

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 30, 2018.~~March 31, 2019.
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 every Interactive Data File required to be submitted 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 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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Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol:	Name of each exchange on which registered
Common Stock of PPL Corporation	PPL	New York Stock Exchange

Junior Subordinated Notes of PPL Capital Funding, Inc.
2007 Series A due 2067	PPL/67	New York Stock Exchange
2013 Series B due 2073	PPX	New York Stock Exchange

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, ~~720,199,922~~721,742,302 shares outstanding at ~~October~~April 25, ~~2018.~~2019.

PPL Electric Utilities Corporation	Common stock, no par value, 66,368,056 shares outstanding and all held by PPL Corporation at ~~October~~April 25, ~~2018.~~2019.

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~~April 25, ~~2018.~~2019.

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~~April 25, ~~2018.~~2019.

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 30, 2018~~MARCH 31, 2019

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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' 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	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)
		Index to Combined Notes to Condensed Financial Statements		33
		1. Interim Financial Statements		33
		2. Summary of Significant Accounting Policies		3334
		3. Segment and Related Information		35
		4. Revenue from Contracts with Customers		36
		5. Earnings Per Share		3938
		6. Income Taxes		4039
		7. Utility Rate Regulation		4441
		8. Financing Activities		5045
		9. ~~Defined Benefits~~Leases		5347
		10. ~~Commitments and Contingencies~~Defined Benefits		5549
		11. ~~Related Party Transactions~~Commitments and Contingencies		6451
		12. ~~Other Income (Expense) - net~~Related Party Transactions		6661
		13. ~~Fair Value Measurements~~Other Income (Expense) - net		6663
		14. ~~Derivative Instruments and Hedging Activities~~Fair Value Measurements		6963
		15. ~~Asset Retirement Obligations~~Derivative Instruments and Hedging Activities		7665
		16. ~~Accumulated Other Comprehensive Income (Loss)~~Asset Retirement Obligations		7672
		17. Accumulated Other Comprehensive Income (Loss)		73
		18. New Accounting Guidance Pending Adoption		7874
	Item 2. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations
		Overview		8175
			Introduction	8175
			Business Strategy	8377
			Financial and Operational Developments	8478
		Results of Operations		8981
			PPL Corporation and Subsidiaries - Statement of Income Analysis, Segment Earnings and Adjusted Gross Margins	9082
			PPL Electric Utilities Corporation and Subsidiaries - Statement of Income Analysis, Earnings and Adjusted Gross Margins	~~104~~91
			LG&E and KU Energy LLC and Subsidiaries - Statement of Income Analysis, Earnings and Adjusted Gross Margins	~~107~~93
			Louisville Gas and Electric Company - Statement of Income Analysis, Earnings and Adjusted Gross Margins	~~110~~95
			Kentucky Utilities Company - Statement of Income Analysis, Earnings and Adjusted Gross Margins	~~113~~98
		Financial Condition		~~116~~100
			Liquidity and Capital Resources	~~116~~100
			Risk Management	~~122~~105
			Foreign Currency Translation	~~124~~107
			Related Party Transactions	~~124~~108
			Acquisitions, Development and Divestitures	~~125~~108
			Environmental Matters	~~125~~108
		New Accounting Guidance		~~125~~109
		Application of Critical Accounting Policies		~~126~~109
	Item 3. Quantitative and Qualitative Disclosures About Market Risk			~~127~~110
	Item 4. Controls and Procedures			~~127~~110
PART II. OTHER INFORMATION
	Item 1. Legal Proceedings			~~127~~110
	Item 1A. Risk Factors			~~127~~110
	Item 4. Mine Safety Disclosures			~~127~~
	~~Item 5. Other Information~~			~~127~~110
	Item 6. Exhibits			~~128~~110
SIGNATURES				~~130~~113
~~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. Following a reorganization in October 2015 and October 2017, PPL WPD Limited is an indirect parent to WPD plc having previously been a sister company.

Safari Energy - Safari Energy, LLC, an indirect subsidiary of PPL, acquired in June 2018, that provides solar energy solutions for commercial customers in the U.S.

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, 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.

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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-regulated utility generating plants in western Kentucky until July 2009.

Other terms and abbreviations

£ - British pound sterling.

~~2017~~2018 Form 10-K - Annual Report to the SEC on Form 10-K for the year ended December 31, ~~2017.~~2018.

Act 11 - Act 11 of 2012 that became effective on April 16, 2012. The Pennsylvania legislation 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 (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 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 - at-the-market stock offering program.

CCR(s) - coal combustion residual(s). CCRs include fly ash, bottom ash and sulfur dioxide scrubber wastes.

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

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

~~COBRA~~ ~~- Consolidated Omnibus Budget Reconciliation Act, which provides individuals the option to temporarily continue employer group health insurance coverage after termination of employment.~~

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.

~~Table of Contents~~

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

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DNO - Distribution Network Operator in the U.K.

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

DSIC - ~~the~~ Distribution System Improvement ~~Charge authorized~~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 - a non-GAAP financial measure of earnings adjusted for the impact of special items and used in "Item 2. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations" (MD&A).

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

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

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

EPS - earnings per share.

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

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

GBP - British pound sterling.

GHG(s) - greenhouse gas(es).

GLT - 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 onin April ~~27,~~ 2018.

~~IBEW~~ ~~- International Brotherhood of Electrical Workers.~~

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

IT ~~- Information Technology.~~

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

kV ~~- kilovolt.~~

kWh - kilowatt hour, basic unit of electrical energy.

~~iii~~

~~Table of Contents~~

LIBOR - London Interbank Offered Rate.

~~Mcf~~MATS - ~~one thousand cubic feet, a unit of measure for natural gas.~~Mercury and Air Toxics Standards, regulations promulgated by the EPA.

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

~~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.

iii

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

NERC - North American Electric Reliability Corporation.

New Source Review - a Clean Air Act program that requires industrial facilities to install updated pollution control equipment when they are built or when making a modification that increases emissions beyond certain allowable thresholds.

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 gas 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.~~recorded at cost. OVEC owns and operates two coal-fired power plants, the Kyger Creek plant in Ohio and the Clifty Creek plant in Indiana, with combined capacities of 2,120 MW.

Performance unit - 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) relative total shareowner return (TSR) over a three-year performance period as compared to companies in the Philadelphia Stock Exchange Utility 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.

PPL EnergyPlus - prior to the June 1, 2015 spinoff, PPL Energy Supply, LLC, PPL EnergyPlus, LLC, a subsidiary of PPL Energy Supply that marketed and traded wholesale and retail electricity and gas, and supplied energy and energy services in competitive markets.

PPL Energy Supply - prior to the June 1, 2015 spinoff, PPL Energy Supply, LLC, a subsidiary of PPL Energy Funding and the indirect parent company of PPL Montana, LLC.

PPL Montana - prior to the June 1, 2015 spinoff of PPL Energy Supply, PPL Montana, LLC, an indirect subsidiary of PPL Energy Supply that generated electricity for wholesale sales in Montana and the Pacific Northwest.

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

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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 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").

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

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

RIIO - 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 generation of the RIIO regulatory price control applicable to the operators of U.K. electricity distribution networks, which will begin in April 2023.

Riverstone - Riverstone Holdings LLC, a Delaware limited liability company and, as of December 6, 2016, ultimate parent company of the entities that own the competitive power generation business contributed to Talen Energy.

RPI - retail price index, is a measure of inflation in the United Kingdom published monthly by the Office for National Statistics.

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.

SCRs - selective catalytic reduction, a pollution control process for the removal of 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~~S&P Global Ratings, ~~Services,~~ a credit rating agency.

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

Talen Energy - Talen Energy Corporation, the Delaware corporation formed to be the publicly traded company and owner of the competitive generation assets of PPL Energy Supply and certain affiliates of Riverstone, which as of December 6, 2016, became wholly owned by Riverstone.

~~Table~~Talen EnergyMarketing- Talen Energy Marketing, LLC, the new name of ~~Contents~~

PPL EnergyPlus subsequent to the spinoff of PPL Energy Supply.

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.

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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 ~~2017~~2018 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 proceedings;

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

the ~~TCJA;~~

direct or indirect effects on PPL or its subsidiaries or business systems of cyber-based ~~intrusions~~intrusion or ~~natural disasters, threatened or actual terrorism, war or other hostilities;~~the threat of cyberattacks;

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;

developments related to ongoing negotiations regarding the U.K.'s intent to withdraw from the European Union and any actions in response thereto;

the amount of WPD's pension deficit funding recovered in revenues after March 31, 2021, following the next triennial pension review that began in March 2019;

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 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 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;

catastrophic events such as fires, earthquakes, explosions, floods, tornadoes, hurricanes and other storms, droughts, pandemic health events or other similar occurrences;

war, armed conflicts, terrorist attacks, or similar disruptive events;

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;

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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 March 31,
	2018		2017			2018		2017			2019		2018
Operating Revenues	$	1,872	$	1,845		$	5,846	$	5,521		$	2,079	$	2,126

Operating Expenses
Operation
Fuel	206		202			609		576			194		214
Energy purchases	149		143			538		494			250		241
Other operation and maintenance	479		438			1,453		1,340			490		468
Depreciation	275		257			817		745			284		269
Taxes, other than income	77		69			234		214			80		83
Total Operating Expenses	1,186		1,109			3,651		3,369			1,298		1,275

Operating Income	686		736			2,195		2,152			781		851

Other Income (Expense) - net	106		(35		)	297		(112		)	52		(43		)

Interest Expense	244		230			718		669			241		239

Income Before Income Taxes	548		471			1,774		1,371			592		569

Income Taxes	103		116			362		321			126		117

Net Income	$	445	$	355		$	1,412	$	1,050		$	466	$	452

Earnings Per Share of Common Stock:
Net Income Available to PPL Common Shareowners:
Basic	$	0.63	$	0.52		$	2.02	$	1.53		$	0.65	$	0.65
Diluted	$	0.62	$	0.51		$	2.01	$	1.53		$	0.64	$	0.65

Dividends Declared Per Share of Common Stock	$	0.41	$	0.395		$	1.23	$	1.185

Weighted-Average Shares of Common Stock Outstanding (in thousands)
Basic	703,730		686,563			699,117		683,783			721,023		694,514
Diluted	710,517		688,746			702,305		686,081			729,953		695,322

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

PPL Corporation and Subsidiaries

(Unaudited)

(Millions of Dollars)

Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 2018 2017
Net income $ 445
$ 355
$ 1,412
$ 1,050

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, $0, ($2), ($1) (187 ) (12 ) (321 ) 195
Qualifying derivatives, net of tax of ($5), $0, ($5), $7 22
1
21
(29 )
Defined benefit plans:

Prior service costs, net of tax of $0, $0, $0, $0 —
—
(1 ) —
Net actuarial gain (loss), net of tax of $3, $2, $3, $9 (8 ) (3 ) (9 ) (14 )
Reclassifications from AOCI - (gains) losses, net of tax expense (benefit):

Qualifying derivatives, net of tax of $3, $1, $4, ($6) (14 ) —
(21 ) 24
Equity investees' other comprehensive (income) loss, net of tax of $0, $0, $0, $0 —
—
—
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 ($8), ($10), ($26), ($28) 34
34
104
97
Total other comprehensive income (loss) (153 ) 20
(226 ) 275

Comprehensive income $ 292
$ 375
$ 1,186
$ 1,325



	Three Months Ended March 31,
	2019			2018
Net income	$	466		$	452

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, $0	294			116
Qualifying derivatives, net of tax of $4, $4	(19		)	(20		)
Defined benefit plans:
Net actuarial gain (loss), net of tax of $1, $0	(3		)	(1		)
Reclassifications from AOCI - (gains) losses, net of tax expense (benefit):
Qualifying derivatives, net of tax of ($6), ($2)	24			12
Defined benefit plans:
Net actuarial (gain) loss, net of tax of ($5), ($9)	21			36
Total other comprehensive income	317			143

Comprehensive income	$	783		$	595

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,						Three Months Ended March 31,
	2018			2017			2019			2018
Cash Flows from Operating Activities
Net income	$	1,412		$	1,050		$	466		$	452
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation	817			745			284			269
Amortization	56			72			22			21
Defined benefit plans - (income)	(146		)	(69		)	(66		)	(50		)
Deferred income taxes and investment tax credits	255			284			89			59
Unrealized (gains) losses on derivatives, and other hedging activities	(129		)	194
Unrealized losses on derivatives, and other hedging activities							53			85
Stock-based compensation expense	21			30			14			15
Other	(12		)	(8		)	(3		)	(3		)
Change in current assets and current liabilities
Accounts receivable	38			25			(57		)	(71		)
Accounts payable	(55		)	(93		)	(94		)	(36		)
Unbilled revenues	129			81			48			58
Fuel, materials and supplies	25			35			31			43
Prepayments	(38		)	(37		)	(86		)	(73		)
Taxes payable	20			6
Regulatory assets and liabilities, net	39			(3		)	(25		)	64
Accrued interest	48			49			48			39
Other current liabilities	(36		)	(53		)	(72		)	(120		)
Other	(21		)	5			(21		)	6
Other operating activities
Defined benefit plans - funding	(284		)	(558		)	(127		)	(150		)
Proceeds from transfer of excess benefit plan funds	65			—
Other assets	(38		)	4			(20		)	(30		)
Other liabilities	44			(5		)	(10		)	(12		)
Net cash provided by operating activities	2,210			1,754			474			566
Cash Flows from Investing Activities
Expenditures for property, plant and equipment	(2,344		)	(2,152		)	(729		)	(750		)
Purchase of available-for-sale securities	(65		)	—
Purchase of investments							(55		)	—
Proceeds from the sale of investments							57			—
Other investing activities	(57		)	(16		)	5			(3		)
Net cash used in investing activities	(2,466		)	(2,168		)	(722		)	(753		)
Cash Flows from Financing Activities
Issuance of long-term debt	602			1,088			—			144
Retirement of long-term debt	(277		)	(60		)
Issuance of common stock	678			275			22			100
Payment of common stock dividends	(846		)	(800		)	(296		)	(273		)
Net increase in short-term debt	481			269			424			369
Other financing activities	(20		)	(34		)	(8		)	(9		)
Net cash provided by financing activities	618			738			142			331
Effect of Exchange Rates on Cash, Cash Equivalents and Restricted Cash	(9		)	7			3			(2		)
Net Increase in Cash, Cash Equivalents and Restricted Cash	353			331
Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash							(103		)	142
Cash, Cash Equivalents and Restricted Cash at Beginning of Period	511			365			643			511
Cash, Cash Equivalents and Restricted Cash at End of Period	$	864		$	696		$	540		$	653

Supplemental Disclosures of Cash Flow Information
Significant non-cash transactions:
Accrued expenditures for property, plant and equipment at September 30,	$	311		$	373
Accrued expenditures for intangible assets at September 30,	$	70		$	60
Accrued expenditures for property, plant and equipment at March 31,							$	322		$	313
Accrued expenditures for intangible assets at March 31,							$	64		$	65

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, 2018		December 31, 2017		March 31, 2019		December 31, 2018
Assets

Current Assets
Cash and cash equivalents	$	842	$	485	$	518	$	621
Accounts receivable (less reserve: 2018, $54; 2017, $51)
Accounts receivable (less reserve: 2019, $61; 2018, $56)
Customer	684		681		749		663
Other	58		100		104		107
Unbilled revenues	411		543		456		496
Fuel, materials and supplies	295		320		274		303
Prepayments	103		66		157		70
Price risk management assets	91		49		109		109
Other current assets	61		50		62		63
Total Current Assets	2,545		2,294		2,429		2,432

Property, Plant and Equipment
Regulated utility plant	39,144		38,228		40,752		39,734
Less: accumulated depreciation - regulated utility plant	7,196		6,785		7,532		7,310
Regulated utility plant, net	31,948		31,443		33,220		32,424
Non-regulated property, plant and equipment	365		384		357		355
Less: accumulated depreciation - non-regulated property, plant and equipment	111		110		104		101
Non-regulated property, plant and equipment, net	254		274		253		254
Construction work in progress	1,816		1,375		1,834		1,780
Property, Plant and Equipment, net	34,018		33,092		35,307		34,458

Other Noncurrent Assets
Regulatory assets	1,525		1,504		1,666		1,673
Goodwill	3,242		3,258		3,260		3,162
Other intangibles	700		697		728		716
Pension benefit asset	615		284		715		535
Price risk management assets	206		215		172		228
Other noncurrent assets	191		135		290		192
Total Other Noncurrent Assets	6,479		6,093		6,831		6,506

Total Assets	$	43,042	$	41,479	$	44,567	$	43,396

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, 2018			December 31, 2017			March 31, 2019			December 31, 2018
Liabilities and Equity

Current Liabilities
Short-term debt	$	1,549		$	1,080		$	1,428		$	1,430
Long-term debt due within one year	330			348			202			530
Accounts payable	814			924			823			989
Taxes	121			105			112			110
Interest	326			282			332			278
Dividends	287			273			298			296
Customer deposits	265			292			260			257
Regulatory liabilities	136			95			100			122
Other current liabilities	555			624			506			551
Total Current Liabilities	4,383			4,023			4,061			4,563

Long-term Debt	19,924			19,847			21,114			20,069

Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes	2,717			2,462			2,941			2,796
Investment tax credits	127			129			125			126
Accrued pension obligations	649			800			718			771
Asset retirement obligations	279			312			267			264
Regulatory liabilities	2,739			2,704			2,700			2,714
Other deferred credits and noncurrent liabilities	441			441			469			436
Total Deferred Credits and Other Noncurrent Liabilities	6,952			6,848			7,220			7,107

Commitments and Contingent Liabilities (Notes 7 and 10)
Commitments and Contingent Liabilities (Notes 7 and 11)

Equity
Common stock - $0.01 par value (a)	7			7			7			7
Additional paid-in capital	11,001			10,305			11,051			11,021
Earnings reinvested	4,423			3,871			4,761			4,593
Accumulated other comprehensive loss	(3,648		)	(3,422		)	(3,647		)	(3,964		)
Total Equity	11,783			10,761			12,172			11,657

Total Liabilities and Equity	$	43,042		$	41,479		$	44,567		$	43,396


(a)	1,560,000 shares authorized; ~~719,702~~721,371 and ~~693,398~~720,323 shares issued and outstanding at ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017.~~2018.

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, 2018																720,323	$	7	$	11,021		$	4,593		$	(3,964	)	$	11,657
Common stock issued																1,048			32									32
Stock-based compensation																			(2		)							(2		)
Net income																						466						466
Dividends and dividend equivalents (b)																						(298		)				(298		)
Other comprehensive income																									317			317
March 31, 2019																721,371	$	7	$	11,051		$	4,761		$	(3,647	)	$	12,172
	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		693,398	$	7	$	10,305		$	3,871		$	(3,422	)	$	10,761
Common stock issued	26,304			699									699			3,985			115									115
Stock-based compensation				(3		)							(3		)				(9		)							(9		)
Net income							1,412						1,412									452						452
Dividends and dividend equivalents							(860		)				(860		)
Other comprehensive income (loss)										(226		)	(226		)
September 30, 2018	719,702	$	7	$	11,001		$	4,423		$	(3,648	)	$	11,783
Dividends and dividend equivalents (b)																						(286		)				(286		)
Other comprehensive income																									143			143
March 31, 2018																697,383	$	7	$	10,411		$	4,037		$	(3,279	)	$	11,176

December 31, 2016	679,731	$	7	$	9,841		$	3,829		$	(3,778	)	$	9,899
Common stock issued	8,402			303									303
Stock-based compensation				(22		)							(22		)
Net income							1,050						1,050
Dividends and dividend equivalents							(813		)				(813		)
Other comprehensive income (loss)										275			275
September 30, 2017	688,133	$	7	$	10,122		$	4,066		$	(3,503	)	$	10,692


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


(b)	Dividends declared per share of common stock at March 31, 2019 and March 31, 2018: $0.4125 and $0.4100.

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

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THIS PAGE INTENTIONALLY LEFT BLANK.

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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 March 31,
	2018		2017		2018		2017		2019		2018
Operating Revenues	$	548	$	547	$	1,704	$	1,620	$	645	$	639

Operating Expenses
Operation
Energy purchases	127		121		403		374		171		161
Other operation and maintenance	127		133		419		435		150		133
Depreciation	89		77		262		228		95		85
Taxes, other than income	27		27		81		79		31		32
Total Operating Expenses	370		358		1,165		1,116		447		411

Operating Income	178		189		539		504		198		228

Other Income (Expense) - net	5		4		18		8		5		6

Interest Income from Affiliate	4		2		5		3		2		—

Interest Expense	41		36		117		105		42		37

Income Before Income Taxes	146		159		445		410		163		197

Income Taxes	35		64		111		159		42		49

Net Income (a)	$	111	$	95	$	334	$	251	$	121	$	148


(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,						Three Months Ended March 31,
	2018			2017			2019			2018
Cash Flows from Operating Activities
Net income	$	334		$	251		$	121		$	148
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation	262			228			95			85
Amortization	17			25			5			6
Defined benefit plans - expense	2			10			—			2
Deferred income taxes and investment tax credits	77			129			16			21
Other	(13		)	(8		)	(2		)	(5		)
Change in current assets and current liabilities
Accounts receivable	22			7			(25		)	(30		)
Accounts payable	(46		)	(38		)	(5		)	(36		)
Unbilled revenues	45			30			13			16
Prepayments	(25		)	(31		)	(88		)	(69		)
Regulatory assets and liabilities, net	(25		)	—			(15		)	5
Taxes payable	(1		)	10			(2		)	4
Other	12			(9		)	(12		)	(19		)
Other operating activities
Defined benefit plans - funding	(28		)	(24		)	(21		)	(28		)
Other assets	(37		)	(2		)	2			(25		)
Other liabilities	54			(3		)	(1		)	1
Net cash provided by operating activities	650			575			81			76

Cash Flows from Investing Activities
Expenditures for property, plant and equipment	(835		)	(851		)	(264		)	(245		)
Net decrease in notes receivable from affiliate	—			(2		)
Other investing activities	(2		)	(5		)
Expenditures for intangible assets							—			(1		)
Net cash used in investing activities	(837		)	(858		)	(264		)	(246		)

Cash Flows from Financing Activities
Issuance of long-term debt	398			470
Contributions from parent	429			575
Payment of common stock dividends to parent	(271		)	(231		)	(120		)	(72		)
Net decrease in short-term debt	—			(295		)
Net increase in short-term debt							60			213
Other financing activities	(4		)	(6		)	(1		)	—
Net cash provided by financing activities	552			513
Net cash provided by (used in) financing activities							(61		)	141

Net Increase in Cash, Cash Equivalents and Restricted Cash	365			230
Net Decrease in Cash, Cash Equivalents and Restricted Cash							(244		)	(29		)
Cash, Cash Equivalents and Restricted Cash at Beginning of Period	51			15			269			51
Cash, Cash Equivalents and Restricted Cash at End of Period	$	416		$	245		$	25		$	22

Supplemental Disclosure of Cash Flow Information
Significant non-cash transactions:
Accrued expenditures for property, plant and equipment at September 30,	$	171		$	190
Accrued expenditures for property, plant and equipment at March 31,							$	142		$	147

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

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~~CONDENSED CONSOLIDATED BALANCE SHEETS~~

~~PPL Electric Utilities Corporation and Subsidiaries~~

~~(Unaudited)~~

~~(Millions of Dollars, shares in thousands)~~

September 30,
2018 December 31,
2017
Assets

Current Assets

Cash and cash equivalents $ 414
$ 49
Accounts receivable (less reserve: 2018, $26; 2017, $24)

Customer 309
279
Other 18
71
Accounts receivable from affiliates 11
—
Unbilled revenues 82
127
Materials and supplies 26
34
Prepayments 31
6
Regulatory assets 18
16
Other current assets 10
6
Total Current Assets 919
588

Property, Plant and Equipment

Regulated utility plant 11,332
10,785
Less: accumulated depreciation - regulated utility plant 2,848
2,778
Regulated utility plant, net 8,484
8,007
Construction work in progress 643
508
Property, Plant and Equipment, net 9,127
8,515

Other Noncurrent Assets

Regulatory assets 738
709
Intangibles 260
259
Other noncurrent assets 52
11
Total Other Noncurrent Assets 1,050
979

Total Assets $ 11,096
$ 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,
2018 December 31,
2017
Liabilities and Equity

Current Liabilities

Accounts payable $ 384
$ 386
Accounts payable to affiliates 25
31
Taxes 7
8
Interest 43
36
Regulatory liabilities 72
86
Other current liabilities 99
98
Total Current Liabilities 630
645

Long-term Debt 3,693
3,298

Deferred Credits and Other Noncurrent Liabilities

Deferred income taxes 1,258
1,154
Accrued pension obligations 210
246
Regulatory liabilities 686
668
Other deferred credits and noncurrent liabilities 135
79
Total Deferred Credits and Other Noncurrent Liabilities 2,289
2,147

Commitments and Contingent Liabilities (Notes 7 and 10)

Equity

Common stock - no par value (a) 364
364
Additional paid-in capital 3,158
2,729
Earnings reinvested 962
899
Total Equity 4,484
3,992

Total Liabilities and Equity $ 11,096
$ 10,082



	March 31, 2019		December 31, 2018
Assets

Current Assets
Cash and cash equivalents	$	23	$	267
Accounts receivable (less reserve: 2019, $30; 2018, $27)
Customer	320		264
Other	19		38
Accounts receivable from affiliates	11		11
Unbilled revenues	107		120
Materials and supplies	24		25
Prepayments	86		5
Regulatory assets	11		11
Other current assets	9		9
Total Current Assets	610		750

Property, Plant and Equipment
Regulated utility plant	11,794		11,637
Less: accumulated depreciation - regulated utility plant	2,892		2,856
Regulated utility plant, net	8,902		8,781
Construction work in progress	609		586
Property, Plant and Equipment, net	9,511		9,367

Other Noncurrent Assets
Regulatory assets	809		824
Intangibles	260		260
Other noncurrent assets	53		42
Total Other Noncurrent Assets	1,122		1,126

Total Assets	$	11,243	$	11,243

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)



	March 31, 2019		December 31, 2018
Liabilities and Equity

Current Liabilities
Short-term debt	$	60	$	—
Accounts payable	373		418
Accounts payable to affiliates	48		25
Taxes	10		12
Interest	42		37
Regulatory liabilities	60		74
Other current liabilities	84		101
Total Current Liabilities	677		667

Long-term Debt	3,694		3,694

Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes	1,345		1,320
Accrued pension obligations	257		282
Regulatory liabilities	667		675
Other deferred credits and noncurrent liabilities	141		144
Total Deferred Credits and Other Noncurrent Liabilities	2,410		2,421

Commitments and Contingent Liabilities (Notes 7 and 11)

Equity
Common stock - no par value (a)	364		364
Additional paid-in capital	3,158		3,158
Earnings reinvested	940		939
Total Equity	4,462		4,461

Total Liabilities and Equity	$	11,243	$	11,243


(a)	170,000 shares authorized; 66,368 shares issued and outstanding at ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017.~~2018.

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			Common stock shares outstanding (a)	Common stock		Additional paid-in capital		Earnings reinvested			Total
December 31, 2018												66,368	$	364	$	3,158	$	939		$	4,461
Net income																	121			121
Dividends declared on common stock																	(120		)	(120		)
March 31, 2019												66,368	$	364	$	3,158	$	940		$	4,462

December 31, 2017	66,368	$	364	$	2,729	$	899		$	3,992		66,368	$	364	$	2,729	$	899		$	3,992
Net income						334			334								148			148
Capital contributions from parent				429					429
Dividends declared on common stock						(271		)	(271		)						(72		)	(72		)
September 30, 2018	66,368	$	364	$	3,158	$	962		$	4,484

December 31, 2016	66,368	$	364	$	2,154	$	873		$	3,391
Net income						251			251
Capital contributions from parent				575					575
Dividends declared on common stock						(231		)	(231		)
September 30, 2017	66,368	$	364	$	2,729	$	893		$	3,986
March 31, 2018												66,368	$	364	$	2,729	$	975		$	4,068


(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.

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THIS PAGE INTENTIONALLY LEFT BLANK.

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 March 31,
	2018		2017			2018			2017			2019		2018
Operating Revenues	$	802	$	818		$	2,417		$	2,350		$	845	$	872

Operating Expenses
Operation
Fuel	206		202			609			576			194		214
Energy purchases	22		22			135			120			79		80
Other operation and maintenance	216		197			632			594			214		205
Depreciation	119		114			354			324			123		117
Taxes, other than income	18		17			53			49			18		17
Total Operating Expenses	581		552			1,783			1,663			628		633

Operating Income	221		266			634			687			217		239

Other Income (Expense) - net	—		(1		)	(2		)	(9		)	—		(3		)

Interest Expense	52		49			154			148			54		50

Interest Expense with Affiliate	7		5			18			13			7		5

Income Before Income Taxes	162		211			460			517			156		181

Income Taxes	32		79			102			195			32		39

Net Income(a)	$	130	$	132		$	358		$	322		$	124	$	142


(a)	Net income approximates comprehensive income.

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)



	Three Months Ended March 31,
	2019			2018
Cash Flows from Operating Activities
Net income	$	124		$	142
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation	123			117
Amortization	10			5
Defined benefit plans - expense	3			3
Deferred income taxes and investment tax credits	36			8
Other	(1		)	—
Change in current assets and current liabilities
Accounts receivable	8			(5		)
Accounts payable	(33		)	10
Accounts payable to affiliates	7			2
Unbilled revenues	21			31
Fuel, materials and supplies	29			42
Regulatory assets and liabilities, net	(10		)	60
Taxes payable	(29		)	7
Accrued interest	42			42
Other	(15		)	(67		)
Other operating activities
Defined benefit plans - funding	(21		)	(108		)
Expenditures for asset retirement obligations	(21		)	(9		)
Other assets	(2		)	(3		)
Other liabilities	(1		)	1
Net cash provided by operating activities	270			278
Cash Flows from Investing Activities
Expenditures for property, plant and equipment	(278		)	(294		)
Net cash used in investing activities	(278		)	(294		)
Cash Flows from Financing Activities
Net increase (decrease) in notes payable with affiliate	74			12
Issuance of long-term debt	—			100
Net decrease in short-term debt	(12		)	(29		)
Distributions to member	(56		)	(69		)
Other financing activities	—			(1		)
Net cash provided by financing activities	6			13
Net Decrease in Cash and Cash Equivalents	(2		)	(3		)
Cash and Cash Equivalents at Beginning of Period	24			30
Cash and Cash Equivalents at End of Period	$	22		$	27

Supplemental Disclosure of Cash Flow Information
Significant non-cash transactions:
Accrued expenditures for property, plant and equipment at March 31,	$	88		$	124

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)



	March 31, 2019		December 31, 2018
Assets

Current Assets
Cash and cash equivalents	$	22	$	24
Accounts receivable (less reserve: 2019, $28; 2018, $27)
Customer	239		239
Other	60		63
Unbilled revenues	148		169
Fuel, materials and supplies	219		248
Prepayments	25		25
Regulatory assets	27		25
Total Current Assets	740		793

Property, Plant and Equipment
Regulated utility plant	13,806		13,721
Less: accumulated depreciation - regulated utility plant	2,146		2,125
Regulated utility plant, net	11,660		11,596
Construction work in progress	1,046		1,018
Property, Plant and Equipment, net	12,706		12,614

Other Noncurrent Assets
Regulatory assets	857		849
Goodwill	996		996
Other intangibles	75		78
Other noncurrent assets	136		82
Total Other Noncurrent Assets	2,064		2,005

Total Assets	$	15,510	$	15,412

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)



	March 31, 2019		December 31, 2018
Liabilities and Equity

Current Liabilities
Short-term debt	$	69	$	514
Long-term debt due within one year	202		530
Notes payable with affiliates	187		113
Accounts payable	278		366
Accounts payable to affiliates	17		9
Customer deposits	63		61
Taxes	34		63
Price risk management liabilities	4		4
Regulatory liabilities	40		48
Interest	74		32
Asset retirement obligations	73		82
Other current liabilities	122		126
Total Current Liabilities	1,163		1,948

Long-term Debt
Long-term debt	5,084		4,322
Long-term debt to affiliate	650		650
Total Long-term Debt	5,734		4,972

Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes	999		956
Investment tax credits	125		126
Price risk management liabilities	17		16
Accrued pension obligations	259		282
Asset retirement obligations	214		214
Regulatory liabilities	2,033		2,039
Other deferred credits and noncurrent liabilities	175		136
Total Deferred Credits and Other Noncurrent Liabilities	3,822		3,769

Commitments and Contingent Liabilities (Notes 7 and 11)

Member's Equity	4,791		4,723

Total Liabilities and Equity	$	15,510	$	15,412

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,
2018 2017 2018 2017
Net income $ 130
$ 132
$ 358
$ 322

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, $0, $7 —
(1 ) —
(12 )
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
Defined benefit plans:
Prior service costs, net of tax of $0, ($1), $0, ($1) 1
—
2
1
Net actuarial (gain) loss, net of tax of $0, $0, ($1), ($2) 1
1
2
3
Total other comprehensive income (loss) 2
—
4
(7 )

Comprehensive income $ 132
$ 132
$ 362
$ 315

~~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,
2018 2017
Cash Flows from Operating Activities

Net income $ 358
$ 322
Adjustments to reconcile net income to net cash provided by operating activities

Depreciation 354
324
Amortization 13
19
Defined benefit plans - expense 12
19
Deferred income taxes and investment tax credits 71
173
Other (2 ) 1
Change in current assets and current liabilities

Accounts receivable 8
18
Accounts payable 4
(30 )
Accounts payable to affiliates 7
3
Unbilled revenues 54
19
Fuel, materials and supplies 17
34
Regulatory assets and liabilities, net 62
(3 )
Taxes payable (11 ) 13
Accrued interest 41
41
Other (36 ) 2
Other operating activities

Defined benefit plans - funding (126 ) (32 )
Expenditures for asset retirement obligations (46 ) (22 )
Other assets (1 ) 5
Other liabilities 8
14
Net cash provided by operating activities 787
920
Cash Flows from Investing Activities

Expenditures for property, plant and equipment (826 ) (579 )
Other investing activities 1
4
Net cash used in investing activities (825 ) (575 )
Cash Flows from Financing Activities

Net increase (decrease) in notes payable with affiliate (145 ) (4 )
Issuance of long-term debt with affiliate 250
—
Issuance of long-term debt 118
60
Retirement of long-term debt (27 ) (60 )
Distributions to member (217 ) (316 )
Net increase in short-term debt 60
5
Other financing activities (2 ) (3 )
Net cash provided by (used in) financing activities 37
(318 )
Net Increase (Decrease) in Cash and Cash Equivalents (1 ) 27
Cash and Cash Equivalents at Beginning of Period 30
13
Cash and Cash Equivalents at End of Period $ 29
$ 40

Supplemental Disclosure of Cash Flow Information
Significant non-cash transactions:
Accrued expenditures for property, plant and equipment at September 30, $ 108
$ 142

~~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,
2018 December 31,
2017
Assets

Current Assets

Cash and cash equivalents $ 29
$ 30
Accounts receivable (less reserve: 2018, $26; 2017, $25)

Customer 230
246
Other 47
44
Unbilled revenues 149
203
Fuel, materials and supplies 238
254
Prepayments 32
25
Regulatory assets 11
18
Other current assets 7
8
Total Current Assets 743
828

Property, Plant and Equipment

Regulated utility plant 13,438
13,187
Less: accumulated depreciation - regulated utility plant 2,031
1,785
Regulated utility plant, net 11,407
11,402
Construction work in progress 1,000
627
Property, Plant and Equipment, net 12,407
12,029

Other Noncurrent Assets

Regulatory assets 787
795
Goodwill 996
996
Other intangibles 80
86
Other noncurrent assets 75
68
Total Other Noncurrent Assets 1,938
1,945

Total Assets $ 15,088
$ 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,
2018 December 31,
2017
Liabilities and Equity

Current Liabilities

Short-term debt $ 304
$ 244
Long-term debt due within one year 330
98
Notes payable with affiliates 80
225
Accounts payable 271
338
Accounts payable to affiliates 14
7
Customer deposits 60
58
Taxes 55
66
Price risk management liabilities 4
4
Regulatory liabilities 64
9
Interest 73
32
Asset retirement obligations 86
85
Other current liabilities 127
161
Total Current Liabilities 1,468
1,327

Long-term Debt
Long-term debt 4,521
4,661
Long-term debt to affiliate 650
400
Total Long-term Debt 5,171
5,061

Deferred Credits and Other Noncurrent Liabilities

Deferred income taxes 922
866
Investment tax credits 127
129
Price risk management liabilities 15
22
Accrued pension obligations 256
365
Asset retirement obligations 231
271
Regulatory liabilities 2,053
2,036
Other deferred credits and noncurrent liabilities 137
162
Total Deferred Credits and Other Noncurrent Liabilities 3,741
3,851

Commitments and Contingent Liabilities (Notes 7 and 10)

Member's Equity 4,708
4,563

Total Liabilities and Equity $ 15,088
$ 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, 2018				$	4,723
Net income				124
Distributions to member				(56		)
March 31, 2019				$	4,791
	Member's Equity
December 31, 2017	$	4,563		$	4,563
Net income	358			142
Distributions to member	(217		)	(69		)
Other comprehensive income	4			1
September 30, 2018	$	4,708

December 31, 2016	$	4,667
Net income	322
Distributions to member	(316		)
Other comprehensive income (loss)	(7		)
September 30, 2017	$	4,666
March 31, 2018				$	4,637

