

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 ~~September~~June 30, ~~2017~~2018.
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, smaller reporting companies or emerging growth companies. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.



	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 ]	[ ]	[ ]

If emerging growth companies, indicate by check mark if the registrants have elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.



	PPL Corporation	[ ]
	PPL Electric Utilities Corporation	[ ]
	LG&E and KU Energy LLC	[ ]
	Louisville Gas and Electric Company	[ ]
	Kentucky Utilities Company	[ ]

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



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

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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, ~~688,464,316~~699,570,660 shares outstanding at ~~October 25, 2017.~~July 31, 2018.

	PPL Electric Utilities Corporation	Common stock, no par value, 66,368,056 shares outstanding and all held by PPL Corporation at ~~October 25, 2017.~~July 31, 2018.

	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 ~~October 25, 2017.~~July 31, 2018.

	Kentucky Utilities Company	Common stock, no par value, 37,817,878 shares outstanding and all held by LG&E and KU Energy LLC at ~~October 25, 2017.~~July 31, 2018.

This document is available free of charge at the Investors section of PPL Corporation's website at www.pplweb.com. However, information on this website does not constitute a part of this Form 10-Q.

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PPL CORPORATION

PPL ELECTRIC UTILITIES CORPORATION

LG&E AND KU ENERGY LLC

LOUISVILLE GAS AND ELECTRIC COMPANY

KENTUCKY UTILITIES COMPANY

FORM 10-Q

FOR THE QUARTER ENDED ~~SEPTEMBER~~JUNE 30, ~~2017~~2018

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This combined Form 10-Q is separately filed by the following Registrants in their individual capacity: PPL Corporation, PPL Electric Utilities Corporation, LG&E and KU Energy LLC, Louisville Gas and Electric Company and Kentucky Utilities Company. Information contained herein relating to any individual Registrant is filed by such Registrant solely on its own behalf, and no Registrant makes any representation as to information relating to any other Registrant, except that information under "Forward-Looking Information" relating to subsidiaries of PPL Corporation is also attributed to PPL Corporation and information relating to the subsidiaries of LG&E and KU Energy LLC is also attributed to LG&E and KU Energy LLC.

Unless otherwise specified, references in this Report, individually, to PPL Corporation, PPL Electric Utilities Corporation, LG&E and KU Energy LLC, Louisville Gas and Electric Company and Kentucky Utilities Company are references to such entities directly or to one or more of their subsidiaries, as the case may be, the financial results of which subsidiaries are consolidated into such ~~Registrants~~Registrants' financial statements in accordance with GAAP. This presentation has been applied where identification of particular subsidiaries is not material to the matter being disclosed, and to conform narrative disclosures to the presentation of financial information on a consolidated basis.



				Page
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	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

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	Combined Notes to Condensed Financial Statements (Unaudited)
		1. Interim Financial Statements		33
		2. Summary of Significant Accounting Policies		33
		3. Segment and Related Information		3435
		4. ~~Earnings Per Share~~Revenue from Contracts with Customers		3435
		5. ~~Income Taxes~~Earnings Per Share		3639
		6. ~~Utility Rate Regulation~~		37
		~~7. Financing Activities~~Income Taxes		40
		~~8. Defined Benefits~~7. Utility Rate Regulation		4342
		8. Financing Activities		47
		9. ~~Commitments and Contingencies~~Defined Benefits		4551
		10. ~~Related Party Transactions~~Commitments and Contingencies		5453
		11. ~~Other Income (Expense) - net~~Related Party Transactions		5561
		12. ~~Fair Value Measurements~~Other Income (Expense) - net		5562
		13. ~~Derivative Instruments and Hedging Activities~~Fair Value Measurements		5762
		14. ~~Goodwill~~Derivative Instruments and ~~Other Intangible Assets~~Hedging Activities		65
		15. Asset Retirement Obligations		6572
		16. Accumulated Other Comprehensive Income (Loss)		6672
		17. New Accounting Guidance Pending Adoption		6774
	Item 2. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations
		Overview		7077
			Introduction	7077
			Business Strategy	7279
			Financial and Operational Developments	7380
		Results of Operations		7485
			PPL Corporation and Subsidiaries - Statement of Income Analysis, Segment Earnings and Adjusted Gross Margins	7586
			PPL Electric Utilities Corporation and Subsidiaries - Statement of Income Analysis, Earnings and Adjusted Gross Margins	8799
			LG&E and KU Energy LLC and Subsidiaries - Statement of Income Analysis, Earnings and Adjusted Gross Margins	90102
			Louisville Gas and Electric Company - Statement of Income Analysis, Earnings and Adjusted Gross Margins	92105
			Kentucky Utilities Company - Statement of Income Analysis, Earnings and Adjusted Gross Margins	95108
		Financial Condition		97111
			Liquidity and Capital Resources	97111
			Risk Management	~~103~~117
			Foreign Currency Translation	~~105~~119
			Related Party Transactions	~~105~~119
			Acquisitions, Development and Divestitures	~~105~~119
			Environmental Matters	~~106~~119
		New Accounting Guidance		~~106~~120
		Application of Critical Accounting Policies		~~106~~120
	Item 3. Quantitative and Qualitative Disclosures About Market Risk			~~107~~121
	Item 4. Controls and Procedures			~~107~~121
PART II. OTHER INFORMATION
	Item 1. Legal Proceedings			~~107~~121
	Item 1A. Risk Factors			~~107~~121
	Item 4. Mine Safety Disclosures			~~107~~121
	Item 6. Exhibits			~~107~~121
SIGNATURES				~~110~~124
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

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GLOSSARY OF TERMS AND ABBREVIATIONS

PPL Corporation and its subsidiaries

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 provides administrative, management and support services primarily to PPL 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.~~Global. Following a reorganization in October 2015 and October 2017, PPL WPD Limited is ~~now~~an indirect parent to WPD 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~~an indirect 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.

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

Other terms and abbreviations

£ - British pound sterling.

~~2016~~2017 Form 10-K - Annual Report to the SEC on Form 10-K for the year ended December 31, ~~2016.~~2017.

Act 11 - Act 11 of 2012 that became effective on April 16, 2012. The Pennsylvania legislation ~~authorizes~~authorized 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 amended the Pennsylvania Public Utility Code and created an energy efficiency and conservation program and smart metering technology requirements, adopted new PLR electricity supply procurement rules, provided remedies for market misconduct and changed the Alternative Energy Portfolio ~~Standard.~~Standard (AEPS).

Act 129 Smart Meter program - PPL Electric's system wide meter replacement program that installs wireless digital meters that provide secure communication between PPL Electric and the meter as well as all related infrastructure.

Adjusted Gross 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).

Advanced Metering System - meters and ~~meter reading~~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.

AFUDC - allowance for funds used during construction. The cost of equity and debt funds used to finance construction projects of regulated businesses, which is capitalized as part of construction costs.

AOCI - accumulated other comprehensive income or loss.

ARO - asset retirement obligation.

ATM Program - ~~PPL's~~ at-the-market ~~common~~ stock offering program.

~~BSER~~ - Best System of Emission Reduction. The degree of emission reduction 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)~~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.

CPIH - Consumer Price Index including owner-occupiers' housing costs. An aggregate measure of changes in the cost of living in the U.K., including a measure of owner-occupiers' housing costs.

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"~~

Table of ~~select distribution system circuits, improving grid reliability and efficiency.~~Contents

DNO - Distribution Network Operator in the U.K.

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

~~Table of Contents~~

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 programs proposed by any utility under its jurisdiction. DSM programs consist of energy efficiency programs intended to reduce peak demand and delay the investment in additional power plant construction, provide customers with tools and information regarding their energy usage and support energy efficiency.

DUoS - Distribution Use of System, the charge to licensed third party energy suppliers who are WPD's customers and use WPD's networks to deliver electricity to their customers, the end-users.

Earnings from Ongoing Operations- Aa 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 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~~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(s) - greenhouse gas(es).

GLT - ~~Gas Line Tracker.~~gas line tracker. The KPSC approved mechanism for LG&E's recovery of costs associated with gas transmission lines, gas service lines, gas risers, leak mitigation, and gas main replacements.

HB 487 - House Bill 487. Comprehensive Kentucky state tax legislation enacted on April 27, 2018.

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.

~~LCIDA~~kWh - ~~Lehigh County Industrial Development Authority.~~kilowatt hour, basic unit of electrical energy.

LIBOR - London Interbank Offered Rate.

~~Margins~~Mcf - ~~A non-GAAP financial~~one thousand cubic feet, a unit of measure ~~of performance used in "Item 2. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations" (MD&A).~~for natural gas.

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

iii

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MPR - Mid-period review, which is a review of output requirements in RIIO-ED1 that can be initiated by Ofgem halfway through the price control covering material changes to existing outputs that can be justified by clear changes in government policy or new outputs that may be needed to meet the needs of consumers and other network users. On April 30, 2018, Ofgem decided not to engage in a mid-period review of the RIIO-ED1 price-control period.

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.~~

~~iii~~

~~Table of Contents~~

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.

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 operates two coal-fired power plants, the Kyger Creek plant in Ohio and the Clifty Creek plant in Indiana, with combined ~~summer rating~~ capacities of 2,120 MW.

Performance ~~Unit~~unit - A stock-based compensation award that represents a variable number of shares of PPL common stock that a recipient may receive based on PPL's attainment of (i) total shareowner return (TSR) over a three-year performance period as compared to companies in the Philadelphia Stock Exchange Utility ~~Index.~~Index; or (ii) corporate return on equity (ROE) based on the average of the annual ROE for each year of the three-year performance period.

PJM - PJM Interconnection, L.L.C., operator of the electricity transmission network and electricity energy market in all or parts of Delaware, Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia and the District of Columbia.

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

PP&E - property, plant and equipment.

PUC - 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. RAV additions ~~are~~have been and continue to be based on a percentage of annual total 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.

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.

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

RIIO - Ofgem's framework for setting U.K. regulated gas and electric utility price controls which stands for "Revenues = Incentive + Innovation + Outputs." RIIO-1 refers to the first generation of price controls under the RIIO framework. RIIO-ED1 refers to the RIIO regulatory price control applicable to the operators of U.K. electricity distribution networks, the duration of which is April 2015 through March 2023. RIIO-2 refers to the second generation of price controls under the RIIO framework. RIIO-ED2 refers to the second regulatory price control applicable to the operators of U.K. electricity distribution networks, which will begin in April 2023.

RPI - ~~Retail Price Index,~~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~~ ~~- S&P Global Ratings, 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.

~~Table~~SCRs - selective catalytic reduction, a pollution control process for the removal of ~~Contents~~

nitrogen oxide from exhaust gas.

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.

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

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

TCJA - Tax Cuts and Jobs Act. Comprehensive U.S. federal tax legislation enacted on December 22, 2017.

Treasury Stock Method - a method applied to calculate diluted EPS that assumes any proceeds that could be obtained upon exercise of options and warrants (and their equivalents) would be used to purchase common stock at the average market price during the relevant period.

U.K. Finance Acts - refers to U.K. Finance Act of 2015 and 2016, enacted in November 2015 and September 2016 respectively, which collectively reduced the U.K. statutory corporate income tax rate from 20% to 19%, effective April 1, 2017 and from 19% to 17%, effective April 1, 2020.

VEBA - Voluntary Employee Beneficiary Association. A tax-exempt trust under the Internal Revenue Code Section 501(c)(9) used by employers to fund and pay eligible medical, life and similar benefits.

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

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Forward-looking Information

Statements contained in this Form 10-Q concerning expectations, beliefs, plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements 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 ~~2016~~2017 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 and adversely from the forward-looking statements:

the outcome of rate cases or other cost recovery or revenue ~~filings;~~proceedings;

changes in U.S. state or federal, or U.K. tax laws or ~~regulations;~~regulations, including the TCJA;

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

significant decreases in demand for electricity in the U.S.;

expansion of alternative and distributed sources of electricity generation and storage;

changes in foreign currency exchange rates for British pound sterling and the related impact on unrealized gains and losses on PPL's foreign currency economic hedges;

the effectiveness of our risk management programs, including foreign currency and interest rate hedging;

non-achievement by WPD of performance targets set by Ofgem;

the effect of changes in RPI on WPD's revenues and index linked debt;

~~the March 29, 2017 notification by the U.K.~~developments related to ~~the European Council of the European Union of~~ongoing negotiations regarding the U.K.'s intent to withdraw from the European Union and any actions in response thereto;

defaults by counterparties or suppliers for energy, capacity, coal, natural gas or key commodities, goods or services;

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

a material decline in the market value of PPL's equity;

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

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

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

the potential impact of any unrecorded commitments and liabilities ~~if any,~~ of the Registrants and their subsidiaries;

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

changes in the corporate credit ratings or securities analyst rankings of the Registrants and ~~credit ratings;~~their securities;

any requirement to record impairment charges pursuant to GAAP with respect to any of our significant investments;

laws or regulations to reduce emissions of GHGs or the physical effects of climate change;

continuing ability to access fuel supply for LG&E and KU, as well as the ability to recover fuel costs and environmental expenditures in a timely manner at LG&E and KU and natural gas supply costs at LG&E;

weather and other conditions affecting generation, transmission and distribution operations, operating costs and customer energy use;

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

receipt of necessary governmental permits and approvals;

new state, federal or foreign legislation or regulatory developments;

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

our ability to attract and retain qualified employees;

the effect of any business or industry restructuring;

development of new projects, markets and technologies;

performance of new ventures;

business dispositions or acquisitions and our ability to realize expected benefits from such business transactions;

collective labor bargaining negotiations; and

the outcome of litigation against the Registrants and their subsidiaries.

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.

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

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PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

PPL Corporation and Subsidiaries

(Unaudited)

(Millions of Dollars, except share data)


	Three Months Ended September 30,					Nine Months Ended September 30,					Three Months Ended June 30,					Six Months Ended June 30,
	2017			2016		2017			2016		2018		2017			2018		2017
Operating Revenues	$	1,845		$	1,889	$	5,521		$	5,685	$	1,848	$	1,725		$	3,974	$	3,676

Operating Expenses
Operation
Fuel	202			227		576			607		189		183			403		374
Energy purchases	143			151		494			531		148		136			389		351
Other operation and maintenance	397			417		1,217			1,292		506		432			974		902
Depreciation	257			232		745			692		273		246			542		488
Taxes, other than income	69			76		214			229		74		70			157		145
Total Operating Expenses	1,068			1,103		3,246			3,351		1,190		1,067			2,465		2,260

Operating Income	777			786		2,275			2,334		658		658			1,509		1,416

Other Income (Expense) - net	(76		)	49		(235		)	284		234		(68		)	191		(77		)

Interest Expense	230			223		669			671		235		222			474		439

Income Before Income Taxes	471			612		1,371			1,947		657		368			1,226		900

Income Taxes	116			139		321			510		142		76			259		205

Net Income	$	355		$	473	$	1,050		$	1,437	$	515	$	292		$	967	$	695

Earnings Per Share of Common Stock:
Net Income Available to PPL Common Shareowners:
Basic	$	0.52		$	0.70	$	1.53		$	2.12	$	0.74	$	0.43		$	1.39	$	1.02
Diluted	$	0.51		$	0.69	$	1.53		$	2.11	$	0.73	$	0.43		$	1.38	$	1.01

Dividends Declared Per Share of Common Stock	$	0.3950		$	0.38	$	1.185		$	1.14	$	0.41	$	0.395		$	0.82	$	0.79

Weighted-Average Shares of Common Stock Outstanding (in thousands)
Basic	686,563			678,114		683,783			676,905		699,006		683,841			696,772		682,370
Diluted	688,746			680,348		686,081			679,969		700,976		686,351			698,161		684,725

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

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME ~~(LOSS)~~

PPL Corporation and Subsidiaries

(Unaudited)

(Millions of Dollars)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016			2018			2017			2018			2017
Net income	$	355		$	473		$	1,050		$	1,437		$	515		$	292		$	967		$	695

Other comprehensive income (loss):
Amounts arising during the period - gains (losses), net of tax (expense) benefit:
Foreign currency translation adjustments, net of tax of $0, ($2), ($1), ($4)	(12		)	(641		)	195			(837		)
Qualifying derivatives, net of tax of $0, ($16), $7, ($9)	1			62			(29		)	57
Foreign currency translation adjustments, net of tax of ($2), $0, ($2), ($1)													(250		)	231			(134		)	207
Qualifying derivatives, net of tax of ($4), $5, $0, $7													19			(24		)	(1		)	(30		)
Defined benefit plans:
Net actuarial gain (loss), net of tax of $2, $4, $9, $3	(3		)	(6		)	(14		)	(4		)
Prior service costs, net of tax of $0, $0, $0, $0													(1		)	—			(1		)	—
Net actuarial gain (loss), net of tax of $0, $7, $0, $7													—			(11		)	(1		)	(11		)
Reclassifications from AOCI - (gains) losses, net of tax expense (benefit):
Qualifying derivatives, net of tax of $1, $17, ($6), $15	—			(69		)	24			(62		)
Qualifying derivatives, net of tax of $3, ($7), $1, ($7)													(19		)	25			(7		)	24
Equity investees' other comprehensive (income) loss, net of tax of $0, $0, $0, $0	—			—			1			(1		)	—			1			—			1
Defined benefit plans:
Prior service costs, net of tax of ($1), ($1), ($1), ($1)	—			—			1			1
Net actuarial (gain) loss, net of tax of ($10), ($10), ($28), ($27)	34			31			97			94
Prior service costs, net of tax of $0, $0, $0, $0													1			1			1			1
Net actuarial (gain) loss, net of tax of ($9), ($9), ($18), ($18)													34			31			70			63
Total other comprehensive income (loss)	20			(623		)	275			(752		)	(216		)	254			(73		)	255

Comprehensive income (loss)	$	375		$	(150	)	$	1,325		$	685
Comprehensive income													$	299		$	546		$	894		$	950

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

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

PPL Corporation and Subsidiaries

(Unaudited)

(Millions of Dollars)


	Nine Months Ended September 30,						Six Months Ended June 30,
	2017			2016			2018			2017
Cash Flows from Operating Activities
Net income	$	1,050		$	1,437		$	967		$	695
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation	745			692			542			488
Amortization	72			54			34			45
Defined benefit plans - expense (income)	(69		)	(29		)
Defined benefit plans - (income)							(101		)	(45		)
Deferred income taxes and investment tax credits	284			436			171			201
Unrealized (gains) losses on derivatives, and other hedging activities	194			107			(91		)	135
Stock-based compensation expense	30			23			16			22
Other	(8		)	(12		)	(9		)	(5		)
Change in current assets and current liabilities
Accounts receivable	25			(29		)	46			26
Accounts payable	(93		)	(40		)	(90		)	(92		)
Unbilled revenues	81			32			91			70
Fuel, materials and supplies	35			8			32			42
Prepayments	(37		)	(34		)	(60		)	(66		)
Taxes payable	6			40			28			(27		)
Regulatory assets and liabilities, net	(3		)	(32		)	42			(19		)
Accrued interest	49			32			(79		)	(77		)
Other current liabilities	(53		)	(48		)	(47		)	(52		)
Other	5			(5		)	(16		)	13
Other operating activities
Defined benefit plans - funding	(558		)	(345		)	(206		)	(552		)
Proceeds from transfer of excess benefit plan funds							65			—
Other assets	4			18			(67		)	(1		)
Other liabilities	(5		)	(75		)	57			(11		)
Net cash provided by operating activities	1,754			2,230			1,325			790
Cash Flows from Investing Activities
Expenditures for property, plant and equipment	(2,152		)	(2,073		)	(1,527		)	(1,373		)
Expenditures for intangible assets	(25		)	(23		)
Purchase of available-for-sale securities							(65		)	—
Other investing activities	13			30			(57		)	(12		)
Net cash used in investing activities	(2,164		)	(2,066		)	(1,649		)	(1,385		)
Cash Flows from Financing Activities
Issuance of long-term debt	1,088			1,241			584			594
Retirement of long-term debt	(60		)	(905		)	(250		)	(60		)
Settlement of cross-currency swaps	—			46
Issuance of common stock	275			133			147			177
Payment of common stock dividends	(800		)	(772		)	(558		)	(529		)
Net increase (decrease) in short-term debt	269			(268		)
Net increase in short-term debt							788			554
Other financing activities	(34		)	(33		)	(16		)	(25		)
Net cash provided by (used in) financing activities	738			(558		)
Effect of Exchange Rates on Cash and Cash Equivalents	7			(26		)
Net Increase (Decrease) in Cash and Cash Equivalents	335			(420		)
Cash and Cash Equivalents at Beginning of Period	341			836
Cash and Cash Equivalents at End of Period	$	676		$	416
Net cash provided by financing activities							695			711
Effect of Exchange Rates on Cash, Cash Equivalents and Restricted Cash							(7		)	7
Net Increase in Cash, Cash Equivalents and Restricted Cash							364			123
Cash, Cash Equivalents and Restricted Cash at Beginning of Period							511			367
Cash, Cash Equivalents and Restricted Cash at End of Period							$	875		$	490

Supplemental Disclosures of Cash Flow Information
Significant non-cash transactions:
Accrued expenditures for property, plant and equipment at September 30,	$	373		$	293
Accrued expenditures for intangible assets at September 30,	$	60		$	104
Accrued expenditures for property, plant and equipment at June 30,							$	329		$	284
Accrued expenditures for intangible assets at June 30,							$	59		$	56

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

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CONDENSED CONSOLIDATED BALANCE SHEETS

PPL Corporation and Subsidiaries

(Unaudited)

(Millions of Dollars, shares in thousands)


	September 30, 2017		December 31, 2016		June 30, 2018		December 31, 2017
Assets

Current Assets
Cash and cash equivalents	$	676	$	341	$	852	$	485
Accounts receivable (less reserve: 2017, $52; 2016, $54)
Accounts receivable (less reserve: 2018, $55; 2017, $51)
Customer	617		666		675		681
Other	96		46		66		100
Unbilled revenues	405		480		453		543
Fuel, materials and supplies	323		356		288		320
Prepayments	101		63		126		66
Price risk management assets	57		63		78		49
Other current assets	56		52		62		50
Total Current Assets	2,331		2,067		2,600		2,294

Property, Plant and Equipment
Regulated utility plant	36,678		34,674		38,999		38,228
Less: accumulated depreciation - regulated utility plant	6,624		6,013		7,083		6,785
Regulated utility plant, net	30,054		28,661		31,916		31,443
Non-regulated property, plant and equipment	422		413		370		384
Less: accumulated depreciation - non-regulated property, plant and equipment	154		134		108		110
Non-regulated property, plant and equipment, net	268		279		262		274
Construction work in progress	1,494		1,134		1,645		1,375
Property, Plant and Equipment, net	31,816		30,074		33,823		33,092

Other Noncurrent Assets
Regulatory assets	1,869		1,918		1,530		1,504
Goodwill	3,134		3,060		3,308		3,258
Other intangibles	666		700		694		697
Pension benefit asset	532		9		498		284
Price risk management assets	267		336		185		215
Other noncurrent assets	143		151		192		135
Total Other Noncurrent Assets	6,611		6,174		6,407		6,093

Total Assets	$	40,758	$	38,315	$	42,830	$	41,479

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

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CONDENSED CONSOLIDATED BALANCE SHEETS

PPL Corporation and Subsidiaries

(Unaudited)

(Millions of Dollars, shares in thousands)


	September 30, 2017			December 31, 2016			June 30, 2018			December 31, 2017
Liabilities and Equity

Current Liabilities
Short-term debt	$	1,211		$	923		$	1,864		$	1,080
Long-term debt due within one year	448			518			203			348
Accounts payable	838			820			804			924
Taxes	110			101			132			105
Interest	322			270			203			282
Dividends	272			259			287			273
Customer deposits	291			276			271			292
Regulatory liabilities	87			101			137			95
Other current liabilities	570			569			547			624
Total Current Liabilities	4,149			3,837			4,448			4,023

Long-term Debt	19,110			17,808			20,217			19,847

Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes	4,224			3,889			2,632			2,462
Investment tax credits	130			132			128			129
Accrued pension obligations	796			1,001			665			800
Asset retirement obligations	312			428			297			312
Regulatory liabilities	873			899			2,747			2,704
Other deferred credits and noncurrent liabilities	472			422			456			441
Total Deferred Credits and Other Noncurrent Liabilities	6,807			6,771			6,925			6,848

Commitments and Contingent Liabilities (Notes 6 and 9)
Commitments and Contingent Liabilities (Notes 7 and 10)

Equity
Common stock - $0.01 par value (a)	7			7			7			7
Additional paid-in capital	10,122			9,841			10,462			10,305
Earnings reinvested	4,066			3,829			4,266			3,871
Accumulated other comprehensive loss	(3,503		)	(3,778		)	(3,495		)	(3,422		)
Total Equity	10,692			9,899			11,240			10,761

Total Liabilities and Equity	$	40,758		$	38,315		$	42,830		$	41,479


(a)	1,560,000 shares authorized; ~~688,133~~699,128 and ~~679,731~~693,398 shares issued and outstanding at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016.~~2017.

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

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CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

PPL Corporation and Subsidiaries

(Unaudited)

(Millions of Dollars)


																Common stock shares outstanding (a)	Common stock		Additional paid-in capital			Earnings reinvested			Accumulated other comprehensive loss			Total
December 31, 2017																693,398	$	7	$	10,305		$	3,871		$	(3,422	)	$	10,761
Common stock issued																5,730			163									163
Stock-based compensation																			(6		)							(6		)
Net income																						967						967
Dividends and dividend equivalents																						(572		)				(572		)
Other comprehensive income (loss)																									(73		)	(73		)
June 30, 2018																699,128	$	7	$	10,462		$	4,266		$	(3,495	)	$	11,240
	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		679,731	$	7	$	9,841		$	3,829		$	(3,778	)	$	9,899
Common stock issued	8,402			303									303			5,742			202									202
Stock-based compensation				(22		)							(22		)				(20		)							(20		)
Net income							1,050						1,050									695						695
Dividends and dividend equivalents							(813		)				(813		)							(541		)				(541		)
Other comprehensive income (loss)										275			275												255			255
September 30, 2017	688,133	$	7	$	10,122		$	4,066		$	(3,503	)	$	10,692
June 30, 2017																685,473	$	7	$	10,023		$	3,983		$	(3,523	)	$	10,490

December 31, 2015	673,857	$	7	$	9,687		$	2,953		$	(2,728	)	$	9,919
Common stock issued	5,411			168									168
Stock-based compensation				(31		)							(31		)
Net income							1,437						1,437
Dividends and dividend equivalents							(773		)				(773		)
Other comprehensive income (loss)										(752		)	(752		)
Adoption of stock-based compensation guidance cumulative effect adjustment							7						7
September 30, 2016	679,268	$	7	$	9,824		$	3,624		$	(3,480	)	$	9,975


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

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

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Table of Contents

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

PPL Electric Utilities Corporation and Subsidiaries

(Unaudited)

(Millions of Dollars)


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016		2018		2017		2018		2017
Operating Revenues	$	547	$	539	$	1,620	$	1,619	$	517	$	500	$	1,156	$	1,073

Operating Expenses
Operation
Energy purchases	121		129		374		414		115		107		276		253
Other operation and maintenance	133		144		435		431		159		139		292		302
Depreciation	77		64		228		185		88		76		173		151
Taxes, other than income	27		26		79		79		22		23		54		52
Total Operating Expenses	358		363		1,116		1,109		384		345		795		758

Operating Income	189		176		504		510		133		155		361		315

Other Income (Expense) - net	4		4		8		12		7		4		13		4

Interest Income from Affiliate	2		—		3		—		1		1		1		1

Interest Expense	36		32		105		97		39		36		76		69

Income Before Income Taxes	159		148		410		425		102		124		299		251

Income Taxes	64		58		159		162		27		47		76		95

Net Income (a)	$	95	$	90	$	251	$	263	$	75	$	77	$	223	$	156


(a)	Net income equals comprehensive income.

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

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

PPL Electric Utilities Corporation and Subsidiaries

(Unaudited)

(Millions of Dollars)


	Nine Months Ended September 30,						Six Months Ended June 30,
	2017			2016			2018			2017
Cash Flows from Operating Activities
Net income	$	251		$	263		$	223		$	156
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation	228			185			173			151
Amortization	25			19			11			15
Defined benefit plans - expense	10			9			—			7
Deferred income taxes and investment tax credits	129			151			53			84
Other	(8		)	(14		)	(9		)	(4		)
Change in current assets and current liabilities
Accounts receivable	7			(6		)	37			13
Accounts payable	(38		)	(1		)	(60		)	(59		)
Unbilled revenues	30			10			30			17
Prepayments	(31		)	29			(47		)	(52		)
Regulatory assets and liabilities, net	—			(41		)	(27		)	(12		)
Taxes payable	10			(6		)	(1		)	(4		)
Other	(9		)	(13		)	1			(6		)
Other operating activities
Defined benefit plans - funding	(24		)	—			(28		)	(24		)
Other assets	(2		)	15			(41		)	(4		)
Other liabilities	(3		)	(5		)	49			1
Net cash provided by operating activities	575			595			364			279

Cash Flows from Investing Activities
Expenditures for property, plant and equipment	(851		)	(739		)	(518		)	(550		)
Expenditures for intangible assets	(7		)	(3		)
Net increase in notes receivable from affiliate	(2		)	—
Net decrease in notes receivable from affiliate							—			(270		)
Other investing activities	2			2			(3		)	(4		)
Net cash used in investing activities	(858		)	(740		)	(521		)	(824		)

Cash Flows from Financing Activities
Issuance of long-term debt	470			224			398			470
Retirement of long-term debt	—			(224		)
Contributions from parent	575			200			425			575
Payment of common stock dividends to parent	(231		)	(193		)	(222		)	(154		)
Net increase (decrease) in short-term debt	(295		)	130
Net decrease in short-term debt							—			(295		)
Other financing activities	(6		)	(3		)	(4		)	(5		)
Net cash provided by financing activities	513			134			597			591

Net Increase (Decrease) in Cash and Cash Equivalents	230			(11		)
Cash and Cash Equivalents at Beginning of Period	13			47
Cash and Cash Equivalents at End of Period	$	243		$	36
Net Increase in Cash, Cash Equivalents and Restricted Cash							440			46
Cash, Cash Equivalents and Restricted Cash at Beginning of Period							51			15
Cash, Cash Equivalents and Restricted Cash at End of Period							$	491		$	61

Supplemental Disclosure of Cash Flow Information
Significant non-cash transactions:
Accrued expenditures for property, plant and equipment at September 30,	$	190		$	166
Accrued expenditures for property, plant and equipment at June 30,							$	180		$	157

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

Table of Contents

CONDENSED CONSOLIDATED BALANCE SHEETS

PPL Electric Utilities Corporation and Subsidiaries

(Unaudited)

(Millions of Dollars, shares in thousands)


	September 30, 2017		December 31, 2016		June 30, 2018		December 31, 2017
Assets

Current Assets
Cash and cash equivalents	$	243	$	13	$	489	$	49
Accounts receivable (less reserve: 2017, $25; 2016, $28)
Accounts receivable (less reserve: 2018, $27; 2017, $24)
Customer	275		272		289		279
Other	10		21		23		71
Accounts receivable from affiliates	1		—		11		—
Notes receivable from affiliate	2		—
Unbilled revenues	84		114		97		127
Materials and supplies	31		32		28		34
Prepayments	40		9		53		6
Regulatory assets	14		19		16		16
Other current assets	11		8		13		6
Total Current Assets	711		488		1,019		588

Property, Plant and Equipment
Regulated utility plant	10,449		9,654		11,140		10,785
Less: accumulated depreciation - regulated utility plant	2,880		2,714		2,815		2,778
Regulated utility plant, net	7,569		6,940		8,325		8,007
Construction work in progress	699		641		586		508
Property, Plant and Equipment, net	8,268		7,581		8,911		8,515

Other Noncurrent Assets
Regulatory assets	1,073		1,094		737		709
Intangibles	256		251		260		259
Other noncurrent assets	15		12		56		11
Total Other Noncurrent Assets	1,344		1,357		1,053		979

Total Assets	$	10,323	$	9,426	$	10,983	$	10,082

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

Table of Contents

CONDENSED CONSOLIDATED BALANCE SHEETS

PPL Electric Utilities Corporation and Subsidiaries

(Unaudited)

(Millions of Dollars, shares in thousands)


	September 30, 2017		December 31, 2016		June 30, 2018		December 31, 2017
Liabilities and Equity

Current Liabilities
Short-term debt	$	—	$	295
Long-term debt due within one year	—		224
Accounts payable	397		367		$	374	$	386
Accounts payable to affiliates	38		42		29		31
Taxes	22		12		7		8
Interest	38		34		37		36
Regulatory liabilities	72		83		66		86
Other current liabilities	90		101		99		98
Total Current Liabilities	657		1,158		612		645

Long-term Debt	3,298		2,607		3,693		3,298

Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes	2,036		1,899		1,225		1,154
Accrued pension obligations	257		281		212		246
Regulatory liabilities					692		668
Other deferred credits and noncurrent liabilities	89		90		131		79
Total Deferred Credits and Other Noncurrent Liabilities	2,382		2,270		2,260		2,147

Commitments and Contingent Liabilities (Notes 6 and 9)
Commitments and Contingent Liabilities (Notes 7 and 10)

Equity
Common stock - no par value (a)	364		364		364		364
Additional paid-in capital	2,729		2,154		3,154		2,729
Earnings reinvested	893		873		900		899
Total Equity	3,986		3,391		4,418		3,992

Total Liabilities and Equity	$	10,323	$	9,426	$	10,983	$	10,082


(a)	170,000 shares authorized; 66,368 shares issued and outstanding at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016.~~2017.

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

Table of Contents

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

PPL Electric Utilities Corporation and Subsidiaries

(Unaudited)

(Millions of Dollars)


												Common stock shares outstanding (a)	Common stock		Additional paid-in capital		Earnings reinvested			Total
December 31, 2017												66,368	$	364	$	2,729	$	899		$	3,992
Net income																	223			223
Capital contributions from PPL															425					425
Dividends declared on common stock																	(222		)	(222		)
June 30, 2018												66,368	$	364	$	3,154	$	900		$	4,418
	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		66,368	$	364	$	2,154	$	873		$	3,391
Net income						251			251								156			156
Capital contributions from PPL				575					575						575					575
Dividends declared on common stock						(231		)	(231		)						(154		)	(154		)
September 30, 2017	66,368	$	364	$	2,729	$	893		$	3,986

December 31, 2015	66,368	$	364	$	1,934	$	821		$	3,119
Net income						263			263
Capital contributions from PPL				200					200
Dividends declared on common stock						(193		)	(193		)
September 30, 2016	66,368	$	364	$	2,134	$	891		$	3,389
June 30, 2017												66,368	$	364	$	2,729	$	875		$	3,968


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

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

Table of Contents

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

LG&E and KU Energy LLC and Subsidiaries

(Unaudited)

(Millions of Dollars)


	Three Months Ended September 30,					Nine Months Ended September 30,						Three Months Ended June 30,					Six Months Ended June 30,
	2017		2016			2017			2016			2018		2017			2018			2017
Operating Revenues	$	818	$	835		$	2,350		$	2,382		$	743	$	723		$	1,615		$	1,532

Operating Expenses
Operation
Fuel	202		227			576			607			189		183			403			374
Energy purchases	22		24			120			118			33		29			113			98
Other operation and maintenance	199		197			598			603			211		192			416			397
Depreciation	114		102			324			301			118		105			235			210
Taxes, other than income	17		16			49			46			18		16			35			32
Total Operating Expenses	554		566			1,667			1,675			569		525			1,202			1,111

Operating Income	264		269			683			707			174		198			413			421

Other Income (Expense) - net	1		(3		)	(5		)	(9		)	1		(4		)	(2		)	(8		)

Interest Expense	49		50			148			147			52		50			102			99

Interest Expense with Affiliate	5		4			13			12			6		4			11			8

Income Before Income Taxes	211		212			517			539			117		140			298			306

Income Taxes	79		79			195			202			31		53			70			116

Net Income	$	132	$	133		$	322		$	337		$	86	$	87		$	228		$	190

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

Table of Contents

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

LG&E and KU Energy LLC and Subsidiaries

(Unaudited)

(Millions of Dollars)


	Three Months Ended September 30,					Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016		2017			2016			2018			2017			2018		2017
Net income	$	132		$	133	$	322		$	337		$	86		$	87		$	228	$	190

Other comprehensive income (loss):
Amounts arising during the period - gains (losses), net of tax (expense) benefit:
Defined benefit plans:
Net actuarial gain (loss), net of tax of $0, $0, $7, ($1)	(1		)	—		(12		)	1
Net actuarial gain (loss), net of tax of $0, $7, $0, $7												1			(11		)	—		(11		)
Reclassifications from AOCI - (gains) losses, net of tax expense (benefit):
Equity investees' other comprehensive (income) loss, net of tax of $0, $0, $0, $0	—			—		1			(1		)	—			—			—		1
Defined benefit plans:
Prior service costs, net of tax of ($1), ($1), ($1), ($1)	—			—		1			1
Net actuarial loss, net of tax of $0, $0, ($2), ($1)	1			1		3			3
Prior service costs, net of tax of $0, $0, $0, $0												1			1			1		1
Net actuarial (gain) loss, net of tax of $0, ($1), ($1), ($2)												(1		)	1			1		2
Total other comprehensive income (loss)	—			1		(7		)	4			1			(9		)	2		(7		)

Comprehensive income	$	132		$	134	$	315		$	341		$	87		$	78		$	230	$	183

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

Table of Contents

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

LG&E and KU Energy LLC and Subsidiaries

(Unaudited)

(Millions of Dollars)


	Nine Months Ended September 30,						Six Months Ended June 30,
	2017			2016			2018			2017
Cash Flows from Operating Activities
Net income	$	322		$	337		$	228		$	190
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation	324			301			235			210
Amortization	19			21			9			14
Defined benefit plans - expense	19			20			8			12
Deferred income taxes and investment tax credits	173			212			30			91
Other	1			—			(1		)	—
Change in current assets and current liabilities
Accounts receivable	18			(43		)	16			13
Accounts payable	(30		)	7			(10		)	(28		)
Accounts payable to affiliates	3			4			1			—
Unbilled revenues	19			6			40			23
Fuel, materials and supplies	34			7			26			41
Regulatory assets and liabilities, net							69			(7		)
Taxes payable	13			—			(25		)	3
Accrued interest	41			42
Other	(1		)	(4		)	(40		)	(14		)
Other operating activities
Defined benefit plans - funding	(32		)	(82		)	(122		)	(29		)
Expenditures for asset retirement obligations	(22		)	(15		)	(26		)	(12		)
Other assets	5			1			(1		)	(2		)
Other liabilities	14			2			3			6
Net cash provided by operating activities	920			816			440			511
Cash Flows from Investing Activities
Expenditures for property, plant and equipment	(579		)	(600		)	(564		)	(355		)
Other investing activities	4			1
Net cash used in investing activities	(575		)	(599		)	(564		)	(355		)
Cash Flows from Financing Activities
Net increase (decrease) in notes payable with affiliate	(4		)	84			(126		)	(4		)
Issuance of long-term debt with affiliate							250			—
Issuance of long-term debt	60			221			100			60
Retirement of long-term debt	(60		)	(221		)	—			(60		)
Net increase (decrease) in short-term debt	5			(130		)
Debt issuance and credit facility costs	(3		)	(3		)
Distributions to member	(316		)	(224		)	(161		)	(218		)
Contributions from member	—			37
Net cash used in financing activities	(318		)	(236		)
Net Increase (Decrease) in Cash and Cash Equivalents	27			(19		)
Net increase in short-term debt							72			73
Other financing activities							(2		)	(1		)
Net cash provided by (used in) financing activities							133			(150		)
Net Increase in Cash and Cash Equivalents							9			6
Cash and Cash Equivalents at Beginning of Period	13			30			30			13
Cash and Cash Equivalents at End of Period	$	40		$	11		$	39		$	19

Supplemental Disclosure of Cash Flow Information
Significant non-cash transactions:
Accrued expenditures for property, plant and equipment at September 30,	$	142		$	86
Accrued expenditures for property, plant and equipment at June 30,							$	112		$	83

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

Table of Contents

CONDENSED CONSOLIDATED BALANCE SHEETS

LG&E and KU Energy LLC and Subsidiaries

(Unaudited)

(Millions of Dollars)


	September 30, 2017		December 31, 2016		June 30, 2018		December 31, 2017
Assets

Current Assets
Cash and cash equivalents	$	40	$	13	$	39	$	30
Accounts receivable (less reserve: 2017, $25; 2016, $24)
Accounts receivable (less reserve: 2018, $26; 2017, $25)
Customer	215		235		229		246
Other	43		17		45		44
Accounts receivable from affiliates	1		—
Unbilled revenues	151		170		163		203
Fuel, materials and supplies	264		297		229		254
Prepayments	27		24		31		25
Regulatory assets	20		20		11		18
Other current assets	8		4		6		8
Total Current Assets	769		780		753		828

Property, Plant and Equipment
Regulated utility plant	12,906		12,746		13,346		13,187
Less: accumulated depreciation - regulated utility plant	1,685		1,465		1,955		1,785
Regulated utility plant, net	11,221		11,281		11,391		11,402
Construction work in progress	574		317		880		627
Property, Plant and Equipment, net	11,795		11,598		12,271		12,029

Other Noncurrent Assets
Regulatory assets	796		824		793		795
Goodwill	996		996		996		996
Other intangibles	88		95		82		86
Other noncurrent assets	71		78		75		68
Total Other Noncurrent Assets	1,951		1,993		1,946		1,945

Total Assets	$	14,515	$	14,371	$	14,970	$	14,802

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

Table of Contents

CONDENSED CONSOLIDATED BALANCE SHEETS

LG&E and KU Energy LLC and Subsidiaries

(Unaudited)

(Millions of Dollars)


	September 30, 2017		December 31, 2016		June 30, 2018		December 31, 2017
Liabilities and Equity

Current Liabilities
Short-term debt	$	190	$	185	$	316	$	244
Long-term debt due within one year	98		194		203		98
Notes payable with affiliate	159		163
Notes payable with affiliates					99		225
Accounts payable	283		251		266		338
Accounts payable to affiliates	8		6		8		7
Customer deposits	57		56		59		58
Taxes	52		39		41		66
Price risk management liabilities	5		4		4		4
Regulatory liabilities	15		18		71		9
Interest	73		32		32		32
Asset retirement obligations	94		60		84		85
Other current liabilities	125		119		124		161
Total Current Liabilities	1,159		1,127		1,307		1,327

Long-term Debt

Long-term debt	4,570		4,471		4,657		4,661
Long-term debt to affiliate	400		400		650		400
Total Long-term Debt	4,970		4,871		5,307		5,061

Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes	1,909		1,735		878		866
Investment tax credits	130		132		127		129
Price risk management liabilities					17		22
Accrued pension obligations	345		350		259		365
Asset retirement obligations	261		373		248		271
Regulatory liabilities	873		899		2,055		2,036
Price risk management liabilities	24		27
Other deferred credits and noncurrent liabilities	178		190		140		162
Total Deferred Credits and Other Noncurrent Liabilities	3,720		3,706		3,724		3,851

Commitments and Contingent Liabilities (Notes 6 and 9)
Commitments and Contingent Liabilities (Notes 7 and 10)

Member's Equity	4,666		4,667		4,632		4,563

Total Liabilities and Equity	$	14,515	$	14,371	$	14,970	$	14,802

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

Table of Contents

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

LG&E and KU Energy LLC and Subsidiaries

(Unaudited)

(Millions of Dollars)


				Member's Equity
December 31, 2017				$	4,563
Net income				228
Distributions to member				(161		)
Other comprehensive income				2
June 30, 2018				$	4,632
	Member's Equity
December 31, 2016	$	4,667		$	4,667
Net income	322			190
Distributions to member	(316		)	(218		)
Other comprehensive income	(7		)	(7		)
September 30, 2017	$	4,666

December 31, 2015	$	4,517
Net income	337
Contributions from member	37
Distributions to member	(224		)
Other comprehensive income	4
September 30, 2016	$	4,671
June 30, 2017				$	4,632

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

Table of Contents

THIS PAGE INTENTIONALLY LEFT BLANK.

Table of Contents

CONDENSED STATEMENTS OF INCOME

Louisville Gas and Electric Company

(Unaudited)

(Millions of Dollars)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,					Six Months Ended June 30,
	2017			2016			2017			2016			2018			2017		2018			2017
Operating Revenues
Retail and wholesale	$	361		$	366		$	1,055		$	1,058		$	331		$	320	$	738		$	694
Electric revenue from affiliate	2			2			23			19			4			4		16			21
Total Operating Revenues	363			368			1,078			1,077			335			324		754			715

Operating Expenses
Operation
Fuel	76			86			225			233			72			69		151			149
Energy purchases	18			19			107			104			28			25		104			89
Energy purchases from affiliate	3			5			8			10			2			3		8			5
Other operation and maintenance	89			85			262			264			93			86		182			171
Depreciation	47			43			136			126			49			45		97			89
Taxes, other than income	8			9			25			24			9			9		18			17
Total Operating Expenses	241			247			763			761			253			237		560			520

Operating Income	122			121			315			316			82			87		194			195

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

Interest Expense	17			18			53			53			19			19		37			36

Income Before Income Taxes	104			102			260			257			62			69		155			156

Income Taxes	39			39			99			98			12			27		33			60

Net Income (a)	$	65		$	63		$	161		$	159		$	50		$	42	$	122		$	96


(a)	Net income equals comprehensive income.

