

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 ~~June 30, 2016~~March 31, 2017
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

Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days.



PPL Corporation	Yes X	No
PPL Electric Utilities Corporation	Yes X	No
LG&E and KU Energy LLC	Yes X	No
Louisville Gas and Electric Company	Yes X	No
Kentucky Utilities Company	Yes X	No

Indicate by check mark whether the registrants have submitted electronically and posted on their corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrants were required to submit and post such files).



PPL Corporation	Yes X	No
PPL Electric Utilities Corporation	Yes X	No
LG&E and KU Energy LLC	Yes X	No
Louisville Gas and Electric Company	Yes X	No
Kentucky Utilities Company	Yes X	No

Indicate by check mark whether the registrants are large accelerated filers, accelerated filers, non-accelerated filers, ~~or a~~ smaller reporting ~~company.~~companies or emerging growth companies. See the definitions of "large accelerated filer," "accelerated ~~filer"~~filer," "smaller reporting company" and ~~"smaller reporting~~"emerging growth company" in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrants are shell companies (as defined in Rule 12b-2 of the Exchange Act).

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.



	PPL Corporation	Common stock, $0.01 par value, ~~678,094,068~~683,174,778 shares outstanding at ~~August 3, 2016.~~April 27, 2017.

	PPL Electric Utilities Corporation	Common stock, no par value, 66,368,056 shares outstanding and all held by PPL Corporation at ~~August 3, 2016.~~April 27, 2017.

	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 ~~August 3, 2016.~~April 27, 2017.

	Kentucky Utilities Company	Common stock, no par value, 37,817,878 shares outstanding and all held by LG&E and KU Energy LLC at ~~August 3, 2016.~~April 27, 2017.



				Page
GLOSSARY OF TERMS AND ABBREVIATIONS				i
FORWARD-LOOKING INFORMATION				1
PART I. FINANCIAL INFORMATION
	Item 1. Financial Statements
		PPL Corporation and Subsidiaries
			Condensed Consolidated Statements of Income ~~(Loss)~~	3
			Condensed Consolidated Statements of Comprehensive Income ~~(Loss)~~	4
			Condensed Consolidated Statements of Cash Flows	5
			Condensed Consolidated Balance Sheets	6
		��	Condensed Consolidated Statements of Equity	8
		PPL Electric Utilities Corporation and Subsidiaries
			Condensed Consolidated Statements of Income	10
			Condensed Consolidated Statements of Cash Flows	11
			Condensed Consolidated Balance Sheets	12
			Condensed Consolidated Statements of Equity	14
		LG&E and KU Energy LLC and Subsidiaries
			Condensed Consolidated Statements of ~~Income~~	15
			~~Condensed Consolidated Statements of Comprehensive~~ Income	16
			Condensed Consolidated Statements of Cash Flows	17
			Condensed Consolidated Balance Sheets	18
			Condensed Consolidated Statements of Equity	20
		Louisville Gas and Electric Company
			Condensed Statements of Income	22
			Condensed Statements of Cash Flows	23
			Condensed Balance Sheets	24
			Condensed Statements of Equity	26
		Kentucky Utilities Company
			Condensed Statements of Income	28
			Condensed Statements of Cash Flows	29
			Condensed Balance Sheets	30
			Condensed Statements of Equity	32



	Combined Notes to Condensed Financial Statements (Unaudited)
		1. Interim Financial Statements		33
		2. Summary of Significant Accounting Policies		33
		3. Segment and Related Information		3534
		4. Earnings Per Share		3534
		5. Income Taxes		3736
		6. Utility Rate Regulation		3837
		7. Financing Activities		4140
		8. ~~Acquisitions, Development~~Defined Benefits		42
		9. Commitments and ~~Divestitures~~Contingencies		44
		~~9. Defined Benefits~~10. Related Party Transactions		46
		~~10. Commitments and Contingencies~~		4852
		11. ~~Related Party Transactions~~Other Income (Expense) - net		5753
		12. ~~Other Income (Expense) - net~~Fair Value Measurements		5753
		13. ~~Fair Value Measurements~~Derivative Instruments and Hedging Activities		5855
		14. ~~Derivative Instruments~~Goodwill and ~~Hedging Activities~~Other Intangible Assets		6063
		15. ~~Goodwill and Other Intangible Assets~~Asset Retirement Obligations		6863
		16. ~~Asset Retirement Obligations~~Accumulated Other Comprehensive Income (Loss)		6863
		17. ~~Accumulated Other Comprehensive Income (Loss)~~		69
		~~18.~~ New Accounting Guidance Pending Adoption		7164
	Item 2. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations
		Overview		7266
			Introduction	7266
			Business Strategy	7468
			Financial and Operational Developments	7569
		Results of Operations		7670
			PPL Corporation and Subsidiaries - Statement of Income Analysis, Segment Earnings and Margins	7771
			PPL Electric Utilities Corporation and Subsidiaries - Statement of Income Analysis, Earnings and Margins	9080
			LG&E and KU Energy LLC and Subsidiaries - Statement of Income Analysis, Earnings and Margins	9383
			Louisville Gas and Electric Company - Statement of Income Analysis, Earnings and Margins	9685
			Kentucky Utilities Company - Statement of Income Analysis, Earnings and Margins	9987
		Financial Condition		~~101~~89
			Liquidity and Capital Resources	~~102~~89
			Risk Management	~~108~~94
			Foreign Currency Translation	~~110~~96
			Related Party Transactions	~~110~~96
			Acquisitions, Development and Divestitures	~~110~~96
			Environmental Matters	~~110~~96
		New Accounting Guidance		~~110~~97
		Application of Critical Accounting Policies		~~110~~97
	Item 3. Quantitative and Qualitative Disclosures About Market Risk			~~112~~98
	Item 4. Controls and Procedures			~~112~~98
PART II. OTHER INFORMATION
	Item 1. Legal Proceedings			~~112~~98
	Item 1A. Risk Factors			~~112~~98
	Item 4. Mine Safety Disclosures			~~113~~98
	Item 6. Exhibits			~~113~~99

KU - Kentucky Utilities Company, a public utility subsidiary of LKE engaged in the regulated generation, transmission, distribution and sale of electricity, primarily in Kentucky.

LG&E - Louisville Gas and Electric Company, a public utility subsidiary of LKE engaged in the regulated generation, transmission, distribution and sale of electricity and the distribution and sale of natural gas in Kentucky.

LKE - LG&E and KU Energy LLC, a subsidiary of PPL and the parent of LG&E, KU and other subsidiaries.

LKS - LG&E and KU Services Company, a subsidiary of LKE that provides administrative, management, and support services primarily to LKE and its subsidiaries.

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

PPL Capital Funding - PPL Capital Funding, Inc., a financing subsidiary of PPL that provides financing for the operations of PPL and certain subsidiaries. Debt issued by PPL Capital Funding is guaranteed as to payment by PPL.

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

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

PPL EU Services - PPL EU Services Corporation, a subsidiary of PPL that ~~beginning in 2015,~~ provides ~~support services~~administrative, management and ~~corporate functions such as financial, supply chain, human resources and facilities management~~support services primarily to PPL ~~Electric and its affiliates.~~Electric.

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

PPL Services - PPL Services Corporation, a subsidiary of PPL that provides administrative, management and support services to PPL and its subsidiaries.

PPL WPD Limited - an indirect U.K. subsidiary of PPL Global, which carries a liability for a closed defined benefit pension plan and a receivable from WPD plc. Following a reorganization in October 2015, PPL WPD Limited is now parent to WPD ~~plc.~~plc having previously been a sister company.

WPD - refers to PPL WPD Limited and its subsidiaries.

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

WPD plc - Western Power Distribution plc, a direct U.K. subsidiary of PPL WPD Limited. Its principal indirectly owned subsidiaries are WPD (East Midlands), WPD (South Wales), WPD (South West) and WPD (West Midlands).

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

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

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

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

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

~~2015~~2016 Form 10-K - Annual Report to the SEC on Form 10-K for the year ended December 31, ~~2015.~~

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

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

Advanced Metering System - meters and meter reading systems that provide two-way communication capabilities, which communicate usage and other relevant data to LG&E and KU at regular intervals, and are also able to receive information from LG&E and KU, such as software upgrades and requests to provide meter readings in real time.

AOCI - accumulated other comprehensive income or loss.

ARO - asset retirement obligation.

ATM Program - At-the-Market stock offering program.

BSER - Best System of Emission Reduction. The degree of emission reduction ~~that~~the EPA determines has been adequately demonstrated when taking into account the cost of achieving such reduction and any non-air quality health and environmental impact and energy requirements.

CCR(s) - Coal Combustion Residual(s). CCRs include fly ash, bottom ash and sulfur dioxide scrubber wastes.

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

Clean Water Act - federal legislation enacted to address certain environmental issues relating to water quality including effluent discharges, cooling water intake, and dredge and fill activities.

CPCN - Certificate of Public Convenience and Necessity. Authority granted by the KPSC pursuant to Kentucky Revised Statute 278.020 to provide utility service to or for the public or the construction of certain plant, equipment, property or facility for furnishing of utility service to the public.

Customer Choice Act - the Pennsylvania Electricity Generation Customer Choice and Competition Act, legislation enacted to restructure the state's electric utility industry to create retail access to a competitive market for generation of electricity.

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

Distribution Automation - advanced grid intelligence enabling LG&E and KU to perform remote monitoring and control, circuit segmentation and "self-healing" of select distribution system circuits, improving grid reliability and efficiency.

DNO - Distribution Network Operator in the U.K.

DPCR5 - Distribution Price Control Review 5, the U.K. five-year rate review period applicable to WPD that commenced April 1, 2010.

DRIP - PPL Amended and Restated Dividend Reinvestment and Direct Stock Purchase Plan.

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

DSM - Demand Side Management. Pursuant to Kentucky Revised Statute 278.285, the KPSC may determine the reasonableness of DSM ~~plans~~programs proposed by any utility under its jurisdiction. ~~Proposed DSM mechanisms may seek full recovery of costs and revenues lost by implementing~~ DSM programs ~~and/or incentives designed~~consist of energy efficiency programs intended to reduce peak demand and delay the investment in additional power plant construction, provide ~~financial rewards to the~~

Earnings from Ongoing Operations - A non-GAAP financial measure of earnings adjusted for the impact of special items and used in "Item 2. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations" (MD&A).

ECR - Environmental Cost Recovery. Pursuant to Kentucky Revised Statute 278.183, Kentucky electric utilities are entitled to the current recovery of costs of complying with the Clean Air Act, as amended, and those federal, state or local environmental requirements that apply to coal combustion wastes and ~~by-products~~byproducts from the production of energy from coal.

ELG(s) - Effluent Limitation Guidelines, regulations promulgated by the EPA.

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

EPS - Earnings per share.

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

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

GBP - British pound sterling.

GHG -greenhouse gas(es).

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

IBEW - International Brotherhood of Electrical Workers.

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

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

LIBOR - London Interbank Offered Rate.

Margins - A non-GAAP financial measure of performance used in "Item 2. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations" (MD&A).

MATS - Mercury and Air Toxics Standards, regulations promulgated by the EPA.

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

MW - megawatt, one thousand kilowatts.

NAAQS - National Ambient Air Quality Standards periodically adopted pursuant to the Clean Air Act.

NERC - North American Electric Reliability Corporation.

NGCC - Natural gas-fired combined-cycle generating plant.

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

NSR - The new source review provisions of the Clean Air Act that impose stringent emission control requirements on new and modified sources of air emissions that result in emission increases beyond thresholds allowed by the Clean Air Act.

OCI - other comprehensive income or loss.

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

OVEC - Ohio Valley Electric Corporation, located in Piketon, Ohio, an entity in which LKE indirectly owns an 8.13% interest (consists of LG&E's 5.63% and KU's 2.50% interests), which is accounted for as a cost-method investment. OVEC owns and

PLR - Provider of Last Resort, the role of PPL Electric in providing default electricity supply within its delivery area to retail customers who have not chosen to select an alternative electricity supplier under the Customer Choice Act.

PP&E - property, plant and equipment.

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

RAV - regulatory asset value. This term, used within the U.K. regulatory environment, is also commonly known as RAB or regulatory asset base. RAV is based on historical investment costs at time of privatization, plus subsequent allowed additions less annual regulatory depreciation, and represents the value on which DNOs earn a return in accordance with the regulatory cost of capital. RAV is indexed to Retail Price Index (RPI) in order to allow for the effects of inflation. Since the beginning of DPCR5 in April 2010, RAV additions have been based on a percentage of annual total expenditures, which have continued from April 2015 under RIIO-ED1. RAV is intended to represent expenditures that have a long-term benefit to WPD (similar to capital projects for the U.S. regulated businesses that are generally included in rate base).

RCRA - Resource Conservation and Recovery Act of 1976.

RECs - Renewable Energy Credits.

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

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

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

RIIO-ED1 - RIIO represents "Revenues = Incentive + Innovation + Outputs." RIIO-ED1 refers to the initial eight-year rate review period applicable to WPD which commenced April 1, 2015.

RPI - Retail Price Index, is a measure of inflation in the United Kingdom published monthly by the Office for National Statistics.

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

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

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

Scrubber - an air pollution control device that can remove particulates and/or gases (primarily sulfur dioxide) from exhaust gases.

SEC - the U.S. Securities and Exchange Commission, a U.S. government agency primarily responsible to protect investors and maintain the integrity of the securities markets.

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

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

Smart metering technology - technology that can measure, among other things, time of electricity consumption to permit offering rate incentives for usage during lower cost or demand intervals. The use of this technology also has the potential to strengthen network reliability.

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

~~Talen Energy~~ ~~- Talen Energy Corporation, the Delaware corporation formed to be the publicly traded company and owner of the competitive generation assets of PPL Energy Supply and certain affiliates of Riverstone.~~

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

Statements contained in this Form 10-Q concerning expectations, beliefs, plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements that are other than statements of historical fact are "forward-looking statements" within the meaning of the federal securities laws. Although the Registrants believe that the expectations and assumptions reflected in these statements are reasonable, there can be no assurance that these expectations will prove to be correct. Forward-looking statements are subject to many risks and uncertainties, and actual results may differ materially from the results discussed in forward-looking statements. In addition to the specific factors discussed in each Registrant's ~~2015~~2016 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.

