UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 | |
| FORM 10-Q | |
| [X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended March 31, |
| OR | |
| [ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from _________ to ___________ |
Commission File Number | Registrant; State of Incorporation; Address and Telephone Number | IRS Employer Identification No. |
| 1-11459 | PPL Corporation (Exact name of Registrant as specified in its charter) (Pennsylvania) Two North Ninth Street Allentown, PA 18101-1179 (610) 774-5151 | 23-2758192 |
PPL Electric Utilities Corporation (Exact name of Registrant as specified in its charter) (Pennsylvania) Two North Ninth Street Allentown, PA 18101-1179 (610) 774-5151 | ||
| 23-0959590 | ||
| 333-173665 | LG&E and KU Energy LLC (Exact name of Registrant as specified in its charter) (Kentucky) 220 West Main Street Louisville, KY 40202-1377 (502) 627-2000 | 20-0523163 |
| 1-2893 | Louisville Gas and Electric Company (Exact name of Registrant as specified in its charter) (Kentucky) 220 West Main Street Louisville, KY 40202-1377 (502) 627-2000 | 61-0264150 |
| 1-3464 | Kentucky Utilities Company (Exact name of Registrant as specified in its charter) (Kentucky and Virginia) One Quality Street Lexington, KY 40507-1462 (502) 627-2000 | 61-0247570 |
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 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 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 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 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, | |
| PPL Electric Utilities Corporation | Common stock, no par value, 66,368,056 shares outstanding and all held by PPL Corporation at April | |
| LG&E and KU Energy LLC | PPL Corporation directly holds all of the membership interests in LG&E and KU Energy LLC. | |
| Louisville Gas and Electric Company | Common stock, no par value, 21,294,223 shares outstanding and all held by LG&E and KU Energy LLC at April | |
| Kentucky Utilities Company | Common stock, no par value, 37,817,878 shares outstanding and all held by LG&E and KU Energy LLC at April |
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 ELECTRIC UTILITIES CORPORATION
LG&E ANDand KU ENERGYEnergy LLC
Louisville Gas and Electric Company
Kentucky Utilities Company
FORM 10-Q
FOR THE QUARTER ENDED MARCHMarch 31, 2014
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 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.
| Page | |||||||
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| 1 | |||||||
| PART I. FINANCIAL INFORMATION | |||||||
| Item 1. Financial Statements | |||||||
| PPL Corporation and Subsidiaries | |||||||
| Condensed Consolidated Statements of Income | 3 | ||||||
| 4 | |||||||
| 5 | |||||||
| 6 | |||||||
| 8 | |||||||
| PPL Electric Utilities Corporation and Subsidiaries | |||||||
| Condensed Consolidated Statements of Income | 10 | ||||||
| 11 | |||||||
| 12 | |||||||
| 14 | |||||||
| LG&E and KU Energy LLC and Subsidiaries | |||||||
| Condensed Consolidated Statements of Income | 16 | ||||||
| 17 | |||||||
| 18 | |||||||
| 20 | |||||||
| Louisville Gas and Electric Company | |||||
| Kentucky Utilities Company | |||||
| Combined Notes to Condensed Financial Statements (Unaudited) | |||||||||
| 34 | |||||||||
| 4. Earnings Per Share | 35 | ||||||||
| 5. Income Taxes | 36 | ||||||||
| 6. Utility Rate Regulation | 37 | ||||||||
| 7. Financing Activities | 40 | ||||||||
| 42 | |||||||||
| 59 | |||||||||
| 14. Derivative Instruments and Hedging Activities | 65 | ||||||||
| Item 2. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations | |||||||||
| 80 | |||||||||
| Introduction | 80 | ||||||||
| Business Strategy | 82 | ||||||||
| Financial and Operational Developments | 83 | ||||||||
| PPL Corporation and Subsidiaries - Earnings | 83 | ||||||||
| 2015 Outlook | 84 | ||||||||
| Other Financial and Operational Developments | 85 | ||||||||
| Results of Operations | 87 | ||||||||
| 101 | |||||||||
| Liquidity and Capital Resources | 101 | ||||||||
| Risk Management | 106 | ||||||||
| Foreign Currency Translation | 110 | ||||||||
| 110 | |||||||||
| New Accounting Guidance | |||||||||
| PART II. OTHER INFORMATION | ||||||
PPL Corporation and its subsidiaries
KU - Kentucky -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
LKS
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 electricity supply to its retail customers in this area as a PLR.
PPL Energy Funding - PPL Energy Funding Corporation, a subsidiary of PPL and the parent holding company of PPL 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 EU Services
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 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 WEMWPD Ltd - PPL WEM Holdings Limited (formerly PPL WEM Holdings plc), an indirect U.K. subsidiary of PPL Global. PPL WEM indirectly owns both WPD (East Midlands)Ltd holds a liability for a closed defined benefit pension plan and a receivable with WPD (West Midlands).
PPL WW - PPL WW Holdings Limited, an indirect U.K. subsidiary of PPL Global. PPL WW Holdings indirectly owns WPD (South Wales) and WPD (South West).
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Subsidiary Registrant(s) - Registrants that are direct or indirect wholly owned subsidiaries of PPL: PPL Energy Supply, PPL Electric, LKE, LG&E and KU.
WPD - refers to WPD Ltd and its subsidiaries together with a sister company PPL WW and PPL WEM and their subsidiaries.
WPD (East Midlands) - Western Power Distribution (East Midlands) plc, a British regional electricity distribution utility company.
WPD Ltd
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.
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.
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 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
CAIR - the EPA's Clean Air Interstate Rule.
CCRCCR(s) - Coal Combustion Residuals.Residual(s). CCRs include fly ash, bottom ash and sulfur dioxide scrubber wastes.
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Clean Air Act - federal legislation enacted to address certain environmental issues related to air emissions, including acid rain, ozone and toxic air emissions.
COBRA -
CSAPR
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.
DOJ
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. 5-yearfive-year rate review period applicable to WPD that commenced April 1, 2010.
DRIP - Dividend Reinvestment and Direct Stock Purchase Plan.
DSIC - the distribution system improvement chargeDistribution 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 costs and revenues lost by implementing DSM 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 that apply to coal combustion wastes and by-products from the production of energy from coal.
EEI -Edison 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.Institute,
EPA - Environmental Protection Agency, a U.S. government agency.
EPS - earnings per share.
Equity UnitsUnit(s) - refers collectively toa PPL equity unit, issued in April 2011, consisting of a 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.
ERCOT - the 2011Electric Reliability Council of Texas, operator of the electricity transmission network and 2010 Equity Units.electricity energy market in most of Texas.
ESOPE.W. Brown- 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
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, known as source and sink.
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GAAP - Generally Accepted Accounting Principles in the U.S.
GBPGBP - 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.
IBEWHoldco- - International BrotherhoodTalen Energy Holdings, Inc., a Delaware Corporation, which was formed for the purposes of Electrical Workers.
If-Converted Method- A method applied to calculate diluted EPS for a company with outstanding convertible debt. The method is applied as follows: Interest charges (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 to PPL's Equity Units prior to settlement.
Intermediate and peaking generation- includes the output provided by PPL's oil- and natural gas-fired units.
IRSIronwood Facility - a natural gas combined-cycle unit in Lebanon, Pennsylvania with a summer rating of 660 MW.
IRS- Internal Revenue Service, a U.S. government agency.
ISO
KPSC
LIBOR
LTIIPMATS- Long Term Infrastructure Improvement Plan.
MDEQ
MEIC
MMBtu
Montana Power - The Montana Power Company, a Montana-based company that sold its generating assets to PPL Montana in December 1999. Through a series of transactions consummated during the first quarter of 2002, Montana Power sold its electricity delivery business to NorthWestern.
Moody's - Moody's Investors Service, Inc., a credit rating agency.
MW - megawatt, one thousand kilowatts.
MWh - megawatt-hour, one thousand kilowatt-hours.
NDT - PPL Susquehanna's nuclear plant decommissioning trust.
NERC - North American Electric Reliability Corporation.
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.
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NRC - Nuclear Regulatory Commission, the U.S. federal agency that regulates nuclear power facilities.
OCI - other comprehensive income or loss.
Ofgem
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-
PADEP - the Pennsylvania Department of Environmental Protection, a state government agency.
PJM- PJM Interconnection, L.L.C., operator of the electricity transmission network and electricity energy market in all or parts of Delaware, Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia and the District of Columbia.
PLR - Provider of Last Resort, the role of PPL Electric in providing default electricity supply within its delivery area to retail customers who have not chosen to select an alternative electricity supplier under the Customer Choice Act.
PP&E- property, plant and equipment.
PUC
Purchase Contract(s) - refers collectively to the 2010 and 2011 Purchase Contracts, which are components of the 2010 and 2011 Equity Units.
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 changes and additions to the grid necessary 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.
RFC
RIIO-ED1 - RIIO represents "Revenues = Incentive + Innovation + Outputs - Electricity Distribution.Outputs." RIIO-ED1 refers to the initial eight-year rate review period applicable to WPD commencingwhich commenced April 1, 2015.
Riverstone
RJS Power - RJS Generation Holdings LLC, a Delaware limited liability company controlled by Riverstone, that owns the competitive power generation business to be contributed by its owners to Talen Energy other than the competitive power generation business to be contributed by virtue of the spinoff of a newly formed parent of PPL Energy Supply.
RMC - Risk Management Committee.
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S&P - Standard & Poor's Ratings Services, a credit rating agency.
Sarbanes-Oxley
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.
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 statute that addresses remediation of contaminated sites; states also have similar statutes.
Talen Energy
Tolling agreement- agreement whereby the owner of an electricity generating facility agrees to use that facility to convert fuel provided by a third party into electricity for delivery back to the third party.
Total shareowner return
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.
Volumetric risk - the risk that the actual load volumes provided under full-requirement sales contracts could vary significantly from forecasted volumes.
VSCC
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Statements contained in this Form 10-Q concerning expectations, beliefs, plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements that are other than statements of historical fact are "forward-looking statements" within the meaning of the federal securities laws. Although the Registrants believe that the expectations and assumptions reflected in these statements are reasonable, there can be no assurance that these expectations will prove to be correct. Forward-looking statements are subject to many risks and uncertainties, and actual results may differ materially from the results discussed in forward-looking statements. In addition to the specific factors discussed in each Registrant's 20132014 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; |
| · | the effectiveness of our risk management techniques, including hedging; |
| · | the effect on our operations and ability to comply with new statutory and regulatory requirements related to derivative financial instruments; |
| · | our ability to attract and retain qualified employees; |
| · | 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; |
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| · | development of new projects, markets and technologies; |
| · | performance of new ventures; and |
| · | business dispositions or acquisitions, including the anticipated formation of Talen Energy via the spinoff of PPL Energy Supply and subsequent combination with Riverstone's competitive generation business and our ability to |
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.
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| ITEM 1. Financial Statements | |||||||||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF INCOME | |||||||||||||||
| PPL Corporation and Subsidiaries | |||||||||||||||
| (Unaudited) | |||||||||||||||
| (Millions of Dollars, except share data) | |||||||||||||||
| Three Months Ended March 31, | |||||||||||||||
| 2014 | 2013 | ||||||||||||||
| Operating Revenues | |||||||||||||||
Utility | $ | 2,162 | $ | 1,950 | |||||||||||
Unregulated wholesale energy | (1,429) | 143 | |||||||||||||
Unregulated retail energy | 349 | 237 | |||||||||||||
Energy-related businesses | 141 | 127 | |||||||||||||
Total Operating Revenues | 1,223 | 2,457 | |||||||||||||
| Operating Expenses | |||||||||||||||
| Operation | |||||||||||||||
Fuel | 758 | 529 | |||||||||||||
Energy purchases | (1,494) | 57 | |||||||||||||
Other operation and maintenance | 697 | 676 | |||||||||||||
Depreciation | 305 | 284 | |||||||||||||
Taxes, other than income | 104 | 96 | |||||||||||||
Energy-related businesses | 138 | 122 | |||||||||||||
Total Operating Expenses | 508 | 1,764 | |||||||||||||
Operating Income | 715 | 693 | |||||||||||||
Other Income (Expense) - net | (23) | 122 | |||||||||||||
Interest Expense | 264 | 251 | |||||||||||||
Income Before Income Taxes | 428 | 564 | |||||||||||||
Income Taxes | 112 | 151 | |||||||||||||
Net Income Attributable to PPL Shareowners | $ | 316 | $ | 413 | |||||||||||
| Earnings Per Share of Common Stock: | |||||||||||||||
Basic | $ | 0.50 | $ | 0.70 | |||||||||||
Diluted | $ | 0.49 | $ | 0.65 | |||||||||||
Dividends Declared Per Share of Common Stock | $ | 0.3725 | $ | 0.3675 | |||||||||||
Weighted-Average Shares of Common Stock Outstanding (in thousands) | |||||||||||||||
Basic | 630,749 | 582,640 | |||||||||||||
Diluted | 663,939 | 657,020 | |||||||||||||
| The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements. | |||||||||||||||
| PPL Corporation and Subsidiaries | |||||||||||||||
| (Unaudited) | |||||||||||||||
| (Millions of Dollars) | |||||||||||||||
| Three Months Ended March 31, | |||||||||||||||
| 2014 | 2013 | ||||||||||||||
Net income | $ | 316 | $ | 413 | |||||||||||
| Other comprehensive income (loss): | |||||||||||||||
| Amounts arising during the period - gains (losses), net of tax (expense) benefit: | |||||||||||||||
Foreign currency translation adjustments, net of tax of $1, ($6) | 131 | (245) | |||||||||||||
Available-for-sale securities, net of tax of ($6), ($25) | 5 | 23 | |||||||||||||
Qualifying derivatives, net of tax of $25, ($20) | (46) | 62 | |||||||||||||
| Reclassifications from AOCI - (gains) losses, net of tax expense (benefit): | |||||||||||||||
Available-for-sale securities, net of tax of $1, $1 | (1) | (1) | |||||||||||||
Qualifying derivatives, net of tax of ($4), $35 | 19 | (80) | |||||||||||||
| Defined benefit plans: | |||||||||||||||
Prior service costs, net of tax of ($1), ($1) | 1 | 1 | |||||||||||||
Net actuarial loss, net of tax of ($9), ($13) | 27 | 34 | |||||||||||||
Total other comprehensive income (loss) attributable to PPL Shareowners | 136 | (206) | |||||||||||||
Comprehensive income (loss) attributable to PPL Shareowners | $ | 452 | $ | 207 | |||||||||||
| The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements. | |||||||||||||||
| PPL Corporation and Subsidiaries | |||||||||
| (Unaudited) | |||||||||
| (Millions of Dollars) | |||||||||
| Three Months Ended March 31, | |||||||||
| 2014 | 2013 | ||||||||
| Cash Flows from Operating Activities | |||||||||
Net income | $ | 316 | $ | 413 | |||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities | |||||||||
Depreciation | 305 | 284 | |||||||
Amortization | 60 | 64 | |||||||
Defined benefit plans - expense | 21 | 51 | |||||||
Deferred income taxes and investment tax credits | (26) | 80 | |||||||
Unrealized (gains) losses on derivatives, and other hedging activities | 241 | 98 | |||||||
Adjustment to WPD line loss accrual | 65 | ||||||||
Other | 33 | 30 | |||||||
| Change in current assets and current liabilities | |||||||||
Accounts receivable | (185) | (187) | |||||||
Accounts payable | 93 | (138) | |||||||
Unbilled revenues | (33) | 137 | |||||||
Fuel, materials and supplies | 96 | 55 | |||||||
Prepayments | (70) | (117) | |||||||
Counterparty collateral | 2 | (64) | |||||||
Taxes payable | 126 | 122 | |||||||
Other | (51) | (129) | |||||||
| Other operating activities | |||||||||
Defined benefit plans - funding | (135) | (429) | |||||||
Other assets | (3) | 33 | |||||||
Other liabilities | 76 | (59) | |||||||
Net cash provided by (used in) operating activities | 931 | 244 | |||||||
| Cash Flows from Investing Activities | |||||||||
Expenditures for property, plant and equipment | (892) | (828) | |||||||
Purchases of nuclear plant decommissioning trust investments | (32) | (28) | |||||||
Proceeds from the sale of nuclear plant decommissioning trust investments | 27 | 24 | |||||||
Proceeds from the receipt of grants | 56 | 1 | |||||||
Net (increase) decrease in restricted cash and cash equivalents | (334) | (52) | |||||||
Other investing activities | (8) | (16) | |||||||
Net cash provided by (used in) investing activities | (1,183) | (899) | |||||||
| Cash Flows from Financing Activities | |||||||||
Issuance of long-term debt | 450 | ||||||||
Retirement of long-term debt | (239) | (8) | |||||||
Payment of common stock dividends | (234) | (210) | |||||||
Net increase (decrease) in short-term debt | 878 | 416 | |||||||
Other financing activities | (13) | (27) | |||||||
Net cash provided by (used in) financing activities | 392 | 621 | |||||||
Effect of Exchange Rates on Cash and Cash Equivalents | 14 | (14) | |||||||
Net Increase (Decrease) in Cash and Cash Equivalents | 154 | (48) | |||||||
Cash and Cash Equivalents at Beginning of Period | 1,102 | 901 | |||||||
Cash and Cash Equivalents at End of Period | $ | 1,256 | $ | 853 | |||||
| The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements. | |||||||||
| PPL Corporation and Subsidiaries | |||||||||
| (Unaudited) | |||||||||
| (Millions of Dollars, shares in thousands) | |||||||||
| March 31, | December 31, | ||||||||
| 2014 | 2013 | ||||||||
| Assets | |||||||||
| Current Assets | |||||||||
Cash and cash equivalents | $ | 1,256 | $ | 1,102 | |||||
Restricted cash and cash equivalents | 416 | 83 | |||||||
| Accounts receivable (less reserve: 2014, $66; 2013, $64) | |||||||||
Customer | 1,108 | 923 | |||||||
Other | 103 | 97 | |||||||
Unbilled revenues | 874 | 835 | |||||||
Fuel, materials and supplies | 607 | 702 | |||||||
Prepayments | 224 | 153 | |||||||
Deferred taxes | 342 | 246 | |||||||
Price risk management assets | 1,087 | 942 | |||||||
Regulatory assets | 32 | 33 | |||||||
Other current assets | 45 | 37 | |||||||
Total Current Assets | 6,094 | 5,153 | |||||||
| Investments | |||||||||
Nuclear plant decommissioning trust funds | 879 | 864 | |||||||
Other investments | 39 | 43 | |||||||
Total Investments | 918 | 907 | |||||||
| Property, Plant and Equipment | |||||||||
Regulated utility plant | 28,616 | 27,755 | |||||||
Less: accumulated depreciation - regulated utility plant | 5,108 | 4,873 | |||||||
Regulated utility plant, net | 23,508 | 22,882 | |||||||
| Non-regulated property, plant and equipment | |||||||||
Generation | 11,818 | 11,881 | |||||||
Nuclear fuel | 712 | 591 | |||||||
Other | 854 | 834 | |||||||
Less: accumulated depreciation - non-regulated property, plant and equipment | 6,283 | 6,172 | |||||||
Non-regulated property, plant and equipment, net | 7,101 | 7,134 | |||||||
Construction work in progress | 3,165 | 3,071 | |||||||
Property, Plant and Equipment, net | 33,774 | 33,087 | |||||||
| Other Noncurrent Assets | |||||||||
Regulatory assets | 1,245 | 1,246 | |||||||
Goodwill | 4,298 | 4,225 | |||||||
Other intangibles | 943 | 947 | |||||||
Price risk management assets | 344 | 337 | |||||||
Other noncurrent assets | 357 | 357 | |||||||
Total Other Noncurrent Assets | 7,187 | 7,112 | |||||||
Total Assets | $ | 47,973 | $ | 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) | |||||||||
| March 31, | December 31, | ||||||||
| 2014 | 2013 | ||||||||
| Liabilities and Equity | |||||||||
| Current Liabilities | |||||||||
Short-term debt | $ | 1,579 | $ | 701 | |||||
Long-term debt due within one year | 304 | 315 | |||||||
Accounts payable | 1,345 | 1,308 | |||||||
Taxes | 240 | 114 | |||||||
Interest | 358 | 325 | |||||||
Dividends | 236 | 232 | |||||||
Price risk management liabilities | 1,302 | 829 | |||||||
Regulatory liabilities | 80 | 90 | |||||||
Other current liabilities | 932 | 998 | |||||||
Total Current Liabilities | 6,376 | 4,912 | |||||||
Long-term Debt | 20,514 | 20,592 | |||||||
| Deferred Credits and Other Noncurrent Liabilities | |||||||||
Deferred income taxes | 4,096 | 3,928 | |||||||
Investment tax credits | 281 | 342 | |||||||
Price risk management liabilities | 450 | 415 | |||||||
Accrued pension obligations | 1,159 | 1,286 | |||||||
Asset retirement obligations | 701 | 687 | |||||||
Regulatory liabilities | 1,037 | 1,048 | |||||||
Other deferred credits and noncurrent liabilities | 642 | 583 | |||||||
Total Deferred Credits and Other Noncurrent Liabilities | 8,366 | 8,289 | |||||||
| Commitments and Contingent Liabilities (Notes 6 and 10) | |||||||||
| Equity | |||||||||
Common stock - $0.01 par value (a) | 6 | 6 | |||||||
Additional paid-in capital | 8,352 | 8,316 | |||||||
Earnings reinvested | 5,788 | 5,709 | |||||||
Accumulated other comprehensive loss | (1,429) | (1,565) | |||||||
Total Equity | 12,717 | 12,466 | |||||||
Total Liabilities and Equity | $ | 47,973 | $ | 46,259 | |||||
| 3 |
| CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | |||||||||
| PPL Corporation and Subsidiaries | |||||||||
| (Unaudited) | |||||||||
| (Millions of Dollars) | |||||||||
| Three Months Ended March 31, | |||||||||
| 2015 | 2014 | ||||||||
| Net income | $ | 647 | $ | 316 | |||||
| Other comprehensive income (loss): | |||||||||
| Amounts arising during the period - gains (losses), net of tax (expense) benefit: | |||||||||
| Foreign currency translation adjustments, net of tax of ($5), $1 | (66) | 131 | |||||||
| Available-for-sale securities, net of tax of ($6), ($6) | 5 | 5 | |||||||
| Qualifying derivatives, net of tax of $4, $25 | 6 | (46) | |||||||
| Defined benefit plans: | |||||||||
| Net actuarial gain (loss), net of tax of $0, $0 | (1) | ||||||||
| Reclassifications from AOCI - (gains) losses, net of tax expense (benefit): | |||||||||
| Available-for-sale securities, net of tax of $1, $1 | (1) | (1) | |||||||
| Qualifying derivatives, net of tax of $4, ($4) | (17) | 19 | |||||||
| Equity investees' other comprehensive (income) loss, net of | |||||||||
| tax of $1, $0 | (1) | ||||||||
| Defined benefit plans: | |||||||||
| Prior service costs, net of tax of $0, ($1) | 1 | ||||||||
| Net actuarial loss, net of tax of ($13), ($9) | 38 | 27 | |||||||
| Total other comprehensive income (loss) | (37) | 136 | |||||||
| Comprehensive income (loss) | $ | 610 | $ | 452 | |||||
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
| 4 |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
| 5 |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
| 6 |
| CONDENSED CONSOLIDATED BALANCE SHEETS | |||||||||
| PPL Corporation and Subsidiaries | |||||||||
| (Unaudited) | |||||||||
| (Millions of Dollars, shares in thousands) | |||||||||
| March 31, | December 31, | ||||||||
| 2015 | 2014 | ||||||||
| Liabilities and Equity | |||||||||
| Current Liabilities | |||||||||
| Short-term debt | $ | 1,595 | $ | 1,466 | |||||
| Long-term debt due within one year | 1,535 | 1,535 | |||||||
| Accounts payable | 1,128 | 1,356 | |||||||
| Taxes | 274 | 230 | |||||||
| Interest | 345 | 314 | |||||||
| Dividends | 249 | 249 | |||||||
| Price risk management liabilities | 1,073 | 1,126 | |||||||
| Regulatory liabilities | 109 | 91 | |||||||
| Other current liabilities | 909 | 1,076 | |||||||
| Total Current Liabilities | 7,217 | 7,443 | |||||||
| Long-term Debt | 18,772 | 18,856 | |||||||
| Deferred Credits and Other Noncurrent Liabilities | |||||||||
| Deferred income taxes | 4,627 | 4,450 | |||||||
| Investment tax credits | 157 | 159 | |||||||
| Price risk management liabilities | 333 | 252 | |||||||
| Accrued pension obligations | 1,457 | 1,756 | |||||||
| Asset retirement obligations | 739 | 739 | |||||||
| Regulatory liabilities | 987 | 992 | |||||||
| Other deferred credits and noncurrent liabilities | 596 | 589 | |||||||
| Total Deferred Credits and Other Noncurrent Liabilities | 8,896 | 8,937 | |||||||
| Commitments and Contingent Liabilities (Notes 6 and 10) | |||||||||
| Equity | |||||||||
| Common stock - $0.01 par value (a) | 7 | 7 | |||||||
| Additional paid-in capital | 9,480 | 9,433 | |||||||
| Earnings reinvested | 6,860 | 6,462 | |||||||
| Accumulated other comprehensive loss | (2,311) | (2,274) | |||||||
| Total Equity | 14,036 | 13,628 | |||||||
| Total Liabilities and Equity | $ | 48,921 | $ | 48,864 | |||||
| (a) | 780,000 shares authorized; |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
| 7 |
| 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 | ||||||||||||||||
December 31, 2013 | 630,321 | $ | 6 | $ | 8,316 | $ | 5,709 | $ | (1,565) | $ | 12,466 | |||||||||||
Common stock issued (b) | 1,096 | 30 | 30 | |||||||||||||||||||
Stock-based compensation (c) | 6 | 6 | ||||||||||||||||||||
Net income | 316 | 316 | ||||||||||||||||||||
| Dividends and dividend | ||||||||||||||||||||||
equivalents (d) | (237) | (237) | ||||||||||||||||||||
| Other comprehensive | ||||||||||||||||||||||
income (loss) | 136 | 136 | ||||||||||||||||||||
March 31, 2014 | 631,417 | $ | 6 | $ | 8,352 | $ | 5,788 | $ | (1,429) | $ | 12,717 | |||||||||||
December 31, 2012 | 581,944 | $ | 6 | $ | 6,936 | $ | 5,478 | $ | (1,940) | $ | 18 | $ | 10,498 | |||||||||
Common stock issued (b) | 1,270 | 37 | 37 | |||||||||||||||||||
Stock-based compensation (c) | 15 | 15 | ||||||||||||||||||||
Net income | 413 | 413 | ||||||||||||||||||||
| Dividends, dividend equivalents | ||||||||||||||||||||||
and distributions (d) | (215) | (215) | ||||||||||||||||||||
| Other comprehensive | ||||||||||||||||||||||
income (loss) | (206) | (206) | ||||||||||||||||||||
March 31, 2013 | 583,214 | $ | 6 | $ | 6,988 | $ | 5,676 | $ | (2,146) | $ | 18 | $ | 10,542 | |||||||||
| (a) | Shares in thousands. Each share entitles the holder to one vote on any question presented at any shareowners' meeting. |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
| 8 |
(THIS PAGE LEFT BLANK INTENTIONALLY.)
| 9 |
| PPL Energy Supply, LLC and Subsidiaries | |||||||||||||||
| (Unaudited) | |||||||||||||||
| (Millions of Dollars) | |||||||||||||||
| Three Months Ended March 31, | |||||||||||||||
| 2014 | 2013 | ||||||||||||||
| Operating Revenues | |||||||||||||||
Unregulated wholesale energy | $ | (1,429) | $ | 143 | |||||||||||
Unregulated wholesale energy to affiliate | 27 | 14 | |||||||||||||
Unregulated retail energy | 351 | 238 | |||||||||||||
Energy-related businesses | 125 | 113 | |||||||||||||
Total Operating Revenues | (926) | 508 | |||||||||||||
| Operating Expenses | |||||||||||||||
| Operation | |||||||||||||||
Fuel | 482 | 298 | |||||||||||||
Energy purchases | (1,804) | (199) | |||||||||||||
Other operation and maintenance | 258 | 235 | |||||||||||||
Depreciation | 80 | 78 | |||||||||||||
Taxes, other than income | 21 | 17 | |||||||||||||
Energy-related businesses | 124 | 110 | |||||||||||||
Total Operating Expenses | (839) | 539 | |||||||||||||
Operating Income (Loss) | (87) | (31) | |||||||||||||
Other Income (Expense) - net | 6 | 4 | |||||||||||||
Interest Expense | 34 | 46 | |||||||||||||
Income (Loss) Before Income Taxes | (115) | (73) | |||||||||||||
Income Taxes | (49) | (35) | |||||||||||||
Net Income (Loss) Attributable to PPL Energy Supply Member | $ | (66) | $ | (38) | |||||||||||
| The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements. | |||||||||||||||
| PPL Energy Supply, LLC and Subsidiaries | |||||||||||||||
| (Unaudited) | |||||||||||||||
| (Millions of Dollars) | |||||||||||||||
| Three Months Ended March 31, | |||||||||||||||
| 2014 | 2013 | ||||||||||||||
Net income (loss) | $ | (66) | $ | (38) | |||||||||||
| Other comprehensive income (loss): | |||||||||||||||
| Amounts arising during the period - gains (losses), net of tax (expense) benefit: | |||||||||||||||
Available-for-sale securities, net of tax of ($6), ($25) | 5 | 23 | |||||||||||||
| Reclassifications from AOCI - (gains) losses, net of tax expense (benefit): | |||||||||||||||
Available-for-sale securities, net of tax of $1, $1 | (1) | (1) | |||||||||||||
Qualifying derivatives, net of tax of $4, $21 | (5) | (30) | |||||||||||||
| Defined benefit plans: | |||||||||||||||
Prior service costs, net of tax of ($1), ($1) | 1 | 1 | |||||||||||||
Net actuarial loss, net of tax of ($1), ($2) | 1 | 4 | |||||||||||||
| Total other comprehensive income (loss) attributable to PPL Energy Supply | |||||||||||||||
Member | 1 | (3) | |||||||||||||
Comprehensive income (loss) attributable to PPL Energy Supply Member | $ | (65) | $ | (41) | |||||||||||
| The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements. | |||||||||||||||
| PPL Energy Supply, LLC and Subsidiaries | |||||||||
| (Unaudited) | |||||||||
| (Millions of Dollars) | |||||||||
| Three Months Ended March 31, | |||||||||
| 2014 | 2013 | ||||||||
| Cash Flows from Operating Activities | |||||||||
Net income (loss) | $ | (66) | $ | (38) | |||||
| Adjustments to reconcile net income (loss) to net cash provided (used in) by operating activities | |||||||||
Depreciation | 80 | 78 | |||||||
Amortization | 44 | 44 | |||||||
Defined benefit plans - expense | 8 | 12 | |||||||
Deferred income taxes and investment tax credits | (121) | (21) | |||||||
Impairment of assets | 18 | ||||||||
Unrealized (gains) losses on derivatives, and other hedging activities | 229 | 214 | |||||||
Other | 5 | 5 | |||||||
| Change in current assets and current liabilities | |||||||||
Accounts receivable | (15) | 71 | |||||||
Accounts payable | 153 | (94) | |||||||
Unbilled revenues | (92) | 123 | |||||||
Fuel, materials and supplies | 43 | 11 | |||||||
Prepayments | (10) | (104) | |||||||
Taxes payable | 53 | 37 | |||||||
Counterparty collateral | 2 | (64) | |||||||
Other | (22) | (14) | |||||||
| Other operating activities | |||||||||
Defined benefit plans - funding | (30) | (105) | |||||||
Other assets | (5) | 44 | |||||||
Other liabilities | 2 | (74) | |||||||
Net cash provided by (used in) operating activities | 276 | 125 | |||||||
| Cash Flows from Investing Activities | |||||||||
Expenditures for property, plant and equipment | (88) | (124) | |||||||
Purchases of nuclear plant decommissioning trust investments | (32) | (28) | |||||||
Proceeds from the sale of nuclear plant decommissioning trust investments | 27 | 24 | |||||||
Proceeds from the receipt of grants | 56 | ||||||||
Net (increase) decrease in restricted cash and cash equivalents | (344) | (59) | |||||||
Other investing activities | (8) | (8) | |||||||
Net cash provided by (used in) investing activities | (389) | (195) | |||||||
| Cash Flows from Financing Activities | |||||||||
Distributions to member | (654) | (313) | |||||||
Net increase (decrease) in short-term debt | 970 | 125 | |||||||
Other financing activities | (1) | (8) | |||||||
Net cash provided by (used in) financing activities | 315 | (196) | |||||||
Net Increase (Decrease) in Cash and Cash Equivalents | 202 | (266) | |||||||
Cash and Cash Equivalents at Beginning of Period | 239 | 413 | |||||||
Cash and Cash Equivalents at End of Period | $ | 441 | $ | 147 | |||||
| The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements. | |||||||||
| PPL Energy Supply, LLC and Subsidiaries | |||||||||
| (Unaudited) | |||||||||
| (Millions of Dollars) | |||||||||
| March 31, | December 31, | ||||||||
| 2014 | 2013 | ||||||||
| Assets | |||||||||
| Current Assets | |||||||||
Cash and cash equivalents | $ | 441 | $ | 239 | |||||
Restricted cash and cash equivalents | 412 | 68 | |||||||
| Accounts receivable (less reserve: 2014, $21; 2013, $21) | |||||||||
Customer | 232 | 233 | |||||||
Other | 92 | 97 | |||||||
Accounts receivable from affiliates | 66 | 45 | |||||||
Unbilled revenues | 378 | 286 | |||||||
Fuel, materials and supplies | 315 | 358 | |||||||
Prepayments | 30 | 20�� | |||||||
Deferred taxes | 87 | ||||||||
Price risk management assets | 1,080 | 860 | |||||||
Other current assets | 30 | 27 | |||||||
Total Current Assets | 3,163 | 2,233 | |||||||
| Investments | |||||||||
Nuclear plant decommissioning trust funds | 879 | 864 | |||||||
Other investments | 34 | 37 | |||||||
Total Investments | 913 | 901 | |||||||
| Property, Plant and Equipment | |||||||||
| Non-regulated property, plant and equipment | |||||||||
Generation | 11,826 | 11,891 | |||||||
Nuclear fuel | 712 | 591 | |||||||
Other | 290 | 288 | |||||||
Less: accumulated depreciation - non-regulated property, plant and equipment | 6,141 | 6,046 | |||||||
Non-regulated property, plant and equipment, net | 6,687 | 6,724 | |||||||
Construction work in progress | 369 | 450 | |||||||
Property, Plant and Equipment, net | 7,056 | 7,174 | |||||||
| Other Noncurrent Assets | |||||||||
Goodwill | 86 | 86 | |||||||
Other intangibles | 266 | 266 | |||||||
Price risk management assets | 337 | 328 | |||||||
Other noncurrent assets | 82 | 86 | |||||||
Total Other Noncurrent Assets | 771 | 766 | |||||||
Total Assets | $ | 11,903 | $ | 11,074 | |||||
| (a) | Net income approximates comprehensive income. |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
| 10 |
| CONDENSED CONSOLIDATED BALANCE SHEETS | |||||||||
| PPL Energy Supply, LLC and Subsidiaries | |||||||||
| (Unaudited) | |||||||||
| (Millions of Dollars) | |||||||||
| March 31, | December 31, | ||||||||
| 2014 | 2013 | ||||||||
| Liabilities and Equity | |||||||||
| Current Liabilities | |||||||||
Short-term debt | $ | 970 | |||||||
Long-term debt due within one year | 304 | $ | 304 | ||||||
Accounts payable | 490 | 393 | |||||||
Accounts payable to affiliates | 33 | 4 | |||||||
Taxes | 84 | 31 | |||||||
Interest | 43 | 22 | |||||||
Price risk management liabilities | 1,211 | 750 | |||||||
Other current liabilities | 239 | 278 | |||||||
Total Current Liabilities | 3,374 | 1,782 | |||||||
Long-term Debt | 2,220 | 2,221 | |||||||
| Deferred Credits and Other Noncurrent Liabilities | |||||||||
Deferred income taxes | 1,154 | 1,114 | |||||||
Investment tax credits | 145 | 205 | |||||||
Price risk management liabilities | 316 | 320 | |||||||
Accrued pension obligations | 84 | 111 | |||||||
Asset retirement obligations | 400 | 393 | |||||||
Other deferred credits and noncurrent liabilities | 131 | 130 | |||||||
Total Deferred Credits and Other Noncurrent Liabilities | 2,230 | 2,273 | |||||||
| Commitments and Contingent Liabilities (Note 10) | |||||||||
Member's Equity | 4,079 | 4,798 | |||||||
Total Liabilities and Equity | $ | 11,903 | $ | 11,074 | |||||
| The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements. | |||||||||
| PPL Energy Supply, LLC and Subsidiaries | |||||||||
| (Unaudited) | |||||||||
| (Millions of Dollars) | |||||||||
| Non- | |||||||||
| Member's | controlling | ||||||||
| equity | interests | Total | |||||||
December 31, 2013 | $ | 4,798 | $ | 4,798 | |||||
Net income (loss) | (66) | (66) | |||||||
Other comprehensive income (loss) | 1 | 1 | |||||||
Distributions | (654) | (654) | |||||||
March 31, 2014 | $ | 4,079 | $ | 4,079 | |||||
December 31, 2012 | $ | 3,830 | $ | 18 | $ | 3,848 | |||
Net income (loss) | (38) | (38) | |||||||
Other comprehensive income (loss) | (3) | (3) | |||||||
Distributions | (313) | (313) | |||||||
March 31, 2013 | $ | 3,476 | $ | 18 | $ | 3,494 | |||
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
| PPL Electric Utilities Corporation and Subsidiaries | |||||||||||||||
| (Unaudited) | |||||||||||||||
| (Millions of Dollars) | |||||||||||||||
| Three Months Ended March 31, | |||||||||||||||
| 2014 | 2013 | ||||||||||||||
Operating Revenues | $ | 592 | $ | 513 | |||||||||||
| Operating Expenses | |||||||||||||||
| Operation | |||||||||||||||
Energy purchases | 189 | 172 | |||||||||||||
Energy purchases from affiliate | 27 | 14 | |||||||||||||
Other operation and maintenance | 134 | 133 | |||||||||||||
Depreciation | 45 | 43 | |||||||||||||
Taxes, other than income | 32 | 30 | |||||||||||||
Total Operating Expenses | 427 | 392 | |||||||||||||
Operating Income | 165 | 121 | |||||||||||||
Other Income (Expense) - net | 2 | 1 | |||||||||||||
Interest Expense | 29 | 25 | |||||||||||||
Income Before Income Taxes | 138 | 97 | |||||||||||||
Income Taxes | 53 | 33 | |||||||||||||
Net Income (a) | $ | 85 | $ | 64 | |||||||||||
| PPL Electric Utilities Corporation and Subsidiaries | |||||||||
| (Unaudited) | |||||||||
| (Millions of Dollars) | |||||||||
| Three Months Ended March 31, | |||||||||
| 2014 | 2013 | ||||||||
| Cash Flows from Operating Activities | |||||||||
Net income | $ | 85 | $ | 64 | |||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities | |||||||||
Depreciation | 45 | 43 | |||||||
Amortization | 4 | 5 | |||||||
Defined benefit plans - expense | 3 | 7 | |||||||
Deferred income taxes and investment tax credits | 25 | 45 | |||||||
Other | (14) | (3) | |||||||
| Change in current assets and current liabilities | |||||||||
Accounts receivable | (107) | (87) | |||||||
Accounts payable | 22 | (34) | |||||||
Prepayments | (61) | (28) | |||||||
Other | (1) | (6) | |||||||
| Other operating activities | |||||||||
Defined benefit plans - funding | (19) | (88) | |||||||
Other assets | 4 | 8 | |||||||
Other liabilities | 10 | (3) | |||||||
Net cash provided by (used in) operating activities | (4) | (77) | |||||||
| Cash Flows from Investing Activities | |||||||||
Expenditures for property, plant and equipment | (201) | (189) | |||||||
Net (increase) decrease in notes receivable from affiliates | 150 | ||||||||
Other investing activities | 9 | (3) | |||||||
Net cash provided by (used in) investing activities | (42) | (192) | |||||||
| Cash Flows from Financing Activities | |||||||||
Retirement of long-term debt | (10) | ||||||||
Contributions from parent | 65 | 60 | |||||||
Payment of common stock dividends to parent | (32) | (25) | |||||||
Net increase (decrease) in short-term debt | 40 | 125 | |||||||
Net cash provided by (used in) financing activities | 63 | 160 | |||||||
Net Increase (Decrease) in Cash and Cash Equivalents | 17 | (109) | |||||||
Cash and Cash Equivalents at Beginning of Period | 25 | 140 | |||||||
Cash and Cash Equivalents at End of Period | $ | 42 | $ | 31 | |||||
| The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements. | |||||||||
| PPL Electric Utilities Corporation and Subsidiaries | |||||||||
| (Unaudited) | |||||||||
| (Millions of Dollars, shares in thousands) | |||||||||
| March 31, | December 31, | ||||||||
| 2014 | 2013 | ||||||||
| Assets | |||||||||
| Current Assets | |||||||||
Cash and cash equivalents | $ | 42 | $ | 25 | |||||
| Accounts receivable (less reserve: 2014, $17; 2013, $18) | |||||||||
Customer | 387 | 284 | |||||||
Other | 9 | 5 | |||||||
Accounts receivable from affiliates | 4 | 4 | |||||||
Notes receivable from affiliate | 150 | ||||||||
Unbilled revenues | 105 | 116 | |||||||
Materials and supplies | 34 | 35 | |||||||
Prepayments | 101 | 40 | |||||||
Deferred income taxes | 82 | 85 | |||||||
Other current assets | 10 | 22 | |||||||
Total Current Assets | 774 | 766 | |||||||
| Property, Plant and Equipment | |||||||||
Regulated utility plant | 6,998 | 6,886 | |||||||
Less: accumulated depreciation - regulated utility plant | 2,454 | 2,417 | |||||||
Regulated utility plant, net | 4,544 | 4,469 | |||||||
Other, net | 1 | 2 | |||||||
Construction work in progress | 684 | 591 | |||||||
Property, Plant and Equipment, net | 5,229 | 5,062 | |||||||
| Other Noncurrent Assets | |||||||||
Regulatory assets | 770 | 772 | |||||||
Intangibles | 214 | 211 | |||||||
Other noncurrent assets | 35 | 35 | |||||||
Total Other Noncurrent Assets | 1,019 | 1,018 | |||||||
Total Assets | $ | 7,022 | $ | 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) | |||||||||
| March 31, | December 31, | ||||||||
| 2014 | 2013 | ||||||||
| Liabilities and Equity | |||||||||
| Current Liabilities | |||||||||
Short-term debt | $ | 60 | $ | 20 | |||||
Long-term debt due within one year | 10 | ||||||||
Accounts payable | 300 | 295 | |||||||
Accounts payable to affiliates | 88 | 57 | |||||||
Taxes | 39 | 51 | |||||||
Interest | 23 | 34 | |||||||
Regulatory liabilities | 68 | 76 | |||||||
Other current liabilities | 83 | 82 | |||||||
Total Current Liabilities | 661 | 625 | |||||||
Long-term Debt | 2,306 | 2,305 | |||||||
| Deferred Credits and Other Noncurrent Liabilities | |||||||||
Deferred income taxes | 1,439 | 1,399 | |||||||
Accrued pension obligations | 78 | 96 | |||||||
Regulatory liabilities | 13 | 15 | |||||||
Other deferred credits and noncurrent liabilities | 58 | 57 | |||||||
Total Deferred Credits and Other Noncurrent Liabilities | 1,588 | 1,567 | |||||||
| Commitments and Contingent Liabilities (Notes 6 and 10) | |||||||||
| Stockholder's Equity | |||||||||
Common stock - no par value (a) | 364 | 364 | |||||||
Additional paid-in capital | 1,405 | 1,340 | |||||||
Earnings reinvested | 698 | 645 | |||||||
Total Equity | 2,467 | 2,349 | |||||||
Total Liabilities and Equity | $ | 7,022 | $ | 6,846 | |||||
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
| PPL Electric Utilities Corporation and Subsidiaries | |||||||||||||||
| (Unaudited) | |||||||||||||||
| (Millions of Dollars) | |||||||||||||||
| Common | |||||||||||||||
| stock | |||||||||||||||
| shares | Additional | ||||||||||||||
| outstanding | Common | paid-in | Earnings | ||||||||||||
| (a) | stock | capital | reinvested | Total | |||||||||||
December 31, 2013 | 66,368 | $ | 364 | $ | 1,340 | $ | 645 | $ | 2,349 | ||||||
Net income | 85 | 85 | |||||||||||||
Capital contributions from PPL | 65 | 65 | |||||||||||||
Cash dividends declared on common stock | (32) | (32) | |||||||||||||
March 31, 2014 | 66,368 | $ | 364 | $ | 1,405 | $ | 698 | $ | 2,467 | ||||||
December 31, 2012 | 66,368 | $ | 364 | $ | 1,135 | $ | 563 | $ | 2,062 | ||||||
Net income | 64 | 64 | |||||||||||||
Capital contributions from PPL | 60 | 60 | |||||||||||||
Cash dividends declared on common stock | (25) | (25) | |||||||||||||
March 31, 2013 | 66,368 | $ | 364 | $ | 1,195 | $ | 602 | $ | 2,161 | ||||||
| 12 |
| CONDENSED CONSOLIDATED BALANCE SHEETS | |||||||||
| PPL Electric Utilities Corporation and Subsidiaries | |||||||||
| (Unaudited) | |||||||||
| (Millions of Dollars, shares in thousands) | |||||||||
| March 31, | December 31, | ||||||||
| 2015 | 2014 | ||||||||
| Liabilities and Equity | |||||||||
| Current Liabilities | |||||||||
| Short-term debt | $ | 85 | |||||||
| Long term debt due within one year | 100 | $ | 100 | ||||||
| Accounts payable | 301 | 325 | |||||||
| Accounts payable to affiliates | 70 | 70 | |||||||
| Taxes | 90 | 85 | |||||||
| Interest | 26 | 34 | |||||||
| Regulatory liabilities | 85 | 76 | |||||||
| Other current liabilities | 80 | 103 | |||||||
| Total Current Liabilities | 837 | 793 | |||||||
| Long-term Debt | 2,503 | 2,502 | |||||||
| Deferred Credits and Other Noncurrent Liabilities | |||||||||
| Deferred income taxes | 1,497 | 1,483 | |||||||
| Accrued pension obligations | 182 | 212 | |||||||
| Regulatory liabilities | 26 | 18 | |||||||
| Other deferred credits and noncurrent liabilities | 66 | 60 | |||||||
| Total Deferred Credits and Other Noncurrent Liabilities | 1,771 | 1,773 | |||||||
| Commitments and Contingent Liabilities (Notes 6 and 10) | |||||||||
| Equity | |||||||||
| Common stock - no par value (a) | 364 | 364 | |||||||
| Additional paid-in capital | 1,653 | 1,603 | |||||||
| Earnings reinvested | 793 | 750 | |||||||
| Total Equity | 2,810 | 2,717 | |||||||
| Total Liabilities and Equity | $ | 7,921 | $ | 7,785 | |||||
| (a) | 170,000 shares authorized; 66,368 shares issued and outstanding at March 31, 2015 and December 31, 2014. |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
| 13 |
| (a) | Shares in thousands. All common shares of PPL Electric stock are owned by PPL. |
| LG&E and KU Energy LLC and Subsidiaries | |||||||||||||||
| (Unaudited) | |||||||||||||||
| (Millions of Dollars) | |||||||||||||||
| Three Months Ended March 31, | |||||||||||||||
| 2014 | 2013 | ||||||||||||||
Operating Revenues | $ | 934 | $ | 800 | |||||||||||
| Operating Expenses | |||||||||||||||
| Operation | |||||||||||||||
Fuel | 277 | 231 | |||||||||||||
Energy purchases | 124 | 86 | |||||||||||||
Other operation and maintenance | 206 | 197 | |||||||||||||
Depreciation | 86 | 82 | |||||||||||||
Taxes, other than income | 13 | 12�� | |||||||||||||
Total Operating Expenses | 706 | 608 | |||||||||||||
Operating Income | 228 | 192 | |||||||||||||
Other Income (Expense) - net | (2) | (2) | |||||||||||||
Interest Expense | 42 | 37 | |||||||||||||
Income Before Income Taxes | 184 | 153 | |||||||||||||
Income Taxes | 69 | 57 | |||||||||||||
Net Income (a) | $ | 115 | $ | 96 | |||||||||||
| (a) Net income approximates comprehensive income. | |||||||||||||||
| The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements. | |||||||||||||||
| LG&E and KU Energy LLC and Subsidiaries | |||||||||
| (Unaudited) | |||||||||
| (Millions of Dollars) | |||||||||
| Three Months Ended March 31, | |||||||||
| 2014 | 2013 | ||||||||
| Cash Flows from Operating Activities | |||||||||
Net income | $ | 115 | $ | 96 | |||||
| Adjustments to reconcile net income to net cash provided by operating activities | |||||||||
Depreciation | 86 | 82 | |||||||
Amortization | 6 | 7 | |||||||
Defined benefit plans - expense | 8 | 17 | |||||||
Deferred income taxes and investment tax credits | 74 | 45 | |||||||
Other | (1) | 1 | |||||||
| Change in current assets and current liabilities | |||||||||
Accounts receivable | (50) | (78) | |||||||
Accounts payable | 22 | 31 | |||||||
Accounts payable to affiliates | 1 | ||||||||
Unbilled revenues | 36 | ||||||||
Fuel, materials and supplies | 53 | 47 | |||||||
Accrued interest | 36 | 30 | |||||||
Taxes | (14) | (2) | |||||||
Other | (24) | (29) | |||||||
| Other operating activities | |||||||||
Defined benefit plans - funding | (38) | (154) | |||||||
Other assets | 2 | ||||||||
Other liabilities | (11) | ||||||||
Net cash provided by operating activities | 309 | 85 | |||||||
| Cash Flows from Investing Activities | |||||||||
Expenditures for property, plant and equipment | (272) | (271) | |||||||
Net (increase) decrease in notes receivable from affiliates | 66 | ||||||||
Net (increase) decrease in restricted cash and cash equivalents | 1 | 4 | |||||||
Net cash provided by (used in) investing activities | (205) | (267) | |||||||
| Cash Flows from Financing Activities | |||||||||
Net increase (decrease) in notes payable with affiliates | 60 | ||||||||
Net increase (decrease) in short-term debt | (45) | 60 | |||||||
Distributions to member | (104) | (4) | |||||||
Contributions from member | 40 | 75 | |||||||
Net cash provided by (used in) financing activities | (109) | 191 | |||||||
Net Increase (Decrease) in Cash and Cash Equivalents | (5) | 9 | |||||||
Cash and Cash Equivalents at Beginning of Period | 35 | 43 | |||||||
Cash and Cash Equivalents at End of Period | $ | 30 | $ | 52 | |||||
| The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements. | |||||||||
| LG&E and KU Energy LLC and Subsidiaries | |||||||||
| (Unaudited) | |||||||||
| (Millions of Dollars) | |||||||||
| March 31, | December 31, | ||||||||
| 2014 | 2013 | ||||||||
| Assets | |||||||||
| Current Assets | |||||||||
Cash and cash equivalents | $ | 30 | $ | 35 | |||||
| Accounts receivable (less reserve: 2014, $26; 2013, $22) | |||||||||
Customer | 265 | 224 | |||||||
Other | 27 | 20 | |||||||
Unbilled revenues | 144 | 180 | |||||||
Fuel, materials and supplies | 225 | 278 | |||||||
Prepayments | 22 | 21 | |||||||
Notes receivable from affiliates | 4 | 70 | |||||||
Deferred income taxes | 139 | 159 | |||||||
Regulatory assets | 31 | 27 | |||||||
Other current assets | 3 | 3 | |||||||
Total Current Assets | 890 | 1,017 | |||||||
| Property, Plant and Equipment | |||||||||
Regulated utility plant | 8,683 | 8,526 | |||||||
Less: accumulated depreciation - regulated utility plant | 849 | 778 | |||||||
Regulated utility plant, net | 7,834 | 7,748 | |||||||
Other, net | 3 | 3 | |||||||
Construction work in progress | 1,868 | 1,793 | |||||||
Property, Plant and Equipment, net | 9,705 | 9,544 | |||||||
| Other Noncurrent Assets | |||||||||
Regulatory assets | 475 | 474 | |||||||
Goodwill | 996 | 996 | |||||||
Other intangibles | 209 | 221 | |||||||
Other noncurrent assets | 96 | 98 | |||||||
Total Other Noncurrent Assets | 1,776 | 1,789 | |||||||
Total Assets | $ | 12,371 | $ | 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) | |||||||||
| March 31, | December 31, | ||||||||
| 2014 | 2013 | ||||||||
| Liabilities and Equity | |||||||||
| Current Liabilities | |||||||||
Short-term debt | $ | 200 | $ | 245 | |||||
Accounts payable | 341 | 346 | |||||||
Accounts payable to affiliates | 3 | 3 | |||||||
Customer deposits | 50 | 50 | |||||||
Taxes | 25 | 39 | |||||||
Price risk management liabilities | 4 | 4 | |||||||
Regulatory liabilities | 12 | 14 | |||||||
Interest | 59 | 23 | |||||||
Other current liabilities | 87 | 111 | |||||||
Total Current Liabilities | 781 | 835 | |||||||
Long-term Debt | 4,565 | 4,565 | |||||||
| Deferred Credits and Other Noncurrent Liabilities | |||||||||
Deferred income taxes | 1,021 | 965 | |||||||
Investment tax credits | 134 | 135 | |||||||
Accrued pension obligations | 119 | 152 | |||||||
Asset retirement obligations | 251 | 245 | |||||||
Regulatory liabilities | 1,024 | 1,033 | |||||||
Price risk management liabilities | 36 | 32 | |||||||
Other deferred credits and noncurrent liabilities | 240 | 238 | |||||||
Total Deferred Credits and Other Noncurrent Liabilities | 2,825 | 2,800 | |||||||
| Commitments and Contingent Liabilities (Notes 6 and 10) | |||||||||
Member's equity | 4,200 | 4,150 | |||||||
Total Liabilities and Equity | $ | 12,371 | $ | 12,350 | |||||
| The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements. | |||||||||
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
| 14 |
(THIS PAGE LEFT BLANK INTENTIONALLY.)