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

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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 March 31,
	2018			2017			2018			2017			2019		2018
Operating Revenues
Retail and wholesale	$	357		$	361		$	1,095		$	1,055		$	397	$	407
Electric revenue from affiliate	5			2			21			23			13		12
Total Operating Revenues	362			363			1,116			1,078			410		419

Operating Expenses
Operation
Fuel	83			76			234			225			78		79
Energy purchases	17			18			121			107			74		76
Energy purchases from affiliate	2			3			10			8			2		6
Other operation and maintenance	95			87			277			258			94		89
Depreciation	49			47			146			136			51		48
Taxes, other than income	9			8			27			25			9		9
Total Operating Expenses	255			239			815			759			308		307

Operating Income	107			124			301			319			102		112

Other Income (Expense) - net	(3		)	(3		)	(5		)	(6		)	—		(1		)

Interest Expense	20			17			57			53			21		18

Income Before Income Taxes	84			104			239			260			81		93

Income Taxes	18			39			51			99			17		21

Net Income (a)	$	66		$	65		$	188		$	161		$	64	$	72


(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,						Three Months Ended March 31,
	2018			2017			2019			2018
Cash Flows from Operating Activities
Net income	$	188		$	161		$	64		$	72
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation	146			136			51			48
Amortization	10			11			7			4
Defined benefit plans - expense	2			5			—			1
Deferred income taxes and investment tax credits	46			96			13			7
Change in current assets and current liabilities
Accounts receivable	14			12			3			2
Accounts receivable from affiliates	2			6			(4		)	(7		)
Accounts payable	14			(12		)	(7		)	8
Accounts payable to affiliates	(2		)	(10		)	(3		)	(2		)
Unbilled revenues	30			11			13			16
Fuel, materials and supplies	9			6			32			36
Regulatory assets and liabilities, net	24			(2		)	(8		)	28
Taxes payable	4			(15		)	(12		)	(1		)
Accrued interest	13			12			13			13
Other	(14		)	8			(1		)	(16		)
Other operating activities
Defined benefit plans - funding	(59		)	(3		)	—			(55		)
Expenditures for asset retirement obligations	(17		)	(13		)	(4		)	(5		)
Other assets	—			5
Other liabilities	—			4			—			(3		)
Net cash provided by operating activities	410			418			157			146
Cash Flows from Investing Activities
Expenditures for property, plant and equipment	(420		)	(293		)	(117		)	(150		)
Net cash used in investing activities	(420		)	(293		)	(117		)	(150		)
Cash Flows from Financing Activities
Net increase in notes payable with affiliates	—			10
Issuance of long-term debt	100			60			—			100
Retirement of long-term debt	—			(60		)
Net increase (decrease) in short-term debt	(23		)	21
Net decrease in short-term debt							(10		)	(62		)
Payment of common stock dividends to parent	(113		)	(150		)	(30		)	(34		)
Contributions from parent	43			—
Other financing activities	(1		)	(2		)	(1		)	(1		)
Net cash provided by (used in) financing activities	6			(121		)	(41		)	3
Net Increase (Decrease) in Cash and Cash Equivalents	(4		)	4
Net Decrease in Cash and Cash Equivalents							(1		)	(1		)
Cash and Cash Equivalents at Beginning of Period	15			5			10			15
Cash and Cash Equivalents at End of Period	$	11		$	9		$	9		$	14

Supplemental Disclosure of Cash Flow Information
Significant non-cash transactions:
Accrued expenditures for property, plant and equipment at September 30,	$	51		$	83
Accrued expenditures for property, plant and equipment at March 31,							$	37		$	75

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, 2018		December 31, 2017		March 31, 2019		December 31, 2018
Assets

Current Assets
Cash and cash equivalents	$	11	$	15	$	9	$	10
Accounts receivable (less reserve: 2018, $1; 2017, $1)
Accounts receivable (less reserve: 2019, $1; 2018, $1)
Customer	102		116		110		110
Other	13		13		37		30
Unbilled revenues	61		91		64		77
Accounts receivable from affiliates	22		24		28		24
Fuel, materials and supplies	122		131		95		127
Prepayments	14		11		12		12
Regulatory assets	11		12		22		21
Other current assets	3		3
Total Current Assets	359		416		377		411

Property, Plant and Equipment
Regulated utility plant	5,684		5,587		5,861		5,816
Less: accumulated depreciation - regulated utility plant	707		614		777		741
Regulated utility plant, net	4,977		4,973		5,084		5,075
Construction work in progress	520		305		547		514
Property, Plant and Equipment, net	5,497		5,278		5,631		5,589

Other Noncurrent Assets
Regulatory assets	400		411		435		431
Goodwill	389		389		389		389
Other intangibles	49		53		45		47
Other noncurrent assets	27		12		41		16
Total Other Noncurrent Assets	865		865		910		883

Total Assets	$	6,721	$	6,559	$	6,918	$	6,883

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, 2018		December 31, 2017		March 31, 2019		December 31, 2018
Liabilities and Equity

Current Liabilities
Short-term debt	$	176	$	199	$	69	$	279
Long-term debt due within one year	234		98		106		434
Accounts payable	152		179		152		172
Accounts payable to affiliates	22		23		23		26
Customer deposits	28		27		31		29
Taxes	29		25		14		26
Price risk management liabilities	4		4		4		4
Regulatory liabilities	26		3		10		17
Interest	24		11		24		11
Asset retirement obligations	21		24		24		23
Other current liabilities	39		52		42		39
Total Current Liabilities	755		645		499		1,060

Long-term Debt	1,574		1,611		1,903		1,375

Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes	611		572		644		628
Investment tax credits	35		35		34		34
Price risk management liabilities	15		22		17		16
Accrued pension obligations	—		45
Asset retirement obligations	86		97		85		80
Regulatory liabilities	920		919		911		915
Other deferred credits and noncurrent liabilities	80		86		104		88
Total Deferred Credits and Other Noncurrent Liabilities	1,747		1,776		1,795		1,761

Commitments and Contingent Liabilities (Notes 7 and 10)
Commitments and Contingent Liabilities (Notes 7 and 11)

Stockholder's Equity
Common stock - no par value (a)	424		424		424		424
Additional paid-in capital	1,755		1,712		1,795		1,795
Earnings reinvested	466		391		502		468
Total Equity	2,645		2,527		2,721		2,687

Total Liabilities and Equity	$	6,721	$	6,559	$	6,918	$	6,883


(a)	75,000 shares authorized; 21,294 shares issued and outstanding at ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017.~~2018.

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			Common stock shares outstanding (a)	Common stock		Additional paid-in capital		Earnings reinvested			Total
December 31, 2018												21,294	$	424	$	1,795	$	468		$	2,687
Net income																	64			64
Cash dividends declared on common stock																	(30		)	(30		)
March 31, 2019												21,294	$	424	$	1,795	$	502		$	2,721

December 31, 2017	21,294	$	424	$	1,712	$	391		$	2,527		21,294	$	424	$	1,712	$	391		$	2,527
Net income						188			188								72			72
Capital contributions from parent				43					43
Cash dividends declared on common stock						(113		)	(113		)						(34		)	(34		)
September 30, 2018	21,294	$	424	$	1,755	$	466		$	2,645

December 31, 2016	21,294	$	424	$	1,682	$	370		$	2,476
Net income						161			161
Cash dividends declared on common stock						(150		)	(150		)
September 30, 2017	21,294	$	424	$	1,682	$	381		$	2,487
March 31, 2018												21,294	$	424	$	1,712	$	429		$	2,565


(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 March 31,
	2018		2017		2018		2017			2019		2018
Operating Revenues
Retail and wholesale	$	445	$	457	$	1,322	$	1,295		$	448	$	465
Electric revenue from affiliate	2		3		10		8			2		6
Total Operating Revenues	447		460		1,332		1,303			450		471

Operating Expenses
Operation
Fuel	123		126		375		351			116		135
Energy purchases	5		4		14		13			5		4
Energy purchases from affiliate	5		2		21		23			13		12
Other operation and maintenance	114		104		331		312			108		105
Depreciation	70		67		208		188			72		68
Taxes, other than income	9		9		26		24			9		8
Total Operating Expenses	326		312		975		911			323		332

Operating Income	121		148		357		392			127		139

Other Income (Expense) - net	1		—		1		(4		)	2		(3		)

Interest Expense	24		24		74		72			26		25

Income Before Income Taxes	98		124		284		316			103		111

Income Taxes	21		47		59		120			22		24

Net Income (a)	$	77	$	77	$	225	$	196		$	81	$	87


(a)	Net income ~~approximates~~equals 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,						Three Months Ended March 31,
	2018			2017			2019			2018
Cash Flows from Operating Activities
Net income	$	225		$	196		$	81		$	87
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation	208			188			72			68
Amortization	2			7			3			1
Defined benefit plans - expense	—			3
Deferred income taxes and investment tax credits	37			116			15			1
Other	(2		)	—			(1		)	—
Change in current assets and current liabilities
Accounts receivable	2			6			7			(7		)
Accounts receivable from affiliates	—			(1		)
Accounts payable	(2		)	(6		)	(16		)	11
Accounts payable to affiliates	(8		)	(16		)	(1		)	—
Unbilled revenues	24			8			8			15
Fuel, materials and supplies	8			28			(3		)	6
Regulatory assets and liabilities, net	38			(1		)	(2		)	32
Taxes payable	11			(21		)	(3		)	14
Accrued interest	21			22			22			22
Other	(4		)	(5		)	9			(15		)
Other operating activities
Defined benefit plans - funding	(53		)	(22		)	—			(47		)
Expenditures for asset retirement obligations	(29		)	(9		)	(17		)	(4		)
Other assets	(1		)	—			(2		)	(3		)
Other liabilities	8			8			2			4
Net cash provided by operating activities	485			501			174			185
Cash Flows from Investing Activities
Expenditures for property, plant and equipment	(405		)	(283		)	(161		)	(143		)
Net increase in notes receivable with affiliates	—			(10		)
Other investing activities	1			4
Net cash used in investing activities	(404		)	(289		)	(161		)	(143		)
Cash Flows from Financing Activities
Issuance of long-term debt	18			—
Retirement of long-term debt	(27		)	—
Net increase (decrease) in short-term debt	83			(16		)	(2		)	33
Payment of common stock dividends to parent	(196		)	(171		)	(39		)	(79		)
Contributions from parent	45			—			28			—
Other financing activities	(1		)	(1		)	(1		)	—
Net cash used in financing activities	(78		)	(188		)	(14		)	(46		)
Net Increase in Cash and Cash Equivalents	3			24
Net Decrease in Cash and Cash Equivalents							(1		)	(4		)
Cash and Cash Equivalents at Beginning of Period	15			7			14			15
Cash and Cash Equivalents at End of Period	$	18		$	31		$	13		$	11

Supplemental Disclosure of Cash Flow Information
Significant non-cash transactions:
Accrued expenditures for property, plant and equipment at September 30,	$	57		$	58
Accrued expenditures for property, plant and equipment at March 31,							$	51		$	48

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, 2018		December 31, 2017		March 31, 2019		December 31, 2018
Assets

Current Assets
Cash and cash equivalents	$	18	$	15	$	13	$	14
Accounts receivable (less reserve: 2018, $2; 2017, $1)
Accounts receivable (less reserve: 2019, $2; 2018, $2)
Customer	128		130		129		129
Other	25		30		22		34
Unbilled revenues	88		112		84		92
Fuel, materials and supplies	116		123		124		121
Prepayments	17		14		12		11
Regulatory assets	—		6		5		4
Other current assets	4		5
Total Current Assets	396		435		389		405

Property, Plant and Equipment
Regulated utility plant	7,746		7,592		7,935		7,895
Less: accumulated depreciation - regulated utility plant	1,323		1,170		1,367		1,382
Regulated utility plant, net	6,423		6,422		6,568		6,513
Construction work in progress	479		321		497		503
Property, Plant and Equipment, net	6,902		6,743		7,065		7,016

Other Noncurrent Assets
Regulatory assets	387		384		422		418
Goodwill	607		607		607		607
Other intangibles	31		33		30		31
Other noncurrent assets	77		52		96		63
Total Other Noncurrent Assets	1,102		1,076		1,155		1,119

Total Assets	$	8,400	$	8,254	$	8,609	$	8,540

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, 2018		December 31, 2017		March 31, 2019		December 31, 2018
Liabilities and Equity

Current Liabilities
Short-term debt	$	128	$	45	$	—	$	235
Long-term debt due within one year	96		—		96		96
Accounts payable	105		137		113		171
Accounts payable to affiliates	47		53		52		53
Customer deposits	32		31		32		32
Taxes	30		19		21		24
Regulatory liabilities	38		6		30		31
Interest	37		16		38		16
Asset retirement obligations	65		61		49		59
Other current liabilities	43		46		49		35
Total Current Liabilities	621		414		480		752

Long-term Debt	2,224		2,328		2,458		2,225

Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes	719		691		755		735
Investment tax credits	92		94		91		92
Accrued pension obligations	—		36
Asset retirement obligations	145		174		129		134
Regulatory liabilities	1,133		1,117		1,122		1,124
Other deferred credits and noncurrent liabilities	35		43		62		36
Total Deferred Credits and Other Noncurrent Liabilities	2,124		2,155		2,159		2,121

Commitments and Contingent Liabilities (Notes 7 and 10)
Commitments and Contingent Liabilities (Notes 7 and 11)

Stockholder's Equity
Common stock - no par value (a)	308		308		308		308
Additional paid-in capital	2,661		2,616		2,689		2,661
Earnings reinvested	462		433		515		473
Total Equity	3,431		3,357		3,512		3,442

Total Liabilities and Equity	$	8,400	$	8,254	$	8,609	$	8,540


(a)	80,000 shares authorized; 37,818 shares issued and outstanding at ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017.~~2018.

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 income (loss)			Total			Common stock shares outstanding (a)	Common stock		Additional paid-in capital		Earnings reinvested			Total
December 31, 2017	37,818	$	308	$	2,616	$	433		$	—		$	3,357
December 31, 2018															37,818	$	308	$	2,661	$	473		$	3,442
Capital contributions from parent				45								45						28					28
Net income						225						225								81			81
Cash dividends declared on common stock						(196		)				(196		)						(39		)	(39		)
September 30, 2018	37,818	$	308	$	2,661	$	462		$	—		$	3,431
March 31, 2019															37,818	$	308	$	2,689	$	515		$	3,512

December 31, 2016	37,818	$	308	$	2,616	$	400		$	(1	)	$	3,323
December 31, 2017															37,818	$	308	$	2,616	$	433		$	3,357
Net income						196						196								87			87
Cash dividends declared on common stock						(171		)				(171		)						(79		)	(79		)
Other comprehensive income									1			1
September 30, 2017	37,818	$	308	$	2,616	$	425		$	—		$	3,349
March 31, 2018															37,818	$	308	$	2,616	$	441		$	3,365


(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)

Index to Combined Notes to Condensed Financial Statements

The notes to the condensed financial statements that follow are a combined presentation. The following list indicates the Registrants to which the footnotes apply:



	Registrant
	PPL	PPL Electric	LKE	LG&E	KU
1. Interim Financial Statements	x	x	x	x	x
2. Summary of Significant Accounting Policies	x	x	x	x	x
3. Segment and Related Information	x	x	x	x	x
4. Revenue from Contracts with Customers	x	x	x	x	x
5. Earnings Per Share	x
6. Income Taxes	x	x	x	x	x
7. Utility Rate Regulation	x	x	x	x	x
8. Financing Activities	x	x	x	x	x
9. Leases	x	x	x	x	x
10. Defined Benefits	x	x	x	x	x
11. Commitments and Contingencies	x	x	x	x	x
12. Related Party Transactions		x	x	x	x
13. Other Income (Expense) - net	x
14. Fair Value Measurements	x	x	x	x	x
15. Derivative Instruments and Hedging Activities	x	x	x	x	x
16. Asset Retirement Obligations	x		x	x	x
17. Accumulated Other Comprehensive Income (Loss)	x
18. New Accounting Guidance Pending Adoption	x	x	x	x	x

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, ~~2017~~2018 is derived from that Registrant's ~~2017~~2018 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 ~~2017~~2018 Form 10-K. The results of operations for the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2019 are not necessarily indicative of the results to be expected for the full year ending December 31, ~~2018~~2019 or other future periods, because results for interim periods can be disproportionately influenced by various factors, developments and seasonal variations.

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2. Summary of Significant Accounting Policies

(All Registrants)

The following accounting policy disclosures represent updates to Note 1 in each Registrant's ~~2017~~2018 Form 10-K and should be read in conjunction with those disclosures.

~~Income Taxes~~Restricted Cash and Cash Equivalents(PPL and PPL Electric)

~~The Registrants recognized certain provisional amounts relating to the impact~~Reconciliation of the enactment of the TCJA in their December 31, 2017 financial statements, in accordance with SEC guidance. Included in those provisional amounts were estimates of: tax depreciation, deductible executive compensation, accumulated foreign earnings, foreign tax credits,Cash, Cash Equivalents and ~~deemed dividends from foreign subsidiaries, all of which were based on the interpretation and application of various provisions of the TCJA.~~

In the third quarter of 2018, PPL filed its consolidated federal income tax return, which was prepared using guidance issued by the U.S. Treasury Department and the IRS since the filing of each Registrant’s 2017 Form 10-K. Accordingly, the Registrants have updated the following provisional amounts and now consider them to be complete: (1) the amount of the deemed dividend and associated foreign tax credits relating to the transition tax imposed on accumulated foreign earnings as of December 31, 2017; (2) the amount of accelerated 100% “bonus” depreciation PPL is eligible to claim in its 2017 federal income tax return; and (3) the related impacts on PPL's 2017 consolidated federal net operating loss to be carried forward to future periods. In addition, the Registrants recorded the tax impact of the U.S. federal corporate income tax rate reduction from 35% to 21% on the changes to deferred tax assets and liabilities resulting from the completed provisional amounts. The completed provisional amounts related to the tax rate reduction had an insignificant impact on the net regulatory liabilities of PPL's U.S. regulated operations. See Note 6 to the Financial Statements for the final amounts reported in PPL's 2017 federal income tax return, provisional adjustment amounts for the year ended December 31, 2017, the related measurement period adjustments and the resulting tax impact for the three and nine months ended September 30, 2018.Restricted Cash

The ~~Registrants' accounting related~~following provides a reconciliation of Cash, Cash Equivalents and Restricted Cash reported within the Balance Sheets that sum to the ~~effects~~total of the TCJA on financial results for the period ended December 31, 2017 is complete as of September 30, 2018 with respect to the three items discussed above. The Registrants continue to analyze the impact of the TCJAsame amounts shown on the ~~deductibility~~Statements of executive compensation awarded on or before November 2, 2017. The Registrants do not currently anticipate a material change from what was reflected in the December 31, 2017 financial statements and expect to record the impact, if any, of changes in the deductibility of executive compensation in the fourth quarter of 2018.Cash Flows:



	PPL				PPL Electric
	March 31, 2019		December 31, 2018		March 31, 2019		December 31, 2018
Cash and cash equivalents	$	518	$	621	$	23	$	267
Restricted cash - current (a)	3		3		2		2
Restricted cash - noncurrent (a)	19		19		—		—
Total Cash, Cash Equivalents and Restricted Cash	$	540	$	643	$	25	$	269


(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."

~~Table of Contents~~

New Accounting Guidance Adopted

(All Registrants)

Accounting for ~~Revenue from Contracts with Customers~~Leases

Effective January 1, ~~2018,~~2019, the Registrants adopted accounting guidance that ~~establishes~~requires lessees to recognize a ~~comprehensive new~~right of use asset and lease liability for leases, unless determined to meet the definition of a short-term lease. For income statement purposes, the FASB retained a dual 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 control of promised goods or services to customers in an amount that reflects the consideration to which the entity expectslessees, requiring leases to be ~~entitled~~classified as either operating or finance. Operating leases result in ~~exchange for those goods or services. The~~straight-line expense recognition. Currently, 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.~~only have operating leases.

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

In adopting this new guidance, the Registrants elected to use the following practical expedients:

The ~~adoption of this guidance~~Registrants did not ~~have a material impact on~~re-assess the ~~Registrants' revenue recognition policies.~~ lease classifications or initial direct costs of existing leases. The Registrants also did not re-assess existing contracts for leases or lease classification.

The Registrants did not evaluate land easements that were not previously accounted for as leases under this new guidance. New land easements are evaluated under this new guidance beginning January 1, 2019.

See Note 49 for the required disclosures resulting from the adoption of this ~~standard.~~guidance.

~~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 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 include the service cost and outside of any subtotal of operating income. Prospectively, the guidance limits the capitalization to the service cost component of net periodic benefit costs.

~~For~~ (PPL, the non-service cost components of net periodic benefit costs were in a net credit position for the three and nine months ended September 30, 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 $5 million ($4 million after-tax or $0.01 per share) and $16 million ($13 million after-tax or $0.02 per share) for the three and nine months ended September 30, 2018. For PPL Electric,LKE, LG&E and 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.& KU)

The following ~~provides~~table shows the non-service cost components of net periodic benefits (costs) or credits presented in "Other Income (Expense) - net" in 2018 and reclassified from "Other operation and maintenance" to "Other Income (Expense) - net" in 2017amounts recorded on the ~~Statements~~Balance Sheets as of ~~Income~~January 1, 2019 as a result of the ~~adoption.~~

Three Months Nine Months
2018 2017 2018 2017
PPL $ 61
$ 41
$ 195
$ 123
PPL Electric 1
—
4
—
LKE 1
(2 ) 3
(4 )
LG&E —
(2 ) (1 ) (4 )
KU —
—
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~~using a ~~material impact on the Statements of Cash Flows.~~

~~Table of Contents~~

~~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~~modified retrospective transition method with transition applied as of the ~~same amounts shown on~~beginning of the ~~Statements~~period of ~~Cash Flows:~~adoption:

PPL PPL Electric
September 30,
2018 December 31, 2017 September 30,
2018 December 31, 2017
Cash and cash equivalents $ 842
$ 485
$ 414
$ 49
Restricted cash - current (a) 3
3
2
2
Restricted cash - noncurrent (a) 19
23
—
—
Total Cash, Cash Equivalents and Restricted Cash $ 864
$ 511
$ 416
$ 51



	PPL		LKE		LG&E		KU
Right of Use Asset (a)	$	81	$	56	$	23	$	31
Lease Liability- Current (b)	23		18		9		9
Lease Liability- Noncurrent (c)	67		46		18		26


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

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(b)	Current lease liabilities are recorded in "Other current ~~assets," while~~liabilities" on the ~~noncurrent portion is included~~Balance Sheets.


(c)	Noncurrent lease liabilities are recorded in "Other deferred credits and noncurrent ~~assets."~~liabilities" on the Balance Sheets.

(All Registrants)

Improvements to Accounting for Hedging Activities

Effective January 1, 2019, the Registrants adopted accounting guidance, using a modified retrospective approach, which reduces complexity when applying hedge accounting as well as improving transparency of an entity's risk management activities. This guidance eliminates the separate measurement and reporting of hedge ineffectiveness for cash flow and net investment hedges and provides for the ability to perform subsequent effectiveness assessments qualitatively. The guidance also allows 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.

See Note 15 for the additional disclosures of the income statement impacts of hedging activities required from the adoption of this standard. Disclosures related to ineffectiveness are no longer required. Other impacts of adopting this guidance were not material.

3. Segment and Related Information

(PPL)

See Note 2 in PPL's ~~2017~~2018 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 30~~March 31 are as follows:


	Three Months					Nine Months						Three Months
	2018			2017		2018			2017			2019			2018
Operating Revenues from external customers
U.K. Regulated	$	517		$	477	$	1,716		$	1,547		$	583		$	615
Kentucky Regulated	802			818		2,417			2,350			845			872
Pennsylvania Regulated	548			547		1,704			1,620			645			639
Corporate and Other	5			3		9			4			6			—
Total	$	1,872		$	1,845	$	5,846		$	5,521		$	2,079		$	2,126

Net Income
U.K. Regulated (a)	$	245		$	126	$	836		$	560		$	264		$	197
Kentucky Regulated	122			125		332			299			117			133
Pennsylvania Regulated	112			95		335			251			121			148
Corporate and Other	(34		)	9		(91		)	(60		)	(36		)	(26		)
Total	$	445		$	355	$	1,412		$	1,050		$	466		$	452


(a)	Includes unrealized gains and losses from hedging foreign currency economic activity. See Note 1415 for additional information.

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


	September 30, 2018		December 31, 2017		March 31, 2019		December 31, 2018
Assets
U.K. Regulated (a)	$	16,823	$	16,813
U.K. Regulated (a) (b)					$	17,753	$	16,700
Kentucky Regulated	14,754		14,468		15,176		15,078
Pennsylvania Regulated	11,110		10,082		11,260		11,257
Corporate and Other ~~(b)~~(c)	355		116		378		361
Total	$	43,042	$	41,479	$	44,567	$	43,396


(a)	Includes ~~$12.4~~$13.1 billion and ~~$12.5~~$12.4 billion of net PP&E as of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017.~~2018. WPD is not subject to accounting for the effects of certain types of regulation as prescribed by GAAP.

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(b)	Includes $2.5 billion and $2.4 billion of goodwill as of March 31, 2019 and December 31, 2018. The change is due to the effect of foreign currency exchange rates.


(c)	Primarily consists of unallocated items, including cash, PP&E, goodwill, ~~and~~ the elimination of inter-segment ~~transactions.~~transactions as well as the assets of Safari Energy.

~~Table of Contents~~

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

PPL Electric has two operating segments, ~~that~~distribution and transmission, which 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~~See Note 3 in PPL's 2018 Form 10-K for a ~~description~~discussion of the principal activities from which the Registrants and PPL’s segments generate their revenues.

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

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

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.

~~Table of Contents~~

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 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 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 ~~September 30, 2018.~~March 31.


																Three Months
	Three Months															2019
	PPL			PPL Electric			LKE			LG&E			KU			PPL			PPL Electric			LKE			LG&E			KU
Operating Revenues (a)	$	1,872		$	548		$	802		$	362		$	447		$	2,079		$	645		$	845		$	410		$	450
Revenues derived from:
Alternative revenue programs (b)	(4		)	(3		)	(1		)	(4		)	3			(6		)	(4		)	(2		)	(2		)	—
Other (c)	(15		)	(3		)	(5		)	(2		)	(3		)	(10		)	(3		)	(4		)	(1		)	(3		)
Revenues from Contracts with Customers	$	1,853		$	542		$	796		$	356		$	447		$	2,063		$	638		$	839		$	407		$	447


																Three Months
	Nine Months															2018
	PPL			PPL Electric			LKE			LG&E			KU			PPL			PPL Electric			LKE			LG&E			KU
Operating Revenues (a)	$	5,846		$	1,704		$	2,417		$	1,116		$	1,332		$	2,126		$	639		$	872		$	419		$	471
Revenues derived from:
Alternative revenue programs (b)	37			(1		)	38			16			22			32			2			30			14			16
Other (c)	(43		)	(9		)	(14		)	(5		)	(9		)	(16		)	(4		)	(5		)	(1		)	(4		)
Revenues from Contracts with Customers	$	5,840		$	1,694		$	2,441		$	1,127		$	1,345		$	2,142		$	637		$	897		$	432		$	483


(a)	PPL includes ~~$517~~$583 million and ~~$1.7 billion~~$615 million for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019 and 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.

~~Table of Contents~~

~~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~~2018 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 $442 million and $100 million for the three months ended September 30, 2018 and $1.4 billion and $306 million for the nine months ended September 30, 2018.

The following tables show revenues from contracts with customers disaggregated by customer class for the periods ended ~~September 30, 2018.~~March 31.

Three Months
PPL PPL Electric LKE LG&E KU
Licensed energy suppliers (a) $ 475
$ —
$ —
$ —
$ —
Residential 647
328
319
162
157
Commercial 307
88
219
112
107
Industrial 156
12
144
45
99
Other (b) 119
14
65
27
39
Wholesale - municipal 30
—
30
—
30
Wholesale - other (c) 19
—
19
10
15
Transmission 100
100
—
—
—
Revenues from Contracts with Customers $ 1,853
$ 542
$ 796
$ 356
$ 447
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											Three Months
	Nine Months										2019
	PPL		PPL Electric		LKE		LG&E		KU		PPL		PPL Electric		LKE		LG&E		KU
Licensed energy suppliers (a)	$	1,606	$	—	$	—	$	—	$	—	$	556	$	—	$	—	$	—	$	—
Residential	2,039		1,036		1,003		505		498		778		407		371		189		182
Commercial	928		275		653		343		310		319		95		224		121		103
Industrial	466		37		429		134		295		150		17		133		44		89
Other (b)	339		40		200		88		113		114		14		70		33		37
Wholesale - municipal	91		—		91		—		91		28		—		28		—		28
Wholesale - other (c)	65		—		65		57		38		13		—		13		20		8
Transmission	306		306		—		—		—		105		105		—		—		—
Revenues from Contracts with Customers	$	5,840	$	1,694	$	2,441	$	1,127	$	1,345	$	2,063	$	638	$	839	$	407	$	447



	Three Months
	2018
	PPL		PPL Electric		LKE		LG&E		KU
Licensed energy suppliers (a)	$	584	$	—	$	—	$	—	$	—
Residential	804		408		396		197		199
Commercial	325		98		227		124		103
Industrial	155		13		142		44		98
Other (b)	105		13		68		31		37
Wholesale - municipal	30		—		30		—		30
Wholesale - other (c)	34		—		34		36		16
Transmission	105		105		—		—		—
Revenues from Contracts with Customers	$	2,142	$	637	$	897	$	432	$	483


(a)	Represents customers of WPD.


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


(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.

PPL Electric's revenues from contracts with customers are further disaggregated by distribution and transmission, which were $533 million and $105 million for the three months ended March 31, 2019 and $532 million and $105 million for the three months ended March 31, 2018.

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

~~Table of Contents~~

The following table shows the accounts receivable balances that were impaired for the periods ended ~~September 30, 2018.~~March 31.


	Three Months		Nine Months		2019		2018
PPL	$	11	$	24	$	9	$	10
PPL Electric	7		17		6		7
LKE	4		7		2		2
LG&E	2		3		1		1
KU	2		4		1		1

The following table shows the balances and certain activity 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 September 30, 2018 40
17
8
4
4



	PPL		PPL Electric		LKE		LG&E		KU
Contract liabilities at December 31, 2018	$	42	$	23	$	9	$	5	$	4
Contract liabilities at March 31, 2019	37		14		7		4		3
Revenue recognized during the three months ended March 31, 2019 that was included in the contract liability balance at December 31, 2018	25		11		9		5		4

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

Nine Months
PPL $ 22
PPL Electric 8
LKE 8
LG&E 4
KU 4



	PPL		PPL Electric		LKE		LG&E		KU
Contract liabilities at December 31, 2017	$	29	$	19	$	8	$	4	$	4
Contract liabilities at March 31, 2018	20		11		7		3		4
Revenue recognized during the three months ended March 31, 2018 that was included in the contract liability balance at December 31, 2017	17		8		8		4		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 ~~September 30, 2018,~~March 31, 2019, PPL had ~~$65~~$46 million of performance obligations attributable to Corporate and Other that have not been satisfied. Of this amount, PPL expects to recognize approximately ~~$44~~$26 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. In ~~2018,~~2019, these securities also included the PPL common stock forward sale ~~agreements.~~agreements entered into in May 2018. See Note 8 in PPL's 2018 Form 10-K 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 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 30~~March 31 used in the EPS calculation are:



	Three Months
	2019		2018
Income (Numerator)
Net income	$	466	$	452
Less amounts allocated to participating securities	—		1
Net income available to PPL common shareowners - Basic and Diluted	$	466	$	451

Shares of Common Stock (Denominator)
Weighted-average shares - Basic EPS	721,023		694,514
Add incremental non-participating securities:
Share-based payment awards	1,023		808
Forward sale agreements	7,907		—
Weighted-average shares - Diluted EPS	729,953		695,322

Basic EPS
Net Income available to PPL common shareowners	$	0.65	$	0.65

Diluted EPS
Net Income available to PPL common shareowners	$	0.64	$	0.65

Table of Contents

Three Months Nine Months
2018 2017 2018 2017
Income (Numerator)

Net income $ 445
$ 355
$ 1,412
$ 1,050
Less amounts allocated to participating securities 1
1
2
2
Net income available to PPL common shareowners - Basic and Diluted $ 444
$ 354
$ 1,410
$ 1,048

Shares of Common Stock (Denominator)

Weighted-average shares - Basic EPS 703,730
686,563
699,117
683,783
Add incremental non-participating securities:

Share-based payment awards 298
2,183
427
2,298
Forward sale agreements 6,489
—
2,761
—
Weighted-average shares - Diluted EPS 710,517
688,746
702,305
686,081

Basic EPS

Net Income available to PPL common shareowners $ 0.63
$ 0.52
$ 2.02
$ 1.53

Diluted EPS

Net Income available to PPL common shareowners $ 0.62
$ 0.51
$ 2.01
$ 1.53

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


	Three Months		Nine Months		Three Months
	2018	2017	2018	2017	2019	2018
Stock-based compensation plans (a)	80	256	568	1,707	590	476
DRIP	493	355	1,504	1,169	458	485


(a)	Includes stock options exercised, vesting of performance units, vesting of restricted stock units and conversion of stock units granted to directors.

~~See Note 8 for additional information on common stock issued under the ATM Program and settlement of a portion of the PPL common stock forward sale agreements.~~

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


	Three Months		Nine Months		Three Months
	2018	2017	2018	2017	2019	2018
Stock options	15	696	229	696	—	230
Restricted stock units	2	—	15	—	—	20

6. Income Taxes

~~(All Registrants)~~

~~Tax Cuts and Jobs Act (TCJA)~~

The Registrants recognized certain provisional amounts relating to the impact of the enactment of the TCJA in their December 31, 2017 financial statements, in accordance with SEC guidance. Included in those provisional amounts were estimates of: tax depreciation, deductible executive compensation, accumulated foreign earnings, foreign tax credits, and deemed dividends from foreign subsidiaries, all of which were based on the interpretation and application of various provisions of the TCJA.

~~Table of Contents~~

2017; (2) the amount of accelerated 100% “bonus” depreciation PPL is eligible to claim in its 2017 federal income tax return; and (3) the related impacts on PPL's 2017 consolidated federal net operating loss to be carried forward to future periods. In addition, the Registrants recorded the tax impact of the U.S. federal corporate income tax rate reduction from 35% to 21% on the changes to deferred tax assets and liabilities resulting from the completed provisional amounts. The completed provisional amounts related to the tax rate reduction had an insignificant impact on the net regulatory liabilities of PPL's U.S. regulated operations. The final amounts reported in PPL's 2017 federal income tax return, provisional adjustment amounts for the year ended December 31, 2017, the related measurement period adjustments and the resulting tax impact for the three and nine months ended September 30, 2018 are as follows.

Taxable Income (Loss) (a)
Adjustments per 2017 Tax Return Adjustments per 2017 Tax Provision September 30, 2018 Adjustment
PPL
Deemed Dividend $ 397
$ 462
$ (65 )
Bonus Depreciation (b) (67 ) —
(67 )
Consolidated Federal Net Operating Loss due to the TCJA(c) (330 ) (462 ) 132
   Total $ —
$ —
$ —

PPL Electric
Bonus Depreciation (b) $ (39 ) $ —
$ (39 )
Consolidated Federal Net Operating Loss reallocated due to the TCJA (c) (68 ) (105 ) 37
   Total $ (107 ) $ (105 ) $ (2 )

LKE
Bonus Depreciation (b) $ (28 ) $ —
$ (28 )
Consolidated Federal Net Operating Loss reallocated due to the TCJA (c) (32 ) (45 ) 13
   Total $ (60 ) $ (45 ) $ (15 )

LG&E
Bonus Depreciation (b) $ (17 ) $ —
$ (17 )
Consolidated Federal Net Operating Loss reallocated due to the TCJA (c) 17
—
17
   Total $ —
$ —
$ —

KU
Bonus Depreciation (b) $ (11 ) $ —
$ (11 )
Consolidated Federal Net Operating Loss reallocated due to the TCJA (c) 11
—
11
   Total $ —
$ —
$ —


~~(a)~~	~~The above table reflects, for each item, the amount subject to change as a result of the TCJA and does not reflect the total amount of each item included in the return and the provision.~~


~~(b)~~	The TCJA increased the bonus depreciation percentage from 50% to 100% for qualified property acquired and placed in service after September 27, 2017 and before January 1, 2023. Increases in tax depreciation reduce the Registrants' taxes payable and increase net deferred tax liabilities with no impact to “Income Taxes” on the Statements of Income.


~~(c)~~	An increase in the consolidated federal net operating loss reduces net deferred tax liabilities with the opposite effect if there is a decrease in the consolidated federal net operating loss. These increases or decreases have no impact to “Income Taxes” on the Statements of Income.