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

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

(Millions of Dollars)



	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



	March 31, 2017		December 31, 2016
Assets

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



	March 31, 2017			December 31, 2016
Liabilities 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



	Common stock shares outstanding (a)	Common stock		Additional paid-in capital			Earnings reinvested			Accumulated other comprehensive loss			Total
December 31, 2016	679,731	$	7	$	9,841		$	3,829		$	(3,778	)	$	9,899
Common stock issued	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

Six Months Ended June 30,
2016 2015
Cash Flows from Operating Activities

Net income $ 204
$ 177
Adjustments to reconcile net income to net cash provided by operating activities

Depreciation 199
189
Amortization 15
12
Defined benefit plans - expense 13
21
Deferred income taxes and investment tax credits 121
145
Other (1 ) 23
Change in current assets and current liabilities

Accounts receivable 5
13
Accounts payable 28
10
Unbilled revenues (14 ) 12
Fuel, materials and supplies 20
54
Income tax receivable 4
136
Taxes payable (13 ) 23
Accrued interest (1 ) —
Other (22 ) (30 )
Other operating activities

Defined benefit plans - funding (45 ) (63 )
Expenditures for asset retirement obligations (8 ) (3 )
Other assets 1
7
Other liabilities —
(23 )
Net cash provided by operating activities 506
703
Cash Flows from Investing Activities

Expenditures for property, plant and equipment (439 ) (630 )
Other investing activities —
4
Net cash provided by (used in) investing activities (439 ) (626 )
Cash Flows from Financing Activities

Net increase (decrease) in notes payable with affiliate 123
18
Net increase (decrease) in short-term debt (126 ) (14 )
Debt issuance and credit facility costs (1 ) —
Distributions to member (114 ) (109 )
Contributions from member 37
20
Net cash provided by (used in) financing activities (81 ) (85 )
Net Increase (Decrease) in Cash and Cash Equivalents (14 ) (8 )
Cash and Cash Equivalents at Beginning of Period 30
21
Cash and Cash Equivalents at End of Period $ 16
$ 13



	March 31, 2017		December 31, 2016
Assets

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



	March 31, 2017		December 31, 2016
Liabilities 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



	Common stock shares outstanding (a)	Common stock		Additional paid-in capital		Earnings reinvested			Total
December 31, 2016	66,368	$	364	$	2,154	$	873		$	3,391
Net income						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



	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



	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



	March 31, 2017		December 31, 2016
Assets

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



	March 31, 2017		December 31, 2016
Liabilities 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



	Member's Equity
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



	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

Common
stock
shares
outstanding
(a)
Common
stock
Additional
paid-in
capital Earnings
reinvested
Accumulated
other
comprehensive
loss
Total
December 31, 2015 37,818
$ 308
$ 2,596
$ 383
$ —
$ 3,287
Capital contributions from LKE

20

20
Net income

129

129
Cash dividends declared on common stock

(113 )

(113 )
Other comprehensive income (loss)

(1 ) (1 )
June 30, 2016 37,818
$ 308
$ 2,616
$ 399
$ (1 ) $ 3,322

December 31, 2014 37,818
$ 308
$ 2,596
$ 302
$ —
$ 3,206
Net income

117

117
Cash dividends declared on common stock

(81 )

(81 )
Other comprehensive income (loss)

(1 ) (1 )
June 30, 2015 37,818
$ 308
$ 2,596
$ 338
$ (1 ) $ 3,241



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

1. Interim Financial Statements

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

The accompanying unaudited condensed financial statements have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X and, therefore, do not include all of the information and footnote disclosures required by GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation in accordance with GAAP are reflected in the condensed financial statements. All adjustments are of a normal recurring nature, except as otherwise disclosed. Each Registrant's Balance Sheet at December 31, ~~2015~~2016 is derived from that Registrant's ~~2015~~2016 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 ~~2015~~2016 Form 10-K. The results of operations for the three ~~and six~~ months ended ~~June 30, 2016~~March 31, 2017 are not necessarily indicative of the results to be expected for the full year ending December 31, ~~2016~~2017 or other future periods, because results for interim periods can be disproportionately influenced by various factors, developments and seasonal variations.

The classification of certain prior period amounts has been changed to conform to the presentation in the ~~June 30, 2016~~March 31, 2017 financial statements.

2. Summary of Significant Accounting Policies

The following accounting policy disclosures represent updates to Note 1 toin each indicated Registrant's ~~2015~~2016 Form 10-K and should be read in conjunction with those disclosures.

Accounts Receivable (PPL and PPL Electric)

In accordance with a PUC-approved purchase of accounts receivable program, PPL Electric purchases certain accounts receivable from alternative electricity suppliers at a discount, which reflects a provision for uncollectible accounts. The alternative electricity suppliers have no continuing involvement or interest in the purchased accounts receivable. ~~The purchased accounts~~Accounts 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 ~~and six~~ months ended ~~June 30,~~March 31, 2017 and 2016, PPL Electric purchased ~~$297~~$356 million and ~~$679~~$382 million of accounts receivable from unaffiliated third parties. During the three and six months ended June 30, 2015, PPL Electric purchased $276 million and $607 million of accounts receivable from unaffiliated third parties and $53 million and $146 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.

~~Foreign Currency Translation and Transactions~~ ~~(PPL)~~

See Note 2 in PPL's ~~2015~~2016 Form 10-K for a discussion of reportable segments and related information.

~~Financial~~Income Statement data for the segments and reconciliation to PPL's consolidated results for the periods ended ~~June 30 are:~~

Balance Sheet data for the segments and reconciliation to PPL's consolidated results as of:



	March 31, 2017		December 31, 2016
Balance 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

4. Earnings Per Share

Basic EPS is computed by dividing income available to PPL common shareowners by the weighted-average number of common shares outstanding during the applicable period. Diluted EPS is computed by dividing income available to PPL common shareowners by the weighted-average number of common shares outstanding, increased by incremental shares that would be outstanding if potentially dilutive non-participating securities were converted to common shares as calculated using the Treasury Stock Method. Incremental non-participating securities that have a dilutive impact are detailed in the table below.

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

Three Months Six Months
2016 2015 2016 2015
Income (Numerator)

Income from continuing operations after income taxes $ 483
$ 250
$ 964
$ 802
Less amounts allocated to participating securities 1
1
3
2
Income from continuing operations after income taxes available to PPL common shareowners - Basic and Diluted $ 482
$ 249
$ 961
$ 800

Income (loss) from discontinued operations (net of income taxes) available to PPL common shareowners - Basic and Diluted $ —
$ (1,007 ) $ —
$ (912 )

Net income (loss) $ 483
$ (757 ) $ 964
$ (110 )
Less amounts allocated to participating securities 1
1
3
2
Net income (loss) available to PPL common shareowners - Basic and Diluted $ 482
$ (758 ) $ 961
$ (112 )

Shares of Common Stock (Denominator)

Weighted-average shares - Basic EPS 677,145
668,415
676,293
667,698
Add incremental non-participating securities:

Share-based payment awards 3,584
2,871
3,480
2,315
Weighted-average shares - Diluted EPS 680,729
671,286
679,773
670,013

Basic EPS

Available to PPL common shareowners:

Income from continuing operations after income taxes $ 0.71
$ 0.37
$ 1.42
$ 1.20
Income (loss) from discontinued operations (net of income taxes) —
(1.50 ) —
(1.37 )
Net Income (loss) $ 0.71
$ (1.13 ) $ 1.42
$ (0.17 )

Diluted EPS

Available to PPL common shareowners:

Income from continuing operations after income taxes $ 0.71
$ 0.37
$ 1.41
$ 1.19
Income (loss) from discontinued operations (net of income taxes) —
(1.50 ) —
(1.36 )
Net Income (loss) $ 0.71
$ (1.13 ) $ 1.41
$ (0.17 )



	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

For the periods ended ~~June 30,~~March 31, PPL issued common stock related to stock-based compensation plans and the DRIP as follows (in thousands):

See Note 7 for additional information on common stock issued under the ATM Program.

For the periods ended ~~June 30,~~March 31, the following shares (in thousands) were excluded from the computations of diluted EPS because the effect would have been antidilutive.

Three Months Six Months
2016 2015 2016 2015
Stock options 696
348
696
1,085
Performance units 78
—
39
73



	Three Months
	2017	2016
Stock options	696	696

36

Reconciliations of income taxes for the periods ended ~~June 30~~March 31 are as follows.



(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)
Three Months Six Months
2016 2015 2016 2015
Federal income tax on Income from Continuing Operations Before
Income Taxes at statutory tax rate - 35%
$ 236
$ 112
$ 467
$ 382
Increase (decrease) due to:

State income taxes, net of federal income tax benefit 9
9
22
29
Valuation allowance adjustments 3
5
9
8
Impact of lower U.K. income tax rates (45 ) (36 ) (99 ) (98 )
Federal and state tax reserve adjustments (a) —
(12 ) —
(12 )
Interest benefit on U.K. financing entities (4 ) (3 ) (9 ) (11 )
Stock-based compensation (b) (3 ) —
(11 ) —
Other (4 ) (4 ) (8 ) (10 )
Total increase (decrease) (44 ) (41 ) (96 ) (94 )
Total income taxes $ 192
$ 71
$ 371
$ 288



(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


~~(a)~~	~~During the three and six months ended June 30, 2015, PPL recorded a tax benefit to adjust the settled refund amount approved by Joint Committee of Taxation for the open audit years 1998 - 2011.~~


~~(b)~~	During the three and six months ended June 30, 2016, PPL recorded lower income tax expense related to the application of new stock-based compensation accounting guidance. See Note 2 for additional information.



(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

(PPL Electric)
Three Months Six Months
2016 2015 2016 2015
Federal income tax on Income Before Income Taxes at statutory tax rate - 35% $ 44
$ 30
$ 97
$ 81
Increase (decrease) due to:

State income taxes, net of federal income tax benefit 8
4
18
14
Federal and state tax reserve adjustments —
2
—
2
Depreciation not normalized (2 ) (1 ) (3 ) (2 )
Stock-based compensation (a) (2 ) —
(7 ) —
Other —
1
(1 ) —
Total increase (decrease) 4
6
7
14
Total income taxes $ 48
$ 36
$ 104
$ 95

6. Utility Rate Regulation

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

38

~~Table of Contents~~



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

PPL PPL Electric
June 30,
2016 December 31,
2015 June 30,
2016 December 31,
2015
Noncurrent Regulatory Assets:
Defined benefit plans $ 800
$ 809
$ 460
$ 469
Taxes recoverable through future rates 331
326
331
326
Storm costs 79
93
23
30
Unamortized loss on debt 66
68
41
42
Interest rate swaps 148
141
—
—
Accumulated cost of removal of utility plant 139
137
139
137
AROs 187
143
—
—
Other 12
16
1
2
Total noncurrent regulatory assets $ 1,762
$ 1,733
$ 995
$ 1,006



	PPL				PPL Electric
	March 31, 2017		December 31, 2016		March 31, 2017		December 31, 2016
Noncurrent 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	$	—	$	—

Current Regulatory Liabilities:
Generation supply charge $ 26
$ 41
$ 26
$ 41
Demand side management 10
8
—
—
Gas supply clause —
6
—
—
Universal service rider 6
5
6
5
Transmission formula rate 27
48
27
48
Fuel adjustment clause 10
14
—
—
Storm damage expense 14
16
14
16
Other 6
7
1
3
Total current regulatory liabilities $ 99
$ 145
$ 74
$ 113

Noncurrent Regulatory Liabilities:
Accumulated cost of removal of utility plant $ 695
$ 691
$ —
$ —
Coal contracts (b) 8
17
—
—
Power purchase agreement - OVEC (b) 79
83
—
—
Net deferred tax assets 24
23
—
—
Act 129 compliance rider 19
22
19
22
Defined benefit plans 27
24
—
—
Interest rate swaps 80
82
—
—
Other 3
3
—
—
Total noncurrent regulatory liabilities $ 935
$ 945
$ 19
$ 22

LKE LG&E KU
June 30,
2016 December 31,
2015 June 30,
2016 December 31,
2015 June 30,
2016 December 31,
2015
Current Regulatory Assets:
Environmental cost recovery $ 6
$ 24
$ 6
$ 13
$ —
$ 11
Generation formula rate 13
7
—
—
13
7
Other 3
4
2
3
1
1
Total current regulatory assets $ 22
$ 35
$ 8
$ 16
$ 14
$ 19

~~CPCN and ECR Filings~~Rate Case Proceedings (PPL, LKE, LG&E and KU)

Gas Franchise (LKE and LG&E)

Pennsylvania Activities (PPL and PPL Electric)

Act 129 requires Pennsylvania Electric Distribution Companies (EDCs) to meet, by specified dates, specified goals for reduction in customer electricity usage and peak ~~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 parties to the case reached a settlement of all major issues ~~in the case~~ and filed that settlement with the Administrative Law Judge. In June 2016, the PUC issued a 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.~~2021.

Act 129 also requires Default Service Providers (DSP) to provide electricity generation supply service to customers pursuant to a PUC-approved default service procurement plan through auctions, requests for proposal and bilateral contracts at the sole discretion of the DSP. Act 129 requires a mix of spot market purchases, short-term contracts and long-term contracts (4 to 20

years), with long-term contracts limited to 25% of load unless otherwise approved by the PUC. A DSP is able to recover the costs associated with its default service procurement plan.

PPL Electric has received PUC approval of its biannual DSP procurement plans for all prior periods required under Act 129. In January 2016, PPL Electric filed a Petition for Approval of a new DSP procurement plan with the PUC for the period June 1, 2017 through May 31, 2021. The parties ~~have~~to the proceeding reached a settlement on all but one issue ~~in the proceeding. A~~and a partial settlement agreement and briefs on the ~~litigated~~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 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 ~~proceeding~~matter remains pending before the ~~PUC. PPL Electric cannot predict the outcome of this proceeding.~~court.

7. Financing Activities

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

41

~~Table of Contents~~



	March 31, 2017									December 31, 2016
	Expiration Date	Capacity		Borrowed		Letters of Credit and Commercial Paper Issued		Unused Capacity		Borrowed		Letters of Credit and Commercial Paper Issued
PPL
U.K.
WPD plc
Syndicated Credit Facility (a)	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

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

See Note 1110 for discussion of intercompany borrowings.

In February 2015, PPL ~~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 ~~three and six months~~periods ended ~~June 30, 2016, PPL did not issue any shares under the agreements. For the three and six months ended June 30, 2015,~~March 31, PPL issued ~~421,700 shares of common stock under~~ the ~~program at an average price of $33.73 per share, receiving net proceeds of $14 million.~~following:

In ~~May 2016,~~February 2017, PPL declared a quarterly common stock dividend, payable ~~July 1, 2016,~~April 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.