| Louisville Gas and Electric Company | |||||||||||||||
| (Unaudited) | |||||||||||||||
| (Millions of Dollars) | |||||||||||||||
| Three Months Ended March 31, | |||||||||||||||
| 2014 | 2013 | ||||||||||||||
| Operating Revenues | |||||||||||||||
Retail and wholesale | $ | 442 | $ | 369 | |||||||||||
Electric revenue from affiliate | 37 | 21 | |||||||||||||
Total Operating Revenues | 479 | 390 | |||||||||||||
| Operating Expenses | |||||||||||||||
| Operation | |||||||||||||||
Fuel | 117 | 96 | |||||||||||||
Energy purchases | 118 | 80 | |||||||||||||
Energy purchases from affiliate | 6 | 1 | |||||||||||||
Other operation and maintenance | 98 | 91 | |||||||||||||
Depreciation | 38 | 36 | |||||||||||||
Taxes, other than income | 6 | 6 | |||||||||||||
Total Operating Expenses | 383 | 310 | |||||||||||||
Operating Income | 96 | 80 | |||||||||||||
Other Income (Expense) - net | (2) | (1) | |||||||||||||
Interest Expense | 12 | 10 | |||||||||||||
Income Before Income Taxes | 82 | 69 | |||||||||||||
Income Taxes | 30 | 25 | |||||||||||||
Net Income (a) | $ | 52 | $ | 44 | |||||||||||
| 15 |
| (a) | Net income |
| Louisville Gas and Electric Company | |||||||||
| (Unaudited) | |||||||||
| (Millions of Dollars) | |||||||||
| Three Months Ended March 31, | |||||||||
| 2014 | 2013 | ||||||||
| Cash Flows from Operating Activities | |||||||||
Net income | $ | 52 | $ | 44 | |||||
| Adjustments to reconcile net income to net cash provided by operating activities | |||||||||
Depreciation | 38 | 36 | |||||||
Amortization | 3 | 3 | |||||||
Defined benefit plans - expense | 2 | 6 | |||||||
Deferred income taxes and investment tax credits | 6 | 11 | |||||||
Other | (5) | (5) | |||||||
| Change in current assets and current liabilities | |||||||||
Accounts receivable | (40) | (37) | |||||||
Accounts payable | 14 | 9 | |||||||
Accounts payable to affiliates | (7) | (7) | |||||||
Unbilled revenues | 22 | 1 | |||||||
Fuel, materials and supplies | 44 | 37 | |||||||
Taxes | 21 | 17 | |||||||
Other | 5 | 11 | |||||||
| Other operating activities | |||||||||
Defined benefit plans - funding | (9) | (43) | |||||||
Other liabilities | 2 | 2 | |||||||
Net cash provided by operating activities | 148 | 85 | |||||||
| Cash Flows from Investing Activities | |||||||||
Expenditures for property, plant and equipment | (116) | (98) | |||||||
Net (increase) decrease in restricted cash and cash equivalents | 1 | 4 | |||||||
Net cash provided by (used in) investing activities | (115) | (94) | |||||||
| Cash Flows from Financing Activities | |||||||||
Net increase (decrease) in short-term debt | (5) | 15 | |||||||
Payment of common stock dividends to parent | (27) | (19) | |||||||
Contributions from parent | 25 | ||||||||
Net cash provided by (used in) financing activities | (32) | 21 | |||||||
Net Increase (Decrease) in Cash and Cash Equivalents | 1 | 12 | |||||||
Cash and Cash Equivalents at Beginning of Period | 8 | 22 | |||||||
Cash and Cash Equivalents at End of Period | $ | 9 | $ | 34 | |||||
| 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) | |||||||||
| March 31, | December 31, | ||||||||
| 2014 | 2013 | ||||||||
| Assets | |||||||||
| Current Assets | |||||||||
Cash and cash equivalents | $ | 9 | $ | 8 | |||||
| Accounts receivable (less reserve: 2014, $2; 2013, $2) | |||||||||
Customer | 118 | 102 | |||||||
Other | 8 | 9 | |||||||
Unbilled revenues | 63 | 85 | |||||||
Accounts receivable from affiliates | 23 | ||||||||
Fuel, materials and supplies | 110 | 154 | |||||||
Prepayments | 7 | 7 | |||||||
Regulatory assets | 22 | 17 | |||||||
Other current assets | 5 | 3 | |||||||
Total Current Assets | 365 | 385 | |||||||
| Property, Plant and Equipment | |||||||||
Regulated utility plant | 3,475 | 3,383 | |||||||
Less: accumulated depreciation - regulated utility plant | 364 | 332 | |||||||
Regulated utility plant, net | 3,111 | 3,051 | |||||||
Construction work in progress | 680 | 651 | |||||||
Property, Plant and Equipment, net | 3,791 | 3,702 | |||||||
| Other Noncurrent Assets | |||||||||
Regulatory assets | 303 | 303 | |||||||
Goodwill | 389 | 389 | |||||||
Other intangibles | 114 | 120 | |||||||
Other noncurrent assets | 33 | 35 | |||||||
Total Other Noncurrent Assets | 839 | 847 | |||||||
Total Assets | $ | 4,995 | $ | 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) | |||||||||
| March 31, | December 31, | ||||||||
| 2014 | 2013 | ||||||||
| Liabilities and Equity | |||||||||
| Current Liabilities | |||||||||
Short-term debt | $ | 15 | $ | 20 | |||||
Accounts payable | 189 | 166 | |||||||
Accounts payable to affiliates | 17 | 24 | |||||||
Customer deposits | 24 | 24 | |||||||
Taxes | 32 | 11 | |||||||
Price risk management liabilities | 4 | 4 | |||||||
Regulatory liabilities | 9 | 9 | |||||||
Interest | 15 | 6 | |||||||
Other current liabilities | 26 | 32 | |||||||
Total Current Liabilities | 331 | 296 | |||||||
Long-term Debt | 1,353 | 1,353 | |||||||
| Deferred Credits and Other Noncurrent Liabilities | |||||||||
Deferred income taxes | 590 | 582 | |||||||
Investment tax credits | 38 | 38 | |||||||
Accrued pension obligations | 10 | 19 | |||||||
Asset retirement obligations | 70 | 68 | |||||||
Regulatory liabilities | 477 | 482 | |||||||
Price risk management liabilities | 36 | 32 | |||||||
Other deferred credits and noncurrent liabilities | 105 | 104 | |||||||
Total Deferred Credits and Other Noncurrent Liabilities | 1,326 | 1,325 | |||||||
| Commitments and Contingent Liabilities (Notes 6 and 10) | |||||||||
| Stockholder's Equity | |||||||||
Common stock - no par value (a) | 424 | 424 | |||||||
Additional paid-in capital | 1,364 | 1,364 | |||||||
Earnings reinvested | 197 | 172 | |||||||
Total Equity | 1,985 | 1,960 | |||||||
Total Liabilities and Equity | $ | 4,995 | $ | 4,934 | |||||
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
| Louisville Gas and Electric Company | ||||||||||||||
| (Unaudited) | ||||||||||||||
| (Millions of Dollars) | ||||||||||||||
| Common | ||||||||||||||
| stock | ||||||||||||||
| shares | Additional | |||||||||||||
| outstanding | Common | paid-in | Earnings | |||||||||||
| (a) | stock | capital | reinvested | Total | ||||||||||
December 31, 2013 | 21,294 | $ | 424 | $ | 1,364 | $ | 172 | $ | 1,960 | |||||
Net income | 52 | 52 | ||||||||||||
Cash dividends declared on common stock | (27) | (27) | ||||||||||||
March 31, 2014 | 21,294 | $ | 424 | $ | 1,364 | $ | 197 | $ | 1,985 | |||||
December 31, 2012 | 21,294 | $ | 424 | $ | 1,278 | $ | 108 | $ | 1,810 | |||||
Net income | 44 | 44 | ||||||||||||
Capital contributions from LKE | 25 | 25 | ||||||||||||
Cash dividends declared on common stock | (19) | (19) | ||||||||||||
March 31, 2013 | 21,294 | $ | 424 | $ | 1,303 | $ | 133 | $ | 1,860 | |||||
| 16 |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
| 17 |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
| 18 |
| CONDENSED CONSOLIDATED BALANCE SHEETS | |||||||||
| LG&E and KU Energy LLC and Subsidiaries | |||||||||
| (Unaudited) | |||||||||
| (Millions of Dollars) | |||||||||
| March 31, | December 31, | ||||||||
| 2015 | 2014 | ||||||||
| Liabilities and Equity | |||||||||
| Current Liabilities | |||||||||
| Short-term debt | $ | 484 | $ | 575 | |||||
| Long-term debt due within one year | 900 | 900 | |||||||
| Notes payable with affiliates | 40 | 41 | |||||||
| Accounts payable | 350 | 399 | |||||||
| Accounts payable to affiliates | 3 | 2 | |||||||
| Customer deposits | 52 | 52 | |||||||
| Taxes | 25 | 36 | |||||||
| Price risk management liabilities | 5 | 5 | |||||||
| Price risk management liabilities with affiliates | 122 | 66 | |||||||
| Regulatory liabilities | 24 | 15 | |||||||
| Interest | 60 | 23 | |||||||
| Other current liabilities | 115 | 131 | |||||||
| Total Current Liabilities | 2,180 | 2,245 | |||||||
| Long-term Debt | 3,667 | 3,667 | |||||||
| Deferred Credits and Other Noncurrent Liabilities | |||||||||
| Deferred income taxes | 1,324 | 1,241 | |||||||
| Investment tax credits | 130 | 131 | |||||||
| Accrued pension obligations | 256 | 305 | |||||||
| Asset retirement obligations | 266 | 274 | |||||||
| Regulatory liabilities | 961 | 974 | |||||||
| Price risk management liabilities | 47 | 43 | |||||||
| Other deferred credits and noncurrent liabilities | 270 | 268 | |||||||
| Total Deferred Credits and Other Noncurrent Liabilities | 3,254 | 3,236 | |||||||
| Commitments and Contingent Liabilities (Notes 6 and 10) | |||||||||
| Member's equity | 4,342 | 4,248 | |||||||
| Total Liabilities and Equity | $ | 13,443 | $ | 13,396 | |||||
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
| 19 |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
| 20 |
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| 21 |
| (a) | Net income equals comprehensive income. |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
| 22 |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
| 23 |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
| 24 |
| CONDENSED BALANCE SHEETS | |||||||||
| Louisville Gas and Electric Company | |||||||||
| (Unaudited) | |||||||||
| (Millions of Dollars, shares in thousands) | |||||||||
| March 31, | December 31, | ||||||||
| 2015 | 2014 | ||||||||
| Liabilities and Equity | |||||||||
| Current Liabilities | |||||||||
| Short-term debt | $ | 216 | $ | 264 | |||||
| Long-term debt due within one year | 250 | 250 | |||||||
| Accounts payable | 222 | 240 | |||||||
| Accounts payable to affiliates | 20 | 20 | |||||||
| Customer deposits | 25 | 25 | |||||||
| Taxes | 12 | 19 | |||||||
| Price risk management liabilities | 5 | 5 | |||||||
| Price risk management liabilities with affiliates | 61 | 33 | |||||||
| Regulatory liabilities | 14 | 10 | |||||||
| Interest | 15 | 6 | |||||||
| Other current liabilities | 37 | 42 | |||||||
| Total Current Liabilities | 877 | 914 | |||||||
| Long-term Debt | 1,103 | 1,103 | |||||||
| Deferred Credits and Other Noncurrent Liabilities | |||||||||
| Deferred income taxes | 735 | 700 | |||||||
| Investment tax credits | 36 | 36 | |||||||
| Accrued pension obligations | 34 | 57 | |||||||
| Asset retirement obligations | 64 | 66 | |||||||
| Regulatory liabilities | 454 | 458 | |||||||
| Price risk management liabilities | 47 | 43 | |||||||
| Other deferred credits and noncurrent liabilities | 110 | 111 | |||||||
| Total Deferred Credits and Other Noncurrent Liabilities | 1,480 | 1,471 | |||||||
| Commitments and Contingent Liabilities (Notes 6 and 10) | |||||||||
| Stockholder's Equity | |||||||||
| Common stock - no par value (a) | 424 | 424 | |||||||
| Additional paid-in capital | 1,521 | 1,521 | |||||||
| Earnings reinvested | 259 | 229 | |||||||
| Total Equity | 2,204 | 2,174 | |||||||
| Total Liabilities and Equity | $ | 5,664 | $ | 5,662 | |||||
| (a) | 75,000 shares authorized; 21,294 shares issued and outstanding at March 31, 2015 and December 31, 2014. |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
| 25 |
| (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.
| 26 |
(THIS PAGE LEFT BLANK INTENTIONALLY.)
| Kentucky Utilities Company | |||||||||||||||
| (Unaudited) | |||||||||||||||
| (Millions of Dollars) | |||||||||||||||
| Three Months Ended March 31, | |||||||||||||||
| 2014 | 2013 | ||||||||||||||
| Operating Revenues | |||||||||||||||
Retail and wholesale | $ | 492 | $ | 431 | |||||||||||
Electric revenue from affiliate | 6 | 1 | |||||||||||||
Total Operating Revenues | 498 | 432 | |||||||||||||
| Operating Expenses | |||||||||||||||
| Operation | |||||||||||||||
Fuel | 160 | 135 | |||||||||||||
Energy purchases | 6 | 6 | |||||||||||||
Energy purchases from affiliate | 37 | 21 | |||||||||||||
Other operation and maintenance | 98 | 97 | |||||||||||||
Depreciation | 48 | 46 | |||||||||||||
Taxes, other than income | 7 | 6 | |||||||||||||
Total Operating Expenses | 356 | 311 | |||||||||||||
Operating Income | 142 | 121 | |||||||||||||
Other Income (Expense) - net | (1) | ||||||||||||||
Interest Expense | 19 | 17 | |||||||||||||
Income Before Income Taxes | 123 | 103 | |||||||||||||
Income Taxes | 46 | 39 | |||||||||||||
Net Income (a) | $ | 77 | $ | 64 | |||||||||||
| (a) Net income approximates comprehensive income. | |||||||||||||||
| The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements. | |||||||||||||||
| Kentucky Utilities Company | |||||||||
| (Unaudited) | |||||||||
| (Millions of Dollars) | |||||||||
| Three Months Ended March 31, | |||||||||
| 2014 | 2013 | ||||||||
| Cash Flows from Operating Activities | |||||||||
Net income | $ | 77 | $ | 64 | |||||
| Adjustments to reconcile net income to net cash provided by operating activities | |||||||||
Depreciation | 48 | 46 | |||||||
Amortization | 3 | 4 | |||||||
Defined benefit plans - expense | 2 | 5 | |||||||
Deferred income taxes and investment tax credits | 34 | 35 | |||||||
Other | 2 | 9 | |||||||
| Change in current assets and current liabilities | |||||||||
Accounts receivable | (24) | (31) | |||||||
Accounts payable | 15 | 32 | |||||||
Accounts payable to affiliates | 16 | 8 | |||||||
Unbilled revenues | 14 | (1) | |||||||
Fuel, materials and supplies | 9 | 10 | |||||||
Taxes | (12) | (17) | |||||||
Accrued interest | 18 | 15 | |||||||
Other | (9) | (20) | |||||||
| Other operating activities | |||||||||
Defined benefit plans - funding | (3) | (60) | |||||||
Other assets | 1 | ||||||||
Other liabilities | 1 | (15) | |||||||
Net cash provided by operating activities | 191 | 85 | |||||||
| Cash Flows from Investing Activities | |||||||||
Expenditures for property, plant and equipment | (154) | (172) | |||||||
Net cash provided by (used in) investing activities | (154) | (172) | |||||||
| Cash Flows from Financing Activities | |||||||||
Net increase (decrease) in short-term debt | (40) | 45 | |||||||
Payment of common stock dividends to parent | (37) | (13) | |||||||
Contributions from parent | 40 | 50 | |||||||
Net cash provided by (used in) financing activities | (37) | 82 | |||||||
Net Increase (Decrease) in Cash and Cash Equivalents | (5) | ||||||||
Cash and Cash Equivalents at Beginning of Period | 21 | 21 | |||||||
Cash and Cash Equivalents at End of Period | $ | 21 | $ | 16 | |||||
| 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) | |||||||||
| March 31, | December 31, | ||||||||
| 2014 | 2013 | ||||||||
| Assets | |||||||||
| Current Assets | |||||||||
Cash and cash equivalents | $ | 21 | $ | 21 | |||||
| Accounts receivable (less reserve: 2014, $4; 2013, $4) | |||||||||
Customer | 147 | 122 | |||||||
Other | 7 | 9 | |||||||
Unbilled revenues | 81 | 95 | |||||||
Fuel, materials and supplies | 115 | 124 | |||||||
Prepayments | 5 | 4 | |||||||
Regulatory assets | 9 | 10 | |||||||
Other current assets | 12 | 6 | |||||||
Total Current Assets | 397 | 391 | |||||||
| Property, Plant and Equipment | |||||||||
Regulated utility plant | 5,208 | 5,143 | |||||||
Less: accumulated depreciation - regulated utility plant | 485 | 446 | |||||||
Regulated utility plant, net | 4,723 | 4,697 | |||||||
Other, net | 1 | 1 | |||||||
Construction work in progress | 1,185 | 1,139 | |||||||
Property, Plant and Equipment, net | 5,909 | 5,837 | |||||||
| Other Noncurrent Assets | |||||||||
Regulatory assets | 172 | 171 | |||||||
Goodwill | 607 | 607 | |||||||
Other intangibles | 95 | 101 | |||||||
Other noncurrent assets | 56 | 56 | |||||||
Total Other Noncurrent Assets | 930 | 935 | |||||||
Total Assets | $ | 7,236 | $ | 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) | |||||||||
| March 31, | December 31, | ||||||||
| 2014 | 2013 | ||||||||
| Liabilities and Equity | |||||||||
| Current Liabilities | |||||||||
Short-term debt | $ | 110 | $ | 150 | |||||
Accounts payable | 140 | 159 | |||||||
Accounts payable to affiliates | 41 | 25 | |||||||
Customer deposits | 26 | 26 | |||||||
Taxes | 21 | 33 | |||||||
Regulatory liabilities | 3 | 5 | |||||||
Interest | 29 | 11 | |||||||
Other current liabilities | 30 | 36 | |||||||
Total Current Liabilities | 400 | 445 | |||||||
Long-term Debt | 2,091 | 2,091 | |||||||
| Deferred Credits and Other Noncurrent Liabilities | |||||||||
Deferred income taxes | 699 | 658 | |||||||
Investment tax credits | 96 | 97 | |||||||
Accrued pension obligations | 9 | 11 | |||||||
Asset retirement obligations | 181 | 177 | |||||||
Regulatory liabilities | 547 | 551 | |||||||
Other deferred credits and noncurrent liabilities | 90 | 89 | |||||||
Total Deferred Credits and Other Noncurrent Liabilities | 1,622 | 1,583 | |||||||
| Commitments and Contingent Liabilities (Notes 6 and 10) | |||||||||
| Stockholder's Equity | |||||||||
Common stock - no par value (a) | 308 | 308 | |||||||
Additional paid-in capital | 2,545 | 2,505 | |||||||
Accumulated other comprehensive income | 1 | ||||||||
Earnings reinvested | 270 | 230 | |||||||
Total Equity | 3,123 | 3,044 | |||||||
Total Liabilities and Equity | $ | 7,236 | $ | 7,163 | |||||
| 27 |
| (a) | Net income approximates comprehensive income. |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
| Kentucky Utilities Company | |||||||||||||||||
| (Unaudited) | |||||||||||||||||
| (Millions of Dollars) | |||||||||||||||||
| Common | Accumulated | ||||||||||||||||
| stock | other | ||||||||||||||||
| shares | Additional | comprehensive | |||||||||||||||
| outstanding | Common | paid-in | Earnings | income | |||||||||||||
| (a) | stock | capital | reinvested | (loss) | Total | ||||||||||||
December 31, 2013 | 37,818 | $ | 308 | $ | 2,505 | $ | 230 | $ | 1 | $ | 3,044 | ||||||
Net income | 77 | 77 | |||||||||||||||
Capital contributions from LKE | 40 | 40 | |||||||||||||||
| Cash dividends declared on common | |||||||||||||||||
stock | (37) | (37) | |||||||||||||||
Other comprehensive income (loss) | (1) | (1) | |||||||||||||||
March 31, 2014 | 37,818 | $ | 308 | $ | 2,545 | $ | 270 | $ | $ | 3,123 | |||||||
December 31, 2012 | 37,818 | $ | 308 | $ | 2,348 | $ | 126 | $ | 1 | $ | 2,783 | ||||||
Net income | 64 | 64 | |||||||||||||||
Capital contributions from LKE | 50 | 50 | |||||||||||||||
| Cash dividends declared on common | |||||||||||||||||
stock | (13) | (13) | |||||||||||||||
March 31, 2013 | 37,818 | $ | 308 | $ | 2,398 | $ | 177 | $ | 1 | $ | 2,884 | ||||||
| 28 |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
| 29 |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
| 30 |
| CONDENSED BALANCE SHEETS | |||||||||
| Kentucky Utilities Company | |||||||||
| (Unaudited) | |||||||||
| (Millions of Dollars, shares in thousands) | |||||||||
| March 31, | December 31, | ||||||||
| 2015 | 2014 | ||||||||
| Liabilities and Equity | |||||||||
| Current Liabilities | |||||||||
| Short-term debt | $ | 193 | $ | 236 | |||||
| Long-term debt due within one year | 250 | 250 | |||||||
| Accounts payable | 114 | 141 | |||||||
| Accounts payable to affiliates | 33 | 47 | |||||||
| Customer deposits | 27 | 27 | |||||||
| Taxes | 13 | 14 | |||||||
| Price risk management liabilities with affiliates | 61 | 33 | |||||||
| Regulatory liabilities | 10 | 5 | |||||||
| Interest | 30 | 11 | |||||||
| Other current liabilities | 48 | 41 | |||||||
| Total Current Liabilities | 779 | 805 | |||||||
| Long-term Debt | 1,841 | 1,841 | |||||||
| Deferred Credits and Other Noncurrent Liabilities | |||||||||
| Deferred income taxes | 933 | 884 | |||||||
| Investment tax credits | 94 | 95 | |||||||
| Accrued pension obligations | 44 | 59 | |||||||
| Asset retirement obligations | 202 | 208 | |||||||
| Regulatory liabilities | 507 | 516 | |||||||
| Other deferred credits and noncurrent liabilities | 101 | 101 | |||||||
| Total Deferred Credits and Other Noncurrent Liabilities | 1,881 | 1,863 | |||||||
| Commitments and Contingent Liabilities (Notes 6 and 10) | |||||||||
| Stockholder's Equity | |||||||||
| Common stock - no par value (a) | 308 | 308 | |||||||
| Additional paid-in capital | 2,596 | 2,596 | |||||||
| Accumulated other comprehensive income (loss) | (1) | ||||||||
| Earnings reinvested | 350 | 302 | |||||||
| Total Equity | 3,253 | 3,206 | |||||||
| Total Liabilities and Equity | $ | 7,754 | $ | 7,715 | |||||
| (a) | 80,000 shares authorized; 37,818 shares issued and outstanding at March 31, 2015 and December 31, 2014. |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
| 31 |
| (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.
| 32 |
Combined Notes to Condensed Financial Statements (Unaudited)
(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, 20132014 is derived from that Registrant's 20132014 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 20132014 Form 10-K. The results of operations for the three months ended March 31, 2014,2015 are not necessarily indicative of the results to be expected for the full year ending December 31, 2014,2015 or other future periods, because results for interim periods can be disproportionately influenced by various factors, developments and seasonal variations.
The classification of certain prior period amounts has been changed to conform to the presentation in the March 31, 20142015 financial statements.
(PPL)
"Income (Loss) from Discontinued Operations (net of income taxes)" on the Statements of Income includes the activities of PPL Montana's hydroelectric generating facilities sold in the fourth quarter of 2014. See Note 8 for additional information. The Statements of Cash Flows do not separately report the cash flows of the Discontinued Operations.
(All Registrants)
The following accounting policy disclosures represent updates to Note 1 in each Registrant's 20132014 Form 10-K and should be read in conjunction with those disclosures.
In accordance with a PUC-approved purchase of accounts receivable program, PPL Electric purchases certain accounts receivable from alternative electricity suppliers (including PPL EnergyPlus) at a discount, which reflects a provision for uncollectible accounts. The alternative electricity suppliers have no continuing involvement or interest in the purchased accounts receivable. The purchased 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 months ended March 31, 2015, PPL Electric purchased $331 million of accounts receivable from unaffiliated third parties and $93 million from PPL EnergyPlus. During the three months ended March 31, 2014, PPL Electric purchased $362 million of accounts receivable from unaffiliated third parties and $105 million from PPL EnergyPlus. During
Depreciation (PPL)
Effective January 1, 2015, after completing a review of the useful lives of its distribution network assets, WPD extended the weighted average useful lives of these assets to 69 years from 55 years. For the three months ended March 31, 2013, PPL Electric purchased $2592015, this change in useful lives resulted in lower depreciation of $20 million of accounts receivable from unaffiliated third parties and $77($16 million from PPL EnergyPlus.after-tax or $0.02 per share).
| 33 |
Reporting of Discontinued Operations
Effective January 1, 2014,2015, the Registrants retrospectively adopted accounting guidance for 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 be in the scope of this guidance, it will be measured as the sum of the amount the reporting entity agreed to pay on the basis of its arrangements among its co-obligors and any additional amount the reporting entity expects to pay on behalf of its co-obligors. This guidance also requires additional disclosures for these obligations.
A disposal of a component of an entity or a group of components of an entity is required to be released into earningsreported 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 ceases to have a controlling financial interest in a subsidiary or group of assets within a consolidated foreigncomponents of an entity andmeets 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 transfer results(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 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 includeda distribution to owners 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.
(PPL)
See Note 2 in PPL's 20132014 Form 10-K for a discussion of reportable segments and related information.
In June 2014, PPL and PPL Energy Supply, which substantially represents PPL's Supply segment, executed definitive agreements with affiliates of Riverstone to combine their competitive power generation businesses into a new, stand-alone, publicly traded company named Talen Energy. The transaction is expected to occur on June 1, 2015. Upon completion of this transaction, PPL will no longer have a Supply segment. See Note 8 for additional information.
Financial data for the segments and reconciliation to PPL's consolidated results for the periods ended March 31 are:
| Three Months | ||||||||||||||||
| 2014 | 2013 | |||||||||||||||
| Income Statement Data | ||||||||||||||||
| Revenues from external customers | ||||||||||||||||
| U.K. Regulated | $ | 648 | $ | 648 | ||||||||||||
| Kentucky Regulated | 934 | 800 | ||||||||||||||
| Pennsylvania Regulated | 591 | 512 | ||||||||||||||
| Supply (a) | (953) | 494 | ||||||||||||||
| Corporate and Other | 3 | 3 | ||||||||||||||
| Total | $ | 1,223 | $ | 2,457 | ||||||||||||
| Intersegment electric revenues | ||||||||||||||||
| Supply | $ | 27 | $ | 14 | ||||||||||||
| Net Income Attributable to PPL Shareowners | ||||||||||||||||
| U.K. Regulated | $ | 206 | $ | 313 | ||||||||||||
| Kentucky Regulated | 107 | 85 | ||||||||||||||
| Pennsylvania Regulated | 85 | 64 | ||||||||||||||
| Supply (a) | (75) | (46) | ||||||||||||||
| Corporate and Other | (7) | (3) | ||||||||||||||
| Total | $ | 316 | $ | 413 | ||||||||||||
| March 31, | December 31, | ||||||
| 2014 | 2013 | ||||||
| Balance Sheet Data | |||||||
| Assets | |||||||
| U.K. Regulated | $ | 16,535 | $ | 15,895 | |||
| Kentucky Regulated | 12,037 | 12,016 | |||||
| Pennsylvania Regulated | 7,022 | 6,846 | |||||
| Supply | 12,237 | 11,408 | |||||
| Corporate and Other (b) | 142 | 94 | |||||
| Total assets | $ | 47,973 | $ | 46,259 | |||
| Three Months | ||||||||||||||||
| 2015 | 2014 | |||||||||||||||
| Income Statement Data | ||||||||||||||||
| Revenues from external customers | ||||||||||||||||
| U.K. Regulated | $ | 697 | $ | 648 | ||||||||||||
| Kentucky Regulated | 899 | 934 | ||||||||||||||
| Pennsylvania Regulated | 630 | 591 | ||||||||||||||
| Supply (a) | 937 | (982) | ||||||||||||||
| Corporate and Other | 2 | 3 | ||||||||||||||
| Total | $ | 3,165 | $ | 1,194 | ||||||||||||
| Intersegment electric revenues | ||||||||||||||||
| Supply | $ | 9 | $ | 27 | ||||||||||||
| Net Income | ||||||||||||||||
| U.K. Regulated (a) | $ | 375 | $ | 206 | ||||||||||||
| Kentucky Regulated | 109 | 107 | ||||||||||||||
| Pennsylvania Regulated | 87 | 85 | ||||||||||||||
| Supply (a) | 95 | (75) | ||||||||||||||
| Corporate and Other (b) | (19) | (7) | ||||||||||||||
| Total | $ | 647 | $ | 316 | ||||||||||||
| March 31, | December 31, | ||||||
| 2015 | 2014 | ||||||
| Balance Sheet Data | |||||||
| Assets | |||||||
| U.K. Regulated | $ | 16,275 | $ | 16,005 | |||
| Kentucky Regulated | 13,109 | 13,062 | |||||
| Pennsylvania Regulated | 7,921 | 7,785 | |||||
| Supply | 10,631 | 11,025 | |||||
| Corporate and Other (c) | 985 | 987 | |||||
| Total assets | $ | 48,921 | $ | 48,864 | |||
| (a) | Includes unrealized gains and losses from economic activity. See Note 14 for additional information. |
| (b) | 2015 includes most of the transaction and transition costs related to the anticipated spinoff of PPL Energy Supply. See Note 8 for additional information. |
| (c) | Primarily consists of unallocated items, including cash, PP&E and the elimination of inter-segment transactions. |
| 34 |
(PPL)
Basic EPS is computed by dividing income available to PPL common shareowners by the weighted-average number of common shares outstanding during the applicable period. Diluted EPS is computed by dividing income available to PPL common shareowners by the weighted-average number of common shares outstanding, increased by incremental shares that would be outstanding if potentially dilutive non-participating securities were converted to common shares as calculated using the Treasury Stock methodMethod or the If-Converted Method, as applicable. Incremental non-participating securities that have a dilutive impact are detailed in the table below.
Reconciliations of the amounts of income and shares of PPL common stock (in thousands) for the periodsperiod ended March 31 used in the EPS calculation are:
| Three Months | |||||||||||||||
| 2014 | 2013 | ||||||||||||||
| Income (Numerator) | |||||||||||||||
| Net income attributable to PPL shareowners | $ | 316 | $ | 413 | |||||||||||
| Less amounts allocated to participating securities | 2 | 2 | |||||||||||||
| Net income available to PPL common shareowners - Basic | 314 | 411 | |||||||||||||
| Plus interest charges (net of tax) related to Equity Units (a) | 9 | 15 | |||||||||||||
| Net income available to PPL common shareowners - Diluted | $ | 323 | $ | 426 | |||||||||||
| Shares of Common Stock (Denominator) | |||||||||||||||
| Weighted-average shares - Basic EPS | 630,749 | 582,640 | |||||||||||||
| Add incremental non-participating securities: | |||||||||||||||
| Share-based payment awards | 1,511 | 810 | |||||||||||||
| Equity Units (a) | 31,679 | 71,990 | |||||||||||||
| Forward sale agreements | 1,580 | ||||||||||||||
| Weighted-average shares - Diluted EPS | 663,939 | 657,020 | |||||||||||||
| Basic EPS | |||||||||||||||
| Net Income Available to PPL common shareowners | $ | 0.50 | $ | 0.70 | |||||||||||
| Diluted EPS | |||||||||||||||
| Net Income Available to PPL common shareowners | $ | 0.49 | $ | 0.65 | |||||||||||
| Three Months | |||||||||||||||
| 2015 | 2014 | ||||||||||||||
| Income (Numerator) | |||||||||||||||
| Income from continuing operations after income taxes | $ | 647 | $ | 324 | |||||||||||
| Less amounts allocated to participating securities | 3 | 2 | |||||||||||||
| Income from continuing operations after income taxes available to PPL common shareowners - Basic | 644 | 322 | |||||||||||||
| Plus interest charges (net of tax) related to Equity Units (a) | 9 | ||||||||||||||
| Income from continuing operations after income taxes available to PPL common shareowners - Diluted | $ | 644 | $ | 331 | |||||||||||
| Income (loss) from discontinued operations (net of income taxes) available to PPL common shareowners - Basic | |||||||||||||||
| and Diluted | $ | $ | (8) | ||||||||||||
| Net income | $ | 647 | $ | 316 | |||||||||||
| Less amounts allocated to participating securities | 3 | 2 | |||||||||||||
| Net income available to PPL common shareowners - Basic | 644 | 314 | |||||||||||||
| Plus interest charges (net of tax) related to Equity Units (a) | 9 | ||||||||||||||
| Net income available to PPL common shareowners - Diluted | $ | 644 | $ | 323 | |||||||||||
| Shares of Common Stock (Denominator) | |||||||||||||||
| Weighted-average shares - Basic EPS | 666,974 | 630,749 | |||||||||||||
| Add incremental non-participating securities: | |||||||||||||||
| Share-based payment awards | 1,758 | 1,511 | |||||||||||||
| Equity Units (a) | 31,679 | ||||||||||||||
| Weighted-average shares - Diluted EPS | 668,732 | 663,939 | |||||||||||||
| Basic EPS | |||||||||||||||
| Available to PPL common shareowners: | |||||||||||||||
| Income from continuing operations after income taxes | $ | 0.97 | $ | 0.51 | |||||||||||
| Income (loss) from discontinued operations (net of income taxes) | (0.01) | ||||||||||||||
| Net Income Available to PPL common shareowners | $ | 0.97 | $ | 0.50 | |||||||||||
| Diluted EPS | |||||||||||||||
| Available to PPL common shareowners: | |||||||||||||||
| Income from continuing operations after income taxes | $ | 0.96 | $ | 0.50 | |||||||||||
| Income (loss) from discontinued operations (net of income taxes) | (0.01) | ||||||||||||||
| Net Income Available to PPL common shareowners | $ | 0.96 | $ | 0.49 | |||||||||||
For the periods ended March 31, PPL issued common stock related to stock-based compensation plans ESOP and DRIP as follows (in thousands):
| Three Months | ||||||||
| 2014 | 2013 | |||||||
| Stock-based compensation plans (a) | 1,096 | 446 | ||||||
| ESOP | 275 | |||||||
| DRIP | 549 | |||||||
| Three Months | ||||||||||||||
| 2015 | 2014 | |||||||||||||
| Stock-based compensation plans (a) | 1,445 | 1,096 | ||||||||||||
| DRIP | 419 | |||||||||||||
| (a) | Includes stock options exercised, vesting of performance units, vesting of restricted stock and restricted stock units and conversion of stock units granted to directors. |
For the periods ended March 31, the following shares (in thousands) were excluded from the computations of diluted EPS because the effect would have been antidilutive.
| 35 |
| Three Months | ||||||||||||
| 2014 | 2013 | |||||||||||
| Stock options | 2,540 | 6,589 | ||||||||||
| Performance units | 206 | |||||||||||
| Restricted stock units | 123 | 116 | ||||||||||
| Three Months | ||||||||||||
| 2015 | 2014 | |||||||||||
| Stock options | 1,473 | 2,540 | ||||||||||
| Performance units | 146 | |||||||||||
| Restricted stock units | 123 | |||||||||||
Reconciliations of income taxes for the periods ended March 31 are:
| (PPL) | ||||||||||||||||
| Three Months | ||||||||||||||||
| 2015 | 2014 | |||||||||||||||
| Federal income tax on Income from Continuing Operations Before | ||||||||||||||||
| Income Taxes at statutory tax rate - 35% | $ | 320 | $ | 153 | ||||||||||||
| Increase (decrease) due to: | ||||||||||||||||
| State income taxes, net of federal income tax benefit | 25 | 3 | ||||||||||||||
| Valuation allowance adjustments | 3 | |||||||||||||||
| Impact of lower U.K. income tax rates | (62) | (44) | ||||||||||||||
| U.S. income tax on foreign earnings - net of foreign tax credit | (1) | 11 | ||||||||||||||
| Intercompany interest on U.K. financing entities | (8) | (2) | ||||||||||||||
| Other | (9) | (7) | ||||||||||||||
| Total increase (decrease) | (52) | (39) | ||||||||||||||
| Total income taxes | $ | 268 | $ | 114 | ||||||||||||
| (PPL Electric) | ||||||||||||||||
| Three Months | ||||||||||||||||
| 2015 | 2014 | |||||||||||||||
| Federal income tax on Income Before Income Taxes at statutory tax rate - 35% | $ | 51 | $ | 48 | ||||||||||||
| Increase (decrease) due to: | ||||||||||||||||
| State income taxes, net of federal income tax benefit | 10 | 8 | ||||||||||||||
| Other | (2) | (3) | ||||||||||||||
| Total increase (decrease) | 8 | 5 | ||||||||||||||
| Total income taxes | $ | 59 | $ | 53 | ||||||||||||
| (LKE) | ||||||||||||||||
| Three Months | ||||||||||||||||
| 2015 | 2014 | |||||||||||||||
| Federal income tax on Income Before Income Taxes at statutory tax rate - 35% | $ | 68 | $ | 64 | ||||||||||||
| Increase (decrease) due to: | ||||||||||||||||
| State income taxes, net of federal income tax benefit | 7 | 7 | ||||||||||||||
| Valuation allowance adjustments | 3 | |||||||||||||||
| Other | (2) | (2) | ||||||||||||||
| Total increase (decrease) | 8 | 5 | ||||||||||||||
| Total income taxes | $ | 76 | $ | 69 | ||||||||||||
| (LG&E) | ||||||||||||||||
| Three Months | ||||||||||||||||
| 2015 | 2014 | |||||||||||||||
| Federal income tax on Income Before Income Taxes at statutory tax rate - 35% | $ | 30 | $ | 29 | ||||||||||||
| Increase (decrease) due to: | ||||||||||||||||
| State income taxes, net of federal income tax benefit | 3 | 3 | ||||||||||||||
| Other | (2) | |||||||||||||||
| Total increase (decrease) | 3 | 1 | ||||||||||||||
| Total income taxes | $ | 33 | $ | 30 | ||||||||||||
| 36 |
| (PPL) | |||||||||||||||
| Three Months | |||||||||||||||
| 2014 | 2013 | ||||||||||||||
| Federal income tax on Income Before Income Taxes at statutory tax rate - 35% | $ | 150 | $ | 197 | |||||||||||
| Increase (decrease) due to: | |||||||||||||||
| State income taxes, net of federal income tax benefit | 2 | 3 | |||||||||||||
| Impact of lower U.K. income tax rates | (45) | (38) | |||||||||||||
| U.S. income tax on foreign earnings - net of foreign tax credit | 11 | 2 | |||||||||||||
| Federal income tax credits, excluding foreign tax credit | (1) | (4) | |||||||||||||
| Amortization of investment tax credit | (2) | (3) | |||||||||||||
| Depreciation not normalized | (2) | (3) | |||||||||||||
| Other | (1) | (3) | |||||||||||||
| Total increase (decrease) | (38) | (46) | |||||||||||||
| Total income taxes | $ | 112 | $ | 151 | |||||||||||
| (PPL Energy Supply) | |||||||||||||||
| Three Months | |||||||||||||||
| 2014 | 2013 | ||||||||||||||
| Federal income tax on Income (Loss) Before Income Taxes at statutory tax rate - 35% | $ | (40) | $ | (26) | |||||||||||
| Increase (decrease) due to: | |||||||||||||||
| State income taxes, net of federal income tax benefit | (9) | (6) | |||||||||||||
| Federal income tax credits | (1) | (3) | |||||||||||||
| Other | 1 | ||||||||||||||
| Total increase (decrease) | (9) | (9) | |||||||||||||
| Total income taxes | $ | (49) | $ | (35) | |||||||||||
| (PPL Electric) | |||||||||||||||
| Three Months | |||||||||||||||
| 2014 | 2013 | ||||||||||||||
| Federal income tax on Income Before Income Taxes at statutory tax rate - 35% | $ | 48 | $ | 34 | |||||||||||
| Increase (decrease) due to: | |||||||||||||||
| State income taxes, net of federal income tax benefit | 8 | 5 | |||||||||||||
| Federal and state tax reserve adjustments | (2) | ||||||||||||||
| Depreciation not normalized | (2) | (3) | |||||||||||||
| Other | (1) | (1) | |||||||||||||
| Total increase (decrease) | 5 | (1) | |||||||||||||
| Total income taxes | $ | 53 | $ | 33 | |||||||||||
| (LKE) | |||||||||||||||
| Three Months | |||||||||||||||
| 2014 | 2013 | ||||||||||||||
| Federal income tax on Income Before Income Taxes at statutory tax rate - 35% | $ | 64 | $ | 54 | |||||||||||
| Increase (decrease) due to: | |||||||||||||||
| State income taxes, net of federal income tax benefit | 7 | 5 | |||||||||||||
| Other | (2) | (2) | |||||||||||||
| Total increase (decrease) | 5 | 3 | |||||||||||||
| Total income taxes | $ | 69 | $ | 57 | |||||||||||
| (LG&E) | |||||||||||||||
| Three Months | |||||||||||||||
| 2014 | 2013 | ||||||||||||||
| Federal income tax on Income Before Income Taxes at statutory tax rate - 35% | $ | 29 | $ | 24 | |||||||||||
| Increase (decrease) due to: | |||||||||||||||
| State income taxes, net of federal income tax benefit | 3 | 3 | |||||||||||||
| Other | (2) | (2) | |||||||||||||
| Total increase (decrease) | 1 | 1 | |||||||||||||
| Total income taxes | $ | 30 | $ | 25 | |||||||||||
| (KU) | |||||||||||||||
| Three Months | |||||||||||||||
| 2014 | 2013 | ||||||||||||||
| Federal income tax on Income Before Income Taxes at statutory tax rate - 35% | $ | 43 | $ | 36 | |||||||||||
| Increase (decrease) due to: | |||||||||||||||
| State income taxes, net of federal income tax benefit | 4 | 4 | |||||||||||||
| Other | (1) | (1) | |||||||||||||
| Total increase (decrease) | 3 | 3 | |||||||||||||
| Total income taxes | $ | 46 | $ | 39 | |||||||||||
| (KU) | ||||||||||||||||
| Three Months | ||||||||||||||||
| 2015 | 2014 | |||||||||||||||
| Federal income tax on Income Before Income Taxes at statutory tax rate - 35% | $ | 44 | $ | 43 | ||||||||||||
| Increase (decrease) due to: | ||||||||||||||||
| State income taxes, net of federal income tax benefit | 4 | 4 | ||||||||||||||
| Other | (1) | (1) | ||||||||||||||
| Total increase (decrease) | 3 | 3 | ||||||||||||||
| Total income taxes | $ | 47 | $ | 46 | ||||||||||||
In February 2015, PPL and the IRS Appeals division reached a settlement on the amount of PPL's refund from its open audits for the years 1998 - 2011. The settlement was required to be reviewed and approved by the Joint Committee on Taxation (JCT) before it is considered final. In April 2015, PPL was notified that the JCT approved PPL's settlement. Subject to a final determination of interest on the refund, PPL expects to record a tax benefit in the range of $20 million to $30 million in the second quarter of 2015 related to the settlement of previously unrecognized tax benefits.