Income Tax Expense (Benefit)
Adjustments per 2017 Tax Return Adjustments per 2017 Tax Provision September 30, 2018 Adjustment
PPL
Deemed Dividend $ 139
$ 161
$ (22 )
Foreign Tax Credits (157 ) (205 ) 48
Valuation of Foreign Tax Credit Carryforward 110
145
(35 )
Reduction in U.S. federal income tax rate (a) 229
220
9
Total $ 321
$ 321
$ —

~~Table of Contents~~

Income Tax Expense (Benefit)
Adjustments per 2017 Tax Return Adjustments per 2017 Tax Provision September 30, 2018 Adjustment
PPL Electric
Reduction in U.S. federal income tax rate (a) $ (13 ) $ (13 ) $ —

LKE
Reduction in U.S. federal income tax rate (a) $ 110
$ 112
$ (2 )


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

The Registrants' accounting related to the effects of the TCJA on financial results for the period ended December 31, 2017 is complete as of September 30, 2018 with respect to the three items discussed above. The Registrants continue to analyze the impact of the TCJA on the deductibility of executive compensation awarded on or before November 2, 2017. The Registrants do not currently anticipate a material change from what was reflected in the December 31, 2017 financial statements and expect to record the impact, if any, of changes in the deductibility of executive compensation in the fourth quarter of 2018.

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

(PPL)
Three Months Nine Months
2018 2017 2018 2017
Federal income tax on Income Before Income Taxes at statutory tax rate (a) $ 115
$ 165
$ 373
$ 480
Increase (decrease) due to:

State income taxes, net of federal income tax benefit 9
14
34
37
Valuation allowance adjustments 5
4
17
9
Impact of lower U.K. income tax rates relative to U.S. income tax rates (a) (7 ) (45 ) (20 ) (133 )
U.S. income tax on foreign earnings - net of foreign tax credit (a) (b) 1
(8 ) 2
(24 )
Federal and state tax reserve adjustments —
—
3
—
Impact of the U.K. Finance Acts (4 ) (3 ) (7 ) (12 )
Depreciation and other items not normalized (1 ) (2 ) (4 ) (7 )
Amortization of excess deferred income taxes (a) (11 ) —
(30 ) —
Deferred tax impact of state tax reform (c) —
—
9
—
Interest benefit on U.K. financing entities (4 ) (4 ) (13 ) (12 )
Stock-based compensation —
—
1
(7 )
Other —
(5 ) (3 ) (10 )
Total increase (decrease) (12 ) (49 ) (11 ) (159 )
Total income taxes $ 103
$ 116
$ 362
$ 321



(PPL)
	Three Months
	2019			2018
Federal income tax on Income Before Income Taxes at statutory tax rate - 21%	$	124		$	119
Increase (decrease) due to:
State income taxes, net of federal income tax benefit	13			15
Valuation allowance adjustments	7			7
Impact of lower U.K. income tax rates	(8		)	(7		)
Amortization of excess deferred federal and state income taxes	(11		)	(10		)
Other	1			(7		)
Total increase (decrease)	2			(2		)
Total income taxes	$	126		$	117



(PPL Electric)
	Three Months
	2019			2018
Federal income tax on Income Before Income Taxes at statutory tax rate - 21%	$	34		$	41
Increase (decrease) due to:
State income taxes, net of federal income tax benefit	13			15
Amortization of excess deferred income taxes	(4		)	(5		)
Other	(1		)	(2		)
Total increase (decrease)	8			8
Total income taxes	$	42		$	49

Table of Contents



(LKE)
	Three Months
	2019			2018
Federal income tax on Income Before Income Taxes at statutory tax rate - 21%	$	33		$	38
Increase (decrease) due to:
State income taxes, net of federal income tax benefit (a)	6			8
Amortization of excess deferred federal and state income taxes	(6		)	(5		)
Other	(1		)	(2		)
Total increase (decrease)	(1		)	1
Total income taxes	$	32		$	39


(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 was recognized over the annual period as a result of utilizing an estimated annual effective tax rate.


~~(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.

~~Table of Contents~~

(PPL Electric)
Three Months Nine Months
2018 2017 2018 2017
Federal income tax on Income Before Income Taxes at statutory tax rate (a) $ 30
$ 56
$ 93
$ 144
Increase (decrease) due to:

State income taxes, net of federal income tax benefit 12
9
35
26
Depreciation and other items not normalized (1 ) (1 ) (4 ) (5 )
Amortization of excess deferred income taxes (a) (5 ) —
(13 ) —
Stock-based compensation —
—
—
(5 )
Other (1 ) —
—
(1 )
Total increase (decrease) 5
8
18
15
Total income taxes $ 35
$ 64
$ 111
$ 159


~~(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 Nine Months
2018 2017 2018 2017
Federal income tax on Income Before Income Taxes at statutory tax rate (a) $ 34
$ 74
$ 97
$ 181
Increase (decrease) due to:

State income taxes, net of federal income tax benefit (b) 6
8
17
19
Amortization of investment tax credit (1 ) (1 ) (3 ) (2 )
Deferred tax impact of U.S. tax reform (a) (2 ) —
(2 ) —
Deferred tax impact of state tax reform (c) —
—
9
—
Amortization of excess deferred income taxes (a) (3 ) —
(14 ) —
Other (2 ) (2 ) (2 ) (3 )
Total increase (decrease) (2 ) 5
5
14
Total income taxes $ 32
$ 79
$ 102
$ 195


~~(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, which became law in April 2018 and is effective for taxable years beginning 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						Nine Months						Three Months
	2018			2017			2018			2017			2019			2018
Federal income tax on Income Before Income Taxes at statutory tax rate (a)	$	18		$	36		$	50		$	91
Federal income tax on Income Before Income Taxes at statutory tax rate - 21%													$	17		$	20
Increase (decrease) due to:
State income taxes, net of federal income tax benefit ~~(b)~~(a)	3			4			9			10			3			4
Amortization of excess deferred income taxes (a)	(1		)	—			(6		)	—
Amortization of excess deferred federal and state income taxes													(3		)	(2		)
Other	(2		)	(1		)	(2		)	(2		)	—			(1		)
Total increase (decrease)	—			3			1			8			—			1
Total income taxes	$	18		$	39		$	51		$	99		$	17		$	21


(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, which became law in April 2018 and is effective for taxable years beginning January 1, 2018.

~~Table of Contents~~


(KU)
	Three Months						Nine Months						Three Months
	2018			2017			2018			2017			2019			2018
Federal income tax on Income Before Income Taxes at statutory tax rate (a)	$	21		$	43		$	60		$	111
Federal income tax on Income Before Income Taxes at statutory tax rate - 21%													$	22		$	23
Increase (decrease) due to:
State income taxes, net of federal income tax benefit ~~(b)~~(a)	3			5			10			11			4			5
Amortization of excess deferred income taxes (a)	(2		)	—			(8		)	—
Amortization of excess deferred federal and state income taxes													(3		)	(3		)
Other	(1		)	(1		)	(3		)	(2		)	(1		)	(1		)
Total increase (decrease)	—			4			(1		)	9			—			1
Total income taxes	$	21		$	47		$	59		$	120		$	22		$	24


(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, which became law in April 2018 and is effective for taxable years beginning January 1, 2018.

Other

~~Kentucky State~~U.S. Tax Reform (All Registrants)

~~HB 487, which became law~~The IRS issued proposed regulations for certain provisions of the TCJA in 2018, including interest deductibility and Global Intangible Low-Taxed Income (GILTI). PPL has determined that the proposed regulations related to GILTI do not materially change PPL's current interpretation of the statutory impact of these rules on ~~April 27, 2018, provides for significant changes~~the company. Proposed regulations relating to the ~~Kentucky~~limitation on the deductibility of interest expense were issued in November 2018 and such regulations provide detailed rules implementing the broader statutory provisions. These proposed regulations should not apply to the Registrants until the year in which the regulations are issued in final form, which is expected to be 2019. It is uncertain what form the final regulations will take and, therefore, the Registrants cannot predict what impact the final regulations will have on the tax ~~code including (1) adopting mandatory combined reporting for corporate members~~deductibility of ~~unitary business groups for taxable years beginning~~interest expense. However, if the proposed regulations were issued as final in their current form, the Registrants could have a limitation 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~~portion of their ~~federal affiliated group)~~interest expense deduction for tax purposes and ~~(2)~~such limitation could be significant. PPL expressed its views on these proposed regulations in a ~~reduction in~~comment letter addressed to the ~~Kentucky corporate income tax rate from 6% to 5% for taxable years beginning after December 31, 2017. LKE recognized a deferred tax charge~~IRS on February 26, 2019.

Table of ~~$9 million in the second quarter of 2018 primarily associated with the remeasurement of non-regulated accumulated deferred income tax balances.~~Contents

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. In a separate regulatory proceeding, LG&E and KU have requested to begin returning state excess deferred income taxes to customers in conjunction with the 2018 Kentucky base rate case, which was filed on September 28, 2018. See Note 7 for additional information related to the rate case proceedings. PPL is evaluating the impact, if any, of unitary or elective consolidated income tax reporting on all its Registrants.

7. Utility Rate Regulation

(All Registrants)

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


	PPL				PPL Electric				PPL				PPL Electric
	September 30, 2018		December 31, 2017		September 30, 2018		December 31, 2017		March 31, 2019		December 31, 2018		March 31, 2019		December 31, 2018
Current Regulatory Assets:
Environmental cost recovery	$	—	$	5	$	—	$	—
Generation formula rate	—		6		—		—
Gas supply clause									$	12	$	12	$	—	$	—
Smart meter rider	16		15		16		15		11		11		11		11
Plant outage costs	7		3		—		—		13		10		—		—
Gas supply clause	3		4		—		—
Other	3		1		2		1		2		3		—		—
Total current regulatory assets (a)	$	29	$	34	$	18	$	16	$	38	$	36	$	11	$	11

Noncurrent Regulatory Assets:
Defined benefit plans									$	953	$	963	$	553	$	558
Taxes recoverable through future rates									—		3		—		3
Storm costs									51		56		20		22
Unamortized loss on debt									43		45		20		22
Interest rate swaps									21		20		—		—
Terminated interest rate swaps									85		87		—		—
Accumulated cost of removal of utility plant									200		200		200		200
AROs									288		273		—		—
Act 129 compliance rider									16		19		16		19
Other									9		7		—		—
Total noncurrent regulatory assets									$	1,666	$	1,673	$	809	$	824

Table of Contents

PPL PPL Electric
September 30,
2018 December 31,
2017 September 30,
2018 December 31,
2017
Noncurrent Regulatory Assets:
Defined benefit plans $ 847
$ 880
$ 486
$ 504
Taxes recoverable through future rates 3
3
3
3
Storm costs (b) 45
33
22
—
Unamortized loss on debt 47
54
23
29
Interest rate swaps 18
26
—
—
Terminated interest rate swaps 88
92
—
—
Accumulated cost of removal of utility plant 190
173
190
173
AROs 267
234
—
—
Act 129 compliance rider 12
—
12
—
Other 8
9
2
—
Total noncurrent regulatory assets $ 1,525
$ 1,504
$ 738
$ 709



	PPL				PPL Electric
	March 31, 2019		December 31, 2018		March 31, 2019		December 31, 2018
Current Regulatory Liabilities:
Generation supply charge	$	24	$	33	$	24	$	33
Transmission service charge	7		3		7		3
Environmental cost recovery	13		16		—		—
Universal service rider	20		27		20		27
Transmission formula rate	—		3		—		3
TCJA customer refund	9		20		4		3
Storm damage expense rider	4		5		4		5
Generation formula rate	8		7		—		—
Other	15		8		1		—
Total current regulatory liabilities	$	100	$	122	$	60	$	74

Noncurrent Regulatory Liabilities:
Accumulated cost of removal of utility plant	$	675	$	674	$	—	$	—
Power purchase agreement - OVEC	57		59		—		—
Net deferred taxes	1,809		1,826		619		629
Defined benefit plans	40		37		7		5
Terminated interest rate swaps	70		72		—		—
TCJA customer refund (b)	41		41		41		41
Other	8		5		—		—
Total noncurrent regulatory liabilities	$	2,700	$	2,714	$	667	$	675

PPL PPL Electric
September 30,
2018 December 31,
2017 September 30,
2018 December 31,
2017
Current Regulatory Liabilities:
Generation supply charge $ 35
$ 34
$ 35
$ 34
Transmission service charge 2
9
2
9
Environmental cost recovery 22
1
—
—
Universal service rider 23
26
23
26
Transmission formula rate 8
9
8
9
Fuel adjustment clause 7
3
—
—
TCJA customer refund (c) 26
—
—
—
Storm damage expense rider 4
8
4
8
Other 9
5
—
—
Total current regulatory liabilities $ 136
$ 95
$ 72
$ 86

Noncurrent Regulatory Liabilities:
Accumulated cost of removal of utility plant $ 678
$ 677
$ —
$ —
Power purchase agreement - OVEC (d) 62
68
—
—
Net deferred taxes (e) 1,846
1,853
642
668
Defined benefit plans 33
27
—
—
Terminated interest rate swaps 72
74
—
—
TCJA customer refund (f) 41
—
41
—
Other 7
5
3
—
Total noncurrent regulatory liabilities $ 2,739
$ 2,704
$ 686
$ 668


	LKE				LG&E				KU				LKE				LG&E				KU
	September 30, 2018		December 31, 2017		September 30, 2018		December 31, 2017		September 30, 2018		December 31, 2017		March 31, 2019		December 31, 2018		March 31, 2019		December 31, 2018		March 31, 2019		December 31, 2018
Current Regulatory Assets:
Plant outage costs	$	7	$	3	$	7	$	3	$	—	$	—	$	13	$	10	$	9	$	7	$	4	$	3
Generation formula rate	—		6		—		—		—		6
Gas supply clause	3		4		3		4		—		—		12		12		12		12		—		—
Other	1		5		1		5		—		—		2		3		1		2		1		1
Total current regulatory assets	$	11	$	18	$	11	$	12	$	—	$	6	$	27	$	25	$	22	$	21	$	5	$	4

Noncurrent Regulatory Assets:
Defined benefit plans													$	400	$	405	$	245	$	249	$	155	$	156
Storm costs													31		34		18		20		13		14
Unamortized loss on debt													23		23		15		15		8		8
Interest rate swaps													21		20		21		20		—		—
Terminated interest rate swaps													85		87		50		51		35		36
AROs													288		273		84		75		204		198
Other													9		7		2		1		7		6
Total noncurrent regulatory assets													$	857	$	849	$	435	$	431	$	422	$	418

Table of Contents

LKE LG&E KU
September 30,
2018 December 31,
2017 September 30,
2018 December 31,
2017 September 30,
2018 December 31,
2017
Noncurrent Regulatory Assets:
Defined benefit plans $ 361
$ 376
$ 227
$ 234
$ 134
$ 142
Storm costs 23
33
12
18
11
15
Unamortized loss on debt 24
25
15
16
9
9
Interest rate swaps 18
26
18
26
—
—
Terminated interest rate swaps 88
92
52
54
36
38
AROs 267
234
74
61
193
173
Other 6
9
2
2
4
7
Total noncurrent regulatory assets $ 787
$ 795
$ 400
$ 411
$ 387
$ 384


	LKE				LG&E				KU				LKE				LG&E				KU
	September 30, 2018		December 31, 2017		September 30, 2018		December 31, 2017		September 30, 2018		December 31, 2017		March 31, 2019		December 31, 2018		March 31, 2019		December 31, 2018		March 31, 2019		December 31, 2018
Current Regulatory Liabilities:
Environmental cost recovery	$	22	$	1	$	11	$	—	$	11	$	1	$	13	$	16	$	5	$	6	$	8	$	10
Fuel adjustment clause	7		3		—		—		7		3
Gas line tracker	2		3		2		3		—		—
TCJA customer refund (c)	26		—		12		—		14		—
TCJA customer refund													5		17		2		7		3		10
Generation formula rate													8		7		—		—		8		7
Other	7		2		1		—		6		2		14		8		3		4		11		4
Total current regulatory liabilities	$	64	$	9	$	26	$	3	$	38	$	6	$	40	$	48	$	10	$	17	$	30	$	31

Noncurrent Regulatory Liabilities:
Accumulated cost of removal of utility plant	$	678	$	677	$	280	$	282	$	398	395		$	675	$	674	$	278	$	279	$	397	395
Power purchase agreement - OVEC (d)	62		68		43		47		19		21
Net deferred taxes (e)	1,204		1,185		560		552		644		633
Power purchase agreement - OVEC													57		59		40		41		17		18
Net deferred taxes													1,190		1,197		554		557		636		640
Defined benefit plans	33		27		—		—		33		27		33		32		—		—		33		32
Terminated interest rate swaps	72		74		36		37		36		37		70		72		35		36		35		36
Other	4		5		1		1		3		4		8		5		4		2		4		3
Total noncurrent regulatory liabilities	$	2,053	$	2,036	$	920	$	919	$	1,133	$	1,117	$	2,033	$	2,039	$	911	$	915	$	1,122	$	1,124


(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 distribution customer rates. The initial liability was recorded during the second quarter of 2018. 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.

Regulatory Matters

Kentucky Activities

(PPL, LKE, LG&E and KU)

Rate Case Proceedings

~~Table of Contents~~

~~electricity and gas rate increases of 3% and 7.5%, respectively, at LG&E. As discussed in the "TCJA Impact on LG&E and KU Rates" section below,~~ LG&E’s and KU’s applications ~~seek~~also sought to include ~~applicable~~ changes associated with the TCJA and state tax reform in the calculation of the proposed base rates and to terminate the TCJA bill credit mechanism when ~~the~~ new base rates go into effect.

The elimination of the TCJA bill credit mechanism will result in an estimated annual electricity revenue increase of approximately $58 million at KU and increases in electricity and gas revenues of approximately $40 million~~New rates are expected to become effective on May 1, 2019.~~ and $12 million at LG&E. The applications are based on a forecasted test year of May 1, 2019 through April 30, 2020 with a requested return-on-equity of 10.42%. ~~LG&E and KU cannot predict the outcome of these proceedings.~~

~~CPCN Filing~~

On January 10, 2018, LG&E and KU filed an application for a CPCN with the KPSC requesting approval to implement Advanced Metering Systems across their Kentucky service territories, including gas operations for LG&E. The application projected completion in 2021 with estimated capital costs of $166 million and $155 million for LG&E and KU. On August 30, 2018, the KPSC issued an Order denying the CPCN for full deployment of the Advanced Metering Systems. The KPSC acknowledged the benefits of Advanced Metering Systems, expanded LG&E's and KU's Advanced Metering System pilot programs and encouraged LG&E and KU to consider other items to enhance the customer experience. This decision is not expected to have a significant impact on LG&E's and KU's results of operations.

~~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 and thereafter until tax-reform related savings are reflected in changes in base rates. 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.

On March ~~20, 2018,~~1, 2019, LG&E and KU, along with substantially all intervening parties to the proceeding, filed stipulation and recommendation agreements (stipulations) with the KPSC ~~issued an Order approving,~~resolving all material issues with ~~certain modifications,~~ the ~~settlement agreement reached between LG&E, KU, Kentucky Industrial Utility Customers, Inc. and~~parties. In addition to terminating the ~~Office of~~TCJA bill credit mechanism, the ~~Attorney General. The KPSC estimates that, pursuant to its modifications,~~proposed stipulations provided for increases in annual revenue requirements associated with base electricity ~~revenues would incorporate reductions~~rates 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$58 million at KU and ~~$10~~increases in annual base electricity and gas rates of approximately $4 million and $20 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.~~based on a return-on-equity of 9.725%.

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,~~April 30, 2019, the KPSC issued ~~an Order granting~~orders ruling on open issues and approving the proposed stipulations filed in March 2019. The orders provide for increases in annual revenue requirements associated with base electricity rates of $56 million at KU and increases associated with base electricity and gas rates of $2 million and $19 million at LG~~&E's and KU's request for reconsideration and amending its March 20, 2018 Order by suspending~~&E. With the ~~approved rates, allowing LG&E and KU, on an interim basis, to return savings related to~~termination of the TCJA ~~at the rates agreed to in the January 29, 2018 settlement.~~

~~On September 28, 2018, the KPSC issued an Order on reconsideration, implementing rates reflecting electricity revenue reductions of $101 million for KU ($80 million through the new~~ bill credit mechanism, this represents annual revenue increases of $187 million ($114 million at KU and ~~$21~~$73 million ~~through existing rate mechanisms),~~at LG&E). The new base rates and all elements of the orders became effective on May 1, 2019.

Table of Contents

$74 million for LG&E electricity revenues ($54 million through the new bill credit and $20 million through existing rate mechanisms) and $16 million LG&E gas revenues (substantially all through the new bill credit) for the period January 2018 through April 2019. This represents lower revenue reduction amounts than the March 20, 2018 Order of approximately $13 million ($7 million at KU and $6 million at LG&E). LG&E and KU have been implementing interim partial rate reductions since April 2018, as authorized by the KPSC on March 28, 2018, and recording reserves up to the higher reduction amounts originally approved in the March 20, 2018 Order. The September 28, 2018 Order is not expected to have a material adverse impact on LG&E's and KU's financial condition or results of operations.

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 requesting the KPSC to review and rule upon the recoverability of the franchise fee.

On March 14, 2018, the KPSC issued an Order authorizing the franchise fee to be recovered only from LG&E's Louisville/Jefferson County customers in the franchise area. As a result, the franchise fee will continue to be zero in accordance with the 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 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 $39 million relates to the period January 1, 2018 through June 30, 2018 and was recorded as a noncurrent regulatory liability in the second quarter of 2018 to be distributed to customers pursuant to a future rate adjustment. The remaining $33 million is the estimated impact for the period July 1, 2018 through December 31, 2018 and is being passed back to customers through the negative surcharge which began on July 1, 2018.

~~Table of Contents~~

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 FERC, 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, 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 Transmission Owners joint filing, submitted comments in response to the FERC's March 15, 2018 Notice of Inquiry. The filing 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

FERC Transmission Rate Filing

(PPL, LKE, LG&E and KU)

~~FERC Transmission Rate Filing~~

OnIn 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~~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~~&E's and ~~KU’s~~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.~~Kentucky. The amounts at issue are generally waivers or credits granted to such customers for either LG&E and KU or ~~for~~ MISO transmission charges incurred depending upon the direction of certain 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's 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. On March 21, 2019, the FERC issued an Order granting LG&E's and KU's request to remove the on-going credits, conditioned upon the implementation by LG&E and KU of a transition mechanism for certain existing power supply arrangements, which transition mechanism will be subject to FERC review and approval. LG&E and KU are currently evaluating the Order. LG&E and KU currently receive recovery of ~~such expenses in~~waivers and credits provided through other rate mechanisms.

(PPL and PPL Electric)

In April 2019, PPL Electric filed its annual transmission formula rate update with the FERC, reflecting a revised revenue requirement, which includes the impact of the TCJA. The filing establishes the revenue requirement used to set rates that will take effect in June 2019.

Transmission Customer Complaint (PPL, LKE, LG&E and ~~KU cannot predict the outcome of the proceeding, including any effects on their financial condition or results of operations.~~KU)

~~Transmission Customer Complaint~~

OnIn September ~~21,~~ 2018, a transmission customer filed a complaint with the FERC against LG&E and KU alleging LG&E and KU have violated and continue to violate their obligations under an existing rate schedule to credit this customer for certain transmission charges from MISO. OnIn October ~~11,~~ 2018, LG&E and KU filed an answer to the complaint arguing such MISO transmission transactions are not covered by the rate schedule, and the amounts in question are not eligible for credits. On February 21, 2019, the FERC issued an Order concluding that the MISO transmission charges in question did qualify for credits under the rate schedule, and required LG&E and KU ~~cannot predict~~to reimburse the ~~outcome~~customer for the eligible credits. The reimbursement was not significant and was completed by LG&E and KU in March 2019. LG&E and KU currently receive recovery for such credits through other rate mechanisms.

TCJA Impact on FERC Rates (All Registrants)

In November 2018, the FERC issued a Policy Statement stating that the appropriate ratemaking treatment for changes in accumulated deferred income taxes as a result of the ~~proceeding, but believe~~TCJA will be addressed in a Notice of Proposed Rulemaking. Also in November 2018, the FERC issued the Notice of Proposed Rulemaking which proposes that ~~any potential required credits would be subject~~public utility transmission providers include mechanisms in their formula rates to deduct excess accumulated deferred income taxes from, or add deficient accumulated deferred income taxes to, rate ~~recovery.~~base and adjust their income tax allowances by amortized excess or deficient accumulated deferred income taxes. The Notice of Proposed Rulemaking did not prescribe the mechanism companies should use to adjust their formula rates.

LG&E and KU are currently assessing the Notice of Proposed Rulemaking and are continuing to monitor guidance issued by the FERC. On February 5, 2019, in connection with a separate element of federal and Kentucky state tax reform effects, LG&E and KU filed a request with the FERC to amend their transmission formula rates, effective June 1, 2019, to incorporate reductions to corporate income tax rates as a result of the TCJA and HB 487. LG&E and KU do not anticipate the impact of the TCJA and HB 487 related to their FERC-jurisdictional rates to be significant.

On February 28, 2019, PPL Electric filed with the FERC proposed revisions to its transmission formula rate template pursuant to Section 205 of the Federal Power Act and Section 35.13 of the Rules and Regulation of the FERC. Specifically, PPL Electric proposed to modify its formula rate to permit the return or recovery of excess or deficient accumulated deferred income taxes (ADIT) resulting from the TCJA and permit PPL Electric to prospectively account for the income tax expense associated with the depreciation of the equity component of the AFUDC. On April 29, 2019, the FERC accepted the proposed revisions to the

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formula rate template, which will be effective June 1, 2019, as well as the proposed adjustments to accumulated deferred income taxes, effective January 1, 2018. The changes related to ADIT impacting the transmission formula rate revenues have not been significant since the new rate went into effect on June 1, 2018.

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 the purchased accounts receivable. Accounts receivable that are acquired are initially recorded at fair value on the date of acquisition. During the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019 and 2018, PPL Electric purchased ~~$334~~$348 million and ~~$1 billion of accounts receivable from alternate suppliers. During the three and nine months ended September 30, 2017, PPL Electric purchased $324 million and $968~~$376 million of accounts receivable from alternate suppliers.

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8. Financing Activities

Credit Arrangements and Short-term Debt

(All Registrants)

The Registrants maintain credit facilities to enhance liquidity, provide credit support and 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 listed in the borrowed column below are recorded as "Short-term debt" on the Balance Sheets, except for ~~borrowings~~amounts borrowed under LG&E's ~~term loan agreement,~~Term Loan Facility which are ~~reflected in~~recorded as "Long-term debt" on the March 31, 2019 Balance ~~Sheets.~~Sheet and as "Long-term debt due within one year" on the December 31, 2018 Balance Sheet. The following credit facilities were in place at:


	September 30, 2018									December 31, 2017				March 31, 2019									December 31, 2018
	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	£	154	£	—	£	54	£	148	£	—	Jan. 2023	£	210	£	151	£	—	£	57	£	157	£	—
Term Loan Facility (b)	Dec. 2018	130		130		—		—		—		—
WPD (South West)
Syndicated Credit Facility	July 2021	245		—		—		245		—		—		July 2021	245		—		—		245		—		—
WPD (East Midlands)
Syndicated Credit Facility (c)	July 2021	300		93		—		207		180		—
Syndicated Credit Facility (b)														July 2021	300		99		—		201		38		—
WPD (West Midlands)
Syndicated Credit Facility (d)	July 2021	300		50		—		250		120		—
Syndicated Credit Facility														July 2021	300		—		—		300		—		—
Uncommitted Credit Facilities		130		—		4		126		—		4			100		—		4		96		—		4
Total U.K. Credit Facilities (e)		£	1,315	£	427	£	4	£	882	£	448	£	4
Total U.K. Credit Facilities (c)															£	1,155	£	250	£	4	£	899	£	195	£	4
U.S.
PPL Capital Funding
Syndicated Credit Facility	Jan. 2023	$	950	$	—	$	691	$	259	$	—	$	230
Syndicated Credit Facility	Nov. 2018	300		—		—		300		—		—		Jan. 2024	$	1,450	$	—	$	968	$	482	$	—	$	669
Bilateral Credit Facility	Mar. 2019	100		—		20		80		—		18		Mar. 2020	100		—		15		85		—		15
Total PPL Capital Funding Credit Facilities		$	1,350	$	—	$	711	$	639	$	—	$	248		$	1,550	$	—	$	983	$	567	$	—	$	684

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

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

LG&E
Syndicated Credit Facility	Jan. 2023	$	500	$	—	$	176	$	324	$	—	$	199
Term Loan Credit Facility	Oct. 2019	200		200		—		—		100		—
Total LG&E Credit Facilities		$	700	$	200	$	176	$	324	$	100	$	199

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	September 30, 2018									December 31, 2017				March 31, 2019									December 31, 2018
	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 Electric
Syndicated Credit Facility														Jan. 2024	$	650	$	—	$	61	$	589	$	—	$	1

LG&E
Syndicated Credit Facility														Jan. 2024	$	500	$	—	$	269	$	231	$	—	$	279
Term Loan Credit Facility (d)														Oct. 2019	200		200		—		—		200		—
Total LG&E Credit Facilities															$	700	$	200	$	269	$	231	$	200	$	279

KU
Syndicated Credit Facility	Jan. 2023	$	400	$	—	$	128	$	272	$	—	$	45	Jan. 2024	$	400	$	—	$	233	$	167	$	—	$	235
Letter of Credit Facility	Oct. 2020	198		—		198		—		—		198		Oct. 2020	198		—		198		—		—		198
Total KU Credit Facilities		$	598	$	—	$	326	$	272	$	—	$	243		$	598	$	—	$	431	$	167	$	—	$	433


(a)	The amounts borrowed at ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018 were USD-denominated borrowings of $200 million for both periods, which bore interest at ~~2.90%~~3.32% and ~~2.17%~~3.17%. The unused capacity reflects the amount borrowed in GBP of ~~£156~~£153 million as of the date borrowed.


(b)	The ~~amount~~amounts borrowed at ~~September 30,~~March 31, 2019 and December 31, 2018 ~~was a~~were GBP-denominated ~~borrowing~~borrowings which equated to ~~$168~~$131 millionand $48 million and bore interest at ~~1.97%~~1.13% and 1.12%.


(c)	~~The amounts borrowed at September 30, 2018 and December~~At March 31, ~~2017 were GBP-denominated borrowings which equated to $121 millionand $244 million and bore interest at 1.09% and 0.89%.~~


~~(d)~~	~~The amounts borrowed at September 30, 2018 and December 31, 2017 were GBP-denominated borrowings which equated to $65 million and $162 million and bore interest at 1.12% and 0.89%.~~


~~(e)~~	~~At September 30, 2018,~~2019, the unused capacity under the U.K. credit facilities was ~~$1.1~~$1.2 billion.


(d)	At March 31, 2019, amounts borrowed were reclassified to "Long-term debt" on the Balance Sheets as a result of the April 2019 long-term debt issuances discussed below.

In October 2018, LKE's $75 million credit facility expired. LKE increased its revolving line of credit with a PPL Energy Funding subsidiary by $75 million to a limit of $375 million. See Note 11 for additional information.

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 are included in "Short-term debt" on the Balance Sheets, except for certain LG&E and KU issuances noted below, and are supported by the respective Registrant's ~~Syndicated Credit Facility.~~credit facilities. The following commercial paper programs were in place at:


	September 30, 2018							December 31, 2017			March 31, 2019							December 31, 2018
	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	2.38%	$	1,000	$	691	$	309	1.64%	$	230	2.88%	$	1,500	$	968	$	532	2.82%	$	669
PPL Electric		650		—		650			—		2.75%	650		60		590			—
LG&E(a)	2.34%	350		176		174		1.83%	199		2.75%	350		269		81		2.94%	279
KU(b)	2.34%	350		128		222		1.97%	45		2.75%	350		233		117		2.94%	235
Total		$	2,350	$	995	$	1,355		$	474		$	2,850	$	1,530	$	1,320		$	1,183


(a)	At March 31, 2019, $200 million of outstanding commercial paper issuances were reclassified to "Long-term debt" on the Balance Sheets as a result of the April 2019 long-term debt issuances discussed below.


(b)	At March 31, 2019, outstanding commercial paper issuances were reclassified to "Long-term debt" on the Balance Sheets as a result of the April 2019 long-term debt issuances discussed below.

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

See Note 1112 for discussion of intercompany borrowings.

Long-term Debt

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

In March 2018, WPD (South Wales) issued £30 million of 0.01% Index-linked Senior Notes due 2036. WPD (South Wales) received proceeds of £31 million, which equated to $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 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.~~

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In October 2018, WPD plc issued £350 million of 3.5% Senior Notes due 2026. WPD plc received proceeds of £346 million, which equated to $456 million at the time of issuance, net of fees and a discount. The proceeds will be used for general corporate purposes.

~~(PPL and PPL Electric)~~

~~In June 2018, PPL Electric~~April 2019, LG&E issued $400 million of ~~4.15%~~4.25% First Mortgage Bonds due ~~2048. PPL Electric~~2049. LG&E received proceeds of ~~$394~~$396 million, net of ~~a discount~~discounts and underwriting fees, which were used to repay ~~short-term debt~~commercial paper and ~~for general corporate purposes.~~LG&E's term loan.

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

In ~~March 2018,~~April 2019, the County of ~~Trimble,~~Jefferson, Kentucky remarketed ~~$28~~$128 million of Pollution Control Revenue Bonds, 2001 Series A (Louisville Gas and Electric Company Project) due ~~2026~~2033 previously issued on behalf of LG&E. The bonds were remarketed at a long-term rate and will bear interest at ~~2.30%~~1.85% through their mandatory purchase date of ~~September~~April 1, 2021.

~~In May 2018, the County of Trimble, Kentucky remarketed~~ ~~$35 million~~ ~~of Pollution Control Revenue Bonds, 2001 Series B (Louisville Gas~~(PPL, LKE 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~~.

~~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~~.

~~(LKE)~~KU)

In ~~May 2018, LKE borrowed $250~~April 2019, KU reopened its 4.375% First Mortgage Bonds due 2045 and issued an additional $300 million ~~from a PPL affiliate through the issuance~~ of ~~a 4% ten-year note due 2028. The~~this series. KU received proceeds of $303 million, including premiums and underwriting fees, which were used to repay ~~its outstanding notes payable to a PPL Energy Funding subsidiary. See Note 11~~commercial paper and for ~~additional information related to intercompany borrowings.~~other general corporate purposes.

(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. Full settlement of these forward sale agreements will occur no later than November 2019. Upon any physical settlements 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. The forward sale agreements are classified as equity transactions. PPL only receives proceeds and issues shares of common stock upon any settlements of the forward sale agreements. PPL intends to use net proceeds that it receives upon any settlement for general corporate purposes.

In September 2018, PPL settled a portion of the initial forward sale agreements by issuing 20 million shares of PPL common stock, resulting in net cash proceeds of $520 million. For the unsettled portion of the agreements, 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.

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ATM Program

In February 2018, PPL entered into an equity distribution agreement, pursuant to which PPL may sell, from time to time, up to an aggregate of $1.0 billion of its common stock through an at-the-market offering program; including a forward sales component. The compensation paid to the selling agents by PPL may be up to 2% of the gross offering proceeds of the shares. ~~PPL issued 4.2 million shares of common stock and received gross proceeds of $119 million~~There were no issuances under the ATM program for the ~~nine~~three months ended ~~September 30, 2018.~~March 31, 2019.

Distributions

In ~~August 2018,~~February 2019, PPL declared a quarterly common stock dividend, payable ~~October~~April 1, ~~2018,~~2019, of ~~41.0~~41.25 cents per share (equivalent to ~~$1.64~~$1.65 per annum). Future dividends, declared at the discretion of the Board of Directors, will depend upon future earnings, cash flows, financial and legal requirements and other factors.

9. Leases

(All Registrants)

The Registrants determine whether contractual arrangements contain a lease by evaluating whether those arrangements either implicitly or explicitly identify an asset, whether the Registrants have the right to obtain substantially all of the economic benefits from use of the asset throughout the term of the arrangement, and whether the Registrants have the right to direct the use of the asset. Renewal options are included in the lease term if it is reasonably certain the Registrants will exercise those options. Periods for which the Registrants are reasonably certain not to exercise termination options are also included in the lease term. The Registrants have certain agreements with lease and non-lease components, such as office space leases, which are generally accounted for separately.

LKE, LG&E and KU have entered into various operating leases primarily for office space, vehicles and railcars. The leases generally have fixed payments with expiration dates ranging from 2019 to 2025, some of which have options to extend the leases from one year to ten years and some have options to terminate at LKE's, LG&E's and KU's discretion. For leases that existed as of December 31, 2018, payments associated with renewal options are not included in the measurement of the lease liability and right of use (ROU) asset.

WPD and Safari Energy have entered into various operating leases primarily for office space, land easements and telecom assets. These leases generally have fixed payments with expiration dates ranging from 2019 through 2028, except for the land agreements which extend through 2116.

PPL Electric also has operating leases which do not have a significant impact to its operations.

Short-term Leases

Short-term leases are leases with a term that is 12 months or less and do not include a purchase option to extend the initial term of the lease to greater than 12 months that the Registrants are reasonably certain to exercise. The Registrants have made an accounting policy election to not recognize the ROU asset and the lease liability arising from leases classified as short-term. Expenses related to short-term leases are included in the tables below.

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Discount Rate

The discount rate for a lease is the rate implicit in the lease unless that rate cannot be readily determined. In that case, the Registrants are required to use their incremental borrowing rate, which is the rate the Registrants would have to pay to borrow, on a collateralized basis over a similar term, an amount equal to the lease payments in a similar economic environment.

The Registrants receive secured borrowing rates from financial institutions based on their applicable credit profiles. The Registrants use the secured rate which corresponds with the term of the applicable lease.

