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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549
FORM10-Q
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 for the quarterly period ended
September 30, 2019
2020
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
23-2758192
(Exact name of Registrant as specified in its charter)
Pennsylvania
Two North Ninth Street
Allentown, PA 18101-1179
(610) 774-5151
23-2758192
Allentown,PA18101-1179
1-905(610)774-5151
1-905
PPL Electric Utilities Corporation
23-0959590
(Exact name of Registrant as specified in its charter)
Pennsylvania
Two North Ninth Street
Allentown, PA 18101-1179
(610) 774-5151
23-0959590
Allentown,PA18101-1179
333-173665(610)774-5151
333-173665
LG&E and KU Energy LLC
20-0523163
(Exact name of Registrant as specified in its charter)
Kentucky
220 West Main Street
Louisville, KY 40202-1377
(502) 627-2000
20-0523163
Louisville,KY40202-1377
1-2893(502)627-2000
1-2893
Louisville Gas and Electric Company
61-0264150
(Exact name of Registrant as specified in its charter)
Kentucky
220 West Main Street
Louisville, KY 40202-1377
(502) 627-2000
61-0264150
Louisville,KY40202-1377
1-3464(502)627-2000
1-3464
Kentucky Utilities Company
61-0247570
(Exact name of Registrant as specified in its charter)
(Kentucky and Virginia
Virginia)
One Quality Street
Lexington, KY 40507-1462
(502) 627-2000
Lexington,KY40507-1462
(502)627-200061-0247570



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Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol:Name of each exchange on which registered
Common Stock of PPL CorporationPPLNew York Stock Exchange
Junior Subordinated Notes of PPL Capital Funding, Inc.
2007 Series A due 2067PPL/67New York Stock Exchange
2013 Series B due 2073PPXNew York Stock Exchange

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 CorporationYes☒No☐
PPL Electric Utilities CorporationYes☒No☐
LG&E and KU Energy LLCYes☒No☐
Louisville Gas and Electric CompanyYes☒No☐
Kentucky Utilities CompanyYes☒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 CorporationYes☒No☐
PPL Electric Utilities CorporationYes☒No☐
LG&E and KU Energy LLCYes☒No☐
Louisville Gas and Electric CompanyYes☒No☐
Kentucky Utilities CompanyYes☒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☒☐☐☐☐
PPL Electric Utilities Corporation☐☐☒☐☐
LG&E and KU Energy LLC☐☐☒☐☐
Louisville Gas and Electric Company☐☐☒☐☐
Kentucky Utilities Company☐☐☒☐☐

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 CorporationYes☐No☒
PPL Electric Utilities CorporationYes☐No☒
LG&E and KU Energy LLCYes☐No☒
Louisville Gas and Electric CompanyYes☐No☒
Kentucky Utilities CompanyYes☐No☒
 


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

PPL CorporationCommon stock, $0.01 par value, 723,033,043 shares outstanding at October 31, 2019.
PPL Electric Utilities CorporationCommon stock, no par value, 66,368,056 shares outstanding and all held by PPL Corporation at October 31, 2019.
LG&E and KU Energy LLCPPL Corporation directly holds all of the membership interests in LG&E and KU Energy LLC.
Louisville Gas and Electric CompanyCommon stock, no par value, 21,294,223 shares outstanding and all held by LG&E and KU Energy LLC at October 31, 2019.
Kentucky Utilities CompanyCommon stock, no par value, 37,817,878 shares outstanding and all held by LG&E and KU Energy LLC at October 31, 2019.

PPL Corporation    Common stock, $0.01 par value, 768,827,321 shares outstanding at October 31, 2020.
PPL Electric Utilities Corporation    Common stock, no par value, 66,368,056 shares outstanding and all held by PPL Corporation at October 31, 2020.
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 31, 2020.
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 31, 2020.

This document is available free of charge at the Investors section of PPL Corporation's website at www.pplweb.com. However, other 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, 20192020
 
Table of Contents
 
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
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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Page
i
1
PART I.  FINANCIAL INFORMATION
Item 1.  Financial Statements
PPL Corporation and Subsidiaries
3
4
5
6
8
PPL Electric Utilities Corporation and Subsidiaries
10
11
12
14
LG&E and KU Energy LLC and Subsidiaries
15
16
17
18
20
Louisville Gas and Electric Company
22
23
24
26
Kentucky Utilities Company
28
29
30
32


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Combined Notes to Condensed Financial Statements (Unaudited)
33
33
3433
3536
3637
39
4041
4243
4647
4950
5250
5453
6359
6561
6562
6864
7572
7572
18. New Accounting Guidance Pending Adoption
76
Item 2.  Combined Management's Discussion and Analysis of Financial Condition and Results of Operations
7874
7874
8076
8177
8482
8583
9695
9996
10398
10699
109100
109100
115106
117108
117108
117108
118109
118109
119110
120111
120111
PART II.  OTHER INFORMATION
120111
120111
120112
121112
122114
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 reorganizations 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.

20182019 Form 10-K - Annual Report to the SEC on Form 10-K for the year ended December 31, 2018.2019.
 
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 Infrastructure - meters and meter reading infrastructure 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.

COVID-19 - the disease caused by the novel coronavirus identified in 2019 that has caused a global pandemic in 2020.

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. A CPCN is required for any capital addition in excess of $100 million.
 
CPI -consumer price index, a measure of inflation in the U.K. published monthly by the Office for National Statistics.

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.

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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.

DNO - Distribution Network Operator in the U.K.

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

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


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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.

DSO - Distribution System Operation in the U.K. is the effective delivery of a range of functions and services that need to happen to run an advanced electricity distribution network. These functions cover long-term network planning; operations, real-time processes and planning, and markets and settlement. This does not focus on a single party as an operator; but recognizes roles for a range of parties to deliver DSO.

DSP - Default Service Provider.

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 487IBEW - House Bill 487. Comprehensive Kentucky state tax legislation enacted in April 2018.International Brotherhood of Electrical Workers

IRS - Internal Revenue Service, a U.S. government agency.
 
KPSC - Kentucky Public Service Commission, the state agency that has jurisdiction over the regulation of rates and service of utilities in Kentucky.

LIBOR - London Interbank Offered Rate.

Moody's - Moody's Investors Service, Inc., a credit rating agency.
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MW - megawatt, one thousand kilowatts.

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

NERC - North American Electric Reliability Corporation.

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.

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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 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.

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.

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").
 
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.
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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.

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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 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 - S&P Global Ratings, 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.

Talen Energy Marketing - Talen Energy Marketing, LLC, the new name of PPL EnergyPlus subsequent toafter 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.

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

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

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Forward-looking Information
 
Statements contained in this Form 10-Q concerning expectations, beliefs, plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements that are other than statements of historical fact are "forward-looking statements" within the meaning of the federal securities laws. Although the Registrants believe that the expectations and assumptions reflected in these statements are reasonable, there can be no assurance that these expectations will prove to be correct. Forward-looking statements are subject to many risks and uncertainties, and actual results may differ materially from the results discussed in forward-looking statements. In addition to the specific factors discussed in each Registrant's 20182019 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 COVID-19 pandemic and its impact on economic conditions and financial markets;
•other pandemic health events or other catastrophic events such as fires, earthquakes, explosions, floods, droughts, tornadoes, hurricanes and other storms;
•strategic acquisitions, dispositions, or similar transactions, including the potential sale of our U.K. utility business, and our ability to consummate these business transactions or realize expected benefits from them;
•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;
•the direct or indirect effects on PPL or its subsidiaries or business systems of cyber-based intrusion or 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 the U.K.'s plans to withdrawwithdrawal from the European Union and any actions in responseresponses thereto;
•the amount of WPD's pension deficit funding recovered in revenues after March 31, 2021, following the triennial pension review thatwhich began in March 2019;2019 and is due to conclude at the end of 2020;
•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 itstheir 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;
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•development of new projects, markets and technologies;
•performance of new ventures;
business dispositions or acquisitions and our ability to realize expected benefits from such business transactions;

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collective labor bargaining negotiations; and
•the outcome of litigation againstinvolving the Registrants and their subsidiaries.

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

New factors that could cause actual results to differ materially from those described in forward-looking statements emerge from time to time, and it is not possible for the Registrants to predict all such factors, or the extent to which any such factor or combination of factors may cause actual results to differ from those expressedcontained 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 suchthe 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 September 30,Nine Months Ended September 30,
2019 2018 2019 2018 2020201920202019
Operating Revenues$1,933
 $1,872
 $5,815
 $5,846
Operating Revenues$1,885 $1,933 $5,678 $5,815 
       
Operating Expenses       Operating Expenses  
Operation       Operation  
Fuel194
 206
 556
 609
Fuel177 194 478 556 
Energy purchases150
 149
 538
 538
Energy purchases136 150 470 538 
Other operation and maintenance480
 479
 1,452
 1,453
Other operation and maintenance483 480 1,446 1,452 
Depreciation306
 275
 890
 817
Depreciation323 306 959 890 
Taxes, other than income77
 77
 232
 234
Taxes, other than income79 77 226 232 
Total Operating Expenses1,207
 1,186
 3,668
 3,651
Total Operating Expenses1,198 1,207 3,579 3,668 
       
Operating Income726
 686
 2,147
 2,195
Operating Income687 726 2,099 2,147 
       
Other Income (Expense) - net126
 106
 309
 297
Other Income (Expense) - net52 126 253 309 
       
Interest Expense259
 244
 746
 718
Interest Expense249 259 750 746 
       
Income Before Income Taxes593
 548
 1,710
 1,774
Income Before Income Taxes490 593 1,602 1,710 
       
Income Taxes118
 103
 328
 362
Income Taxes209 118 423 328 
       
Net Income$475
 $445
 $1,382
 $1,412
Net Income$281 $475 $1,179 $1,382 
       
Earnings Per Share of Common Stock: Earnings Per Share of Common Stock:
Net Income Available to PPL Common Shareowners:       Net Income Available to PPL Common Shareowners:    
Basic$0.66
 $0.63
 $1.91
 $2.02
Basic$0.37 $0.66 $1.53 $1.91 
Diluted$0.65
 $0.62
 $1.89
 $2.01
Diluted$0.37 $0.65 $1.53 $1.89 
       
Weighted-Average Shares of Common Stock Outstanding
(in thousands)
       
Weighted-Average Shares of Common Stock Outstanding
(in thousands)
    
Basic722,259
 703,730
 721,693
 699,117
Basic768,786 722,259 768,502 721,693 
Diluted731,151
 710,517
 730,677
 702,305
Diluted769,660 731,151 769,270 730,677 
 
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, Three Months Ended September 30,Nine Months Ended September 30,
2019 2018 2019 2018 2020201920202019
Net income$475
 $445
 $1,382
 $1,412
Net income$281 $475 $1,179 $1,382 
       
Other comprehensive income (loss): 
  
    Other comprehensive income (loss):  
Amounts arising during the period - gains (losses), net of tax (expense) benefit: 
  
    Amounts arising during the period - gains (losses), net of tax (expense) benefit:  
Foreign currency translation adjustments, net of tax of $0, $0, $0, ($2)(285) (187) (368) (321)
Qualifying derivatives, net of tax of ($3), ($5), ($7), ($5)16
 22
 32
 21
Foreign currency translation adjustments, net of tax of $0, $0, $1, $0Foreign currency translation adjustments, net of tax of $0, $0, $1, $0643 (285)291 (368)
Qualifying derivatives, net of tax of $12, ($3), $4, ($7)Qualifying derivatives, net of tax of $12, ($3), $4, ($7)(52)16 (16)32 
Defined benefit plans: 
 

    Defined benefit plans: 
Prior service costs, net of tax of $0, $0, $0, $0—
 —
 —
 (1)
Net actuarial gain (loss), net of tax of $2, $3, $4, $3(5) (8) (10) (9)
Net actuarial gain (loss), net of tax of $5, $2, $6, $4Net actuarial gain (loss), net of tax of $5, $2, $6, $4(16)(5)(17)(10)
Reclassifications from AOCI - (gains) losses, net of tax expense (benefit): 
  
    Reclassifications from AOCI - (gains) losses, net of tax expense (benefit):  
Qualifying derivatives, net of tax of $3, $3, $3, $4(22) (14) (25) (21)
Qualifying derivatives, net of tax of ($12), $3, ($8), $3Qualifying derivatives, net of tax of ($12), $3, ($8), $348 (22)25 (25)
Defined benefit plans: 
  
    Defined benefit plans:  
Prior service costs, net of tax of ($1), ($1), ($1), ($1)—
 —
 1
 1
Prior service costs, net of tax of ($1), ($1), ($1), ($1)0 0 2 1 
Net actuarial (gain) loss, net of tax of ($5), ($8), ($16), ($26)20
 34
 62
 104
Net actuarial (gain) loss, net of tax of ($12), ($5), ($35), ($16)Net actuarial (gain) loss, net of tax of ($12), ($5), ($35), ($16)52 20 146 62 
Total other comprehensive income (loss)(276) (153) (308) (226)Total other comprehensive income (loss)675 (276)431 (308)
       
Comprehensive income$199
 $292
 $1,074
 $1,186
Comprehensive income$956 $199 $1,610 $1,074 
 
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, Nine Months Ended September 30,
2019 2018 20202019
Cash Flows from Operating Activities 
  
Cash Flows from Operating Activities  
Net income$1,382
 $1,412
Net income$1,179 $1,382 
Adjustments to reconcile net income to net cash provided by operating activities 
  
Adjustments to reconcile net income to net cash provided by operating activities  
Depreciation890
 817
Depreciation959 890 
Amortization60
 56
Amortization47 60 
Defined benefit plans - income(198) (146)
Defined benefit plans - (income) expenseDefined benefit plans - (income) expense(155)(198)
Deferred income taxes and investment tax credits257
 255
Deferred income taxes and investment tax credits355 257 
Unrealized gains on derivatives, and other hedging activities(18) (129)
Unrealized (gains) losses on derivatives, and other hedging activitiesUnrealized (gains) losses on derivatives, and other hedging activities98 (18)
Stock-based compensation expense24
 21
Stock-based compensation expense17 24 
Other(15) (12)Other(6)(15)
Change in current assets and current liabilities 
  
Change in current assets and current liabilities  
Accounts receivable57
 38
Accounts receivable(40)57 
Accounts payable(116) (55)Accounts payable(35)(116)
Unbilled revenues58
 129
Unbilled revenues126 58 
Fuel, materials and supplies9
 25
Fuel, materials and supplies(8)9 
Prepayments(53) (38)Prepayments(53)(53)
Regulatory assets and liabilities, net(62) 39
Regulatory assets and liabilities, net(44)(62)
Accrued interest74
 48
Accrued interest86 74 
Other current liabilities(94) (36)Other current liabilities(29)(94)
Other(6) (1)Other20 (6)
Other operating activities   Other operating activities
Defined benefit plans - funding(281) (284)Defined benefit plans - funding(264)(281)
Proceeds from transfer of excess benefit plan funds—
 65
Other assets(24) (38)Other assets(7)(24)
Other liabilities(56) 44
Other liabilities1 (56)
Net cash provided by operating activities1,888
 2,210
Net cash provided by operating activities2,247 1,888 
Cash Flows from Investing Activities 
  