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

Table of Contents

CONDENSED STATEMENTS OF CASH FLOWS

Louisville Gas and Electric Company

(Unaudited)

(Millions of Dollars)


	Nine Months Ended September 30,						Six Months Ended June 30,
	2017			2016			2018			2017
Cash Flows from Operating Activities
Net income	$	161		$	159		$	122		$	96
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation	136			126			97			89
Amortization	11			10			7			7
Defined benefit plans - expense	5			6			2			3
Deferred income taxes and investment tax credits	96			117			18			57
Change in current assets and current liabilities
Accounts receivable	12			(17		)	11			9
Accounts receivable from affiliates	6			(11		)	6			11
Accounts payable	(12		)	24			(12		)	(17		)
Accounts payable to affiliates	(10		)	(6		)	(3		)	(3		)
Unbilled revenues	11			10			24			14
Fuel, materials and supplies	6			11			31			33
Regulatory assets and liabilities, net							32			(3		)
Taxes payable	(15		)	—			(2		)	(23		)
Accrued interest	12			13
Other	6			1			(7		)	—
Other operating activities
Defined benefit plans - funding	(3		)	(45		)	(57		)	(3		)
Expenditures for asset retirement obligations	(13		)	(11		)	(10		)	(7		)
Other assets	5			(3		)
Other liabilities	4			(1		)	(4		)	1
Net cash provided by operating activities	418			383			255			264
Cash Flows from Investing Activities
Expenditures for property, plant and equipment	(293		)	(343		)	(296		)	(177		)
Net cash used in investing activities	(293		)	(343		)	(296		)	(177		)
Cash Flows from Financing Activities
Net increase in notes payable with affiliates	10			—
Issuance of long-term debt	60			125			100			60
Retirement of long-term debt	(60		)	(125		)	—			(60		)
Net increase (decrease) in short-term debt	21			(14		)	(16		)	38
Debt issuance and credit facility costs	(2		)	(1		)
Payment of common stock dividends to parent	(150		)	(87		)	(81		)	(122		)
Contributions from parent	—			47			43			—
Net cash used in financing activities	(121		)	(55		)
Net Increase (Decrease) in Cash and Cash Equivalents	4			(15		)
Other financing activities							(1		)	(1		)
Net cash provided by (used in) financing activities							45			(85		)
Net Increase in Cash and Cash Equivalents							4			2
Cash and Cash Equivalents at Beginning of Period	5			19			15			5
Cash and Cash Equivalents at End of Period	$	9		$	4		$	19		$	7

Supplemental Disclosure of Cash Flow Information
Significant non-cash transactions:
Accrued expenditures for property, plant and equipment at September 30,	$	83		$	46
Accrued expenditures for property, plant and equipment at June 30,							$	57		$	40

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

Table of Contents

CONDENSED BALANCE SHEETS

Louisville Gas and Electric Company

(Unaudited)

(Millions of Dollars, shares in thousands)


	September 30, 2017		December 31, 2016		June 30, 2018		December 31, 2017
Assets

Current Assets
Cash and cash equivalents	$	9	$	5	$	19	$	15
Accounts receivable (less reserve: 2017, $1; 2016, $2)
Accounts receivable (less reserve: 2018, $1; 2017, $1)
Customer	96		109		104		116
Other	14		11		14		13
Unbilled revenues					67		91
Accounts receivable from affiliates	22		28		18		24
Unbilled revenues	64		75
Fuel, materials and supplies	137		143		100		131
Prepayments	15		12		16		11
Regulatory assets	11		9		11		12
Other current assets	2		1		2		3
Total Current Assets	370		393		351		416

Property, Plant and Equipment
Regulated utility plant	5,447		5,357		5,653		5,587
Less: accumulated depreciation - regulated utility plant	575		498		678		614
Regulated utility plant, net	4,872		4,859		4,975		4,973
Construction work in progress	279		133		455		305
Property, Plant and Equipment, net	5,151		4,992		5,430		5,278

Other Noncurrent Assets
Regulatory assets	413		450		406		411
Goodwill	389		389		389		389
Other intangibles	54		59		50		53
Other noncurrent assets	13		17		23		12
Total Other Noncurrent Assets	869		915		868		865

Total Assets	$	6,390	$	6,300	$	6,649	$	6,559

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

Table of Contents

CONDENSED BALANCE SHEETS

Louisville Gas and Electric Company

(Unaudited)

(Millions of Dollars, shares in thousands)


	September 30, 2017		December 31, 2016		June 30, 2018		December 31, 2017
Liabilities and Equity

Current Liabilities
Short-term debt	$	190	$	169	$	183	$	199
Long-term debt due within one year	98		194		194		98
Notes payable with affiliate	10		—
Accounts payable	166		148		132		179
Accounts payable to affiliates	17		26		21		23
Customer deposits	27		27		28		27
Taxes	25		40		23		25
Price risk management liabilities	5		4		4		4
Regulatory liabilities	5		5		34		3
Interest	23		11		11		11
Asset retirement obligations	33		41		17		24
Other current liabilities	46		36		47		52
Total Current Liabilities	645		701		694		645

Long-term Debt	1,521		1,423		1,614		1,611

Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes	1,073		974		581		572
Investment tax credits	36		36		34		35
Price risk management liabilities					17		22
Accrued pension obligations	47		53		—		45
Asset retirement obligations	85		104		95		97
Regulatory liabilities	388		419		922		919
Price risk management liabilities	24		27
Other deferred credits and noncurrent liabilities	84		87		81		86
Total Deferred Credits and Other Noncurrent Liabilities	1,737		1,700		1,730		1,776

Commitments and Contingent Liabilities (Notes 6 and 9)
Commitments and Contingent Liabilities (Notes 7 and 10)

Stockholder's Equity
Common stock - no par value (a)	424		424		424		424
Additional paid-in capital	1,682		1,682		1,755		1,712
Earnings reinvested	381		370		432		391
Total Equity	2,487		2,476		2,611		2,527

Total Liabilities and Equity	$	6,390	$	6,300	$	6,649	$	6,559


(a)	75,000 shares authorized; 21,294 shares issued and outstanding at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016.~~2017.

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

Table of Contents

CONDENSED STATEMENTS OF EQUITY

Louisville Gas and Electric Company

(Unaudited)

(Millions of Dollars)


												Common stock shares outstanding (a)	Common stock		Additional paid-in capital		Earnings reinvested			Total
December 31, 2017												21,294	$	424	$	1,712	$	391		$	2,527
Net income																	122			122
Capital contributions from LKE															43					43
Cash dividends declared on common stock																	(81		)	(81		)
June 30, 2018												21,294	$	424	$	1,755	$	432		$	2,611
	Common stock shares outstanding (a)	Common stock		Additional paid-in capital		Earnings reinvested			Total
December 31, 2016	21,294	$	424	$	1,682	$	370		$	2,476		21,294	$	424	$	1,682	$	370		$	2,476
Net income						161			161								96			96
Cash dividends declared on common stock						(150		)	(150		)						(122		)	(122		)
September 30, 2017	21,294	$	424	$	1,682	$	381		$	2,487

December 31, 2015	21,294	$	424	$	1,611	$	295		$	2,330
Net income						159			159
Capital contributions from LKE				47					47
Cash dividends declared on common stock						(87		)	(87		)
September 30, 2016	21,294	$	424	$	1,658	$	367		$	2,449
June 30, 2017												21,294	$	424	$	1,682	$	344		$	2,450


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

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

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CONDENSED STATEMENTS OF INCOME

Kentucky Utilities Company

(Unaudited)

(Millions of Dollars)


	Three Months Ended September 30,					Nine Months Ended September 30,						Three Months Ended June 30,					Six Months Ended June 30,
	2017		2016			2017			2016			2018		2017			2018		2017
Operating Revenues
Retail and wholesale	$	457	$	469		$	1,295		$	1,324		$	412	$	403		$	877	$	838
Electric revenue from affiliate	3		5			8			10			2		3			8		5
Total Operating Revenues	460		474			1,303			1,334			414		406			885		843

Operating Expenses
Operation
Fuel	126		141			351			374			117		114			252		225
Energy purchases	4		5			13			14			5		4			9		9
Energy purchases from affiliate	2		2			23			19			4		4			16		21
Other operation and maintenance	104		107			313			320			112		100			217		208
Depreciation	67		59			188			175			70		61			138		121
Taxes, other than income	9		7			24			22			9		7			17		15
Total Operating Expenses	312		321			912			924			317		290			649		599

Operating Income	148		153			391			410			97		116			236		244

Other Income (Expense) - net	—		(3		)	(3		)	(4		)	3		(2		)	—		(4		)

Interest Expense	24		24			72			71			25		24			50		48

Income Before Income Taxes	124		126			316			335			75		90			186		192

Income Taxes	47		48			120			128			14		34			38		73

Net Income (a)	$	77	$	78		$	196		$	207		$	61	$	56		$	148	$	119


(a)	Net income approximates comprehensive income.

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

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CONDENSED STATEMENTS OF CASH FLOWS

Kentucky Utilities Company

(Unaudited)

(Millions of Dollars)


	Nine Months Ended September 30,						Six Months Ended June 30,
	2017			2016			2018			2017
Cash Flows from Operating Activities
Net income	$	196		$	207		$	148		$	119
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation	188			175			138			121
Amortization	7			10			2			6
Defined benefit plans - expense	3			4			—			2
Deferred income taxes and investment tax credits	116			122			9			70
Other	—			(1		)	(1		)	—
Change in current assets and current liabilities
Accounts receivable	6			(24		)	4			5
Accounts receivable from affiliates	(1		)	—
Accounts payable	(6		)	(11		)	11			(1		)
Accounts payable to affiliates	(16		)	2			(12		)	(15		)
Unbilled revenues	8			(4		)	16			9
Fuel, materials and supplies	28			(4		)	(5		)	8
Regulatory assets and liabilities, net							37			(4		)
Taxes payable	(21		)	—			4			(29		)
Accrued interest	22			22
Other	(6		)	2			(11		)	(9		)
Other operating activities
Defined benefit plans - funding	(22		)	(19		)	(52		)	(21		)
Expenditures for asset retirement obligations	(9		)	(4		)	(16		)	(5		)
Other assets	—			(4		)	(1		)	(3		)
Other liabilities	8			(4		)	3			4
Net cash provided by operating activities	501			469			274			257
Cash Flows from Investing Activities
Expenditures for property, plant and equipment	(283		)	(255		)	(266		)	(177		)
Net increase in notes receivable with affiliates	(10		)	—
Other investing activities	4			1
Net cash used in investing activities	(289		)	(254		)	(266		)	(177		)
Cash Flows from Financing Activities
Issuance of long-term debt	—			96
Retirement of long-term debt	—			(96		)
Net decrease in short-term debt	(16		)	(41		)
Debt issuance and credit facility costs	(1		)	(1		)
Net increase in short-term debt							88			35
Payment of common stock dividends to parent	(171		)	(197		)	(136		)	(110		)
Contributions from parent	—			20			45			—
Net cash used in financing activities	(188		)	(219		)	(3		)	(75		)
Net Increase (Decrease) in Cash and Cash Equivalents	24			(4		)
Net Increase in Cash and Cash Equivalents							5			5
Cash and Cash Equivalents at Beginning of Period	7			11			15			7
Cash and Cash Equivalents at End of Period	$	31		$	7		$	20		$	12

Supplemental Disclosure of Cash Flow Information
Significant non-cash transactions:
Accrued expenditures for property, plant and equipment at September 30,	$	58		$	40
Accrued expenditures for property, plant and equipment at June 30,							$	55		$	43

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

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CONDENSED BALANCE SHEETS

Kentucky Utilities Company

(Unaudited)

(Millions of Dollars, shares in thousands)


	September 30, 2017		December 31, 2016		June 30, 2018		December 31, 2017
Assets

Current Assets
Cash and cash equivalents	$	31	$	7	$	20	$	15
Accounts receivable (less reserve: 2017, $1; 2016, $2)
Accounts receivable (less reserve: 2018, $1; 2017, $1)
Customer	119		126		125		130
Other	28		5		31		30
Accounts receivable from affiliates	1		—
Notes receivable from affiliate	10		—
Unbilled revenues	87		95		96		112
Fuel, materials and supplies	127		154		129		123
Prepayments	14		12		15		14
Regulatory assets	9		11		—		6
Other current assets	6		3		4		5
Total Current Assets	432		413		420		435

Property, Plant and Equipment
Regulated utility plant	7,452		7,382		7,683		7,592
Less: accumulated depreciation - regulated utility plant	1,110		965		1,275		1,170
Regulated utility plant, net	6,342		6,417		6,408		6,422
Construction work in progress	293		181		424		321
Property, Plant and Equipment, net	6,635		6,598		6,832		6,743

Other Noncurrent Assets
Regulatory assets	383		374		387		384
Goodwill	607		607		607		607
Other intangibles	34		36		32		33
Other noncurrent assets	55		57		75		52
Total Other Noncurrent Assets	1,079		1,074		1,101		1,076

Total Assets	$	8,146	$	8,085	$	8,353	$	8,254

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

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CONDENSED BALANCE SHEETS

Kentucky Utilities Company

(Unaudited)

(Millions of Dollars, shares in thousands)


	September 30, 2017		December 31, 2016			June 30, 2018		December 31, 2017
Liabilities and Equity

Current Liabilities
Short-term debt	$	—	$	16		$	133	$	45
Long-term debt due within one year						9		—
Accounts payable	105		78			121		137
Accounts payable to affiliates	42		56			42		53
Customer deposits	30		29			31		31
Taxes	24		45			23		19
Regulatory liabilities	10		13			37		6
Interest	38		16			16		16
Asset retirement obligations	61		19			67		61
Other current liabilities	35		36			35		46
Total Current Liabilities	345		308			514		414

Long-term Debt	2,328		2,327			2,320		2,328

Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes	1,289		1,170			690		691
Investment tax credits	94		96			93		94
Accrued pension obligations	37		62			—		36
Asset retirement obligations	176		269			153		174
Regulatory liabilities	485		480			1,133		1,117
Other deferred credits and noncurrent liabilities	43		50			36		43
Total Deferred Credits and Other Noncurrent Liabilities	2,124		2,127			2,105		2,155

Commitments and Contingent Liabilities (Notes 6 and 9)
Commitments and Contingent Liabilities (Notes 7 and 10)

Stockholder's Equity
Common stock - no par value (a)	308		308			308		308
Additional paid-in capital	2,616		2,616			2,661		2,616
Accumulated other comprehensive loss	—		(1		)
Earnings reinvested	425		400			445		433
Total Equity	3,349		3,323			3,414		3,357

Total Liabilities and Equity	$	8,146	$	8,085		$	8,353	$	8,254


(a)	80,000 shares authorized; 37,818 shares issued and outstanding at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016.~~2017.

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

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CONDENSED STATEMENTS OF EQUITY

Kentucky Utilities Company

(Unaudited)

(Millions of Dollars)


															Common stock shares outstanding (a)	Common stock		Additional paid-in capital		Earnings reinvested			Accumulated other comprehensive loss			Total
December 31, 2017															37,818	$	308	$	2,616	$	433		$	—		$	3,357
Capital contributions from LKE																		45								45
Net income																				148						148
Cash dividends declared on common stock																				(136		)				(136		)
June 30, 2018															37,818	$	308	$	2,661	$	445		$	—		$	3,414
	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		37,818	$	308	$	2,616	$	400		$	(1	)	$	3,323
Net income						196						196								119						119
Cash dividends declared on common stock						(171		)				(171		)						(110		)				(110		)
Other comprehensive income									1			1
September 30, 2017	37,818	$	308	$	2,616	$	425		$	—		$	3,349

December 31, 2015	37,818	$	308	$	2,596	$	383		$	—		$	3,287
Capital contributions from LKE				20								20
Net income						207						207
Cash dividends declared on common stock						(197		)				(197		)
Other comprehensive income (loss)									(1		)	(1		)									1			1
September 30, 2016	37,818	$	308	$	2,616	$	393		$	(1	)	$	3,316
June 30, 2017															37,818	$	308	$	2,616	$	409		$	—		$	3,333


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

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

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Combined Notes to Condensed Financial Statements (Unaudited)

1. Interim Financial Statements

(All Registrants)

Capitalized terms and abbreviations appearing in the unaudited combined notes to condensed financial statements are defined in the glossary. Dollars are in millions, except per share data, unless otherwise noted. The specific Registrant to which disclosures are applicable is identified in parenthetical headings in italics above the applicable disclosure or within the applicable disclosure for 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, ~~2016~~2017 is derived from that Registrant's ~~2016~~2017 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 ~~2016~~2017 Form 10-K. The results of operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 are not necessarily indicative of the results to be expected for the full year ending December 31, ~~2017~~2018 or other future periods, because results for interim periods can be disproportionately influenced by various factors, developments and seasonal variations.

2. Summary of Significant Accounting Policies

(~~PPL and PPL Electric)~~All Registrants)

The following accounting policy disclosures represent updates to Note 1 in each indicated Registrant's ~~2016~~2017 Form 10-K and should be read in conjunction with those disclosures.

~~Accounts Receivable~~New Accounting Guidance Adopted (All Registrants)

~~In accordance~~Accounting for Revenue from Contracts with Customers

Effective January 1, 2018, the Registrants adopted accounting guidance that establishes a ~~PUC-approved purchase~~comprehensive new model for the recognition of ~~accounts receivable program, PPL Electric purchases certain accounts receivable~~revenue from ~~alternative electricity suppliers at~~contracts with customers. This model is based on the core principle that revenue should be recognized to depict the transfer of control 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. The Registrants adopted this guidance using the modified retrospective transition method. No cumulative effect adjustment was required as of the January 1, 2018 adoption date.

The adoption of this guidance did not have a ~~discount, which reflects~~material impact on the Registrants' revenue recognition policies. See Note 4 for the required disclosures as a ~~provision for uncollectible accounts. The alternative electricity suppliers have no continuing involvement or interest~~result of the adoption of this standard.

Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost

Effective January 1, 2018, the Registrants adopted accounting guidance that changes the income statement presentation of net periodic benefit cost. Retrospectively, this guidance requires the service cost component to be disaggregated from other components of net benefit cost and presented in the ~~purchased accounts receivable. Accounts receivable~~same income statement line items as other employee compensation costs arising from services rendered during the period. The other components of net periodic benefits are presented separately from the line items that ~~are acquired are initially recorded at fair value on~~include the ~~date~~service cost and outside of ~~acquisition. During~~any subtotal of operating income. Prospectively, the guidance limits the capitalization to the service cost component of net periodic benefit costs.

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For PPL, the non-service cost components of net periodic benefit costs were in a net credit position for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, PPL Electric purchased $324~~2018. The non-service cost credits that would have been capitalized under previous guidance, but are now recorded as income within "Other Income (Expense) - net," were $6 million ($5 million after-tax or $0.01 per share) and ~~$968~~$11 million ~~of accounts receivable from alternative energy suppliers. During~~($9 million after-tax or $0.01 per share) for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2018. For PPL Electric, ~~purchased $365 million~~LG&E and ~~$1.0 billion~~KU, non-service costs or credits that would have been capitalized under previous guidance are now recognized as a regulatory asset or regulatory liability, as applicable, in accordance with regulatory approvals.

The following provides the non-service cost components of ~~accounts receivable~~net periodic benefits (costs) or credits presented in "Other Income (Expense) - net" in 2018 and reclassified from ~~alternative electricity suppliers.~~"Other operation and maintenance" to "Other Income (Expense) - net" in 2017 on the Statements of Income as a result of the adoption.



	Three Months					Six Months
	2018			2017		2018			2017
PPL	$	66		$	44	$	134		$	82
PPL Electric	1			1		3			—
LKE	—			—		2			(2		)
LG&E	(2		)	—		(1		)	(2		)
KU	1			—		2			(1		)

PPL and PPL Electric elected to use the practical expedient that permits using the amounts disclosed in the defined benefit plan note for the prior comparative period as the estimation basis for applying the retrospective presentation requirements.

Presentation of Restricted Cash in the Statement of Cash Flows(PPL and PPL Electric)

Effective January 1, 2018, PPL and PPL Electric adopted accounting guidance that changes the cash flow statement presentation of restricted cash. Under the new guidance, amounts considered restricted cash are presented with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total cash amounts on the Statements of Cash Flows. The guidance requires a reconciliation of the total cash, cash equivalents and restricted cash from the Statement of Cash Flows to amounts on the Balance Sheets and disclosure of the nature of the restrictions. PPL and PPL Electric have applied this guidance on a retrospective basis for all periods presented. The adoption of this guidance did not have a material impact on the Statements of Cash Flows.

Reconciliation of Cash, Cash Equivalents and Restricted Cash

The following provides a reconciliation of Cash, Cash Equivalents and Restricted Cash reported within the Balance Sheets that sum to the total of the same amounts shown on the Statements of Cash Flows:



	PPL				PPL Electric
	June 30, 2018		December 31, 2017		June 30, 2018		December 31, 2017
Cash and cash equivalents	$	852	$	485	$	489	$	49
Restricted cash - current (a)	3		3		2		2
Restricted cash - noncurrent (a)	20		23		—		—
Total Cash, Cash Equivalents and Restricted Cash	$	875	$	511	$	491	$	51


(a)	Bank deposits and other cash equivalents that are restricted by agreement or that have been clearly designated for a specific purpose are classified as restricted cash. On the Balance Sheets, the current portion of restricted cash is included in "Other current assets," while the noncurrent portion is included in "Other noncurrent assets."

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3. Segment and Related Information

(PPL)

See Note 2 in PPL's ~~2016~~2017 Form 10-K for a discussion of reportable segments and related information.

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


	Three Months					Nine Months						Three Months						Six Months
	2017		2016			2017			2016			2018			2017			2018			2017
Income Statement Data
Revenues from external customers
Operating Revenues from external customers
U.K. Regulated	$	477	$	515		$	1,547		$	1,673		$	584		$	502		$	1,199		$	1,070
Kentucky Regulated	818		835			2,350			2,382			743			723			1,615			1,532
Pennsylvania Regulated	547		539			1,620			1,619			517			500			1,156			1,073
Corporate and Other	3		—			4			11			4			—			4			1
Total	$	1,845	$	1,889		$	5,521		$	5,685		$	1,848		$	1,725		$	3,974		$	3,676

Net Income
U.K. Regulated (a)	$	126	$	281		$	560		$	915		$	394		$	148		$	591		$	434
Kentucky Regulated	125		126			299			314			77			79			210			174
Pennsylvania Regulated	95		91			251			263			75			77			223			156
Corporate and Other	9		(25		)	(60		)	(55		)	(31		)	(12		)	(57		)	(69		)
Total	$	355	$	473		$	1,050		$	1,437		$	515		$	292		$	967		$	695


(a)	Includes unrealized gains and losses from hedging ~~foreign-currency related~~foreign currency economic activity. See Note 1314 for additional information.

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


	September 30, 2017		December 31, 2016		June 30, 2018		December 31, 2017
Balance Sheet Data
Assets
U.K. Regulated (a)	$	16,052	$	14,537	$	16,839	$	16,813
Kentucky Regulated	14,181		14,037		14,636		14,468
Pennsylvania Regulated	10,323		9,426		10,995		10,082
Corporate and Other (b)	202		315		360		116
Total	$	40,758	$	38,315	$	42,830	$	41,479


(a)	Includes ~~$11.7~~$12.6 billion and ~~$10.8~~$12.5 billion of net PP&E as of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016.~~2017. WPD is not subject to accounting for the effects of certain types of regulation as prescribed by GAAP.


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

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

PPL Electric has two operating segments that are aggregated into a single reportable segment. LKE, LG&E and KU are individually single operating and reportable segments.

4. Revenue from Contracts with Customers

(All Registrants)

The following is a description of the principal activities from which the Registrants and PPL’s segments generate their revenues.

4.U.K. Regulated Segment Revenue(PPL)

The U.K. Regulated Segment generates revenues from contracts with customers primarily from WPD’s DUoS operations.

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DUoS revenues result from WPD charging licensed third-party energy suppliers for their use of WPD’s distribution systems to deliver energy to their customers. WPD satisfies its performance obligation and DUoS revenue is recognized over-time as electricity is delivered. The amount of revenue recognized is based on actual and forecasted volumes of electricity delivered during the period multiplied by a per-unit energy tariff, plus fixed charges. This method of recognition fairly presents WPD's transfer of electric service to the customer as the calculation is based on volumes, and the tariff rate is set by WPD using a methodology prescribed by Ofgem. Customers are billed monthly and outstanding amounts are typically due within 14 days of the invoice date.

DUoS customers are “at will” customers of WPD with no term contract and no minimum purchase commitment. Performance obligations are limited to the service requested and received to date. Accordingly, there is no unsatisfied performance obligation associated with WPD’s DUoS contracts.

Pennsylvania Regulated Segment Revenue(PPL and PPL Electric)

The Pennsylvania Regulated Segment generates substantially all of its revenues from contracts with customers from PPL Electric’s tariff-based distribution and transmission of electricity.

Distribution Revenue

PPL Electric provides distribution services to residential, commercial, industrial, municipal and governmental end users of energy. PPL Electric satisfies its performance obligation to its distribution customers and revenue is recognized over-time as electricity is delivered and simultaneously consumed by the customer. The amount of revenue recognized is the volume of electricity delivered during the period multiplied by a per-unit of energy tariff, plus a monthly fixed charge. This method of recognition fairly presents PPL Electric's transfer of electric service to the customer as the calculation is based on actual volumes, and the per-unit of energy tariff rate and the monthly fixed charge are set by the PUC. Customers are typically billed monthly and outstanding amounts are typically due within 21 days of the date of the bill.

Distribution customers are "at will" customers of PPL Electric with no term contract and no minimum purchase commitment. Performance obligations are limited to the service requested and received to date. Accordingly, there is no unsatisfied performance obligation associated with PPL Electric’s retail account contracts.

Transmission Revenue

PPL Electric generates transmission revenues from a FERC-approved PJM Open Access Transmission Tariff. An annual revenue requirement for PPL Electric to provide transmission services is calculated using a formula-based rate. This revenue requirement is converted into a daily rate (dollars per day). PPL Electric satisfies its performance obligation to provide transmission services and revenue is recognized over-time as transmission services are provided and consumed. This method of recognition fairly presents PPL Electric's transfer of transmission services as the daily rate is set by a FERC approved formula-based rate. PJM remits payment on a weekly basis.

PPL Electric's agreement to provide transmission services contains no minimum purchase commitment. The performance obligation is limited to the service requested and received to date. Accordingly, PPL Electric has no unsatisfied performance obligations.

Kentucky Regulated Segment Revenue(PPL, LKE, LG&E and KU)

The Kentucky Regulated Segment generates substantially all of its revenues from contracts with customers primarily from LG&E's and KU's regulated tariff-based sales of electricity and LG&E's regulated tariff-based sales of natural gas.

LG&E and KU are engaged in the generation, transmission, distribution and sale of electricity in Kentucky and, in KU's case, Virginia. LG&E also engages in the distribution and sale of natural gas in Kentucky. Revenue from these activities is generated from tariffs approved by applicable regulatory authorities including the FERC, KPSC and VSCC. LG&E and KU satisfy their performance obligations upon LG&E's and KU's delivery of electricity and LG&E's delivery of natural gas to customers. This revenue is recognized over-time as the customer simultaneously receives and consumes the benefits provided by LG&E and KU. The amount of revenue recognized is the billed volume of electricity or natural gas delivered multiplied by a tariff rate per-unit of energy, plus any applicable fixed charges or additional regulatory mechanisms. Customers are billed monthly and outstanding amounts are typically due within 22 days of the date of the bill. Additionally, unbilled revenues are recognized as a result of customers' bills rendered throughout the month, rather than bills being rendered at the end of the month. Unbilled

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revenues for a month are calculated by multiplying an estimate of unbilled kWh or Mcf delivered but not yet billed by the estimated average cents per kWh or Mcf. Any difference between estimated and actual revenues is adjusted the following month when the previous unbilled estimate is reversed and actual billings occur. This method of recognition fairly presents LG&E's and KU's transfer of electricity and LG&E's transfer of natural gas to the customer as the amount recognized is based on actual and estimated volumes delivered and the tariff rate per-unit of energy and any applicable fixed charges or regulatory mechanisms as set by the respective regulatory body.

LG&E's and KU's customers generally have no minimum purchase commitment. Performance obligations are limited to the service requested and received to date. Accordingly, there is no unsatisfied performance obligation associated with these customers.

(All Registrants)

The following tables reconcile "Operating Revenues" included in each Registrant's Statement of Income with revenues generated from contracts with customers for the periods ended June 30, 2018.



	Three Months
	PPL			PPL Electric			LKE			LG&E			KU
Operating Revenues (a)	$	1,848		$	517		$	743		$	335		$	414
Revenues derived from:
Alternative revenue programs (b)	9			—			9			6			3
Other (c)	(13		)	(2		)	(4		)	(2		)	(2		)
Revenues from Contracts with Customers	$	1,844		$	515		$	748		$	339		$	415



	Six Months
	PPL			PPL Electric			LKE			LG&E			KU
Operating Revenues (a)	$	3,974		$	1,156		$	1,615		$	754		$	885
Revenues derived from:
Alternative revenue programs (b)	41			2			39			20			19
Other (c)	(28		)	(6		)	(9		)	(3		)	(6		)
Revenues from Contracts with Customers	$	3,987		$	1,152		$	1,645		$	771		$	898


(a)	PPL includes $584 million and $1,199 million for the three and six months ended June 30, 2018 of revenues from external customers reported by the U.K. Regulated segment. PPL Electric and LKE represent revenues from external customers reported by the Pennsylvania Regulated and Kentucky Regulated segments. See Note 3 for additional information.

(b)

Alternative revenue programs for PPL Electric include the over/under-collection of its transmission formula rate. Alternative revenue programs for LKE, LG&E and KU include the over/under collection for the ECR and DSM programs as well as LG&E's over/under collection of its GLT program and KU's over/under collection of its generation formula rate. Over-collections of revenue are shown as positive amounts in the table above; under-collections are shown as negative amounts.


(c)	Represents additional revenues outside the scope of revenues from contracts with customers such as leases and other miscellaneous revenues.

As discussed in Note 2 in PPL's 2017 Form 10-K, PPL's segments are segmented by geographic location. Revenues from external customers for each segment/geographic location are reconciled to revenues from contracts with customers in the table above. For PPL Electric, revenues from contracts with customers are further disaggregated by distribution and transmission, which were $414 million and $101 million for the three months ended June 30, 2018 and $946 million and $206 million for the six months ended June 30, 2018.

The following tables show revenues from contracts with customers disaggregated by customer class for the periods ended June 30, 2018.

Table of Contents



	Three Months
	PPL		PPL Electric		LKE		LG&E		KU
Licensed energy suppliers (a)	$	547	$	—	$	—	$	—	$	—
Residential	588		300		288		146		142
Commercial	296		89		207		107		100
Industrial	155		12		143		45		98
Other (b)	114		13		67		30		37
Wholesale - municipal	31		—		31		—		31
Wholesale - other (c)	12		—		12		11		7
Transmission	101		101		—		—		—
Revenues from Contracts with Customers	$	1,844	$	515	$	748	$	339	$	415



	Six Months
	PPL		PPL Electric		LKE		LG&E		KU
Licensed energy suppliers (a)	$	1,131	$	—	$	—	$	—	$	—
Residential	1,392		708		684		343		341
Commercial	621		187		434		231		203
Industrial	310		25		285		89		196
Other (b)	220		26		135		61		74
Wholesale - municipal	61		—		61		—		61
Wholesale - other (c)	46		—		46		47		23
Transmission	206		206		—		—		—
Revenues from Contracts with Customers	$	3,987	$	1,152	$	1,645	$	771	$	898


(a)	Represents customers of WPD.


(b)	Primarily includes revenues from pole attachments, street lighting and other public authorities.


(c)	Includes wholesale power and transmission revenues. LG&E and KU amounts include intercompany power sales and transmission revenues, which are eliminated upon consolidation at LKE.

Contract receivables from customers are primarily included in "Accounts receivable - Customer" and "Unbilled revenues" on the Balance Sheets.

The following table shows the accounts receivable balances that were impaired for the periods ended June 30, 2018.



	Three Months		Six Months
PPL	$	3	$	13
PPL Electric	3		10
LKE	1		3
LG&E	—		1
KU	1		2

The following table shows the balances of contract liabilities resulting from contracts with customers.



	PPL		PPL Electric		LKE		LG&E		KU
Contract liabilities as of December 31, 2017	$	29	$	19	$	8	$	4	$	4
Contract liabilities as of June 30, 2018	38		14		8		4		3

The following table shows the revenue recognized during the period ended June 30, 2018 that was included in the contract liability balance at December 31, 2017.

Table of Contents



	Six Months
PPL	$	18
PPL Electric	8
LKE	8
LG&E	4
KU	4

Contract liabilities result from recording contractual billings in advance for customer attachments to the Registrants' infrastructure and payments received in excess of revenues earned to date. Advanced billings for customer attachments are recognized as revenue ratably over the billing period. Payments received in excess of revenues earned to date are recognized as revenue as services are delivered in subsequent periods.

At June 30, 2018, PPL had $70 million of performance obligations attributable to Corporate and Other that have not been satisfied. Of this amount, PPL expects to recognize approximately $50 million within the next 12 months.

5. Earnings Per Share

(PPL)

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

~~Table~~ In 2018, these securities also included the PPL common stock forward sale agreements. See Note 8 for additional information on these agreements. The forward sale agreements are dilutive under the Treasury Stock Method to the extent the average stock price of ~~Contents~~

PPL's common shares exceeds the forward sale price prescribed in the agreements.

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


	Three Months				Nine Months				Three Months				Six Months
	2017		2016		2017		2016		2018		2017		2018		2017
Income (Numerator)
Net income	$	355	$	473	$	1,050	$	1,437	$	515	$	292	$	967	$	695
Less amounts allocated to participating securities	1		1		2		4		—		—		1		1
Net income available to PPL common shareowners - Basic and Diluted	$	354	$	472	$	1,048	$	1,433	$	515	$	292	$	966	$	694

Shares of Common Stock (Denominator)
Weighted-average shares - Basic EPS	686,563		678,114		683,783		676,905		699,006		683,841		696,772		682,370
Add incremental non-participating securities:
Share-based payment awards	2,183		2,234		2,298		3,064		173		2,510		491		2,355
Forward sale agreements									1,797		—		898		—
Weighted-average shares - Diluted EPS	688,746		680,348		686,081		679,969		700,976		686,351		698,161		684,725

Basic EPS
Net Income available to PPL common shareowners	$	0.52	$	0.70	$	1.53	$	2.12	$	0.74	$	0.43	$	1.39	$	1.02

Diluted EPS
Net Income available to PPL common shareowners	$	0.51	$	0.69	$	1.53	$	2.11	$	0.73	$	0.43	$	1.38	$	1.01

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

Table of Contents

Three Months Nine Months
2017 2016 2017 2016
Stock-based compensation plans (a) 256
248
1,707
3,168
DRIP 355
761
1,169
1,533



	Three Months		Six Months
	2018	2017	2018	2017
Stock-based compensation plans (a)	12	564	488	1,451
DRIP	526	369	1,011	814


(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.

See Note 78 for additional information on common stock issued under the ATM Program.

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


	Three Months		Nine Months		Three Months		Six Months
	2017	2016	2017	2016	2018	2017	2018	2017
Stock options	696	696	696	696	441	696	336	696
Performance units	—	316	—	210
Restricted stock units					23	—	21	—

~~Table of Contents~~

6. Income Taxes

~~5. Income Taxes~~

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

																									(PPL)
	Three Months						Nine Months						Three Months						Six Months
	2017			2016			2017			2016			2018			2017			2018			2017
Federal income tax on Income Before Income Taxes at statutory tax rate - 35%	$	165		$	214		$	480		$	681
Federal income tax on Income Before Income Taxes at statutory tax rate (a)													$	138		$	129		$	257		$	315
Increase (decrease) due to:
State income taxes, net of federal income tax benefit	14			13			37			37			10			10			25			23
Valuation allowance adjustments	4			4			9			13			5			—			12			5
Impact of lower U.K. income tax rates	(45		)	(37		)	(133		)	(136		)
U.S. income tax on foreign earnings - net of foreign tax credit (a)	(8		)	(1		)	(24		)	(3		)
Impact of the U.K. Finance Acts (b)	(3		)	(42		)	(12		)	(42		)
Depreciation not normalized	(2		)	—			(7		)	(6		)
Impact of lower U.K. income tax rates relative to U.S. income tax rates (a)													(6		)	(40		)	(13		)	(88		)
U.S. income tax on foreign earnings - net of foreign tax credit (a) (b)													—			(7		)	1			(16		)
Federal and state tax reserve adjustments													3			—			3			—
Impact of the U.K. Finance Acts													(2		)	(6		)	(3		)	(9		)
Depreciation and other items not normalized													(2		)	(2		)	(4		)	(5		)
Amortization of excess deferred income taxes (a)													(9		)	—			(19		)	—
Deferred tax impact of state tax reform (c)													9			—			9			—
Interest benefit on U.K. financing entities	(4		)	(4		)	(12		)	(13		)	(4		)	(4		)	(9		)	(8		)
Stock-based compensation	—			(1		)	(7		)	(12		)	—			(4		)	1			(7		)
Other	(5		)	(7		)	(10		)	(9		)	—			—			(1		)	(5		)
Total increase (decrease)	(49		)	(75		)	(159		)	(171		)	4			(53		)	2			(110		)
Total income taxes	$	116		$	139		$	321		$	510		$	142		$	76		$	259		$	205


(a)	The U.S. federal corporate income tax rate was reduced from 35% to 21%, as enacted by the TCJA, effective January 1, 2018.


(b)	Lower income taxes in 2017 primarily due to the tax benefit of accelerated pension contributions made in the first quarter of 2017. The related tax benefit iswas recognized over the annual period as a result of utilizing an estimated annual effective tax rate.

~~(b)~~(c)

~~The U.K. Finance Act 2016, enacted in September 2016, reduces~~During the ~~U.K. statutory~~second quarter of 2018, LKE recorded deferred income tax expense, primarily associated with LKE's non-regulated entities, due to the Kentucky corporate income tax rate reduction from 6% to 5%, as enacted by HB 487, effective ~~April~~January 1, ~~2020 from 18% to 17%. As a result, PPL reduced its net deferred tax liabilities and recognized a deferred tax benefit during the three and nine months ended September 30, 2016.~~2018.

(PPL Electric)
Three Months Nine Months
2017 2016 2017 2016
Federal income tax on Income Before Income Taxes at statutory tax rate - 35% $ 56
$ 52
$ 144
$ 149
Increase (decrease) due to:

State income taxes, net of federal income tax benefit 9
9
26
27
Depreciation not normalized (1 ) (2 ) (5 ) (5 )
Stock-based compensation —
—
(5 ) (7 )
Other —
(1 ) (1 ) (2 )
Total increase (decrease) 8
6
15
13
Total income taxes $ 64
$ 58
$ 159
$ 162

(LKE)
Three Months Nine Months
2017 2016 2017 2016
Federal income tax on Income Before Income Taxes at statutory tax rate - 35% $ 74
$ 74
$ 181
$ 189
Increase (decrease) due to:

State income taxes, net of federal income tax benefit 8
8
19
20
Amortization of investment tax credit (1 ) (1 ) (2 ) (2 )
Stock-based compensation —
(1 ) (1 ) (2 )
Other (2 ) (1 ) (2 ) (3 )
Total increase (decrease) 5
5
14
13
Total income taxes $ 79
$ 79
$ 195
$ 202

Table of Contents

(LG&E)
Three Months Nine Months
2017 2016 2017 2016
Federal income tax on Income Before Income Taxes at statutory tax rate - 35% $ 36
$ 36
$ 91
$ 90
Increase (decrease) due to:

State income taxes, net of federal income tax benefit 4
4
10
10
Other (1 ) (1 ) (2 ) (2 )
Total increase (decrease) 3
3
8
8
Total income taxes $ 39
$ 39
$ 99
$ 98


(KU)
(PPL Electric)
	Three Months						Nine Months						Three Months						Six Months
	2017			2016			2017			2016			2018			2017			2018			2017
Federal income tax on Income Before Income Taxes at statutory tax rate - 35%	$	43		$	44		$	111		$	117
Federal income tax on Income Before Income Taxes at statutory tax rate (a)													$	22		$	44		$	63		$	88
Increase (decrease) due to:
State income taxes, net of federal income tax benefit	5			5			11			12			8			9			24			17
Depreciation and other items not normalized													(1		)	(2		)	(3		)	(4		)
Amortization of excess deferred income taxes (a)													(3		)	—			(8		)	—
Stock-based compensation													—			(3		)	—			(5		)
Other	(1		)	(1		)	(2		)	(1		)	1			(1		)	—			(1		)
Total increase (decrease)	4			4			9			11			5			3			13			7
Total income taxes	$	47		$	48		$	120		$	128		$	27		$	47		$	76		$	95


(a)	The U.S. federal corporate income tax rate was reduced from 35% to 21%, as enacted by the TCJA, effective January 1, 2018.



(LKE)
	Three Months						Six Months
	2018			2017			2018			2017
Federal income tax on Income Before Income Taxes at statutory tax rate (a)	$	25		$	49		$	63		$	107
Increase (decrease) due to:
State income taxes, net of federal income tax benefit (b)	3			5			11			11
Deferred tax impact of state tax reform (c)	9			—			9			—
Amortization of excess deferred income taxes (a)	(6		)	—			(11		)	—
Other	—			(1		)	(2		)	(2		)
Total increase (decrease)	6			4			7			9
Total income taxes	$	31		$	53		$	70		$	116


(a)	The U.S. federal corporate income tax rate was reduced from 35% to 21%, as enacted by the TCJA, effective January 1, 2018.


(b)	The Kentucky corporate income tax rate was reduced from 6% to 5%, as enacted by HB 487, effective January 1, 2018.


(c)	During the second quarter of 2018, LKE recorded deferred income tax expense, primarily associated with LKE's non-regulated entities, due to the Kentucky corporate income tax rate reduction from 6% to 5%, as enacted by HB 487, effective January 1, 2018.



(LG&E)
	Three Months					Six Months
	2018			2017		2018			2017
Federal income tax on Income Before Income Taxes at statutory tax rate (a)	$	13		$	24	$	33		$	55
Increase (decrease) due to:
State income taxes, net of federal income tax benefit (b)	2			3		6			6
Amortization of excess deferred income taxes (a)	(3		)	—		(5		)	—
Other	—			—		(1		)	(1		)
Total increase (decrease)	(1		)	3		—			5
Total income taxes	$	12		$	27	$	33		$	60


(a)	The U.S. federal corporate income tax rate was reduced from 35% to 21%, as enacted by the TCJA, effective January 1, 2018.


(b)	The Kentucky corporate income tax rate was reduced from 6% to 5%, as enacted by HB 487, effective January 1, 2018.

Table of Contents



(KU)
	Three Months						Six Months
	2018			2017			2018			2017
Federal income tax on Income Before Income Taxes at statutory tax rate (a)	$	16		$	32		$	39		$	67
Increase (decrease) due to:
State income taxes, net of federal income tax benefit (b)	2			3			7			7
Amortization of excess deferred income taxes (a)	(3		)	—			(6		)	—
Other	(1		)	(1		)	(2		)	(1		)
Total increase (decrease)	(2		)	2			(1		)	6
Total income taxes	$	14		$	34		$	38		$	73


(a)	The U.S. federal corporate income tax rate was reduced from 35% to 21%, as enacted by the TCJA, effective January 1, 2018.


(b)	The Kentucky corporate income tax rate was reduced from 6% to 5%, as enacted by HB 487, effective January 1, 2018.

Kentucky State Tax Reform (All Registrants)

HB 487, which became law on April 27, 2018, provides for significant changes to the Kentucky tax code including (1) adopting mandatory combined reporting for corporate members of unitary business groups for taxable years beginning on or after January 1, 2019 (members of a unitary business group may make an eight-year binding election to file consolidated corporate income tax returns with all members of their federal affiliated group) and (2) a reduction in the Kentucky corporate income tax rate from 6% to 5% for taxable years beginning after December 31, 2017. LKE recognized a deferred tax charge of $9 million in the second quarter of 2018 primarily associated with the remeasurement of non-regulated accumulated deferred income tax balances.

As indicated in Note 1 in the Registrants' 2017 Form 10-K, LG&E’s and KU’s accounting for income taxes is impacted by rate regulation. Therefore, reductions in regulated accumulated deferred income tax balances due to the reduction in the Kentucky corporate income tax rate to 5% under the provisions of HB 487 may result in amounts previously collected from utility customers for these deferred taxes to be refundable to such customers in future periods. In the second quarter of 2018, LG&E and KU recorded the impact of the reduced tax rate, related to the remeasurement of deferred income taxes, as an increase in regulatory liabilities of $16 million and $19 million. LG&E and KU continue to evaluate other impacts of Kentucky state tax reform along with the associated regulatory considerations. PPL is evaluating the impact, if any, of unitary or elective consolidated income tax reporting on all its Registrants.

U.S. Tax Reform(All Registrants)

On August 1, 2018, the Department of Treasury and the IRS issued proposed regulations under Internal Revenue Code Section 965 to provide guidance relating to the transition tax upon the mandatory deemed repatriation of certain deferred foreign earnings. On August 3, 2018, the Department of Treasury and the IRS also issued proposed regulations on the new 100 percent depreciation deduction effective for assets placed in service after September 27, 2017. The Registrants are currently reviewing the proposed regulations to determine what impact the newly issued guidance may have on their financial statements.