Practical Expedients

See Note 2 for information on the adoption of the new lease guidance as well as the practical expedients the Registrants have elected as part of the transition.

(PPL, LKE, LG&E and KU)

Lessee Transactions

The following table provides the components of lease cost for the Registrants' operating leases for the three months ended March 31, 2019.



	PPL		LKE		LG&E		KU
Lease cost:
Operating lease cost	$	8	$	7	$	4	$	3
Short-term lease cost	1		—		—		—
Total lease cost	$	9	$	7	$	4	$	3

The following table provides other key information related to the Registrants' operating leases at March 31, 2019.



	PPL		LKE		LG&E		KU
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	8	$	7	$	4	$	3
Right-of-use asset obtained in exchange for new operating lease liabilities	4		4		1		3

The following table provides the total future minimum rental payments for operating leases, as well as a reconciliation of these undiscounted cash flows to the lease liabilities recognized on the Balance Sheets as of March 31, 2019.



	PPL			LKE			LG&E			KU
2019	$	23		$	19		$	8		$	11
2020	20			15			6			8
2021	14			11			4			6
2022	10			7			3			4
2023	7			6			3			3
2024	7			5			2			3
Thereafter	23			5			2			3
Total	$	104		$	68		$	28		$	38

Weighted-average discount rate	3.74		%	3.93		%	3.8		%	4.01		%
Weighted-average remaining lease term (in years)	9			5			5			4
Current lease liabilities (a)	$	21		$	16		$	7		$	9
Non-current lease liabilities (a)	64			43			18			24
Right-of-use assets (b)	76			51			20			29


(a)	Current lease liabilities are included in "Other Current Liabilities" on the Balance Sheets. Non-current lease liabilities are included in "Other deferred credits and noncurrent liabilities" on the Balance Sheets. The difference between the total future minimum lease payments and the recorded lease liabilities is due to the impact of discounting.


(b)	Right-of-use assets are included in "Other noncurrent assets" on the Balance Sheets.

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At December 31, 2018, the total future minimum rental payments for all operating leases were estimated to be:



	PPL		LKE		LG&E		KU
2019	$	26	$	20	$	10	$	10
2020	21		15		6		9
2021	15		11		4		7
2022	13		7		3		4
2023	8		6		3		3
Thereafter	33		11		4		6
Total	$	116	$	70	$	30	$	39

Lessor Transactions

Third parties lease land from LKE, LG&E and KU at certain generation plants to produce refined coal used in generation of electricity. The leases are operating leases and expire in 2021. Payments are allocated among lease and non-lease components as stated in the agreements. Lease payments are fixed or are determined based on the amount of refined coal used in electricity generation at the facility. Payments received are primarily recorded as a regulatory liability and are amortized in accordance with regulatory approvals.

WPD leases property and telecom assets to third parties, which generally expire through 2029. These leases are operating leases. Generally, lease payments are fixed and include only a lease component.

At March 31, 2019, PPL, LKE and KU expect to receive the following lease payments over the remaining term of their operating lease agreements:



	PPL		LKE		KU
2019	$	11	$	6	$	6
2020	13		7		7
2021	10		5		5
2022	4		—		—
2023	4		1		—
2024	4		—		—
Thereafter	12		—		—
Total	$	58	$	19	$	18

Lease income recognized for the three months ended March 31, 2019	$	4	$	2	$	2

9.10. 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 LG&E for the periods ended ~~September 30:~~March 31:

Pension Benefits
Three Months Nine Months
U.S. U.K. U.S. U.K.
2018 2017 2018 2017 2018 2017 2018 2017
PPL
Service cost $ 15
$ 17
$ 21
$ 20
$ 46
$ 49
$ 63
$ 57
Interest cost 39
42
46
45
117
126
140
132
Expected return on plan assets (62 ) (58 ) (145 ) (130 ) (186 ) (173 ) (445 ) (382 )
Amortization of:
Prior service cost 2
2
—
—
7
7
—
—
Actuarial loss 22
18
37
36
63
52
114
107
Net periodic defined benefit costs (credits) before settlements and special termination benefits 16
21
(41 ) (29 ) 47
61
(128 ) (86 )
Settlements (a) —
1
—
—
—
1
—
—
Special termination benefits (b) —
—
—
—
—
1
—
—
Net periodic defined benefit costs (credits) $ 16
$ 22
$ (41 ) $ (29 ) $ 47
$ 63
$ (128 ) $ (86 )

~~(a)~~

Due to the amount of lump sum payment distributions from the LG&E qualified pension plan, a settlement charge of $1 million and $5 million for the three and nine months ended September 30, 2018 and $5 million for the three and nine months ended September 30, 2017 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.


~~(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.

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	Pension Benefits												Pension Benefits
	Three Months						Nine Months						Three Months
	2018			2017			2018			2017			U.S.						U.K.
LKE
													2019			2018			2019			2018
PPL
Service cost	$	6		$	6		$	18		$	18		$	13		$	16		$	17		$	21
Interest cost	16			17			48			51			41			39			47			47
Expected return on plan assets	(25		)	(23		)	(76		)	(69		)	(61		)	(62		)	(148		)	(150		)
Amortization of:
Prior service cost	3			2			7			6			2			2			—			—
Actuarial loss (a)	8			8			26			23
Net periodic defined benefit costs (b)	$	8		$	10		$	23		$	29
Actuarial loss													13			22			24			39
Net periodic defined benefit costs (credits) before settlements													8			17			(60		)	(43		)
Settlements													1			—			—			—
Net periodic defined benefit costs (credits)													$	9		$	17		$	(60	)	$	(43	)



	Pension Benefits
	Three Months
	2019			2018
LKE
Service cost	$	6		$	7
Interest cost	16			16
Expected return on plan assets	(25		)	(26		)
Amortization of:
Prior service cost	2			2
Actuarial loss (a)	4			10
Net periodic defined benefit costs	$	3		$	9

(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 ~~$2 million and $8~~$4 million for the three ~~and nine~~ months ended ~~September 30, 2018 and $3 million and $8 million for the three and nine months ended September 30, 2017.~~March 31, 2018. This difference is recorded as a regulatory asset.

~~(b)~~


	Pension Benefits												Pension Benefits
	Three Months						Nine Months						Three Months
	2018			2017			2018			2017			2019			2018
LG&E
Service cost	$	—		$	—		$	1		$	1
Interest cost	3			3			9			9			3			3
Expected return on plan assets	(6		)	(5		)	(17		)	(16		)	(6		)	(5		)
Amortization of:
Prior service cost	1			1			4			3			1			1
Actuarial loss (a)	2			3			5			7			2			2
Net periodic defined benefit costs (b)	$	—		$	2		$	2		$	4
Net periodic defined benefit costs													$	—		$	1

(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 ~~nine~~three months ended ~~September 30, 2018 and $1 million and $3 million for the three and nine months ended September 30, 2017.~~March 31, 2018. This difference is recorded as a regulatory asset.

~~(b)~~

Other Postretirement Benefits
Three Months Nine Months
2018 2017 2018 2017
PPL
Service cost $ 1
$ 2
$ 5
$ 6
Interest cost 5
5
15
17
Expected return on plan assets (4 ) (6 ) (17 ) (17 )
Amortization of prior service cost —
—
—
(1 )
Amortization of actuarial loss —
1
—
1
Net periodic defined benefit costs $ 2
$ 2
$ 3
$ 6

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	Other Postretirement Benefits												Other Postretirement Benefits
	Three Months						Nine Months						Three Months
	2018			2017			2018			2017			2019			2018
PPL
Service cost													$	1		$	1
Interest cost													6			3
Expected return on plan assets													(5		)	(4		)
Amortization of prior service cost													—			(1		)
Net periodic defined benefit costs													$	2		$	(1	)

LKE
Service cost	$	1		$	1		$	3		$	3		$	1		$	1
Interest cost	2			2			6			6			2			2
Expected return on plan assets	(2		)	(2		)	(6		)	(5		)	(2		)	(2		)
Amortization of:
Prior service cost	—			1			1			1
Actuarial gain	—			—			(1		)	—
Net periodic defined benefit costs	$	1		$	2		$	3		$	5		$	1		$	1

(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 1112 for 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 30,~~March 31, PPL Services allocated the following net periodic defined benefit costs to PPL Electric, and LKE allocated the following net periodic defined benefit costs to LG&E and KU:


	Three Months				Nine Months				Three Months
	2018		2017		2018		2017		2019		2018
PPL Electric	$	5	$	6	$	12	$	19	$	3	$	4
LG&E	1		3		5		8		1		2
KU	1		2		3		7		—		1

(All Registrants)

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 gain and loss) are presented in "Other Income (Expense) - net" on the Statements of Income. See Note 1213 for additional information.

~~10.~~11. 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.

~~Claim by Former Affiliate~~Talen Litigation(PPL)

Background

In September 2013, one of PPL's former subsidiaries, PPL Montana entered into an agreement to sell its hydroelectric generating facilities. In June 2014, PPL and PPL Energy Supply, the parent company of PPL Montana, entered into various definitive agreements with affiliates of Riverstone to spin off PPL Energy Supply and ultimately combine it with Riverstone's

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competitive power generation businesses to form a stand-alone company named Talen Energy. In November 2014, after executing the spinoff agreements but prior to the closing of the spinoff transaction, PPL Montana closed the sale of its hydroelectric generating facilities. Subsequently, on June 1, 2015, the spinoff of PPL Energy Supply was completed. Following the spinoff transaction, PPL had no continuing ownership interest in or control of PPL Energy Supply. In connection with the spinoff transaction, PPL Montana became Talen Montana, LLC (Talen Montana), a subsidiary of Talen Energy. Talen Energy Marketing also became a subsidiary of Talen Energy as a result of the June 2015 spinoff of PPL Energy Supply. Talen Energy has owned and operated both Talen Montana and Talen Energy Marketing since the spinoff. At the time of the spinoff, affiliates of Riverstone acquired a 35% ownership interest in Talen Energy. Riverstone subsequently acquired the remaining interests in Talen Energy in a take private transaction in December 2016.

Talen Montana, LLC v. PPL Corporation et al.

On October 29, 2018, Talen Montana ~~LLC ("Talen Montana")~~ filed a complaint against PPL and certain of its affiliates and current and former officers and directors in the First Judicial District of the State of Montana, ~~County of~~ Lewis & ~~Clark. On~~Clark County (Talen Direct Action). Talen Montana alleges that in November 2014, PPL and certain officers and directors improperly distributed to PPL's subsidiaries $733 million of the ~~same day,~~ proceeds from the sale of Talen Montana's (then PPL Montana's) hydroelectric generating facilities, rendering PPL Montana insolvent. The complaint includes claims for, among other things, breach of fiduciary duty; aiding and abetting breach of fiduciary duty; breach of an LLC agreement; breach of the implied duty of good faith and fair dealing; tortious interference; negligent misrepresentation; and constructive fraud. Talen Montana is seeking unspecified damages, including punitive damages, and other relief. In December 2018, PPL moved to dismiss the Talen Direct Action for lack of jurisdiction and, in the alternative, to dismiss because Delaware is the appropriate forum to decide this case. In January 2019, Talen Montana dismissed without prejudice all current and former PPL Corporation directors from the case. The parties are proceeding with limited jurisdictional discovery.

Talen Montana Retirement Plan and ~~certain other~~Talen Energy Marketing, LLC, Individually and on Behalf of All Others Similarly Situated v. PPL Corporation et al.

Also on October 29, 2018, Talen Montana Retirement Plan and Talen Energy Marketing filed a putative class action complaint on behalf of current and contingent creditors of Talen Montana who allegedly suffered harm or allegedly will suffer reasonably foreseeable harm as a result of the November 2014 distribution. The action was filed ~~a complaint~~in the Sixteenth Judicial District of the State of Montana, Rosebud County, against PPL and certain of its affiliates and current and former officers and directors in(Talen Putative Class Action). The plaintiffs assert claims for, among other things, fraudulent transfer, both actual and constructive; recovery against subsequent transferees; civil conspiracy; aiding and abetting tortious conduct; and unjust enrichment.They are seeking avoidance of the purportedly fraudulent transfer, unspecified damages, including punitive damages, the imposition of a constructive trust, and other relief. In December 2018, PPL removed the Talen Putative Class Action from the Sixteenth Judicial District of the State of Montana ~~Rosebud County.~~to the United States District Court for the District of Montana, Billings Division. In January 2019, the plaintiffs moved to remand the Talen ~~Montana became a wholly owned subsidiary of~~Putative Class Action back to state court, and dismissed without prejudice all current and former PPL Corporation directors from the case. The parties are proceeding with limited discovery in connection with the motion to remand.

PPL Corporation et al. vs. Riverstone Holdings LLC, Talen Energy asCorporation et al.

On November 30, 2018, PPL, certain PPL affiliates, and certain current and former officers and directors (PPL plaintiffs) filed a ~~result~~complaint in the Court of Chancery of the ~~June 2015~~State of Delaware seeking various forms of relief against Riverstone, Talen Energy and certain of their affiliates (Delaware Action). In the complaint, the PPL plaintiffs ask the Delaware Court of Chancery for declaratory and injunctive relief. This includes a declaratory judgment that, under the separation agreement governing the spinoff of PPL Energy ~~Supply.~~Supply, all related claims that arise must be heard in Delaware; that the statute of limitations in Delaware and the spinoff agreement bar these claims at this point; that PPL is not liable for the claims in either the Talen Direct Action or the Talen Putative Class Action as PPL Montana was solvent at all relevant times; and that the separation agreement requires that Talen Energy ~~has owned~~indemnify PPL for all losses arising from the debts of Talen Montana, among other things. PPL's complaint also seeks damages against Riverstone for interfering with the separation agreement and ~~operated Talen Montana's business since the spinoff. At the time~~against Riverstone affiliates for breach of the ~~spinoff, affiliates~~implied covenant of ~~Riverstone acquired a 35% ownership interest in Talen Energy. See Note 8~~good faith and fair dealing. The complaint was subsequently amended on January 11, 2019 and March 20, 2019, including to add claims related to indemnification with respect to the ~~Consolidated Financial Statements in PPL's 2017 Form 10-K for~~Talen Direct Action and the Talen Putative Class Action (together, the Montana Actions), request a ~~description of~~declaration that the ~~2015~~Montana Actions are time-barred under the spinoff ~~of PPL Energy Supply. Riverstone subsequently acquired~~agreements, and allege additional facts to support the ~~remaining interests in Talen Energy in 2016.~~tortious interference claim. On April 19, 2019, the defendants filed motions to dismiss the amended complaint.

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~~The complaints allege that in 2014 PPL and its officers and directors improperly distributed $733 million~~With respect to each of the proceeds from the November 2014 sale of Talen Montana's (then PPL Montana's) hydroelectric generating facilities to PPL's subsidiaries. The complaints also allege that PPL and certain current and former officers and directors of PPL and its subsidiaries breached their fiduciary duties in connection with the 2014 distribution.Talen-related matters described above, PPL believes that the ~~referenced~~ 2014 distribution of proceeds was made in compliance with all applicable laws and that PPL Montana was solvent ~~upon the 2014 distribution.~~at all relevant times. Additionally, in the agreements entered into in connection with ~~respect~~the spinoff, which PPL and affiliates of Talen Energy and Riverstone negotiated and executed prior to the ~~spinoff, affiliates~~2014 distribution, directly address the treatment of the proceeds from the sale of PPL Montana's hydroelectric generating facilities; in those agreements, Talen Energy and Riverstone definitively agreed that PPL was entitled to retain the ~~proceeds from the November 2014 sale of PPL Montana's hydroelectric generating facilities.~~ proceeds.

PPL believes that it has ~~good and~~ meritorious defenses to ~~these~~the claims made in the Montana Actions and ~~fully plans~~intends to continue to vigorously defend against these actions. AtThe Montana Actions and the Delaware Action are all in the early stages of litigation; at this time, PPL cannot predict the outcome of these matters or estimate the range of possible losses, if any, that PPL might incur as a result of the claims, although they could be material.

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 (U.S. District Court) alleging violations of the Clean Air Act, RCRA, and common law claims of nuisance, trespass and negligence. These plaintiffs seek injunctive relief and civil penalties, plus costs and attorney fees, for the alleged statutory violations. Under the common law claims, these plaintiffs seek monetary compensation and punitive damages for property damage and diminished property values for a class consisting of residents within four miles of the Cane Run plant, which retired three coal-fired units in 2015. In their individual capacities, these plaintiffs sought compensation for alleged adverse health effects. In July 2014, the court dismissed the 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 U.S. District Court issued an Order dismissing PPL as a defendant and dismissing the final federal claim against LG&E. In April 2017, the U.S. District Court issued an Order declining to exercise supplemental jurisdiction on the state law claims and dismissed the case in its entirety. In June 2017, the plaintiffs filed a class action complaint in Jefferson County, Kentucky Circuit Court, against LG&E 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~~be rendered in 2019. PPL, LKE and LG&E cannot predict the outcome of this matter and an estimate or range of possible losses cannot be determined.

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

OnIn 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 (U.S. District Court) 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 sought injunctive relief ordering KU to take all actions necessary to comply with the Clean Water Act 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 sought assessment of civil penalties and an award of litigation costs and attorney fees. OnIn December ~~28,~~ 2017 the U.S. District Court issued an Order dismissing the Clean Water Act and RCRA complaints against KU in their entirety. OnIn 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. On~~In September ~~24,~~ 2018, the U.S. Court of Appeals for the Sixth Circuit issued its ruling affirming the lower court's decision to dismiss the Clean Water Act claims ~~and~~but reversing its dismissal of the RCRA claims against KU and remanding the latter to the U.S. District Court. OnIn October 9, 2018, KU filed a petition for rehearing to the U.S. Court of Appeals for the Sixth Circuit regarding the RCRA claims. In November 2018, the U.S. Court of Appeals for the Sixth Circuit denied KU's petition for rehearing regarding the RCRA claims. On January 8, 2019, KU filed an answer to plaintiffs’ complaint in the U.S. District Court. PPL, LKE and KU cannot predict the outcome of these matters and an estimate or range of possible losses cannot be determined.

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. The aquatic study and risk assessment are being undertaken pursuant to a 2017 agreed Order with the Kentucky Energy and Environment Cabinet (KEEC). KU conducted sampling of Herrington Lake in ~~late~~ 2017 ~~through mid-2018.~~and 2018. A final report of KU’s findings is expected to be submitted to the KEEC in ~~2019.~~mid-2019. KU believes that current and planned measures for the E.W. Brown plant, including closure of impoundments, cessation of certain discharges, and deployment of new discharge controls, are sufficient to ensure compliance with applicable requirements. However, until

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completion of the aquatic study and related assessments and issuance of regulatory determinations by the KEEC, PPL, LKE and KU are unable to determine whether additional remedial measures will be required at the E.W. Brown plant.

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Regulatory Issues (All Registrants)

See Note 7 for information on regulatory matters related to utility rate regulation.

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 an estimate or range of possible losses 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

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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. 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. 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 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 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. 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, have evaluated the need for further nitrogen oxide reductions from fossil-fueled plants to address interstate impacts. OnIn August ~~23,~~ 2018, Kentucky submitted a proposed state implementation plan finding that no additional reductions beyond existing and planned controls set forth in Kentucky's existing State Implementation Plan are necessary to prevent Kentucky from contributing significantly to any other state’s nonattainment. OnIn September ~~14,~~ 2018, the EPA announced its denial of petitions filed by Maryland and Delaware alleging that states including Kentucky and Pennsylvania contribute to nonattainment in the petitioning states. PPL, LKE, LG&E and KU are unable to predict the outcome of ongoing and future evaluations by the EPA and the states, or whether such evaluations could potentially result in requirements for nitrogen oxide reductions beyond those currently required under the Cross-State Air Pollution Rule.

Sulfur Dioxide

In 2010, the EPA issued ~~the current~~a new NAAQS for sulfur dioxide and required states to identify areas that meet those standards and areas that are in nonattainment. In July 2013, the EPA finalized nonattainment designations for parts of the country, including part of Jefferson County in Kentucky. 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. On March 18, 2019, the EPA issued a final rule retaining, without revision, the primary standards for sulfur dioxide as specified in the 2010 NAAQS. PPL, LKE, LG&E and KU do not anticipate any further measures to achieve compliance with the ~~new~~current sulfur dioxide standards.

MATS

In December 2018, the EPA proposed to revise its previous finding that regulation of hazardous air emissions from coal- and oil-fired electricity generating units is justified and instead found that the agency erred in determining such regulation is “appropriate and necessary” due to mistakes in its regulatory cost-benefit analysis. As a result of its review of relevant precedent, the EPA further proposed not to remove the coal- and oil-fired electricity generating unit source category from the list of sources that must be regulated under Section 112 of the Clean Air Act and leave existing emission standards in place. Finally, the EPA proposed to find that the results of its residual risk and technology review indicate that residual risk due to air

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toxic emissions from this source category is acceptable and current standards provide an ample margin of safety to protect public health. LG&E and KU have completed installation of controls at their plants as necessary to achieve compliance with the applicable provision of MATS. It is not possible to predict the outcome of the pending regulatory proceedings including whether existing standards may be repealed, or the resulting impacts on plant operations, financial condition or results of operations.

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.

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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 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.

Additionally, the March 2017 Executive Order directed the EPA to review its 2015 greenhouse gas rules 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~~reduction credits to offset emissions associated with WPD's operations. The cost of these ~~allowances~~credits is not significant and is included in WPD's current operating expenses.

The current U.K. carbon allowance scheme ended on March 31, 2019, with the last reporting year being April 2018 through March 2019. It is now being replaced by reporting requirements under the Streamlined Energy and Carbon Reporting framework along with a tax (called “Climate Change Levy”) which is equivalent to the current cost of the carbon reduction credits. The cost of the tax is not significant and will be included in WPD’s operating expenses.

The EPA's Rules under Section 111 of the Clean Air Act including the EPA's Proposed Affordable Clean Energy Rule

In 2015, the EPA had finalized rules imposing GHG emission standards for both new and existing power plants and had proposed a federal implementation plan that would apply to any states that failed to submit an acceptable state implementation plan to reduce GHG emissions on a state-by-state basis (the ~~2015 EPA Rules)~~Clean Power Plan).

~~On August 21, 2018, the EPA proposed the Affordable Clean Energy Act (ACE) Rule as a replacement for the 2015 EPA Rules pertaining to existing sources. The EPA took this action following~~Following legal challenges to the ~~2015 EPA Rules,~~Clean Power Plan, a stay of those rules by the U.S. Supreme Court aand the March 2017 Executive Order requiring the EPA to review ~~those rules and~~ the ~~EPA’s~~Clean Power Plan in October 2017, ~~proposal~~the EPA proposed to rescind the ~~rules.~~Clean Power Plan. In August 2018, the EPA proposed the Affordable Clean Energy (ACE) Rule as a replacement for the Clean Power Plan pertaining to existing sources. The ACE Rule would give states broad latitude in establishing emission guidelines providing for plant-specific efficiency upgrades or ~~“heat-rate improvements”~~"heat-rate improvements" that would reduce GHG emissions per unit of electricity generated. The ACE Rule proposes a list of ~~“candidate technologies”~~"candidate technologies" that would be considered in establishing standards of performance at individual power plants. The ACE Rule also proposes new criteria for determining whether such efficiency projects would trigger New Source Review and thus be subject to more stringent emission controls.

In ~~April 2014,~~anticipation of the EPA's Clean Power Plan, the Kentucky General Assembly passed legislation in April 2014 limiting the measures that the Kentucky Energy and Environment Cabinet may consider in setting performance standards to comply with the ~~2015 EPA Rules,~~Clean Power Plan, 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 broadly consistent with the EPA's proposed ACE Rule.

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LG&E and KU are monitoring developments at the state and federal level. Until the ACE Rule is finalized and the state determines implementation measures, 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 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.~~June 2019. 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.

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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. 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. OnIn March 1, 2018, the EPA proposed amendments to the CCR rule primarily relating to impoundment closure and remediation requirements. OnIn July ~~30,~~ 2018, the EPA published in the Federal Register a 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. The EPA has announced that additional amendments to the rule will be ~~proposed in late 2018. On~~proposed. In August ~~21,~~ 2018, the D.C. Circuit Court of Appeals vacated and remanded portions of the CCR rule including provisions allowing unlined impoundments to continue operating and exempting inactive impoundments at inactive plants from regulation. As a result of subsequent challenges to the CCR Rule amendments, on March 13, 2019, the D.C. Circuit granted the EPA’s motion for voluntary remand of the amended rule without voiding it. Consequently, the CCR Rule amendments, including extended compliance deadline, will remain in place as the EPA considers further rule amendments and revisions. 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. The Registrants are currently finalizing closure plans and schedules.

In January 2017, the Kentucky Energy and Environment Cabinet issued a new state rule relating to CCR ~~matters, effective May 2017,~~management aimed at reflecting the requirements of the federal CCR rule. ~~In May 2017,~~As a ~~resident adjacent to LG&E's and KU's Trimble County plant filed~~result of a ~~lawsuit~~subsequent legal challenge in January 2018, the Franklin County, Kentucky ~~Circuit~~ Court ~~against the Kentucky Energy and Environmental Cabinet and LG&E seeking to invalidate the new rule. 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 presently operate their facilities under continuing permits authorized ~~via~~under 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~~announced it ~~may~~expects to propose new state rules ~~under such authority~~ in 2019 aimed at addressing the ~~future.~~procedural deficiencies identified by the court and providing the regulatory framework necessary for operation of the state CCR program in lieu of the federal CCR Rule, as provided by applicable law.

LG&E and KU received KPSC approval for a compliance plan providing for the 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, 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. ~~On January 26, 2018, KU filed an application requesting a CPCN and approval~~

Table of ~~amendments to the second phase of its compliance plan for 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.~~Contents

In connection with the final CCR rule, LG&E and KU recorded adjustments to existing AROs beginning in 2015 and continue to record adjustments as required. See Note 16 below and Note 19 in the Registrants' ~~2017~~2018 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

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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.

~~Litigation~~Clean Water Act Jurisdiction

For several years the EPA has been seeking to clarify which discharges are subject to the Clean Water Act. The issue is ~~currently pending in various courts relating~~primarily significant to PPL's operations with respect to discharges to groundwater from ash basins. There has been substantial disagreement over whether Clean Water Act jurisdiction covers discharges of ~~contaminated~~contaminants to groundwater ~~that~~which reach surface water via a direct hydrologic connection. ~~Courts~~In particular, various environmental groups and other stakeholders argue that leaking impoundments located at coal-fired power plants are subject to Clean Water Act jurisdiction, while facility owners and many states contend that such situations are more appropriately addressed under the EPA's CCR Rule and state regulatory programs.

Most recently, on April 12, 2019, the EPA released an interpretive statement concluding that Clean Water Act jurisdiction does not cover discharges to groundwater regardless of any hydrologic connection between groundwater and jurisdictional surface water.

The issue has been subject to extensive litigation in federal courts including the citizen suit filed against KU with respect to its E.W. Brown plant,as discussed under “Legal Matters” - “E.W. Brown Environmental Claims” above, resulting in contradictory rulings by courts in different ~~jurisdictions have come~~jurisdictions. On February 19, 2019, the U.S. Supreme Court agreed to ~~contrary conclusions~~review a lower court ruling on the issue. The U.S. Supreme Court’s ruling in that case, likely to be issued in the ~~past. On February 20, 2018, the EPA issued a notice requesting comment~~first half of 2020, is expected to provide additional clarification on the scope of ~~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.~~jurisdiction. 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 outcome of current or future regulatory ~~developments~~proceedings or litigation 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 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. On April 12, 2019, the U.S. Court of Appeals for the Fifth Circuit vacated and remanded portions of the ELGs concerning legacy wastewater and CCR leachate. 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

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discharge limits ~~which~~ are expected to be ~~significant,~~significant. Certain costs are included in the Registrants’ capital plans and are subject to rate recovery.

Seepages and Groundwater Infiltration

In addition to the actions described above, 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. 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 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 to undertake the second phase of the rulemaking later in 2018.

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Superfund and Other Remediation

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

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.

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 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.

~~As of September 30, 2018 and December 31, 2017,~~ PPL Electric had a recorded liability of $11 million at March 31, 2019 and ~~$10 million~~December 31, 2018 representing its best estimate of the probable loss incurred to remediate the sites noted in this section. 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.

Future cleanup or remediation work 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 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~~

~~(LKE and KU)~~

KU has 68 employees that are represented by the IBEW labor union. In August 2018, KU and the IBEW ratified a three-year labor agreement through August 2021. The agreement includes a wage reopener in 2020. The terms of the new labor agreement are not expected to have a significant impact on the financial results of LKE or KU.

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~~Separation Benefits~~

~~(PPL and PPL Electric)~~

In June 2018, PPL EU Services announced it was reorganizing its IT organization into the following new areas: planning, operations, data and information management and IT transformation. Organizational plans and staffing selections for the new IT organization were substantially completed in the third quarter of 2018 which reduced the number of contractors and PPL EU Services’ employees in IT. Affected employees had the option of joining a managed services vendor, applying for a newly created position in IT or opting for severance. As a result, for the nine months ended September 30, 2018, estimated charges for separation benefits of $6 million, which were primarily allocated to PPL Electric, relating to 86 displaced PPL EU Services’ IT employees, was recorded in “Other operation and maintenance” on the Statement of Income and in “Other current liabilities” on the Balance Sheet. The separation benefits include cash severance compensation, lump sum COBRA reimbursement payments, outplacement services and accelerated stock award vesting which are expected to be primarily paid out over various dates into 2019.

Guarantees and Other Assurances

(All Registrants)

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

(PPL)

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

(All Registrants)

The table below details guarantees provided as of ~~September 30, 2018.~~March 31, 2019. "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.~~entities," ~~The~~for which PPL has a total recorded liability ~~at September 30, 2018 was~~of $6 million ~~for PPL~~at March 31, 2019 and ~~not significant for LKE. The total recorded liability at~~ December 31, ~~2017 was $17 million for PPL and $11 million for LKE.~~2018. For reporting purposes, on a consolidated basis, all guarantees of PPL Electric, LKE, LG&E and KU also apply to PPL, and all guarantees of LG&E and KU also apply to LKE.

Exposure at
September 30, 2018

Expiration
Date

Exposure at
March 31, 2019

Expiration
Date

PPL

Indemnifications related to the WPD Midlands acquisition

(a)

WPD indemnifications for entities in liquidation and sales of assets

(b)

2020

(b)

2020

WPD guarantee of pension and other obligations of unconsolidated entities

(c)

PPL Electric

Guarantee of inventory value

(d)

2020

(d)

2020

LKE

Indemnification of lease termination and other divestitures

200

(e)

2021

200

(e)

2021

LG&E and KU

LG&E and KU guarantee of shortfall related to OVEC

(f)

LG&E and KU obligation 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

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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 30, 2018,~~March 31, 2019, 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. 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.~~losses above the amounts recorded.

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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 ~~$114~~$112 million at ~~September 30, 2018,~~March 31, 2019, consisting of LG&E's share of ~~$79~~$78 million and KU's share of ~~$35~~$34 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 ~~2017~~2018 Form 10-K for additional information on the OVEC power purchase contract.

In March 2018, a sponsor with a pro-rata share of certain OVEC obligations of 4.85% filed for bankruptcy under Chapter 11 and, in August 2018, received a rejection Order for the OVEC power purchase contract in the bankruptcy proceeding. OVEC and certain sponsors are appealing this action, in addition to pursuing appropriate rejection claims in the bankruptcy proceeding. 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 Registrants believe the probability of payment/performance under these guarantees is remote.

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

~~11.~~12. 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 with administrative, management and support services. For all ~~service~~services companies, the costs of ~~these~~directly assignable and attributable services are charged to the respective recipients as direct support costs. General costs that cannot be directly assigned or 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 30,~~March 31, including amounts applied to accounts that are further distributed between capital and expense on the books of the recipients, based on methods that are believed to be reasonable.

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	Three Months				Nine Months				Three Months
	2018		2017		2018		2017		2019		2018
PPL Electric from PPL Services	$	14	$	43	$	45	$	138	$	16	$	16
LKE from PPL Services	5		4		19		15		9		7
PPL Electric from PPL EU Services	34		15		110		48		37		35
LG&E from LKS	36		38		113		120		38		38
KU from LKS	42		43		127		134		43		42

In addition to the charges for services noted above, LKS makes payments on behalf of LG&E and KU for fuel purchases and other costs for products or services provided by third parties. LG&E and KU also provide services to each other and to LKS. Billings between LG&E and KU relate to labor and overheads associated with union and hourly employees performing work for the other company, charges related to jointly-owned 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 $650 million revolving line of credit with a PPL Electric subsidiary. ~~In June 2018, the revolving line of credit was increased by $250 million and the limit as of September 30, 2018 was $650 million.~~ No balance was outstanding at ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017.~~2018. The interest rates on borrowings are equal to one-month LIBOR plus a spread. Interest income is reflected in "Interest Income from Affiliate" on the Income Statement.

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(LKE)

LKE maintains a ~~$300~~$375 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. ~~In October 2018, the revolving line of credit was increased by $75 million to a limit of $375 million.~~ The interest rates on borrowings are equal to one-month LIBOR plus a spread. At ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017, $80~~2018, $187 million and ~~$225~~$113 million were outstanding and reflected in "Notes payable with affiliates" on the Balance Sheets. The interest rates on the outstanding borrowings at ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018 were ~~3.61%~~3.99% and ~~2.87%~~3.85%. Interest expense on the revolving line of credit was not significant for the three months ending March 31, 2019 and 2018.

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~~market-based rates. No balance was outstanding at ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017.~~2018. The interest rate on the loan is based on the PPL ~~affiliates~~affiliate's 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 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, the note was reflected in "Long-term debt to affiliate" on the Balance Sheets. Interest expense on this note was $4 million ~~and $11 million~~ for the three ~~and nine~~ months ending ~~September 30, 2018~~March 31, 2019 and ~~2017.~~2018.

~~In May 2018,~~ LKE ~~borrowed~~maintains a $250 million ~~from~~ten-year note with a PPL affiliate ~~through the issuance~~with an interest rate of a 4% ~~ten-year note due 2028 with interest due in May~~. At March 31, 2019 and ~~November. At September 30,~~December 31, 2018, the note was reflected in "Long-term debt to affiliate" on the Balance Sheets. ~~The proceeds were used to repay its outstanding notes payable with a PPL Energy Funding subsidiary.~~ Interest expense on this note was $3 million ~~and $4 million~~ for the three ~~and nine~~ months ending ~~September 30, 2018.~~March 31, 2019.

VEBA Funds Receivable (PPL Electric)

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 medical claims of active bargaining unit employees. Based on PPL Electric's participation in PPL’s Other Postretirement Benefit plan, PPL Electric was allocated a portion of the excess funds from PPL Services. These funds have been recorded as an intercompany receivable on PPL Electric's Balance Sheets. The receivable balance decreases as PPL Electric pays incurred medical claims and is reimbursed by PPL Services. The intercompany receivable balance associated with these funds was $44 million as of March 31, 2019, of which $10 million was reflected in "Accounts receivable from affiliates" and $34 million was reflected in "Other noncurrent assets" on the PPL Electric Balance Sheet. The intercompany receivable balance associated with these funds was $45 million as of December 31, 2018, of which $10 million was reflected in "Account receivable from affiliates" and $35 million was reflected in "Other noncurrent assets" on the PPL Electric Balance Sheet.

Other (PPL Electric, LG&E and KU)

See Note 910 for discussions regarding intercompany allocations associated with defined benefits.