Cash Flows from Investing Activities  
Expenditures for property, plant and equipment(2,197) (2,344)Expenditures for property, plant and equipment(2,348)(2,197)
Purchase of investments(55) (65)Purchase of investments0 (55)
Proceeds from the sale of investments63
 3
Proceeds from the sale of investments2 63 
Other investing activities(5) (60)Other investing activities(12)(5)
Net cash used in investing activities(2,194) (2,466)Net cash used in investing activities(2,358)(2,194)
Cash Flows from Financing Activities 
  
Cash Flows from Financing Activities  
Issuance of long-term debt1,465
 602
Issuance of long-term debt1,598 1,465 
Retirement of long-term debt(200) (277)Retirement of long-term debt(975)(200)
Proceeds from project financingProceeds from project financing152 0 
Issuance of common stock49
 678
Issuance of common stock32 49 
Payment of common stock dividends(893) (846)Payment of common stock dividends(956)(893)
Issuance of term loanIssuance of term loan300 0 
Net increase (decrease) in short-term debt(34) 481
Net increase (decrease) in short-term debt(94)(34)
Other financing activities(24) (20)Other financing activities(24)(24)
Net cash provided by financing activities363
 618
Net cash provided by financing activities33 363 
Effect of Exchange Rates on Cash, Cash Equivalents and Restricted Cash(10) (9)Effect of Exchange Rates on Cash, Cash Equivalents and Restricted Cash11 (10)
Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash47
 353
Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash(67)47 
Cash, Cash Equivalents and Restricted Cash at Beginning of Period643
 511
Cash, Cash Equivalents and Restricted Cash at Beginning of Period836 643 
Cash, Cash Equivalents and Restricted Cash at End of Period$690
 $864
Cash, Cash Equivalents and Restricted Cash at End of Period$769 $690 
   
Supplemental Disclosures of Cash Flow Information   Supplemental Disclosures of Cash Flow Information
Significant non-cash transactions:   Significant non-cash transactions:
Accrued expenditures for property, plant and equipment at September 30,$363
 $311
Accrued expenditures for property, plant and equipment at September 30,$279 $363 
Accrued expenditures for intangible assets at September 30,$67
 $70
Accrued expenditures for intangible assets at September 30,$86 $67 

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,
2019		 December 31,
2018		 September 30,
2020		December 31,
2019
Assets 
  
Assets  
   
Current Assets 
  
Current Assets  
Cash and cash equivalents$670
 $621
Cash and cash equivalents$746 $815 
Accounts receivable (less reserve: 2019, $60; 2018, $56) 
  
Accounts receivable (less reserve: 2020, $73; 2019, $58)Accounts receivable (less reserve: 2020, $73; 2019, $58)  
Customer625
 663
Customer742 687 
Other112
 107
Other88 105 
Unbilled revenues430
 496
Unbilled revenues (less reserve: 2020, $3; 2019, $0)Unbilled revenues (less reserve: 2020, $3; 2019, $0)382 504 
Fuel, materials and supplies295
 303
Fuel, materials and supplies351 332 
Prepayments115
 70
Prepayments134 79 
Price risk management assets209
 109
Price risk management assets136 147 
Other current assets78
 63
Other current assets116 98 
Total Current Assets2,534
 2,432
Total Current Assets2,695 2,767 
   
Property, Plant and Equipment 
  
Property, Plant and Equipment  
Regulated utility plant40,734
 39,734
Regulated utility plant45,058 42,709 
Less: accumulated depreciation - regulated utility plant7,732
 7,310
Less: accumulated depreciation - regulated utility plant8,726 8,055 
Regulated utility plant, net33,002
 32,424
Regulated utility plant, net36,332 34,654 
Non-regulated property, plant and equipment331
 355
Non-regulated property, plant and equipment490 357 
Less: accumulated depreciation - non-regulated property, plant and equipment105
 101
Less: accumulated depreciation - non-regulated property, plant and equipment98 109 
Non-regulated property, plant and equipment, net226
 254
Non-regulated property, plant and equipment, net392 248 
Construction work in progress1,880
 1,780
Construction work in progress1,596 1,580 
Property, Plant and Equipment, net35,108
 34,458
Property, Plant and Equipment, net38,320 36,482 
   
Other Noncurrent Assets 
  
Other Noncurrent Assets  
Regulatory assets1,658
 1,673
Regulatory assets1,450 1,492 
Goodwill3,050
 3,162
Goodwill3,283 3,198 
Other intangibles709
 716
Other intangibles763 742 
Pension benefit asset955
 535
Pension benefit asset972 464 
Price risk management assets210
 228
Price risk management assets53 149 
Other noncurrent assets335
 192
Other noncurrent assets388 386 
Total Other Noncurrent Assets6,917
 6,506
Total Other Noncurrent Assets6,909 6,431 
   
Total Assets$44,559
 $43,396
Total Assets$47,924 $45,680 
 
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,
2019		 December 31,
2018		 September 30,
2020		December 31,
2019
Liabilities and Equity 
  
Liabilities and Equity  
   
Current Liabilities 
  
Current Liabilities  
Short-term debt$1,387
 $1,430
Short-term debt$1,368 $1,151 
Long-term debt due within one year—
 530
Long-term debt due within one year1,525 1,172 
Accounts payable846
 989
Accounts payable864 956 
Taxes94
 110
Taxes93 99 
Interest346
 278
Interest385 294 
Dividends298
 296
Dividends319 317 
Customer deposits262
 257
Customer deposits298 261 
Regulatory liabilities79
 122
Regulatory liabilities90 115 
Other current liabilities528
 551
Other current liabilities500 535 
Total Current Liabilities3,840
 4,563
Total Current Liabilities5,442 4,900 
   
Long-term Debt21,547
 20,069
Long-term Debt21,243 20,721 
   
Deferred Credits and Other Noncurrent Liabilities 
  
Deferred Credits and Other Noncurrent Liabilities  
Deferred income taxes3,076
 2,796
Deferred income taxes3,569 3,088 
Investment tax credits124
 126
Investment tax credits122 124 
Accrued pension obligations719
 771
Accrued pension obligations485 587 
Asset retirement obligations193
 264
Asset retirement obligations223 212 
Regulatory liabilities2,675
 2,714
Regulatory liabilities2,543 2,572 
Other deferred credits and noncurrent liabilities483
 436
Other deferred credits and noncurrent liabilities611 485 
Total Deferred Credits and Other Noncurrent Liabilities7,270
 7,107
Total Deferred Credits and Other Noncurrent Liabilities7,553 7,068 
   
Commitments and Contingent Liabilities (Notes 7 and 11)


 


Commitments and Contingent Liabilities (Notes 7 and 11)
   
Equity 
  
Equity  
Common stock - $0.01 par value (a)7
 7
Common stock - $0.01 par value (a)8 8 
Additional paid-in capital11,087
 11,021
Additional paid-in capital12,260 12,214 
Earnings reinvested5,080
 4,593
Earnings reinvested5,345 5,127 
Accumulated other comprehensive loss(4,272) (3,964)Accumulated other comprehensive loss(3,927)(4,358)
Total Equity11,902
 11,657
Total Equity13,686 12,991 
   
Total Liabilities and Equity$44,559
 $43,396
Total Liabilities and Equity$47,924 $45,680 
 
(a)1,560,000 shares authorized; 722,307 and 720,323 shares issued and outstanding at September 30, 2019 and December 31, 2018.
(a)1,560,000 shares authorized; 768,797 and 767,233 shares issued and outstanding at September 30, 2020 and December 31, 2019.

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
June 30, 2020768,783 $8 $12,255 $5,383 $(4,602)$13,044 
Common stock issued14 1 1 
Stock-based compensation4 4 
Net income281 281 
Dividends and dividend equivalents (b)(319)(319)
Other comprehensive income (loss)675 675 
September 30, 2020768,797 $8 $12,260 $5,345 $(3,927)$13,686 
December 31, 2019767,233 $8 $12,214 $5,127 $(4,358)$12,991 
Common stock issued1,564 48 48 
Stock-based compensation(2)(2)
Net income1,179 1,179 
Dividends and dividend equivalents (b)(959)(959)
Other comprehensive income (loss)431 431 
Adoption of financial instrument credit losses guidance cumulative effect adjustment (Note 2), net of tax of $0(2)(2)
September 30, 2020768,797 $8 $12,260 $5,345 $(3,927)$13,686 
June 30, 2019721,840 $7 $11,069 $4,903 $(3,996)$11,983 
Common stock issued467 14 14 
Stock-based compensation4 4 
Net income475 475 
Dividends and dividend equivalents (b)(298)(298)
Other comprehensive income (loss)(276)(276)
September 30, 2019722,307 $7 $11,087 $5,080 $(4,272)$11,902 
December 31, 2018720,323 $7 $11,021 $4,593 $(3,964)$11,657 
Common stock issued1,984  61   61 
Stock-based compensation  5   5 
Net income   1,382  1,382 
Dividends and dividend equivalents (b)   (895) (895)
Other comprehensive income (loss)    (308)(308)
September 30, 2019722,307 $7 $11,087 $5,080 $(4,272)$11,902 
 
(a)Shares in thousands. Each share entitles the holder to 1 vote on any question presented at any shareowners' meeting.
 Common
stock
shares
outstanding (a)		 
Common
stock
 Additional
paid-in
capital		 Earnings
reinvested		 
Accumulated
other
comprehensive
loss
 Total
June 30, 2019721,840
 $7
 $11,069
 $4,903
 $(3,996) $11,983
Common stock issued467
   14
     14
Stock-based compensation    4
     4
Net income      475
   475
Dividends and dividend equivalents (b)      (298)   (298)
Other comprehensive income (loss)        (276) (276)
September 30, 2019722,307
 $7
 $11,087
 $5,080
 $(4,272) $11,902
            
December 31, 2018720,323
 $7
 $11,021
 $4,593
 $(3,964) $11,657
Common stock issued1,984
 

 61
     61
Stock-based compensation    5
     5
Net income      1,382
   1,382
Dividends and dividend equivalents (b)      (895)   (895)
Other comprehensive income (loss)        (308) (308)
September 30, 2019722,307
 $7
 $11,087
 $5,080
 $(4,272) $11,902
            
June 30, 2018699,128
 $7
 $10,462
 $4,266
 $(3,495) $11,240
Common stock issued20,574
   536
     536
Stock-based compensation    3
     3
Net income      445
   445
Dividends and dividend equivalents (b)      (288)   (288)
Other comprehensive income (loss)        (153) (153)
September 30, 2018719,702
 $7
 $11,001
 $4,423
 $(3,648) $11,783
            
December 31, 2017693,398
 $7
 $10,305
 $3,871
 $(3,422) $10,761
Common stock issued26,304
  
 699
  
  
 699
Stock-based compensation 
  
 (3)  
  
 (3)
Net income 
  
  
 1,412
  
 1,412
Dividends and dividend equivalents (b) 
  
  
 (860)  
 (860)
Other comprehensive income (loss) 
  
  
  
 (226) (226)
September 30, 2018719,702
 $7
 $11,001
 $4,423
 $(3,648) $11,783
            
(b)Dividends declared per share of common stock were $0.4150 and $1.2450 for the three and nine months ended September 30, 2020 and $0.4125 and $1.2375 for the three and ninemonths ended September 30, 2019.
(a)Shares in thousands. Each share entitles the holder to 1 vote on any question presented at any shareowners' meeting.
(b)
Dividends declared per share of common stock were $0.4125 and $1.2375 for the three and nine months ended

September 30, 2019 and $0.4100 and $1.23 for the three and nine months ended September 30, 2018.

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


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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 September 30,Nine Months Ended September 30,
2019 2018 2019 2018 2020201920202019
Operating Revenues$590
 $548
 $1,756
 $1,704
Operating Revenues$586 $590 $1,748 $1,756 
       
Operating Expenses 
  
    Operating Expenses  
Operation 
  
    Operation  
Energy purchases132
 127
 413
 403
Energy purchases118 132 373 413 
Other operation and maintenance137
 127
 417
 419
Other operation and maintenance122 137 388 417 
Depreciation99
 89
 290
 262
Depreciation102 99 301 290 
Taxes, other than income29
 27
 84
 81
Taxes, other than income30 29 78 84 
Total Operating Expenses397
 370
 1,204
 1,165
Total Operating Expenses372 397 1,140 1,204 
       
Operating Income193
 178
 552
 539
Operating Income214 193 608 552 
       
Other Income (Expense) - net7
 5
 18
 18
Other Income (Expense) - net7 7 15 18 
       
Interest Income from Affiliate1
 4
 3
 5
Interest Income from Affiliate1 1 2 3 
       
Interest Expense43
 41
 126
 117
Interest Expense44 43 130 126 
       
Income Before Income Taxes158
 146
 447
 445
Income Before Income Taxes178 158 495 447 
       
Income Taxes40
 35
 114
 111
Income Taxes44 40 125 114 
       
Net Income (a)$118
 $111
 $333
 $334
Net Income (a)$134 $118 $370 $333 
 
(a)Net income equals comprehensive income.
(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,
 2019 2018
Cash Flows from Operating Activities 
  
Net income$333
 $334
Adjustments to reconcile net income to net cash provided by operating activities 
  
Depreciation290
 262
Amortization18
 17
Defined benefit plans - expense—
 2
Deferred income taxes and investment tax credits70
 77
Other(14) (13)
Change in current assets and current liabilities 
  
Accounts receivable34
 22
Accounts payable(46) (46)
Unbilled revenues28
 45
Prepayments(36) (25)
Regulatory assets and liabilities, net(42) (25)
Taxes payable(4) (1)
Other(20) 12
Other operating activities 
  
Defined benefit plans - funding(21) (28)
Other assets11
 (37)
Other liabilities8
 54
Net cash provided by operating activities609
 650
    
Cash Flows from Investing Activities 
  
Expenditures for property, plant and equipment(815) (835)
Expenditures for intangible assets(4) —
Net increase in notes receivable from affiliate(546) —
Other investing activities4
 (2)
Net cash used in investing activities(1,361) (837)
    
Cash Flows from Financing Activities 
  
Issuance of long-term debt393
 398
Contributions from parent400
 429
Payment of common stock dividends to parent(276) (271)
Other financing activities(5) (4)
Net cash provided by financing activities512
 552
    
Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash(240) 365
Cash, Cash Equivalents and Restricted Cash at Beginning of Period269
 51
Cash, Cash Equivalents and Restricted Cash at End of Period$29
 $416
    
Supplemental Disclosure of Cash Flow Information   
Significant non-cash transactions:   
Accrued expenditures for property, plant and equipment at September 30,$168
 $171

