | | | | | | | | | | | | | | |
| Syndicated Credit Facility | | Nov. 2017 | | $ | 400 | | | | | $ | 140 | | $ | 260 | | | | | $ | 70 |
| Letter of Credit Facility (f) | | May 2016 | | | 198 | | | | | | 198 | | | | | | | | | 198 |
| | | Total KU Credit Facilities | | | | $ | 598 | | | | | $ | 338 | | $ | 260 | | | | | $ | 268 |
(a) | 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. |
| | | | | | | June 30, 2014 | | December 31, 2013 |
| | | | | | | | | | | | | | | | Letters of | | | | | | | Letters of |
| | | | | | | | | | | | | | | | Credit | | | | | | | | Credit |
| | | | | | | | | | | | | | | | and | | | | | | | | and |
| | | | | | | | | | | | | | | | Commercial | | | | | | | | Commercial |
| | | | | | | Expiration | | | | | | | Paper | | Unused | | | | Paper |
| | | | | | | Date | | Capacity | | Borrowed | | Issued | | Capacity | | Borrowed | | Issued |
PPL | | | | | | | | | | | | | | | | | | | | |
U.K. | | | | | | | | | | | | | | | | | | | | |
| | PPL WW Syndicated | | | | | | | | | | | | | | | | | | | | |
| | | Credit Facility | | Dec. 2016 | | £ | 210 | | £ | 97 | | | | | £ | 113 | | £ | 103 | | | |
| | WPD (South West) | | | | | | | | | | | | | | | | | | | | |
| | | Syndicated Credit Facility (c) | | Jan. 2017 | | | 245 | | | | | | | | | 245 | | | | | | |
| | WPD (East Midlands) | | | | | | | | | | | | | | | | | | | | |
| | | Syndicated Credit Facility (c) | | Apr. 2016 | | | 300 | | | | | | | | | 300 | | | | | | |
| | WPD (West Midlands) | | | | | | | | | | | | | | | | | | | | |
| | | Syndicated Credit Facility (c) | | Apr. 2016 | | | 300 | | | | | | | | | 300 | | | | | | |
| | Uncommitted Credit Facilities | | | | | 105 | | | | | £ | 5 | | | 100 | | | | | £ | 5 |
| | | Total U.K. Credit Facilities (a) | | | | £ | 1,160 | | £ | 97 | | £ | 5 | | £ | 1,058 | | £ | 103 | | £ | 5 |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
U.S. | | | | | | | | | | | | | | | | | | | | |
| PPL Capital Funding | | | | | | | | | | | | | | | | | | | | |
| | Syndicated Credit Facility (b) | | Nov. 2018 | | $ | 300 | | | | | | | | $ | 300 | | $ | 270 | | | |
| | Bilateral Credit Facility | | Mar. 2015 | | | 150 | | | | | $ | 11 | | | 139 | | | | | | |
| | | Total PPL Capital Funding Credit Facilities | | | | $ | 450 | | | | | $ | 11 | | $ | 439 | | $ | 270 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
PPL Energy Supply | | | | | | | | | | | | | | | | | | | | |
| Syndicated Credit Facility (b) | | Nov. 2017 | | $ | 3,000 | | $ | 175 | | $ | 264 | | $ | 2,561 | | | | | $ | 29 |
| Letter of Credit Facility | | Mar. 2015 | | | 150 | | | | | | 143 | | | 7 | | | | | | 138 |
| Uncommitted Credit Facilities (c) | | | | | 175 | | | | | | 77 | | | 98 | | | | | | 77 |
| | | Total PPL Energy Supply Credit Facilities | | $ | 3,325 | | $ | 175 | | $ | 484 | | $ | 2,666 | | | | | $ | 244 |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
PPL Electric | | | | | | | | | | | | | | | | | | | | |
| Syndicated Credit Facility (c) | | Oct. 2017 | | $ | 300 | | | | | $ | 1 | | $ | 299 | | | | | $ | 21 |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
LKE | | | | | | | | | | | | | | | | | | | | |
| Syndicated Credit Facility (b) | | Oct. 2018 | | $ | 75 | | $ | 75 | | | | | | | | $ | 75 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
LG&E | | | | | | | | | | | | | | | | | | | | |
| Syndicated Credit Facility (c) | | Nov. 2017 | | $ | 500 | | | | | $ | 70 | | $ | 430 | | | | | $ | 20 |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
KU | | | | | | | | | | | | | | | | | | | | |
| Syndicated Credit Facility (c) | | Nov. 2017 | | $ | 400 | | | | | $ | 175 | | $ | 225 | | | | | $ | 150 |
| Letter of Credit Facility | | May 2016 | | | 198 | | | | | | 198 | | | | | | | | | 198 |
| | | Total KU Credit Facilities | | | | $ | 598 | | | | | $ | 373 | | $ | 225 | | | | | $ | 348 |
(b)(a) | PPL WW's amounts borrowed at SeptemberJune 30, 20132014 and December 31, 20122013 were USD-denominated borrowings of $164 million and $166 million, and $171 million, which equated to £106 million at the time of borrowings and bore interest at 1.89%1.85% and 0.85%1.87%. WPD (East Midlands) amount borrowed at SeptemberAt June 30, 2014, the unused capacity under the U.K. credit facilities was $1.8 billion. |
(b) | At June 30, 2014, interest rates on outstanding borrowings were 2.04% for PPL Energy Supply and 1.65% for LKE. At December 31, 2013, was a GBP-denominated borrowing of £44 million, which equated to $68 millioninterest rates on outstanding borrowings were 1.79% for PPL Capital Funding 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%.1.67% for LKE. |
(c) | At September 30, 2013,In July 2014, the USD equivalent of unused capacity under WPD'sexpiration dates for the WPD (South West), WPD (East Midlands), WPD (West Midlands), LG&E and KU syndicated credit facilities were extended to July 2019 and the PPL Electric syndicated credit facility was $1.5 billion. |
(d) | In February 2013,extended to October 2018. Also, in July 2014, PPL Energy Supply extended the expiration date from March 2013 and, effective April 2013, the capacity was reduced from $200 million. |
(e) | In August 2013, the capacity was reduced from $200 million. |
(f) | In May 2013, KU extended the letter offor its uncommitted credit facility from April 2014.to July 2015. |
In September 2013,July 2014, PPL Electric terminatedCapital Funding entered into an additional $300 million credit facility expiring in July 2019. The credit agreement allows for borrowings at market-based rates plus a spread, which is based upon PPL Capital Funding's senior unsecured long-term debt rating. In addition, PPL Capital Funding may request certain lenders under the credit agreement to issue letters of credit, which issuances reduce available borrowing capacity. PPL Capital Funding intends to use this credit facility for general corporate purposes of PPL and its asset-backed commercial paper program sponsoredaffiliates, including for making investments in or loans to affiliates to support infrastructure investments by PPL's operating companies. PPL Capital Funding will pay customary commitment and letter of credit issuance fees under the credit agreement.
The credit agreement contains a financial institution. See Note 7covenant requiring PPL Capital Funding's debt to total capitalization not to exceed 70% (as calculated pursuant to the credit agreement), and other customary covenants. Failure to meet the covenants beyond applicable grace periods and certain other events, including the occurrence of a Change of Control (as defined in PPL'sthe credit agreement), could result in acceleration of due dates of any borrowings, cash collateralization of outstanding letters of credit and/or termination of the credit agreement. The credit agreement also contains certain customary representations and warranties that must be made and certain other conditions that must be met for PPL Electric's 2012 Form 10-K for more information regardingCapital Funding to borrow or to cause the asset-backed commercial paper program.issuing lender to issue letters of credit.
48
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 whenas 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. |
| | | | | | | June 30, 2014 | | December 31, 2013 |
| | | | | | | Weighted - | | | | | Commercial | | | | Weighted - | | Commercial |
| | | | | | | Average | | | | | Paper | | Unused | | Average | | Paper |
| | | | | | | Interest Rate | | Capacity | | Issuances | | Capacity | | Interest Rate | | Issuances |
| | | | | | | | | | | | | | | | | | | | | | | |
| PPL Energy Supply | | 0.75% | | $ | 750 | | $ | 149 | | $ | 601 | | | | | | |
| PPL Electric | | | | | 300 | | | | | | 300 | | | 0.23% | | $ | 20 |
| LG&E | | 0.29% | | | 350 | | | 70 | | | 280 | | | 0.29% | | | 20 |
| KU | | 0.29% | | | 350 | | | 175 | | | 175 | | | 0.32% | | | 150 |
| | | Total | | | | $ | 1,750 | | $ | 394 | | $ | 1,356 | | | | | $ | 190 |
(PPL and PPL Energy Supply)
PPL Energy Supply maintains a $500 million Facility Agreement expiring June 2017, wherebywhich provides 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 SeptemberJune 30, 2013,2014, PPL Energy Supply had not requested any capacity for the issuance of letters of credit under this arrangement.
PPL Energy Supply, PPL EnergyPlus, PPL Montour and PPL Brunner Island maintain an $800 million secured energy marketing and trading facility, whereby PPL EnergyPlus will receive credit to be applied to satisfy collateral posting obligations related to its energy marketing and trading activities with counterparties participating in the facility. The credit amount is guaranteed by PPL Energy Supply, PPL Montour and PPL Brunner Island. PPL Montour and PPL Brunner Island have granted liens on their respective generating facilities to secure any amount they may owe under their guarantees. The facility expires in November 2017,2018, but is subject to automatic one-year renewals under certain conditions. There were no$41 million of secured obligations outstanding under this facility at SeptemberJune 30, 2013.2014.
(LKE)(PPL Electric and 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 issuing 8.4 million shares of PPL common stock and cash 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. In May 2013, PPL cash settled the forward sale agreements covering the 591 thousand remaining shares for $4 million.
The forward sale agreements 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 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 2013,2014, PPL Capital Funding issued $450remarketed $978 million of 5.90%4.32% Junior Subordinated Notes due 2073. PPL Capital Funding received proceeds of $436 million, net of underwriting fees, which 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 20182019 that were originally issued in June 2010April 2011 as a component of PPL's 20102011 Equity Units. In connection with the remarketing, PPL Capital Funding issued $300retired $228 million of 2.04%the 4.32% Junior Subordinated Notes due 20162019 and $850issued $350 million of 2.77%2.189% 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 $2502017 and $400 million of 1.90%3.184% Junior Subordinated Notes due 2019. Simultaneously, the newly issued Junior Subordinated Notes were exchanged for $350 million of 3.95% Senior Notes due 2018, $6002024 and $400 million of 3.40%5.00% Senior Notes due 2023 and $300 million of 4.70% Senior Notes due 2043.2044. The transaction was accounted for as a debt extinguishment, resulting in a $10$(9) million lossgain (loss) on extinguishment of the Junior Subordinated Notes, which was recorded to "Interest Expense" on the Statement of Income. The transactionExcept for the $228 million retirement of the 4.32% Junior Subordinated Notes and fees related to the transactions, the activity was considered non-cash activity thatand was excluded from the 2013 Statement of Cash Flows.
Flows for the six months ended June 30, 2014. In July 2013,May 2014, PPL issued 4031.7 million shares of common stock at $28.73$30.86 per share to settle the 20102011 Purchase Contracts. PPL received net cash proceeds of $1.150 billion,$978 million, which will bewere 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 2011 Equity Units (with respect to which the related $978 million of Notes are expected to be remarketed as early as the first quarter of 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; 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,June 2014, PPL Electric issued $350$300 million of 4.75%4.125% First Mortgage Bonds due 2043.2044. PPL Electric received proceeds of $345$294 million, net of a discount and underwriting fees, which will be used for capital expenditures, to fund pension obligationsrepay short-term debt and for other general corporate purposes.
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 August 2013,May 2014, PPL declared its quarterly common stock dividend, payable OctoberJuly 1, 2013,2014, at 36.7537.25 cents per share (equivalent to $1.47$1.49 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.
(All Registrants except PPL)
During the nine months ended September 30, 2013, the following distributions and capital contributions occurred:
| | | | PPL Energy | | | | | | | | | | | | | |
| | | | Supply | | | PPL Electric | | LKE | | LG&E | | KU |
| | | | | | | | | | | | | | | | | | |
Dividends/distributions paid to parent/member | | $ | 408 | | | $ | 94 | | $ | 116 | | $ | 67 | | $ | 83 |
Capital contributions received from parent/member | | | 980 | | | | 205 | | | 146 | | | 54 | | | 92 |
8. Acquisitions, Development and Divestitures
(All Registrants)
The Registrants from time to time evaluate opportunities for potential acquisitions, divestitures and development projects. Development projects are reexamined based on market conditions and other factors to determine whether to proceed with 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 108 in PPL's and PPL Energy Supply's 2012the 2013 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.additional information.
DevelopmentDivestitures
Future Capacity Needs(Anticipated Spinoff of 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.Energy Supply
(PPL and PPL Energy Supply)
Bell Bend COLA
The NRC continues to review the COLA submitted by aIn June 2014, PPL and PPL Energy Supply subsidiary, PPL Bell Bend, LLC (PPL Bell Bend) forexecuted definitive agreements with affiliates of Riverstone to combine their competitive power generation businesses into a new, stand-alone, publicly traded, independent power producer named Talen Energy. Under the proposed constructionterms of the Bell Bend nuclear generating unit (Bell Bend) adjacentagreements, at closing, PPL will spin off PPL Energy Supply to PPL shareowners and simultaneously combine that business with RJS Power. Upon closing, PPL shareowners will own 65% of Talen Energy and affiliates of Riverstone will own 35%. PPL will have no continuing ownership interest in, control of, or affiliation with Talen Energy and PPL's Susquehanna nuclear generating plant.shareowners will receive a number of Talen Energy shares at closing based on the number of PPL Bell Bend does not expectshares owned as of the spinoff record date. The spinoff will have no effect on the number of PPL common shares owned by PPL shareowners or the number of shares of PPL common stock outstanding. The transaction is intended to complete the COLA review process withbe tax-free to PPL and its shareowners for U.S. federal income tax purposes and is subject to customary closing conditions, including receipt of certain regulatory approvals by the NRC, priorthe FERC, the DOJ and the PUC. In addition, there must be available, subject to 2016. PPL Bell Bend has made no decision to proceed with constructioncertain conditions, at least $1 billion 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 guaranteeundrawn capacity after excluding any letters of credit or other acceptable financing. PPL Bell Bend is currently authorized to spend up to $205 million on the COLAcredit support measures posted in connection with energy marketing and other permitting costs necessary for construction, whichtrading transactions then outstanding, under a Talen Energy (or its subsidiaries) revolving credit or similar facility. The transaction is expected to be sufficient to fundclose in the project through receiptfirst or second quarter of 2015.
(PPL, PPL Energy Supply and PPL Electric)
Following the announcement of the license.transaction to form Talen Energy, efforts have been initiated to identify the appropriate staffing for Talen Energy and for PPL and its subsidiaries following completion of the spinoff. Organizational plans are expected to be completed by the end of 2014. As a result, charges for employee separation and related costs are anticipated to be recorded in future periods. The separation costs to be incurred include cash severance compensation, lump sum COBRA reimbursement payments, accelerated stock-based compensation vesting, pro-rated performance-based cash incentive and stock-based compensation awards and outplacement services. At September 30, 2013 and December 31, 2012, $169 million and $154 millionpresent, there is considerable uncertainty as to the range of costs which includes capitalized interest,that will be incurred and when those costs will be recognized, as the amount of each category of costs will depend on the number of employees leaving the company, current position and compensation level, years of service and expected separation date. Additionally, certain of these costs are expected to be reimbursed to PPL by Talen Energy upon closing of the transaction. As a result, a range of the separation costs associated with the licensing application were capitalizedspinoff transaction and are included on the Balance Sheets in noncurrent "Other intangibles." PPL Bell Bend believes that thetiming of when those costs will be recognized cannot be reasonably estimated fair valueat this time but could be material.
(PPL)
As a result of the COLA currently exceedsspinoff announcement, PPL recorded $46 million of deferred income tax expense during the costs expectedthree and six months ended June 30, 2014 to be capitalized associated withadjust valuation allowances on deferred tax assets primarily for state net operating loss carryforwards that were previously supported by the licensing application. See Note 8 in PPL's andfuture earnings of PPL Energy Supply's 2012 Form 10-K for additional information.
Hydroelectric Expansion Project
In the first quarter of 2013, the 63 MW Rainbow hydroelectric redevelopment project in Great Falls, Montana was placed in service.Supply.
Regional Transmission Line Expansion Plan(In addition, PPL recorded $16 million of third-party costs during the three and PPL Electric)
Susquehanna-Roseland
On October 1, 2012, the National Park Service (NPS) issued its Record of Decision (ROD)six months ended June 30, 2014 related to this transaction in "Other Income (Expense) - net" on the proposed Susquehanna-Roseland transmission line affirmingStatement of Income, primarily for investment bank advisory, legal, consulting and accounting fees. PPL cannot currently estimate a range of total third-party costs that will ultimately be incurred; however, additional costs of at least $26 million will be recognized upon closing of 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. In October 2012, a complaint was filed in the 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. PPL Electric and PSE&G intervened in the lawsuit. In December 2012, PPL Electric received federal construction and right of way permits to build on National Park Service lands.
transaction.
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.
Construction activities have been underwayThe assets and liabilities of PPL Energy Supply will continue to be classified as "held and used" on other portionsPPL's Balance Sheet until the closing of the 101-mile route in Pennsylvania since 2012.transaction. The line is expectedspinoff announcement was evaluated and determined not to be completed beforean event or a change in circumstance that required a recoverability test or a goodwill impairment assessment. However, an impairment loss could be recognized by PPL at the peak summer demand periodspinoff date if the aggregate carrying amount of 2015. At September 30, 2013, PPL Electric's estimated share ofEnergy Supply's assets and liabilities exceeds its aggregate fair value at that date. PPL cannot currently predict whether an impairment loss will be recorded at the project cost was $630 million.spinoff date.
(PPL Energy Supply)
PPL andEnergy Supply will treat the combination with RJS Power as an acquisition, as PPL Electric cannot predict any future legal challenges toEnergy Supply will be considered the project or what additional actions, if any, PJM might takeaccounting acquirer 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 but denied the incentive for a 100 basis point adder to the return on equity. The order required a follow-up compliance filing from PPL Electric to ensure properaccordance with business combination 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 (ALJ). Evidentiary hearings 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 PUC order is expected in the first quarter of 2014. PPL Electric expects the project to be completed in 2017. At September 30, 2013, PPL 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 estimated cost, $308 million qualifies for the CWIP treatment.
See Note 8 in PPL's and PPL Electric's 2012 Form 10-K for additional information.guidance.
Other Montana Hydro Sale Agreement(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 its hydroelectric generating facilities located in Montana (with a generation capacity of 633 MW) for $900 million in cash, subject to certain adjustments. The sale, which is not expected to close before the second halffourth quarter of 2014, includes 11 hydroelectric power facilities and related assets. In April 2014, the DOJ and Federal Trade Commission granted early termination of PPL Montana's and NorthWestern's notifications under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. The sale isremains subject to closing conditions, including receipt of regulatory approvals by the FERC and Montana Public Service Commissionthe MPSC and certain third-party consents. Due to the uncertainties related to certain of these conditions as of SeptemberJune 30, 2013,2014, 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.balance sheet.
Development
Hydroelectric Expansion Projects (PPL and PPL Energy Supply)
In a related transaction,January 2014, the U.S. Department of Treasury awarded $56 million for Specified Energy Property in September 2013, PPL Montana negotiated and entered into an agreement to pay $271 million to terminate a sale-leaseback arrangement and reacquire its interestsLieu of Tax Credits for the Rainbow hydroelectric redevelopment project in the Colstrip coal-fired facilities. See Note 11 in PPL's andGreat Falls, Montana. PPL Energy Supply's 2012 Form 10-KSupply accepted and accounted for additional information on the sale-leaseback. This transaction is anticipated to occur byreceipt of the end ofgrant in the first quarter of 2014, subject2014. PPL Energy Supply is required 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 berecapture $60 million of investment tax credits previously 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 valueRainbow project as a result of the acquisition date.grant receipt. The total loss is currently estimated at between $310 million and $430 million, after-tax, which is dependentimpact on the fair value assigned tofinancial statements for the reacquired Colstrip assets.
Lower Mt. Bethel Plant Transactiongrant receipt and recapture of investment tax credits was not significant for the three and six months ended June 30, 2014, and will not be significant in future periods.
In December 2001, a subsidiaryJuly 2014, the U.S. Department of Treasury awarded $108 million for Specified Energy Property in Lieu of Tax Credits for the Holtwood hydroelectric project in Holtwood, Pennsylvania. PPL Energy Supply entered into an operating lease arrangement, as lessee,accepted and will account for the development, construction and operationreceipt of the Lower Mt. Bethel plant. The owner/lessorgrant in the third quarter 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 of2014. PPL Energy Supply now intendsis required to purchaserecapture $117 million of investment tax credits previously recorded related to the Lower Mt. Bethel plantHoltwood project as a result of the grant receipt. The impact on the financial statements for $455 million at the lease termination date in December 2013, subject to approval by the FERC. The proceeds aregrant receipt and recapture of investment tax credits is not expected to be used bysignificant in 2014 or future periods.
Future Capacity Needs(PPL, LKE, LG&E and KU)
Construction activity continues on the VIEpreviously announced NGCC unit, Cane Run Unit 7, scheduled to repay outstanding debtbe operational in May 2015. In October 2013, LG&E and makeKU announced plans to build a distributionsecond NGCC unit, Green River Unit 5, at KU's Green River generating site. Subject to its equity investors (currently presentedfinalizing details, regulatory applications, permitting and construction schedules, the facility would have approximately 700 MW of capacity and cost $700 million and was originally planned to be operational in 2018. At the same time, LG&E and KU also announced plans for a 10 MW solar generation facility to be operational in 2016 and to cost approximately $36 million. As a result of developing uncertainty as noncontrolling intereststo the need for the new capacity, in PPL'sApril 2014 LG&E and PPL Energy Supply's financial statements). The transaction will notKU asked the KPSC to hold the related CPCN case in abeyance for 90 days. In May 2014, the KPSC granted that request and scheduled an informal conference for August 2014. LG&E and KU continue to evaluate their future capacity requirements, with the possibility that reduced or delayed capacity needs may result in any gain or loss as it will be treated as aadjustments to the timing of previously estimated capacity construction.
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.
(PPL, PPL Energy Supply and PPL Electric)
Effective July 1, 2014, PPL's primary defined benefit pension plan and postretirement medical plan were closed to newly hired IBEW Local 1600 employees. As such, the majority of PPL's defined benefit pension plans are now closed to newly hired employees.
(All Registrants except PPL Electric and KU)
Certain net periodic defined benefit costs are applied to accounts that are further distributed between capital and expense, including certain costs allocated to applicable subsidiaries for plans sponsored by PPL Services and LKE. Following are the net periodic defined benefit costs (credits) of the plans sponsored by PPL, PPL Energy Supply, LKE and LG&E for the periods ended SeptemberJune 30:
| | | | Pension Benefits | | | | Pension Benefits |
| | | | Three Months | | Nine Months | | | | Three Months | | Six Months |
| | | | U.S. | | U.K. | | U.S. | | U.K. | | | | U.S. | | U.K. | | U.S. | | U.K. |
| | | | 2013 | | 2012 | | 2013 | | 2012 | | 2013 | | 2012 | | 2013 | | 2012 | | | | 2014 | | 2013 | | 2014 | | 2013 | | 2014 | | 2013 | | 2014 | | 2013 |
PPL | PPL | | | | | | | | | | | | | | | | | | PPL | | | | | | | | | | | | | | | | | |
Service cost | Service cost | | $ | 31 | | $ | 25 | | $ | 18 | | $ | 13 | | $ | 94 | | $ | 77 | | $ | 52 | | $ | 40 | Service cost | | $ | 25 | | $ | 32 | | $ | 18 | | $ | 16 | | $ | 51 | | $ | 63 | | $ | 36 | | $ | 34 |
Interest cost | Interest cost | | | 53 | | 55 | | 79 | | 85 | | 160 | | 165 | | 238 | | 254 | Interest cost | | | 58 | | 53 | | 90 | | 78 | | 117 | | 107 | | 178 | | 159 |
Expected return on plan assets | Expected return on plan assets | | | (73) | | (65) | | (115) | | (115) | | (220) | | (195) | | (346) | | (340) | Expected return on plan assets | | | (75) | | (73) | | (132) | | (113) | | (149) | | (147) | | (262) | | (231) |
Amortization of: | Amortization of: | | | | | | | | | | | | | | | | | | Amortization of: | | | | | | | | | | | | | | | | | |
| | Prior service cost | | | 6 | | 6 | | | | 1 | | 17 | | 18 | | | | 3 | | Prior service cost | | | 5 | | 5 | | | | | | 10 | | 11 | | | | |
| | Actuarial (gain) loss | | | 20 | | | 11 | | | 37 | | | 19 | | | 60 | | | 32 | | | 112 | | | 59 | | Actuarial (gain) loss | | | 8 | | | 20 | | | 33 | | | 37 | | | 15 | | | 40 | | | 66 | | | 75 |
Net periodic defined benefit | Net periodic defined benefit | | | | | | | | | | | | | | | | | | Net periodic defined benefit | | | | | | | | | | | | | | | | | |
| costs (credits) | | $ | 37 | | $ | 32 | | $ | 19 | | $ | 3 | | $ | 111 | | $ | 97 | | $ | 56 | | $ | 16 | costs (credits) prior to | | | | | | | | | | | | | | | | | |
| | termination benefits | | | 21 | | 37 | | 9 | | 18 | | 44 | | 74 | | 18 | | 37 |
Termination benefits (a) | | Termination benefits (a) | | | 20 | | | | | | | | | | | | 20 | | | | | | | | | |
Net periodic defined benefit | | Net periodic defined benefit | | | | | | | | | | | | | | | | | |
| | costs (credits) | | $ | 41 | | $ | 37 | | $ | 9 | | $ | 18 | | $ | 64 | | $ | 74 | | $ | 18 | | $ | 37 |
| | | | Pension Benefits | | | | Pension Benefits |
| | | | Three Months | | Nine Months | | | | Three Months | | Six Months |
| | | | 2013 | | 2012 | | 2013 | | 2012 | | | | 2014 | | 2013 | | 2014 | | 2013 |
PPL Energy Supply | PPL Energy Supply | | | | | | | | | PPL Energy Supply | | | | | | | | |
Service cost | Service cost | | $ | 1 | | $ | 1 | | $ | 5 | | $ | 4 | Service cost | | $ | 2 | | $ | 2 | | $ | 3 | | $ | 4 |
Interest cost | Interest cost | | | 2 | | 2 | | 6 | | 6 | Interest cost | | | 2 | | 2 | | 4 | | 4 |
Expected return on plan assets | Expected return on plan assets | | | (2) | | (2) | | (7) | | (7) | Expected return on plan assets | | | (3) | | (2) | | (5) | | (5) |
Amortization of: | Amortization of: | | | | | | | | | | Amortization of: | | | | | | | | | |
| | Actuarial (gain) loss | | | 1 | | | 1 | | | 2 | | | 2 | | Actuarial (gain) loss | | | 1 | | | | | | 1 | | | 1 |
Net periodic defined benefit costs (credits) | Net periodic defined benefit costs (credits) | | $ | 2 | | $ | 2 | | $ | 6 | | $ | 5 | Net periodic defined benefit costs (credits) | | $ | 2 | | $ | 2 | | $ | 3 | | $ | 4 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
LKE | LKE | | | | | | | | | | | LKE | | | | | | | | | | |
Service cost | Service cost | | $ | 6 | | $ | 5 | | $ | 19 | | $ | 16 | Service cost | | $ | 5 | | $ | 6 | | $ | 11 | | $ | 13 |
Interest cost | Interest cost | | | 16 | | 16 | | | 47 | | 48 | Interest cost | | | 16 | | 15 | | | 33 | | 31 |
Expected return on plan assets | Expected return on plan assets | | | (20) | | (17) | | | (61) | | (52) | Expected return on plan assets | | | (21) | | (20) | | | (41) | | (41) |
Amortization of: | Amortization of: | | | | | | | | | | | Amortization of: | | | | | | | | | | |
| | Prior service cost | | | 1 | | 2 | | | 3 | | 4 | | Prior service cost | | | 1 | | 1 | | | 2 | | 2 |
| | Actuarial (gain) loss | | | 8 | | | 5 | | | 25 | | | 16 | | Actuarial (gain) loss | | | 3 | | | 9 | | | 6 | | | 17 |
Net periodic defined benefit costs (credits) | Net periodic defined benefit costs (credits) | | $ | 11 | | $ | 11 | | $ | 33 | | $ | 32 | Net periodic defined benefit costs (credits) | | $ | 4 | | $ | 11 | | $ | 11 | | $ | 22 |
| | | | | | | | | | | | | | | | | | | | | | | | |
LG&E | LG&E | | | | | | | | | | | LG&E | | | | | | | | | | |
Service cost | Service cost | | $ | 1 | | | | $ | 2 | | $ | 1 | Service cost | | $ | 1 | | | | $ | 1 | | $ | 1 |
Interest cost | Interest cost | | | 3 | | $ | 4 | | | 10 | | 11 | Interest cost | | | 3 | | $ | 4 | | | 7 | | 7 |
Expected return on plan assets | Expected return on plan assets | | | (5) | | (5) | | | (15) | | (14) | Expected return on plan assets | | | (5) | | (5) | | | (10) | | (10) |
Amortization of: | Amortization of: | | | | | | | | | | | Amortization of: | | | | | | | | | | |
| | Prior service cost | | | 1 | | 1 | | | 2 | | 2 | | Prior service cost | | | | | | | | 1 | | 1 |
| | Actuarial (gain) loss | | | 3 | | | 3 | | | 10 | | | 8 | | Actuarial (gain) loss | | | 2 | | | 4 | | | 3 | | | 7 |
Net periodic defined benefit costs (credits) | Net periodic defined benefit costs (credits) | | $ | 3 | | $ | 3 | | $ | 9 | | $ | 8 | Net periodic defined benefit costs (credits) | | $ | 1 | | $ | 3 | | $ | 2 | | $ | 6 |
| | | Other Postretirement Benefits |
| | | Three Months | | Nine Months |
| | | 2013 | | 2012 | | 2013 | | 2012 |
PPL | | | | | | | | | | | | |
Service cost | | $ | 4 | | $ | 3 | | $ | 11 | | $ | 9 |
Interest cost | | | 7 | | | 7 | | | 21 | | | 23 |
Expected return on plan assets | | | (6) | | | (6) | | | (18) | | | (17) |
Amortization of: | | | | | | | | | | | | |
| Transition obligation | | | | | | | | | | | | 1 |
| Prior service cost | | | | | | 1 | | | | | | 1 |
| Actuarial (gain) loss | | | 1 | | | 1 | | | 4 | | | 3 |
Net periodic defined benefit costs (credits) | | $ | 6 | | $ | 6 | | $ | 18 | | $ | 20 |
(a) | See Note 10 for details of a one-time voluntary retirement window offered to certain bargaining unit employees. |
| | | Other Postretirement Benefits | | | Other Postretirement Benefits |
| | | Three Months | | Nine Months | | | Three Months | | Six Months |
| | | | 2014 | | 2013 | | 2014 | | 2013 |
PPL | | PPL | | | | | | | | |
Service cost | | Service cost | | $ | 3 | | $ | 3 | | $ | 6 | | $ | 7 |
Interest cost | | Interest cost | | 8 | | 7 | | 16 | | 14 |
Expected return on plan assets | | Expected return on plan assets | | (7) | | (6) | | (13) | | (12) |
Amortization of: | | Amortization of: | | | | | | | | |
| | Actuarial (gain) loss | | | | | | 2 | | | | | | 3 |
Net periodic defined benefit costs (credits) | | Net periodic defined benefit costs (credits) | | $ | 4 | | $ | 6 | | $ | 9 | | $ | 12 |
| | | 2013 | | 2012 | | 2013 | | 2012 | | | | | | | | | |
LKE | LKE | | | | | | | | | LKE | | | | | | | | |
Service cost | Service cost | | $ | 2 | | $ | 1 | | $ | 4 | | $ | 3 | Service cost | | $ | 1 | | $ | 1 | | $ | 2 | | $ | 2 |
Interest cost | Interest cost | | 2 | | 3 | | 6 | | 7 | Interest cost | | 3 | | 2 | | 5 | | 4 |
Expected return on plan assets | Expected return on plan assets | | (2) | | (1) | | (4) | | (3) | Expected return on plan assets | | (2) | | (1) | | (3) | | (2) |
Amortization of: | Amortization of: | | | | | | | | | Amortization of: | | | | | | | | |
| Transition obligation | | | | | | | | 1 | Prior service cost | | | | | | | | | 1 | | | 1 |
| Prior service cost | | 1 | | | | 2 | | 2 | |
| Actuarial (gain) loss | | | | | | | | | | | | (1) | |
Net periodic defined benefit costs (credits) | Net periodic defined benefit costs (credits) | | $ | 3 | | $ | 3 | | $ | 8 | | $ | 9 | Net periodic defined benefit costs (credits) | | $ | 2 | | $ | 2 | | $ | 5 | | $ | 5 |
(All Registrants except PPL)
In addition to the specific defined benefit plans they sponsor, PPL Energy Supply subsidiaries are also allocated costs of defined benefit plans sponsored by PPL Services, and LG&E is allocated costs of defined benefit plans sponsored by LKE based on their participation in those plans, which management believes are reasonable. PPL Electric and KU do not independentlydirectly sponsor any defined benefit plans. PPL Electric is allocated costs of defined benefit plans sponsored by PPL Services and KU is allocated costs of defined benefit plans sponsored by LKE based on their participation in those plans, which management believes are reasonable. For the periods ended SeptemberJune 30, PPL Services allocated the following net periodic defined benefit costs to PPL Energy Supply subsidiaries and PPL Electric, and LKE allocated the following net periodic defined benefit costs to LG&E and KU.
| | Three Months | | Nine Months | | Three Months | | Six Months |
| | 2013 | | 2012 | | 2013 | | 2012 | | 2014 | | 2013 | | 2014 | | 2013 |
| | | | | | | | | | | | | | | | | | | | |
PPL Energy Supply(a) | | $ | 11 | | $ | 10 | | $ | 34 | | $ | 29 | | $ | 23 | | $ | 12 | | $ | 30 | | $ | 23 |
PPL Electric(a) | | | 9 | | 8 | | | 27 | | 23 | | | 10 | | 9 | | | 15 | | 18 |
LG&E | | 3 | | 3 | | 9 | | 9 | | 2 | | 3 | | 4 | | 6 |
KU | | 4 | | 4 | | 13 | | 13 | | 1 | | 5 | | 4 | | 9 |
(a) | The three and six months ended June 30, 2014 include $16 million and $4 million of termination benefits for PPL Energy Supply and PPL Electric related to a one-time voluntary retirement window offered to certain bargaining unit employees. See Note 10 for additional information. |
10. Commitments and Contingencies
Energy Purchase Commitments
(PPL and PPL Energy Supply)
PPL Energy Supply enters into long-term purchase contracts to supply the coal requirements for its coal-fired generating facilities. These contracts include commitments to purchase coal through 2019. In 2012, as a result of lower electricity and natural gas prices, coal unit utilization began to decrease. To mitigate the risk of exceeding available coal storage, PPL Energy Supply incurred pre-tax charges of $17 million and $29 million during the three and nine months ended September 30, 2012 to reduce its 2012 and 2013 contracted coal deliveries. These charges were recorded to "Fuel" on the Statement of Income.
(PPL and PPL Electric)
In May 2012, PPL Electric filed a plan with the PUC to purchase its electricity supply for default customers for the period June 2013 through May 2015. The PUC approved the plan in January 2013. The approved plan provides that PPL Electric procure this electricity through competitive solicitations twice each plan year beginning in April 2013. The solicitations will include layered short-term full-requirement products ranging from three months to 12 months for residential and small commercial and industrial PLR customers as well as a recurring 12 month spot market product for large commercial and industrial PLR customers. Through October 2013, two of four solicitations have been completed.
(PPL Electric)
See Note 11 for information on the power supply agreements between PPL EnergyPlus and PPL Electric.
Legal Matters
(All Registrants)
PPL and its subsidiaries are involved in legal proceedings, claims and litigation in the ordinary course of business. PPL and its subsidiaries cannot predict the outcome of such matters, or whether such matters may result in material liabilities, unless otherwise noted.
WKE Indemnification (PPL and LKE)
See footnote (l)(h) to the table in "Guarantees and Other Assurances" below for information on an LKE indemnity relating to its former WKE lease, including related legal proceedings.
(PPL and PPL Energy Supply)
Sierra Club Litigation
In July 2012,On March 6, 2013, the Sierra Club and the MEIC filed a complaint in the U.S. District Court, District of Montana, Billings Division against PPL Montana received a Notice of Intent to Sue (Notice) for violations ofand the Clean Air Act atother Colstrip Steam Electric Station (Colstrip) from counsel on behalf of the Sierra Club and the Montana Environmental Information Center (MEIC). An Amended Notice was received on September 4, 2012, and a Second Amended Notice was received in October 2012. A Supplemental Notice was received in December 2012. The Notice, Amended Notice, Second Amended Notice and Supplemental Notice (the Notices) were all addressed to the Owner or Managing Agent of Colstrip, and to the other Colstrip co-owners: Avista Corporation, Puget Sound Energy, Portland General Electric Company, Northwestern Energy and PacificCorp.Pacific Corp. PPL Montana operates Colstrip on behalf of the co-owners. The Notices allegesuit alleges certain violations of the Clean Air Act, including New Source Review, Title V and opacity requirements.
On March 6, 2013, the Sierra Clubrequirements and MEIC filed a complaint against PPL Montana and the other Colstrip co-owners in the U.S. District Court, District of Montana, Billings Division. PPL Montana operates Colstrip on behalf of the co-owners. The complaint is generally consistent with the prior Notices and listslisted 39 separate claims for relief. All but three of the claims allege Prevention of Significant Deterioration (PSD) related violations under the federal Clean Air Act for various plant maintenance projects completed since 1992. For each such project or set of projects, there are separate claims for failure to obtain a PSD permit, for failure to obtain a Montana Air Quality Permit to operate after the project(s) were completed and for operating after completion of such project(s) without "Best Available Control Technology". The remaining three claims relate to the alleged failure to update the Title V operating permit for Colstrip to reflect the alleged major modifications described in the other claims, allege that the previous Title V compliance certifications were incomplete because they did not address the major plant modifications, and that numerous opacity violations have occurred at the plant since 2007. The complaint requests injunctive relief and civil penalties on average of $36,000 per day per violation, including a request that the owners remediate environmental damage and that $100,000 of the civil penalties be used for beneficial mitigation projects. Trial in this matter as to liability has been scheduled for October 2014. Trial as to remedies, if there is a finding of liability, is scheduled for August 2015.
On July 27, 2013, the Sierra Club and MEIC filed an additional Notice, identifying additional plant projects that are alleged not to be in compliance with the Clean Air Act. OnIn September 27, 2013, the plaintiffs filed an amended complaint. This amended complaint drops all claims regarding pre-2001 plant projects, as well as the plaintiffs' Title V and opacity claims. It does, however, add claims with respect to a number of post-2000 plant projects, which effectively increased the number of projects subject to the litigation by about 40. PPL Montana and the other Colstrip Ownersowners filed a motion to dismiss the amended complaint in October 2013. On May 22, 2014, the court dismissed the plaintiffs' independent Best Available Control Technology claims and their Prevention of Significant Deterioration (PSD) claims for three projects, but denied the owners' motion to dismiss the plaintiffs' other PSD claims on October 11, 2013. Althoughstatute of limitation grounds. In April 2014, trial as to liability in this matter was re-scheduled to June 2015. A trial date with respect to remedies, if there is a finding of liability, has not been scheduled. PPL Montana believes it and the other co-owners have numerous defenses to the allegations set forth in this complaint and will vigorously assert the same,same. PPL Montana cannot predict the ultimate outcome of this matter at this time.
(PPL, LKE and LG&E)
Cane Run Environmental Claims
On December 16, 2013, six residents, on behalf of themselves and others similarly situated, filed a class action complaint against LG&E and PPL in the U.S. District Court for the Western District of Kentucky for alleged violations of the Clean Air Act and RCRA. In addition, these plaintiffs assert common law claims of nuisance, trespass and negligence. These plaintiffs seek injunctive relief and civil penalties, plus costs and attorney fees, for the alleged statutory violations. Under the common law claims, these plaintiffs seek monetary compensation and punitive damages for property damage and diminished property values for a class consisting of residents within four miles of the plant. In their individual capacities, these plaintiffs seek compensation for alleged adverse health effects. In response to a motion to dismiss filed by PPL and LG&E, on July 17, 2014 the court dismissed the plaintiffs' RCRA claims and all but one of its Clean Air Act claims, but declined to dismiss their common law tort claims. PPL, LKE and LG&E cannot predict the outcome of this matter or the potential impact on operations of the Cane Run plant. LG&E has previously announced that it anticipates retiring the coal-fired units at Cane Run before the end of 2015.
Mill Creek Environmental Claims
On May 28, 2014, the Sierra Club filed a citizen suit against LG&E in the U.S. District Court for the Western District of Kentucky for alleged violations of the Clean Water Act. The Sierra Club alleges that various discharges at the Mill Creek plant constitute violations of the plant's water discharge permit. The Sierra Club seeks civil penalties, injunctive relief, plus costs and attorney's fees. PPL, LKE and LG&E cannot predict the outcome of this matter or the potential impact on the operations of the Mill Creek plant but believe the plant is operating in compliance with the permits.
Regulatory Issues
(All Registrants)Registrants except PPL Energy Supply)
See Note 6 for information on regulatory matters related to utility rate regulation. See Note 15 to the Registrants' 2012 Form 10-K for a discussion of Enactment of Financial Reform Legislation.
(PPL, PPL Energy Supply and PPL Electric)
New Jersey Capacity Legislation
In January 2011, New Jersey enacted a law that intervenes in the wholesale capacity market exclusively regulated by the FERC: S. No. 2381, 214th Leg. (N.J. 2011)FERC (the Act). To create incentives for the development of new, in-state electricelectricity generation facilities, the Act implements a "long-termlong-term capacity agreement pilot program (LCAPP)." The Act requires New Jersey utilities to pay a guaranteed fixed price for wholesale capacity, imposed by the New Jersey Board of Public Utilities (BPU), to certain new generators participating in PJM, with the ultimate costs of that guarantee to be borne by New Jersey ratepayers. PPL believes the intent and effect of the LCAPP is to encourage the construction of new generation in New Jersey even when, under the FERC-approved PJM economic model, such new generation would not be economic. The Act could depress capacity prices in PJM in the short term, impacting PPL Energy Supply's revenues, and harm the long-term ability of the PJM capacity market to incentencourage necessary generation investment throughout PJM. In February 2011, the PJM Power Providers Group (P3), an organization in which PPL is a member, filed a complaint before the FERC seeking changes in PJM's capacity market rules designed to ensure that subsidized generation, such as the generation that may result from the implementation of the LCAPP, will not be able to set capacity prices artificially low as a result of their exercise of buyer market power. In April 2011, the FERC issued an order granting in part and denying in part P3's complaint and ordering changes in PJM's capacity rules consistent with a significant portion of P3's requested changes. Several parties have filed appeals of the FERC's order. PPL, PPL Energy Supply and PPL Electric cannot predict the outcome of this proceeding or the economic impact on their businesses or operations, or the markets in which they transact business.
In addition, in February 2011, PPL and several other generating companies and utilities filed a complaint in U.S. District Court in New Jersey challenging the Act on the grounds that it violates well-established principles under the Supremacy Clause and the Commerce Clauseclauses of the U.S. Constitution and requesting declaratory and injunctive relief barring implementation of the Act by the BPU Commissioners. In October 2011, the court denied the BPU's motion to dismiss the proceeding and in September 2012 the U.S. District Court denied all summary judgment motions. Trial of this matter was completed in June 2013. In October 2013, the U.S. District Court in New Jersey issued a decision finding the Act unconstitutional under the Supremacy Clause on the grounds that it infringes upon the FERC's exclusive authority to regulate the wholesale sale of electricity in interstate commerce. The decision has been appealed to the U.S. Court of Appeals for the Third Circuit by CPV Power Development, Inc., Hess Newark, LLC and is expected to be appealed by the State of New Jersey.Jersey and oral argument was held on March 27, 2014. PPL, PPL Energy Supply and PPL Electric cannot predict the outcome of this proceeding or the economic impact on their businesses or operations, or the markets in which they transact business.
Maryland Capacity Order
In April 2012, the Maryland Public Service Commission (MD PSC) ordered three electric utilities in Maryland to enter into long-term contracts to support the construction of new electricelectricity generating facilities in Maryland, specifically a 661 MW natural gas-fired combined-cycle generating facility to be owned by CPV Maryland, LLC. PPL believes the intent and effect of the action by the MD PSC is to encourage the construction of new generation in Maryland even when, under the FERC-approved PJM economic model, such new generation would not be economic. The MD PSC action could depress capacity prices in PJM in the short term, impacting PPL Energy Supply's revenues, and harm the long-term ability of the PJM capacity market to encourage necessary generation investment throughout PJM.
In April 2012, PPL and several other generating companies filed a complaint in U.S. District Court in Maryland (District Court) challenging the MD PSC order on the grounds that it violates well-established principles under the Supremacy and Commerce clauses of the U.S. Constitution, and requested declaratory and injunctive relief barring implementation of the order by the MD PSC Commissioners. In August 2012, the court denied the MD PSC and CPV Maryland, LLC motions to dismiss the proceeding. Trial of this matter was completed in March 2013. In September 2013, the U.S. District Court in Maryland issued a decision finding the MD PSC order unconstitutional under the Supremacy Clause on the grounds that it infringes upon the FERC's exclusive authority to regulate the wholesale sale of electricity in interstate commerce. The decision is expected to bewas appealed to the U.S. Court of Appeals for the Fourth Circuit. PPL, PPL Energy Supply,Circuit (Fourth Circuit) by CPV Power Development, Inc. and PPL Electric cannot predict the outcomeState of this proceeding orMaryland. In June 2014, the economic impact on their businesses or operations, orFourth Circuit affirmed the markets in which they transact business.District Court's opinion and subsequently denied the appellants' motion for rehearing.
Pacific Northwest Markets (PPL and PPL Energy Supply)
Through its subsidiaries, PPL Energy Supply made spot market bilateral sales of power in the Pacific Northwest during the period from December 2000 through June 2001. Several parties subsequently claimed refunds at FERC as a result of these sales. In June 2003, the FERC terminated proceedings to consider whether to order refunds for spot market bilateral sales made in the Pacific Northwest, including sales made by PPL Montana, during the period December 2000 through June 2001. In August 2007, the U.S. Court of Appeals for the Ninth Circuit reversed the FERC's decision and ordered the FERC to
consider additional evidence. In October 2011, the FERC initiated proceedings to consider additional evidence. In July 2012, PPL Montana and the City of Tacoma, one of the two parties claiming refunds at FERC, reached a settlement whereby PPL Montana paid $75 thousand to resolve the City of Tacoma's $23 million claim. The settlement does not resolve the remaining claim outstanding at SeptemberJune 30, 20132014 by the City of Seattle for approximately $50 million. In April 2013, the FERC issued an order on reconsideration allowing the parties to seek refunds for the period January 2000 through December 2000. As a result, the City of Seattle may be able to seek refunds from PPL Montana for such period. Hearings before a FERC Administrative Law Judge (ALJ) regarding the City of Seattle's refund claims were completed in October 2013. A2013 and briefing schedule has been set andwas completed in January 2014. In March 2014, the ALJ issued an initial decision denying the City of Seattle's complaint against PPL Montana. The initial decision is expected in mid-March 2014.pending review by the FERC.
Although PPL and its subsidiaries believe they have not engaged in any improper trading or marketing practices affecting the Pacific Northwest markets, PPL and PPL Energy Supply cannot predict the outcome of the above-described proceedings or
whether any subsidiaries will be the subject of any additional governmental investigations or named in other lawsuits or refund proceedings. Consequently, PPL and PPL Energy Supply cannot estimate a range of reasonably possible losses, if any, related to this matter.
(All Registrants)
FERC Market-Based Rate Authority
In 1998, the FERC authorized LG&E, KU and PPL EnergyPlus to make wholesale sales of electricity and related products at market-based rates. In those orders, the FERC directed LG&E, KU and PPL EnergyPlus, respectively, to file an updated market analysis within three years after the order, and every three years thereafter. Since then, periodic market-based rate filings with the FERC have been made by LG&E, KU, PPL EnergyPlus, PPL Electric, PPL Montana and most of PPL Generation's subsidiaries. In December 2013, PPL and these subsidiaries filed market-based rate updates for the Eastern and Western regions. In June 2014, the FERC accepted PPL and its subsidiaries' updated market power analysis finding that they qualify for continued market-based rate authority in the Western region, which acceptance became final in July 2014. The filings for the Eastern region remain pending before the FERC. The Registrants cannot predict the ultimate outcome of the update filings for the Eastern region at this time.
Electricity - Reliability Standards(All Registrants)
The NERC is responsible for establishing and enforcing mandatory reliability standards (Reliability Standards) regarding the bulk power system. The FERC oversees this process and independently enforces the Reliability Standards.
The Reliability Standards have the force and effect of law and apply to certain users of the bulk power electricity system, including electric utility companies, generators and marketers. Under the Federal Power Act, the FERC may assess civil penalties of up to $1 million per day, per violation, for certain violations.
LG&E, KU, PPL Electric and certain subsidiaries of PPL Energy Supply monitor their compliance with the Reliability Standards and continue to self-report potential violations of certain applicable reliability requirements and submit accompanying mitigation plans, as required. The resolution of a number of potential violations is pending. Any Regional Reliability Entity (including RFC or SERC) determination concerning the resolution of violations of the Reliability Standards remains subject to the approval of the NERC and the FERC.
In the course of implementing their programs to ensure compliance with the Reliability Standards by those PPL affiliates subject to the standards, certain other instances of potential non-compliance may be identified from time to time. The Registrants cannot predict the outcome of these matters, and cannot estimate a range of reasonably possible losses, if any, other than the amounts currently recorded.any.
InAs previously reported, in October 2012, the FERC issued a Noticeinitiated its consideration of Proposed Rulemaking (NOPR) concerningproposed changes to Reliability Standards forto address the impacts of geomagnetic disturbances (GMDs). The FERC proposed to direct the NERC to submit for approval Reliability Standards that address the impact of GMDs on the reliable operation of the bulk-power system. Insystem, which might, among other things, lead to a requirement to install equipment that blocks geomagnetically induced currents on implicated transformers. On May 16, 2013, the FERC issued its Final Rule, Order No. 779, which directs therequiring NERC to submit GMDtwo types of Reliability Standards to the FERC for approval in two stages. In theFERC's approval. The first stage, the NERC must submit one or more Reliability Standards by January 22, 2014 thattype would require certain owners and operators of the bulk-power systemnation's electricity infrastructure, such as the Registrants, to develop and implement operational procedures to mitigate the effects of GMDsgeomagnetic disturbances on the bulk-power system. In theThis NERC-proposed standard was filed by NERC with FERC for approval in January 2014 and was approved on June 19, 2014. The second stage, the NERC must submit one or more Reliability Standards by January 22, 2015 thattype is to require owners and operators of the bulk-power system facilities to assess yet to be determined "benchmark GMD events"certain geomagnetic disturbance events and develop and implement plans to protect the bulk-power system from such GMD events.those events and must be filed by NERC with FERC for approval by January 22, 2015. The Registrants may be required to make significant expenditures in new equipment or modifications to their facilities to comply with the new requirements. The Registrants are unable to predict the specific requirements that will be contained in the Reliability Standards that the NERC has been directed to submit or the amount of any expenditures that may be required as a result of the approvaladoption of any such Reliability Standards.Standards for geomagnetic disturbances.
Environmental Matters - Domestic
(All Registrants)
Due to the environmental issues discussed below or other environmental matters, it may be necessary for the Registrants to modify, curtail, replace or cease operation of certain facilities or performance of certain operations to comply with statutes, regulations and other requirements of regulatory bodies or courts. In addition, legal challenges to new environmental permits or rules add to the uncertainty of estimating the future cost impact of these permits and rules.
LG&E and KU are entitled to recover, through the ECR mechanism, certain costs of complying with the Clean Air Act, as amended, and those federal, state or local environmental requirements which are applicable to coal combustion wastes and by-products from facilities that generate electricity from coal in accordance with approved compliance plans. Costs not covered by the ECR mechanism for LG&E and KU and all such costs for PPL Electric are subject to rate recovery before the companies' respective state regulatory authorities, or the FERC, if applicable. Because PPL Electric does not own any generating plants,
its exposure to related environmental compliance costs is reduced. As PPL Energy Supply is not a rate regulatedrate-regulated entity, it cannot seek to recover environmental compliance costs through the mechanism of rate recovery. PPL, PPL Electric, LKE, LG&E and KU can provide no assurances as to the ultimate outcome of future environmental or rate proceedings before regulatory authorities.
(All Registrants except PPL Electric)
Air
CSAPR (formerly Clean Air Transport Rule) and CAIR
In July 2011, the EPA adopted the CSAPR. The CSAPR replaced the EPA's previous CAIR which was invalidated in July 2008 by the U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit Court). CAIR subsequently was effectively reinstated by the D.C. Circuit Court in December 2008, pending finalization of the CSAPR. Like CAIR, CSAPR targeted sources in the eastern U.S. and would have required reductions in sulfur dioxide and nitrogen oxides in two phases (2012 and 2014).
In December 2011, the D.C. Circuit Court stayed implementation of the CSAPR and left CAIR in effect pending a final decision on the validity of the rule. In August 2012, the D.C. Circuit Court issued a ruling invalidating CSAPR, remanding the rule to the EPA for further action, and leaving CAIR in place during the interim. In June 2013,April 2014, the U.S. Supreme Court granted the EPA's petition for review ofreversed and remanded the D.C. Circuit Court's August 2012 decision. Oral argument beforedecision, which may result in new or revised emission reduction requirements, including the U.S. Supreme Court has been scheduled for December 2013. Prior to a revised rule frompossible replacement of the CAIR program with CSAPR, depending on future determinations by the EPA coal-fired generating plants could face tighter nitrous oxide emission limitations through state action.and the courts. On June 26, 2014, the DOJ filed a motion requesting the D.C. Circuit Court to lift the stay on CSAPR. The CAIR program remains in place. PPL, PPL Energy Supply, LKE, LG&E and KU cannot predict the outcome of further regulatory and legal proceedings.
The Kentucky fossil-fueled generating plants can meet the CAIR sulfur dioxide emission requirements by utilizing sulfur dioxide allowances (including banked allowancesallowances) and optimizing existing controls).controls. To meet the CAIR standards for nitrogen oxide standards under the CAIR, the Kentucky companies will need to buy allowances and/or make operational changes. LG&E and KU do not currently anticipate that the costs of meeting these reinstated CAIR requirements or standards will be significant.
PPL Energy Supply's Pennsylvania fossil-fueled generating plants can meet the CAIR sulfur dioxide emission requirements with the existing scrubbers that were placed in service in 2008 and 2009. To meet the CAIR standards for nitrogen oxide standards,oxides, PPL Energy Supply will need to buy allowances and/or make operational changes, the costs of which are not anticipated to be significant.
National Ambient Air Quality Standards
PPL fossil-fueled generating plants may face furtherIn 2008, the EPA revised the National Ambient Air Quality Standard for ozone. As a result, states in the ozone transport region (OTR), including Pennsylvania, are required by the Clean Air Act to impose additional reductions in nitrogen oxide emissions based upon reasonably available control technologies. The PADEP has issued a draft rule requiring reasonable reductions. However, the proposal is being questioned as a result oftoo lenient by the EPA, other OTR states and environmental groups. The PADEP may impose more stringent national ambient air quality standards foremission limits than those set forth in the proposed rule which could have a significant impact on PPL Energy Supply's Pennsylvania coal plants. The EPA is expected to further tighten the ozone standard in the near term, which may require further nitrogen oxide sulfur dioxide and/orcontrols, particularly within the OTR.
In December 2012, the EPA issued final rules that tighten the National Ambient Air Quality Standard for fine particulates. The rules were challenged by industry groups, and on May 9, 2014 the D.C. Circuit Court upheld them. Under the final rules, states and the EPA have until 2015 to identify non-attainment areas, and states have until 2020 to achieve attainment for those areas.
In 2010, the EPA finalized a new one-hour standardNational Ambient Air Quality Standard for sulfur dioxide and required states are required to identify areas that meet those standards and areas that are in non-attainment. In July 2013, the EPA finalized non-attainment designations for parts of the country, including part of Yellowstone County in Montana (Billings area), including the Corette plant and its immediate vicinity, and part of Jefferson County in Kentucky. Attainment must be achieved by 2018. States are working on designations for other areas. On
April 17, 2014 the EPA issued final rules that strengthen the fine particulate standards. Under the final rules, states and the EPA have until 2015 to identify non-attainment areas, and states have until 2020 to achieve attainment statusproposed timeframes for those areas.
completing these designations. PPL, PPL Energy Supply, LKE, LG&E and KU anticipate that some of the measures required for compliance with the CAIR or CSAPR (as discussed above), or the MATS, or the Regional Haze requirements (as discussed below), such as upgraded or new sulfur dioxide scrubbers at certain plants and, in the case of LG&E and KU, the previously announced retirement of coal-fired generating units at the Cane Run, Green River and Tyrone plants, will help to achieve compliance with the new one-hour sulfur dioxide standard. If additional reductions were to be required, the financial impact could be significant. The short-term impact on the Corette plant from the EPA's final designation of part of Yellowstone County in Montana as non-attainment as(as noted aboveabove) is not expected to be significant, as PPL Energy Supply previously announced its intent to place the plant in long-term reserve status beginning in April 2015 (see "MATS" below). The longer-term impact will depend on the status of plant operations at that time and what the MDEQ requires in its State Implementation Plan for reestablishing attainment, due in January 2015.
Until particulate matterfinal rules are promulgated, non-attainment designations are finalized and sulfur dioxide maintenance andstate compliance plans are developed, by the EPA and state or local agencies, including identification and finalization of attainment designations for particulate matter, PPL, PPL Energy Supply, LKE, LG&E and KU cannot predict the impactultimate outcome of the new standards.National Ambient Air Quality standards for ozone, sulfur dioxide and particulate matter.
MATS
In May 2011, the EPA published a proposed regulation requiring stringent reductions of mercury and other hazardous air pollutants from power plants. In February 2012, the EPA published the final rule, known as the MATS, with an effective date of April 2012. The rule, is beingwhich was challenged by industry groups and states, inwas upheld by the D.C. Circuit Court where oral argument is scheduled for December 2013.in April 2014. On July 14, 2014, a coalition of 23 states filed a petition seeking Supreme Court review of this decision. The rule provides for a three-year compliance deadline with the potential for a one-year extension as provided under the statute. LG&E, KU and PPL hasEnergy Supply have received twocompliance extensions in Kentuckyfor certain plants and has requested an extension for one plant in Pennsylvania. Otherare considering extension requests are under consideration.for additional plants.
At the time the MATsMATS rule was proposed, LG&E and KU filed requests with the KPSC for environmental cost recovery based on their expected need to install environmental controls including chemical additive and fabric-filter baghouses to remove certain air pollutants. Recovery of the cost of certain controls was granted by the KPSC in December 2011. LG&E's and KU's anticipated retirement of certain coal-fired electricity generating units located at Cane Run and Green River is in response to thisMATS and other environmental regulations. LG&E and KU are continuing to assess whether any revisions of their approved compliance plans will be necessary.
With respect to PPL Energy Supply's Pennsylvania plants, PPL Energy Supply believes that installation of chemical additive systems may be necessary at certain coal-fired plants, the capital cost of which is not expected to be significant. PPL Energy Supply continues to analyze the potential impact of MATS on operating costs. With respect to PPL Energy Supply's Montana plants, modifications to the air pollution controls installed on Colstrip may be required, the cost of which is not expected to be significant. For the Corette plant, PPL Energy Supply announced in September 2012 its intention, beginning in April 2015, to place the plant in long-term reserve status, suspending the plant's operation due to expected market conditions and the costs to comply with the MATS requirements. The Corette plant asset group's carrying amount at September 30, 2013 was $67 million. Although the Corette plant asset group was not determined to be impaired at September 30,in December 2013. See Note 18 in PPL's and PPL Energy Supply's 2013 it is reasonably possible that an impairment could occur in future periods, as the Company continues to assess its plansForm 10-K for Corette and as higher priced sales contracts settle, adversely impacting projected cash flows. additional information.
PPL Energy Supply, LG&E and KU are continuing to conduct in-depth reviews of the MATS, including the potential implications to scrubber wastewater discharges. See the discussion of effluent limitations guidelines and standards below.
Upon reconsideration of the MATS rule, in March 2013 the EPA revised certain emission limits and related requirements for new power plants. The revised limits are somewhat less onerous than the original proposal, and thereby pose less of an impediment to the construction of new coal-fired power plants.
Regional Haze and Visibility
The EPA's regional haze programs were developed under the Clean Air Act to eliminate man-made visibility degradation by 2064. Under the programs, states are required to take action via state plans to make reasonable progress every decade, includingthrough the application, among other things, of Best Available Retrofit Technology (BART) on power plants commissioned between 1962 and 1977.
The primary power plant emissions affecting visibility are sulfur dioxide, nitrogen oxideoxides and particulates. To date, the focus of regional haze activity has been the western U.S. because until recently,the EPA had determined that the regional trading program in the eastern U.S. under the CSAPR satisfies BART requirements forto reduce sulfur dioxide and nitrogen oxide reductions in the eastern U.S. were largely addressed through compliance with other regulatory programs, such as CSAPR or CAIR. More specifically, before CAIR was temporarily invalidated in 2008, the EPA had determined, and the D.C. Circuit Court had affirmed, that a state could accept region-wide reductions under the CAIR trading program to satisfy BART requirements. After CAIR was temporarily invalidated, the EPA adopted a final rule providing that states subject to CSAPR (which replaced CAIR) may rely on participation in the CSAPR trading program as an alternative to BART. However,oxides. Although the D.C. Circuit Court's August 2012 decision to vacate and remand the CSAPR has been reversed by the U.S. Supreme Court, future decisions by the EPA and to implement CAIR in its place on an interim basis leavesthe courts will determine whether power plants located in the eastern U.S., including PPL's plants in Pennsylvania and Kentucky, exposedwill be subject to additional reductions in sulfur dioxide and nitrogen oxides as required by BART, unless the D.C. Circuit Court's decision, now pending before the U.S. Supreme Court, is overturned.