6.7. Utility Rate Regulation

(All Registrants)

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

Table of Contents

PPL PPL Electric
September 30,
2017 December 31,
2016 September 30,
2017 December 31,
2016
Current Regulatory Assets:
Environmental cost recovery $ 4
$ 6
$ —
$ —
Generation formula rate 8
11
—
—
Transmission service charge —
7
—
7
Gas supply clause 6
3
—
—
Smart meter rider 12
6
12
6
Storm costs 1
5
1
5
Other 3
1
1
1
Total current regulatory assets (a) $ 34
$ 39
$ 14
$ 19

Noncurrent Regulatory Assets:
Defined benefit plans $ 908
$ 947
$ 530
$ 549
Taxes recoverable through future rates 347
340
347
340
Storm costs 37
57
—
9
Unamortized loss on debt 55
61
30
36
Interest rate swaps 29
31
—
—
Terminated interest rate swaps 93
98
—
—
Accumulated cost of removal of utility plant 166
159
166
159
AROs 224
211
—
—
Other 10
14
—
1
Total noncurrent regulatory assets $ 1,869
$ 1,918
$ 1,073
$ 1,094



	PPL				PPL Electric
	June 30, 2018		December 31, 2017		June 30, 2018		December 31, 2017
Current Regulatory Assets:
Environmental cost recovery	$	—	$	5	$	—	$	—
Generation formula rate	—		6		—		—
Smart meter rider	15		15		15		15
Plant outage costs	6		3		—		—
Gas supply clause	5		4		—		—
Other	1		1		1		1
Total current regulatory assets (a)	$	27	$	34	$	16	$	16

Noncurrent Regulatory Assets:
Defined benefit plans	$	857	$	880	$	491	$	504
Taxes recoverable through future rates	3		3		3		3
Storm costs (b)	47		33		21		—
Unamortized loss on debt	49		54		25		29
Interest rate swaps	21		26		—		—
Terminated interest rate swaps	89		92		—		—
Accumulated cost of removal of utility plant	182		173		182		173
AROs	260		234		—		—
Act 129 compliance rider	15		—		15		—
Other	7		9		—		—
Total noncurrent regulatory assets	$	1,530	$	1,504	$	737	$	709



	PPL				PPL Electric
	June 30, 2018		December 31, 2017		June 30, 2018		December 31, 2017
Current Regulatory Liabilities:
Generation supply charge	$	30	$	34	$	30	$	34
Transmission service charge	4		9		4		9
Environmental cost recovery	25		1		—		—
Universal service rider	20		26		20		26
Transmission formula rate	11		9		11		9
Fuel adjustment clause	5		3		—		—
TCJA customer refund (c)	33		—		—		—
Storm damage expense rider	1		8		1		8
Other	8		5		—		—
Total current regulatory liabilities	$	137	$	95	$	66	$	86

Noncurrent Regulatory Liabilities:
Accumulated cost of removal of utility plant	$	678	$	677	$	—	$	—
Power purchase agreement - OVEC (d)	64		68		—		—
Net deferred taxes (e)	1,858		1,853		652		668
Defined benefit plans	31		27		—		—
Terminated interest rate swaps	72		74		—		—
TCJA customer refund (f)	37		—		37		—
Other	7		5		3		—
Total noncurrent regulatory liabilities	$	2,747	$	2,704	$	692	$	668

Table of Contents

PPL PPL Electric
September 30,
2017 December 31,
2016 September 30,
2017 December 31,
2016
Current Regulatory Liabilities:
Generation supply charge $ 29
$ 23
$ 29
$ 23
Transmission service charge 6
—
6
—
Universal service rider 19
14
19
14
Transmission formula rate 4
15
4
15
Fuel adjustment clause 11
11
—
—
Act 129 compliance rider 7
17
7
17
Storm damage expense 7
13
7
13
Other 4
8
—
1
Total current regulatory liabilities $ 87
$ 101
$ 72
$ 83

Noncurrent Regulatory Liabilities:
Accumulated cost of removal of utility plant $ 678
$ 700
$ —
$ —
Power purchase agreement - OVEC (b) 69
75
—
—
Net deferred tax assets 21
23
—
—
Defined benefit plans 27
23
—
—
Terminated interest rate swaps 74
78
—
—
Other 4
—
—
—
Total noncurrent regulatory liabilities $ 873
$ 899
$ —
$ —



	LKE				LG&E				KU
	June 30, 2018		December 31, 2017		June 30, 2018		December 31, 2017		June 30, 2018		December 31, 2017
Current Regulatory Assets:
Environmental cost recovery	$	—	$	5	$	—	$	5	$	—	$	—
Generation formula rate	—		6		—		—		—		6
Plant outage costs	6		3		6		3		—		—
Gas supply clause	5		4		5		4		—		—
Total current regulatory assets	$	11	$	18	$	11	$	12	$	—	$	6

Noncurrent Regulatory Assets:
Defined benefit plans	$	366	$	376	$	231	$	234	$	135	$	142
Storm costs	26		33		14		18		12		15
Unamortized loss on debt	24		25		15		16		9		9
Interest rate swaps	21		26		21		26		—		—
Terminated interest rate swaps	89		92		52		54		37		38
AROs	260		234		71		61		189		173
Other	7		9		2		2		5		7
Total noncurrent regulatory assets	$	793	$	795	$	406	$	411	$	387	$	384

LKE LG&E KU
September 30,
2017 December 31,
2016 September 30,
2017 December 31,
2016 September 30,
2017 December 31,
2016
Current Regulatory Assets:
Environmental cost recovery $ 4
$ 6
$ 4
$ 6
$ —
$ —
Generation formula rate 8
11
—
—
8
11
Gas supply clause 6
3
6
3
—
—
Other 2
—
1
—
1
—
Total current regulatory assets $ 20
$ 20
$ 11
$ 9
$ 9
$ 11

Noncurrent Regulatory Assets:
Defined benefit plans $ 378
$ 398
$ 235
$ 246
$ 143
$ 152
Storm costs 37
48
20
26
17
22
Unamortized loss on debt 25
25
16
16
9
9
Interest rate swaps 29
31
29
31
—
—
Terminated interest rate swaps 93
98
54
57
39
41
AROs 224
211
57
70
167
141
Plant retirement costs 2
4
—
—
2
4
Other 8
9
2
4
6
5
Total noncurrent regulatory assets $ 796
$ 824
$ 413
$ 450
$ 383
$ 374

~~Table of Contents~~


	LKE				LG&E				KU				LKE				LG&E				KU
	September 30, 2017		December 31, 2016		September 30, 2017		December 31, 2016		September 30, 2017		December 31, 2016		June 30, 2018		December 31, 2017		June 30, 2018		December 31, 2017		June 30, 2018		December 31, 2017
Current Regulatory Liabilities:
Demand side management	$	—	$	3	$	—	$	2	$	—	$	1
Environmental cost recovery													$	25	$	1	$	14	$	—	$	11	$	1
Fuel adjustment clause	11		11		3		2		8		9		5		3		1		—		4		3
Gas line tracker													2		3		2		3		—		—
TCJA customer refund (c)													33		—		15		—		18		—
Other	4		4		2		1		2		3		6		2		2		—		4		2
Total current regulatory liabilities	$	15	$	18	$	5	$	5	$	10	$	13	$	71	$	9	$	34	$	3	$	37	$	6

Noncurrent Regulatory Liabilities:
Accumulated cost of removal of utility plant	$	678	$	700	$	281	$	305	$	397	$	395	$	678	$	677	$	280	$	282	$	398	395
Power purchase agreement - OVEC (b)	69		75		48		52		21		23
Net deferred tax assets	21		23		21		23		—		—
Power purchase agreement - OVEC (d)													64		68		44		47		20		21
Net deferred taxes (e)													1,206		1,185		561		552		645		633
Defined benefit plans	27		23		—		—		27		23		31		27		—		—		31		27
Terminated interest rate swaps	74		78		37		39		37		39		72		74		36		37		36		37
Other	4		—		1		—		3		—		4		5		1		1		3		4
Total noncurrent regulatory liabilities	$	873	$	899	$	388	$	419	$	485	$	480	$	2,055	$	2,036	$	922	$	919	$	1,133	$	1,117


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


(b)	Storm costs incurred in PPL Electric's territory from a March 2018 storm will be amortized from 2019 through 2021.


(c)	Relates to estimated amounts owed to LG&E and KU customers as a result of the reduced U.S. federal corporate income tax rate as enacted by the TCJA, effective January 1, 2018. Amounts owed will be distributed through the TCJA bill credit.


(d)	This liability was recorded as an offset to an intangible asset that was recorded at fair value upon the acquisition of LKE by PPL.


(e)	Primarily relates to excess deferred taxes recorded as a result of the TCJA, which reduced the U.S. federal corporate income tax rate effective January 1, 2018, requiring deferred tax balances and the associated regulatory liabilities to be remeasured as of December 31, 2017. LG&E and KU began distributing amounts through the TCJA bill credit effective April 1, 2018.


(f)	Relates to amounts owed to PPL Electric customers as a result of the reduced U.S. federal corporate income tax rate as enacted by the TCJA, for the period of January 1, 2018 through June 30, 2018 which is not yet reflected in customer rates. The distribution method back to customers of this liability must be proposed to the PUC at the earlier of May 2021 or PPL Electric’s next rate case.

Table of Contents

Regulatory Matters

Kentucky Activities

(PPL, LKE, LG&E and KU)

~~Rate Case Proceedings~~CPCN Filing

~~In November 2016,~~On January 10, 2018, LG&E and KU filed ~~requests~~an application for a CPCN with the KPSC requesting approval to implement Advanced Metering Systems across their Kentucky service territories, including gas operations for ~~increases~~LG&E. The full deployment is expected to be completed in ~~annual base~~2021 with estimated capital costs of $155 million and $104 million for KU and LG&E electric service and $62 million for LG&E gas service. The full Advanced Metering Systems deployment is expected to result in incremental operation and maintenance costs during the deployment phase of $17 million and $11 million for KU and LG&E electric service and $3 million for LG&E gas service. A hearing on this matter was held July 24, 2018. LG&E and KU cannot predict the outcome of this proceeding.

TCJA Impact on LG&E and KU Rates

On December 21, 2017, Kentucky Industrial Utility Customers, Inc. submitted a complaint with the KPSC against LG&E and KU, as well as other utility companies in Kentucky, alleging that their respective rates would no longer be fair, just and reasonable following the enactment of the TCJA reducing the federal corporate tax rate from 35% to 21%. The complaint requested the KPSC to issue an order requiring LG&E and KU to begin deferring, as of January 1, 2018, the revenue requirement effect of all income tax expense savings resulting from the federal corporate income tax reduction, including the amortization of excess deferred income taxes by recording those savings in a regulatory liability account and establishing a process by which the federal corporate income tax savings will be passed back to customers.

On January 29, 2018, LG&E, KU, Kentucky Industrial Utility Customers, Inc. and the Office of the Attorney General reached a settlement agreement to commence returning savings related to the TCJA to their customers through their ECR, DSM and LG&E's GLT rate mechanisms beginning in March 2018 and through a new bill credit mechanism from April 1, 2018 through April 30, 2019. The estimated impact of the rate reduction represents approximately $91 million in KU electricity revenues ($70 million through the new bill credit and $21 million through existing rate mechanisms), $69 million in LG&E electricity revenues ($49 million through the new bill credit and $20 million through existing rate mechanisms) and $17 million in LG&E gas ~~rates.~~revenues (substantially all through the new bill credit) for the period January 2018 through April 2019. Ongoing tax savings are also expected to be addressed in LG&E's and KU's ~~applications included requests~~next Kentucky base rate case. LG&E and KU have indicated their intent to file an application for ~~CPCNs for implementing an Advanced Metering System program and a Distribution Automation program.~~base rate changes during 2018 to be effective during spring 2019.

On ~~April 19, 2017~~March 20, 2018, the KPSC issued an order approving, with certain modifications, the settlement agreement reached between LG&E, KU, Kentucky Industrial Utility Customers, Inc. and ~~May 1, 2017,~~the Office of the Attorney General. The KPSC estimates that, pursuant to its modifications, electricity revenues would incorporate reductions of approximately $108 million for KU ($87 million through the new bill credit and $21 million through existing rate mechanisms) and $79 million for LG&E ($59 million through the new bill credit and $20 million through existing rate mechanisms). This represents $27 million ($17 million at KU and $10 million at LG&E) in additional reductions from the amounts proposed by the settlement. The KPSC's modifications to the settlement include certain changes in assumptions or inputs used in assessing tax reform or calculating LG&E's and KU's electricity rates. LG&E gas rate reductions were not modified significantly from the amount included in the settlement agreement.

On March 26, 2018, LG&E and KU ~~along with all intervening parties to the proceeding,~~ filed a petition for reconsideration and request for hearing with the KPSC, ~~stipulation~~taking exception to the KPSC's modifications and ~~recommendation agreements (stipulations) resolving all issues with~~ the ~~parties. Among other things,~~process, and also requested certain relief from implementing the ~~proposed stipulations provided for increases in annual revenue requirements associated with KU base electricity rates~~amounts represented by the additional reductions until the matter is fully resolved. On March 28, 2018, the Office of ~~$55 million, LG&E base electricity rates~~the Attorney General filed a response to the petition and gave notice of ~~$59 million and LG&E base gas rates of $8 million, reflecting a return on equity of 9.75%,~~its withdrawal from the ~~withdrawal of~~settlement agreement.

On March 28, 2018, the KPSC issued an Order granting LG&E's and KU's request for ~~a CPCN for~~reconsideration and amending its March 20, 2018 Order by suspending the ~~Advanced Metering System~~approved rates, allowing LG&E and ~~other changes~~KU, on an interim basis, to return savings related to the ~~revenue requirements, which dealt primarily with~~TCJA at the ~~timing~~rates agreed to in the January 29, 2018 settlement. On March 30, 2018, following receipt of ~~cost recovery, including depreciation rates.~~

~~On June 22, 2017,~~the Attorney General's response, the KPSC issued ~~orders approving, with certain modifications,~~an Order amending its March 28, 2018 Order to allow the ~~proposed stipulations~~parties to raise any relevant issues related to the TCJA. A hearing on this matter was held May 24, 2018. Post-hearing briefs have been filed ~~in April~~ and ~~May 2017. On June 29, 2017,~~the case is now submitted to the KPSC issued further orders correcting certain revenue requirement and rate calculations and making other technical corrections to the June 22, 2017 orders. The combined KPSC orders modified the stipulations to provide for increases in annual revenue requirements associated with KU base electricity rates of $52 million, LG&E base electricity rates of $57 million and LG&E base gas rates of $7 million, and incorporate an authorized return on equity of 9.7%. Consistent with the stipulations, the orders approved LG&E's and KU's request for implementing a Distribution Automation program and withdrawal of a request for a CPCN for the Advanced Metering System program. The orders also approved new depreciation rates for LG&E and KU that will result in higher depreciation of approximately $15 million ($4 million for LG&E and $11 million for KU) in 2017, exclusive of net additions to PP&E. The orders result in a base electricity rate increase of 3.2% at KU and base electricity and gas rate increases of 5.2% and 2.1% at LG&E. The new base rates and all elements of the orders became effective July 1, 2017. On June 23, 2017, the KPSC also issued orders establishing an authorized return on equity of 9.7% for all of LG&E's and KU's existing approved ECR plans and projects, replacing the prior authorized return on equity levels of 9.8% for CCR projects and 10% for all other ECR approved projects, effective with bills issued in August 2017. The impact of the new authorized return for ECR projects is not expected to be significant in 2017.

decision.

Table of Contents

LG&E and KU cannot predict the outcome of these proceedings.

Additionally, on January 8, 2018, the VSCC ordered KU, as well as other utilities in Virginia, to accrue regulatory liabilities reflecting the Virginia jurisdictional revenue requirement impacts of the reduced federal corporate tax rate. On March 22, 2018, KU reached a settlement agreement regarding its rate case in Virginia. New rates, inclusive of TCJA impacts, were effective June 1, 2018. The settlement also stipulates that actual tax savings for the five month period prior to new rates taking effect would be addressed through KU's annual information filing for calendar year 2018. On May 8, 2018, the VSCC approved the settlement agreement. The TCJA and rate case are not expected to have a significant impact on KU's financial condition or results of operations related to Virginia.

On March 15, 2018, the FERC issued a Notice of Inquiry seeking information on whether and how it should address changes relating to accumulated deferred income taxes and bonus depreciation resulting from passage of the TCJA on FERC-jurisdictional rates. LG&E and KU have not made any submission in response to the Notice of Inquiry, but do not anticipate the impact of the TCJA related to their FERC-jurisdictional rates to be significant.

Gas Franchise (LKE and LG&E)

LG&E’s gas franchise agreement for the Louisville/Jefferson County service area expired in March 2016. In August 2016, LG&E and Louisville/Jefferson County entered into a revised franchise agreement with a 5-year term (with renewal options). The franchise fee may be modified at Louisville/Jefferson County's election upon 60 days' notice. However, any franchise fee is capped at 3% of gross receipts for natural gas service within the franchise area. The agreement further provides that if the KPSC determines that the franchise fee should be recovered from LG&E's Louisville/Jefferson county customers in the franchise areas as a separate line item on their bill, the franchise fee will revert to zero. In August 2016, LG&E filed an application ~~in a~~requesting the KPSC ~~proceeding~~ to review and rule upon the recoverability of the franchise fee.

In August 2016, Louisville/Jefferson County submitted a motion to dismiss the proceeding filed by LG&E and, in November 2016, filed an amended complaint against LG&E relating to these issues. LG&E submitted KPSC filings to respond to, request dismissal of and consolidate certain claims or aspects of the proceedings. In January 2017,On March 14, 2018, the KPSC issued an order ~~denying~~authorizing the franchise fee to be recovered only from LG&E's Louisville/Jefferson ~~County's motion~~County customers in the franchise area. As a result, the franchise fee will continue to ~~dismiss, consolidating~~be zero in accordance with the ~~matter~~terms of the August 2016, 5-year gas franchise agreement.

(PPL and PPL Electric)

Pennsylvania Activities

TCJA Impact on PPL Electric Rates

On February 12, 2018, the PUC issued a Secretarial Letter requesting certain information from regulated utilities and inviting comment from interested parties on potential revision to customer rates as a result of enactment of the TCJA. PPL Electric submitted its response to the Secretarial Letter on March 9, 2018. On March 15, 2018, the PUC issued a Temporary Rates Order to allow time to determine the manner in which rates could be adjusted in response to the TCJA. The PUC issued another Temporary Rates Order on May 17, 2018 to address the impact of the TCJA and indicated that utilities without a currently pending general rate proceeding would receive a utility specific order. The PUC issued an Order specific to PPL Electric on May 17, 2018 which required PPL Electric to file a tariff or tariff supplement by June 15, 2018 to establish (a) temporary rates to include a negative surcharge of 0.56%, which was based on PPL Electric's 2017 taxable income, to be effective July 1, 2018, and (b) to record a deferred regulatory liability to reflect the tax savings associated with ~~LG&E's filed application and establishing a procedural schedule~~the TCJA for the ~~case.~~period January 1 through June 30, 2018. On ~~September 28, 2017, oral arguments were heard~~June 8, 2018, PPL Electric submitted a petition to the PUC to increase the negative surcharge proposed in the May 17, 2018 Order from 0.56% to 7.05% to reflect the estimated 2018 tax savings associated with the TCJA. The PUC approved PPL Electric's petition on June 14, 2018 and PPL Electric filed a tariff on June 15, 2018 reflecting the increased negative surcharge. The estimated 2018 full year impact of the rate reduction is $72 million in PPL Electric's operating revenues of which $37 million relates to the period January 1, 2018 through June 30, 2018 and has been recorded as a noncurrent regulatory liability to be distributed to customers pursuant to a future rate adjustment. The remaining $35 million is the estimated impact for the period July 1, 2018 through December 31, 2018 and will be passed back to customers through the negative surcharge beginning July 1, 2018.

Table of Contents

income tax rate in its transmission formula rate commencing on June 1, 2018 rather than allowing the TCJA tax rate reduction to be initially incorporated in PPL Electric's June 1, 2019 transmission formula rate. The waiver was approved on April 23, 2018 and PPL Electric submitted its transmission formula rate, reflecting the TCJA rate reduction, on April 27, 2018. In addition, on May 21, 2018, PPL Electric, as part of a PJM joint transmission owners filing, submitted comments in response to the FERC's March 15, 2018 Notice of Inquiry. The filing submitted by the ~~KPSC~~PJM joint transmission owners requested guidance on how the reduction in accumulated deferred income taxes, resulting from the TCJA reduced federal corporate income tax rate, should be treated for ratemaking purposes. PPL Electric is currently awaiting FERC's decision on this matter. The changes, related to accumulated deferred income taxes impacting the transmission formula rate revenues, have not been significant since the new rate went into effect on June 1, 2018.

Federal Matters

(PPL, LKE, LG&E and KU)

FERC Transmission Rate Filing

On August 3, 2018, LG&E and KU submitted an application to the FERC requesting elimination of certain on-going credits to a ~~final order is expected~~sub-set of transmission customers relating to the 1998 merger of LG&E’s and KU’s parent entities and the 2006 withdrawal of LG&E and KU from the Midcontinent Independent System Operator, Inc. (“MISO”), a regional transmission operator and energy market. The application seeks termination of LG&E’s and KU’s commitment to provide mitigation for certain horizontal market power concerns arising out of the 1998 merger for certain transmission service between MISO and LG&E and KU. The affected transmission customers are a limited number of municipal entities in ~~2017. Until~~Kentucky or Tennessee. The amounts at issue are generally waivers or credits for either LG&E and KU or for MISO transmission charges depending upon the ~~KPSC issues a final order~~direction of transmission service incurred by the municipalities. LG&E and KU estimate that such charges may average approximately $22 million annually, depending upon actual transmission customer and market volumes, structures and prices, with such charges allocated according to LG&E and KU’s respective transmission system ownership ratio. Due to the development of robust, accessible energy markets over time, LG&E and KU believe the mitigation commitments are no longer relevant or appropriate. LG&E and KU currently receive recovery of such expenses in ~~this proceeding,~~other rate mechanisms. LG&E and KU cannot predict the ~~ultimate~~ outcome of ~~this matter but does not anticipate that it will have a material effect~~the proceeding, including any effects on ~~its~~their financial condition or results of ~~operation. LG&E continues to provide gas service to customers~~operations.

Other

Purchase of Receivables Program

(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 ~~this franchise area~~the purchased accounts receivable. Accounts receivable that are acquired are initially recorded at ~~existing rates, but without collecting or remitting a franchise fee.~~fair value on the date of acquisition. During the three and six months ended June 30, 2018, PPL Electric purchased $297 million and $673 million of accounts receivable from alternate suppliers. During the three and six months ended June 30, 2017, PPL Electric purchased $288 million and $644 million of accounts receivable from alternate suppliers.

7.8. Financing Activities

Credit Arrangements and Short-term Debt

(All Registrants)

The Registrants maintain credit facilities to enhance liquidity, provide credit support and ~~provide~~act as 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 except for borrowings under LG&E's term loan agreement, which are reflected in "Long-term debt" on the Balance Sheets. The following credit facilities were in place at:

September 30, 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
£ 155
£ —
£ 54
£ 160
£ —
Term Loan Facility (b) Dec. 2017 230
230
—
—
—
—
WPD (South West)

Syndicated Credit Facility (c) July 2021 245
—
—
245
110
—
WPD (East Midlands)

Syndicated Credit Facility (d) July 2021 300
116
—
184
9
—
WPD (West Midlands)

Syndicated Credit Facility July 2021 300
—
—
300
—
—
Uncommitted Credit Facilities (e) 100
70
4
26
60
4
Total U.K. Credit Facilities (f) £ 1,385
£ 571
£ 4
£ 809
£ 339
£ 4

Table of Contents


	September 30, 2017									December 31, 2016				June 30, 2018									December 31, 2017
	Expiration Date	Capacity		Borrowed		Letters of Credit and Commercial Paper Issued		Unused Capacity		Borrowed		Letters of Credit and Commercial Paper Issued		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. 2023	£	210	£	150	£	—	£	60	£	148	£	—
Term Loan Facility (b)														Dec. 2018	130		130		—		—		—		—
WPD (South West)
Syndicated Credit Facility														July 2021	245		—		—		245		—		—
WPD (East Midlands)
Syndicated Credit Facility (c)														July 2021	300		99		—		201		180		—
WPD (West Midlands)
Syndicated Credit Facility (d)														July 2021	300		34		—		266		120		—
Uncommitted Credit Facilities															130		—		4		126		—		4
Total U.K. Credit Facilities (e)															£	1,315	£	413	£	4	£	898	£	448	£	4
U.S.
PPL Capital Funding
Syndicated Credit Facility	Jan. 2022	$	950	$	—	$	285	$	665	$	—	$	20	Jan. 2023	$	950	$	—	$	950	$	—	$	—	$	230
Syndicated Credit Facility(a)	Nov. 2018	300		—		—		300		—		—
Syndicated Credit Facility														Nov. 2018	300		—		49		251		—		—
Bilateral Credit Facility	Mar. 2018	150		—		18		132		—		17		Mar. 2019	100		—		20		80		—		18
Total PPL Capital Funding Credit Facilities		$	1,400	$	—	$	303	$	1,097	$	—	$	37		$	1,350	$	—	$	1,019	$	331	$	—	$	248

PPL Electric
Syndicated Credit Facility	Jan. 2022	$	650	$	—	$	1	$	649	$	—	$	296	Jan. 2023	$	650	$	—	$	1	$	649	$	—	$	1

LKE
Syndicated Credit Facility	Oct. 2018	$	75	$	—	$	—	$	75	$	—	$	—	Oct. 2018	$	75	$	—	$	—	$	75	$	—	$	—

LG&E
Syndicated Credit Facility	Jan. 2022	$	500	$	—	$	190	$	310	$	—	$	169	Jan. 2023	$	500	$	—	$	183	$	317	$	—	$	199
Term Loan Credit Facility														Oct. 2019	200		200		—		—		100		—
Total LG&E Credit Facilities															$	700	$	200	$	183	$	317	$	100	$	199

KU
Syndicated Credit Facility	Jan. 2022	$	400	$	—	$	—	$	400	$	—	$	16	Jan. 2023	$	400	$	—	$	133	$	267	$	—	$	45
Letter of Credit Facility	Oct. 2020	198		—		198		—		—		198		Oct. 2020	198		—		198		—		—		198
Total KU Credit Facilities		$	598	$	—	$	198	$	400	$	—	$	214		$	598	$	—	$	331	$	267	$	—	$	243


(a)	The amounts borrowed at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016~~2017 were USD-denominated borrowings of $200 million for both periods, which bore interest at ~~2.06%~~2.81% and ~~1.43%~~2.17%. The unused capacity reflects the amount borrowed in GBP of ~~£156~~£150 million as of the date borrowed.


(b)	The amount borrowed at ~~September~~June 30, ~~2017~~2018 was a GBP-denominated borrowing which equated to ~~$296~~$173 million and bore interest at ~~1.50%~~1.75%.


(c)	The ~~amount~~amounts borrowed at June 30, 2018 and December 31, ~~2016 was a~~2017 were GBP-denominated ~~borrowing~~borrowings which equated to ~~$137~~$132 millionand $244 million and bore interest at ~~0.66%~~0.90% and 0.89%.


(d)	The amounts borrowed at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016~~2017 were GBP-denominated borrowings which equated to ~~$150~~$45 millionand ~~$11~~$162 million and bore interest at ~~0.65%~~0.90% and ~~0.66%~~0.89%.


(e)	~~The amounts borrowed at September~~At June 30, ~~2017 and December 31, 2016 were GBP-denominated borrowings which equated to $90 million and $75 million and bore interest at 1.29% and 1.26%.~~


~~(f)~~	~~At September 30, 2017,~~2018, the unused capacity under the U.K. credit facilities was ~~$1.0~~$1.2 billion.

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

~~In October 2017, LG&E entered into a $200 million term loan credit facility expiring in 2019. On October 26, 2017, LG&E borrowed $100 million under this facility bearing interest~~Table of ~~1.74%. The proceeds will be used to repay short-term debt and for general corporate purposes.~~Contents

~~(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:

~~Table of Contents~~


	September 30, 2017							December 31, 2016			June 30, 2018							December 31, 2017
	Weighted - Average Interest Rate	Capacity		Commercial Paper Issuances		Unused Capacity		Weighted - Average Interest Rate	Commercial Paper Issuances		Weighted - Average Interest Rate	Capacity		Commercial Paper Issuances		Unused Capacity		Weighted - Average Interest Rate	Commercial Paper Issuances
PPL Capital Funding	1.41%	$	1,000	$	285	$	715	1.10%	$	20	2.42%	$	1,000	$	999	$	1	1.64%	$	230
PPL Electric		650		—		650		1.05%	295			650		—		650			—
LG&E	1.38%	350		190		160		0.94%	169		2.33%	350		183		167		1.83%	199
KU		350		—		350		0.87%	16		2.34%	350		133		217		1.97%	45
Total		$	2,350	$	475	$	1,875		$	500		$	2,350	$	1,315	$	1,035		$	474

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

See Note 1011 for discussion of intercompany borrowings.

Long-term Debt

(PPL)

In March ~~2017,~~2018, WPD (South Wales) issued ~~£50~~£30 million of 0.01% Index-linked Senior Notes due ~~2029.~~2036. WPD (South Wales) received proceeds of ~~£53~~£31 million, which equated to ~~$64~~$44 million at the time of issuance, net of fees and including a premium. The principal amount of the notes is adjusted based on changes in a specified index, as detailed in the terms of the related indenture. The proceeds were used for general corporate purposes.

In ~~September 2017,~~May 2018, WPD (West Midlands) issued £30 million of 0.01% Index-linked Senior Notes due 2028. WPD (West Midlands) received proceeds of £31 million, which equated to $41 million at the time of issuance, net of fees and including a premium. The principal amount of the notes is adjusted based on changes in a specified index, as detailed in the terms of the related indenture. The proceeds were used for general corporate purposes.

In June 2018, PPL Capital Funding repaid the entire $250 million principal amount of its 1.90% Senior Notes upon maturity.

(PPL and PPL Electric)

In June 2018, PPL Electric issued ~~$500~~$400 million of ~~4.00% Senior Notes~~4.15% First Mortgage Bonds due ~~2047.~~2048. PPL ~~Capital Funding~~Electric received proceeds of ~~$490~~$394 million, net of a discount and underwriting fees, which were used to repay short-term debt ~~obligations~~ and for general corporate purposes.

~~(PPL and PPL Electric)~~

In May 2017, PPL Electric issued $475 million of 3.95% First Mortgage Bonds due 2047. PPL Electric received proceeds of $466 million, net of a discount and underwriting fees, which were used to repay short-term debt incurred primarily for capital expenditures.

In August 2017, the LCIDA remarketed $108 million of Pollution Control Revenue Refunding Bonds (PPL Electric Utilities Corporation Project), Series 2016B due 2027 previously issued on behalf of PPL Electric. The bonds were remarketed at a long-term rate and will bear interest at 1.80% through their mandatory purchase date of August 15, 2022.

In September 2017, the LCIDA remarketed $116 million of Pollution Control Revenue Refunding Bonds (PPL Electric Utilities Corporation Project), Series 2016A due 2029 previously issued on behalf of PPL Electric. The bonds were remarketed at a long-term rate and will bear interest at 1.80% through their mandatory purchase date of September 1, 2022.

(PPL, LKE and LG&E)

In ~~April 2017,~~March 2018, the ~~Louisville/Jefferson~~ County ~~Metro Government~~ of Trimble, Kentucky remarketed ~~$128~~$28 million of Pollution Control Revenue Bonds, ~~2003~~2001 Series A (Louisville Gas and Electric Company Project) due ~~2033~~2026 previously issued on behalf of LG&E. The bonds were remarketed at a long-term rate and will bear interest at ~~1.50%~~2.30% through their mandatory purchase date of ~~April~~September 1, ~~2019.~~2021.

In ~~June 2017,~~May 2018, the County of Trimble, Kentucky ~~issued $60~~remarketed $35 million of ~~Environmental Facilities~~Pollution Control Revenue ~~Refunding~~ Bonds, 2017 Series A (Louisville Gas and Electric Company Project) due 2033 on behalf of LG&E. The bonds were issued bearing interest at a rate of 3.75% through their maturity and are subject to an optional redemption on or after June 1, 2027. The proceeds of the bonds were used to redeem $60 million of Environmental Facilities Revenue Refunding Bonds, 2007 Series A (Louisville Gas and Electric Company Project) due 2033 previously issued by the County of Trimble, Kentucky on behalf of LG&E.

In June 2017, the Louisville/Jefferson County Metro Government of Kentucky remarketed $31 million of Environmental Facilities Revenue Refunding Bonds, 2007 Series A (Louisville Gas and Electric Company Project) due 2033 previously issued

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~~on behalf of LG&E. The bonds were remarketed at a long-term rate and will bear interest at 1.25% through their mandatory purchase date of June 3, 2019.~~

~~In June 2017, the Louisville/Jefferson County Metro Government of Kentucky remarketed $35 million of Environmental Facilities Revenue Refunding Bonds, 2007~~2001 Series B (Louisville Gas and Electric Company Project) due ~~2033~~2027 previously issued on behalf of LG&E. The bonds were remarketed at a long-term rate and will bear interest at ~~1.25%~~2.55% through their mandatory purchase date of ~~June~~May 3, ~~2019.~~2021.

In May 2018, the County of Jefferson, Kentucky remarketed $35 million of Pollution Control Revenue Bonds, 2001 Series B (Louisville Gas and Electric Company Project) due 2027 previously issued on behalf of LG&E. The bonds were remarketed at a long-term rate and will bear interest at 2.55% through their mandatory purchase date of May 3, 2021.

(PPL, LKE and KU)

In July 2018, KU redeemed, at par, its $9 million County of Trimble, Kentucky, Environmental Facilities Revenue Bonds, 2007 Series A (Kentucky Utilities Company Project) due 2037.

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(LKE)

In May 2018, LKE borrowed $250 million from a PPL affiliate through the issuance of a 4% ten-year note due 2028. The proceeds were used to repay its outstanding notes payable with a PPL Energy Funding subsidiary. See Note 11 for additional information related to intercompany borrowings.

(PPL)

Equity Securities

Equity Forward Contracts

In May 2018, PPL completed a registered underwritten public offering of 55 million shares of its common stock. In conjunction with that offering, the underwriters exercised an option to purchase 8.25 million additional shares of PPL common stock solely to cover over-allotments.

In connection with the registered public offering, PPL entered into forward sale agreements with two counterparties covering the 63.25 million shares of PPL common stock. Settlement of these forward sale agreements will occur no later than November 2019. Upon any physical settlement of any forward sale agreement, PPL will issue and deliver to the applicable forward counterparty shares of its common stock in exchange for cash proceeds per share equal to the forward sale price. The forward sale price will be calculated based on an initial forward price of $26.7057 per share reduced during the period the applicable forward contract is outstanding as specified in such forward sale agreement. PPL may, in certain circumstances, elect cash settlement or net share settlement for all or a portion of its rights or obligations under each forward sale agreement. PPL will not receive any proceeds or issue any shares of common stock until settlement of the forward sale agreements. PPL intends to use any net proceeds that it receives upon settlement for general corporate purposes.

The forward sale agreements are classified as equity transactions. As a result, no amounts will be recorded in the consolidated financial statements until the settlement of the forward sale agreements. Prior to any settlements, the only impact to the financial statements will be the inclusion of incremental shares within the calculation of diluted EPS using the Treasury Stock Method. See Note 5 for information on the forward sale agreements impact on the calculation of diluted EPS.

ATM Program

In February ~~2015,~~2018, PPL entered into ~~two separate~~an equity distribution ~~agreements,~~agreement, pursuant to which PPL may sell, from time to time, up to an aggregate of ~~$500 million~~$1.0 billion of its common ~~stock. For~~stock through an at-the-market offering program; including a forward sales component. The compensation paid to the ~~periods ended September 30,~~selling agents by PPL may be up to 2% of the gross offering proceeds of the shares. PPL issued 1.2 million and 4.2 million shares of common stock and received gross proceeds of $34 million and $119 million for the ~~following:~~

Three Months Nine Months
2017 2016 2017 2016
Number of shares (in thousands) 2,049
710
5,526
710
Average share price $ 39.04
$ 35.23
$ 38.49
$ 35.23
Net Proceeds $ 79
$ 25
$ 211
$ 25
three and six months ended June 30, 2018.

Distributions

In ~~August 2017,~~May 2018, PPL declared a quarterly common stock dividend, payable ~~October~~July 2, ~~2017,~~2018, of ~~39.5~~41.0 cents per share (equivalent to ~~$1.58~~$1.64 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.

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9. Defined Benefits

(PPL, LKE and LG&E)

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 ~~September~~June 30:

Pension Benefits
Three Months Nine Months
U.S. U.K. U.S. U.K.
2017 2016 2017 2016 2017 2016 2017 2016
PPL
Service cost $ 17
$ 16
$ 20
$ 17
$ 49
$ 49
$ 57
$ 53
Interest cost 42
44
45
58
126
131
132
182
Expected return on plan assets (58 ) (57 ) (130 ) (124 ) (173 ) (171 ) (382 ) (389 )
Amortization of:
Prior service cost 2
2
—
—
7
6
—
—
Actuarial loss 18
12
36
34
52
37
107
107
Net periodic defined benefit costs (credits) before settlements and special termination benefits 21
17
(29 ) (15 ) 61
52
(86 ) (47 )
Settlements (a) 7
3
—
—
7
3
—
—
Special termination benefits (b) —
—
—
—
1
—
—
—
Net periodic defined benefit costs (credits) $ 28
$ 20
$ (29 ) $ (15 ) $ 69
$ 55
$ (86 ) $ (47 )

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	Pension Benefits
	Three Months												Six Months
	U.S.						U.K.						U.S.						U.K.
	2018			2017			2018			2017			2018			2017			2018			2017
PPL
Service cost	$	15		$	15		$	21		$	18		$	31		$	32		$	42		$	37
Interest cost	39			42			47			44			78			84			94			87
Expected return on plan assets	(62		)	(58		)	(150		)	(127		)	(124		)	(115		)	(300		)	(252		)
Amortization of:
Prior service cost	3			3			—			—			5			5			—			—
Actuarial loss	19			14			38			36			41			34			77			71
Net periodic defined benefit costs (credits) before special termination benefits	14			16			(44		)	(29		)	31			40			(87		)	(57		)
Special termination benefits (a)	—			(1		)	—			—			—			1			—			—
Net periodic defined benefit costs (credits)	$	14		$	15		$	(44	)	$	(29	)	$	31		$	41		$	(87	)	$	(57	)


(a)	2017 includes settlement charges of $5 million from the LG&E qualified pension plan and $2 million from the PPL non-qualified pension plan and 2016 includes a settlement charge of $3 million from the PPL non-qualified pension plan. These settlements resulted from lump sum payments that exceeded service cost and interest cost components of net periodic pension cost for the year.


~~(b)~~	Enhanced pension benefits offered to certain PPL Electric bargaining unit employees under a one-time voluntary retirement window offered as part of the new five year IBEW contract ratified in March 2017.


	Pension Benefits												Pension Benefits
	Three Months						Nine Months						Three Months						Six Months
	2017			2016			2017			2016			2018			2017			2018			2017
LKE
Service cost	$	6		$	6		$	18		$	18		$	5		$	5		$	12		$	12
Interest cost	17			18			51			53			16			18			32			34
Expected return on plan assets	(23		)	(23		)	(69		)	(68		)	(25		)	(24		)	(51		)	(46		)
Amortization of:
Prior service cost	2			2			6			6			2			2			4			4
Actuarial loss (a)	8			5			23			15			8			4			18			15
Net periodic defined benefit costs before settlements	10			8			29			24
Settlements (b)	5			—			5			—
Net periodic defined benefit costs	$	15		$	8		$	34		$	24

LG&E
Service cost	$	—		$	—		$	1		$	1
Interest cost	3			4			9			11
Expected return on plan assets	(5		)	(5		)	(16		)	(15		)
Amortization of:
Prior service cost	1			1			3			3
Actuarial loss (a)	3			2			7			5
Net periodic defined benefit costs before settlements	2			2			4			5
Settlements (b)	5			—			5			—
Net periodic defined benefit costs	$	7		$	2		$	9		$	5
Net periodic defined benefit costs (b)													$	6		$	5		$	15		$	19

(a)

As a result of treatment approved by the KPSC, the difference between actuarial loss calculated in accordance with LKE's accounting policy and actuarial loss calculated using a 15-year amortization period was $3$2 million and $8$6 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and $4$5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016. The~~2017. This difference between actuarial loss calculated in accordance with LG&E's accounting policy and actuarial loss calculated using a 15-year amortization period was $1 million and $3 million for the three and nine months ended September 30, 2017 and $1 million for the three months ended September 30, 2016. These differences areis recorded as a regulatory ~~assets.~~

asset.


(b)	Due to the amount of lump sum payment distributions from the LG&E qualified pension plan, a settlement charge of $5$4 million was incurred. In accordance with existing regulatory accounting treatment, LG&E has maintained the settlement charge in regulatory assets. The amount will be amortized in accordance with existing regulatory practice.

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	Pension Benefits
	Three Months						Six Months
	2018			2017			2018			2017
LG&E
Service cost	$	1		$	1		$	1		$	1
Interest cost	3			3			6			6
Expected return on plan assets	(6		)	(6		)	(11		)	(11		)
Amortization of:
Prior service cost	2			1			3			2
Actuarial loss (a)	1			1			3			4
Net periodic defined benefit costs (b)	$	1		$	—		$	2		$	2


(a)	As a result of treatment approved by the KPSC, the difference between actuarial loss calculated in accordance with LG&E's accounting policy and actuarial loss calculated using a 15-year amortization period was $1 million for the six months ended June 30, 2018 and 2017. This difference is recorded as a regulatory asset.


(b)	Due to the amount of lump sum payment distributions from the LG&E qualified pension plan, a settlement charge of $4 million was incurred. In accordance with existing regulatory accounting treatment, LG&E has maintained the settlement charge in regulatory assets. The amount will be amortized in accordance with existing regulatory practice.

Other Postretirement Benefits
Three Months Nine Months
2017 2016 2017 2016
PPL
Service cost $ 2
$ 2
$ 6
$ 6
Interest cost 5
6
17
19
Expected return on plan assets (6 ) (6 ) (17 ) (17 )
Amortization of prior service cost —
—
(1 ) —
Amortization of actuarial loss 1
1
1
1
Net periodic defined benefit costs $ 2
$ 3
$ 6
$ 9

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	Other Postretirement Benefits												Other Postretirement Benefits
	Three Months						Nine Months						Three Months						Six Months
	2017			2016			2017			2016			2018			2017			2018			2017
LKE
PPL
Service cost	$	1		$	1		$	3		$	3		$	3		$	2		$	4		$	4
Interest cost	2			2			6			7			7			6			10			12
Expected return on plan assets	(2		)	(2		)	(5		)	(5		)	(9		)	(5		)	(13		)	(11		)
Amortization of prior service cost	1			1			1			2			1			(1		)	—			(1		)
Net periodic defined benefit costs	$	2		$	2		$	5		$	7		$	2		$	2		$	1		$	4

LKE
Service cost													$	1		$	1		$	2		$	2
Interest cost													2			2			4			4
Expected return on plan assets													(2		)	(2		)	(4		)	(3		)
Amortization of:
Prior service cost													1			—			1			—
Actuarial gain													(1		)	—			(1		)	—
Net periodic defined benefit costs													$	1		$	1		$	2		$	3

(PPL Electric, LG&E and KU)

In addition to the specific plan 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. LG&E and KU are also allocated costs of defined benefit plans from LKS for defined benefit plans sponsored by LKE. See Note 1011 for ~~more~~additional information on costs allocated to LG&E and KU from LKS. These allocations are based on participation in those plans, which management believes are reasonable. For the periods ended ~~September~~June 30, PPL Services allocated the following net periodic defined benefit costs to PPL Electric, and LKE allocated the following net periodic defined benefit costs to LG&E and KU:


	Three Months				Nine Months				Three Months				Six Months
	2017		2016		2017		2016		2018		2017		2018		2017
PPL Electric	$	6	$	6	$	19	$	17	$	3	$	5	$	7	$	13
LG&E	3		2		8		7		2		2		4		5
KU	2		2		7		8		1		1		2		5

~~Expected Cash Flows - U.K. Pension Plans~~

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~~(PPL)~~(All Registrants)

~~For~~The non-service cost components of net periodic defined benefit costs (credits) (interest cost, expected return on plan assets, amortization of prior service cost and amortization of actuarial loss) are presented in "Other Income (Expense) - net" on the ~~nine months ended September 30, 2017, WPD contributed $485 million to its U.K. pension plans. These contributions fund all~~Statements of ~~2017 contributions and a portion of 2018 contributions. WPD does not expect to make additional contributions in 2017.~~Income. See Note 12 for details.

9.10. Commitments and Contingencies

Legal Matters

(All Registrants)

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

~~WKE Indemnification(PPL and LKE)~~

~~See footnote (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.~~

Cane Run Environmental Claims (PPL, LKE and LG&E)

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, RCRA, 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

~~Table of Contents~~

for a class consisting of residents within four miles of the Cane Run ~~plant.~~plant, which had three coal-fired units retired in 2015. In their individual capacities, these plaintiffs 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 the common law tort claims. In November 2016, the plaintiffs filed an amended complaint removing the personal injury claims and removing certain previously named plaintiffs. In February 2017, the District Court issued an order dismissing PPL as a defendant and dismissing the final federal claim against LG~~&E under the Clean Air Act, and directed the parties to submit briefs regarding whether the court should continue to exercise supplemental jurisdiction regarding the remaining state law-only claims.~~&E. On April 13, 2017, the federal District Court issued an order declining to exercise supplemental jurisdiction on the state law claims and ~~dismissing~~dismissed the case in its ~~entirety, subject to certain federal appeals or state court re-filing rights of the parties.~~entirety. On June 16, 2017, the plaintiffs filed a class action complaint in Jefferson Circuit Court, Kentucky, against LG&E ~~regarding the~~alleging state law nuisance, negligence and trespass tort claims. The plaintiffs seek compensatory and punitive damages for alleged property damage due to purported plant emissions on behalf of a class of residents within one to three miles of the plant. Proceedings are currently underway regarding potential class certification, for which a decision may occur in late 2018 or in 2019. 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~~matter and ~~the remaining two coal-fired units at the plant in June 2015.~~an estimate or range of possible losses cannot be determined.