~~See Note 10 for discussions regarding separation benefits.~~

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~~12.~~13. Other Income (Expense) - net

(PPL)

The details of "Other Income (Expense) - net" for the periods ended ~~September 30,~~March 31, were:

Three Months Nine Months
2018 2017 2018 2017
Other Income

Economic foreign currency exchange contracts (Note 14) $ 40
$ (81 ) $ 92
$ (237 )
Defined benefit plans - non-service credits (Note 9) 61
41
195
123
Interest income 3
1
5
2
AFUDC - equity component 5
5
15
11
Miscellaneous 2
2
3
11
Total Other Income 111
(32 ) 310
(90 )
Other Expense

Charitable contributions 1
1
6
6
Miscellaneous 4
2
7
16
Total Other Expense 5
3
13
22
Other Income (Expense) - net $ 106
$ (35 ) $ 297
$ (112 )

~~(PPL Electric)~~

~~The details of "Other Income (Expense) - net" for the periods ended September 30, were:~~


	Three Months				Nine Months				Three Months
	2018		2017		2018		2017		2019		2018
Other Income
Defined benefit plans - non-service credits (Note 10)									$	80	$	68
Interest income									6		—
AFUDC - equity component	$	5	$	5	$	15	$	11	5		5
Defined benefit plans - non-service credits (Note 9)	1		—		4		—
Miscellaneous	—		—		1		—		6		1
Total Other Income	6		5		20		11		97		74
Other Expense
Economic foreign currency exchange contracts (Note 15)									33		112
Charitable contributions	1		1		2		2		2		4
Miscellaneous	—		—		—		1		10		1
Total Other Expense	1		1		2		3		45		117
Other Income (Expense) - net	$	5	$	4	$	18	$	8	$	52	$	(43	)

~~13.~~14. 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 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 months ended September 30, 2018 and 2017, there were no transfers between Level 1 and Level 2.~~ See Note 1 in each Registrant's ~~2017~~2018 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, 2018 December 31, 2017
Total Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3
PPL

Assets
Cash and cash equivalents $ 842
$ 842
$ —
$ —
$ 485
$ 485
$ —
$ —
Restricted cash and cash equivalents (a) 22
22
—
—
26
26
—
—
Special use funds (a) 63
63
—
—
—
—
—
—
Price risk management assets (b):

Foreign currency contracts 174
—
174
—
163
—
163
—
Cross-currency swaps 123
—
123
—
101
—
101
—
Total price risk management assets 297
—
297
—
264
—
264
—
Total assets $ 1,224
$ 927
$ 297
$ —
$ 775
$ 511
$ 264
$ —

Liabilities

Price risk management liabilities (b):

Interest rate swaps $ 19
$ —
$ 19
$ —
$ 26
$ —
$ 26
$ —
Foreign currency contracts 30
—
30
—
148
—
148
—
Total price risk management liabilities $ 49
$ —
$ 49
$ —
$ 174
$ —
$ 174
$ —

PPL Electric

Assets

Cash and cash equivalents $ 414
$ 414
$ —
$ —
$ 49
$ 49
$ —
$ —
Restricted cash and cash equivalents (a) 2
2
—
—
2
2
—
—
Total assets $ 416
$ 416
$ —
$ —
$ 51
$ 51
$ —
$ —

LKE

Assets
Cash and cash equivalents $ 29
$ 29
$ —
$ —
$ 30
$ 30
$ —
$ —
Total assets $ 29
$ 29
$ —
$ —
$ 30
$ 30
$ —
$ —

Liabilities

Price risk management liabilities:

Interest rate swaps $ 19
$ —
$ 19
$ —
$ 26
$ —
$ 26
$ —
Total price risk management liabilities $ 19
$ —
$ 19
$ —
$ 26
$ —
$ 26
$ —

LG&E

Assets

Cash and cash equivalents $ 11
$ 11
$ —
$ —
$ 15
$ 15
$ —
$ —
Total assets $ 11
$ 11
$ —
$ —
$ 15
$ 15
$ —
$ —

Liabilities

Price risk management liabilities:

Interest rate swaps $ 19
$ —
$ 19
$ —
$ 26
$ —
$ 26
$ —
Total price risk management liabilities $ 19
$ —
$ 19
$ —
$ 26
$ —
$ 26
$ —



	March 31, 2019								December 31, 2018
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
PPL
Assets
Cash and cash equivalents	$	518	$	518	$	—	$	—	$	621	$	621	$	—	$	—
Restricted cash and cash equivalents (a)	22		22		—		—		22		22		—		—
Special use funds (a):
Money market fund	3		3		—		—		59		59		—		—
Commingled debt fund measured at NAV (b)	31		—		—		—		—		—		—		—
Commingled equity fund measured at NAV (b)	29		—		—		—		—		—		—		—
Total special use funds	63		3		—		—		59		59		—		—

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	September 30, 2018								December 31, 2017								March 31, 2019								December 31, 2018
																	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Price risk management assets (c):
Foreign currency contracts																	163		—		163		—		202		—		202		—
Cross-currency swaps																	118		—		118		—		135		—		135		—
Total price risk management assets																	281		—		281		—		337		—		337		—
Total assets																	$	884	$	543	$	281	$	—	$	1,039	$	702	$	337	$	—

Liabilities
Price risk management liabilities (c):
Interest rate swaps																	$	21	$	—	$	21	$	—	$	20	$	—	$	20	$	—
Foreign currency contracts																	13		—		13		—		2		—		2		—
Total price risk management liabilities																	$	34	$	—	$	34	$	—	$	22	$	—	$	22	$	—

PPL Electric
Assets
Cash and cash equivalents																	$	23	$	23	$	—	$	—	$	267	$	267	$	—	$	—
Restricted cash and cash equivalents (a)																	2		2		—		—		2		2		—		—
Total assets																	$	25	$	25	$	—	$	—	$	269	$	269	$	—	$	—

LKE
Assets
Cash and cash equivalents																	$	22	$	22	$	—	$	—	$	24	$	24	$	—	$	—
Total assets																	$	22	$	22	$	—	$	—	$	24	$	24	$	—	$	—

Liabilities
Price risk management liabilities:
Interest rate swaps																	$	21	$	—	$	21	$	—	$	20	$	—	$	20	$	—
Total price risk management liabilities																	$	21	$	—	$	21	$	—	$	20	$	—	$	20	$	—

LG&E
Assets
Cash and cash equivalents																	$	9	$	9	$	—	$	—	$	10	$	10	$	—	$	—
Total assets																	$	9	$	9	$	—	$	—	$	10	$	10	$	—	$	—

Liabilities
Price risk management liabilities:
Interest rate swaps																	$	21	$	—	$	21	$	—	$	20	$	—	$	20	$	—
Total price risk management liabilities																	$	21	$	—	$	21	$	—	$	20	$	—	$	20	$	—
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
KU
Assets
Cash and cash equivalents	$	18	$	18	$	—	$	—	$	15	$	15	$	—	$	—	$	13	$	13	$	—	$	—	$	14	$	14	$	—	$	—
Total assets	$	18	$	18	$	—	$	—	$	15	$	15	$	—	$	—	$	13	$	13	$	—	$	—	$	14	$	14	$	—	$	—


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

(b)

In accordance with accounting guidance, certain investments that are measured at fair value using the net asset value per share (NAV), or its equivalent, practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in the table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the statement of financial position.


(c)	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.

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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 medical claims of active bargaining unit employees. ~~The~~In 2019, the funds are invested primarily in commingled debt and equity funds measured at NAV. In 2018, the funds were invested 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 exchange risk, PPL uses foreign currency contracts such as forwards, options and cross-currency swaps that contain characteristics of both interest rate and foreign currency contracts. An income approach is used to measure the fair value of these contracts, utilizing readily observable inputs, such as forward interest rates (e.g., LIBOR and government security rates) and forward foreign currency exchange rates (e.g., GBP), as well as inputs that may not be observable, such as credit valuation adjustments. In certain cases, market information cannot practicably be obtained to value credit risk and therefore internal models are relied upon. These models use projected probabilities of default and estimated recovery rates based on historical observances. When the credit valuation adjustment is significant to the overall valuation, the contracts are classified as Level 3.

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. 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, 2018				December 31, 2017				March 31, 2019				December 31, 2018
	Carrying Amount (a)		Fair Value		Carrying Amount (a)		Fair Value		Carrying Amount (a)		Fair Value		Carrying Amount (a)		Fair Value
PPL	$	20,254	$	23,023	$	20,195	$	23,783	$	21,316	$	24,471	$	20,599	$	22,939
PPL Electric	3,693		3,899		3,298		3,769		3,694		4,054		3,694		3,901
LKE	5,501		5,783		5,159		5,670		5,936		6,389		5,502		5,768
LG&E	1,808		1,879		1,709		1,865		2,009		2,135		1,809		1,874
KU	2,320		2,467		2,328		2,605		2,554		2,777		2,321		2,451


(a)	Amounts are net of debt issuance costs.

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.

~~Table of Contents~~

~~14.~~15. 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 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.

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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 required to purchase electricity to fulfill its obligation as a PLR. Potential commodity price risk is insignificant and mitigated through its PUC-approved cost recovery mechanism and full-requirement supply agreements to serve its PLR customers which transfer the risk to energy suppliers.

LG&E's and KU's rates include certain mechanisms for fuel, fuel-related expenses and 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.

Volumetric Risk

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

~~Table of Contents~~

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 regulations, recovery of such exposure occurs on a two year lag. See Note 1 in PPL's ~~2017~~2018 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.

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.

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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 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 ~~$25~~$17 million obligation to return cash collateral under master netting arrangements at ~~September 30, 2018~~March 31, 2019 and a ~~$20~~$40 million obligation to return cash collateral under master netting arrangements at December 31, ~~2017.~~2018.

PPL had no obligation to post cash collateral under master netting arrangements at ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017.~~2018.

LKE, LG&E and KU had no obligation to return cash collateral under master netting arrangements at ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017.~~2018.

LKE, LG&E and KU had no obligation to post cash collateral ~~posted~~ under master netting arrangements at ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017.~~2018.

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.

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 portfolios, adjust the duration of the debt 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

~~Table of Contents~~

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, 2018, PPL held an aggregate notional value in interest rate swap contracts of £75 million (approximately $97 million based on spot rates) that mature in 2026 to hedge the interest payments of WPD plc's October 2018 debt issuance.

~~For the three and nine months ended September 30, 2018 and 2017,~~ PPL had no ~~hedge ineffectiveness associated with interest rate derivatives.~~such contracts at March 31, 2019.

At ~~September 30, 2018,~~March 31, 2019, PPL held an aggregate notional value in cross-currency interest rate swap contracts of $702 million that range in maturity from 2021 through 2028 to hedge the interest payments and principal of WPD's U.S. dollar-denominated senior notes.

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

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~~ months ended ~~September 30,~~March 31, 2019 and 2018, PPL had no cash flow hedges reclassified into earnings associated with discontinued cash flow hedges. ~~For the three and nine months ended September 30, 2017, PPL had an insignificant amount of cash flow hedges reclassified into earnings associated with discontinued cash flow hedges.~~

At ~~September 30, 2018,~~March 31, 2019, 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 30, 2018,~~March 31, 2019, 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.

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. There were no contracts outstanding at ~~September 30, 2018.~~March 31, 2019.

At ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, PPL had ~~$30 million and $22~~$31 million of accumulated net investment hedge after tax gains (losses) that were included in the foreign currency translation adjustment component of AOCI.

~~Table of Contents~~

Economic Activity

PPL enters into foreign currency contracts on behalf of a subsidiary to economically hedge GBP-denominated anticipated earnings. At ~~September 30, 2018,~~March 31, 2019, the total exposure hedged by PPL was approximately ~~£1.8~~£1.3 billion (approximately ~~$2.5~~$1.8 billion based on contracted rates). These contracts have termination dates ranging from ~~October 2018~~April 2019 through 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 7 for amounts recorded in regulatory assets and regulatory liabilities at ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017.~~2018.

See Note 1 in each Registrant's ~~2017~~2018 Form 10-K for additional information on accounting policies related to derivative instruments.

Table of Contents

(PPL)

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


	September 30, 2018								December 31, 2017								March 31, 2019								December 31, 2018
	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)	$	—	$	—	$	—	$	4	$	—	$	—	$	—	$	4	$	—	$	—	$	—	$	4	$	—	$	—	$	—	$	4
Cross-currency swaps (b)	5		—		—		—		4		—		—		—		5		—		—		—		6		—		—		—
Foreign currency contracts	—		—		86		22		—		—		45		67		—		—		104		13		—		—		103		2
Total current	5		—		86		26		4		—		45		71		5		—		104		17		6		—		103		6
Noncurrent:
Price Risk Management
Assets/Liabilities (a):
Interest rate swaps (b)	—		—		—		15		—		—		—		22		—		—		—		17		—		—		—		16
Cross-currency swaps (b)	118		—		—		—		97		—		—		—		113		—		—		—		129		—		—		—
Foreign currency contracts	—		—		88		8		—		—		118		81		—		—		59		—		—		—		99		—
Total noncurrent	118		—		88		23		97		—		118		103		113		—		59		17		129		—		99		16
Total derivatives	$	123	$	—	$	174	$	49	$	101	$	—	$	163	$	174	$	118	$	—	$	163	$	34	$	135	$	—	$	202	$	22


(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.

The following tables present the pre-tax effect of derivative instruments recognized in income, OCI or regulatory assets and regulatory liabilities for the ~~periods~~period ended ~~September 30, 2018.~~March 31, 2019.



	Three Months				Three Months
Derivative Relationships	Derivative Gain (Loss) Recognized in OCI			Location of Gain (Loss) Recognized in Income on Derivative	Gain (Loss) Reclassified from AOCI into Income
Derivative Relationships	Derivative Gain (Loss) Recognized in OCI			Location of Gain (Loss) Recognized in Income on Derivative	Gain (Loss) Reclassified from AOCI into Income
Cash Flow Hedges:
Interest rate swaps	$	—		Interest expense	$	(2	)
Cross-currency swaps	(23		)	Other income (expense) - net	(28		)
Total	$	(23	)		$	(30	)
Net Investment Hedges:
Foreign currency contracts	$	—



Derivatives Not Designated as	Location of Gain (Loss) Recognized in
Hedging Instruments	Income on Derivative	Three Months
Foreign currency contracts	Other income (expense) - net	$	(33	)
Interest rate swaps	Interest expense	(1		)
	Total	$	(34	)
Derivatives Not Designated as	Location of Gain (Loss) Recognized as
Hedging Instruments	Regulatory Liabilities/Assets	Three Months
Interest rate swaps	Regulatory assets - noncurrent	$	(1	)

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Three Months Nine Months
Derivative
Relationships
Derivative Gain
(Loss) Recognized in
OCI (Effective Portion)
Location of
Gain (Loss)
Recognized
in Income
on Derivative Gain (Loss)
Reclassified
from AOCI
into Income
(Effective
Portion) Gain (Loss)
Recognized
in Income
on Derivative
(Ineffective
Portion and
Amount
Excluded from
Effectiveness
Testing) Gain (Loss)
Reclassified
from AOCI
into
Income
(Effective
Portion) Gain (Loss)
Recognized
in Income
on Derivative
(Ineffective
Portion and
Amount
Excluded from
Effectiveness
Testing)
Three Months Nine Months
Cash Flow Hedges:
Interest rate swaps $ —
$ —
Interest expense $ (2 ) $ —
$ (6 ) $ —
Cross-currency swaps 27
26
Interest expense 1
—
1
—
Other income (expense) - net 18
—
30
—
Total $ 27
$ 26
$ 17
$ —
$ 25
$ —
Net Investment Hedges:
Foreign currency contracts $ —
$ 11

Derivatives Not Designated as Location of Gain (Loss) Recognized in
Hedging Instruments Income on Derivative Three Months Nine Months
Foreign currency contracts Other income (expense) - net $ 40
$ 92
Interest rate swaps Interest expense (1 ) (4 )
Total $ 39
$ 88
Derivatives Not Designated as Location of Gain (Loss) Recognized as
Hedging Instruments Regulatory Liabilities/Assets Three Months Nine Months
Interest rate swaps Regulatory assets - noncurrent $ 2
$ 7



	Three Months				Three Months
Derivative Relationships	Derivative Gain (Loss) Recognized in OCI			Location of Gain (Loss) Recognized in Income on Derivative	Gain (Loss) Reclassified from AOCI into Income
Derivative Relationships	Derivative Gain (Loss) Recognized in OCI			Location of Gain (Loss) Recognized in Income on Derivative	Gain (Loss) Reclassified from AOCI into Income
Cash Flow Hedges:
Interest rate swaps	$	—		Interest expense	$	(2	)
Cross-currency swaps	(24		)	Other income (expense) - net	(12		)
Total	$	(24	)		$	(14	)
Net Investment Hedges:
Foreign currency contracts	$	(1	)

Three Months Nine Months
Derivative
Relationships
Derivative Gain
(Loss) Recognized in
OCI (Effective Portion)
Location of
Gain (Loss)
Recognized
in Income
on Derivative Gain (Loss)
Reclassified
from AOCI
into Income
(Effective
Portion) Gain (Loss)
Recognized
in Income
on Derivative
(Ineffective
Portion and
Amount
Excluded from
Effectiveness
Testing) Gain (Loss)
Reclassified
from AOCI
into
Income
(Effective
Portion) Gain (Loss)
Recognized
in Income
on Derivative
(Ineffective
Portion and
Amount
Excluded from
Effectiveness
Testing)
Three Months Nine Months
Cash Flow Hedges:
Interest rate swaps $ —
$ (2 ) Interest expense $ (2 ) $ —
$ (6 ) $ (1 )
Cross-currency swaps 1
(34 ) Interest expense 1
—
1
—
Other income (expense) - net 2
—
(24 ) —
Total $ 1
$ (36 ) $ 1
$ —
$ (29 ) $ (1 )
Net Investment Hedges:
Foreign currency contracts $ 1
$ 1



Derivatives Not Designated as	Location of Gain (Loss) Recognized in
Hedging Instruments	Income on Derivative	Three Months
Foreign currency contracts	Other income (expense) - net	$	(112	)
Interest rate swaps	Interest expense	(1		)
	Total	$	(113	)
Derivatives Not Designated as	Location of Gain (Loss) Recognized as
Hedging Instruments	Regulatory Liabilities/Assets	Three Months
Interest rate swaps	Regulatory assets - noncurrent	$	4

The following table presents the effect of cash flow hedge activity on the Statement of Income for the period ended March, 31, 2019.

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

~~Table of Contents~~



	Location and Amount of Gain (Loss) Recognized in Income on Hedging Relationships
	Interest Expense			Other Income (Expense) - net
	Interest Expense			Other Income (Expense) - net
Total income and expense line items presented in the income statement in which the effect of cash flow hedges are recorded	$	241		$	52
The effects of cash flow hedges:
Gain (Loss) on cash flow hedging relationships:
Interest rate swaps:
Amount of gain (loss) reclassified from AOCI to income	(2		)	—
Cross-currency swaps:
Hedged items	—			28
Amount of gain (loss) reclassified from AOCI to income	—			(28		)

(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, 2018				December 31, 2017				March 31, 2019				December 31, 2018
	Assets		Liabilities		Assets		Liabilities		Assets		Liabilities		Assets		Liabilities
Current:
Price Risk Management
Assets/Liabilities:
Interest rate swaps	$	—	$	4	$	—	$	4	$	—	$	4	$	—	$	4
Total current	—		4		—		4		—		4		—		4
Noncurrent:
Price Risk Management
Assets/Liabilities:
Interest rate swaps	—		15		—		22
Total noncurrent	—		15		—		22
Total derivatives	$	—	$	19	$	—	$	26

Table of Contents



	March 31, 2019				December 31, 2018
	Assets		Liabilities		Assets		Liabilities
Noncurrent:
Price Risk Management
Assets/Liabilities:
Interest rate swaps	—		17		—		16
Total noncurrent	—		17		—		16
Total derivatives	$	—	$	21	$	—	$	20

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~~period ended ~~September 30, 2018.~~March 31, 2019.


	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
Interest rate swaps	Interest expense	$	(1	)	$	(4	)	Interest expense	$	(1	)
	Location of Gain (Loss) Recognized in							Location of Gain (Loss) Recognized in
Derivative Instruments	Regulatory Assets	Three Months			Nine Months			Regulatory Assets	Three Months
Interest rate swaps	Regulatory assets - noncurrent	$	2		$	7		Regulatory assets - noncurrent	$	(1	)


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

(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 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
			Eligible for Offset								Eligible for Offset
	Gross		Derivative Instruments		Cash Collateral Received		Net		Gross		Derivative Instruments		Cash Collateral Pledged		Net
March 31, 2019
Treasury Derivatives
PPL	$	281	$	12	$	17	$	252	$	34	$	12	$	—	$	22
LKE	—		—		—		—		21		—		—		21
LG&E	—		—		—		—		21		—		—		21

Table of Contents

Assets Liabilities
Eligible for Offset Eligible for Offset
Gross
Derivative
Instruments

Cash
Collateral
Received
Net Gross
Derivative
Instruments

Cash
Collateral
Pledged
Net
September 30, 2018
Treasury Derivatives
PPL $ 297
$ 28
$ 25
$ 244
$ 49
$ 28
$ —
$ 21
LKE —
—
—
—
19
—
—
19
LG&E —
—
—
—
19
—
—
19


December 31, 2017
																	Assets								Liabilities
																			Eligible for Offset								Eligible for Offset
																	Gross		Derivative Instruments		Cash Collateral Received		Net		Gross		Derivative Instruments		Cash Collateral Pledged		Net
December 31, 2018
Treasury Derivatives
PPL	$	264	$	107	$	20	$	137	$	174	$	107	$	—	$	67	$	337	$	2	$	40	$	295	$	22	$	2	$	—	$	20
LKE	—		—		—		—		26		—		—		26		—		—		—		—		20		—		—		20
LG&E	—		—		—		—		26		—		—		26		—		—		—		—		20		—		—		20

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 30, 2018,~~March 31, 2019, derivative contracts in a net liability position that contain credit risk-related contingent features, collateral posted on those positions and the related effect of a decrease in credit ratings below investment grade are summarized as follows:


	PPL		LKE		LG&E		PPL		LKE		LG&E
Aggregate fair value of derivative instruments in a net liability position with credit risk-related contingent features	$	8	$	6	$	6	$	7	$	5	$	5
Aggregate fair value of collateral posted on these derivative instruments	—		—		—		—		—		—
Aggregate fair value of additional collateral requirements in the event of a credit downgrade below investment grade (a)	8		6		6		7		5		5


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

~~Table of Contents~~

~~15.~~16. Asset Retirement Obligations

(PPL, LKE, LG&E and KU)

PPL's, LKE's, LG&E's and KU's ARO liabilities are primarily related to CCR closure costs. See Note 1011 for information on the CCR rule. LG&E also has AROs related to natural gas mains and wells. LG&E's and KU's transmission and distribution lines largely operate under perpetual property easement agreements, which do not generally require restoration upon removal of the property. Therefore, no material AROs are recorded for transmission and distribution assets. For LKE, LG&E and KU, all ARO accretion and depreciation expenses are reclassified as a regulatory asset. ARO regulatory assets associated with certain CCR projects are amortized to expense 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.

Table of Contents

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


	PPL			LKE			LG&E			KU			PPL			LKE			LG&E			KU
Balance at December 31, 2017	$	397		$	356		$	121		$	235
Balance at December 31, 2018													$	347		$	296		$	103		$	193
Accretion	14			13			5			8			4			4			2			2
Obligations incurred	8			8			—			8
Effect of foreign exchange rates	(2		)	—			—			—			2			—			—			—
Changes in estimated timing or cost	(6		)	(14		)	(2		)	(12		)	8			8			8			—
Obligations settled	(46		)	(46		)	(17		)	(29		)	(21		)	(21		)	(4		)	(17		)
Balance at September 30, 2018	$	365		$	317		$	107		$	210
Balance at March 31, 2019													$	340		$	287		$	109		$	178

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

~~(PPL and LKE)~~(PPL)

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

Foreign
currency
translation
adjustments

Unrealized gains (losses)
on qualifying
derivatives
Defined benefit plans

Equity
investees'
AOCI

Prior
service
costs

Actuarial
gain
(loss)
Total
PPL
June 30, 2018 $ (1,223 ) $ (21 ) $ —
$ (7 ) $ (2,244 ) $ (3,495 )
Amounts arising during the period (187 ) 22
—
—
(8 ) (173 )
Reclassifications from AOCI —
(14 ) —
—
34
20
Net OCI during the period (187 ) 8
—
—
26
(153 )
September 30, 2018 $ (1,410 ) $ (13 ) $ —
$ (7 ) $ (2,218 ) $ (3,648 )

December 31, 2017 $ (1,089 ) $ (13 ) $ —
$ (7 ) $ (2,313 ) $ (3,422 )
Amounts arising during the period (321 ) 21
—
(1 ) (9 ) (310 )
Reclassifications from AOCI —
(21 ) —
1
104
84
Net OCI during the period (321 ) —
—
—
95
(226 )
September 30, 2018 $ (1,410 ) $ (13 ) $ —
$ (7 ) $ (2,218 ) $ (3,648 )

June 30, 2017 $ (1,420 ) $ (13 ) $ —
$ (7 ) $ (2,083 ) $ (3,523 )
Amounts arising during the period (12 ) 1
—
—
(3 ) (14 )
Reclassifications from AOCI —
—
—
—
34
34
Net OCI during the period (12 ) 1
—
—
31
20
September 30, 2017 $ (1,432 ) $ (12 ) $ —
$ (7 ) $ (2,052 ) $ (3,503 )

~~Table of Contents~~

Foreign
currency
translation
adjustments

Unrealized gains (losses)
on qualifying
derivatives
Defined benefit plans

Equity
investees'
AOCI

Prior
service
costs

Actuarial
gain
(loss)
Total
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 )

LKE

June 30, 2018 $ —
$ (8 ) $ (78 ) $ (86 )
Reclassifications from AOCI —
1
1
2
Net OCI during the period —
1
1
2
September 30, 2018 $ —
$ (7 ) $ (77 ) $ (84 )

December 31, 2017 $ —
$ (9 ) $ (79 ) $ (88 )
Reclassifications from AOCI —
2
2
4
Net OCI during the period —
2
2
4
September 30, 2018 $ —
$ (7 ) $ (77 ) $ (84 )

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 )

~~(PPL)~~



	Foreign currency translation adjustments			Unrealized gains (losses) on qualifying derivatives			Defined benefit plans
	Foreign currency translation adjustments			Unrealized gains (losses) on qualifying derivatives			Prior service costs			Actuarial gain (loss)			Total
PPL
December 31, 2018	$	(1,533	)	$	(7	)	$	(19	)	$	(2,405	)	$	(3,964	)
Amounts arising during the period	294			(19		)	—			(3		)	272
Reclassifications from AOCI	—			24			—			21			45
Net OCI during the period	294			5			—			18			317
March 31, 2019	$	(1,239	)	$	(2	)	$	(19	)	$	(2,387	)	$	(3,647	)

December 31, 2017	$	(1,089	)	$	(13	)	$	(7	)	$	(2,313	)	$	(3,422	)
Amounts arising during the period	116			(20		)	—			(1		)	95
Reclassifications from AOCI	—			12			—			36			48
Net OCI during the period	116			(8		)	—			35			143
March 31, 2018	$	(973	)	$	(21	)	$	(7	)	$	(2,278	)	$	(3,279	)

The following table presents PPL's gains (losses) and related income taxes for reclassifications from AOCI for the periods ended ~~September 30.~~March 31.

Three Months Nine Months Affected Line Item on the
Details about AOCI 2018 2017 2018 2017 Statements of Income
Qualifying derivatives
Interest rate swaps $ (2 ) $ (2 ) $ (6 ) $ (7 ) Interest Expense
Cross-currency swaps 18
2
30
(24 ) Other Income (Expense) - net
1
1
1
1
Interest Expense
Total Pre-tax 17
1
25
(30 )
Income Taxes (3 ) (1 ) (4 ) 6

Total After-tax 14
—
21
(24 )

~~Table of Contents~~


	Three Months						Nine Months						Affected Line Item on the	Three Months						Affected Line Item on the
Details about AOCI	2018			2017			2018			2017			Statements of Income	2019			2018			Statements of Income
Equity investees' AOCI	—			—			—			(1		)	Other Income (Expense) - net
Qualifying derivatives
Interest rate swaps														$	(2	)	$	(2	)	Interest Expense
Cross-currency swaps														(28		)	(12		)	Other Income (Expense) - net
Total Pre-tax	—			—			—			(1		)		(30		)	(14		)
Income Taxes	—			—			—			—				6			2
Total After-tax	—			—			—			(1		)		(24		)	(12		)

Defined benefit plans
Prior service costs (a)	(1		)	(1		)	(2		)	(2		)
Net actuarial loss (a)	(42		)	(44		)	(130		)	(125		)		(26		)	(45		)
Total Pre-tax	(43		)	(45		)	(132		)	(127		)		(26		)	(45		)
Income Taxes	9			11			27			29				5			9
Total After-tax	(34		)	(34		)	(105		)	(98		)		(21		)	(36		)

Total reclassifications during the period	$	(20	)	$	(34	)	$	(84	)	$	(123	)		$	(45	)	$	(48	)


(a)	These AOCI components are included in the computation of net periodic defined benefit cost. See Note 910 for additional information.

Table of Contents

~~17.~~

18. New Accounting Guidance Pending Adoption

(All Registrants)

~~Accounting for Leases~~

In February 2016, the Financial Accounting Standards Board (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 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. One of these practical expedients allows entities to elect to (1) not reassess whether existing contracts contain leases, (2) carryforward the existing lease classification, and (3) not reassess initial direct costs associated with existing leases. In January 2018, the FASB also issued additional guidance that provides for a practical expedient that allows entities to elect to not evaluate land easements as leases that exist or expired before the adoption date and were not previously accounted for as leases under current lease guidance. The Registrants plan to elect these practical expedients.

The Registrants are currently assessing the impact of adopting this guidance and will adopt this standard as of the beginning of the period adopted, which will be January 1, 2019. Key implementation activities in process of being completed include identifying and implementing new controls and processes and compiling the required disclosure information. The Registrants expect an increase in assets and liabilities, which are still being quantified, but do not expect an impact to the Statements of Cash Flows or Statements of Income. Additional qualitative and quantitative disclosures around the nature of the Registrants’ leasing activity and information surrounding the amount, timing and uncertainty of cash flows arising from leases will also be provided upon adoption.

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.

~~Table of Contents~~

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~~The Registrants will adopt this guidance ~~beginning after December 15, 2018, including interim periods within those years.~~

on January 1, 2020. The Registrants are currently assessing the impact of adopting this ~~guidance and the period they will adopt it.~~

~~Improvements to Accounting for Hedging Activities~~guidance.

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.

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 adoption of this guidance requires additional disclosures around the income statement impacts of hedging activities as well as removing disclosures related to ineffectiveness. Other impacts of adopting this guidance are not expected to be material. The Registrants will adopt this guidance effective January 1, 2019.

Accounting for Implementation Costs in a Cloud Computing Service Arrangement

In August 2018, the FASB issued accounting guidance that requires a customer in a cloud computing hosting arrangement that is a service contract to capitalize implementation costs consistent with internal-use software guidance for non-service arrangements. Prior guidance had not addressed these implementation costs. The guidance requires these capitalized implementation costs to be amortized over the term of the hosting arrangement to the statement of income line item where the service arrangement costs are recorded. The guidance also prescribes the financial statement classification of the capitalized implementation costs and cash flows associated with the arrangement. Additional quantitative and qualitative disclosures are also required.

For public business entities, this guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. ~~Early adoption is permitted.~~ This standard must be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption.

The Registrants are currently assessing the impact of adopting this guidance and will adopt this standard as of the beginning of the period ~~they~~adopted, which will ~~adopt it.~~be January 1, 2020. Key implementation activities in process of being completed include assessing the population of cloud computing hosting arrangements in the scope of this guidance and identifying and evaluating industry issues.

(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~~The Registrants will adopt this guidance ~~for interim or annual goodwill impairment tests performed~~ on ~~testing dates after~~ January 1, ~~2017.~~

2020. The Registrants are currently assessing the impact of adopting this ~~guidance and the period they will adopt it.~~

~~Table of Contents~~

~~(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 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.

Table of Contents

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' ~~2017~~2018 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~~ months ended ~~September 30, 2018~~March 31, 2019 with the same ~~periods~~period in ~~2017.~~2018. For PPL, "Results of Operations" also includes "Segment Earnings" and "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 "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 "2018 Outlook" discussion identifies key factors expected to impact 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).

Table of Contents

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. PPL Global is not a 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 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.~~Virginia. KU is subject to regulation as a public

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~~a public~~ utility by the KPSC, the VSCC 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 Kentucky customers under the KU name and its Virginia customers under the Old Dominion Power ~~name and its Kentucky and Tennessee customers under the KU~~ name.

Business Strategy

(All Registrants)

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

PPL's strategy, and that of the other Registrants, is to deliver best-in-sector operational performance, invest in a sustainable energy future, maintain a strong financial foundation, and engage 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 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.

For the U.S. businesses, central to ~~our~~PPL's strategy is 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, and gas supply ~~clause~~clause) and recovery on construction ~~work-in-progress)~~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 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. RAV growth is expected in the U.K. Regulated segment during the RIIO-ED1 price control period, which ends on March 31, 2023, and to result in earnings growth in 2018 through at least 2020. ~~See "Item 1. Business - Segment Information - U.K. Regulated Segment" in PPL's 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 wethe Registrants operate (U.K., U.S. federal and state). This is supported by ~~our~~a 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 operational efficiency.

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Financial and Operational Developments

~~Equity Forward Contracts~~ ~~(PPL)~~

In September 2018, PPL settled a portion of the initial forward sale agreements by issuing 20 million shares of PPL common stock, and received net cash proceeds of $520 million. For the unsettled portion of the agreements, the only impact to the financial statements is 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)~~

~~Kentucky State~~ Tax Reform (All Registrants)

~~HB 487, which became law~~The IRS issued proposed regulations for certain provisions of the TCJA in 2018, including interest deductibility and Global Intangible Low-Taxed Income (GILTI). PPL has determined that the proposed regulations related to GILTI do not materially change PPL's current interpretation of the statutory impact of these rules on ~~April 27, 2018, provides for significant changes~~the company. Proposed regulations relating to the ~~Kentucky~~limitation on the deductibility of interest expense were issued in November 2018 and such regulations provide detailed rules implementing the broader statutory provisions. These proposed regulations should not apply to the Registrants until the year in which the regulations are issued in final form, which is expected to be 2019. It is uncertain what form the final regulations will take and, therefore, the Registrants cannot predict what impact the final regulations will have on the tax ~~code including (1) adopting mandatory combined reporting for corporate members~~deductibility of ~~unitary business groups for taxable years beginning~~interest expense. However, if the proposed regulations were issued as final in their current form, the Registrants could have a limitation 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~~portion of their ~~federal affiliated group)~~interest expense deduction for tax purposes and ~~(2)~~such limitation could be significant. PPL expressed its views on these proposed regulations in 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~~

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~~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 duecomment letter addressed 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. In a separate regulatory proceeding, LG&E and KU have requested to begin returning state excess deferred income taxes to customers in conjunction with the 2018 Kentucky base rate case, which was filedIRS on September 28, 2018. See Note 7 for additional information related to the rate case proceedings. PPL is evaluating the impact, if any, of unitary or elective consolidated income tax reporting on all its Registrants.February 26, 2019.

U.K. Membership in European Union (PPL)

~~On March 29, 2017, the~~The U.K. formally ~~notified~~began the ~~European Council~~process of leaving 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~~on March 29, 2017 by triggering Article 50 of the Lisbon Treaty. ~~Article 50 specifies~~The U.K. had two years from that date to negotiate a withdrawal agreement governing its exit from the EU (Brexit). The U.K. and EU also agreed to a transition period lasting until the end of 2020, during which both parties will negotiate a future trade relationship. The final withdrawal agreement and future trade relationship are subject to ratification by both the U.K. and EU parliaments.

In November 2018, U.K. Prime Minister Theresa May and the EU decided on a withdrawal agreement covering a broad range of issues. On January 15, 2019, the U.K. Parliament voted overwhelmingly to reject this withdrawal agreement. On January 29, 2019, the U.K. Parliament voted on a series of non-binding amendments to influence future Brexit negotiations, directing May to conduct further negotiations with the EU; however, the EU was not prepared to renegotiate the existing deal. Parliament voted to reject the withdrawal agreement on March 13, 2019 and again on March 29, 2019.

Following a series of Parliamentary indicative votes that failed to produce a clear majority for an alternative to the current withdrawal agreement, on April 10, 2019, the U.K. requested an extension until June 30, 2019. The EU approved a longer than requested extension until October 31, 2019. The U.K. can leave the EU earlier if a ~~member state decides~~withdrawal agreement is ratified before the new deadline. The U.K. must also participate in the European Parliament elections on May 23, 2019 if the U.K. Parliament has not passed and ratified the withdrawal agreement by May 22, 2019. The U.K. would be forced to withdraw from the EU on June 1, 2019 if it ~~must notify~~fails to participate in the European ~~Council~~elections.

Significant uncertainty surrounds the status of ~~its intention to leave~~negotiations and next steps in the Brexit process. If an agreement is not reached and ratified by October 31, 2019, the U.K. may face leaving 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~~without an agreed deal. The U.K. may also request a further extension of the Article 50 ~~notification~~process, subject to ~~conclude negotiations. Failure~~approval from the EU’s 27 remaining members. The U.K. could also choose to ~~complete negotiations within two years, unless negotiations are extended, would result~~revoke Article 50 and remain a member of the EU.

PPL believes that its greatest risk related to Brexit is the potential decline in the ~~treaties governing~~value of the ~~EU no longer being applicable~~GBP compared to the ~~U.K. with there being no agreement~~U.S. dollar. A decline 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~~value of the 27 remaining EU states agree to an extension. Any withdrawal agreement will need to be approved by the European Parliament, the European Council and by the U.K. Parliament. There remains significant uncertainty asGBP compared 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.~~will reduce the value of WPD's earnings to PPL.

PPL has executed hedges to mitigate the foreign exchange risk to ~~the Company's~~its U.K. earnings. As of ~~October 26, 2018,~~April 29, 2019, PPL's foreign exchange exposure related to budgeted earnings is 100% hedged for the remainder of ~~2018 at an average rate of $1.31 per GBP, 100% hedged for~~ 2019 at an average rate of ~~$1.39~~$1.41 per GBP and ~~50%~~55% hedged for 2020 at an average rate of ~~$1.49~~$1.47 per GBP.

PPL cannot predict the impact, in either the short-term or long-term, ~~impact to~~on 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.~~material.

PPL does not expect the financial condition and results of operations of WPD itself to change significantly as a result of Brexit, with or without an approved plan of withdrawal. The regulatory environment and operation of WPD's businesses are not expected to change. WPD is halfway through RIIO-ED1, the current price control period, with allowed revenues agreed with Ofgem through March 2023. The impact of a slower economy or recession on WPD would be mitigated in part because U.K.

