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 |
| 1-905 | PPL Electric Utilities Corporation (Exact name of Registrant as specified in its charter) (Pennsylvania) Two North Ninth Street Allentown, PA 18101-1179 (610) 774-5151 | 23-0959590 |
| 333-173665 | LG&E and KU Energy LLC (Exact name of Registrant as specified in its charter) (Kentucky) 220 West Main Street Louisville, KY 40202-1377 (502) 627-2000 | 20-0523163 |
| 1-2893 | Louisville Gas and Electric Company (Exact name of Registrant as specified in its charter) (Kentucky) 220 West Main Street Louisville, KY 40202-1377 (502) 627-2000 | 61-0264150 |
| 1-3464 | Kentucky Utilities Company (Exact name of Registrant as specified in its charter) (Kentucky and Virginia) One Quality Street Lexington, KY 40507-1462 (502) 627-2000 | 61-0247570 |
| 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 | ||
| 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 | ||
Large accelerated filer | Accelerated filer | Non-accelerated filer | Smaller reporting company | Emerging growth 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 ] | [ ] | [ ] | |
| PPL Corporation | [ ] | |
| PPL Electric Utilities Corporation | [ ] | |
| LG&E and KU Energy LLC | [ ] | |
| Louisville Gas and Electric Company | [ ] | |
| Kentucky Utilities Company | [ ] | |
| 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 | ||
| 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 | |
Louisville Gas and Electric Company
Kentucky Utilities Company
2017
| Page | ||||
| PART I. FINANCIAL INFORMATION | ||||
| Item 1. Financial Statements | ||||
| PPL Corporation and Subsidiaries | ||||
| PPL Electric Utilities Corporation and Subsidiaries | ||||
| LG&E and KU Energy LLC and Subsidiaries | ||||
| Louisville Gas and Electric Company | ||||
| Kentucky Utilities Company | ||||
| Combined Notes to Condensed Financial Statements (Unaudited) | ||||||||||
| Item 2. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations | ||||||||||
| PART II. OTHER INFORMATION | ||||||||||
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GLOSSARY OF TERMS AND ABBREVIATIONS
Electric.
plc having previously been a sister company.
i
2016.
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.
Standard.
DPCR5 - Distribution Price Control Review 5, the U.K. five-year rate review period applicable to WPD that commenced April 1, 2010.
ii
with tools and information regarding their energy usage and support energy efficiency.
LIBOR-London Interbank Offered Rate.
MATS- Mercury and Air Toxics Standards, regulations promulgated by the EPA.
iii
PPL Energy Supply - prior to the June 1, 2015 spinoff, PPL Energy Supply, LLC, a subsidiary of PPL Energy Funding and the parent company of PPL EnergyPlus and other subsidiaries.
PUC- Pennsylvania Public Utility Commission, the state agency that regulates certain ratemaking, services, accounting and operations of Pennsylvania utilities.
RPI - Retail Price Index, is a measure of inflation in the United Kingdom published monthly by the Office for National Statistics.
iv
Superfund - federal environmental statute that addresses remediation of contaminated sites; states also have similar statutes.
Talen Energy Marketing- Talen Energy Marketing, LLC, PPL EnergyPlus' new name subsequent to the spinoff of PPL Energy Supply.
Treasury Stock Method - Aa 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.
v
3. Segment and Related Information LG&E continues to provide gas service to customers in this franchise area at existing rates, but without collecting or remitting a franchise fee. to the case reached a settlement of all major issues 2021. court. Interest cost KU: KU) any, but do not expect such costs to be material. Finally, the regulatory reviews specified in the President's March 2017 Executive Order (the March 2017 Executive Order) promoting energy independence and economic growth could result in future regulatory changes and additional uncertainty. beyond those currently required under the Cross State Air Pollution Rule. generation. Based on the EPA's Clean Power Plan described below, the U.S. has committed to an initial reduction target of 26% to 28% below 2005 levels by 2025. The March 2017 Executive Order directed the EPA to review proposed and final rules relating to greenhouse gas reductions for consistency with certain policy directives and suspend, revise, or rescind those rules as appropriate. Additionally, the March 2017 Executive Order directs rescission of specified guidance, directives, and prior Presidential actions regarding climate change. PPL, LKE, LG&E and KU cannot predict the outcome of such regulatory actions or the impact, if any, on plant operations, rate treatment or future capital or operating needs. significant. 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. PPL. The have a significant impact on the financial results of PPL or PPL Electric. make reasonable efforts to terminate the guarantees. Additionally, WPD and its affiliates remain secondarily responsible for lease payments under certain leases that they have assigned to third parties. LKE Sheets. Interest expense on this note was not significant at March 31, 2017 and 2016. nature. attempts to estimate the value of potential loss over a given holding period under normal market conditions at a given confidence level) and the coordination and reporting of the Enterprise Risk Management program. 2016. 2016. 2016. 2017. 2016. and Other Intangible Assets offset against the associated cost of removal regulatory liability, PP&E and ARO liability. apply after the industry specific application guidance is final and the implications of using either the full retrospective or modified retrospective transition methods are known. Segment are furnished on a Form 8-K with the SEC. 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. foreign currency exchange contracts. operations. PPL, LKE, LG&E and KU) principle regarding a suitable amortization period. results by reportable segment. These discussions include non-GAAP financial measures, including "Earnings from Ongoing Operations" and "Margins," and provide explanations of the non-GAAP financial measures and a reconciliation of those measures to the most comparable GAAP measure. The "2017 Outlook" discussion identifies key factors expected to impact 2017 earnings. earnings. The "Margins" discussion includes a reconciliation of non-GAAP financial measures to "Operating Income." Segment Earnings and Margins 2017. the tax benefit on accelerated pension contributions made in the first quarter of 2017. 2017. 2017. replace aging infrastructure, net of retirements. the recovery of prior customer rebates, and $9 million of higher volumes. reliability, partially offset by a $10 million decrease as a result of a lower peak transmission system load in 2016 which negatively affected transmission revenue for the first quarter of 2017. depreciation expense, primarily due to transmission and distribution additions placed into service related to the ongoing efforts to improve reliability and replace aging infrastructure, net of retirements. Higher transmission margins due to additional capital investments were offset by lower peak transmission demand. a $12 million decrease in volumes, driven by milder weather, partially offset by a $5 million increase in fuel prices. timing of plant outages. Capital Resources 2016. 2016. 2016. 2016. March 31, 2019. A downgrade in the Registrants' or their subsidiaries' credit ratings could result in higher borrowing costs and reduced access to capital markets. The Registrants and their subsidiaries have no credit rating triggers that would result in the reduction of access to capital markets or the acceleration of maturity dates of outstanding debt. Bonds. 2017.20152016 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.·challenges by intervenors to the return on equity granted in existing rate structures;·fuel supply and cost;·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 transmission and distribution operations, and customer energy use;·availability and operating costs of existing generation facilities;·the duration of and cost associated with outages at our generating facilities;·generation, transmission and distribution system conditions, and operating costs;·expansion of alternative and distributed sources of electricity generation and storage;·collective labor bargaining negotiations;·laws or regulations to reduce emissions of "greenhouse" gases or physical effects of climate change;·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 programs, including foreign currency and interest rate hedging;·our ability to attract and retain qualified employees;·volatility in demand for electricity;·market prices of commodity inputs for ongoing capital expenditures or key operational needs;·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;·defaults by counterparties or suppliers for energy, capacity, coal, natural gas or key commodities, goods or services;·volatility in the fair value of debt and equity securities and its impact on the value of assets in defined benefit plans, and the potential cash funding requirements if fair value declines;·interest rates and their effect on pension and retiree medical liabilities and interest payable on certain debt securities;·volatility in or the impact of other changes in financial 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;·the effect of changes in RPI on WPD's revenues and index linked debt;·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;·changes in political, regulatory or economic conditions in states, regions or countries where the Registrants or their subsidiaries conduct business;·the effect of the outcome of the June 2016 referendum in the U.K. relating to its membership in the European Union;·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 achievement of performance targets set by Ofgem;·the impact of any state, federal or foreign investigations applicable to the Registrants and their subsidiaries and the energy industry;·the effect of any business or industry restructuring;·development of new projects, markets and technologies;·performance of new ventures; and1 ·business dispositions or acquisitions and our ability to realize expected benefits from such business transactions.2 Three Months Ended March 31, 2017 2016 Operating Revenues $ 1,951 $ 2,011 Operating Expenses Operation Fuel 191 197 Energy purchases 215 233 Other operation and maintenance 432 450 Depreciation 242 229 Taxes, other than income 75 79 Total Operating Expenses 1,155 1,188 Operating Income 796 823 Other Income (Expense) - net (47 ) 61 Interest Expense 217 224 Income Before Income Taxes 532 660 Income Taxes 129 179 Net Income $ 403 $ 481 Earnings Per Share of Common Stock: Net Income Available to PPL Common Shareowners: Basic $ 0.59 $ 0.71 Diluted $ 0.59 $ 0.71 Dividends Declared Per Share of Common Stock $ 0.3950 $ 0.38 Weighted-Average Shares of Common Stock Outstanding (in thousands) Basic 680,882 675,441 Diluted 683,084 678,817 3 Three Months Ended March 31, 2017 2016 Net income $ 403 $ 481 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), ($2) (24 ) (464 ) Qualifying derivatives, net of tax of $2, ($15) (6 ) 80 Reclassifications from AOCI - (gains) losses, net of tax expense (benefit): Qualifying derivatives, net of tax of $0, $19 (1 ) (78 ) Defined benefit plans: Net actuarial (gain) loss, net of tax of ($9), ($9) 32 31 Total other comprehensive income (loss) 1 (431 ) Comprehensive income $ 404 $ 50 4 Three Months Ended March 31, 2017 2016 Cash Flows from Operating Activities Net income $ 403 $ 481 Adjustments to reconcile net income to net cash provided by operating activities Depreciation 242 229 Amortization 23 18 Defined benefit plans - expense (income) (19 ) (13 ) Deferred income taxes and investment tax credits 161 162 Unrealized (gains) losses on derivatives, and other hedging activities 35 (34 ) Stock-based compensation expense 19 13 Other (1 ) (5 ) Change in current assets and current liabilities Accounts receivable (43 ) (62 ) Accounts payable (84 ) (43 ) Unbilled revenues 52 18 Fuel, materials and supplies 44 25 Prepayments (110 ) (86 ) Taxes payable (21 ) 15 Other current liabilities (60 ) (66 ) Other 5 18 Other operating activities Defined benefit plans - funding (520 ) (123 ) Other assets 5 (5 ) Other liabilities 4 15 Net cash provided by operating activities 135 557 Cash Flows from Investing Activities Expenditures for property, plant and equipment (677 ) (656 ) Expenditures for intangible assets (3 ) (6 ) Net (increase) decrease in restricted cash and cash equivalents 2 — Other investing activities 1 1 Net cash used in investing activities (677 ) (661 ) Cash Flows from Financing Activities Issuance of long-term debt 64 224 Retirement of long-term debt — (224 ) Issuance of common stock 73 42 Payment of common stock dividends (258 ) (255 ) Net increase (decrease) in short-term debt 744 351 Other financing activities (16 ) (23 ) Net cash provided by (used in) financing activities 607 115 Effect of Exchange Rates on Cash and Cash Equivalents 3 (33 ) Net Increase (Decrease) in Cash and Cash Equivalents 68 (22 ) Cash and Cash Equivalents at Beginning of Period 341 836 Cash and Cash Equivalents at End of Period $ 409 $ 814 Supplemental Disclosures of Cash Flow Information Significant non-cash transactions: Accrued expenditures for property, plant and equipment at March 31, $ 236 $ 279 Accrued expenditures for intangible assets at March 31, $ 62 $ 64 5 March 31,
2017 December 31,
2016Assets Current Assets Cash and cash equivalents $ 409 $ 341 Accounts receivable (less reserve: 2017, $53; 2016, $54) Customer 702 666 Other 58 46 Unbilled revenues 427 480 Fuel, materials and supplies 312 356 Prepayments 173 63 Price risk management assets 95 63 Other current assets 51 52 Total Current Assets 2,227 2,067 Property, Plant and Equipment Regulated utility plant 35,229 34,674 Less: accumulated depreciation - regulated utility plant 6,197 6,013 Regulated utility plant, net 29,032 28,661 Non-regulated property, plant and equipment 413 413 Less: accumulated depreciation - non-regulated property, plant and equipment 137 134 Non-regulated property, plant and equipment, net 276 279 Construction work in progress 1,099 1,134 Property, Plant and Equipment, net 30,407 30,074 Other Noncurrent Assets Regulatory assets 1,908 1,918 Goodwill 3,050 3,060 Other intangibles 644 700 Pension benefit asset 363 9 Price risk management assets 284 336 Other noncurrent assets 151 151 Total Other Noncurrent Assets 6,400 6,174 Total Assets $ 39,034 $ 38,315 6 CONDENSED CONSOLIDATED BALANCE SHEETS PPL Corporation and Subsidiaries (Unaudited) (Millions of Dollars, shares in thousands) March 31, December 31, 2016 2015 Liabilities and Equity Current Liabilities Short-term debt $ 1,265 $ 916 Long-term debt due within one year 485 485 Accounts payable 707 812 Taxes 96 85 Interest 315 303 Dividends 257 255 Customer deposits 306 326 Regulatory liabilities 119 145 Other current liabilities 516 549 Total Current Liabilities 4,066 3,876 Long-term Debt 18,074 18,563 Deferred Credits and Other Noncurrent Liabilities Deferred income taxes 3,560 3,440 Investment tax credits 127 128 Accrued pension obligations 1,183 1,405 Asset retirement obligations 517 536 Regulatory liabilities 942 945 Other deferred credits and noncurrent liabilities 478 489 Total Deferred Credits and Other Noncurrent Liabilities 6,807 6,943 Commitments and Contingent Liabilities (Notes 6 and 10) Equity Common stock - $0.01 par value (a) 7 7 Additional paid-in capital 9,729 9,687 Earnings reinvested 3,185 2,953 Accumulated other comprehensive loss (3,159) (2,728) Total Equity 9,762 9,919 Total Liabilities and Equity $ 38,709 $ 39,301 March 31,
2017 December 31,
2016Liabilities and Equity Current Liabilities Short-term debt $ 1,666 $ 923 Long-term debt due within one year 417 518 Accounts payable 700 820 Taxes 80 101 Interest 299 270 Dividends 270 259 Customer deposits 277 276 Regulatory liabilities 82 101 Other current liabilities 465 569 Total Current Liabilities 4,256 3,837 Long-term Debt 17,958 17,808 Deferred Credits and Other Noncurrent Liabilities Deferred income taxes 4,055 3,889 Investment tax credits 132 132 Accrued pension obligations 776 1,001 Asset retirement obligations 429 428 Regulatory liabilities 897 899 Other deferred credits and noncurrent liabilities 422 422 Total Deferred Credits and Other Noncurrent Liabilities 6,711 6,771 Commitments and Contingent Liabilities (Notes 6 and 9) Equity Common stock - $0.01 par value (a) 7 7 Additional paid-in capital 9,917 9,841 Earnings reinvested 3,962 3,829 Accumulated other comprehensive loss (3,777 ) (3,778 ) Total Equity 10,109 9,899 Total Liabilities and Equity $ 39,034 $ 38,315 (a) 780,0001,560,000 shares authorized; 676,384682,427 and 673,857679,731 shares issued and outstanding at March 31, 20162017 and December 31, 2015.2016.7 Common
stock
shares
outstanding (a) Additional
paid-in
capital Earnings
reinvested Total December 31, 2016 679,731 $ 7 $ 9,841 $ 3,829 $ (3,778 ) $ 9,899 Common stock issued 2,696 97 97 Stock-based compensation (21 ) (21 ) Net income 403 403 Dividends and dividend equivalents (270 ) (270 ) Other comprehensive income (loss) 1 1 March 31, 2017 682,427 $ 7 $ 9,917 $ 3,962 $ (3,777 ) $ 10,109 December 31, 2015 673,857 $ 7 $ 9,687 $ 2,953 $ (2,728 ) $ 9,919 Common stock issued 2,527 70 70 Stock-based compensation (28 ) (28 ) Net income 481 481 Dividends and dividend equivalents (256 ) (256 ) Other comprehensive income (loss) (431 ) (431 ) Adoption of stock-based compensation guidance cumulative effect adjustment 7 7 March 31, 2016 676,384 $ 7 $ 9,729 $ 3,185 $ (3,159 ) $ 9,762 (a) Shares in thousands. Each share entitles the holder to one vote on any question presented at any shareowners' meeting. 8 (THIS PAGE LEFT BLANK INTENTIONALLY.)9 THIS PAGE INTENTIONALLY LEFT BLANK. Three Months Ended March 31, 2017 2016 Operating Revenues $ 573 $ 585 Operating Expenses Operation Energy purchases 146 167 Other operation and maintenance 164 150 Depreciation 75 59 Taxes, other than income 29 29 Total Operating Expenses 414 405 Operating Income 159 180 Other Income (Expense) - net 1 3 Interest Expense 33 33 Income Before Income Taxes 127 150 Income Taxes 48 56 Net Income (a) $ 79 $ 94 (a) Net income equals comprehensive income. 10 Three Months Ended March 31, 2017 2016 Cash Flows from Operating Activities Net income $ 79 $ 94 Adjustments to reconcile net income to net cash provided by operating activities Depreciation 75 59 Amortization 8 7 Defined benefit plans - expense 5 2 Deferred income taxes and investment tax credits 41 65 Other — (5 ) Change in current assets and current liabilities Accounts receivable (27 ) (43 ) Accounts payable (18 ) (2 ) Unbilled revenue 12 5 Prepayments (75 ) (21 ) Regulatory assets and liabilities (11 ) (21 ) Taxes payable — (8 ) Other (14 ) (12 ) Other operating activities Defined benefit plans - funding (24 ) — Other assets 5 3 Other liabilities (1 ) 1 Net cash provided by operating activities 55 124 Cash Flows from Investing Activities Expenditures for property, plant and equipment (274 ) (214 ) Expenditures for intangible assets (2 ) (1 ) Net cash used in investing activities (276 ) (215 ) Cash Flows from Financing Activities Issuance of long-term debt — 224 Retirement of long-term debt — (224 ) Contributions from parent 100 — Payment of common stock dividends to parent (76 ) (45 ) Net increase (decrease) in short-term debt 204 125 Other financing activities — (2 ) Net cash provided by (used in) financing activities 228 78 Net Increase (Decrease) in Cash and Cash Equivalents 7 (13 ) Cash and Cash Equivalents at Beginning of Period 13 47 Cash and Cash Equivalents at End of Period $ 20 $ 34 Supplemental Disclosure of Cash Flow Information Significant non-cash transactions: Accrued expenditures for property, plant and equipment at March 31, $ 122 $ 115 11 March 31,
2017 December 31,
2016Assets Current Assets Cash and cash equivalents $ 20 $ 13 Accounts receivable (less reserve: 2017, $27; 2016, $28) Customer 304 272 Other 16 21 Unbilled revenues 102 114 Materials and supplies 31 32 Prepayments 84 9 Regulatory assets 13 19 Other current assets 6 8 Total Current Assets 576 488 Property, Plant and Equipment Regulated utility plant 9,987 9,654 Less: accumulated depreciation - regulated utility plant 2,767 2,714 Regulated utility plant, net 7,220 6,940 Construction work in progress 557 641 Property, Plant and Equipment, net 7,777 7,581 Other Noncurrent Assets Regulatory assets 1,080 1,094 Intangibles 252 251 Other noncurrent assets 14 12 Total Other Noncurrent Assets 1,346 1,357 Total Assets $ 9,699 $ 9,426 12 CONDENSED CONSOLIDATED BALANCE SHEETS PPL Electric Utilities Corporation and Subsidiaries (Unaudited) (Millions of Dollars, shares in thousands) March 31, December 31, 2016 2015 Liabilities and Equity Current Liabilities Short-term debt $ 125 Accounts payable 300 $ 288 Accounts payable to affiliates 38 35 Taxes 16 24 Interest 31 37 Regulatory liabilities 89 113 Customer deposits 22 31 Other current liabilities 73 77 Total Current Liabilities 694 605 Long-term Debt 2,829 2,828 Deferred Credits and Other Noncurrent Liabilities Deferred income taxes 1,731 1,663 Accrued pension obligations 184 183 Regulatory liabilities 25 22 Other deferred credits and noncurrent liabilities 89 91 Total Deferred Credits and Other Noncurrent Liabilities 2,029 1,959 Commitments and Contingent Liabilities (Notes 6 and 10) Equity Common stock - no par value (a) 364 364 Additional paid-in capital 1,934 1,934 Earnings reinvested 870 821 Total Equity 3,168 3,119 Total Liabilities and Equity $ 8,720 $ 8,511 March 31,
2017 December 31,
2016Liabilities and Equity Current Liabilities Short-term debt $ 499 $ 295 Long-term debt due within one year 224 224 Accounts payable 329 367 Accounts payable to affiliates 58 42 Taxes 12 12 Interest 31 34 Regulatory liabilities 66 83 Other current liabilities 88 101 Total Current Liabilities 1,307 1,158 Long-term Debt 2,608 2,607 Deferred Credits and Other Noncurrent Liabilities Deferred income taxes 1,942 1,899 Accrued pension obligations 258 281 Other deferred credits and noncurrent liabilities 90 90 Total Deferred Credits and Other Noncurrent Liabilities 2,290 2,270 Commitments and Contingent Liabilities (Notes 6 and 9) Equity Common stock - no par value (a) 364 364 Additional paid-in capital 2,254 2,154 Earnings reinvested 876 873 Total Equity 3,494 3,391 Total Liabilities and Equity $ 9,699 $ 9,426 (a) 170,000 shares authorized; 66,368 shares issued and outstanding at March 31, 20162017 and December 31, 2015.2016.13 Total December 31, 2016 66,368 $ 364 $ 2,154 $ 873 $ 3,391 Net income 79 79 Capital contributions from PPL 100 100 Dividends declared on common stock (76 ) (76 ) March 31, 2017 66,368 $ 364 $ 2,254 $ 876 $ 3,494 December 31, 2015 66,368 $ 364 $ 1,934 $ 821 $ 3,119 Net income 94 94 Dividends declared on common stock (45 ) (45 ) March 31, 2016 66,368 $ 364 $ 1,934 $ 870 $ 3,168 (a) Shares in thousands. All common shares of PPL Electric stock are owned by PPL. 14 (THIS PAGE LEFT BLANK INTENTIONALLY.)15 Three Months Ended March 31, 2017 2016 Operating Revenues $ 809 $ 826 Operating Expenses Operation Fuel 191 198 Energy purchases 69 66 Other operation and maintenance 207 202 Depreciation 105 99 Taxes, other than income 16 15 Total Operating Expenses 588 580 Operating Income 221 246 Other Income (Expense) - net (2 ) (1 ) Interest Expense 49 49 Interest Expense with Affiliate 4 4 Income Before Income Taxes 166 192 Income Taxes 63 72 Net Income (a) $ 103 $ 120 (a) Net income approximates comprehensive income. 16 Three Months Ended March 31, 2017 2016 Cash Flows from Operating Activities Net income $ 103 $ 120 Adjustments to reconcile net income to net cash provided by operating activities Depreciation 105 99 Amortization 7 7 Defined benefit plans - expense 8 7 Deferred income taxes and investment tax credits 48 68 Change in current assets and current liabilities Accounts receivable 21 (15 ) Accounts payable (28 ) 25 Accounts payable to affiliates 7 5 Unbilled revenues 22 8 Fuel, materials and supplies 41 21 Taxes payable (2 ) (25 ) Accrued interest 42 42 Other (38 ) (24 ) Other operating activities Defined benefit plans - funding (22 ) (33 ) Expenditures for asset retirement obligations (6 ) (2 ) Other assets 1 — Other liabilities 3 — Net cash provided by operating activities 312 303 Cash Flows from Investing Activities Expenditures for property, plant and equipment (184 ) (219 ) Net cash provided by (used in) investing activities (184 ) (219 ) Cash Flows from Financing Activities Net increase (decrease) in notes payable with affiliate (81 ) 93 Net increase (decrease) in short-term debt 58 (149 ) Debt issuance and credit facility costs (1 ) (1 ) Distributions to member (102 ) (29 ) Net cash provided by (used in) financing activities (126 ) (86 ) Net Increase (Decrease) in Cash and Cash Equivalents 2 (2 ) Cash and Cash Equivalents at Beginning of Period 13 30 Cash and Cash Equivalents at End of Period $ 15 $ 28 Supplemental Disclosure of Cash Flow Information Significant non-cash transactions: Accrued expenditures for property, plant and equipment at March 31, $ 75 $ 117 17 March 31,
2017 December 31,