BART. In addition, to this exposure stemming from the remand of CSAPR, LG&E's Mill Creek Units 3 and 4 are required to reduce sulfuric acid mist emissions because they were determined to have a significant regional haze impact. These reductions are required in the Kentucky Division of Air Quality's regional haze state implementation plan that wasthe Kentucky Division for Air Quality submitted to the EPA. LG&E is
currently installing sorbent injection technology to comply with these reductions, the costs of which are not expected to be significant.
In Montana, the EPA Region 8 developed the regional haze plan as the MDEQ declined to develop a BART state implementation plan. In September 2012,do so. The EPA finalized the EPA issued its final Federal Implementation Plan (FIP) for the Montana regional haze rule.in September 2012. The final FIP assumed no additional controls for Corette or Colstrip Units 3 and 4, but proposed tighter limits for Corette and Colstrip Units 1 and 2. PPL Energy Supply expects to meet these 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). Under the final FIP, Colstrip Units 1 and 2 may require additional controls, including the possible installation of an SNCR and other technology, to meet more stringent nitrogen oxideoxides and sulfur dioxide limits. The cost of these potential additional controls, if required, could be significant. In November 2012,Both PPL filed a petition for review ofand environmental groups have appealed the Montana Regional Hazefinal FIP withto the U.S. Court of Appeals for the Ninth Circuit. Environmental groups have also filed a petition for review. The two matters have been consolidated, and litigation is on-going.Oral arguments were held on May 16, 2014.
New Source Review (NSR)
The EPA has continued its NSR enforcement efforts targeting coal-fired generating plants. The EPA has asserted that modification of these plants has increased their emissions and, consequently, that they are subject to stringent NSR requirements under the Clean Air Act. In April 2009, PPL received EPA information requests for its Montour and Brunner Island plants. PPL andplants, but they have received no further communications from the EPA have exchanged certain information regarding this matter.since providing their responses. In January 2009, PPL, PPL Energy Supply and other companies that own or operate the Keystone plant in Pennsylvania received a notice of violation from the EPA alleging that certain projects were undertaken without proper NSR compliance. In May and November 2012, PPL Montana received information requests from the EPA regarding projects undertaken during a Spring 2012 maintenance outage at Colstrip Unit 1. In September 2012, PPL Montana received an information request from the Montana Department of Environmental QualityMDEQ regarding Colstrip Unit 1 and other projects. MDEQ formally suspended this request on June 6, 2014, in consideration of pending litigation. The EPA request remains an open matter. PPL and PPL Energy Supply cannot predict the outcome of these matters, and cannot estimate a range of reasonably possible losses, if any.
In March 2009, KU received an EPA notice alleging that KU violated certain provisions of the Clean Air Act's rules governing NSR and prevention of significant deterioration by installing sulfur dioxide scrubbers and SCR controls at its Ghent plant without assessing potential increased sulfuric acid mist emissions. KU contends that the projects in question were pollution control projects, and therefore exempt from the requirements cited by the EPA. In December 2009, the EPA issued an information request on this matter. In September 2012, the parties reached a tentative settlement addressing the Ghent NSR matter that seeks to resolve a September 2007 notice of violation alleging opacity violations at the plant. The parties subsequently entered into a consent decree which was approved by the court on September 11, 2013. The consent decree requires the incurrence of non-material costs that have already been accrued.
In August 2007, LG&E received information requests for the Mill Creek and Trimble County plants, and KU received requests for the Ghent plant, but they have received no further communications from the EPA since providing their responses. PPL, LKE, LG&E and KU cannot predict the outcome of these matters, and cannot estimate a range of reasonably possible losses, if any.
States and environmental groups also have commenced litigation alleging violations of the NSR regulations by coal-fired generating plants across the nation. See "Legal Matters" above for information on a lawsuit filed by environmental groups in March 2013 against PPL Montana and other owners of Colstrip.
If PPL subsidiaries are found to have violated NSR regulations by significantly increasing pollutants through a major plant modification, PPL, PPL Energy Supply, LKE, LG&E and KU would, among other things, be required to meet stringent permit limits reflecting Best Available Control Technology (BACT) for pollutants meeting the emissions of any pollutant found to have significantly increased due to a major plant modification.National Ambient Air Quality Standards (NAAQS) in the area and reflecting Lowest Achievable Emission Rates for pollutants not meeting the NAAQS in the area. The costs to meet such limits, including installation of technology at certain units, could be significant.material.
TC2 Air Permit (PPL(PPL, LKE, LG&E and Kentucky Registrants)KU)
The Sierra Club and other environmental groups petitioned the Kentucky Environmental and Public Protection Cabinet to overturn the air permit issued for the TC2 baseload coal-fired generating unit, but the agency upheld the permit in an order issued in September 2007. In response to subsequent petitions by environmental groups, the EPA ordered certain non-material changes to the permit which, in January 2010, were incorporated into a final revised permit issued by the KDAQ.Kentucky Division for Air Quality. In March 2010, the environmental groups petitioned the EPA to object to the revised state permit. Until the EPA issues a final ruling on the pending petition and all available appeals are exhausted, PPL, LKE, LG&E and KU cannot predict the outcome of this matter or the potential impact on theplant operations, including increased capital costs, of this project, if any.
Cane Run Environmental Claims(PPL, LKE and LG&E)
On September 6, 2013, PPL, LKE and LG&E received a letter on behalf of two residents adjacent to the Cane Run plant notifying various federal, state, and local agencies of their intent to file a citizen suit for alleged violations of the Clean Air Act and Resource Conservation and Recovery Act. The claimants allege various environmental harms including an imminent and substantial endangerment to health or the environment and state that they will seek civil penalties, injunctive relief and attorneys' fees. PPL, LKE and LG&E cannot predict the outcome of this matter or the potential impact on operations of the Cane Run plant. In the 2011 to 2013 time period, the Louisville Metro Air Pollution Control District issued several notices of violation alleging violations of local air quality rules at the Cane Run plant. The agency is seeking civil penalties and remedial measures which are not expected to result in the incurrence of material costs. LG&E is currently in settlement negotiations with the agency. LG&E has previously announced that it anticipates retiring the coal-fired units at Cane Run before the end of 2015.Climate Change
(All Registrants)
GHG Regulations and Tort Litigation
As a result of the April 2007 U.S. Supreme Court decision that the EPA has authority under the Clean Air Act to regulate GHG emissions from new motor vehicles, in April 2010, the EPA and the U.S. Department of Transportation issued new light-duty vehicle emissions standards that applied beginning with 2012 model year vehicles. The EPA also clarified that this standard, beginning in 2011, authorized regulation of GHG emissions from stationary sources under the NSR and Title V operating permit provisions of the Clean Air Act. The EPA's rules were challenged in court and on June 23, 2014 the U.S. Supreme Court ruled that the EPA has the authority to regulate GHG emissions under these provisions of the Clean Air Act but only for stationary sources that would otherwise have been subject to these provisions due to significant increases in
emissions of other pollutants. As a result, any new sources or major modifications to an existing GHG sourcessource causing a net significant increase in GHG emissions increase now require adherence to themust comply with BACT permit limits for GHGs. The rules were challenged, andGHGs if it would otherwise be subject to BACT or lowest achievable emissions rate limits due to significant increases in June 2012 the D.C. Circuit Court upheld the EPA's regulations. In December 2012, the D.C. Circuit Court denied petitions for rehearing pertaining to its June 2012 opinion. On October 15, 2013, the U.S. Supreme Court granted certiorari for several petitions to decide whether the NSR provisions of the Clean Air Act require the EPA to regulate GHG emissions from stationary sources, such as power plants.other pollutants.
In June 2013, President Obama released his Climate Action Plan whichthat 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 newrevised proposal for new power plants (a prior proposal was issued in 2012) by September 20, 2013, with a final rule in a timely fashion thereafter, and to issue proposed standards for existing plants by June 1, 2014 with a final rule to be issued by June 1, 2015. The EPA was further directed to require that states develop implementation plans for existing plants by June 30, 2016. Regulation of existing plants could have a significant industry-wide impact depending on the structure and stringency of the final rule and the state implementation plans. 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 also lead to more costly regulatory requirements.requirements; the White House Office of Management and Budget opened this issue for public comment and PPL submitted comments. Additionally, the Climate Action Plan requirements related to preparing the U.S. for the impacts of climate change could affect PPL and others in the industry as transmission system modifications to electricity delivery systems to improve the ability to withstand major storms may be needed in order to meet those requirements.
The EPA issued its revised proposal (re-proposal) for new sources on September 20, 2013 as directed by the White House. This proposal was published in the Federal Register on January 8, 2014. The comment period closed on May 9, 2014. Unlike the EPA's April 2012 Carbon Dioxide (CO2) New Source Performance Standards (NSPS) for new plants,prior proposal, the re-proposalEPA's revised proposal established separate emission standards for coal and gas units based on the application of different technologies. The coal standard is based on the application of partial carbon capture and sequestration technology, but because therethis technology is nonot presently commercially viable CO2 reduction technology available, presently to allow new coal plants to meet the proposed standards, thisrevised proposal effectively precludes the construction of new coal plants. The standard for NGCC power plants is the same as the EPA proposed the same standard for natural gas combined-cycle power plants as it hadin 2012 and is not continuously achievable.
The EPA's proposed in April 2012. A slightly less stringent standard, however,regulation addressing GHG emissions from existing sources was offeredpublished in the re-proposalFederal Register on June 18, 2014. The proposal contains state-specific rate-based reduction goals and guidelines for smaller gas plants. Simple cycle natural gasthe development, submission, and implementation of state plans to achieve the state goals. State-specific goals were calculated from 2012 data by applying EPA's very broad interpretation and definition of the Best System of Emission Reduction resulting in very stringent targets to be met in two phases (2020-2029 and 2030 and beyond). The EPA believes it has offered some flexibility to the states as to how state compliance plans can be crafted, including the option to demonstrate compliance on a mass basis and through multi-state collaborations. The EPA is also proposing potential state plan extensions based on the plan filed (single or multi-state). PPL is analyzing the proposal and potential impacts in preparation for submitting comments to the EPA by the October 16, 2014 deadline. The regulation of GHG emissions from existing plants are no longer explicitly exempt fromcould have a significant industry-wide impact depending on the standardstructure and stringency of the final rule and state implementation plans.
(PPL and PPL Energy Supply)
The PADEP submitted to the EPA a GHG white paper on April 10, 2014 regarding the regulation of carbon dioxide emissions under Section 111(d) of the Clean Air Act. The PADEP expects to achieve reductions required under the EPA's re-proposal.proposed rule by increasing efficiency at existing fossil-fuel plants and/or reducing generation. The PADEP specifically excludes demand-side energy efficiency projects (such as DSM and Act 129 programs) from consideration under the program, which makes it more difficult for Pennsylvania to achieve the reduction levels proposed for Pennsylvania by the EPA, as the EPA assumed significant reductions due to demand-side energy efficiency. On July 1, 2014, a bill passed the Pennsylvania House of Representatives (HB 2354) requiring the PADEP to obtain General Assembly approval of any state plan addressing GHG emissions under the EPA's rules for existing plants. The legislation, which will next be considered by the Pennsylvania Senate, includes provisions to minimize the exposure to a federal implementation plan due to legislative delay.
At the regional level, ten northeastern states signed a Memorandum of Understanding (MOU) agreeing to establish a GHG emission cap-and-trade program, called the Regional Greenhouse Gas Initiative (RGGI). The program commenced in January 2009(PPL, LKE, LG&E and calls for stabilizing carbon dioxide emissions, at base levels established in 2005, from electric power plants with capacity greater than 25 MW. The MOU also provides for a 10% reduction, by 2019, in carbon dioxide emissions from base levels.
Pennsylvania has not stated an intention to join the RGGI, but enacted the Pennsylvania Climate Change Act of 2008 (PCCA). The PCCA established a Climate Change Advisory Committee to advise the PADEP on the development of a Climate Change Action Plan. In December 2009, the Advisory Committee finalized its Climate Change Action Report and identified specific actions that could result in reducing GHG emissions by 30% by 2020. Some of the proposed actions, such as a mandatory 5% efficiency improvement at power plants, could be unachievable. To date, there have been no regulatory or legislative actions taken to implement the recommendations of the report.KU)
In November 2008, the Governor of Kentucky issued a comprehensive energy plan including non-binding targets aimed at promoting improved energy efficiency, development of alternative energy, development of carbon capture and sequestration projects, and other actions to reduce GHG emissions. In December 2009, the Kentucky Climate Action Plan Council was established to develop an action plan addressing potential GHG reductions and related measures. To date,In November 2011, the state has notCouncil issued a final plan.report to the Secretary of Kentucky's Energy and Environment Cabinet for consideration. The final report acknowledged that the recommendations would require additional review and analysis prior to implementation, and that many of the recommendations would likely require, in part, further legislative or regulatory actions. The impact of any such plan is not now determinable, but the costs to comply with the plan could be significant. In April 2014, the Kentucky
General Assembly passed legislation which limits the measures which the Energy and Environment Cabinet may consider in setting performance standards to comply with the EPA's regulations governing GHG emissions from existing sources. The legislation provides that such state GHG performance standards shall be based on emission reductions, efficiency measures, and other improvements available at each power plant, rather than renewable energy, end-use energy efficiency, fuel switching and re-dispatch. These statutory restrictions will make it more difficult for Kentucky to achieve the GHG reduction levels which the EPA has proposed for Kentucky.
(All Registrants except PPL Electric)
A number of lawsuits have been filed asserting common law claims including nuisance, trespass and negligence against various companies with GHG emitting plants and, although the decided cases to date have not sustained claims brought on the basis of these theories of liability, the law remains unsettled on these claims. In September 2009, the U.S. Court of Appeals for the Second Circuit in the case of AEP v. Connecticut reversed a federal district court's decision and ruled that several states and public interest groups, as well as the City of New York, could sue five electric utility companies under federal common law for allegedly causing a public nuisance as a result of their emissions of GHGs. In June 2011, the U.S. Supreme Court overturned the Second Circuit and held that such federal common law claims were displaced by the Clean Air Act and regulatory actions of the EPA. In addition, in Comer v. Murphy Oil (Comer case), the U.S. Court of Appeals for the Fifth Circuit (Fifth Circuit) declined to overturn a district court ruling that plaintiffs did not have standing to pursue state common law claims against companies that emit GHGs. The complaint in the Comer case named the previous indirect parent of LKE as a defendant based upon emissions from the Kentucky plants. In January 2011, the Supreme Court denied a petition to reverse the Fifth Circuit's ruling. In May 2011, the plaintiffs in the Comer case filed a substantially similar complaint in federal district court in Mississippi against 87 companies, including KU and three other indirect subsidiaries of LKE, under a Mississippi statute that allows the re-filing of an action in certain circumstances. In March 2012, the Mississippi federal district court granted defendants' motions to dismiss the state common law claims. Plaintiffs appealed to the U.S. Court of Appeals for the Fifth Circuit and in May 2013, the Fifth Circuit affirmed the district court's dismissal of the case. Additional litigation in federal and state courts over such issues is continuing. PPL, LKE and KUThe Registrants cannot predict the outcome of these lawsuits or estimate a range of reasonably possible losses, if any.
Renewable Energy Legislation
(All Registrants)
There has been interest in renewable energy legislation at both the state and federal levels. Federallevels; however, no legislation on renewable energy is not expected to be enacted this year. become law in 2014 at either the federal or state levels.
(PPL, PPL Energy Supply and PPL Electric)
In Pennsylvania, bills were recently introduced calling for an increase in AEPSAlternative Energy Portfolio Standard (AEPS) Tier 1 obligations and to create a $25 million permanent funding program for solar generation. ABills (SB 1171 and HB 100) were also introduced to add natural gas as a qualified AEPS resource, and another bill adding new hydropower(HB 1912) would repeal the AEPS Act entirely. All these bills remain in committee and are unlikely to Montana's renewable portfolio standard was enacted with an effective date of October 1, 2013.advance. An interim legislative committee in Montana is reviewing the state's RPS.Renewable Portfolio Standard (RPS). PPL and PPL Energy Supply cannot predict at this time whether the committee will recommend any changes to existing laws. In New Jersey, a bill (S-1475) has been introduced to increase the current RPS standard to 30% from Class I sources by 2020. The chairman of the Senate Environmental Committee has convened a workgroup to look at further changes to New Jersey's RPS law to enable New Jersey to meet emissions goals established in the state's Global Warming Response Act. PPL and PPL Energy Supply are unable to predict the outcome of this legislation at this time.
The Registrants believe there are financial, regulatory and logisticaloperational uncertainties related to the implementation of renewable energy mandates that will need to be resolved before the impact of such requirements on them can be estimated. Such uncertainties, among others, include the need to provide back-up supply to augment intermittent renewable generation, potential generation over-supply and downward pressure on energy prices that could result from such renewable generation and back-up, impacts to PJM's capacity market and the need for substantial changes to transmission and distribution systems to accommodate renewable energy sources. These uncertainties are not directly addressed by proposed legislation. PPL and PPL Energy Supply cannot predict at this time the effect on their competitive plants' future competitive position, results of operation, cash flows and financial position of renewable energy mandates that may be adopted, although the costs to implement and comply with any such requirements could be significant.
Water/Waste
Coal Combustion Residuals (CCRs) (All Registrants except PPL Electric)
In June 2010, the EPA proposed two approaches to regulating the disposal and management of CCRs (as either hazardous or non-hazardous) under the Resource Conservation and Recovery Act (RCRA).RCRA. CCRs include fly ash, bottom ash and sulfur dioxide scrubber wastes. Regulating CCRs as a hazardous waste under Subtitle C of the RCRA would materially increase costs and result in early retirements of many coal-fired plants, as it would require plants to retrofit their operations to comply
with full hazardous waste requirements for the generation of CCRs and associated waste waters through generation, transportation and disposal. This would also have a negative impact on the beneficial use of CCRs and could eliminate existing markets for CCRs. The EPA's proposed approach to regulate CCRs as non-hazardous waste under Subtitle D of the RCRA would mainly affect disposal and most significantly affect any wet disposal operations. Under this approach, many of the current markets for beneficial uses would not be affected. Currently, PPL expects that several of its plants in Kentucky and Montana could be significantly impacted by the EPA's proposed non-hazardous waste regulations, as these plants are using surface impoundments for management and disposal of CCRs.
The EPA has issued information requests on CCR management practices at numerous plants throughout the power industry as it considers whether or not to regulate CCRs as hazardous waste. PPL has provided information on CCR management practices at most of its plants in response to the EPA's requests. In addition, the EPA has conducted follow-up inspections to evaluate the structural stability of CCR management facilities at several PPL plants and PPL has implemented or is implementing certain actions in response to recommendations from these inspections.
The EPA is continuing to evaluate the unprecedented number of comments it received on its June 2010 proposed regulations. In October 2011, the EPA issued a Notice of Data Availability (NODA) requesting comments on selected documents it received during the comment period for the proposed regulations. On September 20, 2013, in response to the proposed Effluent Limitation Guidelines, PPL submitted comments on the proposed CCR regulations. Also, on September 3, 2013, PPL commented on a second CCR NODA seeking comment on additional information related to the EPA's proposal.
A coalition of environmental groups and two CCR recycling companies have filed lawsuits against the EPA seeking a deadline for final rulemaking and, in settlement of that litigation, the EPA has agreed to issue its final rulemaking on the Subtitle D option addressed above by December 19, 2014.
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.
A coalition of environmental groups and two CCR recycling companies have filed lawsuits against the EPA for failure to perform nondiscretionary duties under RCRA, which could require a deadline for the EPA to issue strict CCR regulations. The two CCR recycling companies are asserting that the EPA should regulate CCRs as a non-hazardous waste that would allow for continued recycling.
As a result of litigation by environmental groups, final rulemaking could be issued as early as the end of 2014.
PPL, PPL Energy Supply, LKE, LG&E and KU cannot predict at this time the final requirements of the EPA's CCR regulations or potential changes to the RCRA and what impact they would have on their facilities, but the financial and operational impact is expected to be material if CCRs are regulated as hazardous waste and significant if regulated as non-hazardous.
Trimble County Landfill Permit (PPL, LKE, LG&E and Kentucky Registrants)KU)
In May 2011, LG&E submitted an application for a special waste landfill permit to handle coal combustion residuals generated at the Trimble County plant. After extensive review of the permit application in May 2013, the Kentucky Division of Waste Management denied the permit application on the grounds that the proposed facility would violate the Kentucky Cave Protection Act because it would eliminate an on-site karst feature considered to be a cave. LG&E and KU areAfter assessing additional options for managing coal combustion residuals, including constructionin January 2014, LG&E submitted to the Kentucky Division of Waste Management a landfill atpermit application for an alternate site adjacent to the plant. Submittal of a new permit application for an alternative site may result in additional environmental considerations in the course of the permitting process and substantial additional costs. PPL, LKE, LG&E and KU are unable to determine the precisepotential impact of this matter until they select an alternate management optiona landfill permit is issued and complete a detailed engineering design.any resulting legal challenges are concluded.
Seepages and Groundwater Infiltration - Pennsylvania, Montana and Kentucky
(All Registrants except PPL Electric)
Seepages or groundwater infiltration have been detected at active and retired wastewater basins and landfills at various PPL, PPL Energy Supply, LKE, LG&E and KU plants. PPL, PPL Energy Supply, LKE, LG&E and KU have completed or are completing assessments of seepages or groundwater infiltration at various facilities and have completed or are working with agencies to respond to notices of violations and implement assessment or abatement measures, where required.required or applicable. A range of reasonably possible losses cannot currently be estimated.
(PPL and PPL Energy Supply)
In 2007, six plaintiffs filed a lawsuit in the Montana Sixteenth Judicial District Court against the Colstrip plant owners asserting property damage due to seepage from plant wastewater ponds. A settlement agreement was reached in July 2010 which would have resulted in a payment by PPL Montana, but certain of the plaintiffs later argued the settlement was not final. The Colstrip plant owners filed a motion to enforce the settlement and in October 2011 the court granted the motion and ordered the settlement to be completed in 60 days. The plaintiffs appealed the October 2011 order to the Montana Supreme Court, which affirmed the district court's order enforcing the settlement in December 2012 and denied plaintiff's motion for rehearing in February 2013. Final settlement documents were executed and the settlement was effective on October 28, 2013. PPL Montana's share of the settlement payment was not significant.
In August 2012, PPL Montana entered into an Administrative Order on Consent (AOC) with the MDEQ which establishes a comprehensive process to investigate and remediate groundwater seepage impacts related to the wastewater facilities at the Colstrip power plant. The AOC requires that within five years PPL Montana provide financial assurance to the MDEQ for the costs associated with closure and future monitoring of the waste-water treatment facilities. PPL Montana cannot predict at this time if the actions required under the AOC will create the need to adjust the existing ARO related to these facilities.
In September 2012, Earthjustice filed an affidavit pursuant to Montana's Major Facility Siting Act (MFSA) that sought review of the AOC by Montana's Board of Environmental Review (BER) on behalf of the Sierra Club, the MEIC, and the National Wildlife Federation (NWF).Federation. In September 2012, PPL Montana filed an election with the BER to have this proceeding conducted in Montana state district court as contemplated by the MFSA. In October 2012, Earthjustice filed a petition for review of the AOC in the Montana state district court in Rosebud County.
This matter was stayed in December 2012. In late October 2012,April 2014, Earthjustice filed a second complaint againstmotion for leave to amend the MDEQpetition for review and to lift the stay which was granted by the court in May 2014. PPL Montana and MDEQ responded to the amended petition and filed partial motions to dismiss in state district court in Lewis and Clark County on behalf of the Sierra Club, the MEIC and the NWF. This complaint alleges that the defendants have failed to take action under the MFSA and the Montana Water Quality Act to effectively monitor and correct issues of coal ash disposal and wastewater ponds at the Colstrip plant. The complaint seeks a declaration that the operations of the impoundments violate the statutes referred to above, requests a writ of mandamus directing the MDEQ to enforce the same and seeks recovery of attorneys' fees and costs. In May 2013, the court granted MDEQ's and PPL Montana's motion to dismiss. It is unknown at this time whether the complainants will appeal this decision.July 2014.
(All Registrants except PPL Electric)
Clean Water Act Act/316(b)
The EPA published proposedEPA's final rule under 316(b) for existing facilities in April 2011.was issued on May 16, 2014. The EPA has been evaluating the comments it received to the proposed rule and meeting with industry groups to discuss options. The proposed rule contains two requirements to reduce impact to aquatic organisms at cooling water intake structures. The first requires all existing facilities to meet standards for the reduction of mortality of aquatic organisms that become trapped against water intake screens (impingement) regardless of the levels of mortality actually occurring or the cost to achieve the standards. The second requirement is to determine and install the best technology available to reduce mortality of aquatic organisms pulled through a plant's cooling water system (entrainment). A form of cost-benefit analysis is allowed for this second requirement involving a site-specific evaluation based on nine factors, including impacts to energy delivery reliability and the remaining useful life of the plant. The final rule is expected to be issued in November 2013. Until the final rule is issued, PPL, PPL Energy Supply, LKE, LG&E and KU cannot reasonably estimate a range of reasonably possibleare evaluating compliance strategies but do not presently expect the compliance costs if any, that wouldto be required to comply with such a regulation.material.
Effluent Limitations Guidelines (ELGs) and Standards
In June 2013, the EPA published proposed regulations to revise discharge limitations for steam electric generation wastewater permits. The proposed limitations are based on the EPA review of available treatment technologies and their capacity for reducing pollutants and include new requirements for fly ash and bottom ash transport water and metal cleaning waste waters, as well as new limits for scrubber wastewater and landfill leachate. The EPA's proposed ELG regulations contain requirements that would affect the inspection and operation of CCR facilities, if finalized. The EPA has indicated that it will coordinate these regulations with the regulation of CCRs discussed above. The proposal contains alternative approaches, some of which could significantly impact PPL's coal-fired plants. PPL, PPL Energy Supply, LKE, LG&E and KU worked with industry groups to comment on the proposed regulation on September 20, 2013. The EPA has agreed to a new deadline for the final regulationrule of September 30, 2015 which is expected to be issued in May 2014.contingent upon the EPA meeting its deadline of December 19, 2014 for issuing its final CCR regulations. At the present time, PPL, PPL Energy Supply, LKE, LG&E and KU are currently unable to predict the outcome of this matter or estimate a range of reasonably possible costs, but the costs could be significant. Pending finalization of the ELGs, certain states including(including Pennsylvania and Kentucky,Kentucky) and environmental groups are proposing more stringent
technology-based limits in permit renewals. Depending on the final limits imposed, the costs of compliance could be significant and costs could be imposed ahead of federal timelines.
(All Registrants)
Waters of the United States (WOTUS)
On April 21, 2014, the EPA and the U.S. Army Corps of Engineers (Army Corps) published the proposed rule defining Waters of the United States (WOTUS) that could significantly expand the federal government's interpretation of what constitutes WOTUS subject to regulation under the Clean Water Act. The comment deadline is October 20, 2014. If the definition is expanded as proposed by the EPA and the Army Corps, permits and other regulatory requirements may be imposed for many matters presently not covered (including vegetation management for transmission lines and activities affecting storm water conveyances and wetlands), the implications of which could be significant. The U.S. House and Senate are considering legislation to block these regulations.
Other Issues
The EPA is reassessing its polychlorinated biphenyls (PCB) (PCB) regulations under the Toxic Substance Control Act, which currently allow certain PCB articles to remain in use. In April 2010, the EPA issued an Advanced Notice of Proposed Rulemaking for changes to these regulations. This rulemaking could lead to a phase-out of all or some PCB-containing equipment. The EPA is planning to propose the revised regulations in November 2014. PCBs are found, in varying degrees, in all of the Registrants' operations. The Registrants cannot predict at this time the outcome of these proposed EPA regulations and what impact, if any, they would have on their facilities, but the costs could be significant.
(PPL and PPL Energy Supply)
A subsidiary of PPL Energy Supply has investigated alternatives to exclude fish from the discharge channel at its Brunner Island plant, but the subsidiary and the PADEP have concluded that a barrier method to exclude fish is not workable.plant. In June 2012, a Consent Order and Agreement (COA) was signed that allowsallowing the subsidiary to study a change in a cooling tower operational method that may keep fish from entering the channel. Should this approach fail, theThe COA requiresrequired a retrofit of impingement control technology at the intakes to the cooling towers, at a cost that would have been significant. Based on the costresults of whichthe first year of study, the PADEP has suggested closing the COA and writing a new COA to resolve the issue. PPL is in negotiations with the agency at this time. PPL and PPL Energy Supply cannot predict at this time the outcome of the proposed new COA and what impact, if any, it would have on their facilities, but the costs could be significant.
(PPL, LKE, LG&E and KU)
In May 2010, the Kentucky Waterways Alliance and other environmental groups filed a petition with the Kentucky Energy and Environment Cabinet challenging the Kentucky Pollutant Discharge Elimination System permit issued in April 2010, which covers water discharges from the Trimble County plant. In November 2010, the Cabinet issued a final order upholding the permit. In December 2010, the environmental groups appealed the order to the Trimble Circuit Court, but the case was subsequently transferred to the Franklin Circuit Court. In September 2013, the court reversed the Cabinet order upholding the permit and remanded the permit to the agency for further proceedings. In October 2013, LG&E filed a notice of appeal with the Kentucky Court of Appeals. PPL, LKE, LG&E and KU are unable to predict the outcome of this matter or estimate a range of reasonably possible losses, if any.
The EPA and the Army Corps of Engineers are working on a guidance document that will expand the federal government's interpretation of what constitutes "waters of the U.S." subject to regulation under the Clean Water Act. This change has the potential to affect generation and delivery operations, with the most significant effect being the potential elimination of the existing regulatory exemption for plant waste water treatment systems. The costs that may be imposed on the Registrants as a result of any eventual expansion of this interpretation cannot reliably be estimated at this time but could be significant.
Superfund and Other Remediation (All Registrants)
PPL Electric is potentially responsible for costs at several sites listed by the EPA under the federal Superfund program, including the Columbia Gas Plant site, the Metal Bank site and the Ward Transformer site. Clean-up actions have been or are being undertaken at all of these sites, the costs of which have not been significant to PPL Electric. However, should the EPA require different or additional measures in the future, or should PPL Electric's share of costs at multi-party sites increase substantially more than currently expected, the costs could be significant.
PPL Electric, LG&E and KU are remediating or have completed the remediation of several sites that were not addressed under a regulatory program such as Superfund, but for which PPL Electric, LG&E and KU may be liable for remediation. These include a number of former coal gas manufacturing plants in Pennsylvania and Kentucky previously owned or operated or currently owned by predecessors or affiliates of PPL Electric, LG&E and KU. There are additional sites, formerly owned or operated by PPL Electric, LG&E and KU predecessors or affiliates, for which PPL Electric, LG&E and KU lack information on current site conditions and are therefore unable to predict what, if any, potential liability they may have.
Depending on the outcome of investigations at sites where investigations have not begun or been completed or developments at sites for which PPL Electric, LG&E and KU currently lack information, the costs of remediation and other liabilities could be material. PPL, PPL Electric, LKE, LG&E and KU cannot estimate a range of reasonably possible losses, if any, related to these matters.
The EPA is evaluating the risks associated with polycyclic aromatic hydrocarbons and naphthalene, chemical by-products of coal gas manufacturing. As a result of the EPA's evaluation, individual states may establish stricter standards for water quality and soil cleanup. This could require several PPL subsidiaries to take more extensive assessment and remedial actions at former coal gas manufacturing plants. PPL, PPL Electric, LKE, LG&E and KU cannot estimate a range of reasonably possible losses, if any, related to these matters.
From time to time, PPL Energy Supply, PPL Electric, LG&E and KU undertake remedial action in response to notices of violations, spills or other releases at various on-site and off-site locations, negotiate with the EPA and state and local agencies regarding actions necessary for compliance with applicable requirements, negotiate with property owners and other third
parties alleging impacts from PPL's operations and undertake similar actions necessary to resolve environmental matters which arise in the course of normal operations. Based on analyses to date, resolution of these environmental matters is not expected to have a significant adverse impact on theirthese Registrants' operations.
Future cleanup or remediation work at sites currently under review, or at sites not currently identified, may result in significant additional costs for the Registrants.
Environmental Matters - WPD (PPL)
WPD's distribution businesses are subject to environmental regulatory and statutory requirements. PPL believes that WPD has taken and continues to take measures to comply with the applicable laws and governmental regulations for the protection of the environment.
Other
Nuclear Insurance (PPL and PPL Energy Supply)
PPL Susquehanna is a member of certain insurance programs that provide coverage for property damage to members' nuclear generating plants. Effective April 1, 2013, facilities at the Susquehanna plant are insured against property damage losses up to $2.50 billion under these programs. PPL Susquehanna is also a member of an insurance program that provides insurance coverage for the cost of replacement power during prolonged outages of nuclear units caused by certain specified conditions.
Under the property and replacement power insurance programs, PPL Susquehanna could be assessed retroactive premiums in the event of the insurers' adverse loss experience. Effective April 1, 2013, this maximum assessment was $46 million.
In the event of a nuclear incident at the Susquehanna plant, PPL Susquehanna's public liability for claims resulting from such incident would be limited to $12.6 billion under provisions of The Price-Anderson Act as amended. PPL Susquehanna is protected against thisa United States Federal law which governs liability-related issues and ensures the availability of funds for public liability claims arising from an incident at any of the U.S. licensed nuclear facilities. It also seeks to limit the liability of nuclear reactor owners for such claims from any single incident. Effective September 10, 2013, the liability limit per incident is $13.6 billion for such claims which is funded by a combination of commercial insurance coverage from American Nuclear Insurers and an industry assessment program.
InUnder the industry assessment program, in the event of a nuclear incident at any of the reactors covered by The Price-Anderson Act, as amended, PPL Susquehanna could be assessed up to $235$255 million per incident, payable at $35$38 million per year.
Additionally, PPL Susquehanna purchases property insurance programs from NEIL, an industry mutual insurance company of which PPL Susquehanna is a member. Effective April 1, 2014, facilities at the Susquehanna plant are insured against property damage losses up to $2.0 billion. PPL Susquehanna also purchases an insurance program that provides coverage for the cost of replacement power during prolonged outages of nuclear units caused by certain specified conditions.
Under the NEIL property and replacement power insurance programs, PPL Susquehanna could be assessed retrospective premiums in the event of the insurers' adverse loss experience. This maximum assessment is $46 million.
Pennsylvania Coal Plants(PPL and PPL Energy Supply)
In the fourth quarter of 2013, management tested the Brunner Island and Montour plants for impairment and concluded neither was impaired as of December 31, 2013. There were no events or changes in circumstances that indicated a recoverability test was required to be performed in 2014. The carrying value of the Pennsylvania coal-fired generation assets was $2.5 billion as of June 30, 2014 ($1.3 billion for Brunner Island and $1.2 billion for Montour).
Labor Unions(PPL, PPL Energy Supply and PPL Electric)
In May 2014, PPL's, PPL Energy Supply's and PPL Electric's bargaining agreement with its largest IBEW local expired. PPL, PPL Energy Supply and PPL Electric finalized a new three-year labor agreement with the IBEW local in May 2014 and the agreement was ratified in early June 2014.
As part of efforts to reduce operations and maintenance expenses, the new agreement offered a one-time voluntary retirement window to certain bargaining unit employees. The benefits offered under this provision are consistent with the standard separation program benefits for bargaining unit employees. As a result, for the three and six months ended June 30, 2014, the following estimated separation benefits were recorded:
| | | | | | PPL Energy | | | PPL |
| | | PPL | | | Supply | | | Electric |
| | | | | | | | | |
Pension Benefits | | $ | 20 | | $ | 16 | | $ | 4 |
Severance Compensation | | | 9 | | | 7 | | | 2 |
Total Separation Benefits | | $ | 29 | | $ | 23 | | $ | 6 |
| | | | | | | | | |
Number of Employees | | | 155 | | | 124 | | | 30 |
The separation benefits were recorded in "Other operation and maintenance" on the Statement of Income. The pension benefits are accrued in "Accrued pension obligations" and the severance compensation is accrued in "Other current liabilities" on the Balance Sheet at June 30, 2014. Substantially all of the severance compensation will be paid in the third and fourth quarters of 2014. The remaining terms of the new labor agreement are not expected to have a significant impact on the financial results of PPL, PPL Energy Supply or PPL Electric.
Guarantees and Other Assurances
(All Registrants)
In the normal course of business, the Registrants enter into agreements that provide financial performance assurance to third parties on behalf of certain subsidiaries. Such agreements include, for example, guarantees, stand-by letters of credit issued by financial institutions and surety bonds issued by insurance companies. These agreements are entered into primarily to support or enhance the creditworthiness attributed to a subsidiary on a stand-alone basis or to facilitate the commercial activities in which these subsidiaries engage.
(PPL)
PPL fully and unconditionally guarantees all of the debt securities of PPL Capital Funding.
(All Registrants)
The table below details guarantees provided at Septemberas of June 30, 2013. The total recorded liability at September 30, 2013 and December 31, 2012, was $23 million and $24 million for PPL and $20 million for both periods for LKE.2014. "Exposure" represents the estimated maximum potential amount of future payments that could be required to be made under the guarantee. The probability of expected payment/performance under each of these guarantees is remote except for "WPD guarantee of pension and other obligations of unconsolidated entities" and "Indemnification of lease termination and other divestitures." The total recorded liability at June 30, 2014 and December 31, 2013, was $25 million and $26 million for PPL and $19 million for both periods for LKE. For reporting purposes, on a consolidated basis, all guarantees of PPL Energy Supply (other than the letters of credit), PPL Electric, LKE, LG&E and KU also apply to PPL, and all guarantees of LG&E and KU also apply to LKE.
| | Exposure at | | Expiration | | Exposure at | | Expiration |
| | September 30, 2013 (a) | | Date | | June 30, 2014 | | Date |
PPL | | | | | | | | | | | | |
Indemnifications related to the WPD Midlands acquisition | | | (b) | | | | | (a) | | |
WPD indemnifications for entities in liquidation and sales of assets | | $ | 11 | (c) | | 2018 | | $ | 12 | (b) | | 2017 - 2018 |
WPD guarantee of pension and other obligations of unconsolidated entities | | 125 | (d) | | 2015 | | 131 | (c) | | |
| | | | | | | | | | |
PPL Energy Supply | | | | | | | | | | |
Letters of credit issued on behalf of affiliates | | 23 | (e) | | 2013 - 2014 | | 45 | (d) | | 2014 - 2015 |
Retrospective premiums under nuclear insurance programs | | 46 | (f) | | | |
Nuclear claims assessment under The Price-Anderson Act as amended | | 235 | (g) | | | |
Indemnifications for sales of assets | | 250 | (h) | | 2025 | | 250 | (e) | | 2025 |
Indemnification to operators of jointly owned facilities | | 6 | (i) | | | |
Guarantee of a portion of a divested unconsolidated entity's debt | | 22 | (j) | | 2018 | | 22 | (f) | | 2018 |
| | | | | | | | | | |
PPL Electric | | | | | | | | | | |
Guarantee of inventory value | | 32 | (k) | | 2017 | | 38 | (g) | | 2017 |
| | | | | | | | | | |
LKE | | | | | | | | | | |
Indemnification of lease termination and other divestitures | | 301 | (l) | | 2021 - 2023 | | 301 | (h) | | 2021 - 2023 |
| | | | | | | | | | |
LG&E and KU | | | | | | | | | | |
LG&E and KU guarantee of shortfall related to OVEC | | | (m) | | | | | (i) | | |
(a) | Represents the estimated maximum potential amount of future payments that could be requiredIndemnifications related to be made under the guarantee. |
(b) | Prior to PPL's acquisition, WPD Midlands Holdings Limited had agreed to indemnify certain former directors of a Turkish entity, in which WPD Midlands Holdings Limited previously owned an interest, for any liabilities that may arise as a result of an investigation by Turkish tax authorities, and PPL WEM has received a cross-indemnity from E.ON AG with respect to these indemnification obligations. Additionally, PPL subsidiaries agreed to provide indemnifications to subsidiaries of E.ON AG for certain liabilities, including a specific unresolved tax issue and those relating to properties and assets owned by affiliates of E.ON AGthe seller that were transferred to WPD Midlands in connection with the acquisition. A cross indemnity has been received from the seller on the tax issue. The maximum exposure and expiration of these indemnifications cannot be estimated because the maximum potential liability is not capped and the expiration date is not specified in the transaction documents. |
(c)(b) | In connection with the liquidation of wholly owned subsidiaries that have been deconsolidated upon turning the entities overIndemnification to the liquidators and certain affiliates of PPL Global have agreed to indemnify the liquidators, directors and/or the entities themselvesothers for anyexisting liabilities or expenses or liabilities arising during the liquidation process, including liabilities and expenses of the entities placed into liquidation. In some cases, theprocess. The indemnifications are limited to a maximum amount that is based on distributions made from the subsidiary to its parent either prior or subsequent to being placed into liquidation. In other cases, the maximum amount of the indemnifications isliquidation or are not explicitly stated in the agreements. The indemnifications generally expire two to seven years subsequent to the date of dissolution of the entities. The exposure noted only includes those cases in whichwhere the agreements provide for a specific limit on the amount of the indemnification, and the expiration date was based on an estimate of the dissolution date of the entities.limits. |
In connection with their sales of various businesses, WPD and its affiliates have provided the purchasers with indemnifications that are standard for such transactions, including indemnifications for certain pre-existing liabilities and environmental and tax matters. In addition, in connection with certain of these sales, WPD and its affiliatesmatters or have agreed to continue their obligations under existing third-party guarantees, either for a set period of time following the transactions or upon the condition that the purchasers make reasonable efforts to terminate the guarantees. Finally, WPD and its affiliates remain secondarily responsible for lease payments under certain leases that they have assigned to third parties.
(d)(c) | As a resultRelates to certain obligations of the privatization of the utility industry in the U.K., certain electric associations' roles and responsibilities were discontinued or modified. As a result, certain obligations, primarily pension-related, associated with these organizations have beenmodified electric associations that were guaranteed at the time of privatization by the participating members. Costs are allocated to the members based on predetermined percentages as outlined in specific agreements. However, if a member becomes insolvent, costsand can be reallocated to and are guaranteed by the remaining members.if an existing member becomes insolvent. At SeptemberJune 30, 2013,2014, WPD has recorded an estimated discounted liability based on its current allocated percentage of the total expected costs for which the expected payment/performance is probable. Neither the expiration date nor the maximum amount of potential payments for certain obligations is explicitly stated in the related agreements. Therefore, they haveagreements, and as a result, the exposure has been estimated based on the types of obligations.estimated. |
(e)(d) | Standby letter of credit arrangements under PPL Energy Supply's credit facilities for the purposes of protecting various third parties against nonperformance by PPL. This is not a guarantee by PPL on a consolidated basis. |
(f)(e) | PPL Susquehanna is contingently obligated to pay this amount related to potential retrospective premiums that could be assessed under its nuclear insurance programs. See "Nuclear Insurance" above for additional information. |
(g) | This isIndemnifications are governed by the maximum amount PPL Susquehanna could be assessed for each incident at anyspecific sales agreement and include breach of the nuclear reactors covered by this Act. See "Nuclear Insurance" aboverepresentations, warranties and covenants, and liabilities for additional information. |
(h) | certain other matters. PPL Energy Supply's maximum exposure with respect to certain indemnifications and the expiration of the indemnifications cannot be estimated because in the case of certain indemnification provisions, the maximum potential liability is not capped by the transaction documents and the expiration date is based on the applicable statute of limitations. The exposure and expiration datesdate noted are only foris based on those cases in which the agreements provide for specific limits. The indemnification provisions described below are in each case subject to certain customary limitations, including thresholds for allowable claims, caps on aggregate liability, and time limitations for claims arising out of breaches of most representations and warranties. |
A subsidiary of PPL Energy Supply has agreed to provide indemnification to the purchaser of the Long Island generation business for damages arising out of any breach of the representations, warranties and covenants under the related transaction agreement and for damages arising out of certain other matters, including liabilities relating to certain renewable energy facilities which were previously owned by one of the PPL subsidiaries sold in the transaction but which were unrelated to the Long Island generation business. The indemnification provisions for most representations and warranties expired in the third quarter of 2011.
A subsidiary of PPL Energy Supply has agreed to provide indemnification to the purchasers of the Maine hydroelectric facilities for damages arising out of any breach of the representations, warranties and covenants under the respective transaction agreements and for damages arising out of certain other matters, including liabilities of the PPL Energy Supply subsidiary relating to the pre-closing ownership or operation of those hydroelectric facilities. The indemnification provisions for most representations and warranties expired in the fourth quarter of 2012.
Subsidiaries of PPL Energy Supply have agreed to provide indemnification to the purchasers of certain non-core generation facilities sold in March 2011 for damages arising out of any breach of the representations, warranties and covenants under the related transaction agreements and for damages arising out of certain other matters relating to the facilities that were the subject of the transaction, including certain reduced capacity payments (if any) at one of the facilities in the event specified PJM rule changes are proposed and become effective. The indemnification provisions for most representations and warranties expired in the first quarter of 2012.
(i) | In December 2007, a subsidiary of PPL Energy Supply executed revised owners agreements for two jointly owned facilities, the Keystone and Conemaugh generating plants. The agreements require that in the event of any default by an owner, the other owners fund contributions for the operation of the generating plants, based upon their ownership percentages. The non-defaulting owners, who make up the defaulting owner's obligations, are entitled to the generation entitlement of the defaulting owner, based upon their ownership percentage. The exposure shown reflects the PPL Energy Supply subsidiary's share of the maximum obligation. The agreements do not have an expiration date. |
(j)(f) | A PPL Energy Supply subsidiary ownedRelates to a one-third equity interest in Safe Harbor Water Power Corporation (Safe Harbor) that was sold in March 2011. Beginning in 2008, PPL Energy Supply guaranteedguarantee of one-third of any amounts payable with respect to certain senior notes issued by Safe Harbor. Under the terms of the sale agreement, PPL Energy Supply continues to guarantee the portion of Safe Harbor's debt, but receiveddivested entity's debt. The purchaser provided a cross-indemnity, from the purchaser, secured by a lien on the purchaser's stock of Safe Harbor, in the event PPL Energy Supply is required to make a payment under the guarantee.divested entity. The exposure noted reflects principal only. |
(k)(g) | PPL Electric entered into contracts with aA third party logistics firm that provides inventory procurement and fulfillment services. Under the contracts, theThe logistics firm has title to the inventory, purchased for PPL Electric's use. Uponhowever, upon termination of the contracts, PPL Electric has guaranteed to purchase any remaining inventory that has not been used or sold by the logistics firm at the weighted-average cost at which the logistics firm purchased the inventory.sold. |
(l)(h) | LKE provides certain indemnifications, the most significant of which relate to the termination of the WKE lease in July 2009. These guarantees cover the due and punctual payment, performance and discharge by each party of its respective present and future obligations. The most comprehensive of these guarantees is the LKE guarantee covering operational, regulatory and environmental commitments and indemnifications made by WKE under the WKE Transaction Termination Agreement. This guarantee has a term of 12 years ending July 2021, and a cumulative maximum exposure of $200 million. Certain items such as government fines and penalties fall outside the cumulative cap. LKE has contested the applicability of the indemnification requirement relating to one matter presented by a counterparty under this guarantee. Another guarantee with a maximum exposure of $100 million covering other indemnifications expires in 2023. In May 2012, LKE's indemnitee received an arbitration panel's decision affecting this matter, which granted LKE's indemnitee certain rights of first refusal to purchase excess power at a market-based price rather than at an absolute fixed price. In January 2013, LKE's indemnitee commenced a proceeding in the Kentucky Court of Appeals appealing the December 2012 order of the Henderson Circuit Court, confirming the arbitration award. AOn May 30, 2014, the Court of Appeals issued an opinion affirming the lower court decision, inbut LKE's indemnitee has filed a Petition for Rehearing with the appellate matter may occur during late 2013 or early 2014.Court of Appeals. LKE believes its indemnification obligations in this matter remain subject to various uncertainties, including potential for additional legal challenges regarding the arbitration decision as well as future prices, availability and demand for the subject excess power. LKE continues to evaluate various legal and commercial options with respect to this indemnification matter. The ultimate outcomes of the WKE termination-related indemnifications cannot be predicted at this time. Additionally, LKE has indemnified various third parties related to historical obligations for other divested subsidiaries and affiliates. The indemnifications vary by entity and the maximum exposures range from being capped at the sale price to no specified maximum; however, LKE is not aware of formal claims under such indemnities made by any party at this time. LKE could be required to perform on these indemnifications in the event of covered losses or liabilities being claimed by an indemnified party. In the second quarter of 2012, LKE adjusted its estimated liability for certain of these indemnifications by $9 million ($5 million after-tax), which is reflected in "Income (Loss) from Discontinued Operations (net of income taxes)" on the Statement of Income. The adjustment was recorded in the Kentucky Regulated segment for PPL. LKE cannot predict the ultimate outcomes of such indemnification circumstances, but does not currently expect such outcomes to result in significant losses above the amounts recorded. |
(m)(i) | Pursuant to the OVEC power purchase contract, expiring in June 2040, LG&E and KU are obligated to pay for their share of OVEC's excess debt service, post-retirement and decommissioning costs, as well as any shortfall from amounts currently included within a demand charge which includes, among other charges, debt servicedesigned and amortization toward principal retirement, decommissioning costs, post-retirement and post-employment benefits costs (other than pensions), and reimbursement of plant operating, maintenance and other expenses. The demand charge iscurrently expected to cover LG&E's and KU's shares of the cost of the listed itemsthese costs over the term of the contract. However, in the event there is a shortfall in covering these costs, LG&E and KU are obligated to pay their share of the excess debt service, post-retirement and decommissioning costs. The maximum exposure and the expiration date of these potential obligations are not presently determinable. See "Energy Purchase Commitments" and "Guarantees and Other Assurances" in Note 15 in PPL's, LKE's, LG&E's and KU's 2013 Form 10-K for additional information on the OVEC power purchase contract. |
The Registrants provide other miscellaneous guarantees through contracts entered into in the normal course of business. These guarantees are primarily in the form of indemnification or warranties related to services or equipment and vary in duration. The amounts of these guarantees often are not explicitly stated, and the overall maximum amount of the obligation under such guarantees cannot be reasonably estimated. Historically, no significant payments have been made with respect to these types of guarantees and the probability of payment/performance under these guarantees is remote.
PPL, on behalf of itself and certain of its subsidiaries, maintains insurance that covers liability assumed under contract for bodily injury and property damage. The coverage provides maximum aggregate coverage of $225 million. This insurance may be applicable to obligations under certain of these contractual arrangements.
11. Related Party Transactions
PLR Contracts/Purchase of Accounts Receivable (PPL Energy Supply and PPL Electric)
PPL Electric holds competitive solicitations for PLR generation supply. PPL EnergyPlus has been awarded a portion of the PLR generation supply through these competitive solicitations. The sales and purchases between PPL EnergyPlus and PPL Electric are included in the Statements of Income as "Wholesale"Unregulated wholesale energy marketing to affiliate" by PPL Energy Supply and as "Energy purchases from affiliate" by PPL Electric.
Under the standard Default Service Supply Master Agreement for the solicitation process, PPL Electric requires all suppliers to post collateral once credit exposures exceed defined credit limits. PPL EnergyPlus is required to post collateral with PPL Electric:Electric when: (a) when the market price of electricity to be delivered by PPL EnergyPlus exceeds the contract price for the forecasted quantity of electricity to be delivered; and (b) this market price exposure exceeds a contractual credit limit. Based onDuring the currentsecond quarter of 2014, PPL Energy Supply experienced a downgrade in its corporate credit ratingratings to below investment grade. As a result of the downgrade of PPL Energy Supply, as guarantor, PPL EnergyPlus'EnergyPlus no longer has an established credit limit and was $35 millionrequired to post an insignificant amount of collateral at SeptemberJune 30, 2013.2014. In no instance is PPL Electric required to post collateral to suppliers under these supply contracts.
PPL Electric's customers may choose an alternative supplier for their generation supply. See Note 2 for additional information regarding PPL Electric's purchases of accounts receivable from alternative suppliers, including PPL EnergyPlus.
At SeptemberJune 30, 2013,2014, PPL Energy Supply had a net credit exposure of $25$24 million from PPL Electric from its commitment as a PLR supplier and from the sale of its accounts receivable to PPL Electric.
Allocations of PPL ServicesSupport Costs (PPL Energy Supply, PPL Electric and LKE)All Registrants except PPL)
Both PPL Services provides corporate functions such as financial, legal, human resources and information technology services. PPL Services chargesLKS provide the respective PPL and LKE subsidiaries forwith administrative, management and support services. Where applicable, the costcosts of suchthese services when they can be specifically identified. The cost of the services that is not directlyare charged to the respective subsidiaries as direct support costs. General costs that cannot be directly attributed to a specific subsidiary are allocated and charged to the respective subsidiaries as indirect support costs. PPL subsidiaries is allocated to applicable subsidiaries based on an average ofServices uses a three-factor methodology that includes the subsidiaries' relative invested capital, operation and maintenance expenses and number of employees.employees to allocate indirect costs. LKS bases its indirect allocations on the subsidiaries' number of employees, total assets, revenues, number of customers and/or other statistical information. PPL Services and LKS charged the following amounts for the periods ended SeptemberJune 30, which PPL management believesand believe these amounts are reasonable, including amounts applied to accounts that are further distributed between capital and expense:expense.
| | Three Months | | Six Months |
| | 2014 | | 2013 | | 2014 | | 2013 |
| | | | | | | | | | | | |
PPL Energy Supply from PPL Services | | $ | 54 | | $ | 52 | | $ | 112 | | $ | 109 |
PPL Electric from PPL Services | | | 38 | | | 34 | | | 79 | | | 72 |
LKE from PPL Services | | | 4 | | | 4 | | | 8 | | | 8 |
LG&E from LKS | | | 57 | | | 67 | | | 105 | | | 106 |
KU from LKS | | | 59 | | | 44 | | | 112 | | | 110 |
| | Three Months | | Nine Months |
| | 2013 | | 2012 | | 2013 | | 2012 |
| | | | | | | | | | | | |
PPL Energy Supply | | $ | 52 | | $ | 49 | | $ | 161 | | $ | 159 |
PPL Electric | | | 37 | | | 35 | | | 109 | | | 116 |
LKE | | | 3 | | | 3 | | | 11 | | | 11 |
Intercompany Billings by LKS (LG&E and KU)
LKS provides LG&E and KU with a variety of centralized administrative, management and support services. The cost of these services is directly charged to the company or, for general costs that cannot be directly attributed, charged based on predetermined allocation factors, including the following measures: number of customers, total assets, revenues, number of employees and/or other statistical information. LKS charged the amounts in the table below for the periods ended September 30, which LKE management believes are reasonable, including amounts that are further distributed between capital and expense:
| | Three Months | | Nine Months |
| | 2013 | | 2012 | | 2013 | | 2012 |
| | | | | | | | | | | | |
LG&E | | $ | 53 | | $ | 51 | | $ | 159 | | $ | 132 |
KU | | | 36 | | | 33 | | | 146 | | | 114 |
In addition, LG&E and KUalso provide services to each other and to LKS. Billings between LG&E and KU relate to labor and overheads associated with union and hourly employees performing work for the other company, charges related to jointly-owned generating units and other miscellaneous charges. Tax settlements between LKE and LG&E and LKE and KU are reimbursed through LKS.
Intercompany Borrowings(LKE)(PPL Electric and LKE)
A PPL Electric subsidiary periodically holds revolving demand notes from certain affiliates. At June 30, 2014, there was no balance outstanding. At December 31, 2013, $150 million was outstanding and was reflected in "Notes receivable from affiliate" on the Balance Sheet. The interest rates on borrowings are equal to one-month LIBOR plus a spread. The interest rate on the outstanding borrowing at December 31, 2013, was 1.92%. Interest earned on these revolving facilities was not significant for the three and six months ended June 30, 2014 and 2013.
LKE maintains a $300$225 million revolving demand noteline of credit with a PPL Energy Funding subsidiary whereby LKE can borrow funds on a short-term basis at market-based rates. The interest ratesrate on borrowings areis equal to one-month LIBOR plus a spread. At SeptemberThere were no balances outstanding at June 30, 20132014 and December 31, 2012, $522013.
LKE maintains an agreement with a PPL affiliate that has a $300 million borrowing limit whereby LKE can loan funds on a short-term basis at market-based rates. At June 30, 2014 and December 31, 2013, $16 million and $25$70 million were outstanding and were reflected in "Notes payable withreceivable from affiliates" on the Balance Sheet.Sheets. The interest rate on the loan based on the PPL affiliate's credit rating is currently equal to one-month LIBOR plus a spread. The interest rates on the outstanding borrowing at SeptemberJune 30, 2014 and December 31, 2013 was 1.68%were 2.15% and 2.17%. Interest income on the demandthis note was not significant for the three and ninesix months ended SeptemberJune 30, 20132014 and 2012. In October 2013, the capacity of the revolving demand note was reduced by $75 million.
Intercompany Derivatives (Kentucky Registrants)
Periodically, LG&E and KU enter into forward-starting interest rate swaps with PPL. These hedging instruments have terms identical to forward-starting swaps entered into by PPL with third parties. See Note 14 for additional information on intercompany derivatives.
Intercompany Insurance (PPL Electric)
In May 2013, PPL Electric received $18.25 million from the settlement of its 2012 storm insurance claims with PPL Power Insurance Ltd., a subsidiary of PPL that provides certain insurance coverage to PPL and its subsidiaries.
Effective January 1, 2013, PPL Electric no longer has storm insurance coverage with PPL Power Insurance Ltd. See Note 6 for discussion regarding the proposed Storm Damage Expense Rider filed with the PUC by PPL Electric.2013.
Other (All Registrants except PPL)PPL and LKE)
See Note 7 for a discussion regarding capital transactions by PPL Energy Supply, PPL Electric, LKE, LG&E and KU. For PPL Energy Supply, PPL Electric, LG&E and KU, refer to Note 9 for discussions regarding intercompany allocations associated with defined benefits.
12. Other Income (Expense) - net
(All Registrants)
The breakdowncomponents of "Other Income (Expense) - net" for the periods ended SeptemberJune 30 was:
| | | | Three Months | | Nine Months |
| | | | 2013 | | 2012 | | 2013 | | 2012 |
PPL | | | | | | | | | | | | |
Other Income | | | | | | | | | | | | |
| Earnings on securities in NDT funds | | $ | 4 | | $ | 5 | | $ | 14 | | $ | 17 |
| Interest income | | | 1 | | | 1 | | | 2 | | | 4 |
| AFUDC - equity component | | | 3 | | | 2 | | | 8 | | | 7 |
| Earnings (losses) from equity method investments | | | | | | (1) | | | | | | (7) |
| Miscellaneous - Domestic | | | | | | 3 | | | 9 | | | 8 |
| Miscellaneous - U.K. | | | | | | (1) | | | 1 | | | 1 |
| Total Other Income | | | 8 | | | 9 | | | 34 | | | 30 |
Other Expense | | | | | | | | | | | | |
| Economic foreign currency exchange contracts (Note 14) | | | 117 | | | 47 | | | (6) | | | 40 |
| Charitable contributions | | | 5 | | | 1 | | | 13 | | | 7 |
| Miscellaneous - Domestic | | | 2 | | | 4 | | | 7 | | | 12 |
| Miscellaneous - U.K. | | | | | | 1 | | | 1 | | | 2 |
| Total Other Expense | | | 124 | | | 53 | | | 15 | | | 61 |
Other Income (Expense) - net | | $ | (116) | | $ | (44) | | $ | 19 | | $ | (31) |
PPL Energy Supply | | | | | | | | | | | | | |
| | | | | Three Months | | Six Months |
| | | | | 2014 | | 2013 | | 2014 | | 2013 |
PPL | | PPL | | | | | | | | | | | | |
Other Income | Other Income | | | | | | | | | Other Income | | | | | | | | |
| | Earnings on securities in NDT funds | | $ | 6 | | $ | 5 | | $ | 12 | | $ | 10 |
| | Interest income | | 3 | | | | 4 | | 1 |
| Earnings on securities in NDT funds | | $ | 4 | | $ | 5 | | $ | 14 | | $ | 17 | AFUDC - equity component | | 2 | | 2 | | 5 | | 5 |
| Interest income | | 1 | | | | 3 | | 1 | Miscellaneous - Domestic | | 2 | | 7 | | 4 | | 9 |
| Miscellaneous | | | | | | 2 | | | 7 | | | 5 | Miscellaneous - U.K. | | | | | | | | | | | | 1 |
| Total Other Income | | | 5 | | | 7 | | | 24 | | | 23 | Total Other Income | | | 13 | | | 14 | | | 25 | | | 26 |
Other Expense | Other Expense | | | | | | | | | Other Expense | | | | | | | | |
| Charitable contributions | | 1 | | 1 | | 3 | | 2 | Economic foreign currency exchange contracts (Note 14) | | 72 | | (4) | | 96 | | (123) |
| Miscellaneous | | | 2 | | | 1 | | | 3 | | | 5 | Charitable contributions | | 2 | | 4 | | 9 | | 8 |
| Total Other Expense | | | 3 | | | 2 | | | 6 | | | 7 | Spinoff of PPL Energy Supply transaction costs (Note 8) | | 16 | | | | 16 | | |
| | Miscellaneous - Domestic | | 5 | | 1 | | 8 | | 5 |
| | Miscellaneous - U.K. | | | | | | | | | 1 | | | 1 |
| | Total Other Expense | | | 95 | | | 1 | | | 130 | | | (109) |
Other Income (Expense) - net | Other Income (Expense) - net | | $ | 2 | | $ | 5 | | $ | 18 | | $ | 16 | Other Income (Expense) - net | | $ | (82) | | $ | 13 | | $ | (105) | | $ | 135 |
"Other Income (Expense) - net" for the three and ninesix months ended SeptemberJune 30, 20132014 and 20122013 for PPL ElectricEnergy Supply is primarily the equity component of AFUDC.earnings on securities in NDT funds. The components of "Other Income (Expense) - net" for the three and ninesix months ended SeptemberJune 30, 2014 and 2013 for PPL Electric, LKE, LG&E and KU are not significant. The components of "Other Income (Expense) - net" for the three months ended September 30, 2012 for LKE, LG&E and KU are not significant. "Other Income (Expense) - net" for the nine months ended September 30, 2012 for LKE and KU is primarily losses from an equity method investment. The components of "Other Income (Expense) - net" for the nine months ended September 30, 2012 for LG&E are not significant.