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regulation provides that any reduction in the volume of electricity delivered will be recovered in allowed revenues in future periods through the K-factor adjustment. See "Item 1. Business - Segment Information - U.K. Regulated Segment" in PPL's 2018 Form 10-K for additional information on the current price control and K-factor adjustment. In addition, an increase in inflation would have a positive effect on revenues and RAV as annual inflation adjustments are applied to both revenues and RAV (and real returns are earned on inflated RAV). This impact, however, would be partially offset by higher operation and maintenance and interest expense on index-linked debt. With respect to access to financing, WPD has substantial borrowing capacity under existing credit facilities and expects to continue to have access to all major financial markets. With respect to access to and cost of equipment and other materials, WPD management continues to review U.K. government issued advice on preparations for Brexit without an approved plan of withdrawal and has taken actions to mitigate potential increasing costs and disruption to its critical sources of supply. Additionally, less than 1% of WPD's employees are non-U.K. EU nationals and no change in their domicile is expected.

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 December 21, 2017, Kentucky Industrial Utility Customers, Inc. submitted a complaint with the KPSC against~~The businesses of LKE, LG&E and KU ~~as well as~~are subject to extensive federal, state and local environmental laws, rules and regulations, including those pertaining to CCRs, GHG, and ELGs. See Notes 7, 11 and 16 to the Financial Statements for a discussion of these significant environmental matters. These and 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 requiringstringent environmental requirements led PPL, LKE, LG&E and KU to ~~begin deferring, as~~retire approximately 800 MW of ~~January 1,~~coal-fired generating plants in Kentucky, primarily in 2015. Additionally, KU retired two older coal-fired units at the E.W. Brown plant in February 2019 with a combined summer rating capacity of 272 MW.

TCJA Impact on FERC Rates (All Registrants)

In November 2018, the ~~revenue requirement effect of all income tax expense savings resulting from~~FERC issued a Policy Statement stating that the ~~federal corporate income tax reduction, including the amortization of excess~~appropriate ratemaking treatment for changes in accumulated deferred income taxes ~~by recording those savings~~as a result of the TCJA will be addressed in a ~~regulatory liability account~~Notice of Proposed Rulemaking. Also in November 2018, the FERC issued the Notice of Proposed Rulemaking which proposes that public utility transmission providers include mechanisms in their formula rates to deduct excess accumulated deferred income taxes from, or add deficient accumulated deferred income taxes to, rate base and ~~establishing a process by which the federal corporate~~adjust their income tax ~~savings will be passed back~~allowances by amortized excess or deficient accumulated deferred income taxes. The Notice of Proposed Rulemaking did not prescribe the mechanism companies should use 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~~adjust 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 and thereafter until tax-reform related savings are reflected in changes in baseformula rates. ~~The estimated impact of the rate reduction represents approximately $91 million in KU electricity revenues ($70 million through the new bill credit and $21~~

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~~million through existing rate mechanisms), $69 million in~~ LG&E ~~electricity revenues ($49 million through~~and KU are currently assessing the ~~new bill credit~~Notice of Proposed Rulemaking 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.~~

~~On March 20, 2018, the KPSC~~are continuing to monitor guidance 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~~FERC. On February 5, 2019, in ~~assumptions or inputs used in assessing~~connection with a separate element of federal and Kentucky state 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,~~effects, LG&E and KU filed a ~~petition for reconsideration and~~ request ~~for hearing~~ with the ~~KPSC, taking exception~~FERC to ~~the KPSC's modifications and the process, and also requested certain relief from implementing the amounts represented by the additional~~amend their transmission formula rates, effective June 1, 2019, to incorporate reductions ~~until the matter is fully resolved. On March 28, 2018, the Office~~to corporate income tax rates as a result of the ~~Attorney General filed a response to the petition~~TCJA 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~~HB 487. 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 September 28, 2018, the KPSC issued an Order on reconsideration, implementing rates reflecting electricity revenue reductions of $101 million for KU ($80 million through the new bill credit and $21 million through existing rate mechanisms), $74 million for LG&E electricity revenues ($54 million through the new bill credit and $20 million through existing rate mechanisms) and $16 million LG&E gas revenues (substantially all through the new bill credit) for the period January 2018 through April 2019. This represents lower revenue reduction amounts than the March 20, 2018 Order of approximately $13 million ($7 million at KU and $6 million at LG&E). LG&E and KU have been implementing interim partial rate reductions since April 2018, as authorized by the KPSC on March 28, 2018, and recording reserves up to the higher reduction amounts originally approved in the March 20, 2018 Order. The September 28, 2018 Order is not expected to have a material adverse impact on LG&E's and KU's financial condition or results of operations.

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 and HB 487 related to their FERC-jurisdictional rates to be significant.

~~(PPL and PPL Electric)~~

~~TCJA Impact on PPL Electric Rates~~

On February ~~12, 2018,~~28, 2019, PPL Electric filed with the ~~PUC issued a Secretarial Letter requesting certain information from regulated utilities and inviting comment from interested parties on potential revision~~FERC proposed revisions to ~~customer rates as a result of enactment~~its transmission formula rate template pursuant to Section 205 of the ~~TCJA.~~Federal Power Act and Section 35.13 of the Rules and Regulation of the FERC. Specifically, PPL Electric ~~submitted~~proposed to modify its ~~response~~formula rate to permit 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 impactreturn or recovery of excess or deficient accumulated deferred income taxes (ADIT) resulting from 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~~permit 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~~prospectively account for the income ~~to be effective July 1, 2018,~~

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~~and (b) to record a deferred regulatory liability to reflect the~~ tax ~~savings~~expense associated with the ~~TCJA for~~depreciation of the ~~period January 1 through June 30, 2018.~~equity component of the AFUDC. On ~~June 8, 2018, PPL Electric submitted a petition~~April 29, 2019, the FERC accepted the proposed revisions to the ~~PUC to increase~~formula rate template, which will be effective June 1, 2019, as well as 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 $39 million relates to the period January 1, 2018 through June 30, 2018 and was recorded as a noncurrent regulatory liability in the second quarter of 2018 to be distributed to customers pursuant to a future rate adjustment. The remaining $33 million is the estimated impact for the period July 1, 2018 through December 31, 2018 and is being passed back to customers through the negative surcharge which began on 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~~adjustments 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 FERC, to accelerate incorporation of the changes to the federal corporate income tax rate in its transmission formula rate commencing on Juneeffective January 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 Transmission Owners joint filing, submitted comments in response to the FERC's March 15, 2018 Notice of Inquiry. The filing 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~~ADIT impacting the transmission formula rate revenues have not been significant since the new rate went into effect on June 1, 2018.

Pennsylvania Alternative Ratemaking

OnIn June ~~28,~~ 2018, Governor Tom Wolf signed ~~House Bill 1782 (now known as~~into law Act 58 of 2018 ~~and to be codified~~(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 iswas August 27, 2018.

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Under the new law, a public utility ~~can~~may 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~~multi-year rate plans, or a combination of those ~~mechanisms~~ or other mechanisms.

The alternative rate mechanisms ~~can~~may 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.

On August 23, 2018, the PUC issued a Tentative Implementation Order seeking comments on its proposed interpretation and implementation of Act 58, Section 1330 of the Public Utility Code, 66 Pa. C.S. 1330. PPL Electric and various other parties filed comments ~~on October 8, 2018. This matter remains pending before~~and reply comments. On April 25, 2019, the ~~PUC.~~PUC issued an Implementation Order adopting its interpretation and implementation of Act 58 as described therein and establishing the procedures through which utilities may seek PUC approval of alternative rates and rate mechanisms.

PPL Electric views the passage of Act 58 and the PUC’s Implementation Order to be agenerally favorable regulatory ~~development~~developments that isare expected to expand the rate-making mechanisms available to Pennsylvania regulated utility companies.

RIIO-ED2 Review (PPL)

~~RIIO-ED1 Mid-period Review~~

In December 2017, Ofgem initiated a consultation on a potential RIIO-ED1 mid-period review (MPR). The RIIO framework allows for an 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

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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~~published its decision ~~not to conduct an MPR.~~

~~RIIO-2 Framework Review~~

~~On March 7, 2018, Ofgem issued its consultation document~~ on the overall RIIO-2 framework, 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~~controls, following its 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 engagementprocess earlier in the ~~business planning process~~year. See “Item 7. Combined Management's Discussion and ~~performance incentive mechanisms. The purpose~~Analysis of Financial Condition and Results of Operations - Overview - Financial and Operational Developments - Regulatory Requirements - RIIO-2 Framework Review,” in PPL's 2018 Form 10-K for details about the RIIO-2 framework 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 a low-carbon future. Comments on the RIIO-2 framework were duedecision document.

Also in ~~May 2018. On July 30,~~ 2018, Ofgem published its ~~decision following their~~sector specific methodology consultation related to its RIIO-2 ~~framework consultation after consideration of comments received. Ofgem confirmed the following points in the decision document:~~

~~There will be a five-year default length~~price controls 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 as part of base revenue calculations. 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~~gas 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 made in the sector specific consultations or within the individual company business plan submissions. The promulgation of sector specific price controls is expected to begin with the gas transmission and electricity transmission ~~networks in December 2018, with~~operators. Ofgem has explicitly stated that this current consultation does not apply directly to electricity distribution network operators, although some decisions may set precedents for the RIIO-ED2 price control. As a result, PPL and WPD continue to be engaged with Ofgem and responded to this consultation in March 2019, expressing views on key issues such as the cost of capital and incentive schemes that are critical to the application of the overall RIIO-2 framework. Management projects significant electricity distribution network investment will be required in RIIO-ED2 to achieve the U.K.’s carbon reduction targets and that Ofgem will need to design a framework that sufficiently incentivizes delivery of those objectives.

The consultation process specifically for the RIIO-ED2 price control ~~work~~is scheduled to begin in ~~2020, at which time Ofgem plans~~the third quarter of 2019, with the RIIO-ED2 price control to ~~publish its RIIO-ED2 strategy consultation document. Although the electricity distribution consultation does not commence until 2020, WPD is ensuring that they are included~~become effective in ~~any RIIO-2 related engagement.~~April 2023. 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.

FERC Transmission Rate Filing

(PPL, LKE, LG&E and KU)

~~Table~~ On March 21, 2019, the FERC issued an Order granting LG&E's and KU's request to remove the on-going credits, conditioned upon the implementation by LG&E and KU of ~~Contents~~

a transition mechanism for certain existing power supply arrangements, which transition mechanism will be subject to FERC review and approval. LG&E and KU are currently evaluating the Order. LG&E and KU currently receive recovery of ~~such expenses in~~waivers and credits provided through 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~~

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(PPL and PPL Electric)

Rate Case Proceedings (PPL, LKE, LG&E and KU)

On September 28, 2018, LG&E and KU filed requests with the KPSC for an increase in annual base electricity rates of approximately $112 million at KU and increases in annual base electricity and gas rates of approximately $35 million and $25 million at LG&E. The proposed base rate increases would result in an electricity rate increase of 6.9% at KU and electricity and gas rate increases of 3% and 7.5% at LG&E. As discussed in the "TCJA Impact on LG&E and KU Rates" section below, LG&E’s and KU’s applications ~~seek~~also sought to include ~~applicable~~ changes associated with the TCJA and state tax reform in the calculation of the proposed base rates and to terminate the TCJA bill credit mechanism when ~~the~~ new base rates go into effect.

~~New rates are expected to become effective on May 1, 2019.~~ The elimination of the TCJA bill credit mechanism will result in an estimated annual electricity revenue increase of approximately $58 million at KU and increases in electricity and gas revenues of approximately $40 million and $12 million at LG&E. The applications are based on a forecasted test year of May 1, 2019 through April 30, 2020 with a requested return-on-equity of 10.42%.

On March 1, 2019, LG&E and KU, ~~cannot predict~~along with substantially all intervening parties to the ~~outcome~~proceeding, filed stipulation and recommendation agreements (stipulations) with the KPSC resolving all material issues with the parties. In addition to terminating the TCJA bill credit mechanism, the proposed stipulations provided for increases in annual revenue requirements associated with base electricity rates of ~~these proceedings.~~approximately $58 million at KU and increases in annual base electricity and gas rates of approximately $4 million and $20 million at LG&E, based on a return-on-equity of 9.725%.

(~~LKE~~On April 30, 2019, the KPSC issued orders ruling on open issues and ~~KU)~~

~~In September 2017, KU~~approving the proposed stipulations filed ~~a request seeking approval from the VSCC to increase~~in March 2019. The orders provide for increases in annual ~~Virginia~~revenue requirements associated with base electricity ~~revenue by $7~~rates of $56 million ~~representing an increase~~at KU and increases associated with base electricity and gas rates of ~~10.4%. On March 22, 2018, KU reached a settlement agreement regarding~~$2 million and $19 million at LG&E. With the ~~case, including the impact~~termination of the TCJA bill credit mechanism, this represents annual revenue increases of $187 million ($114 million at KU and $73 million at LG&E). The new base rates and all elements of the orders became effective on ~~rates, resulting in an increase in annual Virginia base electricity revenue by $2 million. This represents an increase of 2.8% with rates effective June~~May 1, ~~2018. On May 8, 2018, the VSCC issued an Order approving the settlement agreement.~~

~~Acquisition of Solar Energy Solution Provider~~ 2019.~~(PPL)~~

During the second quarter of 2018, PPL completed the acquisition of all the outstanding membership interests of Safari Energy, LLC (Safari Energy), a 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 financial results of Safari Energy are reported within Corporate and 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~~ months ended ~~September 30, 2018~~March 31, 2019 with the same ~~periods~~period in ~~2017.~~2018. The "Segment Earnings" and "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 "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 "2018 Outlook" discussion identifies key factors expected to impact 2018 earnings.~~

Tables analyzing changes in amounts between periods within "Statement of Income Analysis," "Segment Earnings" and "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.

~~Table of Contents~~

(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~~ months ended ~~September 30, 2018~~March 31, 2019 with the same ~~periods~~period in ~~2017.~~2018. The "Earnings" discussion provides a summary of earnings. The "Adjusted Gross Margins" discussion includes a reconciliation of non-GAAP financial measures to "Operating Income."

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(All Registrants)

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

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

Statement of Income Analysis

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

Three Months Nine Months
2018 2017 $ Change 2018 2017 $ Change
Operating Revenues $ 1,872
$ 1,845
$ 27
$ 5,846
$ 5,521
$ 325
Operating Expenses
Operation
Fuel 206
202
4
609
576
33
Energy purchases 149
143
6
538
494
44
Other operation and maintenance 479
438
41
1,453
1,340
113
Depreciation 275
257
18
817
745
72
Taxes, other than income 77
69
8
234
214
20
Total Operating Expenses 1,186
1,109
77
3,651
3,369
282
Other Income (Expense) - net 106
(35 ) 141
297
(112 ) 409
Interest Expense 244
230
14
718
669
49
Income Taxes 103
116
(13 ) 362
321
41
Net Income $ 445
$ 355
$ 90
$ 1,412
$ 1,050
$ 362

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	Three Months
	2019		2018			$ Change
Operating Revenues	$	2,079	$	2,126		$	(47	)
Operating Expenses
Operation
Fuel	194		214			(20		)
Energy purchases	250		241			9
Other operation and maintenance	490		468			22
Depreciation	284		269			15
Taxes, other than income	80		83			(3		)
Total Operating Expenses	1,298		1,275			23
Other Income (Expense) - net	52		(43		)	95
Interest Expense	241		239			2
Income Taxes	126		117			9
Net Income	$	466	$	452		$	14

Operating Revenues

The increase (decrease) in operating revenues for the ~~periods~~period ended ~~September 30, 2018~~March 31, 2019 compared with ~~2017~~2018 was due to:


	Three Months			Nine Months			Three Months
Domestic:
PPL Electric Distribution price (a)	$	(6	)	$	5		$	9
PPL Electric Distribution volume	17			49			2
PPL Electric PLR (b)	5			31			10
PPL Electric Transmission Formula Rate (c)	3			53			7
PPL Electric TCJA refund (d)	(20		)	(57		)	(24		)
LKE Volumes (e)	19			122			(30		)
LKE Base rates	—			58
LKE Fuel and other energy prices							(10		)
LKE ECR	5			18			4
LKE TCJA refund (d)	(30		)	(109		)	4
LKE DSM	(2		)	(13		)
LKE Fuel and other energy prices	(8		)	(15		)
Other	4			14			13
Total Domestic	(13		)	156			(15		)
U.K.:
Price	19			19			26
Volume	(2		)	2			(14		)
Foreign currency exchange rates	8			117			(40		)
Engineering recharge income	18			37
Other	(3		)	(6		)	(4		)
Total U.K.	40			169			(32		)
Total	$	27		$	325		$	(47	)


(a)	Distribution price variance is primarily due to reconcilable cost recovery mechanisms approved by the PUC.


(b)	The ~~increases were~~increase was primarily due to higher energy ~~volumes, partially offset by lower energy prices.~~volumes.

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(c)	Transmission Formula Rate revenues include the ~~impacts~~$16 million unfavorable impact of the TCJA which reduced the new revenue requirement that went into effect June 1, 2018.

(d)

Represents the change in estimated income tax savings owed to or already ~~returned~~refunded to distribution customers related to the ~~impact of the~~reduced U.S. federal corporate income ~~tax rate reduction from 35% to 21%,~~taxes as ~~enacted by~~a result of the TCJA. For PPL Electric, the TCJA ~~effective~~customer refund for the period January through June 2018 was recorded during the second quarter of 2018 and the negative surcharge rate for distribution customers went into effect July 1, ~~2018. See Note 7 to~~2018 based on the ~~Financial Statements for additional information.~~PUC Order.


(e)	~~Increases were~~The decrease was primarily due to ~~favorable weather in 2018.~~weather.

Fuel

Fuel ~~increased~~decreased $3320 million for the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 compared with ~~2017~~2018, primarily due to ~~a $40~~an $11 million ~~increase~~decrease in volumes driven by weather ~~in 2018, partially offset by an $8~~and a $9 million decrease in commodity costs.

~~Energy Purchases~~

Energy purchases increased $6 million for the three months ended September 30, 2018 compared with 2017, primarily due to a $17 million increase in PLR volumes, partially offset by a $7 million decrease in PLR prices at PPL Electric.

Energy purchases increased $44 million for the nine months ended September 30, 2018 compared with 2017, primarily due to a $42 million increase in PLR volumes, partially offset by a $9 million decrease in PLR prices at PPL Electric and an $18 million increase in natural gas volumes driven by weather in 2018, partially offset by a $6 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~~period ended ~~September 30, 2018~~March 31, 2019 compared with ~~2017~~2018 was due to:

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	Three Months			Nine Months			Three Months
Domestic:
LKE storm costs	$	8		$	10
LKE timing and scope of generation maintenance outages	—			7
Storm costs							$	11
LKE vegetation management	2			5			2
LKE gas distribution maintenance and compliance	1			4			2
PPL Electric vegetation management	(1		)	(11		)
PPL Electric storm costs	(1		)	15
PPL Electric payroll-related costs	3			(11		)
PPL Electric Act 129	(1		)	(3		)
PPL Electric bad debts	2			9
PPL Electric Act 129 Smart Meter	—			4
Other	11			16			21
U.K.:
Foreign currency exchange rates	2			23			(7		)
Network maintenance	2			6			(1		)
Third-party engineering	14			29			(2		)
Other	(1		)	10			(4		)
Total	$	41		$	113		$	22

Depreciation

~~Depreciation increased $18 million~~The increase (decrease) in depreciation for the ~~three months~~period ended ~~September 30, 2018~~March 31, 2019 compared with ~~2017, primarily~~2018 was due to additional assets placed into service, net of retirements, related to the ongoing efforts to ensure the reliability of the delivery system, the replacement of aging infrastructure as well as the roll-out of the Act 129 Smart Meter program at PPL Electric and additional assets placed into service, net of retirements at LG&E and KU.to:



	Three Months
Additions to PP&E, net	$	18
Foreign currency exchange rates	(4		)
Other	1
Total	$	15

Depreciation increased $72 million for the nine months ended September 30, 2018 compared with 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, 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 additional assets placed into service, net of retirements at LG&E and KU and the impact of foreign currency exchange rates at WPD.

Other Income (Expense) - net

~~Other~~The increase (decrease) in other income (expense) - net ~~increased $141 million~~ for the ~~three months~~period ended ~~September 30, 2018~~March 31, 2019 compared with ~~2017 primarily~~2018 was due ~~to higher realized and unrealized gains on foreign currency contracts to economically hedge GBP denominated earnings from WPD~~to:



	Three Months
Economic foreign currency exchange contracts (Note 15)	$	79
Defined benefit plans - non-service credits (Note 10)	12
Other	4
Total	$	95

Table of ~~$121 million and an increase in non-service cost credits from defined benefit plans of $20 million.~~Contents

Other income (expense) - net increased $409 million for the nine months ended September 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 $329 million and an increase in non-service cost credits from defined benefit plans of $72 million.

Interest Expense

The increase (decrease) in interest expense for the ~~periods~~period ended ~~September 30, 2018~~March 31, 2019 compared with ~~2017~~2018 was due to:


	Three Months		Nine Months			Three Months
Long-term debt interest expense	$	11	$	27		$	4
Foreign currency exchange rates	2		19			(6		)
Short-term debt interest expense	1		6
Other	—		(3		)	4
Total	$	14	$	49		$	2

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Income Taxes

The increase (decrease) in income taxes for the ~~periods~~period ended ~~September 30, 2018~~March 31, 2019 compared with ~~2017~~2018 was due to:

Three Months Nine Months
Change in pre-tax income $ 28
$ 136
Reduction in U.S. federal income tax rate (a) (40 ) (128 )
Valuation allowances adjustments 1
8
U.S. income tax on foreign earnings - net of foreign tax credit (b) 9
26
Impact of U.K. Finance Acts (1 ) 5
Amortization of excess deferred income taxes (a) (11 ) (30 )
Kentucky state tax reform (c) —
9
Stock-based compensation —
8
Other 1
7
Total $ (13 ) $ 41



	Three Months
Change in pre-tax income	$	2
Federal and state tax reserve adjustments	3
Other	4
Total	$	9


~~(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.~~


~~(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 was recognized over the annual period as a result of utilizing an estimated annual effective tax rate.


~~(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. See Note 6 to the Financial Statements for additional information.

Segment Earnings

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


	Three Months								Nine Months									Three Months
	2018			2017		$ Change			2018			2017			$ Change			2019			2018			$ Change
U.K. Regulated	$	245		$	126	$	119		$	836		$	560		$	276		$	264		$	197		$	67
Kentucky Regulated	122			125		(3		)	332			299			33			117			133			(16		)
Pennsylvania Regulated	112			95		17			335			251			84			121			148			(27		)
Corporate and Other (a)	(34		)	9		(43		)	(91		)	(60		)	(31		)	(36		)	(26		)	(10		)
Net Income	$	445		$	355	$	90		$	1,412		$	1,050		$	362		$	466		$	452		$	14

(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. ~~Income taxes were $25 million and $7 million higher for the three and nine months ended~~The decrease in ~~2018~~2019 compared with ~~2017,~~2018 was primarily due to ~~the utilization of an estimated tax rate, which required tax benefits realized in the first quarter of 2017 to be recognized over the annual period. Interest expense was $5 million~~higher income taxes and ~~$13 million higher for the three~~operation and ~~nine months ended in 2018 compared with 2017.~~maintenance expense.

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:~~may include items such as:

• 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.

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

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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 1415 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 30~~March 31 were as follows:


	Three Months								Nine Months									Three Months
	2018			2017		$ Change			2018			2017			$ Change			2019			2018			$ Change
U.K. Regulated	$	214		$	163	$	51		$	730		$	682		$	48		$	304		$	262		$	42
Kentucky Regulated	120			125		(5		)	339			300			39			117			133			(16		)
Pennsylvania Regulated	117			95		22			340			251			89			121			148			(27		)
Corporate and Other	(29		)	5		(34		)	(86		)	(64		)	(22		)	(34		)	(26		)	(8		)
Earnings from Ongoing Operations	$	422		$	388	$	34		$	1,323		$	1,169		$	154		$	508		$	517		$	(9	)

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 ~~59%~~57% of PPL's Net Income for the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 and ~~39%~~40% of PPL's assets at ~~September 30, 2018.~~March 31, 2019.

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


	Three Months							Nine Months							Three Months
	2018		2017			$ Change		2018		2017			$ Change		2019			2018			$ Change
Operating revenues	$	517	$	477		$	40	$	1,716	$	1,547		$	169	$	583		$	615		$	(32	)
Other operation and maintenance	131		113			18		400		326			74		118			132			(14		)
Depreciation	61		58			3		186		170			16		62			62			—
Taxes, other than income	33		33			—		101		94			7		32			34			(2		)
Total operating expenses	225		204			21		687		590			97		212			228			(16		)
Other Income (Expense) - net	102		(36		)	138		284		(105		)	389		45			(47		)	92
Interest Expense	106		103			3		310		294			16		99			107			(8		)
Income Taxes	43		8			35		167		(2		)	169		53			36			17
Net Income	245		126			119		836		560			276		264			197			67
Less: Special Items	31		(37		)	68		106		(122		)	228		(40		)	(65		)	25
Earnings from Ongoing Operations	$	214	$	163		$	51	$	730	$	682		$	48	$	304		$	262		$	42

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 30.~~March 31.

Income Statement Line Item Three Months Nine Months
2018 2017 2018 2017
Foreign currency economic hedges, net of tax of ($7), $20, ($27), $66 (a) Other Income (Expense) - net $ 28
$ (37 ) $ 103
$ (122 )
U.S. tax reform (b) Income Taxes 3
—
3
—
Total Special Items $ 31
$ (37 ) $ 106
$ (122 )



	Income Statement Line Item	Three Months
	Income Statement Line Item	2019			2018
Foreign currency economic hedges, net of tax of $11, $17 (a)	Other Income (Expense) - net	$	(40	)	$	(65	)
Total Special Items		$	(40	)	$	(65	)


(a)	Represents unrealized gains (losses) on contracts that economically hedge anticipated GBP-denominated earnings.

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~~(b)~~	Represents adjustments to certain provisional amounts recognized in the December 31, 2017 Statement of Income relating to the enactment of the TCJA. See "Tax Cuts and Jobs Act (TCJA)" in Note 6 to the Financial Statements for additional information.

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.

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Three Months Nine Months
U.K.

U.K. Adjusted Gross Margins $ 21
$ 24
Other operation and maintenance (1 ) (12 )
Depreciation (2 ) (4 )
Other Income (Expense) - net 16
46
Interest expense (1 ) 3
Other (2 ) (3 )
Income taxes 1
(17 )
U.S.
Interest expense and other (3 ) (6 )
Income taxes (1 ) (47 )
Foreign currency exchange, after-tax 23
64
Earnings from Ongoing Operations 51
48
Special items, after-tax 68
228
Net Income $ 119
$ 276



	Three Months
U.K.
U.K. Adjusted Gross Margins	$	10
Other operation and maintenance	5
Depreciation	(5		)
Other Income (Expense) - net	19
Interest expense	2
Income taxes	(5		)
U.S.
Interest expense and other	(2		)
Income taxes	1
Foreign currency exchange, after-tax	17
Earnings from Ongoing Operations	42
Special items, after-tax	25
Net Income	$	67

U.K.

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

Higher other income (expense) - net ~~for the three and nine month periods~~ primarily from higher pension ~~income due to an increase in expected returns on higher asset balances.~~income.

~~U.S.~~

Higher income taxes for the nine month period primarily due to a $35 million tax benefit on accelerated pension contributions in the first quarter of 2017 and a $13 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 ~~24%~~25% of PPL's Net Income for the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 and 34% of PPL's assets at ~~September 30, 2018.~~March 31, 2019.

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

~~Table of Contents~~

Three Months Nine Months
2018 2017 $ Change 2018 2017 $ Change
Operating revenues $ 802
$ 818
$ (16 ) $ 2,417
$ 2,350
$ 67
Fuel 206
202
4
609
576
33
Energy purchases 22
22
—
135
120
15
Other operation and maintenance 216
197
19
632
594
38
Depreciation 119
114
5
354
324
30
Taxes, other than income 18
17
1
53
49
4
Total operating expenses 581
552
29
1,783
1,663
120
Other Income (Expense) - net —
(1 ) 1
(2 ) (9 ) 7
Interest Expense 69
65
4
205
196
9
Income Taxes 30
75
(45 ) 95
183
(88 )
Net Income 122
125
(3 ) 332
299
33
Less: Special Items 2
—
2
(7 ) (1 ) (6 )
Earnings from Ongoing Operations $ 120
$ 125
$ (5 ) $ 339
$ 300
$ 39

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

Income Statement Line Item Three Months Nine Months
2018 2017 2018 2017
Adjustment to investment, net of tax of $0, $0, $0, $0 (a) Other Income (Expense) - net $ —
$ —
$ —
$ (1 )
Kentucky state tax reform (b) Income Taxes —
—
(9 ) —
U.S. tax reform (c) Income Taxes 2
—
2
—
Total Special Items $ 2
$ —
$ (7 ) $ (1 )



	Three Months
	2019		2018			$ Change
Operating revenues	$	845	$	872		$	(27	)
Fuel	194		214			(20		)
Energy purchases	79		80			(1		)
Other operation and maintenance	214		205			9
Depreciation	123		117			6
Taxes, other than income	18		17			1
Total operating expenses	628		633			(5		)
Other Income (Expense) - net	—		(3		)	3
Interest Expense	70		67			3
Income Taxes	30		36			(6		)
Net Income	117		133			(16		)
Less: Special Items (a)	—		—			—
Earnings from Ongoing Operations	$	117	$	133		$	(16	)


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


~~(b)~~	~~During~~There are no items that management considers special for 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.


~~(c)~~	Represents adjustments to certain provisional amounts recognized in the December 31, 2017 Statement of Income relating to the enactment of the TCJA. See "Tax Cuts and Jobs Act (TCJA)" in Note 6 to the Financial Statements for additional information.periods presented.

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 items that management considers special~~ on a separate ~~lines~~line and not in their respective Statement of Income line items.

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Three Months Nine Months
Kentucky Adjusted Gross Margins $ (19 ) $ 24
Other operation and maintenance (23 ) (46 )
Depreciation (3 ) (26 )
Taxes, other than income —
(5 )
Other Income (Expense) - net 1
6
Interest Expense (4 ) (9 )
Income Taxes 43
95
Earnings from Ongoing Operations (5 ) 39
Special items, after-tax 2
(6 )
Net Income $ (3 ) $ 33



	Three Months
Kentucky Adjusted Gross Margins	$	(5	)
Other operation and maintenance	(12		)
Depreciation	(4		)
Taxes, other than income	(1		)
Other Income (Expense) - net	3
Interest Expense	(3		)
Income Taxes	6
Net Income	$	(16	)

See "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 an $8 million increase in storm costs, a $2 million increase in vegetation management expense and~~from increases in ~~other~~various costs that were not individually significant in comparison to the prior year.

~~Table of Contents~~

Higher other operation and maintenance expense for the nine month period primarily due to a $10 million increase in storm costs, a $7 million increase in costs related to the timing and scope of generation maintenance outages, a $5 million increase in vegetation management expenses, a $4 million increase in costs related to gas distribution maintenance and compliance and increases in other costs that were not individually significant in comparison to the prior year.

Higher depreciation expense for the nine month period due to a $14 million increase related to additional assets placed into service, net of retirements and a $12 million increase related to higher depreciation rates effective July 1, 2017.

~~Higher interest expense for the nine month period due to higher interest rates and increased borrowings under LG&E's term loan credit facility and KU's commercial paper program.~~

Lower income taxes for the three month period primarily due to a $21 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, an $18 million decrease related to lower pre-tax income.

Lower income taxes for the nine month period primarily due to a $60 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 $22 million decrease related to lower pre-tax income and a $14 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%~~26% of PPL's Net Income for the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 and ~~26%~~25% of PPL's assets at ~~September 30, 2018.~~March 31, 2019.

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


	Three Months								Nine Months								Three Months
	2018			2017		$ Change			2018			2017		$ Change			2019		2018		$ Change
Operating revenues	$	548		$	547	$	1		$	1,704		$	1,620	$	84		$	645	$	639	$	6
Energy purchases	127			121		6			403			374		29			171		161		10
Other operation and maintenance	127			133		(6		)	419			435		(16		)	150		133		17
Depreciation	89			77		12			262			228		34			95		85		10
Taxes, other than income	27			27		—			81			79		2			31		32		(1		)
Total operating expenses	370			358		12			1,165			1,116		49			447		411		36
Other Income (Expense) - net	9			6		3			23			11		12			7		6		1
Interest Expense	40			36		4			116			105		11			42		37		5
Income Taxes	35			64		(29		)	111			159		(48		)	42		49		(7		)
Net Income	112			95		17			335			251		84			121		148		(27		)
Less: Special Item	(5		)	—		(5		)	(5		)	—		(5		)
Less: Special Items (a)																	—		—		—
Earnings from Ongoing Operations	$	117		$	95	$	22		$	340		$	251	$	89		$	121	$	148	$	(27	)

The following after-tax gain (loss), which management considers a special item, impacted the Pennsylvania Regulated segment's results and is excluded from Earnings from Ongoing Operations during the periods ended September 30.

Income Statement Line Item Three Months Nine Months
2018 2017 2018 2017
IT transformation, net of tax of $2, $0, $2, $0 (a) Other operation and maintenance $ (5 ) $ —
$ (5 ) $ —
Total Special Item $ (5 ) $ —
$ (5 ) $ —

(a)

~~In June 2018, PPL EU Services’ IT department announced an internal reorganization which was substantially completed in~~There are no items that management considers special for the third quarter of 2018. As a result, $5 million of after-tax costs, which includes separation benefits as well as outside services for strategic consulting to establish the new IT organization, were incurred. See Note 10 to the Financial Statements for additional information on separation benefits.periods presented.

~~Table of Contents~~

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 ~~and the item that management considers special~~ on a separate line and not in their respective Statement of Income line items.


	Three Months			Nine Months			Three Months
Pennsylvania Adjusted Gross Margins	$	(4	)	$	39		$	(11	)
Other operation and maintenance	7			27			(12		)
Depreciation	(8		)	(23		)	(8		)
Taxes, other than income	—			(1		)	1
Other Income (Expense) - net	4			12			1
Interest Expense	(4		)	(11		)	(5		)
Income Taxes	27			46			7
Earnings from Ongoing Operations	22			89
Special Item, after tax	(5		)	(5		)
Net Income	$	17		$	84		$	(27	)

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

~~Lower~~Higher other operation and maintenance expense ~~for~~primarily from increases in various costs that were not individually significant in comparison to the three month period primarily due to $14 million of lower corporate service costs allocated to PPL Electric, partially offset by $3 million of higher nonrecoverable storm expenses and $2 million of higher bad debt expense.

Lower other operation and maintenance expense for the nine month period primarily due to $31 million of lower corporate service costs allocated to PPL Electric, $11 million of lower payroll related expenses and $11 million of lower vegetation management expenses, partially offset by $12 million of higher nonrecoverable storm expenses and $9 million of higher bad debt expense.prior year.

Higher depreciation expense ~~for the three and nine month periods~~ primarily due to additional assets placed into service, related to the ongoing efforts to ensure the reliability of the delivery system and the replacement of aging infrastructure, net of retirements.

Higher interest expense for the nine month period primarily due to the May 2017 issuance of $475 million of 3.950% First Mortgage Bonds and the June 2018 issuance of $400 million of 4.15% First Mortgage Bonds.

Lower income taxes for the three 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 $18 million and lower pre-tax income resulting in $7 million of lower income taxes.

Lower income taxes for the nine 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 $56 million and $13 million of lower income taxes due to amortization of excess deferred income taxes, partially offset by higher pre-tax income resulting in $14 million of higher income taxes.

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 30.~~

~~Table of Contents~~

March 31.


	2018 Three Months															2019 Three Months
	U.K. Regulated			KY Regulated			PA Regulated			Corporate and Other			Total			U.K. Regulated			KY Regulated		PA Regulated		Corporate and Other			Total
Net Income	$	245		$	122		$	112		$	(34	)	$	445		$	264		$	117	$	121	$	(36	)	$	466
Less: Special Items (expense) benefit:
Foreign currency economic hedges, net of tax of ($7)	28			—			—			—			28
U.S. tax reform	3			2			—			(5		)	—
IT transformation, net of tax of $2	—			—			(5		)	—			(5		)
Foreign currency economic hedges, net of tax of $11																(40		)	—		—		—			(40		)
Talen litigation costs, net of tax of $0 (a)																—			—		—		(2		)	(2		)
Total Special Items	31			2			(5		)	(5		)	23			(40		)	—		—		(2		)	(42		)
Earnings from Ongoing Operations	$	214		$	120		$	117		$	(29	)	$	422		$	304		$	117	$	121	$	(34	)	$	508

	2017 Three Months
	U.K. Regulated			KY Regulated			PA Regulated			Corporate and Other			Total			2018 Three Months
																U.K. Regulated			KY Regulated		PA Regulated		Corporate and Other			Total
Net Income	$	126		$	125		$	95		$	9		$	355		$	197		$	133	$	148	$	(26	)	$	452
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
Foreign currency economic hedges, net of tax of $17																(65		)	—		—		—			(65		)
Total Special Items	$	(37	)	$	—		$	—		$	4		$	(33	)	(65		)	—		—		—			(65		)
Earnings from Ongoing Operations	$	163		$	125		$	95		$	5		$	388		$	262		$	133	$	148	$	(26	)	$	517

	2018 Nine Months
	U.K. Regulated			KY Regulated			PA Regulated			Corporate and Other			Total
Net Income	$	836		$	332		$	335		$	(91	)	$	1,412
Less: Special Items (expense) benefit:
Foreign currency economic hedges, net of tax of ($27)	103			—			—			—			103
U.S. tax reform	3			2			—			(5		)	—
Kentucky state tax reform	—			(9		)	—			—			(9		)
IT transformation, net of tax of $2	—			—			(5		)	—			(5		)
Total Special Items	106			(7		)	(5		)	(5		)	89
Earnings from Ongoing Operations	$	730		$	339		$	340		$	(86	)	$	1,323

	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

(a) Represents a tax settlement associated with the former Supply segment. Included in "Taxes, and other than income" on the Statement of Income.