9.8. Defined Benefits

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

In addition to the specific plans it sponsors, LG&E is allocated costs of defined benefit plans sponsored by 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 LKE. These allocations are based on participation in those plans, which management believes are reasonable. For the periods ended ~~June 30,~~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:

For the three months ended March 31, 2017, WPD contributed $462 million to its U.K. pension plans. WPD made additional contributions in the second quarter of 2017 of $23 million. These accelerated contributions fund all 2017 required contributions and a portion of 2018 required contributions. WPD does not expect to make additional contributions in 2017.

~~10.~~9. Commitments and Contingencies

PPL and its subsidiaries are involved in legal proceedings, claims and litigation in the ordinary course of business. PPL and its subsidiaries cannot predict the outcome of such matters, or whether such matters may result in material liabilities, unless otherwise noted.

WKE Indemnification (PPL and LKE)

See footnote (e) to the table in "Guarantees and Other Assurances" below for information on an LKE indemnity relating to its former WKE lease, including related legal proceedings.

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

In December 2013, six residents, on behalf of themselves and others similarly situated, filed a class action complaint against LG&E and PPL in the U.S. District Court for the Western District of Kentucky alleging violations of the Clean Air Act and RCRA. In addition, these plaintiffs assert common law claims of nuisance, trespass and negligence. These plaintiffs seek injunctive relief and civil penalties, plus costs and attorney fees, for the alleged statutory violations. Under the common law claims, these plaintiffs seek monetary compensation and punitive damages for property damage and diminished property values for a class consisting of residents within four miles of the Cane Run plant. In their individual capacities, these plaintiffs ~~seek~~sought 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 ~~their~~the common law tort claims. ~~Upon motion of LG&E~~In 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 Sixth Circuit~~ issued an order ~~granting appellate review regarding~~dismissing 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 ~~remanding~~directed the ~~matter~~parties 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. The District Court has~~ issued an order ~~setting a discovery schedule through~~declining to exercise supplemental jurisdiction and dismissing the ~~second quarter~~case in its entirety, subject to certain federal appeals or state court re-filing rights of ~~2017.~~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 Claims~~

In October 2015, KU received a notice of intent from Earthjustice and the Sierra Club informing certain federal and state agencies of the Sierra Club's intent to file a citizen suit, following expiration of the mandatory 60-day notification period, for alleged violations of the Clean Water Act. The ~~claimant alleges~~claimants allege discharges at the E.W. Brown plant in violation of applicable rules and the plant's water discharge permit. The ~~claimant asserts~~claimants 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. In 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 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.

Trimble County ~~Unit 2 Air~~Water Discharge Permit

In May 2010, the Kentucky Waterways Alliance and other environmental groups filed a petition with the Kentucky Energy and Environment Cabinet (KEEC) challenging the Kentucky Pollutant Discharge Elimination System permit issued in April 2010,

which covers water discharges from the Trimble County plant. In November 2010, the KEEC issued a final order upholding the permit, which 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.~~any, but do not expect such costs to be material.

Regulatory Issues (All Registrants)

See Note 6 for information on regulatory matters related to utility rate regulation.

The NERC is responsible for establishing and enforcing mandatory reliability standards (Reliability Standards) regarding the bulk electric system in North America. The FERC oversees this process and independently enforces the Reliability Standards.

The Reliability Standards have the force and effect of law and apply to certain users of the bulk electric system, including electric utility companies, generators and marketers. Under the Federal Power Act, the FERC may assess civil penalties for certain violations.

PPL Electric, LG&E KU and ~~PPL Electric~~KU monitor their compliance with the Reliability Standards and ~~continue to~~ self-report or self-log potential violations of 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.

In the course of implementing their programs to ensure compliance with the Reliability Standards by those PPL affiliates subject to the standards, certain other instances of potential non-compliance may be identified from time to time. The Registrants cannot predict the outcome of these matters, and cannot estimate a range of reasonably possible losses, if any.

Due to the environmental issues discussed below or other environmental matters, it may be necessary for the Registrants to modify, curtail, replace or cease operation of certain facilities or performance of certain operations to comply with statutes, regulations and other requirements of regulatory bodies or courts. In addition, legal challenges to new environmental permits or rules add to the uncertainty of estimating the future cost of these permits and rules. 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.

WPD's distribution businesses are subject to certain statutory and regulatory environmental requirements. ~~In connection with the matters discussed below, it~~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.

LG&E and KU are entitled to recover, through the ECR mechanism, certain costs of complying with the Clean Air Act, as amended, and those federal, state or local environmental requirements applicable to coal combustion wastes and by-products from facilities that generate electricity from coal in accordance with approved compliance plans. Costs not covered by the ECR mechanism for LG&E and KU and all such costs for PPL Electric are subject to rate recovery before the companies' respective state regulatory authorities, or the FERC, if applicable. Because neither WPD nor PPL Electric owns any generating plants, their 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.

The Clean Air Act, which regulates air pollutants from mobile and stationary sources in the United States, has a significant impact on the operation of fossil fuel plants. The Clean Air Act requires the EPA periodically to review and establish concentration levels in the ambient air for six criteria pollutants to protect public health and welfare. These concentration levels are known as NAAQS. The six criteria pollutants are carbon monoxide, lead, nitrogen dioxide, ozone, particulate matter and sulfur dioxide.

Federal environmental ~~regulation~~regulations of these criteria pollutants require states to adopt implementation plans, known as state implementation plans, for certain pollutants, which detail how the state will attain the standards that are mandated by the relevant law or regulation. Each state identifies the areas within its boundaries that meet the NAAQS (attainment areas) and those that do not (non-attainment areas), and must develop a state implementation plan both to bring non-attainment areas into compliance with the NAAQS and to maintain good air quality in attainment areas. In addition, for attainment of ozone and fine particulates standards, states in the eastern portion of the country, including Kentucky, are subject to a regional program developed by the EPA known as the Cross-State Air Pollution Rule. The NAAQS, future revisions to the NAAQS and state implementation plans, or future revisions to regional programs, may require installation of additional pollution controls, the costs of which PPL, LKE, LG&E and KU believe are subject to cost recovery.

Although PPL, LKE, LG&E and KU do not anticipate significant costs to comply with these programs, changes in market or operating conditions could result in different costs than anticipated.

Under the Clean Air Act, the EPA is required to reassess the NAAQS for certain air pollutants on a five-year schedule. In 2008, the EPA revised the NAAQS for ozone and proposed to further strengthen the standard in November 2014. The EPA released a new ozone standard on October 1, 2015. The states and the EPA will determine attainment with the new ozone standard through review of relevant ambient air monitoring data, with attainment or nonattainment designations scheduled no later than October 2017. States are also obligated to address interstate transport issues associated with new ozone standards through the establishment of "good neighbor" state implementation plans for those states that are found to contribute significantly to another state's non-attainment. States that are not in the ozone transport region, including Kentucky, ~~are working~~worked together to

In 2010, the EPA finalized revised NAAQS for sulfur dioxide and required states to identify areas that meet those standards and areas that are in "non-attainment". In July 2013, the EPA finalized non-attainment designations for parts of the country, including part of Jefferson County in Kentucky. Attainment must be achieved by 2018. Based on regulatory developments to date, PPL, LKE, LG&E and KU ~~anticipate~~expect that certain previously required compliance measures, such as upgraded or new sulfur dioxide Scrubbers 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 help~~are sufficient to achieve compliance with the new sulfur dioxide and ozone standards. ~~If additional reductions are required, the costs could be significant.~~

In February 2012, the EPA finalized the MATS rule requiring reductions of mercury and other hazardous air pollutants from fossil-fuel fired power plants, with an effective date of April 16, 2012. ~~The MATS rule was challenged by industry groups and states and was upheld by~~In 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.

LG&E and KU have installed significant controls in response to the MATS rule and in conjunction with compliance with other environmental requirements, including fabric-filter baghouses, upgraded Scrubbers or chemical additive systems for which appropriate KPSC authorization and/or ECR treatment has been received. LG&E and KU have 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.

The NSR litigation brought by the EPA, states and environmental groups against coal-fired generating plants in past years continues to proceed through the courts. Although none of this litigation directly involves PPL, LKE, LG&E or KU, it can influence the permitting of large capital projects at LG&E's and KU's power plants, the costs of which cannot presently be determined but could be significant.

There is continuing world-wide attention focused on issues related to climate change. ~~Most recently, on~~In June ~~29,~~ 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.

In December 2015, 195 nations, including the U.S., signed the Paris Agreement on Climate, which establishes a comprehensive framework for the reduction of greenhouse gas (GHG) emissions from both developed and developing nations. Although the agreement does not establish binding reduction requirements, it requires each nation to prepare, communicate, and maintain GHG reduction commitments. Reductions can ~~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 renewable 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.

The UKU.K. has enacted binding carbon reduction requirements that are applicable to WPD. Under the UKU.K. law, WPD must purchase carbon allowances to offset emissions associated with ~~WPD’s~~WPD's operations. The cost of these allowances is included in ~~WPD’s~~WPD's current operating expenses. ~~WPD expects these expenses to decrease as a result of energy efficiency measures and the removal of 18 fuel sources previously included in the allowance requirements.~~

As further described below, the EPA finalized rules imposing GHG emission standards for both new and existing power ~~plants in the United States.~~plants. The EPA has also issued a proposed federal implementation plan that would apply to any states that fail to submit an acceptable state implementation plan under these rules. The EPA's authority to promulgate these regulations under Section 111 of the Clean Air Act has been challenged in the D.C. Circuit Court by several states and industry groups. On February 9, 2016, the U.S. Supreme Court stayed the rule for existing plants (the Clean Power Plan) pending the D.C. Circuit Court's review and subsequent review by the U.S. Supreme Court if a writ of certiorari is filed and granted.

The EPA's rule for new power plants imposes separate emission standards for coal and natural gas units based on the application of different technologies. The coal standard is based on the application of partial carbon capture and sequestration technology, but because this technology is not presently commercially ~~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.

The President's March 2017 Executive Order requires the EPA to review the rules for new and existing power plants and suspend, revise or rescind them as appropriate.

The EPA's rule for existing power plants, referred to as the Clean Power Plan, was published in the Federal Register in October 2015. The Clean Power Plan contains state-specific rate-based and mass-based reduction goals and guidelines for the development, submission and implementation of state implementation plans to achieve the state goals. State-specific goals were calculated from 2012 data by applying the EPA's broad interpretation and definition of the BSER, resulting in the most stringent targets to be met in 2030, with interim targets to be met beginning in 2022. The EPA believes it has offered some flexibility to

the states as to how their compliance plans can be crafted, including the option to use a rate-based approach (limit emissions per megawatt hour) or a mass-based approach (limit total tons of emissions per year), and the option to demonstrate compliance through emissions trading and multi-state collaborations. Under the rate-based approach, Kentucky would need to make a 41% reduction from its 2012 emissions rate and under a mass-based approach it would need to make a 36% reduction. These reductions are significantly greater than initially proposed and present significant challenges to the state. If the Clean Power Plan is ultimately upheld and Kentucky fails to develop an approvable implementation plan by the applicable deadline, the EPA ~~would~~may 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.

LG&E and KU are ~~participating in the ongoing regulatory processes~~monitoring 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 matter~~the 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.

In April 2014, the Kentucky General Assembly passed legislation limiting 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.~~Kentucky, if enacted.

Sulfuric Acid Mist Emissions (PPL, LKE and LG&E)

OnIn June ~~30,~~ 2016, the EPA issued a notice of violation under the Clean Air Act alleging that LG&E violated applicable rules relating to sulfuric acid mist emissions at its Mill Creek plant. The notice alleges failure to install proper controls, failure to operate the facility consistent with good air pollution control practice, and causing emissions exceeding applicable requirements or constituting a nuisance or endangerment. LG&E believes it has complied with applicable regulations during the relevant time period. Discussions between the EPA and LG&E are ongoing. PPL, LKE and LG&E are unable to predict the outcome of this matter or the potential impact on operations of the Mill Creek plant, including increased capital or operating costs, and potential civil penalties or remedial measures, if any.

OnIn April ~~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-implementing~~The 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.

Recently enacted federal legislation has authorized the EPA to approve equally protective state programs that would operate in lieu of the CCR Rule. Kentucky is close to finalizing a state rule aimed at reflecting the requirements of the federal rule.

LG&E and KU have 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 ~~proposing~~received 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.

In connection with the final CCR rule, LG&E and KU recorded ~~increases~~adjustments to existing AROs during ~~2015.~~2015 and 2016. See Note 1619 in the Registrants' 2016 Form 10-K for additional information. Further changes to AROs, current capital plans or 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.

Regulations under the federal Clean Water Act dictate permitting and mitigation requirements for facilities and construction 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 to~~that 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.

OnIn September ~~30,~~ 2015, the EPA released its final ~~effluent limitations guidelines~~ELGs 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 ~~United States Fifth Circuit~~U.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.

~~Clean Water Act Section 316(b)~~

The U.S. Court of Appeals for the Sixth Circuit has issued a stay of the EPA's rule on the definition of WOTUS pending the court's review of the rule. The effect of the stay is that the WOTUS rule is not in effect ~~anywhere~~anywhere. 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 review~~pending 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 under~~On June 22, 2016, the "Frank Lautenberg Chemical Safety Act" took effect as an amendment to the Toxic Substance Control Act ~~which was significantly updated on June 22, 2016. In~~(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 regulations as part of the 2010 ~~the EPA had 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 ~~changes~~November 2017, is applicable to ~~these regulations. The~~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 will not directly affect the Registrants' operations, it may indicate certain approaches or principles to occur in the later rulemaking which ~~could lead to a phase-out~~may affect Registrants' facilities in the United States, including phase-out of ~~all~~some or ~~some~~all equipment containing ~~PCBs, is not likely~~PCBs. Should such a phase-out be required, the costs, which are subject to be affected by the revisions to the Toxic Substances Control Act. The EPA has postponed the release of revisions to its proposed rulemaking. The Registrants cannot predict at this time the outcome of the proposed EPA rulemaking and what impact, if any, it would have on their facilities, but the costsrate recovery, could be significant.

Superfund and Other Remediation (All Registrants)

PPL Electric is potentially responsible for a share of the costs at several sites listed by the EPA under the federal Superfund program, including the Columbia Gas Plant ~~site, the Metal Bank~~ site and the 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.

PPL Electric, LG&E and KU are investigating, responding to agency inquiries, remediating, or have completed the remediation of, several sites that were not addressed under a regulatory program such as Superfund, but for which PPL Electric, LG&E and KU may be liable for remediation. These include a number of former coal gas manufacturing plants in Pennsylvania and Kentucky previously owned or operated or currently owned by predecessors or affiliates of PPL Electric, LG&E and KU. To date, the costs of these sites have not been significant.