E.W. Brown Environmental Claims (PPL, LKE and KU)

On July 12, 2017, the Kentucky Waterways Alliance and the Sierra Club filed a citizen suit complaint against KU in the U.S. District Court for the Eastern District of Kentucky alleging discharges at the E.W. Brown plant in violation of the Clean Water Act and the plant’s water discharge permit and alleging contamination that may present an imminent and substantial endangerment in violation of the RCRA. The plaintiffs’ suit relates to prior notices of intent to file a citizen suit submitted in October and November 2015 and October 2016. These plaintiffs ~~seek~~sought injunctive relief ordering KU to take all actions necessary to comply with the Clean Water Act ~~violations,~~and RCRA, including ceasing the discharges in question, abating effects associated with prior discharges and eliminating the alleged imminent and substantial endangerment. These plaintiffs also ~~seek~~sought assessment of civil penalties and an award of litigation costs and attorney fees. On December 28, 2017 the U.S. District Court for the Eastern District of Kentucky issued an order dismissing the Clean Water Act and RCRA complaints against KU in their entirety. On January 26, 2018, the plaintiffs appealed the dismissal order to the U.S. Court of Appeals for the Sixth Circuit. The case has been briefed and oral argument was presented on August 2, 2018. KU is undertaking extensive remedial measures at the E.W. Brown plant including closure of the former ash pond, implementation of a groundwater remedial action plan, and performance of a corrective action plan including aquatic study of adjacent surface waters and risk assessment. PPL, LKE and KU cannot predict the outcome of ~~this matter~~these matters and an estimate or ~~the potential impact on the operations~~range of ~~the E.W. Brown plant, including increased capital or operating costs, if any.~~ possible losses cannot be determined.

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

~~Trimble County 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. LG&E and the KEEC moved for discretionary review by the Kentucky Supreme Court. In February 2016, the Kentucky Supreme Court issued an order granting discretionary 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.

~~Trimble County Landfill~~

Various state and federal permits and regulatory approvals are required in order to construct a landfill at the Trimble County plant to be used for disposal of CCRs. In October 2016, the Kentucky Division of Water issued a water quality certification and in February 2017, the Kentucky Division of Waste Management issued a “special waste” landfill permit. In March 2017, the Sierra Club and a resident adjacent to the plant filed administrative challenges to the landfill permit which were subsequently dismissed by agreed order entered in August 2017. In June 2017, the U.S. Army Corps of Engineers issued a dredge and fill permit, the final approval required for construction of the landfill. PPL, LKE, LG&E and KU believe that all permits and regulatory approvals issued for the project comply with applicable state and federal laws.

Regulatory Issues (All Registrants)

See Note 67 for information on regulatory matters related to utility rate regulation.

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Electricity - Reliability Standards

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 and KU monitor their compliance with the Reliability Standards and 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~~an estimate aor range of ~~reasonably~~ possible losses ~~if any.~~cannot be determined.

Environmental Matters

(All Registrants)

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

Air

(PPL, LKE, LG&E and KU)

NAAQS

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 generation plants. Among other things, the Clean Air Act requires the EPA periodically to review and establish concentration levels in the ambient air for six pollutants to protect public health and welfare. The six pollutants are carbon monoxide, lead, nitrogen dioxide, ozone (contributed to by nitrogen oxide emissions), particulate matter and sulfur dioxide. The established concentration levels for these six pollutants are known as NAAQS. Under the Clean Air Act, the EPA is required to reassess the NAAQS on a five-year schedule.

Federal environmental regulations of these six pollutants require states to adopt implementation plans, known as state implementation plans, which detail how the state will attain the standards that are mandated by the relevant law or regulation.

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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.

Ozone

The EPA issued the current ozone standard in October 2015. ~~Under the Clean Air Act, the~~The states and the EPA are required to determine (based on ambient air monitoring data) those areas that meet the standard and those that are in ~~non-attainment.~~nonattainment. The EPA was scheduled to designate areas as being in attainment or nonattainment of the current ozone standard by no later than October 2017 which was to be followed by further regulatory proceedings identifying compliance measures and deadlines. However, the current implementation and compliance schedule is uncertain because the EPA failed to make nonattainment ~~demonstrations~~designations by the applicable deadline. In addition, some industry groups have requested the EPA to defer implementation of the 2015 ozone standard, but the EPA has not yet acted on this request. ~~While~~Although implementation of the 2015 ozone standard could potentially require the addition of SCRs at some LG&E and KU generating units, PPL, LKE, LG&E and KU are currently unable to determine what the compliance measures and deadlines may ultimately be with respect to the new standard.

States are also obligated to address interstate transport issues associated with 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. As a result of a partial consent decree addressing claims regarding federal implementation, the EPA and several states, including Kentucky, are evaluating the need for further nitrogen oxide reductions from fossil-fueled plants to address interstate impacts. ~~While~~Although PPL, LKE, LG&E and KU are unable to predict the outcome of ongoing and future evaluations by the EPA and the states, such evaluations could potentially result in requirements for nitrogen oxide reductions beyond those currently required under the ~~Cross State~~Cross-State Air Pollution Rule.

Sulfur Dioxide

In 2010, the EPA issued the current NAAQS for sulfur dioxide and required states to identify areas that meet those standards and areas that are in ~~"non-attainment".~~nonattainment. In July 2013, the EPA finalized ~~non-attainment~~nonattainment designations for parts of the country, including part of Jefferson County in Kentucky. ~~Attainment must be achieved by 2018.~~ As a result of scrubber replacements completed by LG&E at the Mill Creek plant in 2016, all Jefferson County monitors now indicate compliance with the sulfur dioxide standards. Additionally, LG&E accepted a new sulfur dioxide emission limit to ensure continuing compliance with the NAAQS. PPL, LKE, LG&E and KU do not anticipate any further measures to achieve compliance with the new sulfur dioxide standards.

Climate Change

There is continuing world-wide attention focused on issues related to climate change. In June 2016, President Obama announced that the United States, Canada and Mexico 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 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 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,~~rules issued in 2015 imposing GHG emission standards for both new and existing power plants, the U.S. committed to an initial reduction target of 26% to 28% below 2005 levels by 2025. However, on June 1, 2017, President Trump announced a plan to withdraw from the Paris Agreement and undertake negotiations to reenter the current agreement or enter a new agreement on terms more favorable to the U.S. Under the terms of the Paris Agreement, any U.S. withdrawal would not be complete until November 2020.

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Additionally, ~~in March 2017,~~ the ~~President issued an Executive Order (the~~ March 2017 Executive ~~Order) directing~~Order directed the EPA to review ~~proposed and final~~its 2015 greenhouse gas rules ~~relating to GHG reductions~~ for consistency with certain policy directives and suspend, revise, or rescind those rules as appropriate. The March 2017 Executive Order also 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 U.K. has enacted binding carbon reduction requirements that are applicable to WPD. Under the U.K. law, WPD must purchase carbon allowances to offset emissions associated with WPD's operations. The cost of these allowances is not significant and is included in WPD's current operating expenses.

The EPA's Rules under Section 111 of the Clean Air Act, including the EPA's Clean Power Plan

~~As further described below, in~~There continues to be uncertainty about the EPA's regulation of existing coal-fired power plants. In 2015, the EPA had finalized rules imposing GHG emission standards for both new and existing power ~~plants. The EPA has also issued~~plants and had proposed a ~~proposed~~ federal implementation plan that would apply to any states that ~~fail~~failed to submit an acceptable state implementation plan ~~under these rules.~~to reduce GHG emissions on a state-by-state basis (the 2015 EPA Rules).

~~The future~~Following legal challenges to the 2015 EPA Rules, a stay of ~~these~~those rules is uncertain. 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, industry groups and individual companies, including LKE. The D.C. Circuit has temporarily held the litigation in abeyance in light of the EPA's ongoing review of the Clean Power Plan. In February 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. In addition,~~ the ~~President's~~ March 2017 Executive Order ~~requires~~requiring the EPA to review the ~~rules for new plants and existing power plants and suspend, revise or rescind them as appropriate. In~~2015 EPA Rules, in October 2017, the EPA proposed to rescind the ~~rule~~2015 EPA Rules and, ~~may seek comment on~~in December 2017, released an advanced notice of proposed rulemaking for a ~~possible~~ replacement ~~rule.~~

~~The EPA's rule for new power plants imposes separate emission standards for coal and natural gas units~~(Replacement Rules) which contemplates GHG reductions based on "inside 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 viable, the rule effectively precludes the construction of new coal-firedfence" measures implemented at individual plants. The standard for NGCC power plants is the same as what the EPA proposed in 2012 and is not continuously achievable under all operating modes, such as frequent start-ups and shutdowns. The preclusion of new coal-fired plants could have a significant industry-wide impact.

~~The EPA's rule for existing power plants, referred to as the Clean Power Plan, was published~~contemplated approach 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, resultingReplacement Rules is a more limited approach than that taken in the ~~most stringent targets to be met~~2015 EPA Rules which had included assumed increased levels of fuel switching and renewable energy in ~~2030, with interim targets to be met beginning in 2022. The~~determining the level of emission reduction required by each state. At present, the 2015 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),Rules remain stayed 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 ultimately remains in place in its current form, and Kentucky fails to develop an approvable implementation plan by the applicable deadline, the EPA 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.Replacement Rules have not yet been published.

LG&E and KU are monitoring developments at the state and federal level. PPL, LKE, LG&E and KU cannot predict the outcome of 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,~~2015 EPA Rules, if enacted. The legislation provides that such state GHG performance standards will 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 are consistent with the EPA's notice of proposed rulemaking on the Replacement Rules.

LG&E and KU are monitoring developments at the state and federal level. Until there is more clarity about the potential requirements that may ~~make it more difficult for Kentucky to achieve~~be imposed under the ~~GHG reduction levels~~Replacement Rules and Kentucky's implementation plan, PPL, LKE, LG&E and KU cannot predict the potential impact, if any, on plant operations, future capital or operating costs. PPL, LKE, LG&E and KU believe that the ~~EPA has established for Kentucky, if enacted.~~

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costs, which could be significant, would be subject to rate recovery.

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

In June 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. The parties have entered into a tolling agreement with respect to this matter through December 2018. 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.

Water/Waste

(PPL, LKE, LG&E and KU)

CCRs

In April 2015, the EPA published its final rule regulating CCRs. CCRs include fly ash, bottom ash and sulfur dioxide scrubber wastes. The rule became effective in October 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.

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Under the rule, CCRs are regulated as non-hazardous under Subtitle D of RCRA and 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. The rule requires posting of compliance documentation on a publicly accessible 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. On March 1, 2018, the EPA proposed amendments to the CCR rule primarily relating to impoundment closure and remediation requirements. On July 18, 2018, the EPA released a pre-publication copy of a signed final rule extending the deadline for closure of certain impoundments to October 2020 and adopting substantive changes relating to certifications, suspensions of groundwater monitoring and groundwater protection standards for certain constituents. PPL, LKE, LG&E and KU are unable to predict the outcome of the ongoing rulemaking or potential impacts on current LG&E and KU compliance plans. Revisions to the current rule could potentially result in additional costs.

~~Recently enacted federal legislation has authorized the EPA to approve equally protective state programs that would operate in lieu of the CCR Rule.~~ In January 2017, Kentucky issued a new state rule relating to CCR matters, effective May 2017, aimed at reflecting the requirements of the federal CCR rule. In May 2017, a resident adjacent to LG&E's and KU's Trimble County plant filed a lawsuit in ~~state court~~Franklin County, Kentucky Circuit Court against the Kentucky Energy and Environmental Cabinet and LG&E seeking to invalidate the new rule. ~~PPL, LKE,~~On January 31, 2018, the state court issued an opinion invalidating certain procedural elements of the new rule but finding the substantive requirements of the new rule to be consistent with those of the federal CCR rule. This ruling was not appealed by any party to the litigation and is now final. Accordingly, LG&E and KU ~~cannot predict the outcome of the litigation, but anticipate continued operation~~presently operate their facilities under continuing permits authorized via the former program and do not currently anticipate material impacts as a result of the judicial ruling. Separately, in December 2016, federal legislation was enacted that authorized the EPA to approve equally protective state programs that would operate in lieu of the CCR rule. The Kentucky Energy and Environmental Cabinet has indicated it may propose rules under such authority in the ~~event that the new rule is struck down.~~future.

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,~~ 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 the federal CCR rule, ~~requirements,~~ KU also received KPSC approval for its plans to close impoundments at the retired Green River, Pineville and Tyrone plants to comply with applicable state ~~law requirements. See Note 6 in~~law. On January 26, 2018, KU filed an application requesting a CPCN and approval of amendments to the ~~Registrants' 2016 Form 10-K~~second phase of its compliance plan for ~~additional information.~~the landfill at the E.W. Brown station.On July 9, 2018, the KPSC granted approval to KU for amendments to the second phase of its compliance plan for the landfill at the E.W. Brown station.

In connection with the final CCR rule, LG&E and KU recorded adjustments to existing AROs ~~during~~beginning in 2015 ~~2016~~ and ~~2017.~~continue to record adjustments as required. See Note 1516 below and Note 19 in the Registrants' ~~2016~~2017 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.

Clean Water Act

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 that become trapped at or pulled through cooling water intake structures at generating facilities. The requirements could impose significant costs for LG&E and KU, which are subject to rate recovery.

~~Table~~On February 20, 2018, the EPA issued a notice requesting comment on the scope of ~~Contents~~

discharges subject to regulation under the Clean Water Act. Specifically, the EPA seeks comments on whether Clean Water Act jurisdiction should cover discharges to groundwater that reach surface water via a direct hydrologic connection. Extending Clean Water Act jurisdiction to such discharges could potentially subject certain releases from CCR impoundments to additional permitting and remediation requirements. PPL, LKE, LG&E and KU are unable to predict the future regulatory developments or potential impacts on current LG&E and KU compliance plans.

ELGs

In September 2015, the EPA released its final 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

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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. Industry groups, environmental groups, individual companies and others have filed legal challenges to the final rule, which have been consolidated before the U.S. Court of Appeals for the Fifth Circuit. In April 2017, the EPA announced that it would grant petitions for reconsideration of the rule. In September 2017, the EPA published in the Federal Register a proposed rule that would postpone the compliance date for requirements relating to bottom ash transport waters and scrubber wastewaters discharge limits. The EPA expects to complete its reconsideration of best available technology standards by the fall of 2020. Upon completion of the ongoing regulatory proceedings, the rule will be implemented by the states in the course of their normal permitting activities. LG&E and KU are developing compliance strategies and schedules. PPL, LKE, LG&E and KU are unable to predict the outcome of the EPA's pending reconsideration of the rule or fully estimate compliance costs or timing. Additionally, certain aspects of these compliance plans and estimates relate to developments in state water quality standards, which are separate from the ELG rule or its implementation. Costs to comply with ELGs or other discharge limits, which are expected to be significant, are subject to rate recovery.

Seepages and Groundwater Infiltration

Seepages or groundwater infiltration have been detected at active and retired wastewater basins and landfills at various LG&E and KU plants. LG&E and KU have completed, or are completing, assessments of seepages or groundwater infiltration at various facilities and have completed, or are working with agencies to implement, further testing, monitoring or abatement measures, where applicable. ~~A range of reasonably possible costs cannot currently be estimated.~~ Depending on the circumstances in each case, certain costs, which may be subject to rate recovery, could be significant. LG&E and KU cannot currently estimate a possible loss or range of possible losses related to this matter.

(All Registrants)

Other Issues

In June 2016, the "Frank Lautenberg Chemical Safety Act" took effect as an amendment to the Toxic Substance Control Act (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 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 November 2017,~~ is applicable to 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 may affect Registrants' facilities in the United States, including phase-out of some or all equipment containing PCBs. Should such a phase-out be required, the costs, which are subject to rate recovery, could be significant. Currently, the EPA is planning a review of part two later in 2018.

Superfund and Other Remediation

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 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.

~~PPL Electric,~~ LG&E and KU are potentially responsible for investigating, responding to agency inquiries, implementing various preventative measures, and/or remediating ~~or have completed~~contamination under programs other than those described in 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.~~sections above. 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 sufficient information onabout such additional sites ~~and are therefore unable~~ to estimate any potential liability they may have or a range of reasonably possible losses, if any, related to these matters.

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the costs at several sites listed by the EPA under the federal Superfund program, including the Columbia Gas Plant 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.

~~At September~~As of June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, PPL Electric had a recorded liability of $11 million and $10 million representing its best estimate of the probable loss incurred to remediate the sites noted in the paragraph 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, additional costs of remediation could be incurred; however, such costs are not expected to be significant.

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

From time to time, PPL's subsidiaries in the United States undertake testing, monitoring or remedial action in response to notices of violations, spills or other releases at various on-site and off-site locations, negotiate with the EPA and state and local agencies regarding actions necessary ~~for compliance~~to comply with applicable requirements, negotiate with property owners and other third parties alleging impacts from PPL's operations and undertake similar actions necessary to resolve environmental matters that arise in the course of normal operations. Based on analyses to date, resolution of these environmental matters is not expected to have a significant adverse impact on the operations of PPL Electric, LG&E and KU.

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~~available to cover certain of the costs or other obligations related to these matters but the amount of insurance coverage or reimbursement cannot be estimated or assured.

Other

Labor Union Agreements

~~(PPL and PPL Electric)~~

In March 2017, members of the IBEW ratified a new five-year labor agreement with PPL. The contract covers nearly 1,400 employees and was effective May 22, 2017. The terms of the new labor agreement are not expected to have a significant impact on the financial results of PPL or PPL Electric.

(LKE and KU)

InKU has 68 employees that are represented by the IBEW labor union. Contract negotiations with the IBEW commenced in July 2018. The current three-year agreement, scheduled to expire on August ~~2017,~~1, 2018, was extended to August 9, 2018. Although union members voted to reject a recent agreement reached by KU and the ~~United Steelworkers~~IBEW, negotiations are continuing. KU cannot predict the outcome of ~~America ratified a three-year labor agreement through August 2020. The agreement covers approximately 53 employees. The~~these negotiations but does not expect the ultimate outcome of this matter, including terms of ~~the~~any potential new ~~labor~~ agreement, ~~are not expected~~or lack thereof, to have a ~~significant~~material impact on ~~the financial results of LKE or~~ KU.

Guarantees and Other Assurances

(All Registrants)

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

(PPL)

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

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(All Registrants)

The table below details guarantees provided as of ~~September~~June 30, ~~2017.~~2018. "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.~~entities." The total recorded liability at ~~September~~June 30, ~~2017~~2018 was ~~$21~~$6 million for PPL and ~~$16 million~~not significant for LKE. The total recorded liability at December 31, ~~2016~~2017 was ~~$22~~$17 million for PPL and ~~$17~~$11 million for LKE. ~~See footnote (e) below for information regarding a settlement in principle for certain LKE indemnifications.~~ 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.

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Exposure at
September 30, 2017 Expiration
Date
PPL
Indemnifications related to the WPD Midlands acquisition (a)
WPD indemnifications for entities in liquidation and sales of assets $ 10
(b) 2019
WPD guarantee of pension and other obligations of unconsolidated entities 95
(c)

PPL Electric
Guarantee of inventory value 17
(d) 2018

LKE
Indemnification of lease termination and other divestitures 301
(e) 2021 - 2023

LG&E and KU
LG&E and KU guarantee of shortfall related to OVEC (f)



	Exposure at June 30, 2018			Expiration Date
PPL
Indemnifications related to the WPD Midlands acquisition			(a)
WPD indemnifications for entities in liquidation and sales of assets	$	10	(b)	2020
WPD guarantee of pension and other obligations of unconsolidated entities	82		(c)

PPL Electric
Guarantee of inventory value	20		(d)	2020

LKE
Indemnification of lease termination and other divestitures	200		(e)	2021

LG&E and KU
LG&E and KU guarantee of shortfall related to OVEC			(f)

(a)

Indemnifications related to certain liabilities, including a specific unresolved tax issue and those relating to properties and assets owned by the seller that were transferred to WPD Midlands in connection with the acquisition. A cross indemnity has been received from the seller on the tax issue. The maximum exposure and expiration of these indemnifications cannot be estimated because the maximum potential liability is not capped and the expiration date is not specified in the transaction documents.

(b)

Indemnification to the liquidators and certain others for existing liabilities or expenses or liabilities arising during the liquidation process. The indemnifications are limited to distributions made from the subsidiary to its parent either prior or subsequent to liquidation or are not explicitly stated in the agreements. The indemnifications generally expire two to seven years subsequent to the date of dissolution of the entities. The exposure noted only includes those cases where the agreements provide for specific limits.

In connection with their sales of various businesses, WPD and its affiliates have provided the purchasers with indemnifications that are standard for such transactions, including indemnifications for certain pre-existing liabilities and environmental and tax matters or have agreed to continue their obligations under existing third-party guarantees, either for a set period of time following the transactions or upon the condition that the purchasers make reasonable efforts to terminate the guarantees. Additionally, WPD and its affiliates remain secondarily responsible for lease payments under certain leases that they have assigned to third parties.

(c)

Relates to certain obligations of discontinued or modified electric associations that were guaranteed at the time of privatization by the participating members. Costs are allocated to the members and can be reallocated if an existing member becomes insolvent. At ~~September~~June 30, ~~2017,~~2018, WPD has recorded an estimated discounted liability for which the expected payment/performance is probable. Neither the expiration date nor the maximum amount of potential payments for certain obligations is explicitly stated in the related agreements, and as a result, the exposure has been estimated.


(d)	A third party logistics firm provides inventory procurement and fulfillment services. The logistics firm has title to the inventory, however, upon termination of the contracts, PPL Electric has guaranteed to purchase any remaining inventory that has not been used or sold.

(e)

LKE provides certain indemnifications covering the due and punctual payment, performance and discharge by each party of its respective obligations. The most comprehensive of these guarantees is the LKE guarantee covering operational, regulatory and environmental commitments and indemnifications made by WKE under a 2009 Transaction Termination Agreement. This guarantee has a term of 12 years ending July 2021, and a maximum exposure of $200 million, exclusive of certain items such as government fines and penalties that may exceed the maximum. Another WKE-related LKE guarantee covers other indemnifications related to the purchase price of excess power, has a term expiring in 2023, and a maximum exposure of $100 million. In May 2012, LKE's indemnitee received an unfavorable arbitration panel's decision interpreting this matter. In October 2014, LKE's indemnitee filed a motion for discretionary review with the Kentucky Supreme Court seeking to overturn the arbitration decision, and such motion was denied by the court in September 2015. In September 2015, the counterparty issued a demand letter to LKE's indemnitee. In February 2016, the counterparty filed a complaint in Henderson, Kentucky Circuit Court, seeking an award of damages in the matter. The proceeding is currently in the discovery phase. LKE does not believe appropriate contractual, legal or commercial grounds exist for the claim made. LKE believes its indemnifications in the WKE matter remain subject to various uncertainties, including additional legal and contractual developments, as well as future prices, availability and demand for the subject excess power. Although the parties have conducted certain settlement discussions and reached a settlement in principle to resolve all claims for an aggregate amount within LKE's recorded liability, the ultimate outcomes of the WKE termination-related indemnifications cannot be predicted at this time. Additionally, LKE has indemnified various third parties related to historical obligations for other divested subsidiaries and affiliates. The indemnifications vary by entity and the maximum exposures range from being capped at the sale price to no specified maximum. LKE could be required to perform on these indemnifications in the event of covered losses or liabilities being claimed by an indemnified party. LKE cannot predict the ultimate outcomes of the various indemnification scenarios, but does not expect such outcomes to result in significant ~~losses above the amounts recorded.~~losses.

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(f)

Pursuant to the OVEC power purchase contract, LG&E and KU are obligated to pay for their share of OVEC's excess debt service, post-retirement and decommissioning costs, as well as any shortfall from amounts included within a demand charge designed and expected to cover these costs over the term of the contract. LKE's proportionate share of OVEC's outstanding debt was ~~$118~~$115 million at ~~September~~June 30, ~~2017,~~2018, consisting of LG&E's share of ~~$82~~$80 million and KU's share of ~~$36~~$35 million. The maximum exposure and the expiration date of these potential obligations are not presently determinable. See "Energy Purchase Commitments" in Note 13 in PPL's, LKE's, LG&E's and KU's ~~2016~~2017 Form 10-K for additional information on the OVEC power purchase contract. In connection with recent credit market related developments at OVEC or certain of its sponsors, such parties, including LG&E and KU, are analyzing certain potential additional credit support actions to preserve OVEC's access to credit markets or mitigate risks or adverse impacts relating thereto, including increased interest costs. The ultimate outcome of these matters, including any potential impact on LG&E's and KU's obligations relating to OVEC debt under the power purchase contract cannot be predicted.

In March 2018, a sponsor with a pro-rata share of certain OVEC obligations of 4.85% filed for bankruptcy under Chapter 11 and is seeking to reject the OVEC power purchase contract, which action OVEC and certain sponsors are contesting. OVEC and certain of its sponsors, including LG&E and KU, are analyzing certain potential additional credit support actions to preserve OVEC's access to credit markets or mitigate risks or adverse impacts relating thereto, including increased interest costs, establishing or continuing debt reserve accounts or other changes involving OVEC's existing short and long-term debt. The ultimate outcome of these matters, including the sponsor bankruptcy and related proceedings and any other potential impact on LG&E's and KU's obligations relating to OVEC debt under the power purchase contract cannot be predicted.

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.

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PPL, on behalf of itself and certain of its subsidiaries, maintains insurance that covers liability assumed under contract for bodily injury and property damage. The coverage provides maximum aggregate coverage of $225 million. This insurance may be applicable to obligations under certain of these contractual arrangements.

~~10.~~11. 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 subsidiaries, including LG&E and KU, and each other ~~as applicable,~~ with administrative, management and support services. 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. PPL Services may also use a ratio of overall direct and indirect costs or a weighted average cost ratio. 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 ~~September~~June 30, including amounts applied to accounts that are further distributed between capital and expense on the books of the recipients, based on methods that are believed to be reasonable.


	Three Months				Nine Months				Three Months				Six Months
	2017		2016		2017		2016		2018		2017		2018		2017
PPL Electric from PPL Services	$	43	$	33	$	138	$	98	$	15	$	44	$	31	$	95
LKE from PPL Services	4		4		15		13		7		5		14		11
PPL Electric from PPL EU Services	15		17		48		50		41		15		76		33
LG&E from LKS	38		40		120		128		39		38		77		82
KU from LKS	43		46		134		151		43		47		85		91

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 ~~overhead costs~~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 KU are reimbursed through LKS.

Intercompany Borrowings

(PPL Electric)

PPL Energy Funding maintains a ~~$400 million~~ revolving line of credit with a PPL Electric subsidiary. ~~At September~~In June 2018, the revolving line of credit was increased by $250 million and the limit as of June 30, ~~2017, $2 million~~2018 was ~~outstanding and reflected in "Notes receivable from affiliate" on the Balance Sheet.~~$650 million. No balance was outstanding at June 30, 2018 and December 31, ~~2016.~~2017. The interest rates on borrowings are equal to one-month LIBOR plus a spread. ~~The interest rate on the outstanding borrowing at September 30, 2017 was 2.98%.~~

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(LKE)

LKE maintains a ~~$225~~$300 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 ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016, $159~~2017, $99 million and ~~$163~~$225 million were outstanding and reflected in "Notes payable with ~~affiliate"~~affiliates" on the Balance Sheets. The interest rates on the outstanding ~~borrowing~~borrowings at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016~~2017 were ~~2.73%~~3.50% and ~~2.12%~~2.87%.

LKE maintains an agreement with a PPL affiliate that has a $300 million borrowing limit whereby LKE can loan funds on a short-term basis at market based rates. No balance was outstanding at June 30, 2018 and December 31, 2017. The interest rate on the loan is based on the PPL affiliates credit rating and equal to one-month LIBOR plus a spread.

LKE maintains a $400 million ten-year note with a PPL affiliate with an interest rate of 3.5%. At ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, the note was reflected in "Long-term debt to affiliate" on the Balance Sheets. Interest expense on this note was $3 million and $7 million for the three and six months ending June 30, 2018 and 2017.

~~(LG&E)~~

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~~LG&E participates~~In May 2018, LKE borrowed $250 million from a PPL affiliate through the issuance of a 4% ten-year note due 2028 with interest due in ~~an intercompany money pool agreement whereby LKE and/or KU make available to LG&E funds up to~~ ~~$500 million~~ ~~at an interest rate based on a market index of commercial paper issues.~~May and November. At ~~September~~June 30, ~~2017,~~ ~~$10 million~~ ~~was outstanding and~~2018, the note was reflected in ~~"Notes payable with~~"Long-term debt to affiliate" on the Balance ~~Sheet. No balances~~Sheets. The proceeds were used to repay its outstanding ~~at December 31, 2016. The interest rate on the outstanding borrowings at September 30, 2017 was~~ ~~1.46%~~.notes payable with a PPL Energy Funding subsidiary. Interest expense ~~incurred~~ on ~~the money pool agreement with KU~~this note was ~~not significant~~$2 million for the three and ~~nine~~six months ~~ended September~~ending June 30, ~~2017.~~

~~(KU)~~

KU participates in an intercompany money pool agreement whereby LKE and/or LG&E make available to KU funds up to $500 million at an interest rate based on a market index of commercial paper issues. At September 30, 2017, KU had no payable balance outstanding, but had a $10 million receivable balance outstanding, which was reflected in "Notes receivable from affiliate" on the Balance Sheet. No balances were outstanding at December 31, 2016. The interest rate on the outstanding receivable at September, 30, 2017 was 1.46%. Interest income incurred on the money pool agreement with LG&E was not significant for the three and nine months ended September 30, 2017.2018.

Other (PPL Electric, LG&E and KU)

See Note 89 for discussions regarding intercompany allocations associated with defined benefits.

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

(PPL)

~~"Other~~The details of "Other Income (Expense) - net" for the ~~three and nine months~~periods ended ~~September~~June 30, ~~2017 and 2016 consisted primarily~~were:



	Three Months					Six Months
	2018		2017			2018		2017
Other Income
Economic foreign currency exchange contracts (Note 14)	$	164	$	(113	)	$	52	$	(156	)
Defined benefit plans - non-service credits (Note 9)	66		44			134		82
Interest income	2		—			2		1
AFUDC - equity component	5		4			10		6
Miscellaneous	—		—			1		9
Total Other Income	237		(65		)	199		(58		)
Other Expense
Charitable contributions	1		1			5		5
Miscellaneous	2		2			3		14
Total Other Expense	3		3			8		19
Other Income (Expense) - net	$	234	$	(68	)	$	191	$	(77	)

(PPL Electric)

The details of ~~gains (losses) on foreign currency contracts to economically hedge PPL's translation risk related to its GBP denominated earnings in~~"Other Income (Expense) - net" for the ~~U.K. See Note 13 for additional information on these derivatives.~~periods ended June 30, were:



	Three Months				Six Months
	2018		2017		2018		2017
Other Income
AFUDC - equity component	$	5	$	4	$	10	$	6
Defined benefit plans - non-service credits (Note 9)	1		1		3		—
Miscellaneous	1		—		1		—
Total Other Income	7		5		14		6
Other Expense
Charitable contributions	—		—		1		1
Miscellaneous	—		1		—		1
Total Other Expense	—		1		1		2
Other Income (Expense) - net	$	7	$	4	$	13	$	4

~~12.~~13. Fair Value Measurements

(All Registrants)

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). A market approach (generally, data from market transactions), an income approach (generally, present value techniques and option-pricing models) and/or a cost approach (generally, replacement cost) are used to measure the fair value of an asset or liability, as appropriate. These valuation approaches incorporate inputs such as observable, independent market data and/or unobservable data that management believes are

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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 ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, there were no transfers between Level 1 and Level 2. See Note 1 in each Registrant's ~~2016~~2017 Form 10-K for information on the levels in the fair value hierarchy.

Recurring Fair Value Measurements

The assets and liabilities measured at fair value were:

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	September 30, 2017								December 31, 2016								June 30, 2018								December 31, 2017
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
PPL
Assets
Cash and cash equivalents	$	676	$	676	$	—	$	—	$	341	$	341	$	—	$	—	$	852	$	852	$	—	$	—	$	485	$	485	$	—	$	—
Restricted cash and cash equivalents (a)	24		24		—		—		26		26		—		—		23		23		—		—		26		26		—		—
Special use funds (a)																	65		65		—		—		—		—		—		—
Price risk management assets (b):
Foreign currency contracts	164		—		164		—		211		—		211		—		163		—		163		—		163		—		163		—
Cross-currency swaps	160		—		160		—		188		—		188		—		100		—		100		—		101		—		101		—
Total price risk management assets	324		—		324		—		399		—		399		—		263		—		263		—		264		—		264		—
Total assets	$	1,024	$	700	$	324	$	—	$	766	$	367	$	399	$	—	$	1,203	$	940	$	263	$	—	$	775	$	511	$	264	$	—

Liabilities
Price risk management liabilities (b):
Interest rate swaps	$	31	$	—	$	31	$	—	$	31	$	—	$	31	$	—	$	21	$	—	$	21	$	—	$	26	$	—	$	26	$	—
Foreign currency contracts	167		—		167		—		27		—		27		—		53		—		53		—		148		—		148		—
Total price risk management liabilities	$	198	$	—	$	198	$	—	$	58	$	—	$	58	$	—	$	74	$	—	$	74	$	—	$	174	$	—	$	174	$	—

PPL Electric
Assets
Cash and cash equivalents	$	243	$	243	$	—	$	—	$	13	$	13	$	—	$	—	$	489	$	489	$	—	$	—	$	49	$	49	$	—	$	—
Restricted cash and cash equivalents (a)	2		2		—		—		2		2		—		—		2		2		—		—		2		2		—		—
Total assets	$	245	$	245	$	—	$	—	$	15	$	15	$	—	$	—	$	491	$	491	$	—	$	—	$	51	$	51	$	—	$	—

LKE
Assets
Cash and cash equivalents	$	40	$	40	$	—	$	—	$	13	$	13	$	—	$	—	$	39	$	39	$	—	$	—	$	30	$	30	$	—	$	—
Cash collateral posted to counterparties (c)	1		1		—		—		3		3		—		—
Total assets	$	41	$	41	$	—	$	—	$	16	$	16	$	—	$	—	$	39	$	39	$	—	$	—	$	30	$	30	$	—	$	—

Liabilities
Price risk management liabilities:
Interest rate swaps	$	29	$	—	$	29	$	—	$	31	$	—	$	31	$	—	$	21	$	—	$	21	$	—	$	26	$	—	$	26	$	—
Total price risk management liabilities	$	29	$	—	$	29	$	—	$	31	$	—	$	31	$	—	$	21	$	—	$	21	$	—	$	26	$	—	$	26	$	—

LG&E
Assets
Cash and cash equivalents	$	9	$	9	$	—	$	—	$	5	$	5	$	—	$	—	$	19	$	19	$	—	$	—	$	15	$	15	$	—	$	—
Cash collateral posted to counterparties (c)	1		1		—		—		3		3		—		—
Total assets	$	10	$	10	$	—	$	—	$	8	$	8	$	—	$	—	$	19	$	19	$	—	$	—	$	15	$	15	$	—	$	—

Liabilities
Price risk management liabilities:
Interest rate swaps	$	29	$	—	$	29	$	—	$	31	$	—	$	31	$	—
Total price risk management liabilities	$	29	$	—	$	29	$	—	$	31	$	—	$	31	$	—

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	September 30, 2017								December 31, 2016								June 30, 2018								December 31, 2017
																	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Liabilities
Price risk management liabilities:
Interest rate swaps																	$	21	$	—	$	21	$	—	$	26	$	—	$	26	$	—
Total price risk management liabilities																	$	21	$	—	$	21	$	—	$	26	$	—	$	26	$	—
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
KU
Assets
Cash and cash equivalents	$	31	$	31	$	—	$	—	$	7	$	7	$	—	$	—	$	20	$	20	$	—	$	—	$	15	$	15	$	—	$	—
Total assets	$	31	$	31	$	—	$	—	$	7	$	7	$	—	$	—	$	20	$	20	$	—	$	—	$	15	$	15	$	—	$	—


(a)	Current portion is included in "Other current assets" and long-term portion is included in "Other noncurrent assets" on the Balance Sheets.


(b)	Current portion is included in "Price risk management assets" and "Other current liabilities" and noncurrent portion is included in "Price risk management assets" and "Other deferred credits and noncurrent liabilities" on the Balance Sheets.


~~(c)~~	Included in "Other noncurrent assets" on the Balance Sheets. Represents cash collateral posted to offset the exposure with counterparties related to certain interest rate swaps under master netting arrangements that are not offset.

Special Use Funds

(PPL)

The special use funds are investments restricted for paying active union employee medical costs. In May 2018, PPL received a favorable private letter ruling from the IRS permitting a transfer of excess funds from the PPL Bargaining Unit Retiree Health Plan VEBA to a new subaccount within the VEBA to be used to pay for medical claims of active bargaining unit employees. The funds are invested primarily in money market funds.

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.

Financial Instruments Not Recorded at Fair Value (All Registrants)

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.


	September 30, 2017				December 31, 2016				June 30, 2018				December 31, 2017
	Carrying Amount (a)		Fair Value		Carrying Amount (a)		Fair Value		Carrying Amount (a)		Fair Value		Carrying Amount (a)		Fair Value
PPL	$	19,558	$	23,357	$	18,326	$	21,355	$	20,420	$	23,448	$	20,195	$	23,783
PPL Electric	3,298		3,724		2,831		3,148		3,693		3,950		3,298		3,769
LKE	5,068		5,592		5,065		5,439		5,510		5,801		5,159		5,670
LG&E	1,619		1,768		1,617		1,710		1,808		1,884		1,709		1,865
KU	2,328		2,602		2,327		2,514		2,329		2,480		2,328		2,605


(a)	Amounts are net of debt issuance costs.

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The carrying amounts of other current financial instruments (except for long-term debt due within one year) approximate their fair values because of their short-term nature.

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

Risk Management Objectives

(All Registrants)

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

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chaired by the 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

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 these 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.

Interest Rate Risk

PPL and its subsidiaries are exposed to interest rate risk associated with forecasted fixed-rate and existing floating-rate debt issuances. PPL and WPD hold over-the-counter cross currency swaps to limit exposure to market fluctuations on interest and principal payments from changes in foreign currency exchange rates and interest rates. PPL, LKE and LG&E utilize over-the-counter interest rate swaps to limit exposure to market fluctuations on floating-rate debt. PPL, LKE, LG&E and KU utilize forward starting interest rate swaps to hedge changes in benchmark interest rates, when appropriate, in connection with future debt issuances.

PPL and its subsidiaries are exposed to interest rate risk associated with debt securities and derivatives held by defined benefit plans. This risk is significantly mitigated to the extent that the plans are sponsored at, or sponsored on behalf of, the regulated domestic utilities and for certain plans at WPD due to the recovery methods in place.

Foreign Currency Risk (PPL)

PPL is exposed to foreign currency exchange risk primarily associated with its investments in and earnings of U.K. affiliates.

(All Registrants)

Commodity Price Risk

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

PPL Electric is ~~exposed~~required to purchase electricity to fulfill its obligation as a PLR. Potential commodity price risk ~~from its obligation as PLR; however,~~is mitigated through its PUC-approved cost recovery mechanism ~~substantially eliminates its exposure to this risk. PPL Electric also mitigates its exposure to commodity price risk by entering into~~and full-requirement supply agreements to serve its PLR ~~customers. These supply agreements~~customers which transfer the ~~commodity price~~ risk ~~associated with the PLR obligation~~ to ~~the~~ energy suppliers.

LG&E's and KU's rates include certain mechanisms for fuel, fuel-related expenses and ~~fuel-related expenses.~~energy purchases. In addition, LG&E's rates include a mechanism for natural gas supply expenses. These mechanisms generally provide for timely recovery of market price fluctuations associated with these expenses.

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Volumetric Risk

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

WPD is exposed to volumetric risk which is significantly mitigated as a result of the method of regulation in the U.K. Under the RIIO-ED1 price control ~~period,~~regulations, recovery of such exposure occurs on a two year lag. See Note 1 in PPL's ~~2016~~2017 Form 10-K for additional information on revenue recognition under RIIO-ED1.

PPL Electric, LG&E and KU are exposed to volumetric risk on retail sales, mainly due to weather and other economic conditions for which there is limited mitigation between rate cases.

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Equity Securities Price Risk

PPL and its subsidiaries are exposed to equity securities price risk associated with the fair value of the defined benefit plans' assets. This risk is significantly mitigated at the regulated domestic utilities and for certain plans at WPD due to the recovery methods in place.

PPL is exposed to equity securities price risk from future stock sales and/or purchases.

Credit Risk

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

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

In the event a supplier of PPL Electric, LG&E or KU defaults on its obligation, those Registrants 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, thereby 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.

Master Netting Arrangements (PPL, LKE, LG&E and ~~LG&E)~~KU)

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 a ~~$17~~$28 million obligation to return cash collateral under master netting arrangements at ~~September~~June 30, ~~2017~~2018 and a ~~$19~~$20 million obligation to return cash collateral under master netting arrangements at December 31, ~~2016.~~2017.

PPL had no obligation to post cash collateral under master netting arrangements at June 30, 2018 and December 31, 2017.

LKE, LG&E and ~~LG&E~~KU had no obligation to return cash collateral under master netting arrangements at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016.~~2017.

~~PPL,~~ LKE, ~~and~~ LG&E ~~posted $1 million~~ and ~~$3 million of~~KU had no cash collateral posted under master netting arrangements at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016.~~2017.

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.

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Interest Rate Risk

(All Registrants)

PPL and its subsidiaries issue debt to finance their operations, which exposes them to interest rate risk. A variety of financial derivative instruments are utilized to adjust the mix of fixed and floating interest rates in their debt ~~portfolio,~~portfolios, adjust the duration of the debt ~~portfolio~~portfolios 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.

Cash Flow Hedges (PPL)

Interest rate risks include exposure to adverse interest rate movements for outstanding variable rate debt and for future anticipated financings. Financial interest rate swap contracts that qualify as cash flow hedges may be entered into to hedge floating interest rate risk associated with both existing and anticipated debt issuances. ~~At September 30, 2017,~~ PPL held an

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no such contracts at June 30, 2018.

aggregate notional value in interest rate swap contracts of £188 million (approximately $242 million based on spot rates) that mature in 2027 to hedge the interest payments of anticipated WPD debt issuances. These swaps require a mandatory early redemption on or before November 30, 2017.

For the three and ~~nine~~six months ended ~~September~~June 30, 2018 and 2017, PPL had no hedge ineffectiveness associated with interest rate derivatives. For the three months ended September 30, 2016, PPL had no hedge ineffectiveness associated with interest rate derivatives and for the nine months ended September 30, 2016, PPL had an insignificant amount of hedge ineffectiveness associated with interest rate derivatives.

At ~~September~~June 30, ~~2017,~~2018, PPL held an aggregate notional value in cross-currency interest rate swap contracts of ~~$802~~$702 million that range in maturity from ~~2017~~2021 through 2028 to hedge the interest payments and principal of WPD's U.S. dollar-denominated senior notes.

For the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, PPL had no hedge ineffectiveness associated with cross-currency interest rate swap derivatives.

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 and ~~nine~~six months ended ~~September~~June 30, 2018, PPL had no cash flow hedges reclassified into earnings associated with discontinued cash flow hedges. For the three and six months ended June 30, 2017, PPL had an insignificant amount of cash flow hedges reclassified into earnings associated with discontinued cash flow hedges. ~~For the three and nine months ended September 30, 2016, PPL had no cash flow hedges reclassified into earnings associated with discontinued cash flow hedges.~~

At ~~September~~June 30, ~~2017,~~2018, the amount of accumulated net unrecognized after-tax gains (losses) on qualifying derivatives expected to be reclassified into earnings during the next 12 months 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 terminated swap contracts, 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 ~~September~~June 30, ~~2017,~~2018, LG&E held contracts with a notional amount of $147 million that range in maturity through 2033.

Foreign Currency Risk

(PPL)

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

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Net Investment Hedges

PPL enters into foreign currency contracts on behalf of a subsidiary to protect the value of a portion of its net investment in WPD. ~~The~~There were no contracts outstanding at ~~September~~June 30, ~~2017 had a notional amount of £92 million (approximately $125 million based on contracted rates). These contracts mature in December 2017.~~2018.

At ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, PPL had ~~$22~~$30 million and ~~$21~~$22 million of accumulated net investment hedge after tax gains (losses) that were included in the foreign currency translation adjustment component of AOCI.

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Economic Activity

PPL enters into foreign currency contracts on behalf of a subsidiary to economically hedge GBP-denominated anticipated earnings. At ~~September~~June 30, ~~2017,~~2018, the total exposure hedged by PPL was approximately ~~£2.7~~£2.0 billion (approximately ~~$3.7~~$2.8 billion based on contracted rates). These contracts ~~had~~have termination dates ranging from ~~October 2017~~July 2018 through ~~April~~October 2020.

Accounting and Reporting

(All Registrants)

All derivative instruments are recorded at fair value on the Balance Sheet as an asset or liability unless NPNS is elected. NPNS contracts for PPL and PPL 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 interest rate swaps that are recognized as regulatory assets or regulatory liabilities. See Note 67 for amounts recorded in regulatory assets and regulatory liabilities at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016.~~2017.

See Note 1 in each Registrant's ~~2016~~2017 Form 10-K for additional information on accounting policies related to derivative instruments.

(PPL)

The following table presents the fair value and location of derivative instruments recorded on the Balance Sheets.