 Nine Months Ended September 30,
 20202019
Cash Flows from Operating Activities  
Net income$370 $333 
Adjustments to reconcile net income to net cash provided by operating activities  
Depreciation301 290 
Amortization21 18 
Defined benefit plans - expense (income)(1)0 
Deferred income taxes and investment tax credits68 70 
Other0 (14)
Change in current assets and current liabilities  
Accounts receivable(35)34 
Accounts payable(7)(46)
Unbilled revenues54 28 
Materials and supplies(23)(7)
Prepayments(30)(36)
Regulatory assets and liabilities, net(31)(42)
Taxes payable4 (4)
Other(3)(13)
Other operating activities  
Defined benefit plans - funding(21)(21)
Other assets(20)11 
Other liabilities9 8 
Net cash provided by operating activities656 609 
Cash Flows from Investing Activities  
Expenditures for property, plant and equipment(840)(815)
Expenditures for intangible assets(5)(4)
Increase in notes receivable from affiliate— (546)
Other investing activities1 4 
Net cash used in investing activities(844)(1,361)
Cash Flows from Financing Activities  
Issuance of long-term debt0 393 
Contributions from parent740 400 
Return of capital to parent(745)0 
Payment of common stock dividends to parent(323)(276)
Net increase in short-term debt280 0 
Other financing activities0 (5)
Net cash used in financing activities(48)512 
Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash(236)(240)
Cash, Cash Equivalents and Restricted Cash at Beginning of Period264 269 
Cash, Cash Equivalents and Restricted Cash at End of Period$28 $29 
Supplemental Disclosure of Cash Flow Information
Significant non-cash transactions:
Accrued expenditures for property, plant and equipment at September 30,$150 $168 

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,
2019		 December 31,
2018		 September 30,
2020		December 31,
2019
Assets 
  
Assets  
   
Current Assets 
  
Current Assets  
Cash and cash equivalents$27
 $267
Cash and cash equivalents$26 $262 
Accounts receivable (less reserve: 2019, $27; 2018, $27) 
  
Accounts receivable (less reserve: 2020, $38; 2019, $28)Accounts receivable (less reserve: 2020, $38; 2019, $28)  
Customer253
 264
Customer298 258 
Other26
 38
Other18 22 
Accounts receivable from affiliates11
 11
Accounts receivable from affiliates10 11 
Notes receivable from affiliate546
 —
Unbilled revenues92
 120
Unbilled revenues (less reserve: 2020, $1; 2019, $0)Unbilled revenues (less reserve: 2020, $1; 2019, $0)80 134 
Materials and supplies32
 25
Materials and supplies64 33 
Prepayments34
 5
Prepayments36 6 
Regulatory assets22
 11
Regulatory assets28 26 
Other current assets10
 9
Other current assets15 9 
Total Current Assets1,053
 750
Total Current Assets575 761 
   
Property, Plant and Equipment 
  
Property, Plant and Equipment  
Regulated utility plant12,261
 11,637
Regulated utility plant13,240 12,589 
Less: accumulated depreciation - regulated utility plant3,031
 2,856
Less: accumulated depreciation - regulated utility plant3,276 3,078 
Regulated utility plant, net9,230
 8,781
Regulated utility plant, net9,964 9,511 
Construction work in progress669
 586
Construction work in progress635 597 
Property, Plant and Equipment, net9,899
 9,367
Property, Plant and Equipment, net10,599 10,108 
   
Other Noncurrent Assets 
  
Other Noncurrent Assets  
Regulatory assets807
 824
Regulatory assets708 726 
Intangibles262
 260
Intangibles265 263 
Other noncurrent assets50
 42
Other noncurrent assets66 43 
Total Other Noncurrent Assets1,119
 1,126
Total Other Noncurrent Assets1,039 1,032 
   
Total Assets$12,071
 $11,243
Total Assets$12,213 $11,901 
 
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,
2019		 December 31,
2018		 September 30,
2020		December 31,
2019
Liabilities and Equity 
  
Liabilities and Equity  
   
Current Liabilities 
  
Current Liabilities  
Short-term debtShort-term debt$280 $0 
Long-term debt due within one yearLong-term debt due within one year400 0 
Accounts payable$379
 $418
Accounts payable394 438 
Accounts payable to affiliates28
 25
Accounts payable to affiliates39 32 
Taxes8
 12
Taxes17 13 
Interest43
 37
Interest47 41 
Regulatory liabilities48
 74
Regulatory liabilities73 96 
Other current liabilities86
 101
Other current liabilities88 93 
Total Current Liabilities592
 667
Total Current Liabilities1,338 713 
   
Long-term Debt4,085
 3,694
Long-term Debt3,587 3,985 
   
Deferred Credits and Other Noncurrent Liabilities 
  
Deferred Credits and Other Noncurrent Liabilities  
Deferred income taxes1,414
 1,320
Deferred income taxes1,539 1,447 
Accrued pension obligations254
 282
Accrued pension obligations151 179 
Regulatory liabilities654
 675
Regulatory liabilities582 599 
Other deferred credits and noncurrent liabilities154
 144
Other deferred credits and noncurrent liabilities142 146 
Total Deferred Credits and Other Noncurrent Liabilities2,476
 2,421
Total Deferred Credits and Other Noncurrent Liabilities2,414 2,371 
   
Commitments and Contingent Liabilities (Notes 7 and 11)


 


Commitments and Contingent Liabilities (Notes 7 and 11)
   
Equity 
  
Equity  
Common stock - no par value (a)364
 364
Common stock - 0 par value (a)Common stock - 0 par value (a)364 364 
Additional paid-in capital3,558
 3,158
Additional paid-in capital3,553 3,558 
Earnings reinvested996
 939
Earnings reinvested957 910 
Total Equity4,918
 4,461
Total Equity4,874 4,832 
   
Total Liabilities and Equity$12,071
 $11,243
Total Liabilities and Equity$12,213 $11,901 
 
(a)170,000 shares authorized; 66,368 shares issued and outstanding at September 30, 2019 and December 31, 2018.
(a)170,000 shares authorized; 66,368 shares issued and outstanding at September 30, 2020 and December 31, 2019.

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 Electric Utilities Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)

Common
stock
shares
outstanding
(a)		Common
stock		Additional
paid-in
capital		Earnings
reinvested		Total
June 30, 2020June 30, 202066,368 $364 $3,553 $900 $4,817 
Net incomeNet income134 134 
Capital contributions from parentCapital contributions from parent485 485 
Return of capital to parentReturn of capital to parent(485)(485)
Dividends declared on common stockDividends declared on common stock(77)(77)
September 30, 2020September 30, 202066,368 $364 $3,553 $957 $4,874 
December 31, 2019December 31, 201966,368 $364 $3,558 $910 $4,832 
Net incomeNet income370 370 
Capital contributions from parentCapital contributions from parent740 740 
Return of capital to parentReturn of capital to parent(745)(745)
Dividends declared on common stockDividends declared on common stock(323)(323)
September 30, 2020September 30, 202066,368 $364 $3,553 $957 $4,874 
Common
stock
shares
outstanding
(a)
 
Common
stock
 
Additional
paid-in
capital
 
Earnings
reinvested
 Total
June 30, 201966,368
 $364
 $3,158
 $939
 $4,461
June 30, 201966,368 $364 $3,158 $939 $4,461 
Net income      118
 118
Net income118 118 
Capital contributions from parent    400
   400
Capital contributions from parent400 400 
Dividends declared on common stock      (61) (61)Dividends declared on common stock(61)(61)
September 30, 201966,368
 $364
 $3,558
 $996
 $4,918
September 30, 201966,368 $364 $3,558 $996 $4,918 
         
December 31, 201866,368
 $364
 $3,158
 $939
 $4,461
December 31, 201866,368 $364 $3,158 $939 $4,461 
Net income

 

 

 333
 333
Net income333 333 
Capital contributions from parent

 

 400
 

 400
Capital contributions from parent400 400 
Dividends declared on common stock

 

 

 (276) (276)Dividends declared on common stock(276)(276)
September 30, 201966,368
 $364
 $3,558
 $996
 $4,918
September 30, 201966,368 $364 $3,558 $996 $4,918 
         
June 30, 201866,368
 $364
 $3,154
 $900
 $4,418
Net income      111
 111
Capital contributions from parent    4
   4
Dividends declared on common stock      (49) (49)
September 30, 201866,368
 $364
 $3,158
 $962
 $4,484
         
December 31, 201766,368
 $364
 $2,729
 $899
 $3,992
Net income

 

 

 334
 334
Capital contributions from parent

 

 429
 

 429
Dividends declared on common stock

 

 

 (271) (271)
September 30, 201866,368
 $364
 $3,158
 $962
 $4,484
 
(a)Shares in thousands. All common shares of PPL Electric stock are owned by PPL.
(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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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 September 30,Nine Months Ended September 30,
2019 2018 2019 2018 2020201920202019
Operating Revenues$844
 $802
 $2,421
 $2,417
Operating Revenues$806 $844 $2,331 $2,421 
       
Operating Expenses 
  
  
  
Operating Expenses    
Operation 
  
  
  
Operation    
Fuel194
 206
 556
 609
Fuel177 194 478 556 
Energy purchases19
 22
 125
 135
Energy purchases18 19 97 125 
Other operation and maintenance205
 216
 627
 632
Other operation and maintenance205 205 616 627 
Depreciation144
 119
 402
 354
Depreciation152 144 452 402 
Taxes, other than income19
 18
 55
 53
Taxes, other than income21 19 57 55 
Total Operating Expenses581
 581
 1,765
 1,783
Total Operating Expenses573 581 1,700 1,765 
       
Operating Income263
 221
 656
 634
Operating Income233 263 631 656 
       
Other Income (Expense) - net2
 —
 2
 (2)Other Income (Expense) - net1 2 3 2 
       
Interest Expense57
 52
 169
 154
Interest Expense56 57 172 169 
       
Interest Expense with Affiliate7
 7
 23
 18
Interest Expense with Affiliate10 7 25 23 
       
Income Before Income Taxes201
 162
 466
 460
Income Before Income Taxes168 201 437 466 
       
Income Taxes43
 32
 78
 102
Income Taxes31 43 82 78 
       
Net Income (a)$158
 $130
 $388
 $358
Net Income (a)$137 $158 $355 $388 
 
(a)Net income approximates comprehensive income.
(a)Net income approximates comprehensive income.

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


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CONDENSED 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,
 2020201920202019
Net income$137 $158 $355 $388 
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 $3, $0, $3, $0(8)0 (9)(2)
Reclassifications from AOCI - (gains) losses, net of tax expense (benefit):
Defined benefit plans:
Prior service costs, net of tax of $0, $0, $0, $00 0 1 1 
Net actuarial (gain) loss, net of tax of $2, $0, $3, $05 0 7 (1)
Total other comprehensive income (loss)(3)0 (1)(2)
Comprehensive income$134 $158 $354 $386 

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
LG&E and KU Energy LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)
 Nine Months Ended September 30,
 20202019
Cash Flows from Operating Activities  
Net income$355 $388 
Adjustments to reconcile net income to net cash provided by operating activities  
Depreciation452 402 
Amortization14 20 
Defined benefit plans - expense11 9 
Deferred income taxes and investment tax credits58 78 
Other(1)(2)
Change in current assets and current liabilities  
Accounts receivable(8)13 
Accounts payable(20)(34)
Accounts payable to affiliates7 6 
Unbilled revenues37 5 
Fuel, materials and supplies21 16 
Regulatory assets and liabilities, net(15)(19)
Taxes payable0 (7)
Accrued interest42 57 
Other(32)(31)
Other operating activities  
Defined benefit plans - funding(28)(34)
Expenditures for asset retirement obligations(59)(67)
Other assets(2)(4)
Other liabilities40 17 
Net cash provided by operating activities872 813 
Cash Flows from Investing Activities  
Expenditures for property, plant and equipment(710)(761)
Other investing activities3 0 
Net cash used in investing activities(707)(761)
Cash Flows from Financing Activities  
Net increase in notes payable with affiliate3 16 
Issuance of long-term debt with affiliate550 0 
Issuance of long-term debt498 705 
Retirement of long-term debt(975)(200)
Acquisition of outstanding bonds0 (40)
Remarketing of reacquired bonds0 40 
Net decrease in short-term debt(43)(413)
Distributions to member(194)(206)
Contributions from member0 63 
Other financing activities(6)(11)
Net cash used in financing activities(167)(46)
Net Increase (Decrease) in Cash and Cash Equivalents(2)6 
Cash and Cash Equivalents at Beginning of Period27 24 
Cash and Cash Equivalents at End of Period$25 $30 
Supplemental Disclosure of Cash Flow Information
Significant non-cash transactions:
Accrued expenditures for property, plant and equipment at September 30,$78 $107 
 Nine Months Ended September 30,
 2019 2018
Cash Flows from Operating Activities 
  
Net income$388
 $358
Adjustments to reconcile net income to net cash provided by operating activities 
  
Depreciation402
 354
Amortization20
 13
Defined benefit plans - expense9
 12
Deferred income taxes and investment tax credits78
 71
Other(2) (2)
Change in current assets and current liabilities 
  
Accounts receivable13
 8
Accounts payable(34) 4
Accounts payable to affiliates6
 7
Unbilled revenues5
 54
Fuel, materials and supplies16
 17
Regulatory assets and liabilities, net(19) 62
Taxes payable(7) (11)
Accrued interest57
 41
Other(31) (36)
Other operating activities 
  
Defined benefit plans - funding(34) (126)
Expenditures for asset retirement obligations(67) (46)
Other assets(4) (1)
Other liabilities17
 8
Net cash provided by operating activities813
 787
Cash Flows from Investing Activities 
  
Expenditures for property, plant and equipment(761) (826)
Other investing activities—
 1
Net cash used in investing activities(761) (825)
Cash Flows from Financing Activities 
  
Net increase (decrease) in notes payable with affiliate16
 (145)
Issuance of long-term debt with affiliate—
 250
Issuance of long-term debt705
 118
Retirement of long-term debt(200) (27)
Acquisition of outstanding bonds(40) —
Remarketing of reacquired bonds40
 —
Net increase (decrease) in short-term debt(413) 60
Distributions to member(206) (217)
Contributions from member63
 —
Other financing activities(11) (2)
Net cash provided by (used in) financing activities(46) 37
Net Increase (Decrease) in Cash and Cash Equivalents6
 (1)
Cash and Cash Equivalents at Beginning of Period24
 30
Cash and Cash Equivalents at End of Period$30
 $29
    
Supplemental Disclosure of Cash Flow Information   
Significant non-cash transactions:   
Accrued expenditures for property, plant and equipment at September 30,$107
 $108

 The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
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CONDENSED CONSOLIDATED BALANCE SHEETS
LG&E and KU Energy LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)

September 30,
2019		 December 31,
2018		September 30,
2020		December 31,
2019
Assets 
  
Assets  
   
Current Assets 
  
Current Assets  
Cash and cash equivalents$30
 $24
Cash and cash equivalents$25 $27 
Accounts receivable (less reserve: 2019, $28; 2018, $27) 
  
Accounts receivable (less reserve: 2020, $30; 2019, $28)Accounts receivable (less reserve: 2020, $30; 2019, $28)  
Customer233
 239
Customer269 260 
Other72
 63
Other63 71 
Unbilled revenues164
 169
Unbilled revenues (less reserve: 2020, $1; 2019, $0)Unbilled revenues (less reserve: 2020, $1; 2019, $0)127 164 
Fuel, materials and supplies233
 248
Fuel, materials and supplies230 250 
Prepayments31
 25
Prepayments34 30 
Regulatory assets27
 25
Regulatory assets54 41 
Other current assetsOther current assets1 2 
Total Current Assets790
 793
Total Current Assets803 845 
   