There are additional sites, formerly owned or operated by PPL Electric, LG&E and KU predecessors or affiliates. PPL Electric, LG&E and KU lack information on the condition 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 ~~sites.~~ matters.

At ~~June 30, 2016~~March 31, 2017 and December 31, ~~2015,~~2016, PPL Electric had a recorded liability of $10 million representing its best estimate of the probable loss incurred to remediate ~~additional~~the 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, ~~the~~additional costs of remediation ~~and other liabilities~~ could be ~~significant and may~~incurred; however, such costs are not expected to be ~~as much as approximately $30 million.~~significant.

The EPA is evaluating the risks associated with polycyclic aromatic hydrocarbons and naphthalene, chemical by-products of coal gas manufacturing. As a result of the EPA's evaluation, individual states may establish stricter standards for water quality and soil cleanup. This could require several PPL subsidiaries to take more extensive assessment and remedial actions at former coal gas manufacturing plants. PPL, PPL Electric, LKE, LG&E and KU cannot estimate a range of reasonably possible losses, if any, related to these matters.

Future cleanup or remediation work at sites under review, or at sites not yet identified, may result in significant additional costs for PPL, PPL Electric, LKE, LG&E and KU. Insurance policies maintained by LKE, LG&E and KU may be applicable to certain of the costs or other obligations related to these matters but the amount of insurance coverage or reimbursement cannot be estimated or assured.

Labor Union Agreements

In the normal course of business, the Registrants enter into agreements that provide financial performance assurance to third parties on behalf of certain subsidiaries. Such agreements include, for example, guarantees, stand-by letters of credit issued by financial institutions and surety bonds issued by insurance companies. These agreements are entered into primarily to support or enhance the creditworthiness attributed to a subsidiary on a stand-alone basis or to facilitate the commercial activities in which these subsidiaries engage.

PPL fully and unconditionally guarantees all of the debt securities of PPL Capital Funding.

The table below details guarantees provided as of ~~June 30, 2016.~~March 31, 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 ~~June 30,~~March 31, 2017 and December 31, 2016 was $22 million for PPL and $17 ~~million for LKE. The total recorded liability at December 31, 2015, was $25 million for PPL and $18~~ 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.

The Registrants provide other miscellaneous guarantees through contracts entered into in the normal course of business. These guarantees are primarily in the form of indemnification or warranties related to services or equipment and vary in duration. The amounts of these guarantees often are not explicitly stated, and the overall maximum amount of the obligation under such guarantees cannot be reasonably estimated. Historically, no significant payments have been made with respect to these types of guarantees and the probability of payment/performance under these guarantees is remote.

~~11.~~10. Related Party Transactions

Support Costs (PPL Electric, LKE, LG&E and KU)

PPL Services, PPL EU Services and LKS provide PPL, PPL Electric, LKE, their respective ~~PPL~~subsidiaries, including LG&E and ~~LKE subsidiaries~~KU, 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 ~~June 30,~~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.

In addition to the charges for services noted above, LKS makes payments on behalf of LG&E and KU for fuel purchases and other costs for products or services provided by third parties. LG&E and KU also provide services to each other and to LKS. Billings between LG&E and KU relate to labor and overheads associated with union and hourly employees performing work for the other company, charges related to ~~jointly-owned~~jointly owned generating units and other miscellaneous charges. Tax settlements between LKE and LG&E ~~and LKE~~ and KU are reimbursed through LKS.

Intercompany Borrowings (LKE)

LKE maintains a $225 million revolving line of credit with a PPL Energy Funding subsidiary whereby LKE can borrow funds on a short-term basis at market-based rates. The interest rates on borrowings are equal to one-month LIBOR plus a spread. At ~~June 30, 2016~~March 31, 2017 and December 31, ~~2015, $176~~2016, $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 ~~June 30, 2016~~March 31, 2017 and December 31, ~~2015~~2016 were ~~1.97%~~2.29% and ~~1.74%~~2.12%.

In November 2015, LKE ~~has~~entered into a $400 million ten-year note with a PPL affiliate with an interest rate of 3.5%. At ~~June 30, 2016~~March 31, 2017 and December 31, ~~2015,~~2016, the note was reflected in "Long-term debt to affiliate" on the Balance Sheets. Interest expense on this note was not significant at March 31, 2017 and 2016.

Other (PPL Electric, LG&E and KU)

See Note 98 for discussions regarding intercompany allocations associated with defined benefits.

~~12.~~11. Other Income (Expense) - net

"Other Income (Expense) - net" for the three ~~and six~~ months ended ~~June 30,~~March 31, 2017 and 2016 ~~and 2015~~ 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.

~~Table of Contents~~

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). A market approach (generally, data from market transactions), an income approach (generally, present value techniques and option-pricing models) and/or a cost approach (generally, replacement cost) are used to measure the fair value of an asset or liability, as appropriate. These valuation approaches incorporate inputs such as observable, independent market data and/or unobservable data that management believes are predicated on the assumptions market participants would use to price an asset or liability. These inputs may incorporate, as applicable, certain risks such as nonperformance risk, which includes credit risk. The fair value of a group of financial assets and liabilities is measured on a net basis. Transfers between levels are recognized at end-of-reporting-period values. During the three ~~and six~~ months ended ~~June 30,~~March 31, 2017 and 2016, ~~and 2015,~~ there were no transfers between Level 1 and Level 2. See Note 1 in each Registrant's ~~2015~~2016 Form 10-K for information on the levels in the fair value hierarchy.

The assets and liabilities measured at fair value were:

June 30, 2016 December 31, 2015
Total Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3
PPL

Assets
Cash and cash equivalents $ 492
$ 492
$ —
$ —
$ 836
$ 836
$ —
$ —
Restricted cash and cash equivalents (a) 33
33
—
—
33
33
—
—
Price risk management assets (b):

Foreign currency contracts 393
—
393
—
209
—
209
—
Cross-currency swaps 92
—
92
—
86
—
86
—
Total price risk management assets 485
—
485
—
295
—
295
—
Auction rate securities (c) 2
—
—
2
2
—
—
2
Total assets $ 1,012
$ 525
$ 485
$ 2
$ 1,166
$ 869
$ 295
$ 2

Liabilities

Price risk management liabilities (b):

Interest rate swaps $ 56
$ —
$ 56
$ —
$ 71
$ —
$ 71
$ —
Foreign currency contracts —
—
—
—
1
—
1
—
Total price risk management liabilities $ 56
$ —
$ 56
$ —
$ 72
$ —
$ 72
$ —

PPL Electric

Assets

Cash and cash equivalents $ 35
$ 35
$ —
$ —
$ 47
$ 47
$ —
$ —
Restricted cash and cash equivalents (a) 2
2
—
—
2
2
—
—
Total assets $ 37
$ 37
$ —
$ —
$ 49
$ 49
$ —
$ —

LKE

Assets
Cash and cash equivalents $ 16
$ 16
$ —
$ —
$ 30
$ 30
$ —
$ —
Cash collateral posted to counterparties (d) 9
9
—
—
9
9
—
—
Total assets $ 25
$ 25
$ —
$ —
$ 39
$ 39
$ —
$ —

June 30, 2016 December 31, 2015
Total Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3
Liabilities

Price risk management liabilities:

Interest rate swaps $ 56
$ —
$ 56
$ —
$ 47
$ —
$ 47
$ —
Total price risk management liabilities $ 56
$ —
$ 56
$ —
$ 47
$ —
$ 47
$ —

LG&E

Assets

Cash and cash equivalents $ 8
$ 8
$ —
$ —
$ 19
$ 19
$ —
$ —
Cash collateral posted to counterparties (d) 9
9
—
—
9
9
—
—
Total assets $ 17
$ 17
$ —
$ —
$ 28
$ 28
$ —
$ —
��
Liabilities

Price risk management liabilities:

Interest rate swaps $ 56
$ —
$ 56
$ —
$ 47
$ —
$ 47
$ —
Total price risk management liabilities $ 56
$ —
$ 56
$ —
$ 47
$ —
$ 47
$ —

KU
Assets
Cash and cash equivalents $ 8
$ 8
$ —
$ —
$ 11
$ 11
$ —
$ —
Total assets $ 8
$ 8
$ —
$ —
$ 11
$ 11
$ —
$ —



	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	$	—	$	—

Price Risk Management Assets/Liabilities - Interest Rate Swaps/Foreign Currency Contracts/Cross-Currency Swaps (PPL, LKE, LG&E and KU)

To manage interest rate risk, PPL, LKE, LG&E and KU use interest rate contracts such as forward-starting swaps, floating-to-fixed swaps and fixed-to-floating swaps. To manage foreign currency risk, PPL uses foreign currency contracts such as forwards, options and cross-currency swaps that contain characteristics of both interest rate and foreign currency contracts. An income approach is used to measure the fair value of these contracts, utilizing readily observable inputs, such as forward interest rates (e.g., LIBOR and government security rates) and forward foreign currency exchange rates (e.g., GBP), as well as inputs that may not be observable, such as credit valuation adjustments. In certain cases, market information cannot practicably be obtained to value credit risk and therefore internal models are relied upon. These models use projected probabilities of default and estimated recovery rates based on historical observances. When the credit valuation adjustment is significant to the overall valuation, the contracts are classified as Level 3.

~~Nonrecurring Fair Value Measurements~~

The carrying amounts of long-term debt on the Balance Sheets and their estimated fair values are set forth below. The fair values were estimated using an income approach by discounting future cash flows at estimated current cost of funding rates, which incorporate the credit risk of the Registrants. Long-term debt is classified as Level 2. The effect of third-party credit enhancements is not included in the fair value measurement.

The carrying ~~value~~amounts 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.~~nature.

~~14.~~13. Derivative Instruments and Hedging Activities

PPL has a risk management policy approved by the Board of Directors to manage market risk associated with commodities, interest rates on debt issuances and foreign exchange (including price, liquidity and volumetric risk) and credit risk (including non-performance risk and payment default risk). The Risk Management Committee, comprised of senior management and chaired by the ~~Director - Risk~~Senior Director-Risk Management, oversees the risk management function. Key risk control activities designed

to ensure compliance with the risk policy and detailed programs include, but are not limited to, credit review and approval, validation of transactions, verification of risk and transaction limits, value-at-risk analyses (VaR, a statistical model that attempts to estimate the value of potential loss over a given holding period under normal market conditions at a given confidence level) and the coordination and reporting of the Enterprise Risk Management program.

Market risk includes the potential loss that may be incurred as a result of price changes associated with a particular financial or commodity instrument as well as market liquidity and volumetric risks. Forward contracts, futures contracts, options, swaps and structured transactions are utilized as part of risk management strategies to minimize unanticipated fluctuations in earnings caused by changes in commodity prices, interest rates and foreign currency exchange rates. Many of the contracts meet the definition of a derivative. All derivatives are recognized on the Balance Sheets at their fair value, unless NPNS is elected.

The following summarizes the market risks that affect PPL and its subsidiaries.

PPL is exposed to commodity price risk through its domestic subsidiaries as described below.

PPL is exposed to volumetric risk through its subsidiaries as described below.

Credit risk is the potential loss that may be incurred due to a counterparty's non-performance.

PPL is exposed to credit risk from "in-the-money" interest rate and foreign currency derivatives with financial institutions, as well as additional credit risk through certain of its subsidiaries, as discussed below.

In the event a supplier of ~~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.

PPL and its subsidiaries have credit policies in place to manage credit risk, including the use of an established credit approval process, daily monitoring of counterparty positions and the use of master netting agreements or provisions. These agreements generally include credit mitigation provisions, such as margin, prepayment or collateral requirements. PPL and its subsidiaries may request additional credit assurance, in certain circumstances, in the event that the counterparties' credit ratings fall below investment grade, their tangible net worth falls below specified percentages or their exposures exceed an established credit limit.

Net derivative positions on the balance sheets are not offset against the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) under master netting arrangements.

PPL had ana $13 million obligation to return ~~$76 million of~~ cash collateral under master netting arrangements at ~~June 30, 2016~~March 31, 2017 and noa $19 million obligation to return cash collateral under master netting arrangements at December 31, ~~2015.~~2016.

LKE and LG&E ~~and KU~~ had no obligation to return cash collateral under master netting arrangements at ~~June 30, 2016~~March 31, 2017 and December 31, ~~2015.~~2016.

PPL, LKE and LG&E posted $9$2 million of cash collateral under master netting arrangements at ~~June 30, 2016~~March 31, 2017 and ~~December 31, 2015.~~

See "Offsetting Derivative Instruments" below for a summary of derivative positions presented in the balance sheets where a right of setoff exists under these arrangements.

PPL and its subsidiaries issue debt to finance their operations, which exposes them to interest rate risk. Various financial derivative instruments are utilized to adjust the mix of fixed and floating interest rates in their debt portfolio, adjust the duration of the debt portfolio and lock in benchmark interest rates in anticipation of future financing, when appropriate. Risk limits under PPL's risk management program are designed to balance risk exposure to volatility in interest expense and changes in the fair value of the debt portfolio due to changes in benchmark interest rates. In addition, the interest rate risk of certain subsidiaries is potentially mitigated as a result of the existing regulatory framework or the timing of rate cases.

Interest rate risks include exposure to adverse interest rate movements for outstanding variable rate debt and for future anticipated financings. Financial interest rate swap contracts that qualify as cash flow hedges may be entered into to hedge floating interest rate risk associated with both existing and anticipated debt issuances. PPL held no such contracts at ~~June 30, 2016.~~March 31, 2017.

For the three months ended March 31, 2017 and 2016, PPL had no hedge ineffectiveness associated with interest rate derivatives.

At ~~June 30, 2016,~~March 31, 2017, PPL held an aggregate notional value in cross-currency interest rate swap contracts of $802 million that range in maturity from 2017 through 2028 to hedge the interest payments and principal of WPD's U.S. dollar-denominated senior notes. ~~In May~~

For the three months ended March 31, 2017 and 2016, ~~$460 million of WPD's U.S. dollar-denominated senior notes were repaid upon maturity and $460 million notional value of~~PPL had no hedge ineffectiveness associated with cross-currency interest rate swap contracts matured. PPL recorded a $46 million gain upon settlement of the cross-currency interest rate swap contracts, which largely offset a loss recorded on the revaluation of U.S. dollar-denominated senior notes.

Cash flow hedges are discontinued if it is no longer probable that the original forecasted transaction will occur by the end of the originally specified time period and any amounts previously recorded in AOCI are reclassified into earnings once it is determined that the hedged transaction is not probable of occurring.