(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 | ||||||||||||
| March 31, | December 31, | March 31, | December 31, | ||||||||||
| 2015 | 2014 | 2015 | 2014 | ||||||||||
| Current Regulatory Assets: | |||||||||||||
| Environmental cost recovery | $ | 10 | $ | 5 | |||||||||
| Gas supply clause | 1 | 15 | |||||||||||
| Fuel adjustment clause | 4 | 4 | |||||||||||
| Transmission service charge | 6 | $ | 6 | ||||||||||
| Other | 8 | 7 | $ | 3 | 6 | ||||||||
| Total current regulatory assets | $ | 23 | $ | 37 | $ | 3 | $ | 12 | |||||
| Noncurrent Regulatory Assets: | |||||||||||||
| Defined benefit plans | $ | 705 | $ | 720 | $ | 367 | $ | 372 | |||||
| Taxes recoverable through future rates | 317 | 316 | 317 | 316 | |||||||||
| Storm costs | 116 | 124 | 42 | 46 | |||||||||
| Unamortized loss on debt | 76 | 77 | 48 | 49 | |||||||||
| Interest rate swaps | 182 | 122 | |||||||||||
| Accumulated cost of removal of utility plant | 117 | 114 | 117 | 114 | |||||||||
| AROs | 87 | 79 | |||||||||||
| Other | 10 | 10 | |||||||||||
| Total noncurrent regulatory assets | $ | 1,610 | $ | 1,562 | $ | 891 | $ | 897 | |||||
| Current Regulatory Liabilities: | |||||||||||||
| Generation supply charge | $ | 26 | $ | 28 | $ | 26 | $ | 28 | |||||
| Demand side management | 13 | 2 | |||||||||||
| Gas supply clause | 6 | 6 | |||||||||||
| Transmission formula rate | 49 | 42 | 49 | 42 | |||||||||
| Storm damage expense | 7 | 3 | 7 | 3 | |||||||||
| Gas line tracker | 2 | 3 | |||||||||||
| Other | 6 | 7 | 3 | 3 | |||||||||
| Total current regulatory liabilities | $ | 109 | $ | 91 | $ | 85 | $ | 76 | |||||
| Noncurrent Regulatory Liabilities: | |||||||||||||
| Accumulated cost of removal of utility plant | $ | 695 | $ | 693 | |||||||||
| Coal contracts (a) | 49 | 59 | |||||||||||
| Power purchase agreement - OVEC (a) | 90 | 92 | |||||||||||
| Net deferred tax assets | 25 | 26 | |||||||||||
| Act 129 compliance rider | 26 | 18 | $ | 26 | $ | 18 | |||||||
| Defined benefit plans | 16 | 16 | |||||||||||
| Interest rate swaps | 84 | 84 | |||||||||||
| Other | 2 | 4 | |||||||||||
| Total noncurrent regulatory liabilities | $ | 987 | $ | 992 | $ | 26 | $ | 18 | |||||
| PPL | PPL Electric | ||||||||||||
| March 31, | December 31, | March 31, | December 31, | ||||||||||
| 2014 | 2013 | 2014 | 2013 | ||||||||||
| Current Regulatory Assets: | |||||||||||||
| Environmental cost recovery | $ | 7 | |||||||||||
| Gas supply clause | $ | 19 | 10 | ||||||||||
| Fuel adjustment clause | 10 | 2 | |||||||||||
| Demand side management | 1 | 8 | |||||||||||
| Other | 2 | 6 | $ | 1 | $ | 6 | |||||||
| Total current regulatory assets | $ | 32 | $ | 33 | $ | 1 | $ | 6 | |||||
| Noncurrent Regulatory Assets: | |||||||||||||
| Defined benefit plans | $ | 503 | $ | 509 | $ | 255 | $ | 257 | |||||
| Taxes recoverable through future rates | 307 | 306 | 307 | 306 | |||||||||
| Storm costs | 141 | 147 | 51 | 53 | |||||||||
| Unamortized loss on debt | 82 | 85 | 54 | 57 | |||||||||
| Interest rate swaps | 48 | 44 | |||||||||||
| Accumulated cost of removal of utility plant | 101 | 98 | 101 | 98 | |||||||||
| AROs | 51 | 44 | |||||||||||
| Other | 12 | 13 | 2 | 1 | |||||||||
| Total noncurrent regulatory assets | $ | 1,245 | $ | 1,246 | $ | 770 | $ | 772 | |||||
| Current Regulatory Liabilities: | |||||||||||||
| Generation supply charge | $ | 25 | $ | 23 | $ | 25 | $ | 23 | |||||
| Environmental cost recovery | 3 | ||||||||||||
| Gas supply clause | 2 | 3 | |||||||||||
| Transmission service charge | 10 | 8 | 10 | 8 | |||||||||
| Fuel adjustment clause | 4 | ||||||||||||
| Transmission formula rate | 27 | 20 | 27 | 20 | |||||||||
| Universal service rider | 5 | 10 | 5 | 10 | |||||||||
| Storm damage expense | 14 | 14 | |||||||||||
| Gas line tracker | 7 | 6 | |||||||||||
| Other | 1 | 2 | 1 | 1 | |||||||||
| Total current regulatory liabilities | $ | 80 | $ | 90 | $ | 68 | $ | 76 | |||||
| PPL | PPL Electric | ||||||||||||
| March 31, | December 31, | March 31, | December 31, | ||||||||||
| 2014 | 2013 | 2014 | 2013 | ||||||||||
| Noncurrent Regulatory Liabilities: | |||||||||||||
| Accumulated cost of removal of utility plant | $ | 692 | $ | 688 | |||||||||
| Coal contracts (a) | 88 | 98 | |||||||||||
| Power purchase agreement - OVEC (a) | 98 | 100 | |||||||||||
| Net deferred tax assets | 30 | 30 | |||||||||||
| Act 129 compliance rider | 13 | 15 | $ | 13 | $ | 15 | |||||||
| Defined benefit plans | 26 | 26 | |||||||||||
| Interest rate swaps | 86 | 86 | |||||||||||
| Other | 4 | 5 | |||||||||||
| Total noncurrent regulatory liabilities | $ | 1,037 | $ | 1,048 | $ | 13 | $ | 15 | |||||
| LKE | LG&E | KU | |||||||||||||||||
| March 31, | December 31, | March 31, | December 31, | March 31, | December 31, | ||||||||||||||
| 2014 | 2013 | 2014 | 2013 | 2014 | 2013 | ||||||||||||||
| Current Regulatory Assets: | |||||||||||||||||||
| Environmental cost recovery | $ | 7 | $ | 2 | $ | 5 | |||||||||||||
| Gas supply clause | $ | 19 | 10 | $ | 19 | 10 | |||||||||||||
| Fuel adjustment clause | 10 | 2 | 2 | 2 | $ | 8 | |||||||||||||
| Demand side management | 1 | 8 | 1 | 3 | 5 | ||||||||||||||
| Other | 1 | 1 | |||||||||||||||||
| Total current regulatory assets | $ | 31 | $ | 27 | $ | 22 | $ | 17 | $ | 9 | $ | 10 | |||||||
| Noncurrent Regulatory Assets: | |||||||||||||||||||
| Defined benefit plans | $ | 248 | $ | 252 | $ | 161 | $ | 164 | $ | 87 | $ | 88 | |||||||
| Storm costs | 90 | 94 | 49 | 51 | 41 | 43 | |||||||||||||
| Unamortized loss on debt | 28 | 28 | 18 | 18 | 10 | 10 | |||||||||||||
| Interest rate swaps | 48 | 44 | 48 | 44 | |||||||||||||||
| AROs | 51 | 44 | 23 | 21 | 28 | 23 | |||||||||||||
| Other | 10 | 12 | 4 | 5 | 6 | 7 | |||||||||||||
| Total noncurrent regulatory assets | $ | 475 | $ | 474 | $ | 303 | $ | 303 | $ | 172 | $ | 171 | |||||||
| Current Regulatory Liabilities: | ||||||||||||||||||||
| Environmental cost recovery | $ | 3 | $ | 3 | ||||||||||||||||
| Gas supply clause | 2 | $ | 3 | $ | 2 | $ | 3 | |||||||||||||
| Fuel adjustment clause | 4 | $ | 4 | |||||||||||||||||
| Gas line tracker | 7 | 6 | 7 | 6 | ||||||||||||||||
| Other | 1 | 1 | ||||||||||||||||||
| Total current regulatory liabilities | $ | 12 | $ | 14 | $ | 9 | $ | 9 | $ | 3 | $ | 5 | ||||||||
| Noncurrent Regulatory Liabilities: | ||||||||||||||||||||
| Accumulated cost of removal | ||||||||||||||||||||
| of utility plant | $ | 692 | $ | 688 | $ | 301 | $ | 299 | $ | 391 | $ | 389 | ||||||||
| Coal contracts (a) | 88 | 98 | 38 | 43 | 50 | 55 | ||||||||||||||
| Power purchase agreement - OVEC (a) | 98 | 100 | 68 | 69 | 30 | 31 | ||||||||||||||
| Net deferred tax assets | 30 | 30 | 25 | 26 | 5 | 4 | ||||||||||||||
| Defined benefit plans | 26 | 26 | 26 | 26 | ||||||||||||||||
| Interest rate swaps | 86 | 86 | 43 | 43 | 43 | 43 | ||||||||||||||
| Other | 4 | 5 | 2 | 2 | 2 | 3 | ||||||||||||||
| Total noncurrent regulatory liabilities | $ | 1,024 | $ | 1,033 | $ | 477 | $ | 482 | $ | 547 | $ | 551 | ||||||||
| 37 |
| LKE | LG&E | KU | |||||||||||||||||
| March 31, | December 31, | March 31, | December 31, | March 31, | December 31, | ||||||||||||||
| 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | ||||||||||||||
| Current Regulatory Assets: | |||||||||||||||||||
| Environmental cost recovery | $ | 10 | $ | 5 | $ | 7 | $ | 4 | $ | 3 | $ | 1 | |||||||
| Gas supply clause | 1 | 15 | 1 | 15 | |||||||||||||||
| Fuel adjustment clause | 4 | 4 | 4 | 2 | 2 | ||||||||||||||
| Other | 5 | 1 | 5 | 1 | |||||||||||||||
| Total current regulatory assets | $ | 20 | $ | 25 | $ | 12 | $ | 21 | $ | 8 | $ | 4 | |||||||
| Noncurrent Regulatory Assets: | |||||||||||||||||||
| Defined benefit plans | $ | 338 | $ | 348 | $ | 208 | $ | 215 | $ | 130 | $ | 133 | |||||||
| Storm costs | 74 | 78 | 41 | 43 | 33 | 35 | |||||||||||||
| Unamortized loss on debt | 28 | 28 | 18 | 18 | 10 | 10 | |||||||||||||
| Interest rate swaps | 182 | 122 | 121 | 89 | 61 | 33 | |||||||||||||
| AROs | 87 | 79 | 30 | 28 | 57 | 51 | |||||||||||||
| Other | 10 | 10 | 4 | 4 | 6 | 6 | |||||||||||||
| Total noncurrent regulatory assets | $ | 719 | $ | 665 | $ | 422 | $ | 397 | $ | 297 | $ | 268 | |||||||
| Current Regulatory Liabilities: | ||||||||||||||||||||
| Demand side management | $ | 13 | $ | 2 | $ | 5 | $ | 1 | $ | 8 | $ | 1 | ||||||||
| Gas supply clause | 6 | 6 | 6 | 6 | ||||||||||||||||
| Gas line tracker | 2 | 3 | 2 | 3 | ||||||||||||||||
| Other | 3 | 4 | 1 | 2 | 4 | |||||||||||||||
| Total current regulatory liabilities | $ | 24 | $ | 15 | $ | 14 | $ | 10 | $ | 10 | $ | 5 | ||||||||
| Noncurrent Regulatory Liabilities: | ||||||||||||||||||||
| Accumulated cost of removal | ||||||||||||||||||||
| of utility plant | $ | 695 | $ | 693 | $ | 304 | $ | 302 | $ | 391 | $ | 391 | ||||||||
| Coal contracts (a) | 49 | 59 | 21 | 25 | 28 | 34 | ||||||||||||||
| Power purchase agreement - OVEC (a) | 90 | 92 | 62 | 63 | 28 | 29 | ||||||||||||||
| Net deferred tax assets | 25 | 26 | 24 | 24 | 1 | 2 | ||||||||||||||
| Defined benefit plans | 16 | 16 | 16 | 16 | ||||||||||||||||
| Interest rate swaps | 84 | 84 | 42 | 42 | 42 | 42 | ||||||||||||||
| Other | 2 | 4 | 1 | 2 | 1 | 2 | ||||||||||||||
| Total noncurrent regulatory liabilities | $ | 961 | $ | 974 | $ | 454 | $ | 458 | $ | 507 | $ | 516 | ||||||||
| (a) | These liabilities were recorded as offsets to certain intangible assets that were recorded at fair value upon the acquisition of LKE by PPL. |
U. K. Activities(PPL)
U.K. ActivitiesRIIO-ED1(PPL)
On April 1, 2015, the RIIO-ED1 eight-year price control period commenced for WPD's four DNOs. See "Item 1. Business - Segment Information - U. K. Regulated Segment" of PPL's 2014 Form 10-K for additional information on RIIO-ED1.
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" revenuerevenues on the Statement of Income. The total recorded liability at March 31, 2014 was $1152015 of $97 million nearly 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
Rate Case Proceedings
On November 26, 2014, LG&E and KU filed an application for a CPCNrequests with the KPSC requesting approval to build a NGCC generating unit atfor increases in annual base electricity rates for LG&E's electric and gas operations and KU's Green River generating site and a solar generating facility at the E. W. Brown generating site. The proceeding is currently in the discovery phase and a hearing is scheduled for July 2014. Inelectric operations. On April 2014,20, 2015, LG&E and KU, and the other parties to the proceeding, filed a motion to hold further proceedingsunanimous settlement agreement with the KPSC. Among other things, the proposed settlement provides for increases in abeyance for up to 90 days in order to allow the companies to assess the potential impactannual revenue requirements associated with KU base electric rates of certain events$125 million and LG&E base gas rates of $7 million. The annual revenue requirement associated with base electric rates at LG&E will not increase. The settlement did not establish a specific return on their future capacity needs, including the recent receipt of termination notices to be generally effective in 2019 from certain KU municipal wholesale customers. See "Federal Matters - FERC Formula Rates" below for additional information relatingequity with respect to the municipal wholesale customers.base rates, however an authorized 10% return on equity will be utilized in the ECR and GLT mechanisms. The settlement agreement provides for deferred recovery of
| 38 |
costs associated with Green River Units 3 and 4 through their retirement. The new regulatory asset will be amortized over three years. The settlement also provides regulatory asset treatment for the difference between pension expense currently booked in accordance with LG&E and KU's pension accounting policy and such an expense using a 15 year amortization period for actuarial gains and losses. The proposed settlement remains subject to KPSC approval. If approved, the new rates and all elements of the settlement would be effective July 1, 2015.
Rate Case Proceeding
On March 31, 2015, PPL Electric filed a request with the PUC for an increase in its annual distribution revenue requirement of approximately $167.5 million. The proposal would result in a rate increase of 3.9% on a total bill basis and is expected to become effective on January 1, 2016. PPL Electric's application includes a request for an authorized return-on-equity of 10.95%. The application is based on a fully projected future test year of January 1, 2016 through December 31, 2016. PPL Electric cannot predict the outcome of this proceeding.
Distribution System Improvement Charge (DSIC)
Act 11 authorizes the PUC to approve two specific ratemaking mechanisms: the use of a fully projected future test year in base rate proceedings and, subject to certain conditions, the use of a DSIC. Such alternative ratemaking procedures and mechanisms provide opportunity for accelerated cost-recovery and, therefore, are important to PPL Electric as it is in a period of significant capital investment to maintain and enhance the reliability of its delivery system, including the replacement of aging distribution assets.
On March 31, 2015, PPL Electric filed a petition requesting a waiver of the DSIC cap of 5% of billed revenues and approval to increase the maximum allowable DSIC from 5% to 7.5% for service rendered after January 1, 2016. PPL Electric filed the petition concurrently with its 2015 rate case and is requesting that the PUC consolidate these two proceedings. PPL Electric cannot predict the outcome of this proceeding.
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).SDER. The SDER is a reconcilable automatic adjustment clause under which PPL Electric annually will compare actual storm costs to storm costs allowed in base rates and refund or recoup any differences from customers. In March 2013, PPL Electric filed its proposed SDER with the PUC and, as part of that filing, requested recovery of the 2012 qualifying storm costs related to Hurricane Sandy. PPL Electric proposed that the SDER become effective January 1, 2013 at a zero rate with qualifying storm costs incurred in 2013 and the 2012 Hurricane Sandy costs included in rates effective January 1, 2014. As 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. OnIn April 3, 2014, the PUC issued a final order approving the SDER. The SDER will be effectivewith a January 1, 2015 effective date and will initially includeincluding actual storm costs compared to collections fromfor December 2013 through November 2014. As a result, of the order, PPL Electric reduced its regulatory liability by $12 million.million in March 2014. Also, as part of the April 2014 order, PPL Electric canwas authorized to recover Hurricane Sandy storm damage costs through the SDER of $29 million over a three-year period beginning January 1, 2015. See "Storm Costs" below for additional information on Hurricane Sandy costs.
On June 20, 2014, the Office of Consumer Advocate (OCA) filed a petition with the Commonwealth Court of Pennsylvania requesting that the Court reverse and remand the April 2014 order permitting PPL Electric received an order fromto establish the PUC granting permission to defer qualifying costs in excess of insurance recoveries associated with Hurricane Sandy. At March 31, 2014 and December 31, 2013, $29 million was included onSDER. This matter remains pending before the Balance Sheets as a regulatory asset.
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 current technology does not meet all of the requirements of Act 129. PPL Electric recoversrecovered the cost of its pilot projectsevaluations through a cost recovery mechanism, the Smart Meter Rider (SMR).Rider. In August 2013, PPL Electric filed with the PUC an annual report describing the actions it was taking under its Smart Meter Plan during 2013 and its planned actions for 2014. PPL Electric also submitted revised SMR charges that became effective January 1, 2014. On June 30, 2014, PPL Electric 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 Junethe end of 2019. The total cost of the project is estimated to
| 39 |
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. On April 30, 2014.
Federal Matters
FERC Wholesale Formula Rates (PPL and PPL Electric)
In September 2013, KU filed an application with the FERC to adjust the formula rate under which KU provides wholesale requirements power sales to 12 municipal customers. Among other changes, the application requests an amended formula whereby KU would charge cost-based rates with a subsequent true-up to actual costs, replacing the current formula which does not include a true-up. KU's application proposed an authorized return on equity of 10.7%. Certain elements, including the new formula rate, became effective April 23, 2014, subject to refund. In April 2014, FERC accepted a motion filed by KU requesting a delay until mid-June of the effectiveness of other elements, including updated termination notice periods, new credit and uncollectible charge provisions. Also in April 2014, nine municipalities submitted notices of termination, under the original notice period provisions, to cease taking power under the wholesale requirements contracts, suchcontracts. Such terminations are to be effective in 2019, except in the case of one municipality with a conditional 2017 effective date. TheIn addition, a tenth municipality which has a previously settled termination date of 2016 has given notice that it will transfer service in June 2015. In July 2014, KU agreed on settlement terms with the two municipal customers that did not provide termination notices and filed the settlement proposal with the FERC for its approval. In August 2014, the FERC issued an order on the interim settlement agreement allowing the proposed rates to become effective pending a final order. If approved, the settlement agreement will resolve the rate case with respect to these two municipalities, including an authorized return on equity of 10% or the return on equity awarded to other parties are continuingin this case, whichever is lower. Also in July 2014, KU made a contractually required filing with the FERC that addressed certain rate recovery matters affecting the nine terminating municipalities during the remaining term of their contracts. KU and the terminating municipalities continue settlement negotiations.discussions in this proceeding. KU cannot currently predict the outcome of its FERC applications regarding its wholesale power agreements with the proceeding or related matters.
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. TheSheets.The following credit facilities were in place at:
| March 31, 2015 | December 31, 2014 | |||||||||||||||||||||||||
| Letters of | Letters of | |||||||||||||||||||||||||
| Credit | Credit | |||||||||||||||||||||||||
| and | and | |||||||||||||||||||||||||
| Commercial | Commercial | |||||||||||||||||||||||||
| Expiration | Paper | Unused | Paper | |||||||||||||||||||||||
| Date | Capacity | Borrowed | Issued | Capacity | Borrowed | Issued | ||||||||||||||||||||
| PPL | ||||||||||||||||||||||||||
| U.K. | ||||||||||||||||||||||||||
| WPD Ltd. | ||||||||||||||||||||||||||
| Syndicated Credit Facility | Dec. 2016 | £ | 210 | £ | 130 | £ | 80 | £ | 103 | |||||||||||||||||
| WPD (South West) | ||||||||||||||||||||||||||
| Syndicated Credit Facility | July 2019 | 245 | 245 | |||||||||||||||||||||||
| WPD (East Midlands) | ||||||||||||||||||||||||||
| Syndicated Credit Facility | July 2019 | 300 | 147 | 153 | 64 | |||||||||||||||||||||
| WPD (West Midlands) | ||||||||||||||||||||||||||
| Syndicated Credit Facility | July 2019 | 300 | 300 | |||||||||||||||||||||||
| Uncommitted Credit Facilities | 65 | £ | 5 | 60 | £ | 5 | ||||||||||||||||||||
| Total U.K. Credit Facilities (a) | £ | 1,120 | £ | 277 | £ | 5 | £ | 838 | £ | 167 | £ | 5 | ||||||||||||||
| March 31, 2014 | December 31, 2013 | |||||||||||||||||||||||||
| Letters of | Letters of | |||||||||||||||||||||||||
| Credit | Credit | |||||||||||||||||||||||||
| and | and | |||||||||||||||||||||||||
| Commercial | Commercial | |||||||||||||||||||||||||
| Expiration | Paper | Unused | Paper | |||||||||||||||||||||||
| Date | Capacity | Borrowed | Issued | Capacity | Borrowed | Issued | ||||||||||||||||||||
| PPL | ||||||||||||||||||||||||||
| U.K. | ||||||||||||||||||||||||||
| PPL WW Syndicated | ||||||||||||||||||||||||||
| Credit Facility | Dec. 2016 | £ | 210 | £ | 98 | £ | 112 | £ | 103 | |||||||||||||||||
| WPD (South West) | ||||||||||||||||||||||||||
| Syndicated Credit Facility | Jan. 2017 | 245 | 245 | |||||||||||||||||||||||
| WPD (East Midlands) | ||||||||||||||||||||||||||
| Syndicated Credit Facility | Apr. 2016 | 300 | 300 | |||||||||||||||||||||||
| WPD (West Midlands) | ||||||||||||||||||||||||||
| Syndicated Credit Facility | Apr. 2016 | 300 | 300 | |||||||||||||||||||||||
| Uncommitted Credit Facilities | 88 | £ | 5 | 83 | £ | 5 | ||||||||||||||||||||
| Total U.K. Credit Facilities (a) | £ | 1,143 | £ | 98 | £ | 5 | £ | 1,040 | £ | 103 | £ | 5 | ||||||||||||||
| U.S. | ||||||||||||||||||||||||||
| PPL Capital Funding | ||||||||||||||||||||||||||
| Syndicated Credit Facility (b) | Nov. 2018 | $ | 300 | $ | 185 | $ | 115 | $ | 270 | |||||||||||||||||
| Bilateral Credit Facility | Mar. 2015 | 150 | 150 | |||||||||||||||||||||||
| Total PPL Capital Funding Credit Facilities | $ | 450 | $ | 185 | $ | 265 | $ | 270 | ||||||||||||||||||
| PPL Energy Supply | ||||||||||||||||||||||||||
| Syndicated Credit Facility (b) | Nov. 2017 | $ | 3,000 | $ | 350 | $ | 730 | $ | 1,920 | $ | 29 | |||||||||||||||
| Letter of Credit Facility | Mar. 2015 | 150 | 91 | 59 | 138 | |||||||||||||||||||||
| Uncommitted Credit Facilities | 175 | 77 | 98 | 77 | ||||||||||||||||||||||
| Total PPL Energy Supply Credit Facilities | $ | 3,325 | $ | 350 | $ | 898 | $ | 2,077 | $ | 244 | ||||||||||||||||
| PPL Electric | ||||||||||||||||||||||||||
| Syndicated Credit Facility | Oct. 2017 | $ | 300 | $ | 61 | $ | 239 | $ | 21 | |||||||||||||||||
| LKE | ||||||||||||||||||||||||||
| Syndicated Credit Facility (b) | Oct. 2018 | $ | 75 | $ | 75 | $ | 75 | |||||||||||||||||||
| LG&E | ||||||||||||||||||||||||||
| Syndicated Credit Facility | Nov. 2017 | $ | 500 | $ | 15 | $ | 485 | $ | 20 | |||||||||||||||||
| March 31, 2014 | December 31, 2013 | |||||||||||||||||||||||||
| Letters of | Letters of | |||||||||||||||||||||||||
| Credit | Credit | |||||||||||||||||||||||||
| and | and | |||||||||||||||||||||||||
| Commercial | Commercial | |||||||||||||||||||||||||
| Expiration | Paper | Unused | Paper | |||||||||||||||||||||||
| Date | Capacity | Borrowed | Issued | Capacity | Borrowed | Issued | ||||||||||||||||||||
| KU | ||||||||||||||||||||||||||
| Syndicated Credit Facility | Nov. 2017 | $ | 400 | $ | 110 | $ | 290 | $ | 150 | |||||||||||||||||
| Letter of Credit Facility | May 2016 | 198 | 198 | 198 | ||||||||||||||||||||||
| Total KU Credit Facilities | $ | 598 | $ | 308 | $ | 290 | $ | 348 | ||||||||||||||||||
| 40 |
| March 31, 2015 | December 31, 2014 | |||||||||||||||||||||||||
| Letters of | Letters of | |||||||||||||||||||||||||
| Credit | Credit | |||||||||||||||||||||||||
| and | and | |||||||||||||||||||||||||
| Commercial | Commercial | |||||||||||||||||||||||||
| Expiration | Paper | Unused | Paper | |||||||||||||||||||||||
| Date | Capacity | Borrowed | Issued | Capacity | Borrowed | Issued | ||||||||||||||||||||
| U.S. | ||||||||||||||||||||||||||
| PPL Capital Funding | ||||||||||||||||||||||||||
| Syndicated Credit Facility | July 2019 | $ | 300 | $ | 300 | |||||||||||||||||||||
| Syndicated Credit Facility | Nov. 2018 | 300 | 300 | |||||||||||||||||||||||
| Bilateral Credit Facility | Mar. 2016 | 150 | $ | 32 | 118 | $ | 21 | |||||||||||||||||||
| Uncommitted Credit Facility | 65 | 1 | 64 | 1 | ||||||||||||||||||||||
| Total PPL Capital Funding Credit Facilities | $ | 815 | $ | 33 | $ | 782 | $ | 22 | ||||||||||||||||||
| PPL Energy Supply | ||||||||||||||||||||||||||
| Syndicated Credit Facility (b) | Nov. 2017 | $ | 3,000 | $ | 600 | $ | 267 | $ | 2,133 | $ | 630 | $ | 121 | |||||||||||||
| PPL Electric | ||||||||||||||||||||||||||
| Syndicated Credit Facility | July 2019 | $ | 300 | $ | 86 | $ | 214 | $ | 1 | |||||||||||||||||
| LKE | ||||||||||||||||||||||||||
| Syndicated Credit Facility (b) | Oct. 2018 | $ | 75 | $ | 75 | $ | 75 | |||||||||||||||||||
| �� | ||||||||||||||||||||||||||
| LG&E | ||||||||||||||||||||||||||
| Syndicated Credit Facility | July 2019 | $ | 500 | $ | 216 | $ | 284 | $ | 264 | |||||||||||||||||
| KU | ||||||||||||||||||||||||||
| Syndicated Credit Facility | July 2019 | $ | 400 | $ | 193 | $ | 207 | $ | 236 | |||||||||||||||||
| Letter of Credit Facility | Oct. 2017 | 198 | 198 | 198 | ||||||||||||||||||||||
| Total KU Credit Facilities | $ | 598 | $ | 391 | $ | 207 | $ | 434 | ||||||||||||||||||
(PPL)
PPL Energy Supply's Letter of Credit Facility and Uncommitted Credit Facilities that existed at December 31, 2014 have either expired or matured during the first quarter of 2015. Any previously issued letters of credit under these facilities were either terminated or reissued under the PPL Energy Supply Syndicated Credit Facility at March 31, 2015.
(All Registrants)
PPL Electric, LG&E and KU maintain commercial paper programs to provide an additional financing source to fund short-term liquidity needs, as necessary. Commercial paper issuances, included in "Short-term debt" on the Balance Sheets, are supported by the respective Registrant's Syndicated Credit Facility.The following commercial paper programs were in place at:
| March 31, 2014 | December 31, 2013 | ||||||||||||||||||||||
| Weighted - | Commercial | Weighted - | Commercial | ||||||||||||||||||||
| Average | Paper | Unused | Average | Paper | |||||||||||||||||||
| Interest Rate | Capacity | Issuances | Capacity | Interest Rate | Issuances | ||||||||||||||||||
| PPL Energy Supply | 0.48% | $ | 750 | $ | 620 | $ | 130 | ||||||||||||||||
| PPL Electric | 0.33% | 300 | 60 | 240 | 0.23% | $ | 20 | ||||||||||||||||
| LG&E | 0.27% | 350 | 15 | 335 | 0.29% | 20 | |||||||||||||||||
| KU | 0.29% | 350 | 110 | 240 | 0.32% | 150 | |||||||||||||||||
| Total | $ | 1,750 | $ | 805 | $ | 945 | $ | 190 | |||||||||||||||
| March 31, 2015 | December 31, 2014 | ||||||||||||||||||||||
| Weighted - | Commercial | Weighted - | Commercial | ||||||||||||||||||||
| Average | Paper | Unused | Average | Paper | |||||||||||||||||||
| Interest Rate | Capacity | Issuances | Capacity | Interest Rate | Issuances | ||||||||||||||||||
| PPL Electric | 0.57% | $ | 300 | $ | 85 | $ | 215 | ||||||||||||||||
| LG&E | 0.63% | 350 | 216 | 134 | 0.42% | $ | 264 | ||||||||||||||||
| KU | 0.62% | 350 | 193 | 157 | 0.49% | 236 | |||||||||||||||||
| Total | $ | 1,000 | $ | 494 | $ | 506 | $ | 500 | |||||||||||||||
PPL Energy Supply maintains a $500 million Facility Agreement expiring June 2017, thatwhich provides PPL Energy Supply the ability to request up to $500 million of committed letter of credit capacity at fees to be agreed upon at the time of each request, based on certain market conditions. At March 31, 2014,2015, PPL Energy Supply had not requested any capacity for the issuance of letters of credit under this arrangement.
| 41 |
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 2018,2019, but is subject to automatic one-year renewals under certain conditions. There were no$88 million of secured obligations outstanding under this facility at March 31, 2014.
(LKE)
See Note 11 for discussion of intercompany borrowings.
(PPL)
Long-term Debt and Equity Securities At-the-Market Stock Offering Program(PPL)
On February 26, 2015, PPL Capital Funding remarketed $978entered into two separate equity distribution agreements, pursuant to which PPL may sell, from time to time, up to an aggregate of $500 million of 4.32% Junior Subordinated Notes due 2019 that were originally issued in April 2011 as a component of PPL's 2011 Equity Units. In connection withits common stock. During the remarketing, PPL Capital Funding retired $228 million of the 4.32% Junior Subordinated Notes due 2019 and issued $350 million of 2.189% Junior Subordinated Notes due 2017 and $400 million of 3.184% Junior Subordinated Notes due 2019. Simultaneously, the newly issued notes were exchanged for $350 million of 3.95% Senior Notes due 2024 and $400 million of 5.00% Senior Notes due 2044. The transaction was accounted for as a debt extinguishment, resulting in a $(9) million gain (loss) on extinguishment of the Junior Subordinated Notes, recorded to "Interest Expense" on the Statement of Income. Except for the $228 million
Distributions
In February 2014,2015, PPL declared its quarterly common stock dividend, payable April 1, 2014,2015, at 37.25 cents per share (equivalent to $1.49 per annum). Future dividends, declared at the discretion of the Board of Directors, will be dependentdepend upon future earnings, cash flows, financial and legal requirements and other factors.
(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. See Note 8 in the 20132014 Form 10-K for additional information.
Divestitures
Anticipated Spinoff of PPL Energy Supply
In connection with the FERC approval, PPL and RJS Power agreed thatwithin 12 months after closing of the transaction, Talen Energy will divest approximately 1,300 MW of generating assets in one of two groups of assets (from PPL Energy
| 42 |
Supply's existing portfolio, this includes either the Holtwood and Wallenpaupack hydroelectric facilities or the Ironwood facility), and limit PJM energy market offers from assets it would retain in the other group to cost-based offers.
On April 29, 2015, PPL's Board of Directors declared the distribution of Holdco to PPL's shareowners of record on May 20, 2015, with the spinoff to occur on June 1, 2015. Based on the number of shares of PPL common stock outstanding at April 29, 2015, the distribution ratio is expected to be approximately 0.125 shares of Talen common stock for each share of PPL common stock. The final ratio will be determined after the 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.
Following the announcement of the transaction to form Talen Energy, efforts were initiated to identify the appropriate staffing for Talen Energy and for PPL and its subsidiaries following completion of the spinoff. Organizational plans were substantially completed in 2014. The new organizational plans identified the need to resize and restructure the organizations and as a result, in 2014, estimated charges for employee separation benefits were recorded. See Note 8 in the 2014 Form 10-K for additional information. The separation benefits include cash severance compensation, lump sum COBRA reimbursement payments and outplacement services. Most separations and payment of separation benefits are expected to be completed by the end of 2015. At March 31, 2015 and December 31, 2014, the recorded liabilities related to the separation benefits were $19 million and $30 million, which are included in "Other current liabilities" on the Balance Sheets.
Additional employee-related costs to be incurred primarily include accelerated stock-based compensation and pro-rated performance-based cash incentive and stock-based compensation awards, primarily for PPL Energy Supply was requiredemployees and for PPL employees who have become PPL Energy Supply employees in connection with the transaction. These costs will be recognized at the spinoff closing date. PPL estimates these additional costs will be in the range of $30 million to recapture$40 million.
PPL recorded $6 million of third-party costs during the three months ended March 31, 2015 related to this transaction. Of these costs, $2 million were primarily for legal and accounting fees to facilitate the transaction, and are recorded in "Other Income (Expense) - net" on the Statement of Income. An additional $4 million of consulting and other costs were incurred to ready the new Talen Energy organization and reconfigure the remaining PPL service functions. These costs are recorded in "Other operation and maintenance" on the Statement of Income. PPL recorded $27 million of third-party costs in 2014 related to this transaction. PPL currently estimates a range of total third-party costs that will ultimately be incurred of between $60 million and $70 million.
The assets and liabilities of investment tax credits previouslyPPL's Supply segment will continue to be classified as "held and used" on PPL's Balance Sheet until the closing of the transaction, at which time the operations of the Supply segment will be classified as discontinued operations. At the close of the transaction, unamortized losses on PPL interest rate swaps recorded relatedin AOCI and designated as hedges of PPL Energy Supply's future interest payments will be reclassified into earnings and reflected in discontinued operations. The amount of these unamortized losses deferred in AOCI at March 31, 2015 was $55 million after-tax.
In conducting its annual goodwill impairment assessment in the fourth quarter of 2014 for its Supply segment reporting unit, PPL determined that the estimated fair value of the Supply segment exceeded its carrying value and no impairment was recognized. PPL had not identified any indicators of impairment as of March 31, 2015, but cannot predict whether an impairment loss will be recorded at the spinoff date. An impairment loss would be recognized by PPL at the spinoff date if the aggregate carrying amount of the Supply segment's assets and liabilities exceed their aggregate fair value at that date and would be reflected in discontinued operations. Upon completion of this transaction, PPL will no longer have a Supply segment.
Montana Hydro Sale
In November 2014, PPL Montana completed the sale to the Rainbow projectNorthWestern of 633 MW of hydroelectric generating facilities located in Montana for approximately $900 million in cash. The proceeds will remain with PPL and not transfer to Talen Energy as a result of the grant receipt.spinoff. The impact onsale included 11 hydroelectric power facilities and related assets, included in the financial statementsSupply segment.
Following are the components of accounting forDiscontinued Operations in the grant receipt and recaptureStatement of investment tax credits was not significantIncome for the three months ended March 31, 31.
| 43 |
| 2014 | ||||||||||||
| Operating revenues | $ | 29 | ||||||||||
| Interest expense (a) | 2 | |||||||||||
| Income (loss) before income taxes (b) | (10) | |||||||||||
| Income (Loss) from Discontinued Operations (net of income taxes) (b) | (8) | |||||||||||
| (a) | Represents allocated interest expense based upon the discontinued operations share of the net assets of PPL Energy Supply. |
| (b) | Includes an impairment charge related to the Kerr Dam Project. See Note 13 for additional information. |
Development
Future Capacity Needs(PPL, LKE, LG&E and will not be significantKU)
Construction activity is nearing completion and testing is in future periods.
In October 2013, LG&E and KU announced plans for a 10 MW solar generation facility to be operational in 2016 at a cost of approximately $36 million. In December 2014, PPL Electric's estimate of the project costsa final order was $630 million. At March 31, 2014 and December 31, 2013, $458 million and $377 million of costs were capitalized and are included on the Balance Sheets primarily in "Construction work in progress."
(All Registrants except PPL, ElectricLKE 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
| Pension Benefits | Other Postretirement Benefits | |||||||||||||||||||
| U.S. | U.K. | |||||||||||||||||||
| 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | |||||||||||||||
| PPL | ||||||||||||||||||||
| Service cost | $ | 32 | $ | 26 | $ | 20 | $ | 18 | $ | 4 | $ | 3 | ||||||||
| Interest cost | 59 | 59 | 79 | 88 | 7 | 8 | ||||||||||||||
| Expected return on plan assets | (79) | (74) | (131) | (130) | (7) | (6) | ||||||||||||||
| Amortization of: | ||||||||||||||||||||
| Prior service cost | 2 | 5 | ||||||||||||||||||
| Actuarial (gain) loss | 25 | 7 | 39 | 33 | ||||||||||||||||
| Net periodic defined benefit costs (credits) | $ | 39 | $ | 23 | $ | 7 | $ | 9 | $ | 4 | $ | 5 | ||||||||
| LKE | ||||||||||||||||||||
| Service cost | $ | 7 | $ | 6 | $ | 1 | $ | 1 | ||||||||||||
| Interest cost | 17 | 17 | 2 | 2 | ||||||||||||||||
| Expected return on plan assets | (22) | (20) | (1) | (1) | ||||||||||||||||
| Amortization of: | ||||||||||||||||||||
| Prior service cost | 2 | 1 | 1 | 1 | ||||||||||||||||
| Actuarial (gain) loss | 8 | 3 | ||||||||||||||||||
| Net periodic defined benefit costs (credits) | $ | 12 | $ | 7 | $ | 3 | $ | 3 | ||||||||||||
| LG&E | ||||||||||||||||||||
| Interest cost | $ | 3 | $ | 4 | ||||||||||||||||
| Expected return on plan assets | (5) | (5) | ||||||||||||||||||
| Amortization of: | ||||||||||||||||||||
| Prior service cost | 1 | 1 | ||||||||||||||||||
| Actuarial (gain) loss | 3 | 1 | ||||||||||||||||||
| Net periodic defined benefit costs (credits) | $ | 2 | $ | 1 | ||||||||||||||||
| Pension Benefits | Other Postretirement Benefits | |||||||||||||||||||
| U.S. | U.K. | |||||||||||||||||||
| Three Months | ||||||||||||||||||||
| 2014 | 2013 | 2014 | 2013 | 2014 | 2013 | |||||||||||||||
| PPL | ||||||||||||||||||||
| Service cost | $ | 26 | $ | 31 | $ | 18 | $ | 18 | $ | 3 | $ | 4 | ||||||||
| Interest cost | 59 | 54 | 88 | 81 | 8 | 7 | ||||||||||||||
| Expected return on plan assets | (74) | (74) | (130) | (118) | (6) | (6) | ||||||||||||||
| Amortization of: | ||||||||||||||||||||
| Prior service cost | 5 | 6 | ||||||||||||||||||
| Actuarial (gain) loss | 7 | 20 | 33 | 38 | 1 | |||||||||||||||
| Net periodic defined benefit costs (credits) | $ | 23 | $ | 37 | $ | 9 | $ | 19 | $ | 5 | $ | 6 | ||||||||
| PPL Energy Supply | ||||||||||||||||||||
| Service cost | $ | 1 | $ | 2 | ||||||||||||||||
| Interest cost | 2 | 2 | ||||||||||||||||||
| Expected return on plan assets | (2) | (3) | ||||||||||||||||||
| Amortization of: | ||||||||||||||||||||
| Actuarial (gain) loss | 1 | |||||||||||||||||||
| Net periodic defined benefit costs (credits) | $ | 1 | $ | 2 | ||||||||||||||||
| LKE | ||||||||||||||||||||
| Service cost | $ | 6 | $ | 7 | $ | 1 | $ | 1 | ||||||||||||
| Interest cost | 17 | 16 | 2 | 2 | ||||||||||||||||
| Expected return on plan assets | (20) | (21) | (1) | (1) | ||||||||||||||||
| Amortization of: | ||||||||||||||||||||
| Prior service cost | 1 | 1 | 1 | 1 | ||||||||||||||||
| Actuarial (gain) loss | 3 | 8 | ||||||||||||||||||
| Net periodic defined benefit costs (credits) | $ | 7 | $ | 11 | $ | 3 | $ | 3 | ||||||||||||
| LG&E | ||||||||||||||||||||
| Service cost | $ | 1 | ||||||||||||||||||
| Interest cost | $ | 4 | 3 | |||||||||||||||||
| Expected return on plan assets | (5) | (5) | ||||||||||||||||||
| Amortization of: | ||||||||||||||||||||
| Prior service cost | 1 | 1 | ||||||||||||||||||
| Actuarial (gain) loss | 1 | 3 | ||||||||||||||||||
| Net periodic defined benefit costs (credits) | $ | 1 | $ | 3 | ||||||||||||||||
In addition to the specific plans they sponsor, PPL Energy Supply subsidiaries are also allocated costs of defined benefit plans sponsored by PPL Services, andit sponsors, LG&E is allocated costs of defined benefit plans sponsored by LKE based on theirits participation in those plans, which management believes are reasonable. PPL Electric and KU do not directly sponsor any defined benefit plans. PPL Electric is allocated costs of defined benefit plans sponsored by PPL Services and KU is allocated
| 44 |
costs of defined benefit plans sponsored by LKE based on their participation in those plans, which management believes are reasonable.For the periods ended March 31, 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 | ||||||||||||
| 2014 | 2013 | |||||||||||
| PPL Energy Supply | $ | 7 | $ | 11 | ||||||||
| PPL Electric | 5 | 9 | ||||||||||
| LG&E | 2 | 3 | ||||||||||
| KU | 3 | 4 | ||||||||||
(PPL)
All commitments and contingencies related to PPL Energy Supply and its subsidiaries will remain with PPL Energy Supply and its subsidiaries at the spinoff date without recourse, except as otherwise provided in the definitive agreements entered into in connection with the spinoff of Talen Energy.
Energy Purchase Commitments
(PPL Electric)
See Note 11 for information on the power supply agreements between PPL EnergyPlus and PPL Electric.
(All Registrants)
PPL and its subsidiaries are involved in legal proceedings, claims and litigation in the ordinary course of business. PPL and its subsidiaries cannot predict the outcome of such matters, or whether such matters may result in material liabilities, unless otherwise noted.
WKE Indemnification(PPL and LKE)
See footnote (h)(f) 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)
Sierra Club Litigation
On March 6, 2013, the Sierra Club and the Montana Environmental Information Center (MEIC)MEIC filed a complaint in the U.S. District Court, District of Montana, Billings Division against PPL Montana and the other Colstrip Steam Electric Station (Colstrip) co-owners: Avista Corporation, Puget Sound Energy, Portland General Electric Company, Northwestern EnergyNorthWestern and Pacific Corp.PacifiCorp. PPL Montana operates Colstrip on behalf of the co-owners. The suitcomplaint alleges certain violations of the Clean Air Act, including New Source Review, Title V and opacity requirements and listed 39 separate claims for relief. The complaint requests injunctive relief and civil penalties on average of $36,000 per day per violation, including a request that the owners remediate environmental damage and that $100,000 of the civil penalties be used for beneficial mitigation projects.
In July 27, 2013, the Sierra Club and MEIC filed an additional Notice of Intent to Sue, identifying additional plant projects that are alleged not to be in compliance with the Clean Air Act. OnAct and, in September 27, 2013, the plaintiffs filed an amended complaint. ThisThe amended complaint dropsdropped all claims regarding pre-2001 plant projects, as well as the plaintiffs' Title V and opacity claims. It does,did, however, add claims with respect to a number of post-2000 plant projects, which effectively increased the number of projects subject to the litigation by about 40. PPL Montana and the other Colstrip Ownersowners filed a motion to dismiss the amended complaint in October 2013. In May 2014, the court dismissed the plaintiffs' independent Best Available Control Technology claims and their Prevention of Significant Deterioration (PSD) claims for three projects, but denied the owners' motion to dismiss the plaintiffs' other PSD claims on October 11,statute of limitation grounds. On August 27, 2014, the Sierra Club and MEIC filed a second amended complaint. This complaint includes the same causes of action articulated in the first amended complaint, but alleges those claims in regard to only eight projects at the plant between 2001 and 2013. The courtOn September 26, 2014, the Colstrip owners filed an answer to the second amended complaint. Discovery has not yet ruled on this motion.been completed. In April 2014,2015,
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the plaintiffs indicated they intend to pursue claims related to only four of the remaining projects. In January 2015, trial as to liability in this matter was re-scheduledrescheduled to JuneNovember 16, 2015. A trial date with respect to remedies, if there is a finding of liability, has not been scheduled. PPL Montana believes it and the other co-owners have numerous defenses to the allegations set forth in this complaint and will vigorously assert the same. PPL Montana cannot predict the ultimate outcome of this matter at this time.
Notice of Intent to File Suit
In October 2014, PPL Energy Supply received a notice letter from the Chesapeake Bay Foundation (CBF) alleging violations of the Clean Water Act and Pennsylvania Clean Streams Law at the Brunner Island generation plant. The letter was sent to PPL Brunner Island and the PADEP and is intended to provide notice of the alleged violations and CBF's intent to file suit in Federal court after expiration of the 60 day statutory notice period. Among other things, the letter alleges that PPL Brunner Island failed to comply with the terms of its National Pollutant Discharge Elimination System permit and associated regulations related to the application of nutrient credits to the facility's discharges of nitrogen into the Susquehanna River. The letter also alleges that PADEP has failed to ensure that credits generated from nonpoint source pollution reduction activities that PPL Brunner Island applies to its discharges meet the eligibility and certification requirements under PADEP's nutrient trading program regulations. If a court-approved settlement cannot be reached, CBF plans to seek injunctive relief, monetary penalties, fees and costs of litigation. PPL cannot predict the outcome of this matter.
Proposed Legislation - Pacific Northwest
In the first quarter of 2015, legislation was proposed in the State of Oregon to eliminate, over time, the sale of electricity in Oregon from coal-fired generating facilities, and in the State of Washington to provide a means of cost recovery to utility owners of coal-fired generating facilities who commit to retire such facilities. Both proposals are in early stages of consideration and PPL cannot predict whether any legislation seeking to achieve the objectives of the Oregon or Washington legislation will be enacted. Were such legislation to be enacted as proposed, such laws, either individually or collectively, would not be expected to have a material adverse effect on PPL's financial condition or results of operation.
(PPL, LKE and LG&E)
Cane Run Environmental Claims
In 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 allegedalleging 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, that would accrue to governmental agencies, 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. During 2014,In response to a motion to dismiss filed by PPL LKE and LG&E, have filed certain motionsin July 2014, the court dismissed the plaintiffs' RCRA claims and all but one of its Clean Air Act claims, but declined to dismiss thattheir common law tort claims. Upon motion of LG&E and PPL, the district court certified for appellate review the issue of whether the state common law claims are pending beforepreempted by federal statute. In December 2014, the U.S. Court of Appeals for the Sixth Circuit issued an order granting appellate review regarding the above matter and such issues as may appropriately be presented by the parties and determined by the court. 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 itretired one coal-fired unit at the Cane Run plant in March 2015 and anticipates retiring the remaining two coal-fired units at the Cane Run beforeplant in the endthird quarter of 2015.
Mill Creek Environmental Claims
In MarchMay 2014, LG&E received a notice of intent from the Sierra Club informing various federal and state agencies of its intent to filefiled 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 claimants allegeSierra Club alleges that various discharges at the Mill Creek plant constitute permit violations and state that it will seekof the plant's water discharge permit. The Sierra Club seeks civil penalties, injunctive relief, plus costs and attorney's fees. The parties have filed various cross-motions for summary judgment which are pending before the court. PPL, LKE and LG&E cannot predict the outcome of this matter or the potential impact on the operations of the Mill Creek plant.
Regulatory Issues
(All Registrants except PPL Energy Supply)
See Note 6 for information on regulatory matters related to utility rate regulation.
| 46 |
(PPL PPL Energy Supply and PPL Electric)
New Jersey Capacity Legislation
In January 2011, New Jersey enacted a law (the Act) that intervenesPPL believes would intervene in the wholesale capacity market exclusively regulated by the FERC (the Act). Toto create incentives for the development of new, in-state electricity generation facilities the Act implements a long-term capacity agreement pilot program (LCAPP). The Act requires New Jersey utilities to pay a guaranteed fixed price for wholesale capacity, imposed by the New Jersey Board of Public Utilities (BPU), to certain new generators participating in PJM, with the ultimate costs of that guarantee to be borne by New Jersey ratepayers. PPL believes the intent and effect of the LCAPP is to encourage the construction of new generation in New Jersey even when, under the FERC-approved PJM economic model, such new generation would not be economic. The Act could depress capacity prices in PJM in the short term,short-term, impacting PPL Energy Supply's revenues, and harm the long-term ability of the PJM capacity market to encourage necessary generation investment throughout PJM.
In February 2011, PPL and several other generating companies and utilities filed a complaint in U.S. District Court in New Jersey challenging the Act on the grounds that it violates well-established principles under the Supremacy and Commerce clauses of the U.S. Constitution and requesting declaratory and injunctive relief barring implementation of the Act by the BPU Commissioners.implementation. 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 beenwas appealed to the U.S. Court of Appeals for the Third Circuit (Third Circuit) by CPV Power Development, Inc., Hess Newark, LLC and the State of New Jersey and oral argument was held on(the Appellants). In September 2014, the Third Circuit affirmed the District Court's decision. In December 2014, the Appellants filed a petition for certioraribefore the U.S. Supreme Court. In March 27, 2014. PPL, PPL Energy Supply and PPL Electric cannot predict2015, the outcome ofU.S. Supreme Court requested the U.S. Solicitor General to submit briefs expressing its views as to the issues raised in 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 (Order) three electric utilities in Maryland to enter into long-term contracts to support the construction of new electricity generating facilities in Maryland specifically a 661 MW natural gas-fired combined-cycle generating facility to be owned by CPV Maryland, LLC. PPL believes the intent and effect of the action by the MD PSC iswhich, PPL believed, was 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,short-term, impacting PPL Energy Supply's revenues, and harm the long-term ability of the PJM capacity market to encourage necessary generation investment throughout PJM.
In April 2012, PPL and several other generating companies filed a complaint in U.S. District Court (District Court) in Maryland challenging the MD PSC orderOrder on the grounds that it violates well-established principles under the Supremacy and Commerce clauses of the U.S. Constitution and requested declaratory and injunctive relief barring implementation of the order by the MD PSC Commissioners. In September 2013, the U.S. District Court in Maryland issued a decision finding the MD PSC orderOrder 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 beenwas appealed to the U.S. Court of Appeals for the Fourth Circuit (Fourth Circuit) by CPV Power Development, Inc. and the State of Maryland. Oral argument has been scheduledMaryland (the Appellants). In June 2014, the Fourth Circuit affirmed the District Court's opinion and subsequently denied the Appellants' motion for May 13, 2014. PPL, PPL Energy Supply, and PPL Electric cannot predictrehearing. In December 2014, the outcome ofAppellants filed a petition for certiorari before the U.S. Supreme Court. In March 2015, the U.S. Supreme Court requested the U.S. Solicitor General to submit briefs expressing its views as to the issues raised in this proceeding or the economic impact on their businesses or operations, or the markets in which they transact business.