2016Assets Current Assets Cash and cash equivalents $ 15 $ 13 Accounts receivable (less reserve: 2017, $24; 2016, $24) Customer 215 235 Other 24 17 Unbilled revenues 148 170 Fuel, materials and supplies 256 297 Prepayments 25 24 Regulatory assets 23 20 Other current assets 7 4 Total Current Assets 713 780 Property, Plant and Equipment Regulated utility plant 12,810 12,746 Less: accumulated depreciation - regulated utility plant 1,550 1,465 Regulated utility plant, net 11,260 11,281 Construction work in progress 376 317 Property, Plant and Equipment, net 11,636 11,598 Other Noncurrent Assets Regulatory assets 828 824 Goodwill 996 996 Other intangibles 93 95 Other noncurrent assets 78 78 Total Other Noncurrent Assets 1,995 1,993 Total Assets $ 14,344 $ 14,371 18 CONDENSED CONSOLIDATED BALANCE SHEETS LG&E and KU Energy LLC and Subsidiaries (Unaudited) (Millions of Dollars) March 31, December 31, 2016 2015 Liabilities and Equity Current Liabilities Short-term debt $ 116 $ 265 Long-term debt due within one year 25 25 Notes payable with affiliate 147 54 Accounts payable 232 266 Accounts payable to affiliates 10 5 Customer deposits 53 52 Taxes 21 46 Price risk management liabilities 6 5 Regulatory liabilities 30 32 Interest 74 32 Asset retirement obligations 70 50 Other current liabilities 90 135 Total Current Liabilities 874 967 Long-term Debt Long-term debt 4,663 4,663 Long-term debt to affiliate 400 400 Total Long-term Debt 5,063 5,063 Deferred Credits and Other Noncurrent Liabilities Deferred income taxes 1,532 1,463 Investment tax credits 127 128 Accrued pension obligations 267 296 Asset retirement obligations 470 485 Regulatory liabilities 917 923 Price risk management liabilities 47 42 Other deferred credits and noncurrent liabilities 205 206 Total Deferred Credits and Other Noncurrent Liabilities 3,565 3,543 Commitments and Contingent Liabilities (Notes 6 and 10) Member's equity 4,609 4,517 Total Liabilities and Equity $ 14,111 $ 14,090 March 31,
2017 December 31,
2016Liabilities and Equity Current Liabilities Short-term debt $ 243 $ 185 Long-term debt due within one year 94 194 Notes payable with affiliate 82 163 Accounts payable 204 251 Accounts payable to affiliates 13 6 Customer deposits 56 56 Taxes 37 39 Price risk management liabilities 4 4 Regulatory liabilities 16 18 Interest 74 32 Asset retirement obligations 58 60 Other current liabilities 88 119 Total Current Liabilities 969 1,127 Long-term Debt Long-term debt 4,572 4,471 Long-term debt to affiliate 400 400 Total Long-term Debt 4,972 4,871 Deferred Credits and Other Noncurrent Liabilities Deferred income taxes 1,786 1,735 Investment tax credits 131 132 Accrued pension obligations 332 350 Asset retirement obligations 374 373 Regulatory liabilities 897 899 Price risk management liabilities 25 27 Other deferred credits and noncurrent liabilities 188 190 Total Deferred Credits and Other Noncurrent Liabilities 3,733 3,706 Commitments and Contingent Liabilities (Notes 6 and 9) Member's Equity 4,670 4,667 Total Liabilities and Equity $ 14,344 $ 14,371 19 December 31, 2016 $ 4,667 Net income 103 Distributions to member (102 ) Other comprehensive income 2 March 31, 2017 $ 4,670 December 31, 2015 $ 4,517 Net income 120 Distributions to member (29 ) Other comprehensive income 1 March 31, 2016 $ 4,609 20 (THIS PAGE LEFT BLANK INTENTIONALLY.)21 Three Months Ended March 31, 2017 2016 Operating Revenues Retail and wholesale $ 374 $ 375 Electric revenue from affiliate 17 11 Total Operating Revenues 391 386 Operating Expenses Operation Fuel 80 78 Energy purchases 64 62 Energy purchases from affiliate 2 2 Other operation and maintenance 87 87 Depreciation 44 41 Taxes, other than income 8 8 Total Operating Expenses 285 278 Operating Income 106 108 Other Income (Expense) - net (2 ) — Interest Expense 17 17 Income Before Income Taxes 87 91 Income Taxes 33 35 Net Income (a) $ 54 $ 56 (a) Net income equals comprehensive income. 22 Three Months Ended March 31, 2017 2016 Cash Flows from Operating Activities Net income $ 54 $ 56 Adjustments to reconcile net income to net cash provided by operating activities Depreciation 44 41 Amortization 3 3 Defined benefit plans - expense 2 3 Deferred income taxes and investment tax credits 31 37 Change in current assets and current liabilities Accounts receivable 13 (5 ) Accounts receivable from affiliates 1 (4 ) Accounts payable (12 ) 5 Accounts payable to affiliates (4 ) — Unbilled revenues 9 7 Fuel, materials and supplies 33 31 Taxes payable (28 ) (9 ) Accrued interest 13 13 Other (11 ) (9 ) Other operating activities Defined benefit plans - funding (1 ) (13 ) Expenditures for asset retirement obligations (4 ) (1 ) Other assets 2 — Other liabilities (3 ) 2 Net cash provided by operating activities 142 157 Cash Flows from Investing Activities Expenditures for property, plant and equipment (94 ) (109 ) Net cash provided by (used in) investing activities (94 ) (109 ) Cash Flows from Financing Activities Net increase (decrease) in short-term debt 38 (60 ) Debt issuance and credit facility costs — (1 ) Payment of common stock dividends to parent (87 ) (25 ) Contributions from parent — 30 Net cash provided by (used in) financing activities (49 ) (56 ) Net Increase (Decrease) in Cash and Cash Equivalents (1 ) (8 ) Cash and Cash Equivalents at Beginning of Period 5 19 Cash and Cash Equivalents at End of Period $ 4 $ 11 Supplemental Disclosure of Cash Flow Information Significant non-cash transactions: Accrued expenditures for property, plant and equipment at March 31, $ 34 $ 77 23 March 31,
2017 December 31,
2016Assets Current Assets Cash and cash equivalents $ 4 $ 5 Accounts receivable (less reserve: 2017, $2; 2016, $2) Customer 97 109 Other 10 11 Accounts receivable from affiliates 27 28 Unbilled revenues 66 75 Fuel, materials and supplies 110 143 Prepayments 12 12 Regulatory assets 12 9 Other current assets 2 1 Total Current Assets 340 393 Property, Plant and Equipment Regulated utility plant 5,396 5,357 Less: accumulated depreciation - regulated utility plant 534 498 Regulated utility plant, net 4,862 4,859 Construction work in progress 156 133 Property, Plant and Equipment, net 5,018 4,992 Other Noncurrent Assets Regulatory assets 448 450 Goodwill 389 389 Other intangibles 57 59 Other noncurrent assets 16 17 Total Other Noncurrent Assets 910 915 Total Assets $ 6,268 $ 6,300 24 CONDENSED BALANCE SHEETS Louisville Gas and Electric Company (Unaudited) (Millions of Dollars, shares in thousands) March 31, December 31, 2016 2015 Liabilities and Equity Current Liabilities Short-term debt $ 82 $ 142 Long-term debt due within one year 25 25 Accounts payable 137 157 Accounts payable to affiliates 25 25 Customer deposits 26 26 Taxes 11 20 Price risk management liabilities 6 5 Regulatory liabilities 8 13 Interest 24 11 Asset retirement obligations 40 25 Other current liabilities 27 39 Total Current Liabilities 411 488 Long-term Debt 1,617 1,617 Deferred Credits and Other Noncurrent Liabilities Deferred income taxes 867 829 Investment tax credits 34 35 Accrued pension obligations 43 56 Asset retirement obligations 136 149 Regulatory liabilities 428 431 Price risk management liabilities 47 42 Other deferred credits and noncurrent liabilities 90 91 Total Deferred Credits and Other Noncurrent Liabilities 1,645 1,633 Commitments and Contingent Liabilities (Notes 6 and 10) Stockholder's Equity Common stock - no par value (a) 424 424 Additional paid-in capital 1,641 1,611 Earnings reinvested 326 295 Total Equity 2,391 2,330 Total Liabilities and Equity $ 6,064 $ 6,068 March 31,
2017 December 31,
2016Liabilities and Equity Current Liabilities Short-term debt $ 207 $ 169 Long-term debt due within one year 94 194 Accounts payable 115 148 Accounts payable to affiliates 22 26 Customer deposits 27 27 Taxes 12 40 Price risk management liabilities 4 4 Regulatory liabilities 5 5 Interest 24 11 Asset retirement obligations 29 41 Other current liabilities 27 36 Total Current Liabilities 566 701 Long-term Debt 1,524 1,423 Deferred Credits and Other Noncurrent Liabilities Deferred income taxes 1,006 974 Investment tax credits 36 36 Accrued pension obligations 50 53 Asset retirement obligations 114 104 Regulatory liabilities 419 419 Price risk management liabilities 25 27 Other deferred credits and noncurrent liabilities 85 87 Total Deferred Credits and Other Noncurrent Liabilities 1,735 1,700 Commitments and Contingent Liabilities (Notes 6 and 9) Stockholder's Equity Common stock - no par value (a) 424 424 Additional paid-in capital 1,682 1,682 Earnings reinvested 337 370 Total Equity 2,443 2,476 Total Liabilities and Equity $ 6,268 $ 6,300 (a) 75,000 shares authorized; 21,294 shares issued and outstanding at March 31, 20162017 and December 31, 2015.2016.25
stock
shares
(a) Additional
paid-in
capital Earnings
reinvested Total December 31, 2016 21,294 $ 424 $ 1,682 $ 370 $ 2,476 Net income 54 54 Cash dividends declared on common stock (87 ) (87 ) March 31, 2017 21,294 $ 424 $ 1,682 $ 337 $ 2,443 December 31, 2015 21,294 $ 424 $ 1,611 $ 295 $ 2,330 Net income 56 56 Capital contributions from LKE 30 30 Cash dividends declared on common stock (25 ) (25 ) March 31, 2016 21,294 $ 424 $ 1,641 $ 326 $ 2,391 (a) Shares in thousands. All common shares of LG&E stock are owned by LKE. 26 (THIS PAGE LEFT BLANK INTENTIONALLY.)27 Three Months Ended March 31, 2017 2016 Operating Revenues Retail and wholesale $ 435 $ 451 Electric revenue from affiliate 2 2 Total Operating Revenues 437 453 Operating Expenses Operation Fuel 111 120 Energy purchases 5 4 Energy purchases from affiliate 17 11 Other operation and maintenance 109 106 Depreciation 60 58 Taxes, other than income 8 7 Total Operating Expenses 310 306 Operating Income 127 147 Other Income (Expense) - net (1 ) (2 ) Interest Expense 24 24 Income Before Income Taxes 102 121 Income Taxes 39 46 Net Income (a) $ 63 $ 75 (a) Net income approximates comprehensive income. 28 Three Months Ended March 31, 2017 2016 Cash Flows from Operating Activities Net income $ 63 $ 75 Adjustments to reconcile net income to net cash provided by operating activities Depreciation 60 58 Amortization 4 4 Defined benefit plans - expense 2 2 Deferred income taxes and investment tax credits 37 44 Change in current assets and current liabilities Accounts receivable 8 (8 ) Accounts payable (4 ) 23 Accounts payable to affiliates (7 ) 2 Unbilled revenues 13 1 Fuel, materials and supplies 8 (10 ) Taxes payable (34 ) (8 ) Accrued interest 22 22 Other (12 ) 1 Other operating activities Defined benefit plans - funding (19 ) (10 ) Expenditures for asset retirement obligations (2 ) (1 ) Other assets (1 ) — Other liabilities 1 — Net cash provided by operating activities 139 195 Cash Flows from Investing Activities Expenditures for property, plant and equipment (89 ) (110 ) Net cash provided by (used in) investing activities (89 ) (110 ) Cash Flows from Financing Activities Net increase (decrease) in short-term debt 20 (14 ) Debt issuance and credit facility costs — (1 ) Payment of common stock dividends to parent (70 ) (64 ) Net cash provided by (used in) financing activities (50 ) (79 ) Net Increase (Decrease) in Cash and Cash Equivalents — 6 Cash and Cash Equivalents at Beginning of Period 7 11 Cash and Cash Equivalents at End of Period $ 7 $ 17 Supplemental Disclosure of Cash Flow Information Significant non-cash transactions: Accrued expenditures for property, plant and equipment at March 31, $ 41 $ 40 29 March 31,
2017 December 31,
2016Assets Current Assets Cash and cash equivalents $ 7 $ 7 Accounts receivable (less reserve: 2017, $1; 2016, $2) Customer 118 126 Other 13 5 Unbilled revenues 82 95 Fuel, materials and supplies 146 154 Prepayments 12 12 Regulatory assets 11 11 Other current assets 5 3 Total Current Assets 394 413 Property, Plant and Equipment Regulated utility plant 7,405 7,382 Less: accumulated depreciation - regulated utility plant 1,014 965 Regulated utility plant, net 6,391 6,417 Construction work in progress 219 181 Property, Plant and Equipment, net 6,610 6,598 Other Noncurrent Assets Regulatory assets 380 374 Goodwill 607 607 Other intangibles 36 36 Other noncurrent assets 59 57 Total Other Noncurrent Assets 1,082 1,074 Total Assets $ 8,086 $ 8,085 30 CONDENSED BALANCE SHEETS Kentucky Utilities Company (Unaudited) (Millions of Dollars, shares in thousands) March 31, December 31, 2016 2015 Liabilities and Equity Current Liabilities Short-term debt $ 34 $ 48 Accounts payable 77 88 Accounts payable to affiliates 42 39 Customer deposits 27 26 Taxes 12 20 Regulatory liabilities 22 19 Interest 38 16 Asset retirement obligations 30 25 Other current liabilities 28 44 Total Current Liabilities 310 325 Long-term Debt 2,326 2,326 Deferred Credits and Other Noncurrent Liabilities Deferred income taxes 1,091 1,046 Investment tax credits 93 93 Accrued pension obligations 37 46 Asset retirement obligations 334 336 Regulatory liabilities 489 492 Other deferred credits and noncurrent liabilities 60 60 Total Deferred Credits and Other Noncurrent Liabilities 2,104 2,073 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 Earnings reinvested 394 383 Total Equity 3,298 3,287 Total Liabilities and Equity $ 8,038 $ 8,011 March 31,
2017 December 31,
2016Liabilities and Equity Current Liabilities Short-term debt $ 36 $ 16 Accounts payable 76 78 Accounts payable to affiliates 50 56 Customer deposits 29 29 Taxes 11 45 Regulatory liabilities 11 13 Interest 38 16 Asset retirement obligations 29 19 Other current liabilities 27 36 Total Current Liabilities 307 308 Long-term Debt 2,327 2,327 Deferred Credits and Other Noncurrent Liabilities Deferred income taxes 1,208 1,170 Investment tax credits 95 96 Accrued pension obligations 44 62 Asset retirement obligations 260 269 Regulatory liabilities 478 480 Other deferred credits and noncurrent liabilities 50 50 Total Deferred Credits and Other Noncurrent Liabilities 2,135 2,127 Commitments and Contingent Liabilities (Notes 6 and 9) Stockholder's Equity Common stock - no par value (a) 308 308 Additional paid-in capital 2,616 2,616 Accumulated other comprehensive loss — (1 ) Earnings reinvested 393 400 Total Equity 3,317 3,323 Total Liabilities and Equity $ 8,086 $ 8,085 (a) 80,000 shares authorized; 37,818 shares issued and outstanding at March 31, 20162017 and December 31, 2015.2016.31 Common
stock
shares
outstanding
(a) Additional
paid-in
capital Earnings
reinvested Total December 31, 2016 37,818 $ 308 $ 2,616 $ 400 $ (1 ) $ 3,323 Net income 63 63 Cash dividends declared on common stock (70 ) (70 ) Other comprehensive income 1 1 March 31, 2017 37,818 $ 308 $ 2,616 $ 393 $ — $ 3,317 December 31, 2015 37,818 $ 308 $ 2,596 $ 383 $ — $ 3,287 Net income 75 75 Cash dividends declared on common stock (64 ) (64 ) March 31, 2016 37,818 $ 308 $ 2,596 $ 394 $ — $ 3,298 (a) Shares in thousands. All common shares of KU stock are owned by LKE. 32 disclosure.disclosure for each Registrants' related activities and disclosures. Within combined disclosures, amounts are disclosed for any Registrant when significant.20152016 is derived from that Registrant's 20152016 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 20152016 Form 10-K. The results of operations for the three months ended March 31, 20162017 are not necessarily indicative of the results to be expected for the full year ending December 31, 20162017 or other future periods, because results for interim periods can be disproportionately influenced by various factors, developments and seasonal variations.20162017 financial statements.(PPL)"Income (Loss) from Discontinued Operations (net of income taxes)" on the Statements of Income includes the activities of PPL Energy Supply, substantially representing PPL's former Supply segment, which was spun off and distributed to PPL shareowners on June 1, 2015. In addition, the Statement of Cash Flows for the three months ended March 31, 2015 separately reports the cash flows of the discontinued operations. See Note 8 for additional information.toin each indicated Registrant's 20152016 Form 10-K and should be read in conjunction with those disclosures.The purchased accountsAccounts receivable that are acquired 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.date of acquisition. During the three months ended March 31, 2017 and 2016, PPL Electric purchased $356 million and $382 million of accounts receivable from unaffiliated third parties. 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. As a result of the June 1, 2015 spinoff of PPL Energy Supply and creation of Talen Energy, PPL EnergyPlus (renamed Talen Energy Marketing) is no longer an affiliate of PPL Electric. PPL Electric's purchases from Talen Energy Marketing subsequent to May 31, 2015 are included as purchases from an unaffiliated third party.33 Discount Rate Change for U.K. Pension Plans(PPL)In selecting the discount rate for its U.K. pension plans, WPD historically used a single weighted-average discount rate in the calculation of net periodic defined benefit cost. Effective January 1, 2016, WPD began using individual spot rates to measure service cost and interest cost to calculate net periodic defined benefit cost. For the three months ended March 31, 2016, this change in discount rate resulted in lower net periodic defined benefit costs recognized on the Statement of Income of $11 million ($9 million after-tax or $0.01 per share).New Accounting Guidance Adopted(All Registrants)Accounting for Stock-Based CompensationEffective January 1, 2016, the Registrants adopted accounting guidance to simplify the accounting for share-based payment transactions. The guidance requires excess tax benefits and tax deficiencies to be recorded as income tax benefit or expense on the statement of income, eliminates the requirement that excess tax benefits be realized before companies can recognize them and changes the threshold for statutory income tax withholding requirements to qualify for equity classification to the maximum statutory tax rates in the applicable jurisdictions. This guidance also changes the classification of excess tax benefits to an operating activity and employee taxes paid when shares are withheld to satisfy the employer's statutory income tax withholding obligation to a financing activity on the statement of cash flows and allows entities to make a policy election to either estimate forfeitures or recognize them when they occur. The adoption of this guidance had the following impacts:·Using the required prospective method of transition, PPL recorded a tax benefit of $8 million ($0.01 per share) and PPL Electric recorded a tax benefit of $5 million related to excess tax benefits for awards that were exercised and vested for the period ending March 31, 2016. These amounts were recorded to Income taxes on the Statements of Income and Deferred income taxes on the Balance Sheets. The impact on LKE was not significant.·PPL elected to use the prospective method of transition for classifying excess tax benefits as an Operating activity on the Statement of Cash Flows. The amounts classified as Financing activities in the prior periods were not significant.·Using the required modified retrospective method of transition, PPL recorded a cumulative effect adjustment of $7 million to increase Earnings reinvested and decrease Deferred income taxes on the Balance Sheet related to prior period unrecognized excess tax benefits.·PPL has historically presented employee taxes paid for net settled awards as a Financing activity on the Statement of Cash Flows. Therefore, there is no transition impact for this requirement.·PPL has elected to recognize forfeitures when they occur. Due to past experience of insignificant forfeitures there is no transition impact of this policy election.20152016 Form 10-K for a discussion of reportable segments and related information.34 are: Three Months 2016 2015 Income Statement Data Revenues from external customers U.K. Regulated $ 595 $ 697 Kentucky Regulated 826 899 Pennsylvania Regulated 585 630 Corporate and Other 5 4 Total $ 2,011 $ 2,230 Net Income U.K. Regulated (a) $ 289 $ 375 Kentucky Regulated 112 109 Pennsylvania Regulated 94 87 Corporate and Other (14) (19) Discontinued Operations (b) 95 Total $ 481 $ 647 March 31, December 31, 2016 2015 Balance Sheet Data Assets U.K. Regulated (c) $ 15,802 $ 16,669 Kentucky Regulated 13,777 13,756 Pennsylvania Regulated 8,720 8,511 Corporate and Other (d) 410 365 Total assets $ 38,709 $ 39,301 Three Months 2017 2016 Income Statement Data Revenues from external customers U.K. Regulated $ 568 $ 595 Kentucky Regulated 809 826 Pennsylvania Regulated 573 585 Corporate and Other 1 5 Total $ 1,951 $ 2,011 Net Income U.K. Regulated (a) $ 286 $ 289 Kentucky Regulated 95 112 Pennsylvania Regulated 79 94 Corporate and Other (57 ) (14 ) Total $ 403 $ 481 (a) Includes unrealized gains and losses from hedging foreign-currency related economic activity. See Note 1413 for additional information. March 31,
2017 December 31,
2016Balance Sheet Data Assets U.K. Regulated (a) $ 15,039 $ 14,537 Kentucky Regulated 14,010 14,037 Pennsylvania Regulated 9,699 9,426 Corporate and Other (b) 286 315 Total $ 39,034 $ 38,315 (b)(a) See Note 8 for additional information.(d)(b) Primarily consists of unallocated items, including cash, PP&E and the elimination of inter-segment transactions. Three Months 2016 2015 Income (Numerator) Income from continuing operations after income taxes $ 481 $ 552 Less amounts allocated to participating securities 2 3 Income from continuing operations after income taxes available to PPL common shareowners - Basic and Diluted $ 479 $ 549 Income (loss) from discontinued operations (net of income taxes) available to PPL common shareowners - Basic and Diluted $ 95 Net income $ 481 $ 647 Less amounts allocated to participating securities 2 3 Net income available to PPL common shareowners - Basic and Diluted $ 479 $ 644 Three Months 2016 2015 Shares of Common Stock (Denominator) Weighted-average shares - Basic EPS 675,441 666,974 Add incremental non-participating securities: Share-based payment awards 3,376 1,758 Weighted-average shares - Diluted EPS 678,817 668,732 Basic EPS Available to PPL common shareowners: Income from continuing operations after income taxes $ 0.71 $ 0.83 Income (loss) from discontinued operations (net of income taxes) 0.14 Net Income $ 0.71 $ 0.97 Diluted EPS Available to PPL common shareowners: Income from continuing operations after income taxes $ 0.71 $ 0.82 Income (loss) from discontinued operations (net of income taxes) 0.14 Net Income $ 0.71 $ 0.96 Three Months 2017 2016 Income (Numerator) Net income $ 403 $ 481 Less amounts allocated to participating securities 1 2 Net income available to PPL common shareowners - Basic and Diluted $ 402 $ 479 Shares of Common Stock (Denominator) Weighted-average shares - Basic EPS 680,882 675,441 Add incremental non-participating securities: Share-based payment awards 2,202 3,376 Weighted-average shares - Diluted EPS 683,084 678,817 Basic EPS Net Income available to PPL common shareowners $ 0.59 $ 0.71 Diluted EPS Net Income available to PPL common shareowners $ 0.59 $ 0.71 Three Months 2016 2015 Stock-based compensation plans (a) 2,125 1,445 DRIP 402 419 Three Months 2017 2016 Stock-based compensation plans (a) 887 2,125 DRIP 445 402 (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. Three Months 2016 2015 Stock options 696 1,473 Performance units 146 Three Months 2017 2016 Stock options 696 696 (PPL) Three Months 2016 2015 Federal income tax on Income from Continuing Operations Before Income Taxes at statutory tax rate - 35% $ 231 $ 269 Increase (decrease) due to: State income taxes, net of federal income tax benefit 13 14 Valuation allowance adjustments 6 9 Impact of lower U.K. income tax rates (54) (62) Interest benefit on U.K. financing entities (5) (7) Stock-based compensation (a) (8) Other (4) (6) Total increase (decrease) (52) (52) Total income taxes $ 179 $ 217 36 (PPL) Three Months 2017 2016 Federal income tax on Income Before Income Taxes at statutory tax rate - 35% $ 186 $ 231 Increase (decrease) due to: State income taxes, net of federal income tax benefit 13 13 Valuation allowance adjustments 5 6 Impact of lower U.K. income tax rates (48 ) (54 ) U.S. income tax on foreign earnings - net of foreign tax credit (9 ) (2 ) Impact of the U.K. Finance Acts (3 ) — Depreciation not normalized (3 ) (1 ) Interest benefit on U.K. financing entities (4 ) (5 ) Stock-based compensation (3 ) (8 ) Other (5 ) (1 ) Total increase (decrease) (57 ) (52 ) Total income taxes $ 129 $ 179 (PPL Electric) Three Months 2016 2015 Federal income tax on Income Before Income Taxes at statutory tax rate - 35% $ 53 $ 51 Increase (decrease) due to: State income taxes, net of federal income tax benefit 9 10 Stock-based compensation (a) (5) Other (1) (2) Total increase (decrease) 3 8 Total income taxes $ 56 $ 59 (LKE) Three Months 2016 2015 Federal income tax on Income Before Income Taxes at statutory tax rate - 35% $ 67 $ 68 Increase (decrease) due to: State income taxes, net of federal income tax benefit 7 7 Valuation allowance adjustments 3 Stock-based compensation (1) Other (1) (2) Total increase (decrease) 5 8 Total income taxes $ 72 $ 76 (LG&E) Three Months 2016 2015 Federal income tax on Income Before Income Taxes at statutory tax rate - 35% $ 32 $ 30 Increase (decrease) due to: State income taxes, net of federal income tax benefit 3 3 Total increase (decrease) 3 3 Total income taxes $ 35 $ 33 (KU) Three Months 2016 2015 Federal income tax on Income Before Income Taxes at statutory tax rate - 35% $ 42 $ 44 Increase (decrease) due to: State income taxes, net of federal income tax benefit 4 4 Other (1) Total increase (decrease) 4 3 Total income taxes $ 46 $ 47 (PPL Electric) Three Months 2017 2016 Federal income tax on Income Before Income Taxes at statutory tax rate - 35% $ 44 $ 53 Increase (decrease) due to: State income taxes, net of federal income tax benefit 8 9 Depreciation not normalized (2 ) (1 ) Stock-based compensation (2 ) (5 ) Total increase (decrease) 4 3 Total income taxes $ 48 $ 56 (LKE) Three Months 2017 2016 Federal income tax on Income Before Income Taxes at statutory tax rate - 35% $ 58 $ 67 Increase (decrease) due to: State income taxes, net of federal income tax benefit 6 7 Other (1 ) (2 ) Total increase (decrease) 5 5 Total income taxes $ 63 $ 72 (LG&E) Three Months 2017 2016 Federal income tax on Income Before Income Taxes at statutory tax rate - 35% $ 30 $ 32 Increase (decrease) due to: State income taxes, net of federal income tax benefit 3 3 Total increase (decrease) 3 3 Total income taxes $ 33 $ 35 (KU) Three Months 2017 2016 Federal income tax on Income Before Income Taxes at statutory tax rate - 35% $ 36 $ 42 Increase (decrease) due to: State income taxes, net of federal income tax benefit 4 4 Other (1 ) — Total increase (decrease) 3 4 Total income taxes $ 39 $ 46 37 PPL PPL Electric March 31, December 31, March 31, December 31, 2016 2015 2016 2015 Current Regulatory Assets: Environmental cost recovery $ 6 $ 24 Transmission service charge 7 10 $ 7 $ 10 Other 13 14 2 3 Total current regulatory assets (a) $ 26 $ 48 $ 9 $ 13 Noncurrent Regulatory Assets: Defined benefit plans $ 801 $ 809 $ 465 $ 469 Taxes recoverable through future rates 328 326 328 326 Storm costs 84 93 26 30 Unamortized loss on debt 68 68 43 42 Interest rate swaps 145 141 Accumulated cost of removal of utility plant 139 137 139 137 AROs 165 143 Other 17 16 2 2 Total noncurrent regulatory assets $ 1,747 $ 1,733 $ 1,003 $ 1,006 Current Regulatory Liabilities: Generation supply charge $ 30 $ 41 $ 30 $ 41 Demand side management 11 8 Gas supply clause 6 Universal service rider 6 5 6 5 Transmission formula rate 37 48 37 48 Fuel adjustment clause 16 14 Storm damage expense 15 16 15 16 Other 4 7 1 3 Total current regulatory liabilities $ 119 $ 145 $ 89 $ 113 Noncurrent Regulatory Liabilities: Accumulated cost of removal of utility plant $ 693 $ 691 Coal contracts (b) 14 17 Power purchase agreement - OVEC (b) 82 83 Net deferred tax assets 22 23 Act 129 compliance rider 25 22 $ 25 $ 22 Defined benefit plans 24 24 Interest rate swaps 79 82 Other 3 3 Total noncurrent regulatory liabilities $ 942 $ 945 $ 25 $ 22 LKE LG&E KU March 31, December 31, March 31, December 31, March 31, December 31, 2016 2015 2016 2015 2016 2015 Current Regulatory Assets: Environmental cost recovery $ 6 $ 24 $ 6 $ 13 $ 11 Gas supply clause 1 1 Gas line tracker 1 1 1 1 Other 10 9 1 $ 10 8 Total current regulatory assets $ 17 $ 35 $ 7 $ 16 $ 10 $ 19 Noncurrent Regulatory Assets: Defined benefit plans $ 336 $ 340 $ 211 $ 215 $ 125 $ 125 Storm costs 58 63 32 35 26 28 Unamortized loss on debt 25 26 16 17 9 9 Interest rate swaps 145 141 103 98 42 43 AROs 165 143 64 57 101 86 Plant retirement costs 6 6 6 6 Other 9 8 4 2 5 6 Total noncurrent regulatory assets $ 744 $ 727 $ 430 $ 424 $ 314 $ 303 PPL PPL Electric March 31,