For the three months ended March 31, 2017 and 2016, PPL had noan insignificant amount of cash flow hedges reclassified into earnings associated with discontinued cash flow hedges for the three and six months ended June 30, 2016. As a result of the June 1, 2015 spinoff of PPL Energy Supply, all PPL cash flow hedges associated with PPL Energy Supply were ineffective and discontinued and therefore, reclassified into earnings and reflected in discontinued operations for the three and six months ended June 30, 2015. See Note 8 for additional information.hedges.

At ~~June 30, 2016,~~March 31, 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 ~~were~~is insignificant. Amounts are reclassified as the hedged interest expense is recorded.

Economic Activity (PPL, LKE and LG&E)

LG&E enters into interest rate swap contracts that economically hedge interest payments on variable rate debt. Because realized gains and losses from the swaps, including a terminated swap contract, are recoverable through regulated rates, any subsequent changes in fair value of these derivatives are included in regulatory assets or liabilities until they are realized as interest expense. Realized gains and losses are recognized in "Interest Expense" on the Statements of Income at the time the underlying hedged interest expense is recorded. At ~~June 30, 2016,~~March 31, 2017, LG&E held contracts with a notional amount of ~~$179~~$147 million that range in maturity through 2033.

PPL is exposed to foreign currency risk, primarily through investments in and earnings of U.K. affiliates. PPL has adopted a foreign currency risk management program designed to hedge certain foreign currency exposures, including firm commitments, recognized assets or liabilities, anticipated transactions and net investments. In addition, PPL enters into financial instruments to protect against foreign currency translation risk of expected GBP earnings.

PPL enters into foreign currency contracts on behalf of a subsidiary to protect the value of a portion of its net investment in WPD. There were no such contracts outstanding at ~~June 30, 2016.~~March 31, 2017.

At ~~June 30,~~March 31, 2017 and December 31, 2016, PPL had ~~$22~~$21 million of accumulated net investment hedge after tax gains (losses) that were included in the foreign currency translation adjustment component of ~~AOCI, compared to $19 million at December 31, 2015.~~AOCI.

PPL enters into foreign currency contracts on behalf of a subsidiary to economically hedge GBP-denominated anticipated earnings. At ~~June 30, 2016,~~March 31, 2017, the total exposure hedged by PPL was approximately ~~£1.7~~£2.8 billion (approximately ~~$2.7~~$3.8 billion based on contracted rates). These contracts had termination dates ranging from ~~July 2016 through November 2018.~~

All derivative instruments are recorded at fair value on the Balance Sheet as an asset or liability unless NPNS is elected. NPNS contracts for PPL and PPL Electric include certain full-requirement purchase contracts and other physical purchase contracts.

Changes in the fair value of derivatives not designated as NPNS are recognized in earnings unless specific hedge accounting criteria are met and designated as such, except for the changes in fair values of LG&E's and KU's interest rate swaps that are recognized as regulatory assets or regulatory liabilities. See Note 6 for amounts recorded in regulatory assets and regulatory liabilities at ~~June 30, 2016~~March 31, 2017 and December 31, ~~2015.~~2016.

See Notes 1 and 17 in each Registrant's ~~2015~~2016 Form 10-K for additional information on accounting policies related to derivative instruments.

The following table presents the fair value and location of derivative instruments recorded on the Balance ~~Sheets, excluding derivative instruments of discontinued operations.~~

The following tables present the pre-tax effect of derivative instruments recognized in income, OCI or regulatory assets and regulatory liabilities for the periods ended ~~June 30, 2016.~~March 31, 2017.

Three Months Six Months
Derivative
Relationships
Derivative Gain
(Loss) Recognized in
OCI (Effective Portion)
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) 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 Six Months
Cash Flow Hedges:
Interest rate swaps $ (3 ) $ (21 ) Interest expense $ (2 ) $ —
$ (3 ) $ —
Cross-currency swaps (104 ) 9
Interest expense (1 ) —
—
—
Other income (expense) - net (103 ) —
(6 ) —
Total $ (107 ) $ (12 ) $ (106 ) $ —
$ (9 ) $ —
Net Investment Hedges:
Foreign currency contracts $ 1
$ 4

The following tables present the pre-tax effect of derivative instruments recognized in income, OCI or regulatory assets and regulatory liabilities for the periods ended ~~June 30, 2015.~~

The following table presents the fair value and the location on the Balance Sheets of derivatives not designated as hedging instruments.

The following tables present the pre-tax effect of derivatives not designated as cash flow hedges that are recognized in income or regulatory assets for the periods ended ~~June 30, 2016.~~

The following tables present the pre-tax effect of derivatives not designated as cash flow hedges that are recognized in income or regulatory assets for the periods ended ~~June 30, 2015.~~

PPL, LKE, LG&E and KU or certain of their subsidiaries have master netting arrangements in place and also enter into agreements pursuant to which they purchase or sell certain energy and other products. Under the agreements, upon termination of the agreement as a result of a default or other termination event, the non-defaulting party typically would have a right to set off amounts owed under the agreement against any other obligations arising between the two parties (whether under the agreement or not), whether matured or contingent and irrespective of the currency, place of payment or place of booking of the obligation.

PPL, LKE, LG&E and KU have elected not to offset derivative assets and liabilities and not to offset net derivative positions against the right to reclaim cash collateral pledged (an asset) or the obligation to return cash collateral received (a liability) under derivatives agreements. The table below summarizes the derivative positions presented in the balance sheets where a right of setoff exists under these arrangements and related cash collateral received or pledged.

Certain derivative contracts contain credit risk-related contingent features which, when in a net liability position, would permit the counterparties to require the transfer of additional collateral upon a decrease in the credit ratings of PPL, LKE, LG&E and

Additionally, certain derivative contracts contain credit risk-related contingent features that require adequate assurance of performance be provided if the other party has reasonable concerns regarding the performance of PPL's, LKE's, LG&E's and KU's obligations under the contracts. A counterparty demanding adequate assurance could require a transfer of additional collateral or other security, including letters of credit, cash and guarantees from a creditworthy entity. This would typically involve negotiations among the parties. However, amounts disclosed below represent assumed immediate payment or immediate and ongoing full collateralization for derivative instruments in net liability positions with "adequate assurance" features.

At ~~June 30, 2016,~~March 31, 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:

~~15.~~14. Goodwill and Other Intangible Assets

The change in the carrying amount of goodwill for the ~~six~~three months ended ~~June 30, 2016~~March 31, 2017 was due to the effect of foreign currency exchange rates on the U.K. Regulated segment.

The change in the carrying amount of other intangible assets for the ~~six~~three months ended ~~June 30, 2016~~March 31, 2017 was primarily due to ~~an increase~~a change in WPD’s approach in acquiring rights-of-way relating to WPD equipment impacting landowners' property. A shorter term agreement at a lower cost is now being offered which has also reduced the ~~gross carrying amount of indefinite lived intangibles at WPD attributable to new easements of $47 million.~~estimated liability for claims not yet settled.

The changes in the carrying amounts of AROs were as follows.

PPL LKE LG&E KU
Balance at December 31, 2015 $ 586
$ 535
$ 175
$ 360
Accretion 13
12
4
8
Effect of foreign currency exchange rates (2 ) —
—
—
Obligations settled (8 ) (8 ) (6 ) (2 )
Balance at June 30, 2016 $ 589
$ 539
$ 173
$ 366



	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

PPL's, LKE's, LG&E's and KU's ARO liabilities are primarily related to CCR closure costs. See Note 109 for information on the final CCR ~~rule~~rule. For LKE, LG&E and ~~Note 6 for information on the rate recovery applications with the KPSC. LG&E's and KU's~~KU, all ARO accretion and ~~ARO-related~~ depreciation ~~expense~~expenses are ~~recorded~~reclassified 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.~~

~~17.~~16. Accumulated Other Comprehensive Income (Loss)

The after-tax changes in AOCI by component for the periods ended ~~June 30~~March 31 were as follows.

Foreign
currency
translation
adjustments
Unrealized gains (losses) Defined benefit plans

Available-
for-sale
securities

Qualifying
derivatives

Equity
investees'
AOCI

Prior
service
costs

Actuarial
gain
(loss)
Total
PPL
March 31, 2016 $ (984 ) $ —
$ (5 ) $ —
$ (6 ) $ (2,164 ) $ (3,159 )
Amounts arising during the period 268
—
(85 ) —
—
2
185
Reclassifications from AOCI —
—
85
(1 ) 1
32
117
Net OCI during the period 268
—
—
(1 ) 1
34
302
June 30, 2016 $ (716 ) $ —
$ (5 ) $ (1 ) $ (5 ) $ (2,130 ) $ (2,857 )

December 31, 2015 $ (520 ) $ —
$ (7 ) $ —
$ (6 ) $ (2,195 ) $ (2,728 )
Amounts arising during the period (196 ) —
(5 ) —
—
2
(199 )
Reclassifications from AOCI —
—
7
(1 ) 1
63
70
Net OCI during the period (196 ) —
2
(1 ) 1
65
(129 )
June 30, 2016 $ (716 ) $ —
$ (5 ) $ (1 ) $ (5 ) $ (2,130 ) $ (2,857 )

March 31, 2015 $ (352 ) $ 206
$ 9
$ —
$ 3
$ (2,177 ) $ (2,311 )
Amounts arising during the period (83 ) 2
21
—
(6 ) 53
(13 )
Reclassifications from AOCI —
(1 ) 27
—
—
38
64
Net OCI during the period (83 ) 1
48
—
(6 ) 91
51
Distribution of PPL Energy Supply (Note 8) —
(207 ) (55 ) —
—
238
(24 )
June 30, 2015 $ (435 ) $ —
$ 2
$ —
$ (3 ) $ (1,848 ) $ (2,284 )

December 31, 2014 $ (286 ) $ 202
$ 20
$ 1
$ 3
$ (2,214 ) $ (2,274 )
Amounts arising during the period (149 ) 7
27
—
(6 ) 52
(69 )
Reclassifications from AOCI —
(2 ) 10
(1 ) —
76
83
Net OCI during the period (149 ) 5
37
(1 ) (6 ) 128
14
Distribution of PPL Energy Supply (Note 8) —
(207 ) (55 ) —
—
238
(24 )
June 30, 2015 $ (435 ) $ —
$ 2
$ —
$ (3 ) $ (1,848 ) $ (2,284 )

LKE
March 31, 2016 $ —
$ (10 ) $ (35 ) $ (45 )
Amounts arising during the period —
—
1
1
Reclassifications from AOCI (1 ) 1
1
1
Net OCI during the period (1 ) 1
2
2
June 30, 2016 $ (1 ) $ (9 ) $ (33 ) $ (43 )

December 31, 2015 $ —
$ (10 ) $ (36 ) $ (46 )
Amounts arising during the period —
—
1
1
Reclassifications from AOCI (1 ) 1
2
2
Net OCI during the period (1 ) 1
3
3
June 30, 2016 $ (1 ) $ (9 ) $ (33 ) $ (43 )

The following table presents the gains (losses) and related income taxes for reclassifications from AOCI for the periods ended ~~June 30.~~March 31. The defined benefit plan components of AOCI are not reflected in their entirety in the Statement of Income during

the periods; rather, they are included in the computation of net periodic defined benefit costs (credits) and subject to capitalization. See Note 98 for additional information.

~~Table of Contents~~

In May 2014, the Financial Accounting Standards Board (FASB) issued accounting guidance that establishes a comprehensive new model for the recognition of revenue from contracts with customers. This model is based on the core principle that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

For public business entities, this guidance can be applied using either a full retrospective or modified retrospective transition method, beginning in annual reporting periods after December 15, 2017 and interim periods within those years. ~~Public business entities may early adopt this guidance in annual reporting periods beginning after December 15, 2016.~~ The Registrants ~~expect to~~will adopt this guidance effective January 1, 2018.

The Registrants have performed an assessment of a significant portion of their revenue under this new guidance to determine its effect on their current revenue recognition policies, and at this time they do not believe it will have a material impact. However, the Registrants will continue to ~~assess the impact of adopting this guidance, as well as the transition method they will use, and are monitoring~~monitor the development of industry specific application guidance which could have an impact ~~those~~on their assessments. The Registrants are currently assessing the disclosure requirements included in the standard, which will result in increased information being provided to enable the users of the 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 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.

In February 2016, the FASB issued accounting guidance for leases. This new guidance requires lessees to recognize a right-of-use asset and a lease liability for virtually all of their leases (other than leases that meet the definition of a short-term lease). For income statement purposes, the FASB retained a dual model for lessees, requiring leases to be classified as either operating or finance. Operating leases will result in straight-line expense (similar to current operating leases) while finance leases will result in a front-loaded expense pattern (similar to current capital leases). Classification will be based on criteria that are largely similar to those applied in current lease accounting, but without explicit bright lines.

Lessor accounting under the new guidance is similar to the current model, but updated to align with certain changes to the lessee model and the new revenue recognition standard. Similar to current practice, lessors will classify leases as operating, direct financing, or sales-type.

The standard is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The new standard must be adopted using a modified retrospective transition, and provides for certain practical expedients. Transition will require application of the new guidance at the beginning of the earliest comparative period presented.

The Registrants are currently assessing the impact of adopting this ~~guidance.~~guidance and the period they will adopt it.

In June 2016, the FASB issued accounting guidance that requires the use of a current expected credit loss (CECL) model for the measurement of credit losses on financial instruments within the scope of this guidance, which includes accounts receivable. The CECL model requires an entity to measure credit losses using historical information, current information and reasonable and supportable forecasts of future events, rather than the incurred loss impairment model required under current GAAP.

For public business entities, this guidance will be applied using a modified retrospective approach and is effective for fiscal years beginning after December 15, 2019, and interim periods within those years. All entities may early adopt this guidance in annual reporting periods beginning after December 15, 2018, including interim periods within those years.

The Registrants are currently assessing the impact of adopting this guidance and the period ~~that~~ they will adopt ~~this guidance.~~it.

The increase (decrease) in operating revenues for the ~~periods~~period ended ~~June 30, 2016~~March 31, 2017 compared with ~~2015~~2016 was due to:

Energy purchases decreased ~~by $23~~$18 million for the three months ended ~~June 30, 2016~~March 31, 2017 compared with ~~2015, primarily due to lower PLR prices in 2016.~~

The increase (decrease) in other operation and maintenance for the ~~periods~~period ended ~~June 30, 2016~~March 31, 2017 compared with ~~2015~~2016 was due to:

Depreciation increased ~~by $15 million and $28~~$13 million for the three ~~and six~~ months ended ~~June 30, 2016~~March 31, 2017 compared with ~~2015,~~2016, primarily due to additional assets placed into service, ~~primarily at the domestic utilities and WPD (partially~~net of retirements, partially offset by the impact of foreign currency exchange ~~rates), net of retirements.~~rates at WPD.