	September 30, 2017								December 31, 2016								June 30, 2018								December 31, 2017
	Derivatives designated as hedging instruments				Derivatives not designated as hedging instruments				Derivatives designated as hedging instruments				Derivatives not designated as hedging instruments				Derivatives designated as hedging instruments				Derivatives not designated as hedging instruments				Derivatives designated as hedging instruments				Derivatives not designated as hedging instruments
	Assets		Liabilities		Assets		Liabilities		Assets		Liabilities		Assets		Liabilities		Assets		Liabilities		Assets		Liabilities		Assets		Liabilities		Assets		Liabilities
Current:
Price Risk Management
Assets/Liabilities (a):
Interest rate swaps (b)	$	—	$	2	$	—	$	5	$	—	$	—	$	—	$	4	$	—	$	—	$	—	$	4	$	—	$	—	$	—	$	4
Cross-currency swaps (b)	28		—		—		—		32		—		—		—		5		—		—		—		4		—		—		—
Foreign currency contracts	1		—		28		86		—		—		31		21		—		—		73		31		—		—		45		67
Total current	29		2		28		91		32		—		31		25		5		—		73		35		4		—		45		71
Noncurrent:
Price Risk Management
Assets/Liabilities (a):
Interest rate swaps (b)	—		—		—		24		—		—		—		27		—		—		—		17		—		—		—		22
Cross-currency swaps (b)	132		—		—		—		156		—		—		—		95		—		—		—		97		—		—		—
Foreign currency contracts	—		—		135		81		—		—		180		6		—		—		90		22		—		—		118		81
Total noncurrent	132		—		135		105		156		—		180		33		95		—		90		39		97		—		118		103
Total derivatives	$	161	$	2	$	163	$	196	$	188	$	—	$	211	$	58	$	100	$	—	$	163	$	74	$	101	$	—	$	163	$	174


(a)	Current portion is included in "Price risk management assets" and "Other current liabilities" and noncurrent portion is included in "Price risk management assets" and "Other deferred credits and noncurrent liabilities" on the Balance Sheets.


(b)	Excludes accrued interest, if applicable.

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

~~Table of Contents~~

2018.


							Three Months						Nine Months																	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)				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)
Derivative Relationships	Three Months		Nine Months									Three Months								Six Months									Location of Gain (Loss) Recognized in Income on Derivative
Cash Flow Hedges:						Location of Gain (Loss) Recognized in Income on Derivative
Interest rate swaps	$	—	$	(2	)	Interest expense	$	(2	)	$	—				$	(6	)		$	(1	)		$	—			$	—		Interest expense		$	(2	)		$	—			$	(4	)		$	—
Cross-currency swaps	1		(34		)	Interest expense	1			—			1				—				23				(1		)		Other income (expense) - net	24				—				12				—
						Other income (expense) - net	2			—			(24		)		—
Total	$	1	$	(36	)		$	1		$	—		$	(29	)		$	(1	)		$	23			$	(1	)			$	22			$	—			$	8			$	—
Net Investment Hedges:
Foreign currency contracts	$	1	$	1																	$	12			$	11


Derivatives Not Designated as	Location of Gain (Loss) Recognized in							Location of Gain (Loss) Recognized in
Hedging Instruments	Income on Derivative	Three Months			Nine Months			Income on Derivative	Three Months			Six Months
Foreign currency contracts	Other income (expense) - net	$	(81	)	$	(237	)	Other income (expense) - net	$	164		$	52
Interest rate swaps	Interest expense	(1		)	(4		)	Interest expense	(2		)	(3		)
	Total	$	(82	)	$	(241	)	Total	$	162		$	49
Derivatives Not Designated as	Location of Gain (Loss) Recognized as							Location of Gain (Loss) Recognized as
Hedging Instruments	Regulatory Liabilities/Assets	Three Months			Nine Months			Regulatory Liabilities/Assets	Three Months			Six Months
Interest rate swaps	Regulatory assets - noncurrent	$	1		$	2		Regulatory assets - noncurrent	$	1		$	5


							Three Months						Nine Months																	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)				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)
Derivative Relationships	Three Months		Nine Months									Three Months								Six Months									Location of Gain (Loss) Recognized in Income on Derivative
Cash Flow Hedges:						Location of Gain (Loss) Recognized in Income on Derivative
Interest rate swaps	$	—	$	(21	)	Interest expense	$	(2	)	$	—				$	(5	)		$	—			$	(2	)		$	(2	)	Interest expense		$	(2	)		$	—			$	(4	)		$	(1	)
Cross-currency swaps	78		87			Interest expense	2			—			2				—				(27		)		(35		)		Interest expense	(1		)		—				—				—
						Other income (expense) - net	86			—			80				—												Other income (expense) - net	(29		)		—				(26		)		—
Total	$	78	$	66			$	86		$	—		$	77			$	—			$	(29	)		$	(37	)			$	(32	)		$	—			$	(30	)		$	(1	)
Net Investment Hedges:
Foreign currency contracts	$	—	$	4																	$	—			$	—

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Derivatives Not Designated as	Location of Gain (Loss) Recognized in							Location of Gain (Loss) Recognized in
Hedging Instruments	Income on Derivative	Three Months			Nine Months			Income on Derivative	Three Months			Six Months
Foreign currency contracts	Other income (expense) - net	$	49		$	280		Other income (expense) - net	$	(113	)	$	(156	)
Interest rate swaps	Interest expense	(2		)	(6		)	Interest expense	(1		)	(3		)
	Total	$	47		$	274		Total	$	(114	)	$	(159	)
Derivatives Not Designated as	Location of Gain (Loss) Recognized as							Location of Gain (Loss) Recognized as
Hedging Instruments	Regulatory Liabilities/Assets	Three Months			Nine Months			Regulatory Liabilities/Assets	Three Months			Six Months
Interest rate swaps	Regulatory assets - noncurrent	$	2		$	(7	)	Regulatory assets - noncurrent	$	(1	)	$	1

(LKE and LG&E)

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


	September 30, 2017				December 31, 2016				June 30, 2018				December 31, 2017
	Assets		Liabilities		Assets		Liabilities		Assets		Liabilities		Assets		Liabilities
Current:
Price Risk Management
Assets/Liabilities:
Interest rate swaps	$	—	$	5	$	—	$	4	$	—	$	4	$	—	$	4
Total current	—		5		—		4		—		4		—		4
Noncurrent:
Price Risk Management
Assets/Liabilities:
Interest rate swaps	—		24		—		27		—		17		—		22
Total noncurrent	—		24		—		27		—		17		—		22
Total derivatives	$	—	$	29	$	—	$	31	$	—	$	21	$	—	$	26

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 ~~September~~June 30, ~~2017.~~2018.


	Location of Gain (Loss) Recognized in							Location of Gain (Loss) Recognized in
Derivative Instruments	Income on Derivatives	Three Months			Nine Months			Income on Derivatives	Three Months			Six Months
Interest rate swaps	Interest expense	$	(1	)	$	(4	)	Interest expense	$	(2	)	$	(3	)
	Location of Gain (Loss) Recognized in							Location of Gain (Loss) Recognized in
Derivative Instruments	Regulatory Assets	Three Months			Nine Months			Regulatory Assets	Three Months			Six Months
Interest rate swaps	Regulatory assets - noncurrent	$	1		$	2		Regulatory assets - noncurrent	$	1		$	5


	Location of Gain (Loss) Recognized in							Location of Gain (Loss) Recognized in
Derivative Instruments	Income on Derivatives	Three Months			Nine Months			Income on Derivatives	Three Months			Six Months
Interest rate swaps	Interest expense	$	(2	)	$	(6	)	Interest expense	$	(1	)	$	(3	)
	Location of Gain (Loss) Recognized in							Location of Gain (Loss) Recognized in
Derivative Instruments	Regulatory Assets	Three Months			Nine Months			Regulatory Assets	Three Months			Six Months
Interest rate swaps	Regulatory assets - noncurrent	$	2		$	(7	)	Regulatory assets - noncurrent	$	(1	)	$	1

~~Table of Contents~~

(PPL, LKE, LG&E and KU)

Offsetting Derivative Instruments

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

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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.


	Assets								Liabilities								Assets								Liabilities
			Eligible for Offset								Eligible for Offset								Eligible for Offset								Eligible for Offset
	Gross		Derivative Instruments		Cash Collateral Received		Net		Gross		Derivative Instruments		Cash Collateral Pledged		Net		Gross		Derivative Instruments		Cash Collateral Received		Net		Gross		Derivative Instruments		Cash Collateral Pledged		Net
September 30, 2017
June 30, 2018
Treasury Derivatives
PPL	$	324	$	138	$	17	$	169	$	198	$	138	$	1	$	59	$	263	$	43	$	28	$	192	$	74	$	43	$	—	$	31
LKE	—		—		—		—		29		—		1		28		—		—		—		—		21		—		—		21
LG&E	—		—		—		—		29		—		1		28		—		—		—		—		21		—		—		21


December 31, 2016
December 31, 2017
Treasury Derivatives
PPL	$	399	$	27	$	19	$	353	$	58	$	27	$	3	$	28	$	264	$	107	$	20	$	137	$	174	$	107	$	—	$	67
LKE	—		—		—		—		31		—		3		28		—		—		—		—		26		—		—		26
LG&E	—		—		—		—		31		—		3		28		—		—		—		—		26		—		—		26

Credit Risk-Related Contingent Features

Certain derivative contracts contain credit risk-related contingent features which, when in a net liability position, would permit the counterparties to require the transfer of additional collateral upon a decrease in the credit ratings of PPL, LKE, LG&E and KU or certain of their subsidiaries. Most of these features would require the transfer of additional collateral or permit the counterparty to terminate the contract if the applicable credit rating were to fall below investment grade. Some of these features also would allow the counterparty to require additional collateral upon each downgrade in credit rating at levels that remain above investment grade. In either case, if the applicable credit rating were to fall below investment grade, and assuming no assignment to an investment grade affiliate were allowed, most of these credit contingent features require either immediate payment of the net liability as a termination payment or immediate and ongoing full collateralization on derivative instruments in net liability positions.

Additionally, certain derivative contracts contain credit risk-related contingent features that require adequate assurance of performance be provided if the other party has reasonable concerns regarding the performance of PPL's, 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.

(PPL, LKE and LG&E)

At ~~September~~June 30, ~~2017,~~2018, 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:

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	PPL		LKE		LG&E		PPL		LKE		LG&E
Aggregate fair value of derivative instruments in a net liability position with credit risk-related contingent features	$	43	$	11	$	11	$	17	$	7	$	7
Aggregate fair value of collateral posted on these derivative instruments	1		1		1		—		—		—
Aggregate fair value of additional collateral requirements in the event of a credit downgrade below investment grade (a)	42		10		10		17		7		7


(a)	Includes the effect of net receivables and payables already recorded on the Balance Sheet.

~~14. Goodwill and Other Intangible Assets~~

~~(PPL)~~

~~The change in the carrying amount of goodwill for the nine months ended September 30, 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 nine months ended September 30, 2017 was primarily due to 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 estimated liability for claims not yet settled.

15. Asset Retirement Obligations

(PPL, LKE, LG&E and KU)

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

PPL LKE LG&E KU
Balance at December 31, 2016 $ 488
$ 433
$ 145
$ 288
Accretion 16
15
5
10
Effect of foreign exchange rates 2
—
—
—
Changes in estimated timing or cost (70 ) (63 ) (12 ) (51 )
Obligations settled (30 ) (30 ) (20 ) (10 )
Balance at September 30, 2017 $ 406
$ 355
$ 118
$ 237

PPL's, LKE's, LG&E's and KU's ARO liabilities are primarily related to CCR closure costs. See Note 910 for information on the ~~final~~ CCR rule. For LKE, LG&E and KU, all ARO accretion and depreciation expenses are reclassified as a regulatory asset. ARO regulatory assets associated with ~~approved ECR~~certain CCR projects ~~for CCRs~~ are amortized to expense ~~over a period of 10 to 25 years based on retirement expenditures made related to the obligation.~~in accordance with regulatory approvals. For other AROs, at the time of retirement, the related ARO regulatory asset is offset against the associated cost of removal regulatory liability, PP&E and ARO liability.

LKE recorded decreases of $66 million ($56 million at KU and $10 million at LG&E) to the existing AROs during the nine months ended September 30, 2017 related to the closure of CCR impoundments. These revisions are the result ofThe changes in ~~closure plans related to expected costs and timing~~the carrying amounts of ~~closures. Further changes to~~ AROs ~~capital plans or operating costs may be required~~were as ~~estimates of future cash flows are refined based on closure developments and regulatory or legal proceedings.~~follows.



	PPL			LKE			LG&E			KU
Balance at December 31, 2017	$	397		$	356		$	121		$	235
Accretion	10			9			3			6
Effect of foreign exchange rates	(1		)	—			—			—
Changes in estimated timing or cost	1			(7		)	(2		)	(5		)
Obligations settled	(26		)	(26		)	(10		)	(16		)
Balance at June 30, 2018	$	381		$	332		$	112		$	220

~~Table of Contents~~

16. Accumulated Other Comprehensive Income (Loss)

(PPL and LKE)

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


	Foreign currency translation adjustments			Unrealized gains (losses) on qualifying derivatives								Defined benefit plans											Foreign currency translation adjustments				Unrealized gains (losses) on qualifying derivatives					Defined benefit plans
	Foreign currency translation adjustments						Equity investees' AOCI				Prior service costs				Actuarial gain (loss)				Total							Equity investees' AOCI				Prior service costs		Actuarial gain (loss)			Total
PPL				Unrealized gains (losses) on qualifying derivatives																							Unrealized gains (losses) on qualifying derivatives
June 30, 2017	$	(1,420	)	$	(13	)		$	—			$	(7	)		$	(2,083	)		$	(3,523	)	Foreign currency translation adjustments
March 31, 2018																							$	(973	)		$	(21	)	$	—	$	(7	)	$	(2,278	)	$	(3,279	)
Amounts arising during the period	(12		)	1				—				—				(3		)		(14		)	(250		)		19			—		(1		)	—			(232		)
Reclassifications from AOCI	—			—				—				—				34				34			—				(19		)	—		1			34			16
Net OCI during the period	(12		)	1				—				—				31				20			(250		)		—			—		—			34			(216		)
September 30, 2017	$	(1,432	)	$	(12	)		$	—			$	(7	)		$	(2,052	)		$	(3,503	)

December 31, 2016	$	(1,627	)	$	(7	)		$	(1	)		$	(8	)		$	(2,135	)		$	(3,778	)
Amounts arising during the period	195			(29		)		—				—				(14		)		152
Reclassifications from AOCI	—			24				1				1				97				123
Net OCI during the period	195			(5		)		1				1				83				275
September 30, 2017	$	(1,432	)	$	(12	)		$	—			$	(7	)		$	(2,052	)		$	(3,503	)

June 30, 2016	$	(716	)	$	(5	)		$	(1	)		$	(5	)		$	(2,130	)		$	(2,857	)
Amounts arising during the period	(641		)	62				—				—				(6		)		(585		)
Reclassifications from AOCI	—			(69		)		—				—				31				(38		)
Net OCI during the period	(641		)	(7		)		—				—				25				(623		)
September 30, 2016	$	(1,357	)	$	(12	)		$	(1	)		$	(5	)		$	(2,105	)		$	(3,480	)

December 31, 2015	$	(520	)	$	(7	)		$	—			$	(6	)		$	(2,195	)		$	(2,728	)
Amounts arising during the period	(837		)	57				—				—				(4		)		(784		)
Reclassifications from AOCI	—			(62		)		(1		)		1				94				32
Net OCI during the period	(837		)	(5		)		(1		)		1				90				(752		)
September 30, 2016	$	(1,357	)	$	(12	)		$	(1	)		$	(5	)		$	(2,105	)		$	(3,480	)

LKE
June 30, 2017								$	—			$	(7	)		$	(70	)		$	(77	)
Amounts arising during the period								—				—				(1		)		(1		)
Reclassifications from AOCI								—				—				1				1
Net OCI during the period								—				—				—				—
September 30, 2017								$	—			$	(7	)		$	(70	)		$	(77	)

December 31, 2016								$	(1	)		$	(8	)		$	(61	)		$	(70	)
Amounts arising during the period								—				—				(12		)		(12		)
Reclassifications from AOCI								1				1				3				5
Net OCI during the period								1				1				(9		)		(7		)
September 30, 2017								$	—			$	(7	)		$	(70	)		$	(77	)

June 30, 2016								$	(1	)		$	(9	)		$	(33	)		$	(43	)
Reclassifications from AOCI								—				—				1				1
Net OCI during the period								—				—				1				1
September 30, 2016								$	(1	)		$	(9	)		$	(32	)		$	(42	)

June 30, 2018																							$	(1,223	)		$	(21	)	$	—	$	(7	)	$	(2,244	)	$	(3,495	)

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	Foreign currency translation adjustments	Unrealized gains (losses) on qualifying derivatives						Defined benefit plans											Foreign currency translation adjustments				Unrealized gains (losses) on qualifying derivatives						Defined benefit plans
	Foreign currency translation adjustments		Equity investees' AOCI				Prior service costs				Actuarial gain (loss)				Total							Equity investees' AOCI				Prior service costs			Actuarial gain (loss)			Total
December 31, 2015		Unrealized gains (losses) on qualifying derivatives			$	—			$	(10	)		$	(36	)		$	(46	Foreign currency translation adjustments	)
																							Unrealized gains (losses) on qualifying derivatives
December 31, 2017																			$	(1,089	)		$	(13	)	$	—		$	(7	)	$	(2,313	)	$	(3,422	)
Amounts arising during the period				—				—				1				1			(134		)		(1		)	—			(1		)	(1		)	(137		)
Reclassifications from AOCI				(1		)		1				3				3			—				(7		)	—			1			70			64
Net OCI during the period				(1		)		1				4				4			(134		)		(8		)	—			—			69			(73		)
September 30, 2016				$	(1	)		$	(9	)		$	(32	)		$	(42	)
June 30, 2018																			$	(1,223	)		$	(21	)	$	—		$	(7	)	$	(2,244	)	$	(3,495	)

March 31, 2017																			$	(1,651	)		$	(14	)	$	(1	)	$	(8	)	$	(2,103	)	$	(3,777	)
Amounts arising during the period																			231				(24		)	—			—			(11		)	196
Reclassifications from AOCI																			—				25			1			1			31			58
Net OCI during the period																			231				1			1			1			20			254
June 30, 2017																			$	(1,420	)		$	(13	)	$	—		$	(7	)	$	(2,083	)	$	(3,523	)

December 31, 2016																			$	(1,627	)		$	(7	)	$	(1	)	$	(8	)	$	(2,135	)	$	(3,778	)
Amounts arising during the period																			207				(30		)	—			—			(11		)	166
Reclassifications from AOCI																			—				24			1			1			63			89
Net OCI during the period																			207				(6		)	1			1			52			255
June 30, 2017																			$	(1,420	)		$	(13	)	$	—		$	(7	)	$	(2,083	)	$	(3,523	)

LKE
March 31, 2018																										$	—		$	(9	)	$	(78	)	$	(87	)
Amounts arising during the period																										—			—			1			1
Reclassifications from AOCI																										—			1			(1		)	—
Net OCI during the period																										—			1			—			1
June 30, 2018																										$	—		$	(8	)	$	(78	)	$	(86	)

December 31, 2017																										$	—		$	(9	)	$	(79	)	$	(88	)
Reclassifications from AOCI																										—			1			1			2
Net OCI during the period																										—			1			1			2
June 30, 2018																										$	—		$	(8	)	$	(78	)	$	(86	)

March 31, 2017																										$	—		$	(8	)	$	(60	)	$	(68	)
Amounts arising during the period																										—			—			(11		)	(11		)
Reclassifications from AOCI																										—			1			1			2
Net OCI during the period																										—			1			(10		)	(9		)
June 30, 2017																										$	—		$	(7	)	$	(70	)	$	(77	)

December 31, 2016																										$	(1	)	$	(8	)	$	(61	)	$	(70	)
Amounts arising during the period																										—			—			(11		)	(11		)
Reclassifications from AOCI																										1			1			2			4
Net OCI during the period																										1			1			(9		)	(7		)
June 30, 2017																										$	—		$	(7	)	$	(70	)	$	(77	)

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(PPL)

The following table presents ~~the~~PPL's gains (losses) and related income taxes for reclassifications from AOCI for the periods ended ~~September~~June 30. The defined benefit plan components of AOCI are not reflected in their entirety in the Statement of Income during the periods; rather, they are included in the computation of net periodic defined benefit costs (credits) and subject to capitalization. See Note 8 for additional information.



	Three Months						Nine Months						Affected Line Item on the	Three Months						Six Months						Affected Line Item on the
Details about AOCI	2017			2016			2017			2016			Statements of Income	2018			2017			2018			2017			Statements of Income
Qualifying derivatives
Interest rate swaps	$	(2	)	$	(2	)	$	(7	)	$	(5	)	Interest Expense	$	(2	)	$	(2	)	$	(4	)	$	(5	)	Interest Expense
Cross-currency swaps	2			86			(24		)	80			Other Income (Expense) - net	24			(29		)	12			(26		)	Other Income (Expense) - net
	1			2			1			2			Interest Expense	—			(1		)	—			—			Interest Expense
Total Pre-tax	1			86			(30		)	77				22			(32		)	8			(31		)
Income Taxes	(1		)	(17		)	6			(15		)		(3		)	7			(1		)	7
Total After-tax	—			69			(24		)	62				19			(25		)	7			(24		)

Equity investees' AOCI	—			—			(1		)	1			Other Income (Expense) - net	—			(1		)	—			(1		)	Other Income (Expense) - net
Total Pre-tax	—			—			(1		)	1				—			(1		)	—			(1		)
Income Taxes	—			—			—			—				—			—			—			—
Total After-tax	—			—			(1		)	1				—			(1		)	—			(1		)

Defined benefit plans
Prior service costs	(1		)	(1		)	(2		)	(2		)
Net actuarial loss	(44		)	(41		)	(125		)	(121		)
Prior service costs (a)														(1		)	(1		)	(1		)	(1		)
Net actuarial loss (a)														(43		)	(40		)	(88		)	(81		)
Total Pre-tax	(45		)	(42		)	(127		)	(123		)		(44		)	(41		)	(89		)	(82		)
Income Taxes	11			11			29			28				9			9			18			18
Total After-tax	(34		)	(31		)	(98		)	(95		)		(35		)	(32		)	(71		)	(64		)

Total reclassifications during the period	$	(34	)	$	38		$	(123	)	$	(32	)		$	(16	)	$	(58	)	$	(64	)	$	(89	)


(a)	These AOCI components are included in the computation of net periodic defined benefit cost. See Note 9 for additional information.

17. New Accounting Guidance Pending Adoption

(All Registrants)

~~Accounting for Revenue from Contracts with Customers~~

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.

The Registrants have completed an assessment of substantially all of their revenue under this new guidance and, for those assessments that have been completed, have determined it will not have a material impact on their current revenue recognition policies. The Registrants' operating revenues are derived primarily from tariff-based sales that result from providing electricity and natural gas to customers with no defined contractual term. Tariff-based sales are within the scope of the new guidance, and operating revenues under the new guidance will be equivalent to the electricity and natural gas delivered and billed in that

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period (including estimated billings), which is consistent with current practice. Management is still assessing the impact of the new standard on certain revenues in the U.K. Regulated segment and does not expect there to be a material impact to current practice, however, the assessment is still ongoing.

The disclosure requirements included in the standard 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. These disclosures will include disaggregation of revenues by geographic location, customer class or type of service, as applicable for each Registrant. Some revenue arrangements, including alternative revenue programs and lease income, are excluded from the scope of the new guidance and will be accounted for and disclosed separately from revenues from contracts with customers. The Registrants will also be required to disclose the opening and closing balances of accounts receivable and any contract assets or contract liabilities resulting from contracts with customers.

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. The Registrants will adopt this guidance effective January 1, 2018 and will determine the transition method they will apply once they have completed their assessments and the implications of using either the full retrospective or modified retrospective transition methods are known.

Accounting for Leases

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 line tests.

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 business entities 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~~method with transition applied either retrospectively to each prior reporting period presented in the financial statements or as of the beginning of the period of adoption. The standard also provides for certain practical expedients. ~~Transition will require application~~One of these practical expedients allows entities to elect to (1) not reassess whether existing contracts contain leases, (2) carryforward the ~~new~~existing lease classification, and (3) not reassess initial direct costs associated with existing leases. In January 2018, the FASB also issued additional guidance atthat provides for a practical expedient that allows entities to elect to not evaluate land easements as leases that exist or expired before the ~~beginning~~adoption date and were not previously accounted for as leases under current lease guidance. The Registrants plan to elect these practical expedients.

Table of ~~the earliest comparative period presented.~~Contents

The Registrants are currently assessing the impact of adopting this ~~guidance.~~guidance as well as the transition method they will use. Key implementation activities in process of being completed include finalizing the lease inventory, concluding on open industry issues and identifying and implementing new controls and processes. The Registrants will adopt this guidance effective January 1, 2019.

Accounting for Financial Instrument Credit Losses

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 they will adopt it.

~~Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost~~

In March 2017, the FASB issued accounting guidance that changes the income statement presentation of net periodic benefit cost. This new guidance requires the service cost component to be disaggregated from other components of net benefit cost and presented in the same income statement line items as other employee compensation costs arising from services rendered during

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the period. The other components of net periodic benefits will be presented separately from the line items that include the service cost and outside of any subtotal of operating income. Only the service cost component is eligible for capitalization.

For public business entities, the guidance on the presentation of the components of net periodic benefit costs will be applied retrospectively. The guidance that limits the capitalization to the service cost component of net periodic benefit costs will be applied prospectively. This guidance is effective for fiscal years beginning after December 15, 2017 and interim periods within those years. The Registrants will adopt this guidance effective January 1, 2018.

For PPL’s, LKE’s and LG&E’s U.S. defined benefit pension and PPL's and LKE's other postretirement benefit plans, the adoption of this new guidance is not expected to have a material impact on either the presentation on the income statements or the amounts capitalized and related impact to expense, as the difference between the service cost and the non-service cost components of net periodic benefit costs has not historically been and is not expected to be material in 2018.

For PPL’s U.K. defined benefit pension plans, the non-service cost components of net periodic benefit cost has been in a net-credit position for the current reporting periods and is expected to continue to be in a net-credit position for 2018. Therefore, the estimated impact of adopting this new guidance related to the non-service cost component credits to be reclassified from “Other operation and maintenance” to “Other Income (Expense)-net” on the Statements of Income is approximately $130 million and $90 million for the nine months ended 2017 and 2016.

~~The Registrants are continuing to assess the expected 2018 impacts of adopting the guidance as the amounts will be affected by market conditions and assumptions selected at December 31, 2017.~~

Improvements to Accounting for Hedging Activities

In August 2017, the FASB issued accounting guidance that reduces complexity when applying hedge accounting as well as improves transparency about an entity's risk management activities. This guidance eliminates recognizing hedge ineffectiveness for cash flow and net investment hedges and provides for the ability to perform subsequent effectiveness assessments qualitatively. The guidance also makes certain changes to allowable methodologies such as allowing entities to apply the short-cut method to partial-term fair value hedges of interest rate risk as well as expands the ability to apply the critical terms match method to cash flow hedges of groups of forecasted transactions. The guidance also updates certain recognition and presentation requirements as well as disclosure requirements.

For public business entities, this guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. This standard must be adopted using a modified retrospective approach and provides for certain transition elections that must be made prior to the first effectiveness testing date after adoption.

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

(PPL, LKE, LG&E and KU)

Simplifying the Test for Goodwill Impairment

In January 2017, the FASB issued accounting guidance that simplifies the test for goodwill impairment by eliminating the second step of the quantitative test. The second step of the quantitative test requires a calculation of the implied fair value of goodwill, which is determined in the same manner as the amount of goodwill in a business combination. Under this new guidance, an entity will now compare the estimated fair value of a reporting unit with its carrying value and recognize an impairment charge for the amount the carrying amount exceeds the fair value of the reporting unit.

For public business entities, this guidance will be applied prospectively and is effective for annual or any interim goodwill impairment tests for fiscal years beginning after December 15, 2019. All entities may early adopt this guidance for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.

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

(PPL and LKE)

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income

In February 2018, the FASB issued accounting guidance that gives entities the option to reclassify tax effects stranded within AOCI as a result of the TCJA to retained earnings. The reclassification applies only to those stranded tax effects arising from

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the TCJA enactment. Certain disclosures related to the stranded tax effects, including a description of the accounting policy for releasing income tax effects from AOCI, are required.

For all entities, this guidance is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early adoption is permitted, including adoption in any interim period. The amendments should be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax rate in the TCJA is recognized.

The adoption of this guidance will result in PPL and LKE reclassifying $50 million and $18 million of deferred tax effects (primarily related to pension and other post-retirement benefits) stranded in AOCI as a result of the TCJA to retained earnings. The Registrants are assessing the period in which they will adopt this guidance.

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Item 2. Combined Management's Discussion and Analysis of Financial Condition and

Results of Operations

(All Registrants)

This "Item 2. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations" is separately filed by PPL, PPL Electric, LKE, LG&E and KU. Information contained herein relating to any individual Registrant is filed by such Registrant solely on its own behalf, and no Registrant makes any representation as to information relating to any other Registrant. The specific Registrant to which disclosures are applicable is identified in parenthetical headings in italics above the applicable disclosure or within the applicable disclosure for each Registrant's related activities and disclosures. Within combined disclosures, amounts are disclosed for individual Registrants when significant.

The following should be read in conjunction with the Registrants' Condensed Consolidated Financial Statements and the accompanying Notes and with the Registrants' ~~2016~~2017 Form 10-K. Capitalized terms and abbreviations are defined in the glossary. Dollars are in millions, except per share data, unless otherwise noted.

"Management's Discussion and Analysis of Financial Condition and Results of Operations" includes the following information:

"Overview" provides a description of each Registrant's business strategy and a discussion of important financial and operational developments.

"Results of Operations" for all Registrants includes a "Statement of Income Analysis" which discusses significant changes in principal line items on the Statements of Income, comparing the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 with the same periods in ~~2016.~~2017. For PPL, "Results of Operations" also includes "Segment Earnings" and ~~"Margins"~~"Adjusted Gross Margins" which provide a detailed analysis of earnings by reportable segment. These discussions include non-GAAP financial measures, including "Earnings from Ongoing Operations" and ~~"Margins"~~"Adjusted Gross Margins" and provide explanations of the non-GAAP financial measures and a reconciliation of the non-GAAP financial measures to the most comparable GAAP measure. The ~~"2017~~"2018 Outlook" discussion identifies key factors expected to impact ~~2017~~2018 earnings. For PPL Electric, LKE, LG&E and KU, a summary of earnings and adjusted gross margins is also provided.

"Financial Condition - Liquidity and Capital Resources" provides an analysis of the Registrants' liquidity positions and credit profiles. This section also includes a discussion of rating agency actions.

"Financial Condition - Risk Management" provides an explanation of the Registrants' risk management programs relating to market and credit risk.

Overview

Introduction

(PPL)

PPL, headquartered in Allentown, Pennsylvania, is a utility holding company. PPL, through its regulated utility subsidiaries, delivers electricity to customers in the U.K., Pennsylvania, Kentucky, Virginia and Tennessee; delivers natural gas to customers in Kentucky; and generates electricity from power plants in Kentucky.

PPL's principal subsidiaries are shown below (* denotes a Registrant).

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PPL Corporation*

PPL Capital Funding

● Provides financing for the operations of PPL and certain subsidiaries

PPL Global

● Engages in the regulated distribution of electricity in the U.K.

LKE*

PPL Electric*

● Engages in the regulated transmission and distribution of electricity in Pennsylvania

LG&E*

● Engages in the regulated generation, transmission, distribution and sale of electricity and regulated distribution and sale of natural gas in Kentucky

KU*

● Engages in the regulated generation, transmission, distribution and sale of electricity, primarily in Kentucky

U.K.

Regulated Segment

Kentucky

Regulated Segment

Pennsylvania

Regulated Segment

PPL's reportable segments' results primarily represent the results of PPL Global, LKE and PPL Electric, except that the reportable segments are also allocated certain corporate level financing and other costs that are not included in the results of PPL Global, LKE and PPL Electric. ~~Although~~ PPL Global is not a ~~Registrant, unaudited~~Registrant. Unaudited annual consolidated financial statements for the U.K. Regulated segment are furnished on a Form 8-K with the SEC.

In addition to PPL, the other Registrants included in this filing are as follows.

(PPL Electric)

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

(LKE)

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

(LG&E)

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

(KU)

KU, headquartered in Lexington, Kentucky, is a wholly owned subsidiary of LKE and a regulated utility engaged in the generation, transmission, distribution and sale of electricity in Kentucky, Virginia and Tennessee. KU is subject to regulation as

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a public utility by the KPSC, the VSCC and ~~the Tennessee Public Utility Commission, and~~ certain of its transmission and wholesale power activities are subject to the jurisdiction of the FERC under the Federal Power Act. KU serves its Virginia customers under the Old Dominion Power name and its Kentucky and Tennessee customers under the KU name.

Business Strategy

(All Registrants)

PPL ~~is a~~operates seven fully regulated, ~~business consisting of seven diverse,~~ high-performing utilities. These utilities are located in the U.K., Pennsylvania and Kentucky, ~~and each jurisdiction has different~~constructive regulatory jurisdictions with distinct regulatory structures and customer classes. ~~The Company~~PPL believes this ~~diverse~~business portfolio provides strong earnings and dividend growth potential that will create significant value for its shareowners and positions PPL well for continued growth and success.

PPL's ~~businesses of WPD, PPL Electric, LG&E~~strategy is to deliver best-in-sector operational performance, invest in a sustainable energy future, maintain a strong financial foundation, and KUengage and develop its people. PPL's business plan is designed to achieve growth by providing efficient, reliable and safe operations and strong customer service, maintaining constructive regulatory relationships and achieving timely recovery of costs. These businesses are expected to achieve strong, long-term growth in rate base in the U.S. and RAV ~~as applicable,~~in the U.K. Rate base growth is being driven by planned significant capital expenditures to maintain existing assets and improve system reliability and, for LKE, LG&E and KU, to comply with federal and state environmental regulations related to coal-fired electricity generation facilities. ~~Additionally, significant transmission rate base growth is expected through at least 2020 at PPL Electric.~~

For the U.S. businesses, central to our strategy is ~~to recover~~recovering capital project costs efficiently through various rate-making mechanisms, including periodic base rate case proceedings using forward test years, annual FERC formula rate mechanisms and other regulatory agency-approved recovery mechanisms designed to limit regulatory lag. In Kentucky, the KPSC has adopted a series of regulatory mechanisms (ECR, DSM, GLT, fuel adjustment clause, gas supply clause and recovery on construction work-in-progress) that reduce regulatory lag and provide timely recovery of and return on, as appropriate, prudently incurred costs. In addition, the KPSC requires a utility to obtain a CPCN prior to constructing a facility, unless the construction is an ordinary extension of existing facilities in the usual course of business or does not involve sufficient capital ~~outlay~~expenditures to materially affect the utility's financial condition. Although such KPSC proceedings do not directly address cost recovery issues, the KPSC, in awarding a CPCN, concludes that the public convenience and necessity require the construction of the facility on the basis that the facility is the lowest reasonable cost alternative to address the need. In Pennsylvania, the FERC transmission formula rate, DSIC mechanism, Smart Meter Rider and other recovery mechanisms are in place to reduce regulatory lag and provide for timely recovery of and a return on, as appropriate, prudently incurred costs.

Rate base growth in the domestic utilities is expected to result in earnings growth for the foreseeable future. ~~In 2017, earnings from the U.K. Regulated segment are expected to decline mainly due to the unfavorable impact of lower GBP to U.S. dollar exchange rates.~~ RAV growth is expected in the U.K. Regulated segment ~~through~~during the RIIO-ED1 price control period, which ends on March 31, 2023, and to result in earnings growth ~~after 2017~~in 2018 through at least 2020 ~~at WPD.~~. See "Item 1. Business - Segment Information - U.K. Regulated Segment" ofin PPL's ~~2016~~2017 Form 10-K for additional information on RIIO-ED1.

To manage financing costs and access to credit markets, and to fund capital expenditures, a key objective of the Registrants is to maintain their investment grade credit ratings and adequate liquidity positions. In addition, the Registrants have financial and operational risk management programs that, among other things, are designed to monitor and manage exposure to earnings and cash flow volatility, as applicable, related to changes in interest rates, foreign currency exchange rates and counterparty credit quality. To manage these risks, PPL generally uses contracts such as forwards, options and swaps. See "Financial Condition - Risk Management" below for further information.

Earnings generated by PPL's U.K. subsidiaries are subject to foreign currency translation risk. Because WPD's earnings represent such a significant portion of PPL's consolidated earnings, PPL enters into foreign currency contracts to economically hedge the value of the GBP versus the U.S. dollar. These hedges do not receive hedge accounting treatment under GAAP. See "Financial and Operational Developments - U.K. Membership in European Union" for additional discussion of the U.K. earnings hedging activity.

The U.K. subsidiaries also have currency exposure to the U.S. dollar to the extent of their U.S. dollar denominated debt. To manage these risks, PPL generally uses contracts such as forwards, options and cross-currency swaps that contain characteristics of both interest rate and foreign currency exchange contracts.

As discussed above, a key component of this strategy is to maintain constructive relationships with regulators in all jurisdictions in which we operate (U.K., U.S. federal and state). This is supported by our strong culture of integrity and delivering on

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commitments to customers, regulators and shareowners, and a commitment to continue to improve our customer service, reliability and ~~efficiency of operations.~~

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operational efficiency.

Financial and Operational Developments

Equity Forward Contracts (PPL)

The forward sale agreements are classified as equity transactions. As a result, no amounts will be recorded in the consolidated financial statements until the settlement of the forward sale agreements. Prior to any settlements, the only impact to the financial statements will be the inclusion of incremental shares within the calculation of diluted EPS using the Treasury Stock Method. See Note 8 to the Financial Statements for additional information.

U.S. Tax Reform (All Registrants)

Substantially all of the provisions of the TCJA, signed into law on December 22, 2017, are effective for taxable years beginning after December 31, 2017 and, to the extent such provisions are relevant to the Registrants, their impact has been reflected in the financial results for the three and six months ended June 30, 2018. With respect to the TCJA provisions applicable to the period ended December 31, 2017, although additional guidance has been issued by the U.S. Department of the Treasury and the IRS concerning the application or operation of those provisions, such guidance has not materially impacted the related amounts reported in the Registrants' financial statements for the periods ended June 30, 2018.

Kentucky State Tax Reform (All Registrants)

~~Tax reform has been discussed as~~HB 487, which became law on April 27, 2018, provides for significant changes to the Kentucky tax code including (1) adopting mandatory combined reporting for corporate members of unitary business groups for taxable years beginning on or after January 1, 2019 (members of a ~~high priority~~unitary business group may make an eight-year binding election to file consolidated corporate income tax returns with all members of their federal affiliated group) and (2) a reduction in the Kentucky corporate income tax rate from 6% to 5% for taxable years beginning after December 31, 2017. LKE recognized a deferred tax charge of $9 million in the second quarter of 2018 primarily associated with the remeasurement of non-regulated accumulated deferred income tax balances.

As indicated in Note 1 in the Registrants' 2017 Form 10-K, LG&E’s and KU’s accounting for income taxes is impacted by rate regulation. Therefore, reductions in regulated accumulated deferred income tax balances due to the reduction in the Kentucky corporate income tax rate to 5% under the provisions of HB 487 may result in amounts previously collected from utility customers for these deferred taxes to be refundable to such customers in future periods. In the second quarter of 2018, LG&E and KU recorded the impact of the ~~U.S. presidential administration. Significant uncertainty exists as~~reduced tax rate, related to the ~~ultimate changes that may be made,~~remeasurement of deferred income taxes, as an increase in regulatory liabilities of $16 million and $19 million. LG&E and KU continue to evaluate other impacts of Kentucky state tax reform along with the ~~timing~~associated regulatory considerations. PPL is evaluating the impact, if any, of ~~those changes and the related impact to the Registrants' financial condition~~unitary or ~~results~~elective consolidated income tax reporting on all its Registrants.

Table of operations. The Registrants are working with industry groups and carefully monitoring related developments in an effort both to have input to the legislative process where possible and plan effectively to respond to any forthcoming changes in a manner that will optimize value for ratepayers and shareowners.Contents

U.K. Membership in European Union (PPL)

On March 29, 2017, the U.K. formally notified the European Council of the European Union (EU) of its intent to withdraw from the EU, thereby commencing the two-year negotiation period to establish the terms of that withdrawal under Article 50 of the Lisbon Treaty. Article 50 specifies that if a member state decides to withdraw from the EU, it must notify the European Council of its intention to leave the EU, negotiate the terms of withdrawal and establish the legal grounds for its future relationship with the EU. Article 50 provides two years from the date of the Article 50 notification to conclude negotiations. Failure to complete negotiations within two years, unless negotiations are extended, would result in the treaties governing the EU no longer being applicable to the U.K. with there being no agreement in place governing the U.K.'s relationship with the EU. Under the terms of Article 50, negotiations can only be extended beyond two years if all of the 27 remaining EU states agree to an extension. Any withdrawal agreement will need to be approved by ~~both~~the European Parliament, the European Council and by the ~~European~~U.K. Parliament. There remains significant uncertainty as to the ultimate outcome of the withdrawal negotiations and the related impact on the U.K. economy and the GBP to U.S. dollar exchange rate.

PPL has executed hedges to mitigate the foreign exchange risk to the Company's U.K. earnings. As of ~~October 18, 2017,~~July 31, 2018, PPL's foreign exchange exposure related to budgeted earnings is 100% hedged for the remainder of ~~2017 at an average rate of $1.22 per GBP, 99% hedged for~~ 2018 at an average rate of ~~$1.32~~$1.31 per GBP, 100% hedged for 2019 at an average rate of $1.39 per GBP and ~~15%~~50% hedged for 2020 at an average rate of ~~$1.47~~$1.49 per GBP.

PPL cannot predict either the short-term or long-term impact to foreign exchange rates or long-term impact on PPL's financial condition that may be experienced as a result of the actions taken by the U.K. government to withdraw from the EU, although such impacts could be significant.

Regulatory Requirements

(All Registrants)

The Registrants cannot predict the impact that future regulatory requirements may have on their financial condition or results of operations.

TCJA Impact on LG&E and KU Rates (PPL, LKE, LG&E and KU)

On January 29, 2018, LG&E, KU, Kentucky Industrial Utility Customers, Inc. and the Office of the Attorney General reached a settlement agreement to commence returning savings related to the TCJA to their customers through their ECR, DSM and LG&E's GLT rate mechanisms beginning in March 2018 and through a new bill credit mechanism from April 1, 2018 through April 30, 2019. The estimated impact of the rate reduction represents approximately $91 million in KU electricity revenues ($70 million through the new bill credit and $21 million through existing rate mechanisms), $69 million in LG&E electricity revenues ($49 million through the new bill credit and $20 million through existing rate mechanisms) and $17 million in LG&E gas revenues (substantially all through the new bill credit) for the period January 2018 through April 2019. Ongoing tax savings are also expected to be addressed in LG&E's and KU's next Kentucky base rate case. LG&E and KU have indicated their intent to file an application for base rate changes during 2018 to be effective during spring 2019.

On March 20, 2018, the KPSC issued an order approving, with certain modifications, the settlement agreement reached between LG&E, KU, Kentucky Industrial Utility Customers, Inc. and the Office of the Attorney General. The KPSC estimates that, pursuant to its modifications, electricity revenues would incorporate reductions of approximately $108 million for KU ($87 million through the new bill credit and $21 million through existing rate mechanisms) and $79 million for LG&E ($59 million through the new bill credit and $20 million through existing rate mechanisms). This represents $27 million ($17 million at KU and $10 million at LG&E) in additional reductions from the amounts proposed by the settlement. The KPSC's modifications to the settlement include certain changes in assumptions or inputs used in assessing tax reform or calculating

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LG&E's and KU's electricity rates. LG&E gas rate reductions were not modified significantly from the amount included in the settlement agreement.

On March 26, 2018, LG&E and KU filed a petition for reconsideration and request for hearing with the KPSC, taking exception to the KPSC's modifications and the process, and also requested certain relief from implementing the amounts represented by the additional reductions until the matter is fully resolved. On March 28, 2018, the Office of the Attorney General filed a response to the petition and gave notice of its withdrawal from the settlement agreement.

On March 28, 2018, the KPSC issued an Order granting LG&E's and KU's request for reconsideration and amending its March 20, 2018 Order by suspending the approved rates, allowing LG&E and KU, on an interim basis, to return savings related to the TCJA at the rates agreed to in the January 29, 2018 settlement. On March 30, 2018, following receipt of the Attorney General's response, the KPSC issued an Order amending its March 28, 2018 Order to allow the parties to raise any relevant issues related to the TCJA. A hearing on this matter was held May 24, 2018. Post-hearing briefs have been filed and the case is now submitted to the KPSC for a decision.

LG&E and KU cannot predict the outcome of these proceedings.

(PPL and PPL Electric)

TCJA Impact on PPL Electric Rates

On February 12, 2018, the PUC issued a Secretarial Letter requesting certain information from regulated utilities and inviting comment from interested parties on potential revision to customer rates as a result of enactment of the TCJA. PPL Electric submitted its response to the Secretarial Letter on March 9, 2018. On March 15, 2018, the PUC issued a Temporary Rates Order to allow time to determine the manner in which rates could be adjusted in response to the TCJA. The PUC issued another Temporary Rates Order on May 17, 2018 to address the impact of the TCJA and indicated that utilities without a currently pending general rate proceeding would receive a utility specific order. The PUC issued an Order specific to PPL Electric on May 17, 2018 which required PPL Electric to file a tariff or tariff supplement by June 15, 2018 to establish (a) temporary rates to include a negative surcharge of 0.56%, which was based on PPL Electric's 2017 taxable income, to be effective July 1, 2018, and (b) to record a deferred regulatory liability to reflect the tax savings associated with the TCJA for the period January 1 through June 30, 2018. On June 8, 2018, PPL Electric submitted a petition to the PUC to increase the negative surcharge proposed in the May 17, 2018 Order from 0.56% to 7.05% to reflect the estimated 2018 tax savings associated with the TCJA. The PUC approved PPL Electric's petition on June 14, 2018 and PPL Electric filed a tariff on June 15, 2018 reflecting the increased negative surcharge. The estimated 2018 full year impact of the rate reduction is $72 million in PPL Electric's operating revenues of which $37 million relates to the period January 1, 2018 through June 30, 2018 and has been recorded as a noncurrent regulatory liability to be distributed to customers pursuant to a future rate adjustment. The remaining $35 million is the estimated impact for the period July 1, 2018 through December 31, 2018 and will be passed back to customers through the negative surcharge beginning July 1, 2018.