2017 December 31,
2016 March 31,
2017 December 31,
2016Current Regulatory Assets: Environmental cost recovery $ 6 $ 6 $ — $ — Generation formula rate 11 11 — — Transmission service charge — 7 — 7 Smart meter rider 8 6 8 6 Storm costs 4 5 4 5 Other 7 4 1 1 Total current regulatory assets (a) $ 36 $ 39 $ 13 $ 19 Noncurrent Regulatory Assets: Defined benefit plans $ 936 $ 947 $ 543 $ 549 Taxes recoverable through future rates 343 340 343 340 Storm costs 44 57 — 9 Unamortized loss on debt 58 61 34 36 Interest rate swaps 126 129 — — Accumulated cost of removal of utility plant 160 159 160 159 AROs 228 211 — — Other 13 14 — 1 Total noncurrent regulatory assets $ 1,908 $ 1,918 $ 1,080 $ 1,094 Current Regulatory Liabilities: Generation supply charge $ 19 $ 23 $ 19 $ 23 Transmission service charge 5 — 5 — Demand side management 2 3 — — Universal service rider 14 14 14 14 Transmission formula rate 6 15 6 15 Fuel adjustment clause 13 11 — — Act 129 compliance rider 16 17 16 17 Storm damage expense 5 13 5 13 Other 2 5 1 1 Total current regulatory liabilities $ 82 $ 101 $ 66 $ 83 LKE LG&E KU March 31 December 31, March 31, December 31, March 31, December 31, 2016 2015 2016 2015 2016 2015 Current Regulatory Liabilities: Demand side management $ 11 $ 8 $ 5 $ 4 $ 6 $ 4 Gas supply clause 6 6 Fuel adjustment clause 16 14 3 2 13 12 Other 3 4 1 3 3 Total current regulatory liabilities $ 30 $ 32 $ 8 $ 13 $ 22 $ 19 Noncurrent Regulatory Liabilities: Accumulated cost of removal of utility plant $ 693 $ 691 $ 303 $ 301 $ 390 $ 390 Coal contracts (b) 14 17 6 7 8 10 Power purchase agreement - OVEC (b) 82 83 57 57 25 26 Net deferred tax assets 22 23 22 23 Defined benefit plans 24 24 24 24 Interest rate swaps 79 82 39 41 40 41 Other 3 3 1 2 2 1 Total noncurrent regulatory liabilities $ 917 $ 923 $ 428 $ 431 $ 489 $ 492 PPL PPL Electric March 31,
2017 December 31,
2016 March 31,
2017 December 31,
2016Noncurrent Regulatory Liabilities: Accumulated cost of removal of utility plant $ 701 $ 700 $ — $ — Power purchase agreement - OVEC (b) 74 75 — — Net deferred tax assets 22 23 — — Defined benefit plans 23 23 — — Interest rate swaps 76 78 — — Other 1 — — — Total noncurrent regulatory liabilities $ 897 $ 899 $ — $ — LKE LG&E KU March 31,
2017 December 31,
2016 March 31,
2017 December 31,
2016 March 31,
2017 December 31,
2016Current Regulatory Assets: Environmental cost recovery $ 6 $ 6 $ 6 $ 6 $ — $ — Generation formula rate 11 11 — — 11 11 Other 6 3 6 3 — — Total current regulatory assets $ 23 $ 20 $ 12 $ 9 $ 11 $ 11 Noncurrent Regulatory Assets: Defined benefit plans $ 393 $ 398 $ 242 $ 246 $ 151 $ 152 Storm costs 44 48 24 26 20 22 Unamortized loss on debt 24 25 15 16 9 9 Interest rate swaps 126 129 86 88 40 41 AROs 228 211 77 70 151 141 Plant retirement costs 3 4 — — 3 4 Other 10 9 4 4 6 5 Total noncurrent regulatory assets $ 828 $ 824 $ 448 $ 450 $ 380 $ 374 Current Regulatory Liabilities: Demand side management $ 2 $ 3 $ 1 $ 2 $ 1 $ 1 Fuel adjustment clause 13 11 4 2 9 9 Other 1 4 — 1 1 3 Total current regulatory liabilities $ 16 $ 18 $ 5 $ 5 $ 11 $ 13 Noncurrent Regulatory Liabilities: $ 701 $ 700 $ 308 $ 305 $ 393 $ 395 Power purchase agreement - OVEC (b) 74 75 51 52 23 23 Net deferred tax assets 22 23 22 23 — — Defined benefit plans 23 23 — — 23 23 Interest rate swaps 76 78 38 39 38 39 Other 1 — — — 1 — Total noncurrent regulatory liabilities $ 897 $ 899 $ 419 $ 419 $ 478 $ 480 (a) TheseFor PPL, these amounts are included in "Other current assets" on the Balance Sheets.(b) These liabilities wereThis liability was recorded as offsetsan offset to certainan intangible assetsasset that werewas recorded at fair value upon the acquisition of LKE by PPL.U.K. Activities(PPL)Ofgem Review of Line Loss CalculationIn 2014, Ofgem issued its final decision on the DPCR4 line loss incentives and penalties mechanism. WPD began refunding its liability for over-recovery of line losses to customers on April 1, 2015 and will continue through March 31, 2019. The liability at March 31, 2016 was $45 million.CPCN and ECR Filings(PPL, LKE, LG&E and KU)January 29,November 23, 2016, LG&E and KU submitted applications tofiled requests with the KPSC for CPCNs and for ECR rate treatment regarding upcoming environmental construction projects relating to the EPA's regulations addressing the handlingincreases in annual base electricity rates of coal combustion byproducts and MATS. The construction projects are expected to begin in 2016 and continue through 2023 and are estimated to cost approximately $316$103 million at LG&EKU and $678an increase in annual base electricity and gas rates of approximately $94 million and $14 million at KU.LG&E. The proposed base rate increases would result in an electricity rate increase of 6.4% at KU and electricity and gas rate increases of 8.5% and 4.2% at LG&E. LG&E's and KU's applications include requests for CPCNs for implementing an Advanced Metering System program and a Distribution Automation program. The applications request an authorized 10%are based on a forecasted test year of July 1, 2017 through June 30, 2018 and a requested return on equity of 10.23%. respectall intervening parties to the proceeding, filed with the KPSC, stipulation and recommendation agreements (stipulations) resolving all issues with the parties. Among other things, the proposed stipulations provide for increases in annual revenue requirements associated with KU base electricity rates of $55 million, LG&E base electricity rates of $59 million and LG&E base gas rates of $8 million, reflecting a return on equity of 9.75%, and the withdrawal of LG&E's and KU's ECR mechanisms consistent withrequest for a CPCN for the 2014 KentuckyAdvanced Metering System. The proposed stipulations would result in a base electricity rate caseincrease of 3.4% at KU and base electricity and gas rate increases of 5.4% and 2.3% at LG&E. The proposed stipulations remain subject to KPSC approval. If approved, in June 2015. Two parties have been granted intervenor status innew rates and all elements of the stipulations would be effective July 1, 2017. A public hearing on the applications is scheduled to commence on May 9, 2017. LG&E and KU cannot predict the outcome of these proceedings.&E's existing&E’s gas franchise agreement for the Louisville/Jefferson County service area expired onin March 31, 2016. Pursuant to Kentucky law, upon expiration of a franchise, LG&E retains a revocable license to own and operate its facilities and to provide service.In August 2016, LG&E and city representatives are negotiating regardingLouisville/Jefferson County entered into a newrevised franchise agreement with a 5-year term (with renewal options). The franchise fee may be modified at Louisville/Jefferson County's election upon 60 days' notice. However, any franchise fee is capped at 3% of gross receipts for natural gas service within the franchise area. The agreement further provides that if the KPSC determines that the franchise fee should be recovered from LG&E's customers, the franchise fee shall revert to zero. In August 2016, LG&E filed an application in a KPSC proceeding to review and rule upon the recoverability of the franchise fee.the interim,November 2016 filed an amended complaint against LG&E continuesrelating to provide gas servicethese issues. LG&E submitted KPSC filings to customersrespond to, request dismissal of and consolidate certain claims or aspects of the proceedings. In January 2017, the KPSC issued an order denying Louisville/Jefferson County's motion to dismiss, consolidating the matter with LG&E's filed application and establishing a procedural schedule for the case. Until the KPSC issues a final order in this service area at existing rates, but without collecting the prior franchise fee.proceeding, LG&E cannot predict the ultimate outcome of this matter but does not anticipate that it will have a material effect on its financial condition or results of operation.demand by specified dates.demand. EDCs not meeting the requirements of Act 129 are subject to significant penalties. In November 2015, PPL Electric filed with the PUC its Act 129 Phase III Energy Efficiency and Conservation Plan for the period June 1, 2016 through May 31, 2021. In January 2016, PPL Electric and the other parties39 in the case and filed that settlement with the Administrative Law Judge. In MarchJune 2016, the PUC issued an Ordera final order approving PPL Electric's Phase III Plan as modified by the settlement, allowing PPL Electric to recover, through the Act 129 compliance rider, a maximum $313 million in program cost over the five-year period June 1, 2016 through May 31, 2021 through the Act 129 compliance rider. Hearings are scheduledThe parties to the proceeding reached a settlement on all but one issue and a partial settlement agreement and briefs on the open issue were submitted to the Administrative Law Judge (ALJ) in July 2016. In August 2016, the ALJ issued an initial decision, and certain parties filed exceptions and reply exceptions. In October 2016, the PUC issued an order approving the partial settlement agreement and adopting the initial decision with minor modifications. In November 2016, Retail Electric Supply Association (RESA) filed a Petition for June 2016.Reconsideration of the portion of the October 2016 order that approved the Customer Assistance Program Standard Offer Referral Program (CAP-SOP). In January 2017, the PUC issued an order denying RESA's Petition for Reconsideration and closing the record. In February 2017, RESA filed a Petition for Review with the Commonwealth Court of Pennsylvania regarding the CAP-SOP. This proceedingmatter remains pending before the PUC. PPL Electric cannot predict the outcome of this proceeding.Sheets.TheSheets. The following credit facilities were in place at: March 31, 2016 December 31, 2015 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 plc Syndicated Credit Facility Jan. 2021 £ 210 £ 144 £ 72 £ 133 WPD (South West) Syndicated Credit Facility July 2020 245 245 WPD (East Midlands) Syndicated Credit Facility July 2020 300 37 263 WPD (West Midlands) Syndicated Credit Facility July 2020 300 300 Uncommitted Credit Facilities 40 £ 4 36 £ 4 Total U.K. Credit Facilities (a) £ 1,095 £ 181 £ 4 £ 916 £ 133 £ 4 U.S. PPL Capital Funding Syndicated Credit Facility Jan. 2021 $ 700 $ 700 $ 151 Syndicated Credit Facility Nov. 2018 300 73 $ 227 300 Bilateral Credit Facility Mar. 2017 150 17 133 20 Total PPL Capital Funding Credit Facilities $ 1,150 $ 790 $ 360 $ 471 PPL Electric Syndicated Credit Facility Jan. 2021 $ 400 $ 126 $ 274 $ 1 LKE Syndicated Credit Facility (b) Oct. 2018 $ 75 $ 75 $ 75 March 31, 2017 December 31, 2016 Capacity Borrowed Borrowed PPL U.K. WPD plc Syndicated Credit Facility (a) Jan. 2022 £ 210 £ 161 £ — £ 49 £ 160 £ — Term Loan Facility (b) Dec. 2017 230 230 — — — — WPD (South West) Syndicated Credit Facility (c) July 2021 245 72 — 173 110 — WPD (East Midlands) Syndicated Credit Facility (d) July 2021 300 128 — 172 9 — WPD (West Midlands) Syndicated Credit Facility July 2021 300 — — 300 — — Uncommitted Credit Facilities (e) 90 — 4 86 60 4 Total U.K. Credit Facilities (f) £ 1,375 £ 591 £ 4 £ 780 £ 339 £ 4 U.S. PPL Capital Funding Syndicated Credit Facility Jan. 2022 $ 950 $ — $ 189 $ 761 $ — $ 20 Syndicated Credit Facility Nov. 2018 300 — — 300 — — Bilateral Credit Facility Mar. 2018 150 — 17 133 — 17 Total PPL Capital Funding Credit Facilities $ 1,400 $ — $ 206 $ 1,194 $ — $ 37 March 31, 2016 December 31, 2015 Letters of Letters of Credit Credit and and Commercial Commercial Expiration Paper Unused Paper Date Capacity Borrowed Issued Capacity Borrowed Issued LG&E Syndicated Credit Facility Dec. 2020 $ 500 $ 82 $ 418 $ 142 KU Syndicated Credit Facility Dec. 2020 $ 400 $ 34 $ 366 $ 48 Letter of Credit Facility Oct. 2017 198 198 198 Total KU Credit Facilities $ 598 $ 232 $ 366 $ 246 (a) WPD plc's amounts borrowed at March 31, 2016 and December 31, 2015 were USD-denominated borrowings of $200 million for both periods, which bore interest at 1.26% and 1.83%. The unused capacity reflects the amount borrowed in GBP of £138 million as of the date borrowed. WPD (East Midlands) amount borrowed at March 31, 2016 was a GBP-denominated borrowing which equated to $51 million and bore interest at 0.91%. At March 31, 2016, the unused capacity under the U.K. credit facilities was approximately $1.3 billion. March 31, 2017 December 31, 2016 Capacity Borrowed Borrowed PPL Electric Syndicated Credit Facility Jan. 2022 $ 650 $ — $ 500 $ 150 $ — $ 296 LKE Syndicated Credit Facility Oct. 2018 $ 75 $ — $ — $ 75 $ — $ — LG&E Syndicated Credit Facility Jan. 2022 $ 500 $ — $ 207 $ 293 $ — $ 169 KU Syndicated Credit Facility Jan. 2022 $ 400 $ — $ 36 $ 364 $ — $ 16 Letter of Credit Facility Oct. 2017 198 — 198 — — 198 Total KU Credit Facilities $ 598 $ — $ 234 $ 364 $ — $ 214 (b) LKE'sThe amount borrowed at March 31, 2017 was a GBP-denominated borrowing which equated to $286 million and bore interest rate on outstandingat 1.51%.(c) The amounts borrowed at March 31, 2017 and December 31, 2016 were GBP-denominated borrowings which equated to $90 million and $137 million and bore interest at 0.66% for both periods. (d) (e) The amount borrowed at December 31, 20152016 was 1.68%a GBP-denominated borrowing which equated to $75 million and bore interest at 1.26%.(f) At March 31, 2017, the unused capacity under the U.K. credit facilities was $972 million. March 31, 2016 December 31, 2015 Weighted - Commercial Weighted - Commercial Average Paper Unused Average Paper Interest Rate Capacity Issuances Capacity Interest Rate Issuances PPL Capital Funding 0.85% $ 1,000 $ 773 $ 227 0.78% $ 451 PPL Electric 0.72% 400 125 275 LG&E 0.79% 350 82 268 0.71% 142 KU 0.64% 350 34 316 0.72% 48 Total $ 2,100 $ 1,014 $ 1,086 $ 641 March 31, 2017 December 31, 2016 Capacity PPL Capital Funding 1.25% $ 1,000 $ 189 $ 811 1.10% $ 20 PPL Electric 1.26% 650 499 151 1.05% 295 LG&E 1.19% 350 207 143 0.94% 169 KU 1.18% 350 36 314 0.87% 16 Total $ 2,350 $ 931 $ 1,419 $ 500 1110 for discussion of intercompany borrowings.(PPL and PPL Electric)2016,2017, WPD (South Wales) issued £50 million of 0.01% Index-linked Senior Notes due 2029. WPD (South Wales) received proceeds of £53 million, which equated to $64 million at the LCIDA issued $116time of issuance, net of fees and including a premium. The principal amount of the notes is adjusted based on changes in a specified index, as detailed in the terms of the related indenture. The proceeds will be used for general corporate purposes.Refunding Bonds, 2003 Series 2016AA (Louisville Gas and Electric Company Project) due 2029 and $108 million of Pollution Control Revenue Refunding Bonds, Series 2016B due 20272033 on behalf of PPL Electric.LG&E. The bonds were issued bearingremarketed at a long term rate and will bear interest at an initial term rate of 0.90%1.50% through their mandatory purchase datesdate of SeptemberApril 1, 2017 and August 15, 2017. The proceeds of the bonds were used to redeem $116 million of 4.70% Pollution Control Revenue Refunding Bonds, 2005 Series A due 2029 and $108 million of 4.75% Pollution Control Revenue Refunding Bonds, 2005 Series B due 2027 previously issued by the LCIDA on behalf of PPL Electric.In connection with the issuance of each of these new series of LCIDA bonds, PPL Electric entered into a loan agreement with the LCIDA pursuant to which the LCIDA has loaned to PPL Electric the proceeds of the LCIDA bonds on payment terms that correspond to the LCIDA bonds. In order to secure its obligations under the loan agreement, PPL Electric issued $224 million of First Mortgage Bonds under its 2001 Mortgage Indenture, which also have payment terms that correspond to the LCIDA bonds.41 filed a registration statement with the SEC and entered into two separate equity distribution agreements, pursuant to which PPL may sell, from time to time, up to an aggregate of $500 million of its common stock. For the periods ended March 31, 2016 and 2015, PPL did not issue any shares underissued the agreements. Three Months 2017 2016 Number of shares (in thousands) 1,364 — Average share price $ 36.66 $ — Net Proceeds $ 50 $ — 2016,2017, PPL declared a quarterly common stock dividend, payable April 1, 2016,3, 2017, of 3839.5 cents per share (equivalent to $1.52$1.58 per annum). Future dividends, declared at the discretion of the Board of Directors, will depend upon future earnings, cash flows, financial and legal requirements and other factors.8. Acquisitions, Development and Divestitures(All Registrants)The Registrants from time to time evaluate opportunities for potential acquisitions, divestitures and development projects. Development projects are reexamined based on market conditions and other factors to determine whether to proceed with, modify or terminate the projects. Any resulting transactions may impact future financial results. See Note 8 in the Registrants' 2015 Form 10-K for additional information.Discontinued OperationsSpinoff of PPL Energy SupplyIn June 2015, PPL and PPL Energy Supply completed the spinoff of PPL Energy Supply which combined its competitive power generation businesses with those of Riverstone to form a new, stand-alone, publicly traded company named Talen Energy.Following completion of the spinoff, PPL shareowners owned 65% of Talen Energy and affiliates of Riverstone owned 35%. The spinoff had no effect on the number of PPL common shares owned by PPL shareowners or the number of shares of PPL common stock outstanding. The transaction is intended to be tax-free to PPL and its shareowners for U.S. federal income tax purposes.PPL has no continuing ownership interest in or control of Talen Energy and Talen Energy Supply (formerly PPL Energy Supply). See Note 8 in PPL's 2015 Form 10-K for additional information.Continuing Involvement(PPL and PPL Electric)As a result of the spinoff, PPL and PPL Energy Supply entered into a Transition Services Agreement (TSA) that terminates no later than two years after the spinoff. Pursuant to the TSA, PPL is providing Talen Energy certain information technology, financial and accounting, human resource and other specified services. For the three months ended March 31, 2016, the amounts PPL billed Talen Energy for these services were $10 million. In general, the fees for the transition services allow the provider to recover its cost of the services, including overheads, but without margin or profit.Additionally, prior to the spinoff, through the annual competitive solicitation process, PPL EnergyPlus was awarded supply contracts for a portion of the PLR generation supply for PPL Electric, which were retained by Talen Energy Marketing as part of the spinoff. PPL Electric's supply contracts with Talen Energy Marketing extend through November 2016. Energy purchases from PPL EnergyPlus were previously included in PPL Electric's Statements of Income as "Energy purchases from affiliate" but were eliminated in PPL's Consolidated Statements of Income.For the three months ended March 31, 2016, PPL Electric's energy purchases from Talen Energy Marketing were $54 million and are no longer considered affiliate transactions.42 Summarized Results of Discontinued Operations(PPL)The operations of the Supply segment prior to the spinoff on June 1, 2015 are included in "Income (Loss) from Discontinued Operations (net of income taxes)" on the Statements of Income.Following are the components of Discontinued Operations in the Statement of Income for the period ended March 31, 2015:Operating revenues $ 944 Operating expenses 767 Other Income (Expense) - net 7 Interest expense (a) 38 Income (loss) before income taxes 146 Income tax expense (benefit) 51 Income (Loss) from Discontinued Operations (net of income taxes) $ 95 (a)Includes interest associated with the Supply Segment with no additional allocation as the Supply segment was sufficiently capitalized.DevelopmentRegional Transmission Line Expansion Plan(PPL and PPL Electric)Northeast/PoconoIn October 2012, the FERC issued an order in response to PPL Electric's December 2011 request for ratemaking incentives for the Northeast/Pocono Reliability project (a new 58-mile, 230 kV transmission line that includes three new substations and upgrades to adjacent facilities). The FERC granted the incentive for inclusion in rate base of all prudently incurred construction work in progress costs but denied the requested incentive for a 100 basis point adder to the return on equity.In December 2012, PPL Electric submitted an application to the PUC requesting permission to site and construct the project. In January 2014, the PUC issued a Final Order approving the application. The line was energized in April 2016, completing the $350 million project which includes additional substation security enhancements. Costs related to the project were capitalized and are included on the Balance Sheets, primarily in "Regulated utility plant."three month periods ended March 31: Pension Benefits Other Postretirement Benefits U.S. U.K. 2016 2015 2016 (b) 2015 2016 2015 PPL Service cost $ 17 $ 30 $ 18 $ 20 $ 2 $ 4 Interest cost 43 57 62 79 6 7 Expected return on plan assets (56) (75) (133) (131) (5) (7) Amortization of: Prior service cost 1 2 Actuarial (gain) loss 15 24 37 39 Net periodic defined benefit costs (credits) (a) $ 20 $ 38 $ (16) $ 7 $ 3 $ 4 LKE Service cost $ 6 $ 7 $ 1 $ 1 Interest cost 17 17 2 2 Expected return on plan assets (21) (22) (2) (1) Amortization of: Prior service cost 1 2 1 1 Actuarial (gain) loss 5 8 Net periodic defined benefit costs (credits) $ 8 $ 12 $ 2 $ 3 43 Pension Benefits Other Postretirement Benefits U.S. U.K. 2016 2015 2016 (b) 2015 2016 2015 LG&E $ 3 $ 3 Expected return on plan assets (5) (5) Amortization of: Prior service cost 1 1 Actuarial (gain) loss 2 3 Net periodic defined benefit costs (credits) $ 1 $ 2 Pension Benefits Three Months U.S. U.K. 2017 2016 2017 2016 PPL Service cost $ 17 $ 17 $ 19 $ 18 Interest cost 42 43 43 62 Expected return on plan assets (57 ) (56 ) (125 ) (133 ) Amortization of: Prior service cost 2 1 — — Actuarial loss 20 15 35 37 Net periodic defined benefit costs (credits) before special termination benefits 24 20 (28 ) (16 ) Special termination benefits (a) 2 — — — Net periodic defined benefit costs (credits) $ 26 $ 20 $ (28 ) $ (16 ) (b)See Note 2 for a discussion of changes to the discount rate used for the U.K. Pension Plans. Pension Benefits Three Months 2017 2016 LKE Service cost $ 7 $ 6 Interest cost 16 17 Expected return on plan assets (22 ) (21 ) Amortization of: Prior service cost 2 1 Actuarial loss 11 5 Net periodic defined benefit costs $ 14 $ 8 LG&E Interest cost $ 3 $ 3 Expected return on plan assets (5 ) (5 ) Amortization of: Prior service cost 1 1 Actuarial loss 3 2 Net periodic defined benefit costs $ 2 $ 1 Other Postretirement Benefits Three Months 2017 2016 PPL Service cost $ 2 $ 2 Interest cost 6 6 Expected return on plan assets (6 ) (5 ) Net periodic defined benefit costs $ 2 $ 3 LKE Service cost $ 1 $ 1 Interest cost 2 2 Expected return on plan assets (1 ) (2 ) Amortization of prior service cost — 1 Net periodic defined benefit costs $ 2 $ 2 LKE based on its participation in those plans, which management believes are reasonable.LKE. 