Property, Plant and Equipment 
  
Property, Plant and Equipment  
Regulated utility plant14,175
 13,721
Regulated utility plant15,259 14,646 
Less: accumulated depreciation - regulated utility plant2,294
 2,125
Less: accumulated depreciation - regulated utility plant2,627 2,356 
Regulated utility plant, net11,881
 11,596
Regulated utility plant, net12,632 12,290 
Construction work in progress1,033
 1,018
Construction work in progress735 794 
Property, Plant and Equipment, net12,914
 12,614
Property, Plant and Equipment, net13,367 13,084 
   
Other Noncurrent Assets 
  
Other Noncurrent Assets  
Regulatory assets851
 849
Regulatory assets742 766 
Goodwill996
 996
Goodwill996 996 
Other intangibles72
 78
Other intangibles63 69 
Other noncurrent assets145
 82
Other noncurrent assets117 171 
Total Other Noncurrent Assets2,064
 2,005
Total Other Noncurrent Assets1,918 2,002 
   
Total Assets$15,768
 $15,412
Total Assets$16,088 $15,931 
 
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
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CONDENSED CONSOLIDATED BALANCE SHEETS
LG&E and KU Energy LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)
September 30,
2019		 December 31,
2018		 September 30,
2020		December 31,
2019
Liabilities and Equity 
  
Liabilities and Equity  
   
Current Liabilities 
  
Current Liabilities  
Short-term debt$101
 $514
Short-term debt$345 $388 
Long-term debt due within one year—
 530
Long-term debt due within one year424 975 
Notes payable with affiliates129
 113
Notes payable with affiliates153 150 
Accounts payable304
 366
Accounts payable253 316 
Accounts payable to affiliates15
 9
Accounts payable to affiliates18 11 
Customer deposits62
 61
Customer deposits64 62 
Taxes56
 63
Taxes58 58 
Price risk management liabilities5
 4
Price risk management liabilities2 4 
Regulatory liabilities31
 48
Regulatory liabilities17 19 
Interest89
 32
Interest82 40 
Asset retirement obligations92
 82
Asset retirement obligations44 70 
Other current liabilities131
 126
Other current liabilities134 153 
Total Current Liabilities1,015
 1,948
Total Current Liabilities1,594 2,246 
   
Long-term Debt   Long-term Debt  
Long-term debt5,351
 4,322
Long-term debt4,449 4,377 
Long-term debt to affiliate650
 650
Long-term debt to affiliate1,200 650 
Total Long-term Debt6,001
 4,972
Total Long-term Debt5,649 5,027 
   
Deferred Credits and Other Noncurrent Liabilities 
  
Deferred Credits and Other Noncurrent Liabilities  
Deferred income taxes1,060
 956
Deferred income taxes1,156 1,069 
Investment tax credits124
 126
Investment tax credits122 124 
Price risk management liabilities20
 16
Price risk management liabilities24 17 
Accrued pension obligations262
 282
Accrued pension obligations163 233 
Asset retirement obligations147
 214
Asset retirement obligations163 145 
Regulatory liabilities2,021
 2,039
Regulatory liabilities1,961 1,973 
Other deferred credits and noncurrent liabilities152
 136
Other deferred credits and noncurrent liabilities154 155 
Total Deferred Credits and Other Noncurrent Liabilities3,786
 3,769
Total Deferred Credits and Other Noncurrent Liabilities3,743 3,716 
   
Commitments and Contingent Liabilities (Notes 7 and 11)


 


Commitments and Contingent Liabilities (Notes 7 and 11)
   
Member's Equity4,966
 4,723
Member's Equity5,102 4,942 
   
Total Liabilities and Equity$15,768
 $15,412
Total Liabilities and Equity$16,088 $15,931 
 
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.


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CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
LG&E and KU Energy LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)

 
Member's
Equity
June 30, 2019$4,877
Net income158
Distributions to member(69)
September 30, 2019$4,966
  
December 31, 2018$4,723
Net income388
Contributions from member63
Distributions to member(206)
Other comprehensive income (loss)(2)
September 30, 2019$4,966
  
June 30, 2018$4,632
Net income130
Distributions to member(56)
Other comprehensive income2
September 30, 2018$4,708
  
December 31, 2017$4,563
Net income358
Distributions to member(217)
Other comprehensive income4
September 30, 2018$4,708
Member's
Equity
June 30, 2020$5,022 
Net income137 
Distributions to member(54)
Other comprehensive income (loss)(3)
September 30, 2020$5,102 
December 31, 2019$4,942 
Net income355 
Distributions to member(194)
Other comprehensive income (loss)(1)
September 30, 2020$5,102 
June 30, 2019$4,877 
Net income158 
Distributions to member(69)
September 30, 2019$4,966 
December 31, 2018$4,723 
Net income388 
Contributions from member63 
Distributions to member(206)
Other comprehensive income(2)
September 30, 2019$4,966 
 
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
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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 September 30,Nine Months Ended September 30,
2019 2018 2019 2018 2020201920202019
Operating Revenues       Operating Revenues  
Retail and wholesale$380
 $357
 $1,105
 $1,095
Retail and wholesale$362 $380 $1,075 $1,105 
Electric revenue from affiliate2
 5
 21
 21
Electric revenue from affiliate1 2 17 21 
Total Operating Revenues382
 362
 1,126
 1,116
Total Operating Revenues363 382 1,092 1,126 
       
Operating Expenses       Operating Expenses    
Operation       Operation    
Fuel79
 83
 226
 234
Fuel64 79 188 226 
Energy purchases14
 17
 110
 121
Energy purchases13 14 83 110 
Energy purchases from affiliate2
 2
 6
 10
Energy purchases from affiliate8 2 16 6 
Other operation and maintenance92
 95
 282
 277
Other operation and maintenance93 92 277 282 
Depreciation61
 49
 168
 146
Depreciation64 61 193 168 
Taxes, other than income10
 9
 29
 27
Taxes, other than income11 10 30 29 
Total Operating Expenses258
 255
 821
 815
Total Operating Expenses253 258 787 821 
       
Operating Income124
 107
 305
 301
Operating Income110 124 305 305 
       
Other Income (Expense) - net—
 (3) (1) (5)Other Income (Expense) - net(1)0 (1)(1)
       
Interest Expense22
 20
 65
 57
Interest Expense22 22 66 65 
       
Income Before Income Taxes102
 84
 239
 239
Income Before Income Taxes87 102 238 239 
       
Income Taxes22
 18
 51
 51
Income Taxes16 22 47 51 
       
Net Income (a)$80
 $66
 $188
 $188
Net Income (a)$71 $80 $191 $188 
 
(a)Net income equals comprehensive income.
(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 STATEMENTS OF CASH FLOWS
Louisville Gas and Electric Company
(Unaudited)
(Millions of Dollars)

Nine Months Ended September 30, Nine Months Ended September 30,
2019 2018 20202019
Cash Flows from Operating Activities 
  
Cash Flows from Operating Activities  
Net income$188
 $188
Net income$191 $188 
Adjustments to reconcile net income to net cash provided by operating activities 
  
Adjustments to reconcile net income to net cash provided by operating activities  
Depreciation168
 146
Depreciation193 168 
Amortization13
 10
Amortization6 13 
Defined benefit plans - expenseDefined benefit plans - expense2 0 
Deferred income taxes and investment tax credits45
 46
Deferred income taxes and investment tax credits1 45 
Other2
 2
Other0 2 
Change in current assets and current liabilities 
  
Change in current assets and current liabilities  
Accounts receivable13
 14
Accounts receivable6 13 
Accounts receivable from affiliates9
 2
Accounts receivable from affiliates7 9 
Accounts payable(10) 14
Accounts payable(23)(10)
Accounts payable to affiliates(5) (2)Accounts payable to affiliates(8)(5)
Unbilled revenues4
 30
Unbilled revenues22 4 
Fuel, materials and supplies7
 9
Fuel, materials and supplies9 7 
Regulatory assets and liabilities, net(5) 24
Regulatory assets and liabilities, net5 (5)
Taxes payableTaxes payable(1)0 
Accrued interest22
 13
Accrued interest18 22 
Other(15) (10)Other(13)(15)
Other operating activities 
  
Other operating activities  
Defined benefit plans - funding(6) (59)Defined benefit plans - funding(6)(6)
Expenditures for asset retirement obligations(22) (17)Expenditures for asset retirement obligations(12)(22)
Other assets(1) —
Other assets(1)(1)
Other liabilities10
 —
Other liabilities23 10 
Net cash provided by operating activities417
 410
Net cash provided by operating activities419 417 
Cash Flows from Investing Activities 
  
Cash Flows from Investing Activities  
Expenditures for property, plant and equipment(323) (420)Expenditures for property, plant and equipment(329)(323)
Net cash used in investing activities(323) (420)Net cash used in investing activities(329)(323)
Cash Flows from Financing Activities 
  
Cash Flows from Financing Activities  
Issuance of long-term debt399
 100
Issuance of long-term debt0 399 
Retirement of long-term debt(200) —
Retirement of long-term debt0 (200)
Acquisition of outstanding bonds(40) —
Acquisition of outstanding bonds0 (40)
Remarketing of reacquired bonds
40
 —
Remarketing of reacquired bonds
0 40 
Net decrease in short-term debt(180) (23)Net decrease in short-term debt(32)(180)
Payment of common stock dividends to parent(130) (113)Payment of common stock dividends to parent(115)(130)
Contributions from parent25
 43
Contributions from parent53 25 
Other financing activities(6) (1)Other financing activities(1)(6)
Net cash provided by (used in) financing activities(92) 6
Net cash used in financing activitiesNet cash used in financing activities(95)(92)
Net Increase (Decrease) in Cash and Cash Equivalents2
 (4)Net Increase (Decrease) in Cash and Cash Equivalents(5)2 
Cash and Cash Equivalents at Beginning of Period10
 15
Cash and Cash Equivalents at Beginning of Period15 10 
Cash and Cash Equivalents at End of Period$12
 $11
Cash and Cash Equivalents at End of Period$10 $12 
   
Supplemental Disclosure of Cash Flow Information   Supplemental Disclosure of Cash Flow Information
Significant non-cash transactions:   Significant non-cash transactions:
Accrued expenditures for property, plant and equipment at September 30,$53
 $51
Accrued expenditures for property, plant and equipment at September 30,$43 $53 
 
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
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CONDENSED BALANCE SHEETS
Louisville Gas and Electric Company
(Unaudited)
(Millions of Dollars, shares in thousands)

September 30,
2019		 December 31,
2018		 September 30,
2020		December 31,
2019
Assets 
  
Assets  
   
Current Assets 
  
Current Assets  
Cash and cash equivalents$12
 $10
Cash and cash equivalents$10 $15 
Accounts receivable (less reserve: 2019, $1; 2018, $1) 
  
Accounts receivable (less reserve: 2020, $2; 2019, $1)Accounts receivable (less reserve: 2020, $2; 2019, $1)  
Customer102
 110
Customer118 121 
Other42
 30
Other31 41 
Unbilled revenues73
 77
Unbilled revenues (less reserve: 2020, $0; 2019, $0)Unbilled revenues (less reserve: 2020, $0; 2019, $0)54 76 
Accounts receivable from affiliates15
 24
Accounts receivable from affiliates12 18 
Fuel, materials and supplies120
 127
Fuel, materials and supplies113 122 
Prepayments15
 12
Prepayments16 14 
Regulatory assets21
 21
Regulatory assets23 25 
Other current assetsOther current assets2 1 
Total Current Assets400
 411
Total Current Assets379 433 
   
Property, Plant and Equipment 
  
Property, Plant and Equipment  
Regulated utility plant6,052
 5,816
Regulated utility plant6,571 6,372 
Less: accumulated depreciation - regulated utility plant823
 741
Less: accumulated depreciation - regulated utility plant978 846 
Regulated utility plant, net5,229
 5,075
Regulated utility plant, net5,593 5,526 
Construction work in progress497
 514
Construction work in progress366 297 
Property, Plant and Equipment, net5,726
 5,589
Property, Plant and Equipment, net5,959 5,823 
   
Other Noncurrent Assets 
  
Other Noncurrent Assets  
Regulatory assets425
 431
Regulatory assets360 380 
Goodwill389
 389
Goodwill389 389 
Other intangibles43
 47
Other intangibles37 41 
Other noncurrent assets44
 16
Other noncurrent assets97 67 
Total Other Noncurrent Assets901
 883
Total Other Noncurrent Assets883 877 
   
Total Assets$7,027
 $6,883
Total Assets$7,221 $7,133 
 
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
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CONDENSED BALANCE SHEETS
Louisville Gas and Electric Company
(Unaudited)
(Millions of Dollars, shares in thousands)

September 30,
2019		 December 31,
2018		 September 30,
2020		December 31,
2019
Liabilities and Equity 
  
Liabilities and Equity  
   
Current Liabilities 
  
Current Liabilities  
Short-term debt$99
 $279
Short-term debt$206 $238 
Long-term debt due within one year—
 434
Long-term debt due within one year292 0 
Accounts payable169
 172
Accounts payable125 172 
Accounts payable to affiliates21
 26
Accounts payable to affiliates26 31 
Customer deposits30
 29
Customer deposits32 31 
Taxes29
 26
Taxes32 33 
Price risk management liabilities5
 4
Price risk management liabilities2 4 
Regulatory liabilities12
 17
Regulatory liabilities5 2 
Interest33
 11
Interest33 15 
Asset retirement obligations29
 23
Asset retirement obligations14 24 
Other current liabilities39
 39
Other current liabilities40 47 
Total Current Liabilities466
 1,060
Total Current Liabilities807 597 
   
Long-term Debt2,004
 1,375
Long-term Debt1,714 2,005 
   
Deferred Credits and Other Noncurrent Liabilities 
  
Deferred Credits and Other Noncurrent Liabilities  
Deferred income taxes683
 628
Deferred income taxes712 697 
Investment tax credits34
 34
Investment tax credits33 34 
Price risk management liabilities20
 16
Price risk management liabilities24 17 
Asset retirement obligations54
 80
Asset retirement obligations63 49 
Regulatory liabilities903
 915
Regulatory liabilities885 883 
Other deferred credits and noncurrent liabilities93
 88
Other deferred credits and noncurrent liabilities92 89 
Total Deferred Credits and Other Noncurrent Liabilities1,787
 1,761
Total Deferred Credits and Other Noncurrent Liabilities1,809 1,769 
   
Commitments and Contingent Liabilities (Notes 7 and 11)


 


Commitments and Contingent Liabilities (Notes 7 and 11)
   
Stockholder's Equity 
  
Stockholder's Equity  
Common stock - no par value (a)424
 424
Common stock - 0 par value (a)Common stock - 0 par value (a)424 424 
Additional paid-in capital1,820
 1,795
Additional paid-in capital1,873 1,820 
Earnings reinvested526
 468
Earnings reinvested594 518 
Total Equity2,770
 2,687
Total Equity2,891 2,762 
   
Total Liabilities and Equity$7,027
 $6,883
Total Liabilities and Equity$7,221 $7,133 
 
(a)75,000 shares authorized; 21,294 shares issued and outstanding at September 30, 2019 and December 31, 2018.
(a)75,000 shares authorized; 21,294 shares issued and outstanding at September 30, 2020 and December 31, 2019.