Pacific Northwest Markets(PPL)(PPL and PPL Energy Supply)
Through its subsidiaries, PPL Energy Supply made spot market bilateral sales of power in the Pacific Northwest during the period from December 2000 through June 2001. Several parties subsequently claimed refunds at FERC as a result of these sales. In June 2003, the FERC terminated proceedings to consider whether to order refunds for spot market bilateral sales made in the Pacific Northwest, including sales made by PPL Montana, during the period December 2000 through June 2001. In August 2007, the U.S. Court of Appeals for the Ninth Circuit reversed the FERC's decision and ordered the FERC to consider additional evidence. In October 2011, FERC initiated proceedings to consider additional evidence. In July 2012, PPL Montana and the City of Tacoma, one of the two parties claiming refunds at FERC, reached a settlement whereby PPL Montana paid $75 thousand to resolve the City of Tacoma's $23 million claim. The settlement does not resolve the
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
| 47 |
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)
Electricity - Reliability Standards
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.
PPL, LG&E, KU, and PPL Electric and certain subsidiaries of PPL Energy Supply monitor their compliance with the Reliability Standards and continue to self-report 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.
In October 2012, the FERC initiated its consideration of proposed changes to Reliability Standards to address the impacts of Geomagnetic Disturbancesgeomagnetic disturbances on the reliable operation of the bulk-power system, which might, among other things, lead to a requirement to install equipment that blocks geomagnetically induced currents on implicated transformers. OnIn May 16, 2013, FERC issued Order No. 779, requiring NERC to submit two types of Reliability Standards for FERC's approval. The first type would require certain owners and operators of the nation's electricity infrastructure, such as the Registrants, to develop and implement operational procedures to mitigate the effects of Geomagnetic Disturbancesgeomagnetic disturbances on the bulk-power system. This NERC proposed standard was filed by NERC with FERC for approval in January 2014, with a comment due date of March 24,and was approved in June 2014. The second type is to require owners and operators of the bulk-power system to assess certain Geomagnetic Disturbancegeomagnetic disturbance events and develop and implement plans to protect the bulk-power system from those events and must beevents. This proposal was filed by NERC with FERC for approval by January 22, 2015.2015 and is pending consideration by FERC. The Registrants may be required to make significant expenditures in new equipment or modifications to their facilities to comply with the new requirements. The Registrants are unable to predict the amount of any expenditures that may be required as a result of the adoption of any Reliability Standards for Geomagnetic Disturbances.
(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-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.
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(All Registrants except PPL Electric)
Air
CSAPR
The EPA's CSAPR (formerly Clean Air Transport Rule)addresses the interstate transport of fine particulates and CAIR
Although PPL, PPL Energy Supply, LKE, LG&E and KU cannot currently predict the outcome of further regulatory and legal proceedings.
National Ambient Air Quality Standards
In 2008, the EPA revised the National Ambient Air Quality Standard for ozone. As a result, of EPA's new ozone standard, 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.technologies (RACT). The PADEP has issuedis expected to finalize a draftRACT rule in 2015 requiring reasonable reductions. However, the proposal is being challenged as too lenient by other OTR states and environmental groups. The PADEP may imposesome fossil-fueled plants to operate at more stringent nitrogen oxide emission limits than those set forthrates. The EPA proposed to further strengthen the ozone standard in the proposed ruleNovember 2014, which could have a significant impact on PPL Energy Supply's Pennsylvania coal plants.
In 2010, the EPA finalized a new one-hour standardNational Ambient Air Quality Standard for sulfur dioxide and required states to identify areas that meet those standards and areas that are in non-attainment."non-attainment". In July 2013, the EPA finalized non-attainment designations for parts of the country, including part of Yellowstone County in Montana (Billings area) and part of Jefferson County in Kentucky. Attainment must be achieved by 2018. StatesPursuant to a consent decree between the EPA and Sierra Club approved on March 2, 2015, states are working onto finalize designations for other areas.areas by the 2017 or 2020 deadline depending on which designation methodology is used. PPL, PPL Energy Supply, LKE, LG&E and KU anticipate that some of the measures required for compliance with the CAIR,CSAPR (as discussed above), or the MATS, or the Regional Haze requirementsRules (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 noted above) is not expected to be significant, as the operations were suspended and the plant was retired in March 2015. In addition, MDEQ recently submitted a request to the EPA for a determination that this area is in attainment. If the EPA agrees with this request, then the deadlines associated with non-attainment would be suspended.
In December 2012, the EPA issued final rules that tighten the annual National Ambient Air Quality Standard for fine particulates. The rules were challenged by industry groups, and in May 2014 the D.C. Circuit Court upheld them. On January 15, 2015, the EPA published a final rule establishing area designations under the standard. Non-attainment areas in Pennsylvania and Kentucky were identified; however, EPA recently approved state implementation plan revisions for both states that improved these classifications. PPL Energy Supply, previously announced its intentLG&E and KU plants in Pennsylvania and Kentucky will not be expected to place the plant in long-term reserve status beginning in April 2015.
Until final rules are promulgated, non-attainment designations are finalized and consequentstate compliance plans for sulfur dioxide and particulate matter are developed, by the EPA and state or local agencies, 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.
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MATS
In May 2011,February 2012, the EPA published a proposed regulationfinalized the MATS rule requiring stringent reductions of mercury and other hazardous air pollutants from fossil-fuel fired power plants. In February 2012, the EPA published the final rule,plants, known as the MATS, with an effective date of April 16, 2012. The rule which was challenged by industry groups and states and was upheld by the D.C. Circuit Court in April 2014. A group of states subsequently petitioned the U.S. Supreme Court to review this decision and on March 25, 2015, oral arguments were heard as to one issue - whether or not EPA unreasonably refused to consider costs when determining whether the MATS regulation was appropriate and necessary. A U.S. Supreme Court decision is expected by June 30, 2015. The rule provides for a three-year compliance deadline with the potential for a one-year extensionone- and two-year extensions as provided under the statute. PPL, LKE, LG&E and KU and PPL Energy Supplyhave completed installation or upgrading of relevant environmental controls at affected plants or have received compliance extensions, for certain plants and are considering extension requests for other plants as well.
At the time the MATS 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 air pollutants. Recovery of the cost of certain controls was granted by the KPSC in December 2011. LG&E's March 2015 retirement of one coal-fired generating unit at Cane Run and LG&E's and KU's anticipated retirement of certainremaining coal-fired electricity generating units located at Cane Run and Green River isin 2015 and 2016 are in response to MATS and other environmental regulations. The retirement of these units is not expected to have a material impact on the financial condition or results of operations of PPL, LKE, LG&E and KU are continuing to assess whether any revisions of their approved compliance plans will be necessary.
PPL Energy Supply's Pennsylvania plants, PPL Energy Supply believes that installation of chemical additive systems and other controls may be necessary at certain coal-fired plants in Pennsylvania, 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'sPPL's Montana plants, modifications to the air pollution controls installed onat Colstrip may beare required, the cost of which is not expected to be significant. ForOperations were suspended and the Corette plant PPL Energy Supply announcedwas retired in September 2012 its intention, beginning in AprilMarch 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 was determined to be impaired in December 2013. See Note 18 in PPL's and
PPL, Energy Supply's 2013 Form 10-K for additional information.
Regional Haze and Visibility
The EPA's regional haze programs were developed under the Clean Air Act to eliminate man-made visibility degradation by 2064. Under the programs, states are required to make reasonable progress every decade through the application, among other things, of Best Available Retrofit Technology (BART) on power plants commissioned between 1962 and 1977.
The primary power plant emissions affecting visibility are sulfur dioxide, nitrogen oxides and particulates. To date, the focus of regional haze activityregulation has been the western U.S. becauseAs for the eastern U.S., the EPA had determined that region-wide reductions under the regionalCSAPR trading program could, in the eastern U.S.most instances, be utilized under CSAPR satisfiesstate programs to satisfy BART requirements to reducefor sulfur dioxide and nitrogen oxides. AlthoughHowever, the D.C. Circuit Court's August 2012 decision to vacateEPA's determination is being challenged by environmental groups and remand CSAPR has 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's plants in Pennsylvania and Kentucky, will be subject to additional reductions in sulfur dioxide and nitrogen oxides as required by BART. In addition, others.
LG&E's Mill Creek Units 3 and 4 are required to reduce sulfuric acid mist emissions because they were determined to have a significant regional haze impact. These reductions are required in the regional haze state
In Montana, the EPA Region 8 developed the regional haze plan as the MDEQ declined to develop a BART state implementation plan.do so. The EPA finalized the Federal Implementation Plan (FIP) for Montana in September 2012. The final FIP assumed no additional controls for Corette or Colstrip Units 3 and 4, but proposed tighterstricter limits for Corette and Colstrip Units 1 and 2. PPL Energy Supply expects to meetwas meeting these tighterstricter permit limits at Corette without any significant changes to operations, although other requirements have led to the planned suspension of operations atand the retirement of Corette beginning in AprilMarch 2015 (see "MATS" discussion above). Under the final FIP, Colstrip Units 1 and 2 may require additional controls, including the possible installation of an SNCR and other technology, to meet more stringent nitrogen oxides and sulfur dioxide limits. The cost of these potential additional controls, if required, could be significant. Both PPL and environmental groups have appealed the final FIP to the U.S. Court of Appeals for the Ninth Circuit.
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, LKE, LG&E and KU received various EPA information requests for its Montourin 2007 and Brunner Island plants, and PPL and
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2009, but have received no further communications from the EPA have exchanged certain information regarding this matter.related to those requests 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. The companies responded to the EPA and the matter remains open. In May and November 2012, PPL Montana received information requests from the EPA regarding projects undertaken during a Spring 2012 maintenance outage at Colstrip Unit 1. The EPA requests remain an open matter. In September 2012, PPL Montana received an information request from the MDEQ regarding Colstrip Unit 1 and other projects. These matters remain open. PPL and PPL Energy Supply cannot predict the outcomeMDEQ formally suspended this request on June 6, 2014 in consideration 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 any PPL subsidiaries aresubsidiary is found to have violated NSR regulations by significantly increasing pollutants through a major plant modification, PPL, PPL Energy Supply, LKE, LG&E and KUthe subsidiary would, among other things, be required to meet stringent permit limits reflecting Best Available Control Technology (BACT) for pollutants meeting the National Ambient Air Quality Standards (NAAQS) in the area and reflecting Lowest Achievable Emission Rates for pollutants not meeting the NAAQS in the area. The costs to meet such limits, including installation of technology at certain units, could be significant.
Trimble County Unit 2 Air Permit
(PPL, LKE, LG&E and KU)The Sierra Club and other environmental groups petitioned the Kentucky Environmental and Public Protection Cabinet to overturn the air permit issued for the TC2Trimble County Unit 2 baseload coal-fired generating unit, but the agency upheld the permit in an order issued in September 2007. In response to subsequent petitions by environmental groups, the EPA ordered certain non-material changes to the permit which, in January 2010, were incorporated into a final revised permit issued by the Kentucky DepartmentDivision for Air Quality. In March 2010, the environmental groups petitioned the EPA to object to the revised state permit. Until the EPA issues a final ruling on the pending petition and all available appeals are exhausted, PPL, LKE, LG&E and KU cannot predict the outcome of this matter or the potential impact on plant operations, including increased capital costs, if any.
Climate Change
(All Registrants)
As a result of the April 2007 U.S. Supreme Court decision that the EPA has authority under the Clean Air Act to regulate GHGcarbon dioxide 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 GHGcarbon dioxide emissions from stationary sources under the NSR and Title V
In June 2013, President Obama released his Climate Action Plan that reiterates the goal of reducing greenhouse gasGHG 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 tightermore restrictive 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 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 2016. 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 the 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 also lead to more costly regulatory requirements; the White House Office of Management and Budget has opened this issue for public comment. Additionally, the Climate Action Plan requirements relatedcalls for the U.S. to preparing the U.S.prepare for the impacts of climate changechange. Requirements related to this Plan could affect PPLthe Registrants and others in the industry as modifications may be needed to electricity delivery systems to improve the ability to withstand major storms may be needed in order to meet those requirements.
In January 2014, the EPA issued itsa revised proposal forto regulate carbon dioxide emissions from new sources on September 20, 2013 as directed by the White House. This proposal was published in the Federal Register on January 8, 2014.power plants. The comment period on the proposal closes on May 9, 2014. Unlike the EPA's prior proposal, the EPA's revised proposal establishedcalls for separate emission standards for coal and gas units based on the application of different
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technologies. The coal standard is based on the application of partial carbon capture and sequestration technology, but because this technology is not presently commercially available, the revised proposal effectively precludes the construction of new coalcoal-fired plants. The standard for NGCC power plants is the same as the EPA proposed in 2012 and is not continuously achievable.
In June 2014, the Regional Greenhouse Gas Initiative (RGGI). The program commenced in January 2009 and covers electric power plants greater than 25 MW. The program calls for a 10% reduction inEPA issued proposed regulations addressing carbon dioxide emissions from these plantsexisting power plants. The existing plant proposal contains state-specific rate-based reduction goals and guidelines for the development, submission and implementation of state plans to achieve the state goals. State-specific goals were calculated from 2012 data by 2019 comparedapplying EPA's broad interpretation and definition of the Best System of Emission Reduction resulting in stringent targets to 2005 levels. Pennsylvania has not stated an intention to join the RGGI, but enacted the Pennsylvania Climate Change Act of 2008 (PCCA)be met in two phases (2020-2029 and 2030 and beyond). The PCCA establishedEPA 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 Climate Change Advisory Committee to advise the PADEPmass basis and through multi-state collaborations. The EPA is also proposing potential state plan extensions based on the developmenttype of a Climate Change Action Plan. In December 2013,plan filed (single or multi state). PPL has analyzed the Advisory Committee issued an updated Climate Change Action Reportproposal and identified specific actions that could resultpotential impacts and solutions in reducing GHG emissionscomments filed on December 1, 2014. PPL also submitted Supplemental Comments to FERC through EEI, advocating for reliability coordination and relief in response to technical conferences hosted by 30% by 2020.FERC on the reliability implications of implementing this rule. The report recognized some legislative initiatives that were enacted since 2009 that facilitated reductions in GHG emissions and made a number of legislative recommendations that include amending the PA AEPS Act to include additional waste-to-energy facilities, providing incentives for coal mine methane usage, providing incentives for alternative fuel vehicles and addressing the long-term viability issues of carbon capture and sequestration.
In June 2014, the EPA also proposed a regulation addressing carbon dioxide emissions from existing power plants that are modified or reconstructed. The Registrants, however, do not expect a significant impact from this rulemaking as there are no plans to modify or reconstruct their existing plants in a manner that would trigger the proposed requirements.
(PPL)
Based on the stringent GHG reduction requirements in the EPA's proposed rule for existing plants, and based on information gained from public input, the PADEP expectsis no longer expecting to achieve all required GHG reductions required under the EPA's expected rules by solely increasing efficiency at existing fossil-fuel plants and/or reducing generation. The PADEP specifically excludes energy efficiency projects not associated with existing sources (suchtheir generation as DSM and Act 129 programs) from consideration for crediting towardset forth in the program. The PADEP also suggests an exemption for burning waste coal and coal bed methane.
The MDEQ, at the request of the Governor of Montana, has issued a comprehensive energy planwhite paper outlining possible regulatory scenarios to implement the EPA's proposed GHG rule for existing plants, including non-binding targets aimed at promoting improveda combination of increasing energy efficiency developmentat coal-fired plants, adding more low- and zero-carbon generation, and carbon sequestration at Colstrip. The white paper was made public in September 2014 and the MDEQ has held public meetings to present the white paper and gather comments. Legislation drafted to require legislative approval of alternative energy, development of carbon captureany related plan formulated by MDEQ was tabled.
(PPL, LKE, LG&E and sequestration projects, and other actions to reduce GHG emissions. KU)
In December 2009,April 2014, the Kentucky Climate Action Plan Council was established to develop an action plan addressing potential GHG reductions and related measures. In November 2011,General Assembly passed legislation which limits the Council issued a final report tomeasures that the Secretary of Kentucky'sKentucky Energy and Environment Cabinet for his 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,may consider in part, further legislative or regulatory actions. The impact of any such plan is not now determinable, but the costssetting performance standards to comply with the plan couldEPA's regulations governing GHG emissions from existing sources. The legislation provides that such state GHG performance standards shall be significant.
(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
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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
(PPL and federal levels. Federal legislation on renewable energy is not expected to be enacted this year. PPL Electric)
In Pennsylvania, bills wereHouse Bill 100 was introduced calling for anin February 2015, proposing to increase in Alternative Energy Portfolio Standard (AEPS)AEPS solar and Tier 1 obligations and to create a $25 million permanent funding program for solar generation. Bills (SB 1171 and HB 100) were alsotargets. A similar bill is in the process of being introduced to add natural gas as a qualified AEPS resource, and anotherin the Senate (no bill (HB 1912) would repeal the AEPS Act entirely. All these bills remain in committee and are unlikely to advance. A bill adding new hydropower to Montana's renewable portfolio standard was enacted with an effective date of October 1, 2013. An interim legislative committee in Montananumber is reviewing the state's Renewable Portfolio Standard (RPS)available at this time). PPL and PPL Energy SupplyElectric cannot predict atthe outcome of this time whether the committee will recommend any changes to existing laws. In Maryland, bills have been introduced in the 2014 session to double the state's RPS requirement from 20% to 40% and provide exceptions for specific types of energy sources. legislative effort.
(PPL)
In New Jersey, a bill (S-1475) has been introduced to increase the current RPS standardRenewable Portfolio Standard (RPS) to 30% from Class I sources by 2020. The chairman of the Senate Environmental Committee convened a workgroup to look at further changes to New Jersey's RPS law to enable New Jersey to meet emissions goals established in the state's Global Warming Response Act. A bill (S-2444) was subsequently introduced to mandate that 80% of New Jersey's electricity be generated from renewable resources by 2050. PPL and PPL Energy Supply are unable tocannot predict the outcome of this legislation at this time.
(All Registrants)
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
(All Registrants except PPL Electric)
Coal Combustion Residuals (CCRs)
On April 17, 2015, the EPA proposed two approaches topublished its final rule regulating the disposal and management of CCRs (as either hazardous or non-hazardous) under the RCRA.CCRs. CCRs include fly ash, bottom ash and sulfur dioxide scrubber wastes. RegulatingThe rule will become effective on October 14, 2015. It imposes extensive new requirements, including location restrictions, design and operating standards, groundwater monitoring and corrective action requirements and closure and post-closure care requirements on CCR impoundments and landfills that are located on active power plants and not closed. Under the rule, the EPA will regulate CCRs as a hazardous wastenon-hazardous under Subtitle CD 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 theallow beneficial use of CCRs, with some restrictions. This self-implementing rule requires posting of compliance documentation on a publicly accessible website 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,is enforceable through citizen suits. 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.
PPL, LKE, LG&E and KU are reviewing the RCRArule and what impact they would have on their facilities, but theare still evaluating its financial and operational impact. It is expected that these requirements will result in increases to existing AROs which will be recorded in the second quarter of 2015. PPL, LKE, LG&E and KU are not yet able to determine an estimate of the expected increases to the existing AROs. PPL, LKE, LG&E and KU believe relevant costs relating to this rule are subject to future rate recovery before the respective state regulatory agencies, or the FERC, as applicable.
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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 as proposed. The proposal contains alternative approaches, some of which could significantly impact PPL's, PPL Energy Supply's, LKE's, LG&E's and KU's coal-fired plants. The final regulation is expected to be material if CCRsissued by the third or fourth quarter of 2015. At the present time, PPL, LKE, LG&E and KU are regulated as hazardous wasteunable 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 if regulated as non-hazardous.
Trimble County Landfill Permit (PPL, LKE, LG&E and KU)
In May 2011, LG&E submitted an application for a special waste landfill permit to handle coal combustion residualsCCRs generated at the Trimble County plant. After extensive review of the permit application inIn 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. After assessing additional options for managing coal combustion residuals, inIn January 2014, LG&E submitted to the Kentucky Division of Waste Management a landfill permit application for an alternate site adjacent to the plant. LG&E has also applied for other necessary regulatory approvals including a dredge and fill permit from the U.S. Army Corps of Engineers, in which proceeding the EPA or the public have submitted certain comments to which LG&E and KU are responding. PPL, LKE, LG&E and KU are unable to determine the potential impact of this matter until a landfill permit isall permits are issued and 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 or applicable. A range of reasonably possible losses cannot currently be estimated.
(PPL)
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. In September 2012, PPL Montana filed an election with the BER to have this proceeding conducted in Montana state district court as contemplated by the MFSA. In October 2012, Earthjustice filed a petition for review of the AOC in the Montana state district court in Rosebud County. This matter was stayed in December 2012. In April 2014, Earthjustice filed a motion for leave to amend the petition for review and to lift the stay.
Clean Water Act 316(b)(All Registrants except PPL Electric)
The EPA published its proposedEPA's final 316(b) rule under 316(b) for existing facilities became effective in April 2011. The EPA has been evaluating the comments it received to the proposed ruleOctober 2014, and meeting with industry groups to discuss options. The proposed rule contains two requirements to reduce impact to aquatic organisms atregulates cooling water intake structures.structures and their impact on aquatic organisms. States are allowed considerable authority to make site-specific determinations under the rule. The firstrule requires all existing facilities to meet standards forchoose between several options to reduce the reduction of mortality ofimpact to 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 isand to determine and install the best technology available to reduce mortality ofintake structure's impact on aquatic organisms pulled through a plant's cooling water system (entrainment). A formPlants already equipped with closed-cycle cooling, an acceptable option, would likely not incur substantial costs. Once-through systems would likely
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require additional technology to comply with the rule. Mill Creek Unit 1 and Brunner Island (all units) are the only units expected to be impacted. PPL, LKE, LG&E and KU are evaluating compliance strategies but do not presently expect the compliance costs to be material.
(All Registrants)
Waters of cost-benefit analysisthe United States (WOTUS)
In April 2014, the EPA and the U.S. Army Corps of Engineers (Army Corps) published a proposed rule defining WOTUS that could greatly expand the federal government's interpretation of what constitutes WOTUS subject to regulation under the Clean Water Act. If the definition is allowedexpanded as proposed by the EPA and the Army Corps, permits and other regulatory requirements may be imposed for this second requirement involving a site-specific evaluationmany matters presently not covered (including vegetation management for transmission lines and activities affecting storm water conveyances and wetlands), the implications of which could be significant. The EPA plans to make certain changes to the proposed regulation based on nine factors, including impactscomments received. The U.S. House and Senate are considering legislation to energy delivery reliability andblock this regulation. Until a final rule is issued, the remaining useful lifeRegistrants cannot predict the outcome of the plant. Thepending rulemaking. A final rule is expected by May 16, 2014. Until the final rule is issued, PPL, PPL Energy Supply, LKE, LG&E and KU cannot estimate a range of reasonably possible costs, if any, that would be required to comply with such a regulation.
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 2014.2015. PCBs are found, in varying degrees, in all of the Registrants' operations. The Registrants cannot predict at this time the outcome of these proposed EPA regulations and what impact, if any, they would have on their facilities, but the costs could be significant.
(PPL)
A subsidiary of PPL Energy Supply has investigated alternatives to exclude fish from the discharge channel at its Brunner Island plant. In June 2012, a Consent Order and Agreement (COA) with the PADEP was signed, allowing the subsidiary to study a change in a cooling tower operational method that may keep fish from entering the channel. The COA required a retrofit of impingement control technology at the intakes to the cooling towers, at a cost that would have been significant. Based on the results of the first year of study, the PADEP has suggested closing the COA and writing a new COA to resolve the issue. PPL is in negotiations with the agency at this time. PPL and PPL Energy Supply cannot predict at this time the outcome of the proposed new COA and what impact, if any, it would have on their facilities, but the costs could be significant.
(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. In February 2015, oral arguments occurred in the appellate proceeding. PPL, LKE, LG&E and KU are unable to predict the outcome of this matter or estimate a range of reasonably possible losses, if any.
Superfund and Other Remediation
(All Registrants)PPL Electric is potentially responsible for costs at several sites listed by the EPA under the federal Superfund program, including the Columbia Gas Plant site, the Metal Bank site, the Brodhead 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, or are responding to agency inquiries regarding several sites that were not addressed under a regulatory program such as Superfund, but for which PPL Electric, LG&E and KU may be liable for remediation. These include a number of former coal gas manufacturing plants in Pennsylvania and Kentucky previously owned or operated or currently owned by predecessors or affiliates of PPL Electric, LG&E and KU. To date, the costs of these sites have not been significant. There are additional sites, formerly owned or
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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 KUPPL's subsidiaries 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 whichthat arise in the course of normal operations. Based on analyses to date, resolution of these environmental matters is not expected to have a significant adverse impact on these Registrants' operations.
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.
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.
Nuclear Insurance(PPL)(PPL and PPL Energy Supply)
The Price-Anderson Act is a United States Federal law which governsgoverning 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.facility. It also seeks to limit the
Under the industry assessment program, in the event of a nuclear incident at any of the reactors covered by The Price-Anderson Act, as amended, PPL Susquehanna could be assessed up to $255 million per incident, payable at $38 million per year.
Additionally, PPL Susquehanna purchases property insurance programs from NEIL, an industry mutual insurance company of which PPL Susquehanna is a member. Effective April 1, 2014,At March 31, 2015, facilities at the Susquehannaplant 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 at March 31, 2015. Effective April 1, 2015, this maximum assessment increased to $55 million.
(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.
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(PPL)
PPL fully and unconditionally guarantees all of the debt securities of PPL Capital Funding.
(All Registrants)
The table below details guarantees provided as of March 31, 2014.2015. "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", "Indemnification for sales of assets" and "Indemnification of lease termination and other divestitures." The total recorded liability at
| Exposure at | Expiration | |||||
| March 31, 2014 | Date | |||||
| PPL | ||||||
| Indemnifications related to the WPD Midlands acquisition | (a) | |||||
| WPD indemnifications for entities in liquidation and sales of assets | $ | 12 | (b) | 2017 - 2018 | ||
| WPD guarantee of pension and other obligations of unconsolidated entities | 128 | (c) | ||||
| PPL Energy Supply | ||||||
| Letters of credit issued on behalf of affiliates | 30 | (d) | 2014 - 2015 | |||
| Indemnifications for sales of assets | 250 | (e) | 2025 | |||
| Guarantee of a portion of a divested unconsolidated entity's debt | 22 | (f) | 2018 | |||
| PPL Electric | ||||||
| Guarantee of inventory value | 32 | (g) | 2017 | |||
| LKE | ||||||
| Indemnification of lease termination and other divestitures | 301 | (h) | 2021 - 2023 | |||
| LG&E and KU | ||||||
| LG&E and KU guarantee of shortfall related to OVEC | (i) | |||||
| Exposure at | Expiration | |||||
| March 31, 2015 | Date | |||||
| PPL | ||||||
| Indemnifications related to the WPD Midlands acquisition | (a) | |||||
| WPD indemnifications for entities in liquidation and sales of assets | $ | 11 | (b) | 2018 | ||
| WPD guarantee of pension and other obligations of unconsolidated entities | 114 | (c) | ||||
| Indemnifications for sales of assets | 1,150 | (d) | 2016 - 2025 | |||
| PPL Electric | ||||||
| Guarantee of inventory value | 32 | (e) | 2017 | |||
| LKE | ||||||
| Indemnification of lease termination and other divestitures | 301 | (f) | 2021 - 2023 | |||
| LG&E and KU | ||||||
| LG&E and KU guarantee of shortfall related to OVEC | (g) | |||||
| In connection with their sales of various businesses, WPD and its affiliates have provided the purchasers with indemnifications that are standard for such transactions, including indemnifications for certain pre-existing liabilities and environmental and tax matters or have agreed to continue their obligations under existing third-party guarantees, either for a set period of time following the transactions or upon the condition that the purchasers make reasonable efforts to terminate the guarantees. Finally, WPD and its affiliates remain secondarily responsible for lease payments under certain leases that they have assigned to third parties. |
| (d) |
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indemnified party. However, LKE is not aware of formal claims under such indemnities made by any party at this time. LKE cannot predict the ultimate outcomes of indemnification circumstances, but does not currently expect such outcomes to result in significant losses above the amounts recorded.
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.
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 betweenfrom PPL EnergyPlus and PPL Electric are included in thePPL Electric's Statements of Income as "Unregulated wholesale energy to affiliate" by PPL Energy Supply and as "Energy purchases from affiliate" by PPL Electric.
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 delivereddelivered; and (b) this market price exposure exceeds a contractual credit limit. Based on the currentPPL EnergyPlus does not have an established credit rating of PPL Energy Supply, as guarantor, PPL EnergyPlus' credit limit was $20 million atlimit. At March 31, 2014.2015, PPL EnergyPlus was not required to post collateral. 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.
PPL Services and LKS provide thetheir respective PPL and LKE subsidiaries with administrative, management and support services. Where applicable,In 2015, PPL EU Services was formed to provide the majority of financial, supply chain, human resources and facilities management services primarily to PPL Electric. PPL Services will continue to provide certain corporate functions. For all service companies, the costs of these services are charged to the respective subsidiariesrecipients as direct support costs. General costs that cannot be directly attributed to a specific subsidiaryentity are allocated and charged to the respective subsidiariesrecipients as indirect support costs. PPL Services usesand PPL EU Services use a three-factor methodology that includes the subsidiaries'applicable recipients' invested capital, operation and maintenance expenses and number of employees to allocate indirect costs. LKS bases its indirect allocations on the subsidiaries' number of employees, total assets, revenues, number of customers and/or other statistical information.PPL Services, PPL EU Services and LKS charged the following amounts for the periods ended March 31, and believe these amounts are reasonable, including amounts applied to accounts that are further distributed between capital and expense.
| Three Months | ||||||||||||||||
| 2014 | 2013 | |||||||||||||||
| PPL Energy Supply from PPL Services | $ | 58 | $ | 57 | ||||||||||||
| PPL Electric from PPL Services | 41 | 38 | ||||||||||||||
| LKE from PPL Services | 4 | 4 | ||||||||||||||
| LG&E from LKS | 48 | 39 | ||||||||||||||
| KU from LKS | 53 | 66 | ||||||||||||||
| Three Months | ||||||||||||
| 2015 | 2014 | |||||||||||
| PPL Electric from PPL Services | $ | 30 | $ | 41 | ||||||||
| LKE from PPL Services | 4 | 4 | ||||||||||
| PPL Electric from PPL EU Services | 15 | |||||||||||
| LG&E from LKS | 51 | 48 | ||||||||||
| KU from LKS | 56 | 53 |
LG&E and KU also provide services to each other and to LKS. Billings between LG&E and KU relate to labor and overheads associated with union and hourly employees performing work for the other company, charges related to jointly-owned generating units and other miscellaneous charges. Tax settlements between LKE and LG&E and LKE and KU are reimbursed through LKS.
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LKE maintains a $225 million revolving line of credit with a PPL Energy Funding subsidiary whereby LKE can borrow funds on a short-term basis at market-based rates. The interest rate on borrowings is equal to one-month LIBOR plus a spread. There were no balances outstanding atAt March 31, 20142015 and December 31, 2013.
Intercompany Derivatives(LKE, LG&E and KU)
Periodically, LG&E and KU enter into forward-starting interest rate swaps with PPL. These hedging instruments have terms identical to forward-starting swaps entered into by PPL with third parties. See Note 14 for additional information on intercompany derivatives.
See Note 9 for discussions regarding intercompany allocations associated with defined benefits.
| Three Months | ||||||||||||||
| 2014 | 2013 | |||||||||||||
| PPL | ||||||||||||||
| Other Income | ||||||||||||||
| Earnings on securities in NDT funds | $ | 6 | $ | 5 | ||||||||||
| Interest income | 1 | 1 | ||||||||||||
| AFUDC - equity component | 3 | 3 | ||||||||||||
| Miscellaneous - Domestic | 2 | 2 | ||||||||||||
| Miscellaneous - U.K. | 1 | |||||||||||||
| Total Other Income | 12 | 12 | ||||||||||||
| Other Expense | ||||||||||||||
| Economic foreign currency exchange contracts (Note 14) | 24 | (119) | ||||||||||||
| Charitable contributions | 7 | 4 | ||||||||||||
| Miscellaneous - Domestic | 3 | 4 | ||||||||||||
| Miscellaneous - U.K. | 1 | 1 | ||||||||||||
| Total Other Expense | 35 | (110) | ||||||||||||
| Other Income (Expense) - net | $ | (23) | $ | 122 | ||||||||||
| Three Months | ||||||||
| 2015 | 2014 | |||||||
| Other Income | ||||||||
| Earnings on securities in NDT funds | $ | 7 | $ | 6 | ||||
| Interest income | 1 | 1 | ||||||
| AFUDC - equity component | 4 | 3 | ||||||
| Miscellaneous | 5 | 2 | ||||||
| Total Other Income | 17 | 12 | ||||||
| Other Expense | ||||||||
| Economic foreign currency exchange contracts (Note 14) | (88) | 24 | ||||||
| Charitable contributions | 5 | 7 | ||||||
| Spinoff of PPL Energy Supply transaction costs (Note 8) | 2 | |||||||
| Miscellaneous | 3 | 4 | ||||||
| Total Other Expense | (78) | 35 | ||||||
| Other Income (Expense) - net | $ | 95 | $ | (23) | ||||
The components of "Other Income (Expense) - net" for the three months ended March 31, 2015 and 2014 and 2013 for PPL Energy Supply, PPL Electric, LKE, LG&E and KU were not significant.
(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
| 59 |
Recurring Fair Value Measurements
| March 31, 2015 | December 31, 2014 | ||||||||||||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||
| PPL | |||||||||||||||||||||||||||
| Assets | |||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 1,335 | $ | 1,335 | $ | 1,751 | $ | 1,751 | |||||||||||||||||||
| Short-term investments | 135 | 135 | 120 | 120 | |||||||||||||||||||||||
| Restricted cash and cash equivalents (a) | 231 | 231 | 224 | 224 | |||||||||||||||||||||||
| Price risk management assets: | |||||||||||||||||||||||||||
| Energy commodities | 1,298 | 2 | $ | 1,136 | $ | 160 | 1,318 | 6 | $ | 1,171 | $ | 141 | |||||||||||||||
| Foreign currency contracts | 209 | 209 | 130 | 130 | |||||||||||||||||||||||
| Cross-currency swaps | 49 | 49 | 29 | 28 | 1 | ||||||||||||||||||||||
| Total price risk management assets | 1,556 | 2 | 1,394 | 160 | 1,477 | 6 | 1,329 | 142 | |||||||||||||||||||
| NDT funds: | |||||||||||||||||||||||||||
| Cash and cash equivalents | 20 | 20 | 19 | 19 | |||||||||||||||||||||||
| Equity securities | |||||||||||||||||||||||||||
| U.S. large-cap | 620 | 461 | 159 | 611 | 454 | 157 | |||||||||||||||||||||
| U.S. mid/small-cap | 93 | 38 | 55 | 89 | 37 | 52 | |||||||||||||||||||||
| Debt securities | |||||||||||||||||||||||||||
| U.S. Treasury | 97 | 97 | 99 | 99 | |||||||||||||||||||||||
| U.S. government sponsored agency | 8 | 8 | 9 | 9 | |||||||||||||||||||||||
| Municipality | 76 | 76 | 76 | 76 | |||||||||||||||||||||||
| Investment-grade corporate | 45 | 45 | 42 | 42 | |||||||||||||||||||||||
| Other | 3 | 3 | 3 | 3 | |||||||||||||||||||||||
| Receivables (payables), net | 3 | 1 | 2 | 2 | 2 | ||||||||||||||||||||||
| Total NDT funds | 965 | 617 | 348 | 950 | 609 | 341 | |||||||||||||||||||||
| Auction rate securities (b) | 10 | 10 | 10 | 10 | |||||||||||||||||||||||
| Total assets | $ | 4,232 | $ | 2,320 | $ | 1,742 | $ | 170 | $ | 4,532 | $ | 2,710 | $ | 1,670 | $ | 152 | |||||||||||
| Liabilities | |||||||||||||||||||||||||||
| Price risk management liabilities: | |||||||||||||||||||||||||||
| Energy commodities | $ | 1,163 | $ | 2 | $ | 1,130 | $ | 31 | $ | 1,217 | $ | 5 | $ | 1,182 | $ | 30 | |||||||||||
| Interest rate swaps | 235 | 235 | 156 | 156 | |||||||||||||||||||||||
| Foreign currency contracts | 6 | 6 | 2 | 2 | |||||||||||||||||||||||
| Cross-currency swaps | 2 | 2 | 3 | 3 | |||||||||||||||||||||||
| Total price risk management liabilities | $ | 1,406 | $ | 2 | $ | 1,373 | $ | 31 | $ | 1,378 | $ | 5 | $ | 1,343 | $ | 30 | |||||||||||
| PPL Electric | |||||||||||||||||||||||||||
| Assets | |||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 35 | $ | 35 | $ | 214 | $ | 214 | |||||||||||||||||||
| Restricted cash and cash equivalents (c) | 2 | 2 | 3 | 3 | |||||||||||||||||||||||
| Total assets | $ | 37 | $ | 37 | $ | 217 | $ | 217 | |||||||||||||||||||
| LKE | |||||||||||||||||||||||||||
| Assets | |||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 40 | $ | 40 | $ | 21 | $ | 21 | |||||||||||||||||||
| Cash collateral posted to counterparties (d) | 22 | 22 | 21 | 21 | |||||||||||||||||||||||
| Total assets | $ | 62 | $ | 62 | $ | 42 | $ | 42 | |||||||||||||||||||
| Liabilities | |||||||||||||||||||||||||||
| Price risk management liabilities: | |||||||||||||||||||||||||||
| Interest rate swaps | $ | 174 | $ | 174 | $ | 114 | $ | 114 | |||||||||||||||||||
| Total price risk management liabilities | $ | 174 | $ | 174 | $ | 114 | $ | 114 | |||||||||||||||||||
| LG&E | |||||||||||||||||||||||||||
| Assets | |||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 17 | $ | 17 | $ | 10 | $ | 10 | |||||||||||||||||||
| Cash collateral posted to counterparties (d) | 22 | 22 | 21 | 21 | |||||||||||||||||||||||
| Total assets | $ | 39 | $ | 39 | $ | 31 | $ | 31 | |||||||||||||||||||
| Liabilities | |||||||||||||||||||||||||||
| Price risk management liabilities: | |||||||||||||||||||||||||||
| Interest rate swaps | $ | 113 | $ | 113 | $ | 81 | $ | 81 | |||||||||||||||||||
| Total price risk management liabilities | $ | 113 | $ | 113 | $ | 81 | $ | 81 | |||||||||||||||||||
| March 31, 2014 | December 31, 2013 | ||||||||||||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||
| PPL | |||||||||||||||||||||||||||
| Assets | |||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 1,256 | $ | 1,256 | $ | 1,102 | $ | 1,102 | |||||||||||||||||||
| Restricted cash and cash equivalents (a) | 491 | 491 | 156 | 156 | |||||||||||||||||||||||
| Price risk management assets: | |||||||||||||||||||||||||||
| Energy commodities | 1,417 | 2 | $ | 1,330 | $ | 85 | 1,188 | 3 | $ | 1,123 | $ | 62 | |||||||||||||||
| Interest rate swaps | 9 | 9 | 91 | 91 | |||||||||||||||||||||||
| Foreign currency contracts | 5 | 5 | |||||||||||||||||||||||||
| Total price risk management assets | 1,431 | 2 | 1,344 | 85 | 1,279 | 3 | 1,214 | 62 | |||||||||||||||||||
| NDT funds: | |||||||||||||||||||||||||||
| Cash and cash equivalents | 13 | 13 | 14 | 14 | |||||||||||||||||||||||
| Equity securities | |||||||||||||||||||||||||||
| U.S. large-cap | 556 | 415 | 141 | 547 | 409 | 138 | |||||||||||||||||||||
| U.S. mid/small-cap | 83 | 34 | 49 | 81 | 33 | 48 | |||||||||||||||||||||
| Debt securities | |||||||||||||||||||||||||||
| U.S. Treasury | 95 | 95 | 95 | 95 | |||||||||||||||||||||||
| U.S. government sponsored agency | 6 | 6 | 6 | 6 | |||||||||||||||||||||||
| Municipality | 80 | 80 | 77 | 77 | |||||||||||||||||||||||
| Investment-grade corporate | 41 | 41 | 38 | 38 | |||||||||||||||||||||||
| Other | 4 | 4 | 5 | 5 | |||||||||||||||||||||||
| Receivables (payables), net | 1 | (1) | 2 | 1 | (1) | 2 | |||||||||||||||||||||
| Total NDT funds | 879 | 556 | 323 | 864 | 550 | 314 | |||||||||||||||||||||
| Auction rate securities (b) | 16 | 16 | 19 | 19 | |||||||||||||||||||||||
| Total assets | $ | 4,073 | $ | 2,305 | $ | 1,667 | $ | 101 | $ | 3,420 | $ | 1,811 | $ | 1,528 | $ | 81 | |||||||||||
| Liabilities | |||||||||||||||||||||||||||
| Price risk management liabilities: | |||||||||||||||||||||||||||
| Energy commodities | $ | 1,527 | $ | 1 | $ | 1,458 | $ | 68 | $ | 1,070 | $ | 4 | $ | 1,028 | $ | 38 | |||||||||||
| Interest rate swaps | 47 | 47 | 36 | 36 | |||||||||||||||||||||||
| Foreign currency contracts | 123 | 123 | 106 | 106 | |||||||||||||||||||||||
| Cross-currency swaps | 55 | 55 | 32 | 32 | |||||||||||||||||||||||
| Total price risk management liabilities | $ | 1,752 | $ | 1 | $ | 1,683 | $ | 68 | $ | 1,244 | $ | 4 | $ | 1,202 | $ | 38 | |||||||||||
| PPL Energy Supply | |||||||||||||||||||||||||||
| Assets | |||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 441 | $ | 441 | $ | 239 | $ | 239 | |||||||||||||||||||
| Restricted cash and cash equivalents (a) | 429 | 429 | 85 | 85 | |||||||||||||||||||||||
| Price risk management assets: | |||||||||||||||||||||||||||
| Energy commodities | 1,417 | 2 | $ | 1,330 | $ | 85 | 1,188 | 3 | $ | 1,123 | $ | 62 | |||||||||||||||
| Total price risk management assets | 1,417 | 2 | 1,330 | 85 | 1,188 | 3 | 1,123 | 62 | |||||||||||||||||||
| NDT funds: | |||||||||||||||||||||||||||
| Cash and cash equivalents | 13 | 13 | 14 | 14 | |||||||||||||||||||||||
| Equity securities | |||||||||||||||||||||||||||
| U.S. large-cap | 556 | 415 | 141 | 547 | 409 | 138 | |||||||||||||||||||||
| U.S. mid/small-cap | 83 | 34 | 49 | 81 | 33 | 48 | |||||||||||||||||||||
| Debt securities | |||||||||||||||||||||||||||
| U.S. Treasury | 95 | 95 | 95 | 95 | |||||||||||||||||||||||
| U.S. government sponsored agency | 6 | 6 | 6 | 6 | |||||||||||||||||||||||
| Municipality | 80 | 80 | 77 | 77 | |||||||||||||||||||||||
| Investment-grade corporate | 41 | 41 | 38 | 38 | |||||||||||||||||||||||
| Other | 4 | 4 | 5 | 5 | |||||||||||||||||||||||
| Receivables (payables), net | 1 | (1) | 2 | 1 | (1) | 2 | |||||||||||||||||||||
| Total NDT funds | 879 | 556 | 323 | 864 | 550 | 314 | |||||||||||||||||||||
| Auction rate securities (b) | 13 | 13 | 16 | 16 | |||||||||||||||||||||||
| Total assets | $ | 3,179 | $ | 1,428 | $ | 1,653 | $ | 98 | $ | 2,392 | $ | 877 | $ | 1,437 | $ | 78 | |||||||||||
| March 31, 2014 | December 31, 2013 | ||||||||||||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||
| Liabilities | |||||||||||||||||||||||||||
| Price risk management liabilities: | |||||||||||||||||||||||||||
| Energy commodities | $ | 1,527 | $ | 1 | $ | 1,458 | $ | 68 | $ | 1,070 | $ | 4 | $ | 1,028 | $ | 38 | |||||||||||
| Total price risk management liabilities | $ | 1,527 | $ | 1 | $ | 1,458 | $ | 68 | $ | 1,070 | $ | 4 | $ | 1,028 | $ | 38 | |||||||||||
| PPL Electric | |||||||||||||||||||||||||||
| Assets | |||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 42 | $ | 42 | $ | 25 | $ | 25 | |||||||||||||||||||
| Restricted cash and cash equivalents (c) | 1 | 1 | 12 | 12 | |||||||||||||||||||||||
| Total assets | $ | 43 | $ | 43 | $ | 37 | $ | 37 | |||||||||||||||||||
| LKE | |||||||||||||||||||||||||||
| Assets | |||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 30 | $ | 30 | $ | 35 | $ | 35 | |||||||||||||||||||
| Restricted cash and cash equivalents (d) | 21 | 21 | 22 | 22 | |||||||||||||||||||||||
| Total assets | $ | 51 | $ | 51 | $ | 57 | $ | 57 | |||||||||||||||||||
| Liabilities | |||||||||||||||||||||||||||
| Price risk management liabilities: | |||||||||||||||||||||||||||
| Interest rate swaps | $ | 40 | $ | 40 | $ | 36 | $ | 36 | |||||||||||||||||||
| Total price risk management liabilities | $ | 40 | $ | 40 | $ | 36 | $ | 36 | |||||||||||||||||||
| LG&E | |||||||||||||||||||||||||||
| Assets | |||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 9 | $ | 9 | $ | 8 | $ | 8 | |||||||||||||||||||
| Restricted cash and cash equivalents (d) | 21 | 21 | 22 | 22 | |||||||||||||||||||||||
| Total assets | $ | 30 | $ | 30 | $ | 30 | $ | 30 | |||||||||||||||||||
| Liabilities | |||||||||||||||||||||||||||
| Price risk management liabilities: | |||||||||||||||||||||||||||
| Interest rate swaps | $ | 40 | $ | 40 | $ | 36 | $ | 36 | |||||||||||||||||||
| Total price risk management liabilities | $ | 40 | $ | 40 | $ | 36 | $ | 36 | |||||||||||||||||||
| KU | |||||||||||||||||||||||||||
| Assets | |||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 21 | $ | 21 | $ | 21 | $ | 21 | |||||||||||||||||||
| Total assets | $ | 21 | $ | 21 | $ | 21 | $ | 21 | |||||||||||||||||||
| 60 |
| March 31, 2015 | December 31, 2014 | ||||||||||||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||
| KU | |||||||||||||||||||||||||||
| Assets | |||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 23 | $ | 23 | $ | 11 | $ | 11 | |||||||||||||||||||
| Total assets | $ | 23 | $ | 23 | $ | 11 | $ | 11 | |||||||||||||||||||
| Liabilities | |||||||||||||||||||||||||||
| Price risk management liabilities: | |||||||||||||||||||||||||||
| Interest rate swaps | $ | 61 | $ | 61 | $ | 33 | $ | 33 | |||||||||||||||||||
| Total price risk management liabilities | $ | 61 | $ | 61 | $ | 33 | $ | 33 | |||||||||||||||||||
| (a) | Current portion is included in "Restricted cash and cash equivalents" and long-term portion is included in "Other noncurrent assets" on the Balance Sheets. |
| (c) | Current portion is included in "Other current assets" and long-term portion is included in "Other noncurrent assets" on the Balance Sheets. |
| A reconciliation of net assets and liabilities classified as Level 3 for the three months ended March 31 is as follows: | ||||||||||||||||||||||||||||
| Fair Value Measurements Using Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||||||||||
| 2014 | 2013 | |||||||||||||||||||||||||||
| 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 | $ | 24 | $ | 19 | $ | 43 | $ | 22 | $ | 16 | $ | 1 | $ | 39 | ||||||||||||||
| Total realized/unrealized | ||||||||||||||||||||||||||||
| gains (losses) | ||||||||||||||||||||||||||||
| Included in earnings | (135) | (135) | (8) | (8) | ||||||||||||||||||||||||
| Included in OCI (a) | $ | (1) | (1) | 3 | 3 | |||||||||||||||||||||||
| Sales | (3) | (3) | ||||||||||||||||||||||||||
| Settlements | 128 | 128 | (1) | (1) | ||||||||||||||||||||||||
| Transfers into Level 3 | 1 | 1 | ||||||||||||||||||||||||||
| Transfers out of Level 3 | 1 | 1 | (4) | (4) | ||||||||||||||||||||||||
| Balance at end of period | $ | 17 | $ | 16 | $ | $ | 33 | $ | 14 | $ | 16 | $ | $ | 30 | ||||||||||||||
| Fair Value Measurements Using Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||||||||||
| 2014 | 2013 | |||||||||||||||||||||||||||
| Energy | Auction | Cross- | Energy | Auction | Cross- | |||||||||||||||||||||||
| Commodities, | Rate | Currency | Commodities, | Rate | Currency | |||||||||||||||||||||||
| net | Securities | Swaps | Total | net | Securities | Swaps | Total | |||||||||||||||||||||
| PPL Energy Supply | ||||||||||||||||||||||||||||
| Balance at beginning of | ||||||||||||||||||||||||||||
| period | $ | 24 | $ | 16 | $ | 40 | $ | 22 | $ | 13 | $ | 35 | ||||||||||||||||
| Total realized/unrealized | ||||||||||||||||||||||||||||
| gains (losses) | ||||||||||||||||||||||||||||
| Included in earnings | (135) | (135) | (8) | (8) | ||||||||||||||||||||||||
| Sales | (3) | (3) | ||||||||||||||||||||||||||
| Settlements | 128 | 128 | (1) | (1) | ||||||||||||||||||||||||
| Transfers into Level 3 | 1 | 1 | ||||||||||||||||||||||||||
| Balance at end of period | $ | 17 | $ | 13 | $ | 30 | $ | 14 | $ | 13 | $ | 27 | ||||||||||||||||
| A reconciliation of net assets and liabilities classified as Level 3 for the three months ended March 31 is as follows: | ||||||||||||||||||||||||||||
| Fair Value Measurements Using Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||||||||||
| 2015 | 2014 | |||||||||||||||||||||||||||
| 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 | $ | 111 | $ | 10 | $ | 1 | $ | 122 | $ | 24 | $ | 19 | $ | 43 | ||||||||||||||
| Total realized/unrealized | ||||||||||||||||||||||||||||
| gains (losses) | ||||||||||||||||||||||||||||
| Included in earnings | (17) | (17) | (135) | (135) | ||||||||||||||||||||||||
| Included in OCI (a) | 6 | 6 | $ | (1) | (1) | |||||||||||||||||||||||
| Sales | (3) | (3) | ||||||||||||||||||||||||||
| Settlements | 30 | 30 | 128 | 128 | ||||||||||||||||||||||||
| Transfers into Level 3 | 4 | 4 | ||||||||||||||||||||||||||
| Transfers out of Level 3 | 1 | (7) | (6) | 1 | 1 | |||||||||||||||||||||||
| Balance at end of period | $ | 129 | $ | 10 | $ | $ | 139 | $ | 17 | $ | 16 | $ | $ | 33 | ||||||||||||||
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:
| March 31, | |||||||||||||
| Fair Value, net | Range | ||||||||||||
| Asset | Valuation | Unobservable | (Weighted | ||||||||||
| (Liability) | Technique | Input(s) | Average) (a) | ||||||||||
| PPL | |||||||||||||
| Energy commodities | |||||||||||||
| Natural gas contracts (b) | $ | | Discounted cash flow | Proprietary model used to calculate forward prices | 11% - 100% | ||||||||
| Power sales contracts (c) | | Discounted cash flow | Proprietary model used to calculate forward prices | ||||||||||
| Heat rate options (e) | | Discounted cash flow | Proprietary model used to calculate forward prices | ||||||||||
| Auction rate securities (f) | | ||||||||||||
| Discounted cash flow | Modeled from SIFMA Index | ||||||||||||
| 61 |
| December 31, 2014 | |||||||||||||
| Fair Value, net | Range | ||||||||||||
| Asset | Valuation | Unobservable | (Weighted | ||||||||||
| (Liability) | Technique | Input(s) | Average) (a) | ||||||||||
| PPL | |||||||||||||
| Energy commodities | |||||||||||||
| Natural gas contracts (b) | $ | | Discounted cash flow | Proprietary model used to calculate forward prices | |||||||||
| Power sales contracts (c) | | Discounted cash flow | Proprietary model used to calculate forward prices | 10% - 100% (59%) | |||||||||
| FTR purchase contracts (d) | 3 | Discounted cash flow | Historical settled prices used to model forward prices | 100% (100%) | |||||||||
| Heat rate options (e) | 50 | Discounted cash flow | Proprietary model used to calculate forward prices | 23% - 51% (45%) | |||||||||
| Auction rate securities (f) | | Discounted cash flow | Modeled from SIFMA Index | ||||||||||
| Cross-currency swaps (g) | 1 | Discounted cash flow | Credit valuation adjustment | 15% (15%) | |||||||||
| (d) | 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 periodsthree months ended March 31 are reported in the Statements of Income as follows:
| 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 | $ | (89) | $ | (2) | $ | (63) | $ | (7) | $ | 17 | $ | 1 | |||||||
| Change in unrealized gains (losses) relating to | |||||||||||||||||||
| positions still held at the reporting date | (13) | (2) | (33) | (7) | 1 | 1 | |||||||||||||
| Energy Commodities, net | ||||||||||||||||||
| Unregulated | Unregulated | Energy | ||||||||||||||||
| Wholesale Energy | Retail Energy | Purchases | ||||||||||||||||
| 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | |||||||||||||
| PPL | ||||||||||||||||||
| Total gains (losses) included in earnings | $ | 21 | $ | (89) | $ | (40) | $ | (63) | $ | 2 | $ | 17 | ||||||
| Change in unrealized gains (losses) relating | ||||||||||||||||||
| to positions still held at the reporting date | 25 | (13) | (9) | (33) | 1 | 1 | ||||||||||||
Price Risk Management Assets/Liabilities - Energy Commodities
(Energy commodity contracts are generally valued using the income approach, except for exchange-traded derivative contracts, which are valued using the market approach and are classified as Level 1. Level 2 contracts are valued using inputs which may include quotes obtained from an exchange (where there is insufficient market liquidity to warrant inclusion in Level 1), binding and non-binding broker quotes, prices posted by ISOs or published tariff rates. Furthermore, independent quotes are obtained from the market to validate the forward price curves. Energy commodity contracts include forwards, futures, swaps, options and structured transactions and may be offset with similar positions in exchange-traded markets. To the extent possible, fair value measurements utilize various inputs that include quoted prices for similar contracts or market-corroborated inputs. In certain instances, these contracts may be valued using models, including standard option valuation models and other standard industry models. When the lowest level inputs that are significant to the fair value measurement of a contract are observable, the contract is classified as Level 2.