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 costs of defined benefit plans sponsored by LKELKE. These allocations are 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 Electric, and LKE allocated the following net periodic defined benefit costs to LG&E and KU. Three Months 2016 2015 PPL Electric $ 6 $ 8 LG&E 2 3 KU 3 5 Three Months 2017 2016 PPL Electric $ 8 $ 6 LG&E 3 2 KU 4 3 (PPL, LKE, LG&E and KU)seeksought compensation for alleged adverse health effects. In response to a motion to dismiss filed by PPL and LG&E, in July 2014, the court dismissed the plaintiffs' RCRA claims and all but one Clean Air Act claim, but declined to dismiss theirthe common law tort claims. Upon motion of LG&EIn November 2016, plaintiffs filed an amended complaint removing the personal injury claims and PPL,removing certain previously named plaintiffs. In February 2017, the district court certified for appellate review the issue of whether the state common law claims are preempted by federal statute. In December 2014, the U.S.District Court of Appeals for the Sixth44 Circuit issued an order granting appellate review regardingdismissing PPL as a defendant and dismissing the above matter. Oral argument before the Sixth Circuit was held in August 2015. In November 2015, the Sixth Circuit issued an opinion affirming the District Court's ruling that plaintiffs' state law claims are not preempted byfinal federal claim against LG&E under the Clean Air Act, and remandingdirected the matterparties to submit briefs regarding whether the court should continue to exercise supplemental jurisdiction regarding the remaining state law-only claims. On April 13, 2017, the District Court for further proceedings. Certain discovery matters are beforeissued an order declining to exercise supplemental jurisdiction and dismissing the District Court.case in its entirety, subject to certain federal appeals or state court re-filing rights of the parties. PPL, LKE and LG&E cannot predict the outcome of this matter. LG&E retired one coal-fired unit at the Cane Run plant in March 2015 and the remaining two coal-fired units at the plant in June 2015.Mill Creek Environmental ClaimsIn May 2014, the Sierra Club filed a citizen suit against LG&E in the U.S. District Court for the Western District of Kentucky for alleged violations of the Clean Water Act. The Sierra Club alleges that various discharges at the Mill Creek plant constitute violations of the plant's water discharge permit. The Sierra Club seeks civil penalties, injunctive relief, costs and attorney's fees. In August 2015, the Court denied cross-motions for summary judgment filed by both parties and directed the parties to proceed with discovery. Discovery proceedings are underway and the parties have also conducted limited settlement discussions in the matter. PPL, LKE and LG&E cannot predict the outcome of this matter or the potential impact on the operations of the Mill Creek plant, including increased capital or operating costs, if any, but believe the plant is operating in compliance with the permits.claimant allegesclaimants allege discharges at the E.W. Brown plant in violation of applicable rules and the plant's water discharge permit. The claimant assertsclaimants assert that, unless the alleged discharges are promptly brought into compliance, it intends to seek civil penalties, injunctive relief and attorney's fees. In November 2015, the claimants submitted an amended notice of intent to add the Kentucky Waterways Alliance as a claimant. The parties have conducted limited settlement discussionsIn October 2016, the claimants submitted an additional notice of intent alleging management of waste in a manner that may present an imminent and substantial endangerment under the matter.RCRA. PPL, LKE and KU cannot predict the outcome of this matter or the potential impact on the operations of the E. W.E.W. Brown plant, including increased capital or operating costs, if any.Unit 2 AirWater Discharge PermitThe Sierra Club and other environmental groups petitioned the Kentucky Environmental and Public Protection Cabinet to overturn the air permit issued for the Trimble County Unit 2 baseload coal-fired generating unit, but the agency upheld the permit in an order issued in September 2007. In response to subsequent petitions by environmental groups, the EPA ordered certain non-material changes to the permit which, in January 2010, were incorporated into a final revised permit issued by the Kentucky Division for Air Quality. In March 2010, the environmental groups petitioned the EPA to object to the revised state permit. Until the EPA issues a final ruling on the pending petition and all available appeals are exhausted, KU cannot predict the outcome of this matter or the potential impact on the operations of the Trimble County plant, including increased capital or operating costs, if any.Trimble County Water Discharge Permitthatwhich was subsequently appealed by the environmental groups. In September 2013, the Franklin Circuit Court reversed the KEEC order upholding the permit and remanded the permit to the agency for further proceedings. LG&E and the KEEC appealed the order to the Kentucky Court of Appeals. In July 2015, the Court of Appeals upheld the lower court ruling. OnLG&E and the KEEC moved for discretionary review by the Kentucky Supreme Court. In February 10, 2016, the Kentucky Supreme Court issued an order granting discretionary review.review and oral arguments were held in September 2016. On April 27, 2017, the Kentucky Supreme Court issued an order reversing the decision of the appellate court and upholding the permit issued to LG&E by the KEEC. PPL, LKE, LG&E and KU are unable to predict the outcome of this matter or the potential impact on the operations of the Trimble County plant, including increased capital or operating costs, if any.45 power system.electric system in North America. The FERC oversees this process and independently enforces the Reliability Standards.power electricityelectric system, including electric utility companies, generators and marketers. Under the Federal Power Act, the FERC may assess civil penalties of up to $1 million per day, per violation, for certain violations.KU and PPL ElectricKU monitor their compliance with the Reliability Standards and continue to self-report or self-log potential violations of certain applicable reliability requirements whenever identified, and submit accompanying mitigation plans, as required. The resolution of a small number of potential violations is pending. Penalties incurred to date have not been significant. Any Regional Reliability Entity (including RFC or SERC) determination concerning the resolution of violations of the Reliability Standards remains subject to the approval of the NERC and the FERC. - Domesticdoes not ownowns any generating plants, itstheir exposure to related environmental compliance costs is reduced. 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.Air46 states'state's non-attainment. States that are not in the ozone transport region, including Kentucky, are workingworked together to evaluate the need for further nitrogen oxide reductions from fossil-fueled plants with SCRs. The natureBased on regulatory developments to date, PPL, LKE, LG&E and timing of any additionalKU do not anticipate requirements for nitrogen oxide reductions resulting from these evaluations cannot be predicted at this time.anticipateexpect that certain previously required compliance measures, such as upgraded or new sulfur dioxide scrubbersScrubbers and additional sulfur dioxide limits at certain plants and the retirement of coal-fired generating units at LG&E's Cane Run plant and KU's Green River plant, will helpare sufficient to achieve compliance with the new sulfur dioxide and ozone standards. If additional reductions are required, the costs could be significant.The MATS rule was challenged by industry groups and states and was upheld byIn a subsequent judicial challenge, the U.S. Court of Appeals for the D. C. Circuit Court (D.C. Circuit Court) in April 2014. A group of states subsequently petitioned the U.S. Supreme Court (Supreme Court) to review this decision and in June 2015, the Supreme Court held that the EPA failed to properly consider costs when deciding to regulate hazardous air emissions from power plants under MATS. The U.S. Supreme Court remanded the matter to the D.C. Circuit Court which, in December 2015, remanded the rule to the EPA without vacating it. The EPA has proposed a supplemental finding regarding costs of the rule and has announced that it intends to make a final determination in 2016.rule. The EPA's MATS rule remains in effect during the pendency of the ongoing proceedings.connection withresponse to the MATS rule and in conjunction with compliance with other environmental requirements, including fabric-filter baghouses, upgraded scrubbersScrubbers or chemical additive systems for which appropriate KPSC authorization and/or ECR treatment has been received. LG&E and KU are seekinghave received KPSC approval for a compliance plan providing for installation of additional MATS-related controls; however, the estimated cost of these controls is not expected to be significant for either LG&E or KU. PPL, LKE, LG&E and KU cannot predict the outcome of the MATS rule or its potential impact, if any, on plant operations, rate treatment or future capital or operating needs. See Note 6 for additional information.Most recently,In June 2016, the President announced that the United States, Canada and Mexico have established the North American Climate, Clean Energy, and Environment Partnership Plan, which specifies actions to promote clean energy, address climate change and protect the environment. The plan includes a goal to provide 50% of the energy used in North America from clean energy sources by 2025. The plan does not impose any nation-specific requirements.currently be achieved in a variety of ways, including energy conservation, power plant efficiency improvements, reduced utilization of coal-fired generation or replacing coal-fired generation with natural gas or renewable47 available,viable, the rule effectively precludes the construction of new coal-fired plants. The standard for NGCC power plants is the same as what the EPA proposed in 2012 and is not continuously achievable. The preclusion of new coal-fired plants and the compliance difficulties posed for new natural gas-fired plants could have a significant industry-wide impact.wouldmay impose a federal implementation plan that could be more stringent than what the state plan might provide. Depending on the provisions of the Kentucky implementation plan, LG&E and KU may need to modify their current portfolio of generating assets during the next decade and/or participate in an allowance trading program.participating in the ongoing regulatory processesmonitoring developments at the state and federal level. Various states, industry groups and individual companies including LKE have filed petitions for reconsideration with EPA and petitions for review with the D.C. Circuit Court challenging the Clean Power Plan. OnIn February 9, 2016, the U.S. Supreme Court stayed the rule pending the D.C. Circuit Court's review. In light of the President's March 2017 Executive Order the next steps in this litigation are unclear. Additionally, the EPA has commenced review of the Clean Power Plan and related actions, as directed by the President's March 2017 Executive Order, to determine whether various rules should be suspended, revised or rescinded. PPL, LKE, LG&E and KU cannot predict the outcome of this matterthe pending litigation, any changes in regulations, interpretations, or litigation positions that may be implemented by the U.S. presidential administration or the potential impact, if any, on plant operations, or future capital or operating costs. PPL, LKE, LG&E and KU believe that the costs, which could be significant, would be subject to cost recovery.which limitslimiting the measures that the Kentucky Energy and Environment Cabinet may consider in setting performance standards to comply with the EPA's regulations governing GHG emissions from existing sources.sources, if enacted. The legislation provides that such state GHG performance standards shall be based on emission reductions, efficiency measures and other improvements available at each power plant, rather than renewable energy, end-use energy efficiency, fuel switching and re-dispatch. These statutory restrictions may make it more difficult for Kentucky to achieve the GHG reduction levels that the EPA has established for Kentucky.48 On 17, 2015, the EPA published its final rule regulating CCRs. CCRs include fly ash, bottom ash and sulfur dioxide scrubber wastes. The rule became effective onin October 19, 2015. It imposes extensive new requirements, including location restrictions, design and operating standards, groundwater monitoring and corrective action requirements, and closure and post-closure care requirements on CCR impoundments and landfills that are located on active power plants in the United States and not closed. Under the rule, the EPA will regulate CCRs are regulated as non-hazardous under Subtitle D of RCRA and allow beneficial use of CCRs is allowed, with some restrictions. The rule's requirements for covered CCR impoundments and landfills include implementation of groundwater monitoring and commencement or completion of closure activities generally between three and ten years from certain triggering events. This self-implementingThe rule requires posting of compliance documentation on a publicly accessible website and is enforceable solely through citizen suits. LG&E and KU are also subject to state rules applicable to CCR management which may potentially be modified to reflect some or all requirements of the federal rule.website. Industry groups, environmental groups, individual companies and others have filed legal challenges to the final rule, which are pending before the D.C. Circuit Court of Appeals.are pursuinghave received KPSC approval for a compliance plan providing for construction of additional landfill capacity at the E.W. Brown Station,station, closure of impoundments at the Mill Creek, Trimble County, E.W. Brown, and Ghent stations, and construction of process water management facilities at those plants. In addition to the foregoing measures required for compliance with federal CCR rule requirements, LG&E and KU are also proposingreceived KPSC approval for their plans to close impoundments at the retired Green River, Pineville and Tyrone plants to comply with applicable state law requirements. PPL, LKE, LG&E, and KU estimate the cost of these CCR compliance measures at $311 million for LG&E and $661 million for KU. See Note 6 for additional information.increasesadjustments to existing AROs during 2015.2015 and 2016. See Note 1619 in the Registrants' 2016 Form 10-K for additional information. Further increaseschanges to AROs, or changes to current capital plans or to operating costs may be required as estimates are refined based on closure developments, groundwater monitoring results, and regulatory or legal proceedings. Costs relating to this rule are subject to rate recovery.many of LG&E's and KU's facilities and construction projects.projects in the United States. Many of those requirements relate to power plant operations, including requirements related to the treatment of pollutants in effluents prior to discharge, the temperature of effluent discharges and the location, design and construction of cooling water intake structures at generating facilities, standards intended to protect aquatic organisms by reducing capture in the screens attached tothat become trapped at or pulled through cooling water intake structures (impingement) at generating facilities and the water volume brought into the facilities (entrainment).facilities. The requirements could impose significant costs for LG&E and KU, which are subject to rate recovery.On 30, 2015, the EPA released its final effluent limitations guidelinesELGs for wastewater discharge permits for new and existing steam electric generating facilities. The rule provides strict technology-based discharge limitations for control of pollutants in scrubber wastewater, fly ash and bottom ash transport water, mercury control wastewater, gasification wastewater and combustion residual leachate. The new guidelines require deployment of additional control technologies providing physical, chemical and biological treatment of wastewaters. The guidelines also mandate operational changes including "no discharge" requirements for fly ash and bottom ash transport waters and mercury control wastewaters. The implementation date for individual generating stations will be determined by the states on a case-by-case basis according to criteria provided by the EPA, but the requirements of the rule must be fully implemented no later than 2023. It has not been decided how Kentucky intends to integrate the ELGs into its routine permit renewal process. Industry groups, environmental groups, individual companies and others have filed legal challenges to the final rule, which have been consolidated before the 5th CircuitU.S. Court of Appeals.Appeals for the Fifth Circuit. LG&E and KU are developing compliance strategies and schedules. PPL, LKE, LG&E and KU are unable to fully estimate compliance costs or timing at this time, although certain preliminary estimates are included in current capital forecasts for applicable periods. Costs to comply with ELGs or other discharge limits, which are expected to be significant, are subject to rate recovery.49 Clean Water Act Section 316(b)The EPA's final 316(b) rule for existing facilities became effective in October 2014,regulates cooling water intake structuresGroundwater Infiltrationtheir impact on aquatic organisms. States are allowed broad discretion to make site-specific determinations under the rule. The rule requires existing facilities to choose between several options to reduce the impact to aquatic organisms that become trapped against water intake screens (impingement)retired wastewater basins and to determine the intake structure's impact on aquatic organisms pulled through a plant's cooling water system (entrainment). Plants equipped with closed-cycle cooling, an acceptable option, would likely not incur substantial costs. Once-through systems would likely require additional technology to comply with the rule. Based on studies conducted bylandfills at various LG&E and KU to date, all plants will incur only insignificant operational costs. In addition, LG&E's Mill Creek Unit 1 is expected to incur capital costs. PPL, LKE,plants. LG&E and KU have completed, or are evaluating compliance strategies but do not presently expectcompleting, assessments of seepages or groundwater infiltration at various facilities and have completed, or are working with agencies to implement, further testing, monitoring or abatement measures, where applicable. A range of reasonable possible losses cannot currently be estimated. Depending on the compliancecircumstances in each case, certain costs, which aremay be subject to rate recovery, tocould be significant.anywhereanywhere. On February 28, 2017, the President issued an Executive Order directing the EPA and the U.S. Army Corps of Engineers to review the rule for consistency with certain policy directives and rescind or revise it as appropriate. Additionally, the Executive Order directs the agencies to interpret certain jurisdictional provisions in the United States.a manner consistent with specified U.S. Supreme Court precedent. The ultimate outcome of the court's reviewpending judicial and regulatory reviews of the rule remains uncertain. Because of the strict permitting programs already in place in Kentucky and Pennsylvania, the Registrants do not expect the rule to have a significant impact on their operations.The EPA is reassessing its polychlorinated biphenyls (PCB) regulations underwhich allow certain(TSCA). The Act made no changes to the pre-existing TSCA rules as it pertains to polychlorinated biphenyls (PCB). The EPA continues to reassess its PCB articles to remain in use. In Aprilregulations as part of the 2010 the EPA issued an Advanced Notice of Proposed Rulemaking (ANPRM). The EPA's ANPRM rulemaking is to occur in two phases. Only the second part of the rule, currently scheduled for changesNovember 2017, is applicable to these regulations.PPL operations. This part of the rule relates to the use of PCBs in electrical equipment and natural gas pipelines, as well as continued use of PCB-contaminated porous surfaces. Although the first rulemaking could leadwill not directly affect the Registrants' operations, it may indicate certain approaches or principles to occur in the later rulemaking which may affect Registrants' facilities in the United States, including phase-out of some or all equipment containing PCBs. Should such a phase-out of all or some PCB-containing equipment. The EPA has postponed the release of the revised regulations to June 2016. 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, butbe required, the costs, which are subject to rate recovery, could be significant. site, the Metal Bank site and the Brodhead site. Clean-up actions have been or are being undertaken at all of these sites, the costs of which have not been, and are not expected to be, significant to PPL Electric. Should the EPA require different or additional measures in the future, however, or should PPL Electric's share of costs at multi-party sites increase substantially more than expected, the costs could be significant.conditionscondition of such additional sites and are therefore unable to estimate any potential liability they may have or a range of reasonably possible losses, if any, related to these matters.20162017 and December 31, 2015,2016, PPL Electric hashad a recorded liability of $10 million representing its best estimate of the probable loss incurred to remediate additionalthe sites previously owned or operated by PPL Electric predecessors or affiliates.noted above. Depending on the outcome of investigations at sites where investigations have not begun or been completed, or developments at sites for which information is incomplete, theadditional costs of remediation and other liabilities could be significant and mayincurred; however, such costs are not expected to be as much as approximately $30 million.50 (PPL)Labor Union AgreementsWPD's distribution businesses are subject to certain statutoryregulatory environmental requirements. PPL Electric)connectionMarch 2017, members of the IBEW ratified a new five-year labor agreement with the matters discussed below, it may be necessary for WPD to incur significant compliance costs, which costs may be recoverable through rates subject to the approval of Ofgem. PPL believes that WPD has taken and continues to take measures to comply with all applicable environmental laws and regulations.European Union Creosote BanIn 2011, the European Commission amended the European Union Biocides Directive to ban the use of creosote in contact with soil. Creosote is a wood preservative used to extend the life of wooden poles that support power lines. Although European Union member countries were required to pass implementing laws by 2012, the U.K. has not passed an implementing law and there are no legal penalties for failing to do so. If the U.K. were to pass an implementing law, WPD's creosote-treated wood poles would need to be replaced with an acceptable alternative at the time of routine replacement. WPD has 1.4 million wood poles in its system. There are currently no alternative wood preservatives available that are acceptable to the industry and/or regulators. It is not currently anticipated that the U.K. will adopt legislation to implement the creosote ban.Carbon Reduction CommitmentU.K.'s Carbon Reduction Commitment is a binding law that requires WPD to file reports regarding its carbon emissions and to purchase carbon allowances to offset emissions associated with WPD's operations. Failure to do so subjects WPD to fines and penalties. The approximate annual cost of purchasing allowances is £400 thousandcontract covers nearly 1,400 employees and is included in WPD's budgeted expenditures. WPD expects these costs to decrease as 18 fuel sources previously subject to these reporting and emission allowance requirements have been exempted from these requirements. In addition, it is expected that energy efficiency measures will continue to decrease WPD's carbon emissions.Insulating OilIn 2014,effective May 22, 2017. The terms of the U.K. Environment Agency interpreted the Waste Framework Directive (a U.K. law) to classify electrical insulating oil as a hazardous waste. As a result, under the Hazardous Waste Regulations 2005 all sites with electrical equipment (other than pole mounted transformers) must be individually registered and licensed as a hazardous waste site, records must be maintained of all shipments of insulating oil to or from those sites and appropriate personnel must be trained on the license requirements. WPD has submitted, or is in the process of submitting, all required permit applications and is conducting training of WPD personnel as required. Compliance visits have been undertaken by the U.K. Environment Agency with no significant findings or permit violations.51 Discharge at SubstationIn 2014, a leak from a cable joint at a substation resulted in a discharge of a substance known as Linear Alkyl Benzene. The leak did not directly affect any third parties but did reduce the use of River Rea. WPD has taken interim remedial measures and is developing an overall remedial action package in collaboration with the U.K. Environment Agency. WPD has made a voluntary contribution of £25 thousand to a public park under annew labor agreement among WPD, the U.K. Environment Agency and a local wildlife trust. WPD expects to incur additional costs to address this incident, including reimbursement of oversight costs incurred by the U.K. Environment Agency, that are not expected to be significant. 2016.2017. "Exposure" represents the estimated maximum potential amount of future payments that could be required to be made under the guarantee. The probability of expected payment/performance under each of these guarantees is remote except for "WPD guarantee of pension and other obligations of unconsolidated entities" and "Indemnification of lease termination and other divestitures." The total recorded liability at March 31, 2017 and December 31, 2016 was $24$22 million for PPL and $18 million for LKE. The total recorded liability at December 31, 2015, was $25 million for PPL and $18$17 million for LKE. For reporting purposes, on a consolidated basis, all guarantees of PPL Electric, LKE, LG&E and KU also apply to PPL, and all guarantees of LG&E and KU also apply to LKE. Exposure at Expiration March 31, 2016 Date PPL Indemnifications related to the WPD Midlands acquisition (a) WPD indemnifications for entities in liquidation and sales of assets $ 11 (b) 2019 WPD guarantee of pension and other obligations of unconsolidated entities 111 (c) PPL Electric Guarantee of inventory value 26 (d) 2018 LKE Indemnification of lease termination and other divestitures 301 (e) 2021 - 2023 LG&E and KU LG&E and KU guarantee of shortfall related to OVEC (f) Exposure at
March 31, 2017 Expiration