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


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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
June 30, 2020June 30, 202021,294 $424 $1,873 $562 $2,859 
Net incomeNet income71 71 
Cash dividends declared on common stockCash dividends declared on common stock(39)(39)
September 30, 2020September 30, 202021,294 $424 $1,873 $594 $2,891 
December 31, 2019December 31, 201921,294 $424 $1,820 $518 $2,762 
Net incomeNet income191 191 
Capital contributions from parentCapital contributions from parent53 53 
Cash dividends declared on common stockCash dividends declared on common stock(115)(115)
September 30, 2020September 30, 202021,294 $424 $1,873 $594 $2,891 
Common
stock
shares
outstanding
(a)
 
Common
stock
 Additional
paid-in
capital		 Earnings
reinvested		 Total
June 30, 201921,294
 $424
 $1,820
 $505
 $2,749
June 30, 201921,294 $424 $1,820 $505 $2,749 
Net income

 

 

 80
 80
Net income80 80 
Cash dividends declared on common stock

 

 

 (59) (59)Cash dividends declared on common stock(59)(59)
September 30, 201921,294
 $424
 $1,820
 $526
 $2,770
September 30, 201921,294 $424 $1,820 $526 $2,770 
         
December 31, 201821,294
 $424
 $1,795
 $468
 $2,687
December 31, 201821,294 $424 $1,795 $468 $2,687 
Net income

 

 

 188
 188
Net income188 188 
Capital contributions from parent

 

 25
 

 25
Capital contributions from parent25 25 
Cash dividends declared on common stock

 

 

 (130) (130)Cash dividends declared on common stock(130)(130)
September 30, 201921,294
 $424
 $1,820
 $526
 $2,770
September 30, 201921,294 $424 $1,820 $526 $2,770 
         
June 30, 201821,294
 $424
 $1,755
 $432
 $2,611
Net income

 

 

 66
 66
Cash dividends declared on common stock

 

 

 (32) (32)
September 30, 201821,294
 $424
 $1,755
 $466
 $2,645
         
December 31, 201721,294
 $424
 $1,712
 $391
 $2,527
Net income

 

 

 188
 188
Capital contributions from parent

 

 43
 

 43
Cash dividends declared on common stock

 

 

 (113) (113)
September 30, 201821,294
 $424
 $1,755
 $466
 $2,645
 
(a)Shares in thousands. All common shares of LG&E stock are owned by LKE.
(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 September 30,Nine Months Ended September 30,
2019 2018 2019 2018 2020201920202019
Operating Revenues       Operating Revenues  
Retail and wholesale$464
 $445
 $1,316
 $1,322
Retail and wholesale$444 $464 $1,256 $1,316 
Electric revenue from affiliate2
 2
 6
 10
Electric revenue from affiliate8 2 16 6 
Total Operating Revenues466
 447
 1,322
 1,332
Total Operating Revenues452 466 1,272 1,322 
       
Operating Expenses       Operating Expenses    
Operation       Operation    
Fuel115
 123
 330
 375
Fuel113 115 290 330 
Energy purchases5
 5
 15
 14
Energy purchases5 5 14 15 
Energy purchases from affiliate2
 5
 21
 21
Energy purchases from affiliate1 2 17 21 
Other operation and maintenance107
 114
 320
 331
Other operation and maintenance105 107 316 320 
Depreciation83
 70
 233
 208
Depreciation88 83 258 233 
Taxes, other than income9
 9
 26
 26
Taxes, other than income10 9 27 26 
Total Operating Expenses321
 326
 945
 975
Total Operating Expenses322 321 922 945 
       
Operating Income145
 121
 377
 357
Operating Income130 145 350 377 
       
Other Income (Expense) - net4
 1
 4
 1
Other Income (Expense) - net1 4 2 4 
       
Interest Expense28
 24
 82
 74
Interest Expense28 28 85 82 
       
Income Before Income Taxes121
 98
 299
 284
Income Before Income Taxes103 121 267 299 
       
Income Taxes26
 21
 62
 59
Income Taxes19 26 50 62 
       
Net Income (a)$95
 $77
 $237
 $225
Net Income (a)$84 $95 $217 $237 
 
(a)Net income equals comprehensive income.
(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 STATEMENTS OF CASH FLOWS
Kentucky Utilities Company
(Unaudited)
(Millions of Dollars)
 Nine Months Ended September 30,
 2019 2018
Cash Flows from Operating Activities 
  
Net income$237
 $225
Adjustments to reconcile net income to net cash provided by operating activities 
  
Depreciation233
 208
Amortization7
 2
Deferred income taxes and investment tax credits44
 37
Other(3) (2)
Change in current assets and current liabilities 
  
Accounts payable(16) (2)
Accounts payable to affiliates(14) (8)
Unbilled revenues1
 24
Fuel, materials and supplies9
 8
Regulatory assets and liabilities, net(14) 38
Taxes payable5
 11
Accrued interest28
 21
Other(6) (2)
Other operating activities 
  
Defined benefit plans - funding(3) (53)
Expenditures for asset retirement obligations(45) (29)
Other assets(2) (1)
Other liabilities10
 8
Net cash provided by operating activities471
 485
Cash Flows from Investing Activities 
  
Expenditures for property, plant and equipment(436) (405)
Other investing activities—
 1
Net cash used in investing activities(436) (404)
Cash Flows from Financing Activities 
  
Issuance of long-term debt306
 18
Retirement of long-term debt—
 (27)
Net increase (decrease) in short-term debt(233) 83
Payment of common stock dividends to parent(167) (196)
Contributions from parent68
 45
Other financing activities(5) (1)
Net cash used in financing activities(31) (78)
Net Increase in Cash and Cash Equivalents4
 3
Cash and Cash Equivalents at Beginning of Period14
 15
Cash and Cash Equivalents at End of Period$18
 $18
    
Supplemental Disclosure of Cash Flow Information   
Significant non-cash transactions:   
Accrued expenditures for property, plant and equipment at September 30,$54
 $57
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.

Table of Contents



CONDENSED BALANCE SHEETS
Kentucky Utilities Company
(Unaudited)
(Millions of Dollars, shares in thousands)

 September 30,
2019		 December 31,
2018
Assets 
  
    
Current Assets 
  
Cash and cash equivalents$18
 $14
Accounts receivable (less reserve: 2019, $2; 2018, $2) 
  
Customer131
 129
Other27
 34
Unbilled revenues91
 92
Fuel, materials and supplies113
 121
Prepayments16
 11
Regulatory assets6
 4
Total Current Assets402
 405
    
Property, Plant and Equipment 
  
Regulated utility plant8,111
 7,895
Less: accumulated depreciation - regulated utility plant1,468
 1,382
Regulated utility plant, net6,643
 6,513
Construction work in progress535
 503
Property, Plant and Equipment, net7,178
 7,016
    
Other Noncurrent Assets 
  
Regulatory assets426
 418
Goodwill607
 607
Other intangibles29
 31
Other noncurrent assets100
 63
Total Other Noncurrent Assets1,162
 1,119
    
Total Assets$8,742
 $8,540
 Nine Months Ended September 30,
 20202019
Cash Flows from Operating Activities  
Net income$217 $237 
Adjustments to reconcile net income to net cash provided by operating activities  
Depreciation258 233 
Amortization6 7 
Deferred income taxes and investment tax credits20 44 
Other(1)(3)
Change in current assets and current liabilities  
Accounts receivable(22)0 
Accounts payable7 (16)
Accounts payable to affiliates(18)(14)
Unbilled revenues15 1 
Fuel, materials and supplies12 9 
Regulatory assets and liabilities, net(20)(14)
Taxes payable1 5 
Accrued interest23 28 
Other(15)(6)
Other operating activities  
Defined benefit plans - funding(1)(3)
Expenditures for asset retirement obligations(47)(45)
Other assets0 (2)
Other liabilities11 10 
Net cash provided by operating activities446 471 
Cash Flows from Investing Activities  
Expenditures for property, plant and equipment(381)(436)
Other investing activities3 0 
Net cash used in investing activities(378)(436)
Cash Flows from Financing Activities  
Issuance of long-term debt498 306 
Retirement of long-term debt(500)0 
Net decrease in short-term debt(11)(233)
Payment of common stock dividends to parent(145)(167)
Contributions from parent98 68 
Other financing activities(5)(5)
Net cash used in financing activities(65)(31)
Net Increase in Cash and Cash Equivalents3 4 
Cash and Cash Equivalents at Beginning of Period12 14 
Cash and Cash Equivalents at End of Period$15 $18 
Supplemental Disclosure of Cash Flow Information
Significant non-cash transactions:
Accrued expenditures for property, plant and equipment at September 30,$35 $54 
 
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,
2019		 December 31,
2018
Liabilities and Equity 
  
    
Current Liabilities 
  
Short-term debt$2
 $235
Long-term debt due within one year—
 96
Accounts payable120
 171
Accounts payable to affiliates40
 53
Customer deposits32
 32
Taxes29
 24
Regulatory liabilities19
 31
Interest44
 16
Asset retirement obligations63
 59
Other current liabilities47
 35
Total Current Liabilities396
 752
    
Long-term Debt2,623
 2,225
    
Deferred Credits and Other Noncurrent Liabilities 
  
Deferred income taxes795
 735
Investment tax credits90
 92
Asset retirement obligations93
 134
Regulatory liabilities1,118
 1,124
Other deferred credits and noncurrent liabilities47
 36
Total Deferred Credits and Other Noncurrent Liabilities2,143
 2,121
    
Commitments and Contingent Liabilities (Notes 7 and 11)


 


    
Stockholder's Equity 
  
Common stock - no par value (a)308
 308
Additional paid-in capital2,729
 2,661
Earnings reinvested543
 473
Total Equity3,580
 3,442
    
Total Liabilities and Equity$8,742
 $8,540
 September 30,
2020		December 31,
2019
Assets  
Current Assets  
Cash and cash equivalents$15 $12 
Accounts receivable (less reserve: 2020, $1; 2019, $1)  
Customer151 139 
Other38 27 
Unbilled revenues (less reserve: 2020, $1; 2019, $0)73 88 
Fuel, materials and supplies117 128 
Prepayments16 14 
Regulatory assets31 16 
Other current assets0 1 
Total Current Assets441 425 
Property, Plant and Equipment  
Regulated utility plant8,673 8,262 
Less: accumulated depreciation - regulated utility plant1,644 1,507 
Regulated utility plant, net7,029 6,755 
Construction work in progress369 496 
Property, Plant and Equipment, net7,398 7,251 
Other Noncurrent Assets  
Regulatory assets382 386 
Goodwill607 607 
Other intangibles27 28 
Other noncurrent assets125 128 
Total Other Noncurrent Assets1,141 1,149 
Total Assets$8,980 $8,825 
 
(a)80,000 shares authorized; 37,818 shares issued and outstanding at September 30, 2019 and December 31, 2018.

The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
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CONDENSED STATEMENTS OF EQUITYBALANCE SHEETS
Kentucky Utilities Company
(Unaudited)
(Millions of Dollars)Dollars, shares in thousands)

 Common
stock
shares
outstanding
(a)		 
Common
stock
 Additional
paid-in
capital		 Earnings
reinvested		 Total
June 30, 201937,818
 $308
 $2,729
 $524
 $3,561
Net income

 

 

 95
 95
Cash dividends declared on common stock

 

 

 (76) (76)
September 30, 201937,818
 $308
 $2,729
 $543
 $3,580
          
December 31, 201837,818
 $308
 $2,661
 $473
 $3,442
Net income

 

 

 237
 237
Capital contributions from parent

 

 68
 

 68
Cash dividends declared on common stock

 

 

 (167) (167)
September 30, 201937,818
 $308
 $2,729
 $543
 $3,580
          
June 30, 201837,818
 $308
 $2,661
 $445
 $3,414
Net income

 

 

 77
 77
Cash dividends declared on common stock

 

 

 (60) (60)
September 30, 201837,818
 $308
 $2,661
 $462
 $3,431
          
December 31, 201737,818
 $308
 $2,616
 $433
 $3,357
Net income

 

 

 225
 225
Capital contributions from parent

 

 45
 

 45
Cash dividends declared on common stock

 

 

 (196) (196)
September 30, 201837,818
 $308
 $2,661
 $462
 $3,431
 September 30,
2020		December 31,
2019
Liabilities and Equity  
Current Liabilities  
Short-term debt$139 $150 
Long-term debt due within one year132 500 
Accounts payable109 121 
Accounts payable to affiliates39 52 
Customer deposits32 31 
Taxes27 26 
Regulatory liabilities12 17 
Interest43 20 
Asset retirement obligations30 46 
Other current liabilities45 51 
Total Current Liabilities608 1,014 
Long-term Debt2,485 2,123 
Deferred Credits and Other Noncurrent Liabilities  
Deferred income taxes828 792 
Investment tax credits89 90 
Asset retirement obligations100 96 
Regulatory liabilities1,076 1,090 
Other deferred credits and noncurrent liabilities50 46 
Total Deferred Credits and Other Noncurrent Liabilities2,143 2,114 
Commitments and Contingent Liabilities (Notes 7 and 11)
Stockholder's Equity  
Common stock - 0 par value (a)308 308 
Additional paid-in capital2,827 2,729 
Earnings reinvested609 537 
Total Equity3,744 3,574 
Total Liabilities and Equity$8,980 $8,825 
 
(a)Shares in thousands. All common shares of KU stock are owned by LKE.
(a)80,000 shares authorized; 37,818 shares issued and outstanding at September 30, 2020 and December 31, 2019.

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		Total
June 30, 202037,818 $308 $2,766 $581 $3,655 
Net income84 84 
Capital contributions from parent61 61 
Cash dividends declared on common stock(56)(56)
September 30, 202037,818 $308 $2,827 $609 $3,744 
December 31, 201937,818 $308 $2,729 $537 $3,574 
Net income217 217 
Capital contributions from parent98 98 
Cash dividends declared on common stock(145)(145)
September 30, 202037,818 $308 $2,827 $609 $3,744 
June 30, 201937,818 $308 $2,729 $524 $3,561 
Net income95 95 
Cash dividends declared on common stock(76)(76)
September 30, 201937,818 $308 $2,729 $543 $3,580 
December 31, 201837,818 $308 $2,661 $473 $3,442 
Net income237 237 
Capital contributions from parent68 68 
Cash dividends declared on common stock(167)(167)
September 30, 201937,818 $308 $2,729 $543 $3,580 
 
(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 notes apply:
Registrant
PPLPPL ElectricLKELG&EKU
1. Interim Financial Statementsxxxxx
2. Summary of Significant Accounting Policiesxxxxx
3. Segment and Related Informationxxxxx
4. Revenue from Contracts with Customersxxxxx
5. Earnings Per Sharex
6. Income Taxesxxxxx
7. Utility Rate Regulationxxxxx
8. Financing Activitiesxxxxx
9. Acquisitions, Development and DivestituresRegistrantx
PPLPPL ElectricLKELG&EKU
1. Interim Financial Statementsxxxxx
2. Summary of Significant Accounting Policiesxxxxx
3. Segment and Related Informationxxxxx
4. Revenue from Contracts with Customersxxxxx
5. Earnings Per Sharex
6. Income Taxesxxxxx
7. Utility Rate Regulationxxxxx
8. Financing Activitiesxxxxx
9. Leasesxxxxx
10. Defined Benefitsxxxxx
11. Commitments and Contingenciesxxxxx
12. Related Party Transactionsxxxx
13. Other Income (Expense) - netxx
14. Fair Value Measurementsxxxxx
15. Derivative Instruments and Hedging Activitiesxxxxx
16. Asset Retirement Obligationsxxxx
17. Accumulated Other Comprehensive Income (Loss)xx
18. New Accounting Guidance Pending Adoptionxxxxx

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'Registrant's 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, 20182019 is derived from that Registrant's 20182019 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 20182019 Form 10-K. The results of operations for the three and nine months ended September 30, 20192020 are not necessarily indicative of the results to be expected for the full year ending December 31, 20192020 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 20182019 Form 10-K and should be read in conjunction with those disclosures.