When unobservable inputs are significant to the fair value measurement, a contract is classified as Level 3. Level 3 contracts are valued using PPL proprietary models which may include significant unobservable inputs such as delivery at a location where pricing is unobservable, delivery dates that are beyond the dates for which independent quotes are available, volumetric assumptions, implied volatilities, implied correlations, and market implied heat rates. Forward transactions, including forward transactions classified as Level 3, are analyzed by PPL's Risk Management department, which reports to
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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 20132015 were changes in the availability of market information and changes in the significance of the unobservable inputs utilized in the valuation of the contract. As the delivery period of a contract becomes closer, market information may become available. When this occurs, the model's unobservable inputs are replaced with observable market information.
Price Risk Management Assets/Liabilities - Interest Rate Swaps/Foreign Currency Contracts/Cross-Currency Swaps
(PPL, LKE, LG&E and KU)To manage interest rate risk, PPL, LKE, LG&E and KU use interest rate contracts such as forward-starting swaps, floating-to-fixed swaps and fixed-to-floating swaps. To manage foreign currency exchange risk, PPL uses foreign currency contracts such as forwards, options and cross-currency swaps that contain characteristics of both interest rate and foreign currency contracts. An income approach is used to measure the fair value of these contracts, utilizing readily observable inputs, such as forward interest rates (e.g., LIBOR and government security rates) and forward foreign currency exchange rates (e.g., GBP), as well as inputs that may not be observable, such as credit valuation adjustments. In certain cases, market information cannot practicably be obtained to value credit risk and therefore internal models are relied upon. These models use projected probabilities of default and estimated recovery rates based on historical observances. When the credit valuation adjustment is significant to the overall valuation, the contracts are classified as Level 3. For PPL, the primary reason for the transfers between Level 2 and Level 3 during 20142015 and 20132014 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.department. 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.
The market approach is used to measure the fair value of equity securities held in the NDTtheNDT funds.
| · | The fair value measurements of equity securities classified as Level 1 are based on quoted prices in active markets. |
| · | The fair value measurements of investments in commingled equity funds are classified as Level 2. These fair value measurements are based on firm quotes of net asset values per share, which are not obtained from a quoted price in an active market. |
The fair value of debt securities is generally measured using a market approach, including the use of pricing models which incorporate observable inputs. Common inputs include benchmark yields, reported trades,relevant trade data, broker/dealer bid/ask prices, benchmark securities and credit valuation adjustments. When necessary, the fair value of debt securities is measured using the income approach, which incorporates similar observable inputs as well as monthly payment data, future predicted cash flows, collateral performance and new issue data.
Auction rate securities include Federal Family Education Loan Program guaranteed student loan revenue bonds, as well as various municipal bond issues. The probability of realizing losses on these securities is not significant.
The fair value of auction rate securities is estimated using an income approach that includes readily observable inputs, such as principal payments and discount curves for bonds with credit ratings and maturities similar to the securities, and unobservable inputs, such as future interest rates that are estimated based on the SIFMA Index, creditworthiness, and liquidity assumptions driven by the impact of auction failures. When the present value of future interest payments is significant to the overall valuation, the auction rate securities are classified as Level 3.
Auction rate securities are valued by PPL's Treasury department, which reports to the CFO.department. 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.
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The following nonrecurring fair value measurement occurred during the three months ended March 31, 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 | ||||
| Carrying | Fair Value Measurements Using | |||||||||
| Amount (a) | Level 3 | Loss (b) | ||||||||
| PPL | ||||||||||
| Kerr Dam Project | $ | 47 | $ | 29 | $ | 18 | ||||
| (a) | Represents carrying value before fair value measurement. |
| 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) | |||||||||
| 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
PPL Montana holdspreviously held a joint operating license issued for the Kerr Dam Project. The license extends until 2035 and, between 2015 and 2025, the Confederated Salish and Kootenai Tribes of the Flathead Nation (the Tribes) have the option to purchase, hold and operate the Kerr Dam Project. The parties submitted the issue of the appropriate amount of the conveyance price to arbitration in February 2013. In March 2014, the arbitration panel issued its final decision holding that the conveyance price payable by the Tribes to PPL Montanafor the Kerr Dam Project is $18 million. As a result of the decision, PPL Energy Supply performed a recoverability test on the Kerr Dam Project and recorded an impairment charge. PPL Energy Supply performed an internal analysis using an income approach based on discounted cash flows (a PPL proprietary 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.
The assets were valued by the PPL Energy Supply Financial Department, which reports to the President of PPL Energy Supply.Department. Accounting personnel who report to the CFO interpreted the analysis to appropriately classify the assets in the fair value hierarchy.
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 areLong-term debt is classified as Level 2. The effect of third-party credit enhancements is not included in the fair value measurement.
| March 31, 2014 | December 31, 2013 | ||||||||||||
| Carrying | Carrying | ||||||||||||
| Amount | Fair Value | Amount | Fair Value | ||||||||||
| PPL | |||||||||||||
| Contract adjustment payments (a) | $ | 11 | $ | 11 | $ | 21 | $ | 22 | |||||
| Long-term debt | 20,818 | 22,350 | 20,907 | 22,177 | |||||||||
| PPL Energy Supply | |||||||||||||
| Long-term debt | 2,524 | 2,680 | 2,525 | 2,658 | |||||||||
| PPL Electric | |||||||||||||
| Long-term debt | 2,306 | 2,555 | 2,315 | 2,483 | |||||||||
| LKE | |||||||||||||
| Long-term debt | 4,565 | 4,807 | 4,565 | 4,672 | |||||||||
| LG&E | |||||||||||||
| Long-term debt | 1,353 | 1,413 | 1,353 | 1,372 | |||||||||
| KU | |||||||||||||
| Long-term debt | 2,091 | 2,238 | 2,091 | 2,155 | |||||||||
| March 31, 2015 | December 31, 2014 | ||||||||||||
| Carrying | Carrying | ||||||||||||
| Amount | Fair Value | Amount | Fair Value | ||||||||||
| PPL | $ | 20,307 | $ | 23,258 | $ | 20,391 | $ | 22,670 | |||||
| PPL Electric | 2,603 | 3,084 | 2,602 | 2,990 | |||||||||
| LKE | 4,567 | 5,091 | 4,567 | 4,946 | |||||||||
| LG&E | 1,353 | 1,493 | 1,353 | 1,455 | |||||||||
| KU | 2,091 | 2,396 | 2,091 | 2,313 | |||||||||
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.
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(All Registrants)
Contracts are entered into with many entities for the purchase and sale of energy. When NPNS is elected, the fair value of these contracts is not reflected in the financial statements. However, the fair value of these contracts is considered when committing to new business from a credit perspective. See Note 14 for information on credit policies used to manage credit risk, including master netting arrangements and collateral requirements.
(PPL)
At March 31, 2014,2015, PPL and PPL Energy Supply had credit exposure of $997$692 million from energy trading partners, excluding exposure from related parties (PPL Energy Supply only) and the effects of netting arrangements, reserves and collateral. As a result of netting arrangements, reserves and collateral, PPL's credit exposure was reduced to $372 million and PPL Energy Supply's credit exposure was reduced to $371$402 million. The top ten counterparties including their affiliates accounted for $212$220 million, or 57%55%, of these exposures. NineEight of these counterparties had an investment grade credit rating from S&P or Moody's and accounted for 94%75% of the top ten exposures. The remaining counterparty has not beencounterparties are rated by S&P or Moody's,below investment grade, but isare current on itstheir obligations. See Note 11 for information regarding PPL Energy Supply's related party credit exposure.
PPL Electric is exposed to credit risk under energy supply contracts (including its supply contracts with PPL EnergyPlus); however, its PUC-approved recovery mechanism is anticipated to substantially eliminatemitigate this exposure.
At March 31, 2014,2015, LKE's, LG&E's and KU's credit exposure was not significant.
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
Market Risk
Market risk includes the potential loss that may be incurred as a result of price changes associated with a particular financial or commodity instrument as well as market liquidity and volumetric risks. Forward contracts, futures contracts, options, swaps and structured transactions are utilized as part of risk management strategies to minimize unanticipated fluctuations in earnings caused by changes in commodity prices, volumes of full-requirement sales contracts, basis exposure, interest rates and/orand foreign currency exchange rates. Many of the contracts meet the definition of a derivative. All derivatives are recognized on the Balance Sheets at their fair value, unless NPNS is elected.
The table below summarizes the market risks that affect PPL and its Subsidiary Registrants.
| PPL | PPL Electric | LG&E | KU | ||||||||||||||||||||
| Commodity price risk (including basis and volumetric risk) | X | M | M | M | M | ||||||||||||||||||
| Interest rate risk: | |||||||||||||||||||||||
| Debt issuances | X | M | M | M | M | ||||||||||||||||||
| Defined benefit plans | X | M | M | M | M | ||||||||||||||||||
| NDT securities | X | ||||||||||||||||||||||
| Equity securities price risk: | |||||||||||||||||||||||
| Defined benefit plans | X | M | M | M | M | ||||||||||||||||||
| NDT securities | X | ||||||||||||||||||||||
| Future stock transactions | X | ||||||||||||||||||||||
| Foreign currency risk - WPD investment and | |||||||||||||||||||||||
| earnings | X | ||||||||||||||||||||||
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| X | = PPL |
| M | = The regulatory environments for PPL's regulated entities, by definition, significantly mitigate market risk. |
Commodity price risk
| · | PPL is exposed to commodity price risk through its domestic subsidiaries as described below. |
| · | PPL |
| · | PPL Electric is exposed to commodity price risk from its obligation as PLR; however, its PUC-approved cost recovery mechanism substantially eliminates its exposure to this risk. PPL Electric also mitigates its exposure to volumetric risk by entering into full-requirement supply agreements to serve its PLR customers. These supply agreements transfer the volumetric risk associated with the PLR obligation to the energy suppliers. |
| · | LG&E's and KU's rates include certain mechanisms for fuel |
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, when appropriate, in connection with future debt issuances. |
| · | PPL and its subsidiaries are exposed to interest rate risk associated with debt securities held by defined benefit plans. This risk is significantly mitigated to the extent that the plans are sponsored at, or sponsored on behalf of, the regulated domestic utilities and for certain plans at WPD due to the recovery mechanisms in place. Additionally, PPL |
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 |
| · | 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 in and earnings |
Credit Risk
Credit risk is the potential loss that may be incurred due to a counterparty's non-performance.
PPL is exposed to credit risk from "in-the-money" interest rate and foreign currency derivatives with financial institutions, as well as additional credit risk through certain of its subsidiaries, as discussed below.
PPL Energy Supply is exposed to credit risk from "in-the-money" commodity derivatives with its energy trading partners, which include other energy companies, fuel suppliers, financial institutions, other wholesale customers and retail customers.
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The majority of PPL and PPL Energy Supply'sPPL's credit risk stems from commodity derivatives for multi-year contracts for energy sales and purchases.purchases entered into by PPL Energy Supply. If PPL Energy Supply's counterparties fail to perform their obligations under such contracts and PPL Energy Supply could not replace the sales or purchases at the same or better prices as those under the defaulted contracts, PPL Energy Supply would incur financial losses. Those losses would be recognized immediately or through lower revenues or higher costs in future years, depending on the accounting treatment for the defaulted contracts. In the event a supplier of LKE (through its subsidiaries LG&E and KU) or PPL Electric defaults on its obligation, those entities would be required to seek replacement power or replacement fuel in the market. In general, subject to regulatory review or other processes, appropriate incremental costs incurred by these entities would be recoverable from customers in future rates,through applicable rate mechanisms, thus mitigating the financial risk for these entities.
PPL and its subsidiaries have credit policies in place to manage credit risk, including the use of an established credit approval process, daily monitoring of counterparty positions and the use of master netting agreements or provisions. These agreements generally include credit mitigation provisions, such as margin, prepayment or collateral requirements. PPL and its subsidiaries may request additional credit assurance, in certain circumstances, in the event that the counterparties' credit ratings fall below investment grade, their tangible net worth falls below specified percentages or their exposures exceed an established credit limit. See Note 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 $10 million and $9$11 million at March 31, 20142015 and December 31, 2013.
PPL Electric, LKE and LG&E had no obligation to return cash collateral under master netting arrangements at March 31, 20142015 and December 31, 2013.
PPL, LKE and LG&E had posted $22 million and $21 million of cash collateral under master netting arrangements of $21 million and $22 million at March 31, 20142015 and December 31, 2013.
PPL Electric and KU haddid not postedpost any cash collateral under master netting arrangements at March 31, 20142015 and December 31, 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.
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 maintainmaintains in theirits competitive generation assets, as well as the extent of theirits 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 7,3696,496 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 3,3093,252 MW (summer rating) of natural gas and oil-fired generation. PPL Energy Supply's marketing portfolio is comprised of full-requirement sales contracts and related supply contracts, retail natural gas and electricity sales contracts and other marketing activities. The strategies that PPL Energy Supply uses to hedge its full-requirement sales contracts include purchasing energy (at a liquid trading hub or directly at the load delivery zone), capacity and RECs in the market and/or supplying the energy, capacity and RECs from its generation assets.
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PPL Energy Supply enterenters into financial and physical derivative contracts, including forwards, futures, swaps and options, to hedge the price risk associated with electricity, natural gas, oil and other commodities. Certain contracts are non-derivatives or NPNS is elected and therefore they are not reflected in the financial statements until delivery. PPL and PPL Energy Supply segregate theirsegregates its 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. ThereIn 2015 and 2014, there were no active cash flow hedges during the three months ended March 31, 2014.and there was no hedge ineffectiveness associated with energy derivatives. At March 31, 2014,2015, the accumulated net unrecognized after-tax gains (losses) that are expected to be reclassified into earnings during the next 12 months were $24 million for PPL and PPL Energy Supply.$18 million. 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. Thereoccurring.There were no such reclassifications for the three months ended March 31, 20142015 and 2013.
Economic Activity
Many derivative contracts economically hedge the commodity price risk associated with electricity, natural gas, oil and other commodities but do not receive hedge accounting treatment because they were not eligible for hedge accounting or because hedge accounting was not elected. These derivatives hedge a portion of the economic value of PPL Energy Supply's competitive generation assets and unregulated full-requirement and retail contracts, which are subject to changes in fair value due to market price volatility and volume expectations. Additionally, economic activity also includes the ineffective portion of qualifying cash flow hedges (see "Cash Flow Hedges" above). The derivative contracts in this category that existed at March 31, 20142015 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
| Three Months | |||||||||||||
| 2014 | 2013 | ||||||||||||
| Operating Revenues | |||||||||||||
| Unregulated wholesale energy | $ | (789) | $ | (822) | |||||||||
| Unregulated retail energy | (26) | (8) | |||||||||||
| Operating Expenses | |||||||||||||
| Fuel | (1) | (1) | |||||||||||
| Energy purchases | 580 | 634 | |||||||||||
| Three Months | |||||||||||||
| 2015 | 2014 | ||||||||||||
| Operating Revenues | |||||||||||||
| Unregulated wholesale energy | $ | (92) | $ | (789) | |||||||||
| Unregulated retail energy | (13) | (26) | |||||||||||
| Operating Expenses | |||||||||||||
| Fuel | (1) | ||||||||||||
| Energy purchases | 145 | 580 | |||||||||||
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. Net energy trading margins, which are included in "Unregulated wholesale energy" on the Statements of Income, were insignificant for the three months ended March 31, 20142015 and 2013.
Commodity Volumes
At March 31, 2014,2015, the net volumes of derivative (sales)/purchase contracts used in support of the various strategies discussed above were as follows.
| Volumes (a) | ||||||||||
| Commodity | Unit of Measure | 2014 (b) | 2015 | 2016 | Thereafter | |||||
| Power | MWh | (27,112,584) | (28,794,377) | 3,496,447 | 14,130,735 | |||||
| Capacity | MW-Month | (14,918) | (5,120) | 501 | 9 | |||||
| Gas | MMBtu | 63,248,020 | 14,120,116 | 57,884,707 | 25,814,197 | |||||
| Coal | Tons | 25,000 | ||||||||
| FTRs | MW-Month | 4,734 | 1,705 | |||||||
| Oil | Barrels | 156,000 | 436,233 | 331,258 | 279,060 | |||||
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| Volumes (a) | ||||||||||
| Commodity | Unit of Measure | 2015 (b) | 2016 | 2017 | Thereafter | |||||
| Power | MWh | (30,874,062) | (8,521,382) | (248,329) | 2,236,333 | |||||
| Capacity | MW-Month | (3,998) | (878) | 6 | 3 | |||||
| Gas | MMBtu | 157,995,389 | 87,545,701 | 13,742,416 | 20,314,625 | |||||
| FTRs | MW-Month | 532 | ||||||||
| Oil | Barrels | 300,328 | 387,429 | 257,483 | 60,000 | |||||
| (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. |
(PPL, LKE, LG&E and 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 March 31, 2014, outstanding2015, PPL held an aggregate notional value in interest rate swap contracts of $1.6 billion that range in maturity through 2025 for PPL's domestic2045. The amount outstanding includes swaps entered into by PPL on behalf of LG&E and KU. Realized gains and losses on the LG&E and KU swaps are probable of recovery through regulated rates; as such, any gains and losses on these derivatives are included in regulatory assets or liabilities and will be recognized in "Interest Expense" on the Statements of Income over the life of the underlying debt at the time the underlying hedged interest rate swaps. These swaps hadexpense is recorded.
At March 31, 2015, PPL held an aggregate notional value of $500 million at March 31, 2014.
For the three months ended March 31, 2014 and 2013,2015, PPL had no hedge ineffectiveness associated with interest rate derivatives was insignificant.
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. PPLoccurring.PPL had no such reclassifications for the three months ended March 31, 2015 associated with discontinued cash flow hedges and an insignificant amount reclassified for the three months ended March 31, 2014 associated with discontinued cash flow hedges and no such reclassifications for the three months ended March 31, 2013.
At March 31, 2014,2015, 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 $(12)$(13) million. In addition, see Note 8 for unamortized losses on PPL interest rate swaps expected to be reclassified into earnings and reflected in discontinued operations at the close of the spinoff transaction. Amounts are reclassified as the hedged interest paymentsexpense is recorded.
Periodically, LG&E and KU enter into forward-starting interest rate swaps with PPL that have terms identical to forward-starting swaps entered into by PPL with third parties. Realized gains and losses on all of these swaps are made.probable of recovery through regulated rates; as such, any gains and losses on these derivatives are included in regulatory assets or liabilities and will be recognized in "Interest Expense" on the Statements of Income over the life of the underlying debt at the time the underlying hedged interest expense is recorded. At March 31, 2015, the total notional amount of forward starting interest rate swaps outstanding was $1 billion (LG&E and KU each held contracts of $500 million). The swaps range in maturity through 2045.
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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 whenat the time the underlying hedged interest expense is recorded. At March 31, 2014,2015, LG&E held contracts with a notional amount of $179 million that range in maturity through 2033.
(PPL)
PPL is exposed to foreign currency risk, primarily through investments in and earnings of U.K. affiliates. PPL has adopted a foreign currency risk management program designed to hedge certain foreign currency exposures, including firm commitments, recognized assets or liabilities, anticipated transactions and net investments. In addition, PPL enters into financial instruments to protect against foreign currency translation risk of expected GBP earnings.
Net Investment Hedges
PPL enters into foreign currency contracts on behalf of a subsidiary to protect the value of a portion of its net investment in WPD. The contracts outstanding at March 31, 20142015 had a notional amount of £345£217 million (approximately $549$355 million based on contracted rates). The settlement dates of these contracts range from May 20142015 through December 2015.
At March 31, 2014, the outstanding balances of the intercompany loans were £40 million (approximately $67 million based on spot rates). For the three months ended March 31, 2014 and 2013, PPL recognized an insignificant amount and $5 million of net investment hedge gains (losses) on the intercompany loans in the foreign currency translation adjustment component of OCI.
Economic Activity
PPL enters into foreign currency contracts on behalf of a subsidiary to economically hedge GBP-denominated anticipated earnings. At March 31, 2014,2015, the total exposure hedged by PPL was approximately £1.8£1.3 billion (approximately $3.0$2.1 billion based on contracted rates). These contracts had termination dates ranging from April 20142015 through October 2016.
(All Registrants)
All derivative instruments are recorded at fair value on the Balance Sheet as an asset or liability unless NPNS is elected. NPNS contracts for PPL and PPL Energy Supply include certain full-requirement sales contracts, other physical purchase and sales contracts and certain retail energy and physical capacity contracts, and for PPL Electric include certain full-requirement purchase contracts and other physical purchase contracts. Changes in the fair value of derivatives not designated as NPNS are recognized currently in earnings unless specific hedge accounting criteria are met and designated as such, except for the changes in fair values of LG&E's and KU's interest rate swaps that are recognized as regulatory assets.assets or regulatory liabilities. See Note 6 for amounts recorded in regulatory assets and regulatory liabilities at March 31, 20142015 and December 31, 2013. PPL and2014. PPL Energy Supply havehas 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 presentpresents 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 thePPL's 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 1917 in each Registrant's 20132014 Form 10-K for additional information on accounting policies related to derivative instruments.
| 70 |
The following table presents the fair value and location of derivative instruments recorded on the Balance Sheets.
| March 31, 2014 | December 31, 2013 | ||||||||||||||||||||||||||||
| Derivatives designated as | Derivatives not designated | Derivatives designated as | Derivatives not designated | ||||||||||||||||||||||||||
| hedging instruments | as hedging instruments | hedging instruments | as hedging instruments | ||||||||||||||||||||||||||
| Assets | Liabilities | Assets | Liabilities | Assets | Liabilities | Assets | Liabilities | ||||||||||||||||||||||
| Current: | |||||||||||||||||||||||||||||
| Price Risk Management | |||||||||||||||||||||||||||||
| Assets/Liabilities (a): | |||||||||||||||||||||||||||||
| Interest rate swaps (b) | $ | 7 | $ | 3 | $ | 4 | $ | 82 | $ | 4 | |||||||||||||||||||
| Cross-currency swaps (b) | 4 | $ | 4 | ||||||||||||||||||||||||||
| Foreign currency | |||||||||||||||||||||||||||||
| contracts | 18 | 62 | 16 | 55 | |||||||||||||||||||||||||
| Commodity contracts | $ | 1,080 | 1,211 | $ | 860 | 750 | |||||||||||||||||||||||
| Total current | 7 | 25 | 1,080 | 1,277 | 82 | 20 | 860 | 809 | |||||||||||||||||||||
| Noncurrent: | |||||||||||||||||||||||||||||
| Price Risk Management | |||||||||||||||||||||||||||||
| Assets/Liabilities (a): | |||||||||||||||||||||||||||||
| Interest rate swaps (b) | 2 | 4 | 36 | 9 | 32 | ||||||||||||||||||||||||
| Cross-currency swaps (b) | 51 | 28 | |||||||||||||||||||||||||||
| Foreign currency | |||||||||||||||||||||||||||||
| contracts | 6 | 5 | 37 | 4 | 31 | ||||||||||||||||||||||||
| Commodity contracts | 337 | 316 | 328 | 320 | |||||||||||||||||||||||||
| Total noncurrent | 2 | 61 | 342 | 389 | 9 | 32 | 328 | 383 | |||||||||||||||||||||
| Total derivatives | $ | 9 | $ | 86 | $ | 1,422 | $ | 1,666 | $ | 91 | $ | 52 | $ | 1,188 | $ | 1,192 | |||||||||||||
| March 31, 2015 | December 31, 2014 | ||||||||||||||||||||||||||||
| Derivatives designated as | Derivatives not designated | Derivatives designated as | Derivatives not designated | ||||||||||||||||||||||||||
| hedging instruments | as hedging instruments | hedging instruments | as hedging instruments | ||||||||||||||||||||||||||
| Assets | Liabilities | Assets | Liabilities | Assets | Liabilities | Assets | Liabilities | ||||||||||||||||||||||
| Current: | |||||||||||||||||||||||||||||
| Price Risk Management | |||||||||||||||||||||||||||||
| Assets/Liabilities (a): | |||||||||||||||||||||||||||||
| Interest rate swaps (b) | $ | 160 | $ | 5 | $ | 94 | $ | 5 | |||||||||||||||||||||
| Cross-currency swaps (b) | $ | 1 | 2 | 3 | |||||||||||||||||||||||||
| Foreign currency | |||||||||||||||||||||||||||||
| contracts | 24 | $ | 106 | 2 | $ | 12 | $ | 67 | |||||||||||||||||||||
| Commodity contracts | 988 | 904 | 1,079 | 1,024 | |||||||||||||||||||||||||
| Total current | 25 | 162 | 1,094 | 911 | 12 | 97 | 1,146 | 1,029 | |||||||||||||||||||||
| Noncurrent: | |||||||||||||||||||||||||||||
| Price Risk Management | |||||||||||||||||||||||||||||
| Assets/Liabilities (a): | |||||||||||||||||||||||||||||
| Interest rate swaps (b) | 23 | 47 | 14 | 43 | |||||||||||||||||||||||||
| Cross-currency swaps (b) | 48 | 29 | |||||||||||||||||||||||||||
| Foreign currency | |||||||||||||||||||||||||||||
| contracts | 10 | 69 | 4 | 5 | 46 | 2 | |||||||||||||||||||||||
| Commodity contracts | 310 | 259 | 239 | 193 | |||||||||||||||||||||||||
| Total noncurrent | 58 | 23 | 379 | 310 | 34 | 14 | 285 | 238 | |||||||||||||||||||||
| Total derivatives | $ | 83 | $ | 185 | $ | 1,473 | $ | 1,221 | $ | 46 | $ | 111 | $ | 1,431 | $ | 1,267 | |||||||||||||
| (a) | Represents the location on the Balance Sheets. |
The following tables present the pre-tax effect of derivative instruments recognized in income, OCI or regulatory assets and regulatory liabilities for the three months ended March 31.
| 2015 | 2014 | |||||||||||||||||||||||
| 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 | 2015 | 2014 | on Derivative | Portion) | Testing) | Portion) | Testing) | |||||||||||||||||
| Cash Flow Hedges: | ||||||||||||||||||||||||
| Interest rate swaps | $ | (19) | $ | (46) | Interest expense | $ | (4) | $ | (5) | $ | 2 | |||||||||||||
| Cross-currency swaps | 21 | (25) | Interest expense | 1 | ||||||||||||||||||||
| Other income | ||||||||||||||||||||||||
| (expense) - net | 17 | (29) | ||||||||||||||||||||||
| Commodity contracts | Unregulated | |||||||||||||||||||||||
| wholesale energy | (2) | (1) | ||||||||||||||||||||||
| Energy purchases | 8 | 7 | ||||||||||||||||||||||
| Depreciation | 1 | 1 | ||||||||||||||||||||||
| Discontinued operations | 2 | |||||||||||||||||||||||
| Total | $ | 2 | $ | (71) | $ | 21 | $ | (25) | $ | 2 | ||||||||||||||
| Net Investment Hedges: | ||||||||||||||||||||||||
| Foreign currency contracts | $ | 16 | $ | (4) | ||||||||||||||||||||
| 2014 | 2013 | |||||||||||||||||||||||
| 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 | Gain (Loss) | 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 | 2014 | 2013 | on Derivative | Portion) | Testing) | Portion) | Testing) | |||||||||||||||||
| Cash Flow Hedges: | ||||||||||||||||||||||||
| Interest rate swaps | $ | (46) | $ | 9 | Interest expense | $ | (5) | $ | 2 | $ | (5) | |||||||||||||
| Cross-currency swaps | (25) | 73 | Other income | |||||||||||||||||||||
| (expense) - net | (29) | 69 | ||||||||||||||||||||||
| Commodity contracts | Unregulated | |||||||||||||||||||||||
| wholesale energy | 1 | 67 | $ | 1 | ||||||||||||||||||||
| Energy purchases | 7 | (16) | ||||||||||||||||||||||
| Depreciation | 1 | |||||||||||||||||||||||
| Total | $ | (71) | $ | 82 | $ | (25) | $ | 2 | $ | 115 | $ | 1 | ||||||||||||
| Net Investment Hedges: | ||||||||||||||||||||||||
| Foreign currency contracts | $ | (4) | $ | 16 | ||||||||||||||||||||
| Derivatives Not Designated as | Location of Gain (Loss) Recognized in | |||||||
| Hedging Instruments | Income on Derivative | 2014 | 2013 | |||||
| Foreign currency contracts | Other income (expense) - net | $ | (24) | $ | 119 | |||
| Interest rate swaps | Interest expense | (2) | (2) | |||||
| Commodity contracts | Unregulated wholesale energy (a) | (3,044) | (706) | |||||
| Unregulated retail energy | (64) | (7) | ||||||
| Fuel | (1) | 1 | ||||||
| Energy purchases (b) | 2,364 | 586 | ||||||
| Total | $ | (771) | $ | (9) | ||||
| Derivatives Not Designated as | Location of Gain (Loss) Recognized as | |||||||
| Hedging Instruments | Regulatory Liabilities/Assets | 2014 | 2013 | |||||
| Interest rate swaps | Regulatory assets - noncurrent | $ | (4) | $ | 4 | |||
| Derivatives Designated as | Location of Gain (Loss) Recognized as | |||||||
| Cash Flow Hedges | Regulatory Liabilities/Assets | 2014 | 2013 | |||||
| Interest rate swaps | Regulatory liabilities - noncurrent | $ | 10 | |||||
| 71 |
| Derivatives Not Designated as | Location of Gain (Loss) Recognized in | |||||||
| Hedging Instruments | Income on Derivative | 2015 | 2014 | |||||
| Foreign currency contracts | Other income (expense) - net | $ | 88 | $ | (24) | |||
| Interest rate swaps | Interest expense | (2) | (2) | |||||
| Commodity contracts | Unregulated wholesale energy (a) | (229) | (3,042) | |||||
| Unregulated retail energy | (39) | (64) | ||||||
| Fuel | (3) | (1) | ||||||
| Energy purchases (b) | 196 | 2,364 | ||||||
| Discontinued operations | (2) | |||||||
| Total | $ | 11 | $ | (771) | ||||
| Derivatives Designated as | Location of Gain (Loss) Recognized as | |||||||
| Hedging Instruments | Regulatory Liabilities/Assets | 2015 | 2014 | |||||
| Interest rate swaps | Regulatory assets- noncurrent | $ | (56) | |||||
| Derivatives Not Designated as | Location of Gain (Loss) Recognized as | |||||||
| Hedging Instruments | Regulatory Liabilities/Assets | 2015 | 2014 | |||||
| Interest rate swaps | Regulatory assets - noncurrent | $ | (4) | $ | (4) | |||
| (a) | 2014 includes significant realized and unrealized losses on physical and financial commodity sales contracts due to the unusually cold weather. |
| (b) |
| March 31, 2014 | December 31, 2013 | ||||||||||||||||
| Derivatives not designated | Derivatives not designated | ||||||||||||||||
| as hedging instruments | as hedging instruments | ||||||||||||||||
| Assets | Liabilities | Assets | Liabilities | ||||||||||||||
| Current: | |||||||||||||||||
| Price Risk Management | |||||||||||||||||
| Assets/Liabilities (a): | |||||||||||||||||
| Commodity contracts | $ | 1,080 | $ | 1,211 | $ | 860 | $ | 750 | |||||||||
| Total current | 1,080 | 1,211 | 860 | 750 | |||||||||||||
| Noncurrent: | |||||||||||||||||
| Price Risk Management | |||||||||||||||||
| Assets/Liabilities (a): | |||||||||||||||||
| Commodity contracts | 337 | 316 | 328 | 320 | |||||||||||||
| Total noncurrent | 337 | 316 | 328 | 320 | |||||||||||||
| Total derivatives | $ | 1,417 | $ | 1,527 | $ | 1,188 | $ | 1,070 | |||||||||
| 2014 | 2013 | |||||||||||||||||||||||
| 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 | 2014 | 2013 | on Derivative | Portion) | Testing) | Portion) | Testing) | |||||||||||||||||
| Cash Flow Hedges: | ||||||||||||||||||||||||
| Commodity contracts | Unregulated | |||||||||||||||||||||||
| wholesale energy | $ | 1 | $ | 67 | $ | 1 | ||||||||||||||||||
| Energy purchases | 7 | (16) | ||||||||||||||||||||||
| Depreciation | 1 | |||||||||||||||||||||||
| Total | $ | 9 | $ | 51 | $ | 1 | ||||||||||||||||||
| Derivatives Not Designated as | Location of Gain (Loss) Recognized in | |||||||
| Hedging Instruments | Income on Derivatives | 2014 | 2013 | |||||
| Commodity contracts | Unregulated wholesale energy (a) | $ | (3,044) | $ | (706) | |||
| Unregulated retail energy | (64) | (7) | ||||||
| Fuel | (1) | 1 | ||||||
| Energy purchases (b) | 2,364 | 586 | ||||||
| Total | $ | (745) | $ | (126) | ||||
| 2014 includes significant realized and unrealized gains on physical and financial commodity purchase contracts due to the unusually cold weather. |
The following table presents the fair value and the location on the Balance Sheets of derivative instruments designated as cash flow hedges.
| March 31, 2015 | December 31, 2014 | |||||||||||||||||
| Assets | Liabilities | Assets | Liabilities | |||||||||||||||
| Current: | ||||||||||||||||||
| Price Risk Management | ||||||||||||||||||
| Assets/Liabilities (a): | ||||||||||||||||||
| Interest rate swaps | $ | 122 | $ | 66 | ||||||||||||||
| (a) | Represents the location on the Balance Sheets. |
The following table presents the pre-tax effect of derivative instruments designated as cash flow hedges that are recognized in regulatory liabilitiesassets for the three months ended March 31.
| Derivatives Instruments | Location of Gain (Loss) | 2014 | 2013 | |||||
| Interest rate swaps | Regulatory liabilities - noncurrent | $ | 10 | |||||
| Location of Gain (Loss) Recognized in | ||||||||
| Derivative Instruments | Regulatory Assets | 2015 | 2014 | |||||
| Interest rate swaps | Regulatory assets - noncurrent | $ | (56) | |||||
The following table presents the fair value and the location on the Balance Sheets of derivative instruments designated as cash flow hedges.
| March 31, 2015 | December 31, 2014 | |||||||||||||||||
| Assets | Liabilities | Assets | Liabilities | |||||||||||||||
| Current: | ||||||||||||||||||
| Price Risk Management | ||||||||||||||||||
| Assets/Liabilities (a): | ||||||||||||||||||
| Interest rate swaps | $ | 61 | $ | 33 | ||||||||||||||
| (a) | Represents the location on the Balance Sheets. |
The following table presents the pre-tax effect of derivative instruments designated as cash flow hedges that are recognized in regulatory liabilitiesassets for the three months ended March 31.
| 72 |
| Derivative Instruments | Location of Gain (Loss) | 2014 | 2013 | |||||
| Interest rate swaps | Regulatory liabilities - noncurrent | $ | 5 | |||||
| Location of Gain (Loss) Recognized in | ||||||||
| Derivative Instruments | Regulatory Assets | 2015 | 2014 | |||||
| Interest rate swaps | Regulatory assets - noncurrent | $ | (28) | |||||
The following table presents the fair value and the location on the Balance Sheets of derivative instruments designated as cash flow hedges.
| March 31, 2015 | December 31, 2014 | |||||||||||||||||
| Assets | Liabilities | Assets | Liabilities | |||||||||||||||
| Current: | ||||||||||||||||||
| Price Risk Management | ||||||||||||||||||
| Assets/Liabilities (a): | ||||||||||||||||||
| Interest rate swaps | $ | 61 | $ | 33 | ||||||||||||||
| (a) | Represents the location on the Balance Sheets. |
The following table presents the pre-tax effect of derivative instruments designated as cash flow hedges that are recognized in regulatory liabilitiesassets for the three months ended March 31.
| Derivative Instruments | Location of Gain (Loss) | 2014 | 2013 | |||||
| Interest rate swaps | Regulatory liabilities - noncurrent | $ | 5 | |||||
| Location of Gain (Loss) Recognized in | ||||||||
| Derivative Instruments | Regulatory Assets | 2015 | 2014 | |||||
| Interest rate swaps | Regulatory assets - noncurrent | $ | (28) | |||||
The following table presents the fair value and the location on the Balance Sheets of derivatives not designated as hedging instruments.
| March 31, 2014 | December 31, 2013 | ||||||||||||||||
| Assets | Liabilities | Assets | Liabilities | ||||||||||||||
| Current: | |||||||||||||||||
| Price Risk Management | |||||||||||||||||
| Assets/Liabilities (a): | |||||||||||||||||
| Interest rate swaps | $ | 4 | $ | 4 | |||||||||||||
| Total current | 4 | 4 | |||||||||||||||
| Noncurrent: | |||||||||||||||||
| Price Risk Management | |||||||||||||||||
| Assets/Liabilities (a): | |||||||||||||||||
| Interest rate swaps | 36 | 32 | |||||||||||||||
| Total noncurrent | 36 | 32 | |||||||||||||||
| Total derivatives | $ | 40 | $ | 36 | |||||||||||||
| March 31, 2015 | December 31, 2014 | |||||||||||||||||
| Assets | Liabilities | Assets | Liabilities | |||||||||||||||
| Current: | ||||||||||||||||||
| Price Risk Management | ||||||||||||||||||
| Assets/Liabilities (a): | ||||||||||||||||||
| Interest rate swaps | $ | 5 | $ | 5 | ||||||||||||||
| Total current | 5 | 5 | ||||||||||||||||
| Noncurrent: | ||||||||||||||||||
| Price Risk Management | ||||||||||||||||||
| Assets/Liabilities (a): | ||||||||||||||||||
| Interest rate swaps | 47 | 43 | ||||||||||||||||
| Total noncurrent | 47 | 43 | ||||||||||||||||
| Total derivatives | $ | 52 | $ | 48 | ||||||||||||||
| (a) | Represents the location on the Balance Sheets. |
The following tables present the pre-tax effect of derivatives not designated as cash flow hedges that are recognized in income or regulatory assets for the three months ended March 31.
| Derivative Instruments | Location of Gain (Loss) | 2014 | 2013 | |||||
| Interest rate swaps | Interest expense | $ | (2) | $ | (2) | |||
| Derivative Instruments | Location of Gain (Loss) | 2014 | 2013 | |||||
| Interest rate swaps | Regulatory assets - noncurrent | $ | (4) | $ | 4 | |||
| Location of Gain (Loss) Recognized in | ||||||||
| Derivative Instruments | Income on Derivatives | 2015 | 2014 | |||||
| Interest rate swaps | Interest expense | $ | (2) | $ | (2) | |||
| Location of Gain (Loss) Recognized in | ||||||||
| Derivative Instruments | Regulatory Assets | 2015 | 2014 | |||||
| Interest rate swaps | Regulatory assets - noncurrent | $ | (4) | $ | (4) | |||
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
| 73 |
derivative products on one or more futures exchanges. The clearing arrangements permit ana 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 | ||||||||||||||||||||||||||
| Eligible for Offset | Eligible for Offset | ||||||||||||||||||||||||||
| Cash | Cash | ||||||||||||||||||||||||||
| Derivative | Collateral | Derivative | Collateral | ||||||||||||||||||||||||
| Gross | Instruments | Received | Net | Gross | Instruments | Pledged | Net | ||||||||||||||||||||
| March 31, 2014 | |||||||||||||||||||||||||||
| PPL | |||||||||||||||||||||||||||
| Energy Commodities | $ | 1,417 | $ | 1,268 | $ | 8 | $ | 141 | $ | 1,527 | $ | 1,268 | $ | 94 | $ | 165 | |||||||||||
| Treasury Derivatives | 14 | 14 | 225 | 14 | 24 | 187 | |||||||||||||||||||||
| Total | $ | 1,431 | $ | 1,282 | $ | 8 | $ | 141 | $ | 1,752 | $ | 1,282 | $ | 118 | $ | 352 | |||||||||||
| Assets | Liabilities | ||||||||||||||||||||||||||
| Eligible for Offset | Eligible for Offset | ||||||||||||||||||||||||||
| Cash | Cash | ||||||||||||||||||||||||||
| Derivative | Collateral | Derivative | Collateral | ||||||||||||||||||||||||
| Gross | Instruments | Received | Net | Gross | Instruments | Pledged | Net | ||||||||||||||||||||
| PPL Energy Supply | |||||||||||||||||||||||||||
| Energy Commodities | $ | 1,417 | $ | 1,268 | $ | 8 | $ | 141 | $ | 1,527 | $ | 1,268 | $ | 94 | $ | 165 | |||||||||||
| LKE | ||||||||||||||||||||||||||
| Treasury Derivatives | $ | 40 | $ | 20 | $ | 20 | ||||||||||||||||||||
| LG&E | ||||||||||||||||||||||||||
| Treasury Derivatives | $ | 40 | $ | 20 | $ | 20 | ||||||||||||||||||||
| December 31, 2013 | ||||||||||||||||||||||||||
| PPL | ||||||||||||||||||||||||||
| Energy Commodities | $ | 1,188 | $ | 912 | $ | 7 | $ | 269 | $ | 1,070 | $ | 912 | $ | 1 | $ | 157 | ||||||||||
| Treasury Derivatives | 91 | 61 | 30 | 174 | 61 | 23 | 90 | |||||||||||||||||||
| Total | $ | 1,279 | $ | 973 | $ | 7 | $ | 299 | $ | 1,244 | $ | 973 | $ | 24 | $ | 247 | ||||||||||
| PPL Energy Supply | ||||||||||||||||||||||||||
| Energy Commodities | $ | 1,188 | $ | 912 | $ | 7 | $ | 269 | $ | 1,070 | $ | 912 | $ | 1 | $ | 157 | ||||||||||
| LKE | ||||||||||||||||||||||||||
| Treasury Derivatives | $ | 36 | $ | 20 | $ | 16 | ||||||||||||||||||||
| LG&E | ||||||||||||||||||||||||||
| Treasury Derivatives | $ | 36 | $ | 20 | $ | 16 | ||||||||||||||||||||
| Assets | Liabilities | ||||||||||||||||||||||||
| Eligible for Offset | Eligible for Offset | ||||||||||||||||||||||||
| Cash | Cash | ||||||||||||||||||||||||
| Derivative | Collateral | Derivative | Collateral | ||||||||||||||||||||||
| Gross | Instruments | Received | Net | Gross | Instruments | Pledged | Net | ||||||||||||||||||
| March 31, 2015 | |||||||||||||||||||||||||
| PPL | |||||||||||||||||||||||||
| Energy Commodities | $ | 1,298 | $ | 990 | $ | 11 | $ | 297 | $ | 1,163 | $ | 990 | $ | 49 | $ | 124 | |||||||||
| Treasury Derivatives | 258 | 105 | 153 | 243 | 105 | 21 | 117 | ||||||||||||||||||
| Total | $ | 1,556 | $ | 1,095 | $ | 11 | $ | 450 | $ | 1,406 | $ | 1,095 | $ | 70 | $ | 241 | |||||||||
| LKE | |||||||||||||||||||||||||
| Treasury Derivatives | $ | 174 | $ | 21 | $ | 153 | |||||||||||||||||||
| LG&E | |||||||||||||||||||||||||
| Treasury Derivatives | $ | 113 | $ | 21 | $ | 92 | |||||||||||||||||||
| KU | |||||||||||||||||||||||||
| Treasury Derivatives | $ | 61 | $ | $ | 61 | ||||||||||||||||||||
| December 31, 2014 | |||||||||||||||||||||||||
| PPL | |||||||||||||||||||||||||
| Energy Commodities | $ | 1,318 | $ | 1,060 | $ | 10 | $ | 248 | $ | 1,217 | $ | 1,060 | $ | 58 | $ | 99 | |||||||||
| Treasury Derivatives | 159 | 65 | 94 | 161 | 65 | 21 | 75 | ||||||||||||||||||
| Total | $ | 1,477 | $ | 1,125 | $ | 10 | $ | 342 | $ | 1,378 | $ | 1,125 | $ | 79 | $ | 174 | |||||||||
| LKE | |||||||||||||||||||||||||
| Treasury Derivatives | $ | 114 | $ | 20 | $ | 94 | |||||||||||||||||||
| LG&E | |||||||||||||||||||||||||
| Treasury Derivatives | $ | 81 | $ | 20 | $ | 61 | |||||||||||||||||||
| KU | |||||||||||||||||||||||||
| Treasury Derivatives | $ | 33 | $ | 33 | |||||||||||||||||||||
Certain derivative contracts contain credit risk-related contingent features which, when in a net liability position, would permit the counterparties to require the transfer of additional collateral upon a decrease in the credit ratings of PPL, PPL Energy Supply, LKE, LG&E and KU or certain of their subsidiaries. Most of these features would require the transfer of additional collateral or permit the counterparty to terminate the contract if the applicable credit rating were to fall below investment grade. Some of these features also would allow the counterparty to require additional collateral upon each downgrade in the credit rating at levels that remain above investment grade. In either case, if the applicable credit rating were to fall below investment grade, (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, obligationLKE's, LG&E's, and KU's obligations under the contract.contracts. A counterparty demanding adequate assurance could require a transfer of additional collateral or other security, including letters of credit, cash and guarantees from a creditworthy entity. This would typically
| 74 |
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 March 31, 2014,2015, 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 | Energy Supply | LKE | LG&E | |||||||||||
| Aggregate fair value of derivative instruments in a net liability | ||||||||||||||
| position with credit risk-related contingent features | $ | 339 | $ | 168 | $ | 27 | $ | 27 | ||||||
| Aggregate fair value of collateral posted on these derivative instruments | 57 | 36 | 21 | 21 | ||||||||||
| Aggregate fair value of additional collateral requirements in the event of | ||||||||||||||
| a credit downgrade below investment grade (a) | 363 | 209 | 7 | 7 | ||||||||||
| PPL | LKE | LG&E | |||||||||
| Aggregate fair value of derivative instruments in a net liability position with credit risk-related | |||||||||||
| contingent features | $ | 241 | $ | 31 | $ | 31 | |||||
| Aggregate fair value of collateral posted on these derivative instruments | 140 | 22 | 22 | ||||||||
| Aggregate fair value of additional collateral requirements in the event of | |||||||||||
| a credit downgrade below investment grade (a) | 128 | (b) | 10 | 10 | |||||||
| (a) | Includes the effect of net receivables and payables already recorded on the Balance Sheet. |
| (b) | PPL Energy Supply's credit rating is currently 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 three months ended March 31, 20142015 was due to the effect of foreign currency exchange rates on the U.K. Regulated segment.
| (All Registrants except PPL Electric) | |||||||||||||||||
| The changes in the carrying amounts of AROs were as follows. | |||||||||||||||||
| PPL | |||||||||||||||||
| PPL | Energy Supply | LKE | LG&E | KU | |||||||||||||
| Balance at December 31, 2013 | $ | 705 | $ | 404 | $ | 252 | $ | 74 | $ | 178 | |||||||
| Accretion expense | 11 | 8 | 3 | 1 | 2 | ||||||||||||
| Changes in estimated cash flow or settlement date | 4 | 4 | 1 | 3 | |||||||||||||
| Effect of foreign currency exchange rates | 1 | ||||||||||||||||
| Obligations settled | (3) | (2) | (1) | (1) | |||||||||||||
| Balance at March 31, 2014 | $ | 718 | $ | 410 | $ | 258 | $ | 75 | $ | 183 | |||||||
Substantially all of the ARO balances are classified as noncurrent at March 31, 20142015 and December 31, 2013.