DatePPL Indemnifications related to the WPD Midlands acquisition (a) WPD indemnifications for entities in liquidation and sales of assets $ 10 (b) 2019 WPD guarantee of pension and other obligations of unconsolidated entities 105 (c) PPL Electric Guarantee of inventory value 17 (d) 2018 LKE Indemnification of lease termination and other divestitures 301 (e) 2021 - 2023 LG&E and KU LG&E and KU guarantee of shortfall related to OVEC (f) 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 purchasers52 PLR Contracts/Purchase of Accounts Receivable(PPL Electric)PPL Electric holds competitive solicitations for PLR generation supply. PPL EnergyPlus was awarded a portion of the PLR generation supply through these competitive solicitations. The purchases from PPL EnergyPlus are included in PPL Electric's Statements of Income as "Energy purchases from affiliate" through May 31, 2015, the period through which PPL Electric and PPL EnergyPlus were affiliated entities. As a result of the June 1, 2015 spinoff of PPL Energy Supply and creation of Talen Energy, PPL EnergyPlus (renamed Talen Energy Marketing) is no longer an affiliate of PPL Electric. PPL Electric's purchases from Talen Energy Marketing subsequent to May 31, 2015 are included as purchases from an unaffiliated third party.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. Wholesale suppliers are required to post collateral with PPL Electric when: (a) the market price of electricity to be delivered by the wholesale suppliers exceeds the contract price for the forecasted quantity of electricity to be delivered; and (b) this market price exposure exceeds a contractual credit limit. 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 Talen Energy Marketing.53 PPLsubsidiaries, including LG&E and LKE subsidiariesKU, and each other, as applicable, with administrative, management and support services. PPL EU Services provides the majority of financial, supply chain, human resources and facilities management services primarily to PPL Electric. PPL Services provides certain corporate functions to PPL Electric. For all service companies, the costs of these services are charged to the respective recipients as direct support costs. General costs that cannot be directly attributed to a specific entity are allocated and charged to the respective recipients as indirect support costs. PPL Services and PPL EU Services use a three-factor methodology that includes the 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, including amounts applied to accounts that are further distributed between capital and expense on the books of the recipients, based on methods that are believed to be reasonable. Three Months 2016 2015 PPL Electric from PPL Services $ 37 $ 30 LKE from PPL Services 5 4 PPL Electric from PPL EU Services 17 15 LG&E from LKS 47 51 KU from LKS 56 56 Three Months 2017 2016 PPL Electric from PPL Services $ 51 $ 37 LKE from PPL Services 6 5 PPL Electric from PPL EU Services 18 17 LG&E from LKS 44 47 KU from LKS 44 56 jointly-ownedjointly owned generating units and other miscellaneous charges. Tax settlements between LKE and LG&E and LKE and KU are reimbursed through LKS.20162017 and December 31, 2015, $1472016, $82 million and $54$163 million were outstanding and were reflected in "Notes payable with affiliate" on the Balance Sheets. The interest rate on borrowings is equal to one-month LIBOR plus a spread. The interest rates on the outstanding borrowing at March 31, 20162017 and December 31, 2016 were 2.29% and 2.12%.were 1.94% and 1.74%. Interest on the revolving line of credit was not significant for the three months ended March 31, 2016 and 2015.hasentered into a $400 million ten-year note with a PPL affiliate with an interest rate of 3.5%. At March 31, 2017 and December 31, 2016, the note was reflected in "Long-term debt to affiliate" on the Balance Sheet.98 for discussions regarding intercompany allocations associated with defined benefits.20162017 and 20152016 consisted primarily of gains (losses) on foreign currency contracts to economically hedge PPL's translation risk related to its GBP denominated earnings in the U.K. See Note 1413 for additional information on these derivatives.54 basis.Transfersbasis. Transfers between levels are recognized at end-of-reporting-period values. During the three months ended March 31, 20162017 and 2015,2016, there were no transfers between Level 1 and Level 2. See Note 1 in each Registrant's 20152016 Form 10-K for information on the levels in the fair value hierarchy. March 31, 2016 December 31, 2015 Total Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 PPL Assets Cash and cash equivalents $ 814 $ 814 $ 836 $ 836 Restricted cash and cash equivalents (a) 32 32 33 33 Price risk management assets (b): Foreign currency contracts 249 $ 249 209 $ 209 Cross-currency swaps 188 188 86 86 Total price risk management assets 437 437 295 295 Auction rate securities (c) 2 $ 2 2 $ 2 Total assets $ 1,285 $ 846 $ 437 $ 2 $ 1,166 $ 869 $ 295 $ 2 Liabilities Price risk management liabilities (b): Interest rate swaps $ 95 $ 95 $ 71 $ 71 Foreign currency contracts 3 3 1 1 Total price risk management liabilities $ 98 $ 98 $ 72 $ 72 PPL Electric Assets Cash and cash equivalents $ 34 $ 34 $ 47 $ 47 Restricted cash and cash equivalents (a) 2 2 2 2 Total assets $ 36 $ 36 $ 49 $ 49 LKE Assets Cash and cash equivalents $ 28 $ 28 $ 30 $ 30 Cash collateral posted to counterparties (d) 8 8 9 9 Total assets $ 36 $ 36 $ 39 $ 39 Liabilities Price risk management liabilities: Interest rate swaps $ 53 $ 53 $ 47 $ 47 Total price risk management liabilities $ 53 $ 53 $ 47 $ 47 LG&E Assets Cash and cash equivalents $ 11 $ 11 $ 19 $ 19 Cash collateral posted to counterparties (d) 8 8 9 9 Total assets $ 19 $ 19 $ 28 $ 28 Liabilities Price risk management liabilities: Interest rate swaps $ 53 $ 53 $ 47 $ 47 Total price risk management liabilities $ 53 $ 53 $ 47 $ 47 55 March 31, 2016 December 31, 2015 Total Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 KU Assets Cash and cash equivalents $ 17 $ 17 $ 11 $ 11 Total assets $ 17 $ 17 $ 11 $ 11 March 31, 2017 December 31, 2016 Total Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 PPL Assets Cash and cash equivalents $ 409 $ 409 $ — $ — $ 341 $ 341 $ — $ — Restricted cash and cash equivalents (a) 25 25 — — 26 26 — — Price risk management assets (b): Foreign currency contracts 200 — 200 — 211 — 211 — Cross-currency swaps 179 — 179 — 188 — 188 — Total price risk management assets 379 — 379 — 399 — 399 — Total assets $ 813 $ 434 $ 379 $ — $ 766 $ 367 $ 399 $ — Liabilities Price risk management liabilities (b): Interest rate swaps $ 29 $ — $ 29 $ — $ 31 $ — $ 31 $ — Foreign currency contracts 50 — 50 — 27 — 27 — Total price risk management liabilities $ 79 $ — $ 79 $ — $ 58 $ — $ 58 $ — PPL Electric Assets Cash and cash equivalents $ 20 $ 20 $ — $ — $ 13 $ 13 $ — $ — Restricted cash and cash equivalents (a) 2 2 — — 2 2 — — Total assets $ 22 $ 22 $ — $ — $ 15 $ 15 $ — $ — LKE Assets Cash and cash equivalents $ 15 $ 15 $ — $ — $ 13 $ 13 $ — $ — Cash collateral posted to counterparties (c) 2 2 — — 3 3 — — Total assets $ 17 $ 17 $ — $ — $ 16 $ 16 $ — $ — Liabilities Price risk management liabilities: Interest rate swaps $ 29 $ — $ 29 $ — $ 31 $ — $ 31 $ — Total price risk management liabilities $ 29 $ — $ 29 $ — $ 31 $ — $ 31 $ — LG&E Assets Cash and cash equivalents $ 4 $ 4 $ — $ — $ 5 $ 5 $ — $ — Cash collateral posted to counterparties (c) 2 2 — — 3 3 — — Total assets $ 6 $ 6 $ — $ — $ 8 $ 8 $ — $ — Liabilities Price risk management liabilities: Interest rate swaps $ 29 $ — $ 29 $ — $ 31 $ — $ 31 $ — Total price risk management liabilities $ 29 $ — $ 29 $ — $ 31 $ — $ 31 $ — March 31, 2017 December 31, 2016 Total Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 KU Assets Cash and cash equivalents $ 7 $ 7 $ — $ — $ 7 $ 7 $ — $ — Total assets $ 7 $ 7 $ — $ — $ 7 $ 7 $ — $ — (a) Current portion is included in "Other current assets" and long-term portion is included in "Other noncurrent assets" on the Balance Sheets. (c) Included in "Other noncurrent assets" on the Balance Sheets. March 31, 2016 December 31, 2015 Carrying Carrying Amount (a) Fair Value Amount (a) Fair Value PPL $ 18,559 $ 21,046 $ 19,048 $ 21,218 PPL Electric 2,829 3,216 2,828 3,088 LKE 5,088 5,625 5,088 5,384 LG&E 1,642 1,779 1,642 1,704 KU 2,326 2,587 2,326 2,467 March 31, 2017 December 31, 2016 Fair Value Fair Value PPL $ 18,375 $ 21,646 $ 18,326 $ 21,355 PPL Electric 2,832 3,141 2,831 3,148 LKE 5,066 5,472 5,065 5,439 LG&E 1,618 1,720 1,617 1,710 KU 2,327 2,532 2,327 2,514 (a) Amounts are net of debt issuance costs. valueamounts of other current financial instruments (except for long-term debt due within one year) approximate their fair values because of their short-term debt (including notes between affiliates), when outstanding, approximates fair value due to the variable interest rates associated with the short-term debt and is classified as Level 2.Director - RiskSenior Director-Risk Management, oversees the risk management function. Key risk control activities designed56 ·PPL and its subsidiaries are exposed to interest rate risk associated with forecasted fixed-rate and existing floating-rate debt issuances. PPL and WPD hold over-the-counter cross currency swaps to limit exposure to market fluctuations on interest and principal payments from changes in foreign currency exchange rates and interest rates. LG&E utilizes over-the-counter interest rate swaps to limit exposure to market fluctuations on floating-rate debt. PPL, 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 and derivatives held by defined benefit plans. This risk is significantly mitigated to the extent that the plans are sponsored at, or sponsored on behalf of, the regulated domestic utilities and for certain plans at WPD due to the recovery mechanisms in place.·PPL is exposed to foreign currency exchange risk primarily associated with its investments in and earnings of U.K. affiliates.·PPL Electric is exposed to commodity price risk from its obligation as PLR; however, its PUC-approved cost recovery mechanism substantially eliminates its exposure to this risk. PPL Electric also mitigates its exposure to commodity price risk by entering into full-requirement supply agreements to serve its PLR customers. These supply agreements transfer the commodity price risk associated with the PLR obligation to the energy suppliers.·LG&E's and KU's rates include certain mechanisms for fuel and fuel-related expenses. In addition, LG&E's rates include a mechanism for natural gas supply expenses. These mechanisms generally provide for timely recovery of market price fluctuations associated with these expenses.domestic subsidiaries as described below.·WPD is exposed to volumetric risk which is significantly mitigated as a result of the method of regulation in the U.K.Under the RIIO - ED1 price control period, recovery of such exposure occurs on a two year lag. See Note 1 in PPL's 2015 Form 10-K for additional information on revenue recognition under RIIO - ED1.·PPL Electric, LG&E and KU are exposed to volumetric risk on retail sales, mainly due to weather and other economic conditions for which there is limited mitigation between rate cases.57 ·PPL and its subsidiaries are exposed to equity securities price risk associated with defined benefit plans. This risk is significantly mitigated at the regulated domestic utilities and for certain plans at WPD due to the recovery mechanisms in place.·PPL is exposed to equity securities price risk from future stock sales and/or purchases.LKE (through its subsidiaries LG&E, and KU)KU or PPL Electric defaults on its obligation, those entities would be required to seek replacement power or replacement fuel in the market. In general, subject to regulatory review or other processes, appropriate incremental costs incurred by these entities would be recoverable from customers through applicable rate mechanisms, thus mitigating the financial risk for these entities.ana $13 million obligation to return $15 million of cash collateral under master netting arrangements at March 31, 20162017 and noa $19 million obligation to return cash collateral under master netting arrangements at December 31, 2015. and KU had no obligation to return cash collateral under master netting arrangements at March 31, 20162017 and December 31, 2015.$8 million and $9$2 million of cash collateral under master netting arrangements at March 31, 20162017 and December 31, 2015.KU did not post any$3 million of cash collateral under master netting arrangements at March 31, 2016 and December 31, 2015.58 2016, PPL held an aggregate notional value in interest rate swap contracts of $300 million that range in maturity through 2026.At March 31, 2016,2017, PPL held an aggregate notional value in cross-currency interest rate swap contracts of $1.3 billion$802 million that range in maturity from 20162017 through 2028 to hedge the interest payments and principal of WPD's U.S. dollar-denominated senior notes.20162017 and 2015,2016, PPL had no hedge ineffectiveness associated with cross-currency interest rate swap derivatives.occurring.Foroccurring.hedges and no cash flow hedges reclassified into earnings associated with discontinued cash flow hedges for the three months ended March 31, 2015.2016,2017, the amount of accumulated net unrecognized after-tax gains (losses) on qualifying derivatives that are expected to be reclassified into earnings during the next 12 months wereis insignificant. Amounts are reclassified as the hedged interest expense is recorded.2016,2017, LG&E held contracts with a notional amount of $179$147 million that range in maturity through 2033.TheThere were no such contracts outstanding at March 31, 2016 had a notional amount of £116 million (approximately $180 million based on contracted rates). The settlement dates of these contracts range from April 2016 through June 2016.AOCI, compared to $19 million at December 31, 2015.59 2016,2017, the total exposure hedged by PPL was approximately £2.0£2.8 billion (approximately $3.1$3.8 billion based on contracted rates). These contracts had termination dates ranging from April 20162017 through November 2018.20162017 and December 31, 2015.20152016 Form 10-K for additional information on accounting policies related to derivative instruments.Sheets, excluding derivative instruments of discontinued operations. March 31, 2016 December 31, 2015 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) $ 42 $ 6 $ 24 $ 5 Cross-currency swaps (b) $ 71 $ 35 Foreign currency contracts 12 $ 100 3 10 $ 94 1 Total current 83 42 100 9 45 24 94 6 Noncurrent: Price Risk Management Assets/Liabilities (a): Interest rate swaps (b) 47 42 Cross-currency swaps (b) 117 51 Foreign currency contracts 137 105 Total noncurrent 117 137 47 51 105 42 Total derivatives $ 200 $ 42 $ 237 $ 56 $ 96 $ 24 $ 199 $ 48 March 31, 2017 December 31, 2016 Assets Liabilities Assets Liabilities Assets Liabilities Assets Liabilities Current: Price Risk Management �� Assets/Liabilities (a): Interest rate swaps (b) $ — $ — $ — $ 4 $ — $ — $ — $ 4 Cross-currency swaps (b) 32 — — — 32 — — — Foreign currency contracts — — 63 43 — — 31 21 Total current 32 — 63 47 32 — 31 25 Noncurrent: Price Risk Management Assets/Liabilities (a): Interest rate swaps (b) — — — 25 — — — 27 Cross-currency swaps (b) 147 — — — 156 — — — Foreign currency contracts — — 137 7 — — 180 6 Total noncurrent 147 — 137 32 156 — 180 33 Total derivatives $ 179 $ — $ 200 $ 79 $ 188 $ — $ 211 $ 58 (b) Excludes accrued interest, if applicable. three monthsperiods ended March 31.31, 2017. 2016 2015 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 2016 2015 on Derivative Portion) Testing) Portion) Testing) Cash Flow Hedges: Interest rate swaps $ (18) $ (19) Interest expense $ (1) $ (4) Cross-currency swaps 113 21 Interest expense 1 1 Other income (expense) - net 97 17 Commodity contracts Discontinued operations 7 Total $ 95 $ 2 $ 97 $ 21 Net Investment Hedges: Foreign currency contracts $ 3 $ 16 Derivatives Not Designated as Location of Gain (Loss) Recognized in Hedging Instruments Income on Derivative 2016 2015 Foreign currency contracts Other income (expense) - net $ 60 $ 88 Interest rate swaps Interest expense (2) (2) Total $ 58 $ 86 Derivatives Designated as Location of Gain (Loss) Recognized as Hedging Instruments Regulatory Liabilities/Assets 2016 2015 Interest rate swaps Regulatory assets- noncurrent $ (56) Derivatives Not Designated as Location of Gain (Loss) Recognized as Hedging Instruments Regulatory Liabilities/Assets 2016 2015 Interest rate swaps Regulatory assets - noncurrent $ (6) $ (4) Three Months Derivative
Relationships Location of
Gain (Loss)
Recognized
in Income
on Derivative Gain (Loss)
Reclassified
from AOCI
into
Income
(Effective
Portion) Gain (Loss)
Recognized
in Income
on Derivative
(Ineffective
Portion and
Amount
Excluded from
Effectiveness
Testing) Three Months Cash Flow Hedges: Interest rate swaps $ — Interest expense $ (2 ) $ (1 ) Cross-currency swaps (8 ) Interest expense 1 — Other income (expense) - net 3 — Total $ (8 ) $ 2 $ (1 ) Net Investment Hedges: Foreign currency contracts $ — Derivatives Not Designated as Location of Gain (Loss) Recognized in Hedging Instruments Income on Derivative Three Months Foreign currency contracts Other income (expense) - net $ (43 ) Interest rate swaps Interest expense (2 ) Total $ (45 ) Derivatives Not Designated as Location of Gain (Loss) Recognized as Hedging Instruments Regulatory Liabilities/Assets Three Months Interest rate swaps Regulatory assets - noncurrent $ 2 table presentstables present the pre-tax effect of derivative instruments designated as cash flow hedges that are recognized in income, OCI or regulatory assets and regulatory liabilities for the periods ended March 31. Location of Gain (Loss) Recognized in Derivative Instruments Regulatory Assets 2016 2015 Interest rate swaps Regulatory assets - noncurrent $ (56) The following table presents the pre-tax effect of derivative instruments designated as cash flow hedges that are recognized in regulatory assets for the periods ended March 31. Location of Gain (Loss) Recognized in Derivative Instruments Regulatory Assets 2016 2015 Interest rate swaps Regulatory assets - noncurrent $ (28) 61 The following table presents the pre-tax effect of derivative instruments designated as cash flow hedges that are recognized in regulatory assets for the periods ended March 31. Location of Gain (Loss) Recognized in Derivative Instruments Regulatory Assets 2016 2015 Interest rate swaps Regulatory assets - noncurrent $ (28) Three Months Derivative
Relationships Location of
Gain (Loss)
Recognized
in Income
on Derivative Gain (Loss)
Reclassified
from AOCI
into
Income
(Effective
Portion) Gain (Loss)
Recognized
in Income
on Derivative
(Ineffective
Portion and
Amount
Excluded from
Effectiveness
Testing) Three Months Cash Flow Hedges: Interest rate swaps $ (18 ) Interest expense $ (1 ) $ — Cross-currency swaps 113 Interest expense 1 — Other income (expense) - net 97 — Total $ 95 $ 97 $ — Net Investment Hedges: Foreign currency contracts $ 3 Derivatives Not Designated as Location of Gain (Loss) Recognized in Hedging Instruments Income on Derivative Three Months Foreign currency contracts Other income (expense) - net $ 60 Interest rate swaps Interest expense (2 ) Total $ 58 Derivatives Not Designated as Location of Gain (Loss) Recognized as Hedging Instruments Regulatory Liabilities/Assets Three Months Interest rate swaps Regulatory assets - noncurrent $ (6 ) March 31, 2016 December 31, 2015 Assets Liabilities Assets Liabilities Current: Price Risk Management Assets/Liabilities (a): Interest rate swaps $ 6 $ 5 Total current 6 5 Noncurrent: Price Risk Management Assets/Liabilities (a): Interest rate swaps 47 42 Total noncurrent 47 42 Total derivatives $ 53 $ 47 (a)Represents the location on the Balance Sheets. March 31, 2017 December 31, 2016 Assets Liabilities Assets Liabilities Current: Price Risk Management Assets/Liabilities: Interest rate swaps $ — $ 4 $ — $ 4 Total current — 4 — 4 Noncurrent: Price Risk Management Assets/Liabilities: Interest rate swaps — 25 — 27 Total noncurrent — 25 — 27 Total derivatives $ — $ 29 $ — $ 31 31. Location of Gain (Loss) Recognized in Derivative Instruments Income on Derivatives 2016 2015 Interest rate swaps Interest expense $ (2) $ (2) Location of Gain (Loss) Recognized in Derivative Instruments Regulatory Assets 2016 2015 Interest rate swaps Regulatory assets - noncurrent $ (6) $ (4) Location of Gain (Loss) Recognized in Derivative Instruments Income on Derivatives Three Months Interest rate swaps Interest expense $ (2 ) Location of Gain (Loss) Recognized in Derivative Instruments Regulatory Assets Three Months Interest rate swaps Regulatory assets - noncurrent $ 2 Location of Gain (Loss) Recognized in Derivative Instruments Income on Derivatives Three Months Interest rate swaps Interest expense $ (2 ) Location of Gain (Loss) Recognized in Derivative Instruments Regulatory Assets Three Months Interest rate swaps Regulatory assets - noncurrent $ (6 ) 62 Assets Liabilities Eligible for Offset Eligible for Offset Cash Cash Derivative Collateral Derivative Collateral Gross Instruments Received Net Gross Instruments Pledged Net March 31, 2016 Treasury Derivatives PPL $ 437 $ 45 $ 15 $ 377 $ 98 $ 45 $ 8 $ 45 LKE 53 8 45 LG&E 53 8 45 December 31, 2015 Treasury Derivatives PPL $ 295 $ 25 $ 270 $ 72 $ 25 $ 9 $ 38 LKE 47 9 38 LG&E 47 9 38 Assets Liabilities Eligible for Offset Eligible for Offset Gross Net Gross Net March 31, 2017 Treasury Derivatives PPL $ 379 $ 49 $ 13 $ 317 $ 79 $ 49 $ 2 $ 28 LKE — — — — 29 — 2 27 LG&E — — — — 29 — 2 27 December 31, 2016 Treasury Derivatives PPL $ 399 $ 27 $ 19 $ 353 $ 58 $ 27 $ 3 $ 28 LKE — — — — 31 — 3 28 LG&E — — — — 31 — 3 28 2016,2017, derivative contracts in a net liability position that contain credit risk-related contingent features, collateral posted on those positions and the related effect of a decrease in credit ratings below investment grade are summarized as follows: PPL LKE LG&E Aggregate fair value of derivative instruments in a net liability position with credit risk-related contingent features $ 31 $ 30 $ 30 Aggregate fair value of collateral posted on these derivative instruments 8 8 8 Aggregate fair value of additional collateral requirements in the event of a credit downgrade below investment grade (a) 23 22 22 PPL LKE LG&E Aggregate fair value of derivative instruments in a net liability position with credit risk-related contingent features $ 12 $ 12 $ 12 Aggregate fair value of collateral posted on these derivative instruments 2 2 2 Aggregate fair value of additional collateral requirements in the event of a credit downgrade below investment grade (a) 10 10 10 (a) Includes the effect of net receivables and payables already recorded on the Balance Sheet. 15.20162017 was due to the effect of foreign currency exchange rates on the U.K. Regulated segment.63 PPL LKE LG&E KU Balance at December 31, 2016 $ 488 $ 433 $ 145 $ 288 Accretion 5 5 2 3 Obligations settled (6 ) (6 ) (4 ) (2 ) Balance at March 31, 2017 $ 487 $ 432 $ 143 $ 289 109 for information on the final CCR rulerule. For LKE, LG&E and Note 6 for information on the rate recovery applications with the KPSC. LG&E's and KU'sKU, all ARO accretion and ARO-related depreciation expenseexpenses are recordedreclassified as a regulatory asset. ARO regulatory assets associated with approved ECR projects for CCRs are amortized to expense over a period of 10 to 25 years based on retirement expenditures made related to the obligation. For other AROs, at the time of retirement, the related ARO regulatory asset such that there is no net earnings impact.three month periods ended March 31 were as follows. Foreign Unrealized gains (losses) Defined benefit plans currency Available- Equity Prior Actuarial translation for-sale Qualifying investees' service gain adjustments securities derivatives AOCI costs (loss) Total December 31, 2015 $ (520) $ (7) $ (6) $ (2,195) $ (2,728) Amounts arising during the period (464) 80 (384) Reclassifications from AOCI (78) 31 (47) Net OCI during the period (464) 2 31 (431) March 31, 2016 $ (984) $ (5) $ (6) $ (2,164) $ (3,159) December 31, 2014 $ (286) $ 201 $ 20 $ 1 $ 3 $ (2,213) $ (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) $ 205 $ 9 $ $ 3 $ (2,176) $ (2,311) Defined benefit plans Total PPL December 31, 2016 $ (1,627 ) $ (7 ) $ (1 ) $ (8 ) $ (2,135 ) $ (3,778 ) Amounts arising during the period (24 ) (6 ) — — — (30 ) Reclassifications from AOCI — (1 ) — — 32 31 Net OCI during the period (24 ) (7 ) — — 32 1 March 31, 2017 $ (1,651 ) $ (14 ) $ (1 ) $ (8 ) $ (2,103 ) $ (3,777 ) December 31, 2015 $ (520 ) $ (7 ) $ — $ (6 ) $ (2,195 ) $ (2,728 ) Amounts arising during the period (464 ) 80 — — — (384 ) Reclassifications from AOCI — (78 ) — — 31 (47 ) Net OCI during the period (464 ) 2 — — 31 (431 ) March 31, 2016 $ (984 ) $ (5 ) $ — $ (6 ) $ (2,164 ) $ (3,159 ) three month periods ended March 31. The defined benefit plan components of AOCI are not reflected in their entirety in the Statement of Income during98 for additional information. Three Months Affected Line Item on the Details about AOCI 2016 2015 Statements of Income Available-for-sale securities $ 2 Other Income (Expense) - net Total Pre-tax 2 Income Taxes (1) Total After-tax 1 Qualifying derivatives Interest rate swaps $ (1) (4) Interest Expense Cross-currency swaps 97 17 Other Income (Expense) - net 1 1 Interest Expense Commodity contracts 7 Discontinued operations Total Pre-tax 97 21 Income Taxes (19) (4) Total After-tax 78 17 Three Months Affected Line Item on the Details about AOCI 2017 2016 Statements of Income Qualifying derivatives Interest rate swaps $ (3 ) $ (1 ) Interest Expense Cross-currency swaps 3 97 Other Income (Expense) - net 1 1 Interest Expense Total Pre-tax 1 97 Income Taxes — (19 ) Total After-tax 1 78 Defined benefit plans Net actuarial loss (41 ) (40 ) Total Pre-tax (41 ) (40 ) Income Taxes 9 9 Total After-tax (32 ) (31 ) Total reclassifications during the period $ (31 ) $ 47 Three Months Affected Line Item on the Details about AOCI 2016 2015 Statements of Income Equity investees' AOCI 2 Other Income (Expense) - net Total Pre-tax 2 Income Taxes (1) Total After-tax 1 Defined benefit plans Net actuarial loss (40) (51) Total Pre-tax (40) (51) Income Taxes 9 13 Total After-tax (31) (38) Total reclassifications during the period $ 47 $ (19) Public business entities may early adopt this guidance in annual reporting periods beginning after December 15, 2016. The Registrants expect towill adopt this guidance effective January 1, 2018.impactdisclosure requirements included in the standard, which will result in increased information being provided to enable the users of adopting this guidance, as well asthe financial statements to understand the nature, amount, timing and uncertainty of revenue arising from contracts with customers. The Registrants will determine the transition method they will use.guidance.65 Corporation, PPL Electric, LKE, LG&E and KU. Information contained herein relating to any individual Registrant is filed by such Registrant solely on its own behalf, and no Registrant makes any representation as to information relating to any other Registrant. The specific Registrant to which disclosures are applicable is identified in parenthetical headings in italics above the applicable disclosure or within the applicable disclosure for each Registrant's related activities and disclosures. Within combined disclosures, amounts are disclosed for any Registrantindividual Registrants when significant.20152016 Form 10-K. Capitalized terms and abbreviations are defined in the glossary. Dollars are in millions, except per share data, unless otherwise noted.