(a)	During the first quarter of 2019, PPL incurred legal expenses related to litigation with its former affiliate, Talen Montana, and related cases. See Note 11 to the Financial Statements for additional information.

Adjusted Gross Margins

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

~~Table of Contents~~

"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 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.

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"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 30~~March 31 as well as the change between periods. The factors that gave rise to the changes are described following the table.

Three Months Nine Months
2018 2017 $ Change 2018 2017 $ Change
U.K. Regulated

U.K. Adjusted Gross Margins $ 467
$ 441
$ 26
$ 1,578
$ 1,446
$ 132
Impact of changes in foreign currency exchange rates 5
108
U.K. Adjusted Gross Margins excluding impact of foreign currency exchange rates $ 21
$ 24

Kentucky Regulated
Kentucky Adjusted Gross Margins
LG&E $ 240
$ 245
$ (5 ) $ 697
$ 678
$ 19
KU 288
302
(14 ) 847
842
5
Total Kentucky Adjusted Gross Margins $ 528
$ 547
$ (19 ) $ 1,544
$ 1,520
$ 24

Pennsylvania Regulated
Pennsylvania Adjusted Gross Margins
Distribution $ 225
$ 233
$ (8 ) $ 695
$ 710
$ (15 )
Transmission 138
134
4
411
357
54
Total Pennsylvania Adjusted Gross Margins $ 363
$ 367
$ (4 ) $ 1,106
$ 1,067
$ 39

~~Table of Contents~~



	Three Months
	2019		2018		$ Change
U.K. Regulated
U.K. Adjusted Gross Margins	$	546	$	572	$	(26	)
Impact of changes in foreign currency exchange rates					(36		)
U.K. Adjusted Gross Margins excluding impact of foreign currency exchange rates					$	10

Kentucky Regulated
Kentucky Adjusted Gross Margins
LG&E	$	238	$	241	$	(3	)
KU	292		294		(2		)
Total Kentucky Adjusted Gross Margins	$	530	$	535	$	(5	)

Pennsylvania Regulated
Pennsylvania Adjusted Gross Margins
Distribution	$	260	$	278	$	(18	)
Transmission	143		136		7
Total Pennsylvania Adjusted Gross Margins	$	403	$	414	$	(11	)

U.K. Adjusted Gross Margins

U.K. Adjusted Gross Margins, excluding the impact of changes in foreign currency exchange rates, increased ~~for the three months ended September 30, 2018 compared with 2017,~~ primarily due to ~~$19 million from the April 1, 2018 price increase.~~

~~U.K. Adjusted Gross Margins, excluding the impact of changes in foreign currency exchange rates, increased for the nine months ended September 30, 2018 compared with 2017, primarily due to $29~~$26 million from the April 1, 2018 price increase, partially offset by ~~$10~~$14 million ~~from the April 1, 2017 price decrease, driven by~~of lower ~~true-up mechanisms partially offset by higher base demand revenue.~~volumes.

Kentucky Adjusted Gross Margins

Kentucky Adjusted Gross Margins decreased ~~for the three months ended September 30, 2018 compared with 2017,~~ primarily due to ~~$30~~$10 million of estimated income tax savings owed to customers ($14 million at LG&E and $16 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, partially offset by $8 million of increaseddecreased sales volumes ~~related to favorable weather in 2018 ($5 million at LG&E and $3 million at KU) and returns on additional environmental capital investments of $4 million ($2 million at LG&E and $2 million at KU).~~

~~Kentucky Adjusted Gross Margins increased for the nine months ended September 30, 2018 compared with 2017, primarily~~ due to ~~$59 million of increased sales volumes related to favorable~~ weather ~~in 2018~~ ($21 million at LG&E and $38 million at KU), higher base rates of $58 million ($32 million at LG&E and $26 million at KU) as new base rates were approved by the KPSC effective July 1, 2017 and returns on additional environmental capital investments of $14 million ($84 million at LG&E and $6 million at KU), partially offset by ~~$109~~returns on additional environmental capital investments of $5 million ~~of estimated income tax savings owed to customers~~ ($513 million at LG&E and ~~$58~~$2 million at KU) ~~related to the impact~~.

Table of ~~the U.S. federal corporate income tax rate reduction from 35% to 21%, as enacted by the TCJA, effective January 1, 2018.~~Contents

Pennsylvania Adjusted Gross Margins

Distribution

Distribution Adjusted Gross Margins decreased ~~for the three months ended September 30, 2018 compared with 2017,~~ primarily due to a ~~$17~~$23 million negative surcharge which was effective as of July 1, 2018, related to the ~~estimated~~reduced U.S. federal corporate income ~~tax savings~~taxes 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. This decrease was partially offset by ~~$11~~$6 million of higher electricity sales ~~volumes primarily due to weather.~~

Distribution Adjusted Gross Margins decreased for the nine months ended September 30, 2018 compared with 2017, primarily due to a $37 million net of gross receipts tax impact of the estimated income tax savings owed to customers for the period January 1, 2018 through June 30, 2018 and $17 million from the negative surcharge beginning on July 1, 2018, 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. These decreases were partially offset by $36 million of higher electricity sales volumes primarily due to weather and $6 million of returns on additional Smart Meter capital investments.volumes.

Transmission

Transmission Adjusted Gross Margins increased ~~for the three months ended September 30, 2018 compared with 2017,~~ primarily due to an increase of ~~$23~~$26 million from returns on additional transmission capital investments focused on replacing aging infrastructure and improving reliability, partially offset by $16 million from the impact of the reduced U.S. federal corporate income taxes as a result of the TCJA.

Transmission Adjusted Gross Margins increased for the nine months ended September 30, 2018 compared with 2017, primarily due to increases of $49 million from returns on additional transmission capital investments focused on replacing aging infrastructure and improving reliability and $25 million as a result of a higher PPL zonal peak load billing factor in the first five months of 2018, partially offset by $22 million from the impact of the reduced federal income taxes as a result of the TCJA.

~~Table of Contents~~

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 30.~~March 31.

2018 Three Months
U.K.
Adjusted Gross
Margins Kentucky
Adjusted Gross
Margins Pennsylvania Adjusted Gross
Margins Other (a) Operating
Income (b)
Operating Revenues $ 508
(c) $ 802
$ 548
$ 14
$ 1,872
Operating Expenses
Fuel —
206
—
—
206
Energy purchases —
22
127
—
149
Other operation and maintenance 41
26
23
389
479
Depreciation —
18
10
247
275
Taxes, other than income —
2
25
50
77
Total Operating Expenses 41
274
185
686
1,186
Total    $ 467
$ 528
$ 363
$ (672 ) $ 686

2017 Three Months
U.K.
Adjusted Gross
Margins Kentucky
Adjusted Gross
Margins Pennsylvania Adjusted 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
353
438
Depreciation —
16
5
236
257
Taxes, other than income —
1
25
43
69
Total Operating Expenses 26
271
180
632
1,109
Total    $ 441
$ 547
$ 367
$ (619 ) $ 736

2018 Nine Months
U.K.
Adjusted Gross
Margins Kentucky
Adjusted Gross
Margins Pennsylvania Adjusted Gross
Margins Other (a) Operating
Income (b)
Operating Revenues $ 1,687
(c) $ 2,417
$ 1,704
$ 38
$ 5,846
Operating Expenses
Fuel —
609
—
—
609
Energy purchases —
135
403
—
538
Other operation and maintenance 109
74
92
1,178
1,453
Depreciation —
52
26
739
817
Taxes, other than income —
3
77
154
234
Total Operating Expenses 109
873
598
2,071
3,651
Total    $ 1,578
$ 1,544
$ 1,106
$ (2,033 ) $ 2,195

~~Table of Contents~~


	2017 Nine Months												2019 Three Months
	U.K. Adjusted Gross Margins			Kentucky Adjusted Gross Margins		Pennsylvania Adjusted 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)	$	845	$	645	$	15		$	2,079
Operating Expenses
Fuel	—			576		—		—			576		—			194		—		—			194
Energy purchases	—			120		374		—			494		—			79		171		—			250
Other operation and maintenance	71			82		89		1,098			1,340		28			22		31		409			490
Depreciation	—			48		14		683			745		—			19		10		255			284
Taxes, other than income	—			4		76		134			214		—			1		30		49			80
Total Operating Expenses	71			830		553		1,915			3,369		28			315		242		713			1,298
Total	$	1,446		$	1,520	$	1,067	$	(1,881	)	$	2,152	$	546		$	530	$	403	$	(698	)	$	781

													2018 Three Months
													U.K. Adjusted Gross Margins			Kentucky Adjusted Gross Margins		Pennsylvania Adjusted Gross Margins		Other (a)			Operating Income (b)
Operating Revenues													$	604	(c)	$	872	$	639	$	11		$	2,126
Operating Expenses
Fuel													—			214		—		—			214
Energy purchases													—			80		161		—			241
Other operation and maintenance													32			25		26		385			468
Depreciation													—			17		8		244			269
Taxes, other than income													—			1		30		52			83
Total Operating Expenses													32			337		225		681			1,275
Total													$	572		$	535	$	414	$	(670	)	$	851


(a)	Represents amounts excluded from Adjusted Gross Margins.


(b)	As reported on the Statements of Income.


(c)	Excludes ancillary revenues of $8$9 million and ~~$29~~$11 million for the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2019 and ~~$11 million and $30 million for the three and nine months ended September 30, 2017.~~2018.

~~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)~~

Higher net income is projected in 2018 compared with 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 by higher assumed GBP exchange rates and higher pension income, partially offset by higher taxes.

~~(PPL's Kentucky Regulated Segment and LKE, LG&E and KU)~~

Higher net income is projected in 2018 compared with 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 slightly higher, driven by favorable weather and higher base electricity and gas rates effective July 1, 2017, partially offset by higher operation and maintenance expense, higher depreciation expense, higher interest expense and a lower tax shield on holding company interest and expenses.

~~(PPL's Pennsylvania Regulated Segment and PPL Electric)~~

~~Higher net income is projected in 2018 compared with 2017, primarily driven by higher transmission earnings, partially offset by higher depreciation expense and higher interest expense.~~

~~(PPL's Corporate and Other Category)~~

Lower costs are projected in 2018 compared with 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 7 and 10 to the Financial Statements and "Item 1A. Risk Factors" in this Form 10-Q (as applicable) and "Item 1. Business" and "Item 1A. Risk Factors" in the Registrants' 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 30~~March 31 includes the following results.


	Three Months							Nine Months							Three Months
	2018		2017		$ Change			2018		2017		$ Change			2019		2018		$ Change
Operating Revenues	$	548	$	547	$	1		$	1,704	$	1,620	$	84		$	645	$	639	$	6
Operating Expenses
Operation
Energy purchases	127		121		6			403		374		29			171		161		10
Other operation and maintenance	127		133		(6		)	419		435		(16		)	150		133		17
Depreciation	89		77		12			262		228		34			95		85		10
Taxes, other than income	27		27		—			81		79		2			31		32		(1		)
Total Operating Expenses	370		358		12			1,165		1,116		49			447		411		36
Other Income (Expense) - net	5		4		1			18		8		10			5		6		(1		)
Interest Income from Affiliate	4		2		2			5		3		2			2		—		2
Interest Expense	41		36		5			117		105		12			42		37		5
Income Taxes	35		64		(29		)	111		159		(48		)	42		49		(7		)
Net Income	$	111	$	95	$	16		$	334	$	251	$	83		$	121	$	148	$	(27	)

Operating Revenues

The increase (decrease) in operating revenues for the ~~periods~~period ended ~~September 30, 2018~~March 31, 2019 compared with ~~2017~~2018 was due to:


	Three Months			Nine Months			Three Months
Distribution price (a)	$	(6	)	$	5		$	9
Distribution volume	17			49			2
PLR (b)	5			31			10
Transmission Formula Rate (c)	3			53			7
TCJA refund (d)	(20		)	(57		)	(24		)
Other	2			3			2
Total	$	1		$	84		$	6


(a)	Distribution price variance is primarily due to reconcilable cost recovery mechanisms approved by the PUC.


(b)	The ~~increases were~~increase was primarily due to higher energy ~~volumes, partially offset by lower energy prices as described below.~~volumes.


(c)	Transmission Formula Rate revenues include the ~~impacts~~$16 million unfavorable impact of the TCJA which reduced the new revenue requirement that went into effect June 1, 2018.

(d)

~~Represents the~~The estimated income tax savings owed to or already returned to distribution customers related to the ~~impact of the~~reduced U.S. federal corporate income ~~tax~~taxes as a result of the TCJA. The TCJA customer refund for the period January through June 2018 was recorded during the second quarter of 2018 and the negative surcharge rate ~~reduction from 35% to 21%, as enacted by~~for distribution customers went into effect July 1, 2018 based on the ~~TCJA, effective January 1, 2018. See Note 7 to the Financial Statements for additional information.~~PUC Order.

Energy Purchases

Energy purchases increased $6$10 million for the three months ended ~~September 30, 2018~~March 31, 2019 compared with ~~2017,~~2018, primarily due to higher PLR volumes of ~~$17~~$15 million, partially offset by lower ~~PLR prices~~transmission enhancement expenses of $7$6 million.

Energy purchases increased $29 million for the nine months ended September 30, 2018 compared with 2017, primarily due to higher PLR volumes of $42 million, partially offset by lower PLR prices of $9 million.

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Other Operation and Maintenance

The increase (decrease) in other operation and maintenance for the ~~periods~~period ended ~~September 30, 2018~~March 31, 2019 compared with ~~2017~~2018 was due to:

Three Months Nine Months
Corporate service costs $ (6 ) $ (23 )
Vegetation management (1 ) (11 )
Storm costs (1 ) 15
Payroll-related costs 3
(11 )
Act 129 (1 ) (3 )
Bad debts 2
9
Act 129 Smart Meter —
4
Other (2 ) 4
Total $ (6 ) $ (16 )



	Three Months
Corporate service costs	$	2
Storm costs	9
Other	6
Total	$	17

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Depreciation

Depreciation increased ~~$12 million and $34~~$10 million for the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2019 compared with ~~2017,~~2018, 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 $10 million for the nine months ended September 30, 2018 compared with 2017, primarily due to a $4 million increase related to higher AFUDC equity rates and a $4 million increase in non-service cost credits from defined benefit plans.

Interest Expense

Interest expense increased ~~$12~~$5 million for the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 compared with ~~2017,~~2018, primarily due to ~~the May 2017 issuance of $475 million of 3.95% First Mortgage Bonds due 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~~period ended ~~September 30, 2018~~March 31, 2019 compared with ~~2017~~2018 was due to:


	Three Months			Nine Months			Three Months
Change in pre-tax income	$	(5	)	$	15		$	(9	)
Reduction in U.S. federal income tax rate (a)	(18		)	(56		)
Amortization of excess deferred income taxes (a)	(5		)	(13		)
Stock-based compensation	—			5
Other	(1		)	1			2
Total	$	(29	)	$	(48	)	$	(7	)


~~(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
September 30, September 30,
2018 2017 2018 2017
Net Income $ 111
$ 95
$ 334
$ 251
Special Item, gain (loss), after-tax (a) (5 ) —
(5 ) —

~~Table of Contents~~



	Three Months Ended
	March 31,
	2019		2018
Net Income	$	121	$	148
Special Item, gain (loss), after-tax (a)	—		—

(a)

~~In June 2018, PPL EU Services’ Information Technology (IT) department announced an internal reorganization which was substantially completed in~~There are no items that management considers special for the third quarter of 2018. As a result, $5 million of after-tax costs, which includes separation benefits as well as outside services for strategic consulting to establish the new IT organization, were incurred. See Note 10 to the Financial Statements for additional information on separation benefits.periods presented.

~~Excluding a special item, earnings increased~~Earnings decreased for the three month period in ~~2018~~2019 compared with ~~2017,~~2018, driven primarily by the impact of reduced revenues due to the refund of the income tax benefit in rates due to U.S. tax reform, higher operation and maintenance expense and higher depreciation expense, partially offset by returns on additional capital investments in ~~transmission, higher sales volumes primarily due to weather, and lower operation and maintenance expense, partially offset by higher depreciation expense.~~

Excluding a special item, earnings increased for the nine month period in 2018 compared with 2017, driven primarily by returns on additional capital investments in transmission, higher sales volumes primarily due to weather, and lower operation and maintenance expense, partially offset by higher depreciation expense and higher interest expense.transmission.

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


	Three Months			Nine Months			Three Months
Pennsylvania Adjusted Gross Margins	$	(4	)	$	39		$	(11	)
Other operation and maintenance	8			27			(12		)
Depreciation	(8		)	(23		)	(8		)
Taxes, other than income	—			(1		)	1
Other Income (Expense) - net	3			12			1
Interest Expense	(5		)	(12		)	(5		)
Income Taxes	27			46			7
Special Item, gain (loss), after tax (a)	(5		)	(5		)
Net Income	$	16		$	83		$	(27	)


~~(a)~~	~~See PPL's "Results of Operations - Segment Earnings - Pennsylvania 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 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 30.~~

2018 Three Months 2017 Three Months

PA Gross
Margins
Other (a)
Operating
Income (b)
PA Gross
Margins Other (a)
Operating
Income (b)
Operating Revenues $ 548
$ —
$ 548
$ 547
$ —
$ 547
Operating Expenses
Energy purchases 127
—
127
121
—
121
Other operation and maintenance 23
104
127
29
104
133
Depreciation 10
79
89
5
72
77
Taxes, other than income 25
2
27
25
2
27
Total Operating Expenses 185
185
370
180
178
358
Total $ 363
$ (185 ) $ 178
$ 367
$ (178 ) $ 189

March 31.

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	2018 Nine Months							2017 Nine Months							2019 Three Months							2018 Three Months
	Adjusted Gross Margins		Other (a)			Operating Income (b)		Adjusted 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	$	1,704	$	—		$	1,704	$	1,620	$	—		$	1,620	$	645	$	—		$	645	$	639	$	—		$	639
Operating Expenses
Energy purchases	403		—			403		374		—			374		171		—			171		161		—			161
Other operation and maintenance	92		327			419		89		346			435		31		119			150		26		107			133
Depreciation	26		236			262		14		214			228		10		85			95		8		77			85
Taxes, other than income	77		4			81		76		3			79		30		1			31		30		2			32
Total Operating Expenses	598		567			1,165		553		563			1,116		242		205			447		225		186			411
Total	$	1,106	$	(567	)	$	539	$	1,067	$	(563	)	$	504	$	403	$	(205	)	$	198	$	414	$	(186	)	$	228


(a)	Represents amounts excluded from Adjusted Gross Margins.


(b)	As reported on the Statements of Income.

LKE: Statement of Income Analysis, Earnings and Adjusted Gross Margins

Statement of Income Analysis

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


	Three Months								Nine Months									Three Months
	2018		2017			$ Change			2018			2017			$ Change			2019		2018			$ Change
Operating Revenues	$	802	$	818		$	(16	)	$	2,417		$	2,350		$	67		$	845	$	872		$	(27	)
Operating Expenses
Operation
Fuel	206		202			4			609			576			33			194		214			(20		)
Energy purchases	22		22			—			135			120			15			79		80			(1		)
Other operation and maintenance	216		197			19			632			594			38			214		205			9
Depreciation	119		114			5			354			324			30			123		117			6
Taxes, other than income	18		17			1			53			49			4			18		17			1
Total Operating Expenses	581		552			29			1,783			1,663			120			628		633			(5		)
Other Income (Expense) - net	—		(1		)	1			(2		)	(9		)	7			—		(3		)	3
Interest Expense	52		49			3			154			148			6			54		50			4
Interest Expense with Affiliate	7		5			2			18			13			5			7		5			2
Income Taxes	32		79			(47		)	102			195			(93		)	32		39			(7		)
Net Income	$	130	$	132		$	(2	)	$	358		$	322		$	36		$	124	$	142		$	(18	)

Operating Revenues

The increase (decrease) in operating revenues for the ~~periods~~period ended ~~September 30, 2018~~March 31, 2019 compared with ~~2017~~2018 was due to:

Three Months Nine Months
Volumes (a) $ 19
$ 122
Base rates —
58
ECR 5
18
TCJA refund (b) (30 ) (109 )
DSM (2 ) (13 )
Fuel and other energy prices (8 ) (15 )
Other —
6
Total $ (16 ) $ 67

~~Table of Contents~~



	Three Months
Volumes (a)	$	(30	)
Fuel and other energy prices	(10		)
ECR	4
TCJA refund (b)	4
Other	5
Total	$	(27	)


(a)	~~Increases were~~The decrease was primarily due to ~~favorable weather in 2018.~~weather.


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

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Fuel

Other Operation and Maintenance

The increase (decrease) in other operation and maintenance for the ~~periods~~period ended ~~September 30, 2018~~March 31, 2019 compared with ~~2017~~2018 was due to:

Three Months Nine Months
Storm costs $ 8
$ 10
Timing and scope of generation maintenance outages —
7
Vegetation management 2
5
Gas distribution maintenance and compliance 1
4
Other 8
12
Total $ 19
$ 38

~~Depreciation~~

~~Depreciation increased~~ ~~$30 million~~ ~~for the~~ ~~nine months endedSeptember 30, 2018~~ ~~compared with~~ ~~2017, primarily due to a $15 million increase related to higher depreciation rates effective July 1, 2017 and a $12 million increase related to additional assets placed into service, net of retirements.~~



	Three Months
Storm costs	$	2
Vegetation management	2
Gas distribution maintenance and compliance	2
Other	3
Total	$	9

Income Taxes

~~The increase (decrease) in income~~Income taxes decreased $7 million for the ~~periods~~three months ended ~~September 30, 2018~~March 31, 2019 compared with ~~2017 was~~2018 primarily due ~~to:~~to lower pre-tax income.

Earnings

Three Months Nine Months
Reduction in U.S. federal income tax rate (a) $ (23 ) $ (64 )
Change in pre-tax income (19 ) (22 )
Amortization of excess deferred income taxes (a) (3 ) (14 )
Kentucky state tax reform (b) —
9
Other (2 ) (2 )
Total $ (47 ) $ (93 )



	Three Months Ended
	March 31,
	2019		2018
Net Income	$	124	$	142
Special items, gains (losses), after-tax (a)	—		—


(a)	~~The decreases~~There are ~~related to~~no items management considers special for 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.periods presented.

Earnings

Three Months Ended Nine Months Ended
September 30, September 30,
2018 2017 2018 2017
Net Income $ 130
$ 132
$ 358
$ 322
Special items, gains (losses), after-tax 2
—
(7 ) (1 )

~~Excluding special items, earnings increased~~ decreased for the ~~nine~~three month period in ~~2018~~2019 compared with ~~2017,~~2018, primarily due to ~~higher~~lower sales volumes driven by ~~favorable~~ weather, ~~higher base electricity and gas rates effective July 1, 2017 and returns on additional environmental capital investments, partially offset by~~ higher other operation and maintenance expense and higher depreciation ~~expense and higher interest~~ 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 ~~and items that management considers special~~ on a separate ~~lines~~line and not in their respective Statement of Income line items.


	Three Months			Nine Months			Three Months
Adjusted Gross Margins	$	(19	)	$	24		$	(5	)
Other operation and maintenance	(23		)	(46		)	(12		)
Depreciation	(3		)	(26		)	(4		)
Taxes, other than income	—			(5		)	(1		)
Other Income (Expense) - net	1			6			3
Interest Expense	(5		)	(11		)	(6		)
Income Taxes	45			100			7
Special items, gains (losses), after-tax (a)	2			(6		)
Net Income	$	(2	)	$	36		$	(18	)


~~(a)~~	~~See PPL's "Results of Operations - Segment Earnings - Kentucky Regulated Segment" for details of the special 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."

Table of Contents


	2018 Three Months							2017 Three Months							2019 Three Months							2018 Three Months
	Adjusted Gross Margins		Other (a)			Operating Income (b)		Adjusted 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	$	802	$	—		$	802	$	818	$	—		$	818	$	845	$	—		$	845	$	872	$	—		$	872
Operating Expenses
Fuel	206		—			206		202		—			202		194		—			194		214		—			214
Energy purchases	22		—			22		22		—			22		79		—			79		80		—			80
Other operation and maintenance	26		190			216		30		167			197		22		192			214		25		180			205
Depreciation	18		101			119		16		98			114		19		104			123		17		100			117
Taxes, other than income	2		16			18		1		16			17		1		17			18		1		16			17
Total Operating Expenses	274		307			581		271		281			552		315		313			628		337		296			633
Total	$	528	$	(307	)	$	221	$	547	$	(281	)	$	266	$	530	$	(313	)	$	217	$	535	$	(296	)	$	239

	2018 Nine Months							2017 Nine Months
	Adjusted Gross Margins		Other (a)			Operating Income (b)		Adjusted Gross Margins		Other (a)			Operating Income (b)
Operating Revenues	$	2,417	$	—		$	2,417	$	2,350	$	—		$	2,350
Operating Expenses
Fuel	609		—			609		576		—			576
Energy purchases	135		—			135		120		—			120
Other operation and maintenance	74		558			632		82		512			594
Depreciation	52		302			354		48		276			324
Taxes, other than income	3		50			53		4		45			49
Total Operating Expenses	873		910			1,783		830		833			1,663
Total	$	1,544	$	(910	)	$	634	$	1,520	$	(833	)	$	687


(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 30~~March 31 includes the following results.


	Three Months									Nine Months									Three Months
	2018			2017			$ Change			2018			2017			$ Change			2019		2018			$ Change
Operating Revenues
Retail and wholesale	$	357		$	361		$	(4	)	$	1,095		$	1,055		$	40		$	397	$	407		$	(10	)
Electric revenue from affiliate	5			2			3			21			23			(2		)	13		12			1
Total Operating Revenues	362			363			(1		)	1,116			1,078			38			410		419			(9		)
Operating Expenses
Operation
Fuel	83			76			7			234			225			9			78		79			(1		)
Energy purchases	17			18			(1		)	121			107			14			74		76			(2		)
Energy purchases from affiliate	2			3			(1		)	10			8			2			2		6			(4		)
Other operation and maintenance	95			87			8			277			258			19			94		89			5
Depreciation	49			47			2			146			136			10			51		48			3
Taxes, other than income	9			8			1			27			25			2			9		9			—
Total Operating Expenses	255			239			16			815			759			56			308		307			1
Other Income (Expense) - net	(3		)	(3		)	—			(5		)	(6		)	1			—		(1		)	1
Interest Expense	20			17			3			57			53			4			21		18			3
Income Taxes	18			39			(21		)	51			99			(48		)	17		21			(4		)
Net Income	$	66		$	65		$	1		$	188		$	161		$	27		$	64	$	72		$	(8	)

Operating Revenues

The increase (decrease) in operating revenues for the ~~periods~~period ended ~~September 30, 2018~~March 31, 2019 compared with ~~2017~~2018 was due to:


	Three Months			Nine Months			Three Months
Volumes (a)	$	14		$	58		$	(15	)
Base rates	—			32
Fuel and other energy prices							(1		)
ECR	1			8			2
TCJA refund (b)	(14		)	(51		)	1
Fuel and other energy prices	(3		)	(13		)
DSM	(1		)	(6		)
Other	2			10			4
Total	$	(1	)	$	38		$	(9	)


(a)	~~Increases were~~The decrease was primarily due to ~~favorable weather in 2018.~~weather.

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

~~Fuel~~Energy Purchases from Affiliate

~~Fuel increased $7~~Energy purchases from affiliate decreased $4 million for the three months ended ~~September 30, 2018~~March 31, 2019 compared with ~~2017~~2018, primarily due to ~~an $8 million increase in volumes driven by weather in 2018.~~

~~Table~~the timing of ~~Contents~~

~~Energy Purchases~~

~~Energy purchases increased~~ ~~$14 million~~ ~~for the nine months ended~~ ~~September 30, 2018~~ ~~compared with~~ ~~2017, primarily due to an $18 million increase in natural gas volumes driven by weather in 2018, partially offset by a $6 million decrease in market prices for natural gas.~~generation maintenance outages.

Other Operation and Maintenance

The increase (decrease) in other operation and maintenance for the ~~periods~~period ended ~~September 30, 2018~~March 31, 2019 compared with ~~2017~~2018 was due to:


	Three Months		Nine Months		Three Months
Gas distribution maintenance and compliance					$	2
Storm costs	$	4	$	6	1
Gas distribution maintenance and compliance	1		4
Timing and scope of generation maintenance outages	—		2
Vegetation management					1
Other	3		7		1
Total	$	8	$	19	$	5

Depreciation

Depreciation increased ~~$10~~$3 million for the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 compared with ~~2017,~~2018, due ~~to a $6 million increase related~~ to additional assets placed into service, net of ~~retirements~~retirements.

Interest Expense

Interest expense increased $3 million for the three months ended March 31, 2019 compared with 2018, primarily due to increased commercial paper borrowings and ~~a $4 million increase related to~~ higher ~~depreciation rates effective July 1, 2017.~~interest rates.

Income Taxes

~~The increase (decrease) in income~~Income taxes decreased $4 million for the ~~periods~~three months ended ~~September 30, 2018~~March 31, 2019 compared with ~~2017 was~~2018 primarily due ~~to:~~to lower pre-tax income.

Three Months Nine Months
Reduction in U.S. federal income tax rate (a) $ (12 ) $ (33 )
Change in pre-tax income (8 ) (8 )
Amortization of excess deferred income taxes (a) (1 ) (6 )
Other —
(1 )
Total $ (21 ) $ (48 )


~~(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
	September 30,				September 30,				March 31,
	2018		2017		2018		2017		2019		2018
Net Income	$	66	$	65	$	188	$	161	$	64	$	72
Special items, gains (losses), after-tax (a)	—		—		—		—		—		—


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

Earnings ~~increased~~decreased for the ~~nine~~three month period in ~~2018~~2019 compared with ~~2017,~~2018, primarily due to ~~higher~~lower sales volumes driven by ~~favorable~~ weather, ~~higher base electricity and gas rates effective July 1, 2017 and returns on additional environmental capital investments, partially offset by~~ higher other operation and maintenance expense, higher depreciation expense and higher ~~depreciation~~interest expense.

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
Adjusted Gross Margins	$	(5	)	$	19		$	(3	)
Other operation and maintenance	(11		)	(23		)	(5		)
Depreciation	(1		)	(11		)	(3		)
Taxes, other than income	—			(3		)	1
Other Income (Expense) - net	—			1			1
Interest Expense	(3		)	(4		)	(3		)
Income Taxes	21			48			4
Net Income	$	1		$	27		$	(8	)

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."


	2018 Three Months							2017 Three Months							2019 Three Months							2018 Three Months
	Adjusted Gross Margins		Other (a)			Operating Income (b)		Adjusted 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	$	362	$	—		$	362	$	363	$	—		$	363	$	410	$	—		$	410	$	419	$	—		$	419
Operating Expenses
Fuel	83		—			83		76		—			76		78		—			78		79		—			79
Energy purchases, including affiliate	19		—			19		21		—			21		76		—			76		82		—			82
Other operation and maintenance	10		85			95		13		74			87		9		85			94		9		80			89
Depreciation	8		41			49		7		40			47		8		43			51		8		40			48
Taxes, other than income	2		7			9		1		7			8		1		8			9		—		9			9
Total Operating Expenses	122		133			255		118		121			239		172		136			308		178		129			307
Total	$	240	$	(133	)	$	107	$	245	$	(121	)	$	124	$	238	$	(136	)	$	102	$	241	$	(129	)	$	112

	2018 Nine Months							2017 Nine Months
	Adjusted Gross Margins		Other (a)			Operating Income (b)		Adjusted Gross Margins		Other (a)			Operating Income (b)
Operating Revenues	$	1,116	$	—		$	1,116	$	1,078	$	—		$	1,078
Operating Expenses
Fuel	234		—			234		225		—			225
Energy purchases, including affiliate	131		—			131		115		—			115
Other operation and maintenance	29		248			277		33		225			258
Depreciation	23		123			146		24		112			136
Taxes, other than income	2		25			27		3		22			25
Total Operating Expenses	419		396			815		400		359			759
Total	$	697	$	(396	)	$	301	$	678	$	(359	)	$	319


(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 30~~March 31 includes the following results.


	Three Months							Nine Months								Three Months
	2018		2017		$ Change			2018		2017			$ Change			2019		2018			$ Change
Operating Revenues
Retail and wholesale	$	445	$	457	$	(12	)	$	1,322	$	1,295		$	27		$	448	$	465		$	(17	)
Electric revenue from affiliate	2		3		(1		)	10		8			2			2		6			(4		)
Total Operating Revenues	447		460		(13		)	1,332		1,303			29			450		471			(21		)
Operating Expenses
Operation
Fuel	123		126		(3		)	375		351			24			116		135			(19		)
Energy purchases	5		4		1			14		13			1			5		4			1
Energy purchases from affiliate	5		2		3			21		23			(2		)	13		12			1
Other operation and maintenance	114		104		10			331		312			19			108		105			3
Depreciation	70		67		3			208		188			20			72		68			4
Taxes, other than income	9		9		—			26		24			2			9		8			1
Total Operating Expenses	326		312		14			975		911			64			323		332			(9		)
Other Income (Expense) - net	1		—		1			1		(4		)	5			2		(3		)	5
Interest Expense	24		24		—			74		72			2			26		25			1
Income Taxes	21		47		(26		)	59		120			(61		)	22		24			(2		)
Net Income	$	77	$	77	$	—		$	225	$	196		$	29		$	81	$	87		$	(6	)

Operating Revenues

The increase (decrease) in operating revenues for the ~~periods~~period ended ~~September 30, 2018~~March 31, 2019 compared with ~~2017~~2018 was due to:


	Three Months			Nine Months			Three Months
Volumes (a)	$	8		$	64		$	(16	)
Base rates	—			26
Fuel and other energy prices							(10		)
TCJA refund (b)							3
ECR	4			10			2
TCJA refund (b)	(16		)	(58		)
DSM	(1		)	(7		)
Fuel and other energy prices	(4		)	(2		)
Other	(4		)	(4		)
Total	$	(13	)	$	29		$	(21	)


(a)	~~Increases were~~The decrease was primarily due to ~~favorable weather in 2018.~~weather.


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

Fuel

Fuel ~~increased $24~~decreased $19 million for the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 compared with ~~2017,~~2018, primarily due to ~~a $30~~an $11 million ~~increase~~decrease in volumes driven by weather ~~in 2018, partially offset by~~and a $6$9 million decrease in commodity costs.

~~Table of Contents~~

~~Other Operation and Maintenance~~

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

Three Months Nine Months
Timing and scope of generation maintenance outages $ —
$ 6
Vegetation management 1
5
Storm costs 5
4
Other 4
4
Total $ 10
$ 19

Depreciation

Depreciation increased ~~$20~~$4 million for the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 compared with ~~2017,~~2018, primarily due ~~to an $11 million increase related to higher depreciation rates effective July 1, 2017 and a $6 million increase related~~ to additional assets placed into service, net of retirements.

~~Income Taxes~~

Table of Contents

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

Earnings

Three Months Nine Months
Reduction in U.S. federal income tax rate (a) $ (14 ) $ (40 )
Change in pre-tax income (10 ) (12 )
Amortization of excess deferred income taxes (a) (2 ) (8 )
Other —
(1 )
Total $ (26 ) $ (61 )



	Three Months Ended
	March 31,
	2019		2018
Net Income	$	81	$	87
Special items, gains (losses), after-tax (a)	—		—


(a)	~~The decreases~~There are ~~related to~~no items management considers special for 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.~~periods presented.

Earnings

Three Months Ended Nine Months Ended
September 30, September 30,
2018 2017 2018 2017
Net Income $ 77
$ 77
$ 225
$ 196
Special items, gains (losses), after-tax —
—
—
(1 )

~~Earnings increased~~ decreased for the ~~nine~~three month period in ~~2018~~2019 compared with ~~2017,~~2018, primarily due to ~~higher~~lower sales volumes driven by ~~favorable~~ weather ~~higher base electricity rates effective July 1, 2017~~ and ~~returns on environmental capital investments, partially offset by~~ higher other operation and maintenance ~~expense and higher depreciation~~ expense.


	Three Months			Nine Months			Three Months
Adjusted Gross Margins	$	(14	)	$	5		$	(2	)
Other operation and maintenance	(11		)	(23		)	(6		)
Depreciation	(2		)	(15		)	(2		)
Taxes, other than income	—			(2		)	(2		)
Other Income (Expense) - net	1			4			5
Interest Expense	—			(2		)	(1		)
Income Taxes	26			61			2
Special items, gains (losses), after-tax (a)	—			1
Net Income	$	—		$	29		$	(6	)

~~Table of Contents~~


~~(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."