Other income (expense) - net ~~increased by $276 million and $249~~decreased $108 million for the three ~~and six~~ months ended ~~June 30, 2016~~March 31, 2017 compared with ~~2015,~~2016, primarily due to changes in realized and unrealized gains (losses) on foreign currency contracts to economically hedge GBP denominated earnings from WPD.

The increase (decrease) in interest expense for the ~~periods~~period ended ~~June 30, 2016~~March 31, 2017 compared with ~~2015~~2016 was due to:

The increase (decrease) in income taxes for the ~~periods~~period ended ~~June 30, 2016~~March 31, 2017 compared with ~~2015~~2016 was due to:

Three Months Six Months
Change in pre-tax income at current period tax rates $ 124
$ 78
Valuation allowances adjustments (2 ) 1
Impact of U.K. income tax rates (9 ) (1 )
Federal and state tax reserve adjustments (a) 12
12
Stock-based compensation (b) (3 ) (11 )
Other (1 ) 4
Total $ 121
$ 83

PPL's ~~earnings~~net income by reportable segments for the periods ended ~~June 30~~March 31 were as follows:

Management utilizes "Earnings from Ongoing Operations" as a non-GAAP financial measure that should not be considered as an alternative to net income, an indicator of operating performance determined in accordance with GAAP. PPL believes that Earnings from Ongoing Operations is useful and meaningful to investors because it provides management's view of PPL's earnings performance as another criterion in making investment decisions. In addition, PPL's management uses Earnings from Ongoing Operations in measuring achievement of certain corporate performance goals, including targets for certain executive incentive compensation. Other companies may use different measures to present financial performance.

Earnings from Ongoing Operations is adjusted for the impact of special items. Special items are presented in the financial tables on an after-tax basis with the related income taxes on special items separately disclosed. Income taxes on special items, when applicable, are calculated based on the effective tax rate of the entity where the activity is recorded. Special items include:

• Unrealized gains or losses on foreign currency-related economic hedges (as discussed below).

~~• Supply segment discontinued operations.~~

• Impairment charges.

• ~~Workforce~~Significant workforce reduction and other restructuring effects.

• Acquisition and divestiture-related adjustments.

Unrealized gains or losses on foreign currency economic hedges include the changes in fair value of foreign currency contracts used to hedge GBP-denominated anticipated earnings. The changes in fair value of these contracts 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 1413 to the Financial Statements and "Risk Management" below for additional information on foreign currency-related economic activity.

PPL's Earnings from Ongoing Operations by reportable segment for the periods ended ~~June 30~~March 31 were as follows:

See "Reconciliation of Earnings from Ongoing Operations" below for a reconciliation of this non-GAAP financial measure to Net Income.

The U.K. Regulated segment consists of PPL Global, which primarily includes WPD's regulated electricity distribution operations, the results of hedging the translation of WPD's earnings from GBP into U.S. dollars, and certain costs, such as U.S. income taxes, administrative costs and ~~allocated~~certain acquisition-related financing costs. The U.K. Regulated segment represents ~~66%~~71% of PPL's Net Income for the ~~six~~three months ended ~~June 30, 2016~~March 31, 2017 and ~~41%~~39% of PPL's assets at ~~June 30, 2016.~~March 31, 2017.

Net Income and Earnings from Ongoing Operations for the periods ended ~~June 30~~March 31 include the following results.

The following after-tax gains (losses), which management considers special items, impacted the U.K. Regulated segment's results and are excluded from Earnings from Ongoing Operations during the periods ended ~~June 30.~~

Income Statement Line Item Three Months Six Months
2016 2015 2016 2015
Foreign currency-related economic hedges, net of tax of ($56), $38, ($69), $18 (a) Other Income (Expense)-net $ 104
$ (71 ) $ 128
$ (34 )
WPD Midlands acquisition-related adjustment, net of tax of $0, $0, $0, ($1) Other operation and maintenance —
—
—
2
Settlement of certain income tax positions (b) Income Taxes —
18
—
18
Total special items $ 104
$ (53 ) $ 128
$ (14 )



	Income Statement Line Item	Three Months
	Income Statement Line Item	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

The changes in the components of the U.K. Regulated segment's results between these periods are due to the factors set forth below, which reflect amounts classified as U.K. Gross Margins, the items that management considers special and the effects of movements in foreign currency exchange, including the effects of foreign currency hedge contracts, on separate lines and not in their respective Statement of Income line items.

U.K.

U.S.

The Kentucky Regulated segment consists primarily of LKE's regulated electricity generation, transmission and distribution operations of LG&E and KU, as well as LG&E's regulated distribution and sale of natural gas. In addition, certain acquisition-related financing costs are allocated to the Kentucky Regulated segment. The Kentucky Regulated segment represents ~~20%~~24% of PPL's Net Income for the ~~six~~three months ended ~~June 30, 2016~~March 31, 2017 and ~~35%~~36% of PPL's assets at ~~June 30, 2016.~~March 31, 2017.

Net Income and Earnings from Ongoing Operations for the periods ended ~~June 30~~March 31 include the following results.

The changes in the components of the Kentucky Regulated segment's results between these periods are due to the factors set forth below, which reflect amounts classified as Kentucky Gross Margins and the items that management considers special on separate lines and not in their respective Statement of Income line items.

The Pennsylvania Regulated segment includes the regulated electricity transmission and distribution operations of PPL Electric. In addition, certain costs are allocated to the Pennsylvania Regulated segment. The Pennsylvania Regulated segment represents ~~18%~~20% of PPL's Net Income for the ~~six~~three months ended ~~June 30, 2016~~March 31, 2017 and ~~22%~~25% of PPL's assets at ~~June 30, 2016.~~March 31, 2017.

Net Income and Earnings from Ongoing Operations for the periods ended ~~June 30~~March 31 include the following results.

The changes in the components of the Pennsylvania Regulated segment's results between these periods ~~were~~are 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.

The following tables contain after-tax gains (losses), in total, which management considers special items, that are excluded from Earnings from Ongoing Operations and a reconciliation to PPL's "Net ~~Income (Loss)"~~Income" for the periods ended ~~June 30.~~

Management also utilizes the following non-GAAP financial measures as indicators of performance for its businesses:

These measures are not intended to replace "Operating Income," which is determined in accordance with GAAP, as an indicator of overall operating performance. Other companies may use different measures to analyze and report their results of operations.

The following table shows Margins by PPL's reportable segment and by component, as applicable, for the periods ended ~~June 30~~March 31 as well as the change between periods. The factors that gave rise to the changes are described following the table.

U.K. Gross Margins, excluding the impact of changes in foreign currency exchange rates, increased ~~for the three months ended June 30, 2016 compared with 2015~~ primarily due to ~~$38~~$58 million from the April 1, 2016 price increase, which includes ~~$10 million of the recovery of prior customer rebates, partially offset by $20 million from the impact of the April 1, 2015 price decrease resulting from the commencement of RIIO-ED1.~~

Kentucky Gross Margins ~~increased for the three months ended June 30, 2016 compared with 2015~~decreased primarily due to ~~higher base rates~~$22 million of ~~$32 million ($1 million at LG&E and $31 million at KU) and returns on additional environmental capital investments~~lower electricity sales volumes driven by milder weather in the first quarter of ~~$6 million~~2017 ($5 million at LG&E and $1$17 million at KU).

Pennsylvania Gross Margins increased ~~for the six months ended June 30, 2016 compared with 2015~~ primarily due to ~~higher base rates~~an increase of ~~$68~~$11 million ~~($4 million at LG&E and $64 million at KU) and~~primarily from returns on additional environmental capital investments of $10 million at LG&E. The increase in base rates was the result of new rates approved by the KPSC effective July 1, 2015. These increases were partially offset by lower sales volumes of $28 million ($9 million at LG&E and $19 million at KU) primarily driven by milder weather.

The following ~~table contains~~tables contain the components from the Statement of Income that are included in the non-GAAP financial measures and a reconciliation to PPL's "Operating Income" for the periods ended ~~June 30.~~March 31.



	2017 Three Months
	U.K. Gross Margins			Kentucky Gross Margins		PA Gross Margins		Other (a)			Operating Income (b)
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~~2017 Outlook

Higher reported earnings are expected in 2016 compared with 2015, primarily attributable to the results of the 2015 spinoff of the Supply segment. Higher earnings from ongoing operations are expected in 2016 compared with 2015, primarily attributable to increases in the Pennsylvania Regulated and Kentucky 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 category and the related Registrants.

~~Higher reported earnings and earnings from ongoing operations are~~Relatively flat net income is projected in ~~2016~~2017 compared with ~~2015,~~2016 primarily driven by ~~electric~~electricity and gas base rate increases, ~~effective July 1, 2015,~~offset by higher ~~returns on additional environmental capital investments, and lower~~ operation and maintenance expense ~~partially offset by~~and higher depreciation ~~and higher interest~~ expense.

Relatively flat costs are projected in ~~2016~~2017 compared with ~~2015.~~2016.

Earnings in future periods are subject to various risks and uncertainties. See "Forward-Looking Information," the rest of this Item 2, Notes 6 and 109 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~~2016 Form 10-K for a discussion of the risks, uncertainties and factors that may impact future earnings.

Net income for the periods ended ~~June 30~~March 31 includes the following results.

The increase (decrease) in operating revenues for the ~~periods~~period ended ~~June 30, 2016~~March 31, 2017 compared with ~~2015~~2016 was due to:

Energy purchases decreased by ~~$20~~$21 million for the three months ended ~~June 30, 2016~~March 31, 2017 compared with ~~2015, primarily due to lower PLR prices in 2016.~~

The increase (decrease) in other operation and maintenance for the ~~periods~~period ended ~~June 30, 2016~~March 31, 2017 compared with ~~2015~~2016 was due to:

Depreciation increased ~~by $10 million and $18~~$16 million for the three ~~and six~~ months ended ~~June 30, 2016~~March 31, 2017 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.

The increase (decrease) in income taxes for the ~~periods~~period ended ~~June 30, 2016~~March 31, 2017 compared with ~~2015~~2016 was due to:

Three Months Six Months
Change in pre-tax income at current period tax rates $ 18
$ 20
Stock-based compensation (a) (2 ) (7 )
Federal and state tax reserve adjustments (4 ) (4 )
Total $ 12
$ 9

The table below quantifies the changes in the components of Net Income between these periods, which reflect amounts classified as Pennsylvania Gross ~~Delivery~~ Margins on a separate line and not in their respective Statement of Income line items.

"Pennsylvania Gross Delivery Margins" is a non-GAAP financial performance measure that management utilizes as an indicator of the performance of its business. See PPL's "Results of Operations - Margins" for information on why management believes this measure is useful and for explanations of the underlying drivers of the changes between periods.

The following tables contain the components from the Statements of Income that are included in this non-GAAP financial measure and a reconciliation to "Operating Income" for the periods ended ~~June 30.~~March 31.

2016 Three Months 2015 Three Months

PA Gross
Delivery
Margins
Other (a)
Operating
Income (b)

PA Gross
Delivery
Margins
Other (a)
Operating
Income (b)
Operating Revenues $ 495
$ —
$ 495
$ 476
$ —
$ 476
Operating Expenses
Energy purchases 118
—
118
138
—
138
Energy purchases from affiliate —
—
—
5
—
5
Other operation and maintenance 28
109
137
27
113
140
Depreciation —
62
62
—
52
52
Taxes, other than income 22
2
24
23
2
25
Total Operating Expenses 168
173
341
193
167
360
Total $ 327
$ (173 ) $ 154
$ 283
$ (167 ) $ 116

Net income for the periods ended ~~June 30~~March 31 includes the following results.

The increase (decrease) in operating revenues for the ~~periods~~period ended ~~June 30, 2016~~March 31, 2017 compared with ~~2015~~2016 was due to:

Fuel decreased ~~$32~~$7 million for the three months ended ~~June 30, 2016~~March 31, 2017 compared with ~~2015,~~2016 primarily due to a ~~$28 million decrease in commodity costs.~~

Income taxes ~~increased $6~~decreased $9 million for the three months ended ~~June 30, 2016~~March 31, 2017 compared with ~~2015~~2016 primarily due to ~~higher~~lower pre-tax ~~income at current period tax rates of $11 million, partially offset by the establishment of a valuation allowance in 2015 on a deferred tax asset of $5 million.~~income.

~~Excluding special items, earnings increased~~Earnings decreased for the three month period in ~~2016~~2017 compared with ~~2015~~2016 primarily due to ~~higher base~~lower electricity ~~rates effective July 1, 2015 and lower other operation and maintenance, partially offset by higher interest expense.~~

The table below quantifies the changes in the components of Net Income between these periods, which reflect amounts classified as Margins and an item that management considers special on separate lines and not in their respective Statement of Income line items.

Three Months Six Months
Margin $ 33
$ 37
Other operation and maintenance 12
17
Depreciation (2 ) —
Taxes, other than income —
(1 )
Other income (expense) - net (4 ) (4 )
Interest expense (9 ) (20 )
Income taxes (14 ) (10 )
Special items, gains (losses), after-tax (a) 8
8
Net income $ 24
$ 27



	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	)

"Margins" is a non-GAAP financial performance measure that management utilizes as an indicator of the performance of its business. See PPL's "Results of Operations - Margins" for an explanation of why management believes this measure is useful and the factors underlying changes between periods. Within PPL's discussion, LKE's Margins are referred to as "Kentucky Gross Margins."

The following ~~tables contain~~table 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 ~~June 30.~~

2016 Three Months 2015 Three Months
Margins Other (a)
Operating
Income (b)
Margins Other (a)
Operating
Income (b)
Operating Revenues $ 721
$ —
$ 721
$ 714
$ —
$ 714
Operating Expenses
Fuel 182
—
182
214
—
214
Energy purchases 28
—
28
28
—
28
Other operation and maintenance 26
178
204
24
190
214
Depreciation 13
87
100
9
85
94
Taxes, other than income 1
14
15
1
14
15
Total Operating Expenses 250
279
529
276
289
565
Total $ 471
$ (279 ) $ 192
$ 438
$ (289 ) $ 149

Net income for the periods ended ~~June 30~~March 31 includes the following results.