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Restricted Cash and Cash Equivalents (PPL and PPL Electric)

Reconciliation of Cash, Cash Equivalents and Restricted Cash

The following provides a reconciliation of Cash, Cash Equivalents and Restricted Cash reported within the Balance Sheets that sum to the total of the same amounts shown on the Statements of Cash Flows:
PPLPPL Electric
September 30,
2020		December 31,
2019		September 30,
2020		December 31,
2019
Cash and cash equivalents$746 $815 $26 $262 
Restricted cash - current (a)3 3 2 2 
Restricted cash - noncurrent (a)20 18 0 0 
Total Cash, Cash Equivalents and Restricted Cash$769 $836 $28 $264 

(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."

Current Expected Credit Losses

(All Registrants)

Financing receivable collectability is evaluated using a combination of factors, including past due status based on contractual terms, trends in write-offs and the age of the receivable. Specific events, such as bankruptcies, are also considered when applicable. Adjustments to the reserve for credit losses are made when necessary based on the results of analysis, the aging of receivables and historical and industry trends. The Registrants periodically evaluate the impact of observable external factors on the collectability of the financing receivables to determine if adjustments to the reserve for credit losses should be made based on current conditions or reasonable and supportable forecasts.

Accounts receivable are written off in the period in which the receivable is deemed uncollectible.

(PPL and PPL Electric)

PPL Electric has identified one class of financing receivables, “accounts receivable-customer”, which includes financing receivables for all billed and unbilled sales with residential and non-residential customers. All other financing receivables are classified as other. Within the credit loss model for the residential customer accounts receivables, customers are disaggregated based on their projected propensity to pay, which is derived from historical trends and the current activity of the individual customer accounts. Conversely, the non-residential customer accounts receivables are not further segmented due to the varying nature of the individual customers, which lack readily identifiable risk characteristics for disaggregation.

(PPL, LKE, LG&E and KU)

LKE, LG&E and KU have identified one class of financing receivables, “accounts receivable-customer”, which includes financing receivables for all billed and unbilled sales with customers. All other financing receivables are classified as other.

(All Registrants)

The following table shows changes in the allowance for credit losses for the nine months ended September 30, 2020:
    
Balance at
Beginning of Period (a)		Charged to IncomeDeductions (b)Balance at
End of Period
PPL    
Accounts Receivable - Customer and Unbilled Revenue$30 $22 $9 $43 
Other (c)27 2 0 29 
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 PPL PPL Electric
 September 30,
2019		 December 31,
2018		 September 30,
2019		 December 31,
2018
Cash and cash equivalents$670
 $621
 $27
 $267
Restricted cash - current (a)3
 3
 2
 2
Restricted cash - noncurrent (a)17
 19
 —
 —
Total Cash, Cash Equivalents and Restricted Cash$690
 $643
 $29
 $269
    
Balance at
Beginning of Period (a)		Charged to IncomeDeductions (b)Balance at
End of Period
PPL Electric    
Accounts Receivable - Customer and Unbilled Revenue$25 $12 $3 $34 
Other1 1 0 2 
LKE    
Accounts Receivable - Customer and Unbilled Revenue$2 $7 $5 $4 
Other (c)26 1 0 27 
LG&E    
Accounts Receivable - Customer and Unbilled Revenue$1 $4 $3 $2 
KU    
Accounts Receivable - Customer and Unbilled Revenue$1 $3 $2 $2 

(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."
(a)Reflects cumulative-effect adjustment upon adoption of current expected credit loss guidance.
(b)Primarily related to uncollectible accounts receivable written off.
(c)Primarily related to receivables at WKE, which are fully reserved.

Asset Impairment (Excluding Investments)

(PPL, LKE, LG&E and KU)

PPL, LKE, LG&E and KU review goodwill for impairment at the reporting unit level annually or more frequently when events or circumstances indicate that the carrying amount of a reporting unit may be greater than the unit's fair value. PPL's, LKE's, LG&E's and KU's reporting units are primarily at the operating segment level.

During the three month period ended March 31, 2020, PPL, LKE, LG&E and KU considered whether the economic events associated with COVID-19, which resulted in PPL’s shares experiencing volatility and a decrease in market value, would more likely than not reduce the fair value of the Registrants’ reporting units below their carrying amounts. See "Risks and Uncertainties" in Note 11 for additional information about COVID-19. Based on our assessment, a quantitative impairment test was not required for the LKE, LG&E and KU reporting units, but was required for the U.K. Regulated segment reporting unit, the allocated goodwill of which was $2.5 billion at March 31, 2020. The test did not indicate impairment of the reporting unit.

During the three month periods ended June 30, 2020 and September 30, 2020, no goodwill impairment triggers were identified. However, an impairment charge could occur in future periods if PPL’s share price or any of the assumptions used in determining fair value of the reporting units are negatively impacted.

(PPL)

On August 10, 2020, PPL announced that it is initiating a formal process to sell its U.K. utility business. As a result of the potential sale, PPL assessed the recoverability of the assets of its U.K. utility business. See Note 9 for additional information.

New Accounting Guidance Adopted

(All Registrants)

Accounting for LeasesFinancial Instrument Credit Losses

Effective January 1, 2019, the Registrants adopted accounting guidance that requires lessees to recognize a 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 lessees, requiring leases to be classified as either operating or finance. Operating leases result in straight-line expense recognition. Currently, all Registrant leases are 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 Registrants did not re-assess the 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 the new guidance. New land easements are evaluated under the new guidance beginning January 1, 2019.

See Note 9 for the required disclosures resulting from the adoption of the new guidance.

(PPL, LKE, LG&E & KU)

The following table shows the amounts recorded on the Balance Sheets as of January 1, 2019 as a result of the adoption of the new lease guidance using a modified retrospective transition method with transition applied as of the beginning of the period of adoption:

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 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)Right-of-Use Assets are recorded in "Other noncurrent assets" on the Balance Sheets.
(b)Current lease liabilities are recorded in "Other current liabilities" on the Balance Sheets.
(c)Noncurrent lease liabilities are recorded in "Other deferred credits and noncurrent liabilities" on the Balance Sheets.

(All Registrants)

Improvements to Accounting for Hedging Activities

Effective January 1, 2019,2020, the Registrants adopted accounting guidance, using a modified retrospective approach, which reduces complexity when applying hedge accounting as well as improvesthat requires the transparencyuse 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 providesa current expected credit loss (CECL) model for the abilitymeasurement of credit losses on financial instruments within the scope of the guidance, which includes accounts receivable. The CECL model requires an entity to perform subsequent qualitative effectiveness assessments.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 previous GAAP. The adoption of this guidance did not have a material impact on the Registrants.

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Accounting for Implementation Costs in a Cloud Computing Service Arrangement

Effective January 1, 2020, the Registrants prospectively adopted 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. 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 allows entities to applyprescribes 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 disclosuresfinancial statement classification of the income statement impacts of hedging activities required fromcapitalized implementation costs and cash flows associated with the arrangement. The adoption of this guidance. Disclosures related to ineffectiveness are no longer required. Other impactsguidance did not have a material impact on the Registrants.

(PPL, LKE, LG&E and KU)

Simplifying the Test for Goodwill Impairment

Effective January 1, 2020, the Registrants adopted accounting guidance that simplifies the test for goodwill impairment by eliminating the second step of adoptingthe quantitative test. The second step of the quantitative test required a calculation of the implied fair value of goodwill, which was determined in the same manner as the amount of goodwill in a business combination. Under the new guidance, the fair value of a reporting unit will be compared with the carrying value and an impairment charge will be recognized if the carrying amount exceeds the fair value of the reporting unit. The adoption of this guidance weredid not material.

have a material impact on the Registrants.

3. Segment and Related Information

(PPL)

See Note 2 in PPL's 20182019 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 are as follows:
 Three MonthsNine Months
 2020201920202019
Operating Revenues from external customers  
U.K. Regulated$485 $491 $1,575 $1,615 
Kentucky Regulated806 844 2,331 2,421 
Pennsylvania Regulated586 590 1,748 1,756 
Corporate and Other8 8 24 23 
Total$1,885 $1,933 $5,678 $5,815 
Net Income    
U.K. Regulated (a)$55 $236 $574 $784 
Kentucky Regulated129 150 330 364 
Pennsylvania Regulated135 118 371 333 
Corporate and Other(38)(29)(96)(99)
Total$281 $475 $1,179 $1,382 
 Three Months Nine Months
 2019 2018 2019 2018
Operating Revenues from external customers       
U.K. Regulated$491
 $517
 $1,615
 $1,716
Kentucky Regulated844
 802
 2,421
 2,417
Pennsylvania Regulated590
 548
 1,756
 1,704
Corporate and Other8
 5
 23
 9
Total$1,933
 $1,872
 $5,815
 $5,846
        
Net Income 
  
  
  
U.K. Regulated (a)$236
 $245
 $784
 $836
Kentucky Regulated150
 122
 364
 332
Pennsylvania Regulated118
 112
 333
 335
Corporate and Other(29) (34) (99) (91)
Total$475
 $445
 $1,382
 $1,412

(a)Includes unrealized gains and losses from hedging foreign currency economic activity. See Note 15 for additional information.

(a)Includes unrealized gains and losses from hedging foreign currency economic activity. See Note 15 for additional information.

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

September 30,
2020		December 31,
2019
Assets  
U.K. Regulated (a) (b)$19,183 $17,622 
Kentucky Regulated15,754 15,597 
Pennsylvania Regulated12,225 11,918 
Corporate and Other (c)762 543 
Total$47,924 $45,680 
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 September 30,
2019		 December 31,
2018
Assets 
  
U.K. Regulated (a) (b)$17,128
 $16,700
Kentucky Regulated15,434
 15,078
Pennsylvania Regulated12,116
 11,257
Corporate and Other (c)(119) 361
Total$44,559
 $43,396

(a)Includes $14.2 billion and $13.2 billion of net PP&E as of September 30, 2020 and December 31, 2019. WPD is not subject to accounting for the effects of certain types of regulation as prescribed by GAAP.
36

(a)Includes $12.3 billion and $12.4 billion of net PP&E as of September 30, 2019 and December 31, 2018. WPD is not subject to accounting for the effects of certain types of regulation as prescribed by GAAP.
(b)Includes $2.3 billion and $2.4 billion of goodwill as of September 30, 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, the elimination of inter-segment transactions as well as the assets of Safari Energy.
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(b)Includes $2.6 billion and $2.5 billion of goodwill as of September 30, 2020 and December 31, 2019. The change is due to the effect of foreign currency exchange rates.
(c)Primarily consists of unallocated items, including cash, PP&E, goodwill, the elimination of inter-segment transactions as well as the assets of Safari Energy.

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

PPL Electric has 2two operating segments, 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)

See Note 3 in PPL's 20182019 Form 10-K for a discussion of the principal activities from which the Registrants and PPL’s segments generate their revenues.

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.
2020 Three Months
PPLPPL ElectricLKELG&EKU
Operating Revenues (a)$1,885 $586 $806 $363 $452 
   Revenues derived from:
Alternative revenue programs (b)(1)(5)4 2 2 
Other (c)(5)0 (4)(2)(2)
Revenues from Contracts with Customers$1,879 $581 $806 $363 $452 
2019 Three Months
PPLPPL ElectricLKELG&EKU
Operating Revenues (a)$1,933 $590 $844 $382 $466 
   Revenues derived from:
Alternative revenue programs (b)8 2 6 4 2 
Other (c)(11)(3)(6)(3)(3)
Revenues from Contracts with Customers$1,930 $589 $844 $383 $465 
 2019 Three Months
 PPL PPL Electric LKE LG&E KU
Operating Revenues (a)$1,933
 $590
 $844
 $382
 $466
   Revenues derived from:         
Alternative revenue programs (b)8
 2
 6
 4
 2
Other (c)(11) (3) (6) (3) (3)
Revenues from Contracts with Customers$1,930
 $589
 $844
 $383
 $465
  
 2018 Three Months
 PPL PPL Electric LKE LG&E KU
Operating Revenues (a)$1,872
 $548
 $802
 $362
 $447
   Revenues derived from:  

 

 

 

Alternative revenue programs (b)(4) (3) (1) (4) 3
Other (c)(15) (3) (5) (2) (3)
Revenues from Contracts with Customers$1,853
 $542
 $796
 $356
 $447

2020 Nine Months
PPLPPL ElectricLKELG&EKU
Operating Revenues (a)$5,678 $1,748 $2,331 $1,092 $1,272 
   Revenues derived from:
Alternative revenue programs (b)(12)(6)(6)(2)(4)
Other (c)(22)(3)(14)(6)(8)
Revenues from Contracts with Customers$5,644 $1,739 $2,311 $1,084 $1,260 
2019 Nine Months
PPLPPL ElectricLKELG&EKU
Operating Revenues (a)$5,815 $1,756 $2,421 $1,126 $1,322 
   Revenues derived from:
Alternative revenue programs (b)(18)(4)(14)(1)(13)
Other (c)(30)(8)(16)(7)(9)
Revenues from Contracts with Customers$5,767 $1,744 $2,391 $1,118 $1,300 

(a)PPL includes $485 million and $1,575 million for the three and nine months ended September 30, 2020 and $491 million and $1,615 million for the three and nine months ended September 30, 2019 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.
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 2019 Nine Months
 PPL PPL Electric LKE LG&E KU
Operating Revenues (a)$5,815
 $1,756
 $2,421
 $1,126
 $1,322
   Revenues derived from:  

 

 

 

Alternative revenue programs (b)(18) (4) (14) (1) (13)
Other (c)(30) (8) (16) (7) (9)
Revenues from Contracts with Customers$5,767
 $1,744
 $2,391
 $1,118
 $1,300
  


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(b)Alternative revenue programs include the transmission formula rate for PPL Electric, the ECR and DSM programs for LG&E and KU, the GLT program for LG&E, and the generation formula rate for KU. This line item shows the over/under collection of these rate mechanisms with over-collections of revenue shown as positive amounts in the table above and under-collections shown as negative amounts.
(c)Represents additional revenues outside the scope of revenues from contracts with customers, such as lease and other miscellaneous revenues.