13. Fair Value Measurements and Credit Concentration
(All Registrants)
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). A market approach (generally, data from market transactions), an income approach (generally, present value techniques and option-pricing models), and/or a cost approach (generally, replacement cost) are used to measure the fair value of an asset or liability, as appropriate. These valuation approaches incorporate inputs such as observable, independent market data and/or unobservable data that management believes are predicated on the assumptions market participants would use to price an asset or liability. These inputs may incorporate, as applicable, certain risks such as nonperformance risk, which includes credit risk. The fair value of a group of financial assets and liabilities is measured on a net basis. Transfers between levels are recognized at end-of-reporting-period values. During the three and ninesix months ended SeptemberJune 30, 20132014 and 2012,2013, there were no transfers between Level 1 and Level 2. See Note 1 in each Registrant's 20122013 Form 10-K for information on the levels in the fair value hierarchy.
Recurring Fair Value Measurements
The assets and liabilities measured at fair value were:
| | | | | September 30, 2013 | | December 31, 2012 |
| | | | | Total | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 |
PPL | | | | | | | | | | | | | | | | | | | | | | | | |
Assets | | | | | | | | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | 1,291 | | $ | 1,291 | | | | | | | | $ | 901 | | $ | 901 | | | | | | |
| Restricted cash and cash equivalents (a) | | | 120 | | | 120 | | | | | | | | | 135 | | | 135 | | | | | | |
| Price risk management assets: | | | | | | | | | | | | | | | | | | | | | | | | |
| | Energy commodities | | | 1,480 | | | 7 | | $ | 1,421 | | $ | 52 | | | 2,068 | | | 2 | | $ | 2,037 | | $ | 29 |
| | Interest rate swaps | | | 86 | | | | | | 86 | | | | | | 15 | | | | | | 15 | | | |
| | Foreign currency contracts | | | 1 | | | | | | 1 | | | | | | | | | | | | | | | |
| | Cross-currency swaps | | | 28 | | | | | | 28 | | | | | | 14 | | | | | | 13 | | | 1 |
| Total price risk management assets | | | 1,595 | | | 7 | | | 1,536 | | | 52 | | | 2,097 | | | 2 | | | 2,065 | | | 30 |
| NDT funds: | | | | | | | | | | | | | | | | | | | | | | | | |
| | Cash and cash equivalents | | | 14 | | | 14 | | | | | | | | | 11 | | | 11 | | | | | | |
| | Equity securities | | | | | | | | | | | | | | | | | | | | | | | | |
| | | U.S. large-cap | | | 494 | | | 369 | | | 125 | | | | | | 412 | | | 308 | | | 104 | | | |
| | | U.S. mid/small-cap | | | 74 | | | 30 | | | 44 | | | | | | 60 | | | 25 | | | 35 | | | |
| | Debt securities | | | | | | | | | | | | | | | | | | | | | | | | |
| | | U.S. Treasury | | | 96 | | | 96 | | | | | | | | | 95 | | | 95 | | | | | | |
| | | U.S. government sponsored agency | | | 6 | | | | | | 6 | | | | | | 9 | | | | | | 9 | | | |
| | | Municipality | | | 75 | | | | | | 75 | | | | | | 82 | | | | | | 82 | | | |
| | | Investment-grade corporate | | | 40 | | | | | | 40 | | | | | | 40 | | | | | | 40 | | | |
| | | Other | | | 3 | | | | | | 3 | | | | | | 3 | | | | | | 3 | | | |
| | Receivables (payables), net | | | 2 | | | | | | 2 | | | | | | | | | (2) | | | 2 | | | |
| Total NDT funds | | | 804 | | | 509 | | | 295 | | | | | | 712 | | | 437 | | | 275 | | | |
| Auction rate securities (b) | | | 19 | | | | | | | | | 19 | | | 19 | | | | | | 3 | | | 16 |
Total assets | | $ | 3,829 | | $ | 1,927 | | $ | 1,831 | | $ | 71 | | $ | 3,864 | | $ | 1,475 | | $ | 2,343 | | $ | 46 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Liabilities | | | | | | | | | | | | | | | | | | | | | | | | |
| Price risk management liabilities: | | | | | | | | | | | | | | | | | | | | | | | | |
| | Energy commodities | | $ | 1,235 | | $ | 4 | | $ | 1,226 | | $ | 5 | | $ | 1,566 | | $ | 2 | | $ | 1,557 | | $ | 7 |
| | Interest rate swaps | | | 58 | | | | | | 58 | | | | | | 80 | | | | | | 80 | | | |
| | Foreign currency contracts | | | 67 | | | | | | 67 | | | | | | 44 | | | | | | 44 | | | |
| | Cross-currency swaps | | | 1 | | | | | | 1 | | | | | | 4 | | | | | | 4 | | | |
| Total price risk management liabilities | | $ | 1,361 | | $ | 4 | | $ | 1,352 | | $ | 5 | | $ | 1,694 | | $ | 2 | | $ | 1,685 | | $ | 7 |
| | | | | June 30, 2014 | | December 31, 2013 |
| | | | | Total | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 |
PPL | | | | | | | | | | | | | | | | | | | | | | | | |
Assets | | | | | | | | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | 1,269 | | $ | 1,269 | | | | | | | | $ | 1,102 | | $ | 1,102 | | | | | | |
| Restricted cash and cash equivalents (a) | | | 408 | | | 408 | | | | | | | | | 156 | | | 156 | | | | | | |
| Price risk management assets: | | | | | | | | | | | | | | | | | | | | | | | | |
| | Energy commodities | | | 1,374 | | | 2 | | $ | 1,206 | | $ | 166 | | | 1,188 | | | 3 | | $ | 1,123 | | $ | 62 |
| | Interest rate swaps | | | 1 | | | | | | 1 | | | | | | 91 | | | | | | 91 | | | |
| | Foreign currency contracts | | | 2 | | | | | | 2 | | | | | | | | | | | | | | | |
| Total price risk management assets | | | 1,377 | | | 2 | | | 1,209 | | | 166 | | | 1,279 | | | 3 | | | 1,214 | | | 62 |
| NDT funds: | | | | | | | | | | | | | | | | | | | | | | | | |
| | Cash and cash equivalents | | | 16 | | | 16 | | | | | | | | | 14 | | | 14 | | | | | | |
| | Equity securities | | | | | | | | | | | | | | | | | | | | | | | | |
| | | U.S. large-cap | | | 580 | | | 432 | | | 148 | | | | | | 547 | | | 409 | | | 138 | | | |
| | | U.S. mid/small-cap | | | 85 | | | 35 | | | 50 | | | | | | 81 | | | 33 | | | 48 | | | |
| | Debt securities | | | | | | | | | | | | | | | | | | | | | | | | |
| | | U.S. Treasury | | | 97 | | | 97 | | | | | | | | | 95 | | | 95 | | | | | | |
| | | U.S. government sponsored agency | | | 6 | | | | | | 6 | | | | | | 6 | | | | | | 6 | | | |
| | | Municipality | | | 78 | | | | | | 78 | | | | | | 77 | | | | | | 77 | | | |
| | | Investment-grade corporate | | | 41 | | | | | | 41 | | | | | | 38 | | | | | | 38 | | | |
| | | Other | | | 6 | | | | | | 6 | | | | | | 5 | | | | | | 5 | | | |
| | Receivables (payables), net | | | 2 | | | | | | 2 | | | | | | 1 | | | (1) | | | 2 | | | |
| Total NDT funds | | | 911 | | | 580 | | | 331 | | | | | | 864 | | | 550 | | | 314 | | | |
| Auction rate securities (b) | | | 16 | | | | | | | | | 16 | | | 19 | | | | | | | | | 19 |
Total assets | | $ | 3,981 | | $ | 2,259 | | $ | 1,540 | | $ | 182 | | $ | 3,420 | | $ | 1,811 | | $ | 1,528 | | $ | 81 |
| | | | | June 30, 2014 | | December 31, 2013 |
| | | | | Total | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 |
Liabilities | | Liabilities | | | | | | | | | | | | | | | | | |
| | Price risk management liabilities: | | | | | | | | | | | | | | | | | |
| | | Energy commodities | | $ | 1,480 | | $ | 2 | | $ | 1,386 | | $ | 92 | | $ | 1,070 | | $ | 4 | | $ | 1,028 | | $ | 38 |
| | | Interest rate swaps | | | 54 | | | | 54 | | | | 36 | | | | 36 | | |
| | | Foreign currency contracts | | | 176 | | | | 176 | | | | 106 | | | | 106 | | |
| | | Cross-currency swaps | | | 47 | | | | | | 47 | | | | | | 32 | | | | | | 32 | | | |
| | | | September 30, 2013 | | December 31, 2012 | Total price risk management liabilities | | $ | 1,757 | | $ | 2 | | $ | 1,663 | | $ | 92 | | $ | 1,244 | | $ | 4 | | $ | 1,202 | | $ | 38 |
| | | | Total | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | | | | | | | | | | | | | | | | | |
PPL Energy Supply | PPL Energy Supply | | | | | | | | | | | | | | | | | | PPL Energy Supply | | | | | | | | | | | | | | | | | |
Assets | Assets | | | | | | | | | | | | | | | | | | Assets | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | 551 | | $ | 551 | | | | | | | | $ | 413 | | $ | 413 | | | | | | | Cash and cash equivalents | | $ | 264 | | $ | 264 | | | | | | | | $ | 239 | | $ | 239 | | | | | | |
| Restricted cash and cash equivalents (a) | | | 54 | | | 54 | | | | | | | | | 63 | | | 63 | | | | | | | Restricted cash and cash equivalents (a) | | | 343 | | | 343 | | | | | | | | | 85 | | | 85 | | | | | | |
| Price risk management assets: | | | | | | | | | | | | | | | | | | Price risk management assets: | | | | | | | | | | | | | | | | | |
| | Energy commodities | | | 1,480 | | | 7 | | $ | 1,421 | | $ | 52 | | | 2,068 | | | 2 | | $ | 2,037 | | $ | 29 | | Energy commodities | | | 1,374 | | 2 | | $ | 1,206 | | $ | 166 | | 1,188 | | 3 | | $ | 1,123 | | $ | 62 |
| Total price risk management assets | | | 1,480 | | | 7 | | | 1,421 | | | 52 | | | 2,068 | | | 2 | | | 2,037 | | | 29 | Total price risk management assets | | | 1,374 | | | 2 | | | 1,206 | | | 166 | | | 1,188 | | | 3 | | | 1,123 | | | 62 |
| NDT funds: | | | | | | | | | | | | | | | | | | NDT funds: | | | | | | | | | | | | | | | | | |
| | Cash and cash equivalents | | | 14 | | 14 | | | | | | 11 | | 11 | | | | | | Cash and cash equivalents | | | 16 | | 16 | | | | | | 14 | | 14 | | | | |
| | Equity securities | | | | | | | | | | | | | | | | | | | Equity securities | | | | | | | | | | | | | | | | | |
| | U.S. large-cap | | | 494 | | 369 | | 125 | | | | 412 | | 308 | | 104 | | | | U.S. large-cap | | | 580 | | 432 | | 148 | | | | 547 | | 409 | | 138 | | |
| | U.S. mid/small-cap | | | 74 | | 30 | | 44 | | | | 60 | | 25 | | 35 | | | | U.S. mid/small-cap | | | 85 | | 35 | | 50 | | | | 81 | | 33 | | 48 | | |
| | Debt securities | | | | | | | | | | | | | | | | | | | Debt securities | | | | | | | | | | | | | | | | | |
| | U.S. Treasury | | | 96 | | 96 | | | | | | 95 | | 95 | | | | | | U.S. Treasury | | | 97 | | 97 | | | | | | 95 | | 95 | | | | |
| | U.S. government sponsored agency | | | 6 | | | | 6 | | | | 9 | | | | 9 | | | | U.S. government sponsored agency | | | 6 | | | | 6 | | | | 6 | | | | 6 | | |
| | Municipality | | | 75 | | | | 75 | | | | 82 | | | | 82 | | | | Municipality | | | 78 | | | | 78 | | | | 77 | | | | 77 | | |
| | Investment-grade corporate | | | 40 | | | | 40 | | | | 40 | | | | 40 | | | | Investment-grade corporate | | | 41 | | | | 41 | | | | 38 | | | | 38 | | |
| | Other | | | 3 | | | | 3 | | | | 3 | | | | 3 | | | | Other | | | 6 | | | | 6 | | | | 5 | | | | 5 | | |
| | Receivables (payables), net | | | 2 | | | | | | 2 | | | | | | | | | (2) | | | 2 | | | | | Receivables (payables), net | | | 2 | | | | | | 2 | | | | | | 1 | | | (1) | | | 2 | | | |
| Total NDT funds | | | 804 | | | 509 | | | 295 | | | | | | 712 | | | 437 | | | 275 | | | | Total NDT funds | | | 911 | | | 580 | | | 331 | | | | | | 864 | | | 550 | | | 314 | | | |
| Auction rate securities (b) | | | 16 | | | | | | | | | 16 | | | 16 | | | | | | 3 | | | 13 | Auction rate securities (b) | | | 13 | | | | | | | | | 13 | | | 16 | | | | | | | | | 16 |
Total assets | Total assets | | $ | 2,905 | | $ | 1,121 | | $ | 1,716 | | $ | 68 | | $ | 3,272 | | $ | 915 | | $ | 2,315 | | $ | 42 | Total assets | | $ | 2,905 | | $ | 1,189 | | $ | 1,537 | | $ | 179 | | $ | 2,392 | | $ | 877 | | $ | 1,437 | | $ | 78 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Liabilities | Liabilities | | | | | | | | | | | | | | | | | | Liabilities | | | | | | | | | | | | | | | | | |
| Price risk management liabilities: | | | | | | | | | | | | | | | | | | Price risk management liabilities: | | | | | | | | | | | | | | | | | |
| | Energy commodities | | $ | 1,235 | | $ | 4 | | $ | 1,226 | | $ | 5 | | $ | 1,566 | | $ | 2 | | $ | 1,557 | | $ | 7 | | Energy commodities | | $ | 1,480 | | $ | 2 | | $ | 1,386 | | $ | 92 | | $ | 1,070 | | $ | 4 | | $ | 1,028 | | $ | 38 |
| Total price risk management liabilities | | $ | 1,235 | | $ | 4 | | $ | 1,226 | | $ | 5 | | $ | 1,566 | | $ | 2 | | $ | 1,557 | | $ | 7 | Total price risk management liabilities | | $ | 1,480 | | $ | 2 | | $ | 1,386 | | $ | 92 | | $ | 1,070 | | $ | 4 | | $ | 1,028 | | $ | 38 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
PPL Electric | PPL Electric | | | | | | | | | | | | | | | | | | PPL Electric | | | | | | | | | | | | | | | | | |
Assets | Assets | | | | | | | | | | | | | | | | | | Assets | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | 225 | | $ | 225 | | | | | | $ | 140 | | $ | 140 | | | | | Cash and cash equivalents | | $ | 149 | | $ | 149 | | | | | | $ | 25 | | $ | 25 | | | | |
| Restricted cash and cash equivalents (c) | | | 12 | | | 12 | | | | | | | | | 13 | | | 13 | | | | | | | Restricted cash and cash equivalents (c) | | | 3 | | | 3 | | | | | | | | | 12 | | | 12 | | | | | | |
Total assets | Total assets | | $ | 237 | | $ | 237 | | | | | | | | $ | 153 | | $ | 153 | | | | | | | Total assets | | $ | 152 | | $ | 152 | | | | | | | | $ | 37 | | $ | 37 | | | | | | |
LKE | LKE | | | | | | | | | | | | | | | | | | LKE | | | | | | | | | | | | | | | | | |
Assets | Assets | | | | | | | | | | | | | | | | | | Assets | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | 21 | | $ | 21 | | | | | | $ | 43 | | $ | 43 | | | | | |
| Restricted cash and cash equivalents (d) | | | 22 | | 22 | | | | | | 32 | | 32 | | | | | |
| Price risk management assets: | | | | | | | | | | | | | | | | | | |
| | Interest rate swaps | | | | | | | | | | | | | | | 14 | | | | | $ | 14 | | | | Cash and cash equivalents | | $ | 23 | | $ | 23 | | | | | | $ | 35 | | $ | 35 | | | | |
| Total price risk management assets | | | | | | | | | | | | | | | 14 | | | | | | 14 | | | | Restricted cash and cash equivalents (d) | | | 21 | | | 21 | | | | | | | | | 22 | | | 22 | | | | | | |
Total assets | Total assets | | $ | 43 | | $ | 43 | | | | | | | | $ | 89 | | $ | 75 | | $ | 14 | | | | Total assets | | $ | 44 | | $ | 44 | | | | | | | | $ | 57 | | $ | 57 | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Liabilities | Liabilities | | | | | | | | | | | | | | | | | | Liabilities | | | | | | | | | | | | | | | | | |
| Price risk management liabilities: | | | | | | | | | | | | | | | | | | Price risk management liabilities: | | | | | | | | | | | | | | | | | |
| | Interest rate swaps | | $ | 55 | | | | | $ | 55 | | | | | $ | 58 | | | | | $ | 58 | | | | | Interest rate swaps | | $ | 42 | | | | | $ | 42 | | | | | $ | 36 | | | | | $ | 36 | | | |
Total price risk management liabilities | Total price risk management liabilities | | $ | 55 | | | | | $ | 55 | | | | | $ | 58 | | | | | $ | 58 | | | | Total price risk management liabilities | | $ | 42 | | | | | $ | 42 | | | | | $ | 36 | | | | | $ | 36 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
LG&E | LG&E | | | | | | | | | | | | | | | | | | LG&E | | | | | | | | | | | | | | | | | |
Assets | Assets | | | | | | | | | | | | | | | | | | Assets | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | 12 | | $ | 12 | | | | | | $ | 22 | | $ | 22 | | | | | Cash and cash equivalents | | $ | 5 | | $ | 5 | | | | | | $ | 8 | | $ | 8 | | | | |
| Restricted cash and cash equivalents (d) | | | 22 | | 22 | | | | | | 32 | | 32 | | | | | Restricted cash and cash equivalents (d) | | | 21 | | | 21 | | | | | | | | | 22 | | | 22 | | | | | | |
| Price risk management assets: | | | | | | | | | | | | | | | | | | |
| | Interest rate swaps | | | | | | | | | | | | | | | 7 | | | | | $ | 7 | | | | |
| Total price risk management assets | | | | | | | | | | | | | | | 7 | | | | | | 7 | | | | |
Total assets | Total assets | | $ | 34 | | $ | 34 | | | | | | | | $ | 61 | | $ | 54 | | $ | 7 | | | | Total assets | | $ | 26 | | $ | 26 | | | | | | | | $ | 30 | | $ | 30 | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Liabilities | Liabilities | | | | | | | | | | | | | | | | | | Liabilities | | | | | | | | | | | | | | | | | |
| Price risk management liabilities: | | | | | | | | | | | | | | | | | | Price risk management liabilities: | | | | | | | | | | | | | | | | | |
| | Interest rate swaps | | $ | 48 | | | | | $ | 48 | | | | | $ | 58 | | | | | $ | 58 | | | | | Interest rate swaps | | $ | 42 | | | | | $ | 42 | | | | | $ | 36 | | | | | $ | 36 | | | |
Total price risk management liabilities | Total price risk management liabilities | | $ | 48 | | | | | $ | 48 | | | | | $ | 58 | | | | | $ | 58 | | | | Total price risk management liabilities | | $ | 42 | | | | | $ | 42 | | | | | $ | 36 | | | | | $ | 36 | | | |
| | | | | | | | | | | | | | | | | | | | |
KU | | KU | | | | | | | | | | | | | | | | | |
Assets | | Assets | | | | | | | | | | | | | | | | | |
| | Cash and cash equivalents | | $ | 18 | | $ | 18 | | | | | | | | $ | 21 | | $ | 21 | | | | | | |
Total assets | | Total assets | | $ | 18 | | $ | 18 | | | | | | | | $ | 21 | | $ | 21 | | | | | | |
| | | | | September 30, 2013 | | December 31, 2012 |
| | | | | Total | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 |
KU | | | | | | | | | | | | | | | | | | | | | | | | |
Assets | | | | | | | | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | 9 | | $ | 9 | | | | | | | | $ | 21 | | $ | 21 | | | | | | |
| Price risk management assets: | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Interest rate swaps | | | | | | | | | | | | | | | 7 | | | | | $ | 7 | | | |
| Total price risk management assets | | | | | | | | | | | | | | | 7 | | | | | | 7 | | | |
Total assets | | $ | 9 | | $ | 9 | | | | | | | | $ | 28 | | $ | 21 | | $ | 7 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Liabilities | | | | | | | | | | | | | | | | | | | | | | | | |
| Price risk management liabilities: | | | | | | | | | | | | | | | | | | | | | | | | |
| | Interest rate swaps | | $ | 7 | | | | | $ | 7 | | | | | | | | | | | | | | | |
Total price risk management liabilities | | $ | 7 | | | | | $ | 7 | | | | | | | | | | | | | | | |
(a) | Current portion is included in "Restricted cash and cash equivalents" and the long-term portion is included in "Other noncurrent assets" on the Balance Sheets. |
(b) | Included in "Other investments" on the Balance Sheets. |
(c) | Current portion is included in "Other current assets" and the long-term portion is included in "Other noncurrent assets" on the Balance Sheets. |
(d) | Included in "Other noncurrent assets" on the Balance Sheets. |
A reconciliation of net assets and liabilities classified as Level 3 for the periods ended September 30, 2013 is as follows: | |
A reconciliation of net assets and liabilities classified as Level 3 for the periods ended June 30, 2014 is as follows: | | A reconciliation of net assets and liabilities classified as Level 3 for the periods ended June 30, 2014 is as follows: |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Fair Value Measurements Using Significant Unobservable Inputs (Level 3) | | | | Fair Value Measurements Using Significant Unobservable Inputs (Level 3) |
| | | | Three Months | | Nine Months | | | | Three Months | | Six 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 | | $ | 17 | | $ | 16 | | | | $ | 33 | | $ | 24 | | $ | 19 | | | | $ | 43 |
| | Total realized/unrealized | | | | | | | | | | | | | | | | | | | Total realized/unrealized | | | | | | | | | | | | | | | | | |
| | gains (losses) | | | | | | | | | | | | | | | | | | | gains (losses) | | | | | | | | | | | | | | | | | |
| | Included in earnings | | | 18 | | | | | | 18 | | 23 | | | | | | 23 | | Included in earnings | | | 72 | | | | | | 72 | | (63) | | | | | | (63) |
| | Included in OCI (a) | | | | | | | (2) | | (2) | | | | | | 1 | | 1 | | Included in OCI (a) | | | | | | | | | | | | | | | $ | (1) | | (1) |
| | Sales | | | | | | | | | | | (2) | | | | | | (2) | | Purchases | | | (6) | | | | | | (6) | | (6) | | | | | | (6) |
| | Settlements | | | (2) | | | | | | (2) | | 1 | | | | | | 1 | | Sales | | | | | | | | | | | | | (3) | | | | (3) |
| | Transfers into Level 3 | | | (7) | | | | | | | (7) | | 1 | | 3 | | 3 | | 7 | | Settlements | | | (9) | | | | | | (9) | | 119 | | | | | | 119 |
| | Transfers out of Level 3 | | | (2) | | | | | | (1) | | | (3) | | | 2 | | | | | | (5) | | | (3) | | Transfers out of Level 3 | | | | | | | | | | | | | | | | | | | | | 1 | | | 1 |
Balance at end of period | Balance at end of period | | $ | 47 | | $ | 19 | | $ | | | $ | 66 | | $ | 47 | | $ | 19 | | $ | | | $ | 66 | Balance at end of period | | $ | 74 | | $ | 16 | | | | | $ | 90 | | $ | 74 | | $ | 16 | | $ | | | $ | 90 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
PPL Energy Supply | PPL Energy Supply | | | | | | | | | | | | | | | | | | PPL Energy Supply | | | | | | | | | | | | | | | | | |
Balance at beginning of | Balance at beginning of | | | | | | | | | | | | | | | | | | Balance at beginning of | | | | | | | | | | | | | | | | | |
| period | | $ | 40 | | $ | 16 | | | | $ | 56 | | $ | 22 | | $ | 13 | | | | $ | 35 | period | | $ | 17 | | $ | 13 | | | | $ | 30 | | $ | 24 | | $ | 16 | | | | $ | 40 |
| | Total realized/unrealized | | | | | | | | | | | | | | | | | | | Total realized/unrealized | | | | | | | | | | | | | | | | | |
| | gains (losses) | | | | | | | | | | | | | | | | | | | gains (losses) | | | | | | | | | | | | | | | | | |
| | Included in earnings | | | 18 | | | | | | 18 | | 23 | | | | | | 23 | | Included in earnings | | | 72 | | | | | | 72 | | (63) | | | | | | (63) |
| | Sales | | | | | | | | | | | (2) | | | | | | (2) | | Purchases | | | (6) | | | | | | (6) | | (6) | | | | | | (6) |
| | Settlements | | | (2) | | | | | | (2) | | 1 | | | | | | 1 | | Sales | | | | | | | | | | | | | (3) | | | | (3) |
| | Transfers into Level 3 | | | (7) | | | | | | (7) | | 1 | | 3 | | | | 4 | | Settlements | | | (9) | | | | | | | | (9) | | | 119 | | | | | | | | 119 |
| | Transfers out of Level 3 | | | (2) | | | | | | | | | (2) | | | 2 | | | | | | | | | 2 | |
Balance at end of period | Balance at end of period | | $ | 47 | | $ | 16 | | | | | $ | 63 | | $ | 47 | | $ | 16 | | | | | $ | 63 | Balance at end of period | | $ | 74 | | $ | 13 | | | | $ | 87 | | $ | 74 | | $ | 13 | | | | $ | 87 |
(a) | "Energy Commodities, net" and "Cross-Currency Swaps" are included in "Qualifying derivatives" and "Auction Rate Securities" are included in "Available-for-sale securities" on the Statements of Comprehensive Income. |
A reconciliation of net assets and liabilities classified as Level 3 for the periods ended September 30, 2012 is as follows: |
A reconciliation of net assets and liabilities classified as Level 3 for the periods ended June 30, 2013 is as follows: |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Fair Value Measurements Using Significant Unobservable Inputs (Level 3) |
| | | | | | Three Months | | Six Months |
| | | | | | Energy | | Auction | | Cross- | | | | | Energy | | Auction | | Cross- | | | |
| | | | | | Commodities, | | Rate | | Currency | | | | | Commodities, | | Rate | | Currency | | | |
| | | | | | net | | Securities | | Swaps | | Total | | net | | Securities | | Swaps | | Total |
PPL | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at beginning of | | | | | | | | | | | | | | | | | | | | | | | | |
| period | | $ | 14 | | $ | 16 | | | | | $ | 30 | | $ | 22 | | $ | 16 | | $ | 1 | | $ | 39 |
| | Total realized/unrealized | | | | | | | | | | | | | | | | | | | | | | | | |
| | | gains (losses) | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Included in earnings | | | 14 | | | | | | | | | 14 | | | 6 | | | | | | | | | 6 |
| | | | Included in OCI (a) | | | | | | | | | | | | | | | | | | | | | 3 | | | 3 |
| | Sales | | | (2) | | | | | | | | | (2) | | | (2) | | | | | | | | | (2) |
| | Settlements | | | 4 | | | | | | | | | 4 | | | 3 | | | | | | | | | 3 |
| | Transfers into Level 3 | | | 6 | | | 3 | | $ | 3 | | | 12 | | | 7 | | | 3 | | | 3 | | | 13 |
| | Transfers out of Level 3 | | | 4 | | | | | | | | | 4 | | | 4 | | | | | | (4) | | | |
Balance at end of period | | $ | 40 | | $ | 19 | | $ | 3 | | $ | 62 | | $ | 40 | | $ | 19 | | $ | 3 | | $ | 62 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
PPL Energy Supply | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at beginning of | | | | | | | | | | | | | | | | | | | | | | | | |
| period | | $ | 14 | | $ | 13 | | | | | $ | 27 | | $ | 22 | | $ | 13 | | | | | $ | 35 |
| | Total realized/unrealized | | | | | | | | | | | | | | | | | | | | | | | | |
| | | gains (losses) | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Included in earnings | | | 14 | | | | | | | | | 14 | | | 6 | | | | | | | | | 6 |
| | Sales | | | (2) | | | | | | | | | (2) | | | (2) | | | | | | | | | (2) |
| | Settlements | | | 4 | | | | | | | | | 4 | | | 3 | | | | | | | | | 3 |
| | Transfers into Level 3 | | | 6 | | | 3 | | | | | | 9 | | | 7 | | | 3 | | | | | | 10 |
| | Transfers out of Level 3 | | | 4 | | | | | | | | | 4 | | | 4 | | | | | | | | | 4 |
Balance at end of period | | $ | 40 | | $ | 16 | | | | | $ | 56 | | $ | 40 | | $ | 16 | | | | | $ | 56 |
| | | | | | Fair Value Measurements Using Significant Unobservable Inputs (Level 3) |
| | | | | | Three Months | | Nine Months |
| | | | | | Energy | | Auction | | Cross- | | | | | Energy | | Auction | | Cross- | | | |
| | | | | | Commodities, | | Rate | | Currency | | | | | Commodities, | | Rate | | Currency | | | |
| | | | | | net | | Securities | | Swaps | | Total | | net | | Securities | | Swaps | | Total |
PPL | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at beginning of | | | | | | | | | | | | | | | | | | | | | | | | |
| period | | $ | 34 | | $ | 15 | | $ | 10 | | $ | 59 | | $ | 13 | | $ | 24 | | $ | 4 | | $ | 41 |
| | Total realized/unrealized | | | | | | | | | | | | | | | | | | | | | | | | |
| | | gains (losses) | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Included in earnings | | | (17) | | | | | | | | | (17) | | | (1) | | | | | | (1) | | | (2) |
| | | | Included in OCI (a) | | | | | | 1 | | | (8) | | | (7) | | | 1 | | | | | | 2 | | | 3 |
| | Sales | | | | | | | | | | | | | | | | | | (5) | | | | | | (5) |
| | Settlements | | | 2 | | | | | | | | | 2 | | | (9) | | | | | | | | | (9) |
| | Transfers into Level 3 | | | (2) | | | | | | | | | (2) | | | 12 | | | | | | | | | 12 |
| | Transfers out of Level 3 | | | 8 | | | | | | | | | 8 | | | 9 | | | (3) | | | (3) | | | 3 |
Balance at end of period | | $ | 25 | | $ | 16 | | $ | 2 | | $ | 43 | | $ | 25 | | $ | 16 | | $ | 2 | | $ | 43 |
PPL Energy Supply | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at beginning of | | | | | | | | | | | | | | | | | | | | | | | | |
| period | | $ | 34 | | $ | 12 | | | | | $ | 46 | | $ | 13 | | $ | 19 | | | | | $ | 32 |
| | Total realized/unrealized | | | | | | | | | | | | | | | | | | | | | | | | |
| | | gains (losses) | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Included in earnings | | | (17) | | | | | | | | | (17) | | | (1) | | | | | | | | | (1) |
| | | | Included in OCI (a) | | | | | | 1 | | | | | | 1 | | | 1 | | | | | | | | | 1 |
| | Sales | | | | | | | | | | | | | | | | | | (3) | | | | | | (3) |
| | Settlements | | | 2 | | | | | | | | | 2 | | | (9) | | | | | | | | | (9) |
| | Transfers into Level 3 | | | (2) | | | | | | | | | (2) | | | 12 | | | | | | | | | 12 |
| | Transfers out of Level 3 | | | 8 | | | | | | | | | 8 | | | 9 | | | (3) | | | | | | 6 |
Balance at end of period | | $ | 25 | | $ | 13 | | | | | $ | 38 | | $ | 25 | | $ | 13 | | | | | $ | 38 |
(a) | "Energy Commodities, net" and "Cross-Currency Swaps" are included in "Qualifying derivatives" and "Auction Rate Securities" are included in "Available-for-sale securities" on the Statements of Comprehensive Income. |
The significant unobservable inputs used in and quantitative information about the fair value measurement of assets and liabilities classified as Level 3 are as follows:
| | | | SeptemberJune 30, 2014 |
| | | | Fair Value, net | | | | | | Range |
| | | | Asset | | Valuation | | Unobservable | | (Weighted |
| | | | (Liability) | | Technique | | Input(s) | | Average) (a) |
PPL | | | | | | | | | | | | |
Energy commodities | | | | | | | |
| Natural gas contracts (b) | | $ | 7 | | Discounted cash flow | | Proprietary model used to calculate forward prices | | 14% - 100% (35%) |
| Power sales contracts (c) | | | (63) | | Discounted cash flow | | Proprietary model used to calculate forward prices | | 14% - 100% (79%) |
| FTR purchase contracts (d) | | | 6 | | Discounted cash flow | | Historical settled prices used to model forward prices | | 100% (100%) |
| Heat rate options (e) | | | 124 | | Discounted cash flow | | Proprietary model used to calculate forward prices | | 22% - 100% (44%) |
| | | | | | | | | | |
Auction rate securities (f) | | | 16 | | Discounted cash flow | | Modeled from SIFMA Index | | 58% - 75% (67%) |
| | | | | | | | | | |
| | | | | | | | | | | | | |
PPL Energy Supply | | | | | | | | | | | | |
Energy commodities | | | | | | | | | | | | |
| Natural gas contracts (b) | | $ | 7 | | Discounted cash flow | | Proprietary model used to calculate forward prices | | 14% - 100% (35%) |
| Power sales contracts (c) | | | (63) | | Discounted cash flow | | Proprietary model used to calculate forward prices | | 14% - 100% (79%) |
| FTR purchase contracts (d) | | | 6 | | Discounted cash flow | | Historical settled prices used to model forward prices | | 100% (100%) |
| Heat rate options (e) | | | 124 | | Discounted cash flow | | Proprietary model used to calculate forward prices | | 22% - 100% (44%) |
| | | | | | | | | | |
Auction rate securities (f) | | | 13 | | Discounted cash flow | | Modeled from SIFMA Index | | 59% - 75% (68%) |
| | | | December 31, 2013 |
| | | | Fair Value, net | | | | | | Range |
| | | | Asset | | Valuation | | Unobservable | | (Weighted |
| | | | (Liability) | | Technique | | Input(s) | | Average) (a) |
PPL | | | | | | | | | | | | |
Energy commodities | | | | | | | |
| Retail naturalNatural gas sales contracts (b) | | $ | 3536 | | Discounted cash flow | | Observable wholesaleProprietary model used to calculate forward prices used as proxy for retail delivery points | | 13%10% - 100% (80%(86%) |
| Heat rate call options (d)Power sales contracts (c) | | | 9 (12) | | Discounted cash flow | | Implied correlation, implied volatility, and market implied heat rate | | 33% - 60% (58%) |
| FTR purchase contracts (g) | | | 3 | | Discounted cash flow | | Historical settled pricesProprietary model used to modelcalculate forward prices | | 100% - 100% (100%) |
| | | | | | | | | | |
Auction rate securities (e)(f) | | | 19 | | Discounted cash flow | | Modeled from SIFMA Index | | 12%10% - 80% (64%(63%) |
| | | | | | | | | | |
| | | | | | | | | | | | | |
PPL Energy Supply | | | | | | | | | | | | |
Energy commodities | | | | | | | | | | | | |
| Retail naturalNatural gas sales contracts (b) | | $ | 3536 | | Discounted cash flow | | Observable wholesaleProprietary model used to calculate forward prices used as proxy for retail delivery points | | 13%10% - 100% (80%(86%) |
| Heat rate call options (d)Power sales contracts (c) | | | 9 (12) | | Discounted cash flow | | Implied correlation, implied volatility, and market implied heat rate | | 33% - 60% (58%) |
| FTR purchase contracts (g) | | | 3 | | Discounted cash flow | | Historical settled pricesProprietary model used to modelcalculate forward prices | | 100% - 100% (100%) |
| | | | | | | | | | |
Auction rate securities (e)(f) | | | 16 | | Discounted cash flow | | Modeled from SIFMA Index | | 12%10% - 80% (63%) |
| | | | December 31, 2012 |
| | | | Fair Value, net | | | | | | Range |
| | | | Asset | | Valuation | | Unobservable | | (Weighted |
| | | | (Liability) | | Technique | | Input(s) | | Average) (a) |
PPL | | | | | | | | | | | | |
Energy commodities | | | | | | | |
| Retail natural gas sales contracts (b) | | $ | 24 | | Discounted cash flow | | Observable wholesale prices used as proxy for retail delivery points | | 21% - 100% (75%) |
| Power sales contracts (c) | | | (4) | | Discounted cash flow | | Proprietary model used to calculate forward basis prices | | 24% (24%) |
| FTR purchase contracts (g) | | | 2 | | Discounted cash flow | | Historical settled prices used to model forward prices | | 100% (100%) |
| | | | | | | | | | |
Auction rate securities (e) | | | 16 | | Discounted cash flow | | Modeled from SIFMA Index | | 54% - 74% (64%) |
| | | | | | | | | | |
Cross-currency swaps (f) | | | 1 | | Discounted cash flow | | Credit valuation adjustment | | 22% (22%) |
PPL Energy Supply | | | | | | | | | | | | |
Energy commodities | | | | | | | | | | | | |
| Retail natural gas sales contracts (b) | | $ | 24 | | Discounted cash flow | | Observable wholesale prices used as proxy for retail delivery points | | 21% - 100% (75%) |
| Power sales contracts (c) | | | (4) | | Discounted cash flow | | Proprietary model used to calculate forward basis prices | | 24% (24%) |
| FTR purchase contracts (g) | | | 2 | | Discounted cash flow | | Historical settled prices used to model forward prices | | 100% (100%) |
| | | | | | | | | | |
Auction rate securities (e) | | | 13 | | Discounted cash flow | | Modeled from SIFMA Index | | 57% - 74% (65%) |
(a) | For energy commodities and auction rate securities, the range and weighted average represent the percentage of fair value derived from the unobservable inputs. For cross-currency swaps, the range and weighted average represent the percentage decrease in fair value due to the unobservable inputs used in the model to calculate the credit valuation adjustment. |
(b) | At September 30, 2013, retail natural gas sales contracts extend through 2019, and $14 million of the fair value is scheduled to deliver within the next 12 months. As the forward price of natural gas increases/(decreases), the fair value of purchase contracts increases/(decreases). As the forward price of natural gas increases/(decreases), the fair value of sales contracts (decreases)/increases. |
(c) | As forward market prices increase/(decrease), the forward pricefair value of basiscontracts (decreases)/increases. As volumetric assumptions for contracts in a gain position increase/(decrease), the fair value of contracts increases/(decreases). As volumetric assumptions for contracts in a loss position increase/(decrease), the fair value of the contracts (decreases)/increases. |
(d) | At September 30, 2013, heat rate call options extend through 2020, and $1 million of the fair value is scheduled to deliver within the next 12 months. As the forward implied correlation in heat rate call optionsspread increases/(decreases), the fair value of the heat rate call options contracts increases/(decreases)/increases, as all implied volatilities in heat rate call options increase/(decrease), the. |
(e) | The proprietary model used to calculate fair value of theincorporates market heat rate call options increases/(decreases),rates, correlations and asvolatilities. As the market implied heat rate increases/(decreases), the fair value of the heat rate call optionscontracts increases/(decreases). |
(e)(f) | At September 30, 2013, auction rate securities have a weighted average contractual maturity of 22 years. The model used to calculate fair value incorporates an assumption that the auctions will continue to fail. As the modeled forward rates of the SIFMA Index increase/(decrease), the fair value of the securities increases/(decreases). |
(f) | The credit valuation adjustment incorporates projected probabilities of default and estimated recovery rates. As the credit valuation adjustment increases/(decreases), the fair value of the swaps (decreases)/increases. |
(g) | At September 30, 2013, FTR purchase contracts extend through 2015, and $1 million of the fair value is scheduled to deliver within the next 12 months. As the forward implied spread increases/(decreases), the fair value of the contracts increases/(decreases). |
Net gains and losses on assets and liabilities classified as Level 3 and included in earnings for the periods ended SeptemberJune 30 are reported in the Statements of Income as follows:
| | | Three Months |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Energy Commodities, net |
| | | | | | | | | | | |
| | | Unregulated | | Wholesale | | | | | | |
| | | Retail | | Energy | | Net Energy | | | | Energy |
| | | Electric and Gas | | Marketing | | Trading Margins | | Fuel | | Purchases |
| | | 2013 | | 2012 | | 2013 | | 2012 | | 2013 | | 2012 | | 2013 | | 2012 | | 2013 | | 2012 |
PPL and PPL Energy Supply | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total gains (losses) included in earnings | | $ | 3 | | $ | (3) | | $ | (8) | | $ | (4) | | $ | 11 | | $ | (8) | | $ | 3 | | | | | $ | 9 | | $ | (2) |
Change in unrealized gains (losses) relating | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| to positions still held at the reporting date | | | 3 | | | (2) | | | | | | (1) | | | 17 | | | 2 | | | | | | | | | | | | |
| | | Three Months |
| | | Energy Commodities, net |
| | | Unregulated | | Unregulated | | Energy |
| | | Wholesale Energy | | Retail Energy | | Purchases |
| | | 2014 | | 2013 | | 2014 | | 2013 | | 2014 | | 2013 |
PPL and PPL Energy Supply | | | | | | | | | | | | | | | | | | |
Total gains (losses) included in earnings | | $ | 58 | | $ | (7) | | $ | 12 | | $ | 22 | | $ | 2 | | $ | (1) |
Change in unrealized gains (losses) relating | | | | | | | | | | | | | | | | | | |
| to positions still held at the reporting date | | | 47 | | | (7) | | | 10 | | | 22 | | | (4) | | | 1 |
| | | 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 | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Six Months |
| | | Energy Commodities, net |
| | | Unregulated | | Unregulated | | Energy |
| | | Wholesale Energy | | Retail Energy | | Purchases |
| | | 2014 | | 2013 | | 2014 | | 2013 | | 2014 | | 2013 |
PPL and PPL Energy Supply | | | | | | | | | | | | | | | | | | |
Total gains (losses) included in earnings | | $ | (31) | | $ | (9) | | $ | (51) | | $ | 15 | | $ | 19 | | | |
Change in unrealized gains (losses) relating | | | | | | | | | | | | | | | | | | |
| to positions still held at the reporting date | | | 44 | | | (9) | | | (21) | | | 17 | | | (3) | | $ | 2 |
Price Risk Management Assets/Liabilities - Energy Commodities (PPL and PPL Energy Supply)
Energy commodity contracts for electricity, gas, oil and/or emission allowances are generally valued using the income approach, except for exchange-traded derivative gas and oil contracts, which are valued using the market approach and are classified as Level 1. When the lowest level inputs that are significant to the fair value measurement of a contract are observable, the contract is classified as Level 2. Level 2 contracts are valued using inputs which may include quotes obtained from an exchange (where there is insufficient market liquidity to warrant inclusion in Level 1), binding and non-binding broker quotes, prices posted by ISOs or published tariff rates. Furthermore, independent quotes are obtained from the market to validate the forward price curves. Energy commodity contracts include forwards, futures, swaps, options and structured transactions and may be offset with similar positions in exchange-traded markets. To the extent possible, fair value measurements utilize various inputs that include quoted prices for similar contracts or market-corroborated inputs. In certain instances, these contracts may be valued using models, including standard option valuation models and other standard industry models. For example,When the lowest level inputs that are significant to the fair value measurement of a full-requirement sales contract that delivers power to an illiquid delivery point may be measured by valuingare observable, the nearest liquid trading point plus the value of the basis between the two points. The basis input may be from market quotes or historical prices.contract is classified as Level 2.
When unobservable inputs are significant to the fair value measurement, a contract is classified as Level 3. Level 3 contracts are valued using PPL proprietary models which may include significant unobservable inputs such as delivery at a location where pricing is unobservable, assumptions for customer migration, delivery dates that are beyond the dates for which independent quotes are available, volumetric assumptions, implied volatilities, implied correlations, and market implied heat rates. Forward transactions, including forward transactions classified as Level 3, are analyzed by PPL's Risk Management department, which reports to the Chief Financial Officer (CFO). Accounting personnel, who also report to the CFO, interpret the analysis quarterly to appropriately classify the forward transactions in the fair value hierarchy. Valuation techniques are evaluated periodically. Additionally, Level 2 and Level 3 fair value measurements include adjustments for credit risk based on PPL's own creditworthiness (for net liabilities) and its counterparties' creditworthiness (for net assets). PPL's credit department assesses all reasonably available market information which is used by accounting personnel to calculate the credit valuation adjustment.
In certain instances, energy commodity contracts are transferred between Level 2 and Level 3. The primary reasons for the transfers during 2013 and 2012 were changes in the availability of market information and changes in the significance of the unobservable inputs utilized in the valuation of the contract. As the delivery period of a contract becomes closer, market information may become available. When this occurs, the model's unobservable inputs are replaced with observable market information.
Price Risk Management Assets/Liabilities - Interest Rate Swaps/Foreign Currency Contracts/Cross-Currency Swaps (PPL, LKE, LG&E and Kentucky Registrants)KU)
To manage interest rate risk, PPL, LKE, LG&E and KU use interest rate contracts such as forward-starting swaps, floating-to-fixed swaps and fixed-to-floating swaps. To manage foreign currency exchange risk, PPL uses foreign currency contracts such as forwards, options and cross-currency swaps that contain characteristics of both interest rate and foreign currency
contracts. An income approach is used to measure the fair value of these contracts, utilizing readily observable inputs, such as forward interest rates (e.g., LIBOR and government security rates) and forward foreign currency exchange rates (e.g.,
GBP), as well as inputs that may not be observable, such as credit valuation adjustments. In certain cases, market information cannot practicably be obtained to value credit risk and therefore internal models are relied upon. These models use projected probabilities of default and estimated recovery rates based on historical observances. When the credit valuation adjustment is significant to the overall valuation, the contracts are classified as Level 3. For PPL, the primary reason for the transfers between Level 2 and Level 3 during 20132014 and 20122013 was the change in the significance of the credit valuation adjustment. Cross-currency swaps classified as Level 3 are valued by PPL's Treasury department, which reports to the CFO. Accounting personnel, who also report to the CFO, interpret analysis quarterly to classify the contracts in the fair value hierarchy. Valuation techniques are evaluated periodically.
(PPL and PPL Energy Supply)
NDT Funds
The market approach is used to measure the fair value of equity securities held in the NDT funds.
· | The fair value measurements of equity securities classified as Level 1 are based on quoted prices in active markets and are comprised of securities that are representative of the Wilshire 5000 Total Market Index.markets. |
· | InvestmentsThe fair value measurements of investments in commingled equity funds are classified as Level 2 and represent securities that track the S&P 500 Index, Dow Jones U.S. Total Stock Market Index and the Dow Jones U.S. Completion Total Stock Market Index.2. These fair value measurements are based on firm quotes of net asset values per share, which are not obtained from a quoted price in an active market. |
DebtThe fair value of debt securities areis generally measured using a market approach, including the use of matrix pricing.pricing models which incorporate observable inputs. Common inputs include benchmark yields, reported trades, broker/dealer bid/ask prices, benchmark securities and credit valuation adjustments. When necessary, the fair value of debt securities is measured using the income approach, which incorporates similar observable inputs as well as benchmark yields, credit valuation adjustments, reference data from market research publications, monthly payment data, future predicted cash flows, collateral performance and new issue data.
The debt securities held in the NDT funds at September 30, 2013 have a weighted-average coupon of 3.94% and a weighted-average maturity of 7.8 years.
Auction Rate Securities
Auction rate securities include Federal Family Education Loan Program guaranteed student loan revenue bonds, as well as various municipal bond issues. The probability of realizing losses on these securities is not significant.
The fair value of auction rate securities is estimated using an income approach that includes readily observable inputs, such as principal payments and discount curves for bonds with credit ratings and maturities similar to the securities, and unobservable inputs, such as future interest rates that are estimated based on the SIFMA Index, creditworthiness, and liquidity assumptions driven by the impact of auction failures. When the present value of future interest payments is significant to the overall valuation, the auction rate securities are classified as Level 3. The primary reason for the transfers in and out of Level 3 induring 2013 and 2012 was the change in discount rates and SIFMA Index.
Auction rate securities are valued by PPL's Treasury department, which reports to the CFO. Accounting personnel, who also report to the CFO, interpret the analysis quarterly to classify the contracts in the fair value hierarchy. Valuation techniques are evaluated periodically.
Nonrecurring Fair Value Measurements (PPL and PPL Energy Supply)
The following nonrecurring fair value measurement occurred during the six months ended June 30, 2014, resulting in an asset impairment:
| | | Carrying | Fair Value Measurement Using | | | |
| | | Amount (a) | | Level 3 | | Loss (b) |
PPL and PPL Energy Supply | | | | | | | | | |
Kerr Dam Project | | $ | 47 | | $ | 29 | | $ | 18 |
(a) | Represents carrying value before fair value measurement. |
(b) | The loss on the Kerr Dam Project was recorded in the Supply segment and included in "Other operation and maintenance" on PPL's and PPL Energy Supply's Statement of Income. |
The significant unobservable inputs used in and the quantitative information about the nonrecurring fair value measurement of assets and liabilities classified as Level 3 are as follows: |
| | | | | | | | | | | | |
| | | |
| | | Fair Value, net | | | | Significant | | Range |
| | | Asset | | Valuation | | Unobservable | | (Weighted |
| | | (Liability) | | Technique | | Input(s) | | Average)(a) |
| | | | | | | | | | | | |
PPL and PPL Energy Supply | | | | | | | | | | | |
Kerr Dam Project | | | | | | | | | | | |
| March 31, 2014 | $ | 29 | | Discounted cash flow | | Proprietary model used to calculate plant value | | 38% (38%) |
(a) | The range and weighted average represent the percentage of fair value derived from the unobservable inputs. |
Kerr Dam Project
As disclosed in Note 11 in PPL's and PPL Energy Supply's 2013 Form 10-K, PPL Montana holds a joint operating license issued for the Kerr Dam Project. The license extends until 2035 and, between 2015 and 2025, the Confederated Salish and Kootenai Tribes of the Flathead Nation (the Tribes) have the option to purchase, hold and operate the Kerr Dam Project. The parties submitted the issue of the appropriate amount of the conveyance price to arbitration in February 2013. In March 2014, the arbitration panel issued its final decision holding that the conveyance price payable by the Tribes to PPL Montana is $18 million. As a result of the decision, PPL Energy Supply performed a recoverability test on the Kerr Dam Project and recorded an impairment charge. PPL Energy Supply performed an internal analysis using an income approach based on discounted cash flows (a proprietary PPL model) to assess the fair value of the Kerr Dam Project. Assumptions used in the PPL proprietary model were the conveyance price, forward energy price curves, forecasted generation, and forecasted operation and maintenance expenditures that were consistent with assumptions used in the business planning process and a market participant discount rate. Through this analysis, PPL Energy Supply determined the fair value of the Kerr Dam Project to be $29 million at March 31, 2014.
The assets were valued by the PPL Energy Supply Financial Department, which reports to the President of PPL Energy Supply. Accounting personnel, who report to the CFO, interpreted the analysis to appropriately classify the assets in the fair value hierarchy.
Financial Instruments Not Recorded at Fair Value (All Registrants)
The carrying amounts of contract adjustment payments related to the 2011 Purchase Contract component of the 2011 Equity Units and long-term debt on the Balance Sheets and their estimated fair values are set forth below. The fair values of these instruments were estimated using an income approach by discounting future cash flows at estimated current cost of funding rates, which incorporate the credit risk of the Registrants. These instruments are classified as Level 2. The effect of third-party credit enhancements is not included in the fair value measurement.
| | | September 30, 2013 | | December 31, 2012 |
| | | Carrying | | | | | Carrying | | | |
| | | Amount | | Fair Value | | Amount | | Fair Value |
PPL | | | | | | | | | | | | |
| Contract adjustment payments (a) | | $ | 32 | | $ | 32 | | $ | 105 | | $ | 106 |
| Long-term debt | | | 19,843 | | | 21,537 | | | 19,476 | | | 21,671 |
PPL Energy Supply | | | | | | | | | | | | |
| Long-term debt | | | 2,962 | | | 3,127 | | | 3,272 | | | 3,556 |
PPL Electric | | | | | | | | | | | | |
| Long-term debt | | | 2,315 | | | 2,505 | | | 1,967 | | | 2,333 |
LKE | | | | | | | | | | | | |
| Long-term debt | | | 4,076 | | | 4,222 | | | 4,075 | | | 4,423 |
LG&E | | | | | | | | | | | | |
| Long-term debt | | | 1,112 | | | 1,137 | | | 1,112 | | | 1,178 |
KU | | | | | | | | | | | | |
| Long-term debt | | | 1,843 | | | 1,940 | | | 1,842 | | | 2,056 |
| | | June 30, 2014 | | December 31, 2013 |
| | | Carrying | | | | | Carrying | | | |
| | | Amount | | Fair Value | | Amount | | Fair Value |
Contract adjustment payments (a) | | | | | | | | | | | | |
| PPL | | | | | | | | $ | 21 | | $ | 22 |
Long-term debt | | | | | | | | | | | | |
| PPL | | $ | 21,123 | | $ | 22,958 | | | 20,907 | | | 22,177 |
| PPL Energy Supply | | | 2,523 | | | 2,630 | | | 2,525 | | | 2,658 |
| PPL Electric | | | 2,602 | | | 2,915 | | | 2,315 | | | 2,483 |
| LKE | | | 4,566 | | | 4,879 | | | 4,565 | | | 4,672 |
| LG&E | | | 1,353 | | | 1,428 | | | 1,353 | | | 1,372 |
| KU | | | 2,091 | | | 2,264 | | | 2,091 | | | 2,155 |
(a) | ReflectedIncluded in "Other current liabilities" and "Other deferred credits and noncurrent liabilities" on the Balance Sheets. |
The carrying value of short-term debt (including notes between affiliates), when outstanding, approximates fair value due to the variable interest rates associated with the short-term debt and is classified as Level 2.
Credit Concentration Associated with Financial Instruments
(All Registrants)
Contracts are entered into with many entities for the purchase and sale of energy. Many of these contracts qualify forWhen NPNS and, as such,is elected, the fair value of these contracts is not reflected in the financial statements. However, the fair value of these contracts is considered when committing to new business from a credit perspective. See Note 14 for information on credit policies used to manage credit risk, including master netting arrangements and collateral requirements.
(PPL)
At September 30, 2013, (PPL had credit exposure of $1.1 billion from energy trading partners, excluding the effects of netting arrangements, reserves and collateral. As a result of netting arrangements, reserves and collateral, PPL's credit exposure was reduced to $541 million. The top ten counterparties including their affiliates accounted for $292 million, or 54%, of this exposure. Nine of these counterparties had an investment grade credit rating from S&P or Moody's and accounted for 95% of the top ten exposure. The remaining counterparty has not been rated by S&P or Moody's, but is current on its obligations.
(PPL Energy Supply)
At SeptemberJune 30, 2013,2014, PPL and PPL Energy Supply had credit exposure of $1.1 billion$805 million from energy trading partners, excluding exposure from related parties (PPL Energy Supply only) and the effects of netting arrangements, reserves and collateral. As a result of netting arrangements, reserves and collateral, thisPPL and PPL Energy Supply's credit exposure was reduced to $540$340 million. The top ten counterparties including their affiliates accounted for $292$192 million, or 54%56%, of this exposure. Ninethese exposures. Seven of these counterparties had an investment grade credit rating from S&P or Moody's and accounted for 95%65% of the top ten exposure.exposures. The remaining counterparty hascounterparties are below investment grade or have not been rated by S&P or Moody's, but isare current on itstheir obligations. See Note 11 for information regarding thePPL Energy Supply's related party credit exposure.
(PPL Electric)
PPL Electric is exposed to credit risk under energy supply contracts (including its supply contracts with PPL EnergyPlus); however, its PUC-approved cost recovery mechanism is anticipated to substantially eliminatemitigate this exposure.
(Kentucky Registrants)LKE, LG&E and KU)
At SeptemberJune 30, 2013,2014, LKE's, LG&E's and KU's credit exposure was not significant.
14. Derivative Instruments and Hedging Activities
Risk Management Objectives
(All Registrants)
PPL has a risk management policy approved by the Board of Directors to manage market risk associated with commodities, interest rates on debt issuances and foreign exchange (including price, liquidity and volumetric risk) and credit risk (including non-performance risk and payment default risk). The RMC, comprised of senior management and chaired by the Chief Risk Officer, oversees the risk management function. Key risk control activities designed to ensure compliance with the risk policy and detailed programs include, but are not limited to, credit review and approval, validation of transactions and market prices, verification of risk and transaction limits, VaR analyses, portfolio stress tests, gross margin at risk analyses, sensitivity analyses and daily portfolio reporting, including open positions, determinations of fair value, and other risk management metrics.
Market Risk
Market risk includes the potential loss that may be incurred as a result of price changes associated with a particular financial or commodity instrument as well as market liquidity and volumetric risks. Forward contracts, futures contracts, options, swaps and structured transactions such as tolling agreements, are utilized as part of risk management strategies to minimize unanticipated fluctuations in earnings caused by changes in commodity prices, volumes of full-requirement sales contracts, basis exposure, interest rates and/or foreign currency exchange rates. Many of the contracts meet the definition of a derivative. All derivatives are recognized on the Balance Sheets at their fair value, unless they qualify for NPNS.NPNS is elected.
The table below summarizes the market risks that affect PPL and its Subsidiary Registrants.
| | | | | | PPL | | PPL | | | | | | | | | |
| | | PPL | | Energy Supply | | Electric | | LKE | | LG&E | | KU |
Commodity price risk (including basis and | | | | | | | | | | | | | | | | | | |
| volumetric risk) | | X | | X | | M | | M | | M | | M |
Interest rate risk: | | | | | | | | | | | | | | | | | | |
| Debt issuances | | X | | X | | M | | M | | M | | M |
| Defined benefit plans | | X | | X | | M | | M | | M | | M |
| NDT securities | | X | | X | | | | | | | | |
Equity securities price risk: | | | | | | | | | | | | | | | | | | |
| Defined benefit plans | | X | | X | | M | | M | | M | | M |
| NDT securities | | X | | X | | | | | | | | |
| Future stock transactions | | X | | | | | | | | | | |
Foreign currency risk - WPD investment and | | | | | | | | | | | | | | | | | | |
| earnings | | X | | | | | | | | | | |
X | = PPL and PPL Energy Supply actively mitigate market risks through their risk management programs described above. |
M | = The regulatory environments for PPL's regulated entities, by definition, significantly mitigate market risk. |
Commodity price and volumetric risksrisk
· | PPL is exposed to market and commodity price basis and volumetric risk through its domestic subsidiaries as described below. Volumetric risk is significantly mitigated at WPD as a result of the method of regulation in the U.K. |
· | PPL Energy Supply is exposed to commodity price basis and volumetric risksrisk for energy and energy-related products associated with the sale of electricity from its generating assets and other electricity and gas marketing activities and the purchase of fuel and fuel-related commodities for generating assets, as well as for proprietary trading activities. |
· | PPL Electric is exposed to commodity price and volumetric risksrisk from its obligation as PLR; however, its PUC-approved cost recovery mechanism substantially eliminates its exposure to these risks.this risk. PPL Electric also mitigates its exposure to volumetric risk by entering into full-requirement supply agreements to serve its PLR customers. These supply agreements transfer the volumetric risk associated with the PLR obligation to the energy suppliers. |
· | LG&E's and KU's rates include certain mechanisms for fuel, gas supply and environmental expenses. These mechanisms generally provide for timely recovery of market price and volumetric fluctuations associated with these expenses. |
Interest rate risk
· | PPL and its subsidiaries are exposed to interest rate risk associated with forecasted fixed-rate and existing floating-rate debt issuances. WPD holds over-the-counter cross currency swaps to limit exposure to market fluctuations on interest and principal payments from changes in foreign currency exchange rates and interest rates. LG&E utilizes over-the-counter interest rate swaps to limit exposure to market fluctuations on floating-rate debt and LG&E and KU utilize forward starting interest rate swaps to hedge changes in benchmark interest rates.rates, when appropriate, in connection with future debt issuances. This risk for PPL Electric, LG&E and KU is significantly mitigated due to recovery mechanisms in place. |
· | PPL and its subsidiaries are exposed to interest rate risk associated with debt securities held by defined benefit plans. This risk is significantly mitigated to the extent that the plans are sponsored at, or sponsored on behalf of, the regulated domestic utilities and for certain plans at WPD due to the recovery mechanisms in place. Additionally, PPL Energy Supply is exposed to interest rate risk associated with debt securities held by the NDT. |
Equity securities price risk
· | PPL and its subsidiaries are exposed to equity securities price risk associated with defined benefit plans. This risk is significantly mitigated at the regulated domestic utilities and for certain plans at WPD due to the recovery mechanisms in place. Additionally, PPL and PPL Energy Supply isare exposed to equity securities price risk in the NDT funds. |
· | PPL is exposed to equity securities price risk from future stock sales and/or purchases. |
Foreign currency risk
· | PPL is exposed to foreign currency exchange risk primarily associated with its investments and earnings in U.K. affiliates. |
Credit Risk
Credit risk is the potential loss that may be incurred due to a counterparty's non-performance.
PPL is exposed to credit risk from "in-the-money" interest rate and foreign currency derivatives with financial institutions, as well as additional credit risk through certain of its subsidiaries, as discussed below.
PPL Energy Supply is exposed to credit risk from "in-the-money" commodity derivatives with its energy trading partners, which include other energy companies, fuel suppliers, financial institutions, other wholesale customers and financial institutions.