·"Overview" provides a description of each Registrant's business strategy, a description of key factors expected to impact future earnings and a discussion of important financial and operational developments.·"Results of Operations" for PPL provides a detailed analysis of earnings by segment, and forPPL Electric, LKE, LG&E and KU,includes a summary of earnings. For all Registrants, "Non-GAAP Financial Measures", "Earnings from Ongoing Operations" and "Margins" provide explanations of non-GAAP measures used and reconciliations to the most directly comparable GAAP measure. "Statement of Income Analysis" addresses significant changes in principal line items on the Statements of Income, comparing the three months ended March 31, 2016 with the same period in 2015.·"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. In June 2015, PPL and PPL Energy Supply completed the spinoff of PPL Energy Supply which combined its competitive power generation businesses with those of Riverstone to form a new, stand-alone, publicly traded company named Talen Energy. See Note 8 in PPL's 2015 Form 10-K for additional information.66 SEC registrant)a Registrant). PPL Corporation* the Subsidiary Registrants,PPL Global, LKE and PPL Electric, except that the reportable segments are also allocated certain corporate level financing and other costs that are not included in the results of PPL Global, LKE and PPL Electric. Although PPL Global is not a Registrant, unaudited annual consolidated financial statements for the applicable Subsidiary Registrants. The U.K. Regulated segment has no related Subsidiary Registrant.67 Following the June 1, 2015 spinoff of Energy Supply, PPL completed its strategic transformation tois a fully regulated business model consisting of seven diverse, high-performing utilities. These utilities are located in the U.K., Pennsylvania and Kentucky and each jurisdiction has different regulatory structures and customer classes. The Company believes this diverse portfolio provides strong earnings and dividend growth potential that will create significant value for its shareowners and positions PPL well for continued growth and success.Although ratestrong earnings growth for the foreseeable future, PPL does not expect significantfuture. In 2017, earnings growth from the U.K. Regulated segment underare expected to decline mainly due to the unfavorable impact of lower GBP to U.S. dollar exchange rates. RAV growth is expected in the U.K. Regulated segment through the RIIO-ED1 price control period which beganends on April 1, 2015. Although the U.K. Regulated segment also projects strong RAVMarch 31, 2023 and to result in earnings growth earnings from this segment are expected to be relatively flat from 2015 to 2017 during the transition to RIIO-ED1. Higher revenues resulting from the fast-track bonus are partially offset by higher levels of revenue profiling in the prior price control period (DPCR5) and a lower return on regulatory equity. In addition, starting in 2017, the amount of incentive revenues WPD is able to earn is expected to decline as a result of more stringent reliability and customer service targets established by Ofgem under RIIO-ED1.after 2017. See "Item 1. Business - Segment Information - U.K. Regulated Segment" of PPL's 20152016 Form 10-K for additional information on RIIO-ED1. Duetheforeign currency translation risk. Because WPD's earnings represent such a significant portion of PPL's consolidated earnings, contributed from WPD, PPL enters into foreign currency contracts to economically hedge the value of the GBP versus the U.S. dollar. PPL'sThese hedges do not receive hedge accounting treatment under GAAP. changes in the value of the GBP versus the U.S. dollar related to budgeted earningsthe extent of the U.K. Regulated segment is hedged 93%, 89%their U.S. dollar denominated debt. To manage these risks, PPL generally uses contracts such as forwards, options and 41% for 2016, 2017cross-currency swaps that contain characteristics of both interest rate and 2018.our customers, regulators and shareowners, and a commitment to continue to improve our customer service, reliability and efficiency of operations.68 (PPL)Earnings generated by PPL's U.K. subsidiaries are subject to foreign currency translation risk. The U.K. subsidiaries also have currency exposure to the U.S. dollar to the extent of their U.S. dollar denominated debt. To manage these risks, PPL generally uses contracts such as forwards, options and cross currency swaps that contain characteristics of both interest rate and foreign currency exchange contracts.EarningsU.S. Tax Reform (PPL)PPL's earnings by reportable segments for the three month period ended March 31 were as follows: Three Months 2016 2015 $ Change U.K. Regulated $ 289 $ 375 $ (86) Kentucky Regulated 112 109 3 Pennsylvania Regulated 94 87 7 Corporate and Other (a) (14) (19) 5 Discontinued Operations (b) 95 (95) Net Income $ 481 $ 647 $ (166) (a)Primarily represents financing and certain other costs incurred at the corporate level that have not been allocated or assigned to the segments, which are presented to reconcile segment information to PPL's consolidated results.(b)As a result of the spinoff of PPL Energy Supply, substantially representing PPL's former Supply segment, the earnings of the Supply segment prior to the spinoff are included in Discontinued Operations. See Note 8 to the Financial Statements for additional information.PPL's Earnings from Ongoing Operations by reportable segment for the three month period ended March 31 were as follows: Three Months 2016 2015 $ Change U.K. Regulated $ 265 $ 336 $ (71) Kentucky Regulated 112 109 3 Pennsylvania Regulated 94 87 7 Corporate and Other (a) (13) (13) Earnings from Ongoing Operations $ 458 $ 519 $ (61) See "Non-GAAP Financial Measures" below for PPL's definition of Earnings from Ongoing Operations, as well(All Registrants)reconciliation of this non-GAAP financial measure to Net Income.See "Results of Operations" below for further discussion of PPL's results of operations, details of special items by reportable segments and analysishigh priority of the consolidated resultsU.S. presidential administration. Significant uncertainty exists as to the ultimate changes that may be made, the timing of operations.(PPL)Higher earnings from ongoing operations are expected in 2016 compared with 2015. This increase is primarily attributable to increases in the Kentucky Regulated and Pennsylvania Regulated segments. The following projections and factors underlying these projections (on an after-tax basis) are provided for PPL's segments and the Corporate and Other categorythose changes and the related Registrants.(PPL's impact to the Registrants' financial condition or results of operations. The Registrants are working with industry groups and carefully monitoring related developments in an effort both to have input to the legislative process where possible and plan effectively to respond to any forthcoming changes in a manner that will optimize value for ratepayers and shareowners.Regulated Segment)Excluding special items, relatively flat earningsMembership in European Union projectedextended, would result in 2016 comparedthe treaties governing the EU no longer being applicable to the U.K. with 2015, duethere being no agreement in place governing the U.K.'s relationship with the EU. Under the terms of Article 50, negotiations can only be extended beyond two years if all of the 27 remaining EU states agree to higher gross marginsan extension. Any withdrawal agreement will need to be approved by both the European Council and lower operationthe European Parliament. There remains significant uncertainty as to the ultimate outcome of the withdrawal negotiations and maintenance expense, including pension expense, offset by higher financing costs, depreciation, taxesthe related impact on the U.K. economy and other expenses and lowerthe GBP to U.S. dollar exchange rates.69 (PPL's Kentucky Regulated Segment and LKE, LG&E and KU)Excluding special items, higher earnings are projected in 2016 compared with 2015, primarily driven by electric and gas base rate increases effective July 1, 2015, and higher returns on additional environmental capital investments, partially offset by higher depreciation and financing costs.(PPL's Pennsylvania Regulated Segment and Electric)Excluding special items, higher earnings are projected in 2016 compared with 2015, primarily driven by higher base electricity rates for distribution effective January 1, 2016, and higher transmission margins, partially offset by higher depreciation, higher financing costs and a benefit received in 2015 fromhas executed hedges to mitigate the release of a gross receipts tax reserve.(PPL's Corporate and Other Category)Excluding special items, costs are projected to be relatively flat in 2016 compared with 2015.(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 10foreign exchange risk 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' 2015 Form 10-K for a discussionCompany's U.K. earnings. As of the risks, uncertainties and factors that may impact future earnings.Other Financial and Operational Developments(PPL)U.K. Membership in European UnionSignificant uncertainty exists concerning the outcome of the forthcoming June 23, 2016 referendum in the U.K. as to whether the U.K. will remain a member of the European Union and the impact that outcome could have on the U.S. dollar to GBPApril 20, 2017, PPL's foreign currency exchange rate, RPI and interest rates in the U.K. PPL is well-hedged against certain short-term fluctuations that may occur in the value of the GBP versus the U.S. dollar. As it relatesexposure related to budgeted earnings PPL's 2016 foreign currency exposure is 93%100% hedged for the remainder of 2017 at an average rate of $1.54$1.21 per GBP and 99% hedged for 2018 and 2019 at an average rate of $1.41 and $1.32 per GBP.however,cannot predict either the short-term or long-term impact to foreign exchange rates or long-term impact on PPL's financial condition that may be experienced as a result of the actions taken by the U.K. government to withdraw from the EU, although such impacts could be significant.long-term impact that a decision by the U.K. to leave the European Union wouldfuture regulatory requirements may have on PPL'stheir financial condition or results of operations, although such impact could be significant.Regulatory RequirementsMATS and the Clean Power Plan.MATS. See Note 6, Note 10 and Note 169 to the Financial Statements for a discussion of the other significant environmental matters.All Registrants)Registrantsproposed base rate increases would result in an electricity rate increase of 6.4% at KU and electricity and gas rate increases of 8.5% and 4.2% at LG&E. LG&E's and KU's applications include requests for CPCNs for implementing an Advanced Metering System program and a Distribution Automation program. The applications are based on a forecasted test year of July 1, 2017 through June 30, 2018 and a requested return on equity of 10.23%.impact that future regulatory requirements may have on their financial condition or resultsoutcome of operations.(PPL)Discontinued OperationsThe operations of PPL's Supply segment prior to the June 1, 2015 spinoff are included in "Income (Loss) from Discontinued Operations (net of income taxes)" on the March 2015 Statement of Income.70 See Note 8 to the Financial Statements for additional information related to the spinoff of Energy Supply, including the components of Discontinued Operations.U.K. Distribution Revenue ReductionIn December 2013, WPDLKE and other U.K. DNOs announced agreementsKU)U.K. DepartmentFERC to modify its formula rates to provide for the recovery of Energy and Climate Change and Ofgem to a reduction of £5 per residential customer of electricity distribution revenues that otherwise would have been collected inCCR impoundment closure costs from its departing municipal customers. On December 30, 2016, the regulatory year beginning April 1, 2014. FullFERC accepted the revised rate schedules providing recovery of the revenue reduction, together with the associated carrying cost will occur in the regulatory year beginning April 1, 2016. Under GAAP, WPD does not record a receivable for under recovery of regulated income (which this reduction represents). As a result, earnings for the U.K. Regulated segment were adversely affected by $15 million in 2015. PPL projects earnings in 2016 will be positively affected by $32 million and earnings for 2017 will be positively affected by $17 million.Discount Rate Change for U.K. Pension PlansIn selecting the discount rate for its U.K. pension plans, WPD historically used a single weighted-average discount rate in the calculation of net periodic defined benefit cost. WPD began using individual spot rates to measure service cost and interest cost beginning with the calculation of 2016 net periodic defined benefit cost. For the three months ended Marchcosts effective December 31, 2016, this changesubject to refund, and established limited hearing and settlement judge procedures relating to determining the applicable amortization period. In March 2017, the parties reached a settlement in discount rate resulted in lower net periodic defined benefit costs recognized on PPL's Statement of Income of $11 million ($9 million after-tax or $0.01 per share). Based on current estimates, PPL expects this change to reduce 2016 net periodic defined benefit costs recognized on PPL's Statement of Income by $44 million ($36 million after-tax or $0.05 per share). Assuming interest rates continue to rise, the benefit is highest in the initial year and then falls over time as the additional actuarial losses on liabilities are amortized. See "Application of Critical Accounting Policies-Defined Benefits" in PPL's 2015 Form 10-K for additional information.The discussion for PPL provides a review of results by reportable segment. The "Non-GAAP Financial Measures" discussion provides explanations of non-GAAP financial measures and a reconciliation of non-GAAP financial measures to the most comparable GAAP measure. addressesbelow describes significant changes in principal line items on PPL's Statements of Income, comparing the three months ended March 31, 20162017 with the same period in 2015.2016. The "Segment Earnings, Non-GAAP Financial MeasuresEarnings" and Statement"Margins" discussions for PPL provide a review of Income Analysis" is presented separately for PPL."Statement of Income Analysis""Margins" are presented on a constant U.K. foreign currencyGBP to U.S. dollar exchange rate basis, where applicable, in order to isolate the impact of the change in the exchange rate on the item being explained. Results computed on a constant U.K. foreign currencyGBP to U.S. dollar exchange rate basis are calculated by translating current year results at the prior year weighted-average U.K. foreign currencyGBP to U.S. dollar exchange rate.Subsidiary Registrants)The discussion for each of PPL Electric, LKE, LG&E and KU provides a summaryKU)earnings. Income Analysis, Earnings and Margins" is presented separately for PPL Electric, LKE, LG&E and KU. "Margins" discussion includes a reconciliation of non-GAAP financial measures to "Operating Income" and "Statement of Income Analysis" addressesdiscussion below describes significant changes in principal line items on the Statements of Income comparing the three months ended March 31, 20162017 with the same period in 2015. "Earnings, Margins and Statement2016. The "Earnings" discussion provides a summary of Income Analysis" is presented separately for PPL Electric, LKE, LG&E and KU.71 PPL Segment Earnings, Non-GAAP Financial Measures and Three Months 2017 2016 $ Change Operating Revenues $ 1,951 $ 2,011 $ (60 ) Operating Expenses Operation Fuel 191 197 (6 ) Energy purchases 215 233 (18 ) Other operation and maintenance 432 450 (18 ) Depreciation 242 229 13 Taxes, other than income 75 79 (4 ) Total Operating Expenses 1,155 1,188 (33 ) Other Income (Expense) - net (47 ) 61 (108 ) Interest Expense 217 224 (7 ) Income Taxes 129 179 (50 ) Net Income $ 403 $ 481 $ (78 ) Three Months Domestic: PPL Electric Distribution price (a) $ 12 PPL Electric Distribution volume (3 ) PPL Electric PLR Revenue (b) (21 ) PPL Electric Transmission Formula Rate 1 LKE Volumes (37 ) LKE Fuel and other energy prices (c) 11 LKE DSM 5 Other (1 ) Total Domestic (33 ) U.K.: Price 58 Volume 9 Foreign currency exchange rates (96 ) Other 2 Total U.K. (27 ) Total $ (60 ) (a) Distribution rider prices resulted in increases of $12 million for the three months ended March 31, 2017. (b) Decreased primarily due to lower energy purchase prices at PPL Electric. (c) Increased due to higher recoveries of fuel and energy purchases primarily as a result of higher commodity costs at LKE. Three Months Domestic: PPL Electric Act 129 $ 5 PPL Electric payroll-related costs 2 PPL Electric bad debts (3 ) Stock compensation expense 6 Other 5 U.K.: Network maintenance (7 ) Foreign currency exchange rates (8 ) Pension (a) (17 ) Other (1 ) Total $ (18 ) (a) The decrease was primarily due to an increase in expected returns on higher asset balances and lower interest costs due to a lower discount rate. Three Months Long-term debt interest expense $ 4 Foreign currency exchange rates (15 ) Other 4 Total $ (7 ) Three Months Change in pre-tax income at current period tax rates $ (39 ) U.S. income tax on foreign earnings - net of foreign tax credit (7 ) Impact of U.K. Finance Acts (3 ) Depreciation not normalized (2 ) Stock-based compensation 5 Other (4 ) Total $ (50 ) Three Months 2017 2016 $ Change U.K. Regulated $ 286 $ 289 $ (3 ) Kentucky Regulated 95 112 (17 ) Pennsylvania Regulated 79 94 (15 ) Corporate and Other (a) (57 ) (14 ) (43 ) Net Income $ 403 $ 481 $ (78 ) (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. The change in 2017 compared with 2016 is primarily due to the utilization of an estimated annual effective tax rate, which requires the tax benefits realized in the current period to be recognized over the annual period. This impact is expected to reverse through the remainder of the year. Three Months 2017 2016 $ Change U.K. Regulated $ 307 $ 265 $ 42 Kentucky Regulated 96 112 (16 ) Pennsylvania Regulated 79 94 (15 ) Corporate and Other (57 ) (13 ) (44 ) Earnings from Ongoing Operations $ 425 $ 458 $ (33 ) allocatedcertain acquisition-related financing costs. The U.K. Regulated segment represents 60%71% of PPL's Net Income for the three months ended March 31, 20162017 and 41%39% of PPL's assets at March 31, 2016. Three Months 2016 2015 $ Change Operating revenues $ 595 $ 697 $ (102) Other operation and maintenance 97 110 (13) Depreciation 60 59 1 Taxes, other than income 35 36 (1) Total operating expenses 192 205 (13) Other Income (Expense) - net 61 88 (27) Interest Expense 106 100 6 Income Taxes 69 105 (36) Net Income 289 375 (86) Less: Special Items 24 39 (15) Earnings from Ongoing Operations $ 265 $ 336 $ (71) Three Months 2017 2016 $ Change Operating revenues $ 568 $ 595 $ (27 ) Other operation and maintenance 64 97 (33 ) Depreciation 55 60 (5 ) Taxes, other than income 31 35 (4 ) Total operating expenses 150 192 (42 ) Other Income (Expense) - net (43 ) 61 (104 ) Interest Expense 94 106 (12 ) Income Taxes (5 ) 69 (74 ) Net Income 286 289 (3 ) Less: Special Items (21 ) 24 (45 ) Earnings from Ongoing Operations $ 307 $ 265 $ 42 three month periodperiods ended March 31. Income Statement Three Months Line Item 2016 2015 Other Income Foreign currency-related economic hedges, net of tax of ($13), ($20) (a) (Expense)-net $ 24 $ 37 Other operation WPD Midlands acquisition-related adjustment, net of tax of $0, ($1) and maintenance 2 Total $ 24 $ 39 Income Statement Line Item Three Months 2017 2016 Foreign currency-related economic hedges, net of tax of $12, ($13) (a) Other Income (Expense) - net $ (21 ) $ 24 Total Special Items $ (21 ) $ 24 (a) Represents unrealized gains (losses) on contracts that economically hedge anticipated GBP-denominated earnings. Three MonthsU.K.Gross margins$(69)Other operation and maintenance11Depreciation(4)Interest expense(12)Other1Income taxes22U.S.Interest expense and other(1)Income taxes1Foreign currency exchange, after-tax(20)Earnings from Ongoing Operations(71)Special items, after-tax(15)Net Income$(86)72 Three Months U.K. Gross margins $ 70 Other operation and maintenance 24 Depreciation (5 ) Interest expense (2 ) Other (2 ) Income taxes (5 ) U.S. Interest expense and other (1 ) Income taxes 34 Foreign currency exchange, after-tax (71 ) Earnings from Ongoing Operations 42 Special items, after-tax (45 ) Net Income $ (3 ) ·"Non-GAAP Financial Measures - Margins"Margins - Changes in Margins" for an explanation of U.K. Gross Margins.·Lower other operation and maintenance primarily due to $22 million from lower pension expense, partially offset by $8 million from higher network maintenance expense.·lower pre-tax income.23%24% of PPL's Net Income for the three months ended March 31, 20162017 and 36% of PPL's assets at March 31, 2016. Three Months 2016 2015 $ Change Operating revenues $ 826 $ 899 $ (73) Fuel 198 253 (55) Energy purchases 66 92 (26) Other operation and maintenance 202 209 (7) Depreciation 99 95 4 Taxes, other than income 15 14 1 Total operating expenses 580 663 (83) Other Income (Expense) - net (1) (1) Interest Expense 65 55 10 Income Taxes 68 71 (3) Net Income 112 109 3 Less: Special Items (a) Earnings from Ongoing Operations $ 112 $ 109 $ 3 Three Months 2017 2016 $ Change Operating revenues $ 809 $ 826 $ (17 ) Fuel 191 198 (7 ) Energy purchases 69 66 3 Other operation and maintenance 207 202 5 Depreciation 105 99 6 Taxes, other than income 16 15 1 Total operating expenses 588 580 8 Other Income (Expense) - net (2 ) (1 ) (1 ) Interest Expense 65 65 — Income Taxes 59 68 (9 ) Net Income 95 112 (17 ) Less: Special Items (1 ) — (1 ) Earnings from Ongoing Operations $ 96 $ 112 $ (16 ) Income Statement Line Item Three Months 2017 2016 Adjustment to investment, net of tax of $0, $0 (a) Other Income (Expense) - net $ (1 ) $ — Total Special Items $ (1 ) $ — (a) There are no items that management considers special for the periods presented.KU recorded a write-off of an equity method investment.a separate linelines and not in their respective Statement of Income line items. Three Months Kentucky Gross Margins $ 3 Other operation and maintenance 7 Depreciation 1 Taxes, other than income (1) Interest Expense (10) Income Taxes 3 Net Income $ 3 ·See "Non-GAAP Financial Measures - Margins - Changes in Margins" for an explanation of Kentucky Gross Margins.·Higher interest expense primarily due to the September 2015 issuance of $550 million of incremental First Mortgage Bonds by LG&E and KU, higher interest rates on the September 2015 issuance of $500 million of First Mortgage Bonds by LG&E and KU used to retire the same amount of First Mortgage Bonds in November 2015 and $400 million of notes refinanced by LKE in November 2015.·Lower other operation and maintenance primarily due to lower coal plant operations and maintenance expense as a result of units retired in 2015 at the Cane Run and Green River plants.73 Three Months Kentucky Gross Margins $ (18 ) Other operation and maintenance (3 ) Depreciation (2 ) Taxes, other than income (2 ) Income Taxes 9 Earnings from Ongoing Operations (16 ) Special items, after-tax (1 ) Net Income $ (17 ) 20162017 and 23%25% of PPL's assets at March 31, 2016. Three Months 2016 2015 $ Change Operating revenues $ 585 $ 630 $ (45) Energy purchases External 167 227 (60) Intersegment 9 (9) Other operation and maintenance 150 133 17 Depreciation 59 51 8 Taxes, other than income 29 35 (6) Total operating expenses 405 455 (50) Other Income (Expense) - net 3 2 1 Interest Expense 33 31 2 Income Taxes 56 59 (3) Net Income 94 87 7 Less: Special Items (a) Earnings from Ongoing Operations $ 94 $ 87 $ 7 Three Months 2017 2016 $ Change Operating revenues $ 573 $ 585 $ (12 ) Energy purchases 146 167 (21 ) Other operation and maintenance 164 150 14 Depreciation 75 59 16 Taxes, other than income 29 29 — Total operating expenses 414 405 9 Other Income (Expense) - net 1 3 (2 ) Interest Expense 33 33 — Income Taxes 48 56 (8 ) Net Income 79 94 (15 ) Less: Special Items (a) — — — Earnings from Ongoing Operations $ 79 $ 94 $ (15 ) (a) There are no items that management considers special for the periods presented. wereare 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 $ 30 Other operation and maintenance (18) Depreciation (8) Taxes, other than income 1 Other Income (Expense) - net 1 Interest Expense (2) Income Taxes 3 Net Income $ 7 ·See "Non-GAAP Financial Measures - Margins - Changes in Margins" for an explanation of Pennsylvania Gross Delivery Margins.