The increase (decrease) in operating revenues for the ~~periods~~period ended ~~June 30, 2016~~March 31, 2017 compared with ~~2015~~2016 was due to:

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 Six Months
Margin $ 3
$ 1
Other operation and maintenance 12
18
Depreciation 1
5
Other income (expense) - net (4 ) (3 )
Interest expense (5 ) (9 )
Income taxes (2 ) (4 )
Net income $ 5
$ 8



	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	)

"Margins" is a non-GAAP financial performance measure that management utilizes as an indicator of the performance of its business. See PPL's "Results of Operations - Margins" for an explanation of why management believes this measure is useful and the factors underlying changes between periods. Within PPL's discussion, LG&E's Margins are included in "Kentucky Gross Margins."

The following ~~tables contain~~table 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 ~~June 30.~~

2016 Three Months 2015 Three Months
Margins Other (a)
Operating
Income (b)
Margins Other (a)
Operating
Income (b)
Operating Revenues $ 323
$ —
$ 323
$ 331
$ —
$ 331
Operating Expenses
Fuel 69
—
69
82
—
82
Energy purchases, including affiliate 26
—
26
28
—
28
Other operation and maintenance 11
81
92
10
93
103
Depreciation 7
35
42
4
36
40
Taxes, other than income 1
6
7
1
6
7
Total Operating Expenses 114
122
236
125
135
260
Total $ 209
$ (122 ) $ 87
$ 206
$ (135 ) $ 71

2016 Six Months 2015 Six Months
Margins Other (a)
Operating
Income (b)
Margins Other (a)
Operating
Income (b)
Operating Revenues $ 709
$ —
$ 709
$ 770
$ —
$ 770
Operating Expenses
Fuel 147
—
147
185
—
185
Energy purchases, including affiliate 90
—
90
119
—
119
Other operation and maintenance 20
159
179
22
177
199
Depreciation 13
70
83
7
75
82
Taxes, other than income 2
13
15
1
13
14
Total Operating Expenses 272
242
514
334
265
599
Total $ 437
$ (242 ) $ 195
$ 436
$ (265 ) $ 171

Net income for the periods ended ~~June 30~~March 31 includes the following results.

The increase (decrease) in operating revenue for the ~~periods~~period ended ~~June 30, 2016~~March 31, 2017 compared with ~~2015~~2016 was due to:

Fuel decreased ~~$19~~$9 million for the three months ended ~~June 30, 2016~~March 31, 2017 compared with ~~2015, due to lower costs of commodities.~~

Energy purchases from affiliate ~~decreased $13 million for the six months ended June 30, 2016 compared with 2015, due to~~ increased ~~generation as a result of Cane Run Unit 7 being placed in-service during 2015.~~

Income taxes ~~increased $10 million and $9~~decreased $7 million for the three ~~and six~~ months ended ~~June 30, 2016~~March 31, 2017 compared with ~~2015~~2016 primarily due to ~~higher~~lower pre-tax income.

Earnings ~~increased~~decreased for the three month period in ~~2016~~2017 compared with ~~2015~~2016 primarily due to lower sales volumes driven by milder weather and higher ~~base electricity rates effective July 1, 2015,~~energy purchases from affiliate, partially offset by ~~higher interest expense.~~

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 Six Months
Margin $ 30
$ 36
Other operation and maintenance 3
2
Depreciation (3 ) (5 )
Taxes, other than income —
(1 )
Other income (expense) - net (1 ) (2 )
Interest expense (4 ) (9 )
Income taxes (10 ) (9 )
Net income $ 15
$ 12



	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	)

"Margins" is a non-GAAP financial performance measure that management utilizes as an indicator of the performance of its business. See PPL's "Results of Operations - Margins" for an explanation of why management believes this measure is useful

The following ~~tables contain~~table 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 ~~June 30.~~

The remainder of this Item 2 in this Form 10-Q is presented on a combined basis, providing information, as applicable, for all Registrants.

The Registrants had the following at:

Net cash provided by (used in) operating, investing and financing activities for the ~~six~~three month ~~periods~~period ended ~~June 30,~~March 31, and the changes between periods, were as follows.

The components of the change in cash provided by (used in) operating activities for the ~~six~~three months ended ~~June 30, 2016~~March 31, 2017 compared with ~~2015~~2016 were as follows.

PPL's cash provided by operating activities ~~from continuing operations~~ in ~~2016 increased $200~~2017 decreased $422 million ~~in 2016~~ compared with ~~2015.~~2016.

PPL Electric's cash provided by operating activities in ~~2016 increased $252~~2017 decreased $69 million ~~in 2016~~ compared with ~~2015.~~2016.

LKE's cash provided by operating activities in ~~2016 decreased $197~~2017 increased $9 million compared with ~~2015.~~2016.

LG&E's cash provided by operating activities in ~~2016~~2017 decreased ~~$116~~$15 million compared with ~~2015.~~2016.

KU's cash provided by operating activities in ~~2016~~2017 decreased ~~$49~~$56 million compared with ~~2015.~~2016.

Investment in PP&E is the primary investing activity of the ~~registrants.~~Registrants. The change in cash used in expenditures for PP&E for the ~~six~~three months ended ~~June 30, 2016~~March 31, 2017 compared with ~~2015~~2016 was as follows.

PPL PPL Electric LKE LG&E KU
Decrease $ 333
$ 56
$ 191
$ 112
$ 78



	PPL			PPL Electric			LKE		LG&E		KU
Decrease (Increase)	$	(21	)	$	(60	)	$	35	$	15	$	21

For PPL, the ~~decrease~~increase 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 ~~decrease~~increase in project expenditures for WPD was primarily due to ~~a decrease~~an 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 ~~decrease~~increase in expenditures for PPL Electric was primarily due to the ~~completion of the Susquehanna-Roseland transmission~~smart meter implementation project and ~~the completion of the Northeast Pocono~~various enhancement reliability ~~project.~~projects. The decrease in expenditures for LG&E was primarily ~~driven by the completion of the~~due to reduced spending for environmental air projects at LG&E's Mill Creek plant. The decrease in expenditures for KU was primarily ~~driven by the completion of the~~due to reduced spending for environmental air projects at KU's Ghent ~~plant and the CCR project at KU's E.W. Brown~~ plant.

The components of the change in cash provided by (used in) financing activities for the ~~six~~three months ended ~~June 30, 2016~~March 31, 2017 compared with ~~2015 was~~2016 were as follows.

See Note 7 to the Financial Statements in this Form 10-Q for information on ~~2016~~2017 short and long-term debt activity, equity transactions and PPL dividends. See the Registrants' ~~2015~~2016 Form 10-K for information on ~~2015~~2016 activity.

The Registrants maintain credit facilities to enhance liquidity, provide credit support and provide a backstop to commercial paper programs. Amounts borrowed under these credit facilities are reflected in "Short-term debt" on the Balance Sheets. At ~~June 30, 2016,~~March 31, 2017, the total committed borrowing capacity and the use of that capacity under these credit facilities was as follows:

~~104~~

See Note 7 to the Financial Statements for further discussion of the Registrants' credit facilities.

See Note 1110 to the Financial Statements for further discussion of intercompany credit facilities.

Commercial Paper (All Registrants)

PPL, PPL Electric, LG&E and KU maintain commercial paper programs to provide an additional financing source to fund short-term liquidity needs, as necessary. Commercial paper issuances, included in "Short-term debt" on the Balance Sheets, are supported by the respective Registrant's Syndicated Credit Facility. The following commercial paper programs were in place at ~~June 30, 2016:~~March 31, 2017:

For the ~~three and six months~~period ended ~~June 30, 2016, PPL did not issue any shares under the agreements. For the three and six months ended June 30, 2015,~~March 31, 2017, PPL issued ~~421,700 shares of common stock under~~ the ~~program at an average price of $33.73 per share, receiving net proceeds of $14 million.~~following:

In ~~May 2016,~~February 2017, PPL declared a quarterly common stock dividend, payable ~~July 1, 2016,~~April 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.

Moody's and S&P have periodically reviewed the credit ratings of the debt of the Registrants and their subsidiaries. Based on their respective independent reviews, the rating agencies may make certain ratings revisions or ratings affirmations.

A credit rating reflects an assessment by the rating agency of the creditworthiness associated with an issuer and particular securities that it issues. The credit ratings of the Registrants and their subsidiaries are based on information provided by the Registrants and other sources. The ratings of Moody's and S&P are not a recommendation to buy, sell or hold any securities of the Registrants or their subsidiaries. Such ratings may be subject to revisions or withdrawal by the agencies at any time and should be evaluated independently of each other and any other rating that may be assigned to the securities. The credit ratings of the Registrants and their subsidiaries affect their liquidity, access to capital markets and cost of borrowing under their credit facilities. A downgrade in the Registrants' or their subsidiaries' credit ratings could result in higher borrowing costs and reduced access to capital markets. The Registrants and their subsidiaries have no credit rating triggers that would result in the reduction of access to capital markets or the acceleration of maturity dates of outstanding debt.

The rating agencies have taken the following actions related to the Registrants and their subsidiaries during ~~2016:~~

In ~~February 2016,~~January 2017, Moody's and S&P affirmed their commercial paper ratings for PPL Electric's ~~$400~~$650 million commercial paper program.

In ~~February 2016,~~March 2017, Moody's and S&P ~~assigned~~confirmed 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.~~Bonds.

Various derivative and non-derivative contracts, including contracts for the sale and purchase of electricity and fuel, commodity transportation and storage, interest rate and foreign currency instruments (for PPL), contain provisions that require the posting of additional collateral or permit the counterparty to terminate the contract, if PPL's, LKE's, LG&E's or KU's or their subsidiaries' credit rating, as applicable, were to fall below investment grade. See Note 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 ~~June 30, 2016.~~March 31, 2017.

For additional information on the Registrants' liquidity and capital resources, see "Item 7. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations," in the Registrants' ~~2015~~2016 Form 10-K.

See Notes 1312 and 1413 to the Financial Statements for information about the Registrants' risk management objectives, valuation techniques and accounting designations.

The forward-looking information presented below provides estimates of what may occur in the future, assuming certain adverse market conditions and model assumptions. Actual future results may differ materially from those presented. These are not precise indicators of expected future losses, but are rather only indicators of possible losses under normal market conditions at a given confidence level.

The Registrants and their subsidiaries issue debt to finance their operations, which exposes them to interest rate risk. The Registrants and their subsidiaries utilize various financial derivative instruments to adjust the mix of fixed and floating interest rates in their debt portfolios, adjust the duration of their debt portfolios and lock in benchmark interest rates in anticipation of future financing, when appropriate. Risk limits under the risk management program are designed to balance risk exposure to volatility in interest expense and changes in the fair value of the debt portfolios due to changes in the absolute level of interest rates. In addition, the interest rate risk of certain subsidiaries is potentially mitigated as a result of the existing regulatory framework or the timing of rate cases.

The following interest rate hedges were outstanding at ~~June 30, 2016.~~

The Registrants are exposed to a potential increase in interest expense and to changes in the fair value of their debt portfolios. The estimated impact of a 10% adverse movement in interest rates on interest expense at ~~June 30, 2016~~March 31, 2017 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 ~~June 30, 2016~~March 31, 2017 is shown below.

PPL is exposed to foreign currency risk primarily through investments in U.K. affiliates. Under its risk management program, PPL may enter into financial instruments to hedge certain foreign currency exposures, including translation risk of expected earnings, firm commitments, recognized assets or liabilities, anticipated transactions and net investments.

The following foreign currency hedges were outstanding at ~~June 30, 2016.~~

Exposure
Hedged

Fair Value,
Net - Asset
(Liability)

Effect of a
10%
Adverse
Movement
in Foreign
Currency
Exchange
Rates (a)

Maturities
Ranging
Through
Economic hedges (b) £ 1,731
$ 393
$ (220 ) 2018



	Exposure Hedged		Fair Value, Net - Asset (Liability)		Effect of a 10% Adverse Movement in Foreign Currency Exchange Rates (a)			Maturities Ranging Through
Economic hedges (b)	£	2,840	$	150	$	(333	)	2019

PPL is exposed to commodity price risk through its domestic subsidiaries as described below.

PPL is exposed to volumetric risk through its subsidiaries as described below.

Credit Risk (All Registrants)

See Notes 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' ~~2015~~2016 Form 10-K for additional information.

Foreign Currency Translation (PPL)

The value of the British pound sterling fluctuates in relation to the U.S. dollar. Changes in this exchange rate resulted in a foreign currency translation loss of ~~$199~~$24 million for the ~~six~~three months ended ~~June 30, 2016,~~March 31, 2017, which primarily reflected a ~~$398~~$46 million decrease to PP&E and ~~$95~~a $10 million decrease to goodwill partially offset by a $28 million decrease ~~of $294~~to long-term debt and a $4 million decrease to other net liabilities. Changes in this exchange rate resulted in a foreign currency translation loss of ~~$149~~$466 million for the ~~six~~three months ended ~~June 30, 2015,~~March 31, 2016, which primarily reflected a ~~$299~~$909 million decrease to PP&E and ~~$77~~a $214 million decrease to goodwill partially offset by a $557 million decrease ~~of $227~~to long-term debt and a $100 million decrease to other net liabilities. The impact of foreign currency translation is recorded in AOCI.

Related Party Transactions (All Registrants)

The Registrants are not aware of any material ownership interests or operating responsibility by senior management in outside partnerships, including leasing transactions with variable interest entities, or other entities doing business with the Registrants. See Note 1110 to the Financial Statements for additional information on related party transactions for PPL Electric, LKE, LG&E and KU.

Acquisitions, Development and Divestitures (All Registrants)

The Registrants from time to time evaluate opportunities for potential acquisitions, divestitures and development projects. Development projects are reexamined based on market conditions and other factors to determine whether to proceed with, modify or terminate the projects. Any resulting transactions may impact future financial results. See Note 8 to the Financial Statements in the Registrants' 2016 Form 10-K for information on the more significant activities.

Environmental Matters (All Registrants)

Extensive federal, state and local environmental laws and regulations are applicable to PPL's, PPL Electric's, LKE's, LG&E's and KU's air emissions, water discharges and the management of hazardous and solid waste, as well as other aspects of the

Registrants' businesses. The cost of compliance or alleged non-compliance cannot be predicted with certainty but could be significant. In addition, costs may increase significantly if the requirements or scope of environmental laws or regulations, or similar rules, are expanded or changed. Costs may take the form of increased capital expenditures or operating and maintenance expenses, monetary fines, penalties or other restrictions. In addition, the regulatory reviews specified in the President's March 2017 Executive Order promoting energy independence and economic growth could result in future regulatory changes and additional uncertainty. Many of these environmental law considerations are also applicable to the operations of key suppliers, or customers, such as coal producers and industrial power users, and may impact the cost for their products or their demand for the Registrants' services. Increased capital and operating costs are subject to rate recovery. PPL, PPL Electric, LKE, LG&E and KU can provide no assurances as to the ultimate outcome of future environmental or rate proceedings before regulatory authorities.