LKE, LG&E and KU are exposed to credit risk from interest rate derivatives with PPL. LKE and LG&E are also exposed to credit risk from interest rate derivatives with third-party financial institutions.retail customers.
The majority of PPL and PPL Energy Supply's credit risk stems from commodity derivatives for multi-year contracts for energy sales and purchases. If PPL Energy Supply's counterparties fail to perform their obligations under such contracts and PPL Energy Supply could not replace the sales or purchases at the same or better prices as those under the defaulted contracts, PPL Energy Supply would incur financial losses. Those losses would be recognized immediately or through lower revenues or higher costs in future years, depending on the accounting treatment for the defaulted contracts. In the event a supplier of LKE (through its subsidiaries LG&E and KU) or PPL Electric defaults on its obligation, those entities would be required to seek replacement power or replacement fuel in the market. In general, incremental costs incurred by these entities would be recoverable from customers in future rates, thus mitigating the financial risk for these entities.
PPL and its subsidiaries have credit policies in place to manage credit risk, including the use of an established credit approval process, daily monitoring of counterparty positions and the use of master netting agreements or provisions. These agreements generally include credit mitigation provisions, such as margin, prepayment or collateral requirements. PPL and its subsidiaries may request additional credit assurance, in certain circumstances, in the event that the counterparties' credit ratings fall below investment grade, their tangible net worth falls below specified percentages or their exposures exceed an established credit limit. See Note 13 for credit concentration associated with energy trading partners.
Master Netting Arrangements
Net derivative positions on the balance sheets are not offset against the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) under master netting arrangements.
PPL's and PPL Energy Supply's obligation to return counterparty cash collateral under master netting arrangements was $14$13 million and $112$9 million at SeptemberJune 30, 20132014 and December 31, 2012.2013.
PPL Electric, LKE and LG&E had no obligation to return cash collateral under master netting arrangements at SeptemberJune 30, 20132014 and December 31, 2012.2013.
PPL posted $25 million and LKE and LG&E posted $21 million of cash collateral under master netting arrangements at June 30, 2014. PPL, LKE and LG&E had posted $22 million of cash collateral under master netting arrangements of $22 million and $32 million at September 30, 2013 and December 31, 2012.2013.
PPL Energy Supply posted an insignificant amount of cash collateral under master netting arrangements at June 30, 2014 and did not post any cash collateral at December 31, 2013. PPL Electric and KU haddid not postedpost any cash collateral under master netting arrangements at SeptemberJune 30, 20132014 and December 31, 2012.2013.
See "Offsetting Derivative Investments" below for a summary of derivative positions presented in the balance sheets where a right of setoff exists under these arrangements.
(PPL and PPL Energy Supply)
Commodity Price Risk (Non-trading)
Commodity price risk, including basis and volumetric risk, is among PPL's and PPL Energy Supply's most significant risks due to the level of investment that PPL and PPL Energy Supply maintain in their competitive generation assets, as well as the extent of their marketing activities. Several factors influence price levels and volatilities. These factors include, but are not
limited to, seasonal changes in demand, weather conditions, available generating assets within regions, transportation/transmission availability and reliability within and between regions, market liquidity, and the nature and extent of current and potential federal and state regulations.
PPL Energy Supply maximizes the value of its unregulated wholesale and unregulated retail energy portfolios through the use of non-trading strategies that include sales of competitive baseload generation, optimization of competitive intermediate and peaking generation and marketing activities.
PPL Energy Supply has a formal hedging program to economically hedge the forecasted purchase and sale of electricity and related fuels for its competitive baseload generation fleet, which includes 7,2987,369 MW (summer rating) of nuclear, coal and hydroelectric generating capacity. PPL Energy Supply attempts to optimize the overall value of its competitive intermediate and peaking fleet, which includes 3,3163,309 MW (summer rating) of natural gas and oil-fired generation. PPL Energy Supply's marketing portfolio is comprised of full-requirement sales contracts and related supply contracts, retail natural gas and electricity sales contracts and other marketing activities. The strategies that PPL Energy Supply uses to hedge its full-requirement sales contracts include purchasing energy (at a liquid trading hub or directly at the load delivery zone), capacity and RECs in the market and/or supplying the energy, capacity and RECs from its generation assets.
PPL and PPL Energy Supply enter into financial and physical derivative contracts, including forwards, futures, swaps and options, to hedge the price risk associated with electricity, natural gas, oil and other commodities. Certain contracts qualify for NPNS or are non-derivatives or NPNS is elected and therefore they are therefore not reflected in the financial statements until delivery. PPL and PPL Energy Supply segregate their non-trading activities into two categories: cash flow hedges and economic activity as discussed below.
Cash Flow Hedges
Certain derivative contracts have qualified for hedge accounting so that the effective portion of a derivative's gain or loss is deferred in AOCI and reclassified into earnings when the forecasted transaction occurs. Certain cash flow hedge positions were dedesignated during the nine months ended September 30, 2013 and 2012 and the unamortized portion remained in AOCI because the original forecasted transaction is still expected to occur. There were no active cash flow hedges at Septemberduring the three and six months ended June 30, 2013.2014. At SeptemberJune 30, 2013,2014, the accumulated net unrecognized after-tax gains (losses) that are expected to be reclassified into earnings during the next 12 months were $47$22 million for PPL and PPL Energy Supply. Cash flow hedges are discontinued if it is no longer probable that the original forecasted transaction will occur by the end of the originally specified time periods and any amounts previously recorded in AOCI are reclassified into earnings once it is determined that the hedge transaction is probable of not occurring. ForThere were no such reclassifications for the three and ninesix months ended SeptemberJune 30, 20132014 and 2012, such reclassifications were insignificant.2013.
For the three and ninesix months ended SeptemberJune 30, 20132014 and 2012,2013, hedge ineffectiveness associated with energy derivatives was insignificant.
Economic Activity
Many derivative contracts economically hedge the commodity price risk associated with electricity, natural gas, oil and other commodities but do not receive hedge accounting treatment because they were not eligible for hedge accounting or because hedge accounting was not elected. These derivatives hedge a portion of the economic value of PPL Energy Supply's competitive generation assets and unregulated full-requirement and retail contracts, which are subject to changes in fair value due to market price volatility and volume expectations. Additionally, economic activity would also includeincludes the ineffective portion of qualifying cash flow hedges (see "Cash Flow Hedges" above). The derivative contracts in this category that existed at SeptemberJune 30, 20132014 range in maturity through 2019.
Examples of economic activity may include hedges on sales of baseload generation, certain purchase contracts used to supply full-requirement sales contracts, FTRs or basis swaps used to hedge basis risk associated with the sale of competitive generation or supplying full-requirement sales contracts, Spark Spread hedging contracts, retail electric and natural gas activities, and fuel oil swaps used to hedge price escalation clauses in coal transportation and other fuel-related contracts. PPL Energy Supply also uses options, which include the sale of call options and the purchase of put options tied to a particular generating unit. Since the physical generating capacity is owned, price exposure is generally capped at the price at which the generating unit would be dispatched and therefore does not expose PPL Energy Supply to uncovered market price risk.
The unrealized gains (losses) for economic activity for the periods ended June 30 were as follows.
| | | Three Months | | Six Months |
| | | 2014 | | 2013 | | 2014 | | 2013 |
Operating Revenues | | | | | | | | | | | | |
| Unregulated wholesale energy | | $ | (91) | | $ | 590 | | $ | (880) | | $ | (232) |
| Unregulated retail energy | | | 4 | | | 20 | | | (22) | | | 12 |
Operating Expenses | | | | | | | | | | | | |
| Fuel | | | 7 | | | (4) | | | 6 | | | (5) |
| Energy purchases | | | 39 | | | (479) | | | 619 | | | 155 |
Commodity Price Risk (Trading)
PPL Energy Supply has a proprietary trading strategy which is utilized to take advantage of market opportunities.opportunities primarily in its geographic footprint. As a result, PPL Energy Supply may at times create a net open position in its portfolio that could result in losses if prices do not move in the manner or direction anticipated. The proprietary trading portfolio shown in "NetNet energy trading margins"margins, which are included in "Unregulated wholesale energy" on the Statements of Income, is not a significant part of PPL Energy Supply's business.were $44 million and $58 million for the three and six months ended June 30, 2014 and were insignificant for the same periods in 2013.
Commodity Volumes
At SeptemberJune 30, 2013,2014, the net volumes of derivative (sales)/purchase contracts used in support of the various strategies discussed above were as follows.
| | | | Volume (a) | | | | Volumes (a) |
Commodity | | Unit of Measure | | 2013 (b) | | 2014 | | 2015 | | Thereafter | | Unit of Measure | | 2014 (b) | | 2015 | | 2016 | | Thereafter |
| | | | | | | | | | | | | | | | | | | | |
Power | | MWh | | (9,950,950) | | (28,280,182) | | (4,110,530) | | 10,991,752 | | MWh | | (20,439,732) | | (26,034,375) | | (2,187,131) | | 12,845,473 |
Capacity | | MW-Month | | (5,114) | | (14,418) | | (309) | | 1,990 | | MW-Month | | (8,589) | | (5,120) | | 501 | | 9 |
Gas | | MMBtu | | 12,653,279 | | 18,794,545 | | (3,852,725) | | 5,320,453 | | MMBtu | | 66,064,719 | | 40,183,723 | | 55,354,593 | | 37,786,174 |
Coal | | Tons | | | | (30,000) | | | | | | Tons | | 45,000 | | | | | | |
FTRs | | MW-Month | | 5,056 | | 8,724 | | 1,465 | | | | MW-Month | | 4,283 | | 3,364 | | | | |
Oil | | Barrels | | (15,335) | | 300,000 | | 384,334 | | 371,466 | | Barrels | | 68,966 | | 363,660 | | 322,777 | | 269,438 |
(a) | Volumes for option contracts factor in the probability of an option being exercised and may be less than the notional amount of the option. |
(b) | Represents balance of the current year. |
Interest Rate Risk
(PPL, LKE, LG&E and Kentucky Registrants)KU)
PPL and its subsidiaries issue debt to finance their operations, which exposes them to interest rate risk. Various financial derivative instruments are utilized to adjust the mix of fixed and floating interest rates in their debt portfolio, adjust the duration of the debt portfolio and lock in benchmark interest rates in anticipation of future financing, when appropriate. Risk limits under PPL's risk management program are designed to balance risk exposure to volatility in interest expense and changes in the fair value of the debt portfolio due to changes in benchmark interest rates.
Cash Flow Hedges
(PPL)
Interest rate risks include exposure to adverse interest rate movements for outstanding variable rate debt and for future anticipated financings. Financial interest rate swap contracts that qualify as cash flow hedges may be entered into to hedge floating interest rate risk associated with both existing and anticipated debt issuances. At SeptemberJune 30, 2013,2014, outstanding interest rate swap contracts range in maturity through 2024 for WPD and through 20442026 for PPL's domestic interest rate swaps. These swaps had an aggregate notional value of $2.3 billion$475 million at SeptemberJune 30, 2013 of which £300 million
(approximately $464 million based on spot rates) was related to WPD. Also included in this total are forward-starting interest rate swaps entered into by PPL on behalf of LG&E and KU. Realized gains and losses from these swaps are probable of recovery through regulated rates; as such, the fair value of these derivatives have been reclassified from AOCI to regulatory assets or liabilities. The gains and losses will be recognized in "Interest Expense" on the Statements of Income over the life of the underlying debt when the hedged transaction occurs.2014.
At SeptemberJune 30, 2013,2014, PPL held a notional position in cross-currency interest rate swaps totaling $1.3 billion that range in maturity through 2028 to hedge the interest payments and principal of WPD's U.S. dollar-denominated senior notes.
For the three and nine months ended SeptemberJune 30, 2013 and 2012,2014, PPL had no hedge ineffectiveness associated with interest rate derivatives. There were insignificant amounts of hedge ineffectiveness associated with interest rate derivatives was insignificant.for the six months ended June 30, 2014 and three and six months ended June 30, 2013.
Cash flow hedges are discontinued if it is no longer probable that the original forecasted transaction will occur by the end of the originally specified time period and any amounts previously recorded in AOCI are reclassified into earnings once it is determined that the hedged transaction is probable of not occurring. For the six months ended June 30, 2014, PPL had an insignificant amount reclassified associated with discontinued cash flow hedges. There were no such reclassifications for the three and nine months ended SeptemberJune 30, 20132014 and 2012.the three and six months ended June 30, 2013.
At SeptemberJune 30, 2013,2014, the accumulated net unrecognized after-tax gains (losses) on qualifying derivatives that are expected to be reclassified into earnings during the next 12 months were $(11)$(13) million. Amounts are reclassified as the hedged interest payments are made.
(Kentucky Registrants)
In November 2012 and April 2013, LG&E and KU entered into forward-starting interest rate swaps with PPL that hedge the interest payments on new debt that is expected to be issued in 2013. In September 2013, these hedges were terminated and LG&E and KU entered into new forward-starting interest rate swaps with PPL, effectively extending the start date of the prior hedges from September 2013 to December 2013. Both the terminated swaps and the swaps entered into in September have terms identical to forward-starting swaps entered into by PPL with third parties. A cash settlement of $98 million (LG&E and KU each received $49 million) was received on the terminated swaps, which is included in "Cash Flows from Operating Activities" on the Statements of Cash Flows. Realized gains and losses on all of these swaps are probable of recovery through regulated rates; as such, the September settlements and the fair value of the new derivatives were reclassified from AOCI to regulatory assets or liabilities and are expected to be recognized in "Interest Expense" on the Statements of Income over the life of the underlying debt when the hedged transaction occurs. For the three and nine months ended September 30, 2013, there was no hedge ineffectiveness recorded for the interest rate derivatives. At September 30, 2013, the total notional amount outstanding was $500 million (LG&E and KU each held contracts of $250 million) that matures in 2043.
Economic Activity (PPL, LKE and LG&E)
LG&E enters into interest rate swap contracts that economically hedge interest payments on variable rate debt. Because realized gains and losses from the swaps, including a terminated swap contract, are recoverable through regulated rates, any subsequent changes in fair value of these derivatives are included in regulatory assets or liabilities until they are realized as interest expense. Realized gains and losses are recognized in "Interest Expense" on the Statements of Income when the underlying hedged transaction occurs.interest expense is recorded. At SeptemberJune 30, 2013,2014, LG&E held contracts with a notional amount of $179 million that range in maturity through 2033.
Foreign Currency Risk (PPL)
PPL is exposed to foreign currency risk, primarily through investments in and earnings of U.K. affiliates. PPL has adopted a foreign currency risk management program designed to hedge certain foreign currency exposures, including firm commitments, recognized assets or liabilities, anticipated transactions and net investments. In addition, PPL enters into financial instruments to protect against foreign currency translation risk of expected earnings.
Net Investment Hedges
PPL enters into foreign currency contracts on behalf of a subsidiary to protect the value of a portion of its net investment in WPD. The contracts outstanding at SeptemberJune 30, 20132014 had a notional amount of £320£306 million (approximately $505$494 million based on contracted rates). The settlement dates of these contracts range from November 20132014 through June 2015.2016.
Additionally, a PPL Global subsidiary that has a U.S. dollar functional currency entered into GBP intercompany loans payable with PPL WEM subsidiaries that have GBP functional currency. The loans qualify as a net investment hedge for the PPL Global subsidiary. As such, the foreign currency gains and losses on the intercompany loans for the PPL Global subsidiary are recorded to the foreign currency translation adjustment component of OCI. At SeptemberJune 30, 2013,2014, the outstanding balances of the intercompany loans were £77£38 million (approximately $119$64 million based on spot rates). For the three and ninesix months ended SeptemberJune 30, 2013,2014, PPL recognized an insignificant amount of net investment hedge gains (losses) on the intercompany loans of $(9) million and $(3) million in the foreign currency translation adjustment component of OCI. Such amounts forFor the three and ninesix months ended SeptemberJune 30, 2012 were not significant.2013, PPL recognized an insignificant amount and $6 million of net investment hedge gains (losses) on the intercompany loans in the foreign currency translation adjustment component of OCI.
At SeptemberJune 30, 2013,2014, PPL had $5$(16) million of accumulated net investment hedge after tax gains (losses), after-tax, that were included in the foreign currency translation adjustment component of AOCI, compared to $14 million of gains (losses), after-taxan insignificant amount at December 31, 2012.2013.
Economic Activity
PPL enters into foreign currency contracts on behalf of a subsidiary to economically hedge GBP-denominated anticipated earnings. At SeptemberJune 30, 2013,2014, the total exposure hedged by PPL was approximately £1.3£1.7 billion (approximately $2.1$2.8 billion based on contracted rates). These contracts had termination dates ranging from October 2013July 2014 through October 2015.December 2016.
Accounting and Reporting
(All Registrants)
All derivative instruments are recorded at fair value on the Balance Sheet as an asset or liability unless they qualify for NPNS.NPNS is elected. NPNS contracts for PPL and PPL Energy Supply include certain full-requirement sales contracts, other physical purchase and sales contracts and certain retail energy and physical capacity contracts, and for PPL Electric include certain full-requirement purchase contracts and other physical purchase contracts. Changes in the fair value of derivatives not designated as NPNS are recognized currently in earnings unless specific hedge accounting criteria are met and designated as such, except for the change
changes in fair valuevalues of LG&E's and KU's interest rate swaps that are recognized as regulatory assets or regulatory liabilities.assets. See Note 6 for amounts recorded in regulatory assets and regulatory liabilities at SeptemberJune 30, 20132014 and December 31, 2012.2013. PPL and PPL Energy Supply have many physical and financial commodity purchases and sales contracts that economically hedge commodity price risk but do not receive hedge accounting treatment. As such, realized and unrealized gains (losses) on these contracts are recorded currently in earnings. Generally each contract is considered a unit of account and PPL and PPL Energy Supply present gains (losses) on physical and financial commodity sales contracts in "Unregulated wholesale energy" or "Unregulated retail energy" and (gains) losses on physical and financial commodity purchase contracts in "Fuel" or "Energy purchases" on the Statements of Income. Certain of the economic hedging strategies employed by PPL Energy Supply utilize a combination of financial purchases and sales contracts which are similarly reported gross as an expense and revenue, respectively, on the Statements of Income. PPL Energy Supply records realized hourly net sales or purchases of physical power with PJM in its Statements of Income as "Unregulated wholesale energy" if in a net sales position and "Energy purchases" if in a net purchase position.
See Notes 1 and 19 in each Registrant's 20122013 Form 10-K for additional information on accounting policies related to derivative instruments.
(PPL)
The following table presents the fair value and location of derivative instruments recorded on the Balance Sheets.
| | | | | | September 30, 2013 | | December 31, 2012 | | | | | | June 30, 2014 | | December 31, 2013 |
| | | | | | Derivatives designated as | | Derivatives not designated | | Derivatives designated as | | Derivatives not designated | | | | | | Derivatives designated as | | Derivatives not designated | | Derivatives designated as | | Derivatives not designated |
| | | | | | hedging instruments | | as hedging instruments (a) | | hedging instruments | | as hedging instruments (a) | | | | | | hedging instruments | | as hedging instruments | | hedging instruments | | as hedging instruments |
| | | | | | Assets | | Liabilities | | Assets | | Liabilities | | Assets | | Liabilities | | Assets | | Liabilities | | | | | | Assets | | Liabilities | | Assets | | Liabilities | | Assets | | Liabilities | | Assets | | Liabilities |
Current: | Current: | | | | | | | | | | | | | | | | | | | | | Current: | | | | | | | | | | | | | | | | | | | | |
| Price Risk Management | | | | | | | | | | | | | | | | | | | | Price Risk Management | | | | | | | | | | | | | | | | | | | |
| | Assets/Liabilities (b): | | | | | | | | | | | | | | | | | | | | | Assets/Liabilities (a): | | | | | | | | | | | | | | | | | | | |
| | Interest rate swaps (c) | | $ | 83 | | $ | 16 | | | | | $ | 4 | | $ | 14 | | $ | 22 | | | | | $ | 5 | | Interest rate swaps (b) | | | | | | | | | $ | 4 | | $ | 82 | | | | | | | $ | 4 |
| | Cross-currency swaps | | 1 | | 1 | | | | | | | | | | 3 | | | | | | | Cross-currency swaps (b) | | | | $ | 5 | | | | | | | | | | $ | 4 | | | | | |
| | Foreign currency | | | | | | | | | | | | | | | | | | | | | Foreign currency | | | | | | | | | | | | �� | | | | | | | |
| | | contracts | | | | 5 | | $ | | | 24 | | | | | 2 | | | | | 23 | | | contracts | | | | 22 | | | | | 95 | | | | | 16 | | | | | 55 |
| | Commodity contracts | | | | | | | | | 961 | | | 773 | | | 59 | | | | | $ | 1,452 | | | 1,010 | | Commodity contracts | | | | | | | | $ | 954 | | | 1,133 | | | | | | | | $ | 860 | | | 750 |
| | | | Total current | | | 84 | | | 22 | | | 961 | | | 801 | | | 73 | | | 27 | | | 1,452 | | | 1,038 | | | | Total current | | | | | | 27 | | | 954 | | | 1,232 | | | 82 | | | 20 | | | 860 | | | 809 |
Noncurrent: | Noncurrent: | | | | | | | | | | | | | | | | | | | | Noncurrent: | | | | | | | | | | | | | | | | | | | |
| Price Risk Management | | | | | | | | | | | | | | | | | | | | Price Risk Management | | | | | | | | | | | | | | | | | | | |
| | Assets/Liabilities (b): | | | | | | | | | | | | | | | | | | | | | Assets/Liabilities (a): | | | | | | | | | | | | | | | | | | | |
| | Interest rate swaps (c) | | 3 | | 1 | | | | | 37 | | | 1 | | | | | | | 53 | | Interest rate swaps (b) | | $ | 1 | | 12 | | | | | 38 | | | 9 | | | | | | | 32 |
| | Cross-currency swaps | | 27 | | | | | | | | | | 14 | | 1 | | | | | | | Cross-currency swaps (b) | | | | 42 | | | | | | | | | | 28 | | | | | |
| | Foreign currency | | | | | | | | | | | | | | | | | | | | | Foreign currency | | | | | | | | | | | | | | | | | | | |
| | | contracts | | | | 6 | | | 1 | | 32 | | | | | | | | | | 19 | | | contracts | | | | 5 | | | 2 | | 54 | | | | | 4 | | | | | 31 |
| | Commodity contracts | | | | | | | | | 519 | | | 462 | | | 27 | | | | | | 530 | | | 556 | | Commodity contracts | | | | | | | | | 420 | | | 347 | | | | | | | | | 328 | | | 320 |
| | | | Total noncurrent | | | 30 | | | 7 | | | 520 | | | 531 | | | 42 | | | 1 | | | 530 | | | 628 | | | | Total noncurrent | | | 1 | | | 59 | | | 422 | | | 439 | | | 9 | | | 32 | | | 328 | | | 383 |
Total derivatives | Total derivatives | | $ | 114 | | $ | 29 | | $ | 1,481 | | $ | 1,332 | | $ | 115 | | $ | 28 | | $ | 1,982 | | $ | 1,666 | Total derivatives | | $ | 1 | | $ | 86 | | $ | 1,376 | | $ | 1,671 | | $ | 91 | | $ | 52 | | $ | 1,188 | | $ | 1,192 |
(a) | $216 million and $300 million of net gains associated with derivatives that were no longer designated as hedging instruments are recorded in AOCI at September 30, 2013 and December 31, 2012. |
(b) | Represents the location on the Balance Sheets. |
(c)(b) | Excludes accrued interest, if applicable. |
The after-tax balances of accumulated net gains (losses) (excluding net investment hedges) in AOCI were $87 million and $132 million at September 30, 2013 and December 31, 2012. The after-tax balances of accumulated net gains (losses) (excluding net investment hedges) in AOCI were $231 million and $527 million at September 30, 2012 and December 31, 2011.
The following tables present the pre-tax effect of derivative instruments recognized in income, OCI or regulatory assets and regulatory liabilities for the periods ended September 30, 2013.
| | | | | | | | | | | | | | Three Months | | Nine Months |
| | | | | | | | | | | | | | | | | Gain (Loss) | | | | | Gain (Loss) |
| | | | | | | | | | | | | | | | | Recognized | | | | | Recognized |
| | | | | | | | | | | | | | | | | in Income | | | | | in Income |
| | | | | | | | | | | | | | on Derivative | | Gain (Loss) | | on Derivative |
| | | | | | | | | | | Gain (Loss) | | (Ineffective | | Reclassified | | (Ineffective |
| | | | | | | | Location of | | Reclassified | | Portion and | | from AOCI | | Portion and |
| | | | | Derivative Gain | | Gain (Loss) | | from AOCI | | Amount | | into | | Amount |
| | | | | (Loss) Recognized in | | Recognized | | into Income | | Excluded from | | Income | | Excluded from |
Derivative | | OCI (Effective Portion) | | | in Income | (Effective | | Effectiveness | | (Effective | | Effectiveness |
Relationships | | Three Months | | Nine Months | | on Derivative | | Portion) | | Testing) | | Portion) | | Testing) |
Cash Flow Hedges: | | | | | | | | | | | | | | | | | | | | |
| Interest rate swaps | | $ | 25 | | $ | 102 | | Interest expense | | $ | (5) | | | | | $ | (14) | | | |
| Cross-currency swaps | | | (36) | | | 16 | | Interest expense | | | (1) | | | | | | | | | |
| | | | | | | | | | | Other income | | | | | | | | | | | | |
| | | | | | | | | | | | (expense) - net | | | (25) | | | | | | 45 | | | |
| Commodity contracts | | | | | | | | Wholesale energy | | | | | | | | | | | | |
| | | | | | | | | | | | marketing | | | 58 | | | | | | 198 | | $ | 1 |
| | | | | | | | | | | Depreciation | | | 1 | | | | | | 2 | | | |
| | | | | | | | | | | Energy purchases | | | (11) | | | | | | (41) | | | |
Total | | $ | (11) | | $ | 118 | | | | | $ | 17 | | | | | $ | 190 | | $ | 1 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net Investment Hedges: | | | | | | | | | | | | | | | | | | | | | |
| | Foreign currency contracts | | $ | (22) | | $ | (5) | | | | | | | | | | | | | | | |
Derivatives Not Designated as | | Location of Gain (Loss) Recognized in | | | | | | |
Hedging Instruments | | Income on Derivative | | Three Months | | Nine Months |
| | | | | | | | |
Foreign currency contracts | | Other income (expense) - net | | $ | (117) | | $ | 6 |
Interest rate swaps | | Interest expense | | | (2) | | | (6) |
Commodity contracts | | Unregulated 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 Designated as | | Location of Gain (Loss) Recognized as | | | | | | |
Hedging Instruments | | Regulatory Liabilities/Assets | | Three Months | | Nine Months |
| | | | | | | | |
Interest rate swaps | | Regulatory liabilities - noncurrent | | $ | 12 | | $ | 70 |
(a) | Differs from the Statement of Income due to intra-month transactions that PPL defines as spot activity, which is not accounted for as a derivative. |
The following tables present the pre-tax effect of derivative instruments recognized in income, OCI or regulatory assets and regulatory liabilities for the periods ended SeptemberJune 30, 2012.2014.
Derivatives in | | Hedged Items in | | | Location of Gain | | Gain (Loss) Recognized | | Gain (Loss) Recognized |
Fair Value Hedging | | Fair Value Hedging | | | (Loss) Recognized in | | in Income on Derivative | | in Income on Related Item |
Relationships | | Relationships | | | Income on Derivative | | Three Months | | Nine Months | | Three Months | | Nine Months |
| | | | | | | | | | | | | | | | | |
Interest rate swaps | | Fixed rate debt | | Interest expense | | $ | (1) | | | | | $ | 1 | | $ | 3 |
| | | | | | | | | | | | | | Three Months | | Six Months |
| | | | | | | | | | | | | | | | | Gain (Loss) | | | | | Gain (Loss) |
| | | | | | | | | | | | | | | | | Recognized | | | | | Recognized |
| | | | | | | | | | | | | | | | | in Income | | | | | in Income |
| | | | | | | | | | | | | | on Derivative | | Gain (Loss) | | on Derivative |
| | | | | | | | | | | Gain (Loss) | | (Ineffective | | Reclassified | | (Ineffective |
| | | | | | | | Location of | | Reclassified | | Portion and | | from AOCI | | Portion and |
| | | | | Derivative Gain | | Gain (Loss) | | from AOCI | | Amount | | into | | Amount |
| | | | | (Loss) Recognized in | | Recognized | | into Income | | Excluded from | | Income | | Excluded from |
Derivative | | OCI (Effective Portion) | | | in Income | (Effective | | Effectiveness | | (Effective | | Effectiveness |
Relationships | | Three Months | | Six Months | | on Derivative | | Portion) | | Testing) | | Portion) | | Testing) |
Cash Flow Hedges: | | | | | | | | | | | | | | | | | | | | |
| Interest rate swaps | | $ | (14) | | $ | (60) | | Interest expense | | $ | (4) | | | | | $ | (9) | | $ | 2 |
| Cross-currency swaps | | | 9 | | | (16) | | Interest expense | | | 1 | | | | | | 1 | | | |
| | | | | | | | | | | Other income | | | | | | | | | | | | |
| | | | | | | | | | | | (expense) - net | | | | | | | | | (29) | | | |
| | | | | | | | | | Three Months | | Nine Months | | | | | | | | | | Three Months | | Six Months |
| | | | | | | | | | | | Gain (Loss) | | | | | Gain (Loss) | | | | | | | | | | | | Gain (Loss) | | | | | Gain (Loss) |
| | | | | | | | | | | | Recognized | | | | Recognized | | | | | | | | | | | | Recognized | | | | Recognized |
| | | | | | | | | | | | in Income | | | | | in Income | | | | | | | | | | | | in Income | | | | | in Income |
| | | | | | | | | | on Derivative | | Gain (Loss) | | on Derivative | | | | | | | | | | on Derivative | | Gain (Loss) | | on Derivative |
| | | | | | | | Gain (Loss) | | (Ineffective | | Reclassified | | (Ineffective | | | | | | | | Gain (Loss) | | (Ineffective | | Reclassified | | (Ineffective |
| | | | | | Location of | | Reclassified | | Portion and | | from AOCI | | Portion and | | | | | | Location of | | Reclassified | | Portion and | | from AOCI | | Portion and |
| | | | Derivative Gain | | Gain (Loss) | | from AOCI | | Amount | | into | | Amount | | | | Derivative Gain | | Gain (Loss) | | from AOCI | | Amount | | into | | Amount |
| | | | (Loss) Recognized in | | Recognized | | into Income | | Excluded from | | Income | | Excluded from | | | | (Loss) Recognized in | | Recognized | | into Income | | Excluded from | | Income | | Excluded from |
Derivative | Derivative | | OCI (Effective Portion) | | | in Income | (Effective | | Effectiveness | | (Effective | | Effectiveness | Derivative | | OCI (Effective Portion) | | | in Income | (Effective | | Effectiveness | | (Effective | | Effectiveness |
Relationships | Relationships | | Three Months | | Nine Months | | on Derivative | | Portion) | | Testing) | | Portion) | | Testing) | Relationships | | Three Months | | Six Months | | on Derivative | | Portion) | | Testing) | | Portion) | | Testing) |
Cash Flow Hedges: | | | | | | | | | | | | | | | | | | |
| Interest rate swaps | | $ | (6) | | $ | (28) | | Interest expense | | $ | (4) | | | | $ | (13) | | | |
| | | | | | | | | | Other income | | | | | | | | | | |
| | | | | | | | | | (expense) - net | | 1 | | | | 1 | | | |
| Cross-currency swaps | | | (49) | | | (3) | | Interest expense | | | | | | | (1) | | | |
| | | | | | | | | Other income | | | | | | | | | | |
| | | | | | | | | | (expense) - net | | | (40) | | | | (12) | | | | | | | | | | | | | | | | | | | | |
| Commodity contracts | | | | | | 99 | | Wholesale energy | | | | | | | | | | Commodity contracts | | | | | | | | Unregulated wholesale | | | | | | | | | |
| | | | | | | | marketing | | | 174 | | | | 673 | | $ | (1) | | | | | | | | energy | | | 5 | | | | 6 | | |
| | | | | | | | | | Depreciation | | | 1 | | | | 2 | | | | | | | | | | | Energy purchases | | | 8 | | | | 15 | | |
| | | | | | | | | | Energy purchases | | | (20) | | $ | 1 | | | (105) | | | (2) | | | | | | | | | | Depreciation | | | | | | | | | 1 | | | |
Total | Total | | $ | (55) | | $ | 68 | | | | $ | 112 | | $ | 1 | | $ | 545 | | $ | (3) | Total | | $ | (5) | | $ | (76) | | | | $ | 10 | | | | | $ | (15) | | $ | 2 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net Investment Hedges: | Net Investment Hedges: | | | | | | | | | | | | | | | | | | Net Investment Hedges: | | | | | | | | | | | | | | | | | |
| | Foreign currency contracts | | $ | (4) | | $ | (5) | | | | | | | | | | | | | Foreign currency contracts | | $ | (14) | | $ | (18) | | | | | | | | | | | |
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 | | $ | (47) | | $ | (40) |
Interest rate swaps | | Interest expense | | | (2) | | | (4) |
Commodity contracts | | Unregulated retail electric and gas | | | (3) | | | 20 |
| | Wholesale energy marketing | | | (476) | | | 900 |
| | Net energy trading margins (a) | | | (10) | | | 12 |
| | Fuel | | | 6 | | | |
| | Energy purchases | | | 364 | | | (717) |
| | Total | | $ | (168) | | $ | 171 |
Derivatives Not Designated as | | | Location of Gain (Loss) Recognized in | | | | |
Hedging Instruments | | | Income on Derivative | | Three Months | | Six Months |
| | | | | | | | | |
Foreign currency contracts | | | Other income (expense) - net | | $ | (72) | | $ | (96) |
Interest rate swaps | | | Interest expense | | | (2) | | | (4) |
Commodity contracts | | | Unregulated wholesale energy (a) | | | (91) | | | (3,135) |
| | | Unregulated retail energy | | 12 | | (52) |
| | | Fuel | | | 8 | | | 7 |
| | | Energy purchases (b) | | | 78 | | | 2,442 |
| | | Total | | $ | (67) | | $ | (838) |
| | | | | | | |
| | | | | | | | | |
Derivatives Not Designated as | | Location of Gain (Loss) Recognized as | | | | | | Location of Gain (Loss) Recognized as | | | | |
Hedging Instruments | | Regulatory Liabilities/Assets | | Three Months | | Nine Months | | Regulatory Liabilities/Assets | | Three Months | | Six Months |
| | | | | | | | | | | | |
Interest rate swaps | | Regulatory assets - noncurrent | | $ | 1 | | $ | (2) | | Regulatory assets - noncurrent | | $ | (2) | | $ | (6) |
(a) | Differs from the Statement of IncomeThe six-month period ended June 30, 2014 includes significant realized and unrealized losses on physical and financial commodity sales contracts due to intra-month transactions that PPL defines as spot activity, which is not accounted for as a derivative.the unusually cold weather experienced in the first quarter of 2014. |
(b) | The six-month period ended June 30, 2014 includes significant realized and unrealized gains on physical and financial commodity purchase contracts due to the unusually cold weather experienced in the first quarter of 2014. |
The following tables present the pre-tax effect of derivative instruments recognized in income, OCI, or regulatory assets and regulatory liabilities for the periods ended June 30, 2013.
| | | | | | | | | | | | | | Three Months | | Six Months |
| | | | | | | | | | | | | | | | | Gain (Loss) | | | | | Gain (Loss) |
| | | | | | | | | | | | | | | | | Recognized | | | | | Recognized |
| | | | | | | | | | | | | | | | | in Income | | | | | in Income |
| | | | | | | | | | | | | | on Derivative | | Gain (Loss) | | on Derivative |
| | | | | | | | | | | Gain (Loss) | | (Ineffective | | Reclassified | | (Ineffective |
| | | | | | | | Location of | | Reclassified | | Portion and | | from AOCI | | Portion and |
| | | | | Derivative Gain | | Gain (Loss) | | from AOCI | | Amount | | into | | Amount |
| | | | | (Loss) Recognized in | | Recognized | | into Income | | Excluded from | | Income | | Excluded from |
Derivative | | OCI (Effective Portion) | | | in Income | (Effective | | Effectiveness | | (Effective | | Effectiveness |
Relationships | | Three Months | | Six Months | | on Derivative | | Portion) | | Testing) | | Portion) | | Testing) |
Cash Flow Hedges: | | | | | | | | | | | | | | | | | | | | |
| Interest rate swaps | | $ | 68 | | $ | 77 | | Interest expense | | $ | (4) | | | | | $ | (9) | | | |
| Cross-currency swaps | | | (21) | | | 52 | | Interest expense | | | 1 | | | | | | 1 | | | |
| | | | | | | | | | | Other income | | | | | | | | | | | | |
| | | | | | | | | | | | (expense) - net | | | 1 | | | | | | 70 | | | |
| Commodity contracts | | | | | | | | Unregulated | | | | | | | | | | | | |
| | | | | | | | | | | | wholesale energy | | | 73 | | | | | | 140 | | $ | 1 |
| | | | | | | | | | | Energy purchases | | | (14) | | | | | | (30) | | | |
| | | | | | | | | | | Depreciation | | | 1 | | | | | | 1 | | | |
Total | | $ | 47 | | $ | 129 | | | | | $ | 58 | | | | | $ | 173 | | $ | 1 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net Investment Hedges: | | | | | | | | | | | | | | | | | | | | | |
| | Foreign currency contracts | | $ | 1 | | $ | 17 | | | | | | | | | | | | | | | |
Derivatives Not Designated as | | Location of Gain (Loss) Recognized in | | | | | | |
Hedging Instruments | | Income on Derivative | | Three Months | | Six Months |
| | | | | | | | |
Foreign currency contracts | | Other income (expense) - net | | $ | 4 | | $ | 123 |
Interest rate swaps | | Interest expense | | | (2) | | | (4) |
Commodity contracts | | Unregulated wholesale energy | | | 740 | | | 34 |
| | Unregulated retail energy | | | 22 | | | 15 |
| | Fuel | | | (3) | | | (2) |
| | Energy purchases | | | (599) | | | (13) |
| | Total | | $ | 162 | | $ | 153 |
| | | | | | | | |
Derivatives Not Designated as | | Location of Gain (Loss) Recognized as | | | | | | |
Hedging Instruments | | Regulatory Liabilities/Assets | | Three Months | | Six Months |
| | | | | | | | |
Interest rate swaps | | Regulatory assets - noncurrent | | $ | 11 | | $ | 15 |
| | | | | | | | |
| | | | | | | | |
Derivatives Designated as | | Location of Gain (Loss) Recognized as | | | | | | |
Hedging Instruments | | Regulatory Liabilities/Assets | | Three Months | | Six Months |
| | | | | | | | |
Interest rate swaps | | Regulatory liabilities - noncurrent | | $ | 48 | | $ | 58 |
(PPL Energy Supply)
The following table presents the fair value and location of derivative instruments recorded on the Balance Sheets.
| | | | | | | September 30, 2013 | | December 31, 2012 |
| | | | | | | Derivatives not designated | | Derivatives designated as | | Derivatives not designated |
| | | | | | | as hedging instruments (a) | | hedging instruments | | as hedging instruments (a) |
| | | | | | | Assets | | Liabilities | | Assets | | Liabilities | | Assets | | Liabilities |
Current: | | | | | | | | | | | | | | | | | | |
| Price Risk Management | | | | | | | | | | | | | | | | | | |
| | Assets/Liabilities (b): | | | | | | | | | | | | | | | | | | |
| | | Commodity contracts | | $ | 961 | | $ | 773 | | $ | 59 | | | | | $ | 1,452 | | $ | 1,010 |
| | | | | Total current | | | 961 | | | 773 | | | 59 | | | | | | 1,452 | | | 1,010 |
Noncurrent: | | | | | | | | | | | | | | | | | | |
| Price Risk Management | | | | | | | | | | | | | | | | | | |
| | Assets/Liabilities (b): | | | | | | | | | | | | | | | | | | |
| | | Commodity contracts | | | 519 | | | 462 | | | 27 | | | | | | 530 | | | 556 |
| | | | | Total noncurrent | | | 519 | | | 462 | | | 27 | | | | | | 530 | | | 556 |
Total derivatives | | $ | 1,480 | | $ | 1,235 | | $ | 86 | | | | | $ | 1,982 | | $ | 1,566 |
(a) | $216 million and $300 million of net gains associated with derivatives that were no longer designated as hedging instruments are recorded in AOCI at September 30, 2013 and December 31, 2012. |
(b) | Represents the location on the Balance Sheets. |
The after-tax balances of accumulated net gains (losses) in AOCI were $115 million and $211 million at September 30, 2013 and December 31, 2012. The after-tax balances of accumulated net gains (losses) in AOCI were $312 million and $605 million at September 30, 2012 and December 31, 2011.
The following tables present the pre-tax effect of derivative instruments recognized in income or OCI for the periods ended September 30, 2013.
| | | | | | | | | | | | | Three Months | | Nine Months |
| | | | | | | | | | | | | | | | Gain (Loss) | | | | | Gain (Loss) |
| | | | | | | | | | | | | | | | | Recognized | | | | | Recognized |
| | | | | | | | | | | | | | | | in Income | | | | | in Income |
| | | | | | | | | | | | | | | | on Derivative | | | | | on Derivative |
| | | | | | | | | | Gain (Loss) | | (Ineffective | | Gain (Loss) | | (Ineffective |
| | | | | | | | Location of | | Reclassified | | Portion and | | Reclassified | | Portion and |
| | | | | Derivative Gain | | Gains (Losses) | | from AOCI | | Amount | | from AOCI | | Amount |
| | | | | (Loss) Recognized in | | Recognized | | into Income | | Excluded from | | into Income | | Excluded from |
Derivative | | OCI (Effective Portion) | | | in Income | (Effective | | Effectiveness | | (Effective | | Effectiveness |
Relationships | | Three Months | | Nine Months | | on Derivative | | Portion) | | Testing) | | Portion) | | Testing) |
Cash Flow Hedges: | | | | | | | | | | | | | | | | | | | | |
| Commodity contracts | | | | | | | | Wholesale energy | | | | | | | | | | | | |
| | | | | | | | | | | marketing | | $ | 58 | | | | | $ | 198 | | $ | 1 |
| | | | | | | | | | | Depreciation | | | 1 | | | | | | 2 | | | |
| | | | | | | | | | | Energy purchases | | | (11) | | | | | | (41) | | | |
Total | | | | | | | | | | | $ | 48 | | | | | $ | 159 | | $ | 1 |
| | | | | | | | | | | | | | | | | | | | | | | | |
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 |
(a) | Differs from the Statements of Income due to intra-month transactions that PPL Energy Supply defines as spot activity, which is not accounted for as a derivative. |
The following tables present the pre-tax effect of derivative instruments recognized in income or OCI for the periods ended September 30, 2012.
| | | | | | | | | | | | | Three Months | | Nine Months |
| | | | | | | | | | | | | | | | Gain (Loss) | | | | | Gain (Loss) |
| | | | | | | | | | | | | | | | | Recognized | | | | | Recognized |
| | | | | | | | | | | | | | | | in Income | | | | | in Income |
| | | | | | | | | | | | | | | | on Derivative | | | | | on Derivative |
| | | | | | | | | | Gain (Loss) | | (Ineffective | | Gain (Loss) | | (Ineffective |
| | | | | | | | Location of | | Reclassified | | Portion and | | Reclassified | | Portion and |
| | | | | Derivative Gain | | Gains (Losses) | | from AOCI | | Amount | | from AOCI | | Amount |
| | | | | (Loss) Recognized in | | Recognized | | into Income | | Excluded from | | into Income | | Excluded from |
Derivative | | OCI (Effective Portion) | | | in Income | (Effective | | Effectiveness | | (Effective | | Effectiveness |
Relationships | | Three Months | | Nine Months | | on Derivative | | Portion) | | Testing) | | Portion) | | Testing) |
Cash Flow Hedges: | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | Wholesale energy | | | | | | | | | | | | |
| | Commodity contracts | | | | | $ | 99 | | | marketing | | $ | 174 | | | | | $ | 673 | | $ | (1) |
| | | | | | | | | | | Depreciation | | | | | | | | | 1 | | | |
| | | | | | | | | | | Energy purchases | | | (20) | | $ | 1 | | | (105) | | | (2) |
Total | | | | | $ | 99 | | | | | $ | 154 | | $ | 1 | | $ | 569 | | $ | (3) |
Derivatives Not Designated as | | Location of Gain (Loss) Recognized in | | | | | | |
Hedging Instruments | | Income on Derivative | | Three Months | | Nine Months |
| | | | | | | | |
Commodity contracts | | Unregulated retail electric and gas | | $ | (3) | | $ | 20 |
| | Wholesale energy marketing | | | (476) | | | 900 |
| | Net energy trading margins (a) | | | (10) | | | 12 |
| | Fuel | | | 6 | | | |
| | Energy purchases | | | 364 | | | (717) |
| | Total | | $ | (119) | | $ | 215 |
(a) | Differs from the Statements of Income due to intra-month transactions that PPL Energy Supply defines as spot activity, which is not accounted for as a derivative. |
(LKE)
The following table presents the fair value and the location on the Balance Sheets of derivative instruments designated as cash flow hedges.
| | | | | | | September 30, 2013 | | December 31, 2012 |
| | | | | | | Assets | | Liabilities | | | Assets | | Liabilities | |
Current: | | | | | | | | | | | | | | |
| Price Risk Management | | | | | | | | | | | | | | |
| | Assets/Liabilities (a): | | | | | | | | | | | | | | |
| | | Interest rate swaps | | | | | $ | 14 | | | $ | 14 | | | | |
| | | | | | | June 30, 2014 | | | December 31, 2013 |
| | | | | | | Derivatives not designated | | | Derivatives not designated |
| | | | | | | as hedging instruments | | | as hedging instruments |
| | | | | | | Assets | | Liabilities | | | Assets | | Liabilities |
Current: | | | | | | | | | | | | | |
| Price Risk Management | | | | | | | | | | | | | |
| | Assets/Liabilities (a): | | | | | | | | | | | | | |
| | | Commodity contracts | | $ | 954 | | $ | 1,133 | | | $ | 860 | | $ | 750 |
| | | | | Total current | | | 954 | | | 1,133 | | | | 860 | | | 750 |
Noncurrent: | | | | | | | | | | | | | |
| Price Risk Management | | | | | | | | | | | | | |
| | Assets/Liabilities (a): | | | | | | | | | | | | | |
| | | Commodity contracts | | | 420 | | | 347 | | | | 328 | | | 320 |
| | | | | Total noncurrent | | | 420 | | | 347 | | | | 328 | | | 320 |
Total derivatives | | $ | 1,374 | | $ | 1,480 | | | $ | 1,188 | | $ | 1,070 |
(a) | Represents the location on the Balance Sheets. |
The following tables present the pre-tax effect of derivative instruments designated as cash flow hedges that are recognized in regulatory liabilitiesincome or OCI for the periods ended SeptemberJune 30, 2013.2014.
Derivative Instruments | | Location of Gain (Loss) | | Three Months | | Nine Months |
| | | | | | | | |
Interest rate swaps | | Regulatory liabilities - noncurrent | | $ | 12 | | $ | 70 |
| | | | | | | | | | | | | Three Months | | Six Months |
| | | | | | | | | | | | | | | | Gain (Loss) | | | | | Gain (Loss) |
| | | | | | | | | | | | | | | | | Recognized | | | | | Recognized |
| | | | | | | | | | | | | | | | in Income | | | | | in Income |
| | | | | | | | | | | | | | | | on Derivative | | | | | on Derivative |
| | | | | | | | | | Gain (Loss) | | (Ineffective | | Gain (Loss) | | (Ineffective |
| | | | | | | | Location of | | Reclassified | | Portion and | | Reclassified | | Portion and |
| | | | | Derivative Gain | | Gains (Losses) | | from AOCI | | Amount | | from AOCI | | Amount |
| | | | | (Loss) Recognized in | | Recognized | | into Income | | Excluded from | | into Income | | Excluded from |
Derivative | | OCI (Effective Portion) | | | in Income | (Effective | | Effectiveness | | (Effective | | Effectiveness |
Relationships | | Three Months | | Six Months | | on Derivative | | Portion) | | Testing) | | Portion) | | Testing) |
Cash Flow Hedges: | | | | | | | | | | | | | | | | | | | | |
| Commodity contracts | | | | | | | | Unregulated wholesale | | | | | | | | | | | | |
| | | | | | | | | | | energy | | $ | 5 | | | | | $ | 6 | | | |
| | | | | | | | | | | Energy purchases | | | 8 | | | | | | 15 | | | |
| | | | | | | | | | | Depreciation | | | | | | | | | 1 | | | |
Total | | | | | | | | | | | $ | 13 | | | | | $ | 22 | | | |
The following table presents the fair value and the location on the Balance Sheets of derivative instruments designated as cash flow hedges.
| | | | | | | September 30, 2013 | | December 31, 2012 |
| | | | | | | Assets | | Liabilities | | | Assets | | Liabilities | |
Current: | | | | | | | | | | | | | | |
| Price Risk Management | | | | | | | | | | | | | | |
| | Assets/Liabilities (a): | | | | | | | | | | | | | | |
| | | Interest rate swaps | | | | | $ | 7 | | | $ | 7 | | | | |
Derivatives Not Designated as | | Location of Gain (Loss) Recognized in | | | | | | |
Hedging Instruments | | Income on Derivative | | Three Months | | Six Months |
| | | | | | | | |
Commodity contracts | | Unregulated wholesale energy (a) | | $ | (91) | | $ | (3,135) |
| | Unregulated retail energy | | | 12 | | | (52) |
| | Fuel | | | 8 | | | 7 |
| | Energy purchases (b) | | | 78 | | | 2,442 |
| | Total | | $ | 7 | | $ | (738) |
(a) | RepresentsThe six-month period ended June 30, 2014 includes significant realized and unrealized losses on physical and financial commodity sales contracts due to the locationunusually cold weather experienced in the first quarter of 2014. |
(b) | The six-month period ended June 30, 2014 includes significant realized and unrealized gains on physical and financial commodity purchase contracts due to the Balance Sheets.unusually cold weather experienced in the first quarter of 2014. |
The following tables present the pre-tax effect of derivative instruments recognized in income or OCI for the periods ended June 30, 2013.
| | | | | | | | | | | | | Three Months | | Six Months |
| | | | | | | | | | | | | | | | Gain (Loss) | | | | | Gain (Loss) |
| | | | | | | | | | | | | | | | | Recognized | | | | | Recognized |
| | | | | | | | | | | | | | | | in Income | | | | | in Income |
| | | | | | | | | | | | | | | | on Derivative | | | | | on Derivative |
| | | | | | | | | | Gain (Loss) | | (Ineffective | | Gain (Loss) | | (Ineffective |
| | | | | | | | Location of | | Reclassified | | Portion and | | Reclassified | | Portion and |
| | | | | Derivative Gain | | Gains (Losses) | | from AOCI | | Amount | | from AOCI | | Amount |
| | | | | (Loss) Recognized in | | Recognized | | into Income | | Excluded from | | into Income | | Excluded from |
Derivative | | OCI (Effective Portion) | | | in Income | (Effective | | Effectiveness | | (Effective | | Effectiveness |
Relationships | | Three Months | | Six Months | | on Derivative | | Portion) | | Testing) | | Portion) | | Testing) |
Cash Flow Hedges: | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | Unregulated | | | | | | | | | | | | |
| | Commodity contracts | | | | | | | | | wholesale energy | | $ | 73 | | | | | $ | 140 | | $ | 1 |
| | | | | | | | | | | Energy purchases | | | (14) | | | | | | (30) | | | |
| | | | | | | | | | | Depreciation | | | 1 | | | | | | 1 | | | |
Total | | | | | | | | | | | $ | 60 | | | | | $ | 111 | | $ | 1 |
Derivatives Not Designated as | | Location of Gain (Loss) Recognized in | | | | | | |
Hedging Instruments | | Income on Derivative | | Three Months | | Six Months |
| | | | | | | | |
Commodity contracts | | Unregulated wholesale energy | | $ | 740 | | $ | 34 |
| | Unregulated retail energy | | | 22 | | | 15 |
| | Fuel | | | (3) | | | (2) |
| | Energy purchases | | | (599) | | | (13) |
| | Total | | $ | 160 | | $ | 34 |
(LKE)
The following table presents the pre-tax effect of derivative instruments designated as cash flow hedges that are recognized in regulatory liabilities for the periods ended SeptemberJune 30, 2013.
Derivative Instruments | | Location of Gain (Loss) | | Three Months | | Nine Months | | Location of Gain (Loss) | | Three Months | | Six Months |
| | | | | | | | | | | | | | |
Interest rate swaps | | Regulatory liabilities - noncurrent | | $ | 6 | | $ | 35 | | Regulatory liabilities - noncurrent | | $ | 48 | | $ | 58 |
(KU)(LG&E)
The following table presents the fair value and the location on the Balance Sheets of derivative instruments designated as cash flow hedges.
| | | | | | | September 30, 2013 | | December 31, 2012 |
| | | | | | | Assets | | Liabilities | | | Assets | | Liabilities | |
Current: | | | | | | | | | | | | | | |
| Price Risk Management | | | | | | | | | | | | | | |
| | Assets/Liabilities (a): | | | | | | | | | | | | | | |
| | | Interest rate swaps | | | | | $ | 7 | | | $ | 7 | | | | |
(a) | Represents the location on the Balance Sheets. |
The following tables present the pre-tax effect of derivative instruments designated as cash flow hedges that are recognized in regulatory liabilities for the periods ended SeptemberJune 30, 2013.
Derivative Instruments | | Location of Gain (Loss) | | Three Months | | Six Months |
| | | | | | | | |
Interest rate swaps | | Regulatory liabilities - noncurrent | | $ | 24 | | $ | 29 |
(KU)
The following table presents the pre-tax effect of derivative instruments designated as cash flow hedges that are recognized in regulatory liabilities for the periods ended June 30, 2013.
Derivative Instruments | | Location of Gain (Loss) | | Three Months | | Nine Months | | Location of Gain (Loss) | | Three Months | | Six Months |
| | | | | | | | | | | | | | |
Interest rate swaps | | Regulatory liabilities - noncurrent | | $ | 6 | | $ | 35 | | Regulatory liabilities - noncurrent | | $ | 24 | | $ | 29 |
(LKE and LG&E)
The following table presents the fair value and the location on the Balance Sheets of derivatives not designated as hedging instruments.
| | | | | | September 30, 2013 | | December 31, 2012 | | | | | | | June 30, 2014 | | December 31, 2013 | |
| | | | | | Assets | | Liabilities | | | Assets | | Liabilities | | | | | | | Assets | | Liabilities | | | Assets | | Liabilities | |
Current: | Current: | | | | | | | | | | | | Current: | | | | | | | | | | | |
| Price Risk Management | | | | | | | | | | | Price Risk Management | | | | | | | | | | |
| | Assets/Liabilities (a): | | | | | | | | | | | | Assets/Liabilities (a): | | | | | | | | | | |
| | Interest rate swaps | | | | | $ | 4 | | | | | $ | 5 | | | Interest rate swaps | | | | | $ | 4 | | | | | $ | 4 | |
| | | | Total current | | | | | | 4 | | | | | | 5 | | | | | Total current | | | | | | 4 | | | | | | 4 | |
Noncurrent: | Noncurrent: | | | | | | | | | | | Noncurrent: | | | | | | | | | | |
| Price Risk Management | | | | | | | | | | | Price Risk Management | | | | | | | | | | |
| | Assets/Liabilities (a): | | | | | | | | | | | | Assets/Liabilities (a): | | | | | | | | | | |
| | Interest rate swaps | | | | 37 | | | | | 53 | | | Interest rate swaps | | | | | | 38 | | | | | | 32 | |
| | | | Total noncurrent | | | | | | 37 | | | | | | 53 | | | | | Total noncurrent | | | | | | 38 | | | | | | 32 | |
Total derivatives | Total derivatives | | | | | $ | 41 | | | | | $ | 58 | | Total derivatives | | | | | $ | 42 | | | | | $ | 36 | |
(a) | Represents the location on the Balance Sheets. |
The following tables present the pre-tax effect of derivatives not designated as hedging instruments recognized in income or regulatory assets for the periods ended SeptemberJune 30, 2013.2014.
| | Location of Gain (Loss) Recognized in | | | | |
Derivative Instruments | | Income on Derivatives | | Three Months | | Nine Months |
| | | | | | | | |
Interest rate swaps | | Interest expense | | $ | (2) | | $ | (6) |
| | Location of Gain (Loss) Recognized in | | | | |
Derivative Instruments | | Regulatory Assets | | Three Months | | Nine Months |
| | | | | | | | |
Interest rate swaps | | Regulatory assets - noncurrent (a) | | $ | 2 | | $ | 18 |
(a) | Includes both realized and unrealized gains (losses). |
| | Location of Gain (Loss) Recognized in | | | | |
Derivative Instruments | | Income on Derivatives | | Three Months | | Six Months |
| | | | | | | | |
Interest rate swaps | | Interest expense | | $ | (2) | | $ | (4) |
| | | | | | | | |
| | Location of Gain (Loss) Recognized in | | | | |
Derivative Instruments | | Regulatory Assets | | Three Months | | Six Months |
| | | | | | | | |
Interest rate swaps | | Regulatory assets - noncurrent | | $ | (2) | | $ | (6) |
The following tables present the pre-tax effect of derivatives not designated as hedging instruments recognized in income or regulatory assets for the periods ended SeptemberJune 30, 2012.2013.
| | Location of Gain (Loss) Recognized in | | | | |
Derivative Instruments | | Income on Derivatives | | Three Months | | Nine Months |
| | | | | | | | |
Interest rate swaps | | Interest expense | | $ | (2) | | $ | (6) |
| | Location of Gain (Loss) Recognized in | | | | |
Derivative Instruments | | Regulatory Assets | | Three Months | | Nine Months |
| | | | | | | | |
Interest rate swaps | | Regulatory assets - noncurrent (a) | | $ | 1 | | $ | (2) |
(a) | Includes both realized and unrealized gains (losses). |
| | Location of Gain (Loss) Recognized in | | | | |
Derivative Instruments | | Income on Derivatives | | Three Months | | Six Months |
| | | | | | | | |
Interest rate swaps | | Interest expense | | $ | (2) | | $ | (4) |
| | | | | | | | |
| | Location of Gain (Loss) Recognized in | | | | |
Derivative Instruments | | Regulatory Assets | | Three Months | | Six Months |
| | | | | | | | |
Interest rate swaps | | Regulatory assets - noncurrent | | $ | 11 | | $ | 15 |
(All Registrants except PPL Electric)
Offsetting Derivative Instruments
PPL, PPL Energy Supply, LKE, LG&E and KU or certain of their subsidiaries have master netting arrangements or similar agreements in place including derivative clearing agreements with futures commission merchants (FCMs) to permit the trading of cleared derivative products on one or more futures exchanges. The clearing arrangements permit an FCM to use and apply any property in its possession as a set off to pay amounts or discharge obligations owed by a customer upon default of the customer and typically do not place any restrictions on the FCM's use of collateral posted by the customer. PPL, PPL Energy Supply, LKE, LG&E and KU and their subsidiaries also enter into agreements pursuant to which they trade certain
energy and other products. Under the agreements, upon termination of the agreement as a result of a default or other termination event, the non-defaulting party typically would have a right to setoff amounts owed under the agreement against any other obligations arising between the two parties (whether under the agreement or not), whether matured or contingent and irrespective of the currency, place of payment or place of booking of the obligation.