·Higher other operation and maintenance expense primarily due to $9 million of higher corporate service costs allocated to PPL Electric, $4 million of higher costs for additional work done by outside vendors and $3 million of higher vegetation management expenses.· Three Months Pennsylvania Gross Margins $ 1 Other operation and maintenance (10 ) Depreciation (12 ) Other Income (Expense) - net (2 ) Income Taxes 8 Net Income $ (15 ) to the ongoing efforts to improve reliability and replace aging infrastructure, net of retirements.Non-GAAP Financial MeasuresManagement's Discussion and Analysis includes financial information prepared in accordance with GAAP, as well as non-GAAP financial measures including "Earnings from Ongoing Operations" and "Gross Margins" as further described below.Earnings from Ongoing OperationsManagement utilizes "Earnings from Ongoing Operations" as a non-GAAP financial measure and it should not be considered as an alternative to net income, which is an indicator of operating performance determined in accordance with GAAP. PPL believes that Earnings from Ongoing Operations is useful and meaningful to investors because it provides management's74 view of PPL's earnings performance as another criterion in making investment decisions. PPL's management also uses Earnings from Ongoing Operations in measuring certain corporate performance goals. Other companies may use different measures to present financial performance. Earnings from Ongoing Operations is adjusted for the impact of special items. Special items include: • Unrealized gains or losses on foreign currency-related economic hedges (as discussed below). • Supply segment discontinued operations. • Gains and losses on sales of assets not in the ordinary course of business. • Impairment charges. • Workforce reduction and other restructuring effects. • Acquisition and divestiture-related adjustments. • Other charges or credits that are, in management's view, not reflective of the company's ongoing operations.Unrealized gains or losses on foreign currency-related economic hedges include the changes in fair value of foreign currency contracts used to economically hedge GBP-denominated anticipated earnings. The changes in fair value of these contracts each period are recognized immediately within GAAP earnings. Management believes that excluding these amounts from Earnings from Ongoing Operations until settlement of the contracts provides a better matching of the financial impacts of those contracts with the economic value of PPL's underlying hedged earnings. See Note 14 to the Financial Statementsongoing efforts to improve reliability and "Risk Management" below for additional information on foreign currency-related economic activity.Income (Loss)"Income" for the three month periods ended March 31. 2016 U.K. KY PA Corporate Discontinued Regulated Regulated Regulated and Other Operations Total Net Income (Loss) $ 289 $ 112 $ 94 $ (14) $ 481 Less: Special Items (expense) benefit: Foreign currency-related economic hedges 24 24 Spinoff of the Supply segment (1) (1) Total Special Items 24 (1) 23 Earnings from Ongoing Operations $ 265 $ 112 $ 94 $ (13) $ 458 2015 U.K. KY PA Corporate Discontinued Regulated Regulated Regulated and Other Operations Total Net Income (Loss) $ 375 $ 109 $ 87 $ (19) $ 95 $ 647 Less: Special Items (expense) benefit: Foreign currency-related economic hedges 37 37 Spinoff of the Supply segment: Discontinued operations 95 95 Employee transitional services (2) (2) Transition and transaction costs (3) (3) Separation benefits (1) (1) WPD Midlands acquisition-related adjustment 2 2 Total Special Items 39 (6) 95 128 Earnings from Ongoing Operations $ 336 $ 109 $ 87 $ (13) $ $ 519 2017 Three Months Total Net Income $ 286 $ 95 $ 79 $ (57 ) $ 403 Less: Special Items (expense) benefit: Foreign currency-related economic hedges, net of tax of $12 (21 ) — — — (21 ) Adjustment to investment, net of tax of $0 — (1 ) — — (1 ) Total Special Items (21 ) (1 ) — — (22 ) Earnings from Ongoing Operations $ 307 $ 96 $ 79 $ (57 ) $ 425 2016 Three Months Total Net Income $ 289 $ 112 $ 94 $ (14 ) $ 481 Less: Special Items (expense) benefit: Foreign currency-related economic hedges, net of tax of ($13) 24 — — — 24 Spinoff of the Supply segment, net of tax of $1 — — — (1 ) (1 ) Total Special Items 24 — — (1 ) 23 Earnings from Ongoing Operations $ 265 $ 112 $ 94 $ (13 ) $ 458 businesses.·"U.K. Gross Margins" is a single financial performance measure of the electricity distribution operations of the U.K. Regulated segment. In calculating this measure, direct costs such as National Grid connection charges and Ofgem license fees (recorded in "Other operation and maintenance" on the Statements of Income) are deducted from operating revenues,75 ·"Kentucky Gross Margins" is a single financial performance measure of the electricity generation, transmission and distribution operations of the Kentucky Regulated segment, LKE, LG&E and KU, as well as the Kentucky Regulated segment's, LKE's and LG&E's distribution and sale of natural gas. In calculating this measure, fuel, energy purchases and certain variable costs of production (recorded in "Other operation and maintenance" on the Statements of Income) are deducted from revenues. In addition, certain other expenses, recorded in "Other operation and maintenance", "Depreciation" and "Taxes, other than income" on the Statements of Income, associated with approved cost recovery mechanisms are offset against the recovery of those expenses, which are included in revenues. These mechanisms allow for direct recovery of these expenses and, in some cases, returns on capital investments and performance incentives. As a result, this measure represents the net revenues from electricity and gas operations.·"Pennsylvania Gross Delivery Margins" is a single financial performance measure of the electricity transmission and distribution delivery operations of the Pennsylvania Regulated segment and PPL Electric. In calculating this measure, utility revenues and expenses associated with approved recovery mechanisms, including energy provided as a PLR, are offset with minimal impact on earnings. Costs associated with these mechanisms are recorded in "Energy purchases," "Other operation and maintenance," (which are primarily Act 129 and Universal Service program costs), and "Taxes, other than income," which is primarily gross receipts tax. This performance measure includes PLR energy purchases by PPL Electric from PPL EnergyPlus, which are reflected in "Energy purchases from affiliate" in the reconciliation tables. As a result of the June 2015 spinoff of PPL Energy Supply and the formation of Talen Energy, PPL EnergyPlus (renamed Talen Energy Marketing) is no longer an affiliate of PPL Electric. PPL Electric's purchases from Talen Energy Marketing subsequent to May 31, 2015 are reflected in "Energy Purchases" in the reconciliation tables. This measure represents the net revenues from the Pennsylvania Regulated segment's and PPL Electric's electricity delivery operations.Reconciliation of MarginsThe 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. 2016 Three Months 2015 Three Months U.K. Kentucky PA Gross U.K. Kentucky PA Gross Gross Gross Delivery Operating Gross Gross Delivery Operating Margins Margins Margins Other (a) Income (b) Margins Margins Margins Other (a) Income (b) Operating Revenues $ 584 (c) $ 826 $ 585 $ 16 $ 2,011 $ 686 (c) $ 899 $ 630 $ 15 $ 2,230 Operating Expenses Fuel 198 (1) 197 253 253 Energy purchases 66 167 233 92 227 10 329 Energy purchases from affiliate 9 (9) Other operation and maintenance 27 24 25 374 450 29 24 26 377 456 Depreciation 12 217 229 7 209 216 Taxes, other than income 1 28 50 79 1 33 52 86 Total Operating Expenses 27 301 220 640 1,188 29 377 295 639 1,340 Total $ 557 $ 525 $ 365 $ (624) $ 823 $ 657 $ 522 $ 335 $ (624) $ 890 (a)Represents amounts excluded from Margins.(b)As reported on the Statements of Income.(c)Excludes $11 million of ancillary revenues for the three months ended March 31, 2016 and 2015.76 Three Months 2016 2015 $ Change U.K. U.K. Gross Margins $ 557 $ 657 $ (100) Impact of changes in foreign currency exchange rates (31) Change in U.K. Gross Margins excluding impact of foreign currency exchange rates $ (69) Kentucky Regulated Kentucky Gross Margins LG&E $ 228 $ 230 $ (2) KU 297 292 5 LKE $ 525 $ 522 $ 3 Pennsylvania Regulated Pennsylvania Gross Delivery Margins Distribution $ 258 $ 242 $ 16 Transmission 107 93 14 Total $ 365 $ 335 $ 30 Three Months 2017 2016 $ Change U.K. Regulated U.K. Gross Margins $ 536 $ 557 $ (21 ) Impact of changes in foreign currency exchange rates (91 ) U.K. Gross Margins excluding impact of foreign currency exchange rates $ 70 Kentucky Regulated Kentucky Gross Margins LG&E $ 226 $ 228 $ (2 ) KU 281 297 (16 ) Total Kentucky Gross Margins $ 507 $ 525 $ (18 ) Pennsylvania Regulated Pennsylvania Gross Margins Distribution $ 258 $ 258 $ — Transmission 108 107 1 Total Pennsylvania Gross Margins $ 366 $ 365 $ 1 decreasedincreased primarily due to $69$58 million from the April 1, 20152016 price decrease resulting from the commencement of RIIO-ED1 and lower volumes of $16 million due to milder weather during the first quarter of 2016 partially offset by $16increase, which includes $14 million of other revenue adjustments.increaseddecreased primarily due to higher base rates$22 million of $36 million ($33 million at KU and $3 million at LG&E). The increase in base rates was the result of new rates approved by the KPSC effective July 1, 2015. The increase was partially offset by a decrease inlower electricity sales volumes of $29 million ($19 million at KU and $10 million at LG&E) driven by milder weather during the first quarter of 2016.Pennsylvania Gross Delivery MarginsDistributionDistribution margins increased primarily due to $39 million of higher base rates, effective January 1, 2016 as a result of the 2015 rate case, partially offset by a $23 million unfavorable impact of milder weather in the first quarter of 2016.TransmissionTransmission margins2017 ($5 million at LG&E and $17 million at KU).reliability. 2017 Three Months Other (a) Operating Revenues $ 559 (c) $ 809 $ 573 $ 10 $ 1,951 Operating Expenses Fuel — 191 — — 191 Energy purchases — 69 146 — 215 Other operation and maintenance 23 26 29 354 432 Depreciation — 16 4 222 242 Taxes, other than income — — 28 47 75 Total Operating Expenses 23 302 207 623 1,155 Total $ 536 $ 507 $ 366 $ (613 ) $ 796 2016 Three Months Other (a) Operating Revenues $ 584 (c) $ 826 $ 585 $ 16 $ 2,011 Operating Expenses Fuel — 198 — (1 ) 197 Energy purchases — 66 167 — 233 Other operation and maintenance 27 24 25 374 450 Depreciation — 12 — 217 229 Taxes, other than income — 1 28 50 79 Total Operating Expenses 27 301 220 640 1,188 Total $ 557 $ 525 $ 365 $ (624 ) $ 823 (a) Represents amounts excluded from Margins. (b) As reported on the Statements of Income. (c) Excludes ancillary revenues of $9 million and $11 million for the three months ended March 31, 2017 and 2016. --Certain Operating RevenuesEarnings and Expenses Included in "Margins"The following Marginsline items and their related decreases duringAnalysis Three Months 2017 2016 $ Change Operating Revenues $ 573 $ 585 $ (12 ) Operating Expenses Operation Energy purchases 146 167 (21 ) Other operation and maintenance 164 150 14 Depreciation 75 59 16 Taxes, other than income 29 29 — Total Operating Expenses 414 405 9 Other Income (Expense) - net 1 3 (2 ) Interest Expense 33 33 — Income Taxes 48 56 (8 ) Net Income $ 79 $ 94 $ (15 ) 20162017 compared with 2015 are included above within "Margins" and are not separately discussed.77 Three Months Distribution Price (a) $ 12 Distribution volume (3 ) PLR (b) (21 ) Transmission Formula Rate 1 Other (1 ) Total $ (12 ) Three Months(a) Operating Revenues$(219)Fuel(56)Energy purchases(96)Other Operation and MaintenanceThe increase (decrease)Distribution rider prices resulted in other operation and maintenanceincreases of $12 million for the periodthree months ended March 31, 2016 compared with 2015 was due to:Three MonthsDomestic:LKE coal plant operations and maintenance$(7)LKE pension(4)PPL Electric Act 129 costs incurred(4)PPL Electric vegetation management3PPL Electric payroll-related costs(3)PPL Electric contractor-related expenses5PPL Electric storm costs3Corporate costs previously included in discontinued operations (a)9Other5U.K.:Network maintenance8Pension expense(22)Foreign currency exchange rates (b)(5)Other6Total$(6)(a)The increase in 2016 compared with 2015 was due to corporate costs allocated to PPL Energy Supply (and included in discontinued operations) prior to the spin. As a result of the spinoff on June 1, 2015, these corporate costs now remain in continuing operations.2017.(b) The offsetting impacts from foreign currency hedging instruments are recorded in "Other Income (Expense)- net."Decrease primarily due to lower energy prices as described below.DepreciationDepreciation increased$13$21 million for the three months ended March 31, 20162017 compared with 2015,2016 due to lower PLR prices of $23 million, partially offset by higher PLR volumes of $3 million. Three Months Corporate service costs $ 8 Contractor-related expenses 2 Payroll-related costs 2 Act 129 5 Bad debts (3 ) Total $ 14 primarily atrelated to the domestic utilities,ongoing efforts to ensure the reliability of the delivery system and the replacement of aging infrastructure, net of retirements.Other (Expense) - netOtherTaxes(expense) - net decreased by $27 milliontaxes for the three monthsperiod ended March 31, 20162017 compared with 2015, primarily2016 was due to changes in realized and unrealized gains on foreign currency contracts to economically hedge GBP denominated earnings from WPD.Interest Expense The increase (decrease) in interest expense for the period ended March 31, 2016 compared with 2015 was due to: Three Months Long-term debt interest expense (a) $ 23 Foreign currency exchange rates (5) Other (3) Total $ 15 Three Months Change in pre-tax income at current period tax rates $ (10 ) Depreciation not normalized (1 ) Stock-based compensation 3 Total $ (8 ) Three Months Ended March 31, 2017 2016 Net Income $ 79 $ 94 Special items, gains (losses), after-tax (a) — — (a)The increase was primarily due to debt issuances at WPD in November 2015, PPL Electric in October 2015 and LG&E and KU in September 2015 as well as higher interest rates on bonds refinanced in September 2015 at LG&E and KU.78 Income Taxes The increase (decrease) in income taxes for the period ended March 31, 2016 compared with 2015 was due to:Three MonthsChange in pre-tax income at current period tax rates$(39)Impact of U.K. income tax rates8Stock-based compensation (a)(8)Other1Total$(38)(a)During the three months ended March 31, 2016, PPL recorded an $8 million tax benefit related to the application of new stock-based compensation accounting guidance. See Note 2 to the Financial Statements for additional information.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) includes the results of operations of PPL Energy Supply, which was spun off from PPL on June 1, 2015 and substantially represents PPL's former Supply segment. See "Discontinued Operations" in Note 8 to the Financial Statements for additional information.PPL Electric: Earnings, Margins and Statement of Income AnalysisEarnings Three Months Ended March 31, 2016 2015 Net Income $ 94 $ 87 Special item, gains (losses), after-tax (a) (a) There are no items management considers special for the periods presented. increaseddecreased for the three month period in 20162017 compared with 20152016 primarily due to higher distribution margins, primarily as a result of higher base rates effective January 1, 2016 and higher transmission margins, primarily due to returns on additional capital investments, partially offset by the impact of unfavorable weather, higher other operation and maintenance expense, primarily due to higher corporate service costs, and higher depreciation.Delivery Margins on a separate line and not in their respective Statement of Income line items. Three Months Pennsylvania Gross Delivery Margins $ 30 Other operation and maintenance (18) Depreciation (8) Taxes, other than income 1 Other Income (Expense) - net 1 Interest Expense (2) Income Taxes 3 Net Income $ 7 Three Months Pennsylvania Gross Margins $ 1 Other operation and maintenance (10 ) Depreciation (12 ) Other Income (Expense) - net (2 ) Income Taxes 8 Net Income $ (15 ) Non-GAAP Financial Measures - Margins" for information on why management believes this measure is useful and for explanations of the underlying drivers of the changes between periods.79 2016 Three Months 2015 Three Months PA Gross PA Gross Delivery Operating Delivery Operating Margins Other (a) Income (b) Margins Other (a) Income (b) Operating Revenues $ 585 $ 585 $ 630 $ 630 Operating Expenses Energy purchases 167 167 227 227 Energy purchases from affiliate 9 9 Other operation and maintenance 25 $ 125 150 26 $ 107 133 Depreciation 59 59 51 51 Taxes, other than income 28 1 29 33 2 35 Total Operating Expenses 220 185 405 295 160 455 Total $ 365 $ (185) $ 180 $ 335 $ (160) $ 175 2017 Three Months 2016 Three Months Other (a) Other (a) Operating Revenues $ 573 $ — $ 573 $ 585 $ — $ 585 Operating Expenses Energy purchases 146 — 146 167 — 167 Other operation and maintenance 29 135 164 25 125 150 Depreciation 4 71 75 — 59 59 Taxes, other than income 28 1 29 28 1 29 Total Operating Expenses 207 207 414 220 185 405 Total $ 366 $ (207 ) $ 159 $ 365 $ (185 ) $ 180 (a) Represents amounts excluded from Margins. (b) As reported on the Statements of Income. --Certain Operating RevenuesEarnings and Expenses Included in "Margins"The following Marginsline items and their related decrease duringAnalysis Three Months 2017 2016 $ Change Operating Revenues $ 809 $ 826 $ (17 ) Operating Expenses Operation Fuel 191 198 (7 ) Energy purchases 69 66 3 Other operation and maintenance 207 202 5 Depreciation 105 99 6 Taxes, other than income 16 15 1 Total Operating Expenses 588 580 8 Other Income (Expense) - net (2 ) (1 ) (1 ) Interest Expense 49 49 — Interest Expense with Affiliate 4 4 — Income Taxes 63 72 (9 ) Net Income $ 103 $ 120 $ (17 ) 20162017 compared with 2015 are included above within "Margins" and are not separately discussed.2016 was due to: Three Months Volumes $ (37 ) Fuel and other energy prices (a) 11 DSM 5 Other 4 Total $ (17 ) Three Months(a) Operating revenues$(45)EnergyIncrease due to higher recoveries of fuel and energy purchases(60)Energy purchases from affiliate(9) due to higher commodity costs.Other Operation and Maintenance The increase (decrease) in other operation and maintenance for the period ended March 31, 2016 compared with 2015 was due to: Three Months Corporate service costs $ 9 Contractor-related expenses 5 Vegetation management 3 Storm costs 3 Payroll-related costs (3) Act 129 (4) Other 4 Total $ 17 DepreciationDepreciation increased by $820162017 compared with 2015,2016 primarily due to additional assets placed into service, related to the ongoing efforts to ensure the reliability of the delivery system and the replacement of aging infrastructure, net of retirements. Other Than Taxes, other than income taxes decreased by $6$9 million for the three months ended March 31, 20162017 compared with 2015,2016 primarily due to lower Pennsylvania gross receipts tax expense as a result of a decrease in retail electric revenues. This tax is included in "Pennsylvania Gross Delivery Margins."80 Interest ExpenseInterest expense increased by $2 million for the three months ended March 31, 2016 compared with 2015, primarily due to the issuance of first mortgage bonds in October 2015.Income Taxes The increase (decrease) in income taxes for the period ended March 31, 2016 compared with 2015 was due to: Three Months Change in pre-tax income at current period tax rates $ 2 Stock-based compensation (a) (5) Total $ (3) (a)During the three months ended March 31, 2016, PPL Electric recorded a $5 million tax benefit related to the application of new stock-based compensation accounting guidance. See Note 2 to the Financial Statements for additional information.See Note 5to the Financial Statements for additional information.LKE: Three Months Ended March 31, 2017 2016 Net Income $ 103 $ 120 Special items, gains (losses), after-tax (1 ) — Margins and Statement of Income AnalysisEarnings Three Months Ended March 31, 2016 2015 Net Income $ 120 $ 117 Earnings increaseddecreased for the three month period in 20162017 compared with 20152016 primarily due to lower electricity sales volumes driven by milder weather. Three Months Margins $ (18 ) Other operation and maintenance (3 ) Depreciation (2 ) Taxes, other than income (2 ) Income Taxes 9 Special items, gains (losses), after-tax (a) (1 ) Net Income $ (17 ) (a) See PPL's "Results of Operations - Segment Earnings - Kentucky Regulated Segment" for details of the special item. 2017 Three Months 2016 Three Months Margins Other (a) Operating
Income (b) Margins Other (a) Operating
Income (b)Operating Revenues $ 809 $ — $ 809 $ 826 $ — $ 826 Operating Expenses Fuel 191 — 191 198 — 198 Energy purchases 69 — 69 66 — 66 Other operation and maintenance 26 181 207 24 178 202 Depreciation 16 89 105 12 87 99 Taxes, other than income — 16 16 1 14 15 Total Operating Expenses 302 286 588 301 279 580 Total $ 507 $ (286 ) $ 221 $ 525 $ (279 ) $ 246 (a) Represents amounts excluded from Margins. (b) As reported on the Statements of Income. Three Months 2017 2016 $ Change Operating Revenues Retail and wholesale $ 374 $ 375 $ (1 ) Electric revenue from affiliate 17 11 6 Total Operating Revenues 391 386 5 Operating Expenses Operation Fuel 80 78 2 Energy purchases 64 62 2 Energy purchases from affiliate 2 2 — Other operation and maintenance 87 87 — Depreciation 44 41 3 Taxes, other than income 8 8 — Total Operating Expenses 285 278 7 Other Income (Expense) - net (2 ) — (2 ) Interest Expense 17 17 — Income Taxes 33 35 (2 ) Net Income $ 54 $ 56 $ (2 ) Three Months Volumes $ (5 ) Fuel and other energy prices 4 DSM 3 Other 3 Total $ 5 Three Months Ended March 31, 2017 2016 Net Income $ 54 $ 56 Special items, gains (losses), after-tax (a) — — (a) There are no items management considers special for the periods presented. base electricity rates effective July 1, 2015depreciation expense, fuel costs and lower other operation and maintenanceenergy purchases, partially offset by lowerhigher native load sales volumes,to KU due to unfavorable weather, and higher financing costs. Three Months Margins $ 3 Other operation and maintenance 7 Depreciation 1 Taxes, other than income (1) Interest expense (11) Income taxes 4 Total $ 3 Three Months Margins $ (2 ) Other operation and maintenance 1 Taxes, other than income (1 ) Other Income (Expense) - net (2 ) Income Taxes 2 Net Income $ (2 ) Non-GAAP Financial Measures - Margins" for an explanation of why management believes this measure is useful and the factors underlying changes between periods. Within PPL's discussion, LKE'sLG&E's Margins are referred to asincluded in "Kentucky Gross Margins."tables containtable contains 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 31.81 2016 Three Months 2015 Three Months Operating Operating Margins Other (a) Income (b) Margins Other (a) Income (b) Operating Revenues $ 826 $ 826 $ 899 $ 899 Operating Expenses Fuel 198 198 253 253 Energy purchases 66 66 92 92 Other operation and maintenance 24 $ 178 202 24 $ 185 209 Depreciation 12 87 99 7 88 95 Taxes, other than income 1 14 15 1 13 14 Total Operating Expenses 301 279 580 377 286 663 Total $ 525 $ (279) $ 246 $ 522 $ (286) $ 236 2017 Three Months 2016 Three Months Margins Other (a) Operating Income (b) Margins Other (a) Operating Income (b) Operating Revenues $ 391 $ — $ 391 $ 386 $ — $ 386 Operating Expenses Fuel 80 — 80 78 — 78 Energy purchases, including affiliate 66 — 66 64 — 64 Other operation and maintenance 10 77 87 9 78 87 Depreciation 9 35 44 6 35 41 Taxes, other than income — 8 8 1 7 8 Total Operating Expenses 165 120 285 158 120 278 Total $ 226 $ (120 ) $ 106 $ 228 $ (120 ) $ 108 (a) Represents amounts excluded from Margins. (b) As reported on the Statements of Income. --Certain Operating RevenuesEarnings and Expenses included in "Margins"The following Marginsline items and their related decrease duringAnalysis Three Months 2017 2016 $ Change Operating Revenues Retail and wholesale $ 435 $ 451 $ (16 ) Electric revenue from affiliate 2 2 — Total Operating Revenues 437 453 (16 ) Operating Expenses Operation Fuel 111 120 (9 ) Energy purchases 5 4 1 Energy purchases from affiliate 17 11 6 Other operation and maintenance 109 106 3 Depreciation 60 58 2 Taxes, other than income 8 7 1 Total Operating Expenses 310 306 4 Other Income (Expense) - net (1 ) (2 ) 1 Interest Expense 24 24 — Income Taxes 39 46 (7 ) Net Income $ 63 $ 75 $ (12 ) 20162017 compared with 2015 are included above within "Margins" and are not separately discussed.2016 was due to: Three Months Volumes $ (24 ) Fuel and other energy prices (a) 6 DSM 2 Total $ (16 ) Three Months(a) Operating revenues$(73)Fuel(55)Energy purchases(26)Increase due to higher recoveries of fuel due to higher commodity costs.Other Operation and MaintenanceThe decrease in other operation and maintenance for the period ended March 31, 2016 compared with 2015 was due to:Three MonthsCoal plant operations and maintenance$(7)Pension(4)Other4Total$(7)Interest ExpenseInterest expense increased $1120162017 compared with 20152016 primarily due to a $16 million decrease in volumes, driven by milder weather, partially offset by a $7 million increase in fuel prices.September 2015 issuance of $550 million of incremental First Mortgage Bonds bythree months ended March 31, 2017 compared with 2016 primarily due to higher native load purchases from LG&E and KU, higher interest rates ondue to timing of plant outages.September 2015 issuance of $500 million of First Mortgage Bonds by LG&E and KU usedthree months ended March 31, 2017 compared with 2016 primarily due to retire the same amount of First Mortgage Bonds in November 2015 and $400 million of notes refinanced in November 2015. Three Months Ended March 31, 2017 2016 Net Income $ 63 $ 75 Special items, gains (losses), after-tax (1 ) — Margins and Statement of Income AnalysisEarnings Three Months Ended March 31, 2016 2015 Net Income $ 56 $ 53 Earnings increaseddecreased for the three month period in 20162017 compared with 20152016 primarily due to lower other operationsales volumes driven by milder weather and maintenance and lower depreciationhigher energy purchases from affiliate, partially offset by lower sales volumes, due to unfavorable weather,fuel expense and higher financing costs.82 Three Months Margins $ (2) Other operation and maintenance 7 Depreciation 4 Taxes, other than income (1) Other income (expense) - net 1 Interest expense (4) Income taxes (2) Total $ 3 Three Months Margins $ (16 ) Other operation and maintenance (2 ) Depreciation (1 ) Taxes, other than income (1 ) Other Income (Expense) - net 2 Income Taxes 7 Special items, gains (losses), after-tax (a) (1 ) Net Income $ (12 ) (a) See PPL's "Results of Operations - Segment Earnings - Kentucky Regulated Segment" for details of the special item. - Non-GAAP Financial Measures - Margins" for an explanation of why management believes this measure is useful and the factors underlying 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. 