See Note 10 for information on a CCR rule that is expected to require the recording of additional AROs in the second quarter of 2015.
PPL's most significant ARO recorded by PPL Energy Supply relates to the decommissioning of the Susquehanna nuclear plant. Assets in the NDT funds are legally restricted for purposes of settling this ARO. See Notes 13 and 17 for additional information on these assets.
LG&E's and KU's accretion and ARO-related depreciation expense are recorded as a regulatory asset, such that there is no net earnings impact.
(PPL)
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
| 75 |
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.
| March 31, 2014 | December 31, 2013 | ||||||||||||||||||||||||||||
| Gross | Gross | Gross | Gross | ||||||||||||||||||||||||||
| Amortized | Unrealized | Unrealized | Amortized | Unrealized | Unrealized | ||||||||||||||||||||||||
| Cost | Gains | Losses | Fair Value | Cost | Gains | Losses | Fair Value | ||||||||||||||||||||||
| NDT funds: | |||||||||||||||||||||||||||||
| PPL and PPL Energy Supply | |||||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 13 | $ | 13 | $ | 14 | $ | 14 | |||||||||||||||||||||
| Equity securities | 271 | $ | 368 | 639 | 265 | $ | 363 | 628 | |||||||||||||||||||||
| Debt securities | 218 | 9 | $ | 1 | 226 | 217 | 7 | $ | 3 | 221 | |||||||||||||||||||
| Receivables/payables, net | 1 | 1 | 1 | 1 | |||||||||||||||||||||||||
| Total NDT funds | $ | 503 | $ | 377 | $ | 1 | $ | 879 | $ | 497 | $ | 370 | $ | 3 | $ | 864 | |||||||||||||
| Auction rate securities: | |||||||||||||||||||||||||||||
| PPL | $ | 17 | $ | 1 | $ | 16 | $ | 20 | $ | 1 | $ | 19 | |||||||||||||||||
| PPL Energy Supply | 14 | 1 | 13 | 17 | 1 | 16 | |||||||||||||||||||||||
| March 31, 2015 | December 31, 2014 | ||||||||||||||||||||||||||||
| Gross | Gross | Gross | Gross | ||||||||||||||||||||||||||
| Amortized | Unrealized | Unrealized | Amortized | Unrealized | Unrealized | ||||||||||||||||||||||||
| Cost | Gains | Losses | Fair Value | Cost | Gains | Losses | Fair Value | ||||||||||||||||||||||
| NDT funds: | |||||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 20 | $ | 20 | $ | 19 | $ | 19 | |||||||||||||||||||||
| Equity securities | 287 | $ | 426 | 713 | 283 | $ | 417 | 700 | |||||||||||||||||||||
| Debt securities | 218 | 12 | $ | 1 | 229 | 218 | 11 | 229 | |||||||||||||||||||||
| Receivables/payables, net | 3 | 3 | 2 | 2 | |||||||||||||||||||||||||
| Total NDT funds | $ | 528 | $ | 438 | $ | 1 | $ | 965 | $ | 522 | $ | 428 | $ | 950 | |||||||||||||||
| Auction rate securities | |||||||||||||||||||||||||||||
| PPL | $ | 11 | $ | 1 | $ | 10 | $ | 11 | $ | 1 | $ | 10 | |||||||||||||||||
See Note 13 for details on the securities held by the NDT funds.
There were no securities with credit losses at March 31, 20142015 and December 31, 2013.
The following table shows the scheduled maturity dates of debt securities held at March 31, 2014.
| Maturity | Maturity | Maturity | Maturity | |||||||||||||
| Less Than | 1-5 | 6-10 | in Excess | |||||||||||||
| 1 Year | Years | Years | of 10 Years | Total | ||||||||||||
| PPL | ||||||||||||||||
| Amortized cost | $ | 11 | $ | 88 | $ | 57 | $ | 79 | $ | 235 | ||||||
| Fair value | 11 | 90 | 59 | 82 | 242 | |||||||||||
| PPL Energy Supply | ||||||||||||||||
| Amortized cost | $ | 11 | $ | 88 | $ | 57 | $ | 76 | $ | 232 | ||||||
| Fair value | 11 | 90 | 59 | 79 | 239 | |||||||||||
| Maturity | Maturity | Maturity | Maturity | |||||||||||||
| Less Than | 1-5 | 6-10 | in Excess | |||||||||||||
| 1 Year | Years | Years | of 10 Years | Total | ||||||||||||
| Amortized cost | $ | 11 | $ | 82 | $ | 67 | $ | 69 | $ | 229 | ||||||
| Fair value | 11 | 84 | 70 | 74 | 239 | |||||||||||
The following table shows proceeds from and realized gains and losses on sales of available-for-sale securities for the periods ended March 31.
| Three Months | |||||||||||||
| 2014 | 2013 | ||||||||||||
| PPL and PPL Energy Supply | |||||||||||||
| Proceeds from sales of NDT securities (a) | $ | 27 | $ | 24 | |||||||||
| Other proceeds from sales | 3 | ||||||||||||
| Gross realized gains (b) | 3 | 4 | |||||||||||
| Gross realized losses (b) | 1 | 2 | |||||||||||
| Three Months | |||||||||||||
| 2015 | 2014 | ||||||||||||
| Proceeds from sales of NDT securities (a) | $ | 38 | $ | 27 | |||||||||
| Other proceeds from sales | 3 | ||||||||||||
| Gross realized gains (b) | 5 | 3 | |||||||||||
| Gross realized losses (b) | 3 | 1 | |||||||||||
| (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. |
(PPL)
The after-tax changes in AOCI by component for the three months ended March 31 were as follows.
| 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, 2014 | $ | (286) | $ | 202 | $ | 20 | $ | 1 | $ | 3 | $ | (2,215) | $ | 1 | $ | (2,274) | ||||||||
| Amounts arising during the period | (66) | 5 | 6 | (1) | (56) | |||||||||||||||||||
| Reclassifications from AOCI | (1) | (17) | (1) | 38 | 19 | |||||||||||||||||||
| Net OCI during the period | (66) | 4 | (11) | (1) | 37 | (37) | ||||||||||||||||||
| March 31, 2015 | $ | (352) | $ | 206 | $ | 9 | $ | $ | 3 | $ | (2,178) | $ | 1 | $ | (2,311) | |||||||||
| 76 |
| 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 | |||||||||||||||||
| PPL | ||||||||||||||||||||||||
| December 31, 2012 | $ | (149) | $ | 112 | $ | 132 | $ | 1 | $ | (14) | $ | (2,023) | $ | 1 | $ | (1,940) | ||||||||
| Amounts arising during the period | (245) | 23 | 62 | (160) | ||||||||||||||||||||
| Reclassifications from AOCI | (1) | (80) | 1 | 34 | (46) | |||||||||||||||||||
| Net OCI during the period | (245) | 22 | (18) | 1 | 34 | (206) | ||||||||||||||||||
| March 31, 2013 | $ | (394) | $ | 134 | $ | 114 | $ | 1 | $ | (13) | $ | (1,989) | $ | 1 | $ | (2,146) | ||||||||
| December 31, 2013 | $ | (11) | $ | 173 | $ | 94 | $ | 1 | $ | (6) | $ | (1,817) | $ | 1 | $ | (1,565) | ||||||||
| Amounts arising during the period | 131 | 5 | (46) | 90 | ||||||||||||||||||||
| Reclassifications from AOCI | (1) | 19 | 1 | 27 | 46 | |||||||||||||||||||
| Net OCI during the period | 131 | 4 | (27) | 1 | 27 | 136 | ||||||||||||||||||
| March 31, 2014 | $ | 120 | $ | 177 | $ | 67 | $ | 1 | $ | (5) | $ | (1,790) | $ | 1 | $ | (1,429) | ||||||||
| PPL Energy Supply | ||||||||||||||||||||||||
| December 31, 2012 | $ | 112 | $ | 211 | $ | (10) | $ | (265) | $ | 48 | ||||||||||||||
| Amounts arising during the period | 23 | 23 | ||||||||||||||||||||||
| Reclassifications from AOCI | (1) | (30) | 1 | 4 | (26) | |||||||||||||||||||
| Net OCI during the period | 22 | (30) | 1 | 4 | (3) | |||||||||||||||||||
| March 31, 2013 | $ | 134 | $ | 181 | $ | (9) | $ | (261) | $ | 45 | ||||||||||||||
| December 31, 2013 | $ | 173 | $ | 88 | $ | (4) | $ | (180) | $ | 77 | ||||||||||||||
| Amounts arising during the period | 5 | 5 | ||||||||||||||||||||||
| Reclassifications from AOCI | (1) | (5) | 1 | 1 | (4) | |||||||||||||||||||
| Net OCI during the period | 4 | (5) | 1 | 1 | 1 | |||||||||||||||||||
| March 31, 2014 | $ | 177 | $ | 83 | $ | (3) | $ | (179) | $ | 78 | ||||||||||||||
| 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 | 131 | 5 | (46) | 90 | ||||||||||||||||||||
| Reclassifications from AOCI | (1) | 19 | 1 | 27 | 46 | |||||||||||||||||||
| Net OCI during the period | 131 | 4 | (27) | 1 | 27 | 136 | ||||||||||||||||||
| March 31, 2014 | $ | 120 | $ | 177 | $ | 67 | $ | 1 | $ | (5) | $ | (1,790) | $ | 1 | $ | (1,429) | ||||||||
The following table presents the gains (losses) and related income taxes for reclassifications from AOCI for the three months ended March 31. The defined benefit plan components of AOCI are not reflected in their entirety in the statement of income during the period;periods; rather, they are included in the computation of net periodic defined benefit costs (credits). See Note 9 for additional information.
| 2014 | |||||||||||||||||||||||||
| Affected Line Item on the Statements of Income | |||||||||||||||||||||||||
| Other | |||||||||||||||||||||||||
| Unregulated | Income | ||||||||||||||||||||||||
| Wholesale | Energy | Interest | (Expense), | Total | Income | Total | |||||||||||||||||||
| Details about AOCI | energy | purchases | Expense | net | Other | Pre-tax | Taxes | After-tax | |||||||||||||||||
| PPL | |||||||||||||||||||||||||
| Available-for-sale securities | $ | 2 | $ | 2 | $ | (1) | $ | 1 | |||||||||||||||||
| Qualifying derivatives | |||||||||||||||||||||||||
| Interest rate swaps | $ | (3) | (3) | 2 | (1) | ||||||||||||||||||||
| Cross-currency swaps | (29) | (29) | 6 | (23) | |||||||||||||||||||||
| Energy Commodities | $ | 1 | $ | 7 | $ | 1 | 9 | (4) | 5 | ||||||||||||||||
| Total | $ | 1 | $ | 7 | $ | (3) | $ | (29) | $ | 1 | (23) | 4 | (19) | ||||||||||||
| Defined benefit plans | |||||||||||||||||||||||||
| Prior service costs | (2) | 1 | (1) | ||||||||||||||||||||||
| Net actuarial loss | (36) | 9 | (27) | ||||||||||||||||||||||
| Total | $ | (38) | $ | 10 | (28) | ||||||||||||||||||||
| Total reclassifications | $ | (46) | |||||||||||||||||||||||
| PPL Energy Supply | |||||||||||||||||||||||||
| Available-for-sale securities | $ | 2 | $ | 2 | $ | (1) | $ | 1 | |||||||||||||||||
| Qualifying derivatives | |||||||||||||||||||||||||
| Energy Commodities | $ | 1 | $ | 7 | $ | 1 | 9 | (4) | 5 | ||||||||||||||||
| Defined benefit plans | |||||||||||||||||||||||||
| Prior service costs | (2) | 1 | (1) | ||||||||||||||||||||||
| Net actuarial loss | (2) | 1 | (1) | ||||||||||||||||||||||
| Total | $ | (4) | $ | 2 | (2) | ||||||||||||||||||||
| Total reclassifications | $ | 4 | |||||||||||||||||||||||
| 2013 | |||||||||||||||||||||||||
| Affected Line Item on the Statements of Income | |||||||||||||||||||||||||
| Other | |||||||||||||||||||||||||
| Unregulated | Income | ||||||||||||||||||||||||
| Wholesale | Energy | Interest | (Expense), | Total | Income | Total | |||||||||||||||||||
| Details about AOCI | energy | purchases | Expense | net | Other | Pre-tax | Taxes | After-tax | |||||||||||||||||
| PPL | |||||||||||||||||||||||||
| Available-for-sale securities | $ | 2 | $ | 2 | $ | (1) | $ | 1 | |||||||||||||||||
| Qualifying derivatives | |||||||||||||||||||||||||
| Interest rate swaps | $ | (5) | (5) | 2 | (3) | ||||||||||||||||||||
| Cross-currency swaps | 69 | 69 | (17) | 52 | |||||||||||||||||||||
| Energy Commodities | $ | 67 | $ | (16) | 51 | (20) | 31 | ||||||||||||||||||
| Total | $ | 67 | $ | (16) | $ | (5) | $ | 69 | 115 | (35) | 80 | ||||||||||||||
| Defined benefit plans | |||||||||||||||||||||||||
| Prior service costs | (2) | 1 | (1) | ||||||||||||||||||||||
| Net actuarial loss | (47) | 13 | (34) | ||||||||||||||||||||||
| Total | $ | (49) | $ | 14 | (35) | ||||||||||||||||||||
| Total reclassifications | $ | 46 | |||||||||||||||||||||||
| PPL Energy Supply | |||||||||||||||||||||||||
| Available-for-sale securities | $ | 2 | $ | 2 | $ | (1) | $ | 1 | |||||||||||||||||
| Qualifying derivatives | |||||||||||||||||||||||||
| Energy Commodities | $ | 67 | $ | (16) | 51 | (21) | 30 | ||||||||||||||||||
| Defined benefit plans | |||||||||||||||||||||||||
| Prior service costs | (2) | 1 | (1) | ||||||||||||||||||||||
| Net actuarial loss | (6) | 2 | (4) | ||||||||||||||||||||||
| Total | $ | (8) | $ | 3 | (5) | ||||||||||||||||||||
| Total reclassifications | $ | 26 | |||||||||||||||||||||||
| Affected Line Item on the | ||||||||||
| Details about AOCI | 2015 | 2014 | Statements of Income | |||||||
| Available-for-sale securities | $ | 2 | $ | 2 | Other Income (Expense) - net | |||||
| Total Pre-tax | 2 | 2 | ||||||||
| Income Taxes | (1) | (1) | ||||||||
| Total After-tax | 1 | 1 | ||||||||
| Qualifying derivatives | ||||||||||
| Interest rate swaps | (4) | (3) | Interest Expense | |||||||
| Cross-currency swaps | 17 | (29) | Other Income (Expense) - net | |||||||
| 1 | Interest Expense | |||||||||
| Energy commodities | (2) | (1) | Unregulated wholesale energy | |||||||
| 8 | 7 | Energy purchases | ||||||||
| 2 | Discontinued operations | |||||||||
| 1 | 1 | Other | ||||||||
| Total Pre-tax | 21 | (23) | ||||||||
| Income Taxes | (4) | 4 | ||||||||
| Total After-tax | 17 | (19) | ||||||||
| Equity investees' AOCI | 2 | Other Income (Expense) - net | ||||||||
| Total Pre-tax | 2 | |||||||||
| Income Taxes | (1) | |||||||||
| Total After-tax | 1 | |||||||||
| Defined benefit plans | ||||||||||
| Prior service costs | (2) | |||||||||
| Net actuarial loss | (51) | (36) | ||||||||
| Total Pre-tax | (51) | (38) | ||||||||
| Income Taxes | 13 | 10 | ||||||||
| Total After-tax | (38) | (28) | ||||||||
| Total reclassifications during the period | $ | (19) | $ | (46) | ||||||
(All Registrants)
Accounting for Revenue from Contracts with Customers
In AprilMay 2014, the Financial Accounting Standards BoardFASB issued accounting guidance that changesestablishes a comprehensive new model for the recognition of revenue from contracts with customers. This model is based on the core principle that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
For public business entities, this guidance can be applied using either a full retrospective or modified retrospective transition method, beginning in annual reporting periods beginning after December 15, 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 impact of adopting this guidance, as well as the transition method they will use.
Reporting Uncertainties about an Entity's Ability to Continue as a Going Concern
In August 2014, the FASB issued accounting guidance which will require management to assess, for each interim and annual period, whether there are conditions or events that raise substantial doubt about an entity's ability to continue as a going concern. Substantial doubt about an entity's ability to continue as a going concern exists when relevant conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as they become due within one year after the date the financial statements are issued.
When management identifies conditions or events that raise substantial doubt about an entity's ability to continue as a going concern, management is required to disclose information that enables users of the financial statements to understand the principal conditions or events that raised substantial doubt about the entity's ability to continue as a going concern and management's evaluation of the significance of those conditions or events. If substantial doubt about the entity's ability to continue as a going concern has been alleviated as a result of management's plan, the entity should disclose information that allows the users of the financial statements to understand those plans. If the substantial doubt about the entity's ability to continue as a going concern is not alleviated by management's plans, management's plans to mitigate the conditions or events that gave rise to the substantial doubt about the entity's ability to continue as a going concern should be disclosed, as well as a statement that there is substantial doubt the entity's ability to continue as a going concern within one year after the date the financial statements are issued.
For all entities, this guidance should be applied prospectively within the annual periods ending after December 15, 2016, and for annual periods and interim periods thereafter. Early adoption is permitted.
The Registrants will adopt this guidance for the annual period ending December 31, 2016. The adoption of this guidance is not expected to have a significant impact on the Registrants.
Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity
In November 2014, the FASB issued guidance that clarifies how current accounting guidance should be interpreted when evaluating the economic characteristics and risks of a host contract of a hybrid financial instrument issued in the form of a share. This guidance does not change the current criteria for determining whatwhether separation of an embedded derivative feature from a hybrid financial instrument is required. Entities are still required to evaluate whether the economic risks of the embedded derivative feature are clearly and closely related to those of the host contract, among other relevant criteria.
An entity should consider the substantive terms and features of the entire hybrid financial instrument, including the embedded derivative feature being evaluated for bifurcation, in evaluating the nature of the host contract to determine whether the host contract is more akin to a debt instrument or more akin to an equity instrument. An entity should assess the relative strength of the debt-like and equity-like terms and features when determining how to weight those terms and features.
For public business entities, this guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015 and should be classifiedapplied using a modified retrospective method for existing hybrid financial instruments issued in the form of a share as of the beginning of the fiscal year the guidance is adopted. Early adoption is permitted. Retrospective application is permitted but not required.
The Registrants will adopt this guidance on January 1, 2016. The adoption of this guidance is not expected to have a significant impact on the Registrants.
Income Statement Presentation of Extraordinary and Unusual Items
In January 2015, the FASB issued accounting guidance that eliminates the concept of extraordinary items, which requires an entity to separately classify, present in the income statement and disclose material events and transactions that are both unusual and occur infrequently. The requirement to report material events or transactions that are unusual or infrequent as a discontinued operation and also changes the related presentation and disclosure requirements. A discontinued operation may include aseparate component of income from continuing operations has been retained, as has the requirement to separately present the nature and financial effects of each event or transaction in the income statement as a separate component of continuing operations or disclose them within the notes to the financial statements. The scope of these requirements has been expanded to include items that are both unusual and occur infrequently.
For all entities, this guidance is effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption is permitted provided that an entity applies the guidance from the beginning of the fiscal year of adoption. The guidance may be applied either retrospectively or prospectively.
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The Registrants will adopt this guidance on January 1, 2016. The adoption of this guidance is not expected to have a groupsignificant impact on the Registrants.
Simplifying the Presentation of componentsDebt Issuance Costs
In April 2015, the FASB issued accounting guidance to simplify the presentation of an entity, or a business activity.
For public business entities, this guidance should be applied prospectively to all disposals (or classifications as heldretrospectively for sale) of components of an entity that occur within the annual periodsfinancial statements issued for fiscal years beginning on or after December 15, 2014,2015 and interim periods within those fiscal years. Early adoption is permitted.
The Registrants are assessing in which period they will adopt this new guidance. The newadoption of this guidance will impactrequire the amounts presented as discontinued operationsRegistrants to reclassify debt issuance costs from assets to long-term debt, and is not expected to have a significant impact on the Statements of Income and will enhance the related disclosure requirements.
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Item 2. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations
(All Registrants)
This Item"Item 2. "CombinedCombined Management's Discussion and Analysis of Financial Condition and Results of Operations" is separately filed by PPL Corporation, PPL Electric, LKE, LG&E and each of its Subsidiary Registrants.KU. Information contained herein relating to any individual Registrant is filed by such Registrant solely on its own behalf, and no Registrant makes any representation as to information relating to any other Registrant. The specific Registrant to which disclosures are applicable is identified in parenthetical headings in italics above the applicable disclosure or within the applicable disclosure for each Registrant's related activities and disclosures. Within combined disclosures, amounts are disclosed for any 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' 20132014 Form 10-K. Capitalized terms and abbreviations are defined in the glossary. Dollars are in millions, except per share data, unless otherwise noted.
"Management's Discussion and Analysis of Financial Condition and Results of Operations" includes the following information:
| · | "Overview" provides a description of each Registrant's business strategy, |
| · | "Results of Operations" for PPL provides a |
| · | "Financial Condition - Liquidity and Capital Resources" provides an analysis of the Registrants' liquidity positions and credit profiles. This section also includes a discussion of rating agency actions. |
| · | "Financial Condition - Risk Management" provides an explanation of the Registrants' risk management programs relating to market and credit risk. |
(PPL)
PPL, headquartered in Allentown, Pennsylvania, is an energy and utility holding company. 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 or retail energy primarily in the northeastern and northwestern portions of the U.S.
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 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 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 Registrants. The U.K. Regulated segment does not have a related Subsidiary Registrant.
In June 2014, PPL Energy Supply)
In addition to PPL, the other Registrants included in this filing 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 wholly owned subsidiary of PPL and a holding company that owns regulated utility operations through its subsidiaries, LG&E and KU, which constitute substantially all of LKE's assets. LG&E and KU are engaged in the generation, transmission, distribution and sale of electricity. LG&E also engages in the distribution and sale of natural gas. LG&E and KU maintain 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
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(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 serves its Virginia customers under the Old Dominion Power name and its Kentucky and Tennessee customers under the KU name.
(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 to improve system reliability and, for LKE, LG&E and KU, to comply with federal and state environmental regulations related to coal-fired electricity generation facilities. Future RAV for WPD will also be affected by RIIO-ED1,
For the U.K. regulated businesses, effective April 1, 2015 for the RIIO-ED1 price control period, 80% of network related expenditures are added to the RAV and, together with adjustments for inflation as measured by Retail Price Index (RPI) and a return on the recovery periodRAV, recovered through allowed revenue with the remaining 20% of expenditures being recovered in the current regulatory year. RAV is intended to represent expenditures that have a long-term benefit to WPD (similar to capital projects for assets placed in servicethe U.S. regulated businesses). The RAV balance at March 31, 2015 will continue to be recovered over 20 years and additions after that dateApril 1, 2023 will be extended from 20recovered over 45 years; a transitional arrangement will gradually change the life over the current price control period which commenced April 1, 2015, resulting in an expected average useful life of 35 years for RAV additions in that period. In addition, incentive targets have been adjusted in RIIO-ED1, resulting in lower overall incentive revenues available to 45 years.be earned. See "Other"Financial and Operational Developments - Other Financial and Operational Developments - RIIO-ED1 - Fast Tracking"RIIO-ED1" below for additional information.
For the U. S. regulated businesses, 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 FERC transmission formula rate, DSIC mechanism and other recovery mechanisms are in place to reduce regulatory lag and provide for timely recovery of and a return on, as appropriate, prudently incurred costs. See "Item 1. Business - Segment Information - U.K. Regulated Segment - Revenues
To manage financing costs and Regulation"access to credit markets, and to fund capital expenditures, a key objective of the Registrants is to maintain investment grade credit ratings and adequate liquidity positions. In addition, the Registrants have financial and operational risk management programs that, among other things, are designed to monitor and manage exposure to earnings and cash flow volatility related to, as applicable, changes in PPL's 2013 Form 10-K for changes toenergy and fuel prices, interest rates, counterparty credit quality and the regulatory framework in the U.K. applicable to WPD beginning in April 2015.
(PPL)
In June 2014, PPL and PPL Energy Supply)Supply executed definitive agreements with affiliates of Riverstone to combine their competitive power generation businesses into a new, stand-alone, publicly traded company named Talen Energy. Under the terms of the agreements, at closing, PPL will spin off to PPL shareowners a newly formed entity, Holdco, which at such time will own all of the membership interests of PPL Energy Supply and all of the common stock of Talen Energy. Immediately following the spinoff, Holdco will merge with a special purpose subsidiary of Talen Energy, with Holdco continuing as the surviving company to the merger and as a wholly owned subsidiary of Talen Energy and the sole owner of PPL Energy Supply. Substantially contemporaneous with the spinoff and merger, RJS Power will be contributed by its owners to become a subsidiary of Talen Energy. Following completion of these transactions, PPL shareowners will own 65% of Talen Energy and affiliates of Riverstone will own 35%. PPL will have no continuing ownership interest in, control of, or affiliation with Talen Energy. 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 required regulatory approvals from the NRC, FERC, DOJ and
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PUC, all of which were received by mid-April 2015. In addition, there must be available, subject to certain conditions, at least $1 billion of undrawn credit capacity under a revolving credit or similar facility of Talen Energy or one or more of its subsidiaries. Any letters of credit or other credit support measures posted in connection with energy marketing and trading transactions at the time of the spinoff are excluded from this calculation.
In connection with the FERC approval, PPL and RJS Power have agreed that within 12 months after closing of the transaction, Talen Energy will divest approximately 1,300 MW of generating assets in one of two groups of assets (from PPL Energy Supply's existing portfolio, this includes either the Holtwood and Wallenpaupack hydroelectric facilities or the Ironwood facility), and limit PJM energy market offers from assets it would retain in the other group to cost-based offers.
On April 29, 2015, PPL's Board of Directors declared the distribution of Holdco to PPL's shareowners of record on May 20, 2015, with the spinoff to occur on June 1, 2015. Based on the number of shares of PPL common stock outstanding at April 29, 2015, the distribution ratio is expected to be approximately 0.125 shares of Talen common stock for each share of PPL common stock. The final ratio will be determined after the 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.
Talen Energy will own and operate a diverse mix of approximately 14,000 MW (after divestitures to meet FERC market power standards) of generating capacity in certain U.S. competitive energy markets primarily in PJM and ERCOT.
Following the transaction, PPL's focus will be on its regulated utility businesses in the U.K., Kentucky and Pennsylvania, serving more than 10 million customers. PPL intends to maintain a strong balance sheet and manage its finances consistent with maintaining investment grade credit ratings and providing a competitive total shareowner return, including an attractive dividend. Excluding costs required to provide transition services to Talen Energy and following the spinoff transaction, PPL expects to reduce annual ongoing corporate support costs by approximately $75 million.
See "Financial and Operational Developments - Other Financial and Operational Developments - Anticipated Spinoff of PPL Energy Supply" below for additional information.
The strategy for PPL Energy Supply is to optimize the value from its competitive generation asset and marketing portfolios while mitigating near-term volatility in both cash flows and earnings. PPL Energy Supply endeavors to do this by matching energy supply with load, or customer demand, under contracts of varying durations with creditworthy counterparties to capture profits while effectively managing exposure to energy and fuel price volatility, counterparty credit risk and operational risk. PPL Energy Supply is focused on maintaining profitability and positive cash flow during thethis current and projected period of low energy and capacity prices. See "Financial and Operational Developments - Economic and Market Conditions" below for additional information.
Earnings generated by PPL's U.K. subsidiaries are subject to foreign currency translation risk. The U.K. subsidiaries also have currency exposure to the U.S. dollar to the extent they have U.S. dollar denominated debt. To manage these risks, PPL generally uses contracts such as forwards, options and cross currency swaps that contain characteristics of both interest rate and foreign currency exchange contracts.
PPL's earnings by reportable segmentsegments for the periodperiods ended March 31, were as follows.
| Three Months | ||||||||||||
| 2014 | 2013 | % Change | ||||||||||
| U.K. Regulated | $ | 206 | $ | 313 | (34) | |||||||
| Kentucky Regulated | 107 | 85 | 26 | |||||||||
| Pennsylvania Regulated | 85 | 64 | 33 | |||||||||
| Supply | (75) | (46) | 63 | |||||||||
| Corporate and Other (a) | (7) | (3) | 133 | |||||||||
| Net Income Attributable to PPL Shareowners | $ | 316 | $ | 413 | (23) | |||||||
| EPS - basic | $ | 0.50 | $ | 0.70 | (29) | |||||||
| EPS - diluted (b) | $ | 0.49 | $ | 0.65 | (25) | |||||||
| Three Months | |||||||||||
| 2015 | 2014 | $ Change | |||||||||
| U.K. Regulated | $ | 375 | $ | 206 | $ | 169 | |||||
| Kentucky Regulated | 109 | 107 | 2 | ||||||||
| Pennsylvania Regulated | 87 | 85 | 2 | ||||||||
| Supply | 95 | (75) | 170 | ||||||||
| Corporate and Other (a) | (19) | (7) | (12) | ||||||||
| Net Income | $ | 647 | $ | 316 | $ | 331 | |||||
| EPS - basic | $ | 0.97 | $ | 0.50 | $ | 0.47 | |||||
| EPS - diluted (b) | $ | 0.96 | $ | 0.49 | $ | 0.47 | |||||
| (a) | Primarily represents financing and certain other costs incurred at the corporate level that have not been allocated or assigned to the segments, which are presented to reconcile segment information to PPL's consolidated results. 2015 includes certain costs related to the anticipated spinoff of PPL Energy Supply. See the following table of special items for additional information. |
| (b) | See |
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The following after-tax gains (losses), in total, which management considers special items, impacted PPL's reportable segments' results for the periodperiods ended March 31. See PPL's "Results of Operations - Segment Earnings" for details of theseeach segment's special items.
| Three Months | ||||||
| 2014 | 2013 | |||||
| U.K. Regulated | $ | (58) | $ | 75 | ||
| Kentucky Regulated | 1 | |||||
| Supply | (149) | (117) | ||||
| Total PPL | $ | (207) | $ | (41) | ||
| Three Months | |||||||||||
| 2015 | 2014 | $ Change | |||||||||
| U.K. Regulated | $ | 39 | $ | (58) | $ | 97 | |||||
| Supply (a) | 95 | (75) | 170 | ||||||||
| Corporate and Other (b) | (6) | (6) | |||||||||
| Total PPL | $ | 128 | $ | (133) | $ | 261 | |||||
| (a) | As a result of the anticipated spinoff of PPL Energy Supply, substantially representing PPL's Supply segment, management is now considering the operating results of the Supply segment to be a special item. See Note 8 to the Financial Statements for additional information. |
| (b) | Primarily includes external transaction and transition costs related to the anticipated spinoff of PPL Energy Supply. See Note 8 to the Financial Statements for additional information. |
(PPL)
In anticipation of the spinoff of PPL Energy Supply, no forward looking information, including an earnings forecast, is being provided for the three months ended March 31, 2014Supply segment.
Excluding special items, including Supply segment earnings, higher earnings are expected in 2015 compared with 2013, excluding2014, after adjusting 2014 to include certain dissynergies in the impact of special items,Corporate and Other category that were due torecorded in the Supply segment. The following projections and factors underlying these projections (on an after-tax basis):
(PPL's U.K. Regulated Segment)
Excluding special items, higher earnings are projected in 20142015 compared with 2013,2014, primarily driven by higher electricity delivery revenuelower income taxes, lower depreciation expense and lower pension expense,effects of foreign currency, partially offset by higher income taxes, higher depreciation and higher financing costs.
(PPL's Kentucky Regulated Segment and LKE, LG&E and KU)
Higher earnings are projected in 20142015 compared with 2013,2014, primarily driven by anticipated electric and gas base rate increases and returns on additional environmental capital investments, partially offset by higher operation and maintenance expense, higher depreciation and higher financing costs, partially offset by returns on additional environmental capital investments and increased sales volumes.
(PPL's Pennsylvania Regulated Segment and PPL Electric)
Excluding special items, higherlower earnings are projected in 20142015 compared with 2013,2014, primarily driven by higher operation and maintenance expense, higher depreciation, higher financing costs and a benefit recorded in the first quarter of 2014 for a change in estimate of a regulatory liability, partially offset by higher transmission margins and returns on distribution improvement capital spending, partially offset by higher financing costsinvestments.
(PPL's Corporate and higher income taxes.
Excluding special items, lower earningscosts are projected in 20142015 compared with 2013,2014, after adjusting 2014 to include certain dissynergies in the Corporate and Other category that were recorded in the Supply segment, primarily driven by lower energy and capacity prices, partially offset by the net realized benefits from unusually cold winter weather, lower financing costsreduction of those dissynergies in 2015 through corporate restructuring efforts and 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, Notes 6 and 10 to the Financial Statements and "Item 1A. Risk Factors" in this Form 10-Q (as applicable) and "Item 1. Business" and "Item 1A. Risk Factors" in the Registrants' 20132014 Form 10-K for a discussion of the risks, uncertainties and factors that may impact future earnings.
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Economic and Market Conditions
(PPL and PPL Energy Supply)
The businesses of PPL Energy Supply, LKE, LG&E and KU are subject to extensive federal, state and local environmental laws, rules and regulations, including those pertaining to coal combustion residuals,CCRs, GHG, effluent limitation 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 either to either temporarily or permanently close, or place in long-term reserve status, and/or impair certain of their coal-fired generating plants during 2012plants.
(PPL)
Given current and 2013.
(All Registrants)
The Registrants cannot predict the impact that future economic and market conditions and regulatory requirements may have on their financial condition or results of operations.
(PPL)
Anticipated Spinoff of Line Loss Calculation
Following the announcement of the transaction to form Talen Energy as discussed in "Business Strategy" above, efforts were initiated to identify the appropriate staffing for Talen Energy and for PPL and its subsidiaries following completion of the spinoff. Organizational plans were substantially completed in 2014. The new organizational plans identified the need to resize and restructure the organizations and as a result, in 2014, estimated charges for employee separation benefits were recorded. See Note 8 in the 2014 Form 10-K for additional information. The separation benefits include cash severance compensation, lump sum COBRA reimbursement payments and outplacement services. Most separations and payment of separation benefits are expected to be completed by the end of 2015. At March 31, 2015 and December 31, 2014, Ofgem issued its final decisionthe recorded liabilities related to the separation benefits were $19 million and $30 million, which are included in "Other current liabilities" on the methodologyBalance Sheets.
Additional employee-related costs to be used by all network operators to calculateincurred primarily include accelerated stock-based compensation and pro-rated performance-based cash incentive and stock-based compensation awards, primarily for PPL Energy Supply employees and for PPL employees who have become PPL Energy Supply employees in connection with the final line loss incentives and penalties fortransaction. These costs will be recognized at the DPCR4, which endedspinoff closing date. PPL estimates these additional costs will be in March 2010. As a result, WPD recorded an increasethe range of $65$30 million to its existing liability with a reduction$40 million.
PPL recorded $6 million of third-party costs during the three months ended March 31, 2015 related to "Utility" revenuethis transaction. Of these costs, $2 million were primarily for legal and accounting fees to facilitate the transaction, and are recorded in "Other Income (Expense) - net" on the Statement of Income. WPD'sAn additional $4 million of consulting and other costs were incurred to ready the new Talen Energy organization and reconfigure the remaining PPL service functions. These costs are recorded in "Other operation and maintenance" on the Statement of Income. PPL recorded $27 million of third-party costs in 2014 related to this transaction. PPL currently estimates a range of total third-party costs that will ultimately be incurred of between $60 million and $70 million.
The assets and liabilities of PPL's Supply segment will continue to be classified as "held and used" on PPL's Balance Sheet until the closing of the transaction, at which time the operations of the Supply segment will be classified as discontinued operations. At the close of the transaction, unamortized losses on PPL interest rate swaps recorded liabilityin AOCI and designated as hedges of PPL Energy Supply's future interest payments will be reclassified into earnings and reflected in discontinued operations. The amount of these unamortized losses deferred in AOCI at March 31, 2015 was $55 million after-tax.
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In conducting its annual goodwill impairment assessment in the fourth quarter of 2014 for its Supply segment reporting unit, PPL determined that the estimated fair value of the Supply segment exceeded its carrying value and no impairment was $115 million, nearly allrecognized. PPL had not identified any indicators of whichimpairment as of March 31, 2015, but cannot predict whether an impairment loss will be refunded to customers beginningrecorded at the spinoff date. An impairment loss would be recognized by PPL at the spinoff date if the aggregate carrying amount of the Supply segment's assets and liabilities exceed their aggregate fair value at that date and would be reflected in discontinued operations. Upon completion of this transaction, PPL will no longer have a Supply segment.
RIIO-ED1
On April 1, 2015, through March 31, 2019. See Note 6 to the Financial Statements for additional information.
Depreciation
Effective January 1, 2015, after completing a component of PPL's 2011 Equity Units. In connection with the remarketing, PPL Capital Funding retired $228 millionreview of the 4.32% Junior Subordinated Notes due 2019 and issued $350useful lives of its distribution network assets, WPD extended the weighted average useful lives of these assets to 69 years from 55 years. For the three months ended March 31, 2015, this change in useful lives resulted in lower depreciation of $20 million ($16 million after-tax or $0.02 per share). It is expected to result in an annual reduction in depreciation of 2.189% Junior Subordinated Notes due 2017 and $400 million 3.184% of Junior Subordinated Notes due 2019. Simultaneously the newly issued notes were exchanged for $350 million of 3.95% Senior Notes due 2024 and $400 million of 5.00% Senior Notes due 2044. Additionally, on May 1, 2014, PPL issued 31.7 million shares of common stock at $30.86 per share to settle the 2011 Purchase Contracts. PPL received net cash proceeds of $978 million, which will be used to repay short-term debt and for general corporate purposes.
Susquehanna Turbine Blade Inspection(PPL and PPL Energy Supply)
PPL Susquehanna continues to make modifications to address the causes of turbine blade cracking at the PPL Susquehanna nuclear plant that was first identified in 2011. In March 2014, Unit 2 completed its planned turbine inspection outage to replace blades. Unit 1 begancompleted its planned refueling and turbine inspection outage in April 2014. Similar blade replacements are plannedJune 2014 and modifications will also be implemented to reduce the likelihood of blade cracking, including the installation ofinstalled newly designed shorter last stage blades on one of the LPlow pressure turbines. This change allowed Unit 1 to run with reduced blade vibration and no identified cracking during 2014. In the first, second and third quarters of 2014, Unit 2 was shut down for blade inspection and replacement, as well as additional maintenance. The financial impact of the Unit 2 outages was not material. Based on the positive experience on Unit 1, the same short blade modifications are currently being installed on two of the three turbines on Unit 2 during the spring 2015 scheduled refueling outage. All remaining turbine blade modifications are scheduled to be performed during planned refueling and maintenance outages. Inspections will be performed over the next several maintenance cycles to validate the performance of the modifications and ensure that the problem has been corrected. PPL Susquehanna will continuedoes not expect additional unscheduled turbine maintenance outages after these modifications are complete.
IRS Audits for 1998 - 2011
In February 2015, PPL and the IRS Appeals division reached a settlement on the amount of PPL's refund from its open audits for the years 1998 - 2011. The settlement was required to monitor blade performancebe reviewed and work withapproved by the turbine manufacturerJoint Committee on Taxation (JCT) before it is considered final. In April 2015, PPL was notified that the JCT approved PPL's settlement. Subject to identifya final determination of interest on the refund, PPL expects to record a tax benefit in the range of $20 million to $30 million in the second quarter of 2015 related to the settlement of previously unrecognized tax benefits.
(PPL and resolve the issues causing the blade cracking.
Rate Case Proceedings
On March 2013,31, 2015, PPL Electric filed its proposed SDERa request with the PUC for an increase in its annual distribution revenue requirement of approximately $167.5 million. The proposal would result in a rate increase of 3.9% on a total bill basis and as partis expected to become effective on January 1, 2016. PPL Electric's application includes a request for an authorized return-on-equity of that filing, requested recovery10.95%. The application is based on a fully projected future test year of January 1, 2016 through December 31, 2016.
Concurrently, PPL Electric filed a petition requesting a waiver of the 2012 qualifying storm costs relatedDSIC cap of 5% of billed revenues and approval to Hurricane Sandy. On April 3, 2014,increase the maximum allowable DSIC from 5% to 7.5% for service rendered after January 1, 2016. PPL Electric is requesting that the PUC issued a final order approvingconsolidate these two proceedings and cannot predict the SDER. The SDER will be effective January 1, 2015outcome.
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(PPL, LKE and will initially include actual storm costs compared to collections from December 2013 through November 2014. As a result of the order, PPL Electric reduced its regulatory liability by $12 million related to collections in excess of costs incurred from January 1, 2013 to November 30, 2013 that are not required to be refunded to customers. Also, as part of the order, PPL Electric can recover Hurricane Sandy storm damage costs through the SDER over a three-year period beginning January 2015. See "Pennsylvania Activities - Storm Damage Expense Rider" in Note 6 to the Financial Statements for additional information.
FERC Wholesale Formula Rates (LKE and KU)
In September 2013, KU filed an application with the FERC to adjust the formula rate under which KU provides wholesale requirements power sales to 12 municipal customers. Among other changes, the application requests an amended formula whereby KU would charge cost-based rates with a subsequent true-up to actual costs, replacing the current formula which does not include a true-up. KU's application proposed an authorized return on equity of 10.7%. Certain elements, including the new formula rate, became effective April 23, 2014, subject to refund. In April 2014, FERC accepted a motion filed by KU requesting a delay until mid-June of the effectiveness of other elements, including updated termination notice periods, new credit and uncollectible charge provisions. Also in April 2014, nine municipalities submitted notices of termination, under the original notice period provisions, to cease taking power under the wholesale requirements contracts, suchcontracts. Such terminations are to be effective in 2019, except in the case of one municipality with a conditional 2017 effective date. TheIn addition, a tenth municipality which has a previously settled termination date of 2016 has given notice that it will transfer service in June 2015. In July 2014, KU agreed on settlement terms with the two municipal customers that did not provide termination notices and filed the settlement proposal with the FERC for its approval. In August 2014, the FERC issued an order on the interim settlement agreement allowing the proposed rates to become effective pending a final order. If approved, the settlement agreement will resolve the rate case with respect to these two municipalities, including an authorized return on equity of 10% or the return on equity awarded to other parties are continuingin this case, whichever is lower. Also in July 2014, KU made a contractually required filing with the FERC that addressed certain rate recovery matters affecting the nine terminating municipalities during the remaining term of their contracts. KU and the terminating municipalities continue settlement negotiations.discussions in this proceeding. KU cannot currently predict the outcome of its FERC applications regarding its wholesale power agreements with the municipalities.
(PPL, LKE, LG&E and KU)
Rate Case Proceedings
On November 26, 2014, LG&E and KU filed requests with the KPSC for increases in annual base electricity rates for LG&E's electric and gas operations and KU's electric operations. On April 20, 2015, LG&E and KU, and the other parties to the proceeding, or related matters.
(PPL)
The discussion for PPL provides a review of results by reportable segment. The "Margins" discussion provides explanations of non-GAAP financial measures (Kentucky Gross Margins, Pennsylvania Gross Delivery Margins and Unregulated Gross Energy Margins) and a reconciliation of non-GAAP financial measures to "Operating Income." The "Statement of Income Analysis" discussion addresses significant changes in principal line items on PPL's Statements of Income, comparing the three months ended March 31, 20142015 with 2013.the same period in 2014. "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. The "Margins" discussion includes a reconciliation of non-GAAP financial measures to "Operating Income" and "Statement of Income Analysis"
| 87 |
addresses significant changes in principal line items on the Statements of Income comparing the three months ended March 31, 20142015 with 2013.the same period in 2014. "Earnings, Margins and Statement of Income Analysis" areis 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.
Segment Earnings
U.K. Regulated Segment
The U.K. Regulated segment consists of PPL Global which primarily includes WPD's regulated electricity distribution operations, the results of hedging the translation of WPD's earnings from British pound sterling into U.S. dollars, and certain costs, such as U.S. income taxes, administrative costs, and allocated financing costs. The U.K. Regulated segment represents 65%58% of Net Income Attributable to PPL Shareowners for the three months ended March 31, 20142015 and 34%33% of PPL's assets at March 31, 2014.
Net Income Attributable to PPL Shareowners for the periods ended March 31 includes the following results:
| Three Months | |||||||||
| 2014 | 2013 | % Change | |||||||
| Utility revenues | $ | 637 | $ | 638 | |||||
| Energy-related businesses | 11 | 10 | 10 | ||||||
| Total operating revenues | 648 | 648 | |||||||
| Other operation and maintenance | 108 | 117 | (8) | ||||||
| Depreciation | 83 | 74 | 12 | ||||||
| Taxes, other than income | 38 | 37 | 3 | ||||||
| Energy-related businesses | 7 | 7 | |||||||
| Total operating expenses | 236 | 235 | |||||||
| Other Income (Expense) - net | (24) | 120 | (120) | ||||||
| Interest Expense | 122 | 107 | 14 | ||||||
| Income Taxes | 60 | 113 | (47) | ||||||
| Net Income Attributable to PPL Shareowners | $ | 206 | $ | 313 | (34) | ||||
| Three Months | |||||||||||
| 2015 | 2014 | $ Change | |||||||||
| Utility revenues | $ | 686 | $ | 637 | $ | 49 | |||||
| Energy-related businesses | 11 | 11 | |||||||||
| Total operating revenues | 697 | 648 | 49 | ||||||||
| Other operation and maintenance | 103 | 108 | (5) | ||||||||
| Depreciation | 59 | 83 | (24) | ||||||||
| Taxes, other than income | 36 | 38 | (2) | ||||||||
| Energy-related businesses | 7 | 7 | |||||||||
| Total operating expenses | 205 | 236 | (31) | ||||||||
| Other Income (Expense) - net | 88 | (24) | 112 | ||||||||
| Interest Expense | 100 | 122 | (22) | ||||||||
| Income Taxes | 105 | 60 | 45 | ||||||||
| Net Income | $ | 375 | $ | 206 | $ | 169 | |||||
The changes in the results of the U.K. Regulated segment between these periods were due to the factors set forth below, which reflect certain items that management considers special and effects of movements in foreign currency exchange on separate lines within the table and not in their respective Statement of Income line items. See below for additional detail of the special items.
| Three Months | |||||||
| U.K. | |||||||
| Utility revenues | $ | ||||||
| Other operation and maintenance | |||||||
| Depreciation | |||||||
| Interest expense | |||||||
| Income taxes | |||||||
| U.S. | |||||||
| Interest expense and other | |||||||
| Income taxes | |||||||
| Foreign currency exchange, after-tax | |||||||
| Special items, after-tax | |||||||
| Total | $ | | |||||
U.K.
| · | Higher utility revenues |
| · | Lower |
| 88 |
The following after-tax gains (losses), which management considers special items, also impacted the U.K. Regulated segment's results during the periods ended March 31.
| Income Statement | Three Months | ||||||||
| Line Item | 2014 | 2013 | |||||||
| Foreign currency-related economic hedges, net of tax of $3, ($42) (a) | Other Income (Expense) - net | $ | (6) | $ | 78 | ||||
| WPD Midlands acquisition-related adjustments: | |||||||||
| Separation benefits, net of tax of $0, $1 | Other operation and maintenance | (1) | |||||||
| Other acquisition-related adjustments, net of tax of $0, $0 | Other operation and maintenance | (2) | |||||||
| Other: | |||||||||
| Change in WPD line loss accrual, net of tax of $13, $0 (b) | Utility | (52) | |||||||
| Total | $ | (58) | $ | 75 | |||||
| Income Statement | Three Months | |||||||||
| Line Item | 2015 | 2014 | ||||||||
| Other Income | ||||||||||
| Foreign currency-related economic hedges, net of tax of $(20), $3 (a) | (Expense)-net | $ | 37 | $ | (6) | |||||
| Other operation | ||||||||||
| WPD Midlands acquisition-related adjustment, net of tax of $(1), $0 | and maintenance | 2 | ||||||||
| Change in WPD line loss accrual, net of tax of $0, $13 (b) | Utility | (52) | ||||||||
| Total | $ | 39 | $ | (58) | ||||||
(a) Represents unrealized gains (losses) on contracts that economically hedge anticipated GBP denominated earnings.
| (b) | In March 2014, Ofgem issued its final decision on the DPCR4 line loss incentives and penalties |
Kentucky Regulated Segment
The Kentucky Regulated segment consists primarily of LKE's regulated electricity generation, transmission and distribution operations of LG&E and KU, as well as LG&E's regulated distribution and sale of natural gas in Kentucky.gas. In addition, certain financing costs are allocated to the Kentucky Regulated segment. The Kentucky Regulated segment represents 34%17% of Net Income Attributable to PPL Shareowners for the three months ended March 31, 20142015 and 25%27% of PPL's assets at March 31, 2014.