PPL, PPL Energy Supply, LKE, LG&E and KU have elected not to offset derivative assets and liabilities and not to offset net derivative positions against the right to reclaim cash collateral pledged (an asset) or the obligation to return cash collateral received (a liability) under derivatives agreements. The table below summarizes the derivative positions presented in the balance sheets where a right of setoff exists under these arrangements and related cash collateral received or pledged.
| | | | Assets | | Liabilities | | | | Assets | | Liabilities |
| | | | | | Eligible for Offset | | | | | | | Eligible for Offset | | | | | | | | Eligible for Offset | | | | | | | Eligible for Offset | | |
| | | | | | | | Cash | | | | | | | | | Cash | | | | | | | | | | Cash | | | | | | | | | Cash | | |
| | | | | | | Derivative | | Collateral | | | | | | | Derivative | | Collateral | | | | | | | | | Derivative | | Collateral | | | | | | | Derivative | | Collateral | | |
| | | | Gross | | Instruments | | Received | | Net | | Gross | | Instruments | | Pledged | | Net | | | | Gross | | Instruments | | Received | | Net | | Gross | | Instruments | | Pledged | | Net |
September 30, 2013 | | | | | | | | | | | | | | | | | | |
June 30, 2014 | | June 30, 2014 | | | | | | | | | | | | | | | | | |
PPL | PPL | | | | | | | | | | | | | | | | | | PPL | | | | | | | | | | | | | | | | | |
| Energy Commodities | | $ | 1,480 | | $ | 1,122 | | $ | 14 | | $ | 344 | | $ | 1,235 | | $ | 1,122 | | | | $ | 113 | Energy Commodities | | $ | 1,374 | | $ | 1,176 | | $ | 12 | | $ | 186 | | $ | 1,480 | | $ | 1,176 | | $ | 148 | | $ | 156 |
| Treasury Derivatives | | | 115 | | | 47 | | | | | | 68 | | | 126 | | | 47 | | $ | 22 | | | 57 | Treasury Derivatives | | | 3 | | | 3 | | | | | | | | | 277 | | | 3 | | | 55 | | | 219 |
Total | Total | | $ | 1,595 | | $ | 1,169 | | $ | 14 | | $ | 412 | | $ | 1,361 | | $ | 1,169 | | $ | 22 | | $ | 170 | Total | | $ | 1,377 | | $ | 1,179 | | $ | 12 | | $ | 186 | | $ | 1,757 | | $ | 1,179 | | $ | 203 | | $ | 375 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
PPL Energy Supply | PPL Energy Supply | | | | | | | | | | | | | | | | | | PPL Energy Supply | | | | | | | | | | | | | | | | | |
| Energy Commodities | | $ | 1,480 | | $ | 1,122 | | $ | 14 | | $ | 344 | | $ | 1,235 | | $ | 1,122 | | | | | $ | 113 | Energy Commodities | | $ | 1,374 | | $ | 1,176 | | $ | 12 | | $ | 186 | | $ | 1,480 | | $ | 1,176 | | $ | 148 | | $ | 156 |
LKE | | | | | | | | | | | | | | | | | | | | | | | | |
| Treasury Derivatives | | | | | | | | | | | | | | $ | 42 | | | | | $ | 21 | | $ | 21 |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
LG&E | | | | | | | | | | | | | | | | | | | | | | | | |
| Treasury Derivatives | | | | | | | | | | | | | | $ | 42 | | | | | $ | 21 | | $ | 21 |
LKE | | | | | | | | | | | | | | | | | | | | | | | | |
| Treasury Derivatives | | | | | | | | | | | | | | $ | 55 | | | | | $ | 22 | | $ | 33 |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
LG&E | | | | | | | | | | | | | | | | | | | | | | | | |
| Treasury Derivatives | | | | | | | | | | | | | | $ | 48 | | | | | $ | 22 | | $ | 26 |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
KU | | | | | | | | | | | | | | | | | | | | | | | | |
| Treasury Derivatives | | | | | | | | | | | | | | $ | 7 | | | | | | | | $ | 7 |
December 31, 2013 | | | | | | | | | | | | | | | | | | | | | | | | |
PPL | | | | | | | | | | | | | | | | | | | | | | | | |
| Energy Commodities | | $ | 1,188 | | $ | 912 | | $ | 7 | | $ | 269 | | $ | 1,070 | | $ | 912 | | $ | 1 | | $ | 157 |
| Treasury Derivatives | | | 91 | | | 61 | | | | | | 30 | | | 174 | | | 61 | | | 23 | | | 90 |
Total | | $ | 1,279 | | $ | 973 | | $ | 7 | | $ | 299 | | $ | 1,244 | | $ | 973 | | $ | 24 | | $ | 247 |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
PPL Energy Supply | | | | | | | | | | | | | | | | | | | | | | | | |
| Energy Commodities | | $ | 1,188 | | $ | 912 | | $ | 7 | | $ | 269 | | $ | 1,070 | | $ | 912 | | $ | 1 | | $ | 157 |
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 |
LKE | LKE | | | | | | | | | | | | | | | | | | LKE | | | | | | | | | | | | | | | | | |
| Treasury Derivatives | | $ | 14 | | | | | | | | $ | 14 | | $ | 58 | | | | | $ | 30 | | $ | 28 | Treasury Derivatives | | | | | | | | | | | | | | $ | 36 | | | | | $ | 20 | | $ | 16 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
LG&E | LG&E | | | | | | | | | | | | | | | | | | LG&E | | | | | | | | | | | | | | | | | |
| Treasury Derivatives | | $ | 7 | | | | | | | | $ | 7 | | $ | 58 | | | | | $ | 30 | | $ | 28 | Treasury Derivatives | | | | | | | | | | | | | | $ | 36 | | | | | $ | 20 | | $ | 16 |
| | | | | | | | | | | | | | | | | | | | |
KU | | | | | | | | | | | | | | | | | | |
| Treasury Derivatives | | $ | 7 | | | | | | | | $ | 7 | | | | | | | | | | | | | |
Credit Risk-Related Contingent Features
Certain derivative contracts contain credit risk-related contingent features which, when in a net liability position, would permit the counterparties to require the transfer of additional collateral upon a decrease in the credit ratings of PPL, PPL Energy Supply, LKE, LG&E and KU or certain of their subsidiaries. Most of these features would require the transfer of additional collateral or permit the counterparty to terminate the contract if the applicable credit rating were to fall below investment grade. Some of these features also would allow the counterparty to require additional collateral upon each decreasedowngrade in the credit rating at levels that remain above investment grade. In either case, if the applicable credit rating were to fall below investment grade (i.e., below BBB- for S&P or Fitch, or Baa3 for Moody's), and assuming no assignment to an investment grade affiliate were allowed, most of these credit contingent features require either immediate payment of the net liability as a termination payment or immediate and ongoing full collateralization on derivative instruments in net liability positions.
Additionally, certain derivative contracts contain credit risk-related contingent features that require adequate assurance of performance be provided if the other party has reasonable concerns regarding the performance of PPL's obligation under the
contract. A counterparty demanding adequate assurance could require a transfer of additional collateral or other security, including letters of credit, cash and guarantees from a creditworthy entity. This would typically involve negotiations among the parties. However, amounts disclosed below represent assumed immediate payment or immediate and ongoing full collateralization for derivative instruments in net liability positions with "adequate assurance" features.
(All Registrants except PPL Electric and KU)
At SeptemberJune 30, 2013,2014, derivative contracts in a net liability position that contain credit risk-related contingent features, collateral posted on those positions and the related effect of a decrease in credit ratings below investment grade on derivative contracts that contain credit risk-related contingent features and were in a net liability position isare summarized as follows:
| | | | | | | PPL | | | | | | | | | | | PPL | | | | |
| | | | PPL | | Energy Supply | | LKE | | LG&E | | | | PPL | | Energy Supply | | LKE | | LG&E |
| | | | | | | | | | | | | | | | | | | | |
Aggregate fair value of derivative instruments in a net liability | Aggregate fair value of derivative instruments in a net liability | | | | | | | | | Aggregate fair value of derivative instruments in a net liability | | | | | | | | |
| position with credit risk-related contingent features | | $ | 178 | | $ | 115 | | $ | 29 | | $ | 29 | position with credit risk-related contingent features | | $ | 373 | | $ | 155 | | $ | 28 | | $ | 28 |
Aggregate fair value of collateral posted on these derivative instruments | Aggregate fair value of collateral posted on these derivative instruments | | 39 | | 17 | | 22 | | 22 | Aggregate fair value of collateral posted on these derivative instruments | | 155 | | 134 | | 21 | | 21 |
Aggregate fair value of additional collateral requirements in the event of | Aggregate fair value of additional collateral requirements in the event of | | | | | | | | | Aggregate fair value of additional collateral requirements in the event of | | | | | | | | |
| a credit downgrade below investment grade (a) | | 167 | | 127 | | 7 | | 7 | a credit downgrade below investment grade (a) | | 265 | (b) | 68 | (b) | 8 | | 8 |
(a) | Includes the effect of net receivables and payables already recorded on the Balance Sheet. |
(b) | During the second quarter of 2014, PPL Energy Supply experienced a downgrade in its corporate credit ratings to below investment grade. Amounts related to PPL Energy Supply represent net liability positions subject to further adequate assurance features. |
(PPL)
The change in the carrying amount of goodwill for the ninesix months ended SeptemberJune 30, 20132014 was due to the effect of foreign currency exchange rates on the U.K. Regulated segment.
16. Asset Retirement Obligations | 16. Asset Retirement Obligations | | | | | | | | | | | 16. Asset Retirement Obligations | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
(All Registrants except PPL Electric) | (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 | | $ | 552 | | $ | 375 | | $ | 131 | | $ | 62 | | $ | 69 | |
Balance at December 31, 2013 | | Balance at December 31, 2013 | | $ | 705 | | $ | 404 | | $ | 252 | | $ | 74 | | $ | 178 |
| Accretion expense | | 27 | | 22 | | | 4 | | | 2 | | | 2 | Accretion expense | | 22 | | 15 | | | 6 | | | 2 | | | 4 |
| Obligations incurred | | 6 | | 6 | | | | | | | | | | Obligations incurred | | 1 | | | | | 1 | | | | | | 1 |
| Changes in estimated cash flow or settlement date | | 123 | | 1 | | | 122 | | | 17 | | | 105 | Changes in estimated cash flow or settlement date | | 4 | | | | | 4 | | | 1 | | | 3 |
| Effect of foreign currency exchange rates | | (2) | | | | | | | | | | | | Effect of foreign currency exchange rates | | 1 | | | | | | | | | | | |
| Obligations settled | | | (12) | | | (6) | | | (6) | | | (6) | | | | Obligations settled | | | (5) | | | (3) | | | (2) | | | (2) | | | |
Balance at September 30, 2013 | | $ | 694 | | $ | 398 | | $ | 251 | | $ | 75 | | $ | 176 | |
Balance at June 30, 2014 | | Balance at June 30, 2014 | | $ | 728 | | $ | 416 | | $ | 261 | | $ | 75 | | $ | 186 |
Substantially all of the ARO balances are classified as noncurrent at SeptemberJune 30, 20132014 and December 31, 2012.2013.
(PPL and PPL Energy Supply)
The most significant ARO recorded by PPL and PPL Energy Supply relates to the decommissioning of the Susquehanna nuclear plant. The accrued nuclear decommissioning obligation was $335 million and $316 million at September 30, 2013 and December 31, 2012.
Assets in the NDT funds are legally restricted for purposes of settling PPL's and PPL Energy Supply's ARO related to the decommissioning of the PPL Susquehanna nuclear plant. The aggregate fair value of these assets was $804 million and $712 million at September 30, 2013 and December 31, 2012, and is included in "Nuclear plant decommissioning trust funds" on the Balance Sheets.this ARO. See Notes 13 and 17 for additional information on these assets.
(PPL, LKE, LG&E and Kentucky Registrants)KU)
AccretionLG&E's and KU's accretion and depreciation expense recorded by LG&E and KU is reversed on the income statement andare recorded as a regulatory asset, such that there is no net earnings impact. AROs were revalued primarily due to updates in the estimated cash flows for ash ponds and CCR surface impoundments based on updated cost estimates.
17. Available-for-Sale Securities
(PPL and PPL Energy Supply)
Securities held by the NDT funds and auction rate securities are classified as available-for-sale. Available-for-sale securities are carried on the Balance Sheets at fair value. Unrealized gains and losses on these securities are reported, net of tax, in OCI or are recognized currently in earnings when a decline in fair value is determined to be other-than-temporary. The specific identification method is used to calculate realized gains and losses.
The following table shows the amortized cost, the gross unrealized gains and losses recorded in AOCI and the fair value of available-for-sale securities.
| | | | | | | September 30, 2013 | | December 31, 2012 |
| | | | | | | | | | Gross | | Gross | | | | | | | Gross | | Gross | | |
| | | | | | | Amortized | | Unrealized | | Unrealized | | | | Amortized | | Unrealized | | Unrealized | | |
| | | | | | | Cost | | Gains | | Losses | | Fair Value | | Cost | | Gains | | Losses | | Fair Value |
PPL | | | | | | | | | | | | | | | | | | | | | | | | |
| NDT funds: | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Cash and cash equivalents | | $ | 14 | | | | | | | | $ | 14 | | $ | 11 | | | | | | | | $ | 11 |
| | | Equity securities: | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | U.S. large-cap | | | 230 | | $ | 264 | | | | | | 494 | | | 222 | | $ | 190 | | | | | | 412 |
| | | | U.S. mid/small-cap | | | 31 | | | 43 | | | | | | 74 | | | 30 | | | 30 | | | | | | 60 |
| | | Debt securities: | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | U.S. Treasury | | | 90 | | | 6 | | | | | | 96 | | | 86 | | | 9 | | | | | | 95 |
| | | | U.S. government sponsored | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | agency | | | 5 | | | 1 | | | | | | 6 | | | 8 | | | 1 | | | | | | 9 |
| | | | Municipality | | | 74 | | | 2 | | $ | 1 | | | 75 | | | 78 | | | 5 | | $ | 1 | | | 82 |
| | | | Investment-grade corporate | | | 39 | | | 2 | | | 1 | | | 40 | | | 36 | | | 4 | | | | | | 40 |
| | | | Other | | | 3 | | | | | | | | | 3 | | | 3 | | | | | | | | | 3 |
| | | Receivables/payables, net | | | 2 | | | | | | | | | 2 | | | | | | | | | | | | |
| | | Total NDT funds | | | 488 | | | 318 | | | 2 | | | 804 | | | 474 | | | 239 | | | 1 | | | 712 |
| Auction rate securities | | | 20 | | | | | | 1 | | | 19 | | | 20 | | | | | | 1 | | | 19 |
| Total | | $ | 508 | | $ | 318 | | $ | 3 | | $ | 823 | | $ | 494 | | $ | 239 | | $ | 2 | | $ | 731 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
PPL Energy Supply | | | | | | | | | | | | | | | | | | | | | | | | |
| NDT funds: | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Cash and cash equivalents | | $ | 14 | | | | | | | | $ | 14 | | $ | 11 | | | | | | | | $ | 11 |
| | | Equity securities: | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | U.S. large-cap | | | 230 | | $ | 264 | | | | | | 494 | | | 222 | | $ | 190 | | | | | | 412 |
| | | | U.S. mid/small-cap | | | 31 | | | 43 | | | | | | 74 | | | 30 | | | 30 | | | | | | 60 |
| | | Debt securities: | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | U.S. Treasury | | | 90 | | | 6 | | | | | | 96 | | | 86 | | | 9 | | | | | | 95 |
| | | | U.S. government sponsored | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | agency | | | 5 | | | 1 | | | | | | 6 | | | 8 | | | 1 | | | | | | 9 |
| | | | Municipality | | | 74 | | | 2 | | $ | 1 | | | 75 | | | 78 | | | 5 | | $ | 1 | | | 82 |
| | | | Investment-grade corporate | | | 39 | | | 2 | | | 1 | | | 40 | | | 36 | | | 4 | | | | | | 40 |
| | | | Other | | | 3 | | | | | | | | | 3 | | | 3 | | | | | | | | | 3 |
| | | Receivables/payables, net | | | 2 | | | | | | | | | 2 | | | | | | | | | | | | |
| | | Total NDT funds | | | 488 | | | 318 | | | 2 | | | 804 | | | 474 | | | 239 | | | 1 | | | 712 |
| Auction rate securities | | | 17 | | | | | | 1 | | | 16 | | | 17 | | | | | | 1 | | | 16 |
| Total | | $ | 505 | | $ | 318 | | $ | 3 | | $ | 820 | | $ | 491 | | $ | 239 | | $ | 2 | | $ | 728 |
| | | | | | | June 30, 2014 | | December 31, 2013 |
| | | | | | | | | | Gross | | Gross | | | | | | | Gross | | Gross | | |
| | | | | | | Amortized | | Unrealized | | Unrealized | | | | Amortized | | Unrealized | | Unrealized | | |
| | | | | | | Cost | | Gains | | Losses | | Fair Value | | Cost | | Gains | | Losses | | Fair Value |
NDT funds: | | | | | | | | | | | | | | | | | | | | | | | | |
PPL and PPL Energy Supply | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Cash and cash equivalents | | $ | 16 | | | | | | | | $ | 16 | | $ | 14 | | | | | | | | $ | 14 |
| | | Equity securities | | | 272 | | $ | 393 | | | | | | 665 | | | 265 | | $ | 363 | | | | | | 628 |
| | | Debt securities | | | 218 | | | 11 | | $ | 1 | | | 228 | | | 217 | | | 7 | | $ | 3 | | | 221 |
| | | Receivables/payables, net | | | 2 | | | | | | | | | 2 | | | 1 | | | | | | | | | 1 |
| | | Total NDT funds | | $ | 508 | | $ | 404 | | $ | 1 | | $ | 911 | | $ | 497 | | $ | 370 | | $ | 3 | | $ | 864 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Auction rate securities: | | | | | | | | | | | | | | | | | | | | | | | | |
| PPL | | $ | 17 | | | | | $ | 1 | | $ | 16 | | $ | 20 | | | | | $ | 1 | | $ | 19 |
| PPL Energy Supply | | | 14 | | | | | | 1 | | | 13 | | | 17 | | | | | | 1 | | | 16 |
See Note 13 for details on the securities held by the NDT funds.
There were no securities with credit losses at SeptemberJune 30, 20132014 and December 31, 2012.2013.
The following table shows the scheduled maturity dates of debt securities held at SeptemberJune 30, 2013.2014.
| | | Maturity | | Maturity | | Maturity | | Maturity | | | | | | Maturity | | Maturity | | Maturity | | Maturity | | | |
| | | Less Than | 1-5 | 6-10 | in Excess | | | | | Less Than | 1-5 | 6-10 | in Excess | | |
| | | 1 Year | Years | Years | of 10 Years | Total | | | 1 Year | Years | Years | of 10 Years | Total |
PPL | PPL | | | | | | | | | | | | | PPL | | | | | | | | | | | | |
Amortized cost | Amortized cost | | $ | 6 | | $ | 92 | | $ | 56 | | $ | 77 | | $ | 231 | Amortized cost | | $ | 8 | | $ | 89 | | $ | 60 | | $ | 78 | | $ | 235 |
Fair value | Fair value | | 6 | | | 96 | | | 58 | | 79 | | 239 | Fair value | | 8 | | | 91 | | | 63 | | 82 | | 244 |
| | | | | | | | | | | | | | | | | | | | | | | | |
PPL Energy Supply | PPL Energy Supply | | | | | | | | | | | | PPL Energy Supply | | | | | | | | | | | |
Amortized cost | Amortized cost | | $ | 6 | | $ | 92 | | $ | 56 | | $ | 74 | | $ | 228 | Amortized cost | | $ | 8 | | $ | 89 | | $ | 60 | | $ | 75 | | $ | 232 |
Fair value | Fair value | | 6 | | | 96 | | | 58 | | 76 | | 236 | Fair value | | 8 | | | 91 | | | 63 | | 79 | | 241 |
The following table shows proceeds from and realized gains and losses on sales of available-for-sale securities for the periods ended SeptemberJune 30.
| | | Three Months | | Nine Months | | | Three Months | | Six Months |
| | | 2013 | | 2012 | | 2013 | | 2012 | | | 2014 | | 2013 | | 2014 | | 2013 |
PPL | | | | | | | | | | |
PPL and PPL Energy Supply | | PPL and PPL Energy Supply | | | | | | | | | |
Proceeds from sales of NDT securities (a) | Proceeds from sales of NDT securities (a) | | $ | 33 | | $ | 23 | | $ | 92 | | $ | 102 | Proceeds from sales of NDT securities (a) | | $ | 38 | | $ | 35 | | $ | 65 | | $ | 59 |
Other proceeds from sales | Other proceeds from sales | | | | | | | | 5 | Other proceeds from sales | | | | | | 3 | | |
Gross realized gains (b) | Gross realized gains (b) | | 3 | | 2 | | 10 | | 15 | Gross realized gains (b) | | 5 | | 3 | | 8 | | 7 |
Gross realized losses (b) | Gross realized losses (b) | | 2 | | 2 | | 6 | | 8 | Gross realized losses (b) | | 3 | | 2 | | 4 | | 4 |
| | | | | | | | | | |
PPL Energy Supply | | | | | | | | | | |
Proceeds from sales of NDT securities (a) | | $ | 33 | | $ | 23 | | $ | 92 | | $ | 102 | |
Other proceeds from sales | | | | | | | | 3 | |
Gross realized gains (b) | | 3 | | 2 | | 10 | | 15 | |
Gross realized losses (b) | | 2 | | 2 | | 6 | | 8 | |
(a) | These proceeds are used to pay income taxes and fees related to managing the trust. Remaining proceeds are reinvested in the trust. |
(b) | Excludes the impact of other-than-temporary impairment charges recognized on the Statements of Income. |
18. Accumulated Other Comprehensive Income (Loss)
(PPL and PPL Energy Supply)
The after-tax changes in AOCI by component for the three and nine monthsperiods ended SeptemberJune 30 2013 were as follows.
| | 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 | $ | (401) | | $ | 135 | | $ | 102 | | $ | 1 | | $ | (11) | | $ | (1,955) | | $ | 1 | | $ | (2,128) | |
March 31, 2014 | | March 31, 2014 | $ | 120 | | $ | 177 | | $ | 67 | | $ | 1 | | $ | (5) | | $ | (1,790) | | $ | 1 | | $ | (1,429) |
Amounts arising during the period | Amounts arising during the period | | 87 | | 15 | | (9) | | | | | | | | | | 93 | Amounts arising during the period | | (3) | | 14 | | (1) | | | | | | (2) | | | | 8 |
Reclassifications from AOCI | Reclassifications from AOCI | | | | | | | | (6) | | | (1) | | | 2 | | | 33 | | | | | | 28 | Reclassifications from AOCI | | | | | (1) | | | (5) | | | | | | 1 | | | 28 | | | | | | 23 |
Net OCI during the period | Net OCI during the period | | 87 | | | 15 | | | (15) | | | (1) | | | 2 | | | 33 | | | | | | 121 | Net OCI during the period | | (3) | | | 13 | | | (6) | | | | | | 1 | | | 26 | | | | | | 31 |
September 30, 2013 | $ | (314) | | $ | 150 | | $ | 87 | | $ | | | $ | (9) | | $ | (1,922) | | $ | 1 | | $ | (2,007) | |
| | | | | | | | | | | | | | | | | | |
December 31, 2012 | $ | (149) | | $ | 112 | | $ | 132 | | $ | 1 | | $ | (14) | | $ | (2,023) | | $ | 1 | | $ | (1,940) | |
Amounts arising during the period | | (165) | | 40 | | 77 | | | | | | | | | | (48) | |
Reclassifications from AOCI | | | | | (2) | | | (122) | | | (1) | | | 5 | | | 101 | | | | | | (19) | |
Net OCI during the period | | (165) | | | 38 | | | (45) | | | (1) | | | 5 | | | 101 | | | | | | (67) | |
September 30, 2013 | $ | (314) | | $ | 150 | | $ | 87 | | $ | | | $ | (9) | | $ | (1,922) | | $ | 1 | | $ | (2,007) | |
June 30, 2014 | | June 30, 2014 | $ | 117 | | $ | 190 | | $ | 61 | | $ | 1 | | $ | (4) | | $ | (1,764) | | $ | 1 | | $ | (1,398) |
PPL Energy Supply | | | | | | | | | | | | | | | | | | | | | | | |
June 30, 2013 | | | | $ | 135 | | $ | 144 | | | | | $ | (8) | | $ | (257) | | | | | $ | 14 |
Amounts arising during the period | | | | | 15 | | | | | | | | | | | | | | | | | | 15 |
Reclassifications from AOCI | | | | | | | | (29) | | | | | | 1 | | | 3 | | | | | | (25) |
Net OCI during the period | | | | | 15 | | | (29) | | | | | | 1 | | | 3 | | | | | | (10) |
September 30, 2013 | | | | $ | 150 | | $ | 115 | | | | | $ | (7) | | $ | (254) | | | | | $ | 4 |
| | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2012 | | | | $ | 112 | | $ | 211 | | | | | $ | (10) | | $ | (265) | | | | | $ | 48 |
Amounts arising during the period | | | | | 40 | | | | | | | | | | | | | | | | | | 40 |
Reclassifications from AOCI | | | | | (2) | | | (96) | | | | | | 3 | | | 11 | | | | | | (84) |
Net OCI during the period | | | | | 38 | | | (96) | | | | | | 3 | | | 11 | | | | | | (44) |
September 30, 2013 | | | | $ | 150 | | $ | 115 | | | | | $ | (7) | | $ | (254) | | | | | $ | 4 |
| | Foreign | | Unrealized gains (losses) | | | | | Defined benefit plans | | | |
| | currency | | Available- | | | | | Equity | | Prior | | Actuarial | | Transition | | | |
| | translation | | for-sale | | Qualifying | | investees' | | service | | gain | | asset | | | |
| | adjustments | | securities | | derivatives | | AOCI | | costs | | (loss) | | (obligation) | | Total |
December 31, 2013 | $ | (11) | | $ | 173 | | $ | 94 | | $ | 1 | | $ | (6) | | $ | (1,817) | | $ | 1 | | $ | (1,565) |
Amounts arising during the period | | 128 | | | 19 | | | (47) | | | | | | | | | (2) | | | | | | 98 |
Reclassifications from AOCI | | | | | (2) | | | 14 | | | | | | 2 | | | 55 | | | | | | 69 |
Net OCI during the period | | 128 | | | 17 | | | (33) | | | | | | 2 | | | 53 | | | | | | 167 |
June 30, 2014 | $ | 117 | | $ | 190 | | $ | 61 | | $ | 1 | | $ | (4) | | $ | (1,764) | | $ | 1 | | $ | (1,398) |
| | | | | | | | | | | | | | | | | | | | | | | | |
March 31, 2013 | $ | (394) | | $ | 134 | | $ | 114 | | $ | 1 | | $ | (13) | | $ | (1,989) | | $ | 1 | | $ | (2,146) |
Amounts arising during the period | | (7) | | | 2 | | | 24 | | | | | | | | | | | | | | | 19 |
Reclassifications from AOCI | | | | | (1) | | | (36) | | | | | | 2 | | | 34 | | | | | | (1) |
Net OCI during the period | | (7) | | | 1 | | | (12) | | | | | | 2 | | | 34 | | | | | | 18 |
June 30, 2013 | $ | (401) | | $ | 135 | | $ | 102 | | $ | 1 | | $ | (11) | | $ | (1,955) | | $ | 1 | | $ | (2,128) |
| | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2012 | $ | (149) | | $ | 112 | | $ | 132 | | $ | 1 | | $ | (14) | | $ | (2,023) | | $ | 1 | | $ | (1,940) |
Amounts arising during the period | | (252) | | | 25 | | | 86 | | | | | | | | | | | | | | | (141) |
Reclassifications from AOCI | | | | | (2) | | | (116) | | | | | | 3 | | | 68 | | | | | | (47) |
Net OCI during the period | | (252) | | | 23 | | | (30) | | | | | | 3 | | | 68 | | | | | | (188) |
June 30, 2013 | $ | (401) | | $ | 135 | | $ | 102 | | $ | 1 | | $ | (11) | | $ | (1,955) | | $ | 1 | | $ | (2,128) |
| | | | | | | | | | | | | | | | | | | | | | | | |
PPL Energy Supply | | | | | | | | | | | | | | | | | | | | | | | |
March 31, 2014 | | | | $ | 177 | | $ | 83 | | | | | $ | (3) | | $ | (179) | | | | | $ | 78 |
Amounts arising during the period | | | | | 14 | | | | | | | | | | | | | | | | | | 14 |
Reclassifications from AOCI | | | | | (1) | | | (8) | | | | | | | | | 2 | | | | | | (7) |
Net OCI during the period | | | | | 13 | | | (8) | | | | | | | | | 2 | | | | | | 7 |
June 30, 2014 | | | | $ | 190 | | $ | 75 | | | | | $ | (3) | | $ | (177) | | | | | $ | 85 |
| | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2013 | | | | $ | 173 | | $ | 88 | | | | | $ | (4) | | $ | (180) | | | | | $ | 77 |
Amounts arising during the period | | | | | 19 | | | | | | | | | | | | | | | | | | 19 |
Reclassifications from AOCI | | | | | (2) | | | (13) | | | | | | 1 | | | 3 | | | | | | (11) |
Net OCI during the period | | | | | 17 | | | (13) | | | | | | 1 | | | 3 | | | | | | 8 |
June 30, 2014 | | | | $ | 190 | | $ | 75 | | | | | $ | (3) | | $ | (177) | | | | | $ | 85 |
| | | | | | | | | | | | | | | | | | | | | | | | |
March 31, 2013 | | | | $ | 134 | | $ | 181 | | | | | $ | (9) | | $ | (261) | | | | | $ | 45 |
Amounts arising during the period | | | | | 2 | | | | | | | | | | | | | | | | | | 2 |
Reclassifications from AOCI | | | | | (1) | | | (37) | | | | | | 1 | | | 4 | | | | | | (33) |
Net OCI during the period | | | | | 1 | | | (37) | | | | | | 1 | | | 4 | | | | | | (31) |
June 30, 2013 | | | | $ | 135 | | $ | 144 | | | | | $ | (8) | | $ | (257) | | | | | $ | 14 |
| | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2012 | | | | $ | 112 | | $ | 211 | | | | | $ | (10) | | $ | (265) | | | | | $ | 48 |
Amounts arising during the period | | | | | 25 | | | | | | | | | | | | | | | | | | 25 |
Reclassifications from AOCI | | | | | (2) | | | (67) | | | | | | 2 | | | 8 | | | | | | (59) |
Net OCI during the period | | | | | 23 | | | (67) | | | | | | 2 | | | 8 | | | | | | (34) |
June 30, 2013 | | | | $ | 135 | | $ | 144 | | | | | $ | (8) | | $ | (257) | | | | | $ | 14 |
The following table presents the gains (losses) and related income taxes for reclassifications from AOCI for the periods ended September 30, 2013.June 30. The defined benefit plan components of AOCI are not reflected in their entirety in the statement of income during the periods; rather, they are included in the computation of net periodic defined benefit costs (credits). See Note 9 for additional information.
| | | Three Months | | |
| | | PPL | | PPL Energy Supply | | Affected Line Item on the |
Details about AOCI | | 2014 | | 2013 | | 2014 | | 2013 | | Statements of Income |
| | | | | | | | | | | | | | | |
Available-for-sale securities | | $ | 2 | | $ | 1 | | $ | 2 | | $ | 1 | | Other Income (Expense) - net |
Total Pre-tax | | | 2 | | | 1 | | | 2 | | | 1 | | |
Income Taxes | | | (1) | | | | | | (1) | | | | | |
Total After-tax | | | 1 | | | 1 | | | 1 | | | 1 | | |
| | | | | | | | | | | | | | | |
Qualifying derivatives | | | | | | | | | | | | | | |
| Interest rate swaps | | | (4) | | | (4) | | | | | | | | Interest Expense |
| Cross-currency swaps | | | | | | 1 | | | | | | | | Other Income (Expense) - net |
| | | | 1 | | | 1 | | | | | | | | Interest Expense |
| Energy commodities | | | 5 | | | 73 | | | 5 | | | 73 | | Unregulated wholesale energy |
| | | | 8 | | | (14) | | | 8 | | | (14) | | Energy purchases |
| | | | | | | 1 | | | | | | 1 | | Other |
Total Pre-tax | | | 10 | | | 58 | | | 13 | | | 60 | | |
| | | Three Months |
| | | Affected Line Item on the Statements of Income |
| | | | | | | | | | | Other | | | | | | | | | | | | |
| | | Wholesale | | | | | | | | Income | | | | | | | | | | | | |
| | | energy | | Energy | | | | | (Expense), | | Interest | | Total | | Income | | Total |
Details about AOCI | | marketing | | purchases | | Depreciation | | net | | Expense | | Pre-tax | | Taxes | | After-tax |
PPL | | | | | | | | | | | | | | | | | | | | | | | | |
Available-for-sale securities | | | | | | | | | | | $ | 1 | | | | | $ | 1 | | $ | (1) | | | |
Qualifying derivatives | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest rate swaps | | | | | | | | | | | | | | $ | (5) | | | (5) | | | 2 | | $ | (3) |
| Cross-currency swaps | | | | | | | | | | | | (25) | | | (1) | | | (26) | | | 7 | | | (19) |
| Energy commodities | | $ | 58 | | $ | (11) | | $ | 1 | | | | | | | | | 48 | | | (20) | | | 28 |
| Total | | $ | 58 | | $ | (11) | | $ | 1 | | $ | (25) | | $ | (6) | | | 17 | | | (11) | | | 6 |
Equity investees' AOCI | | | | | | | | | | | $ | 1 | | | | | | 1 | | | | | | 1 |
Defined benefit plans | | | | | | | | | | | | | | | | | | | | | | | | |
| Prior service costs | | | | | | | | | | | | | | | | | | (3) | | | 1 | | | (2) |
| Net actuarial loss | | | | | | | | | | | | | | | | | | (45) | | | 12 | | | (33) |
| Total | | | | | | | | | | | | | | | | | $ | (48) | | $ | 13 | | | (35) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Total reclassifications | | | | | | | | | | | | | | | | | | | | | | |
| during the period | | | | | | | | | | | | | | | | | | | | | | | $ | (28) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
PPL Energy Supply | | | | | | | | | | | | | | | | | | | | | | | | |
Available-for-sale securities | | | | | | | | | | | $ | 1 | | | | | $ | 1 | | $ | (1) | | | |
Qualifying derivatives | | | | | | | | | | | | | | | | | | | | | | | | |
| Energy commodities | | $ | 58 | | $ | (11) | | $ | 1 | | | | | | | | | 48 | | | (19) | | $ | 29 |
Defined benefit plans | | | | | | | | | | | | | | | | | | | | | | | | |
| Prior service costs | | | | | | | | | | | | | | | | | | (2) | | | 1 | | | (1) |
| Net actuarial loss | | | | | | | | | | | | | | | | | | (5) | | | 2 | | | (3) |
| Total | | | | | | | | | | | | | | | | | $ | (7) | | $ | 3 | | | (4) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
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 | | marketing | | purchases | | Depreciation | | net | | Expense | | Pre-tax | | Taxes | | After-tax |
PPL | | | | | | | | | | | | | | | | | | | | | | | | |
Available-for-sale securities | | | | | | | | | | | $ | 4 | | | | | $ | 4 | | $ | (2) | | $ | 2 |
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 | | | | | | | | | | | $ | 1 | | | | | | 1 | | | | | | 1 |
Defined benefit plans | | | | | | | | | | | | | | | | | | | | | | | | |
| Prior service costs | | | | | | | | | | | | | | | | | | (8) | | | 3 | | | (5) |
| Net actuarial loss | | | | | | | | | | | | | | | | | | (138) | | | 37 | | | (101) |
| Total | | | | | | | | | | | | | | | | | $ | (146) | | $ | 40 | | | (106) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Total reclassifications | | | | | | | | | | | | | | | | | | | | | | |
| during the period | | | | | | | | | | | | | | | | | | | | | | | $ | 19 |
| | | | | | | | | | | | | | | | | | | | | | | | | |
PPL Energy Supply | | | | | | | | | | | | | | | | | | | | | | | | |
Available-for-sale securities | | | | | | | | | | | $ | 4 | | | | | $ | 4 | | $ | (2) | | $ | 2 |
Qualifying derivatives | | | | | | | | | | | | | | | | | | | | | | | | |
| Energy commodities | | $ | 198 | | $ | (41) | | $ | 2 | | | | | | | | | 159 | | | (63) | | | 96 |
Defined benefit plans | | | | | | | | | | | | | | | | | | | | | | | | |
| Prior service costs | | | | | | | | | | | | | | | | | | (5) | | | 2 | | | (3) |
| Net actuarial loss | | | | | | | | | | | | | | | | | | (18) | | | 7 | | | (11) |
| Total | | | | | | | | | | | | | | | | | $ | (23) | | $ | 9 | | | (14) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Total reclassifications | | | | | | | | | | | | | | | | | | | | | | |
| during the period | | | | | | | | | | | | | | | | | | | | | | | $ | 84 |
(LKE and KU)
For the three and nine months ended September 30, 2013, the changes in AOCI and the effect of reclassifications from AOCI on the statement of income for LKE and KU were insignificant. | | | Three Months | | |
| | | PPL | | PPL Energy Supply | | Affected Line Item on the |
Details about AOCI | | 2014 | | 2013 | | 2014 | | 2013 | | Statements of Income |
Income Taxes | | | (5) | | | (22) | | | (5) | | | (23) | | |
Total After-tax | | | 5 | | | 36 | | | 8 | | | 37 | | |
| | | | | | | | | | | | | | | |
Defined benefit plans | | | | | | | | | | | | | | |
| Prior service costs | | | (2) | | | (3) | | | | | | (1) | | |
| Net actuarial loss | | | (36) | | | (46) | | | (3) | | | (7) | | |
Total Pre-tax | | | (38) | | | (49) | | | (3) | | | (8) | | |
Income Taxes | | | 9 | | | 13 | | | 1 | | | 3 | | |
Total After-tax | | | (29) | | | (36) | | | (2) | | | (5) | | |
| | | | | | | | | | | | | | | |
Total reclassifications during the period | | $ | (23) | | $ | 1 | | $ | 7 | | $ | 33 | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | Six Months | | |
| | | PPL | | PPL Energy Supply | | Affected Line Item on the |
Details about AOCI | | 2014 | | 2013 | | 2014 | | 2013 | | Statements of Income |
| | | | | | | | | | | | | | | |
Available-for-sale securities | | $ | 4 | | $ | 3 | | $ | 4 | | $ | 3 | | Other Income (Expense) - net |
Total Pre-tax | | | 4 | | | 3 | | | 4 | | | 3 | | |
Income Taxes | | | (2) | | | (1) | | | (2) | | | (1) | | |
Total After-tax | | | 2 | | | 2 | | | 2 | | | 2 | | |
| | | | | | | | | | | | | | | |
Qualifying derivatives | | | | | | | | | | | | | | |
| Interest rate swaps | | | (7) | | | (9) | | | | | | | | Interest Expense |
| Cross-currency swaps | | | (29) | | | 70 | | | | | | | | Other Income (Expense) - net |
| | | | 1 | | | 1 | | | | | | | | Interest Expense |
| Energy commodities | | | 6 | | | 140 | | | 6 | | | 140 | | Unregulated wholesale energy |
| | | | 15 | | | (30) | | | 15 | | | (30) | | Energy purchases |
| | | | 1 | | | 1 | | | 1 | | | 1 | | Other |
Total Pre-tax | | | (13) | | | 173 | | | 22 | | | 111 | | |
Income Taxes | | | (1) | | | (57) | | | (9) | | | (44) | | |
Total After-tax | | | (14) | | | 116 | | | 13 | | | 67 | | |
| | | | | | | | | | | | | | | |
Defined benefit plans | | | | | | | | | | | | | | |
| Prior service costs | | | (4) | | | (5) | | | (2) | | | (3) | | |
| Net actuarial loss | | | (72) | | | (93) | | | (5) | | | (13) | | |
Total Pre-tax | | | (76) | | | (98) | | | (7) | | | (16) | | |
Income Taxes | | | 19 | | | 27 | | | 3 | | | 6 | | |
Total After-tax | | | (57) | | | (71) | | | (4) | | | (10) | | |
| | | | | | | | | | | | | | | |
Total reclassifications during the period | | $ | (69) | | $ | 47 | | $ | 11 | | $ | 59 | | |
19. New Accounting Guidance Pending Adoption
(All Registrants)
Accounting for Obligations Resulting from Joint and Several Liability ArrangementsReporting of Discontinued Operations
Effective January 1,In April 2014, the Registrants will retrospectively adoptFinancial Accounting Standards Board (FASB) issued accounting guidance that changes the criteria for determining what should be classified as a discontinued operation and also changes the related presentation and disclosure requirements. A discontinued operation may include a component of an entity or a group of components of an entity, or a business activity.
A disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on the entity's operations and financial results when any of the following occurs: (1) The components of an entity or group of components of an entity meets the criteria to be classified as held for sale, (2) The component of an entity or group of components of an entity is disposed of by sale, or (3) The component of an entity or group of components of an entity is disposed of other than by sale (for example, by abandonment or in a distribution to owners in a spinoff).
For public business entities, this guidance should be applied prospectively to all disposals (or classifications as held for sale) of components of an entity that occur within the annual periods beginning on or after December 15, 2014, and interim periods within those years. Early adoption is permitted.
The Registrants are assessing in which period they will adopt this new guidance. The new guidance will impact the amounts presented as discontinued operations on the Statements of Income and will enhance the related disclosure requirements.
Accounting for Revenue from Contracts with Customers
In May 2014, the FASB issued accounting guidance that establishes a comprehensive new model for the recognition measurement and disclosure of certain obligations resultingrevenue from joint and several liability arrangements when the amount of the obligationcontracts with customers. This model is fixed at the reporting date. If the obligation is determined to be in the scope of this guidance, it will be measured as the sum of the amount the reporting entity agreed to paybased on the basiscore principle that revenue should be recognized to depict the transfer of its arrangements among its co-obligors and any additionalpromised goods or services to customers in an amount that reflects the reportingconsideration to which the entity expects to pay on behalf of its co-obligors. Thisbe entitled in exchange for those goods or services.
For public business entities, this guidance also requires additional disclosures for these obligations.can be applied using either a full retrospective or modified retrospective transition method, beginning in annual reporting periods beginning after December 15, 2016 and interim periods within those years. Early adoption is not permitted. The Registrants will adopt this guidance effective January 1, 2017.
The Registrants are currently assessing the potential impact of adoption, which is not expected to be material.
Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity
Effective January 1, 2014, PPL will prospectively adopt accounting guidance that requires a cumulative translation adjustment to be released into earnings when an entity ceases to have a controlling financial interest in a subsidiary or group of assets within a consolidated foreign entity and the sale or transfer results in the complete or substantially complete liquidation of the foreign entity. For the step acquisition of previously held equity method investments that are foreign entities,adopting this guidance, clarifies thatas well as the amount of accumulated other comprehensive income that is reclassified and included in the calculation of a gain or loss shall include any foreign currency translation adjustment related to that previously held investment.
The initial adoption of this guidance is not expected to have a significant impact on PPL; however, the impact in future periods could be material.
Presentation of Unrecognized Tax Benefits When Net Operating Loss Carryforwards, Similar Tax Losses, or Tax Credit Carryforwards Exist
Effective January 1, 2014, the Registrantstransition method they will prospectively adopt accounting guidance that requires an unrecognized tax benefit, or a portion of an unrecognized tax benefit, to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position, or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets.
The adoption of this guidance is not expected to have a significant impact on the Registrants.use.
Item 2. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations
(All Registrants)
This combined Item"Item 2. "Management'sCombined Management's Discussion and Analysis of Financial Condition and Results of Operations" is separately filed by PPL Corporation and each of its Subsidiary Registrants: PPL Energy Supply, LLC, PPL Electric Utilities Corporation, LG&E and KU Energy LLC, Louisville Gas and Electric Company and Kentucky Utilities Company.Registrants. Information contained herein relating to any individual Registrant is filed by such Registrant solely on its own behalf, and no Registrant makes any representation as to information relating to any other Registrant. The specific Registrant to which disclosures are applicable is identified in parenthetical headings in italics above the applicable disclosure or within the applicable disclosure for each Registrant's related activities and disclosures. Within combined disclosures, amounts are disclosed for any Registrant when significant.
The following should be read in conjunction with the Registrants' Condensed Consolidated Financial Statements and the accompanying Notes and with the Registrants' 20122013 Form 10-K. Capitalized terms and abbreviations are defined in the glossary. Dollars are in millions, except per share data, unless otherwise noted.
"Management's Discussion and Analysis of Financial Condition and Results of Operations" includes the following information:
· | "Overview" provides a description of each Registrant and itsRegistrant's business strategy, selected information ona summary of PPL's segment earnings, a description of key factors expected to impact future earnings and a discussion of important financial and operational developments. |
· | "Results of Operations" for PPL provides a more detailed analysis of earnings by segment, and for the Subsidiary Registrants includes a summary of earnings and ends with "Statement of Income Analysis," which includesearnings. For all Registrants, "Margins" provides explanations of non-GAAP financial measures and "Statement of Income Analysis" addresses significant changes in principal line items on the Statements of Income, comparing the three and ninesix months ended SeptemberJune 30, 20132014 with the same periods in 2012.2013. |
· | "Financial Condition - Liquidity and Capital Resources" provides an analysis of the Registrants' liquidity positionpositions and credit profiles. This section also includes a discussion of rating agency actions. |
· | "Financial Condition - Risk Management" provides an explanation of the Registrants' risk management programs relating to market and credit risk. |
(PPL)
PPL, headquartered in Allentown, Pennsylvania, is an energy and utility holding company that throughcompany. Through subsidiaries, PPL delivers electricity to customers in the U.K., Pennsylvania, Kentucky, Virginia and Tennessee; delivers natural gas to customers in Kentucky; generates electricity from power plants in the northeastern, northwestern and southeastern U.S.,; and markets wholesale andor retail energy primarily in the northeastern and northwestern portions of the U.S., delivers electricity to customers in the U.K., Pennsylvania, Kentucky, Virginia and Tennessee and delivers natural gas to customers in Kentucky.
PPL's principal subsidiaries are shown below (* denotes an SEC registrant):
| | | | | | | | | PPL Corporation* | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | PPL Capital Funding | | | | | | |
| | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | PPL Global ● Engages in the regulated distribution of electricity in the U.K. | | | LKE* | | PPL Electric* ● Engages in the regulated transmission and distribution of electricity in Pennsylvania | | | PPL Energy Supply* | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | LG&E* ● Engages in the regulated generation, transmission, distribution and sale of electricity in Kentucky, and distribution and sale of natural gas in Kentucky | | | KU* ● Engages in the regulated generation, transmission, distribution and sale of electricity, primarily in Kentucky | | | PPL EnergyPlus ● Performs energy marketing and trading activities ● Purchases fuel | | | PPL Generation ● Engages in the competitive generation of electricity, primarily in Pennsylvania and Montana |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | U.K. Regulated Segment | | Kentucky Regulated Segment | | Pennsylvania Regulated Segment | | Supply Segment | | |
PPL's reportable segments' results primarily represent the results of its related Subsidiary Registrant(s),Registrants, except that the reportable segments are also allocated certain corporate level financing and other costs that are not included in the results of the applicable Subsidiary Registrant.Registrants. The U.K. Regulated segment does not have a related Subsidiary Registrant.
(PPL and PPL Energy Supply)
In June 2014, PPL and PPL Energy Supply executed definitive agreements with affiliates of Riverstone to combine their competitive power generation businesses into a new, stand-alone, publicly traded, independent power producer named Talen Energy. See "Business Strategy" and "Financial and Operational Developments - Other Financial and Operational Developments - Anticipated Spinoff of PPL Energy Supply" below for additional information.
(PPL Energy Supply)
PPL Energy Supply, headquartered in Allentown, Pennsylvania is an indirect wholly owned subsidiary of PPL and 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 a direct wholly owned subsidiary of PPL and a regulated public utility that is an electricity transmission and distribution service provider in eastern and central Pennsylvania. PPL Electric is subject to regulation as a public utility by the PUC, and certain of its transmission activities are subject to the jurisdiction of FERC under the Federal Power Act. PPL Electric delivers electricity in its Pennsylvania service area and provides electricity supply to retail customers in that area as a PLR under the Customer Choice Act.
(LKE)
LKE, headquartered in Louisville, Kentucky, is a holding company and a wholly owned subsidiary of PPL. LKEPPL and a holding company that owns regulated utility operations through its subsidiaries, LG&E and KU, which constitute substantially all of LKE's assets. LG&E and KU are engaged in the generation, transmission, distribution and sale of electricity. LG&E also engages in the distribution and sale of natural gas. LG&E and KU maintain their separate corporate identities and serve customers in
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 wholly owned subsidiary of LKE and a regulated utility engaged in the generation, transmission, distribution and sale of electricity and distribution and sale of natural gas in Kentucky. LG&E is subject to regulation as a public utility by the KPSC, and certain of its transmission activities are subject to the jurisdiction of the FERC under the Federal Power Act. LG&E is a wholly owned subsidiary of LKE.
(KU)
KU, headquartered in Lexington, Kentucky, is a wholly owned subsidiary of LKE and a regulated utility engaged in the generation, transmission, distribution and sale of electricity in Kentucky, Virginia and Tennessee. KU is subject to regulation as a public utility by the KPSC, the VSCC and the TRA, and certain of its transmission and wholesale power activities are subject to the jurisdiction of the FERC under the Federal Power Act. KU is a wholly owned subsidiary of LKE.
(All Registrants except PPL Electric)
The capacity (summer rating) of regulatedserves its Virginia customers under the Old Dominion Power name 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 |
(a) | The capacity of generation units is based on a number of factors, including the operating experience and physical conditions of the units, and may be revised periodically to reflect changed circumstances. See "Item 2. Properties" in the 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 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. |
its Kentucky and Tennessee customers under the KU name.
(PPL and PPL Energy Supply)
In recognition of the dramatic changes in the wholesale power markets, PPL performed an in-depth analysis of its business mix to determine the best available opportunities to maximize the value of its competitive generation business for shareowners. As a result, in June 2014, PPL and PPL Energy Supply executed definitive agreements with affiliates of Riverstone to combine their competitive power generation businesses into a new, stand-alone, publicly traded, independent power producer named Talen Energy. Under the terms of the agreements, at closing, PPL will spin off PPL Energy Supply to PPL shareowners and simultaneously combine that business with RJS Power. Upon closing, PPL shareowners will own 65% of Talen Energy and affiliates of Riverstone will own 35%. PPL will have no continuing ownership interest in, control of, or affiliation with Talen Energy and PPL's shareowners will receive a number of Talen Energy shares at closing based on the number of PPL shares owned as of the spinoff record date. The spinoff will have no effect on the number of PPL common shares owned by PPL shareowners or the number of shares of PPL common stock outstanding. The transaction is intended to be tax-free to PPL and its shareowners for U.S. federal income tax purposes and is subject to customary closing conditions, including receipt of certain regulatory approvals by the NRC, the FERC, the DOJ and the PUC. In addition, there must be available, subject to certain conditions, at least $1 billion of undrawn capacity after excluding any letters of credit or other credit support measures posted in connection with energy marketing and trading transactions then outstanding, under a Talen Energy (or its subsidiaries) revolving credit or similar facility. The transaction is expected to close in the first or second quarter of 2015. Talen Energy will own and operate a diverse mix of approximately 14,000 MW (after proposed divestitures to meet FERC market power tests) of generating capacity in certain U.S. competitive energy markets primarily in PJM and ERCOT.
Following the transaction, PPL will focus solely on its regulated utilities businesses in the U.K., Kentucky and Pennsylvania, serving more than 10 million customers. PPL intends to maintain a strong balance sheet and to manage its finances consistent with maintaining investment grade credit ratings and providing a competitive total shareowner return, including an attractive dividend. In connection with the transaction, and following any required transition services period, PPL is targeting to reduce its annual corporate support costs by an estimated $185 million. This includes $110 million of corporate support costs to be transferred to Talen Energy and $75 million from workforce reduction and other corporate cost savings.
See "Financial and Operational Developments - Other Financial and Operational Developments - Anticipated Spinoff of PPL Energy Supply" and "Part II. Other Information - Item 1A. Risk Factors" below for additional information.
The strategy for PPL Energy Supply is to achieve disciplined optimization of energy supply marginsoptimize the value from its competitive generation asset and marketing portfolios 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 and positive cash flow during thethis current and projected period of low commodityenergy and capacity 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 provide efficient, reliable and safe operations and strong customer service, maintain constructive regulatory relationships and achieve timely recovery of costs.
These regulated businesses also focus on providing competitively priced energy to customers and achieving stable, long-term growth in earnings and rate base, or RAV, as applicable. Both rate base and RAV are expected to grow for the foreseeable future as a result of significant capital expenditure programs to maintain existing assets and improvingto improve system reliability and, for LKE, LG&E and KU, to comply with federal and state environmental regulations related to electricelectricity generation facilities. These regulated businesses
focus on timelyFuture RAV for WPD will also be affected by RIIO-ED1, effective April 1, 2015, as the recovery of costs, efficient, reliableperiod for assets placed in service after that date will be extended from 20 to 45 years. In addition, incentive targets have been adjusted in RIIO-ED1, resulting in lower overall incentive revenues available to be earned. See "Financial and safe operations, strong customer serviceOperational Developments - Other Financial and constructive regulatory relationships.Operational Developments - RIIO-ED1 - Fast Tracking" below for additional information.
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 and a return on, as appropriate, prudently incurred costs. In Pennsylvania, the recently approvedFERC transmission formula rate, DSIC mechanism will help PPL Electricand other recovery mechanisms are in place to reduce regulatory lag and provide for timely recovery of distribution reliability-related capital investment.and a return on, as appropriate, prudently incurred costs. See "Distribution System Improvement Charge" below for additional information on the implementation of the DSIC mechanism"Item 1. Business - Segment Information - U.K. Regulated Segment - Revenues and Regulation" in PPL's 2013 and "RIIO-ED1" belowForm 10-K for changes to the regulatory framework intended to encourage investment in regulated infrastructurethe U.K. applicable to WPD beginning in April 2015.
(PPL)
Earnings generated by PPL's U.K. subsidiaries are subject to foreign currency translation risk. The U.K. subsidiaries also have currency exposure to the U.S. dollar to the extent they have U.S. dollar denominated debt. To manage these risks, PPL generally uses contracts such as forwards, options and cross currency swaps that contain characteristics of both interest rate and foreign currency exchange contracts.
(All Registrants)
To manage financing costs and access to credit markets, and to fund capital expenditure programs,expenditures, a key objective forof the Registrants is to maintain strongtargeted 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. To manage these risks, PPL generally uses contracts such as forwards, options, swaps and insurance contracts.
Financial and Operational Developments
EarningsPPL's earnings by component of PPL's reportable segments for the periods ended SeptemberJune 30 were as follows.
| | | Three Months | | Nine Months | | | Three Months | | Six Months |
| | | 2013 | | 2012 | | % Change | | 2013 | | 2012 | | % Change | | | 2014 | | 2013 | | % Change | | 2014 | | 2013 | | % 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 | |
U.K. Regulated | | U.K. Regulated | | $ | 187 | | $ | 245 | | (24) | | $ | 393 | | $ | 558 | | (30) |
Kentucky Regulated | | Kentucky Regulated | | | 58 | | | 49 | | | 18 | | | 165 | | | 134 | | | 23 |
Pennsylvania Regulated | | Pennsylvania Regulated | | 52 | | 45 | | 16 | | 137 | | 109 | | 26 |
Supply | | Supply | | 5 | | 77 | | (94) | | (70) | | 31 | | (326) |
Corporate and Other (a) | | Corporate and Other (a) | | | (73) | | | (11) | | 564 | | | (80) | | | (14) | | 471 |
Net Income Attributable to | Net Income Attributable to | | | | | | | | | | | | | Net Income Attributable to | | | | | | | | | | | | |
| PPL Shareowners | | $ | 410 | | $ | 355 | | | 15 | | $ | 1,228 | | $ | 1,167 | | | 5 | PPL Shareowners | | $ | 229 | | $ | 405 | | (43) | | $ | 545 | | $ | 818 | | (33) |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
EPS - basic | EPS - basic | | $ | 0.65 | | $ | 0.61 | | 7 | | $ | 2.03 | | $ | 2.00 | | 2 | EPS - basic | | $ | 0.35 | | $ | 0.68 | | (49) | | $ | 0.84 | | $ | 1.39 | | (40) |
EPS - diluted (b) | EPS - diluted (b) | | $ | 0.62 | | $ | 0.61 | | 2 | | $ | 1.90 | | $ | 2.00 | | (5) | EPS - diluted (b) | | $ | 0.34 | | $ | 0.63 | | (46) | | $ | 0.83 | | $ | 1.28 | | (35) |
(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.2014 includes certain costs related to the anticipated spinoff of PPL Energy Supply. See the following table of special items for additional information. |
(b) | See "Equity"2011 Equity Units" below and Note 4 to the Financial Statements 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 the results of PPL's reportable segments results duringfor the periods ended SeptemberJune 30. See PPL's "Results of Operations - Segment Earnings" for details of theseeach segment's special items.
| | | Three Months | | Nine Months | | | Three Months | | Six Months |
| | | 2013 | | 2012 | | Change | | 2013 | | 2012 | | Change | | | 2014 | | 2013 | | Change | | 2014 | | 2013 | | Change |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
U.K. Regulated | U.K. Regulated | | $ | (16) | | $ | 41 | | $ | (57) | | $ | 78 | | $ | 39 | | $ | 39 | U.K. Regulated | | $ | (33) | | $ | 19 | | $ | (52) | | $ | (91) | | $ | 94 | | $ | (185) |
Kentucky Regulated | Kentucky Regulated | | | | | | | | | | | | 2 | | | (1) | | 3 | Kentucky Regulated | | | 1 | | | 1 | | | | | | 1 | | | 2 | | (1) |
Pennsylvania Regulated | | Pennsylvania Regulated | | (4) | | | | (4) | | (4) | | | | (4) |
Supply | Supply | | | (6) | | | (105) | | | 99 | | | (49) | | | 3 | | | (52) | Supply | | (36) | | 74 | | (110) | | (185) | | (43) | | (142) |
Corporate and Other (a) | | Corporate and Other (a) | | | (56) | | | | | | (56) | | | (56) | | | | | | (56) |
Total PPL | Total PPL | | $ | (22) | | $ | (64) | | $ | 42 | | $ | 31 | | $ | 41 | | $ | (10) | Total PPL | | $ | (128) | | $ | 94 | | $ | (222) | | $ | (335) | | $ | 53 | | $ | (388) |
(a) | Includes $46 million of deferred income tax expense to adjust valuation allowances on deferred tax assets for state net operating loss carryforwards and $10 million, after-tax, of transactions costs related to the anticipated spinoff of PPL Energy Supply. See Note 8 to the Financial Statements for additional information. |
The changes in PPL's reportable segments results for the three and nine-month periods,six-months ended June 30, 2014 compared with 2013, excluding the impact of special items, were due to the following factors (on an after-tax basis):
· | IncreaseDecrease at the U.K. Regulated segment for the three-month period was primarily due to higher electricity delivery pricesU.S. income taxes due to a 2013 favorable tax ruling and the adverse impact of weather on utility revenues, partially offset by higher utility revenues from the April 1, 2014 and 2013 price increases and lower pension expense. Increase for the six-month period was primarily due to higher utility revenues from the April 1, 2014 and 2013 price increases, lower pension expense and lower U.K. income taxes, partially offset by an accrual for over-recoverythe adverse impact of current-yearweather on utility revenues, lower sales volumehigher U.S. income taxes due to weathera 2013 favorable tax ruling, higher network maintenance and higher depreciation expense. |
· | Increase at the Kentucky Regulated segment for the three-month period was primarily due to returns on additional environmental capital investments, partially offset by higher operation and maintenance expense. Increase at the U.K. Regulated segment for the nine-monthsix-month period was primarily due to returns on additional capital investments and higher electricity delivery prices, increased sales volumevolumes due to unusually cold weather and lower U.K. |
income taxes, partially offset by an accrual for over-recovery of current-year revenues, higher operation and maintenance expense and higher depreciation.
· | Increases atin 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 alsofirst quarter of 2014, partially offset by lower sales volume due to weather.higher operation and maintenance expense driven by storm-related expenses and timing of generation maintenance outages. |
· | Increases at the Pennsylvania Regulated segment for boththe three and six-month periods were primarily due to higher electricity base rates that became effective January 1, 2013 and higher transmission margins from returns on additional capital investments. The increase forinvestments and the nine-month period was also due to lower operation and maintenance expense,recovery of additional costs through FERC formula based rates, partially offset by higher depreciation.interest expense. Increase for the six-month period also includes higher distribution margins primarily due to unusually cold weather in the first quarter of 2014, returns on additional distribution improvement capital investments and a benefit from a change in estimate of a regulatory liability. |
· | DecreaseIncreases at the Supply segment for the three-month periodthree and six-month periods were primarily due to unrealized gains on certain commodity positions, higher Eastern margins from higher capacity prices, improved availability of baseload power plants and lower interest expense, partially offset by lower baseload energy prices, lower baseload generation, higher operation and maintenance expense and higher income taxes. The declineprices. Earnings for the six-month period were also favorably impacted by net benefits from unusually cold weather in segment earnings wasthe first quarter of 2014, 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.western U.S. margins. |
See "Results of Operations" below for further discussion of PPL's reportable segments and analysis of results of operations.
(PPL)
Excluding special items, higherlower earnings are expected in 20132014 compared with 2012. However, 2013, earnings are expected to decline on a diluted EPS basisprimarily due to higher average shares treated as outstanding.lower energy margins in the Supply segment. The factors underlying these projections by segment and Subsidiary Registrant are reflecteddiscussed below (on an after-tax basis).
(PPL's U.K. Regulated Segment)
Excluding special items, higher earnings are projected in 20132014 compared with 2012,2013, primarily driven by higher electricity delivery pricesrevenue and lower income taxes,pension expense, partially offset by higher operation and maintenance expense,income taxes, higher depreciation and higher interest expense.financing costs.
(PPL's Kentucky Regulated Segment and Kentucky Registrants)LKE, LG&E and KU)
Excluding special items, higherlower earnings are projected in 20132014 compared with 2012,2013, primarily driven by base rate increaseshigher operation and
maintenance expense, higher depreciation and higher financing costs, partially offset by returns on additional environmental capital investments.investments and increased sales volumes.
(PPL's Pennsylvania Regulated Segment and PPL Electric)
Excluding special items, higher earnings are projected in 20132014 compared with 2012,2013, primarily driven by higher distribution revenues from the January 1, 2013 base rate increase and higher transmission margins, due to additionalreturns on distribution improvement capital investment,investments and a benefit from a change in estimate of a regulatory liability, partially offset by higher depreciationfinancing costs and higher interest expense.income taxes.
(PPL's Supply Segment and PPL Energy Supply)
Excluding special items, lower earnings are projected in 20132014 compared with 2012,2013, primarily driven by lower energy prices, higher fuel costs, higher depreciation, higher taxes and higher financing costs,capacity prices, partially offset by the net benefits due to unusually cold weather in the first quarter of 2014, lower operationfinancing costs and maintenance expense, higher capacity prices and higher baseload generation output.lower income taxes.
(All Registrants)
Earnings in future periods are subject to various risks and uncertainties. See "Forward-Looking Information," the rest of this Item 2, 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' 20122013 Form 10-K for a discussion of the risks, uncertainties and factors that may impact future earnings.
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, theThe 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, and/or impair certain of their coal-fired generating plants.
(PPL and PPL Energy Supply)
In 2012,the fourth quarter of 2013, management tested the Brunner Island and Montour plants for impairment and concluded neither was impaired as of December 31, 2013. There were no events or changes in circumstances that indicated a recoverability test was required to be performed in 2014. The carrying value of the Pennsylvania coal-fired generation assets was $2.5 billion as of June 30, 2014 ($1.3 billion for Brunner Island and $1.2 billion for Montour).
As a result of current economic and market conditions, the announced transaction with affiliates of Riverstone to form Talen Energy, PPL Energy Supply's current sub-investment grade credit rating and Talen Energy's expected sub-investment grade credit rating, PPL Energy Supply announcedis reviewing its intention, beginningbusiness and operational plans. This review includes capital and operation and maintenance expenditures, its hedging strategies and potential plant modifications to burn lower cost fuels. See "Margins - Changes in 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. PPLNon-GAAP Financial Measures - Unregulated Gross 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 KUMargins" below for additional information regarding the anticipated retirement of these units as well as planson energy margins. Full-year 2014 energy margins are projected to buildbe lower compared to 2013 due to a combined-cycle natural gas facilityhigher average hedge price in Kentucky.2013, partially offset by higher pricing on unhedged generation.