On March 15, 2018, the FERC issued a Notice of Inquiry seeking information on whether and how it should address changes to FERC-jurisdictional rates relating to accumulated deferred income taxes and bonus depreciation resulting from passage of the TCJA. On March 16, 2018, PPL Electric filed a waiver request, pursuant to Rule 207(a)(5) of the Rules of Practice and Procedure of the Federal Energy Regulatory Commission, to accelerate incorporation of the changes to the federal corporate income tax rate in its transmission formula rate commencing on June 1, 2018 rather than allowing the TCJA tax rate reduction to be initially incorporated in PPL Electric's June 1, 2019 transmission formula rate. The waiver was approved on April 23,

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2018 and PPL Electric submitted its transmission formula rate, reflecting the TCJA rate reduction, on April 27, 2018. In addition, on May 21, 2018, PPL Electric, as part of a PJM joint transmission owners filing, submitted comments in response to the FERC's March 15, 2018 Notice of Inquiry. The filing submitted by the PJM joint transmission owners requested guidance on how the reduction in accumulated deferred income taxes, resulting from the TCJA reduced federal corporate income tax rate, should be treated for ratemaking purposes. PPL Electric is currently awaiting FERC's decision on this matter. The changes, related to accumulated deferred income taxes impacting the transmission formula rate revenues, have not been significant since the new rate went into effect on June 1, 2018.

Pennsylvania Alternative Ratemaking

On June 28, 2018, Governor Tom Wolf signed House Bill 1782 (now known as Act 58 of 2018, and to be codified at 66 Pa. C.S. § 1330) authorizing public utilities to implement alternative rates and rate mechanisms in base rate proceedings before the PUC. The effective date of Act 58 is August 27, 2018.

Under the new law, a public utility can file an application to establish alternative rates and rate mechanisms in a base rate proceeding. These alternative rates and rate mechanisms include, but are not limited to the following: decoupling mechanisms, performance-based rates, formula rates, multiyear rate plans, or a combination of those mechanisms or other mechanisms.

The alternative rate mechanisms can include reconcilable surcharges and rates established under current law, including returns on and return of capital investments. Act 58 explicitly provides that it does not invalidate or void any rate mechanisms approved by the PUC prior to the legislation's effective date. Act 58 also specifies customer notice requirements concerning the utility's application for alternative rates or rate mechanisms.

The actual procedures for approval of a utility's application for alternative rates and rate mechanisms are not set forth in Act 58. Rather, the PUC must prescribe those procedures through a regulation or order within six months of the legislation's effective date.

PPL Electric views the passage of Act 58 to be a favorable regulatory development that is expected to expand the rate-making mechanisms available to Pennsylvania regulated utility companies.

(PPL)

RIIO-ED1 Mid-period Review

In ~~July~~December 2017, Ofgem ~~published~~initiated a consultation on a potential RIIO-ED1 mid-period review (MPR). The RIIO framework allows for an ~~open letter commencing~~MPR of outputs halfway through the price control. Ofgem was consulting on three potential approaches:

whether to implement an MPR as currently defined;

whether to implement an MPR with an extension for WPD rail electrification; and

whether to implement an MPR with a significant extension of scope to include financial parameters.

Ofgem's initial assessment as set forth in its December 2017 consultation publication was that an MPR as currently defined under RIIO-ED1 was not required. In addition, Ofgem recognized that the U.K. rail electrification program applicable in the WPD distribution areas was outside the scope of the MPR and that implementing an MPR to include financial parameters could undermine the stability of the regulatory regime. The consultation, however, requested interested party comments on those conclusions. The period for submission of comments to the consultation closed on February 2, 2018. Formal consultation responses were submitted by PPL and WPD. On April 30, 2018, Ofgem announced its decision not to conduct an MPR.

RIIO-2 Framework Review

On March 7, 2018, Ofgem issued its consultation document on the RIIO-2 framework, ~~review,~~ which covers all U.K. gas and electricity transmission and distribution price controls. The current electricity distribution price control, RIIO-ED1, continues through March 31, 2023 and will not be impacted by this RIIO-2 consultation process. Ofgem consulted on a wide range of issues, including cost of debt and equity methodologies, the length of the price control period, indexation methodologies, innovation, stakeholder engagement in the business planning process and performance incentive mechanisms. The purpose of ~~this~~the RIIO-2 framework ~~review is~~consultation was to build on lessons learned from the current price controls while supporting low costs to consumers, improved customer service and reliability, and the U.K.'s continued shift to ~~develop~~ a ~~framework that will be adaptable to meeting the needs of an evolving U.K. energy sector.~~

~~The letter sets out the context for the development of the next price controls, RIIO-2, and seeks views from stakeholders~~low-carbon future. Comments on the RIIO-2 ~~framework. Responses to the open letter~~framework were due in May 2018. On July 30, 2018, Ofgem published ~~in September 2017 and will be used to guide the full~~its decision following their RIIO-2 framework consultation after consideration of comments received. Ofgem confirmed the following points in the decision document:

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There will be a five-year default length for the price control period, compared to eight years in the current RIIO-ED1 price control.

There is intent to shift the inflation index used for calculating RAV and allowed returns from RPI to CPIH. Ofgem stated overall, consumers and investors as a whole will be neither better nor worse off in net present value terms as a result of the shift to CPIH and a transition period may be required.

There will be no change to the existing depreciation policy of using economic asset lives as the basis for depreciating RAV. WPD is currently transitioning to 45 year asset lives for new additions in RIIO-ED1 based on Ofgem’s extensive review of asset lives in RIIO-ED1.

Ofgem will retain the option for fast-tracking for electricity distribution companies only. Fast tracking will be furtherconsidered as part of the electricity distribution sector specific consultation.

A new enhanced engagement model will be introduced which will require distribution companies to set up a customer engagement group to provide Ofgem with a public report of their views on the companies’ business plans from the perspective of local stakeholders. Ofgem will also establish an independent RIIO-2 challenge group comprised of consumer experts to provide Ofgem with a public report on companies’ business plans.

Ofgem intends to expand the role of competition for projects that are new, separable and high value. WPD does not currently have any planned projects that would meet the high value threshold.

A focus of RIIO-2 will be on whole-system outcomes. Ofgem envisions network companies and system operators working together to ensure the energy system as a whole is efficient and delivers best value to consumers. Ofgem is undertaking further work to clarify the definition of whole-system and the appropriate roles of the network companies in supporting the energy transition.

Ofgem also indicated further work is needed on other price control principles, including but not limited to, cost of equity, cost of debt, financeability and incentives with decisions on these items expected to be ~~published~~made in the ~~first quarter of 2018.~~sector specific consultations or within the individual company business plan submissions. The promulgation of sector specific price controls ~~will~~is expected to begin with the gas and electricity transmission networks in December 2018, with electricity distribution price control work scheduled to begin in 2020, at which time Ofgem plans to publish its RIIO-ED2 strategy consultation document.

~~The current electricity distribution price control, RIIO-ED1, continues through March 31, 2023 and will not be impacted by this RIIO-2 consultation process.~~ PPL cannot predict the outcome of this process or the long-term impact it or the final RIIO-ED2 regulations will have on its financial condition or results of operations.

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(PPL, LKE, LG&E and KU)

The businesses of LKE, LG&E and KU are subject to extensive federal, state and local environmental laws, rules and regulations, including those pertaining to CCRs, GHGs and ELGs. See Note 910 to the Financial Statements for a discussion of the other significant environmental matters.

FERC Transmission Rate Filing

On August 3, 2018, LG&E and KU submitted an application to the FERC requesting elimination of certain on-going credits to a sub-set of transmission customers relating to the 1998 merger of LG&E’s and KU’s parent entities and the 2006 withdrawal of LG&E and KU from the Midcontinent Independent System Operator, Inc. (“MISO”), a regional transmission operator and energy market. The application seeks termination of LG&E’s and KU’s commitment to provide mitigation for certain horizontal market power concerns arising out of the 1998 merger for certain transmission service between MISO and LG&E and KU. The affected transmission customers are a limited number of municipal entities in Kentucky or Tennessee. The amounts at issue are generally waivers or credits for either LG&E and KU or for MISO transmission charges depending upon the direction of transmission service incurred by the municipalities. LG&E and KU estimate that such charges may average approximately $22 million annually, depending upon actual transmission customer and market volumes, structures and prices, with such charges allocated according to LG&E and KU’s respective transmission system ownership ratio. Due to the development of robust, accessible energy markets over time, LG&E and KU believe the mitigation commitments are no longer relevant or appropriate. LG&E and KU currently receive recovery of such expenses in other rate mechanisms. LG&E and KU cannot predict the outcome of the proceeding, including any effects on their financial condition or results of operations.

Rate Case Proceedings

(LKE and KU)

OnIn September ~~29,~~ 2017, KU filed a request seeking approval from the VSCC to increase annual Virginia base electricity revenue by $7 million, representing an increase of 10.4%. ~~KU's request is based~~On March 22, 2018, KU reached a settlement agreement regarding the case, including the impact of the TCJA on rates, resulting in an ~~authorized 10.42% return on equity. Subject to regulatory review and approval, new~~increase in annual Virginia base electricity revenue by $2 million. This represents an increase of 2.8% with rates ~~would become~~ effective ~~July~~June 1, 2018. On May 8, 2018, the VSCC issued an order approving the settlement agreement.

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(Acquisition of Solar Energy Solution Provider ~~PPL, LKE and KU)~~(PPL)

~~In October 2016, KU filed~~During the second quarter of 2018, PPL completed the acquisition of all the outstanding membership interests of Safari Energy, LLC (Safari Energy), a ~~request~~privately held provider of solar energy solutions for commercial customers in the U.S. For its clients, Safari Energy develops highly structured turnkey solutions, managing projects through all phases of development, from inception to financing, design, engineering, permitting, construction, interconnection and asset management. Headquartered in New York City, Safari Energy has completed over 200 solar projects in 19 states, with over 80 projects underway. The acquisition is not material to PPL and the ~~FERC to modify its formula rates to provide for the recovery~~financial results of CCR impoundment closure costs from its departing municipal customers. In December 2016, the FERC accepted the revised rate schedules providing recovery of the costs effective December 31, 2016, subject to refund,Safari Energy will be reported within Corporate and established limited hearing and settlement judge procedures relating to determining the applicable amortization period. In March 2017, the parties reached a settlement in principle regarding a suitable amortization period. In June 2017, a FERC judge issued an order implementing the settlement's rates on an interim basis, effective July 1, 2017. In August 2017, the FERC issued a final order approving the settlement.Other.

Results of Operations

(PPL)

The "Statement of Income Analysis" discussion below describes significant changes in principal line items on PPL's Statements of Income, comparing the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 with the same periods in ~~2016.~~2017. The "Segment Earnings" and ~~"Margins"~~"Adjusted Gross Margins" discussions for PPL provide a review of results by reportable segment. These discussions include non-GAAP financial measures, including "Earnings from Ongoing Operations" and ~~"Margins,~~"Adjusted Gross Margins," and provide explanations of the non-GAAP financial measures and a reconciliation of those measures to the most comparable GAAP measure. The ~~"2017~~"2018 Outlook" discussion identifies key factors expected to impact ~~2017~~2018 earnings.

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

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

A "Statement of Income Analysis, Earnings and Adjusted Gross Margins" is presented separately for PPL Electric, LKE, LG&E and KU.

The "Statement of Income Analysis" discussion below describes significant changes in principal line items on the Statements of Income, comparing the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 with the same periods in ~~2016.~~2017. The "Earnings" discussion provides a summary of earnings. The ~~"Margins"~~"Adjusted Gross Margins" discussion includes a reconciliation of non-GAAP financial measures to "Operating Income."

(All Registrants)

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

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PPL: Statement of Income Analysis, Segment Earnings and Adjusted Gross Margins

Statement of Income Analysis

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


	Three Months								Nine Months								Three Months							Six Months
	2017			2016		$ Change			2017			2016		$ Change			2018		2017			$ Change		2018		2017			$ Change
Operating Revenues	$	1,845		$	1,889	$	(44	)	$	5,521		$	5,685	$	(164	)	$	1,848	$	1,725		$	123	$	3,974	$	3,676		$	298
Operating Expenses
Operation
Fuel	202			227		(25		)	576			607		(31		)	189		183			6		403		374			29
Energy purchases	143			151		(8		)	494			531		(37		)	148		136			12		389		351			38
Other operation and maintenance	397			417		(20		)	1,217			1,292		(75		)	506		432			74		974		902			72
Depreciation	257			232		25			745			692		53			273		246			27		542		488			54
Taxes, other than income	69			76		(7		)	214			229		(15		)	74		70			4		157		145			12
Total Operating Expenses	1,068			1,103		(35		)	3,246			3,351		(105		)	1,190		1,067			123		2,465		2,260			205
Other Income (Expense) - net	(76		)	49		(125		)	(235		)	284		(519		)	234		(68		)	302		191		(77		)	268
Interest Expense	230			223		7			669			671		(2		)	235		222			13		474		439			35
Income Taxes	116			139		(23		)	321			510		(189		)	142		76			66		259		205			54
Net Income	$	355		$	473	$	(118	)	$	1,050		$	1,437	$	(387	)	$	515	$	292		$	223	$	967	$	695		$	272

Operating Revenues

The increase (decrease) in operating revenues for the periods ended ~~September~~June 30, ~~2017~~2018 compared with ~~2016~~2017 was due to:


	Three Months			Nine Months			Three Months			Six Months
Domestic:
PPL Electric Distribution price ~~(a)~~	$	16		$	46		$	10		$	11
PPL Electric Distribution volume	(20		)	(30		)	12			32
PPL Electric PLR Revenue ~~(b)~~(a)	(1		)	(32		)	9			26
PPL Electric Transmission Formula Rate	20			25			22			50
PPL Electric TCJA refund (b)							(37		)	(37		)
LKE Volumes(c)							36			103
LKE Base rates	31			31			28			58
LKE Volumes(c)	(41		)	(86		)
LKE ECR							6			13
LKE TCJA refund (b)							(37		)	(79		)
LKE DSM							(3		)	(11		)
LKE Fuel and other energy prices	(8		)	10			(9		)	(7		)
Other	(3		)	(2		)	4			10
Total Domestic	(6		)	(38		)	41			169
U.K.:
Price	(3		)	74			10			—
Volume	(12		)	(24		)	12			4
Foreign currency exchange rates	(21		)	(183		)	51			109
Engineering recharge income							11			19
Other	(2		)	7			(2		)	(3		)
Total U.K.	(38		)	(126		)	82			129
Total	$	(44	)	$	(164	)	$	123		$	298


(a)	~~Distribution rider prices resulted in~~The increases ~~of $16 million and $40 million for the three and nine months ended September 30, 2017.~~


~~(b)~~	~~Decrease for the nine months ended September 30, 2017 compared with 2016,~~were primarily due to ~~lower~~higher energy ~~prices at PPL Electric.~~volumes.

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(b)	Represents estimated income tax savings owed to customers related to the impact of the U.S. federal corporate income tax rate reduction from 35% to 21%, as enacted by the TCJA, effective January 1, 2018. See Note 7 to the Financial Statements for additional information.


(c)	The increases were primarily due to favorable weather in 2018.

Fuel

Fuel ~~decreased~~increased $6 million and $2529 million for the three and six months ended~~September~~June 30, ~~2017~~2018 compared with ~~2016~~2017, primarily due to ~~a $16 million decrease~~an increase in volumes driven by ~~milder~~ weather in ~~the third quarter of 2017 and a $9 million decrease in market prices for coal.~~

~~Fuel decreased~~ ~~$31 million~~ ~~for the~~ ~~nine months endedSeptember 30, 2017~~ ~~compared with~~ ~~2016, primarily due to a $28 million decrease in volumes driven by milder weather in 2017 and a $4 million decrease in market prices for coal.~~2018.

Energy Purchases

Energy purchases ~~decreased $8~~increased $12 million for the three months ended ~~September~~June 30, ~~2017~~2018 compared with ~~2016,~~2017, primarily due to ~~a $12 million decrease~~an increase in PLR volumes ~~partially offset by a $6 million increase in PLR prices~~ at PPL Electric.

Energy purchases ~~decreased $37~~increased $38 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 compared with ~~2016,~~2017, primarily due to a ~~$24~~$23 million ~~decrease in PLR prices and an $11 million decrease~~increase in PLR volumes at PPL ~~Electric.~~Electric and a $23 million increase in natural gas volumes at LG&E driven by weather in 2018, partially offset by a $10 million decrease in market prices for natural gas at LG&E.

Other Operation and Maintenance

The increase (decrease) in other operation and maintenance for the periods ended ~~September~~June 30, ~~2017~~2018 compared with ~~2016~~2017 was due to:


	Three Months			Nine Months			Three Months			Six Months
Domestic:
LKE timing and scope of generation maintenance outages							$	6		$	7
LKE vegetation management							3			3
LKE gas distribution maintenance and compliance							2			3
LKE storm costs							2			2
PPL Electric vegetation management							(5		)	(10		)
PPL Electric storm costs							12			16
PPL Electric payroll-related costs							(1		)	(14		)
PPL Electric Act 129	$	3		$	11		1			(2		)
PPL Electric payroll-related costs	(5		)	(6		)
PPL Electric vegetation management	(4		)	(7		)
PPL Electric bad debts	(4		)	(10		)	4			7
PPL Electric smart meter							2			4
PPL Electric contractor-related expenses							2			—
Other	(1		)	1			19			7
U.K.:
Pension (a)	(17		)	(52		)
Foreign currency exchange rates	(2		)	(18		)	10			21
Network maintenance	4			(4		)	2			4
Third-party engineering	(1		)	5			10			16
Other	7			5			5			8
Total	$	(20	)	$	(75	)	$	74		$	72


~~(a)~~	~~The decreases were primarily due to increases in expected returns on higher asset balances and lower interest costs due to a lower discount rate.~~

Depreciation

Depreciation increased ~~$25~~$27 million and ~~$53~~$54 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 compared with ~~2016,~~2017, primarily due to additional assets placed into service, net of retirements, related to the ongoing efforts to ensure the reliability of the delivery system and the replacement of aging infrastructure as well as the roll-out of the Act 129 Smart Meter program at PPL Electric, higher depreciation rates effective July 1, 2017 and additions, net of retirements at LG&E and KU ~~partially offset by~~and the impact of foreign currency exchange rates at WPD.

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Other Income (Expense) - net

Other income (expense) - net ~~decreased $125 million and $519~~increased $302 million for the three ~~and nine~~ months ended ~~September~~June 30, ~~2017~~2018 compared with ~~2016,~~2017 primarily due to ~~changes in~~higher realized and unrealized gains ~~(losses)~~ on foreign currency contracts to economically hedge GBP denominated earnings from ~~WPD.~~WPD of $277 million and an increase in non-service cost credits from defined benefit plans of $22 million.

~~Table~~Other income (expense) - net increased $268 million for the six months ended June 30, 2018 compared with 2017, primarily due to higher realized and unrealized gains on foreign currency contracts to economically hedge GBP denominated earnings from WPD of ~~Contents~~

$208 million and an increase in non-service cost credits from defined benefit plans of $52 million.

Interest Expense

The increase (decrease) in interest expense for the periods ended ~~September~~June 30, ~~2017~~2018 compared with ~~2016~~2017 was due to:


	Three Months			Nine Months			Three Months		Six Months
Long-term debt interest expense	$	9		$	22		$	4	$	16
Short-term debt interest expense	2			6
Foreign currency exchange rates	(4		)	(31		)	8		17
Other	—			1			1		2
Total	$	7		$	(2	)	$	13	$	35

Income Taxes

The increase (decrease) in income taxes for the periods ended ~~September~~June 30, ~~2017~~2018 compared with ~~2016~~2017 was due to:


	Three Months			Nine Months			Three Months			Six Months
Change in pre-tax income at current period tax rates	$	(56	)	$	(198	)
Change in pre-tax income							$	99		$	108
Reduction in U.S. federal income tax rate (a)							(56		)	(88		)
Valuation allowances adjustments	—			(4		)	5			7
U.S. income tax on foreign earnings - net of foreign tax credit (a)	(7		)	(21		)
Impact of U.K. Finance Acts (b)	39			30
U.S. income tax on foreign earnings - net of foreign tax credit (b)							7			17
Federal and state tax reserve adjustments							3			3
Impact of U.K. Finance Acts							4			6
Amortization of excess deferred income taxes (a)							(9		)	(19		)
Kentucky state tax reform (c)							9			9
Stock-based compensation	1			5			4			8
Other	—			(1		)	—			3
Total	$	(23	)	$	(189	)	$	66		$	54


(a)	~~Lower~~The decreases are related to the impact of the U.S. federal corporate income ~~taxes~~tax rate reduction from 35% to 21%, as enacted by the TCJA, effective January 1, 2018.


(b)	The increases are primarily due to the tax benefit of accelerated pension contributions made in the first quarter of 2017. The related tax benefit iswas recognized over the annual period as a result of utilizing an estimated annual effective tax rate.

~~(b)~~(c)

~~The U.K. Finance Act 2016, enacted in September 2016, reduces~~During the ~~U.K. statutory~~second quarter of 2018, LKE recorded deferred income tax expense, primarily associated with LKE's non-regulated entities, due to the Kentucky corporate income tax rate reduction from 6% to 5%, as enacted by HB 487, effective ~~April~~January 1, ~~2020 from 18%~~2018. See Note 6 to ~~17%. As a result, PPL reduced its net deferred tax liabilities and recognized a deferred tax benefit during~~ the ~~three and nine months ended September 30, 2016.~~Financial Statements for additional information.

Segment Earnings

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


	Three Months								Nine Months									Three Months									Six Months
	2017		2016			$ Change			2017			2016			$ Change			2018			2017			$ Change			2018			2017			$ Change
U.K. Regulated	$	126	$	281		$	(155	)	$	560		$	915		$	(355	)	$	394		$	148		$	246		$	591		$	434		$	157
Kentucky Regulated	125		126			(1		)	299			314			(15		)	77			79			(2		)	210			174			36
Pennsylvania Regulated	95		91			4			251			263			(12		)	75			77			(2		)	223			156			67
Corporate and Other (a)	9		(25		)	34			(60		)	(55		)	(5		)	(31		)	(12		)	(19		)	(57		)	(69		)	12
Net Income	$	355	$	473		$	(118	)	$	1,050		$	1,437		$	(387	)	$	515		$	292		$	223		$	967		$	695		$	272

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(a)

Primarily represents financing and certain other costs incurred at the corporate level that have not been allocated or assigned to the segments, which are presented to reconcile segment information to PPL's consolidated results. The ~~changes~~change in ~~2017~~2018 compared with ~~2016 are~~2017 is primarily due to the ~~timing impact~~utilization of ~~recording~~an estimated tax rate, which required tax benefits realized in the first quarter of 2017 to be recognized over the annual ~~estimated taxes. This impact is expected to continue to reverse through the remainder of the year.~~period.

Earnings from Ongoing Operations

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:

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

• Gains and losses on sales of assets not in the ordinary course of business.

• Impairment charges.

• Significant workforce reduction and other restructuring effects.

• Acquisition and divestiture-related adjustments.

• Other charges or credits that are, in management's view, non-recurring or otherwise not reflective of the company's ongoing operations.

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 1314 to the Financial Statements and "Risk Management" below for additional information on foreign currency economic activity.

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


	Three Months								Nine Months									Three Months									Six Months
	2017		2016			$ Change			2017			2016			$ Change			2018			2017			$ Change			2018			2017			$ Change
U.K. Regulated	$	163	$	235		$	(72	)	$	682		$	741		$	(59	)	$	254		$	212		$	42		$	516		$	519		$	(3	)
Kentucky Regulated	125		126			(1		)	300			314			(14		)	86			79			7			219			175			44
Pennsylvania Regulated	95		91			4			251			263			(12		)	75			77			(2		)	223			156			67
Corporate and Other	5		(25		)	30			(64		)	(53		)	(11		)	(31		)	(12		)	(19		)	(57		)	(69		)	12
Earnings from Ongoing Operations	$	388	$	427		$	(39	)	$	1,169		$	1,265		$	(96	)	$	384		$	356		$	28		$	901		$	781		$	120

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

U.K. Regulated Segment

The U.K. Regulated segment consists of PPL Global, which primarily includes WPD's regulated electricity distribution operations, the results of hedging the translation of WPD's earnings from GBP into U.S. dollars, and certain costs, such as U.S. income taxes, administrative costs and certain acquisition-related financing costs. The U.K. Regulated segment represents ~~53%~~61% of PPL's Net Income for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and 39% of PPL's assets at ~~September~~June 30, ~~2017.~~2018.

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

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Three Months Nine Months
2017 2016 $ Change 2017 2016 $ Change
Operating revenues $ 477
$ 515
$ (38 ) $ 1,547

$ 1,673
$ (126 )
Other operation and maintenance 69
78
(9 ) 195
260
(65 )
Depreciation 58
58
—
170
178
(8 )
Taxes, other than income 33
34
(1 ) 94
104
(10 )
Total operating expenses 160
170
(10 ) 459
542
(83 )
Other Income (Expense) - net (80 ) 50
(130 ) (236 ) 283
(519 )
Interest Expense 103
100
3
294
310
(16 )
Income Taxes 8
14
(6 ) (2 ) 189
(191 )
Net Income 126

281
(155 ) 560

915
(355 )
Less: Special Items (37 ) 46
(83 ) (122 ) 174
(296 )
Earnings from Ongoing Operations $ 163
$ 235
$ (72 ) $ 682
$ 741
$ (59 )



	Three Months							Six Months
	2018		2017			$ Change		2018		2017			$ Change
Operating revenues	$	584	$	502		$	82	$	1,199	$	1,070		$	129
Other operation and maintenance	137		106			31		269		213			56
Depreciation	63		57			6		125		112			13
Taxes, other than income	34		30			4		68		61			7
Total operating expenses	234		193			41		462		386			76
Other Income (Expense) - net	229		(69		)	298		182		(69		)	251
Interest Expense	97		97			—		204		191			13
Income Taxes	88		(5		)	93		124		(10		)	134
Net Income	394		148			246		591		434			157
Less: Special Items	140		(64		)	204		75		(85		)	160
Earnings from Ongoing Operations	$	254	$	212		$	42	$	516	$	519		$	(3	)

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 ~~September~~June 30.

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Income Statement Line Item Three Months Nine Months
2017 2016 2017 2016
Foreign currency economic hedges, net of tax of $20, $103, $66, $34 (a) Other Income (Expense) - net $ (37 ) $ (193 ) $ (122 ) $ (65 )
Settlement of foreign currency contracts, net of tax of $0, ($108), $0, ($108) (b) Other Income (Expense) - net —
202
—
202
Change in U.K. tax rate (c) Income Taxes —
37
—
37
Total Special Items $ (37 ) $ 46
$ (122 ) $ 174



	Income Statement Line Item	Three Months					Six Months
	Income Statement Line Item	2018		2017			2018		2017
Foreign currency economic hedges, net of tax of ($37), $34, ($20), $46 (a)	Other Income (Expense) - net	$	140	$	(64	)	$	75	$	(85	)
Total Special Items		$	140	$	(64	)	$	75	$	(85	)


(a)	Represents unrealized gains (losses) on contracts that economically hedge anticipated GBP-denominated earnings. ~~The three and nine months ended September 30, 2016 include the reversal of $310 million ($202 million after-tax) of unrealized gains related to the settlement of 2017 and 2018 contracts.~~


~~(b)~~	~~In the third quarter of 2016, PPL settled 2017 and 2018 foreign currency contracts, resulting in $310 million of cash received ($202 million after-tax).~~

~~The settlement did not have a material impact on net income as the contracts were previously marked to fair value and recognized in "Other Income (Expense) - net" on the Statements of Income.~~


~~(c)~~	The U.K. Finance Act 2016, enacted in September 2016, reduced the U.K.'s statutory income tax rate effective April 1, 2020 from 18% to 17%. As a result, PPL reduced its net deferred tax liability and recognized an income tax benefit of $42 million in the third quarter of 2016. Of this amount, $37 million relates to deferred taxes recorded in prior years and was treated as a special item.

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. Adjusted 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.


	Three Months			Nine Months			Three Months			Six Months
U.K.
Gross margins	$	(17	)	$	52
U.K. Adjusted Gross Margins							$	22		$	5
Other operation and maintenance	7			50			(7		)	(11		)
Depreciation	(3		)	(12		)	(1		)	(2		)
Other Income (Expense) - net							15			31
Interest expense	(7		)	(15		)	8			3
Other	(2		)	(4		)	—			(3		)
Income taxes	(2		)	2			(13		)	(17		)
U.S.
Interest expense and other	1			3			(3		)	(3		)
Income taxes	(3		)	28			(4		)	(46		)
Foreign currency exchange, after-tax	(46		)	(163		)	25			40
Earnings from Ongoing Operations	(72		)	(59		)	42			(3		)
Special items, after-tax	(83		)	(296		)	204			160
Net Income	$	(155	)	$	(355	)	$	246		$	157

U.K.

See ~~"Margins~~"Adjusted Gross Margins - Changes in Adjusted Gross Margins" for an explanation of U.K. Adjusted Gross Margins.

~~Lower~~Higher other ~~operation and maintenance expense~~income (expense) - net for the three and six month ~~period~~periods primarily ~~due to $17 million~~ from ~~lower~~higher pension ~~expense~~income due to an increase in expected returns on higher asset ~~balances and lower interest costs due to a lower discount rate, partially offset by $4 million from higher network maintenance expense.~~

Lower other operation and maintenance expense for the nine month period primarily due to $52 million from lower pension expense due to an increase in expected returns on higher asset balances and lower interest costs due to a lower discount rate.

~~Higher interest expense for the three and nine month periods primarily due to higher interest expense on indexed linked bonds.~~balances.

Higher income taxes for the three month period primarily due to ~~$9 million related to tax rate changes to deferred taxes, partially offset by a decrease of $4 million from lower~~higher pre-tax income.

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~~Lower~~U.S.

Higher income taxes for the ~~nine~~six month period primarily due to ~~decreases of $10~~a $35 million ~~related to accelerated tax deductions and $6 million from 2016 expense related to the finalization of U.K. tax returns, partially offset by increases of $14 million from higher pre-tax income.~~

~~U.S.~~

~~Lower income taxes for the nine month period primarily due to the~~ tax benefit on accelerated pension contributions ~~made~~ in the first quarter of ~~2017.~~2017 and a $12 million increase from a reduction in tax benefits on interest deductibility due to the U.S. federal corporate income tax rate reduction from 35% to 21%, as enacted by the TCJA, effective January 1, 2018.

Kentucky Regulated Segment

The Kentucky Regulated segment consists primarily of LKE's regulated electricity generation, transmission and distribution operations of LG&E and KU, as well as LG&E's regulated distribution and sale of natural gas. In addition, certain acquisition-related financing costs are allocated to the Kentucky Regulated segment. The Kentucky Regulated segment represents ~~28%~~22% of PPL's Net Income for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~35%~~34% of PPL's assets at ~~September~~June 30, ~~2017.~~2018.

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


	Three Months								Nine Months									Three Months									Six Months
	2017		2016			$ Change			2017			2016			$ Change			2018			2017			$ Change			2018			2017			$ Change
Operating revenues	$	818	$	835		$	(17	)	$	2,350		$	2,382		$	(32	)	$	743		$	723		$	20		$	1,615		$	1,532		$	83
Fuel	202		227			(25		)	576			607			(31		)	189			183			6			403			374			29
Energy purchases	22		24			(2		)	120			118			2			33			29			4			113			98			15
Other operation and maintenance	199		197			2			598			603			(5		)	211			192			19			416			397			19
Depreciation	114		102			12			324			301			23			118			105			13			235			210			25
Taxes, other than income	17		16			1			49			46			3			18			16			2			35			32			3
Total operating expenses	554		566			(12		)	1,667			1,675			(8		)	569			525			44			1,202			1,111			91
Other Income (Expense) - net	1		(3		)	4			(5		)	(9		)	4			1			(4		)	5			(2		)	(8		)	6
Interest Expense	65		65			—			196			194			2			69			66			3			136			131			5
Income Taxes	75		75			—			183			190			(7		)	29			49			(20		)	65			108			(43		)
Net Income	125		126			(1		)	299			314			(15		)	77			79			(2		)	210			174			36
Less: Special Items	—		—			—			(1		)	—			(1		)	(9		)	—			(9		)	(9		)	(1		)	(8		)
Earnings from Ongoing Operations	$	125	$	126		$	(1	)	$	300		$	314		$	(14	)	$	86		$	79		$	7		$	219		$	175		$	44

The following after-tax ~~gain (loss)~~gains (losses), which management considers a special ~~item,~~items, impacted the Kentucky Regulated segment's results and isare excluded from Earnings from Ongoing Operations during the periods ended ~~September~~June 30.


	Income Statement Line Item	Three Months				Nine Months					Income Statement Line Item	Three Months					Six Months
	Income Statement Line Item	2017		2016		2017			2016		Income Statement Line Item	2018			2017		2018			2017
Adjustment to investment, net of tax of $0, $0, $0, $0 (a)	Other Income (Expense) - net	$	—	$	—	$	(1	)	$	—	Other Income (Expense) - net	$	—		$	—	$	—		$	(1	)
Kentucky state tax reform (b)											Income Taxes	(9		)	—		(9		)	—
Total Special Items		$	—	$	—	$	(1	)	$	—		$	(9	)	$	—	$	(9	)	$	(1	)


(a)	KU recorded a write-off of an equity method investment.


(b)	During the second quarter of 2018, LKE recorded deferred income tax expense, primarily associated with LKE's non-regulated entities, due to the Kentucky corporate income tax rate reduction from 6% to 5%, as enacted by HB 487, effective January 1, 2018. See Note 6 to the Financial Statements for additional information.

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 Adjusted Gross Margins and the item that management considers special on separate lines and not in their respective Statement of Income line items.

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	Three Months			Nine Months			Three Months			Six Months
Kentucky Gross Margins	$	10		$	(13	)
Kentucky Adjusted Gross Margins							$	15		$	43
Other operation and maintenance	(5		)	6			(22		)	(23		)
Depreciation	(10		)	(15		)	(12		)	(23		)
Taxes, other than income	—			(2		)	(5		)	(5		)
Other Income (Expense) - net	4			5			5			5
Interest Expense	—			(2		)	(3		)	(5		)
Income Taxes	—			7			29			52
Earnings from Ongoing Operations	(1		)	(14		)	7			44
Special items, after-tax	—			(1		)	(9		)	(8		)
Net Income	$	(1	)	$	(15	)	$	(2	)	$	36

See ~~"Margins~~"Adjusted Gross Margins - Changes in Adjusted Gross Margins" for an explanation of Kentucky Adjusted Gross Margins.

Higher other operation and maintenance expense for the three month period primarily due to a $6 million increase in costs related to the timing and scope of generation maintenance outages and increases in other costs that were not individually significant in comparison to the prior year.

Higher other operation and maintenance expense for the six month period primarily due to a $7 million increase in costs related to the timing and scope of generation maintenance outages and increases in other costs that were not individually significant in comparison to the prior year.

Higher depreciation expense for the three ~~and nine~~ month ~~periods primarily~~period due to a $7 million increase related to higher depreciation rates effective July 1, 2017 and a $5 million increase related to additions to PP&E, net of retirements.

Higher depreciation expense for the six month period due to a $12 million increase related to higher depreciation rates effective July 1, 2017 and an $11 million increase related to additions to PP&E, net of retirements.

Lower income taxes for the three month period primarily due to a $16 million decrease related to the impact of the U.S. federal corporate income tax rate reduction from 35% to 21%, as enacted by the TCJA, effective January 1, 2018, a $9 million decrease related to lower pre-tax income and a $6 million decrease related to higher amortization of excess deferred income taxes as a result of the TCJA.

Lower income taxes for the six month period primarily due to a $42 million decrease related to the impact of the U.S. federal corporate income tax rate reduction from 35% to 21%, as enacted by the TCJA, effective January 1, 2018, and an $11 million decrease related to higher amortization of excess deferred income taxes as a result of the TCJA.

Pennsylvania Regulated Segment

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 ~~24%~~23% of PPL's Net Income for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~25%~~26% of PPL's assets at ~~September~~June 30, ~~2017.~~2018.

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

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Three Months Nine Months
2017 2016 $ Change 2017 2016 $ Change
Operating revenues $ 547
$ 539
$ 8
$ 1,620
$ 1,619
$ 1
Energy purchases 121
129
(8 ) 374
414
(40 )
Other operation and maintenance 132
143
(11 ) 435
431
4
Depreciation 77
64
13
228
185
43
Taxes, other than income 27
26
1
79
79
—
Total operating expenses 357
362
(5 ) 1,116
1,109
7
Other Income (Expense) - net 5
4
1
11
12
(1 )
Interest Expense 36
32
4
105
97
8
Income Taxes 64
58
6
159
162
(3 )
Net Income 95
91
4
251
263
(12 )
Less: Special Items (a) —

—
—
—

—
—
Earnings from Ongoing Operations $ 95
$ 91
$ 4
$ 251
$ 263
$ (12 )



	Three Months							Six Months
	2018		2017		$ Change			2018		2017		$ Change
Operating revenues	$	517	$	500	$	17		$	1,156	$	1,073	$	83
Energy purchases	115		107		8			276		253		23
Other operation and maintenance	159		140		19			292		303		(11		)
Depreciation	88		76		12			173		151		22
Taxes, other than income	22		23		(1		)	54		52		2
Total operating expenses	384		346		38			795		759		36
Other Income (Expense) - net	8		6		2			14		6		8
Interest Expense	39		36		3			76		69		7
Income Taxes	27		47		(20		)	76		95		(19		)
Net Income	75		77		(2		)	223		156		67
Less: Special Items (a)	—		—		—			—		—		—
Earnings from Ongoing Operations	$	75	$	77	$	(2	)	$	223	$	156	$	67


(a)	There are no items that management considers special for the periods presented.

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

Three Months Nine Months
Pennsylvania Gross Margins $ 6
$ 14
Other operation and maintenance 16
8
Depreciation (8 ) (29 )
Taxes, other than income (1 ) 1
Other Income (Expense) - net 1
(1 )
Interest Expense (4 ) (8 )
Income Taxes (6 ) 3
Net Income $ 4
$ (12 )

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	Three Months			Six Months
Pennsylvania Adjusted Gross Margins	$	(5	)	$	43
Other operation and maintenance	(7		)	20
Depreciation	(9		)	(15		)
Taxes, other than income	—			(1		)
Other Income (Expense) - net	2			8
Interest Expense	(3		)	(7		)
Income Taxes	20			19
Net Income	$	(2	)	$	67

See ~~"Margins~~"Adjusted Gross Margins - Changes in Adjusted Gross Margins" for an explanation of Pennsylvania Adjusted Gross Margins.

~~Lower~~Higher other operation and maintenance expense for the three month period primarily due to $5 million of ~~lower payroll related~~nonrecoverable storm expenses and $4 million of ~~lower~~higher bad debt ~~expense and $4~~expenses, partially offset by $5 million of lower vegetation management expenses.

Lower other operation and maintenance expense for the ~~nine~~six month period primarily due to ~~$10~~$17 million of lower ~~bad debt~~corporate service costs allocated to PPL Electric, $14 million of lower payroll related expenses $7and $10 million of lower vegetation management expenses, partially offset by $12 million of nonrecoverable storm expenses and $7 million of ~~lower payroll related expenses, partially offset by $17 million of~~ higher ~~corporate service costs allocated to PPL Electric.~~bad debt expenses.

Higher depreciation expense for the three and ~~nine~~six month periods primarily due to ~~transmission and distribution additions~~additional assets placed into service, related to the ongoing efforts to ~~improve~~ensure the reliability of the delivery system and ~~replace~~the replacement of aging infrastructure, net of retirements.

~~Higher interest expense~~Lower income taxes for the ~~nine~~three month period primarily due to the ~~issuance~~impact of ~~$475~~the U.S. federal corporate income tax rate reduction from 35% to 21%, as enacted by the TCJA, effective January 1, 2018 of $13 million and lower pre-tax income resulting in $9 million of ~~3.950% First Mortgage Bonds in May 2017.~~lower income taxes.

Lower income taxes for the six month period primarily due to the impact of the U.S. federal corporate income tax rate reduction from 35% to 21%, as enacted by the TCJA, effective January 1, 2018 of $38 million, partially offset by higher pre-tax income resulting in $20 million of higher income taxes.

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Reconciliation of Earnings from Ongoing Operations

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" for the periods ended ~~September~~June 30.

2017 Three Months

U.K.
Regulated

KY
Regulated

PA
Regulated

Corporate
and Other
Total
Net Income $ 126
$ 125
$ 95
$ 9
$ 355
Less: Special Items (expense) benefit:
Foreign currency economic hedges, net of tax of $20 (37 ) —
—
—
(37 )
Spinoff of the Supply segment, net of tax of ($2) (a) —
—
—
4
4
Total Special Items (37 ) —
—
4
(33 )
Earnings from Ongoing Operations $ 163
$ 125
$ 95
$ 5
$ 388

2016 Three Months

U.K.
Regulated

KY
Regulated

PA
Regulated

Corporate
and Other
Total
Net Income $ 281
$ 126
$ 91
$ (25 ) $ 473
Less: Special Items (expense) benefit:
Foreign currency economic hedges, net of tax of $103 (193 ) —
—
—
(193 )
Other:

Settlement of foreign currency contracts, net of tax of ($108) 202
—
—
—
202
Change in U.K. tax rate 37
—
—
—
37
Total Special Items 46
—
—
—
46
Earnings from Ongoing Operations $ 235
$ 126
$ 91
$ (25 ) $ 427

2017 Nine Months

U.K.
Regulated

KY
Regulated

PA
Regulated

Corporate
and Other
Total
Net Income $ 560
$ 299
$ 251
$ (60 ) $ 1,050
Less: Special Items (expense) benefit:
Foreign currency economic hedges, net of tax of $66 (122 ) —
—
—
(122 )
Spinoff of the Supply segment, net of tax of ($2) (a) —
—
—
4
4
Adjustment to investment, net of tax of $0 —
(1 ) —
—
(1 )
Total Special Items (122 ) (1 ) —
4
(119 )
Earnings from Ongoing Operations $ 682
$ 300
$ 251
$ (64 ) $ 1,169

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	2018 Three Months
	U.K. Regulated			KY Regulated			PA Regulated		Corporate and Other			Total
Net Income	$	394		$	77		$	75	$	(31	)	$	515
Less: Special Items (expense) benefit:
Foreign currency economic hedges, net of tax of ($37)	140			—			—		—			140
Kentucky state tax reform	—			(9		)	—		—			(9		)
Total Special Items	140			(9		)	—		—			131
Earnings from Ongoing Operations	$	254		$	86		$	75	$	(31	)	$	384

	2017 Three Months
	U.K. Regulated			KY Regulated			PA Regulated		Corporate and Other			Total
Net Income	$	148		$	79		$	77	$	(12	)	$	292
Less: Special Items (expense) benefit:
Foreign currency economic hedges, net of tax of $34	(64		)	—			—		—			(64		)
Total Special Items	(64		)	—			—		—			(64		)
Earnings from Ongoing Operations	$	212		$	79		$	77	$	(12	)	$	356

	2018 Six Months
	U.K. Regulated			KY Regulated			PA Regulated		Corporate and Other			Total
Net Income	$	591		$	210		$	223	$	(57	)	$	967
Less: Special Items (expense) benefit:
Foreign currency economic hedges, net of tax of ($20)	75			—			—		—			75
Kentucky state tax reform	—			(9		)	—		—			(9		)
Total Special Items	75			(9		)	—		—			66
Earnings from Ongoing Operations	$	516		$	219		$	223	$	(57	)	$	901

	2017 Six Months
	U.K. Regulated			KY Regulated			PA Regulated		Corporate and Other			Total
Net Income	$	434		$	174		$	156	$	(69	)	$	695
Less: Special Items (expense) benefit:
Foreign currency economic hedges, net of tax of $46	(85		)	—			—		—			(85		)
Adjustment to investment, net of tax of $0	—			(1		)	—		—			(1		)
Total Special Items	(85		)	(1		)	—		—			(86		)
Earnings from Ongoing Operations	$	519		$	175		$	156	$	(69	)	$	781

2016 Nine Months

U.K.
Regulated

KY
Regulated

PA
Regulated

Corporate
and Other
Total
Net Income $ 915
$ 314
$ 263
$ (55 ) $ 1,437
Less: Special Items (expense) benefit:
Foreign currency economic hedges, net of tax of $34 (65 ) —
—
—
(65 )
Spinoff of the Supply segment, net of tax of $2 —
—
—
(2 ) (2 )
Other:

Settlement of foreign currency contracts, net of tax of ($108) 202
—
—
—
202
Change in U.K. tax rate 37
—
—
—
37
Total Special Items 174
—
—
(2 ) 172
Earnings from Ongoing Operations $ 741
$ 314
$ 263
$ (53 ) $ 1,265


~~(a)~~	~~Represents a tax settlement associated with the former Supply segment. Included in "Taxes, other than income" on the Statements of Income.~~

Adjusted Gross Margins

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

"U.K. Adjusted Gross Margins" is a single financial performance measure of the electricity distribution operations of the U.K. Regulated segment. In calculating this measure, direct costs such as connection charges from National Grid, which owns and manages the electricity transmission network in England and Wales, and Ofgem license fees (recorded in "Other operation and maintenance" on the Statements of Income) are deducted from operating revenues, as they are costs passed

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through to customers. As a result, this measure represents the net revenues from the delivery of electricity across WPD's distribution network in the U.K. and directly related activities.