See Note 109 to the Financial Statements for a discussion of the more significant environmental matters including:

Additionally, see "Item 1. Business - Environmental Matters" in the Registrants' ~~2015~~2016 Form 10-K for additional information on environmental matters.

See ~~Notes 2 and 18~~Note 17 to the Financial Statements for a discussion of new accounting guidance ~~adopted and~~ pending adoption.

Financial condition and results of operations are impacted by the methods, assumptions and estimates used in the application of critical accounting policies. The following table summarizes the accounting policies by Registrant that are particularly important to an understanding of the reported financial condition or results of operations, and require management to make estimates or other judgments of matters that are inherently uncertain. See "Item 7. Combined Management's Discussion and

PPL

Electric

LKE

LG&E

KU

Defined Benefits

X

~~Loss Accruals~~

X

Income Taxes

X

Goodwill Impairment

X

AROs

X

Price Risk Management

X

Regulatory Assets and Liabilities

X

Revenue Recognition - Unbilled Revenue

X

Reference is made to "Risk Management" in "Item 2. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations."

(a) Evaluation of disclosure controls and procedures.

(b) Change in internal controls over financial reporting.

For information regarding pending administrative and judicial proceedings involving regulatory, environmental and other matters, which information is incorporated by reference into this Part II, see:

There have been no material changes in the Registrants' risk factors from those disclosed in "Item 1A. Risk Factors" of the Registrants' ~~2015~~2016 Form ~~10-K except the following:~~

Not applicable.

The following Exhibits indicated by an asterisk preceding the Exhibit number are filed herewith. The balance of the Exhibits has heretofore been filed with the Commission and pursuant to Rule 12(b)-32 are incorporated herein by reference. Exhibits indicated by a [_] are filed or listed pursuant to Item 601(b)(10)(iii) of Regulation S-K.



~~3(a)~~ *10(a)	-	~~Amended and Restated Articles of Incorporation of PPL Corporation, effective as of May 25, 2016 (Exhibit 3(i) to PPL Corporation Form 8-K Report (File No. 1-11459) dated May 26, 2016)~~
*4(a)	-	~~Amendment No. 12 to PPL Employee Stock Ownership Plan, dated April 27, 2016~~
*4(b)	-	~~Amendment No. 13 to PPL Employee Stock Ownership Plan, dated May 13, 2016~~
~~4(c)~~	-	Supplemental Indenture No. 15, dated as of May 17, 2016, among PPL Capital Funding, Inc., PPL Corporation and The Bank of New York Mellon (as successor to JPMorgan Chase Bank, N.A. (formerly known as The Chase Manhattan Bank)), as Trustee (Exhibit 4(b) to PPL Corporation Form 8-K Report (File No. 1-11459) dated May 17, 2016)

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized. The signature for each undersigned company shall be deemed to relate only to matters having reference to such company or its subsidiaries.



SIGNATURES					~~115~~100
COMPUTATIONS OF RATIO OF EARNINGS TO FIXED CHARGES
CERTIFICATES OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
CERTIFICATES OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002



	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	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


	Three Months Ended June 30,					Six Months Ended June 30,					Three Months Ended March 31,
	2016		2015			2016		2015			2017			2016
Operating Revenues	$	1,785	$	1,781		$	3,796	$	4,011		$	1,951		$	2,011

Operating Expenses
Operation
Fuel	183		214			380		467			191			197
Energy purchases	147		170			380		499			215			233
Other operation and maintenance	425		467			875		923			432			450
Depreciation	231		216			460		432			242			229
Taxes, other than income	74		76			153		162			75			79
Total Operating Expenses	1,060		1,143			2,248		2,483			1,155			1,188

Operating Income	725		638			1,548		1,528			796			823

Other Income (Expense) - net	174		(102		)	235		(14		)	(47		)	61

Interest Expense	224		215			448		424			217			224

Income from Continuing Operations Before Income Taxes	675		321			1,335		1,090
Income Before Income Taxes											532			660

Income Taxes	192		71			371		288			129			179

Income from Continuing Operations After Income Taxes	483		250			964		802

Income (Loss) from Discontinued Operations (net of income taxes) (Note 8)	—		(1,007		)	—		(912		)

Net Income (Loss)	$	483	$	(757	)	$	964	$	(110	)
Net Income											$	403		$	481

Earnings Per Share of Common Stock:
Income from Continuing Operations After Income Taxes:
Basic	$	0.71	$	0.37		$	1.42	$	1.20
Diluted	$	0.71	$	0.37		$	1.41	$	1.19
Net Income (Loss):
Net Income Available to PPL Common Shareowners:
Basic	$	0.71	$	(1.13	)	$	1.42	$	(0.17	)	$	0.59		$	0.71
Diluted	$	0.71	$	(1.13	)	$	1.41	$	(0.17	)	$	0.59		$	0.71

Dividends Declared Per Share of Common Stock	$	0.38	$	0.3725		$	0.76	$	0.7450		$	0.3950		$	0.38

Weighted-Average Shares of Common Stock Outstanding (in thousands)
Basic	677,145		668,415			676,293		667,698			680,882			675,441
Diluted	680,729		671,286			679,773		670,013			683,084			678,817



	June 30, 2016		December 31, 2015
Assets

Current Assets
Cash and cash equivalents	$	492	$	836
Accounts receivable (less reserve: 2016, $48; 2015, $41)
Customer	667		673
Other	44		59
Unbilled revenues	447		453
Fuel, materials and supplies	336		357
Prepayments	131		66
Price risk management assets	200		139
Other current assets	43		63
Total Current Assets	2,360		2,646

Property, Plant and Equipment
Regulated utility plant	35,226		34,399
Less: accumulated depreciation - regulated utility plant	5,966		5,683
Regulated utility plant, net	29,260		28,716
Non-regulated property, plant and equipment	491		516
Less: accumulated depreciation - non-regulated property, plant and equipment	157		165
Non-regulated property, plant and equipment, net	334		351
Construction work in progress	1,200		1,315
Property, Plant and Equipment, net	30,794		30,382

Other Noncurrent Assets
Regulatory assets	1,762		1,733
Goodwill	3,455		3,550
Other intangibles	708		679
Price risk management assets	285		156
Other noncurrent assets	164		155
Total Other Noncurrent Assets	6,374		6,273

Total Assets	$	39,528	$	39,301


~~(a)~~	~~780,000 shares authorized; 677,549 and 673,857 shares issued and outstanding at June 30, 2016 and December 31, 2015.~~


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


~~(a)~~	~~170,000 shares authorized; 66,368 shares issued and outstanding at June 30, 2016 and December 31, 2015.~~


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


(a)	1,560,000 shares authorized; 682,427 and 679,731 shares issued and outstanding at March 31, 2017 and December 31, 2016.


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


~~(a)~~	~~Net income equals comprehensive income.~~


(a)	170,000 shares authorized; 66,368 shares issued and outstanding at March 31, 2017 and December 31, 2016.


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


(a)	75,000 shares authorized; 21,294 shares issued and outstanding at ~~June 30, 2016~~March 31, 2017 and December 31, ~~2015.~~2016.


(a)	80,000 shares authorized; 37,818 shares issued and outstanding at ~~June 30, 2016~~March 31, 2017 and December 31, ~~2015.~~2016.


	Three Months						Six Months						Three Months
	2016			2015			2016			2015			2017			2016
Income Statement Data
Revenues from external customers
U.K. Regulated	$	563		$	587		$	1,158		$	1,284		$	568		$	595
Kentucky Regulated	721			714			1,547			1,613			809			826
Pennsylvania Regulated	495			476			1,080			1,106			573			585
Corporate and Other	6			4			11			8			1			5
Total	$	1,785		$	1,781		$	3,796		$	4,011		$	1,951		$	2,011

Net Income (loss)
Net Income
U.K. Regulated (a)	$	345		$	190		$	634		$	565		$	286		$	289
Kentucky Regulated	76			47			188			156			95			112
Pennsylvania Regulated	78			49			172			136			79			94
Corporate and Other ~~(b)~~	(16		)	(36		)	(30		)	(55		)	(57		)	(14		)
Discontinued Operations (c)	—			(1,007		)	—			(912		)
Total	$	483		$	(757	)	$	964		$	(110	)	$	403		$	481


(a)	Includes unrealized gains and losses from hedging foreign-currency related economic activity. See Note 1413 for additional information.


~~(b)~~	~~2015 includes transition costs to prepare the Talen Energy organization for the June 1, 2015 spinoff and reconfigure the remaining PPL Services functions. See Note 8 for additional information.~~


~~(d)~~(a)	Includes ~~$12.1~~$10.9 billion and ~~$12.2~~$10.8 billion of net PP&E as of ~~June 30, 2016~~March 31, 2017 and December 31, ~~2015.~~2016. WPD is not subject to accounting for the effects of certain types of regulation as prescribed by GAAP.


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


(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.


~~(a)~~	~~Represents a valuation allowance against tax credits expiring in 2016 and 2017 that are more likely than not to expire before being utilized.~~



(KU)
	Three Months				Six Months
	2016		2015		2016		2015
Federal income tax on Income Before Income Taxes at statutory tax rate - 35%	$	31	$	22	$	73	$	66
Increase (decrease) due to:
State income taxes, net of federal income tax benefit	3		2		7		7
Other	—		—		—		(2		)
Total increase (decrease)	3		2		7		5
Total income taxes	$	34	$	24	$	80	$	71


Current Regulatory Liabilities:
Demand side management	$	10	$	8	$	5	$	4	$	5	$	4	$	2	$	3	$	1	$	2	$	1	$	1
Gas supply clause	—		6		—		6		—		—
Fuel adjustment clause	10		14		2		2		8		12		13		11		4		2		9		9
Other	5		4		1		1		4		3		1		4		—		1		1		3
Total current regulatory liabilities	$	25	$	32	$	8	$	13	$	17	$	19	$	16	$	18	$	5	$	5	$	11	$	13

Noncurrent Regulatory Liabilities:
Accumulated cost of removal of utility plant	$	695	$	691	$	304	$	301	$	391	$	390	$	701	$	700	$	308	$	305	$	393	$	395
Coal contracts (b)	8		17		3		7		5		10
Power purchase agreement - OVEC (b)	79		83		54		57		25		26		74		75		51		52		23		23
Net deferred tax assets	24		23		23		23		1		—		22		23		22		23		—		—
Defined benefit plans	27		24		—		—		27		24		23		23		—		—		23		23
Interest rate swaps	80		82		40		41		40		41		76		78		38		39		38		39
Other	3		3		3		2		—		1		1		—		—		—		1		—
Total noncurrent regulatory liabilities	$	916	$	923	$	427	$	431	$	489	$	492	$	897	$	899	$	419	$	419	$	478	$	480


(a)	~~These~~For PPL, these amounts are included in "Other current assets" on the Balance Sheets.


(b)	~~These liabilities were~~This liability was recorded as ~~offsets~~an offset to ~~certain~~an intangible ~~assets~~asset that ~~were~~was recorded at fair value upon the acquisition of LKE by PPL.


	June 30, 2016									December 31, 2015				March 31, 2017									December 31, 2016
	Expiration Date	Capacity		Borrowed		Letters of Credit and Commercial Paper Issued		Unused Capacity		Borrowed		Letters of Credit and Commercial Paper Issued
PPL
U.K.
WPD plc
Syndicated Credit Facility	Jan 2021	£	210	£	138	£	—	£	72	£	133	£	—
WPD (South West)
Syndicated Credit Facility	July 2020	245		100		—		145		—		—
WPD (East Midlands)
Syndicated Credit Facility	July 2020	300		31		—		269		—		—
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	£	269	£	4	£	822	£	133	£	4
U.S.
PPL Capital Funding
Syndicated Credit Facility	Jan 2021	$	700	$	—	$	320	$	380	$	—	$	151
Syndicated Credit Facility	Nov 2018	300		—		—		300		—		300
Bilateral Credit Facility	Mar 2017	150		—		17		133		—		20
Total PPL Capital Funding Credit Facilities		$	1,150	$	—	$	337	$	813	$	—	$	471
														Expiration Date	Capacity		Borrowed		Letters of Credit and Commercial Paper Issued		Unused Capacity		Borrowed		Letters of Credit and Commercial Paper Issued
PPL Electric
Syndicated Credit Facility	Jan 2021	$	400	$	—	$	7	$	393	$	—	$	1	Jan. 2022	$	650	$	—	$	500	$	150	$	—	$	296

LKE
Syndicated Credit Facility (b)	Oct 2018	$	75	$	—	$	—	$	75	$	75	$	—
Syndicated Credit Facility														Oct. 2018	$	75	$	—	$	—	$	75	$	—	$	—

LG&E
Syndicated Credit Facility	Dec 2020	$	500	$	—	$	110	$	390	$	—	$	142	Jan. 2022	$	500	$	—	$	207	$	293	$	—	$	169

KU
Syndicated Credit Facility	Dec 2020	$	400	$	—	$	29	$	371	$	—	$	48	Jan. 2022	$	400	$	—	$	36	$	364	$	—	$	16
Letter of Credit Facility	Oct 2017	198		—		198		—		—		198		Oct. 2017	198		—		198		—		—		198
Total KU Credit Facilities		$	598	$	—	$	227	$	371	$	—	$	246		$	598	$	—	$	234	$	364	$	—	$	214


(a)	~~WPD plc's~~The amounts borrowed at ~~June 30, 2016~~March 31, 2017 and December 31, ~~2015~~2016 were USD-denominated borrowings of $200 million for both periods, which bore interest at ~~1.27%~~1.61% and ~~1.83%~~1.43%. The unused capacity reflects the amount borrowed in GBP of ~~£138~~£161 million as of the date borrowed. ~~WPD (South West)~~


(b)	The amount borrowed at ~~June 30,~~March 31, 2017 was a GBP-denominated borrowing which equated to $286 million and bore interest at 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.


(e)	The amount borrowed at December 31, 2016 was a GBP-denominated borrowing which equated to ~~$146~~$75 million and bore interest at ~~0.92%~~1.26%. ~~WPD (East Midlands) amount borrowed at June 30, 2016 was a GBP-denominated borrowing which equated to $45 million and bore interest at 0.92%.~~