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.
(All Registrants)
The Registrants cannot predict the future impact that future economic and market conditions and changes in regulatory requirements may have on their financial condition or results of operations.
Anticipated Spinoff of PPL Energy Supply
(PPL, PPL Energy Supply and PPL Electric)
Following the announcement of the transaction to form Talen Energy as discussed in "Business Strategy" above, efforts have been initiated to identify the appropriate staffing for Talen Energy and for PPL and its subsidiaries following completion of the spinoff. Organizational plans are expected to be completed by the end of 2014. As a result, charges for employee separation and related costs are anticipated to be recorded in future periods. The separation costs to be incurred include cash severance compensation, lump sum COBRA reimbursement payments, accelerated stock-based compensation vesting, pro-rated performance-based cash incentive and stock-based compensation awards and outplacement services. At present, there is considerable uncertainty as to the range of costs that will be incurred and when those costs will be recognized, as the amount of each category of costs will depend on the number of employees leaving the company, current position and compensation level, years of service and expected separation date. Additionally, certain of these costs are expected to be reimbursed to PPL by Talen Energy upon closing of the transaction. As a result, a range of the separation costs associated with the spinoff transaction and the timing of when those costs will be recognized cannot be reasonably estimated at this time but could be material.
(PPL)
As a result of the spinoff announcement, PPL recorded $46 million of deferred income tax expense during the three and six months ended June 30, 2014 to adjust valuation allowances on deferred tax assets primarily for state net operating loss carryforwards that were previously supported by the future earnings of PPL Energy Supply.
In addition, PPL recorded $16 million of third-party costs during the three and six months ended June 30, 2014 related to this transaction in "Other Income (Expense) - net" on the Statement of Income, primarily for investment bank advisory, legal, consulting and accounting fees. PPL cannot currently estimate a range of total third-party costs that will ultimately be incurred; however, additional costs of at least $26 million will be recognized upon closing of the transaction.
The assets and liabilities of PPL Energy Supply will continue to be classified as "held and used" on PPL's Balance Sheet until the closing of the transaction. The spinoff announcement was evaluated and determined not to be an event or a change in circumstance that required a recoverability test or a goodwill impairment assessment. However, an impairment loss could be recognized by PPL at the spinoff date if the aggregate carrying amount of PPL Energy Supply's assets and liabilities exceeds its aggregate fair value at that date. PPL cannot currently predict whether an impairment loss will be recorded at the spinoff date.
(PPL Energy Supply)
PPL Energy Supply will treat the combination with RJS Power as an acquisition, as PPL Energy Supply will be considered the accounting acquirer in accordance with business combination accounting guidance.
Montana Hydro Sale Agreement (PPL and PPL Energy Supply)
In September 2013, PPL Montana executed a definitive agreement to sell to NorthWestern 633 MW of hydroelectric generating facilities located in Montana for $900 million in cash, subject to certain adjustments. In April 2014, the DOJ and Federal Trade Commission granted early termination of PPL Montana's and NorthWestern's notifications under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. The sale remains subject to closing conditions, including receipt of regulatory approvals by the FERC and the MPSC and certain third-party consents. The sale is not expected to close before the fourth quarter of 2014.
(PPL)
Ofgem Review of Line Loss Calculation
In March 2014, Ofgem is currently consultingissued its final decision on the methodology to be used by all network operators to calculate the final line loss incentive/penaltyincentives and penalties for the DPCR4. Based on information received from OfgemDPCR4, which ended in 2013, WPD currently estimates the potential loss exposure for this matter to beMarch 2010. As a result, in the rangefirst quarter of $932014 WPD recorded an increase of $65 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 theits existing liability with reductionsa reduction to "Utility" revenuerevenues on the Statement of Income. PPL cannot predictIn June 2014, WPD applied for judicial review of certain of Ofgem's decisions related to closing out the outcomeDPCR4 line loss mechanism. The primary relief sought is for Ofgem to reconsider the overall proportionality of this matter.penalties imposed on WPD. The entire process could last through the second quarter of 2015. WPD's total recorded liability at June 30, 2014 was $106
million, all of which will be refunded to customers beginning April 1, 2015 through March 31, 2019. See Note 6 to the Financial Statements for additional information.
RIIO-ED1 - Fast Tracking
In October 2010,February 2014, WPD elected to accept the decision of Ofgem announced changes to set 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 averagereal cost of capital. Ofgem has also indicated that the depreciation of the RAV, for RAV additions after April 1, 2015, will change from 20 yearsequity to 45 years, but that it will consider transition arrangements.
As previously reported, on July 1, 2013, WPD filed its business plans with Ofgem forbe used during the RIIO-ED1 period at 6.4% compared to 6.7% proposed by WPD, and gaveremain in the fast-track process. The change in the cost of equity is not expected to have a webcast presentation to highlightsignificant impact on the contentsresults of the plansoperations for PPL. Also, in February 2014, Ofgem published formal confirmation that WPD's Business Plans submitted by its four DNOs have been accepted as well as provide potential earnings ranges of the U.K. Regulated segmentsubmitted, or "fast-tracked," 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 theeight-year price control review process and therefore earningperiod starting April 1, 2015. Fast tracking affords several benefits to the fast-track bonus revenue. These assumptions and other future events affectingWPD DNOs including the potential earnings ranges are subjectability to significant uncertainties. Although management believes thatcollect additional revenue equivalent to 2.5% of total annual expenditure during the business plans submitted by WPD meet the criteria to be fast-tracked, management cannot predict the outcome of theeight-year price control review processperiod, or approximately $35 million annually, greater revenue certainty and a higher level of cost savings retention. The deadline to challenge 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 announcedfast tracking occurred in February 2014.June 2014 and no third parties have filed objections. See "Item 1. Business - BackgroundSegment Information - U.K. Regulated Segment - Revenue and Regulation" in the 2012Segment" of PPL's 2013 Form 10-K for additional information.information on RIIO-ED1.
Equity Forward AgreementsDistribution Revenue Reduction
InAs discussed in PPL's 2013 Form 10-K, in December 2013, WPD and other U.K. DNOs announced agreements with the second quarterU.K. Department of 2013, PPL settled forward sale agreementsEnergy and Climate Change and Ofgem to a reduction of £5 per residential customer of electricity distribution revenues that otherwise would have been collected in the regulatory year beginning April 1, 2014. Full recovery of the revenue reduction, together with the associated carrying cost, was expected to occur during the regulatory year beginning April 1, 2015 for 10.5 million sharesthree of PPL common stock by issuing 8.4 million sharesthe WPD DNOs, and cash settlingover 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 Statementseight year RIIO-ED1 regulatory period for the impact onfourth DNO. However, in July 2014, Ofgem decided that full recovery will occur for all WPD DNOs in the calculationregulatory year beginning April 1, 2016. PPL projects that, as a result of diluted EPS.this change and changes in foreign exchange rate assumptions, 2014 and 2015 earnings for its U.K. Regulated segment will now be adversely affected by $31 million and $16 million, respectively, and earnings for 2016 will be positively affected by $33 million with the remainder to be recovered in later periods.
2011 Equity Units
During 2013, several events occurred related to the componentsIn March 2014, PPL Capital Funding remarketed $978 million of the 2010 Equity Units. During the first quarter of 2013, financing plans were finalized to remarket the4.32% Junior Subordinated Notes due 2019 that were originally issued in April 2011 as a component of PPL's 2011 Equity Units. In connection with the 2010 Equity Units and in the second quarter,remarketing, PPL Capital Funding completedretired $228 million of the remarketing of the4.32% Junior Subordinated Notes due 2019 and simultaneously exchanged the remarketed notes for three tranchesissued $350 million of Senior Notes. The transaction resulted in a $10 million loss on extinguishment of the2.189% Junior Subordinated Notes. Additionally, in July 2013,Notes due 2017 and $400 million 3.184% of Junior Subordinated Notes due 2019. Simultaneously the newly issued Junior Subordinated Notes were exchanged for $350 million of 3.95% Senior Notes due 2024 and $400 million of 5.00% Senior Notes due 2044. In May 2014, PPL issued 4031.7 million shares of common stock at $28.73$30.86 per share to settle the 20102011 Purchase Contracts. PPL received net cash proceeds of $1.150 billion,$978 million, which will bewere used to repay short-term and long-term debt obligations and for other general corporate purposes.
Kerr Dam Project Arbitration Decision and Impairment (PPL Energy Supply)
PPL Montana holds a joint operating license issued for the Kerr Dam Project. The license extends until 2035 and, between 2015 and 2025, the Confederated Salish and Kootenai Tribes of the Flathead Nation (the Tribes) have the option to purchase, hold and operate the Kerr Dam Project. The parties submitted the issue of the appropriate amount of the conveyance price to arbitration in February 2013. In March 2014, the arbitration panel issued its final decision holding that the conveyance price payable by the Tribes to PPL Montana is $18 million. As a result of the decision, in the first quarter of 2014 PPL Energy Supply performed a recoverability test on the Kerr Dam Project and recorded an impairment charge of $18 million ($10 million after-tax) to reduce the carrying amount to its fair value, at that time, of $29 million. See Note 713 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
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.
Susquehanna Turbine Blade Inspection 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 madecontinues to make 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.March 2014, Unit 2 completed aits planned turbine inspection outage to replace blades. Unit 1 completed its planned refueling and turbine inspection outage in June 2014. Similar blade replacements were completed and modifications will also be implemented to reduce the likelihood of blade cracking, including the installation of shorter last stage blades on one of the low pressure turbines. In June 2014, Unit 2 was shut down for blade inspection and replacement, as well as additional maintenance. Unit 2 returned to service in early July and the
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 iswas not material. PPL Susquehanna continueswill continue to monitor blade performance and work with the turbine manufacturer to identify and resolve the issues causing the blade cracking.
Colstrip Unit 4 OutageRegional Transmission Expansion Plan (PPL Energy Supply)and PPL Electric)
On July 1, 2013, Colstrip Unit 4 automatically shut down as31, 2014, PPL Electric announced that it had submitted a resultproposal to PJM to build a new regional transmission line pursuant to the competitive solicitation process authorized by FERC Order 1000. The proposed line would run from western Pennsylvania into New York and New Jersey and also south into Maryland, covering approximately 725 miles. The line would help ensure adequate supplies of damageelectricity to replace existing coal-fired power plants that occurredare expected to retire. As proposed, the project would begin in 2017 and the unit's generator.line would be in operation between 2023 and 2025. The repair to Unit 4project is estimated to cost between $30 million and $40 million and is expected$4 billion 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.$6 billion.
Storm Damage Expense Rider (SDER)( (PPL Electric)PPL and PPL Electric)
Distribution System Improvement Charge
Act 11 authorizesIn its December 28, 2012 final rate case order, the PUC directed PPL Electric to approve two specific ratemaking mechanisms - the use offile 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.proposed SDER. In MayMarch 2013, PPL Electric filed its proposed SDER with the PUC approvedand, as part of that filing, requested recovery of the 2012 qualifying storm costs related to Hurricane Sandy. On April 3, 2014, the PUC issued a final order approving the SDER. The SDER will be effective January 1, 2015 and will initially include actual storm costs compared to collections from December 2013 through November 2014. As a result of the order, PPL Electric's proposed DSIC, with an initial rate effective JulyElectric reduced its regulatory liability by $12 million related to collections in excess of costs incurred from January 1, 2013 subject to refund after hearings.November 30, 2013 that are not required to be refunded to customers. Also, as part of the order, PPL Electric can recover Hurricane Sandy storm damage costs through the SDER over a three-year period beginning January 2015. On June 20, 2014, the Office of Consumer Advocate filed a petition for review of the April 2014 order with the Commonwealth Court of Pennsylvania. The case remains pending. See "Pennsylvania Activities - Storm Damage Expense Rider" in Note 6 to the Financial Statements for additional information.
Rate Case Proceedings
(PPLFERC Wholesale Formula Rates (LKE 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)
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.
(KU)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 estimatescharge cost-based rates with a subsequent true-up to actual costs, replacing the current formula which uses prior-year cost amounts.does not include a true-up. KU's application proposed an authorized 10.7% return on equity. Subject to regulatory approval,equity of 10.7%. Certain elements, including the new formula rate, may becomebecame effective during mid-2014.
April 23, 2014 subject to refund. In April 2013,2014, nine municipalities submitted notices of termination, under the original notice period provisions, to cease taking power under the wholesale requirements contracts, such terminations to be effective in 2019, except in the case of one municipality with a 2017 effective date. In July 2014, KU filed an applicationagreed on settlement terms with the VSCCtwo municipal customers that did not provide termination notices and filed the settlement proposal with the FERC for its approval. If approved, the settlement agreement will resolve the rate case with respect to increase annual Virginia base electricity revenue by approximately $7 million, representing an increase of 9.6%. KU proposedthese two municipalities, including an authorized 10.8% return on equity. In October 2013,equity of 10% or the return on equity awarded to other parties in this case, whichever is lower. Also in July 2014, KU filedmade a stipulation reachedcontractually required filing with VSCC staff proposing a revenue increasethe FERC that addressed certain rate recovery matters affecting the nine terminating municipalities during the remaining term of $4.7 million, representing an increasetheir contracts. KU cannot currently predict the outcome of 6.9%. If approved byits FERC applications regarding its wholesale power agreements with the VSCC, new base rates would go into effect on December 1, 2013.municipalities.
(PPL)
The discussion for PPL provides a review of results by reportable segment and concludes with a "Statement of Income Analysis," which includessegment. The "Margins" discussion provides explanations of Kentuckynon-GAAP financial measures (Kentucky Gross Margins, Pennsylvania Gross Delivery Margins and Unregulated Gross Energy Margins.Margins) and a reconciliation of non-GAAP financial measures to "Operating Income." The "Statement of Income Analysis" alsodiscussion addresses significant changes in principal line items on PPL's Statements of Income, comparing the three and ninesix months ended SeptemberJune 30, 20132014 with the same periods in 2012.2013. "Segment Earnings, Margins and Statement of Income Analysis" is presented separately for PPL.
Tables analyzing changes in amounts between periods within "Segment Earnings" and "Statement of Income Analysis" are presented on a constant U.K. foreign currency exchange rate basis, where applicable, in order to isolate the impact of the change in the exchange rate on the item being explained. Results computed on a constant U.K. foreign currency exchange 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," whichearnings. The "Margins" discussion includes a reconciliation of a non-GAAP financial measuremeasures to "Operating Income" and "Statement of Income Analysis" addresses significant changes in principal line items on the Statements of Income comparing the three and ninesix months ended SeptemberJune 30, 20132014 with the same periods in 2012.2013. "Earnings, Margins and Statement of Income Analysis" isare 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, Margins 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%72% of Net Income Attributable to PPL Shareowners for ninethe six months ended SeptemberJune 30, 20132014 and 32%34% of PPL's assets at SeptemberJune 30, 2013.2014.
Net Income Attributable to PPL Shareowners for the periods ended SeptemberJune 30 includes the following results:
| | | Three Months | | Nine Months | | | Three Months | | Six Months |
| | | 2013 | | 2012 | | % Change | | 2013 | | 2012 | | % Change | | | 2014 | | 2013 | | % Change | | 2014 | | 2013 | | % Change |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Utility revenues | Utility revenues | | $ | 534 | | $ | 518 | | 3 | | $ | 1,731 | | $ | 1,613 | | 7 | Utility revenues | | $ | 659 | | $ | 559 | | 18 | | $ | 1,296 | | $ | 1,197 | | 8 |
Energy-related businesses | Energy-related businesses | | | 9 | | | 10 | | (10) | | | 32 | | | 34 | | (6) | Energy-related businesses | | | 13 | | | 13 | | | | | 24 | | | 23 | | 4 |
| Total operating revenues | | | 543 | | | 528 | | 3 | | | 1,763 | | | 1,647 | | 7 | Total operating revenues | | | 672 | | | 572 | | 17 | | | 1,320 | | | 1,220 | | 8 |
Other operation and maintenance | Other operation and maintenance | | 111 | | 101 | | 10 | | | 340 | | 326 | | 4 | Other operation and maintenance | | 117 | | 112 | | 4 | | | 225 | | 229 | | (2) |
Depreciation | Depreciation | | 73 | | 69 | | 6 | | | 219 | | 206 | | 6 | Depreciation | | 87 | | 72 | | 21 | | | 170 | | 146 | | 16 |
Taxes, other than income | Taxes, other than income | | 36 | | 36 | | | | | 109 | | 108 | | 1 | Taxes, other than income | | 40 | | 36 | | 11 | | | 78 | | 73 | | 7 |
Energy-related businesses | Energy-related businesses | | | 7 | | | 8 | | (13) | | | 21 | | | 24 | | (13) | Energy-related businesses | | | 8 | | | 7 | | 14 | | | 15 | | | 14 | | 7 |
| Total operating expenses | | | 227 | | | 214 | | 6 | | | 689 | | | 664 | | 4 | Total operating expenses | | | 252 | | | 227 | | 11 | | | 488 | | | 462 | | 6 |
Other Income (Expense) - net | Other Income (Expense) - net | | (117) | | (50) | | 134 | | | 7 | | (39) | | (118) | Other Income (Expense) - net | | (72) | | 4 | | (1,900) | | | (96) | | 124 | | (177) |
Interest Expense | Interest Expense | | 102 | | 106 | | (4) | | | 313 | | 314 | | | Interest Expense | | 115 | | 104 | | 11 | | | 237 | | 211 | | 12 |
Income Taxes | Income Taxes | | | (86) | | | (44) | | 95 | | | 27 | | | 67 | | (60) | Income Taxes | | | 46 | | | | | n/a | | | 106 | | | 113 | | (6) |
Net Income Attributable to PPL Shareowners | Net Income Attributable to PPL Shareowners | | $ | 183 | | $ | 202 | | (9) | | $ | 741 | | $ | 563 | | 32 | Net Income Attributable to PPL Shareowners | | $ | 187 | | $ | 245 | | (24) | | $ | 393 | | $ | 558 | | (30) |
The changes in the componentsresults of the U.K. Regulated segment's resultssegment between these periods were due to the factors set forth below, which reflect reclassifications for certain items that management considers special.special and effects of foreign currency exchange on separate lines within the table and not in their respective Statement of Income line items. See below for additional detail of thesethe special items.
| | | Three Months | | Nine Months | | | Three Months | | Six Months |
| | | | | | | | | | | | |
U.K. | U.K. | | | | | U.K. | | | | |
| Utility revenues | | $ | 44 | | $ | 187 | Utility revenues | | $ | 14 | | $ | 54 |
| Other operation and maintenance | | (9) | | (19) | Other operation and maintenance | | 6 | | 13 |
| Depreciation | | (6) | | (17) | Depreciation | | (7) | | (13) |
| Interest expense | | 3 | | (4) | Interest expense | | (5) | | (9) |
| Other | | 2 | | 2 | Other | | | | (3) |
| Income taxes | | 8 | | (13) | Income taxes | | | | (3) |
U.S. | U.S. | | | | | U.S. | | | | |
| Interest expense and other | | | | 1 | Interest expense and other | | 1 | | (3) |
| Income taxes | | (5) | | 4 | Income taxes | | (18) | | (21) |
Foreign currency exchange, after-tax | | Foreign currency exchange, after-tax | | 3 | | 5 |
Special items, after-tax | | Special items, after-tax | | | (52) | | | (185) |
Total | | Total | | $ | (58) | | $ | (165) |
| | | 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 $74a $52 million impact from the April 1, 2014 and 2013 price increase,increases, partially offset by a $22 million accrual for over-recovered revenue and $10$33 million of lower volume due primarily to weather. |
| Higher utility revenues for the nine-monthsix-month period primarily due to $187a $120 million impact from the April 1, 20132014 and 20122013 price increases, and $18partially offset by $56 million of higherlower volume due primarily to weather partially offset by a $22and $7 million accrual for over-recovered revenue.from adverse customer mix. |
· | HigherLower other operation and maintenance for the three- and nine-month periodssix-month period primarily due to $17 million of lower pension expense and $9 million of lower engineering management expense, partially offset by $16 million of higher network maintenance expense. |
· | Higher depreciation expense for the three-three and nine-monthsix-month periods primarily due to PP&E additions. |
· | Lower income taxesHigher interest expense for the three-month periodthree and six-month periods primarily due to $16 million from U.K. tax rate changes, partially offset by higher pre-tax income, which increased income taxes by $8 million.the October 2013 debt issuance. |
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 periodthree and six-month periods primarily due to a $19 million 2013 adjustment primarily related to ana ruling obtained from the IRS ruling regardingimpacting the recalculation of 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.profits. |
The following after-tax gains (losses), which management considers special items, also impacted the U.K. Regulated segment's results during the periods ended SeptemberJune 30.
| | | Income Statement | | Three Months | | Nine Months | | | Income Statement | | Three Months | | Six Months |
| | | Line Item | | 2013 | | 2012 | | 2013 | | 2012 | | | Line Item | | 2014 | | 2013 | | 2014 | | 2013 |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Other Income | | | | | | | | | | | Other Income | | | | | | | | | |
Foreign currency-related economic hedges, net of tax of $44, $18, $5, $17 (a) | (Expense)-net | | $ | (82) | | $ | (30) | | $ | (8) | | $ | (28) | |
Foreign currency-related economic hedges, net of tax of $18, $3, $21, ($39) (a) | | Foreign currency-related economic hedges, net of tax of $18, $3, $21, ($39) (a) | (Expense)-net | | $ | (33) | | $ | (5) | | $ | (39) | | $ | 73 |
WPD Midlands acquisition-related adjustments: | WPD Midlands acquisition-related adjustments: | | | | | | | | | | | WPD Midlands acquisition-related adjustments: | | | | | | | | | | |
| | | Other Operation | | | | | | | | | | | | Other Operation | | | | | | | | | |
| Separation benefits, net of tax of $1, $1, $1, $3 | and Maintenance | | (2) | | (1) | | (4) | | | (9) | Separation benefits, net of tax of $0, $0, $0, $1 | and Maintenance | | | | | | | | | (1) |
| | | Other Operation | | | | | | | | | | | | Other Operation | | | | | | | | | |
| Other acquisition-related adjustments, net of tax of $0, $0, $0, ($1) | and Maintenance | | | | (2) | | (2) | | | 2 | Other acquisition-related adjustments, net of tax of $0, $0, $0, $0 | and Maintenance | | | | | | | | | (2) |
Other: | Other: | | | | | | | | | | | Other: | | | | | | | | | | |
| Windfall Profits Tax litigation (b) | Income Taxes | | | | | | 43 | | | | Windfall Profits Tax litigation (b) | Income Taxes | | | | 43 | | | | | 43 |
| Change in WPD line loss accrual, net of tax of $5, $0, $10, $0 (c) | Utility | | (16) | | | | (35) | | | | Change in WPD line loss accrual, net of tax of $0, $5, $13, $5 (c) | Utility Revenues | | | | | | (19) | | | (52) | | | (19) |
| Change in U.K. tax rate (d) | Income Taxes | | | 84 | | | 74 | | | 84 | | | 74 | |
Total | Total | | | $ | (16) | | $ | 41 | | $ | 78 | | $ | 39 | Total | | | $ | (33) | | $ | 19 | | $ | (91) | | $ | 94 |
(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, onconcerning 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.three and six months ended June 30, 2013. See Note 5 to the Financial Statements for additional information. |
(c) | WPD Midlands recorded adjustmentsan adjustment to its line loss accrual in June 2013 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. In March 2014, Ofgem issued its final decision on the DPCR4 line loss incentives and penalties mechanism. As a result, WPD increased its existing liability by $65 million for over-recovery of line losses. See Note 6 to the Financial Statements for additional information. |
(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'soperations of LG&E and KU, as well as LG&E's regulated distribution and sale of natural gas.gas in Kentucky. In addition, certain financing costs are allocated to the Kentucky Regulated segment. The Kentucky Regulated segment represents 19%30% of Net Income Attributable to PPL Shareowners for the ninesix months ended SeptemberJune 30, 20132014 and 25% of PPL's assets at SeptemberJune 30, 2013.2014.
Net Income Attributable to PPL Shareowners for the periods ended SeptemberJune 30 includes the following results:
| | | Three Months | | Nine Months | | | Three Months | | Six Months |
| | | 2013 | | 2012 | | % Change | | 2013 | | 2012 | | % Change | | | 2014 | | 2013 | | % Change | | 2014 | | 2013 | | % Change |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Utility revenues | Utility revenues | | $ | 744 | | $ | 732 | | 2 | | $ | 2,226 | | $ | 2,095 | | 6 | Utility revenues | | $ | 722 | | $ | 682 | | 6 | | $ | 1,656 | | $ | 1,482 | | 12 |
Fuel | Fuel | | 237 | | 249 | | (5) | | 684 | | 677 | | 1 | Fuel | | 231 | | 216 | | 7 | | 508 | | 447 | | 14 |
Energy purchases | Energy purchases | | 23 | | 27 | | (15) | | 146 | | 135 | | 8 | Energy purchases | | 36 | | 37 | | (3) | | 160 | | 123 | | 30 |
Other operation and maintenance | Other operation and maintenance | | 188 | | 186 | | 1 | | 582 | | 589 | | (1) | Other operation and maintenance | | 206 | | 197 | | 5 | | 412 | | 394 | | 5 |
Depreciation | Depreciation | | 84 | | 87 | | (3) | | 249 | | 259 | | (4) | Depreciation | | 87 | | 83 | | 5 | | 173 | | 165 | | 5 |
Taxes, other than income | Taxes, other than income | | | 12 | | | 11 | | 9 | | | 36 | | | 34 | | 6 | Taxes, other than income | | | 13 | | | 12 | | 8 | | | 26 | | | 24 | | 8 |
| Total operating expenses | | | 544 | | | 560 | | (3) | | | 1,697 | | | 1,694 | | | Total operating expenses | | | 573 | | | 545 | | 5 | | | 1,279 | | | 1,153 | | 11 |
Other Income (Expense) - net | Other Income (Expense) - net | | (4) | | (4) | | | | (6) | | (14) | | (57) | Other Income (Expense) - net | | (2) | | | | n/a | | (4) | | (2) | | 100 |
Interest Expense | Interest Expense | | 49 | | 54 | | (9) | | 165 | | 163 | | 1 | Interest Expense | | 53 | | 61 | | (13) | | 108 | | 116 | | (7) |
Income Taxes | Income Taxes | | 54 | | 42 | | 29 | | 132 | | 70 | | 89 | Income Taxes | | 36 | | 28 | | 29 | | 100 | | 78 | | 28 |
Income (Loss) from Discontinued Operations | Income (Loss) from Discontinued Operations | | | | | | | | n/a | | | 1 | | | (6) | | (117) | Income (Loss) from Discontinued Operations | | | | | | 1 | | (100) | | | | | | 1 | | (100) |
Net Income Attributable to PPL Shareowners | Net Income Attributable to PPL Shareowners | | $ | 93 | | $ | 72 | | 29 | | $ | 227 | | $ | 148 | | 53 | Net Income Attributable to PPL Shareowners | | $ | 58 | | $ | 49 | | 18 | | $ | 165 | | $ | 134 | | 23 |
The changes in the componentsresults of the Kentucky Regulated segment's resultssegment between these periods were due to the factors set forth below, which reflect reclassifications for items included inamounts classified as Kentucky Gross Margins and certain items that management considers special.special on separate lines within the table and not in their respective Statement of Income line items. See below for additional detail of these special items.
| | Three Months | | Nine Months | | Three Months | | Six Months |
| | | | | | | | | | |
Kentucky Gross Margins | | $ | 42 | | $ | 151 | | $ | 24 | | $ | 74 |
Other operation and maintenance | | | (4) | | 4 | | | (7) | | (18) |
Depreciation | | | (9) | | (26) | | | (4) | | (7) |
Taxes, other than income | | | (1) | | (2) | |
Other Income (Expense) - net | | | | | 7 | |
Interest Expense | | | 5 | | (2) | |
Income Taxes | | | (12) | | (56) | |
Interest expense | | | | 8 | | 8 |
Other | | | | (4) | | (3) |
Income taxes | | | | (8) | | (22) |
Special items, after-tax | | | | | | 3 | | | | | | (1) |
Total | | $ | 21 | | $ | 79 | | $ | 9 | | $ | 31 |
· | See "Statement of Income Analysis - Margins"Margins - Changes in Non-GAAP Financial Measures" for an explanation of Kentucky Gross Margins. |
· | LowerHigher other operation and maintenance for the nine-monththree month period primarily due to $18$3 million of lowerhigher costs due to the timing and scope of scheduled coal plantgeneration maintenance outages. This decrease was partially offset by $8outages and higher storm expenses of $3 million. |
· | Higher other operation and maintenance for the six month period primarily due to $6 million of higher administrativecosts due to the timing and generalscope of scheduled generation maintenance outages and higher storm expenses and $4 million of adjustments to regulatory assets and liabilities.$9 million. |
· | Higher depreciation expense for the three and nine-monthsix 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.PP&E additions, net. |
· | Higher other income (expense) - netLower interest expense for the nine-month periodthree and six month periods primarily due to losses from the EEI investment recorded in 2012. The EEI investment was fully impairedremarketing of the PPL Capital Funding Junior Subordinated Notes component of the 2010 Equity Units and simultaneous exchange into Senior Notes in the fourthsecond quarter of 2012.2013 partially offset by increased expense due to the issuance of $500 million First Mortgage Bonds in November 2013. |
· | Higher income taxes for the three and nine-monthsix month periods primarily due to the change inhigher pre-tax income at current period tax rates.income. |
The following after-tax gains (losses), which management considers special items, also impacted the Kentucky Regulated segment's results during the periods ended SeptemberJune 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) |
| | | Income Statement | | Three Months | | Six Months |
| | | Line Item | | 2014 | | 2013 | | 2014 | | 2013 |
| | | | | | | | | | | | | | | |
EEI adjustments, net of tax of $0, $0, $0, $0 (a) | Other Income (Expense)-net | | $ | 1 | | | | | $ | 1 | | $ | 1 |
LKE discontinued operations | Discontinued Operations | | | | | $ | 1 | | | | | | 1 |
Total | | | $ | 1 | | $ | 1 | | $ | 1 | | $ | 2 |
(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'sthe regulated electricity transmission and distribution operations.operations of PPL Electric. In addition, certain financing costs are allocated to the Pennsylvania Regulated segment. The Pennsylvania Regulated segment represents 13%25% of Net Income Attributable to PPL Shareowners for the ninesix months ended SeptemberJune 30, 20132014 and 15% of PPL's assets at SeptemberJune 30, 2013.2014.
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 June 30 includes the following results: | | Net Income Attributable to PPL Shareowners for the periods ended June 30 includes the following results: |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | Three Months | | Six Months |
| | | Three Months | | Nine Months | | | 2014 | | 2013 | | % Change | | 2014 | | 2013 | | % Change |
| | | 2013 | | 2012 | | % Change | | 2013 | | 2012 | | % Change | | | | | | | | | | | | | |
Utility revenues | Utility revenues | | | | | | | | | | | | | Utility revenues | | $ | 449 | | $ | 414 | | 8 | | $ | 1,041 | | $ | 927 | | 12 |
| 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 | Energy purchases | | | | | | | | | | | | | Energy purchases | | | | | | | | | | | | |
| External | | 144 | | 137 | | 5 | | 436 | | 410 | | 6 | External | | 114 | | 120 | | (5) | | 303 | | 292 | | 4 |
| Intersegment | | 11 | | 23 | | (52) | | 37 | | 61 | | (39) | Intersegment | | 21 | | 12 | | 75 | | 48 | | 26 | | 85 |
Other operation and maintenance | Other operation and maintenance | | 134 | | 148 | | (9) | | 391 | | 431 | | (9) | Other operation and maintenance | | 135 | | 124 | | 9 | | 269 | | 257 | | 5 |
Depreciation | Depreciation | | 45 | | 41 | | 10 | | 132 | | 119 | | 11 | Depreciation | | 45 | | 44 | | 2 | | 90 | | 87 | | 3 |
Taxes, other than income | Taxes, other than income | | | 25 | | | 24 | | 4 | | | 77 | | | 72 | | 7 | Taxes, other than income | | | 23 | | | 22 | | 5 | | | 55 | | | 52 | | 6 |
| Total operating expenses | | | 359 | | | 373 | | (4) | | | 1,073 | | | 1,093 | | (2) | Total operating expenses | | | 338 | | | 322 | | 5 | | | 765 | | | 714 | | 7 |
Other Income (Expense) - net | Other Income (Expense) - net | | 2 | | 3 | | (33) | | 5 | | 6 | | (17) | Other Income (Expense) - net | | 1 | | 2 | | (50) | | 3 | | 3 | | |
Interest Expense | Interest Expense | | 30 | | 25 | | 20 | | 80 | | 73 | | 10 | Interest Expense | | 29 | | 25 | | 16 | | 58 | | 50 | | 16 |
Income Taxes | Income Taxes | | | 26 | | | 16 | | 63 | | | 83 | | | 47 | | 77 | Income Taxes | | | 31 | | | 24 | | 29 | | | 84 | | | 57 | | 47 |
Net Income | | 51 | | 33 | | 55 | | 160 | | 99 | | 62 | |
Net Income Attributable to Noncontrolling Interests | | | | | | | | n/a | | | | | | 4 | | (100) | |
Net Income Attributable to PPL Shareowners | Net Income Attributable to PPL Shareowners | | $ | 51 | | $ | 33 | | 55 | | $ | 160 | | $ | 95 | | 68 | Net Income Attributable to PPL Shareowners | | $ | 52 | | $ | 45 | | 16 | | $ | 137 | | $ | 109 | | 26 |
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 inamounts classified as Pennsylvania Gross Delivery Margins.Margins and a certain item that management considers special on separate lines and not in their respective Statement of Income line items. See below for additional detail of the special item.
| | Three Months | | Nine Months | | Three Months | | Six Months |
| | | | | | | | | | | | |
Pennsylvania Gross Delivery Margins | | $ | 31 | | $ | 92 | | $ | 28 | | $ | 73 |
Other operation and maintenance | | 8 | | 28 | |
Depreciation | | (4) | | (13) | | (2) | | (4) |
Interest Expense | | (5) | | (7) | |
Interest expense | | | (4) | | (8) |
Other | | (2) | | (3) | | (1) | | |
Income Taxes | | (10) | | (36) | |
Noncontrolling Interests | | | | | | 4 | |
Income taxes | | | (10) | | (29) |
Special item, after-tax | | | | (4) | | | (4) |
Total | | $ | 18 | | $ | 65 | | $ | 7 | | $ | 28 |
· | See "Statement of Income Analysis - Margins"Margins - Changes in Non-GAAP Financial Measures" for an explanation of Pennsylvania Gross Delivery Margins. |
· | 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. |
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 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-monthsix-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-monthsix-month periods primarily due to higher pre-tax income. |
The following after-tax gains (losses), which management considers a special item, also impacted the Pennsylvania Regulated segment's results during the periods ended June 30.
| | | Income Statement | | Three Months | | Six Months |
| | | Line Item | | 2014 | | 2013 | | 2014 | | 2013 |
| | | | | | | | | | | | | | | |
| | | Other Operation | | | | | | | | | | | | |
Separation benefits, net of tax of $2, $0, $2, $0 (a) | and Maintenance | | $ | (4) | | | | | $ | (4) | | | |
(a) | In June 2014, PPL Electric's largest IBEW local ratified a new three-year labor agreement. In connection with the new agreement, estimated bargaining unit one-time voluntary retirement benefits were recorded. See Note 10 to the Financial Statements for additional information. |
Supply Segment
The Supply segment primarily consists of PPL Energy Supply's energywholesale, retail, marketing and trading activities, as well as its competitive generation operations. In addition, certain financing and other costs are allocated to the Supply segment. The Supply segment represents 10%negative 13% of Net Income Attributable to PPL Shareowners for the ninesix months ended SeptemberJune 30, 20132014 and 27%25% of PPL's assets at SeptemberJune 30, 2013.2014.
In June 2014, PPL and PPL Energy Supply, which primarily represents PPL's Supply segment, executed definitive agreements with affiliates of Riverstone to combine their competitive power generation businesses into a new, stand-alone, publicly traded, independent power producer named Talen Energy. Upon completion of this transaction, PPL will no longer have a Supply segment. See Note 8 to the Financial Statements for additional information.
Net Income Attributable to PPL Shareowners for the periods ended September 30 includes the following results: | |
Net Income Attributable to PPL Shareowners for the periods ended June 30 includes the following results: | | Net Income Attributable to PPL Shareowners for the periods ended June 30 includes the following results: |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months | | Nine Months | | | Three Months | | Six Months |
| | | 2013 | | 2012 | | % Change | | 2013 | | 2012 | | % Change | | | 2014 | | 2013 | | % Change | | 2014 | | 2013 | | % Change |
Energy revenues | Energy revenues | | | | | | | | | | | | | Energy revenues | | | | | | | | | | | | |
| External (a) | | $ | 1,209 | | $ | 567 | | 113 | | $ | 3,248 | | $ | 3,673 | | (12) | External (a) (b) | | $ | 872 | | $ | 1,658 | | (47) | | $ | (206) | | $ | 2,039 | | (110) |
| Intersegment | | 11 | | 23 | | (52) | | 37 | | 61 | | (39) | Intersegment | | 21 | | 12 | | 75 | | 48 | | 26 | | 85 |
Energy-related businesses | Energy-related businesses | | | 143 | | | 133 | | 8 | | | 378 | | | 346 | | 9 | Energy-related businesses | | | 155 | | | 122 | | 27 | | | 280 | | | 235 | | 19 |
| Total operating revenues | | | 1,363 | | | 723 | | 89 | | | 3,663 | | | 4,080 | | (10) | Total operating revenues | | | 1,048 | | | 1,792 | | (42) | | | 122 | | | 2,300 | | (95) |
Fuel (a) | Fuel (a) | | 258 | | 321 | | (20) | | 780 | | 728 | | 7 | Fuel (a) | | 259 | | 224 | | 16 | | 741 | | 522 | | 42 |
Energy purchases | | | | | | | | | | | | | |
| External (a) | | 388 | | (150) | | (359) | | 1,085 | | 1,288 | | (16) | |
| Intersegment | | 1 | | 1 | | | | 3 | | 2 | | 50 | |
Energy purchases (a) (c) | | Energy purchases (a) (c) | | 203 | | 898 | | (77) | | (1,601) | | 699 | | (329) |
Other operation and maintenance | Other operation and maintenance | | 243 | | 221 | | 10 | | 748 | | 769 | | (3) | Other operation and maintenance | | 296 | | 270 | | 10 | | 554 | | 505 | | 10 |
Depreciation | Depreciation | | 80 | | 75 | | 7 | | 237 | | 210 | | 13 | Depreciation | | 82 | | 79 | | 4 | | 162 | | 157 | | 3 |
Taxes, other than income | Taxes, other than income | | 18 | | 19 | | (5) | | 51 | | 54 | | (6) | Taxes, other than income | | 16 | | 16 | | | | 37 | | 33 | | 12 |
Energy-related businesses | Energy-related businesses | | | 138 | | | 129 | | 7 | | | 366 | | | 339 | | 8 | Energy-related businesses | | | 155 | | | 118 | | 31 | | | 279 | | | 228 | | 22 |
| Total operating expenses | | | 1,126 | | | 616 | | 83 | | | 3,270 | | | 3,390 | | (4) | Total operating expenses | | | 1,011 | | | 1,605 | | (37) | | | 172 | | | 2,144 | | (92) |
Other Income (Expense) - net | Other Income (Expense) - net | | 2 | | 6 | | (67) | | 18 | | 15 | | 20 | Other Income (Expense) - net | | 8 | | 12 | | (33) | | 14 | | 16 | | (13) |
Other-Than-Temporary Impairments | | 1 | | | | n/a | | 1 | | 1 | | | |
Interest Expense | Interest Expense | | 54 | | 62 | | (13) | | 174 | | 163 | | 7 | Interest Expense | | 50 | | 60 | | (17) | | 98 | | 120 | | (18) |
Income Taxes | Income Taxes | | 92 | | 3 | | 2,967 | | 113 | | 180 | | (37) | Income Taxes | | | (10) | | | 62 | | (116) | | | (64) | | | 21 | | (405) |
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) | Net Income Attributable to PPL Shareowners | | $ | 5 | | $ | 77 | | (94) | | $ | (70) | | $ | 31 | | (326) |
(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. |
(b) | The six-month period ended June 30, 2014 includes significant realized and unrealized losses on physical and financial commodity sales contracts due to the unusually cold weather experienced in the first quarter of 2014. |
(c) | The six-month period ended June 30, 2014 includes significant realized and unrealized gains on physical and financial commodity purchase contracts due to the unusually cold weather experienced in the first quarter of 2014. |
The changes in the componentsresults of the Supply segment's resultssegment between these periods were due to the factors set forth below, which reflect reclassifications for items included inamounts classified as Unregulated Gross Energy Margins and certain items that management considers special.special on separate lines within the table and not in their respective Statement of Income line items. See below for additional detail of these special items.
| | Three Months | | Nine Months | | Three Months | | Six Months |
| | | | | | | | | | |
Unregulated Gross Energy Margins | | $ | (9) | | $ | (204) | | $ | 47 | | $ | 54 |
Other operation and maintenance | | (18) | | 11 | | | | (3) |
Depreciation | | (5) | | (27) | | (3) | | (5) |
Taxes, other than income | | (1) | | 3 | |
Other Income (Expense) - net | | (4) | | 6 | |
Interest expense | | 8 | | (11) | | 11 | | 23 |
Other | | (4) | | (2) | | (8) | | (8) |
Income Taxes | | (23) | | 37 | |
Income taxes | | | (9) | | (20) |
Special items, after-tax | | | 99 | | | (52) | | | (110) | | | (142) |
Total | | $ | 43 | | $ | (239) | | $ | (72) | | $ | (101) |
· | See "Statement of Income Analysis - Margins"Margins - Changes in Non-GAAP Financial Measures" for an explanation of Unregulated Gross Energy Margins. |
· | Higher other operation and maintenance for the three-month period primarily due to Montour outage costs in 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 depreciationLower interest expense for the three and nine-monthsix-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 lower capitalized interestrepayment of debt in July and December 2013. |
· | Higher income taxes for the three-month periodthree and six-month periods 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 $10 million.income. |
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 SeptemberJune 30.
| | | Income Statement | | Three Months | | Nine Months |
| | | Line Item | | 2013 | | 2012 | | 2013 | | 2012 |
| | | | | | | | | | | | | | | |
Adjusted energy-related economic activity - net, net of tax of $4, $63, $32, ($16) | (a) | | $ | (6) | | $ | (95) | | $ | (47) | | $ | 23 |
Impairments: | | | | | | | | | | | | | |
| Adjustments - nuclear decommissioning trust investments, net of tax of $0, $0, $0, ($2) | Other Income-net | | | | | | | | | | | | 1 |
Other: | | | | | | | | | | | | | |
| Change in tax accounting method related to repairs | Income Taxes | | | | | | | | | (3) | | | |
| | 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 | | | $ | (6) | | $ | (105) | | $ | (49) | | $ | 3 |
| | | Income Statement | | Three Months | | Six Months |
| | | Line Item | | 2014 | | 2013 | | 2014 | | 2013 |
| | | | | | | | | | | | | | | |
Adjusted energy-related economic activity - net, net of tax of $16, ($51), $111, $28 | (a) | | $ | (23) | | $ | 76 | | $ | (162) | | $ | (41) |
| | | Other Operation | | | | | | | | | | | | |
Kerr Dam Project impairment, net of tax of $0, $0, $7, $0 (b) | and Maintenance | | | | | | | | | (10) | | | |
Other: | | | | | | | | | | | | | |
| Change in tax accounting method related to repairs | Income Taxes | | | | | | (3) | | | | | | (3) |
| | Other Operation | | | | | | | | | | | | |
| Counterparty bankruptcy, net of tax of $0, ($1), $0, ($1) | and Maintenance | | | | | | 1 | | | | | | 1 |
| | | Other Operation | | | | | | | | | | | | |
| Separation benefits, net of tax of $9, $0, $9, $0 (c) | and Maintenance | | | (13) | | | | | | (13) | | | |
Total | | | $ | (36) | | $ | 74 | | $ | (185) | | $ | (43) |
(a) | Represents unrealized gains (losses), after-tax, on economic activity. See "Reconciliation of"Commodity Price Risk (Non-trading) - 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 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 |
| | | | 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. Amounts have been adjusted for option premiums of $2 million, $0, $4 million and $1 million. |
(b) | See Note 13 to the Financial Statements for additional information. |
Statement of Income Analysis --(c) | In June 2014, PPL Energy Supply's largest IBEW local ratified a new three-year labor agreement. In connection with the new agreement, estimated bargaining unit one-time voluntary retirement benefits were recorded. See Note 10 to the Financial Statements for additional information. |
Margins
Non-GAAP Financial Measures
Management utilizes the following non-GAAP financial measures 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 itsLKE's and LG&E's distribution and sale of natural gas. In calculating this measure, fuel, and energy purchases and certain variable costs of production (recorded as "Other operation and maintenance" on the Statements of Income) are deducted from revenues. In addition, utility revenuescertain other expenses, recorded as "Other operation and expensesmaintenance" and "Depreciation" on the Statements of Income, associated with approved cost recovery mechanisms are offset.offset against the recovery of those expenses, which are included in revenues. These mechanisms allow for direct recovery of certainthese expenses returnand, in some cases, 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 the electricelectricity and gas operations. |
· | "Pennsylvania Gross Delivery Margins" is a single financial performance measure of the Pennsylvania Regulated segment's and PPL Electric's electricelectricity 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 the Pennsylvania Regulated segment's and PPL Electric's electricelectricity delivery operations. |
· | "Unregulated Gross Energy Margins" is a single financial performance measure of the Supply segment's and PPL Energy Supply's competitive energy non-trading and trading activities. Non-trading activities, which are managed on a geographic basis that is aligned with the generation fleet.basis. In calculating this measure, energy revenues, including operating revenues associated with certain businesses classified as discontinued operations, are offset by the cost of fuel, energy purchases, and certain other operation and maintenance expenses, primarily ancillary charges, and gross receipts tax, which is recorded in "Taxes, other than income.income," and operating expenses associated with certain businesses classified as discontinued operations. 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""Unregulated wholesale energy", "Unregulated retail energy" or "Energy purchases" on the Statements of Income. This performance measure includes PLR revenues from energy sales to PPL Electric by PPL EnergyPlus, which are recordedreflected in "PLR intersegment utility revenue (expense)" in the reconciliation table below (in "Wholesale"Unregulated wholesale energy marketing to affiliate" in PPL Energy Supply's reconciliation table). "Unregulated Gross Energy Margins" excludes adjusted energy-related economic activity, which includes the changes in fair value of positions used to economically hedge a portion of the economic value of the competitive generation assets, full-requirement sales contracts and retail activities. This economic value is subject to changes in fair value due to market price volatility of the input and output commodities (e.g., fuel and power) prior to the delivery period that was hedged. Adjusted energy-related economic activity also includes the premium amortization associated with options and for 2012 the ineffective portion of qualifying cash flow hedges and realized economic activity associated with the monetization of certain full-requirement sales contracts in 2010. This economic activity was 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. |
delivery period that was hedged. Adjusted energy-related economic activity includes the ineffective portion of qualifying cash flow hedges and premium amortization associated with options. Unrealized gains and losses related to this activity are deferred and included in "Unregulated Gross Energy Margins" over the delivery period of the item that was hedged or upon realization.
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 thetheir results of their operations. Management believes that these measures provide additional useful 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 determiningto determine variable compensation.
Reconciliation of Non-GAAP Financial Measures
The following tables containtable contains the components from the Statement of Income that are included in the non-GAAP financial measures and a reconciliation to PPL's "Operating Income" for the periods ended SeptemberJune 30.
| | | | 2013 Three Months | | 2012 Three Months | | | | 2014 Three Months | | 2013 Three Months |
| | | | | | | | Unregulated | | | | | | | | | | | Unregulated | | | | | | | | | | | | | | Unregulated | | | | | | | | | | | Unregulated | | | | | | |
| | | | Kentucky | | PA Gross | | Gross | | | | | | | Kentucky | | PA Gross | | Gross | | | | | | | | | Kentucky | | PA Gross | | Gross | | | | | | | | Kentucky | | PA Gross | | Gross | | | | | |
| | | | Gross | | Delivery | | Energy | | | | | Income | | Gross | | Delivery | | Energy | | | | | Income | | | | Gross | | Delivery | | Energy | | | | | Operating | | Gross | | Delivery | | Energy | | | | | Operating |
| | | | Margins | | Margins | | Margins | | Other (a) | | (b) | | Margins | | Margins | | Margins | | Other (a) | | (b) | | | | Margins | | Margins | | Margins | | Other (a) | | Income (b) | | Margins | | Margins | | Margins | | Other (a) | | Income (b) |
Operating Revenues | Operating Revenues | | | | | | | | | | | | | | | | | | | | | | | | | Operating Revenues | | | | | | | | | | | | | | | | | | | | | | | | |
| Utility | | $ | 744 | | $ | 463 | | | | $ | 532 | (c) | | $ | 1,739 | | $ | 732 | | $ | 443 | | | | | $ | 518 | (c) | | $ | 1,693 | |
| PLR intersegment utility | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | revenue (expense) (d) | | | | | (11) | | $ | 11 | | | | | | | | | | | | | (23) | | $ | 23 | | | | | | | | |
| Unregulated retail | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | electric and gas | | | | | | | | 267 | | | (3) | (f) | | | 264 | | | | | | | | 232 | | | (14) | (f) | | | 218 | |
| Wholesale energy marketing | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Utility | | $ | 722 | | $ | 449 | | | | $ | 659 | (c) | | $ | 1,830 | | $ | 682 | | $ | 414 | | | | | $ | 559 | (c) | | $ | 1,655 |
| | Realized | | | | | | | | 981 | | | (1) | | | | 980 | | | | | | | | 1,074 | | | 2 | (e) | | | 1,076 | PLR intersegment utility | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Unrealized economic | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | revenue (expense) (d) | | | | | (21) | | $ | 21 | | | | | | | | | | | | | (12) | | $ | 12 | | | | | | | |
| | activity | | | | | | | | | | | (49) | (f) | | | (49) | | | | | | | | | | | (716) | (f) | | | (716) | Unregulated wholesale energy | | | | | | | | 684 | | | (93) | (e) | | | 591 | | | | | | | | 812 | | | 589 | (e) | | | 1,401 |
| Net energy trading margins | | | | | | | | 12 | | | | | | | 12 | | | | | | | | (11) | | | | | | | (11) | Unregulated retail energy | | | | | | | | 277 | | | 3 | (e) | | | 280 | | | | | | | | 237 | | | 20 | (e) | | | 257 |
| Energy-related businesses | | | | | | | | | | | | 159 | | | | 159 | | | | | | | | | | | | 143 | | | | 143 | Energy-related businesses | | | | | | | | | | | | 173 | | | | 173 | | | | | | | | | | | | 137 | | | | 137 |
| | Total Operating Revenues | | | 744 | | | 452 | | | 1,271 | | | 638 | | | | 3,105 | | | 732 | | | 420 | | | 1,318 | | | (67) | | | | 2,403 | | Total Operating Revenues | | | 722 | | | 428 | | | 982 | | | 742 | | | | 2,874 | | | 682 | | | 402 | | | 1,061 | | | 1,305 | | | | 3,450 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Operating Expenses | Operating Expenses | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Operating Expenses | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fuel | | 237 | | | | | | 256 | | | 1 | | | | 494 | | | 249 | | | | | 310 | | | 11 | (g) | | | 570 | Fuel | | 231 | | | | | | 266 | | | (6) | (e) | | | 491 | | | 216 | | | | | 223 | | | 2 | (e) | | | 441 |
| Energy purchases | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Energy purchases | | 36 | | | 114 | | | 246 | | | (45) | (e) | | | 351 | | | 37 | | | 120 | | 420 | | | 474 | (e) | | | 1,051 |
| | Realized | | 23 | | | 144 | | | 427 | | | (2) | | | | 592 | | | 27 | | | 137 | | 418 | | | 1 | (e) | | | 583 | Other operation and | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Unrealized economic | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | maintenance | | 25 | | | 23 | | | 6 | | | 687 | | | | 741 | | | 23 | | | 21 | | 3 | | | 651 | | | | 698 |
| | activity | | | | | | | | | | | (37) | (f) | | | (37) | | | | | | | | | | | (569) | (f) | | | (569) | Depreciation | | 2 | | | | | | | | | 310 | | | | 312 | | | 2 | | | | | | | | 284 | | | | 286 |
| Other operation and | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Taxes, other than income | | | | | 21 | | | 10 | | | 62 | | | | 93 | | | | | | 19 | | 10 | | | 57 | | | | 86 |
| | maintenance | | 26 | | | 19 | | | 5 | | | 619 | | | | 669 | | | 28 | | | 25 | | 1 | | | 596 | | | | 650 | Energy-related businesses | | | | | | | | 2 | | | 166 | | | | 168 | | | | | | | | | | | 130 | | | | 130 |
| Depreciation | | 1 | | | | | | | | | 288 | | | | 289 | | | 13 | | | | | | | | 265 | | | | 278 | | Total Operating Expenses | | | 294 | | | 158 | | | 530 | | | 1,174 | | | | 2,156 | | | 278 | | | 160 | | | 656 | | | 1,598 | | | | 2,692 |
| Taxes, other than income | | | | | 23 | | | 9 | | | 58 | | | | 90 | | | | | | 23 | | 11 | | | 56 | | | | 90 | |
| Energy-related businesses | | | | | | | | 5 | | | 146 | | | | 151 | | | | | | | | | | | 137 | | | | 137 | |
| Intercompany eliminations | | | | | | (1) | | | 1 | | | | | | | | | | | | | (1) | | | 1 | | | | | | | | |
| | Total Operating Expenses | | | 287 | | | 185 | | | 703 | | | 1,073 | | | | 2,248 | | | 317 | | | 184 | | | 741 | | | 497 | | | | 1,739 | |
Total | Total | | $ | 457 | | $ | 267 | | $ | 568 | | $ | (435) | | | $ | 857 | | $ | 415 | | $ | 236 | | $ | 577 | | $ | (564) | | | $ | 664 | Total | | $ | 428 | | $ | 270 | | $ | 452 | | $ | (432) | | | $ | 718 | | $ | 404 | | $ | 242 | | $ | 405 | | $ | (293) | | | $ | 758 |
| | | | | | 2013 Nine Months | | 2012 Nine Months |
| | | | | | | | | | Unregulated | | | | | | | | | | | Unregulated | | | | | | |
| | | | | | Kentucky | | PA Gross | | Gross | | | | | | | Kentucky | | PA Gross | | Gross | | | | | |
| | | | | | 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 |
| | | | | | 2014 Six Months | | 2013 Six Months |
| | | | | | | | | | Unregulated | | | | | | | | | | | Unregulated | | | | | | |
| | | | | | Kentucky | | PA Gross | | Gross | | | | | | | Kentucky | | PA Gross | | Gross | | | | | |
| | | | | | Gross | | Delivery | | Energy | | | | | Operating | | Gross | | Delivery | | Energy | | | | | | Operating |
| | | | | | Margins | | Margins | | Margins | | Other (a) | | Income (b) | | Margins | | Margins | | Margins | | Other (a) | | Income (b) |
Operating Revenues | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Utility | | $ | 1,656 | | $ | 1,041 | | | | | $ | 1,295 | (c) | | $ | 3,992 | | $ | 1,482 | | $ | 927 | | | | | $ | 1,196 | (c) | | $ | 3,605 |
| PLR intersegment utility | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | revenue (expense) (d) | | | | | | (48) | | $ | 48 | | | | | | | | | | | | | (26) | | $ | 26 | | | | | | | |
| Unregulated wholesale energy | | | | | | | | | 47 | | | (885) | (e) | | | (838) | | | | | | | | | 1,778 | | | (234) | (e) | | | 1,544 |
| Unregulated retail energy | | | | | | | | | 655 | | | (26) | (e) | | | 629 | | | | | | | | | 483 | | | 11 | (e) | | | 494 |
| Energy-related businesses | | | | | | | | | | | | 314 | | | | 314 | | | | | | | | | | | | 264 | | | | 264 |
| | | Total Operating Revenues | | | 1,656 | | | 993 | | | 750 | | | 698 | | | | 4,097 | | | 1,482 | | | 901 | | | 2,287 | | | 1,237 | | | | 5,907 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Operating Expenses | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fuel | | | 508 | | | | | | 747 | | | (6) | (e) | | | 1,249 | | | 447 | | | | | | 522 | | | 1 | (e) | | | 970 |
| Energy purchases | | | 160 | | | 303 | | | (973) | | | (633) | (e) | | | (1,143) | | | 123 | | | 292 | | | 857 | | | (164) | (e) | | | 1,108 |
| Other operation and | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | maintenance | | | 48 | | | 48 | | | 13 | | | 1,329 | | | | 1,438 | | | 48 | | | 43 | | | 8 | | | 1,275 | | | | 1,374 |
| Depreciation | | | 3 | | | | | | | | | 614 | | | | 617 | | | 2 | | | | | | | | | 568 | | | | 570 |
| Taxes, other than income | | | 1 | | | 50 | | | 23 | | | 123 | | | | 197 | | | | | | 47 | | | 18 | | | 117 | | | | 182 |
| Energy-related businesses | | | | | | | | | 4 | | | 302 | | | | 306 | | | | | | | | | | | | 252 | | | | 252 |
| | | Total Operating Expenses | | | 720 | | | 401 | | | (186) | | | 1,729 | | | | 2,664 | | | 620 | | | 382 | | | 1,405 | | | 2,049 | | | | 4,456 |
Total | | $ | 936 | | $ | 592 | | $ | 936 | | $ | (1,031) | | | $ | 1,433 | | $ | 862 | | $ | 519 | | $ | 882 | | $ | (812) | | | $ | 1,451 |
| | | | | | 2013 Nine Months | | 2012 Nine Months |
| | | | | | | | | | Unregulated | | | | | | | | | | | Unregulated | | | | | | |
| | | | | | Kentucky | | PA Gross | | Gross | | | | | | | Kentucky | | PA Gross | | Gross | | | | | |
| | | | | | 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. |
(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 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. |
(f) | RepresentsIncludes energy-related economic activity, which is subject to fluctuations in value due to market price volatility, as described involatility. See "Commodity Price Risk (Non-trading) - Economic Activity" withinin 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 the non-GAAP financial measures by PPL's reportable segment and by component, as applicable, for the periods ended SeptemberJune 30 as well as the change between periods. The factors that gave rise to the changes are described belowfollowing the table.
| | | | Three Months | | Nine Months | | | | Three Months | | Six Months |
| | | | 2013 | | 2012 | | Change | | 2013 | | 2012 | | Change | | | | 2014 | | 2013 | | Change | | 2014 | | 2013 | | Change |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Kentucky Regulated | Kentucky Regulated | | | | | | | | | | | | | | Kentucky Regulated | | | | | | | | | | | | | |
Kentucky Gross Margins | Kentucky Gross Margins | | | | | | | | | | | | | | Kentucky Gross Margins | | | | | | | | | | | | | |
| LKE | | $ | 457 | | $ | 415 | | $ | 42 | | $ | 1,319 | | $ | 1,168 | | $ | 151 | | LG&E | | $ | 196 | | $ | 183 | | $ | 13 | | $ | 422 | | $ | 385 | | $ | 37 |
| | LG&E | | | 210 | | 198 | | 12 | | 595 | | 552 | | 43 | | KU | | | 232 | | | 221 | | | 11 | | | 514 | | | 477 | | | 37 |
| | KU | | | 247 | | 216 | | 31 | | 724 | | 616 | | 108 | |
LKE | | LKE | | $ | 428 | | $ | 404 | | $ | 24 | | $ | 936 | | $ | 862 | | $ | 74 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pennsylvania Regulated | Pennsylvania Regulated | | | | | | | | | | | | | | | | | | | Pennsylvania Regulated | | | | | | | | | | | | | | | | | | |
PA Gross Delivery Margins | | | | | | | | | | | | | |
Pennsylvania Gross Delivery Margins | | Pennsylvania Gross Delivery Margins | | | | | | | | | | | | |
| | Distribution | | $ | 201 | | $ | 185 | | $ | 16 | | $ | 607 | | $ | 544 | | $ | 63 | | Distribution | | $ | 189 | | $ | 183 | | $ | 6 | | $ | 438 | | $ | 407 | | $ | 31 |
| | Transmission | | | 66 | | | 51 | | | 15 | | | 179 | | | 150 | | | 29 | | Transmission | | | 81 | | | 59 | | | 22 | | | 154 | | | 112 | | | 42 |
Total | Total | | $ | 267 | | $ | 236 | | $ | 31 | | $ | 786 | | $ | 694 | | $ | 92 | Total | | $ | 270 | | $ | 242 | | $ | 28 | | $ | 592 | | $ | 519 | | $ | 73 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Supply | Supply | | | | | | | | | | | | | | | Supply | | | | | | | | | | | | | | |
Unregulated Gross Energy Margins | Unregulated Gross Energy Margins | | | | | | | | | | | | | | | | | | | Unregulated Gross Energy Margins | | | | | | | | | | | | | | | | | | |
Non-trading | | | | | | | | | | | | | | | | | | | |
| | Eastern U.S. | | $ | 504 | | $ | 521 | | $ | (17) | | $ | 1,283 | | $ | 1,417 | | $ | (134) | | Eastern U.S. | | $ | 400 | | $ | 349 | | $ | 51 | | $ | 835 | | $ | 769 | | $ | 66 |
| | Western U.S. | | 52 | | 67 | | (15) | | 166 | | 230 | | (64) | | Western U.S. | | | 52 | | | 56 | | | (4) | | | 101 | | | 113 | | | (12) |
Net energy trading | | | 12 | | | (11) | | | 23 | | | 1 | | | 7 | | | (6) | |
Total | Total | | $ | 568 | | $ | 577 | | $ | (9) | | $ | 1,450 | | $ | 1,654 | | $ | (204) | Total | | $ | 452 | | $ | 405 | | $ | 47 | | $ | 936 | | $ | 882 | | $ | 54 |
Kentucky Gross Margins
Kentucky Gross Margins increased $42 million for the three months ended SeptemberJune 30, 20132014 compared with 2012,2013 primarily due to higher base ratesreturns on additional environmental capital investments of $23$14 million ($106 million at LG&E and $13$8 million at KU), environmental cost recoveries added to base ratesand higher volumes of $13 million (at KU), returns from additional environmental capital investments of $8 million ($3$5 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).&E. The change in volumes was primarily attributable to favorable weather as cooling degree days decreased 16% compared to the same periodconditions in 2012.2014.