2016 Three Months 2015 Three Months Operating Operating Margins Other (a) Income (b) Margins Other (a) Income (b) Operating Revenues $ 386 $ 386 $ 439 $ 439 Operating Expenses Fuel 78 78 103 103 Energy purchases, including affiliate 64 64 91 91 Other operation and maintenance 9 $ 78 87 11 $ 85 96 Depreciation 6 35 41 3 39 42 Taxes, other than income 1 7 �� 8 1 6 7 Total Operating Expenses 158 120 278 209 130 339 Total $ 228 $ (120) $ 108 $ 230 $ (130) $ 100 (a)Represents amounts excluded from Margins.(b)As reported on the Statements of Income.Statement of Income Analysis --Certain Operating Revenues and Expenses included in "Margins"The following Statement of Income line items and their related decrease during the period ended March 31, 2016 compared with 2015 are included above within "Margins" and are not separately discussed.Three MonthsRetail and wholesale$(42)Electric revenue from affiliate(11)Fuel(25)Energy purchases(26)Energy purchases from affiliate(1)Other Operation and MaintenanceThe decrease in other operation and maintenance for the period ended March 31, 2016 compared with 2015 was due to:Three MonthsCoal plant operations and maintenance$(7)Other(2)Total$(9)83 Interest ExpenseInterest expense increased $4 million for the three months ended March 31, 2016 compared with 2015 primarily due to the September 2015 issuance of $300 million of incremental First Mortgage Bonds and higher interest rates on the September 2015 issuance of $250 million of First Mortgage Bonds used to retire the same amount of First Mortgage Bonds in November 2015.KU: Earnings, Margins and Statement of Income AnalysisEarnings Three Months Ended March 31, 2016 2015 Net Income $ 75 $ 78 Earnings decreased for the three month period in 2016 compared with 2015 primarily due to lower sales volumes, due to unfavorable weather, and higher financing costs partially offset by higher base electricity rates effective July 1, 2015.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 and not in their respective Statement of Income line items. Three Months Margins $ 5 Depreciation (3) Other income (expense)- net (1) Interest expense (5) Income taxes 1 Total $ (3) 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 - Non-GAAP Financial Measures - Margins" for an explanation of why management believes this measure is useful and the factors underlying changes between periods. Within PPL's discussion, KU's Margins are included in "Kentucky Gross Margins."tables containtable contains 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. 2016 Three Months 2015 Three Months Operating Operating Margins Other (a) Income (b) Margins Other (a) Income (b) Operating Revenues $ 453 $ 453 $ 485 $ 485 Operating Expenses Fuel 120 120 150 150 Energy purchases, including affiliate 15 15 26 26 Other operation and maintenance 15 $ 91 106 13 $ 91 104 Depreciation 6 52 58 4 49 53 Taxes, other than income 7 7 7 7 Total Operating Expenses 156 150 306 193 147 340 Total $ 297 $ (150) $ 147 $ 292 $ (147) $ 145 2017 Three Months 2016 Three Months Margins Other (a) Operating
Income (b) Margins Other (a) Operating
Income (b)Operating Revenues $ 437 $ — $ 437 $ 453 $ — $ 453 Operating Expenses Fuel 111 — 111 120 — 120 Energy purchases, including affiliate 22 — 22 15 — 15 Other operation and maintenance 16 93 109 15 91 106 Depreciation 7 53 60 6 52 58 Taxes, other than income — 8 8 — 7 7 Total Operating Expenses 156 154 310 156 150 306 Total $ 281 $ (154 ) $ 127 $ 297 $ (150 ) $ 147 (a) Represents amounts excluded from Margins. (b) As reported on the Statements of Income. 84 StatementIncome Analysis --Certain Operating Revenuesthis Item 2 in this Form 10-Q is presented on a combined basis, providing information, as applicable, for all Registrants.Expenses included in "Margins"Statement of Income line items and their related decrease during the period ended March 31, 2016 compared with 2015 are included above within "Margins" and are not separately discussed.Three MonthsRetail and wholesale$(31)Electric revenue from affiliate(1)Fuel(30)Energy purchases from affiliate(11)DepreciationDepreciation increased $5 million for the three months ended March 31, 2016 compared with 2015 primarily due to additional assets placed into service, net of retirements.Interest ExpenseInterest expense increased $5 million for the three months ended March 31, 2016 compared with 2015 primarily due to the September 2015 issuance of $250 million of incremental First Mortgage Bonds and higher interest rates on the September 2015 issuance of $250 million of First Mortgage Bonds used to retire the same amount of First Mortgage Bonds in November 2015.at: PPL (a) PPL Electric LKE LG&E KU March 31, 2017 Cash and cash equivalents $ 409 $ 20 $ 15 $ 4 $ 7 Short-term debt 1,666 499 243 207 36 Notes payable with affiliate — 82 — — December 31, 2016 Cash and cash equivalents $ 341 $ 13 $ 13 $ 5 $ 7 Short-term debt 923 295 185 169 16 Notes payable with affiliate — 163 — — (a) At March 31, 2016, $4522017, $51 million of cash and cash equivalents were denominated in GBP. If these amounts would be remitted as dividends, PPL would not anticipate a material incremental U.S. tax cost. Historically, dividends paid by foreign subsidiaries have been limited to distributions of the current year's earnings. See Note 5 to the Financial Statements in PPL's 20152016 Form 10-K for additional information on undistributed earnings of WPD.(PPL)The Statements of Cash Flows separately report the cash flows of the discontinued operations in 2015. The "Operating Activities", "Investing Activities" and "Financing Activities" sections below included only the cash flows of continuing operations.periodsperiod ended March 31, and the changes between periods, were as follows.85 PPL PPL Electric LKE LG&E KU 2016 Operating activities $ 557 $ 124 $ 303 $ 157 $ 195 Investing activities (661) (215) (219) (109) (110) Financing activities 115 78 (86) (56) (79) 2015 Operating activities $ 452 $ (45) $ 451 $ 251 $ 229 Investing activities (860) (225) (317) (173) (144) Financing activities (66) 91 (115) (71) (73) Change - Cash Provided (Used) Operating activities $ 105 $ 169 $ (148) $ (94) $ (34) Investing activities 199 10 98 64 34 Financing activities 181 (13) 29 15 (6) PPL PPL Electric LKE LG&E KU 2017 Operating activities $ 135 $ 55 $ 312 $ 142 $ 139 Investing activities (677 ) (276 ) (184 ) (94 ) (89 ) Financing activities 607 228 (126 ) (49 ) (50 ) 2016 Operating activities $ 557 $ 124 $ 303 $ 157 $ 195 Investing activities (661 ) (215 ) (219 ) (109 ) (110 ) Financing activities 115 78 (86 ) (56 ) (79 ) Change - Cash Provided (Used) Operating activities $ (422 ) $ (69 ) $ 9 $ (15 ) $ (56 ) Investing activities (16 ) (61 ) 35 15 21 Financing activities 492 150 (40 ) 7 29 20162017 compared with 20152016 were as follows. PPL PPL Electric LKE LG&E KU Change - Cash Provided (Used) Net income $ (71) $ 7 $ 3 $ 3 $ (3) Non-cash components 57 65 (23) (10) 4 Working capital 78 76 (148) (98) (41) Defined benefit plan funding 74 33 20 9 5 Other operating activities (33) (12) 2 1 Total $ 105 $ 169 $ (148) $ (94) $ (34) PPL PPL Electric LKE LG&E KU Change - Cash Provided (Used) Net income $ (78 ) $ (15 ) $ (17 ) $ (2 ) $ (12 ) Non-cash components 90 1 (13 ) (4 ) (5 ) Working capital (36 ) (31 ) 28 (15 ) (29 ) Defined benefit plan funding (397 ) (24 ) 11 12 (9 ) Other operating activities (1 ) — — (6 ) (1 ) Total $ (422 ) $ (69 ) $ 9 $ (15 ) $ (56 ) from continuing operations in 2016 increased $1052017 decreased $422 million in 2016 compared with 2015.·Income from continuing operations decreased by $71 million between the periods. This was offset by an increase of $57 million in non-cash components. The net $14 million decrease from net income and non-cash components in 2016 compared with 2015 reflects lower U.K. gross margins, partially offset by higher Pennsylvania gross delivery margins.·The $78 million increase in cash from changes in working capital was primarily due to lower growth in accounts receivable, primarily due to milder winter weather in 2016.·Defined benefit plan funding was $74 million lower in 2016.2016 increased $1692017 decreased $69 million compared with 2015.·The net increase in non-cash components of $65 million in 2016 compared with 2015 is primarily due to an increase in deferred income taxes, primarily due to an increase related to book versus tax plant timing differences.·The $76 million increase in cash from changes in working capital was primarily due to lower growth in accounts receivable and a lower decline in accounts payable, due to timing of payments.·Defined benefit plan funding was $33 million lower in 2016.2016 decreased $1482017 increased $9 million compared with 2015.86 ·The decrease in cash from working capital was driven primarily by a lower payment received from PPL for the use of prior year excess tax depreciation deductions.20162017 decreased $94$15 million compared with 2015.·The decrease in cash from working capital was driven primarily by a lower payment received from LKE for the use of prior year excess tax depreciation deductions.20162017 decreased $34$56 million compared with 2015.·The decrease in cash from working capital was driven primarily by a lower payment received from LKE for the use of prior year excess tax depreciation deductions.registrants.Registrants. The change in cash used in expenditures for PP&E for the three months ended March 31, 20162017 compared with 20152016 was as follows. PPL PPL Electric LKE LG&E KU Decrease $ 177 $ 10 $ 102 $ 64 $ 38 PPL PPL Electric LKE LG&E KU Decrease (Increase) $ (21 ) $ (60 ) $ 35 $ 15 $ 21 decreaseincrease in expenditures was due to higher project expenditures at WPD and PPL Electric partially offset by lower project expenditures at WPD, PPL Electric Utilities, LG&E and KU.KU and a decrease in foreign currency exchange rates. The decreaseincrease in project expenditures for WPD was primarily due to a decreasean increase in expenditures to enhance system reliability associated with the end of the DPCR5 price control period and changes in foreign currency exchange rates.reliability. The decreaseincrease in expenditures for PPL Electric was primarily due to the completion of the Susquehanna-Roseland transmissionsmart meter implementation project and near completion of the Northeast Poconovarious enhancement reliability project.projects. The decrease in expenditures for LG&E was primarily due to thereduced spending for environmental air projects at LG&E's Mill Creek plant. The decrease in expenditures for KU was relatedprimarily due to thereduced spending for environmental air projects at KU's Ghent plant and the CCR project at KU's E.W. Brown plant.20162017 compared with 2015 was2016 were as follows. PPL PPL Electric LKE LG&E KU Change - Cash Provided (Used) Stock issuances/redemptions, net $ 7 �� Dividends (5) $ (1) $ (2) $ (34) Capital contributions/distributions, net (50) $ (6) 30 Change in short-term debt, net 188 40 (58) (12) 29 Notes payable with affiliate 94 Other financing activities (9) (2) (1) (1) (1) Total $ 181 $ (13) $ 29 $ 15 $ (6) PPL PPL Electric LKE LG&E KU Change - Cash Provided (Used) Debt issuance/retirement, net $ 64 $ — $ — $ — $ — Stock issuances/redemptions, net 31 — — — — Dividends (3 ) (31 ) — (62 ) (6 ) Capital contributions/distributions, net — 100 (73 ) (30 ) — Change in short-term debt, net 393 79 207 98 34 Notes payable with affiliate — — (174 ) — — Other financing activities 7 2 — 1 1 Total $ 492 $ 150 $ (40 ) $ 7 $ 29 20162017 short and long-term debt activity, equity transactions and PPL dividends. See the Registrants' 20152016 Form 10-K for information on 20152016 activity.87 2016,2017, the total committed borrowing capacity and the use of that capacity under these credit facilities was as follows: Letters of Credit and Committed Commercial Unused Capacity Borrowed Paper Issued Capacity PPL Capital Funding Credit Facilities $ 1,150 $ 790 $ 360 PPL Electric Credit Facility 400 126 274 LKE Credit Facility 75 75 LG&E Credit Facility 500 82 418 KU Credit Facilities 598 232 366 Total LKE 1,173 314 859 Total U.S. Credit Facilities (a) $ 2,723 $ 1,230 $ 1,493 Total U.K. Credit Facilities (b) £ 1,055 £ 181 £ 880 Borrowed PPL Capital Funding Credit Facilities $ 1,400 $ — $ 206 $ 1,194 PPL Electric Credit Facility 650 — 500 150 LKE Credit Facility 75 — — 75 LG&E Credit Facility 500 — 207 293 KU Credit Facilities 598 — 234 364 Total LKE 1,173 — 441 732 Total U.S. Credit Facilities (a) $ 3,223 $ — $ 1,147 $ 2,076 Total U.K. Credit Facilities (b) £ 1,285 £ 591 £ — £ 694 (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 - 11%10%, PPL Electric - 7%, LKE - 21%, LG&E - 7% and KU - 37%.(b) The amounts borrowed at March 31, 20162017 were a USD-denominated borrowing of $200 million and a GPB-denominated borrowingGBP-denominated borrowings which equated to $51$535 million. The unused capacity reflects the USD-denominated borrowing amount borrowed in GBP of £138 million as of the date borrowed. At March 31, 2016,2017, the USD equivalent of unused capacity under the U.K. committed credit facilities was $1.2 billion.$864 million.The commitments under the U.K. credit facilities are provided by a diverse bank group, with no one bank providing more than 13% of the total committed capacity. Committed Other Used Unused Capacity Borrowed Capacity Capacity LKE Credit Facility $ 225 $ 147 $ 78 LG&E Money Pool (a) 500 $ 82 418 KU Money Pool (a) 500 34 466 Borrowed LKE Credit Facility $ 225 $ 82 $ — $ 143 LG&E Money Pool (a) 500 — 207 293 KU Money Pool (a) 500 — 36 464 (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 aggregate short-term debt limit for each utility at $500 million from any source.all covered sources.1110 to the Financial Statements for further discussion of intercompany credit facilities.2016:88 Commercial Paper Unused Capacity Issuances Capacity PPL Capital Funding $ 1,000 $ 773 $ 227 PPL Electric 400 125 275 LG&E 350 82 268 KU 350 34 316 Total LKE 700 116 584 Total PPL $ 2,100 $ 1,014 $ 1,086 Capacity PPL Capital Funding $ 1,000 $ 189 $ 811 PPL Electric 650 499 151 LG&E 350 207 143 KU 350 36 314 Total LKE 700 243 457 Total PPL $ 2,350 $ 931 $ 1,419 (PPL and PPL Electric)2016,2017, WPD (South Wales) issued £50 million of 0.01% Index-linked Senior Notes due 2029. WPD (South Wales) received proceeds of £53 million, which equated to $64 million at the LCIDA issued $116time of issuance, net of fees and including a premium. The principal amount of the notes is adjusted based on changes in a specified index, as detailed in the terms of the related indenture. The proceeds will be used for general corporate purposes.Refunding Bonds, 2003 Series 2016AA (Louisville Gas and Electric Company Project) due 2029 and $108 million of Pollution Control Revenue Refunding Bonds, Series 2016B due 20272033 on behalf of PPL Electric.LG&E. The bonds were issued bearingremarketed at a long term rate and will bear interest at an initial term rate of 0.90%1.50% through their mandatory purchase datesdate of SeptemberApril 1, 2017 and August 15, 2017. The proceeds of the bonds were used to redeem $116 million of 4.70% Pollution Control Revenue Refunding Bonds, 2005 Series A due 2029 and $108 million of 4.75% Pollution Control Revenue Refunding Bonds, 2005 Series B due 2027 previously issued by the LCIDA on behalf of PPL Electric.In connection with the issuance of each of these new series of LCIDA bonds, PPL Electric entered into a loan agreement with the LCIDA pursuant to which the LCIDA has loaned to PPL Electric the proceeds of the LCIDA bonds on payment terms that correspond to the LCIDA bonds. In order to secure its obligations under the loan agreement, PPL Electric issued $224 million of First Mortgage Bonds under its 2001 Mortgage Indenture, which also have payment terms that correspond to the LCIDA bonds.periodsperiod ended March 31, 2016 and 2015,2017, PPL did not issue any shares underissued the following:Number of shares (in thousands) 1,364 Average share price $ 36.66 Net Proceeds $ 50 2016,2017, PPL declared a quarterly common stock dividend, payable April 1, 2016,3, 2017, of 3839.5 cents per share (equivalent to $1.52$1.58 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.2016:89 (PPL)In February 2016, Moody's and S&P affirmed their commercial paper ratings for PPL Capital Funding's $1.0 billion commercial paper program.February 2016,January 2017, Moody's and S&P affirmed their commercial paper ratings for PPL Electric's $400$650 million commercial paper program.February 2016,March 2017, Moody's and S&P assignedconfirmed ratings of A1 and A to LCIDA's $116 million 0.90%LG&E's 2003 Series A Pollution Control Revenue Refunding Bonds due 2029 and $108 million 0.90% Pollution Control Revenue Refunding Bonds due 2027, issued on behalf of PPL Electric.1413 to the Financial Statements for a discussion of "Credit Risk-Related Contingent Features," including a discussion of the potential additional collateral requirements for PPL, LKE and LG&E for derivative contracts in a net liability position at March 31, 2016.20152016 Form 10-K.1312 and 1413 to the Financial Statements for information about the Registrants' risk management objectives, valuation techniques and accounting designations.2016. 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) $ 300 $ (42) $ (5) 2026 Cross-currency swaps (d) 1,262 189 (141) 2028 Economic hedges Interest rate swaps (e) 179 (54) (2) 2033 LKE Economic hedges Interest rate swaps (e) 179 (54) (2) 2033 LG&E Economic hedges Interest rate swaps (e) 179 (54) (2) 2033 PPL Cash flow hedges Cross-currency swaps (c) $ 802 $ 182 $ (90 ) 2028 Economic hedges Interest rate swaps (d) 147 (30 ) (2 ) 2033 LKE Economic hedges Interest rate swaps (d) 147 (30 ) (2 ) 2033 LG&E Economic hedges Interest rate swaps (d) 147 (30 ) (2 ) 2033 (a) Includes accrued interest, if applicable. (b) Effects of adverse movements decrease assets or increase liabilities, as applicable, which could result in an asset becoming a liability. Sensitivities represent a 10% adverse movement in interest rates, except for cross-currency swaps which also includes a 10% adverse movement in foreign currency exchange rates. (c)Changes in the fair value of such cash flow hedges are recorded in equity or as regulatory assets or regulatory liabilities, if recoverable through regulated rates, and reclassified into earnings in the same period during which the item being hedged affects earnings.(d)(c)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)(d) 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. 20162017 was insignificant for PPL, PPL Electric, LKE, LG&E and KU. The estimated impact of a 10% adverse movement in interest rates on the fair value of debt at March 31, 20162017 is shown below. 10% Adverse Movement in Rates PPL $ 669 PPL Electric 143 LKE 185 LG&E 68 KU 102 PPL $ 563 PPL Electric 137 LKE 180 LG&E 66 KU 99 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) £ 116 $ 12 $ (17) 2016 Economic hedges (c) 1,961 234 (266) 2018 Economic hedges (b) £ 2,840 $ 150 $ (333 ) 2019 (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)(b)To economically hedge the translation risk of expected earnings denominated in GBP. 91 ·PPL Electric is exposed to commodity price risk from its obligation as PLR; however, its PUC-approved cost recovery mechanism substantially eliminates its exposure to this risk. PPL Electric also mitigates its exposure to commodity price risk by entering into full-requirement supply agreements to serve its PLR customers. These supply agreements transfer the commodity price risk associated with the PLR obligation to the energy suppliers.·LG&E's and KU's rates include certain mechanisms for fuel and fuel-related expenses. In addition, LG&E's rates include a mechanism for natural gas supply expenses. These mechanisms generally provide for timely recovery of market price fluctuations associated with these expenses.domestic subsidiaries as described below.·WPD is exposed to volumetric risk which is significantly mitigated as a result of the method of regulation in the U.K.Under the RIIO - ED1 price control period, recovery of such exposure occurs on a two year lag. See Note 1 in PPL's 2015 Form 10-K for additional information on revenue recognition under RIIO - ED1.·PPL Electric, LG&E and KU are exposed to volumetric risk on retail sales, mainly due to weather and other economic conditions for which there is limited mitigation between rate cases.1312 and 1413 to the Financial Statements in this Form 10-Q and "Risk"Item 7. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition - Risk Management - Credit Risk" in the Registrants' 20152016 Form 10-K for additional information.decrease of $657 million to net liabilities. 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 $158$557 million decrease to PP&Elong-term debt and $41a $100 million decrease to goodwill partially offset by a decrease of $122 million toother net liabilities. The impact of foreign currency translation is recorded in AOCI.1110 to the Financial Statements for additional information on related party transactions for PPL Electric, LKE, LG&E and KU.92 109 to the Financial Statements for a discussion of the more significant environmental matters including:·Legal Matters,·Climate Change,·Coal Combustion Residuals,·Effluent Limitations Guidelines,·Mercury and Air Toxics Standards,·National Ambient Air Quality Standards, and·Superfund and Other Remediation.20152016 Form 10-K for additional information on environmental matters. (All(All Registrants)Notes 2 and 18Note 17 to the Financial Statements for a discussion of new accounting guidance adopted and pending adoption.20152016 Form 10-K for a discussion of each critical accounting policy. PPL PPL PPLElectric ElectricLKE LKELG&E LG&EKU Defined Benefits XXXXXLoss AccrualsX X X X X Income Taxes X X X X X Goodwill Impairment X X X X AROs X X X X Price Risk Management X Regulatory Assets and Liabilities X X X X X Revenue Recognition - Unbilled Revenue X X X X 93 2016,2017, 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.·"Item 3. Legal Proceedings" in each Registrant's 2015 Form 10-K; and·Notes 6 and 10 to the Financial Statements.20152016 Form 10-K.4(a)- Pollution Control Facilities Loan AgreementsThird Amendment to Revolving Credit Agreement, dated as of March 1, 201617, 2017, to the Existing Credit Agreement, dated as of March 26, 2014, between PPL ElectricCapital Funding, Inc., the Borrower, PPL Corporation, the Guarantor, The Bank of Nova Scotia, as the Administrative Agent, Sole Lead Arranger and the Lehigh County Industrial Development Authority (Series 2016 A Bonds)Sole Bookrunner, and each Lender- £230,000,000 Term Loan Agreement, dated March 28, 2017, between Western Power Distribution plc and HSBC Bank, PLC and Mizuho Bank, Ltd., as Mandated Lead Arrangers, and Mizuho Bank, Ltd., as Facility Agent (Exhibit 4(a)10.1 to PPL Electric Utilities Corporation Form 8-K Report (File No. 1-905)1-11459) dated March 10, 2016)April 5, 2017)4(b)- Pollution Control Facilities Loan Agreements dated as of March 1, 2016 between PPL Electric and the Lehigh County Industrial Development Authority (Series 2016 B Bonds) (Exhibit 4(b) to PPL Electric Utilities Corporation Form 8-K Report (File No. 1-905) dated March 10, 2016)4(c)-Supplemental Indenture No. 18, dated as of March 1, 2016, of PPL Electric Utilities Corporation to The Bank of New York Mellon, as Trustee (Exhibit 4(c) to PPL Electric Utilities Corporation Form 8-K Report (File No. 1-905) dated March 10, 2016)*12(a)-PPL Corporation and Subsidiaries Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock DividendsDividends- PPL Electric Utilities Corporation and Subsidiaries Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends - LG&E and KU Energy LLC and Subsidiaries Computation of Ratio of Earnings to Fixed Charges - Louisville Gas and Electric Company Computation of Ratio of Earnings to Fixed Charges - Kentucky Utilities Company Computation of Ratio of Earnings to Fixed Charges Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, for the quarterly period ended March 31, 2016,2017, filed by the following officers for the following companies: - 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 Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, for the quarterly period ended March 31, 2016,2017, furnished by the following officers for the following companies: - 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 95 PPL Corporation (Registrant) Date: April 29, 2016May 4, 2017 /s/ Stephen K. Breininger Vice President and Controller (Principal Accounting Officer) PPL Electric Utilities Corporation (Registrant) Date: April 29, 2016May 4, 2017 /s/ Marlene C. Beers 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: April 29, 2016May 4, 2017 /s/ Kent W. Blake (Principal Financial Officer and Principal Accounting Officer)