Net Income Attributable to PPL Shareowners for the periods ended March 31 includes the following results:
| Three Months | |||||||||
| 2014 | 2013 | % Change | |||||||
| Utility revenues | $ | 934 | $ | 800 | 17 | ||||
| Fuel | 277 | 231 | 20 | ||||||
| Energy purchases | 124 | 86 | 44 | ||||||
| Other operation and maintenance | 206 | 197 | 5 | ||||||
| Depreciation | 86 | 82 | 5 | ||||||
| Taxes, other than income | 13 | 12 | 8 | ||||||
| Total operating expenses | 706 | 608 | 16 | ||||||
| Other Income (Expense) - net | (2) | (2) | |||||||
| Interest Expense | 55 | 55 | |||||||
| Income Taxes | 64 | 50 | 28 | ||||||
| Net Income Attributable to PPL Shareowners | $ | 107 | $ | 85 | 26 | ||||
| Three Months | |||||||||||
| 2015 | 2014 | $ Change | |||||||||
| Utility revenues | $ | 899 | $ | 934 | $ | (35) | |||||
| Fuel | 253 | 277 | (24) | ||||||||
| Energy purchases | 92 | 124 | (32) | ||||||||
| Other operation and maintenance | 209 | 206 | 3 | ||||||||
| Depreciation | 95 | 86 | 9 | ||||||||
| Taxes, other than income | 14 | 13 | 1 | ||||||||
| Total operating expenses | 663 | 706 | (43) | ||||||||
| Other Income (Expense) - net | (1) | (2) | 1 | ||||||||
| Interest Expense | 55 | 55 | |||||||||
| Income Taxes | 71 | 64 | 7 | ||||||||
| Net Income | $ | 109 | $ | 107 | $ | 2 | |||||
The changes in the results of the Kentucky Regulated segment between these periods were due to the factors set forth below, which reflect amounts classified as Kentucky Gross Margins andon a certain item that management considers special on separate linesline within the table and not in their respective Statement of Income line items.
| Three Months | ||||
| Kentucky Gross Margins | $ | | ||
| Other operation and maintenance | | (2) | ||
| Depreciation | | |||
| Other Income (Expense) - net | 1 | |||
| Income | | |||
| Total | $ | | ||
| · | See "Margins - Changes in Non-GAAP Financial Measures" for an explanation of Kentucky Gross Margins. |
| · | Higher |
| · | Higher income taxes |
Pennsylvania Regulated Segment
The Pennsylvania Regulated segment includes the regulated electricity transmission and distribution operations of PPL Electric. In addition, certain financing costs are allocated to the Pennsylvania Regulated segment. The Pennsylvania Regulated segment represents 27%13% of Net Income Attributable to PPL Shareowners for the three months ended March 31, 20142015 and 15%16% of PPL's assets at March 31, 2014.
| Net Income Attributable to PPL Shareowners for the periods ended March 31 includes the following results: | |||||||||
| Three Months | |||||||||
| 2014 | 2013 | % Change | |||||||
| Utility revenues | $ | 592 | $ | 513 | 15 | ||||
| Energy purchases | |||||||||
| External | 189 | 172 | 10 | ||||||
| Intersegment | 27 | 14 | 93 | ||||||
| Other operation and maintenance | 134 | 133 | 1 | ||||||
| Depreciation | 45 | 43 | 5 | ||||||
| Taxes, other than income | 32 | 30 | 7 | ||||||
| Total operating expenses | 427 | 392 | 9 | ||||||
| Other Income (Expense) - net | 2 | 1 | 100 | ||||||
| Interest Expense | 29 | 25 | 16 | ||||||
| Income Taxes | 53 | 33 | 61 | ||||||
| Net Income Attributable to PPL Shareowners | $ | 85 | $ | 64 | 33 | ||||
| Net Income for the periods ended March 31 includes the following results: | |||||||||||
| Three Months | |||||||||||
| 2015 | 2014 | $ Change | |||||||||
| Utility revenues | $ | 630 | $ | 592 | $ | 38 | |||||
| Energy purchases | |||||||||||
| External | 227 | 189 | 38 | ||||||||
| Intersegment | 9 | 27 | (18) | ||||||||
| Other operation and maintenance | 133 | 134 | (1) | ||||||||
| Depreciation | 51 | 45 | 6 | ||||||||
| Taxes, other than income | 35 | 32 | 3 | ||||||||
| Total operating expenses | 455 | 427 | 28 | ||||||||
| Other Income (Expense) - net | 2 | 2 | |||||||||
| Interest Expense | 31 | 29 | 2 | ||||||||
| Income Taxes | 59 | 53 | 6 | ||||||||
| Net Income | $ | 87 | $ | 85 | $ | 2 | |||||
The changes in the components of the Pennsylvania Regulated segment's results between these periods were due to the factors set forth below, which reflect amounts classified as Pennsylvania Gross Delivery Margins on a separate line and not in their respective Statement of Income line items.
| Three Months | ||||||
| Pennsylvania Gross Delivery Margins | $ | 13 | ||||
| Other operation and maintenance | | 2 | ||||
| Depreciation | ||||||
| Interest | ||||||
| Other | 1 | |||||
| Income | ||||||
| Total | $ | | ||||
| · | See "Margins - Changes in Non-GAAP Financial Measures" for an explanation of Pennsylvania Gross Delivery Margins. |
| · | Higher |
| · | Higher income taxes primarily due to higher pre-tax income. |
Supply Segment
The Supply segment primarily consists of PPL Energy Supply's wholesale, retail, marketing and trading activities, as well as its competitive generation operations. In addition, certain financing and other costs are allocated to the Supply segment. The Supply segment represents negative 24%15% of Net Income Attributable to PPL Shareowners for the three months ended March 31, 20142015 and 26%22% of PPL's assets at March 31, 2014.
In June 2014, PPL and PPL Energy Supply, which primarily represents PPL's Supply segment, executed definitive agreements with affiliates of Riverstone to combine their competitive power generation businesses into a new, stand-alone, publicly traded company named Talen Energy. Upon completion of this transaction, PPL will no longer have a Supply segment. See Note 8 to the Financial Statements for additional information.
| Net Income for the periods ended March 31 includes the following results: | |||||||||||
| Three Months | |||||||||||
| 2015 | 2014 | $ Change | |||||||||
| Energy revenues | |||||||||||
| External (a) (b) | $ | 833 | $ | (1,107) | $ | 1,940 | |||||
| Intersegment | 9 | 27 | (18) | ||||||||
| Energy-related businesses | 104 | 125 | (21) | ||||||||
| Total operating revenues | 946 | (955) | 1,901 | ||||||||
| Fuel (a) | 351 | 482 | (131) | ||||||||
| Energy purchases (a) (c) | 1 | (1,804) | 1,805 | ||||||||
| Other operation and maintenance | 226 | 229 | (3) | ||||||||
| Depreciation | 77 | 75 | 2 | ||||||||
| Taxes, other than income | 15 | 18 | (3) | ||||||||
| Energy-related businesses | 98 | 124 | (26) | ||||||||
| Total operating expenses | 768 | (876) | 1,644 | ||||||||
| Net Income Attributable to PPL Shareowners for the periods ended March 31 includes the following results: | |||||||||
| Three Months | |||||||||
| 2014 | 2013 | % Change | |||||||
| Energy revenues | |||||||||
| External (a) (b) | $ | (1,078) | $ | 381 | (383) | ||||
| Intersegment | 27 | 14 | 93 | ||||||
| Energy-related businesses | 125 | 113 | 11 | ||||||
| Total operating revenues | (926) | 508 | (282) | ||||||
| Fuel (a) | 482 | 298 | 62 | ||||||
| Energy purchases (a) (c) | (1,804) | (199) | 807 | ||||||
| Other operation and maintenance | 258 | 235 | 10 | ||||||
| Depreciation | 80 | 78 | 3 | ||||||
| Taxes, other than income | 21 | 17 | 24 | ||||||
| Energy-related businesses | 124 | 110 | 13 | ||||||
| Total operating expenses | (839) | 539 | (256) | ||||||
| Other Income (Expense) - net | 6 | 4 | 50 | ||||||
| Interest Expense | 48 | 60 | (20) | ||||||
| Income Taxes | (54) | (41) | 32 | ||||||
| Net Income Attributable to PPL Shareowners | $ | (75) | $ | (46) | 63 | ||||
| 90 |
| Three Months | |||||||||||
| 2015 | 2014 | $ Change | |||||||||
| Other Income (Expense) - net | 7 | 6 | 1 | ||||||||
| Interest Expense | 38 | 46 | (8) | ||||||||
| Income Taxes | 52 | (52) | 104 | ||||||||
| Income (Loss) from Discontinued Operations | (8) | 8 | |||||||||
| Net Income | $ | 95 | $ | (75) | $ | 170 | |||||
| (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) | 2014 includes significant realized and unrealized losses on physical and financial commodity sales contracts due to the unusually cold |
| (c) | 2014 includes significant realized and unrealized gains on physical and financial commodity purchase contracts due to the unusually cold |
The changes in the results of the Supply segment between these periods were due to the factors set forth below, which reflect amounts classified as Unregulated Gross Energy Margins and certain other items that management considers special on separate lines within the table and not in their respective Statement of Income line items. See below for additional detail of the specialthese other items.
| Three Months | ||||||
| Unregulated Gross Energy Margins | $ | | ||||
| Other operation and maintenance | ||||||
| Interest | ||||||
| 2 | ||||||
| Income taxes | | 5 | ||||
| 5 | ||||||
| Discontinued operations, after-tax | 27 | |||||
| Other items, after-tax | ||||||
| Total | $ | | ||||
| 170 | ||||||
| · | See "Margins - Changes in Non-GAAP Financial Measures" for an explanation of Unregulated Gross Energy Margins. |
| · | Lower other operation and maintenance primarily due to lower labor costs attributable to restructuring activities. |
| · | Lower interest expense primarily due to certain PPL Capital Funding debt no longer being associated with the |
The following after-tax gains (losses), which management considers specialreflected as "Other items, after-tax" in the table above, also impacted the Supply segment's results during the periods ended March 31.
| Income Statement | Three Months | ||||||||
| Line Item | 2014 | 2013 | |||||||
| Adjusted energy-related economic activity, net, net of tax of $95, $79 | (a) | $ | (139) | $ | (117) | ||||
| Kerr Dam Project impairment, net of tax of $8, $0 (b) | Other operation and maintenance | (10) | |||||||
| Total | $ | (149) | $ | (117) | |||||
| Income Statement | Three Months | |||||||||
| Line Item | 2015 | 2014 | ||||||||
| Adjusted energy-related economic activity - net, net of tax of $(18), $95 | (a) | $ | 27 | $ | (139) | |||||
| Discontinued | ||||||||||
| Kerr Dam Project impairment, net of tax of $0, $8 (b) | Operations | (10) | ||||||||
| Other operation | ||||||||||
| Corette closure costs, net of tax of $2, $0 (c) | and maintenance | (3) | ||||||||
| Spinoff of PPL Energy Supply: | ||||||||||
| Other operation | ||||||||||
| Transition costs, net of tax of $0, $0 | and maintenance | (1) | ||||||||
| Other operation | ||||||||||
| Employee transitional services, net of tax of $1, $0 | and maintenance | (1) | ||||||||
| Total | $ | 22 | $ | (149) | ||||||
| (a) | Represents unrealized gains (losses), after-tax, on economic activity. See "Commodity Price Risk (Non-trading) - Economic Activity" in Note 14 to the Financial Statements for additional information. Amounts have been adjusted for insignificant option |
| (b) | In 2014, an arbitration panel issued its final decision holding that the conveyance price payable to PPL Montana was $18 million. As a result, PPL determined the Kerr Dam Project was impaired and recorded a pre-tax charge of $18 million. See Note 13 to the Financial Statements for additional information. |
| (c) | Operations were suspended and the Corette plant was retired in March 2015. |
Margins
Non-GAAP Financial Measures
Management utilizes the following non-GAAP financial measures as indicators of performance for its businesses.
| 91 |
| · | "Kentucky Gross Margins" is a single financial performance measure of the |
| · | "Pennsylvania Gross Delivery Margins" is a single financial performance measure of the |
| · | "Unregulated Gross Energy Margins" is a single financial performance measure of the Supply segment's |
These measures are not intended to replace "Operating Income," which is determined in accordance with GAAP, as an indicator of overall operating performance. Other companies may use different measures to analyze and report their results of their operations. Management believes these measures provide additional useful criteria to make investment decisions. These performance measures are used, in conjunction with other information, by senior management and PPL's Board of Directors to manage the operations and analyze actual results compared with budget and, in certain cases, to measure certain corporate financial goals used to determine variable compensation.
Reconciliation of Non-GAAP Financial Measures
The following table 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 March 31.
| 2014 Three Months | 2013 Three 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 | $ | 934 | $ | 592 | $ | 636 | (c) | $ | 2,162 | $ | 800 | $ | 513 | $ | 637 | (c) | $ | 1,950 | ||||||||||||||||||
| PLR intersegment utility | ||||||||||||||||||||||||||||||||||||
| revenue (expense) (d) | (27) | $ | 27 | (14) | $ | 14 | ||||||||||||||||||||||||||||||
| Unregulated wholesale energy | (637) | (792) | (e) | (1,429) | 966 | (823) | (e) | 143 | ||||||||||||||||||||||||||||
| Unregulated retail energy | 378 | (29) | (e) | 349 | 246 | (9) | (e) | 237 | ||||||||||||||||||||||||||||
| Energy-related businesses | 141 | 141 | 127 | 127 | ||||||||||||||||||||||||||||||||
| Total Operating Revenues | 934 | 565 | (232) | (44) | 1,223 | 800 | 499 | 1,226 | (68) | 2,457 | ||||||||||||||||||||||||||
| Operating Expenses | ||||||||||||||||||||||||||||||||||||
| Fuel | 277 | 481 | 758 | 231 | 297 | 1 | (e) | 529 | ||||||||||||||||||||||||||||
| Energy purchases | 124 | 189 | (1,219) | (588) | (e) | (1,494) | 86 | 172 | 437 | (638) | (e) | 57 | ||||||||||||||||||||||||
| Other operation and | ||||||||||||||||||||||||||||||||||||
| maintenance | 23 | 25 | 7 | 642 | 697 | 25 | 22 | 5 | 624 | 676 | ||||||||||||||||||||||||||
| Depreciation | 2 | 303 | 305 | 284 | 284 | |||||||||||||||||||||||||||||||
| Taxes, other than income | 29 | 13 | 62 | 104 | 28 | 8 | 60 | 96 | ||||||||||||||||||||||||||||
| Energy-related businesses | 2 | 136 | 138 | 2 | 120 | 122 | ||||||||||||||||||||||||||||||
| Total Operating Expenses | 426 | 243 | (716) | 555 | 508 | 342 | 222 | 749 | 451 | 1,764 | ||||||||||||||||||||||||||
| Total | $ | 508 | $ | 322 | $ | 484 | $ | (599) | $ | 715 | $ | 458 | $ | 277 | $ | 477 | $ | (519) | $ | 693 | ||||||||||||||||
| 92 |
| 2015 Three Months | 2014 Three 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 | $ | 899 | $ | 630 | $ | 685 | (c) | $ | 2,214 | $ | 934 | $ | 592 | $ | 636 | (c) | $ | 2,162 | ||||||||||||||||||
| PLR intersegment utility | ||||||||||||||||||||||||||||||||||||
| revenue (expense) (d) | (9) | $ | 9 | (27) | $ | 27 | ||||||||||||||||||||||||||||||
| Unregulated wholesale energy | 614 | (93) | (e) | 521 | (665) | (792) | (e) | (1,457) | ||||||||||||||||||||||||||||
| Unregulated retail energy | 324 | (14) | (e) | 310 | 377 | (29) | (e) | 348 | ||||||||||||||||||||||||||||
| Energy-related businesses | 120 | 120 | 141 | 141 | ||||||||||||||||||||||||||||||||
| Total Operating Revenues | 899 | 621 | 947 | 698 | 3,165 | 934 | 565 | (261) | (44) | 1,194 | ||||||||||||||||||||||||||
| Operating Expenses | ||||||||||||||||||||||||||||||||||||
| Fuel | 253 | 351 | 604 | 277 | 481 | 758 | ||||||||||||||||||||||||||||||
| Energy purchases | 92 | 227 | 152 | (150) | (e) | 321 | 124 | 189 | (1,219) | (588) | (e) | (1,494) | ||||||||||||||||||||||||
| Other operation and | ||||||||||||||||||||||||||||||||||||
| maintenance | 24 | 26 | 4 | 614 | 668 | 23 | 25 | 7 | 613 | 668 | ||||||||||||||||||||||||||
| Depreciation | 7 | 286 | 293 | 2 | 298 | 300 | ||||||||||||||||||||||||||||||
| Taxes, other than income | 1 | 33 | 12 | 55 | 101 | 29 | 13 | 59 | 101 | |||||||||||||||||||||||||||
| Energy-related businesses | 2 | 109 | 111 | 2 | 136 | 138 | ||||||||||||||||||||||||||||||
| Total Operating Expenses | 377 | 286 | 521 | 914 | 2,098 | 426 | 243 | (716) | 518 | 471 | ||||||||||||||||||||||||||
| Income (Loss) from | ||||||||||||||||||||||||||||||||||||
| Discontinued Operations | 29 | (29) | (f) | |||||||||||||||||||||||||||||||||
| Total | $ | 522 | $ | 335 | $ | 426 | $ | (216) | $ | 1,067 | $ | 508 | $ | 322 | $ | 484 | $ | (591) | $ | 723 | ||||||||||||||||
| (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) | 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" in Note 14 to the Financial Statements. Amounts have been adjusted for insignificant option premiums. |
| (f) | Represents the revenues associated with the hydroelectric generating facilities located in Montana that are classified as discontinued operations. These revenues are not reflected in "Operating Income" on the Statements of Income. |
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 periodsthree months ended March 31 as well as the change between periods. The factors that gave rise to the changes are described following the table.
| Three Months | ||||||||||
| 2014 | 2013 | Change | ||||||||
| Kentucky Regulated | ||||||||||
| Kentucky Gross Margins | ||||||||||
| LG&E | $ | 226 | $ | 202 | $ | 24 | ||||
| KU | 282 | 256 | 26 | |||||||
| LKE | $ | 508 | $ | 458 | $ | 50 | ||||
| Pennsylvania Regulated | ||||||||||
| Pennsylvania Gross Delivery Margins | ||||||||||
| Distribution | $ | 249 | $ | 224 | $ | 25 | ||||
| Transmission | 73 | 53 | 20 | |||||||
| Total | $ | 322 | $ | 277 | $ | 45 | ||||
| Supply | ||||||||||
| Unregulated Gross Energy Margins | ||||||||||
| Eastern U.S. | $ | 435 | $ | 420 | $ | 15 | ||||
| Western U.S. | 49 | 57 | (8) | |||||||
| Total | $ | 484 | $ | 477 | $ | 7 | ||||
| Three Months | |||||||||||
| 2015 | 2014 | $ Change | |||||||||
| Kentucky Regulated | |||||||||||
| Kentucky Gross Margins | |||||||||||
| LG&E | $ | 230 | $ | 226 | $ | 4 | |||||
| KU | 292 | 282 | 10 | ||||||||
| LKE | $ | 522 | $ | 508 | $ | 14 | |||||
| Pennsylvania Regulated | |||||||||||
| Pennsylvania Gross Delivery Margins | |||||||||||
| Distribution | $ | 242 | $ | 249 | $ | (7) | |||||
| Transmission | 93 | 73 | 20 | ||||||||
| Total | $ | 335 | $ | 322 | $ | 13 | |||||
| Supply | |||||||||||
| Unregulated Gross Energy Margins | |||||||||||
| Eastern U.S. | $ | 405 | $ | 435 | $ | (30) | |||||
| Western U.S. | 21 | 49 | (28) | ||||||||
| Total | $ | 426 | $ | 484 | $ | (58) | |||||
Kentucky Gross Margins
Kentucky Gross Margins increased primarily due to higher volumes of $20 million ($5 million at LG&E and $15 million at KU), returns fromon additional environmental capital investments of $13$18 million ($510 million at LG&E and $8 million at KU), and higher demand revenue of $8$7 million ($46 million at both LG&EKU and KU) and higher off-system sales$1 million at LG&E&E) partially offset by lower sales volume of $7 million.$10 million ($6 million at KU and $4 million at LG&E). The change in volumessales volume was primarily attributable to unusually coldmilder winter weather conditions.conditions in 2015 compared to 2014.
| 93 |
Pennsylvania Gross Delivery Margins
Distribution
Distribution margins increaseddecreased primarily due to a $12 million favorable effectbenefit recorded in the first quarter of unusually cold weather in 2014 andas a $12 million effect due toresult of a change in estimate of a regulatory liability. See "Pennsylvania Activities - Storm Damage Expense Rider" in Note 6 to the Financial Statements for additional information.
Transmission
Transmission margins increased primarily due to increased investment in plant and the recovery of additional costs through the FERC formula-based rates.
Unregulated Gross Energy Margins
Eastern U.S.
Eastern margins decreased primarily due to lower capacity prices of $69 million, unusually cold weather conditions in 2014 as discussed below of $38 million, net change on commodity positions of $28 million and full-requirement sales contracts of $22 million, partially offset by higher baseload energy prices of $75 million and favorable asset performance of $49 million.
During the first quarter of 2014, the PJM region experienced unusually cold weather conditions, higher demand and congestion patterns, that increasedcausing rising natural gas and electricity prices in spot and near-term forward markets. Due to these market conditions,dynamics, PPL Energy Supply captured opportunities on unhedged generation, which were offset primarily offset by under hedgedlosses incurred by under-hedged full-requirement sales contracts and retail electric. The net benefitelectric portfolios which were not fully hedged or able to be fully hedged given the extreme load conditions and lack of $38 million due to the aforementioned weather and related market dynamics along with $74 million of higher capacity prices was offset by $82 million from lower hedge prices on baseload energy and $32 million driven by lower output from PPL Susquehanna due to the timing of outages.
Western U.S.
Western margins decreased primarily due to lower availabilitythe sale of coal andthe Montana hydroelectric units.
| Statement of Income Analysis -- | |||||||||
| Utility Revenues | |||||||||
| The increase (decrease) in utility revenues for the period ended March 31, | |||||||||
| Three Months | ||||||||
| Domestic: | ||||||||
| PPL | $ | | ||||||
| LKE | ||||||||
| 3 | |||||||||
| U.K.: | |||||||||
| Price (c) | 42 | ||||||||
| Volume | (10) | ||||||||
| Line loss accrual adjustments (d) | | 65 | |||||||
| Total U.K. | 49 | ||||||||
| Total | $ | | |||||||
| (a) | See "Pennsylvania Gross Delivery Margins" for further information. |
| (b) | See "Kentucky Gross Margins" for further information. |
| (c) | |||||||
| The increase | |||||||
| The increase was due to unfavorable accrual adjustments in 2014 |
| Three Months Ended | |||||||||||||
| March 31, | |||||||||||||
| 2014 | 2013 | ||||||||||||
| Net Income (Loss) Attributable to PPL Energy Supply Member | $ | (66) | $ | (38) | |||||||||
| Special items, gains (losses), after-tax | (149) | (117) | |||||||||||
| 2014 Three Months | 2013 Three Months | |||||||||||||||||||||||
| Unregulated | Unregulated | |||||||||||||||||||||||
| Gross Energy | Operating | Gross Energy | Operating | |||||||||||||||||||||
| Margins | Other (a) | Income (b) | Margins | Other (a) | Income (b) | |||||||||||||||||||
| Operating Revenues | ||||||||||||||||||||||||
| Unregulated wholesale energy | $ | (637) | $ | (792) | (c) | $ | (1,429) | $ | 966 | $ | (823) | (c) | $ | 143 | ||||||||||
| Unregulated wholesale energy | ||||||||||||||||||||||||
| to affiliate | 27 | 27 | 14 | 14 | ||||||||||||||||||||
| Unregulated retail energy | 378 | (27) | (c) | 351 | 246 | (8) | (c) | 238 | ||||||||||||||||
| Energy-related businesses | 125 | 125 | 113 | 113 | ||||||||||||||||||||
| Total Operating Revenues | (232) | (694) | (926) | 1,226 | (718) | 508 | ||||||||||||||||||
| Operating Expenses | ||||||||||||||||||||||||
| Fuel | 481 | 1 | (c) | 482 | 297 | 1 | (c) | 298 | ||||||||||||||||
| Energy purchases | (1,219) | (585) | (c) | (1,804) | 437 | (636) | (c) | (199) | ||||||||||||||||
| Other operation and maintenance | 7 | 251 | 258 | 5 | 230 | 235 | ||||||||||||||||||
| Depreciation | 80 | 80 | 78 | 78 | ||||||||||||||||||||
| Taxes, other than income | 13 | 8 | 21 | 8 | 9 | 17 | ||||||||||||||||||
| Energy-related businesses | 2 | 122 | 124 | 2 | 108 | 110 | ||||||||||||||||||
| Total Operating Expenses | (716) | (123) | (839) | 749 | (210) | 539 | ||||||||||||||||||
| Total | $ | 484 | $ | (571) | $ | (87) | $ | 477 | $ | (508) | $ | (31) | ||||||||||||
Certain Operating Revenues and Expenses Included in "Unregulated Gross Energy Margins"
The following Statement of Income line items and their related increase (decrease) during the period ended March 31, 20142015 compared with 20132014 are included above within "Unregulated Gross Energy Margins""Margins" and are not discussed separately.
| Three Months | |||||
| Unregulated wholesale energy (a) | $ | | |||
| Unregulated retail energy | | (38) | |||
| Fuel | | (154) | |||
| Energy purchases (b) | | 1,815 | |||
| 94 |
| (a) | 2014 includes significant realized and unrealized losses on physical and financial commodity sales contracts due to the unusually cold |
| (b) | 2014 includes significant realized and unrealized gains on physical and financial commodity purchase contracts due to the unusually cold weather. |
Energy-Related Businesses
Net contributions from energy-related businesses increased by $6 million for the period ended March 31, 2015 compared with 2014 primarily due to higher margins on existing construction projects at the mechanical contracting and engineering subsidiaries.
| Other Operation and Maintenance | |||||||
| The increase (decrease) in other operation and maintenance for the period ended March 31, | |||||||
| Domestic: | |||||||
| Fossil and hydroelectric plants (a) | $ | 4 | |||||
| PPL EnergyPlus (b) | (9) | ||||||
| PPL Electric storm costs | (10) | ||||||
| PPL Electric Act 129 | 5 | ||||||
| External transition costs associated with the spinoff of PPL Energy Supply | 4 | ||||||
| Uncollectible accounts | 3 | ||||||
| Other | 9 | ||||||
| U.K.: | |||||||
| Network maintenance | (5) | ||||||
| Foreign currency exchange rates | (7) | ||||||
| Pension | (4) | ||||||
| Engineering management | 9 | ||||||
| WPD Midlands acquisition-related adjustment | (3) | ||||||
| Other | 4 | ||||||
| Total | $ | ||||||
| (a) | The increase was primarily due to costs related to the retirement of the Corette plant in March 2015. |
| (b) | The decrease was primarily due to lower labor costs attributable to restructuring activities. |
Depreciation
Depreciation decreased by $7 million for the three months ended March 31, 2015 compared with 2014, primarily due to a $20 million reduction from an extension of the WPD network asset lives partially offset by additions to PP&E, net. See Note 2 to the Financial Statements for additional information on the extension of WPD network asset lives.
Other Income (Expense) - net
Other income (expense) - net increased by $118 million for the three months ended March 31, 2015 compared with 2014, primarily due to an increase of $112 million from realized and unrealized gains on foreign currency contracts to economically hedge GBP denominated earnings from WPD.
See Note 12 to the Financial Statements for additional information.
| Interest Expense | |||||||
| The increase (decrease) in interest expense for the period ended March 31, | |||||||
| Three Months | |||||||
| Loss on extinguishment of debt (a) | $ | (9) | |||||
| Other | |||||||
| Total | $ | | |||||
| (a) |
| Income Taxes | |||||||||
| The increase (decrease) in income taxes for the period ended March 31, | |||||||||
| 95 |
| Three Months | |||||||
| Change in pre-tax income at current period tax rates | $ | | |||||
| 3 | |||||||
| U.S. income tax on foreign earnings net of foreign tax credit | | (12) | |||||
| Intercompany interest on U.K. financing entities | (6) | ||||||
| Impact of lower U.K. income tax rates | 6 | ||||||
| Other | |||||||
| Total | $ | | |||||
See Note 5 to the Financial Statements for additional information.
Income (Loss) from Discontinued Operations (net of income taxes)
Income (Loss) from Discontinued Operations (net of income taxes) for the three months ended March 31, 2014 includes the results of operations of the Montana hydroelectric generating facilities, which were sold in November 2014. See "Discontinued Operations - Montana Hydro Sale" in Note 8 to the Financial Statements for additional information.
PPL Electric: Earnings, Margins and Statement of Income Analysis
| Earnings | ||||||||
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2015 | 2014 | |||||||
| Net Income | $ | 87 | $ | 85 | ||||
Earnings
| Three Months Ended | |||||||||||||
| March 31, | |||||||||||||
| 2014 | 2013 | ||||||||||||
| Net Income | $ | 85 | $ | 64 | |||||||||
The table below quantifies the changes in the components of Net Income between these periods, which reflectreflects amounts classified as Pennsylvania Gross Delivery Margins on a separate line within the table and not in their respective Statement of Income line items.
| Three Months | ||||||
| Pennsylvania Gross Delivery Margins | $ | 13 | ||||
| Other operation and maintenance | | 2 | ||||
| Depreciation | ||||||
| Other | 1 | |||||
| (2) | ||||||
| Income taxes | | (6) | ||||
| Total | $ | | ||||
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 table containstables contain the components from the Statements of Income that are included in this non-GAAP financial measure and a reconciliation to "Operating Income" for the periods ended March 31.
| 2015 Three Months | 2014 Three Months | ||||||||||||||||||||
| PA Gross | PA Gross | ||||||||||||||||||||
| Delivery | Operating | Delivery | Operating | ||||||||||||||||||
| Margins | Other (a) | Income (b) | Margins | Other (a) | Income (b) | ||||||||||||||||
| Operating Revenues | $ | 630 | $ | 630 | $ | 592 | $ | 592 | |||||||||||||
| Operating Expenses | |||||||||||||||||||||
| Energy purchases | 227 | 227 | 189 | 189 | |||||||||||||||||
| Energy purchases from affiliate | 9 | 9 | 27 | 27 | |||||||||||||||||
| Other operation and maintenance | 26 | $ | 107 | 133 | 25 | $ | 109 | 134 | |||||||||||||
| Depreciation | 51 | 51 | 45 | 45 | |||||||||||||||||
| Taxes, other than income | 33 | 2 | 35 | 29 | 3 | 32 | |||||||||||||||
| Total Operating Expenses | 295 | 160 | 455 | 270 | 157 | 427 | |||||||||||||||
| Total | $ | 335 | $ | (160) | $ | 175 | $ | 322 | $ | (157) | $ | 165 | |||||||||
| 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 | $ | 592 | $ | 592 | $ | 513 | $ | 513 | ||||||||||||||
| Operating Expenses | ||||||||||||||||||||||
| Energy purchases | 189 | 189 | 172 | 172 | ||||||||||||||||||
| Energy purchases from affiliate | 27 | 27 | 14 | 14 | ||||||||||||||||||
| Other operation and maintenance | 25 | $ | 109 | 134 | 22 | $ | 111 | 133 | ||||||||||||||
| Depreciation | 45 | 45 | 43 | 43 | ||||||||||||||||||
| Taxes, other than income | 29 | 3 | 32 | 28 | 2 | 30 | ||||||||||||||||
| Total Operating Expenses | 270 | 157 | 427 | 236 | 156 | 392 | ||||||||||||||||
| Total | $ | 322 | $ | (157) | $ | 165 | $ | 277 | $ | (156) | $ | 121 | ||||||||||
| 96 |
| (a) | Represents amounts excluded from Margins. |
| (b) | As reported on the Statements of Income. |
Statement of Income Analysis --
Certain Operating Revenues and Expenses Included in "Pennsylvania Gross Delivery Margins"
The following Statement of Income line items and their related increase (decrease) during the period ended March 31, 20142015 compared with 20132014 are included above within "Pennsylvania Gross Delivery Margins""Margins" and are not discussed separately.
| Three Months | |||||
| Operating revenues | $ | | |||
| Energy purchases | | 38 | |||
| Energy purchases from affiliate | | (18) | |||
| Other Operation and Maintenance | ||||||
| The increase (decrease) in other operation and maintenance for the period ended March 31, | ||||||
| Three Months | ||||||
| Vegetation management | $ | (2) | ||||
| Storm costs | | (10) | ||||
| Act 129 | ||||||
| 3 | ||||||
| Corporate service costs | ||||||
| Total | $ | | ||||
Depreciation
Depreciation increased by $4$6 million for the three months ended March 31, 2014,2015 compared with 2013,2014, primarily due to a debt issuance in July 2013.
| Income Taxes | ||||||
| The increase (decrease) in income taxes for the period ended March 31, | ||||||
| Three Months | ||||||
| Change in pre-tax income at current period tax rates | $ | | ||||
| Other | ||||||
| Total | $ | | ||||
See Note 5 to5to the Financial Statements for additional information.
| Earnings | ||||||||
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2015 | 2014 | |||||||
| Net Income | $ | 117 | $ | 115 | ||||
Earnings
| Three Months Ended | |||||||||||||
| March 31, | |||||||||||||
| 2014 | 2013 | ||||||||||||
| Net Income | $ | 115 | $ | 96 | |||||||||
| Special items, gains (losses), after-tax | 1 | ||||||||||||
The table below quantifies the changes in the components of Net Income between these periods, which reflect amounts classified as Margins andon a certain item that management considers special on separate linesline 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 item.
| 97 |
| Three Months | ||||||
| Margins | $ | | ||||
| Other operation and maintenance | ||||||
| Depreciation | ||||||
| Other Income (Expense)- net | 1 | |||||
| Total | $ | | ||||
Margins
"Margins" is a non-GAAP financial performance measure that management utilizes as an indicator of the performance of its business. See PPL's "Results of Operations - Margins" for an explanation of why management believes this measure is useful and the underlying drivers of the changes between periods. Within PPL's discussion, 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 March 31.
| 2014 Three Months | 2013 Three Months | ||||||||||||||||||||||
| Operating | Operating | ||||||||||||||||||||||
| Margins | Other (a) | Income (b) | Margins | Other (a) | Income (b) | ||||||||||||||||||
| Operating Revenues | $ | 934 | $ | 934 | $ | 800 | $ | 800 | |||||||||||||||
| Operating Expenses | |||||||||||||||||||||||
| Fuel | 277 | 277 | 231 | 231 | |||||||||||||||||||
| Energy purchases | 124 | 124 | 86 | 86 | |||||||||||||||||||
| Other operation and maintenance | 23 | $ | 183 | 206 | 25 | $ | 172 | 197 | |||||||||||||||
| Depreciation | 2 | 84 | 86 | 82 | 82 | ||||||||||||||||||
| Taxes, other than income | 13 | 13 | 12 | 12 | |||||||||||||||||||
| Total Operating Expenses | 426 | 280 | 706 | 342 | 266 | 608 | |||||||||||||||||
| Total | $ | 508 | $ | (280) | $ | 228 | $ | 458 | $ | (266) | $ | 192 | |||||||||||
| 2015 Three Months | 2014 Three Months | ||||||||||||||||||||||
| Operating | Operating | ||||||||||||||||||||||
| Margins | Other (a) | Income (b) | Margins | Other (a) | Income (b) | ||||||||||||||||||
| Operating Revenues | $ | 899 | $ | 899 | $ | 934 | $ | 934 | |||||||||||||||
| Operating Expenses | |||||||||||||||||||||||
| Fuel | 253 | 253 | 277 | 277 | |||||||||||||||||||
| Energy purchases | 92 | 92 | 124 | 124 | |||||||||||||||||||
| Other operation and maintenance | 24 | $ | 185 | 209 | 23 | $ | 183 | 206 | |||||||||||||||
| Depreciation | 7 | 88 | 95 | 2 | 84 | 86 | |||||||||||||||||
| Taxes, other than income | 1 | 13 | 14 | 13 | 13 | ||||||||||||||||||
| Total Operating Expenses | 377 | 286 | 663 | 426 | 280 | 706 | |||||||||||||||||
| Total | $ | 522 | $ | (286) | $ | 236 | $ | 508 | $ | (280) | $ | 228 | |||||||||||
| (a) | Represents amounts excluded from Margins. |
| (b) | As reported on the Statements of Income. |
Statement of Income Analysis --
Certain Operating Revenues and Expenses Includedincluded in "Margins"
The following Statement of Income line items and their related increase (decrease)decrease during the period ended March 31, 20142015 compared with 20132014 are included above within "Margins" and are not discussed separately.
| Three Months | |||||||
| Operating revenues | 35 | ||||||
| Fuel | 24 | ||||||
Depreciation
Depreciation increased by $12$9 million for the three months ended March 31, 20142015 compared with 20132014 primarily due to higher pre-tax income.
Income Taxes
Income taxes increased by $7 million for the three months ended March 31, 2015 compared with 2014 due to the Financial Statements for additional information.change in pre-tax income of $4 million and the establishment of a valuation allowance on a deferred tax asset of $3 million.
| 98 |
| Earnings | ||||||||
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2015 | 2014 | |||||||
| Net Income | $ | 53 | $ | 52 | ||||
Earnings
| Three Months Ended | |||||||||||||
| March 31, | |||||||||||||
| 2014 | 2013 | ||||||||||||
| Net Income | $ | 52 | $ | 44 | |||||||||
The table below quantifies the changes in the components of Net Income between these periods, which reflect amounts classified as Margins on a separate line within the table and not in their respective Statement of Income line items.
| Three Months | ||||||
| Margins | $ | | ||||
| Other operation and maintenance | ||||||
| Depreciation | ||||||
| Other Income (Expense) - net | ||||||
| Interest | ||||||
| Income | ||||||
| Total | $ | | ||||
Margins
"Margins" is a non-GAAP financial performance measure that management utilizes as an indicator of the performance of its business. See PPL's "Results of Operations - Margins" for an explanation of why management believes this measure is useful and the underlying drivers of the changes between periods. Within PPL's discussion, LG&E's Margins are included in "Kentucky Gross Margins."
The following tables contain the components from the Statements of Income that are included in this non-GAAP financial measure and a reconciliation to "Operating Income" for the periods ended March 31.
| 2014 Three Months | 2013 Three Months | ||||||||||||||||||||||
| Operating | Operating | ||||||||||||||||||||||
| Margins | Other (a) | Income (b) | Margins | Other (a) | Income (b) | ||||||||||||||||||
| Operating Revenues | $ | 479 | $ | 479 | $ | 390 | $ | 390 | |||||||||||||||
| Operating Expenses | |||||||||||||||||||||||
| Fuel | 117 | 117 | 96 | 96 | |||||||||||||||||||
| Energy purchases, including affiliate | 124 | 124 | 81 | 81 | |||||||||||||||||||
| Other operation and maintenance | 11 | $ | 87 | 98 | 11 | $ | 80 | 91 | |||||||||||||||
| Depreciation | 1 | 37 | 38 | 36 | 36 | ||||||||||||||||||
| Taxes, other than income | 6 | 6 | 6 | 6 | |||||||||||||||||||
| Total Operating Expenses | 253 | 130 | 383 | 188 | 122 | 310 | |||||||||||||||||
| Total | $ | 226 | $ | (130) | $ | 96 | $ | 202 | $ | (122) | $ | 80 | |||||||||||
| 2015 Three Months | 2014 Three Months | ||||||||||||||||||||||
| Operating | Operating | ||||||||||||||||||||||
| Margins | Other (a) | Income (b) | Margins | Other (a) | Income (b) | ||||||||||||||||||
| Operating Revenues | $ | 439 | $ | 439 | $ | 479 | $ | 479 | |||||||||||||||
| Operating Expenses | |||||||||||||||||||||||
| Fuel | 103 | 103 | 117 | 117 | |||||||||||||||||||
| Energy purchases, including affiliate | 91 | 91 | 124 | 124 | |||||||||||||||||||
| Other operation and maintenance | 11 | $ | 85 | 96 | 11 | $ | 87 | 98 | |||||||||||||||
| Depreciation | 3 | 39 | 42 | 1 | 37 | 38 | |||||||||||||||||
| Taxes, other than income | 1 | 6 | 7 | 6 | 6 | ||||||||||||||||||
| Total Operating Expenses | 209 | 130 | 339 | 253 | 130 | 383 | |||||||||||||||||
| Total | $ | 230 | $ | (130) | $ | 100 | $ | 226 | $ | (130) | $ | 96 | |||||||||||
| (a) | Represents amounts excluded from Margins. |
| (b) | As reported on the Statements of Income. |
Statement of Income Analysis --
Certain Operating Revenues and Expenses Includedincluded in "Margins"
The following Statement of Income line items and their related increase (decrease)decrease during the period ended March 31, 20142015 compared with 20132014 are included above within "Margins" and are not discussed separately.
| 99 |
| Three Months | |||||
| Retail and wholesale | $ | | |||
| Electric revenue from affiliate | | 15 | |||
| Fuel | | 14 | |||
| Energy purchases | | 30 | |||
| Energy purchases from affiliate | | 3 | |||
Depreciation
Depreciation increased by $5$4 million for the three months ended March 31, 20142015 compared with 20132014 primarily due to higher pre-tax income.
| Earnings | ||||||||
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2015 | 2014 | |||||||
| Net Income | $ | 78 | $ | 77 | ||||
Earnings
| Three Months Ended | |||||||||||||
| March 31, | |||||||||||||
| 2014 | 2013 | ||||||||||||
| Net Income | $ | 77 | $ | 64 | |||||||||
| Special items, gains (losses), after-tax | 1 | ||||||||||||
The table below quantifies the changes in the components of Net Income between these periods, which reflect amounts classified as Margins andon a certain item that management considers special on separate linesline 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 item.
| Three Months | ||||||
| Margins | $ | | ||||
| Other operation and maintenance | ||||||
| Depreciation | ||||||
| Other Income (Expense)- net | (1) | |||||
| taxes | (1) | |||||
| Total | $ | | ||||
Margins
"Margins" is a non-GAAP financial performance measure that management utilizes as an indicator of the performance of its business. See PPL's "Results of Operations - Margins" for an explanation of why management believes this measure is useful and the underlying drivers of the changes between periods. Within PPL's discussion, 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 March 31.
| 2014 Three Months | 2013 Three Months | ||||||||||||||||||||||
| Operating | Operating | ||||||||||||||||||||||
| Margins | Other (a) | Income (b) | Margins | Other (a) | Income (b) | ||||||||||||||||||
| Operating Revenues | $ | 498 | $ | 498 | $ | 432 | $ | 432 | |||||||||||||||
| Operating Expenses | |||||||||||||||||||||||
| Fuel | 160 | 160 | 135 | 135 | |||||||||||||||||||
| Energy purchases, including affiliate | 43 | 43 | 27 | 27 | |||||||||||||||||||
| Other operation and maintenance | 12 | $ | 86 | 98 | 14 | $ | 83 | 97 | |||||||||||||||
| Depreciation | 1 | 47 | 48 | 46 | 46 | ||||||||||||||||||
| Taxes, other than income | 7 | 7 | 6 | 6 | |||||||||||||||||||
| Total Operating Expenses | 216 | 140 | 356 | 176 | 135 | 311 | |||||||||||||||||
| Total | $ | 282 | $ | (140) | $ | 142 | $ | 256 | $ | (135) | $ | 121 | |||||||||||
| 2015 Three Months | 2014 Three Months | ||||||||||||||||||||||
| Operating | Operating | ||||||||||||||||||||||
| Margins | Other (a) | Income (b) | Margins | Other (a) | Income (b) | ||||||||||||||||||
| Operating Revenues | $ | 485 | $ | 485 | $ | 498 | $ | 498 | |||||||||||||||
| Operating Expenses | |||||||||||||||||||||||
| Fuel | 150 | 150 | 160 | 160 | |||||||||||||||||||
| Energy purchases, including affiliate | 26 | 26 | 43 | 43 | |||||||||||||||||||
| Other operation and maintenance | 13 | $ | 91 | 104 | 12 | $ | 86 | 98 | |||||||||||||||
| Depreciation | 4 | 49 | 53 | 1 | 47 | 48 | |||||||||||||||||
| Taxes, other than income | 7 | 7 | 7 | 7 | |||||||||||||||||||
| Total Operating Expenses | 193 | 147 | 340 | 216 | 140 | 356 | |||||||||||||||||
| Total | $ | 292 | $ | (147) | $ | 145 | $ | 282 | $ | (140) | $ | 142 | |||||||||||
| (a) | Represents amounts excluded from Margins. |
| (b) | As reported on the Statements of Income. |
| 100 |
Statement of Income Analysis --
Certain Operating Revenues and Expenses Includedincluded in "Margins"
The following Statement of Income line items and their related increase (decrease)decrease during the period ended March 31, 20142015 compared with 20132014 are included above within "Margins" and are not discussed separately.
| Three Months | |||||
| Retail and wholesale | $ | | |||
| Electric revenue from affiliate | | 3 | |||
| Fuel | | 10 | |||
| Energy purchases | 2 | ||||
| Energy purchases from affiliate | | 15 | |||
| Other Operation and Maintenance | |||||
| The increase (decrease) in other operation and maintenance expense for the period ended March 31, 2015 compared with 2014 was due to: | |||||
| Three Months | |||||
| Timing and scope of generation maintenance | $ | 2 | |||
| Pension | 3 | ||||
| Storm expenses | (2) | ||||
| Other | 3 | ||||
| Total | $ | 6 | |||
Depreciation
Depreciation increased by $7$5 million for the three months ended March 31, 20142015 compared with 20132014 primarily due to higher pre-tax income.
| The remainder of this Item 2 in this Form 10-Q is presented on a combined basis, providing information, as applicable, | ||||||||||||||||||
| for all Registrants. | ||||||||||||||||||
| (All Registrants) | ||||||||||||||||||
| The Registrants had the following at: | ||||||||||||||||||
| PPL | ||||||||||||||||||
| PPL (a) | Energy Supply | PPL Electric | LKE | LG&E | KU | |||||||||||||
| March 31, 2014 | ||||||||||||||||||
| Cash and cash equivalents | $ | 1,256 | $ | 441 | $ | 42 | $ | 30 | $ | 9 | $ | 21 | ||||||
| Notes receivable from affiliates | 4 | |||||||||||||||||
| Short-term debt | 1,579 | 970 | 60 | 200 | 15 | 110 | ||||||||||||
| December 31, 2013 | ||||||||||||||||||
| Cash and cash equivalents | $ | 1,102 | $ | 239 | $ | 25 | $ | 35 | $ | 8 | $ | 21 | ||||||
| Notes receivable from affiliates | 150 | 70 | ||||||||||||||||
| Short-term debt | 701 | 20 | 245 | 20 | 150 | |||||||||||||
| (a) | At March 31, |
Net cash provided by (used in) operating, investing and financing activities for the three-month periodsthree month period ended March 31, and the changes between periods, were as follows.
| 101 |
| PPL Energy | ||||||||||||||||||
| PPL | Supply | PPL Electric | LKE | LG&E | KU | |||||||||||||
| 2014 | ||||||||||||||||||
| Operating activities | $ | 931 | $ | 276 | $ | (4) | $ | 309 | $ | 148 | $ | 191 | ||||||
| Investing activities | (1,183) | (389) | (42) | (205) | (115) | (154) | ||||||||||||
| Financing activities | 392 | 315 | 63 | (109) | (32) | (37) | ||||||||||||
| 2013 | ||||||||||||||||||
| Operating activities | $ | 244 | $ | 125 | $ | (77) | $ | 85 | $ | 85 | $ | 85 | ||||||
| Investing activities | (899) | (195) | (192) | (267) | (94) | (172) | ||||||||||||
| Financing activities | 621 | (196) | 160 | 191 | 21 | 82 | ||||||||||||
| Change - Cash Provided (Used): | ||||||||||||||||||
| Operating activities | $ | 687 | $ | 151 | $ | 73 | $ | 224 | $ | 63 | $ | 106 | ||||||
| Investing activities | (284) | (194) | 150 | 62 | (21) | 18 | ||||||||||||
| Financing activities | (229) | 511 | (97) | (300) | (53) | (119) | ||||||||||||
| PPL | PPL Electric | LKE | LG&E | KU | |||||||||||
| 2015 | |||||||||||||||
| Operating activities | $ | 673 | $ | (45) | $ | 451 | $ | 251 | $ | 229 | |||||
| Investing activities | (990) | (225) | (317) | (173) | (144) | ||||||||||
| Financing activities | (97) | 91 | (115) | (71) | (73) | ||||||||||
| 2014 | |||||||||||||||
| Operating activities | $ | 931 | $ | (4) | $ | 310 | $ | 149 | $ | 191 | |||||
| Investing activities | (1,183) | (42) | (206) | (116) | (154) | ||||||||||
| Financing activities | 392 | 63 | (109) | (32) | (37) | ||||||||||
| Change - Cash Provided (Used) | |||||||||||||||
| Operating activities | $ | (258) | $ | (41) | $ | 141 | $ | 102 | $ | 38 | |||||
| Investing activities | 193 | (183) | (111) | (57) | 10 | ||||||||||
| Financing activities | (489) | 28 | (6) | (39) | (36) | ||||||||||
Operating Activities
The components of the change in cash provided by (used in) operating activities for the three months ended March 31, 20142015 compared with 20132014 were as follows.