Kentucky Gross Margins increased $151 million for the ninesix months ended SeptemberJune 30, 20132014 compared with 2012,2013 primarily due to higher base ratesreturns on additional environmental capital investments of $72$27 million ($3111 million at LG&E and $41$16 million at KU), environmental cost recoveries added to base rateshigher volumes of $45$25 million ($37 million at LG&E and $42$18 million at KU), returns from additional environmental capital investmentshigher demand revenue of $18$9 million ($95 million at LG&E and $9$4 million at KU) and higher fuel recoveries of $11 million ($3 millionoff-system sales at LG&E of $7 million. The changes in volumes and $8 million at KU).
The increasedemand revenue were primarily attributable to unusually cold weather conditions in base rates was the resultfirst quarter of new KPSC rates effective January 1, 2013 at LG&E and KU. The environmental cost recoveries added to base rates were due to the transfer of the 2005 and 2006 ECR plans into base rates as a result of the 2012 Kentucky rate cases for LG&E and KU. This transfer results in depreciation and other operation and maintenance expenses associated with the 2005 and 2006 ECR plans being excluded from Kentucky Gross Margins in 2013, while the recovery of such costs remain in Kentucky Gross Margins through base rates.2014.
Pennsylvania Gross Delivery Margins
Distribution
Distribution marginsMargins increased for the threesix months ended SeptemberJune 30, 20132014 compared with 2012,2013 primarily due to an $18a $12 million benefit from a change in estimate of a regulatory liability, a $10 million favorable effect of price asunusually cold weather in the first quarter of 2014 and a 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$9 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.distribution improvement capital investments. See "Pennsylvania Activities - Storm Damage Expense Rider" in Note 6 to the Financial Statements for additional information.
Transmission
Transmission marginsMargins increased for the three and ninesix months ended SeptemberJune 30, 20132014 compared with 2012,2013 primarily due to increased capital investmentsinvestment in plant and the recovery of additional costs through the FERC formula-basedformula based rates.
Unregulated Gross 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) |
117
Eastern margins increased for the three months ended June 30, 2014 compared with 2013 primarily due to favorable asset availability of $76 million, unrealized gains on certain commodity positions of $42 million and higher capacity prices of $27 million, partially offset by lower baseload energy prices of $109 million.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 |
Eastern margins increased for the six months ended June 30, 2014 compared with 2013 primarily due to higher capacity prices of $101 million, unrealized gains on certain commodity positions of $60 million and favorable asset availability of $50 million, partially offset by lower baseload energy prices of $201 million.
During the first quarter of 2014, the PJM region experienced unusually cold weather conditions, higher demand and congestion patterns, causing rising natural gas and electricity prices in spot and near-term forward markets. Due to these market dynamics, PPL Energy Supply captured opportunities on unhedged generation, which were primarily offset by under-hedged full-requirement sales contracts and retail electric. The net benefit, due to the aforementioned weather and related market dynamics, was $38 million for the six months ended June 30, 2014 compared with 2013.
Western U.S.
Western margins decreased for the six months ended June 30, 2014 compared with 2013 primarily due to lower availability of coal units.
Statement of Income Analysis -- | | | | | |
| | | | | | | | | |
Utility Revenues | | |
| | | | | | | | | |
The increase (decrease) in utility revenues for the periods ended June 30, 2014 compared with 2013 was due to: |
| | | | | | | | | |
| | | | | Three Months | | Six Months |
Domestic: | | | | | | |
| PPL Electric (a) | | $ | 35 | | $ | 114 |
| LKE (b) | | | 40 | | | 174 |
| Total Domestic | | | 75 | | | 288 |
| | | | | | | | | |
U.K.: | | | | | | |
| Price (c) | | | 52 | | | 120 |
| Foreign currency exchange rates | | | 59 | | | 85 |
| Volume (d) | | | (33) | | | (56) |
| Line loss accrual adjustments (e) | | | 24 | | | (41) |
| Other | | | (2) | | | (9) |
| Total U.K. | | | 100 | | | 99 |
Total | | $ | 175 | | $ | 387 |
(a) | See "Pennsylvania Gross Delivery Margins" for further information. |
(b) | See "Kentucky Gross Margins" for further information. |
(c) | The three and nine-monthsix-month periods were impacted by a price increaseincreases effective April 1, 2013. The nine-month period was also impacted by a price increase effective2014 and April 1, 2012.2013. |
(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-monthsix-month periods was primarily due to a reductionthe unusually cold weather in revenue2013. |
(e) | The three and six-month periods were impacted by unfavorable accrual adjustments in 2013 based on information provided by Ofgem regardingOfgem's consultation documents on the calculation ofDPCR4 line loss incentive/penalty for all network operators related to DPCR4.incentives and penalties. The six-month period was also impacted by unfavorable accrual adjustments in 2014 based on Ofgem's final decision on this matter in March 2014. 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. |
Certain Operating Revenues and Expenses Included in "Margins"
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) |
The following Statement of Income line items and their related increase (decrease) during the periods ended June 30, 2014 compared with 2013 are included above within "Margins" and are not discussed separately.
| | | Three Months | | Six Months |
| | | | | | | |
Unregulated wholesale energy (a) | | $ | (810) | | $ | (2,382) |
Unregulated retail energy | | | 23 | | | 135 |
Fuel | | | 50 | | | 279 |
Energy purchases (b) | | | (700) | | | (2,251) |
(a) | The decreasesix-month period ended June 30, 2014 includes significant realized and unrealized losses on physical and financial commodity sales contracts due to the unusually cold weather experienced in the first quarter of 2014. |
(b) | The six-month period ended June 30, 2014 includes significant realized and unrealized gains on physical and financial commodity purchase contracts due to the unusually cold weather experienced in the first quarter of 2014. |
Other Operation and Maintenance | | | | | |
| | | | | | | |
The increase (decrease) in other operation and maintenance for the periods ended June 30, 2014 compared with 2013 was due to: |
| | | | | | | |
| | | Three Months | | Six Months |
Domestic: | | | | | |
| PPL Susquehanna (a) | $ | 11 | | $ | 18 |
| PPL Energy Supply fossil and hydroelectric plants (b) | | (9) | | | 11 |
| PPL Electric PUC-reportable storms | | 1 | | | 10 |
| PPL Electric payroll-related costs | | (5) | | | (8) |
| LKE generation maintenance outages | | 3 | | | 6 |
| LKE storm expense | | 3 | | | 9 |
| Separation benefits (c) | | 29 | | | 29 |
| Other | | 6 | | | (6) |
U.K.: | | | | | |
| Network maintenance (d) | | 7 | | | 16 |
| Foreign currency exchange rates | | 10 | | | 14 |
| Pension | | (8) | | | (17) |
| Engineering management | | (3) | | | (9) |
| Separation benefits | | | | | (3) |
| Other | | (2) | | | (6) |
Total | $ | 43 | | $ | 64 |
(a) | The increase for the nine-month period isthree- and six-month periods was 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.refueling outage costs. |
(b) | The decrease for the three and nine month periods isthree-month period was primarily due to the timing and scopeelimination of scheduled outages.rent expense associated with the Colstrip lease which was terminated in December 2013. The increase for the six-month period was due to the Kerr Dam Project impairment of $18 million recorded in March 2014, partially offset by the elimination of rent expense associated with the Colstrip lease termination of $10 million. See Note 13 to the Financial Statements for additional information on the Kerr Dam Project impairment. |
(c) | The decreaseBargaining unit one-time voluntary retirement benefits were recorded as a result of the ratification of the IBEW Local 1600 three year labor agreement in June 2014. See Note 10 to the Financial Statements 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.additional information. |
(d) | These costs are offset by revenues reflected in "Utility" onThe increase for the Statement of Income.three-and six-month periods was primarily due to vegetation management and fault repair due to increased 2014 storm activity. |
Depreciation
Depreciation increased by $26 million and $47 million for the three and six months ended June 30, 2014 compared with 2013, primarily due to additions to PP&E, net.
Taxes, Other Than Income | | | | | | |
| | | | | | | |
The increase (decrease) in taxes, other than income for the periods ended June 30, 2014 compared with 2013 was due to: |
| | | | | | | |
| | | Three Months | | Six Months |
| | | | | | | |
Pennsylvania gross receipts tax (a) | | $ | 3 | | $ | 9 |
Foreign currency exchange rates | | | 4 | | | 5 |
Domestic property tax | | | | | | 1 |
Total | | $ | 7 | | $ | 15 |
(e)(a) | The increase for the threethree- and nine monthsix-month periods is primarily due to higher vegetation management costs.retail electric revenues. This tax is included in "Unregulated Gross Energy Margins" and "Pennsylvania Gross Delivery Margins." |
(f) | The decrease for the nine month period is primarily due to costs incurred in 2012 related to the WPD Midlands reorganization. |
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 $72 million decrease in otherOther income (expense) - net decreased by $95 million and $240 million for the three and six months ended SeptemberJune 30, 20132014 compared with 2012 was2013, primarily due to a decreasean increase of $70$76 million and $219 million from realized and unrealized gainslosses on foreign currency contracts to economically hedge GBP denominated earnings from WPD.
The $50 million increase in other income (expense) - net for the ninethree and six months ended SeptemberJune 30, 2013 compared with 2012 was primarily due2014 were also impacted by $16 million of transaction costs related to an increasethe anticipated spinoff of $46 million from realized and unrealized gains on foreign currency contracts to economically hedge GBP denominated earnings from WPD.PPL Energy Supply.
See Note 12 to the Financial Statements for additional information on other income (expense) - net.information.
Interest Expense | Interest Expense | | | | Interest Expense | | | |
| | | | | | | | | | |
The increase (decrease) in interest expense for the periods ended September 30, 2013 compared with 2012 was due to: | |
The increase (decrease) in interest expense for the periods ended June 30, 2014 compared with 2013 was due to: | | The increase (decrease) in interest expense for the periods ended June 30, 2014 compared with 2013 was due to: |
| | | | | | | | |
| | �� | Three Months | | Nine Months | | | Three Months | | Six Months |
| | | | | | | | | | |
Long-term debt interest expense (a) | | $ | 5 | | $ | 32 | |
Loss on extinguishment of debt (b) | | | | 10 | |
Loss on extinguishment of debt (a) | | Loss on extinguishment of debt (a) | | $ | (10) | | $ | (1) |
Net amortization of debt discounts, premiums and issuance costs | Net amortization of debt discounts, premiums and issuance costs | | (4) | | (4) | Net amortization of debt discounts, premiums and issuance costs | | | | (4) |
Capitalized interest and debt component of AFUDC (b) | | Capitalized interest and debt component of AFUDC (b) | | 4 | | 9 |
Foreign currency exchange rates | | Foreign currency exchange rates | | 9 | | 13 |
Other | Other | | | (3) | | | 3 | Other | | | (3) | | | (4) |
Total | Total | | $ | (2) | | $ | 41 | Total | | $ | | | $ | 13 |
(a) | The increase for the three and nine-month periodsIn March 2014, a $9 million loss was duerecorded related to debt issuances by PPL Capital FundingFunding's remarketing and debt exchange of the junior subordinated notes issued as a component of the 2011 Equity Units compared with a $10 million loss recorded in MarchMay 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 ofrelated to a similar transaction for 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 issuedPrimarily due to the Holtwood hydroelectric expansion project placed in June 2010 as a component of PPL's 2010 Equity Units.service in November 2013. |
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 June 30, 2014 compared with 2013 was due to: |
| | | |
| | | Three Months | | Six Months |
| | | | | | | |
Change in pre-tax income at current period tax rates | | $ | (68) | | $ | (120) |
State valuation allowance adjustments (a) | | | 46 | | | 46 |
Federal income tax credits | | | 2 | | | 5 |
Federal and state tax reserve adjustments (b) | | | 39 | | | 40 |
U.S. income tax on foreign earnings - net of foreign tax credit (c) | | | 17 | | | 26 |
Foreign tax return adjustments | | | 4 | | | 4 |
State deferred tax rate change | | | 3 | | | 3 |
Impact of lower UK income tax rates | | | (3) | | | (8) |
Other | | | | | | 5 |
Total | | $ | 40 | | $ | 1 |
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) |
(a) | DuringAs a result of the three and nine months ended September 30, 2013,spinoff announcement, PPL recorded a $38 million increase in state deferred income tax expense relatedduring the three and six months ended June 30, 2014 to aadjust valuation allowances on deferred tax valuation allowanceassets primarily due to a decrease in projected future taxable income over the remaining carryforward period of Pennsylvaniafor state net operating losses.loss carryforwards that were previously supported by the future earnings of PPL Energy Supply. |
(b) | In May 2013, the U.S. Supreme Court reversed the December 2011 ruling ofby the U.S. Court of Appeals for the Third Circuit, onconcerning the creditability, for income tax purposes, of the U.K. Windfall Profits Tax for tax purposes.Tax. As a result of this decision, PPL recorded a tax benefit of $44 million during the ninethree and six months ended SeptemberJune 30, 2013. See Note 5 to the Financial Statements for additional information. |
(c) | During the three and ninesix 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 SeptemberJune 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 will be reflected on an amended 2010 U.S. tax return. |
(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.profits. |
See Note 5 to the Financial Statements for additional information on income taxes.information.
PPL Energy Supply: Earnings, Margins 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 |
Earnings |
| | | Three Months Ended | | Six Months Ended |
| | | June 30, | | June 30, |
| | | 2014 | | 2013 | | 2014 | | 2013 |
| | | | | | | | | | | | | |
Net Income (Loss) Attributable to PPL Energy Supply Member | | $ | 13 | | $ | 86 | | $ | (53) | | $ | 48 |
Special items, gains (losses), after-tax | | | (36) | | | 74 | | | (185) | | | (43) |
Excluding special items, the decrease in earnings for the three-month period wasthree and six-month periods in 2014 compared with 2013 were higher, primarily due to unrealized gains on certain commodity positions, higher Eastern margins from higher capacity prices, favorable asset availability and lower interest expense, partially offset by lower baseload energy prices lower baseload generation and higher operation and maintenance expense,income taxes. Earnings for the six-month period were also favorably impacted by net benefits from unusually cold weather in the first quarter of 2014, 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.western U.S. margins.
The table below quantifies the changes in the components of Net Income (Loss) Attributable to PPL Energy Supply Member between these periods, which reflect reclassifications for items included inamounts classified as Unregulated Gross Energy Margins and certain items that management considers special.special on separate lines within the table and not in their respective Statement of Income line items. See PPL's "Results of Operations - Segment Earnings - Supply Segment" for the details of the special items.
| | Three Months | | Six Months |
| | | | | | |
Unregulated Gross Energy Margins | | $ | 47 | | $ | 54 |
Other operation and maintenance | | | | | | (3) |
Depreciation | | | (3) | | | (5) |
Interest expense | | | 11 | | | 23 |
Other | | | (8) | | | (8) |
Income taxes | | | (10) | | | (20) |
Special items, after-tax | | | (110) | | | (142) |
Total | | $ | (73) | | $ | (101) |
| | 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.
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.
| | | | | 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 | $ | 981 | | $ | (1) | | | $ | 980 | | $ | 1,074 | | $ | 2 | (c) | | $ | 1,076 |
| | | | Unrealized economic activity | | | | | (49) | (d) | | | (49) | | | | | | (716) | (d) | | | (716) |
| Wholesale energy marketing | | | | | | | | | | | | | | | | | | | |
| | to affiliate | | 11 | | | | | | | 11 | | | 23 | | | | | | | 23 |
| Unregulated retail electric and gas | | 267 | | | (1) | (d) | | | 266 | | | 232 | | | (13) | (d) | | | 219 |
| Net energy trading margins | | 12 | | | | | | | 12 | | | (11) | | | | | | | (11) |
| Energy-related businesses | | | | | 143 | | | | 143 | | | | | | 128 | | | | 128 |
| | | Total Operating Revenues | | 1,271 | | | 92 | | | | 1,363 | | | 1,318 | | | (599) | | | | 719 |
| | | | | | | | | | | | | | | | | | | | | | | |
Operating Expenses | | | | | | | | | | | | | | | | | | | |
| Fuel | | 256 | | | 2 | | | | 258 | | | 310 | | | 11 | (e) | | | 321 |
| Energy purchases | | | | | | | | | | | | | | | | | | | |
| | | | Realized | | 427 | | | (2) | | | | 425 | | | 418 | | | 3 | (c) | | | 421 |
| | | | Unrealized economic activity | | | | | (37) | (d) | | | (37) | | | | | | (569) | (d) | | | (569) |
| Energy purchases from affiliate | | 1 | | | | | | | 1 | | | 1 | | | | | | | 1 |
| 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 | $ | 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. |
(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. |
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) |
(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. |
Depreciation
Depreciation increased by $7 million and $31 million for the three and nine months ended September 30, 2013 compared with 2012, primarily due to $8 million 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 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 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.
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 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.
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 SeptemberJune 30.
| | | 2013 Three Months | | 2012 Three Months | | | 2014 Three Months | | 2013 Three Months |
| | | PA Gross | | | | | | | PA Gross | | | | | | | | Unregulated | | | | | | | | Unregulated | | | | | | |
| | | Delivery | | | | Operating | | Delivery | | | | Operating | | | Gross Energy | | | | | Operating | | Gross Energy | | | | | 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 | | | | | | | | | | | | | | Operating Revenues | | | | | | | | | | | | | | | |
| | Unregulated wholesale energy | $ | 684 | | $ | (93) | (c) | | $ | 591 | | $ | 812 | | $ | 589 | (c) | | $ | 1,401 |
| | Unregulated wholesale energy | | | | | | | | | | | | | | | | | | | |
| | | to affiliate | | 21 | | | | | | | 21 | | | 12 | | | | | | | 12 |
| Retail electric | $ | 463 | | | | $ | 463 | | $ | 443 | | | | | $ | 443 | Unregulated retail energy | | 277 | | 4 | (c) | | 281 | | 237 | | | 20 | (c) | | 257 |
| Electric revenue from affiliate | | 1 | | | | | | 1 | | | 1 | | | | | | 1 | Energy-related businesses | | | | | 155 | | | | 155 | | | | | | 122 | | | | 122 |
| | Total Operating Revenues | | 464 | | | | | | 464 | | | 444 | | | | | | 444 | | Total Operating Revenues | | 982 | | | 66 | | | | 1,048 | | | 1,061 | | | 731 | | | | 1,792 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Operating Expenses | Operating Expenses | | | | | | | | | | | | | | | | | | Operating Expenses | | | | | | | | | | | | | | | | | | | |
| Energy purchases | | 144 | | | | | | 144 | | | 137 | | | | | | 137 | Fuel | | 266 | | | (7) | (c) | | | 259 | | | 223 | | | 1 | (c) | | | 224 |
| Energy purchases from affiliate | | 11 | | | | | | 11 | | | 23 | | | | | | 23 | Energy purchases | | 246 | | | (43) | (c) | | | 203 | | | 420 | | | 478 | (c) | | | 898 |
| Other operation and maintenance | | 19 | | $ | 115 | | | 134 | | | 25 | | $ | 123 | | | 148 | Other operation and maintenance | | 6 | | | 290 | | | | 296 | | | 3 | | | 267 | | | | 270 |
| Depreciation | | | | 45 | | | 45 | | | | | | 41 | | | 41 | Depreciation | | | | | 82 | | | | 82 | | | | | | 79 | | | | 79 |
| Taxes, other than income | | 23 | | | 2 | | | 25 | | | 23 | | | 1 | | | 24 | Taxes, other than income | | 10 | | | 6 | | | | 16 | | | 10 | | | 6 | | | | 16 |
| | Total Operating Expenses | | 197 | | | 162 | | | 359 | | | 208 | | | 165 | | | 373 | Energy-related businesses | | 2 | | | 153 | | | | 155 | | | | | | 118 | | | | 118 |
| | | Total Operating Expenses | | 530 | | | 481 | | | | 1,011 | | | 656 | | | 949 | | | | 1,605 |
Total | Total | $ | 267 | | $ | (162) | | $ | 105 | | $ | 236 | | $ | (165) | | $ | 71 | Total | $ | 452 | | $ | (415) | | | $ | 37 | | $ | 405 | | $ | (218) | | | $ | 187 |
| | | | 2013 Nine Months | | 2012 Nine Months | | | | 2014 Six Months | | 2013 Six Months |
| | | | PA Gross | | | | | | | PA Gross | | | | | | | | | Unregulated | | | | | | | | Unregulated | | | | | | |
| | | | Delivery | | | | Operating | | Delivery | | | | Operating | | | | Gross Energy | | | | | Operating | | Gross Energy | | | | | 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 | | | | | | | | | | | | | | | Operating Revenues | | | | | | | | | | | | | | | | |
| | Unregulated wholesale energy | | $ | 47 | | $ | (885) | (c) | | $ | (838) | | $ | 1,778 | | $ | (234) | (c) | | $ | 1,544 |
| | Unregulated wholesale energy | | | | | | | | | | | | | | | | | | | |
| | | to affiliate | | 48 | | | | | | | 48 | | | 26 | | | | | | | 26 |
| Retail electric | | $ | 1,388 | | | | $ | 1,388 | | $ | 1,303 | | | | $ | 1,303 | Unregulated retail energy | | 655 | | (23) | (c) | | 632 | | 483 | | 12 | (c) | | 495 |
| Electric revenue from affiliate | | | 3 | | | | | | 3 | | | 3 | | | | | | 3 | Energy-related businesses | | | | | | 280 | | | | 280 | | | | | | 235 | | | | 235 |
| | Total Operating Revenues | | | 1,391 | | | | | | 1,391 | | | 1,306 | | | | | | 1,306 | | Total Operating Revenues | | | 750 | | | (628) | | | | 122 | | | 2,287 | | | 13 | | | | 2,300 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Operating Expenses | Operating Expenses | | | | | | | | | | | | | | | | | | Operating Expenses | | | | | | | | | | | | | | | | | | | |
| Energy purchases | | 436 | | | | | | 436 | | | 410 | | | | | | 410 | Fuel | | 747 | | | (6) | (c) | | | 741 | | | 522 | | | | (c) | | | 522 |
| Energy purchases from affiliate | | 37 | | | | | | 37 | | | 61 | | | | | | 61 | Energy purchases | | (973) | | | (628) | (c) | | | (1,601) | | | 857 | | | (158) | (c) | | | 699 |
| Other operation and maintenance | | 62 | | $ | 329 | | | 391 | | | 74 | | $ | 357 | | | 431 | Other operation and maintenance | | 13 | | | 541 | | | | 554 | | | 8 | | | 497 | | | | 505 |
| Depreciation | | | | | 132 | | | 132 | | | | | | 119 | | | 119 | Depreciation | | | | | 162 | | | | 162 | | | | | | 157 | | | | 157 |
| Taxes, other than income | | | 70 | | | 7 | | | 77 | | | 67 | | | 5 | | | 72 | Taxes, other than income | | 23 | | | 14 | | | | 37 | | | 18 | | | 15 | | | | 33 |
| | Total Operating Expenses | | | 605 | | | 468 | | | 1,073 | | | 612 | | | 481 | | | 1,093 | Energy-related businesses | | | 4 | | | 275 | | | | 279 | | | | | | 228 | | | | 228 |
| | | Total Operating Expenses | | | (186) | | | 358 | | | | 172 | | | 1,405 | | | 739 | | | | 2,144 |
Total | Total | | $ | 786 | | $ | (468) | | $ | 318 | | $ | 694 | | $ | (481) | | $ | 213 | Total | | $ | 936 | | $ | (986) | | | $ | (50) | | $ | 882 | | $ | (726) | | | $ | 156 |
(a) | Represents amounts excluded from Margins. |
(b) | As reported on the Statements of Income. |
(c) | Includes energy-related economic activity, which is subject to fluctuations in value due to market price volatility. See "Commodity Price Risk (Non-trading) - Economic Activity" within Note 14 to the Financial Statements. |
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) |
Statement of Income Analysis --
Certain Operating Revenues and Expenses Included in "Margins"
The following Statement of Income line items and their related increase (decrease) during the periods ended June 30, 2014 compared with 2013 are included above within "Margins" and are not discussed separately.
| | | Three Months | | Six Months |
| | | | | | | |
Unregulated wholesale energy (a) | | $ | (810) | | $ | (2,382) |
Unregulated wholesale energy to affiliate | | | 9 | | | 22 |
Unregulated retail energy | | | 24 | | | 137 |
Fuel | | | 35 | | | 219 |
Energy purchases (b) | | | (695) | | | (2,300) |
(a) | The six-month period ended June 30, 2014 includes significant realized and unrealized losses on physical and financial commodity sales contracts due to the unusually cold weather experienced in the first quarter of 2014. |
(b) | The six-month period ended June 30, 2014 includes significant realized and unrealized gains on physical and financial commodity purchase contracts due to the unusually cold weather experienced in the first quarter of 2014. |
Other Operation and Maintenance | | | | | |
| | | | | | |
The increase (decrease) in other operation and maintenance for the periods ended June 30, 2014 compared with 2013 was due to: |
| | |
| | Three Months | | Six Months |
| | | | | | |
PPL Susquehanna (a) | $ | 11 | | $ | 18 |
Fossil hydroelectric plants (b) | | (9) | | | 11 |
PPL EnergyPlus | | 4 | | | 4 |
Separation benefits (c) | | 23 | | | 23 |
Other | | (3) | | | (7) |
Total | $ | 26 | | $ | 49 |
(a) | The increase for the three and six-month periods is primarily due to refueling outage costs. |
(b) | The decrease for the three-month period is primarily due to the elimination of rent expense associated with the Colstrip lease which was terminated in December 2013. The increase for the six-month period is primarily due to the Kerr Dam Project impairment of $18 million, recorded in March 2014, partially offset by the elimination of rent expense associated with the Colstrip lease termination of $10 million. See Note 13 to the Financial Statements for additional information on the Kerr Dam Project impairment. |
(c) | Bargaining unit one-time voluntary retirement benefits were recorded as a result of the ratification of the IBEW Local 1600 three year labor agreement in June 2014. See Note 10 to the Financial Statements for additional information. |
Interest Expense | | | | | | |
| | | | | | | |
The increase (decrease) in interest expense for the periods ended June 30, 2014 compared with 2013 was due to: |
| | | | | | | |
| | Three Months | | Six Months |
| | | | | | | |
Long-term debt interest expense (a) | | $ | (14) | | $ | (28) |
Capitalized interest (b) | | | 4 | | | 8 |
Other | | | (1) | | | (3) |
Total | | $ | (11) | | $ | (23) |
(a) | The decrease was primarily due to a reductionthe repayment of debt in Act 129 energy efficiencyJuly and conservation plan costs for Phase 1 programs. Phase 1 ended May 31,December 2013. |
(b) | The decreaseincrease was partiallyprimarily due to storm insurance policy premiums for coverage that wasthe Holtwood hydroelectric expansion project placed in placeservice in 2012 but was not renewed inNovember 2013. |
DepreciationIncome Taxes | | | | | | |
| | | | | | |
The increase (decrease) in income taxes for the periods ended June 30, 2014 compared with 2013 was due to: |
| | | |
| | Three Months | | Six Months |
| | | | | | |
Change in pre-tax income at current period tax rates | | $ | (68) | | $ | (86) |
Federal and state tax reserve adjustments | | | (6) | | | (5) |
State deferred tax rate change | | | 3 | | | 3 |
Other | | | 1 | | | 4 |
Total | | $ | (70) | | $ | (84) |
Depreciation increased by $4 millionSee Note 5 to the Financial Statements for additional information.
PPL Electric: Earnings, Margins and $13 millionStatement of Income Analysis
Earnings | | | | | | | | | | | | |
| | | Three Months Ended | | Six Months Ended |
| | | June 30, | | June 30, |
| | | 2014 | | 2013 | | 2014 | | 2013 |
| | | | | | | | | | | | | |
Net Income | | $ | 52 | | $ | 45 | | $ | 137 | | $ | 109 |
Special item, gains (losses), after-tax | | | (4) | | | | | | (4) | | | |
Excluding a special item, earnings for the three and nine months ended September 30, 2013six-month periods in 2014 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 income2013 increased, by $5 million for the nine months ended September 30, 2013 compared with 2012, primarily due to higher Pennsylvania gross receipts tax expensetransmission margins from returns on additional capital investments and the recovery of additional costs through FERC formula based rates, partially offset by higher interest expense. Earnings for the six-month period in 2014 compared with 2013 also include higher distribution margins primarily due to higher retail electricity revenue. This taxunusually cold weather in the first quarter of 2014, returns on additional distribution improvement capital investments and a benefit from a change in estimate of a regulatory liability.
The table below quantifies the changes in the components of Net Income between these periods, which reflects amounts classified as Pennsylvania Gross Delivery Margins and a certain item that management considers special on separate lines within the table and not in their respective Statement of Income line items. See PPL's Results of Operations - Segment Earnings - Pennsylvania Regulated Segment" for details of the special item.
| | Three Months | | Six Months |
| | | | | | |
Pennsylvania Gross Delivery Margins | | $ | 28 | | $ | 73 |
Depreciation | | | (2) | | | (4) |
Interest expense | | | (4) | | | (8) |
Other | | | (1) | | | |
Income taxes | | | (10) | | | (29) |
Special item, after-tax | | | (4) | | | (4) |
Total | | $ | 7 | | $ | 28 |
Margins
"Pennsylvania Gross Delivery Margins" is a non-GAAP financial performance measure that management utilizes as an indicator of the performance of its business. See PPL's "Results of Operations - Margins" for information on why management believes this measure is useful and for explanations of the underlying drivers of the changes between periods.
The following tables contain the components from the Statements of Income that are included in "Pennsylvania Gross Delivery Margins."this non-GAAP financial measure and a reconciliation to "Operating Income" for the periods ended June 30.
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 |
| | | | | 2014 Three Months | | 2013 Three Months |
| | | | | PA Gross | | | | | | | PA Gross | | | | | |
| | | | | Delivery | | | | Operating | | Delivery | | | | | Operating |
| | | | | Margins | | Other (a) | | Income (b) | | Margins | | Other (a) | | Income (b) |
Operating Revenues | $ | 449 | | | | | $ | 449 | | $ | 414 | | | | | $ | 414 |
| | | | | | | | | | | | | | | | | | | | | |
Operating Expenses | | | | | | | | | | | | | | | | | |
| Energy purchases | | 114 | | | | | | 114 | | | 120 | | | | | | 120 |
| Energy purchases from affiliate | | 21 | | | | | | 21 | | | 12 | | | | | | 12 |
| Other operation and maintenance | | 23 | | $ | 112 | | | 135 | | | 21 | | $ | 103 | | | 124 |
| Depreciation | | | | | 45 | | | 45 | | | | | | 44 | | | 44 |
| Taxes, other than income | | 21 | | | 2 | | | 23 | | | 19 | | | 3 | | | 22 |
| | | Total Operating Expenses | | 179 | | | 159 | | | 338 | | | 172 | | | 150 | | | 322 |
Total | $ | 270 | | $ | (159) | | $ | 111 | | $ | 242 | | $ | (150) | | $ | 92 |
| | | | | 2014 Six Months | | 2013 Six Months |
| | | | | PA Gross | | | | | | | PA Gross | | | | | |
| | | | | Delivery | | | | Operating | | Delivery | | | | | Operating |
| | | | | Margins | | Other (a) | | Income (b) | | Margins | | Other (a) | | Income (b) |
Operating Revenues | $ | 1,041 | | | | | $ | 1,041 | | $ | 927 | | | | | $ | 927 |
| | | | | | | | | | | | | | | | | | | | | |
Operating Expenses | | | | | | | | | | | | | | | | | |
| Energy purchases | | 303 | | | | | | 303 | | | 292 | | | | | | 292 |
| Energy purchases from affiliate | | 48 | | | | | | 48 | | | 26 | | | | | | 26 |
| Other operation and maintenance | | 48 | | $ | 221 | | | 269 | | | 43 | | $ | 214 | | | 257 |
| Depreciation | | | | | 90 | | | 90 | | | | | | 87 | | | 87 |
| Taxes, other than income | | 50 | | | 5 | | | 55 | | | 47 | | | 5 | | | 52 |
| | | Total Operating Expenses | | 449 | | | 316 | | | 765 | | | 408 | | | 306 | | | 714 |
Total | $ | 592 | | $ | (316) | | $ | 276 | | $ | 519 | | $ | (306) | | $ | 213 |
(a) | The increase was due to debt issuances in August 2012 and July 2013.Represents amounts excluded from Margins. |
(b) | The decrease was due toAs reported on the June 2012 redemptionStatements of all 2.5 million shares of preference stock.Income. |
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 |
Statement of Income Analysis --
Certain Operating Revenues and Expenses Included in "Margins"
The following Statement of Income line items and their related increase (decrease) during the periods ended June 30, 2014 compared with 2013 are included above within "Margins" and are not discussed separately.
| | | Three Months | | Six Months |
| | | | | | | |
Operating revenues | | $ | 35 | | $ | 114 |
Energy purchases | | | (6) | | | 11 |
Energy purchases from affiliate | | | 9 | | | 22 |
Other Operation and Maintenance | | | | | |
| | | | | | |
The increase (decrease) in other operation and maintenance for the periods ended June 30, 2014 compared with 2013 was due to: |
| | |
| | Three Months | | Six Months |
| | | | | | |
| | | | | |
Payroll-related costs | $ | (5) | | $ | (8) |
Vegetation management | | 2 | | | 5 |
PUC-reportable storms | | 1 | | | 10 |
Act 129 | | 3 | | | (1) |
Separation benefits (a) | | 6 | | | 6 |
Other | | 4 | | | |
Total | $ | 11 | | $ | 12 |
(a) | Bargaining unit one-time voluntary retirement benefits were recorded as a result of the ratification of the IBEW Local 1600 three year labor agreement in June 2014. See Note 10 to the Financial Statements for additional information. |
Interest Expense
Interest expense increased by $4 million and $8 million for the three and six months ended June 30, 2014 compared with 2013, primarily due to a debt issuance in July 2013.
Income Taxes
Income taxes increased by $7 million and $27 million for the three and six months ended June 30, 2014 compared with 2013, 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.information.
LKE: Earnings, Margins and Statement of Income Analysis
Earnings | | | | Three Months Ended | | Nine Months Ended | | | Three Months Ended | | Six Months Ended |
| | | September 30, | | September 30, | | | June 30, | | June 30, |
| | | 2013 | | 2012 | | 2013 | | 2012 | | | 2014 | | 2013 | | 2014 | | 2013 |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Net Income | Net Income | | $ | 100 | | $ | 83 | | $ | 260 | | $ | 180 | Net Income | | $ | 65 | | $ | 64 | | $ | 180 | | $ | 160 |
Special items, after-tax | | | | | | | 2 | | (1) | |
Special items, gains (losses), after-tax | | Special items, gains (losses), after-tax | | 1 | | 1 | | | 1 | | 2 |
Excluding special items, earnings increased for the increasesthree-month period in earnings for both periods were2014 compared with 2013 primarily due to higher electricity and gas base rates that went into effect January 1, 2013, returns fromon additional environmental capital investments and higher fuel recovery,sales volumes due to favorable weather conditions. Earnings increased for the six-month period in 2014 compared with 2013 primarily due to returns on additional environmental capital investments, higher sales volumes, higher demand revenue and higher off-system sales, partially offset by higher depreciation (dueoperation and maintenance expense driven by storm-related expenses and timing of generation maintenance outages. The changes in volumes and demand revenue were primarily due to environmental costs related tounusually cold weather conditions during 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.first quarter of 2014.
The table below quantifies the changes in components of Net Income between these periods, which reflect reclassifications for items included inamounts classified as Margins and certain items that management considers special.special on separate lines within the table and not in their respective Statement of Income line items. See PPL's "Results of Operations - Segment Earnings - Kentucky Regulated Segment" for details of the 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 -- | | Three Months | | Six Months |
| | | | | | |
Margins | | $ | 24 | | $ | 74 |
Other operation and maintenance | | | (7) | | | (18) |
Depreciation | | | (4) | | | (7) |
Interest expense | | | (4) | | | (9) |
Other | | | (4) | | | (3) |
Income taxes | | | (4) | | | (16) |
Special items, after-tax | | | | | | (1) |
Total | | $ | 1 | | $ | 20 |
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 onan explanation of why management believes this measure is useful and explanations of the underlying drivers of the changes between periods. Within PPL's discussion, LKE's Margins are referred to as "Kentucky Gross Margins."
The following tables contain the components from the Statements of Income that are included in this non-GAAP financial measure and a reconciliation to "Operating Income" for the periods ended SeptemberJune 30.
| | | | 2013 Three Months | | 2012 Three Months | | | | 2014 Three Months | | 2013 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 | | $ | 744 | | | | $ | 744 | | $ | 732 | | | | | $ | 732 | Operating Revenues | | $ | 722 | | | | $ | 722 | | $ | 682 | | | | | $ | 682 |
Operating Expenses | Operating Expenses | | | | | | | | | | | | | | | | | | Operating Expenses | | | | | | | | | | | | | |
| Fuel | | 237 | | | | | | 237 | | | 249 | | | | | | 249 | Fuel | | 231 | | | | | | 231 | | | 216 | | | | | | 216 |
| Energy purchases | | 23 | | | | | | 23 | | | 27 | | | | | | 27 | Energy purchases | | 36 | | | | | | 36 | | | 37 | | | | | | 37 |
| Other operation and maintenance | | 26 | | $ | 162 | | | 188 | | | 28 | | $ | 158 | | | 186 | Other operation and maintenance | | 25 | | $ | 181 | | | 206 | | | 23 | | $ | 174 | | | 197 |
| Depreciation | | 1 | | | 83 | | | 84 | | | 13 | | | 74 | | | 87 | Depreciation | | 2 | | | 85 | | | 87 | | | 2 | | | 81 | | | 83 |
| Taxes, other than income | | | | | | 12 | | | 12 | | | | | | 11 | | | 11 | Taxes, other than income | | | | | | 13 | | | 13 | | | | | | 12 | | | 12 |
| | Total Operating Expenses | | | 287 | | | 257 | | | 544 | | | 317 | | | 243 | | | 560 | | Total Operating Expenses | | | 294 | | | 279 | | | 573 | | | 278 | | | 267 | | | 545 |
Total | Total | | $ | 457 | | $ | (257) | | $ | 200 | | $ | 415 | | $ | (243) | | $ | 172 | Total | | $ | 428 | | $ | (279) | | $ | 149 | | $ | 404 | | $ | (267) | | $ | 137 |
| | | | | | 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 |
| | | | | | 2014 Six Months | | | 2013 Six Months |
| | | | | | | | | | Operating | | | | | | | | Operating |
| | | | | | Margins | | Other (a) | | Income (b) | | | Margins | | Other (a) | | Income (b) |
| | | | | | | | | | | | | | | | | |
Operating Revenues | | $ | 1,656 | | | | | $ | 1,656 | | | $ | 1,482 | | | | | $ | 1,482 |
| Fuel | | | 508 | | | | | | 508 | | | | 447 | | | | | | 447 |
| Energy purchases | | | 160 | | | | | | 160 | | | | 123 | | | | | | 123 |
| Other operation and maintenance | | | 48 | | $ | 364 | | | 412 | | | | 48 | | $ | 346 | | | 394 |
| Depreciation | | | 3 | | | 170 | | | 173 | | | | 2 | | | 163 | | | 165 |
| Taxes, other than income | | | 1 | | | 25 | | | 26 | | | | | | | 24 | | | 24 |
| | | Total Operating Expenses | | | 720 | | | 559 | | | 1,279 | | | | 620 | | | 533 | | | 1,153 |
Total | | $ | 936 | | $ | (559) | | $ | 377 | | | $ | 862 | | $ | (533) | | $ | 329 |
(a) | Represents amounts excluded from Margins. |
(b) | As reported on the Statements of Income. |
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) |
Statement of Income Analysis --
(a) | Decrease is due to the timing and scope of scheduled outages. |
Certain Operating Revenues and Expenses included in "Margins"(b) | Increase for the nine-month period is primarily due to an increase in outside services of $8 million. |
The following Statement of Income line items and their related increase (decrease) during the periods ended June 30, 2014 compared with 2013 are included above within "Margins" and are not discussed separately.
| | | Three Months | | Six Months |
| | | | | | | |
Operating revenues | | $ | 40 | | $ | 174 |
Fuel | | | 15 | | | 61 |
Energy purchases | | | (1) | | | 37 |
Other Operation and Maintenance | | | | | |
| | | | | | |
The increase (decrease) in other operation and maintenance expense for the periods ended June 30, 2014 compared with 2013 was due to: |
| | |
| Three Months | | Six Months |
| | | | | | |
Timing and scope of generation maintenance outages | $ | 3 | | $ | 6 |
Storm expenses | | 3 | | | 9 |
Other | | 3 | | | 3 |
Total | $ | 9 | | $ | 18 |
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) - netDepreciation increased by $4 million and $8 million for the ninethree and six months ended SeptemberJune 30, 20132014 compared with 20122013 primarily due to losses fromadditions to PP&E, net.
Interest Expense
Interest expense increased by $5 million and $10 million for the EEI investment recordedthree and six months ended June 30, 2014 compared with 2013 primarily due to the issuance of $500 million First Mortgage Bonds in 2012. The EEI investment was fully impaired in the fourth quarter of 2012.November 2013.
Income Taxes
Income taxes increased by $11$4 million and $64$16 million for the three and ninesix months ended SeptemberJune 30, 20132014 compared with 20122013 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.118
Income (Loss) from Discontinued Operations (net of income taxes)
Income (loss) from discontinued operations increased by $7 million for the nine months ended September 30, 2013 compared with 2012. The increase was primarily related to an adjustment to the estimated liability for indemnifications related to the 2009 termination of the WKE lease recorded in 2012.
LG&E: Earnings, Margins and Statement of Income Analysis
Earnings | | | | Three Months Ended | | Nine Months Ended | | | Three Months Ended | | Six Months Ended |
| | | September 30, | | September 30, | | | June 30, | | June 30, |
| | | 2013 | | 2012 | | 2013 | | 2012 | | | 2014 | | 2013 | | 2014 | | 2013 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net Income | Net Income | | $ | 49 | | $ | 43 | | $ | 122 | | $ | 94 | Net Income | | $ | 35 | | $ | 29 | | $ | 87 | | $ | 73 |
The increasesEarnings increased for the three-month period in earnings for both periods were2014 compared with 2013 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. The increasesales volumes due to favorable weather conditions. Earnings increased for the three-monthsix-month period wasin 2014 compared with 2013 primarily due to returns from additional environmental capital investments, higher sales volume, higher demand revenue and higher off-system sales partially offset by lower sales volumes.increased operation and maintenance expense driven by storm-related expenses. The increase forchanges in volumes and demand revenue were primarily attributable to unusually cold weather conditions during the nine-month period was partially offset by higher income taxes.first quarter of 2014.
The table below quantifies the changes in the components of Net Income between these periods, which reflect reclassifications for items includedamounts classified as Margins on a separate line within the table and not in Margins.
| | 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 |
their respective Statement of Income Analysis --line items.
| | Three Months | | Six Months |
| | | | | | |
Margins | | $ | 13 | | $ | 37 |
Other operation and maintenance | | | 2 | | | (4) |
Depreciation | | | (2) | | | (4) |
Interest expense | | | (2) | | | (4) |
Other | | | (1) | | | (2) |
Income taxes | | | (4) | | | (9) |
Total | | $ | 6 | | $ | 14 |
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 onan explanation of 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 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 SeptemberJune 30.
| | | | 2013 Three Months | | 2012 Three Months | | | | 2014 Three Months | | 2013 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 | | $ | 343 | | | | $ | 343 | | $ | 333 | | | | | $ | 333 | Operating Revenues | | $ | 344 | | | | $ | 344 | | $ | 316 | | | | | $ | 316 |
Operating Expenses | Operating Expenses | | | | | | | | | | | | | | | | | | Operating Expenses | | | | | | | | | | | | | | | | | |
| Fuel | | 100 | | | | | | 100 | | | 100 | | | | | | 100 | Fuel | | 104 | | | | | | 104 | | | 88 | | | | | | 88 |
| Energy purchases | | 20 | | | | | | 20 | | | 21 | | | | | | 21 | Energy purchases, including affiliate | | 31 | | | | | | 31 | | | 34 | | | | | | 34 |
| Other operation and maintenance | | 13 | | $ | 80 | | | 93 | | | 13 | | $ | 74 | | | 87 | Other operation and maintenance | | 12 | | $ | 82 | | | 94 | | | 10 | | $ | 84 | | | 94 |
| Depreciation | | | | | 37 | | | 37 | | | 1 | | | 37 | | | 38 | Depreciation | | 1 | | | 38 | | | 39 | | | 1 | | | 36 | | | 37 |
| Taxes, other than income | | | | | | 6 | | | 6 | | | | | | 6 | | | 6 | Taxes, other than income | | | | | | 7 | | | 7 | | | | | | 6 | | | 6 |
| | Total Operating Expenses | | | 133 | | | 123 | | | 256 | | | 135 | | | 117 | | | 252 | | Total Operating Expenses | | | 148 | | | 127 | | | 275 | | | 133 | | | 126 | | | 259 |
Total | Total | | $ | 210 | | $ | (123) | | $ | 87 | | $ | 198 | | $ | (117) | | $ | 81 | Total | | $ | 196 | | $ | (127) | | $ | 69 | | $ | 183 | | $ | (126) | | $ | 57 |
| | | | 2013 Nine Months | | 2012 Nine Months | | | | 2014 Six Months | | 2013 Six 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 | | $ | 1,049 | | | | $ | 1,049 | | $ | 990 | | | | | $ | 990 | Operating Revenues | | $ | 823 | | | | $ | 823 | | $ | 706 | | | | | $ | 706 |
Operating Expenses | Operating Expenses | | | | | | | | | | | | | | | | | | Operating Expenses | | | | | | | | | | | | | | | | | |
| Fuel | | 284 | | | | | | 284 | | | 281 | | | | | | 281 | Fuel | | 221 | | | | | | 221 | | | 184 | | | | | | 184 |
| Energy purchases | | 135 | | | | | | 135 | | | 119 | | | | | | 119 | Energy purchases, including affiliate | | 155 | | | | | | 155 | | | 115 | | | | | | 115 |
| Other operation and maintenance | | 34 | | $ | 244 | | | 278 | | | 36 | | $ | 241 | | | 277 | Other operation and maintenance | | 24 | | $ | 168 | | | 192 | | | 21 | | $ | 164 | | | 185 |
| Depreciation | | 1 | | | 109 | | | 110 | | | 2 | | | 112 | | | 114 | Depreciation | | 1 | | | 76 | | | 77 | | | 1 | | | 72 | | | 73 |
| Taxes, other than income | | | | | | 18 | | | 18 | | | | | | 17 | | | 17 | Taxes, other than income | | | | | | 13 | | | 13 | | | | | | 12 | | | 12 |
| | Total Operating Expenses | | | 454 | | | 371 | | | 825 | | | 438 | | | 370 | | | 808 | | Total Operating Expenses | | | 401 | | | 257 | | | 658 | | | 321 | | | 248 | | | 569 |
Total | Total | | $ | 595 | | $ | (371) | | $ | 224 | | $ | 552 | | $ | (370) | | $ | 182 | Total | | $ | 422 | | $ | (257) | | $ | 165 | | $ | 385 | | $ | (248) | | $ | 137 |
(a) | Represents amounts excluded from Margins. |
(b) | As reported on the Statements of Income. |
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 |
Statement of Income Analysis --
(a) | Increase (decrease) is due to the timing and scope of scheduled outages. |
Certain Operating Revenues and Expenses included in "Margins"127The following Statement of Income line items and their related increase (decrease) during the periods ended June 30, 2014 compared with 2013 are included above within "Margins" and are not discussed separately.
| | | Three Months | | Six Months |
| | | | | | | |
Retail and wholesale | | $ | 18 | | $ | 91 |
Electric revenue from affiliate | | | 10 | | | 26 |
Fuel | | | 16 | | | 37 |
Energy purchases | | | (2) | | | 36 |
Energy purchases from affiliate | | | (1) | | | 4 |
Other Operation and Maintenance
(b) | Increase for the nine-month period is primarily due to an increase in outside services of $5 million. |
Other operation and maintenance expense increased by $7 million for the six months ended June 30, 2014 compared with 2013 primarily due to storm expenses.
Depreciation
The increase (decrease) in depreciationDepreciation increased by $2 million and $4 million for the periodsthree and six months ended SeptemberJune 30, 20132014 compared with 2012 was2013 primarily due to:to additions to PP&E, net.
| | Three Months | | Nine Months |
| | | | | | |
Lower depreciation rates effective January 1, 2013 | $ | (2) | | $ | (6) |
Additions to PP&E | | 1 | | | 2 |
Total | $ | (1) | | $ | (4) |
Interest Expense
Interest expense increased by $2 million and $4 million for the three and six months ended June 30, 2014 compared with 2013 primarily due to the issuance of $250 million First Mortgage Bonds in November 2013.
Income Taxes
Income taxes increased by $15$4 million and $9 million for the ninethree and six months ended SeptemberJune 30, 20132014 compared with 20122013 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.
KU: Earnings, Margins and Statement of Income Analysis
Earnings | | | | Three Months Ended | | Nine Months Ended | | | Three Months Ended | | Six Months Ended |
| | | September 30, | | September 30, | | | June 30, | | June 30, |
| | | 2013 | | 2012 | | 2013 | | 2012 | | | 2014 | | 2013 | | 2014 | | 2013 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net Income | Net Income | | $ | 63 | | $ | 50 | | $ | 171 | | $ | 118 | Net Income | | $ | 40 | | $ | 44 | | $ | 117 | | $ | 108 |
Special item, gains (losses), after-tax | | Special item, gains (losses), after-tax | | 1 | | 1 | | | 1 | | 1 |
Excluding a special items,item, earnings increased for the increasesthree-month period in earnings for both periods were2014 compared with 2013 primarily due to higher electricity base rates that went into effect January 1,returns on additional environmental capital investments. Earnings increased for the six-month period in 2014 compared with 2013 primarily due to returns fromon additional environmental capital investments, higher sales volumes and higher fuel recovery,demand revenue partially offset by higher depreciation (dueother operation and maintenance expense driven by the timing of generation maintenance outages. The changes in volumes and demand revenue were primarily attributable to environmental costs related tounusually cold weather conditions during 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.first quarter of 2014.
The table below quantifies the changes in the components of Net Income between these periods, which reflect reclassifications for items included inamounts classified as Margins and ana certain 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 |
special on separate lines within the table and not in their respective Statement of Income Analysis --line items.
| | Three Months | | Six Months |
| | | | | | |
Margins | | $ | 11 | | $ | 37 |
Other operation and maintenance | | | (9) | | | (13) |
Depreciation | | | (1) | | | (2) |
Interest expense | | | (3) | | | (5) |
Other | | | (3) | | | (1) |
Income taxes | | | | | | (7) |
Special item - EEI adjustments, after-tax | | | 1 | | | |
Total | | $ | (4) | | $ | 9 |
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 onan explanation of 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."
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 SeptemberJune 30.
| | | | | | 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 | | | | 2014 Three Months | | 2013 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 | | $ | 1,229 | | | | $ | 1,229 | | $ | 1,165 | | | | $ | 1,165 | Operating Revenues | | $ | 404 | | | | $ | 404 | | $ | 383 | | | | | $ | 383 |
Operating Expenses | Operating Expenses | | | | | | | | | | | | | | | | | | Operating Expenses | | | | | | | | | | | | | | | | | |
| Fuel | | 400 | | | | | | 400 | | | 396 | | | | | | 396 | Fuel | | 127 | | | | | | 127 | | | 128 | | | | | | 128 |
| Energy purchases | | 63 | | | | | | 63 | | | 76 | | | | | | 76 | Energy purchases, including affiliate | | 31 | | | | | | 31 | | | 20 | | | | | | 20 |
| Other operation and maintenance | | 40 | | $ | 246 | | | 286 | | | 41 | | $ | 245 | | | 286 | Other operation and maintenance | | 13 | | $ | 94 | | | 107 | | | 13 | | $ | 85 | | | 98 |
| Depreciation | | 2 | | | 136 | | | 138 | | | 36 | | | 109 | | | 145 | Depreciation | | 1 | | | 46 | | | 47 | | | 1 | | | 45 | | | 46 |
| Taxes, other than income | | | | | | 18 | | | 18 | | | | | | 17 | | | 17 | Taxes, other than income | | | | | | 6 | | | 6 | | | | | | 6 | | | 6 |
| | Total Operating Expenses | | | 505 | | | 400 | | | 905 | | | 549 | | | 371 | | | 920 | | Total Operating Expenses | | | 172 | | | 146 | | | 318 | | | 162 | | | 136 | | | 298 |
Total | Total | | $ | 724 | | $ | (400) | | $ | 324 | | $ | 616 | | $ | (371) | | $ | 245 | Total | | $ | 232 | | $ | (146) | | $ | 86 | | $ | 221 | | $ | (136) | | $ | 85 |
| | | | | | 2014 Six Months | | | 2013 Six Months |
| | | | | | | | | | Operating | | | | | | | | Operating |
| | | | | | Margins | | Other (a) | | Income (b) | | | Margins | | Other (a) | | Income (b) |
| | | | | | | | | | | | | | | | | |
Operating Revenues | | $ | 902 | | | | | $ | 902 | | | $ | 815 | | | | | $ | 815 |
Operating Expenses | | | | | | | | | | | | | | | | | | | |
| Fuel | | | 287 | | | | | | 287 | | | | 263 | | | | | | 263 |
| Energy purchases, including affiliate | | | 74 | | | | | | 74 | | | | 47 | | | | | | 47 |
| Other operation and maintenance | | | 24 | | $ | 181 | | | 205 | | | | 27 | | $ | 168 | | | 195 |
| Depreciation | | | 2 | | | 93 | | | 95 | | | | 1 | | | 91 | | | 92 |
| Taxes, other than income | | | 1 | | | 12 | | | 13 | | | | | | | 12 | | | 12 |
| | | Total Operating Expenses | | | 388 | | | 286 | | | 674 | | | | 338 | | | 271 | | | 609 |
Total | | $ | 514 | | $ | (286) | | $ | 228 | | | $ | 477 | | $ | (271) | | $ | 206 |
(a) | Represents amounts excluded from Margins. |
(b) | As reported on the Statements of Income. |
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) | | $ | |
Statement of Income Analysis --
(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 $5 million. |
DepreciationCertain Operating Revenues and Expenses included in "Margins"
The following Statement of Income line items and their related increase (decrease) in depreciation forduring the periods ended SeptemberJune 30, 20132014 compared with 2012 was due to:2013 are included above within "Margins" and are not discussed separately.
| | Three Months | | Nine Months |
| | | | | | |
Lower depreciation rates effective January 1, 2013 | $ | (4) | | $ | (10) |
Additions to PP&E | | 1 | | | 4 |
Other | | | | | (1) |
Total | $ | (3) | | $ | (7) |
| | | Three Months | | Six Months |
| | | | | | | |
Retail and wholesale | | $ | 22 | | $ | 83 |
Electric revenue from affiliate | | | (1) | | | 4 |
Fuel | | | (1) | | | 24 |
Energy purchases | | | 1 | | | 1 |
Energy purchases from affiliate | | | 10 | | | 26 |
Other Income (Expense) - net
Other income (expense) - net increased by $4 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.
Other Operation and Maintenance | | | | | |
| | | | | | |
The increase (decrease) in other operation and maintenance expense for the periods ended June 30, 2014 compared with 2013 was due to: |
| | |
| | Three Months | | Six Months |
| | | | | | |
Timing and scope of generation maintenance outages | $ | 4 | | $ | 7 |
Storm expenses | | 2 | | | 2 |
Other | | 3 | | | 1 |
Total | $ | 9 | | $ | 10 |
Interest Expense
Interest expense increased by $3 million and $5 million for the three and six months ended June 30, 2014 compared with 2013 primarily due to the issuance of $250 million First Mortgage Bonds in November 2013.
Income Taxes
Income taxes increased by $6 million and $31$7 million for the three and ninesix months ended SeptemberJune 30, 20132014 compared with 20122013 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. |
| | | | | | | | | | | | | | | | | | |
The remainder of this Item 2 in this Form 10-Q is presented on a combined basis, providing information, as applicable, for all Registrants. |
| | | | | | | | | | | | | | | | | | |
| |
| | | | | | | | | | | | | |
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 | Liquidity and Capital Resources | Liquidity and Capital Resources |
| | | | | | | | | | | | | | | | | | | | | | | | |
(All Registrants) | | | | | | | | | | | | | | | | | | | | | | | | | |
The Registrants had the following at: | | | | | PPL | | | | | | | | | | | | | | PPL | | | | | | | | | | |
| | PPL | | Energy Supply | | PPL Electric | | LKE | | LG&E | | KU | | PPL (a) | | Energy Supply | | PPL Electric | | LKE | | LG&E | | KU |
September 30, 2013 | | | | | | | | | | | | | | | | | | | |
June 30, 2014 | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 1,291 | | $ | 551 | | $ | 225 | | $ | 21 | | $ | 12 | | $ | 9 | | $ | 1,269 | | $ | 264 | | $ | 149 | | $ | 23 | | $ | 5 | | $ | 18 |
Notes receivable from affiliates | | | | | | | | | 16 | | | | |
Short-term debt | | 499 | | | | | | 212 | | 72 | | 140 | | 808 | | 324 | | | | 320 | | 70 | | 175 |
Notes payable with affiliates | | | | | | | | 52 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2012 | | | | | | | | | | | | | | | | | | | |
December 31, 2013 | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 901 | | $ | 413 | | $ | 140 | | $ | 43 | | $ | 22 | | $ | 21 | | $ | 1,102 | | $ | 239 | | $ | 25 | | $ | 35 | | $ | 8 | | $ | 21 |
Notes receivable from affiliates | | | | | | | 150 | | 70 | | | | |
Short-term debt | | 652 | | 356 | | | | 125 | | 55 | | 70 | | 701 | | | | 20 | | 245 | | 20 | | 150 |
Notes payable with affiliates | | | | | | | | 25 | | | | | |
At September(a) | At June 30, 2014, $462 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 income tax credits. Historically, dividends paid by foreign subsidiaries have been limited to distributions of the current year's earnings. See Note 5 to the Financial Statements in PPL's 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-monthsix-month periods ended SeptemberJune 30, and the changes between periods were as follows.
| | | | | PPL Energy | | | | | | | | | | | | | PPL Energy | | | | | | | | |
| | | PPL | | Supply | | PPL Electric | | LKE | | LG&E | | KU |
2014 | | | | | | | | | | | | | |
Operating activities | | | $ | 1,583 | | $ | 290 | | $ | 148 | | $ | 516 | | $ | 202 | | $ | 297 |
Investing activities | | | (2,103) | | (403) | | (295) | | (501) | | (248) | | (305) |
Financing activities | | | 671 | | 138 | | 271 | | (27) | | 43 | | 5 |
| | PPL | | Supply | | PPL Electric | | LKE | | LG&E | | KU | | | | | | | | | | | | |
2013 | | | | | | | | | | | | | | | | | | | | | | | | |
Operating activities | | $ | 2,223 | | $ | 583 | | $ | 327 | | $ | 713 | | $ | 352 | | $ | 419 | | $ | 947 | | $ | 227 | | $ | 115 | | $ | 297 | | $ | 186 | | $ | 190 |
Investing activities | | (2,788) | | (351) | | (697) | | (879) | | (366) | | (510) | | (1,834) | | (282) | | (455) | | (568) | | (226) | | (340) |
Financing activities | | 966 | | (94) | | 455 | | 144 | | 4 | | 79 | | 710 | | (93) | | 224 | | 251 | | 31 | | 139 |
| | | | | | | | | | | | | |
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 | |
| | | | | PPL Energy | | | | | | | | | | | | |
| | PPL | | Supply | | PPL Electric | | LKE | | LG&E | | KU |
Change - Cash Provided (Used) | | | | | | | | | | | | | | | | | | |
Operating activities | | $ | 636 | | $ | 63 | | $ | 33 | | $ | 219 | | $ | 16 | | $ | 107 |
Investing activities | | | (269) | | | (121) | | | 160 | | | 67 | | | (22) | | | 35 |
Financing activities | | | (39) | | | 231 | | | 47 | | | (278) | | | 12 | | | (134) |
Operating Activities
The components of the change in cash provided by (used in) operating activities for the ninesix months ended SeptemberJune 30, 20132014 compared with 20122013 were as follows.
| | | | | | | | 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 |
| | | | | | | | PPL Energy | | | | | | | | | | | | |
| | | | | PPL | | Supply | | PPL Electric | | LKE | | LG&E | | KU |
| | | | | | | | | | | | | | | | | | | | | |
Change - Cash Provided (Used) | | | | | | | | | | | | | | | | | | |
| | Net income | | $ | (273) | | $ | (101) | | $ | 28 | | $ | 20 | | $ | 14 | | $ | 9 |
| | Non-cash components | | | 234 | | | (37) | | | (46) | | | 52 | | | (5) | | | 14 |
| | Working capital | | | 300 | | | 58 | | | (14) | | | 31 | | | (20) | | | 5 |
| | Defined benefit funding | | | 250 | | | 74 | | | 69 | | | 116 | | | 34 | | | 58 |
| | Other operating activities | | | 125 | | | 69 | | | (4) | | | | | | (7) | | | 21 |
| Total | | $ | 636 | | $ | 63 | | $ | 33 | | $ | 219 | | $ | 16 | | $ | 107 |
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. (PPL)
The decreaseincrease in cash from changes in components of working capital was primarilypartially due to increasesa decrease in customer and other accounts receivable (primarily due to extended payment terms at LG&E and KU and base rate increases effectivechanges in 2013 at PPL Electric, LG&E and KU), returns of counterparty collateralcustomer rates and changes in income tax receivables) and a reduction in collateral returned 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.counterparties.