"Kentucky Adjusted Gross Margins" is a single financial performance measure of the electricity generation, transmission and distribution operations of the Kentucky Regulated segment, LKE, LG&E and KU, as well as the Kentucky Regulated segment's, LKE's and LG&E's distribution and sale of natural gas. In calculating this measure, fuel, energy purchases and certain variable costs of production (recorded in "Other operation and maintenance" on the Statements of Income) are deducted from operating revenues. In addition, certain other expenses, recorded in "Other operation and maintenance", "Depreciation" and "Taxes, other than income" on the Statements of Income, associated with approved cost recovery mechanisms are offset against the recovery of those expenses, which are included in revenues. These mechanisms allow for direct recovery of these expenses and, in some cases, returns on capital investments and performance incentives. As a result, this measure represents the net revenues from electricity and gas operations.

"Pennsylvania Adjusted Gross Margins" is a single financial performance measure of the electricity transmission and distribution operations of the Pennsylvania Regulated segment and PPL Electric. In calculating this measure, utility revenues and expenses associated with approved recovery mechanisms, including energy provided as a PLR, are offset with minimal impact on earnings. Costs associated with these mechanisms are recorded in "Energy purchases," "Other operation and maintenance," (which are primarily Act 129, Storm Damage and Universal Service program costs), "Depreciation" (which is primarily related to the Act 129 Smart Meter program) and "Taxes, other than income," (which is primarily gross receipts tax) on the Statements of Income. This measure represents the net revenues from the Pennsylvania Regulated segment's and PPL Electric's electricity delivery operations.

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. Management believes these measures provide additional useful criteria to make investment decisions. These performance measures are used, in conjunction with other information, by senior management and PPL's Board of Directors to manage operations and analyze actual results compared with budget.

Changes in Adjusted Gross Margins

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



	Three Months							Six Months
	2018		2017		$ Change			2018		2017		$ Change
U.K. Regulated
U.K. Adjusted Gross Margins	$	538	$	469	$	69		$	1,111	$	1,005	$	106
Impact of changes in foreign currency exchange rates					47							101
U.K. Adjusted Gross Margins excluding impact of foreign currency exchange rates					$	22						$	5

Kentucky Regulated
Kentucky Adjusted Gross Margins
LG&E	$	216	$	207	$	9		$	457	$	433	$	24
KU	265		259		6			559		540		19
Total Kentucky Adjusted Gross Margins	$	481	$	466	$	15		$	1,016	$	973	$	43

Pennsylvania Regulated
Pennsylvania Adjusted Gross Margins
Distribution	$	192	$	219	$	(27	)	$	470	$	477	$	(7	)
Transmission	137		115		22			273		223		50
Total Pennsylvania Adjusted Gross Margins	$	329	$	334	$	(5	)	$	743	$	700	$	43

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Three Months Nine Months
2017 2016 $ Change 2017 2016 $ Change
U.K. Regulated

U.K. Gross Margins $ 441
$ 476
$ (35 ) $ 1,446
$ 1,566
$ (120 )
Impact of changes in foreign currency exchange rates (18 ) (172 )
U.K. Gross Margins excluding impact of foreign currency exchange rates $ (17 ) $ 52

Kentucky Regulated
Kentucky Gross Margins
LG&E $ 245
$ 237
$ 8
$ 678
$ 676
$ 2
KU 302
300
2
842
857
(15 )
Total Kentucky Gross Margins $ 547
$ 537
$ 10
$ 1,520
$ 1,533
$ (13 )

Pennsylvania Regulated
Pennsylvania Gross Margins
Distribution $ 233
$ 246
$ (13 ) $ 710
$ 721
$ (11 )
Transmission 134
115
19
357
332
25
Total Pennsylvania Gross Margins $ 367
$ 361
$ 6
$ 1,067
$ 1,053
$ 14

U.K. Adjusted Gross Margins

U.K. Gross Margins, excluding the impact of changes in foreign currency exchange rates, decreased for the three months ended September 30, 2017 compared with 2016, primarily due to $12 million of lower volumes and $3 million from the April 1, 2017 price decrease, which includes lower true-up mechanisms partially offset by higher base demand revenue.

~~U.K.~~Adjusted Gross Margins, excluding the impact of changes in foreign currency exchange rates, increased for the ~~nine~~three months ended ~~September~~June 30, ~~2017~~2018 compared with ~~2016,~~2017, primarily due to ~~$83~~$10 million from the April 1, ~~2016~~2018 price increase and $12 million of higher volumes.

U.K. Adjusted Gross Margins, excluding the impact of changes in foreign currency exchange rates, increased for the six months ended June 30, 2018 compared with 2017, primarily due to $10 million from the April 1, 2018 price increase and $4 million of higher volumes, partially offset by ~~$24 million of lower volumes and $9~~$10 million from the April 1, 2017 price decrease, ~~which includes~~driven by lower true-up mechanisms partially offset by higher base demand revenue.

Kentucky Adjusted Gross Margins

Kentucky Adjusted Gross Margins increased for the three months ended ~~September~~June 30, ~~2017~~2018 compared with ~~2016,~~2017, primarily due to higher base rates of ~~$31~~$28 million ($1815 million at LG&E and $13 million at KU) as new base rates were approved by the KPSC effective July 1, 2017, ~~partially offset by~~ $20 million of ~~lower~~increased sales volumes ~~due~~related to ~~milder~~favorable weather in ~~2017~~2018 ($8 million at LG&E and $12 million at KU).

~~Kentucky Gross Margins decreased for the nine months ended September 30, 2017 compared with 2016, primarily due to $51~~ and returns on additional environmental capital investments of $5 million ($3 million at LG&E and $2 million at KU), partially offset by $37 million of ~~lower sales volumes due~~estimated income tax savings owed to ~~milder weather in 2017~~customers ($17 million at LG&E and ~~$34~~$20 million at KU) related to the impact of the U.S. federal corporate income tax rate reduction from 35% to 21%, ~~partially offset~~as enacted by the TCJA, effective January 1, 2018.

Kentucky Adjusted Gross Margins increased for the six months ended June 30, 2018 compared with 2017, primarily due to higher base rates of ~~$31~~$58 million ($1832 million at LG&E and ~~$13~~$26 million at KU) as new base rates were approved by the KPSC effective July 1, ~~2017.~~2017, $51 million of increased sales volumes related to favorable weather in 2018 ($16 million at LG&E and $35 million at KU) and returns on additional environmental capital investments of $10 million ($6 million at LG&E and $4 million at KU), partially offset by $79 million of estimated income tax savings owed to customers ($37 million at LG&E and $42 million at KU) related to the impact of the U.S. federal corporate income tax rate reduction from 35% to 21%, as enacted by the TCJA, effective January 1, 2018.

Pennsylvania Adjusted Gross Margins

Distribution

Distribution ~~margins~~Adjusted Gross Margins decreased for the three ~~and nine month periods~~months ended ~~September~~June 30, ~~2017~~2018 compared with ~~2016,~~2017, primarily due to ~~$11~~the $34 million ~~and $16~~net of gross receipts tax impact of the estimated income tax savings owed to customers as a result of the U.S. federal corporate income tax rate reduction from 35% to 21%, as enacted by the TCJA, effective January 1, 2018, partially offset by $7 million of ~~lower~~higher electricity sales volumes and $2 million of returns on additional Smart Meter capital investments.

Distribution Adjusted Gross Margins decreased for the six months ended June 30, 2018 compared with 2017, primarily due to ~~milder weather in 2017.~~the $34 million net of gross receipts tax impact of the estimated income tax savings owed to customers as a result of the impact of the U.S. federal corporate income tax rate reduction from 35% to 21%, as enacted by the TCJA, effective January 1, 2018, partially offset by $25 million of higher electricity sales volumes and $5 million of returns on additional Smart Meter capital investments.

Transmission

Transmission ~~margins~~Adjusted Gross Margins increased for the three months ended ~~September~~June 30, ~~2017~~2018 compared with ~~2016,~~2017, primarily due to ~~an increase~~increases of ~~$20~~$17 million from returns on additional transmission capital investments focused on replacing aging infrastructure and improving ~~reliability.~~

~~Table~~reliability and $5 million as a result of ~~Contents~~

a higher PPL zonal peak load billing factor which affected transmission revenues in the second quarter of 2018.

Transmission ~~margins~~Adjusted Gross Margins increased for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 compared with ~~2016,~~2017, primarily due to an increase of ~~$42~~$39 million ~~primarily~~ from returns on additional transmission capital investments focused on replacing aging infrastructure and improving reliability ~~partially offset by a $17~~and $11 million ~~decrease~~ as a result of a ~~lower~~higher PPL zonal peak load billing factor ~~which affected transmission revenue~~ in the first five months of ~~2017.~~2018.

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Reconciliation of Adjusted Gross Margins

The following 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 ~~September~~June 30.

2017 Three Months
U.K.
Gross
Margins Kentucky
Gross
Margins PA Gross
Margins Other (a) Operating
Income (b)
Operating Revenues $ 467
(c) $ 818
$ 547
$ 13
$ 1,845
Operating Expenses
Fuel —
202
—
—
202
Energy purchases —
22
121
—
143
Other operation and maintenance 26
30
29
312
397
Depreciation —
16
5
236
257
Taxes, other than income —
1
25
43
69
Total Operating Expenses 26
271
180
591
1,068
Total $ 441
$ 547
$ 367
$ (578 ) $ 777

2016 Three Months
U.K.
Gross
Margins Kentucky
Gross
Margins PA Gross
Margins Other (a) Operating
Income (b)
Operating Revenues $ 504
(c) $ 835
$ 539
$ 11
$ 1,889
Operating Expenses
Fuel —
227
—
—
227
Energy purchases —
24
129
(2 ) 151
Other operation and maintenance 28
33
24
332
417
Depreciation —
14
—
218
232
Taxes, other than income —
—
25
51
76
Total Operating Expenses 28
298
178
599
1,103
Total $ 476
$ 537
$ 361
$ (588 ) $ 786


	2017 Nine Months												2018 Three Months
	U.K. Gross Margins			Kentucky Gross Margins		PA Gross Margins		Other (a)			Operating Income (b)		U.K. Adjusted Gross Margins			Kentucky Adjusted Gross Margins		Pennsylvania Adjusted Gross Margins		Other (a)			Operating Income (b)
Operating Revenues	$	1,517	(c)	$	2,350	$	1,620	$	34		$	5,521	$	574	(c)	$	743	$	517	$	14		$	1,848
Operating Expenses
Fuel	—			576		—		—			576		—			189		—		—			189
Energy purchases	—			120		374		—			494		—			33		115		—			148
Other operation and maintenance	71			82		89		975			1,217		36			23		43		404			506
Depreciation	—			48		14		683			745		—			17		8		248			273
Taxes, other than income	—			4		76		134			214		—			—		22		52			74
Total Operating Expenses	71			830		553		1,792			3,246		36			262		188		704			1,190
Total	$	1,446		$	1,520	$	1,067	$	(1,758	)	$	2,275	$	538		$	481	$	329	$	(690	)	$	658

													2017 Three Months
													U.K. Adjusted Gross Margins			Kentucky Adjusted Gross Margins		Pennsylvania Adjusted Gross Margins		Other (a)			Operating Income (b)
Operating Revenues													$	491	(c)	$	723	$	500	$	11		$	1,725
Operating Expenses
Fuel													—			183		—		—			183
Energy purchases													—			29		107		—			136
Other operation and maintenance													22			26		31		353			432
Depreciation													—			16		5		225			246
Taxes, other than income													—			3		23		44			70
Total Operating Expenses													22			257		166		622			1,067
Total													$	469		$	466	$	334	$	(611	)	$	658

													2018 Six Months
													U.K. Adjusted Gross Margins			Kentucky Adjusted Gross Margins		Pennsylvania Adjusted Gross Margins		Other (a)			Operating Income (b)
Operating Revenues													$	1,179	(c)	$	1,615	$	1,156	$	24		$	3,974
Operating Expenses
Fuel													—			403		—		—			403
Energy purchases													—			113		276		—			389
Other operation and maintenance													68			48		69		789			974
Depreciation													—			34		16		492			542
Taxes, other than income													—			1		52		104			157
Total Operating Expenses													68			599		413		1,385			2,465
Total													$	1,111		$	1,016	$	743	$	(1,361	)	$	1,509

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	2016 Nine Months												2017 Six Months
	U.K. Gross Margins			Kentucky Gross Margins		PA Gross Margins		Other (a)			Operating Income (b)		U.K. Adjusted Gross Margins			Kentucky Adjusted Gross Margins		Pennsylvania Adjusted Gross Margins		Other (a)			Operating Income (b)
Operating Revenues	$	1,641	(c)	$	2,382	$	1,619	$	43		$	5,685	$	1,050	(c)	$	1,532	$	1,073	$	21		$	3,676
Operating Expenses
Fuel	—			607		—		—			607		—			374		—		—			374
Energy purchases	—			118		414		(1		)	531		—			98		253		—			351
Other operation and maintenance	75			81		77		1,059			1,292		45			52		60		745			902
Depreciation	—			40		—		652			692		—			32		9		447			488
Taxes, other than income	—			3		75		151			229		—			3		51		91			145
Total Operating Expenses	75			849		566		1,861			3,351		45			559		373		1,283			2,260
Total	$	1,566		$	1,533	$	1,053	$	(1,818	)	$	2,334	$	1,005		$	973	$	700	$	(1,262	)	$	1,416


(a)	Represents amounts excluded from Adjusted Gross Margins.


(b)	As reported on the Statements of Income.


(c)	Excludes ancillary revenues of ~~$11~~$10 million and ~~$30~~$20 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and $11 million and ~~$32~~$20 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2017.

~~2017~~ 2018Outlook

(PPL)

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.

(PPL's U.K. Regulated Segment)

~~Lower~~Higher net income is projected in ~~2017~~2018 compared with ~~2016,~~2017. The increase in net income reflects the 2017 unfavorable impact of U.S. tax reform and unrealized losses on foreign currency economic hedges. Excluding these 2017 special items, the increase is expected to be driven primarily ~~driven~~ by ~~a lower~~higher assumed GBP exchange ~~rate in 2017, lower true-up mechanisms, lower incentive revenues, higher interest expense~~rates and higher ~~depreciation expense,~~pension income, partially offset by ~~lower operation and maintenance expense, including pension expense, and~~ higher ~~base revenue from the April 1, 2017 price reset.~~taxes.

(PPL's Kentucky Regulated Segment and LKE, LG&E and KU)

~~Lower~~Higher net income is projected in ~~2017~~2018 compared with ~~2016, primarily~~2017, which reflects the 2017 unfavorable impact of U.S. tax reform. Excluding this 2017 special item, earnings in 2018 compared with 2017 are projected to be relatively flat, driven by ~~lower~~favorable weather and higher base electricity ~~sales volumes due to unfavorable weather in~~and gas rates effective July 1, 2017, offset by higher operation and maintenance expense, higher depreciation expense, ~~partially offset by electricity~~higher interest expense and ~~gas base rate increases.~~a lower tax shield on holding company interest and expenses.

(PPL's Pennsylvania Regulated Segment and PPL Electric)

~~Relatively flat~~Higher net income is projected in ~~2017~~2018 compared with ~~2016,~~2017, primarily driven by higher transmission earnings, ~~and lower operation and maintenance expense,~~partially offset by higher depreciation expense and higher interest expense.

(PPL's Corporate and Other Category)

~~Relatively flat~~Lower costs are projected in ~~2017~~2018 compared with ~~2016.~~2017, which reflects the 2017 unfavorable impact of U.S. tax reform. Excluding this 2017 special item, costs are projected to be higher in 2018 compared to 2017, due to a lower tax shield on holding company interest expense.

(All Registrants)

Earnings in future periods are subject to various risks and uncertainties. See "Forward-Looking Information," the rest of this Item 2, Notes 67 and 910 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' ~~2016~~2017 Form 10-K for a discussion of the risks, uncertainties and factors that may impact future earnings.

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PPL Electric: Statement of Income Analysis, Earnings and Adjusted Gross Margins

Statement of Income Analysis

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


	Three Months							Nine Months							Three Months							Six Months
	2017		2016		$ Change			2017		2016		$ Change			2018		2017		$ Change			2018		2017		$ Change
Operating Revenues	$	547	$	539	$	8		$	1,620	$	1,619	$	1		$	517	$	500	$	17		$	1,156	$	1,073	$	83
Operating Expenses
Operation
Energy purchases	121		129		(8		)	374		414		(40		)	115		107		8			276		253		23
Other operation and maintenance	133		144		(11		)	435		431		4			159		139		20			292		302		(10		)
Depreciation	77		64		13			228		185		43			88		76		12			173		151		22
Taxes, other than income	27		26		1			79		79		—			22		23		(1		)	54		52		2
Total Operating Expenses	358		363		(5		)	1,116		1,109		7			384		345		39			795		758		37
Other Income (Expense) - net	4		4		—			8		12		(4		)	7		4		3			13		4		9
Interest Income from Affiliate	2		—		2			3		—		3			1		1		—			1		1		—
Interest Expense	36		32		4			105		97		8			39		36		3			76		69		7
Income Taxes	64		58		6			159		162		(3		)	27		47		(20		)	76		95		(19		)
Net Income	$	95	$	90	$	5		$	251	$	263	$	(12	)	$	75	$	77	$	(2	)	$	223	$	156	$	67

Operating Revenues

The increase (decrease) in operating revenues for the periods ended ~~September~~June 30, ~~2017~~2018 compared with ~~2016~~2017 was due to:


	Three Months			Nine Months			Three Months			Six Months
Distribution Price (a)	$	16		$	46
Distribution price							$	10		$	11
Distribution volume	(20		)	(30		)	12			32
PLR ~~(b)~~(a)	(1		)	(32		)	9			26
Transmission Formula Rate	20			25			22			50
TCJA refund (b)							(37		)	(37		)
Other	(7		)	(8		)	1			1
Total	$	8		$	1		$	17		$	83


(a)	~~Distribution rider prices resulted in~~The increases ~~of $16 million and $40 million for the three and nine months ended September 30, 2017.~~were primarily due to higher energy volumes as described below.


(b)	~~The decrease~~Represents estimated income tax savings owed to customers related to the impact of the U.S. federal corporate income tax rate reduction from 35% to 21%, as enacted by the TCJA, effective January 1, 2018. See Note 7 to the Financial Statements for ~~the nine month period was primarily due to lower energy prices as described below.~~additional information.

Energy Purchases

Energy purchases ~~decreased~~increased $8 million and $23 million for the three and six months ended ~~September~~June 30, ~~2017~~2018 compared with ~~2016,~~2017, primarily due to ~~lower PLR volumes of $12 million partially offset by~~ higher PLR ~~prices of $6 million.~~

~~Energy purchases decreased $40 million for the nine months ended September 30, 2017 compared with 2016, primarily due to lower PLR prices of $24 million and lower PLR volumes of $11 million.~~volumes.

Other Operation and Maintenance

The increase (decrease) in other operation and maintenance for the periods ended ~~September~~June 30, ~~2017~~2018 compared with ~~2016~~2017 was due to:

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	Three Months			Nine Months			Three Months			Six Months
Corporate service costs	$	—		$	17		$	(1	)	$	(17	)
Vegetation management	(4		)	(7		)	(5		)	(10		)
Storm costs							12			16
Payroll-related costs	(5		)	(6		)	(1		)	(14		)
Act 129	3			11			1			(2		)
Bad debts	(4		)	(10		)	4			7
Smart Meter							2			4
Contractor-related expenses							2			—
Other	(1		)	(1		)	6			6
Total	$	(11	)	$	4		$	20		$	(10	)

Depreciation

Depreciation increased ~~$13~~$12 million and ~~$43~~$22 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 compared with ~~2016,~~2017, 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 as well as the roll-out of the Act 129 Smart Meter program, net of retirements.

Other Income (Expense) - net

Other income (expense) - net increased $9 million for the six months ended June 30, 2018 compared with 2017, primarily due to a $4 million increase related to higher AFUDC equity rates and a $3 million increase in non-service cost credits from defined benefit plans.

Interest Expense

Interest expense increased $4$3 million and $8$7 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 compared with ~~2016,~~2017, primarily due to the May 2017 issuance of $475 million of 3.950% First Mortgage Bonds due ~~2047.~~2047 and the June 2018 issuance of $400 million of 4.15% First Mortgage Bonds due 2048.

Income Taxes

The increase (decrease) in income taxes for the periods ended ~~September~~June 30, ~~2017~~2018 compared with ~~2016~~2017 was due to:


	Three Months		Nine Months			Three Months			Six Months
Change in pre-tax income at current period tax rates	$	3	$	(7	)
Change in pre-tax income						$	(9	)	$	20
Reduction in U.S. federal income tax rate (a)						(13		)	(38		)
Amortization of excess deferred income taxes (a)						(3		)	(8		)
Stock-based compensation	—		2			3			5
Other	3		2			2			2
Total	$	6	$	(3	)	$	(20	)	$	(19	)


(a)	The decreases are related to the impact of the U.S. federal corporate income tax rate reduction from 35% to 21%, as enacted by the TCJA, effective January 1, 2018.

Earnings


	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	September 30,				September 30,				June 30,				June 30,
	2017		2016		2017		2016		2018		2017		2018		2017
Net Income	$	95	$	90	$	251	$	263	$	75	$	77	$	223	$	156
Special items, gains (losses), after-tax (a)	—		—		—		—		—		—		—		—


(a)	There are no items that management considers special for the periods presented.

Table of Contents

Earnings ~~increased~~were flat for the three month period in ~~2017~~2018 compared with ~~2016 as higher transmission margins from~~2017, driven primarily by returns on additional capital investments ~~and lower other~~in transmission, offset by higher operation and maintenance expense ~~were offset by lower sales volumes due to unfavorable weather~~ and higher depreciation expense.

Earnings ~~decreased~~increased for the ~~nine~~six month period in ~~2017~~2018 compared with ~~2016,~~2017, driven primarily due to higher depreciation expense, primarily due to transmission and distribution additions placed into service related to the ongoing efforts to improve reliability and replace aging infrastructure, net of retirements, higher interest expense, and lower distribution margins primarily due to lower sales volumes due to unfavorable weather in 2017. Higher transmission margins fromby returns on additional capital investments ~~were~~in transmission, higher distribution sales volumes and lower operation and maintenance expense, partially offset by ~~a lower PPL zonal peak load billing factor.~~higher depreciation expense.

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

~~Table of Contents~~


	Three Months			Nine Months			Three Months			Six Months
Pennsylvania Gross Margins	$	6		$	14
Pennsylvania Adjusted Gross Margins							$	(5	)	$	43
Other operation and maintenance	16			8			(8		)	19
Depreciation	(8		)	(29		)	(9		)	(15		)
Taxes, other than income	(1		)	1			—			(1		)
Other Income (Expense) - net	2			(1		)	3			9
Interest Expense	(4		)	(8		)	(3		)	(7		)
Income Taxes	(6		)	3			20			19
Net Income	$	5		$	(12	)	$	(2	)	$	67

Adjusted Gross Margins

"~~Pennsylvania~~Adjusted Gross 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 - Adjusted Gross Margins" for information on why management believes this measure is useful and for explanations of the underlying drivers of the changes between periods. Within PPL's discussion, PPL Electric's Adjusted Gross Margins are referred to as "Pennsylvania Adjusted Gross Margins."

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


	2017 Three Months							2016 Three Months							2018 Three Months							2017 Three Months
	PA Gross Margins		Other (a)			Operating Income (b)		PA Gross Margins		Other (a)			Operating Income (b)		PA Gross Margins		Other (a)			Operating Income (b)		PA Gross Margins		Other (a)			Operating Income (b)
Operating Revenues	$	547	$	—		$	547	$	539	$	—		$	539	$	517	$	—		$	517	$	500	$	—		$	500
Operating Expenses
Energy purchases	121		—			121		129		—			129		115		—			115		107		—			107
Other operation and maintenance	29		104			133		24		120			144		43		116			159		31		108			139
Depreciation	5		72			77		—		64			64		8		80			88		5		71			76
Taxes, other than income	25		2			27		25		1			26		22		—			22		23		—			23
Total Operating Expenses	180		178			358		178		185			363		188		196			384		166		179			345
Total	$	367	$	(178	)	$	189	$	361	$	(185	)	$	176	$	329	$	(196	)	$	133	$	334	$	(179	)	$	155

	2017 Nine Months							2016 Nine Months							2018 Six Months							2017 Six Months
	PA Gross Margins		Other (a)			Operating Income (b)		PA Gross Margins		Other (a)			Operating Income (b)		Adjusted Gross Margins		Other (a)			Operating Income (b)		Adjusted Gross Margins		Other (a)			Operating Income (b)
Operating Revenues	$	1,620	$	—		$	1,620	$	1,619	$	—		$	1,619	$	1,156	$	—		$	1,156	$	1,073	$	—		$	1,073
Operating Expenses
Energy purchases	374		—			374		414		—			414		276		—			276		253		—			253
Other operation and maintenance	89		346			435		77		354			431		69		223			292		60		242			302
Depreciation	14		214			228		—		185			185		16		157			173		9		142			151
Taxes, other than income	76		3			79		75		4			79		52		2			54		51		1			52
Total Operating Expenses	553		563			1,116		566		543			1,109		413		382			795		373		385			758
Total	$	1,067	$	(563	)	$	504	$	1,053	$	(543	)	$	510	$	743	$	(382	)	$	361	$	700	$	(385	)	$	315


(a)	Represents amounts excluded from Adjusted Gross Margins.


(b)	As reported on the Statements of Income.

Table of Contents

LKE: Statement of Income Analysis, Earnings and Adjusted Gross Margins

Statement of Income Analysis

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


	Three Months								Nine Months									Three Months								Six Months
	2017		2016			$ Change			2017			2016			$ Change			2018		2017			$ Change			2018			2017			$ Change
Operating Revenues	$	818	$	835		$	(17	)	$	2,350		$	2,382		$	(32	)	$	743	$	723		$	20		$	1,615		$	1,532		$	83
Operating Expenses
Operation
Fuel	202		227			(25		)	576			607			(31		)	189		183			6			403			374			29
Energy purchases	22		24			(2		)	120			118			2			33		29			4			113			98			15
Other operation and maintenance	199		197			2			598			603			(5		)	211		192			19			416			397			19
Depreciation	114		102			12			324			301			23			118		105			13			235			210			25
Taxes, other than income	17		16			1			49			46			3			18		16			2			35			32			3
Total Operating Expenses	554		566			(12		)	1,667			1,675			(8		)	569		525			44			1,202			1,111			91
Other Income (Expense) - net	1		(3		)	4			(5		)	(9		)	4			1		(4		)	5			(2		)	(8		)	6
Interest Expense	49		50			(1		)	148			147			1			52		50			2			102			99			3
Interest Expense with Affiliate	5		4			1			13			12			1			6		4			2			11			8			3
Income Taxes	79		79			—			195			202			(7		)	31		53			(22		)	70			116			(46		)
Net Income	$	132	$	133		$	(1	)	$	322		$	337		$	(15	)	$	86	$	87		$	(1	)	$	228		$	190		$	38

Operating Revenues

The increase (decrease) in operating revenues for the periods ended ~~September~~June 30, ~~2017~~2018 compared with ~~2016~~2017 was due to:


	Three Months			Nine Months			Three Months			Six Months
Volumes (a)							$	36		$	103
Base rates	$	31		$	31		28			58
Volumes	(41		)	(86		)
ECR							6			13
TCJA refund (b)							(37		)	(79		)
DSM							(3		)	(11		)
Fuel and other energy prices	(8		)	10			(9		)	(7		)
Other	1			13			(1		)	6
Total	$	(17	)	$	(32	)	$	20		$	83


(a)	Increases were primarily due to favorable weather in 2018.


(b)	Represents estimated income tax savings owed to customers related to the impact of the U.S. federal corporate income tax rate reduction from 35% to 21%, as enacted by the TCJA, effective January 1, 2018. See Note 7 to the Financial Statements for additional information.

Fuel

Fuel ~~decreased~~increased $256 million and $29 million for the three and six months ended~~September~~June 30, ~~2017~~2018 compared with ~~2016~~2017, primarily due to an increase in volumes driven by weather in 2018.

Energy Purchases

Energy purchases increased $15 million for the six months endedJune 30, 2018 compared with 2017, primarily due to a ~~$16~~$23 million ~~decrease~~increase in natural gas volumes driven by ~~milder~~ weather in ~~the third quarter of 2017 and~~2018, partially offset by a $9$10 million decrease in market prices for ~~coal.~~natural gas.

Table of Contents

~~Fuel decreased~~ ~~$31 million~~

Other Operation and Maintenance

The increase (decrease) in other operation and maintenance for the ~~nine months~~periods ended~~September~~ June 30, ~~2017~~2018 compared with ~~2016, primarily~~2017 was due ~~to a $28 million decrease in volumes driven by milder weather in 2017 and a $4 million decrease in market prices for coal.~~to:



	Three Months		Six Months
Timing and scope of generation maintenance outages	$	6	$	7
Vegetation management	3		3
Gas distribution maintenance and compliance	2		3
Storm costs	2		2
Other	6		4
Total	$	19	$	19

Depreciation

Depreciation increased ~~$12~~$13 million for the three months ended ~~September~~June 30, ~~2017~~2018 compared with ~~2016~~2017, primarily due to ~~a $7~~an $8 million increase related to higher depreciation rates effective July 1, 2017 and a $5$4 million increase related to additions to PP&E, net of retirements.

Depreciation increased $2325 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 compared with ~~2016~~2017, primarily due to a ~~$16~~$15 million increase related to higher depreciation rates effective July 1, 2017 and a $9 million increase related to additions to PP&E, net of ~~retirements, and a $7 million increase related to higher depreciation rates effective July 1, 2017.~~retirements.

Income Taxes

~~Table of Contents~~The increase (decrease) in income taxes for the periods ended June 30, 2018 compared with 2017 was due to:



	Three Months			Six Months
Reduction in U.S. federal income tax rate (a)	$	(16	)	$	(42	)
Amortization of excess deferred income taxes (a)	(6		)	(11		)
Change in pre-tax income	(9		)	(3		)
Kentucky state tax reform (b)	9			9
Other	—			1
Total	$	(22	)	$	(46	)


(a)	The decreases are related to the impact of the U.S. federal corporate income tax rate reduction from 35% to 21%, as enacted by the TCJA, effective January 1, 2018. See Note 6 to the Financial Statements for additional information.


(b)	During the second quarter of 2018, LKE recorded deferred income tax expense, primarily associated with LKE's non-regulated entities, due to the Kentucky corporate income tax rate reduction from 6% to 5%, as enacted by HB 487, effective January 1, 2018.See Note 6 to the Financial Statements for additional information.

Earnings


	Three Months Ended				Nine Months Ended					Three Months Ended					Six Months Ended
	September 30,				September 30,					June 30,					June 30,
	2017		2016		2017			2016		2018			2017		2018			2017
Net Income	$	132	$	133	$	322		$	337	$	86		$	87	$	228		$	190
Special items, gains (losses), after-tax	—		—		(1		)	—		(9		)	—		(9		)	(1		)

~~Earnings decreased~~Excluding special items, earnings increased for the three and ~~nine~~six month ~~periods~~period in ~~2017~~2018 compared with ~~2016,~~2017, primarily due to ~~lower~~higher base electricity and gas rates effective July 1, 2017 and higher sales volumes driven by ~~milder~~favorable weather, ~~and higher depreciation expense,~~ partially offset by higher ~~base rates effective July 1, 2017.~~other operation and maintenance expense and higher depreciation expense.

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

Table of Contents

Three Months Nine Months
Margins $ 10
$ (13 )
Other operation and maintenance (5 ) 6
Depreciation (10 ) (15 )
Taxes, other than income —
(2 )
Other Income (Expense) - net 4
5
Interest Expense —
(2 )
Income Taxes —
7
Special items, gains (losses), after-tax (a) —
(1 )
Net Income $ (1 ) $ (15 )



	Three Months			Six Months
Adjusted Gross Margins	$	15		$	43
Other operation and maintenance	(22		)	(23		)
Depreciation	(12		)	(23		)
Taxes, other than income	(5		)	(5		)
Other Income (Expense) - net	5			5
Interest Expense	(4		)	(6		)
Income Taxes	31			55
Special items, gains (losses), after-tax (a)	(9		)	(8		)
Net Income	$	(1	)	$	38


(a)	See PPL's "Results of Operations - Segment Earnings - Kentucky Regulated Segment" for details of the special ~~item.~~items.

Adjusted Gross Margins

"Adjusted Gross 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 - Adjusted Gross 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 Adjusted Gross Margins are referred to as "Kentucky Adjusted Gross Margins."

2017 Three Months 2016 Three Months
Margins Other (a) Operating
Income (b) Margins Other (a) Operating
Income (b)
Operating Revenues $ 818
$ —
$ 818
$ 835
$ —
$ 835
Operating Expenses
Fuel 202
—
202
227
—
227
Energy purchases 22
—
22
24
—
24
Other operation and maintenance 30
169
199
33
164
197
Depreciation 16
98
114
14
88
102
Taxes, other than income 1
16
17
—
16
16
Total Operating Expenses 271
283
554
298
268
566
Total $ 547
$ (283 ) $ 264
$ 537
$ (268 ) $ 269

~~Table of Contents~~


	2017 Nine Months							2016 Nine Months							2018 Three Months							2017 Three Months
	Margins		Other (a)			Operating Income (b)		Margins		Other (a)			Operating Income (b)		Adjusted Gross Margins		Other (a)			Operating Income (b)		Adjusted Gross Margins		Other (a)			Operating Income (b)
Operating Revenues	$	2,350	$	—		$	2,350	$	2,382	$	—		$	2,382	$	743	$	—		$	743	$	723	$	—		$	723
Operating Expenses
Fuel	576		—			576		607		—			607		189		—			189		183		—			183
Energy purchases	120		—			120		118		—			118		33		—			33		29		—			29
Other operation and maintenance	82		516			598		81		522			603		23		188			211		26		166			192
Depreciation	48		276			324		40		261			301		17		101			118		16		89			105
Taxes, other than income	4		45			49		3		43			46		—		18			18		3		13			16
Total Operating Expenses	830		837			1,667		849		826			1,675		262		307			569		257		268			525
Total	$	1,520	$	(837	)	$	683	$	1,533	$	(826	)	$	707	$	481	$	(307	)	$	174	$	466	$	(268	)	$	198

															2018 Six Months							2017 Six Months
															Adjusted Gross Margins		Other (a)			Operating Income (b)		Adjusted Gross Margins		Other (a)			Operating Income (b)
Operating Revenues															$	1,615	$	—		$	1,615	$	1,532	$	—		$	1,532
Operating Expenses
Fuel															403		—			403		374		—			374
Energy purchases															113		—			113		98		—			98
Other operation and maintenance															48		368			416		52		345			397
Depreciation															34		201			235		32		178			210
Taxes, other than income															1		34			35		3		29			32
Total Operating Expenses															599		603			1,202		559		552			1,111
Total															$	1,016	$	(603	)	$	413	$	973	$	(552	)	$	421


(a)	Represents amounts excluded from Adjusted Gross Margins.


(b)	As reported on the Statements of Income.

Table of Contents

LG&E: Statement of Income Analysis, Earnings and Adjusted Gross Margins

Statement of Income Analysis

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


	Three Months									Nine Months									Three Months								Six Months
	2017			2016			$ Change			2017			2016			$ Change			2018			2017		$ Change			2018			2017			$ Change
Operating Revenues
Retail and wholesale	$	361		$	366		$	(5	)	$	1,055		$	1,058		$	(3	)	$	331		$	320	$	11		$	738		$	694		$	44
Electric revenue from affiliate	2			2			—			23			19			4			4			4		—			16			21			(5		)
Total Operating Revenues	363			368			(5		)	1,078			1,077			1			335			324		11			754			715			39
Operating Expenses
Operation
Fuel	76			86			(10		)	225			233			(8		)	72			69		3			151			149			2
Energy purchases	18			19			(1		)	107			104			3			28			25		3			104			89			15
Energy purchases from affiliate	3			5			(2		)	8			10			(2		)	2			3		(1		)	8			5			3
Other operation and maintenance	89			85			4			262			264			(2		)	93			86		7			182			171			11
Depreciation	47			43			4			136			126			10			49			45		4			97			89			8
Taxes, other than income	8			9			(1		)	25			24			1			9			9		—			18			17			1
Total Operating Expenses	241			247			(6		)	763			761			2			253			237		16			560			520			40
Other Income (Expense) - net	(1		)	(1		)	—			(2		)	(6		)	4			(1		)	1		(2		)	(2		)	(3		)	1
Interest Expense	17			18			(1		)	53			53			—			19			19		—			37			36			1
Income Taxes	39			39			—			99			98			1			12			27		(15		)	33			60			(27		)
Net Income	$	65		$	63		$	2		$	161		$	159		$	2		$	50		$	42	$	8		$	122		$	96		$	26

~~Table of Contents~~

Operating Revenues

The increase (decrease) in operating revenues for the periods ended ~~September~~June 30, ~~2017~~2018 compared with ~~2016~~2017 was due to:


	Three Months			Nine Months			Three Months			Six Months
Volumes (a)							$	16		$	44
Base rates	$	18		$	18		16			32
Volumes	(16		)	(26		)
ECR							2			7
TCJA refund (b)							(17		)	(37		)
Fuel and other energy prices	(4		)	4			(7		)	(10		)
DSM							(1		)	(5		)
Other	(3		)	5			2			8
Total	$	(5	)	$	1		$	11		$	39


(a)	Increases were primarily due to favorable weather in 2018.


(b)	Represents estimated income tax savings owed to customers related to the impact of the U.S. federal corporate income tax rate reduction from 35% to 21%, as enacted by the TCJA, effective January 1, 2018. See Note 7 to the Financial Statements for additional information.

Fuel

Fuel ~~decreased~~ ~~$10~~increased $3 million for the three months ended ~~September~~June 30, ~~2017~~2018 compared with ~~2016~~2017, primarily due to an increase in volumes driven by weather in 2018.

Table of Contents

Energy Purchases

Energy purchases increased $3 million for the three months ended June 30, 2018 compared with 2017, primarily due to an increase in natural gas volumes driven by weather in 2018.

Energy purchases increased $15 million for the six months ended June 30, 2018 compared with 2017, primarily due to a $6$23 million increase in natural gas volumes driven by weather in 2018, partially offset by a $10 million decrease in market prices for ~~coal and a $5 million decrease in volumes driven by milder weather in the third quarter of 2017.~~natural gas.

Other Operation and Maintenance

The increase (decrease) in other operation and maintenance for the periods ended ~~September~~June 30, ~~2017~~2018 compared with ~~2016~~2017 was due to:


	Three Months		Nine Months			Three Months		Six Months
Plant operations and maintenance	$	1	$	(1	)
Pension expense	1		1
Gas distribution maintenance and compliance						$	2	$	3
Timing and scope of generation maintenance outages	—		(1		)	1		2
Storm costs	—		(1		)	2		2
Other	2		—			2		4
Total	$	4	$	(2	)	$	7	$	11

Depreciation

Depreciation increased $4 million for the three months ended ~~September~~June 30, ~~2017~~2018 compared with ~~2016~~2017, due to a $2 million increase related to higher depreciation rates effective July 1, 2017 and a $2 million increase related to additions to PP&E, net of retirements.

Depreciation increased $8 million for the six months ended June 30, 2018 compared with 2017, due to a $4 million increase related to higher depreciation rates effective July 1, 2017 and a $4 million increase related to additions to PP&E, net of retirements.

Income Taxes

The increase (decrease) in income taxes for the periods ended June 30, 2018 compared with 2017 was due to:



	Three Months			Six Months
Reduction in U.S. federal income tax rate (a)	$	(9	)	$	(22	)
Amortization of excess deferred income taxes (a)	(3		)	(5		)
Change in pre-tax income	(3		)	—
Total	$	(15	)	$	(27	)


(a)	The decreases are related to the impact of the U.S. federal corporate income tax rate reduction from 35% to 21%, as enacted by the TCJA, effective January 1, 2018. See Note 6 to the Financial Statements for additional information.

Earnings


	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	September 30,				September 30,				June 30,				June 30,
	2017		2016		2017		2016		2018		2017		2018		2017
Net Income	$	65	$	63	$	161	$	159	$	50	$	42	$	122	$	96
Special items, gains (losses), after-tax (a)	—		—		—		—		—		—		—		—


(a)	There are no items management considers special for the periods presented.

Earnings increased for the three and six month ~~period~~periods in ~~2017~~2018 compared with ~~2016,~~2017, primarily due to higher base ~~rates effective July 1, 2017, partially offset by lower sales volumes driven by milder weather.~~

~~Earnings increased for the nine month period in 2017 compared with 2016, primarily due to higher base~~electricity and gas rates effective July 1, 2017 and ~~lower~~higher sales volumes driven by favorable weather, partially offset by higher other operation and maintenance expense ~~partially offset by lower sales volumes driven by milder weather.~~and higher depreciation expense.

Table of Contents

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

~~Table of Contents~~


	Three Months			Nine Months			Three Months			Six Months
Margins	$	8		$	2
Adjusted Gross Margins							$	9		$	24
Other operation and maintenance	(4		)	3			(7		)	(12		)
Depreciation	(5		)	(6		)	(5		)	(10		)
Taxes, other than income	2			—			(2		)	(3		)
Other Income (Expense) - net	—			4			(2		)	1
Interest Expense	1			—			—			(1		)
Income Taxes	—			(1		)	15			27
Net Income	$	2		$	2		$	8		$	26

Adjusted Gross Margins

"Adjusted Gross 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 - Adjusted Gross 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 Adjusted Gross Margins are included in "Kentucky Adjusted Gross Margins."


	2017 Three Months							2016 Three Months							2018 Three Months							2017 Three Months
	Margins		Other (a)			Operating Income (b)		Margins		Other (a)			Operating Income (b)		Adjusted Gross Margins		Other (a)			Operating Income (b)		Adjusted Gross Margins		Other (a)			Operating Income (b)
Operating Revenues	$	363	$	—		$	363	$	368	$	—		$	368	$	335	$	—		$	335	$	324	$	—		$	324
Operating Expenses
Fuel	76		—			76		86		—			86		72		—			72		69		—			69
Energy purchases, including affiliate	21		—			21		24		—			24		30		—			30		28		—			28
Other operation and maintenance	13		76			89		13		72			85		10		83			93		10		76			86
Depreciation	7		40			47		8		35			43		7		42			49		8		37			45
Taxes, other than income	1		7			8		—		9			9		—		9			9		2		7			9
Total Operating Expenses	118		123			241		131		116			247		119		134			253		117		120			237
Total	$	245	$	(123	)	$	122	$	237	$	(116	)	$	121	$	216	$	(134	)	$	82	$	207	$	(120	)	$	87

	2017 Nine Months							2016 Nine Months							2018 Six Months							2017 Six Months
	Margins		Other (a)			Operating Income (b)		Margins		Other (a)			Operating Income (b)		Adjusted Gross Margins		Other (a)			Operating Income (b)		Adjusted Gross Margins		Other (a)			Operating Income (b)
Operating Revenues	$	1,078	$	—		$	1,078	$	1,077	$	—		$	1,077	$	754	$	—		$	754	$	715	$	—		$	715
Operating Expenses
Fuel	225		—			225		233		—			233		151		—			151		149		—			149
Energy purchases, including affiliate	115		—			115		114		—			114		112		—			112		94		—			94
Other operation and maintenance	33		229			262		32		232			264		19		163			182		20		151			171
Depreciation	24		112			136		20		106			126		15		82			97		17		72			89
Taxes, other than income	3		22			25		2		22			24		—		18			18		2		15			17
Total Operating Expenses	400		363			763		401		360			761		297		263			560		282		238			520
Total	$	678	$	(363	)	$	315	$	676	$	(360	)	$	316	$	457	$	(263	)	$	194	$	433	$	(238	)	$	195


(a)	Represents amounts excluded from Adjusted Gross Margins.


(b)	As reported on the Statements of Income.

Table of Contents

KU: Statement of Income Analysis, Earnings and Adjusted Gross Margins

Statement of Income Analysis

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


	Three Months								Nine Months									Three Months								Six Months
	2017		2016			$ Change			2017			2016			$ Change			2018		2017			$ Change			2018		2017			$ Change
Operating Revenues
Retail and wholesale	$	457	$	469		$	(12	)	$	1,295		$	1,324		$	(29	)	$	412	$	403		$	9		$	877	$	838		$	39
Electric revenue from affiliate	3		5			(2		)	8			10			(2		)	2		3			(1		)	8		5			3
Total Operating Revenues	460		474			(14		)	1,303			1,334			(31		)	414		406			8			885		843			42
Operating Expenses
Operation
Fuel	126		141			(15		)	351			374			(23		)	117		114			3			252		225			27
Energy purchases	4		5			(1		)	13			14			(1		)	5		4			1			9		9			—
Energy purchases from affiliate	2		2			—			23			19			4			4		4			—			16		21			(5		)
Other operation and maintenance	104		107			(3		)	313			320			(7		)	112		100			12			217		208			9
Depreciation	67		59			8			188			175			13			70		61			9			138		121			17
Taxes, other than income	9		7			2			24			22			2			9		7			2			17		15			2
Total Operating Expenses	312		321			(9		)	912			924			(12		)	317		290			27			649		599			50
Other Income (Expense) - net	—		(3		)	3			(3		)	(4		)	1			3		(2		)	5			—		(4		)	4
Interest Expense	24		24			—			72			71			1			25		24			1			50		48			2
Income Taxes	47		48			(1		)	120			128			(8		)	14		34			(20		)	38		73			(35		)
Net Income	$	77	$	78		$	(1	)	$	196		$	207		$	(11	)	$	61	$	56		$	5		$	148	$	119		$	29

Operating ~~Revenue~~Revenues

The increase (decrease) in operating ~~revenue~~revenues for the periods ended ~~September~~June 30, ~~2017~~2018 compared with ~~2016~~2017 was due to:


	Three Months			Nine Months			Three Months			Six Months
Volumes (a)							$	18		$	56
Base rates	$	13		$	13		12			26
Volumes	(27		)	(57		)
ECR							4			6
Fuel and other energy prices	(3		)	5			(2		)	2
TCJA refund (b)							(20		)	(42		)
DSM							(2		)	(6		)
Other	3			8			(2		)	—
Total	$	(14	)	$	(31	)	$	8		$	42


(a)	Increases were primarily due to favorable weather in 2018.