| PPL Energy | |||||||||||||||||||||
| PPL | Supply | PPL Electric | LKE | LG&E | KU | ||||||||||||||||
| Change - Cash Provided (Used): | |||||||||||||||||||||
| Net income | $ | (97) | $ | (28) | $ | 21 | $ | 19 | $ | 8 | $ | 13 | |||||||||
| Non-cash components | 92 | (69) | (34) | 21 | (7) | (10) | |||||||||||||||
| Working capital | 299 | 146 | 8 | 59 | 28 | 31 | |||||||||||||||
| Defined benefit funding | 294 | 75 | 69 | 116 | 34 | 57 | |||||||||||||||
| Other operating activities | 99 | 27 | 9 | 9 | 15 | ||||||||||||||||
| Total | $ | 687 | $ | 151 | $ | 73 | $ | 224 | $ | 63 | $ | 106 | |||||||||
| PPL | PPL Electric | LKE | LG&E | KU | ||||||||||||||
| Change - Cash Provided (Used) | ||||||||||||||||||
| Net income | $ | 331 | $ | 2 | $ | 2 | $ | 1 | $ | 1 | ||||||||
| Non-cash components | (255) | 31 | 50 | 15 | ||||||||||||||
| Working capital | (171) | (31) | 126 | 68 | 37 | |||||||||||||
| Defined benefit plan funding | (136) | (14) | (15) | (13) | (12) | |||||||||||||
| Other operating activities | (27) | 2 | (3) | (4) | (3) | |||||||||||||
| Total | $ | (258) | $ | (41) | $ | 141 | $ | 102 | $ | 38 | ||||||||
(PPL)
PPL had a $258 million decrease in non-cash components of net income included non-cash hedging losses of $143cash provided by operating activities in 2015 compared with 2014.
| · | Net income improved by $331 million between the periods. However, this included an additional $255 million of net non-cash benefits, including a $331 million decrease in unrealized losses on hedging activities, which was partially offset by a $150 million increase in deferred income tax expense. The net $76 million increase from net income and non-cash components in 2015 compared with 2014 reflects higher revenues in the U.K. and higher margins in the Pennsylvania and Kentucky regulated segments. |
| · | The $171 million decrease in cash from changes in working capital was primarily due to decreases in accounts payable, in part due to lower swaps payable and the impact of market price changes on electric trading and timing of payments. The decrease also reflects lower taxes payable and other current liabilities. These cash outflows were partially offset by the positive impact of lower unbilled revenues. |
| · | Defined benefit plan funding was $136 million higher in 2015. |
(PPL Electric)
PPL Electric had a $41 million and a $65 million charge in 2014 to adjust WPD's line loss accrual. These non-cash charges were partially offset by $106 million of deferred income tax benefits. The increase in cash from changesused in components of working capital was primarily due to an increase of $231operating activities in 2015 compared with 2014.
| · | Net income improved by $2 million between the periods. There was no change in net non-cash components of net income. |
| · | The $31 million decline in cash from changes in working capital was partially due to a decrease in accounts payable with affiliates (primarily due to lower federal income taxes payable to PPL) partially offset by a decrease in accounts receivable. |
| · | Defined benefit plan funding was $14 million higher in 2015. |
(LKE)
LKE had a $141 million in accounts payable (partially due to increases in power swap payables); along with positive changes totaling $154 million in counterparty collateral, fuel, material and supplies, and prepayments. These positive impacts on cash were partially offset by an increase of $170 million in unbilled revenue (primarily related to increases in power swap sales).
| 102 |
| · | LKE's non-cash components of net income included a $9 million increase in depreciation expense due to additional assets in service since the first quarter of 2014, a $1 million increase in deferred income taxes primarily due to an increase in accelerated depreciation over book depreciation of $34 million, partially offset by a decrease in utilization of Federal net operating losses of $36 million, and a net $21 million change in regulatory assets and regulatory liabilities due to the timing of rate recovery mechanisms. |
| · | The increase in cash from working capital was driven primarily by a decrease in income tax receivable as a result of receiving payment from PPL for the use of excess tax depreciation deductions in 2014, a decrease in coal inventory due to fewer purchases and a decrease in natural gas stored underground due to increased withdrawals, partially offset by a decrease in accounts payable due to the timing of fuel purchases. |
(LG&E)
LG&E had a $102 million in accounts payable (partially due to increases in power swap payables) and a reduction of $66 million in returns of counterparty collateral, partially offset by increases of $215 million in unbilled revenue (primarily related to increases in power swap sales).
| · | LG&E's non-cash components of net income included a $4 million increase in depreciation expense due to additional assets in service since the first quarter of 2014, a $25 million increase in deferred income taxes primarily due to an increase in accelerated depreciation over book depreciation of $18 million, |
| · | The increase in cash from working capital was driven primarily by a decrease in income tax receivable as a result of receiving payment from LKE for the use of excess tax depreciation deductions in 2014, a decrease in accounts receivable from affiliates due to timing of intercompany settlements associated with capital expenditures and inventory, a decrease in coal inventory due to fewer purchases and a decrease in natural gas stored underground due to increased withdrawals, partially offset by a decrease in accounts payable due to the timing of fuel purchases. |
(KU)
KU had a decrease of $24 million in taxes payable.
| · | KU's non-cash components of net income included a $5 million increase in depreciation expense due to additional assets in service since the first quarter of 2014 and a $9 million increase in deferred income taxes primarily due to an increase in accelerated depreciation over book depreciation of $16 million, offset by a $6 million Federal net operating loss accrual. |
| · | The increase in cash from working capital was driven primarily by a decrease in income tax receivable as a result of receiving payments from LKE for the use of excess tax depreciation deductions in 2014, and a decrease in coal inventory due to fewer purchases, partially offset by a decrease in accounts payable due to the timing of fuel purchases and a decrease in accounts payable to affiliates due to timing of intercompany settlements associated with capital expenditures and inventory. |
Investing Activities
(All Registrants)
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 three months ended March 31, 20142015 compared with 20132014 was as follows.
| PPL Energy | ||||||||||||||||||
| PPL | Supply | PPL Electric | LKE | LG&E | KU | |||||||||||||
| (Increase) Decrease | $ | (64) | $ | 36 | $ | (12) | $ | (1) | $ | (18) | $ | 18 | ||||||
| PPL | PPL Electric | LKE | LG&E | KU | |||||||||||
| (Increase) Decrease | $ | (50) | $ | (23) | $ | (49) | $ | (57) | $ | 6 | |||||
The increase in expenditures for PP&E for PPL was primarily due to system reliability projectsthe changes in project expenditures at PPL Electric, LG&E and KU, partially offset by lower expenditures at WPD. The decreaseincrease in expenditures atfor PPL Energy SupplyElectric was partiallyprimarily due to expenditures madeincreases in 2013expenditures for the Holtwood hydroelectric expansionNortheast Pocono reliability project, smart grid projects and other various projects, partially offset by the near completion of the Susquehanna-Roseland transmission project. The increase in expenditures for LG&E was primarily due to environmental air projects at LG&E's Mill Creek plant, and gas service riser 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 coal combustion residualsCCR projects at KU's Ghent and E.W. Brown plants, partially offset by higher expenditures for environmental air projects at KU's Ghent and E.W. Brown plants.
| 103 |
Other Significant Changes in Components of Investing Activities
For PPL, and PPL Energy Supply, the change in cash provided by (used in) investing activities for the three months ended March 31, 20142015 compared with 2013 was negatively impacted primarily by increases2014 reflects decreases of $282 million and $285$324 million in additional cash restricted cash and cash equivalents. These changes were primarily related to increased cashfor collateral requirements in 2014 to support PPL Energy Supply's commodity hedging programprogram. This was primarily due to an increase in 2014forward prices in forward prices. the three months ended March 31, 2014.
PPL Energy Supply's restricted cash and cash equivalents for collateral deposits increased by $343also had investing inflows of $56 million in 2014. To fund these increased collateral requirements, PPL Energy Supply borrowed under its short-term credit facilities.
PPL Electric received $150 million repayment in 2014 of notes receivable from affiliates.
Financing Activities
(All Registrants)
The components of the change in cash provided by (used in) financing activities for the three months ended March 31, 20142015 compared with 20132014 was as follows.
| PPL Energy | |||||||||||||||||||
| PPL | Supply | PPL Electric | LKE | LG&E | KU | ||||||||||||||
| Change - Cash Provided (Used): | |||||||||||||||||||
| Long-term debt issuances/retirements, net | $ | (681) | $ | (10) | |||||||||||||||
| Dividends | (24) | (7) | $ | (8) | $ | (24) | |||||||||||||
| Capital contributions/distributions, net | $ | (341) | 5 | $ | (135) | (25) | (10) | ||||||||||||
| Change in short-term debt, net | 462 | 845 | (85) | (165) | (20) | (85) | |||||||||||||
| Other financing activities | 14 | 7 | |||||||||||||||||
| Total | $ | (229) | $ | 511 | $ | (97) | $ | (300) | $ | (53) | $ | (119) | |||||||
| PPL | PPL Electric | LKE | LG&E | KU | ||||||||||||
| Change - Cash Provided (Used) | ||||||||||||||||
| Long-term debt issuances/retirements, net | $ | 238 | $ | 10 | ||||||||||||
| Stock issuances/redemptions, net | 20 | |||||||||||||||
| Dividends | (16) | (12) | $ | 4 | $ | 7 | ||||||||||
| Capital contributions/distributions, net | (15) | $ | 41 | (40) | ||||||||||||
| Change in short-term debt, net | (745) | 45 | (46) | (43) | (3) | |||||||||||
| Other financing activities | 14 | (1) | ||||||||||||||
| Total | $ | (489) | $ | 28 | $ | (6) | $ | (39) | $ | (36) | ||||||
For the three months ended March 31, 2015, PPL required $489 million less cash provided by changes in short-term debt for PPL and PPL Energy Supply was partiallyfrom financing activities primarily due to borrowings in 2014 by PPL Energy Supply to satisfylower cash collateral requirements to support itsPPL Energy Supply's commodity hedging program (as described in "Investing Activities" above) and $228 million that funded the principal reduction associated with the remarketing of the 2011 Equity Units. PPL expectsability to use a portioncash from operating activities and cash-on-hand to support the significant capital expenditure programs of its subsidiaries.
For the three months ended March 31, 2015, PPL Electric required $28 million more cash from financing activities. In the first quarter of 2014, PPL Electric financed its capital expenditures program with proceeds from a $150 million note with an affiliate. In the settlement of the 2011 Purchase Contracts to repay outstanding short-term debt in the secondfirst quarter of 2014.
See Note 7 to the Financial Statements in this Form 10-Q for information on 20142015 short and long-term debt activity, equity transactions and PPL dividends. See the Registrants' 20132014 Form 10-K for information on 20132014 activity.
Credit Facilities
The Registrants maintain credit facilities to enhance liquidity, provide credit support and provide a backstop to commercial paper programs. Amounts borrowed under these credit facilities are reflected in "Short-term debt" on the Balance Sheets. At March 31, 2014,2015, the total committed borrowing capacity and the use of that capacity under these credit facilities was as follows.
External (All Registrants)
| Letters of | |||||||||||||
| Credit | |||||||||||||
| and | |||||||||||||
| Committed | Commercial | Unused | |||||||||||
| Capacity | Borrowed | Paper Issued | Capacity | ||||||||||
| PPL Capital Funding Credit Facilities | $ | 750 | $ | 32 | $ | 718 | |||||||
| PPL Energy Supply Credit Facility | 3,000 | $ | 600 | 267 | 2,133 | ||||||||
| PPL Electric Credit Facility | 300 | 86 | 214 | ||||||||||
| LKE Credit Facility | 75 | 75 | |||||||||||
| LG&E Credit Facility | 500 | 216 | 284 | ||||||||||
| KU Credit Facilities | 598 | 391 | 207 | ||||||||||
| Total LKE | 1,173 | 75 | 607 | 491 | |||||||||
| Total U.S. Credit Facilities (a) | $ | 5,223 | $ | 675 | $ | 992 | $ | 3,556 | |||||
| Total U.K. Credit Facilities (b) | £ | 1,055 | £ | 277 | £ | 778 | |||||||
| Letters of | |||||||||||||
| Credit | |||||||||||||
| and | |||||||||||||
| Committed | Commercial | Unused | |||||||||||
| Capacity | Borrowed | Paper Issued | Capacity | ||||||||||
| PPL Capital Funding Credit Facilities | $ | 450 | $ | 185 | $ | 265 | |||||||
| PPL Energy Supply Credit Facilities | 3,150 | 350 | $ | 821 | 1,979 | ||||||||
| PPL Electric Credit Facility | 300 | 61 | 239 | ||||||||||
| LKE Credit Facility | 75 | 75 | |||||||||||
| LG&E Credit Facility | 500 | 15 | 485 | ||||||||||
| KU Credit Facilities | 598 | 308 | 290 | ||||||||||
| Total LKE | 1,173 | 75 | 323 | 775 | |||||||||
| Total U.S. Credit Facilities (a) | $ | 5,073 | $ | 610 | $ | 1,205 | $ | 3,258 | |||||
| Total U.K. Credit Facilities (b) | £ | 1,055 | £ | 98 | £ | 957 | |||||||
| 104 |
| (a) | The commitments under the U.S. credit facilities are provided by a diverse bank group, with no one bank and its affiliates providing an aggregate commitment of more than the following percentages of the total committed capacity: PPL - |
| (b) | The |
| The commitments under the U.K. credit facilities are provided by a diverse bank group, with no one bank providing more than |
As a result of the proposed spinoff transaction, PPL Energy Supply has syndicated a $1.85 billion credit facility which is currently fully committed. This syndicated credit facility will replace the existing $3 billion PPL Energy Supply syndicated credit facility and will be effective upon closing of the spinoff transaction. See "Overview - Business Strategy" and "Financial and Operational Developments - Other Financial and Operational Developments - Anticipated Spinoff of PPL Energy Supply" above for additional information.
See Note 7 to the Financial Statements for further discussion of the Registrants' credit facilities.
Intercompany (All Registrants except PPL)
| Committed | Unused | ||||||||
| Capacity | Borrowed | Capacity | |||||||
| PPL Energy Supply Credit Facility | $ | 200 | $ | 200 | |||||
| PPL Electric Credit Facility | 100 | 100 | |||||||
| LKE Credit Facility | 225 | 225 | |||||||
| LG&E Money Pool (a) | 500 | 500 | |||||||
| KU Money Pool (a) | 500 | 500 | |||||||
| Committed | Other Used | Unused | ||||||||||
| Capacity | Borrowed | Capacity | Capacity | |||||||||
| LKE Credit Facility | $ | 225 | $ | 40 | $ | 185 | ||||||
| LG&E Money Pool (a) | 500 | $ | 216 | 284 | ||||||||
| KU Money Pool (a) | 500 | 193 | 307 | |||||||||
| (a) | 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. However, the FERC has issued a maximum short-term debt limit for each utility at $500 million from any source. |
See Note 11 to the Financial Statements for further discussion of intercompany credit facilities.
Commercial Paper(All Registrants)
PPL Electric, LG&E and KU maintain commercial paper programs to provide an additional financing source to fund their short-term liquidity needs, as necessary. Commercial paper issuances, included in "Short-term debt" on the Balance Sheets, are supported by the respective Registrant's Syndicated Credit Facility.
| Commercial | ||||||||||
| Paper | Unused | |||||||||
| Capacity | Issuances | Capacity | ||||||||
| PPL Energy Supply | $ | 750 | $ | 620 | $ | 130 | ||||
| PPL Electric | 300 | 60 | 240 | |||||||
| LG&E | 350 | 15 | 335 | |||||||
| KU | 350 | 110 | 240 | |||||||
| Total LKE | 700 | 125 | 575 | |||||||
| Total PPL | $ | 1,750 | $ | 805 | $ | 945 | ||||
| Commercial | ||||||||||
| Paper | Unused | |||||||||
| Capacity | Issuances | Capacity | ||||||||
| PPL Electric | $ | 300 | $ | 85 | $ | 215 | ||||
| LG&E | 350 | 216 | 134 | |||||||
| KU | 350 | 193 | 157 | |||||||
| Total LKE | 700 | 409 | 291 | |||||||
| Total PPL | $ | 1,000 | $ | 494 | $ | 506 | ||||
Long-term Debt and Equity Securities(PPL and PPL Electric)
| Debt | Net Stock | ||||||||||
| Issuances (a) | Retirements | Issuances | |||||||||
| PPL | $ | 239 | $ | 15 | |||||||
| PPL Electric | 10 | ||||||||||
| Non-cash Transactions: | |||||||||||
| PPL (b) | $ | 750 | $ | 750 | |||||||
In February 2014,2015, PPL declared its quarterly common stock dividend, payable April 1, 2014,2015, at 37.25 cents per share (equivalent to $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)
Moody's, S&P and Fitch have periodically reviewreviewed the credit ratings onof the debt of the Registrants and their subsidiaries. Based on their respective independent reviews, the rating agencies may make certain ratings revisions or ratings affirmations.
| 105 |
A credit rating reflects an assessment by the rating agency of the creditworthiness associated with an issuer and particular securities that it issues. The credit ratings of the Registrants and their subsidiaries are based on information provided by the Registrants and other sources. The ratings of Moody's, S&P and Fitch are not a recommendation to buy, sell or hold any securities of the Registrants or their subsidiaries. Such ratings may be subject to revisions or withdrawal by the agencies at any time and should be evaluated independently of each other and any other rating that may be assigned to the securities. The credit ratings of the Registrants and their subsidiaries affect their liquidity, access to capital markets and cost of borrowing under their credit facilities.
The rating agencies have taken the following actions related to the Registrants and their subsidiaries during 2014:
In January 2014, Moody's affirmed2015, Fitch withdrew its ratings and revised its outlook to stable for PPL.
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, interest rate and foreign currency instruments (for PPL), contain provisions that require the posting of additional collateral or permit the counterparty to terminate the contract, if PPL's, PPL Energy Supply's, LKE's, LG&E's or KU's or their subsidiaries' credit rating, as applicable, were to fall below investment grade. See Note 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, LKE and LG&E for derivative contracts in a net liability position at March 31, 2014.
(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' 20132014 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-goingtheir 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 14to the Financial Statements for additional information.
(PPL and PPL Electric)
PPL Electric is exposed to market price and volumetric risks from its obligation as a 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
| 106 |
PLR obligations. These supply contracts transfer the volumetric risk associated with the PLR obligation to the energy suppliers.
(PPL)
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 tables sets forth the changes in the net fair value of non-trading commodity derivative contracts for the periodsperiod ended March 31. See Notes 13 and 14 to the Financial Statements for additional information.
| Gains (Losses) | ||||||||||||
| Three Months | ||||||||||||
| 2014 | 2013 | |||||||||||
| Fair value of contracts outstanding at the beginning of the period | $ | 107 | $ | 473 | ||||||||
| Contracts realized or otherwise settled during the period | 505 | (137) | ||||||||||
| Fair value of new contracts entered into during the period (a) | (16) | 9 | ||||||||||
| Other changes in fair value | (737) | (116) | ||||||||||
| Fair value of contracts outstanding at the end of the period | $ | (141) | $ | 229 | ||||||||
| Gains (Losses) | |||||||
| Three Months | |||||||
| 2015 | 2014 | ||||||
| Fair value of contracts outstanding at the beginning of the period | $ | 53 | $ | 107 | |||
| Contracts realized or otherwise settled during the period | 133 | 505 | |||||
| Fair value of new contracts entered into during the period (a) | (5) | (16) | |||||
| Other changes in fair value | (92) | (737) | |||||
| Fair value of contracts outstanding at the end of the period | $ | 89 | $ | (141) | |||
| (a) | Represents the fair value of contracts at the end of the quarter of their inception. |
The following table segregates the net fair value of non-trading commodity derivative contracts at March 31, 2014,2015, based on the observability of the information used to determine the fair value.
| Net Asset (Liability) | ||||||||||||||||
| Maturity | Maturity | |||||||||||||||
| Less Than | Maturity | Maturity | in Excess | Total Fair | ||||||||||||
| 1 Year | 1-3 Years | 4-5 Years | of 5 Years | Value | ||||||||||||
| Source of Fair Value | ||||||||||||||||
| Prices based on significant observable inputs (Level 2) | $ | (103) | $ | (34) | $ | 8 | $ | 3 | $ | (126) | ||||||
| Prices based on significant unobservable inputs (Level 3) | (30) | 12 | 3 | (15) | ||||||||||||
| Fair value of contracts outstanding at the end of the period | $ | (133) | $ | (22) | $ | 11 | $ | 3 | $ | (141) | ||||||
| Net Asset (Liability) | ||||||||||||||||
| Maturity | Maturity | |||||||||||||||
| Less Than | Maturity | Maturity | in Excess | Total Fair | ||||||||||||
| 1 Year | 1-3 Years | 4-5 Years | of 5 Years | Value | ||||||||||||
| Source of Fair Value | ||||||||||||||||
| Prices based on significant observable inputs (Level 2) | $ | 53 | $ | (34) | $ | 13 | $ | 32 | ||||||||
| Prices based on significant unobservable inputs (Level 3) | 32 | 23 | 2 | 57 | ||||||||||||
| Fair value of contracts outstanding at the end of the period | $ | 85 | $ | (11) | $ | 15 | $ | 89 | ||||||||
PPL Energy Supply sells electricity, capacity and related services and buys fuel on a forward basis to hedge the value of energy from its generation assets. If PPL Energy Supply were unable to deliver firm capacity and energy or to accept the delivery of fuel under its agreements, under certain circumstances it could be required to pay liquidating damages. These damages would be based on the difference between the market price and the contract price of the commodity. Depending on price changes in the wholesale energy markets, such damages could be significant. Extreme weather conditions, unplanned power plant outages, transmission disruptions, nonperformance by counterparties (or their counterparties) with which it has energy contracts and other factors could affect PPL Energy Supply's ability to meet its obligations, or cause significant increases in the market price of replacement energy. Although PPL Energy Supply attempts to mitigate these risks, there can be no assurance that it will be able to fully meet its firm obligations, that it will not be required to pay damages for failure to perform, or that it will not experience counterparty nonperformance in the future.
Commodity Price Risk (Trading)
PPL Energy Supply's trading commodity derivative contracts range in maturity through 2020. The following table sets forth changes in the net fair value of trading commodity derivative contracts for the periods ended March 31. See Notes 13 and 14 to the Financial Statements for additional information.
| Gains (Losses) | ||||||||||||
| Three Months | ||||||||||||
| 2014 | 2013 | |||||||||||
| Fair value of contracts outstanding at the beginning of the period | $ | 11 | $ | 29 | ||||||||
| Contracts realized or otherwise settled during the period | (2) | |||||||||||
| Fair value of new contracts entered into during the period (a) | (13) | (12) | ||||||||||
| Other changes in fair value | 33 | |||||||||||
| Fair value of contracts outstanding at the end of the period | $ | 31 | $ | 15 | ||||||||
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| Gains (Losses) | |||||||
| Three Months | |||||||
| 2015 | 2014 | ||||||
| Fair value of contracts outstanding at the beginning of the period | $ | 48 | $ | 11 | |||
| Contracts realized or otherwise settled during the period | (30) | ||||||
| Fair value of new contracts entered into during the period (a) | (7) | (13) | |||||
| Other changes in fair value | 35 | 33 | |||||
| Fair value of contracts outstanding at the end of the period | $ | 46 | $ | 31 | |||
| (a) | Represents the fair value of contracts at the end of the quarter of their inception. |
The following table segregates the net fair value of trading commodity derivative contracts at March 31, 2014,2015, based on the observability of the information used to determine the fair value.
| Net Asset (Liability) | |||||||||||||||
| Maturity | Maturity | ||||||||||||||
| Less Than | Maturity | Maturity | in Excess | Total Fair | |||||||||||
| 1 Year | 1-3 Years | 4-5 Years | of 5 Years | Value | |||||||||||
| Source of Fair Value | |||||||||||||||
| Prices quoted in active markets for identical instruments (Level 1) | $ | 1 | $ | 1 | |||||||||||
| Prices based on significant observable inputs (Level 2) | (1) | $ | (3) | $ | 1 | $ | 1 | (2) | |||||||
| Prices based on significant unobservable inputs (Level 3) | 3 | 16 | 8 | 5 | 32 | ||||||||||
| Fair value of contracts outstanding at the end of the period | $ | 3 | $ | 13 | $ | 9 | $ | 6 | $ | 31 | |||||
| Net Asset (Liability) | |||||||||||||||
| Maturity | Maturity | ||||||||||||||
| Less Than | Maturity | Maturity | in Excess | Total Fair | |||||||||||
| 1 Year | 1-3 Years | 4-5 Years | of 5 Years | Value | |||||||||||
| Source of Fair Value | |||||||||||||||
| Prices based on significant observable inputs (Level 2) | $ | (6) | $ | (11) | $ | (9) | $ | (26) | |||||||
| Prices based on significant unobservable inputs (Level 3) | 4 | 33 | 33 | $ | 2 | 72 | |||||||||
| Fair value of contracts outstanding at the end of the period | $ | (2) | $ | 22 | $ | 24 | $ | 2 | $ | 46 | |||||
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 three months ended March 31, 20142015 was as follows.
| Trading VaR | Non-Trading VaR | ||||||
| 95% Confidence Level, Five-Day Holding Period | |||||||
| Period End | $ | 8 | $ | 8 | |||
| Average for the Period | 8 | 7 | |||||
| High | 9 | 8 | |||||
| Low | 8 | 5 | |||||
| Trading | Non-Trading | ||||||
| 95% Confidence Level, Five-Day Holding Period | |||||||
| Period End | $ | 4 | $ | 12 | |||
| Average for the Period | 4 | 10 | |||||
| High | 4 | 12 | |||||
| Low | 4 | 8 | |||||
The trading portfolio includes all proprietary trading positions, regardless of the delivery period. All positions not considered proprietary trading are considered non-trading. The non-trading portfolio includes the entire portfolio, including generation, with delivery periods through the next 12 months. Both the trading and non-trading VaR computations exclude FTRs due to the absence of reliable spot and forward markets. The fair value of the non-trading and trading FTR positions was insignificant atinsignificantat March 31, 2014.
Interest Rate Risk (All Registrants)
The Registrants and their subsidiaries issue debt to finance their operations, which exposes them to interest rate risk. The Registrants and their subsidiaries utilize various financial derivative instruments to adjust the mix of fixed and floating interest rates in their debt portfolios, adjust the duration of their debt portfolios and lock in benchmark interest rates in anticipation of future financing, when appropriate. Risk limits under the risk management program are designed to balance risk exposure to volatility in interest expense and changes in the fair value of the debt portfolios due to changes in the absolute level of interest rates.
The following interest rate hedges were outstanding at March 31, 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) | $ | 500 | $ | 1 | $ | (15) | 2025 | |||||
| Cross-currency swaps (d) | 1,262 | (57) | (179) | 2028 | ||||||||
| Economic hedges | ||||||||||||
| Interest rate swaps (e) | 179 | (40) | (3) | 2033 | ||||||||
| LKE and LG&E | ||||||||||||
| Economic hedges | ||||||||||||
| Interest rate swaps (e) | 179 | (40) | (3) | 2033 | ||||||||
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| 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) | $ | 1,600 | $ | (183) | $ | (54) | 2045 | |||||
| Cross-currency swaps (d) | 1,262 | 47 | (162) | 2028 | ||||||||
| Economic hedges | ||||||||||||
| Interest rate swaps (e) | 179 | (52) | (3) | 2033 | ||||||||
| LKE | ||||||||||||
| Cash flow hedges | ||||||||||||
| Interest rate swaps (c) | 1,000 | (122) | (40) | 2045 | ||||||||
| Economic hedges | ||||||||||||
| Interest rate swaps (e) | 179 | (52) | (3) | 2033 | ||||||||
| LG&E | ||||||||||||
| Cash flow hedges | ||||||||||||
| Interest rate swaps (c) | 500 | (61) | (20) | 2045 | ||||||||
| Economic hedges | ||||||||||||
| Interest rate swaps (e) | 179 | (52) | (3) | 2033 | ||||||||
| KU | ||||||||||||
| Cash flow hedges | ||||||||||||
| Interest rate swaps (c) | 500 | (61) | (20) | 2045 | ||||||||
| (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 regulated rates, and reclassified into earnings in the same period during which the item being hedged affects earnings. |
| (d) | Cross-currency swaps are utilized to hedge the principal and interest payments of WPD's U.S. dollar-denominated senior notes. Changes in the fair value of these instruments are recorded in equity and reclassified into earnings in the same period during which the item being hedged affects earnings. |
| (e) | Realized changes in the fair value of such economic hedges are recoverable through regulated rates and any subsequent changes in the fair value of these derivatives are included in regulatory assets or regulatory liabilities. |
The Registrants are exposed to a potential increase in interest expense and to changes in the fair value of their debt portfolios. The estimated impact of a 10% adverse movement in interest rates at March 31, 20142015 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 | $ | 762 | $ | 43 | $ | 117 | $ | 144 | $ | 45 | $ | 84 | |||||||
| PPL | PPL Electric | LKE | LG&E | KU | ||||||||||||
| Increase in interest expense | Not | Not | Not | Not | Not | |||||||||||
| Significant | Significant | Significant | Significant | Significant | ||||||||||||
| Increase in fair value of debt | $ | 662 | $ | 128 | $ | 133 | $ | 43 | $ | 79 | ||||||
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 March 31, 2014.
| Effect of a | ||||||||||||
| 10% | ||||||||||||
| Adverse | ||||||||||||
| Movement | ||||||||||||
| in Foreign | ||||||||||||
| Fair Value, | Currency | Maturities | ||||||||||
| Exposure | Net - Asset | Exchange | Ranging | |||||||||
| Hedged | (Liability) | Rates (a) | Through | |||||||||
| Net investment hedges (b) | £ | 345 | $ | (24) | $ | (57) | 2015 | |||||
| Economic hedges (c) | 1,840 | (94) | (291) | 2016 | ||||||||
| Effect of a | ||||||||||||
| 10% | ||||||||||||
| Adverse | ||||||||||||
| Movement | ||||||||||||
| in Foreign | ||||||||||||
| Fair Value, | Currency | Maturities | ||||||||||
| Exposure | Net - Asset | Exchange | Ranging | |||||||||
| Hedged | (Liability) | Rates (a) | Through | |||||||||
| Net investment hedges (b) | £ | 217 | $ | 34 | $ | (32) | 2016 | |||||
| Economic hedges (c) | 1,306 | 169 | (177) | 2017 | ||||||||
| (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. |
| (c) | To economically hedge the translation of expected earnings denominated in GBP to U.S. |
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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 March 31, 2014,2015, these funds were invested primarily in domestic equity securities and fixed-rate, fixed-income securities and are reflected at fair value on the Balance Sheet. The mix of securities is designed to provide returns sufficient to fund Susquehanna's decommissioning and to compensate for inflationary increases in decommissioning costs. However, the equity securities included in the trusts are exposed to price fluctuation in equity markets, and the values of fixed-rate, fixed-income securities are primarily exposed to changes in interest rates. PPL actively monitors the investment performance and periodically reviews asset allocation in accordance with its nuclear decommissioning trust policy statement. At March 31, 2014,2015, a hypothetical 10% increase in interest rates and a 10% decrease in equity prices would have resulted in an estimated $67$74 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 - Credit Risk" in the Registrants' 20132014 Form 10-K for additional information.
The value of the British pound sterling fluctuates in relation to the U.S. dollar. Changes in this exchange rate resulted in a foreign currency translation loss of $77 million for the three months ended March 31, 2015, which primarily reflected a $199 million decrease to PP&E and goodwill offset by a decrease of $122 million to net liabilities. Changes in this exchange rate resulted in a foreign currency translation gain of $135 million for the three months ended March 31, 2014, which primarily reflected a $334 million increase to PP&E and goodwill offset by an increase of $199 million to net liabilities. Changes in this exchange rate resulted in a foreign currency translation loss of $256 million for the three months ended March 31, 2013, which primarily reflected a $696 million decrease to PP&E and goodwill offset by a decrease of $440 million to net liabilities. The impact of foreign currency translation is recorded in AOCI.
The Registrants are not aware of any material ownership interests or operating responsibility by senior management in outside partnerships, including leasing transactions with variable interest entities, or other entities doing business with the Registrants. See Note 11 to the Financial Statements for additional information on related party transactions for PPL Energy Supply, PPL Electric, LKE, LG&E and KU.
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)
See Note 8 to the Financial Statements for information on the anticipated spinoff of PPL Energy Supply and the completed Montana hydro sale.
(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. Costs may take the form of increased capital expenditures or operating and maintenance expenses, monetary fines, penalties or other restrictions. Many of these environmental law considerations are also applicable to the operations of key suppliers, or customers, such as coal producers and industrial power users, and may impact the cost for their products or their demand for the Registrants' services.
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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' 2013 Form 10-K for additional information on environmental matters.
Climate Change
Physical effects associated with climate change could include the impact of changes in weather patterns, such as storm frequency and intensity, and the resultant potential damage, as applicable, to the Registrants' generation assets, electricity transmission and delivery systems, as well as impacts on the Registrants' customers. In addition, changed weather patterns could potentially reduce annual rainfall in areas where PPL, PPL Energy Supply, LKE, LG&E and KU have hydroelectric generating facilities or where river water is used to cool their fossil and nuclear (as applicable) powered generators. The Registrants cannot currently predict whether their businesses will experience these potential risks or estimate the cost of their related consequences.
In June 2013, President Obama released his Climate Action Plan which reiterates the goal of reducing greenhouse gasGHG 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 tightermore restrictive energy efficiency standards. Also, by Presidential Memorandum,Additionally, the Climate Action Plan calls for the U.S. to prepare for the impacts of climate change. Requirements related to this plan could affect the Registrants and others in the industry as modifications may be needed to electricity delivery systems to improve the ability to withstand major storms in order to meet those requirements. As further described below, the EPA was directedhas proposed rules pursuant to issuethis directive, which it expects to finalize in the second or third quarter of 2015. The EPA has also announced that it will develop a federal implementation plan which would apply to any states that fail to submit an acceptable state implementation plan. The EPA's authority to promulgate these regulations under Section 111 of the Clean Air Act when the sources are already regulated under Section 112 is under challenge in the D.C. Circuit Court. Oral arguments were heard on April 16, 2015.
In January 2014, the EPA issued a revised proposal forto regulate carbon dioxide emissions from 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 2016.
In June 2014, the EPA issued a proposed regulation addressing carbon dioxide emissions from existing power plants. The existing plant proposal contains stringent, state-specific rate-based reduction goals to be achieved in two phases (2020-2029 and 2030 and beyond). The 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 type of plan filed (single or multi-state). PPL has analyzed the proposal and identified potential impacts and solutions in comments filed on December 1, 2014. PPL also submitted Supplemental Comments to FERC through EEI, advocating for reliability coordination and relief in response to technical conferences hosted by FERC on the reliability implications of implementing this rule. The regulation of carbon dioxide emissions from existing plants could have a significant industry-wide impact depending on the structure and stringency of the final rule and state implementation plans.
Waters of the "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 ManagementUnited States (WOTUS)
In April 2014, the EPA and Budget has opened this issue for public comment.
Coal Combustion Residuals (CCRs)
On April 17, 2015, the EPA published its final rule regulating CCRs, imposing extensive new requirements, including location restrictions, design and operating standards, groundwater monitoring and corrective action requirements and closure and post-closure care requirements on CCR impoundments and landfills that are located on active power plants and not closed. Under the rule, the EPA will regulate CCRs as non-hazardous under Subtitle D of RCRA and allow beneficial use of CCRs, with some restrictions. The CCR rule will become effective on October 14, 2015. This self-implementing rule requires posting of compliance documentation on a publicly accessible website and is enforceable through citizen suits. PPL expects that its plants using surface impoundments for management and disposal of CCRs or the past management of CCRs and continued use to manage waste waters will be most impacted by this rule. The rule's requirements for covered CCR impoundments and landfills include commencement or completion of closure activities generally between three and ten years from certain triggering events. PPL, Electric, LKE, LG&E and KU also anticipate incurring capital or operation and others inmaintenance
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costs prior to that time to address other provisions of the industryrule, such as it could result in requirementsgroundwater monitoring and disposal facility modifications, or to modify electricity generating, transmissionimplement various compliance strategies.
PPL, LKE, LG&E and delivery systems to improveKU are reviewing the ability to withstand major stormsrule and substantial capital investment may be needed to meet those requirements.
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. The final regulation is expected to be issued in Septemberby the third or fourth quarter of 2015. At the present time,
Clean Water Act which316(b)
The EPA's final 316(b) rule for existing facilities became effective in October 2014, and regulates cooling water intakes for power plants.intake structures and their impact on aquatic organisms. States are allowed considerable authority to make site-specific determinations under the rule. The draft rule has two provisions: requiring installation of Best Technology Available (BTA)requires existing facilities to choose between several options to reduce mortality ofthe impact to aquatic organisms that arebecome trapped against water intake screens (impingement) and to determine the intake structure's impact on aquatic organisms pulled into the plantthrough a plant's cooling water system (entrainment), and imposing standards for reduction of mortality of aquatic organisms trapped on water intake screens (impingement). The final rule is now expected by May 16, 2014. The proposed regulation would apply to nearly all PPL-owned steam electric generation plants in Pennsylvania, Kentucky, and Montana, potentially even including thosePlants already equipped with closed-cycle cooling, systems. PPL's,an acceptable option, would likely not incur substantial costs. Once-through systems would likely require additional technology to comply with the rule. Mill Creek Unit 1 and Brunner Island (all units) are the only units expected to be impacted. PPL, Energy Supply's, LKE's,LKE, LG&E's&E and KU'sKU are evaluating compliance strategies but do not presently expect the compliance costs couldto 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.
MATS
In February 2012, the EPA finalized the MATS rule requiring fossil-fuel fired plants to reduce emissions of mercury and other hazardous air pollutants by April 16, 2015. The rule which was challenged by industry groups and states, and was upheld by the D.C. Circuit Court in April 2014. A group of states subsequently petitioned the U.S. Supreme Court to review this decision and on March 25, 2015, oral arguments were heard as to one issue - whether or not EPA unreasonably refused to consider costs when determining whether the MATS regulation was appropriate and necessary. A U.S. Supreme Court decision is expected by June 30, 2015. The EPA has subsequently proposed changes torule provides for a three-year compliance deadline with the rule with respect to new sources to addresspotential for one- and two-year extensions as provided under the concern that the rule effectively precludes construction of any new coal-fired plants.statute. PPL, PPL Energy Supply, LKE, LG&E and KU are generally well-positioned to comply with MATS, primarily due to recent investments inhave completed installation or upgrading of relevant environmental controls at affected plants or have received compliance extensions, as applicable.
PPL Energy Supply and approved ECR plans to install additional controls at somebelieves that installation of LG&E's and KU's Kentucky plants. Additionally, PPL Energy Supply is evaluating chemical additive systems for mercury controland other controls may be necessary at Brunner Island, andcertain coal-fired plants in Pennsylvania, the capital cost of which is not expected to be significant. PPL continues to analyze the potential impact of MATS on operating costs. With respect to PPL's Montana plants, modifications to existingthe air pollution controls installed at Colstrip for improved particulate matter reductions. In September 2012, PPL Energy Supply announced its intentionare required, the cost of which is not expected to place itsbe significant. Operations were suspended and the Corette plant was retired in long-term reserve status beginning in AprilMarch 2015 due to expected market conditions and the costs to comply with MATS. The Corette plant asset group was determined to be impaired in December 2013. See "Applicationthe MATS requirements.
LG&E's March 2015 retirement of Critical Accounting Policies - Asset Impairment (Excluding Investments)" in PPL'sone coal-fired generating unit at Cane Run and PPL Energy Supply's 2013 Form 10-K for additional information. Also, LG&E, KU and PPL Energy Supply have received compliance extensions for certain plants in Kentucky and Pennsylvania and are considering extension requests for other plants as well.
CSAPR
The EPA's CSAPR addresses the interstate transport of fine particulates and CAIR
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program and remanded it backnitrogen oxide emissions are subject to annual and ozone season programs. Oral arguments pertaining to outstanding challenges to the EPA for further rulemaking, again leaving CAIR in place in the interim. In June 2013, the U.S. Supreme Court granted the EPA's petition for review ofCSAPR were heard before the D.C. Circuit Court's decision to vacate CSAPR. On April 29, 2014, the U.S. Supreme Court reversed and remanded the D.C. Circuit Court's August 2012 decision which will likely result in the CSAPR replacing the CAIR program.during February 2015.
Although PPL, PPL Energy Supply, LKE, LG&E and KU do not currently anticipate that theincurring significant costs of meeting CSAPR requirements will be significant.
Regional Haze
Under the EPA's regional haze programs (developed to eliminate man-made visibility degradation by 2064), states are required to make reasonable progress every decade through the application, among other things, of Best Available Retrofit Technology (BART) on power plants commissioned between 1962 and 1977. ForTo date, the focus of regional haze regulation has been on the western U.S. As for the eastern U.S., the EPA had determined that region-wide reductions under the CSAPR trading program could, in most instances, be utilized byunder state programs to satisfy BART requirements for sulfur dioxide and nitrogen oxides. However, although the August 2012 decisionEPA's determination is being challenged by the D.C. Circuit Courtenvironmental groups and others.
LG&E's Mill Creek Units 3 and 4 are required to vacate and remand CSAPR has been reversed by the U.S. Supreme Court, future decisions by EPA and the courts will determine whether power plants locatedreduce sulfuric acid mist emissions because they were determined to have a regional haze impact. These reductions are required in the eastern U.S., including PPL Energy Supply's plants in Pennsylvania andregional haze state implementation plan that the Kentucky Division for Air Quality submitted to the EPA. LG&E's and KU's plants in Kentucky, will&E is currently installing sorbent injection technology to comply with these reductions, the costs of which are not expected to be subject to further reductions in those pollutants in accordance with BART requirements.
In Montana, the EPA signed its finalfinalized a Federal Implementation Plan (FIP) of the Regional Haze Rules for Montana in September 2012, with tighterstricter 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 PPL Energy Supply's Colstrip Units 3 & 4), and tighterstricter 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 meetwas meeting the tighterstricter permit limits at Corette without any significant changes to operations, although other requirements have led to the planned suspension of operations atand the retirement of Corette beginning in AprilMarch 2015 (see "MATS" discussion above). Both PPL and environmental groups have appealed the final FIP to the U.S. Court of Appeals for the Ninth Circuit.
National Ambient Air Quality Standards
In 2008, the EPA revised the National Ambient Air Quality Standard for ozone. As a result, of EPA's new ozone standard, 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.technologies (RACT). The PADEP has issuedis finalizing a draftRACT rule in 2015 requiring reasonable reductions. However, the proposal is being challenged as too lenient by other OTR states and environmental groups. The PADEP may imposesome fossil-fueled plants to operate at more stringent nitrogen oxide emission limits than those set forthrates. The EPA proposed to further strengthen the ozone standard in the proposed ruleNovember 2014, which could lead to further nitrogen oxide reductions for PPL's fossil-fueled plants within the OTR. The EPA is under court order to finalize the standard by October 1, 2015. States are also obligated to address interstate transport issues associated with new ozone standards through the establishment of "good neighbor" state implementation plans for those states that are found to contribute significantly to another states' non-attainment. The EPA recently sent a policy memo to state agencies to facilitate the development of these plans for the 2008 standard, including modeling data showing which states are contributing. The implementation of such plans could have a significantan impact on PPL Energy Supply's Pennsylvania coal plants.
In 2010, and 2012, the EPA issuedfinalized a new, more stringent ambient air standardsstandard for sulfur dioxide and particulates, respectively.required states to identify areas that meet the standard and areas that are in "non-attainment". In July 2013, the EPA preliminarily designatedfinalized non-attainment designations for parts of the country, including part of Jefferson County in Kentucky and part of Yellowstone County in Montana. Attainment is due for both areas by 2018. Pursuant to a consent decree between the EPA and Sierra Club approved on March 2, 2015, states are working to finalize designations for other areas by the 2017 or 2020 deadline depending on which designation methodology is used. PPL, PPL Energy Supply, LKE, LG&E and KU anticipate that some of the measures required for compliance with the CSAPR, the MATS, or the Regional Haze Rules (as discussed above), such as a partial non-attainment area forupgraded or new sulfur dioxide. Final designations of non-attainment areas may occur in 2014. Existing environmental plans for LG&E's and KU's Kentucky plants, including announced retirements ofdioxide scrubbers at certain plants and, ECR-approvedin 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 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,sulfur dioxide standard. If additional controls mayreductions were to be required, the financial impact of which could be significant. The short-term impact on the Corette plant from the EPA's final designation of part of Yellowstone County in Montana as non-attainment is not expected to be significant, as the plant's operations were suspended and the plant was retired in March 2015. In addition, MDEQ submitted a request to the EPA for a determination that this area is in attainment. If the EPA agrees with this request, then the deadlines associated with non-attainment would be suspended.
In December 2012, the EPA finalized a new, more stringent, annual National Ambient Air Quality Standard for fine particulates. The rules were challenged by the D.C. Circuit Court and upheld in May 2014. Final designations for the 2012
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particulate standard were published in January 2015. Non-attainment areas in Pennsylvania and Kentucky were identified; however, EPA recently approved state implementation plan revisions for both states that improved these classifications. PPL Energy Supply, LG&E and KU plants in Pennsylvania and Kentucky will not be expected to make further reductions towards achieving attainment.
See Notes 2 and 19 to the Financial Statements for a discussion of new accounting guidance adopted and pending adoption.
Financial condition and results of operations are impacted by the methods, assumptions and estimates used in the application of critical accounting policies. The following table summarizes the accounting policies by Registrant that are particularly important to an understanding of the reported financial condition or results of operations, and require management to make estimates or other judgments of matters that are inherently uncertain. See "Item 7. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Registrants' 20132014 Form 10-K for a discussion of each critical accounting policy.
| PPL | ||||||||||||||||||||
| PPL | KU | |||||||||||||||||||
| Defined Benefits | X | X | X | X | X | |||||||||||||||
| Loss Accruals | X | X | X | X | X | |||||||||||||||
| Income Taxes | X | X | X | X | X | |||||||||||||||
| Asset Impairments (Excluding Investments) | X | X | X | X | ||||||||||||||||
| AROs | X | X | X | X | ||||||||||||||||
| Price Risk Management | X | X | X | X | ||||||||||||||||
| Regulatory Assets and Liabilities | X | X | X | X | X | |||||||||||||||
| Revenue Recognition - unbilled revenue | X | X | X | X | ||||||||||||||||
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PPL Corporation
PPL Electric Utilities Corporation
LG&E and KU Energy LLC
Louisville Gas and Electric Company
Kentucky Utilities Company
Reference is made to "Risk Management" in "Item 2. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations."
(a) Evaluation of disclosure controls and procedures.
The Registrants' principal executive officers and principal financial officers, based on their evaluation of the Registrants' disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934) have concluded that, as of March 31, 2014,2015, 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.
The Registrants' principal executive officers and principal financial officers have concluded that there were no changes in the Registrants' internal control over financial reporting during the Registrants' first fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Registrants' internal control over financial reporting.
PPL Corporation
Following the announcement of the transaction to spin off PPL Energy Supply, LLC to form Talen Energy, management determined the appropriate staffing for Talen Energy and for PPL and its subsidiaries. During the three months ended March 31, 2015, staffing changes, including the consolidation of certain positions and transition of responsibilities, resulted in changes in certain individuals responsible for executing internal controls. However, changes to system applications, business processes and the associated internal controls were not significant. Management has taken steps to minimize the risk from the changes in individuals executing internal controls.
PART II. OTHER INFORMATION
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 | ||
| · | Notes 6 and 10 to the Financial Statements. |
There have been no material changes in the Registrants' risk factors from those disclosed in "Item 1A. Risk Factors" of the 2013Registrants' 2014 Form 10-K.
Not applicable.
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The following Exhibits indicated by an asterisk preceding the Exhibit number are filed herewith. The balance of the Exhibits havehas 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) | - | |
- | ||
- | ||
| *[_]10(a) | - | Service Agreement, dated March 16, 2015, between Western Power Distribution (South West) plc and Robert A. Symons |
| *[_]10(b) | - | Amendment No. |
- | PPL Corporation and Subsidiaries Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends | |
- | ||
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 | |
- | PPL Corporation's principal executive officer | |
- | PPL Corporation's principal financial officer | |
- | ||
PPL Electric Utilities Corporation's principal executive officer | ||
- | PPL Electric Utilities Corporation's principal financial officer | |
- | LG&E and KU Energy LLC's principal executive officer | |
- | LG&E and KU Energy LLC's principal financial officer | |
- | Louisville Gas and Electric Company's principal executive officer | |
- | Louisville Gas and Electric Company's principal financial officer | |
- | Kentucky Utilities Company's principal executive officer | |
- | Kentucky Utilities Company's principal financial officer | |
- | PPL Corporation's principal executive officer and principal financial officer | |
- | ||
PPL Electric Utilities Corporation's principal executive officer and principal financial officer | ||
- | LG&E and KU Energy LLC's principal executive officer and principal financial officer | |
- | Louisville Gas and Electric Company's principal executive officer and principal financial officer | |
- | Kentucky Utilities Company's principal executive officer and principal financial officer | |
| 101.INS | - | XBRL Instance Document |
101.SCH | - | XBRL Taxonomy Extension Schema |
101.CAL | - | XBRL Taxonomy Extension Calculation Linkbase |
101.DEF | - | XBRL Taxonomy Extension Definition Linkbase |
101.LAB | - | XBRL Taxonomy Extension Label Linkbase |
101.PRE | - | XBRL Taxonomy Extension Presentation Linkbase |
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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) | ||
| Date: May | /s/ | |
| Vice President and Controller | ||
| (Principal Accounting Officer) | ||
| PPL Electric Utilities Corporation | ||
| (Registrant) | ||
| Date: May | /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: May | /s/ Kent W. Blake | |
Kent W. Blake Chief Financial Officer | ||
| (Principal Financial Officer and Principal Accounting Officer) | ||
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