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. Supply)
The increase in cash from changes in components of working capital was primarily due to decreasesa decrease in accounts receivable (primarily affiliate receivables), and lower unbilled revenueprepayments (primarily due to decreaseshigher federal income tax payments in power swap sales),2013) and a reduction in collateral returned to counterparties, partially offset by returns of counterparty collateral.an increase in net cash paid related to power options. The decreasechange in cash from other operating activities was partially due to changescash payments made in 2013 on PPL Montana's operating lease arrangement related to certain tax-related accounts.partial interests in Units 1, 2 and 3 of the Colstrip coal-fired electric generating facility that was terminated in December 2013.
For (PPL Electric,Electric)
The decrease in non-cash components of net income primarily consisted of $31deferred income tax benefits.
(LKE)
LKE's non-cash components of net income included a $54 million related to an increase in deferred tax expense and $13 million relatedincome taxes primarily due to increased depreciation.utilization of net operating losses. The decreaseincrease 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 increasesthe change in accounts receivable and unbilled revenues due to extended payment termsweather and higher rates, and lower fuel inventory due to weather, offset by an increasea decrease 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.purchases.
(LG&E)
LG&E's increase in cash from changes in components of working capital was driven primarily by lower fuel inventory purchasesthe change in 2013accounts receivable and an increaseunbilled revenues due to weather and higher rates, offset by a decrease 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.purchases.
(KU)
KU's decreasenon-cash components of net income included a $17 million increase in working capital was drivendeferred income taxes 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 timingutilization of fuel purchase commitments and payments. The increase in cash from KU's othernet operating activities was driven primarily by $49 million in proceeds from the settlement of interest rate swaps.losses.
Investing Activities
Expenditures for Property, Plant and Equipment
The primary use of cash within investing activities is expenditures for PP&E. The change in these expenditures for the ninesix months ended SeptemberJune 30, 20132014 compared with 20122013 was as follows.
| | | | | PPL Energy | | | | | | | | | | | | |
| | PPL | | Supply | | PPL Electric | | LKE | | LG&E | | KU |
| | | | | | | | | | | | | | | | | | |
(Increase) Decrease | | $ | (690) | | $ | 119 | | $ | (281) | | $ | (366) | | $ | (183) | | $ | (181) |
| | | | | PPL Energy | | | | | | | | | | | | |
| | PPL | | Supply | | PPL Electric | | LKE | | LG&E | | KU |
| | | | | | | | | | | | | | | | | | |
(Increase) Decrease | | $ | (57) | | $ | 65 | | $ | 15 | | $ | 23 | | $ | (13) | | $ | 36 |
The increase in expenditures for PP&E for PPL was primarily due to projectshigher project costs to enhance system reliability at WPD and PPL Electric, the Susquehanna-Roseland transmissionchanges in project expenditures at PPL Electric,Energy Supply, LG&E and KU. The decrease in expenditures at PPL Energy Supply was partially due to expenditures made in 2013 for the Holtwood hydroelectric expansion project. The increase in expenditures for LG&E was primarily due to environmental air projects at LG&E's Mill Creek plant and KU's Ghent plants andGLT projects, partially offset by lower expenditures for the construction of Cane Run Unit 7. The decrease in expenditures for KU was related to lower expenditures for the construction of Cane Run Unit 7 and environmental CCR projects at KU's Ghent and E.W. Brown plants, partially offset by higher expenditures for LG&Eenvironmental air projects at KU's Ghent and KU.E.W. Brown plants.
Expenditures for PP&E decreased at PPL Energy Supply primarily related to the Rainbow hydroelectric redevelopment and Holtwood expansion projects and timingOther Significant Changes in Components of nuclear fuel purchases.Investing Activities
For PPL and PPL Energy Supply, the change in investing activities for the six months ended June 30, 2014 compared with 2013 reflects increases of $234 million in restricted cash and cash equivalents. These changes were primarily related to increased cash collateral requirements in 2014 of $257 million to support PPL Energy Supply's commodity hedging program primarily due to higher forward prices. PPL Energy Supply borrowed under its short-term credit facilities to help fund these increased collateral requirements.
For PPL Electric, the change in cash provided by (used in) investing activities was also impacted primarily by the change indue to cash received for notes receivable from affiliates of ($198) million and $210$150 million.
Financing Activities
The components of the change in cash provided by (used in) financing activities for the ninesix months ended SeptemberJune 30, 20132014 compared with 20122013 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 |
| | | | | | PPL Energy | | | | | | | | | | | | |
| | | PPL | | Supply | | PPL Electric | | LKE | | LG&E | | KU |
| | | | | | | | | | | | | | | | | | | |
Change - Cash Provided (Used) | | | | | | | | | | | | | | | | | | |
| Long-term debt issuances/retirements, net | | $ | (384) | | | | | $ | 286 | | | | | | | | | |
| Stock issuances/redemptions, net | | | 786 | | | | | | | | | | | | | | | |
| Dividends | | | (44) | | | | | | (21) | | | | | $ | (12) | | $ | (31) |
| Capital contributions/distributions, net | | | | | $ | 119 | | | (110) | | $ | (179) | | | (1) | | | (26) |
| Change in short-term debt, net | | | (456) | | | 105 | | | (105) | | | (52) | | | 25 | | | (77) |
| Other financing activities | | | 59 | | | 7 | | | (3) | | | (47) | | | | | | |
| Total | | $ | (39) | | $ | 231 | | $ | 47 | | $ | (278) | | $ | 12 | | $ | (134) |
For LKE, the change in Other financing activities for the six months ended June 30, 2014 compared with 2013 was due to a $47 million borrowing in 2013 included in notes payable with affiliates.
See Note 7 to the Financial Statements in this Form 10-Q for information on 20132014 short and long-term debt activity, equity transactions and dividends. See the Registrant's 2012Registrants' 2013 Form 10-K for information on 20122013 activity.
Credit Facilities
The Registrants maintain credit facilities to enhance liquidity, provide liquiditycredit support and provide a backstop to backstop commercial paper issuances. Theprograms. Amounts borrowed under these credit facilities are reflected in "Short-term debt" on the Balance Sheets. At June 30, 2014, the total committed borrowing capacity and the use of the borrowingsthat capacity under these credit facilities at September 30, 2013 was as follows.
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 |
| | | | | | | | | Letters of | | | |
| | | | | | | | | Credit | | | |
| | | | | | | | | and | | | |
| | | Committed | | | | Commercial | | Unused |
| | | Capacity | | Borrowed | | Paper Issued | | Capacity |
| | | | | | | | | |
PPL Capital Funding Credit Facilities | | $ | 450 | | | | | $ | 11 | | $ | 439 |
PPL Energy Supply Credit Facilities | | | 3,150 | | $ | 175 | | | 407 | | | 2,568 |
PPL Electric Credit Facility | | | 300 | | | | | | 1 | | | 299 |
| | | | | | | | | | | | | |
LKE Credit Facility | | | 75 | | | 75 | | | | | | |
LG&E Credit Facility | | | 500 | | | | | | 70 | | | 430 |
KU Credit Facilities | | | 598 | | | | | | 373 | | | 225 |
Total LKE | | | 1,173 | | | 75 | | | 443 | | | 655 |
| Total U.S. Credit Facilities (a) | | $ | 5,073 | | $ | 250 | | $ | 862 | | $ | 3,961 |
| | | | | | | | | | | | | |
Total U.K. Credit Facilities (b) | | £ | 1,055 | | £ | 97 | | | | | £ | 958 |
(a) | The commitments under the U.S. credit facilities are provided by a diverse bank group, with no one bank and its affiliates providing an aggregate commitment of more than the following percentages of the total committed capacity: 8% for PPL's domestic credit facilities, 9% forPPL - 10%, PPL Energy Supply 5% for- 10%, PPL Electric 13% for- 6%, LKE 6% for- 12%, LG&E - 6% and KU - 22% for KU.. |
(b) | In October 2013, LKE entered intoThe amount borrowed at June 30, 2014 was a $75 million syndicated credit facility that expires in October 2018. |
(c) | USD-denominated borrowing of $164 million. At SeptemberJune 30, 2013,2014, the USD equivalent of unused capacity under WPD'sthe U.K. committed credit facilities was $1.3$1.6 billion. |
| The commitments under WPD'sthe U.K. credit facilities are provided by a diverse bank group, with no one bank providing more than 13% of the total committed capacity. |
In September 2013,As a result of the proposed spinoff transaction, PPL Electric terminatedEnergy Supply is in the process of syndicating a $1.85 billion credit facility which is currently fully committed. This syndicated credit facility will replace the existing $3 billion PPL Energy Supply syndicated credit facility and will be effective upon closing of the spinoff transaction. See "Overview - Business Strategy" and "Financial and Operational Developments - Other Financial and Operational Developments - Anticipated Spinoff of PPL Energy Supply" above for additional information.
During the second quarter of 2014, PPL Energy Supply's corporate credit rating was lowered to below investment grade. At June 30, 2014, the additional collateral posted as a result of the downgrade was $176 million. PPL Energy Supply primarily issued letters of credit under its asset-backed commercial paper program sponsored bycredit facilities noted above to post the required collateral. PPL Energy Supply continues to have adequate access to the capital markets and adequate capacity under its credit facilities and does not expect a financial institution. See Note 7material change in PPL's and PPL Electric's 2012 Form 10-K for more information regardingits financing costs as a result of the asset-backed commercial paper program.downgrade.
See Note 7 to the Financial Statements for further discussion of the Registrants' credit facilities.
Intercompany (All Registrants except PPL)
| | Committed | | | | Unused | | Committed | | | | Unused |
| | Capacity | | Borrowed | | Capacity | | Capacity | | Borrowed | | Capacity |
| | | | | | | | | | | | | | | |
PPL Energy Supply Credit Facility | | $ | 200 | | | | $ | 200 | | $ | 200 | | | | $ | 200 |
PPL Electric Credit Facility | | 100 | | | | 100 | | 100 | | | | | 100 |
LKE Credit Facility (a) | | 300 | | $ | 52 | | 248 | | 225 | | | | | 225 |
LG&E Money Pool (b)(a) | | 500 | | | | 500 | | 500 | | | | | 500 |
KU Money Pool (b)(a) | | 500 | | | | 500 | | 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 whenas necessary. Commercial paper issuances are supported by the respective Registrant's Syndicated Credit Facility.
When outstanding, the amountsOutstanding commercial paper issuances are reflected in "Short-term debt" on the Balance Sheets. The following amounts were outstanding at:At June 30, 2014, the available capacity and the use of that capacity was as follows:
| | September 30, 2013 | | December 31, 2012 | |
| | | | | | Commercial | | | | Commercial | | | | | | Commercial | | |
| | | | | | Paper | | Unused | | Paper | | | | | | Paper | | Unused |
| | | Capacity | | Issuances | | Capacity | | Issuances | | | Capacity | | Issuances | | Capacity |
| | | | | | | | | | | | | | | | | | | | | | |
PPL Energy Supply | PPL Energy Supply | | $ | 750 | | | | | $ | 750 | | $ | 356 | PPL Energy Supply | | $ | 750 | | $ | 149 | | $ | 601 |
PPL Electric | PPL Electric | | | 300 | | | | | | 300 | | | | PPL Electric | | 300 | | | | 300 |
| | | | | | | | | | | | | | | | | | | | |
LG&E (a) | | | 350 | | $ | 72 | | | 278 | | | 55 | |
KU (a) | | | 350 | | | 140 | | | 210 | | | 70 | |
LG&E | | LG&E | | 350 | | 70 | | 280 |
KU | | KU | | | 350 | | | 175 | | | 175 |
Total LKE | Total LKE | | | 700 | | | 212 | | | 488 | | | 125 | Total LKE | | | 700 | | | 245 | | | 455 |
| Total PPL | | $ | 1,750 | | $ | 212 | | $ | 1,538 | | $ | 481 | Total PPL | | $ | 1,750 | | $ | 394 | | $ | 1,356 |
(a) | In April 2013, the capacity was increased from $250 million. |
Long-term Debt and Equity Securities(PPL and PPL Electric)
(PPLThe long-term debt and Kentucky Registrants)equity securities activity through June 30, 2014 was:
During 2012, LG&E and KU received KPSC and other state approvals to issue up to $350 million for LG&E and $300 million for KU of first mortgage bond indebtedness in 2013. The proceeds 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 | | | | | | |
| | | | Debt | | Net Stock |
| | | | Issuances (a) | | Retirements | | Issuances |
| | | | | | | | | |
| PPL | | $ | 296 | | $ | 239 | | $ | 1,017 |
| PPL Electric | | | 296 | | | 10 | | | |
| | | | | | | | | | | |
Non-cash Transactions: | | | | | | | | | |
| PPL (b) | | $ | 750 | | $ | 750 | | | |
(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. |
(c) | The debt issuances primarily include $1.150 billion relating toRepresents the remarketing of Junior Subordinated Notes that were issued as a component of PPL's 20102011 Equity Units and simultaneously exchanged into Senior Notes.Units. |
See Note 7 to the Financial Statements for further discussion of Long-term Debt and Equity Securities.
Common Stock Dividends (PPL)
In August 2013,May 2014, PPL declared its quarterly common stock dividend, payable OctoberJuly 1, 2013,2014, at 36.7537.25 cents per share (equivalent to $1.47$1.49 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, S&P and S&PFitch periodically review the credit ratings on the debt securities of the Registrants and their subsidiaries. Based on their respective independent reviews, the rating agencies may make certain ratings revisions or ratings affirmations.
A credit rating reflects an assessment by the rating agency of the creditworthiness associated with an issuer and particular securities that it issues. The credit ratings of the Registrants and their subsidiaries are based on information provided by the Registrants and other sources. The ratings of Fitch, Moody's, S&P and S&PFitch are not a recommendation to buy, sell or hold any securities of the Registrants or their subsidiaries. Such ratings may be subject to revisions or withdrawal by the agencies at any time and should be evaluated independently of each other and any other rating that may be assigned to the securities.
A downgrade in the Registrants' or their subsidiaries' The credit ratings could result in higher borrowing costs and reduced access to capital markets. Theof the Registrants and their subsidiaries have no credit rating triggers that would result in the reduction ofaffect their liquidity, access to capital markets or the accelerationand cost of maturity dates of outstanding debt.borrowing under their credit facilities.
The rating agencies tookhave taken the following actions related to the Registrants and their subsidiaries during 2013:2014:
(PPL)
In January 2014, Moody's affirmed its ratings and revised its outlook to stable for PPL.
In March 2013,2014, Moody's, S&P and Fitch Moody's and S&P assigned ratings of BB+, Ba1Baa3, BBB- and BB+BBB, respectively, to PPL Capital Funding's $450$350 million 5.90% Junior Subordinated3.95% Senior Notes due 2073.2024 and $400 million 5.00% Senior Notes due 2044. Fitch also assigned a stable outlook to these notes.
In April 2014, Moody's affirmed its ratings with a stable outlook for PPL WEM, WPD (East Midlands), WPD (West Midlands), PPL WW, WPD (South Wales) and WPD (South West).
In April 2014, Fitch affirmed its ratings with a stable outlook for PPL and PPL Capital Funding.
In June 2014, Moody's affirmed its ratings and revised its outlook to positive for PPL and PPL Capital Funding.
In June 2014, S&P affirmed its ratings for PPL, PPL Capital Funding, PPL WEM, WPD (East Midlands), WPD (West Midlands), PPL WW, WPD (South Wales) and WPD (South West) and placed the issuers on CreditWatch with positive implications.
In June 2014, Fitch affirmed its ratings with a stable outlook for PPL and PPL Capital Funding.
(PPL and PPL Energy Supply)
In April 2014, Fitch affirmed its ratings with a negative outlook for PPL Energy Supply.
In May 2013,2014, S&P lowered its long-term issuer rating and senior unsecured rating from BBB to BB+ and its commercial paper rating and short-term issuer rating from A-2 to A-3 with a stable outlook for PPL Energy Supply.
In June 2014, Moody's lowered its senior unsecured rating from Baa2 to Ba1 and its commercial paper rating and short-term issuer rating from P-2 to Not Prime with a negative outlook for PPL Energy Supply. Moody's also assigned a Corporate Family Rating of Ba1, a Probability of Default Rating of Ba1-PD and a Speculative Grade Liquidity rating of SGL-1 to PPL Energy Supply.
In June 2014, S&P lowered its long-term issuer rating and senior unsecured rating from BB+ to BB and its commercial paper rating and short-term issuer rating from A-3 to B for PPL Energy Supply and placed the issuer on CreditWatch with negative implications.
In June 2014, Fitch lowered its long-term issuer default rating and senior unsecured debt rating from BBB- to BB and its commercial paper rating and short-term issuer default rating from F3 to B for PPL Energy Supply and placed the issuer on Rating Watch Negative.
(PPL and PPL Electric)
In January 2014, Moody's upgraded its long-term issuer rating and senior unsecured rating from Baa2 to Baa1 and senior secured rating from A3 to A2, affirmed its commercial paper rating and revised its outlook to stable for PPL Electric.
In April 2014, Fitch affirmed its ratings with a stable outlook for PPL Electric.
In June 2014, S&P affirmed its ratings for PPL Electric and placed the issuer on CreditWatch with positive implications.
In June 2014, Moody's, S&P, and Fitch assigned ratings of BBB, Baa3A2, A- and BBB-A-, respectively, to PPL Capital Funding's $250 million 1.90% Senior Notes due 2018, $600 million 3.40% Senior Notes due 2023 andElectric's $300 million 4.70% Senior Notes4.125% First Mortgage Bonds due 2043.2044. 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.
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, LG&E and KU)
In July 2013, S&P confirmed the AA+January 2014, Moody's affirmed its ratings and revised its outlook to stable for LKE.
In January 2014, Moody's upgraded its long-term issuer ratings and senior unsecured ratings from Baa1 to A3 and senior secured ratings from A2 to A1, affirmed its commercial paper ratings and revised its outlook to stable for LG&E and KU.
In February 2014, Moody's affirmed its ratings for KU's 2000 Series A Solid Waste Disposal Facility Revenue Bonds, and KU's 2004 Series A 2006 Series B and 2008 Series A Environmental Facilities Revenue Bonds and KU's 2006 Series B Environmental Facilities Revenue Refunding Bonds.
In April 2014, Fitch affirmed its ratings with a stable outlook for LKE, LG&E and KU.
In June 2014, S&P also confirmedaffirmed its ratings for LKE, LG&E and KU and placed the A-1+ short term ratingissuers on these Bonds.CreditWatch with positive implications.
In June 2014, Moody's affirmed its ratings and revised its outlook to positive for LKE.
In June 2014, S&P affirmed its ratings for KU's 2000 Series A Solid Waste Disposal Facility Revenue Bonds, KU's 2004 Series A and 2008 Series A Environmental Facilities Revenue Bonds and KU's 2006 Series B Environmental Facilities Revenue Refunding Bonds and placed them on CreditWatch with positive implications.
Ratings Triggers
(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 instruments (for PPL) instruments,, contain provisions that require the posting of additional collateral or permit the counterparty to terminate the contract, if PPL's, PPL Energy Supply's, LKE's, LG&E's or KU's or their subsidiaries' credit rating, as applicable, were to fall below investment grade. See Note 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 requiredrequirements for PPL, PPL Energy Supply, LKE and LG&E for derivative contracts in a net liability position at SeptemberJune 30, 2013.2014.
Capital Expenditures
(PPL)
Capital expenditure plans are revised periodically to reflect changes in operational, market and regulatory conditions. In the second quarter of 2014, PPL increased its projected capital spending for the period 2014 through 2018 related to distribution facilities by approximately $0.3 billion from the previously disclosed $1.9 billion projection included in PPL's 2013 Form 10-K. The increased projected capital spending results from a change in the forecasted foreign currency exchange rate for WPD expenditures that increased each yearly estimate by approximately $70 million.
(PPL, LKE, LG&E and KU)
LG&E and KU continue to evaluate their future capacity requirements with the possibility that reduced or delayed capacity needs may result in adjustments to the timing of previously estimated capacity construction at KU's Green River generating site. See Note 8 to the Financial Statements for additional information.
(All Registrants)
For additional information on the Registrants' liquidity and capital resources, see "Item 7. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations," in the Registrants' 20122013 Form 10-K.
Market Risk
(All Registrants)
See Notes 13 and 14 to the Financial Statements for information about the Registrants' risk management objectives, valuation techniques and accounting designations.
The forward-looking information presented below provides estimates of what may occur in the future, assuming certain adverse market conditions and model assumptions. Actual future results may differ materially from those presented. These disclosures are not precise indicators of expected future losses, but only indicators of possible losses under normal market conditions at a given confidence level.
Commodity Price Risk (Non-trading)
(PPL, LKE, LG&E and KU)
LG&E's and KU's retail electric and natural gas rates and municipal wholesale electric rates are set by regulatory commissions and the fuel costs incurred are directly recoverable from customers. As a result, LG&E and KU are subject to commodity price risk for only a small portion of on-going business operations. LG&E and KU sell excess economic generation to maximize the value of the physical assets at times when the assets are not required to serve LG&E's or KU's customers. See Note 14 to the Financial Statements for additional information.
(PPL and PPL Electric)
PPL Electric is exposed to market price and volumetric risks from its obligation as PLR. The PUC has approved a cost recovery mechanism that allows PPL Electric to pass through to customers the cost associated with fulfilling its PLR obligation. This cost recovery mechanism substantially eliminates PPL Electric's exposure to market price risk. PPL Electric also mitigates its exposure to volumetric risk by entering into full-requirement energy supply contracts for the majority of its PLR obligations. These supply contracts transfer the volumetric risk associated with the PLR obligation to the energy suppliers.
(PPL and PPL Energy Supply)
PPL Energy Supply segregates its non-trading activities into two categories: hedge activity and economic activity. Transactions that are accounted for as hedge activity qualify for hedge accounting treatment. The economic activity category includes transactions that address a specific risk, but were not eligible for hedge accounting or for which hedge accounting was not elected. This activity includes the changes in fair value of positions used to hedge a portion of the economic value of PPL Energy Supply's competitive generation assets and full-requirement sales and retail contracts. This economic activity is subject to changes in fair value due to market price volatility of the input and output commodities (e.g., fuel and power).
Although they do not receive hedge accounting treatment, these transactions are considered non-trading activity. See Note 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 tabletables sets forth the changes in the net fair value of non-trading commodity derivative contracts for the periods ended SeptemberJune 30. See Notes 13 and 14 to the Financial Statements for additional information.
| | Gains (Losses) | | Gains (Losses) |
| | Three Months | | Nine Months | | Three Months | | Six Months |
| | 2013 | | 2012 | | 2013 | | 2012 | | 2014 | | 2013 | | 2014 | | 2013 |
| | | | | | | | | | | | | | | | |
Fair value of contracts outstanding at the beginning of the period | | $ | 285 | | $ | 961 | | $ | 473 | | $ | 1,082 | | $ | (141) | | $ | 229 | | $ | 107 | | $ | 473 |
Contracts realized or otherwise settled during the period | | (95) | | (224) | | (332) | | (764) | | (20) | | (100) | | 485 | | (237) |
Fair value of new contracts entered into during the period (a) | | 2 | | (11) | | 48 | | 1 | | 19 | | 37 | | 3 | | 46 |
Other changes in fair value | | | 25 | | | (101) | | | 28 | | | 306 | | | (36) | | | 119 | | | (773) | | | 3 |
Fair value of contracts outstanding at the end of the period | | $ | 217 | | $ | 625 | | $ | 217 | | $ | 625 | | $ | (178) | | $ | 285 | | $ | (178) | | $ | 285 |
(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 SeptemberJune 30, 2013,2014, based on the observability of the information used to determine the fair value.
| | | Net Asset (Liability) | | | Net Asset (Liability) |
| | | Maturity | | | | | | Maturity | | | | | Maturity | | | | | | Maturity | | |
| | | Less Than | | Maturity | | Maturity | | in Excess | | Total Fair | | | Less Than | | Maturity | | Maturity | | in Excess | | Total Fair |
| | | 1 Year | | 1-3 Years | | 4-5 Years | | of 5 Years | | Value | | | 1 Year | | 1-3 Years | | 4-5 Years | | of 5 Years | | Value |
Source of Fair Value | Source of Fair Value | | | | | | | | | | | | | Source of Fair Value | | | | | | | | | | | | |
Prices based on significant observable inputs (Level 2) | Prices based on significant observable inputs (Level 2) | | $ | 166 | | $ | 11 | | $ | (2) | | $ | 5 | | $ | 180 | Prices based on significant observable inputs (Level 2) | | $ | (159) | | $ | (12) | | $ | 8 | | $ | 1 | | $ | (162) |
Prices based on significant unobservable inputs (Level 3) | Prices based on significant unobservable inputs (Level 3) | | | 12 | | | 21 | | | 4 | | | | | | 37 | Prices based on significant unobservable inputs (Level 3) | | | (21) | | | 4 | | | 1 | | | | | | (16) |
Fair value of contracts outstanding at the end of the period | Fair value of contracts outstanding at the end of the period | | $ | 178 | | $ | 32 | | $ | 2 | | $ | 5 | | $ | 217 | Fair value of contracts outstanding at the end of the period | | $ | (180) | | $ | (8) | | $ | 9 | | $ | 1 | | $ | (178) |
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.
(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. 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 SeptemberJune 30. See Notes 13 and 14 to the Financial Statements for additional information.
| | Gains (Losses) | | Gains (Losses) |
| | Three Months | | Nine Months | | Three Months | | Six Months |
| | 2013 | | 2012 | | 2013 | | 2012 | | 2014 | | 2013 | | 2014 | | 2013 |
| | | | | | | | | | | | | | | | |
Fair value of contracts outstanding at the beginning of the period | | $ | 18 | | $ | 17 | | $ | 29 | | $ | (4) | | $ | 31 | | $ | 15 | | $ | 11 | | $ | 29 |
Contracts realized or otherwise settled during the period | | (3) | | 17 | | (5) | | 16 | | (3) | | | | (3) | | (2) |
Fair value of new contracts entered into during the period (a) | | 12 | | 13 | | (4) | | 18 | | (5) | | (4) | | (18) | | (16) |
Other changes in fair value | | | 1 | | | (15) | | | 8 | | | 2 | | | 49 | | | 7 | | | 82 | | | 7 |
Fair value of contracts outstanding at the end of the period | | $ | 28 | | $ | 32 | | $ | ��28 | | $ | 32 | | $ | 72 | | $ | 18 | | $ | 72 | | $ | 18 |
(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 SeptemberJune 30, 2013,2014, based on the observability of the information used to determine the fair value.
| | Net Asset (Liability) | | Net Asset (Liability) |
| | Maturity | | | | | | Maturity | | | | Maturity | | | | | | Maturity | | |
| | Less Than | | Maturity | | Maturity | | in Excess | | Total Fair | | Less Than | | Maturity | | Maturity | | in Excess | | Total Fair |
| | 1 Year | | 1-3 Years | | 4-5 Years | | of 5 Years | | Value | | 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 | | $ | (2) | | $ | (19) | | | | $ | 3 | | $ | (18) |
Prices based on significant unobservable inputs (Level 3) | | | 2 | | | 4 | | | 1 | | $ | 3 | | | 10 | | | 4 | | | 29 | | $ | 36 | | | 21 | | | 90 |
Fair value of contracts outstanding at the end of the period | | $ | 10 | | $ | 12 | | $ | 3 | | $ | 3 | | $ | 28 | | $ | 2 | | $ | 10 | | $ | 36 | | $ | 24 | | $ | 72 |
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 ninesix months ended SeptemberJune 30, 20132014 was as follows.
| | | | | | 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 |
| | | | | | Non-Trading |
| | | Trading VaR | | VaR |
95% Confidence Level, Five-Day Holding Period | | | | | | |
| Period End | | $ | 9 | | $ | 15 |
| Average for the Period | | | 9 | | | 10 |
| High | | | 10 | | | 15 |
| Low | | | 8 | | | 5 |
The trading portfolio includes all proprietary trading positions, regardless of the delivery period. All positions not considered proprietary trading are considered non-trading. The non-trading portfolio includes the entire portfolio, including generation, with delivery periods through the next 12 months. Both the trading and non-trading VaR computations exclude FTRs due to the absence of reliable spot and forward markets. The fair value of the non-trading and trading FTR positions was insignificant at SeptemberJune 30, 2013.2014.
Interest Rate Risk (All Registrants)
The Registrants and their subsidiaries issue debt to finance their operations, which exposes them to interest rate risk. The Registrants and their subsidiaries utilize various financial derivative instruments to adjust the mix of fixed and floating interest rates in their debt portfolios, adjust the duration of their debt portfolios and lock in benchmark interest rates in anticipation of future financing, when appropriate. Risk limits under the risk management program are designed to balance risk exposure to volatility in interest expense and changes in the fair value of the debt portfolioportfolios due to changes in the absolute level of interest rates.
The following interest rate hedges were outstanding at September 30, 2013. |
| | | | | | | | | | | | |
The following interest rate hedges were outstanding at June 30, 2014. | | | | | | | Effect of a | | |
| | | | | Fair Value, | | 10% Adverse | | Maturities |
| | | Exposure | | Net - Asset | | Movement | | Ranging |
| | | Hedged | | (Liability) (a) | | in Rates (b) | | Through |
PPL | | | | | | | | | | | |
Cash flow hedges | | | | | | | | | | | |
| Interest rate swaps (c) | | $ | 2,264 | | $ | 68 | | $ | (92) | | 2044 |
| Cross-currency swaps (d) | | | 1,262 | | | 26 | | | (171) | | 2028 |
Economic activity | | | | | | | | | | | |
| Interest rate swaps (e) | | | 179 | | | (41) | | | (3) | | 2033 |
LKE | | | | | | | | | | | |
Cash flow hedges | | | | | | | | | | | |
| Interest rate swaps (c) | | | 500 | | | (14) | | | (36) | | 2043 |
Economic activity | | | | | | | | | | | |
| Interest rate swaps (e) | | | 179 | | | (41) | | | (3) | | 2033 |
LG&E | | | | | | | | | | | |
Cash flow hedges | | | | | | | | | | | |
| Interest rate swaps (c) | | | 250 | | | (7) | | | (18) | | 2043 |
Economic activity | | | | | | | | | | | |
| Interest rate swaps (e) | | | 179 | | | (41) | | | (3) | | 2033 |
KU | | | | | | | | | | | |
Cash flow hedges | | | | | | | | | | | |
| Interest rate swaps (c) | | | 250 | | | (7) | | | (18) | | 2043 |
| | | | | | | | | | | | |
| | | | | | | Effect of a | | |
| | | | | Fair Value, | | 10% Adverse | | Maturities |
| | | Exposure | | Net - Asset | | Movement | | Ranging |
| | | Hedged | | (Liability) (a) | | in Rates (b) | | Through |
PPL | | | | | | | | | | | |
Cash flow hedges | | | | | | | | | | | |
| Interest rate swaps (c) | | $ | 475 | | $ | (11) | | $ | (15) | | 2026 |
| Cross-currency swaps (d) | | | 1,262 | | | (48) | | | (177) | | 2028 |
Economic hedges | | | | | | | | | | | |
| Interest rate swaps (e) | | | 179 | | | (43) | | | (3) | | 2033 |
LKE and LG&E | | | | | | | | | | | |
Economic hedges | | | | | | | | | | | |
| Interest rate swaps (e) | | | 179 | | | (43) | | | (3) | | 2033 |
(a) | Includes accrued interest, if applicable. |
(b) | Effects of adverse movements decrease assets or increase liabilities, as applicable, which could result in an asset becoming a liability. Sensitivities represent a 10% adverse movement in interest rates, except for cross-currency swaps which also includes foreign currency exchange rates. |
(c) | Changes in the fair value of such cash flow hedges are recorded in equity or as regulatory assets or regulatory liabilities, if recoverable through rates. The changes in fair value of these instruments are thenregulated rates and reclassified into earnings in the same period during which the item being hedged affects earnings. |
(d) | Cross-currency swaps are utilized to hedge the principal and interest payments and principal of WPD's U.S. dollar-denominated senior notes. Changes in the fair value of these instruments are recorded in equity and reclassified into earnings in the same period during which the item being hedged affects earnings. |
(e) | Realized changes in the fair value of such economic hedges are recoverable through regulated rates and any subsequent changes in fair value of these derivatives are included in regulatory assets or regulatory liabilities. |
The Registrants are exposed to a potential increase in interest expense and to changes in the fair value of their debt portfolios. The estimated impact of a 10% adverse movement in interest rates at SeptemberJune 30, 20132014 is shown below.
| | | | | | PPL Energy | | | PPL | | | | | | | | | |
| | | PPL | | Supply | | | Electric | | LKE | | LG&E | | KU |
| | | | | | | | | | | | | | | | | | | |
Increase to interest expense of 10% | | Not | | Not | | | Not | | | Not | | | Not | | | Not |
| increase in interest rates | | Significant | | Significant | | | Significant | | Significant | | Significant | | | Significant |
Increase in fair value of 10% decrease | | | | | | | | | | | | | | | | | | |
| in interest rates | | $ | 682 | | $ | 50 | | $ | 120 | | $ | 111 | | $ | 26 | | $ | 67 |
| | | | | | PPL Energy | | | PPL | | | | | | | | | |
| | | PPL | | Supply | | | Electric | | LKE | | LG&E | | KU |
| | | | | | | | | | | | | | | | | | | |
Increase in interest | | Not | | Not | | Not | | Not | | Not | | Not |
| expense | | Significant | | Significant | | Significant | | Significant | | Significant | | Significant |
Increase in fair value | | | | | | | | | | | | | | | | | | |
| of debt | | $ | 768 | | $ | 45 | | $ | 135 | | $ | 141 | | $ | 44 | | $ | 83 |
Foreign Currency Risk (PPL)
PPL is exposed to foreign currency risk, primarily through investments in U.K. affiliates. In addition, PPL's domestic operations may make purchases of equipment in currencies other than U.S. dollars.
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.
The following foreign currency hedges were outstanding at SeptemberJune 30, 2013.2014.
| | | | | | | Effect of a | | | | | | | | | Effect of a | | |
| | | | | | | 10% | | | | | | | | | 10% | | |
| | | | | | | Adverse | | | | | | | | | Adverse | | |
| | | | | | | Movement | | | | | | | | | Movement | | |
| | | | | | | in Foreign | | | | | | | | | in Foreign | | |
| | | | | Fair Value, | | Currency | | Maturities | | | | | Fair Value, | | Currency | | Maturities |
| | | Exposure | | Net - Asset | | Exchange | | Ranging | | | Exposure | | Net - Asset | | Exchange | | Ranging |
| | | Hedged | | (Liability) | | Rates (a) | | Through | | | Hedged | | (Liability) | | Rates (a) | | Through |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net investment hedges (b) | Net investment hedges (b) | | £ | 320 | | $ | (11) | | $ | (51) | | 2015 | Net investment hedges (b) | | £ | 306 | | $ | (27) | | $ | (52) | | 2016 |
Economic activity (c) | | 1,350 | | | (55) | | | (208) | | 2015 | |
Economic hedges (c) | | Economic hedges (c) | | 1,750 | | | (147) | | | (285) | | 2016 |
(a) | Effects of adverse movements decrease assets or increase liabilities, as applicable, which could result in an asset becoming a liability. |
(b) | To protect the value of a portion of its net investment in WPD, PPL executes forward contracts to sell GBP. The positions outstanding exclude the amount of intercompany loans classified as net investment hedges. See Note 14 to the Financial Statements for additional information. |
(c) | To economically hedge the translation of expected incomeearnings 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 SeptemberJune 30, 2013,2014, these funds were invested primarily in domestic equity securities and fixed-rate, fixed-income securities and are reflected at fair value on the Balance 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 SeptemberJune 30, 2013,2014, a hypothetical 10% increase in interest rates and a 10% decrease in equity prices would have resulted in an estimated $60$70 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 2012the Registrants' 2013 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 lossgain of $159$140 million for the ninesix months ended SeptemberJune 30, 2013,2014, which primarily reflected a $454$349 million reductionincrease to PP&E and goodwill offset by a reductionan increase of $295$209 million to net liabilities. Changes in this exchange rate resulted in a foreign currency translation gainloss of $53$269 million for the ninesix months ended SeptemberJune 30, 2012,2013, which primarily reflected a $123$714 million increasereduction to PP&E and goodwill offset by an increasea reduction of $70$445 million to net liabilities. The impact of foreign currency translation is recorded in AOCI.
Related Party Transactions (All Registrants)
The Registrants are not aware of any material ownership interests or operating responsibility by senior management of the Registrants in outside partnerships, including leasing transactions with variable interest entities, or other entities doing business with the Registrants.
See Note 11 to the Financial Statements for additional information on related party transactions for PPL Energy Supply, PPL Electric, LKE, LG&E and KU.
Acquisitions, Development and Divestitures
(All Registrants)
The Registrants from time to time evaluate opportunities for potential acquisitions, divestitures and development projects. Development projects are reexamined based on market conditions and other factors to determine whether to proceed with the projects, sell, cancel or expand them, execute tolling agreements or pursue other options. See Note 8 to the Financial Statements for information on the more significant activities.
(PPL and PPL Energy Supply)
See Note 8 to the Financial Statements for information on the anticipated spinoff of PPL Energy Supply.
(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 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.changed. Costs may take the form of increased capital expenditures or operating and maintenance expenses, monetary fines, penalties or other restrictions. Many of these environmental law considerations are also applicable to the operations of key suppliers, or customers, such as coal producers and industrial power users, and may impact the costscost for their products or their demand for the Registrants' services.
The following is a discussion of the more significant environmental matters. See Note 10 to the Financial Statements in this Form 10-Q and "Item 1. Business - Environmental Matters" in the Registrants' 20122013 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 the Registrants' generation assets, electricity transmission and distributiondelivery systems, as well as impacts on the Registrants' customers. In addition, changed weather patterns could potentially reduce annual rainfall in areas where PPL, PPL Energy Supply, LKE, LG&E and KU have hydroelectric generating facilities or where river water is used to cool their fossil and nuclear (as applicable) powered generators. The Registrants cannot currently predict whether their businesses will experience these potential climate change-related risks or estimate the potential cost of their related consequences.
In June 2013, President Obama released his Climate Action Plan which reiterates the goal of reducing GHG emissions in the U.S. through such actions as regulating power plant emissions, promoting increased use of renewables and clean energy technology, and establishing tighter energy efficiency standards. Also, by Presidential Memorandum, the EPA was directed to issue a revised proposal for new power plants (a prior proposal was issued in 2012) by September 20, 2013, with a final rule 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 30, 2016.
The EPA's revised proposal for new sources was published in the Federal Register on January 8, 2014. The proposed limits for coal plants can only be achieved through carbon capture and sequestration, a technology that is not presently commercially viable and, therefore, effectively preclude the construction of new coal plants. The proposed standards for new gas plants may also not be continuously achievable.
The EPA's proposed regulation addressing GHG emissions from existing power plants was published in the Federal Register on June 18, 2014, making the comment deadline October 16, 2014. The proposal contains very stringent, state-specific rate-based reduction goals to be achieved in two phases (2020-2029 and 2030 and beyond). The EPA believes it has offered some flexibility to the states as to how state plans can be crafted, including the option to demonstrate compliance on a mass basis or through a multi-state collaboration, however, the EPA's proposed broad definition of the "best system of emission reduction" (BSER) substantially limits this flexibility. PPL is analyzing the proposal and potential impacts in preparation for submitting comments to the agency by the October 16, 2014 deadline. The regulation of GHG emissions from existing plants could have a significant industry-wide impact depending on the structure and stringency of the final rule and state implementation plans.
The Administration's increase in its estimate of the "social cost of carbon" (which is used to calculate benefits associated with proposed regulations) from $23.80 to $38 per metric ton in 2015 may lead to more costly regulatory requirements. The White House Office of Management and Budget opened this issue for public comment and PPL submitted comments.
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 modifications to electricity delivery systems to improve the ability to withstand major storms may be needed in order to meet those requirements.
Waters of the United States
On April 21, 2014, the EPA and the U.S. Army Corps of Engineers published a proposed rule which greatly expands the Clean Water Act definition of Waters of the United States. Comments are due by October 20, 2014. If the definition is expanded as proposed, permits and other regulatory requirements may be imposed for many matters presently not covered (including vegetation management for transmission lines and activities affecting storm water conveyances and wetlands), the implications of which could be significant. Both the U.S. House and Senate are considering legislation to block this regulation.
(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 waste) under existing solid waste regulations. ARCRA. Under a litigation settlement agreement involving certain environmental groups, the EPA has agreed to issue its final rulemaking is currently expected by the end of 2014, as a result of litigation by environmental groups.December 2014. Regulations could impact handling, disposal and/or beneficial use of CCRs. Recent ash spills that have occurred within the utility industry may precipitate more stringent regulation of both active and legacy CCR sites. The financial and operational impact 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.non-hazardous.
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 authorizerules governing state permit programs. It remains uncertain whether similar legislation will likelywould be passed by the U.S. Senate.
Effluent Limitation Guidelines (ELGs)
In June 2013, the EPA published proposed regulations to revise discharge limitations for steam electric generation wastewater permits. The proposed limitations are based on the EPA review of available treatment technologies and their capacity for reducing pollutants and include new requirements for fly ash and bottom ash transport water and metal cleaning waste waters, as well as new limits for scrubber wastewater and landfill leachate. The EPA's proposed ELG regulations also contain some requirements that would affect the inspection and operation of CCR facilities, if finalized.finalized as proposed. The proposal contains several alternative approaches, some of which could significantly impact PPL's, PPL Energy Supply's, LKE's, LG&E's and KU's coal-fired plants. PPL, PPL Energy Supply, LKE, LG&E and KU worked with industry groups to comment on the proposed regulation on September 20, 2013. The final regulation is expected in May 2014.to be issued by September 2015, which is contingent upon the EPA meeting its deadline for issuing the final CCR regulation. At the present time, PPL, PPL Energy Supply, LKE, LG&E and KU are unable to predict the outcome of this matter or estimate a range of reasonably possible costs, but the costs could be significant. Pending finalization of the ELGs, certain states (including Pennsylvania and Kentucky) and environmental groups are proposing more stringent technology-based limits in permit renewals. Depending on the final limits imposed, the costs of compliance could be significant and costs could be imposed ahead of federal timelines.
140Clean Water Act/316(b)
316(b) Cooling Water Intake Structure Rule
In April 2011,On May 19, 2014, the EPA published a draft regulationissued its final rule under Section 316(b) of the Clean Water Act,Act. It will become effective upon publication which regulatesis expected in July. The regulation applies to nearly all PPL-owned steam electric generation plants in Pennsylvania, Kentucky, and Montana, even those equipped with closed-cycle cooling water intakes for power plants.systems. The draft rule has two provisions: requiring installation ofrequires Best Technology Available (BTA) to reduce mortality of aquatic organisms that are pulled into the plant cooling water system (entrainment), and imposingimposes standards for reduction of mortality of aquatic organisms trapped on water intake screens (impingement). A finalFor some plants, studies required by the rule is expectedwill be used to determine the proper technology for compliance. PPL, PPL Energy Supply, LKE, LG&E and KU are evaluating compliance strategies but do not presently expect the compliance costs to be issued in November 2013. The proposed regulation would apply to nearly all PPL-owned steam electric generation plants in Pennsylvania, Kentucky, and Montana, potentially even including those equipped with closed-cycle cooling systems. PPL's, PPL Energy Supply's, LKE's, LG&E's and KU'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.material.
MATS
TheIn February 2012, 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 beingwhich was challenged by industry groups and states.states, was upheld by the D.C. Circuit Court in April 2014. 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 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. The Corette plant asset group was determined to be impaired in December 2013. See "Application of Critical Accounting Policies - Asset Impairment (Excluding Investments)" in PPL's and PPL Energy Supply's 2013 Form 10 K for additional information. Also, LG&E, KU and PPL hasEnergy Supply have received approval for two compliance extensions for certain plants in Kentucky and has requested an extension for one of its plants in Pennsylvania. OtherPennsylvania and are considering extension requests are under consideration.for additional plants.
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 1LG&E's 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.
TheKU's anticipated retirements of certain coal-fired electricity generating units at the Cane Run and Green River plants are in response to thisMATS and other environmental regulations.
CSAPR and CAIR
In 2011, the EPA finalized its CSAPR regulating emissions of 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 U.S. In December 2011, the U.S. Court of Appeals for the District of Columbia Circuit (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 in the interim, and in June 2013interim. On April 29, 2014, the U.S. Supreme Court granted the EPA's petition for review ofreversed and remanded the D.C. Circuit Court's decision. Oral argument beforeAugust 2012 decision which may result in new or revised emission reduction requirements, including the U.S. Supreme Court has been scheduled for December 2013. Prior to a revised rule frompossible replacement of the CAIR program with CSAPR, depending on future determinations by the EPA coal-fired generating plants could face tighter nitrous oxide emission limitations through state action.and the courts. PPL, PPL Energy Supply, LKE, LG&E and KU do not currently anticipate that the costs of meeting CSAPR requirements will be significant.
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 includingthrough the application, among other things, 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,requirements for sulfur dioxide and nitrogen oxides. Although the August 2012 decision by the D.C. Circuit Court to vacate and remand CSAPR exposeshas been reversed by the U.S. Supreme Court, future decisions by EPA and the courts will determine whether power plants located in the eastern U.S., including PPL Energy Supply's plants in Pennsylvania and PPL'sLG&E's and KU's plants in Kentucky, will be subject to further reductions in sulfur dioxide and nitrogen oxides as required by BART.those pollutants in accordance with BART requirements.
The EPA signed its final Federal Implementation Plan (FIP) 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'sthe 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). Both PPL is participating in litigation regarding this matter beforeand environmental groups have appealed the final FIP to the U.S. Court of Appeals for the Ninth Circuit.Circuit and oral arguments occurred in May 2014.
National Ambient Air Quality Standards
In 2008, the EPA revised the National Ambient Air Quality Standard for ozone. As a result, states in the ozone transport region (OTR), including Pennsylvania, are required by the Clean Air Act to impose additional reductions in nitrogen oxide emissions based upon reasonably available control technologies. The PADEP has issued a draft rule requiring reasonable reductions. However, the proposal is being questioned as too lenient by the EPA, other OTR states and environmental groups. The PADEP may impose more stringent emission limits than those set forth in the proposed rule which could have a significant impact on PPL Energy Supply's Pennsylvania coal plants.(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.2014. 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. States are working on designations for other areas according to the timeline outlined in the EPA's Data Requirements Rule issued in April 2014.
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 an understanding of the reported financial condition or results of operations, and require management to make estimates or other judgments of matters that are inherently uncertain. See "Item 7. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations" in each Registrant's 2012the Registrants' 2013 Form 10-K for a discussion of each critical accounting policy.
| | | | | | PPL | | PPL | | | | | | | | | |
| | | PPL | | Energy Supply | | Electric | | LKE | | LG&E | | KU |
| | | | | | | | | | | | | | | | | | |
Defined Benefits | | X | | X | | X | | X | | X | | X |
Loss Accruals | | X | | X | | X | | X | | X | | X |
Income Taxes | | X | | X | | X | | X | | X | | X |
Asset Impairments (Excluding Investments) | | X | | X | | | | X | | X | | X |
AROs | | X | | X | | | | X | | X | | X |
Price Risk Management | | X | | X | | | | X | | X | | X |
Regulatory Assets and Liabilities | | X | | | | X | | X | | X | | X |
Revenue Recognition - unbilled revenue | | | | | | | | X | | X | | X | | X |
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 "Item 2. Combined 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' principal executive officers and principal financial officers, based on their evaluation of the Registrants' disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934) have concluded that, as of SeptemberJune 30, 2013,2014, the Registrants' disclosure controls and procedures are effective to ensure that material information relating to the Registrants and their consolidated subsidiaries is recorded, processed, summarized and reported within the time periods specified by the SEC's rules and forms, particularly during the period for which this 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 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' internal control over financial reporting during the Registrants' thirdsecond fiscal quarter that have materially affected, or are reasonably likely to materially affect, the 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
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 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 20122013 Form 10-K; and |
| · | | Notes 5, 6 and 10 to the Financial Statements. |
PPL Corporation and PPL Energy Supply, LLC
The proposed spinoff of PPL Energy Supply and combination with RJS Power are contingent upon the satisfaction of a number of conditions and may present difficulties that could have an adverse effect on us.
The proposed spinoff of the business of PPL Energy Supply and the subsequent combination with RJS Power to form Talen Energy are complex transactions, subject to various conditions, and may be affected by unanticipated developments or changes in market conditions. We expect Talen Energy to file a registration statement with the SEC that will contain detailed information regarding Talen Energy. Completion of the proposed spinoff of PPL Energy Supply and subsequent combination with RJS Power will be contingent upon a number of factors, including that (i) PPL receives a favorable opinion of tax counsel as described below; (ii) the SEC declares effective Talen Energy's registration statement relating to the registration of Talen Energy common stock and no SEC stop order suspending effectiveness of the registration statement be in effect prior to the PPL Energy Supply spinoff; (iii) the Talen Energy common stock be authorized for listing on the New York Stock
Exchange; (iv) certain regulatory approvals, including approval by the NRC and the FERC, a Hart-Scott-Rodino review and certain approvals by the PUC be obtained and (v) there be available, subject to certain conditions, at least $1 billion of undrawn capacity after excluding any letters of credit or other credit support measures posted in connection with energy marketing and trading transactions then outstanding, under a Talen Energy (or its subsidiaries) revolving credit or similar facility. The spinoff and subsequent combination with RJS Power may be terminated by mutual written consent of the parties or subject to certain other circumstances, including the failure to complete these transactions by June 30, 2015 or, if the required regulatory approvals have not been obtained at such time but the other conditions to the consummation of these transactions have been or are capable of being satisfied, December 31, 2015. For these and other reasons, the spinoff and the subsequent combination may not be completed on the terms or within the expected timeframe that we announced, if at all. Further, if the spinoff and the subsequent combination are completed, such transactions may not achieve the intended results.
If the proposed spinoff of the business of PPL Energy Supply does not qualify as a tax-free spinoff under Section 355 of the Internal Revenue Code of 1986, as amended (the "Code"), including as a result of subsequent acquisitions of stock of PPL or Talen Energy, then PPL and/or its shareowners may be required to pay substantial U.S. federal income taxes.
The proposed spinoff of the business of PPL Energy Supply and the subsequent combination with RJS Power are conditioned upon PPL's receipt of an opinion of tax counsel to the effect that, among other matters, the spinoff will qualify as tax-free under Section 355 of the Code to PPL and its shareowners for U.S. federal income tax purposes. Receipt of the opinion of tax counsel will satisfy a condition to completion of the spinoff and subsequent combination. An opinion of tax counsel is not binding on the IRS. Accordingly, the IRS may reach conclusions with respect to the spinoff that are different from the conclusions reached in the opinion. PPL is not aware of any facts or circumstances that would cause the factual statements or representations on which the opinion will be based to be materially different from the facts at the time of the spinoff. If, notwithstanding the receipt of the opinion of tax counsel, the IRS were to determine the spinoff to be taxable, PPL would, and its shareowners may, depending on their individual circumstances, recognize a tax liability that could be substantial.
In addition, the spinoff will be taxable to PPL pursuant to Section 355(e) of the Code if there is a 50% or more change in ownership of either PPL or Talen Energy, directly or indirectly, as part of a plan or series of related transactions that include the spinoff. Because PPL's shareowners will collectively own more than 50% of Talen Energy's common stock following the spinoff and subsequent combination, the combination alone will not cause the spinoff to be taxable to PPL under Section 355(e) of the Code. However, Section 355(e) of the Code might apply if acquisitions of stock of PPL before or after the spinoff, or of Talen Energy after the combination, are considered to be part of a plan or series of related transactions that include the spinoff. PPL is not aware of any such plan or series of transactions that include the spinoff.
PPL may not be successful in realizing the full amount of annual savings anticipated to be available as a result of the proposed spinoff of PPL Energy Supply.
In connection with the spinoff of PPL Energy Supply, and following any required transition services period, PPL is targeting to reduce its annual corporate support costs by an estimated $185 million. This includes $110 million of corporate support costs to be transferred to Talen Energy and $75 million from workforce reductions and other corporate cost savings. If for any reason PPL cannot realize all or a significant portion of the $75 million corporate cost savings it could have an adverse effect on PPL's results of operations, including PPL's ability to maintain or increase its dividend to shareowners.
PPL Electric Utilities Corporation, LG&E and KU Energy LLC, Louisville Gas and Electric Company and Kentucky Utilities Company
There have been no material changes in the Registrants' risk factors from those disclosed in "Item 1A. Risk Factors" of the 20122013 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 OctoberOn July 31, 2013,2014, the Board of Directors (Board) of PPL Electric amended and restated its Articleselected Rodney C. Adkins a director of Incorporation and Bylaws, copiesPPL, effective August 1, 2014, for a term expiring at PPL's Annual Meeting of which are filedShareowners in 2015.
Mr. Adkins will retire from International Business Machines Corporation (IBM) at the end of 2014 after more than 33 years of service for that company. Mr. Adkins is currently serving as exhibits 3(a) and 3(b), respectively, to this report.Senior Vice President with a focus on special corporate
projects and key client relationships. Until April 2014, Mr. Adkins served as Senior Vice President for Corporate Strategy since 2013, leading continuous transformation and developing strategies and plans linked to a new era of computing, new markets and new clients for IBM. Prior to that, since 2009, Mr. Adkins was Senior Vice President of IBM's Systems and Technology Group (STG), and prior to that, since 2007, Mr. Adkins served as Senior Vice President of IBM's STG development and manufacturing.
Mr. Adkins serves on the boards of United Parcel Service, Inc., W. W. Grainger, Inc., the national board of the Smithsonian Institution and the board of directors of the National Action Council for Minorities in Engineering. The Board expects to appoint Mr. Adkins as a member of the Board's Audit Committee in 2015. The Board has determined that Mr. Adkins satisfies the requirements for "independence" as set forth in PPL's Independence Guidelines and the applicable rules of the New York Stock Exchange. Mr. Adkins is 55 years old.
As a non-employee director, Mr. Adkins will receive the same compensation paid to other non-employee directors of PPL in accordance with the policies and procedures previously approved by the Board for non-employee directors. There were no arrangements or understandings pursuant to which Mr. Adkins was elected, nor are there any relationships or related transactions between PPL and Mr. Adkins to be disclosed under applicable rules of the Securities and Exchange Commission.
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.
1(a)
| -
| Final Terms of the WPD West Midlands £400 million 3.875% Senior Unsecured Notes due October 17, 2024 (Exhibit 1.1 to PPL Corporation Form 8-K Report (File No. 1-11459) dated October 18, 2013)
|
1(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 SaleSeparation Agreement by and betweenamong PPL Montana,Corporation, Talen Energy Holdings, Inc., Talen Energy Corporation, PPL Energy Supply, LLC, Raven Power Holdings LLC, C/R Energy Jade, LLC and NorthWestern Corporation,Sapphire Power Holdings LLC., dated as of September 26, 2013June 9, 2014 (Exhibit 2.1 to PPL CorporationEnergy Supply, LLC Form 8-K Report (File No. 1-11459)1-32944) dated September 27, 2013)June 12, 2014)
|
2(b) | - | Lease TerminationTransaction Agreement byamong PPL Corporation, Talen Energy Holdings, Inc., Talen Energy Corporation, PPL Energy Supply, LLC, Talen Energy Merger Sub, Inc., C/R Energy Jade, LLC, Sapphire Power Holdings LLC. and between PPL Montana, LLC, Montana OL3 LLC and Montana OP3Raven Power Holdings LLC, dated as of September 26, 2013June 9, 2014 (Exhibit 2.2 to PPL CorporationEnergy Supply, LLC Form 8-K Report (File No. 1-11459)1-32944) dated September 27, 2013)June 12, 2014)
|
2(c)4(a)
| - | Lease Termination Agreement by and between PPL Montana, LLC, Montana OL4 LLC and Montana OP4 LLC,Supplemental Indenture No. 16, dated as of September 26, 2013June 1, 2014, of PPL Electric Utilities Corporation to The Bank of New York Mellon, as Trustee (Exhibit 2.34(a) to PPL Electric Utilities Corporation Form 8-K Report (File No. 1-11459)1-905) dated September 27, 2013)June 5, 2014)
|
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)
|
| -
| 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)[_]10(a)
| - | Amendment No. 105 to Employee Stock OwnershipExecutive Deferred Compensation Plan, dated September 16, 2013as of May 8, 2014 |
4(b)10(b)
| - | Employee Matters Agreement among PPL Corporation, Talen Energy Corporation, C/R Energy Jade, LLC, Sapphire Power Holdings LLC. and Raven Power Holdings LLC, dated as of June 9, 2014 (Exhibit 10.1 to PPL Energy Supply, LLC Form 8-K Report (File No. 1-32944) dated June 12, 2014) |
| - | First Amendment, dated as of July 22, 2014, to Amended and Restated Trust Deed,Letter of Credit Issuance and Reimbursement Agreement, dated September 10,as of August 30, 2013, by and between PPL Energy Supply, LLC and Canadian Imperial Bank of Commerce, New York Agency |
| - | $300,000,000 Revolving Credit Agreement, dated as of July 28, 2014, among Western Power Distribution (East Midlands) plc, Western Power Distribution (West Midlands) plc,PPL Capital Funding, Inc., as the Borrower, PPL Corporation, as the Guarantor, the Lenders from time to time party thereto and Wells Fargo Bank, National Association, as Administrative Agent, Issuing Lender and Swingline Lender |
| - | $300,000,000 Amended and Restated Revolving Credit Agreement, dated as of July 28, 2014, among PPL Electric Utilities Corporation, as the Borrower, the Lenders from time to time thereto and Wells Fargo Bank, National Association, as Administrative Agent, Issuing Lender and Swingline Lender |
| - | $400,000,000 Amended and Restated Revolving Credit Agreement, dated as of July 28, 2014, among Kentucky Utilities Company, as the Borrower, the Lenders from time to time thereto and Wells Fargo Bank, National Association, as Administrative Agent, Issuing Lender and Swingline Lender |
| - | $500,000,000 Amended and Restated Revolving Credit Agreement, dated as of July 28, 2014, among Louisville Gas and Electric Company, the Lenders from time to time party thereto and Wells Fargo Bank, National Association, as Administrative Agent, Issuing Lender and Swingline Lender |
| - | Amendment and Restatement Agreement, dated July 29, 2014, between Western Power Distribution (South West) plc and the banks party thereto, as Bookrunners and Mandated Lead Arrangers, HSBC Bank plc and Mizuho Bank, Ltd., as Joint Coordinators, and Mizuho Bank, Ltd., as Facility Agent, relating to the £245,000,000 Multicurrency Revolving Credit Facility Agreement originally dated January 12, 2012 |
| - | Amendment and Restatement Agreement, dated July 29, 2014, between Western Power Distribution (South Wales)(East Midlands) plc and the banks party thereto,as Issuers,Bookrunners and Mandated Lead Arrangers, HSBC Corporate Trustee Company (UK)Bank plc and Mizuho Bank Ltd., as Joint Coordinators, and Bank of America Merrill Lynch International Limited, as Note Trustee (Exhibit 4.1Facility Agent, relating to PPL Corporation Form 8-K Report (File No. 1-11459)the £300,000,000 Multicurrency Revolving Credit Facility Agreement originally dated October 18, 2013)April 4, 2011 |
| - | Amendment and Restatement Agreement, dated July 29, 2014, between Western Power Distribution (West Midlands) plc and the banks party thereto, as Bookrunners and Mandated Lead Arrangers, HSBC Bank plc and Mizuho Bank Ltd., as Joint Coordinators, and Bank of America Merrill Lynch International Limited, as Facility Agent, relating to the £300,000,000 Multicurrency Revolving Credit Facility Agreement originally dated April 4, 2011 |
| - | PPL Corporation and Subsidiaries Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends |
| - | PPL Energy Supply, LLC and Subsidiaries Computation of Ratio of Earnings to Fixed Charges |
| - | PPL Electric Utilities Corporation and Subsidiaries Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends |
| - | LG&E and KU Energy LLC and Subsidiaries Computation of Ratio of Earnings to Fixed Charges |
| - | Louisville Gas and Electric Company Computation of Ratio of Earnings to Fixed Charges |
| - | Kentucky Utilities Company Computation of Ratio of Earnings to Fixed Charges |
| | |
Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, for the quarterly period ended SeptemberJune 30, 2013,2014, filed by the following officers for the following companies: |
| | |
| - | PPL Corporation's principal executive officer |
| - | PPL Corporation's principal financial officer |
| - | PPL Energy Supply, LLC's principal executive officer |
| - | PPL Energy Supply, LLC's principal financial officer |
| - | PPL Electric Utilities Corporation's principal executive officer |
| - | PPL Electric Utilities Corporation's principal financial officer |
| - | LG&E and KU Energy LLC's principal executive officer |
| - | LG&E and KU Energy LLC's principal financial officer |
| - | Louisville Gas and Electric Company's principal executive officer |
| - | Louisville Gas and Electric Company's principal financial officer |
| - | Kentucky Utilities Company's principal executive officer |
| - | Kentucky Utilities Company's principal financial officer |
| | |
Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, for the quarterly period ended SeptemberJune 30, 2013,2014, furnished by the following officers for the following companies: |
| | |
| - | PPL Corporation's principal executive officer and principal financial officer |
| - | PPL Energy Supply, LLC's principal executive officer and principal financial officer |
| - | PPL Electric Utilities Corporation's principal executive officer and principal financial officer |
| - | LG&E and KU Energy LLC's principal executive officer and principal financial officer |
| - | Louisville Gas and Electric Company's principal executive officer and principal financial officer |
| - | Kentucky Utilities Company's principal executive officer and principal financial officer |
| | |
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 |
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: November 1, 2013July 31, 2014 | /s/ Vincent SorgiStephen K. Breininger | |
| Vincent SorgiStephen K. Breininger | |
| Vice President and Controller | |
| (Principal Accounting Officer) | |
| | |
| | |
| | |
| PPL Electric Utilities Corporation |
| (Registrant) | |
| | |
| | |
| | |
Date: November 1, 2013July 31, 2014 | /s/ Dennis A. Urban, Jr. | |
| Dennis A. Urban, Jr. | |
| 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: November 1, 2013July 31, 2014 | /s/ Kent W. Blake | |
| Kent W. Blake Chief Financial Officer | |
| (Principal Financial Officer and Principal Accounting Officer) | |
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