The following tables show revenues from contracts with customers disaggregated by customer class for the periods ended September 30.
2020 Three Months
PPL (d)PPL Electric (d)LKELG&EKU
Licensed energy suppliers (a)$440 $0 $0 $0 $0 
Residential651 303 348 173 175 
Commercial310 79 231 112 119 
Industrial156 13 143 47 96 
Other (b)130 12 66 28 38 
Wholesale - municipality7 0 7 0 7 
Wholesale - other (c)11 0 11 3 17 
Transmission174 174 0 0 0 
Revenues from Contracts with Customers$1,879 $581 $806 $363 $452 
2019 Three Months
PPLPPL ElectricLKELG&EKU
Licensed energy suppliers (a)$454 $0 $0 $0 $0 
Residential708 352 356 177 179 
Commercial346 97 249 123 126 
Industrial164 16 148 47 101 
Other (b)128 12 73 31 42 
Wholesale - municipality6 0 6 0 6 
Wholesale - other (c)12 0 12 5 11 
Transmission112 112 0 0 0 
Revenues from Contracts with Customers$1,930 $589 $844 $383 $465 

2020 Nine Months
PPL (d)PPL Electric (d)LKELG&EKU
Licensed energy suppliers (a)$1,472 $0 $0 $0 $0 
Residential1,948 937 1,011 509 502 
Commercial896 234 662 336 326 
Industrial434 33 401 130 271 
Other (b)354 38 194 84 110 
Wholesale - municipality15 0 15 0 15 
Wholesale - other (c)28 0 28 25 36 
Transmission497 497 0 0 0 
Revenues from Contracts with Customers$5,644 $1,739 $2,311 $1,084 $1,260 
2019 Nine Months
PPLPPL ElectricLKELG&EKU
Licensed energy suppliers (a)$1,520 $0 $0 $0 $0 
Residential2,058 1,060 998 504 494 
Commercial967 279 688 352 336 
Industrial470 48 422 134 288 
Other (b)360 39 209 93 116 
Wholesale - municipality38 0 38 0 38 
Wholesale - other (c)36 0 36 35 28 
Transmission318 318 0 0 0 
Revenues from Contracts with Customers$5,767 $1,744 $2,391 $1,118 $1,300 

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 2018 Nine Months
 PPL PPL Electric LKE LG&E KU
Operating Revenues (a)$5,846
 $1,704
 $2,417
 $1,116
 $1,332
   Revenues derived from:

   

 

 

Alternative revenue programs (b)37
 (1) 38
 16
 22
Other (c)(43) (9) (14) (5) (9)
Revenues from Contracts with Customers$5,840
 $1,694
 $2,441
 $1,127
 $1,345
(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.
(d)In the fourth quarter of 2019, management deemed it appropriate to present the revenue offset associated with network integration transmission service (NITS) as distribution revenue rather than transmission revenue.

(a)PPL includes $491 million and $1,615 million for the three and nine months ended September 30, 2019 and $517 million and $1,716 million for the three and nine months ended September 30, 2018 of revenues from external customers reported by the U.K. Regulated segment. PPL Electric and LKE represent revenues from external customers reported by the Pennsylvania Regulated and Kentucky Regulated segments. See Note 3 for additional information.
(b)Alternative revenue programs include the transmission formula rate for PPL Electric, the ECR and DSM programs for LG&E and KU, the GLT program for LG&E, and the generation formula rate for KU. This line item shows the over/under collection of these rate mechanisms with over-collections of revenue shown as positive amounts in the table above and under-collections 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 20182019 Form 10-K, PPL'sPPL segments are segmentedits business by geographic location. Revenues from external customers for each segment/geographic location are reconciled to revenues from contracts with customers in the footnotes to the tables above.

The following tables show revenues from contracts with customers disaggregated by customer class for the periods ended September 30.
 2019 Three Months
 PPL PPL Electric LKE LG&E KU
Licensed energy suppliers (a)$454
 $—
 $—
 $—
 $—
Residential708
 352
 356
 177
 179
Commercial346
 97
 249
 123
 126
Industrial164
 16
 148
 47
 101
Other (b)128
 12
 73
 31
 42
Wholesale - municipality6
 —
 6
 —
 6
Wholesale - other (c)12
 —
 12
 5
 11
Transmission112
 112
 —
 —
 —
Revenues from Contracts with Customers$1,930
 $589
 $844
 $383
 $465
          
 2018 Three Months
 PPL PPL Electric LKE LG&E KU
Licensed energy suppliers (a)$475
 $—
 $—
 $—
 $—
Residential647
 328
 319
 162
 157
Commercial307
 88
 219
 112
 107
Industrial156
 12
 144
 45
 99
Other (b)119
 14
 65
 27
 39
Wholesale - municipality30
 —
 30
 —
 30
Wholesale - other (c)19
 —
 19
 10
 15
Transmission100
 100
 —
 —
 —
Revenues from Contracts with Customers$1,853
 $542
 $796
 $356
 $447



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 2019 Nine Months
 PPL PPL Electric LKE LG&E KU
Licensed energy suppliers (a)$1,520
 $—
 $—
 $—
 $—
Residential2,058
 1,060
 998
 504
 494
Commercial967
 279
 688
 352
 336
Industrial470
 48
 422
 134
 288
Other (b)360
 39
 209
 93
 116
Wholesale - municipality38
 —
 38
 —
 38
Wholesale - other (c)36
 —
 36
 35
 28
Transmission318
 318
 —
 —
 —
Revenues from Contracts with Customers$5,767
 $1,744
 $2,391
 $1,118
 $1,300
          
 2018 Nine Months
 PPL PPL Electric LKE LG&E KU
Licensed energy suppliers (a)$1,606
 $—
 $—
 $—
 $—
Residential2,039
 1,036
 1,003
 505
 498
Commercial928
 275
 653
 343
 310
Industrial466
 37
 429
 134
 295
Other (b)339
 40
 200
 88
 113
Wholesale - municipality91
 —
 91
 —
 91
Wholesale - other (c)65
 —
 65
 57
 38
Transmission306
 306
 —
 —
 —
Revenues from Contracts with Customers$5,840
 $1,694
 $2,441
 $1,127
 $1,345

(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 $407 million and $174 million for the three months ended September 30, 2020 and $1.2 billion and $497 million for the nine months ended September 30, 2020. PPL Electric's revenue from contracts with customers disaggregated by distribution and transmission were $477 million and $112 million for the three months ended September 30, 2019 and $1.4 billion and $318 million for the nine months ended September 30, 2019. PPL Electric's revenue from contracts with customers disaggregated by distribution and transmission 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.

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

The following table shows the accounts receivable and unbilled revenues balances that were impaired for the periods ended September 30.
Three MonthsNine Months
2020201920202019
PPL$8 $11 $22 $22 
PPL Electric3 8 12 14 
LKE4 2 7 5 
LG&E3 1 4 2 
KU1 1 3 3 
 Three Months Nine Months
 2019 2018 2019 2018
PPL$11
 $11
 $22
 $24
PPL Electric8
 7
 14
 17
LKE2
 4
 5
 7
LG&E1
 2
 2
 3
KU1
 2
 3
 4


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

PPLPPL ElectricLKELG&EKU
Contract liabilities at December 31, 2019$44 $21 $9 $5 $4 
Contract liabilities at September 30, 202040 18 9 5 4 
Revenue recognized during the nine months ended September 30, 2020 that was included in the contract liability balance at December 31, 201928 9 9 5 4 
Contract liabilities at December 31, 2018$42 $23 $9 $5 $4 
Contract liabilities at September 30, 201942 19 9 5 4 
Revenue recognized during the nine months ended September 30, 2019 that was included in the contract liability balance at December 31, 201831 11 9 5 4 
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 PPL PPL Electric LKE LG&E KU
Contract liabilities at December 31, 2018$42
 $23
 $9
 $5
 $4
Contract liabilities at September 30, 201942
 19
 9
 5
 4
Revenue recognized during the nine months ended September 30, 2019 that was included in the contract liability balance at December 31, 201831
 11
 9
 5
 4
          
Contract liabilities at December 31, 2017$29
 $19
 $8
 $4
 $4
Contract liabilities at September 30, 201840
 17
 8
 4
 4
Revenue recognized during the nine months ended September 30, 2018 that was included in the contract liability balance at December 31, 201722
 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, 2019,2020, PPL had $48$40 million of performance obligations attributable to Corporate and Other that have not been satisfied. Of this amount, PPL expects to recognize approximately $41$40 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. These dilutive securities also include the PPL common stock forward sale agreements, entered intowhich were settled in May 2018. See Note 8 in PPL's 2018 Form 10-K for additional information on these agreements.2019. The forward sale
39

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agreements arewere dilutive under the Treasury Stock Method to the extent the average stock price of PPL's common shares exceedsexceeded 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 used in the EPS calculation are:
 Three Months Nine Months
 2019 2018 2019 2018
Income (Numerator) 
  
  
  
Net income$475
 $445
 $1,382
 $1,412
Less amounts allocated to participating securities—
 1
 2
 2
Net income available to PPL common shareowners - Basic and Diluted$475
 $444
 $1,380
 $1,410
        
Shares of Common Stock (Denominator) 
  
  
  
Weighted-average shares - Basic EPS722,259
 703,730
 721,693
 699,117
Add incremental non-participating securities: 
  
  
  
Share-based payment awards1,106
 298
 1,009
 427
Forward sale agreements7,786
 6,489
 7,975
 2,761
Weighted-average shares - Diluted EPS731,151
 710,517
 730,677
 702,305
        
Basic EPS 
  
  
  
Net Income available to PPL common shareowners$0.66
 $0.63
 $1.91
 $2.02
        
Diluted EPS 
  
  
  
Net Income available to PPL common shareowners$0.65
 $0.62
 $1.89
 $2.01

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 Three MonthsNine Months
 2020201920202019
Income (Numerator)    
Net income$281 $475 $1,179 $1,382 
Less amounts allocated to participating securities0 0 1 2 
Net income available to PPL common shareowners - Basic and Diluted$281 $475 $1,178 $1,380 
Shares of Common Stock (Denominator)    
Weighted-average shares - Basic EPS768,786 722,259 768,502 721,693 
Add incremental non-participating securities:    
Share-based payment awards874 1,106 768 1,009 
Forward sale agreements0 7,786 0 7,975 
Weighted-average shares - Diluted EPS769,660 731,151 769,270 730,677 
Basic EPS    
Net Income available to PPL common shareowners$0.37 $0.66 $1.53 $1.91 
Diluted EPS    
Net Income available to PPL common shareowners$0.37 $0.65 $1.53 $1.89 
 
For the periods ended September 30, PPL issued common stock related to stock-based compensation plans and the DRIP as follows (in thousands):
 Three MonthsNine Months
 2020201920202019
Stock-based compensation plans14 38 621 680 
DRIP0 430 943 1,305 
 Three Months Nine Months
 2019 2018 2019 2018
Stock-based compensation plans (a)38
 80
 680
 568
DRIP430
 493
 1,305
 1,504
(a)Includes stock options exercised, vesting of performance units, vesting of restricted stock units and conversion of stock units granted to directors.

For the periods ended September 30, the following shares (in thousands) were excluded from the computations of diluted EPS because the effect would have been antidilutive.
 Three MonthsNine Months
2020201920202019
Stock-based compensation awards364 0 595 0 
 Three Months Nine Months
 2019 2018 2019 2018
Stock options—
 15
 —
 229
Restricted stock units—
 2
 —
 15
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6. Income Taxes

Reconciliations of income taxestax expense (benefit) for the periods ended September 30 are as follows.
(PPL)
Three MonthsNine Months
 2020201920202019
Federal income tax on Income Before Income Taxes at statutory tax rate - 21%$103 $125 $336 $359 
Increase (decrease) due to:    
State income taxes, net of federal income tax benefit15 13 39 34 
Valuation allowance adjustments7 7 20 21 
Impact of lower U.K. income tax rates2 (6)(18)(20)
Impact of the U.K. Finance Acts on deferred tax balances (a)104 (5)101 (8)
Depreciation and other items not normalized0 (2)(4)(5)
Amortization of excess deferred federal and state income taxes(11)(9)(34)(30)
Federal and state income tax return adjustments(9)0 (9)1 
Interest benefit on U.K. financing entities(3)(3)(8)(9)
Officers compensation disallowance1 0 5 2 
Kentucky recycling credit, net of federal income tax expense (b)0 0 0 (20)
Other0 (2)(5)3 
Total increase (decrease)106 (7)87 (31)
Total income tax expense (benefit)$209 $118 $423 $328 
(PPL)
 Three Months Nine Months
 2019 2018 2019 2018
Federal income tax on Income Before Income Taxes at statutory tax rate - 21%$125
 $115
 $359
 $373
Increase (decrease) due to: 
  
  
  
State income taxes, net of federal income tax benefit13
 9
 34
 34
Valuation allowance adjustments (a)7
 5
 21
 17
Impact of lower U.K. income tax rates(6) (7) (20) (20)
Impact of the U.K. Finance Act on deferred tax balances(5) (4) (8) (7)
Depreciation and other items not normalized(2) (1) (5) (4)
Amortization of excess deferred federal and state income taxes(9) (11) (30) (30)
Deferred tax impact of state tax reform (b)—
 —
 —
 9
Interest benefit on U.K. financing entities(3) (4) (9) (13)
Kentucky recycling credit, net of federal income tax expense (a)—
 —
 (20) —
Other(2) 1
 6
 3
Total increase (decrease)(7) (12) (31) (11)
Total income taxes$118
 $103
 $328
 $362


(a)During the second quarter of 2019, LKE recorded a deferred income tax benefit associated with two projects placed into service that prepare a generation waste material for reuse and, as a result, qualify for a Kentucky recycling credit. The applicable credit provides tax benefits for a portion of the equipment costs for major recycling projects in Kentucky, with the benefit recognized during the period in which the assets are placed into service. A valuation allowance of $3 million has been recognized related to this credit due to insufficient Kentucky taxable income projected at LKE. During the third quarter of 2019, LKE filed the Kentucky recycling credit application with the Kentucky Department of Revenue and expects a ruling in the fourth quarter of 2019.
(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.

(a) The U.K. corporation tax rate was scheduled to be reduced from 19% to 17%, effective April 1, 2020. On March 11, 2020, the U.K. Finance Act 2020 included a cancellation of the tax rate reduction to 17%, thereby maintaining the corporation tax rate at 19%. The Finance Act 2020 was formally enacted on July 22, 2020. The primary impact of the cancellation of the corporation tax rate reduction was an increase in deferred tax liabilities and a corresponding deferred tax expense of $106 million.
Table(b) During the second quarter of Contents2019, LKE recorded a deferred income tax benefit associated with two projects placed into service that prepare a generation waste material for reuse and, as a result, qualify for a Kentucky recycling credit. The applicable credit provides tax benefits for a portion of the equipment costs for major recycling projects in Kentucky. A portion of this amount has been reserved due to insufficient Kentucky taxable income projected at LKE.