	2018 Three Months							2017 Three Months							2019 Three Months							2018 Three Months
	Adjusted Gross Margins		Other (a)			Operating Income (b)		Adjusted 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	$	447	$	—		$	447	$	460	$	—		$	460	$	450	$	—		$	450	$	471	$	—		$	471
Operating Expenses
Fuel	123		—			123		126		—			126		116		—			116		135		—			135
Energy purchases, including affiliate	10		—			10		6		—			6		18		—			18		16		—			16
Other operation and maintenance	16		98			114		17		87			104		13		95			108		16		89			105
Depreciation	10		60			70		9		58			67		11		61			72		9		59			68
Taxes, other than income	—		9			9		—		9			9		—		9			9		1		7			8
Total Operating Expenses	159		167			326		158		154			312		158		165			323		177		155			332
Total	$	288	$	(167	)	$	121	$	302	$	(154	)	$	148	$	292	$	(165	)	$	127	$	294	$	(155	)	$	139

	2018 Nine Months							2017 Nine Months
	Adjusted Gross Margins		Other (a)			Operating Income (b)		Adjusted Gross Margins		Other (a)			Operating Income (b)
Operating Revenues	$	1,332	$	—		$	1,332	$	1,303	$	—		$	1,303
Operating Expenses
Fuel	375		—			375		351		—			351
Energy purchases, including affiliate	35		—			35		36		—			36
Other operation and maintenance	45		286			331		49		263			312
Depreciation	29		179			208		24		164			188
Taxes, other than income	1		25			26		1		23			24
Total Operating Expenses	485		490			975		461		450			911
Total	$	847	$	(490	)	$	357	$	842	$	(450	)	$	392


(a)	Represents amounts excluded from Adjusted Gross Margins.


(b)	As reported on the Statements of Income.

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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		PPL (a)		PPL Electric		LKE		LG&E		KU
September 30, 2018
March 31, 2019
Cash and cash equivalents	$	842	$	414	$	29	$	11	$	18	$	518	$	23	$	22	$	9	$	13
Short-term debt	1,549		—		304		176		128		1,428		60		69		69		—
Long-term debt due within one year	330		—		330		234		96		202		—		202		106		96
Notes payable with affiliates			—		80		—		—				—		187		—		—

December 31, 2017
December 31, 2018
Cash and cash equivalents	$	485	$	49	$	30	$	15	$	15	$	621	$	267	$	24	$	10	$	14
Short-term debt	1,080		—		244		199		45		1,430		—		514		279		235
Long-term debt due within one year	348		—		98		98		—		530		—		530		434		96
Notes payable with affiliates			—		225		—		—				—		113		—		—


(a)	At ~~September 30, 2018, $57~~March 31, 2019, $137 million of cash and cash equivalents were denominated in GBP. If these amounts would be remitted as dividends, PPL would not anticipate an incremental U.S. tax cost. See Note 56 to the Financial Statements in PPL's ~~2017~~2018 Form 10-K for additional information on undistributed earnings of WPD.

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


	PPL			PPL Electric			LKE			LG&E			KU			PPL			PPL Electric			LKE			LG&E			KU
2018
2019
Operating activities	$	2,210		$	650		$	787		$	410		$	485		$	474		$	81		$	270		$	157		$	174
Investing activities	(2,466		)	(837		)	(825		)	(420		)	(404		)	(722		)	(264		)	(278		)	(117		)	(161		)
Financing activities	618			552			37			6			(78		)	142			(61		)	6			(41		)	(14		)
2017
2018
Operating activities	$	1,754		$	575		$	920		$	418		$	501		$	566		$	76		$	278		$	146		$	185
Investing activities	(2,168		)	(858		)	(575		)	(293		)	(289		)	(753		)	(246		)	(294		)	(150		)	(143		)
Financing activities	738			513			(318		)	(121		)	(188		)	331			141			13			3			(46		)
Change - Cash Provided (Used)
Operating activities	$	456		$	75		$	(133	)	$	(8	)	$	(16	)	$	(92	)	$	5		$	(8	)	$	11		$	(11	)
Investing activities	(298		)	21			(250		)	(127		)	(115		)	31			(18		)	16			33			(18		)
Financing activities	(120		)	39			355			127			110			(189		)	(202		)	(7		)	(44		)	32

Operating Activities

The components of the change in cash provided by (used in) operating activities for the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 compared with ~~2017~~2018 were as follows.

Table of Contents


	PPL			PPL Electric			LKE			LG&E			KU			PPL			PPL Electric			LKE			LG&E			KU
Change - Cash Provided (Used)
Net income	$	362		$	83		$	36		$	27		$	29		$	14		$	(27	)	$	(18	)	$	(8	)	$	(6	)
Non-cash components	(386		)	(39		)	(88		)	(44		)	(69		)	(3		)	5			38			11			19
Working capital	134			13			49			78			76			(138		)	(5		)	(102		)	(51		)	(57		)
Defined benefit plan funding	274			(4		)	(94		)	(56		)	(31		)	23			7			87			55			47
Other operating activities	72			22			(36		)	(13		)	(21		)	12			25			(13		)	4			(14		)
Total	$	456		$	75		$	(133	)	$	(8	)	$	(16	)	$	(92	)	$	5		$	(8	)	$	11		$	(11	)

(PPL)

PPL's cash provided by operating activities in ~~2018 increased $456~~2019 decreased $92 million compared with ~~2017.~~2018.

Net income increased ~~$362~~$14 million between periods and included a decrease in non-cash charges of ~~$386~~$3 million. The decrease in non-cash charges was primarily due to ~~an increase~~a decrease in unrealized ~~gains~~losses on hedging activities and an increase in the U.K. net periodic defined benefit credits (primarily due to lower levels of unrecognized losses being amortized and an increase in expected returns on higher asset balances) partially offset by an increase in deferred income taxes (primarily due to book versus tax plant timing differences) and an increase in depreciation expense (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, ~~the roll-out~~net of ~~the Act 129 Smart Meter program and higher depreciation rates effective July 1, 2017)~~retirements).

The ~~$134~~$138 million ~~increase~~decrease in cash from changes in working capital was primarily due to ~~a decrease in unbilled revenue (primarily due to colder weather in the fourth quarter of 2017), a decrease~~an increase in net regulatory assets and liabilities ~~(primarily due~~(due to ~~an increase in regulatory liabilities~~a decrease primarily due to the impact of the TCJA and timing of rate recovery mechanisms), a decrease in accounts payable (primarily due to timing of payments) and an increase in ~~accounts payable~~prepayments (primarily due to timing of payments) partially offset by an increase in other current liabilities (primarily due to timing of payments).

Defined benefit plan funding was ~~$274~~$23 million lower in ~~2018. The decrease was primarily due to the acceleration of WPD's contributions to its U.K. pension plans in 2017.~~2019.

(PPL Electric)

PPL Electric's cash provided by operating activities in ~~2018~~2019 increased ~~$75~~$5 million compared with ~~2017.~~2018.

Net income ~~increased~~ ~~$83~~decreased $27 million between the periods and included ~~a decrease~~an increase in non-cash ~~charges~~components of ~~$39~~$5 million. The ~~decrease~~increase in non-cash ~~charges~~components was primarily ~~driven by a decrease in deferred income tax expense (primarily~~ due to ~~book versus tax plant timing differences and net operating losses) partially offset by an~~a $10 million increase in depreciation expense (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) partially offset by a $5 million decrease in deferred income taxes (due to book versus tax plant timing differences and Federal net operating losses).

The ~~$13~~$5 million ~~increase~~decrease in cash from changes in working capital was primarily due to ~~a decrease~~an increase in ~~accounts receivable (which was primarily due to tax proceeds from the filing of the 2017 federal income tax return), a decrease in unbilled revenues~~prepayments (primarily due to ~~colder weather~~an increase in the ~~fourth quarter of 2017)~~2019 gross receipts tax prepayment compared to 2018) and ~~a decrease in materials and supplies within Other (primarily due to inventory optimization efforts) partially offset by~~ an increase in net regulatory assets and liabilities ~~(primarily due~~(due to ~~a decrease in the transmission service charge regulatory liability as a result~~timing of ~~the June 1, 2018 Transmission Formula Rate filing,~~rate recovery mechanisms), partially offset by an increase in ~~recoverable storm costs~~accounts payable (due to timing and ~~an increase~~settlement of payroll transactions and federal income tax payments).

Defined benefit plan funding was $7 million lower in ~~recoverable costs related to the Act 129 Smart Meter program).~~2019.

The ~~$22~~$25 million increase in cash provided by other operating activities was primarily due to ~~an increase in non-current regulatory liabilities (primarily due to the TCJA regulatory liability) partially offset by an increase~~a decrease in non-current regulatory assets (primarily due to ~~recoverable~~$17 million of storm ~~costs)~~costs incurred in March 2018, with no comparable storm costs in 2019).

(LKE)

LKE's cash provided by operating activities in ~~2018~~2019 decreased ~~$133~~$8 million compared with ~~2017.~~2018.

Net income ~~increased~~decreased $3618 million between the periods and included ~~a decrease~~an increase in non-cash charges of $8838 million. The ~~decrease~~increase in non-cash charges was primarily driven by ~~a decrease~~an increase 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~~differences).

Table of Contents

~~in depreciation expense (primarily due to higher depreciation rates effective July 1, 2017 and additional assets placed into service, net of retirements).~~

The ~~increase~~decrease in cash from changes in working capital was primarily driven by ~~a decrease in other current liabilities (primarily due to timing of payments), a decrease~~an increase in net regulatory assets and liabilities (primarily due to the impact of the TCJA and timing of rate recovery mechanisms), ~~an increase~~a decrease 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 taxes payable (primarily due to timing of payments), an increase in unbilled revenues (primarily due to weather) and an increase in fuel inventory (primarily due to lower generation driven by weather), partially offset by an increase in other current liabilities (primarily due to timing of ~~fuel purchases~~payments) and a decrease in other accounts receivable (primarily due to timing of payments).

Defined benefit plan funding was $9487 million ~~higher~~lower in ~~2018.~~2019.

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 $8~~2019 increased $11 million compared with ~~2017.~~2018.

Net income ~~increased~~decreased $278 million between the periods and included ~~a decrease~~an increase in non-cash charges of $4411 million. The ~~decrease~~increase in non-cash charges was primarily driven by ~~a decrease~~an increase 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)differences).

The ~~increase~~decrease in cash from changes in working capital was primarily driven by an increase ~~in accounts payable (primarily due to timing of payments), 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~~a decrease in ~~taxes~~accounts payable (primarily due to timing of payments) and a decrease in ~~unbilled revenues~~taxes payable (primarily due to ~~colder weather in the fourth quarter~~timing of ~~2017)~~payments), partially offset by ~~a decrease~~an increase in other current liabilities (primarily due to timing of payments).

Defined benefit plan funding was $5655 million ~~higher~~lower in ~~2018.~~2019.

(KU)

KU's cash provided by operating activities in ~~2018~~2019 decreased ~~$16~~$11 million compared with ~~2017.~~2018.

Net income ~~increased~~decreased $296 million between the periods and included ~~a decrease~~an increase in non-cash charges of $6919 million. The ~~decrease~~increase in non-cash charges was primarily driven by ~~a decrease~~an increase 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)differences).

The ~~increase~~decrease in cash from changes in working capital was primarily driven by ~~a decrease~~an increase in net regulatory assets and liabilities (primarily due to the impact of the TCJA and the timing of rate recovery mechanisms), ~~an increase~~a decrease in ~~taxes~~accounts payable (primarily due to timing of payments), a decrease in taxes payable (primarily due to timing of payments), an increase in unbilled revenues (primarily due to ~~colder weather in the fourth quarter of 2017), partially offset by~~weather) and an increase in fuel inventory (primarily due to lower generation driven by weather), partially offset by an increase in other current liabilities (primarily due to timing of ~~fuel purchases~~payments) and a decrease in other accounts receivable (primarily due to timing of payments).

Defined benefit plan funding was ~~$31~~$47 million ~~higher~~lower in ~~2018.~~2019.

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~~three months ended ~~September 30, 2018~~March 31, 2019 compared with ~~2017~~2018 was as follows.

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PPL PPL Electric LKE LG&E KU
Decrease (Increase) $ (192 ) $ 16
$ (247 ) $ (127 ) $ (122 )



	PPL		PPL Electric			LKE		LG&E		KU
Decrease (Increase)	$	21	$	(19	)	$	16	$	33	$	(18	)

For PPL, the ~~increase~~decrease in expenditures was due to ~~higher project expenditures at LKE, LG&E and KU partially offset by~~ lower project expenditures at WPD, LKE and ~~PPL Electric. The increase in expenditures for LKE,~~ LG&E, partially offset by higher project expenditures at PPL Electric and ~~KU was primarily due to increased spending for environmental water projects at LG&E's Mill Creek and Trimble County plants and increased spending for environmental water projects at KU's Ghent plant.~~KU. The decrease in expenditures at WPD was primarily due to a decrease in expenditures to enhance system reliability ~~partially offset by an increase~~and a decrease in foreign currency exchange rates. The decrease in expenditures at

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LKE was primarily due to decreased spending for environmental water projects at LG&E's Mill Creek and Trimble County plants and KU's Ghent plant, offset by spending on various other projects at KU that are not individually significant. The increase in project expenditures for PPL Electric was primarily due to ~~timing differences on~~an increase in capital spending ~~projects~~ related to the ongoing efforts to improve reliability and replace aging infrastructure.

Financing Activities

(All Registrants)

The components of the change in cash provided by (used in) financing activities for the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 compared with ~~2017~~2018 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	$	(703	)	$	(72	)	$	91		$	100		$	(9	)	$	(144	)	$	—		$	(100	)	$	(100	)	$	—
Debt issuance/retirement with affiliate, net				—			250			—			—
Stock issuances/redemptions, net	403			—			—			—			—			(78		)	—			—			—			—
Dividends	(46		)	(40		)	—			37			(25		)	(23		)	(48		)	—			4			40
Capital contributions/distributions, net				(146		)	99			43			45						—			13			—			28
Change in short-term debt, net	212			295			55			(44		)	99			55			(153		)	17			52			(35		)
Notes payable with affiliate				—			(141		)	(10		)	—						—			62			—			—
Other financing activities	14			2			1			1			—			1			(1		)	1			—			(1		)
Total	$	(120	)	$	39		$	355		$	127		$	110		$	(189	)	$	(202	)	$	(7	)	$	(44	)	$	32

See Note 8 to the Financial Statements in this Form 10-Q for information on ~~2018~~2019 short-term and long-term debt activity, equity transactions and PPL dividends. See Note 78 to the Financial Statements in the Registrants' ~~2017~~2018 Form 10-K for information on ~~2017~~2018 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~~below are ~~reflected in~~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.~~as noted below. At ~~September 30, 2018,~~March 31, 2019, the total committed borrowing capacity under credit facilities and the borrowings under these facilities were:

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External

Committed
Capacity
Borrowed
Letters of
Credit
and
Commercial
Paper Issued

Unused
Capacity
PPL Capital Funding Credit Facilities $ 1,350
$ —
$ 711
$ 639
PPL Electric Credit Facility 650
—
1
649

LKE Credit Facility 75
—
—
75
LG&E Credit Facility 700
200
176
324
KU Credit Facilities 598
—
326
272
Total LKE 1,373
200
502
671
Total U.S. Credit Facilities (a) $ 3,373
$ 200
$ 1,214
$ 1,959
Total U.K. Credit Facilities (b) £ 1,185
£ 427
£ —
£ 756



	Committed Capacity		Borrowed		Letters of Credit and Commercial Paper Issued		Unused Capacity
PPL Capital Funding Credit Facilities	$	1,550	$	—	$	983	$	567
PPL Electric Credit Facility	650		—		61		589

LG&E Credit Facilities (a)	700		200		269		231
KU Credit Facilities (b)	598		—		431		167
Total LKE	1,298		200		700		398
Total U.S. Credit Facilities (c)	$	3,498	$	200	$	1,744	$	1,554
Total U.K. Credit Facilities (d)	£	1,055	£	250	£	—	£	803


(a)	At March 31, 2019, the amounts borrowed and $200 million of commercial paper issuances are included in "Long-term debt" on the Balance Sheets.


(b)	At March 31, 2019, outstanding commercial paper issuances of $233 million are included in "Long-term debt" on the Balance Sheets.


(c)	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%6%, LKE - ~~18%~~19%, LG&E - ~~33%~~32% and KU - 37%.

~~(b)~~(d)

The amounts borrowed at ~~September 30, 2018~~March 31, 2019 were a USD-denominated borrowing of $200 million and GBP-denominated borrowings of £99 which equated to ~~$354~~$131 million. The unused capacity reflects the USD-denominated borrowing amount borrowed in GBP of ~~£156~~£153 million as of the date borrowed. At ~~September 30, 2018,~~March 31, 2019, the USD equivalent of unused capacity under the U.K. committed credit facilities was ~~$1.0~~$1.1 billion.

The commitments under the U.K. credit facilities are provided by a diverse bank group, with no one bank providing more than ~~17%~~13% of the total committed capacity.

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See Note 8 to the Financial Statements for further discussion of the Registrants' credit facilities.

Intercompany (LKE, LG&E and KU)


	Committed Capacity		Borrowed		Non-affiliate Used Capacity		Unused Capacity		Committed Capacity		Borrowed		Non-affiliate Used Capacity		Unused Capacity
LKE Credit Facility	$	300	$	80	$	—	$	220	$	375	$	187	$	—	$	188
LG&E Money Pool (a)	500		—		176		324		500		—		269		231
KU Money Pool (a)	500		—		128		372		500		—		233		267


(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 1112 to the Financial Statements for further discussion of intercompany credit facilities.

Commercial Paper (All Registrants)

PPL, PPL Electric, LG&E and KU maintain commercial paper programs to provide an additional financing source to fund short-term liquidity needs, as necessary. Commercial paper issuances, are included in "Short-term debt" on the Balance Sheets, except for certain LG&E and KU issuances, as noted above, and are supported by the respective Registrant's ~~Syndicated Credit Facility.~~credit facility. The following commercial paper programs were in place at ~~September 30, 2018:~~March 31, 2019:

Capacity
Commercial
Paper
Issuances

Unused
Capacity
PPL Capital Funding $ 1,000
$ 691
$ 309
PPL Electric 650
—
650

LG&E 350
176
174
KU 350
128
222
Total LKE 700
304
396
Total PPL $ 2,350
$ 995
$ 1,355

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	Capacity		Commercial Paper Issuances		Unused Capacity
PPL Capital Funding	$	1,500	$	968	$	532
PPL Electric	650		60		590

LG&E	350		269		81
KU	350		233		117
Total LKE	700		502		198
Total PPL	$	2,850	$	1,530	$	1,320

Long-term Debt (All Registrants)

See Note 8 to the Financial Statements for information regarding the Registrants’ long-term debt activities.

(PPL)

Equity Securities Activities

~~Equity Forward Contracts~~ATM

In ~~May~~February 2018, PPL ~~completed a registered underwritten public offering~~entered into an equity distribution agreement, pursuant to which PPL may sell, from time to time, up to an aggregate of ~~55 million shares~~$1.0 billion of its common ~~stock. In connection with that~~stock through an at-the-market offering program; including a forward sales component. The compensation paid to the ~~underwriters exercised an option~~selling agents by PPL may be up to ~~purchase 8.25 million additional shares~~2% of ~~PPL common stock solely to cover over-allotments.~~the gross offering proceeds of the shares. There were no issuances under the ATM program for the three months ended March 31, 2019.

~~In September 2018, PPL settled a portion of the initial forward sale agreements by issuing 20 million shares of PPL common stock, resulting in net cash proceeds of $520 million.~~

~~See Note 8 to the Financial Statements for additional information.~~

~~ATM Program~~

For the nine months ended September 30, 2018, PPL issued 4.2 million shares of common stock and received proceeds of $119 million. See Note 8 to the Financial Statements for further discussion of the ATM program.

Common Stock Dividends ~~(PPL)~~

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Rating Agency Actions

(All Registrants)

Moody's and S&P ~~have~~ periodically ~~reviewed~~review 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 ~~2018:~~

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~~(PPL)~~

~~In March 2018, Moody's and S&P assigned ratings of Baa1 and A- to WPD (South Wales)'s £30 million 0.01% Index-linked Senior Notes due 2036.~~

~~In May 2018, Moody's and S&P assigned ratings of Baa1 and A- to WPD (West Midlands)'s £30 million 0.01% Index-linked Senior Notes due 2028.~~

~~In October 2018, Moody's and S&P assigned ratings of Baa3 and BBB+ to WPD plc's £350 million 3.5% Senior Notes due 2026.~~

~~(PPL and PPL Electric)~~

~~In June 2018, Moody's and S&P assigned ratings of A1 and A to PPL Electric's $400 million 4.15% First Mortgage Bonds due 2048.~~2019:

(PPL, LKE and LG&E)

In ~~February 2018,~~March 2019, Moody’s and S&P assigned ratings of A1 and A to LG&E’s $400 million 4.25% First Mortgage Bonds due 2049. The bonds were issued April 1, 2019.

In March 2019, Moody’s and S&P assigned ratings of A1 and A to the County of Jefferson, Kentucky’s $128 million 1.85% Pollution Control Revenue Bonds, 2001 Series A (Louisville Gas and Electric Company Project), due 2033, previously issued on behalf of LG&E. The bonds were remarketed April 1, 2019.

(PPL, LKE and KU)

In March 2019, Moody’s assigned a rating of A1 and S&P confirmed its rating of A to ~~the County of Trimble, Kentucky's $28~~KU’s $300 million ~~2.30% Pollution Control Revenue~~4.375% First Mortgage Bonds ~~2001 Series A (Louisville Gas and Electric Company Project)~~ due ~~2026, previously~~2045. The bonds were issued ~~on behalf of LG&E.~~

In April 2018, Moody's assigned a rating of A1 and S&P confirmed its rating of A to the County of Trimble, Kentucky's $35 million 2.55% Pollution Control Revenue Bonds, 2001 Series B (Louisville Gas and Electric Company Project) due 2027, 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 to the County of Jefferson, Kentucky's $35 million 2.55% Pollution Control Revenue Bonds, 2001 Series B (Louisville Gas and Electric Company Project) due 2027, previously issued on behalf of LG&E.1, 2019.

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 1415 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 30, 2018.~~March 31, 2019.

(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' ~~2017~~2018 Form 10-K.

Risk Management

Market Risk

(All Registrants)

See Notes 1314 and 1415 to the Financial Statements for information about the Registrants' risk management objectives, valuation techniques and accounting designations.

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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

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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.

The following interest rate hedges were outstanding at ~~September 30, 2018.~~March 31, 2019.


	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)	$	97	$	—		$	(1	)	2026
Cross-currency swaps (c)	702		125			(78		)	2028	$	702	$	119		$	(77	)	2028
Economic hedges
Interest rate swaps (d)	147		(19		)	(2		)	2033	147		(21		)	(1		)	2033
LKE
Economic hedges
Interest rate swaps (d)	147		(19		)	(2		)	2033	147		(21		)	(1		)	2033
LG&E
Economic hedges
Interest rate swaps (d)	147		(19		)	(2		)	2033	147		(21		)	(1		)	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 30, 2018~~March 31, 2019 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 30, 2018~~March 31, 2019 is shown below.


	10% Adverse Movement in Rates		10% Adverse Movement in Rates
PPL	$	647	$	672
PPL Electric	190		185
LKE	176		164
LG&E	63		60
KU	92		89

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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

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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 30, 2018.~~March 31, 2019.

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) £ 1,783
$ 144
$ (216 ) 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)	£	1,258	$	150	$	(149	)	2020


(a)	Effects of adverse movements decrease assets or increase liabilities, as applicable, which could result in an asset becoming a liability.


(b)	To economically hedge the translation risk of expected earnings denominated in GBP.

(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 1314 and 1415 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' ~~2017~~2018 Form 10-K for additional information.

Foreign Currency Translation (PPL)

The value of the British pound sterling fluctuates in relation to the U.S. dollar. Changes in this exchange rate resulted in a foreign currency translation ~~loss~~gain of ~~$330~~$294 million for the ~~nine~~three months ended ~~September 30, 2018,~~March 31, 2019, which primarily reflected a ~~$549~~$504 million ~~decrease~~increase to PP&E and a ~~$110~~$98 million ~~decrease~~increase to goodwill, partially offset by a ~~$319~~$304 million ~~decrease~~increase to long-term debt and a ~~$10 decrease~~$4 increase to other net liabilities. Changes in this exchange rate resulted in a foreign currency translation gain of ~~$194~~$117 million for the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2018, which primarily reflected a ~~$345~~$212 million increase to PP&E and a ~~$75~~$44 million increase to goodwill partially offset by a ~~$203~~$125 million increase to long-term debt and a ~~$23~~$14 million increase to other net liabilities. The impact of foreign currency translation is recorded in AOCI.

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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.

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See Note 1112 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~~

Capacity Needs(PPL, LKE, LG&E and KU)

As a result of environmental requirements and energy efficiency measures, KU retired two older coal-fired electricity generating units at the E.W. Brown plant in February 2019 with a combined summer rating capacity of 272 MW. Despite the retirement of these units, LG&E and KU maintain sufficient generating capacity to ~~the Financial Statements in the Registrants' 2017 Form 10-K for information on the more significant activities.~~serve their load.

Environmental Matters

(All Registrants)

Extensive federal, state and local environmental laws and regulations are applicable to PPL's, PPL Electric's, LKE's, LG&E's and KU's air emissions, water discharges and the management of hazardous and solid waste, as well as other aspects of the Registrants' businesses. The cost of compliance or alleged non-compliance cannot be predicted with certainty but could be significant. In addition, costs may increase significantly if the requirements or scope of environmental laws or regulations, or similar rules, are expanded or changed. Costs may take the form of increased capital expenditures or operating and maintenance expenses, monetary fines, penalties or other restrictions. 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 below for further discussion of the EPA's CCR Rule and Note 1011 to the Financial Statements for a discussion of other significant environmental matters including Legal Matters, NAAQS, Climate Change, and ELGs. Additionally, see "Item 1. Business - Environmental Matters" in the Registrants' ~~2017~~2018 Form 10-K for additional information.

EPA’s CCR Rule (PPL, LKE, LG&E and KU)

Over the next several years, LG&E and KU anticipate undertaking extensive measures, including significant capital expenditures, in complying with the provisions of the ~~EPA’s~~EPA's CCR Rule. Although LG&E and KU have identified compliance strategies and are finalizing closure plans and schedules as required by the CCR Rule, remaining regulatory uncertainties could substantially impact current plans. As a result of a judicial settlement, legislative amendments, and the ~~EPA’s~~EPA's review of the current program, the EPA is in the process of undertaking significant revisions to the CCR Rule. OnIn July ~~30,~~ 2018, the EPA published certain amendments to the CCR Rule which include extending the deadline for commencement of closure of certain impoundments from April 2019 to October 31, 2020. The EPA has announced that additional amendments to the rule will be ~~proposed in late 2018. On~~proposed. In August ~~21,~~ 2018, the D.C. Circuit Court of Appeals vacated and remanded portions of the CCR Rule, including the provisions allowing unlined impoundments to continue operating and provisions exempting certain inactive impoundments from regulation. The exact impact of the judicial decision will be highly dependent on the ~~EPA’s~~EPA's rulemaking actions on remand and any subsequent legal challenges. LG&E and KU are evaluating the specific plan impacts of developments to date and will continue to monitor the ~~EPA’s~~EPA's ongoing regulatory proceedings.

In connection with the CCR Rule, LG&E and KU have recorded adjustments to existing AROs beginning in 2015 and continue to record adjustments as required. See Note ~~16 and Note~~ 19 to the Financial Statements in the Registrants’ ~~2017~~2018 Form 10-K for additional information on AROs. LG&E and KU continue to perform technical evaluations related to their plans to close impoundments at all of their generating plants. Although LG&E and KU believe their recorded liabilities appropriately reflect their obligations under current rules, changes to current compliance strategies as a result of ongoing regulatory proceedings or other

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developments could result in additional closure costs. It is not currently possible to determine the magnitude of any potential cost increases related to changes in compliance strategies or plans, and the timing of future cash outflows are indeterminable at this time. As rules are revised, technical evaluations are completed, and the timing and details of impoundment closures develop further on a ~~plant-by-plant~~plant by-plant basis, LG&E and KU will ~~update~~updated their cost estimates and record any changes as necessary to their ARO liability, which could be material. These costs are subject to rate recovery.

New Accounting Guidance (All Registrants)

See ~~Note~~Notes 2 and 1718 to the Financial Statements for a discussion of new accounting guidance adopted and pending adoption.

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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' ~~2017~~2018 Form 10-K for a discussion of each critical accounting policy.

PPL

Electric

LKE

LG&E

Defined Benefits

Income Taxes

Regulatory Assets and Liabilities

Price Risk Management

Goodwill Impairment

AROs

Revenue Recognition - Unbilled Revenue

~~Income Taxes~~ ~~(All Registrants)~~

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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 30, 2018,~~March 31, 2019, 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~~controls over financial reporting during the Registrants' ~~third~~first 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 legal, tax, regulatory, environmental or other administrative proceedings that became reportable events or were pending in the ~~third~~first quarter of ~~2018, which information is incorporated by reference into this Part II,~~2019 see:

"Item 3. Legal Proceedings" in each Registrant's ~~2017~~2018 Form 10-K; and

Notes 6, 7 and 1011 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' ~~2017~~2018 Form 10-K.

Item 4. Mine Safety Disclosures

Not applicable.

Item ~~5. Other Information~~

Effective October 25, 2018, the Compensation, Governance and Nominating Committee approved amendments of the 2012 Amended and Restated Stock Incentive Plan and the Incentive Compensation Plan for Key Employees. The amendments add a one-year minimum vesting requirement for equity awards with the exception of change-in-control events; death, retirement and disability; and additional awards issued in the aggregate up to 5% of the authorized shares that can be issued under the respective equity plan.

~~Table of Contents~~

~~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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*4(a)	-	Supplemental Indenture No 7, dated as of March 1, 2019, to Indenture, dated as of October 1, 2010, between Louisville Gas and Electric Company to The Bank of New York Mellon, as Trustee (Exhibit 4(a) to PPL Corporation Form 8-K Report (File No. 1-11459) dated April 1, 2019)
4(b)	-	Supplemental Indenture No. 6,7, dated as of ~~August~~March 1, ~~2018,~~2019, to Indenture, dated as of October 1, 2010, between Kentucky Utilities Company and The Bank of New York Mellon, as Trustee (Exhibit 4(b) to PPL Corporation Form 8-K Report (File No. 1-11459) dated April 1, 2019)
*4(b)10(a)	-	~~2018 Series A Carroll County Loan~~Amendment No. 4 to Credit Agreement dated as of ~~August 1, 2018, by~~March 8, 2019 to Revolving Credit Agreement dated as of July 28, 2014 (as previously amended) among PPL Capital Funding, Inc., as Borrower, PPL Corporation, as Guarantor, the Lenders party thereto and ~~between Kentucky Utilities Company~~Wells Fargo, National Association, as Administrative Agent, Issuing Lender and ~~County of Carroll, Kentucky~~Swingline Lender (Exhibit 10.1 to PPL Corporation Form 8-K Report (File No. 1-11459) dated March 8, 2019)
*4(c)	-	Amended and Restated Trust Deed, dated August 14, 2018, by and among Western Power Distribution (East Midlands) plc, Western Power Distribution (South Wales) plc, Western Power Distribution (South West) plc and Western Power Distribution (West Midlands) plc as Issuers, and HSBC Corporate Trustee Company (UK) Limited as Note Trustee
*4(d)	-	~~Trust Deed, dated October 16, 2018, between Western Power Distribution plc as Issuer, and HSBC Corporate Trustee Company (UK) Limited as Trustee~~
*[_]10(a)	-	~~Amended and Restated Incentive Compensation Plan for Key Employees, effective October 25, 2018~~
*[_]10(b)	-	Fifth Amendment to Revolving Credit Agreement (as previously amended) dated as of March 8, 2019 among PPL Capital Funding, Inc., as Borrower, PPL Corporation, as guarantor, The Bank of Nova Scotia, as Administrative Agent and the Lenders from time to time party thereto (Exhibit 10.2 to PPL Corporation Form 8-K Report (File No. 1-11459) dated March 8, 2019)
10(c)	-	Amendment No. 4 to Credit Agreement dated as of March 8, 2019 to Amended and Restated ~~2012 Stock Incentive Plan, effective October 25, 2018~~
*12(a)	-	~~PPL Corporation and Subsidiaries Computation~~Revolving Credit Agreement dated as of ~~Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends~~
*12(b)	-	July 28, 2014 (as previously amended) among PPL Electric Utilities Corporation, as Borrower, the Lenders party thereto and ~~Subsidiaries Computation of Ratio of Earnings~~Wells Fargo, National Association, as Administrative Agent, Issuing Lender and Swingline Lender (Exhibit 10.3 to ~~Combined Fixed Charges and Preferred Stock Dividends~~PPL Corporation Form 8-K Report (File No. 1-11459) dated March 8, 2019)
*12(c)10(d)	-	~~LG&E~~Amendment No. 4 to Credit Agreement dated as of March 8, 2019 to Amended and ~~KU Energy LLC and Subsidiaries Computation~~Restated Revolving Credit Agreement dated as of ~~Ratio of Earnings to Fixed Charges~~
*12(d)	-	July 28, 2014 (as previously amended) among Louisville Gas and Electric Company, ~~Computation of Ratio of Earnings~~as Borrower, the Lenders party thereto and Wells Fargo, National Association, as Administrative Agent, Issuing Lender and Swingline Lender (Exhibit 10.4 to ~~Fixed Charges~~PPL Corporation Form 8-K Report (File No. 1-11459) dated March 8, 2019)
*12(e)10(e)	-	Amendment No. 4 to Credit Agreement dated as of March 8, 2019 to Amended and Restated Revolving Credit Agreement dated as of July 28, 2014 (as previously amended) among Kentucky Utilities Company, ~~Computation of Ratio of Earnings~~as Borrower, the Lenders party thereto and Wells Fargo, National Association, as Administrative Agent, Issuing Lender and Swingline Lender (Exhibit 10.5 to ~~Fixed Charges~~PPL Corporation Form 8-K Report (File No. 1-11459) dated March 8, 2019)

Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, for the quarterly period ended ~~September 30, 2018,~~March 31, 2019, 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 30, 2018,~~March 31, 2019, 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

Table of Contents




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

Table of Contents

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, 2018~~May 2, 2019	/s/ ~~Stephen K. Breininger~~Marlene C. Beers
		~~Stephen K. Breininger~~Marlene C. Beers Vice President and Controller
		(Principal Accounting Officer)



		PPL Electric Utilities Corporation
		(Registrant)



Date:	~~November 1, 2018~~May 2, 2019	/s/ ~~Marlene C. Beers~~Stephen K. Breininger
		~~Marlene C. Beers~~Stephen K. Breininger 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, 2018~~May 2, 2019	/s/ Kent W. Blake
		Kent W. Blake Chief Financial Officer
		(Principal Financial Officer and Principal Accounting Officer)

~~130~~113



	PPL		PPL Electric		LKE		LG&E		KU
Contract liabilities as of December 31, 2017	$	29	$	19	$	8	$	4	$	4
Contract liabilities as of September 30, 2018	40		17		8		4		4



	Taxable Income (Loss) (a)
	Adjustments per 2017 Tax Return			Adjustments per 2017 Tax Provision			September 30, 2018 Adjustment
PPL
Deemed Dividend	$	397		$	462		$	(65	)
Bonus Depreciation (b)	(67		)	—			(67		)
Consolidated Federal Net Operating Loss due to the TCJA(c)	(330		)	(462		)	132
Total	$	—		$	—		$	—

PPL Electric
Bonus Depreciation (b)	$	(39	)	$	—		$	(39	)
Consolidated Federal Net Operating Loss reallocated due to the TCJA (c)	(68		)	(105		)	37
Total	$	(107	)	$	(105	)	$	(2	)

LKE
Bonus Depreciation (b)	$	(28	)	$	—		$	(28	)
Consolidated Federal Net Operating Loss reallocated due to the TCJA (c)	(32		)	(45		)	13
Total	$	(60	)	$	(45	)	$	(15	)

LG&E
Bonus Depreciation (b)	$	(17	)	$	—		$	(17	)
Consolidated Federal Net Operating Loss reallocated due to the TCJA (c)	17			—			17
Total	$	—		$	—		$	—

KU
Bonus Depreciation (b)	$	(11	)	$	—		$	(11	)
Consolidated Federal Net Operating Loss reallocated due to the TCJA (c)	11			—			11
Total	$	—		$	—		$	—



	Income Tax Expense (Benefit)
	Adjustments per 2017 Tax Return			Adjustments per 2017 Tax Provision			September 30, 2018 Adjustment
PPL
Deemed Dividend	$	139		$	161		$	(22	)
Foreign Tax Credits	(157		)	(205		)	48
Valuation of Foreign Tax Credit Carryforward	110			145			(35		)
Reduction in U.S. federal income tax rate (a)	229			220			9
Total	$	321		$	321		$	—



	2018 Three Months							2017 Three Months
	PA Gross Margins		Other (a)			Operating Income (b)		PA Gross Margins		Other (a)			Operating Income (b)
Operating Revenues	$	548	$	—		$	548	$	547	$	—		$	547
Operating Expenses
Energy purchases	127		—			127		121		—			121
Other operation and maintenance	23		104			127		29		104			133
Depreciation	10		79			89		5		72			77
Taxes, other than income	25		2			27		25		2			27
Total Operating Expenses	185		185			370		180		178			358
Total	$	363	$	(185	)	$	178	$	367	$	(178	)	$	189