(b)	Represents estimated income tax savings owed to customers related to the impact of the U.S. federal corporate income tax rate reduction from 35% to 21%, as enacted by the TCJA, effective January 1, 2018. See Note 7 to the Financial Statements for additional information.

Fuel

Fuel ~~decreased $15~~increased $3 million and $27 million for the three and six months ended ~~September~~June 30, ~~2017~~2018 compared with ~~2016,~~2017, primarily due to an ~~$11 million decrease~~increase in volumes driven by ~~milder~~ weather in ~~the third quarter of 2017 and a $3 million decrease in market prices for coal.~~

~~Fuel decreased $23 million for the nine months ended September 30, 2017 compared with 2016, primarily due to a $29 million decrease in volumes driven by milder weather in 2017.~~

2018.

Table of Contents

Other Operation and Maintenance

The increase (decrease) in other operation and maintenance for the periods ended June 30, 2018 compared with 2017 was due to:



	Three Months		Six Months
Timing and scope of generation maintenance outages	$	5	$	6
Vegetation management	3		4
Other	4		(1		)
Total	$	12	$	9

Depreciation

Depreciation increased $8$9 million for the three months ended ~~September~~June 30, ~~2017~~2018 compared with ~~2016~~2017, primarily due to a $5$6 million increase related to higher depreciation rates effective July 1, 2017 and a $3$2 million increase related to additions to PP&E, net of retirements.

Depreciation increased ~~$13~~$17 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 compared with ~~2016~~2017, primarily due to an $8$11 million increase related to higher depreciation rates effective July 1, 2017 and a $5 million increase related to additions to PP&E, net of ~~retirements, and a $5 million~~retirements.

Income Taxes

The increase ~~related to higher depreciation rates effective July 1, 2017.~~(decrease) in income taxes for the periods ended June 30, 2018 compared with 2017 was due to:



	Three Months			Six Months
Reduction in U.S. federal income tax rate (a)	$	(10	)	$	(26	)
Amortization of excess deferred income taxes (a)	(3		)	(6		)
Change in pre-tax income	(6		)	(2		)
Other	(1		)	(1		)
Total	$	(20	)	$	(35	)


(a)	The decreases are related to the impact of the U.S. federal corporate income tax rate reduction from 35% to 21%, as enacted by the TCJA, effective January 1, 2018. See Note 6 to the Financial Statements for additional information.

Earnings


	Three Months Ended				Nine Months Ended					Three Months Ended				Six Months Ended
	September 30,				September 30,					June 30,				June 30,
	2017		2016		2017			2016		2018		2017		2018		2017
Net Income	$	77	$	78	$	196		$	207	$	61	$	56	$	148	$	119
Special items, gains (losses), after-tax	—		—		(1		)	—		—		—		—		(1		)

Earnings ~~decreased~~increased for the three and six month ~~period~~periods in ~~2017~~2018 compared with ~~2016,~~2017, primarily due to ~~lower electricity sales volumes driven by milder weather and higher depreciation expense, partially offset by~~ higher base ~~rates effective July 1, 2017.~~

~~Earnings decreased for the nine month period in 2017 compared with 2016, primarily due to lower~~ electricity ~~sales volumes driven by milder weather and higher depreciation expense, partially offset by higher base~~ rates effective July 1, 2017 and ~~lower~~higher sales volumes driven by favorable weather, partially offset by higher other operation and maintenance expense and higher depreciation expense.

Table of Contents

Three Months Nine Months
Margins $ 2
$ (15 )
Other operation and maintenance —
7
Depreciation (5 ) (9 )
Taxes, other than income (2 ) (2 )
Other Income (Expense) - net 3
2
Interest Expense —
(1 )
Income Taxes 1
8
Special items, gains (losses), after-tax (a) —
(1 )
Net Income $ (1 ) $ (11 )



	Three Months			Six Months
Adjusted Gross Margins	$	6		$	19
Other operation and maintenance	(15		)	(12		)
Depreciation	(7		)	(13		)
Taxes, other than income	(3		)	(2		)
Other Income (Expense) - net	5			3
Interest Expense	(1		)	(2		)
Income Taxes	20			35
Special items, gains (losses), after-tax (a)	—			1
Net Income	$	5		$	29


(a)	See PPL's "Results of Operations - Segment Earnings - Kentucky Regulated Segment" for details of the special item.

Adjusted Gross Margins

"Adjusted Gross 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 - Adjusted Gross Margins" for an explanation of why management believes this measure is useful and the factors underlying changes between periods. Within PPL's discussion, KU's Adjusted Gross Margins are included in "Kentucky Adjusted Gross Margins."

~~Table of Contents~~


	2017 Three Months							2016 Three Months							2018 Three Months							2017 Three Months
	Margins		Other (a)			Operating Income (b)		Margins		Other (a)			Operating Income (b)		Adjusted Gross Margins		Other (a)			Operating Income (b)		Adjusted Gross Margins		Other (a)			Operating Income (b)
Operating Revenues	$	460	$	—		$	460	$	474	$	—		$	474	$	414	$	—		$	414	$	406	$	—		$	406
Operating Expenses
Fuel	126		—			126		141		—			141		117		—			117		114		—			114
Energy purchases, including affiliate	6		—			6		7		—			7		9		—			9		8		—			8
Other operation and maintenance	17		87			104		20		87			107		13		99			112		16		84			100
Depreciation	9		58			67		6		53			59		10		60			70		8		53			61
Taxes, other than income	—		9			9		—		7			7		—		9			9		1		6			7
Total Operating Expenses	158		154			312		174		147			321		149		168			317		147		143			290
Total	$	302	$	(154	)	$	148	$	300	$	(147	)	$	153	$	265	$	(168	)	$	97	$	259	$	(143	)	$	116

	2017 Nine Months							2016 Nine Months							2018 Six Months							2017 Six Months
	Margins		Other (a)			Operating Income (b)		Margins		Other (a)			Operating Income (b)		Adjusted Gross Margins		Other (a)			Operating Income (b)		Adjusted Gross Margins		Other (a)			Operating Income (b)
Operating Revenues	$	1,303	$	—		$	1,303	$	1,334	$	—		$	1,334	$	885	$	—		$	885	$	843	$	—		$	843
Operating Expenses
Fuel	351		—			351		374		—			374		252		—			252		225		—			225
Energy purchases, including affiliate	36		—			36		33		—			33		25		—			25		30		—			30
Other operation and maintenance	49		264			313		49		271			320		29		188			217		32		176			208
Depreciation	24		164			188		20		155			175		19		119			138		15		106			121
Taxes, other than income	1		23			24		1		21			22		1		16			17		1		14			15
Total Operating Expenses	461		451			912		477		447			924		326		323			649		303		296			599
Total	$	842	$	(451	)	$	391	$	857	$	(447	)	$	410	$	559	$	(323	)	$	236	$	540	$	(296	)	$	244


(a)	Represents amounts excluded from Adjusted Gross Margins.


(b)	As reported on the Statements of Income.

Table of Contents

Financial Condition

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

Liquidity and Capital Resources

(All Registrants)

The Registrants had the following at:

PPL (a) PPL Electric LKE LG&E KU
September 30, 2017
Cash and cash equivalents $ 676
$ 243
$ 40
$ 9
$ 31
Notes receivable from affiliate 2
—
—
10
Short-term debt 1,211
—
190
190
—
Notes payable with affiliate —
159
10
—

December 31, 2016
Cash and cash equivalents $ 341
$ 13
$ 13
$ 5
$ 7
Short-term debt 923
295
185
169
16
Notes payable with affiliate —
163
—
—



	PPL (a)		PPL Electric		LKE		LG&E		KU
June 30, 2018
Cash and cash equivalents	$	852	$	489	$	39	$	19	$	20
Short-term debt	1,864		—		316		183		133
Long-term debt due within one year	203		—		203		194		9
Notes payable with affiliates			—		99		—		—

December 31, 2017
Cash and cash equivalents	$	485	$	49	$	30	$	15	$	15
Short-term debt	1,080		—		244		199		45
Long-term debt due within one year	348		—		98		98		—
Notes payable with affiliates			—		225		—		—

(a)

At ~~September~~June 30, ~~2017, $86~~2018, $2 million of cash and cash equivalents were denominated in GBP. If these amounts would be remitted as dividends, PPL would not anticipate ~~a material~~an incremental U.S. tax cost. ~~Historically, dividends paid by foreign subsidiaries have been limited to distributions of the current year's earnings.~~ See Note 5 to the Financial Statements in PPL's ~~2016~~2017 Form 10-K for additional information on undistributed earnings of WPD.

~~Table of Contents~~

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


	PPL			PPL Electric			LKE			LG&E			KU			PPL			PPL Electric			LKE			LG&E			KU
2017
2018
Operating activities	$	1,754		$	575		$	920		$	418		$	501		$	1,325		$	364		$	440		$	255		$	274
Investing activities	(2,164		)	(858		)	(575		)	(293		)	(289		)	(1,649		)	(521		)	(564		)	(296		)	(266		)
Financing activities	738			513			(318		)	(121		)	(188		)	695			597			133			45			(3		)
2016
2017
Operating activities	$	2,230		$	595		$	816		$	383		$	469		$	790		$	279		$	511		$	264		$	257
Investing activities	(2,066		)	(740		)	(599		)	(343		)	(254		)	(1,385		)	(824		)	(355		)	(177		)	(177		)
Financing activities	(558		)	134			(236		)	(55		)	(219		)	711			591			(150		)	(85		)	(75		)
Change - Cash Provided (Used)
Operating activities	$	(476	)	$	(20	)	$	104		$	35		$	32		$	535		$	85		$	(71	)	$	(9	)	$	17
Investing activities	(98		)	(118		)	24			50			(35		)	(264		)	303			(209		)	(119		)	(89		)
Financing activities	1,296			379			(82		)	(66		)	31			(16		)	6			283			130			72

Operating Activities

The components of the change in cash provided by (used in) operating activities for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 compared with ~~2016~~2017 were as follows.

Table of Contents

PPL PPL Electric LKE LG&E KU
Change - Cash Provided (Used)
Net income $ (387 ) $ (12 ) $ (15 ) $ 2
$ (11 )
Non-cash components (23 ) 34
(18 ) (11 ) 4
Working capital 91
(3 ) 78
(9 ) 31
Defined benefit plan funding (213 ) (24 ) 50
42
(3 )
Other operating activities 56
(15 ) 9
11
11
Total $ (476 ) $ (20 ) $ 104
$ 35
$ 32



	PPL			PPL Electric			LKE			LG&E			KU
Change - Cash Provided (Used)
Net income	$	272		$	67		$	38		$	26		$	29
Non-cash components	(279		)	(25		)	(46		)	(32		)	(51		)
Working capital	129			36			46			59			80
Defined benefit plan funding	346			(4		)	(93		)	(54		)	(31		)
Other operating activities	67			11			(16		)	(8		)	(10		)
Total	$	535		$	85		$	(71	)	$	(9	)	$	17

(PPL)

PPL's cash provided by operating activities in ~~2017 decreased $476~~2018 increased $535 million compared with ~~2016.~~2017.

~~The $27~~Net income increased $272 million between periods and included a decrease in non-cash ~~components~~charges of $279 million. The decrease in non-cash charges was primarily due to an increase in unrealized gains on hedging activities, an increase in the U.K. net periodic defined benefit credits (primarily due to an increase in expected returns on higher asset balances) and a decrease in deferred income tax expense (primarily due to lower income taxes from tax benefits related to accelerated pension contributions to the U.K. pension ~~plans)~~plans in 2017 and ~~an increase in the U.K.~~book versus tax plant timing differences and net ~~periodic defined benefit credits (primarily due to a decrease in the U.K. pension plan discount rates used to calculate the interest cost component of the net periodic defined benefit costs),~~operating losses at EU) partially offset by ~~an increase in unrealized losses on hedging activities and~~ an increase in depreciation expense (primarily due to additional assets placed into service, net of retirements, and higher depreciation rates effective July 1, 2017 ~~partially offset by~~at LG&E and KU and the impact of foreign currency exchange rates at WPD).

The ~~$91~~$129 million increase in cash from changes in working capital was primarily due to a decrease in ~~accounts receivable and unbilled revenue (primarily due to a decrease in volumes due to milder weather in 2017 compared to 2016), a decrease in~~ net regulatory assets and liabilities ~~(due~~(primarily due to the impact of the TCJA and timing of rate recovery mechanisms)~~, a decrease in fuel, material and supplies (primarily due to a decrease in fuel purchases due to milder weather in 2017 compared to 2016),~~ and an increase ~~in accrued interest, partially offset by a decrease in accounts payable (primarily due to an increase in accrued expenditures for property, plant and equipment and timing of payments) and a decrease~~ in taxes payable (primarily due to an increase in current income tax ~~benefit~~benefits in 2017).

Defined benefit plan funding was ~~$213~~$346 million ~~higher~~lower in ~~2017.~~2018. The ~~increase~~decrease was primarily due to the acceleration of WPD's contributions to its U.K. pension ~~plans. See Note 8 to the Financial Statements for additional information.~~plans in 2017.

(PPL Electric)

PPL Electric's cash provided by operating activities in ~~2017 decreased $20~~2018 increased $85 million compared with ~~2016.~~2017.

~~Table of Contents~~

~~The $34~~Net income increased $67 million ~~increase~~ between the periods and included a decrease in non-cash ~~components~~charges of $25 million. The decrease in non-cash charges was primarily due to an increase in depreciation expense (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 as well as the roll-out of the Act 129 Smart Meter program, net of retirements), partially offsetdriven by a $31 million decrease in deferred income ~~taxes~~tax expense (primarily due to book versus tax plant timing ~~differences)~~differences and net operating losses).

The $3$36 million ~~decrease~~increase in cash from changes in working capital was primarily due to ana $24 million increase in ~~prepayments (primarily~~accounts receivable and a $13 million increase in unbilled revenues due to an increase in ~~the 2017 gross receipts tax prepayment compared to 2016)~~sales volumes and ~~a decrease~~returns on additional capital investments.

The $11 million increase in ~~accounts payable (primarily~~cash provided by other operating activities was primarily due to timing of payments), partially offset by a decrease in net regulatory assets and liabilities (due to timing of rate recovery mechanisms), a decrease in unbilled revenue (primarily due to lower volumes due to milder weather in 2017 compared to 2016), an increase in ~~taxes payable~~non-current regulatory liabilities (primarily due to a ~~decrease~~$37 million TCJA liability) partially offset by an increase in ~~the current income tax benefit) and a decrease in accounts receivable~~non-current regulatory assets (primarily due to ~~a decrease in volumes due to milder weather in 2017 and income tax refunds received).~~

~~Defined benefit plan funding was $24~~$21 million ~~higher in 2017.~~of storm costs).

(LKE)

LKE's cash provided by operating activities in ~~2017 increased $104~~2018 decreased $71 million compared with ~~2016.~~2017.

Net income increased $38 million between the periods and included a decrease in non-cash charges of $46 million. The ~~increase~~decrease in ~~cash from changes in working capital~~non-cash charges was primarily driven by ~~decreases in accounts receivable from customers and unbilled revenues due to milder weather in 2017 compared to 2016,~~ a decrease in ~~fuel purchases~~deferred income tax expense (primarily due to ~~lower generation driven~~book versus tax plant timing differences and the impacts of federal and state tax reform), partially offset by ~~weather in 2017 compared to 2016, and~~ an increase in ~~taxes payable~~depreciation expense (primarily due to ~~timing~~higher depreciation rates effective July 1, 2017 and additional assets placed into service, net of ~~payments, partially offset by a decrease in accounts payable due to the timing of fuel purchases and payments.~~

~~Defined benefit plan funding was~~ ~~$50 million~~ ~~lower in 2017.~~retirements).

~~(LG&E)~~

~~LG&E's cash provided by operating activities in 2017 increased $35 million compared with 2016.~~

The decrease in cash from changes in working capital was primarily driven by decreases in accounts payable due to fuel purchases from lower generation and timing of payments and taxes payable due to timing of payments, partially offset by decreases in accounts receivable from customers and unbilled revenues due to milder weather in 2017 compared to 2016 and accounts receivable from affiliates due to timing of intercompany settlements associated with inventory and energy sales to KU.

~~Defined benefit plan funding was~~ ~~$42 million~~ ~~lower in 2017.~~

~~(KU)~~

~~KU's cash provided by operating activities in 2017 increased $32 million compared with 2016.~~

The increase in cash from changes in working capital was primarily driven by a decrease in ~~accounts receivable from customers~~net regulatory assets and ~~unbilled revenues~~liabilities (primarily due to ~~milder weather in 2017 compared to 2016, a decrease in fuel purchases due to lower generation driven by weather in 2017 compared to 2016,~~the impact of the TCJA and timing of rate recovery mechanisms), an increase in accounts payable (primarily due to ~~the~~ timing of ~~fuel purchases~~payments) and ~~payments,~~a decrease in unbilled revenues (primarily due to colder weather in the fourth quarter of 2017), partially offset by a decrease in taxes payable (primarily due to timing of ~~payments and accounts payable to affiliates~~payments), a

Table of Contents

decrease in other current liabilities (primarily due to timing of ~~intercompany settlements associated with~~payments) and an increase in fuel inventory (primarily due to timing of fuel purchases and ~~energy purchases from LG&E.~~payments).

Defined benefit plan funding was $93 million higher in 2018.

The decrease in cash from LKE's other operating activities was primarily driven by an increase in ARO expenditures.

(LG&E)

LG&E's cash provided by operating activities in 2018 decreased $9 million compared with 2017.

Net income increased $26 million between the periods and included a decrease in non-cash charges of $32 million. The decrease in non-cash charges was primarily driven by a decrease in deferred income tax expense (primarily due to book versus tax plant timing differences and the impacts of federal and state tax reform), partially offset by an increase in depreciation expense (primarily due to higher depreciation rates effective July 1, 2017 and additional assets placed into service, net of retirements).

The increase in cash from changes in working capital was primarily driven by a decrease in net regulatory assets and liabilities (primarily due to the impact of the TCJA and the timing of rate recovery mechanisms), an increase in taxes payable (primarily due to timing of payments) and a decrease in unbilled revenues (primarily due to colder weather in the fourth quarter of 2017), partially offset by a decrease in other current liabilities (primarily due to timing of payments).

Defined benefit plan funding was $54 million higher in 2018.

The decrease in cash from LG&E's other operating activities was primarily driven by an increase in ARO expenditures.

(KU)

KU's cash provided by operating activities in 2018 increased $17 million compared with 2017.

Net income increased $29 million between the periods and included a decrease in non-cash charges of $51 million. The decrease in non-cash charges was primarily driven by a decrease in deferred income tax expense (primarily due to book versus tax plant timing differences and the impacts of federal and state tax reform), partially offset by an increase in depreciation expense (primarily due to higher depreciation rates effective July 1, 2017 and additional assets placed into service, net of retirements).

The increase in cash from changes in working capital was primarily driven by a decrease in net regulatory assets and liabilities (primarily due to the impact of the TCJA and the timing of rate recovery mechanisms), an increase in taxes payable (primarily due to timing of payments), an increase in accounts payable (primarily due to timing of payments) and a decrease in unbilled revenues (primarily due to colder weather in the fourth quarter of 2017), partially offset by a decrease in other current liabilities (primarily due to timing of payments) and an increase in fuel inventory (primarily due to timing of fuel purchases and payments).

Defined benefit plan funding was $31 million higher in 2018.

The decrease in cash from KU's other operating activities was primarily driven by an increase in ARO expenditures.

Investing Activities

(All Registrants)

Expenditures for Property, Plant and Equipment

Investment in PP&E is the primary investing activity of the Registrants. The change in cash used in expenditures for PP&E for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 compared with ~~2016~~2017 was as follows.

PPL PPL Electric LKE LG&E KU
Decrease (Increase) $ (79 ) $ (112 ) $ 21
$ 50
$ (28 )



	PPL			PPL Electric		LKE			LG&E			KU
Decrease (Increase)	$	(154	)	$	32	$	(209	)	$	(119	)	$	(89	)

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For PPL, the increase in expenditures was due to higher project expenditures at ~~PPL Electric~~LKE, LG&E and KU partially offset by lower project expenditures at ~~WPD~~PPL Electric and ~~LG&E.~~WPD. The ~~increase~~decrease in expenditures for PPL Electric was primarily due to ~~an increase in~~timing differences on capital spending projects related to the ongoing efforts to improve reliability and replace aging ~~infrastructure, as well as the roll-out of the Act 129 Smart Meter program.~~infrastructure. The decrease in expenditures ~~for~~at WPD was primarily due to a decrease in ~~foreign currency exchange rates~~expenditures to enhance system reliability partially offset by an increase in expenditures to enhance system reliability. The decrease in expenditures for LG&E was primarily due to reduced spending for environmental air projects at LG&E's Mill Creek plant, partially offset by increased spending for environmental water projects at LG&E’s Mill Creek plant.foreign currency exchange rates. The increase in expenditures for LKE, LG&E and KU was primarily due to increased spending for environmental water projects at ~~KU’s~~LG&E's Mill Creek and Trimble County plants and increased spending for environmental water projects at KU's Ghent plant.

Financing Activities

(All Registrants)

The components of the change in cash provided by (used in) financing activities for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 compared with ~~2016~~2017 were as follows.


	PPL			PPL Electric			LKE			LG&E			KU			PPL			PPL Electric			LKE			LG&E			KU
Change - Cash Provided (Used)
Debt issuance/retirement, net	$	692		$	470		$	—		$	—		$	—		$	(200	)	$	(72	)	$	100		$	100		$	—
Settlement of cross-currency swaps	(46		)	—			—			—			—
Debt issuance/retirement with affiliate, net																			—			250			—			—
Stock issuances/redemptions, net	142			—			—			—			—			(30		)	—			—			—			—
Dividends	(28		)	(38		)	—			(63		)	26			(29		)	(68		)	—			41			(26		)
Capital contributions/distributions, net	—			375			(129		)	(47		)	(20		)				(150		)	57			43			45
Change in short-term debt, net	537			(425		)	135			35			25			234			295			(1		)	(54		)	53
Notes payable with affiliate	—			—			(88		)	10			—						—			(122		)	—			—
Other financing activities	(1		)	(3		)	—			(1		)	—			9			1			(1		)	—			—
Total	$	1,296		$	379		$	(82	)	$	(66	)	$	31		$	(16	)	$	6		$	283		$	130		$	72

See Note 78 to the Financial Statements in this Form 10-Q for information on ~~2017~~2018 short-term and long-term debt activity, equity transactions and PPL dividends. See Note 7 to the Financial Statements in the Registrants' ~~2016~~2017 Form 10-K for information on ~~2016~~2017 activity.

Credit Facilities

The Registrants maintain credit facilities to enhance liquidity, provide credit support and provide a backstop to commercial paper programs. Amounts borrowed under these credit facilities are reflected in "Short-term debt" on the Balance Sheets except for borrowings under LG&E's term loan agreement which are reflected in "Long-term debt" on the Balance Sheets. At ~~September~~June 30, ~~2017,~~2018, the total committed borrowing capacity under credit facilities and the ~~use of that capacity~~borrowings under these ~~credit~~ facilities ~~was as follows:~~were:

External


	Committed Capacity		Borrowed		Letters of Credit and Commercial Paper Issued		Unused Capacity		Committed Capacity		Borrowed		Letters of Credit and Commercial Paper Issued		Unused Capacity
PPL Capital Funding Credit Facilities	$	1,400	$	—	$	303	$	1,097	$	1,350	$	—	$	1,019	$	331
PPL Electric Credit Facility	650		—		1		649		650		—		1		649

LKE Credit Facility	75		—		—		75		75		—		—		75
LG&E Credit Facility	500		—		190		310		700		200		183		317
KU Credit Facilities	598		—		198		400		598		—		331		267
Total LKE	1,173		—		388		785		1,373		200		514		659
Total U.S. Credit Facilities (a)	$	3,223	$	—	$	692	$	2,531	$	3,373	$	200	$	1,534	$	1,639
Total U.K. Credit Facilities (b)	£	1,285	£	501	£	—	£	783	£	1,185	£	413	£	—	£	772

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(a)	The commitments under the U.S. credit facilities are provided by a diverse bank group, with no one bank and its affiliates providing an aggregate commitment of more than the following percentages of the total committed capacity: PPL - 10%, PPL Electric - 7%, LKE - ~~21%~~18%, LG&E - 7%33% and KU - 37%.

(b)

The amounts borrowed at ~~September~~June 30, ~~2017~~2018 were a USD-denominated borrowing of $200 million and GBP-denominated borrowings which equated to ~~$446~~$349 million. The unused capacity reflects the USD-denominated borrowing amount borrowed in GBP of ~~£156~~£150 million as of the date borrowed. At ~~September~~June 30, ~~2017,~~2018, the USD equivalent of unused capacity under the U.K. committed credit facilities was $1.0 billion.

The commitments under the U.K. credit facilities are provided by a diverse bank group, with no one bank providing more than ~~20%~~17% of the total committed capacity.

See Note 78 to the Financial Statements for further discussion of the Registrants' credit facilities.

Intercompany (LKE, LG&E and KU)


	Committed Capacity		Borrowed		Other Used Capacity		Unused Capacity		Committed Capacity		Borrowed		Non-affiliate Used Capacity		Unused Capacity
LKE Credit Facility	$	225	$	159	$	—	$	66	$	300	$	99	$	—	$	201
LG&E Money Pool (a)	500		10		190		300		500		—		183		317
KU Money Pool (a)	500		—		—		500		500		—		133		367


(a)	LG&E and KU participate in an intercompany money pool agreement whereby LKE, LG&E and/or KU make available funds up to $500 million at an interest rate based on a market index of commercial paper issues. However, the FERC has issued a maximum aggregate short-term debt limit for each utility at $500 million from all covered sources.

See Note 1011 to the Financial Statements for further discussion of intercompany credit facilities.

Commercial Paper (All Registrants)


	Capacity		Commercial Paper Issuances		Unused Capacity		Capacity		Commercial Paper Issuances		Unused Capacity
PPL Capital Funding	$	1,000	$	285	$	715	$	1,000	$	999	$	1
PPL Electric	650		—		650		650		—		650

LG&E	350		190		160		350		183		167
KU	350		—		350		350		133		217
Total LKE	700		190		510		700		316		384
Total PPL	$	2,350	$	475	$	1,875	$	2,350	$	1,315	$	1,035

Long-term Debt (All Registrants)

See Note 78 to the Financial Statements for information regarding the Registrants’ long-term debt activities.

(PPL)

~~ATM Program~~

~~For the periods ended September 30, 2017, PPL issued the following:~~

Three Months Nine Months
Number of shares (in thousands) 2,049
5,526
Average share price $ 39.04
$ 38.49
Net Proceeds $ 79
$ 211
Equity Securities Activities

Equity Forward Contracts

In May 2018, PPL completed a registered underwritten public offering of 55 million shares of its common stock. In connection with that offering, the underwriters exercised an option to purchase 8.25 million additional shares of PPL common stock solely to cover over-allotments.

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2019. PPL will not receive any proceeds or issue any shares of common stock until settlement of the forward sale agreements. PPL intends to use any net proceeds that it receives upon settlement for general corporate purposes. See Note 78 to the Financial Statements for additional information.

ATM Program

For the three and six months ended June 30, 2018, PPL issued 1.2 million and 4.2 million shares of common stock and received proceeds of $34 million and $119 million. See Note 8 to the Financial Statements for further discussion of the ATM program.

Common Stock Dividends

Rating Agency Actions

(All Registrants)

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 ~~2017:~~2018:

(PPL)

In March ~~2017,~~2018, Moody's and S&P assigned ratings of Baa1 and A- to WPD (South Wales)~~’s £50~~'s £30 million 0.01% Index-linked Senior Notes due ~~2029.~~2036.

In ~~September 2017,~~May 2018, Moody's and S&P assigned ratings of ~~Baa2~~Baa1 and ~~BBB+~~A- to ~~PPL Capital Funding’s $500~~WPD (West Midlands)'s £30 million ~~4.00%~~0.01% Index-linked Senior Notes due ~~2047.~~2028.

(PPL and PPL Electric)

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

~~In May 2017,~~June 2018, Moody's and S&P assigned ratings of A1 and A to PPL Electric's ~~$475 million 3.95%~~$400M 4.15% First Mortgage Bonds due ~~2047.~~2048.

(PPL, LKE and LG&E)

In ~~August 2017,~~February 2018, Moody’s assigned a rating of A1 and S&P confirmed its rating of A to the County of Trimble, Kentucky's $28 million 2.30% Pollution Control Revenue Bonds, 2001 Series A (Louisville Gas and Electric Company Project) due 2026, previously issued on behalf of LG&E.

In April 2018, Moody's assigned a rating of A1 and S&P confirmed its rating of A ~~for LCIDA's $116~~to the County of Trimble, Kentucky's $35 million 1.80% Pollution Control Revenue Refunding Bonds (PPL Electric Utilities Corporation Project) Series 2016A due 2029 and LCIDA's $108 million 1.80% Pollution Control Revenue Refunding Bonds (PPL Electric Utilities Corporation Project) Series 2016B due 2027, each previously issued on behalf of PPL Electric.

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

~~In March 2017, Moody’s assigned a rating of A1 and S&P confirmed its rating of A for the Louisville/Jefferson Metro Government of Kentucky's $128 million 1.5%~~2.55% Pollution Control Revenue Bonds, ~~2003~~2001 Series AB (Louisville Gas and Electric Company Project) due ~~2033,~~2027, previously ~~issued on behalf of LG&E.~~

In May 2017, Moody’s and S&P assigned ratings of A1 and A to the County of Trimble, Kentucky's $60 million 3.75% Environmental Facilities Revenue Bonds, 2017 Series A (Louisville Gas and Electric Company Project) due 2033, issued on behalf of LG&E.

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In ~~May 2017, Moody’s~~April 2018, Moody's assigned a rating of A1 and ~~in June 2017,~~ S&P confirmed its rating of A ~~for~~to the ~~Louisville/Jefferson Metro Government~~County of ~~Kentucky's $31 million 1.25% Environmental Facilities Revenue Refunding Bonds, 2007 Series A (Louisville Gas and Electric Company Project) due 2033, previously issued on behalf of LG&E.~~

~~In May 2017, Moody’s assigned a rating of A1 and in June 2017, S&P confirmed its rating of A for the Louisville/~~Jefferson, ~~Metro Government of~~ Kentucky's $35 million ~~1.25% Environmental Facilities~~2.55% Pollution Control Revenue ~~Refunding~~ Bonds, ~~2007~~2001 Series B (Louisville Gas and Electric Company Project) due ~~2033,~~2027, previously issued on behalf of LG&E.

~~(PPL, LKE and KU)~~

In July 2017, Moody’s affirmed its rating of Aa2 and in August 2017, S&P confirmed its rating of AA for the County of Mercer, Kentucky's $13 million Solid Waste Disposal Facility Revenue Bonds, 2000 Series A (Kentucky Utilities Company Project) due 2023, the County of Carroll, Kentucky's $50 million Environmental Facilities Revenue Bonds, 2004 Series A (Kentucky Utilities Company Project) due 2034, the County of Carroll, Kentucky's $78 million Environmental Facilities Revenue Bonds, 2008 Series A (Kentucky Utilities Company Project) due 2032 and the County of Carroll, Kentucky's $54 million Environmental Facilities Revenue Refunding Bonds, 2006 Series B (Kentucky Utilities Company Project) due 2034, each previously issued on behalf of KU.

Ratings Triggers

(PPL, LKE, LG&E and KU)

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 1314 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 ~~September~~June 30, ~~2017.~~2018.

(All Registrants)

For additional information on the Registrants' liquidity and capital resources, see "Item 7. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations," in the Registrants' ~~2016~~2017 Form 10-K.

Risk Management

Market Risk

(All Registrants)

See Notes 1213 and 1314 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.

Interest Rate Risk

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.

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The following interest rate hedges were outstanding at ~~September~~June 30, ~~2017.~~2018.


	Exposure Hedged		Fair Value, Net - Asset (Liability) (a)			Effect of a 10% Adverse Movement in Rates (b)			Maturities Ranging Through	Exposure Hedged		Fair Value, Net - Asset (Liability) (a)			Effect of a 10% Adverse Movement in Rates (b)			Maturities Ranging Through
PPL
Cash flow hedges
Interest rate swaps (c)	$	242	$	(2	)	$	(3	)	2027
Cross-currency swaps (c)	802		162			(90		)	2028	$	702	$	101		$	(81	)	2028
Economic hedges
Interest rate swaps (d)	147		(29		)	(1		)	2033	147		(21		)	(2		)	2033
LKE
Economic hedges
Interest rate swaps (d)	147		(29		)	(1		)	2033	147		(21		)	(2		)	2033
LG&E
Economic hedges
Interest rate swaps (d)	147		(29		)	(1		)	2033	147		(21		)	(2		)	2033


(a)	Includes accrued interest, if applicable.


(b)	Effects of adverse movements decrease assets or increase liabilities, as applicable, which could result in an asset becoming a liability. Sensitivities represent a 10% adverse movement in interest rates, except for cross-currency swaps which also includes a 10% adverse movement in foreign currency exchange rates.


(c)	Changes in the fair value of these instruments are recorded in equity and reclassified into earnings in the same period during which the item being hedged affects earnings.


(d)	Realized changes in the fair value of such economic hedges are recoverable through regulated rates and any subsequent changes in the fair value of these derivatives are included in regulatory assets or regulatory liabilities.

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 ~~September~~June 30, ~~2017~~2018 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 ~~September~~June 30, ~~2017~~2018 is shown below.


	10% Adverse Movement in Rates		10% Adverse Movement in Rates
PPL	$	600	$	658
PPL Electric	165		193
LKE	172		177
LG&E	63		63
KU	95		94

Foreign Currency Risk (PPL)

PPL is exposed to foreign currency risk primarily through investments in and earnings of 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 ~~September~~June 30, ~~2017.~~2018.

Exposure
Hedged

Fair Value,
Net - Asset
(Liability)

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

Maturities
Ranging
Through
Net investment hedges (b) £ 92
$ 1
$ (12 ) 2017
Economic hedges (c) 2,728
(4 ) (340 ) 2020



	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)	£	1,992	$	110	$	(244	)	2020


(a)	Effects of adverse movements decrease assets or increase liabilities, as applicable, which could result in an asset becoming a liability.

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(b)	~~To protect the value of a portion of its net investment in WPD, PPL executes forward contracts to sell GBP.~~


~~(c)~~	To economically hedge the translation risk of expected earnings denominated in GBP.

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(All Registrants)

Commodity Price Risk

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

Volumetric Risk

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

PPL Electric, LG&E and KU are exposed to volumetric risk on retail sales, mainly due to weather and other economic conditions for which there is limited mitigation between rate cases.

Credit Risk (All Registrants)

See Notes 1213 and 1314 to the Financial Statements in this Form 10-Q and "Item 7. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition - Risk Management - Credit Risk" in the Registrants' ~~2016~~2017 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 ~~gain~~loss of ~~$194~~$143 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, which primarily reflected a ~~$345~~$227 million ~~increase~~decrease to PP&E, a $45 million decrease to goodwill and a ~~$75 million increase to goodwill partially offset by a $203 million increase to long-term debt and a $23~~$2 million increase to other net ~~liabilities.~~liabilities, partially offset by a $131 million decrease to long-term debt. Changes in this exchange rate resulted in a foreign currency translation ~~loss~~gain of ~~$840~~$207 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2017, which primarily reflected a ~~$1.6 billion decrease~~$367 million increase to PP&E and ~~$375~~$79 million ~~decrease~~increase to goodwill partially offset by a ~~$995~~$216 million ~~decrease~~increase to long-term debt and a ~~$160~~$23 million ~~decrease~~increase 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 1011 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~~2017 Form 10-K for information on the more significant activities.

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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

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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 910 to the Financial Statements for a discussion of the more significant environmental matters ~~including:~~

including Legal Matters,

NAAQS, Climate Change,

CCRs,

~~ELGs,~~ and

~~NAAQS.~~

ELGs. Additionally, see "Item 1. Business - Environmental Matters" in the Registrants' ~~2016~~2017 Form 10-K for additional ~~information on environmental matters.~~information.

New Accounting Guidance (All Registrants)

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

Application of Critical Accounting Policies (All Registrants)

Financial condition and results of operations are impacted by the methods, assumptions and estimates used in the application of critical accounting policies. The following table summarizes the accounting policies by Registrant that are particularly important to an understanding of the reported financial condition or results of operations, and require management to make estimates or other judgments of matters that are inherently uncertain. See "Item 7. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Registrants' ~~2016~~2017 Form 10-K for a discussion of each critical accounting policy.

PPL

Electric

LKE

LG&E

Defined Benefits

Income Taxes

~~Goodwill Impairment~~

Regulatory Assets and Liabilities

~~AROs~~

Price Risk Management

~~Regulatory Assets and Liabilities~~Goodwill Impairment

AROs

Revenue Recognition - Unbilled Revenue

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PPL Corporation

PPL Electric Utilities Corporation

LG&E and KU Energy LLC

Louisville Gas and Electric Company

Kentucky Utilities Company

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

Item 4. Controls and Procedures

(a) Evaluation of disclosure controls and procedures.

The Registrants' principal executive officers and principal financial officers, based on their evaluation of the Registrants' disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934) have concluded that, as of ~~September~~June 30, ~~2017,~~2018, the Registrants' disclosure controls and procedures are effective to ensure that material information relating to the Registrants and their consolidated subsidiaries is recorded, processed, summarized and reported within the time periods specified by the SEC's rules and forms, particularly during the period for which this quarterly report has been prepared. The aforementioned principal officers have concluded that the disclosure controls and procedures are also effective to ensure that information required to be disclosed in reports filed under the Exchange Act is accumulated and communicated to management, including the principal executive and principal financial officers, to allow for timely decisions regarding required disclosure.

(b) Change in internal controls over financial reporting.

The Registrants' principal executive officers and principal financial officers have concluded that there were no changes in the Registrants' internal control over financial reporting during the Registrants' ~~third~~second fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Registrants' internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

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

"Item 3. Legal Proceedings" in each Registrant's ~~2016~~2017 Form 10-K; and

Notes 67 and 910 to the Financial Statements.

Item 1A. Risk Factors

There have been no material changes in the Registrants' risk factors from those disclosed in "Item 1A. Risk Factors" of the Registrants' ~~2016~~2017 Form 10-K.

Item 4. Mine Safety Disclosures

Not applicable.

Item 6. Exhibits

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.

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*1(a)	-	Final Terms, dated May 11, 2018, of Western Power Distribution (West Midlands) plc £30,000,000 RPI Index Linked Senior Unsecured Notes due March 2028
4(a)	-	Supplemental Indenture No. ~~16,~~20, dated as of ~~September 8, 2017, among~~June 1, 2018, of PPL ~~Capital Funding, Inc., PPL~~Electric Utilities Corporation ~~and~~to The Bank of New York Mellon, ~~(as successor~~as Trustee (Exhibit 4(a) to ~~JPMorgan Chase Bank, N.A. (formerly known as The Chase Manhattan Bank)), as Trustee~~PPL Corporation Form 8-K Report (File No. 1-11459) dated June 14, 2018)
4(b)	-	Officer’s Certificate, dated June 14, 2018, pursuant to Section 201 and Section 301 of the Indenture (Exhibit 4(b) to PPL Corporation Form 8-K Report (File No. 1-11459) dated ~~September 6, 2017)~~June 14, 2018)
*4(b)10(a)	-	£3,000,000,000 Euro Medium Term Note Programme entered into by Western Power Distribution (East Midlands) plc, Western Power Distribution (South Wales) plc, Western Power Distribution (South West) plcConfirmation of Forward Sale Transaction, dated May 8, 2018, between the Company and ~~Western Power Distribution (West Midlands) plc,~~JPMorgan Chase Bank, National Association, London Branch (Exhibit 10.1 to PPL Corporation Form 8-K Report (File No. 1-11459) dated ~~as of September 15, 2017~~May 11, 2018)
*4(c)10(b)	-	~~Amendment No. 1~~Confirmation of Forward Sale Transaction, dated May 8, 2018, between the Company and Barclays Bank PLC (Exhibit 10.2 to PPL ~~Employee Stock Ownership Plan,~~Corporation Form 8-K Report (File No. 1-11459) dated ~~October 2, 2017~~May 11, 2018)
*10(a)-110(c)	-	~~£20,000,000 Uncommitted Facility Letter entered into~~Additional Confirmation of Forward Sale Transaction, dated May 10, 2018, between ~~Western Power Distribution (South West) plc, Western Power Distribution (South Wales) plc, Western Power Distribution (West Midlands) plc, Western Power Distribution (East Midlands) plc~~the Company and ~~BNP Paribas,~~JPMorgan Chase Bank, National Association, London Branch (Exhibit 10.3 to PPL Corporation Form 8-K Report (File No. 1-11459) dated ~~as of January 23, 2014~~May 11, 2018)
*10(a)-210(d)	-	~~Amendment~~Additional Confirmation of Forward Sale Transaction, dated May 8, 2018, between the Company and Barclays Bank PLC (Exhibit 10.4 to ~~said Uncommitted Facility Letter,~~PPL Corporation Form 8-K Report (File No. 1-11459) dated ~~as of July 28, 2017~~
*10(b)	-	$200,000,000 Term Loan Credit Agreement, dated as of October 26, 2017, among Louisville Gas and Electric Company, as the Borrower, the Lenders from time to time party hereto and U.S. Bank National Association, as Administrative AgentMay 11, 2018)
*12(a)	-	PPL Corporation and Subsidiaries Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends
*12(b)	-	PPL Electric Utilities Corporation and Subsidiaries Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends
*12(c)	-	LG&E and KU Energy LLC and Subsidiaries Computation of Ratio of Earnings to Fixed Charges
*12(d)	-	Louisville Gas and Electric Company Computation of Ratio of Earnings to Fixed Charges
*12(e)	-	Kentucky Utilities Company Computation of Ratio of Earnings to Fixed Charges

Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, for the quarterly period ended ~~September~~June 30, ~~2017,~~2018, filed by the following officers for the following companies:

*31(a)	-	PPL Corporation's principal executive officer
*31(b)	-	PPL Corporation's principal financial officer
*31(c)	-	PPL Electric Utilities Corporation's principal executive officer
*31(d)	-	PPL Electric Utilities Corporation's principal financial officer
*31(e)	-	LG&E and KU Energy LLC's principal executive officer
*31(f)	-	LG&E and KU Energy LLC's principal financial officer
*31(g)	-	Louisville Gas and Electric Company's principal executive officer
*31(h)	-	Louisville Gas and Electric Company's principal financial officer
*31(i)	-	Kentucky Utilities Company's principal executive officer
*31(j)	-	Kentucky Utilities Company's principal financial officer

Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, for the quarterly period ended ~~September~~June 30, ~~2017,~~2018, furnished by the following officers for the following companies:

*32(a)	-	PPL Corporation's principal executive officer and principal financial officer
*32(b)	-	PPL Electric Utilities Corporation's principal executive officer and principal financial officer
*32(c)	-	LG&E and KU Energy LLC's principal executive officer and principal financial officer
*32(d)	-	Louisville Gas and Electric Company's principal executive officer and principal financial officer
*32(e)	-	Kentucky Utilities Company's principal executive officer and principal financial officer

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101.INS	-	XBRL Instance Document
101.SCH	-	XBRL Taxonomy Extension Schema
101.CAL	-	XBRL Taxonomy Extension Calculation Linkbase
101.DEF	-	XBRL Taxonomy Extension Definition Linkbase
101.LAB	-	XBRL Taxonomy Extension Label Linkbase
101.PRE	-	XBRL Taxonomy Extension Presentation Linkbase

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SIGNATURES

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



		PPL Corporation
		(Registrant)



Date:	~~November 1, 2017~~August 7, 2018	/s/ Stephen K. Breininger
		Stephen K. Breininger Vice President and Controller
		(Principal Accounting Officer)



		PPL Electric Utilities Corporation
		(Registrant)



Date:	~~November 1, 2017~~August 7, 2018	/s/ Marlene C. Beers
		Marlene C. Beers Vice President - Finance and Regulatory Affairs and Controller
		(Principal Financial Officer and Principal Accounting Officer)



		LG&E and KU Energy LLC
		(Registrant)

		Louisville Gas and Electric Company
		(Registrant)

		Kentucky Utilities Company
		(Registrant)



Date:	~~November 1, 2017~~August 7, 2018	/s/ Kent W. Blake
		Kent W. Blake Chief Financial Officer
		(Principal Financial Officer and Principal Accounting Officer)

~~110~~124



	Exposure at September 30, 2017			Expiration Date
PPL
Indemnifications related to the WPD Midlands acquisition			(a)
WPD indemnifications for entities in liquidation and sales of assets	$	10	(b)	2019
WPD guarantee of pension and other obligations of unconsolidated entities	95		(c)

PPL Electric
Guarantee of inventory value	17		(d)	2018

LKE
Indemnification of lease termination and other divestitures	301		(e)	2021 - 2023

LG&E and KU
LG&E and KU guarantee of shortfall related to OVEC			(f)



	PPL			LKE			LG&E			KU
Balance at December 31, 2016	$	488		$	433		$	145		$	288
Accretion	16			15			5			10
Effect of foreign exchange rates	2			—			—			—
Changes in estimated timing or cost	(70		)	(63		)	(12		)	(51		)
Obligations settled	(30		)	(30		)	(20		)	(10		)
Balance at September 30, 2017	$	406		$	355		$	118		$	237



	Three Months		Nine Months
Number of shares (in thousands)	2,049		5,526
Average share price	$	39.04	$	38.49
Net Proceeds	$	79	$	211