(PPL Electric)  
 Three MonthsNine Months
 2020201920202019
Federal income tax on Income Before Income Taxes at statutory tax rate - 21%$37 $33 $104 $94 
Increase (decrease) due to:    
State income taxes, net of federal income tax benefit14 13 39 36 
Federal and state income tax return adjustments(4)0 (4)1 
Depreciation and other items not normalized0 (2)(4)(5)
Amortization of excess deferred federal and state income taxes(4)(4)(12)(12)
Other1 0 2 0 
Total increase (decrease)7 7 21 20 
Total income tax expense (benefit)$44 $40 $125 $114 

(PPL Electric)       
 Three Months Nine Months
 2019 2018 2019 2018
Federal income tax on Income Before Income Taxes at statutory tax rate - 21%$33
 $30
 $94
 $93
Increase (decrease) due to: 
  
  
  
State income taxes, net of federal income tax benefit13
 12
 36
 35
Depreciation and other items not normalized(2) (1) (5) (4)
Amortization of excess deferred income taxes(4) (5) (12) (13)
Other—
 (1) 1
 —
Total increase (decrease)7
 5
 20
 18
Total income taxes$40
 $35
 $114
 $111

(LKE)       
 Three Months Nine Months
 2019 2018 2019 2018
Federal income tax on Income Before Income Taxes at statutory tax rate - 21%$42
 $34
 $98
 $97
Increase (decrease) due to: 
  
  
  
State income taxes, net of federal income tax benefit8
 6
 18
 17
Amortization of investment tax credit(1) (1) (2) (3)
Deferred tax impact of U.S tax reform—
 (2) —
 (2)
Deferred tax impact of state tax reform (a)—
 —
 —
 9
Valuation allowance adjustments (b)—
 —
 3
 —
Amortization of excess deferred federal and state income taxes(5) (3) (17) (14)
Kentucky recycling credit, net of federal income tax expense (b)—
 —
 (20) —
Other(1) (2) (2) (2)
Total increase (decrease)1
 (2) (20) 5
Total income taxes$43
 $32
 $78
 $102
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(a)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.
(b)During the second quarter of 2019, LKE recorded a deferred income tax benefit associated with two projects placed into service that prepare a generation waste material for reuse and, as a result, qualify for a Kentucky recycling credit. The applicable credit provides tax benefits for a portion of the equipment costs for major recycling projects in Kentucky, with the benefit recognized during the period in which the assets are placed into service. A portion of this amount has been reserved due to insufficient Kentucky taxable income projected at LKE. During the third quarter of 2019, LKE filed the Kentucky recycling credit application with the Kentucky Department of Revenue and expects a ruling in the fourth quarter of 2019.
(LKE)  
 Three MonthsNine Months
 2020201920202019
Federal income tax on Income Before Income Taxes at statutory tax rate - 21%$35 $42 $92 $98 
Increase (decrease) due to:    
State income taxes, net of federal income tax benefit7 8 17 18 
Amortization of investment tax credit(1)(1)(2)(2)
Valuation allowance adjustments (a)0 0 0 3 
Amortization of excess deferred federal and state income taxes(7)(5)(20)(17)
Federal and state income tax return adjustments(5)1 (5)1 
Kentucky recycling credit, net of federal income tax expense (a)0 0 0 (20)
Other2 (2)0 (3)
Total increase (decrease)(4)1 (10)(20)
Total income tax expense (benefit)$31 $43 $82 $78 
(LG&E)       
 Three Months Nine Months
 2019 2018 2019 2018
Federal income tax on Income Before Income Taxes at statutory tax rate - 21%$21
 $18
 $50
 $50
Increase (decrease) due to: 
  
  
  
State income taxes, net of federal income tax benefit4
 3
 9
 9
Valuation allowance adjustments (a)—
 —
 15
 —
Amortization of excess deferred federal and state income taxes(2) (1) (7) (6)
Kentucky recycling credit, net of federal income tax expense (a)—
 —
 (15) —
Other(1) (2) (1) (2)
Total increase (decrease)1
 —
 1
 1
Total income taxes$22
 $18
 $51
 $51


(a)During the second quarter of 2019, LG&E recorded a deferred income tax benefit associated with two projects placed into service that prepare a generation waste material for reuse and, as a result, qualify for a Kentucky recycling credit. The applicable credit provides tax benefits for a portion of the equipment costs for major recycling projects in Kentucky, with the benefit recognized during the period in which the assets are placed into service. This amount has been reserved due to insufficient Kentucky taxable income projected at LG&E.

(a)During the second quarter of 2019, LKE recorded a deferred income tax benefit associated with two projects placed into service that prepare a generation waste material for reuse and, as a result, qualify for a Kentucky recycling credit. The applicable credit provides tax benefits for a portion of the equipment costs for major recycling projects in Kentucky. A portion of this amount has been reserved due to insufficient Kentucky taxable income projected at LKE.
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(KU)       
 Three Months Nine Months
 2019 2018 2019 2018
Federal income tax on Income Before Income Taxes at statutory tax rate - 21%$25
 $21
 $63
 $60
Increase (decrease) due to: 
  
  
  
State income taxes, net of federal income tax benefit5
 3
 12
 10
Valuation allowance adjustments (a)—
 —
 5
 —
Amortization of excess deferred federal and state income taxes(3) (2) (10) (8)
Kentucky recycling credit, net of federal income tax expense (a)—
 —
 (5) —
Other(1) (1) (3) (3)
Total increase (decrease)1
 —
 (1) (1)
Total income taxes$26
 $21
 $62
 $59

(LG&E)  
 Three MonthsNine Months
 2020201920202019
Federal income tax on Income Before Income Taxes at statutory tax rate - 21%$18 $21 $50 $50 
Increase (decrease) due to:    
State income taxes, net of federal income tax benefit3 4 9 9 
Valuation allowance adjustments (a)0 0 0 15 
Amortization of excess deferred federal and state income taxes(3)(2)(8)(7)
Federal and state income tax return adjustments(2)1 (2)1 
Kentucky recycling credit, net of federal income tax expense (a)0 0 0 (15)
Other0 (2)(2)(2)
Total increase (decrease)(2)1 (3)1 
Total income tax expense (benefit)$16 $22 $47 $51 

(a)During the second quarter of 2019, KU recorded a deferred income tax benefit associated with a project placed into service that prepares a generation waste material for reuse and, as a result, qualifies for a Kentucky recycling credit. The applicable credit provides tax benefits for a portion of the equipment costs for major recycling projects in Kentucky, with the benefit recognized during the period in which the assets are placed into service. This amount has been reserved due to insufficient Kentucky taxable income projected at KU.
(a)During the second quarter of 2019, LG&E recorded a deferred income tax benefit associated with two projects placed into service that prepare a generation waste material for reuse and, as a result, qualify for a Kentucky recycling credit. The applicable credit provides tax benefits for a portion of the equipment costs for major recycling projects in Kentucky. This amount has been reserved due to insufficient Kentucky taxable income projected at LG&E.

(KU)  
 Three MonthsNine Months
 2020201920202019
Federal income tax on Income Before Income Taxes at statutory tax rate - 21%$22 $25 $56 $63 
Increase (decrease) due to:    
State income taxes, net of federal income tax benefit4 5 11 12 
Valuation allowance adjustments (a)0 0 0 5 
Amortization of excess deferred federal and state income taxes(4)(3)(12)(10)
Federal and state income tax return adjustments(3)0 (3)0 
Kentucky recycling credit, net of federal income tax expense (a)0 0 0 (5)
Other0 (1)(2)(3)
Total increase (decrease)(3)1 (6)(1)
Total income tax expense (benefit)$19 $26 $50 $62 

(a)During the second quarter of 2019, KU recorded a deferred income tax benefit associated with a project placed into service that prepares a generation waste material for reuse and, as a result, qualifies for a Kentucky recycling credit. The applicable credit provides tax benefits for a portion of the equipment costs for major recycling projects in Kentucky. This amount has been reserved due to insufficient Kentucky taxable income projected at KU.

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Other

U.S. Tax Reform2020 TCJA Regulatory Update (All Registrants)


TheIRS issued proposed regulations for certain provisions of the TCJA in 2018, including interest deductibility and Global Intangible Low-Taxed Income (GILTI). In June 2019,July 2020, the IRS issued both final and new proposed regulations relating to GILTI. PPL has determined that neither theselimitations on interest deductibility for tax purposes. The Registrants will apply the final norregulations beginning in the 2021 tax year. The proposed regulations materially change PPL's current interpretation of the statutory impact of these rules on the Registrants. Proposed regulations relating to the limitation on the deductibility of interest expense were issuedwill apply 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 in the fourth quarter of 2019. It is uncertain what form2021 or later. The Registrants are evaluating the final and proposed regulations, will take and, therefore,but do not expect the Registrants cannot predict whatregulations to have a material impact the final regulations will have on the tax deductibilityRegistrants’ financial condition or results of interest expense. However, if the proposed regulations were issued as final in their current form, the Registrants could have a limitation on a portion of their interest expense deduction for tax purposes and such limitation could be significant. PPL expressed its views on these proposed regulations in a comment letter addressed to the IRS on February 26, 2019.

operations.

7. Utility Rate Regulation

(All Registrants)

The following table provides information about the regulatory assets and liabilities of cost-based rate-regulated utility operations.
PPLPPL Electric
September 30,
2020		December 31,
2019		September 30,
2020		December 31,
2019
Current Regulatory Assets:    
Plant outage costs$44 $32 $0 $0 
Gas supply clause4 8 0 0 
Smart meter rider17 13 17 13 
Transmission formula rate9 3 9 3 
Transmission service charge2 10 2 10 
Other6 1 0 0 
Total current regulatory assets (a)$82 $67 $28 $26 
Noncurrent Regulatory Assets:    
Defined benefit plans$750 $800 $450 $467 
Storm costs27 39 9 15 
Unamortized loss on debt33 41 11 18 
Interest rate swaps26 22 0 0 
Terminated interest rate swaps77 81 0 0 
Accumulated cost of removal of utility plant237 220 237 220 
AROs297 279 0 0 
Act 129 compliance rider0 6 0 6 
Other3 4 1 0 
Total noncurrent regulatory assets$1,450 $1,492 $708 $726 
 PPL PPL Electric
 September 30,
2019		 December 31,
2018		 September 30,
2019		 December 31,
2018
Current Regulatory Assets:       
Gas supply clause$10
 $12
 $—
 $—
Smart meter rider13
 11
 13
 11
Plant outage costs17
 10
 —
 —
Transmission service charge8
 —
 8
 —
Other1
 3
 1
 —
Total current regulatory assets (a)$49
 $36
 $22
 $11
        

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PPLPPL Electric
September 30,
2020		December 31,
2019		September 30,
2020		December 31,
2019
Current Regulatory Liabilities:    
Generation supply charge$23 $23 $23 $23 
Environmental cost recovery6 5 0 0 
Universal service rider14 9 14 9 
Fuel adjustment clause8 8 0 0 
TCJA customer refund21 61 21 59 
Storm damage expense rider7 5 7 5 
Act 129 compliance rider8 0 8 0 
Other3 4 0 0 
Total current regulatory liabilities$90 $115 $73 $96 
Noncurrent Regulatory Liabilities:    
Accumulated cost of removal of utility plant$648 $640 $0 $0 
Power purchase agreement - OVEC45 51 0 0 
Net deferred taxes1,705 1,756 565 588 
Defined benefit plans59 51 17 11 
Terminated interest rate swaps66 68 0 0 
Other20 6 0 0 
Total noncurrent regulatory liabilities$2,543 $2,572 $582 $599 

 LKELG&EKU
September 30,
2020		December 31,
2019		September 30,
2020		December 31,
2019		September 30,
2020		December 31,
2019
Current Regulatory Assets:      
Plant outage costs$44 $32 $14 $16 $30 $16 
Gas supply clause4 8 4 8 0 0 
Other6 1 5 1 1 0 
Total current regulatory assets$54 $41 $23 $25 $31 $16 
Noncurrent Regulatory Assets:      
Defined benefit plans$300 $333 $179 $206 $121 $127 
Storm costs18 24 11 14 7 10 
Unamortized loss on debt22 23 13 14 9 9 
Interest rate swaps26 22 26 22 0 0 
Terminated interest rate swaps77 81 45 47 32 34 
AROs297 279 85 76 212 203 
Other2 4 1 1 1 3 
Total noncurrent regulatory assets$742 $766 $360 $380 $382 $386 

44
 PPL PPL Electric
 September 30,
2019		 December 31,
2018		 September 30,
2019		 December 31,
2018
Noncurrent Regulatory Assets: 
      
Defined benefit plans$937
 $963
 $553
 $558
Storm costs42
 56
 16
 22
Unamortized loss on debt41
 45
 17
 22
Interest rate swaps25
 20
 —
 —
Terminated interest rate swaps83
 87
 —
 —
Accumulated cost of removal of utility plant211
 200
 211
 200
AROs304
 273
 —
 —
Act 129 compliance rider10
 19
 10
 19
Other5
 10
 —
 3
Total noncurrent regulatory assets$1,658
 $1,673
 $807
 $824

 PPL PPL Electric
 September 30,
2019		 December 31,
2018		 September 30,
2019		 December 31,
2018
Current Regulatory Liabilities:       
Generation supply charge$22
 $33
 $22
 $33
Environmental cost recovery12
 16
 —
 —
Universal service rider12
 27
 12
 27
Fuel adjustment clause13
 —
 —
 —
TCJA customer refund8
 20
 7
 3
Storm damage expense rider7
 5
 7
 5
Generation formula rate—
 7
 —
 —
Other5
 14
 —
 6
Total current regulatory liabilities$79
 $122
 $48
 $74
        
Noncurrent Regulatory Liabilities:       
Accumulated cost of removal of utility plant$674
 $674
 $—
 $—
Power purchase agreement - OVEC53
 59
 —
 —
Net deferred taxes1,775
 1,826
 601
 629
Defined benefit plans54
 37
 10
 5
Terminated interest rate swaps69
 72
 —
 —
TCJA customer refund (b)43
 41
 43
 41
Other7
 5
 —
 —
Total noncurrent regulatory liabilities$2,675
 $2,714
 $654
 $675
 LKE LG&E KU
 September 30,
2019		 December 31,
2018		 September 30,
2019		 December 31,
2018		 September 30,
2019		 December 31,
2018
Current Regulatory Assets:           
Plant outage costs$17
 $10
 $11
 $7
 $6
 $3
Gas supply clause10
 12
 10
 12
 —
 —
Other—
 3
 —
 2
 —
 1
Total current regulatory assets$27
 $25
 $21
 $21
 $6
 $4
            

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 LKE LG&E KU
 September 30,
2019		 December 31,
2018		 September 30,
2019		 December 31,
2018		 September 30,
2019		 December 31,
2018
Noncurrent Regulatory Assets:           
Defined benefit plans$384
 $405
 $233
 $249
 $151
 $156
Storm costs26
 34
 16
 20
 10
 14
Unamortized loss on debt24
 23
 14
 15
 10
 8
Interest rate swaps25
 20
 25
 20
 —
 —
Terminated interest rate swaps83
 87
 48
 51
 35
 36
AROs304
 273
 87
 75
 217
 198
Other5
 7
 2
 1
 3
 6
Total noncurrent regulatory assets$851
 $849
 $425
 $431
 $426
 $418
LKE LG&E KULKELG&EKU
September 30,
2019		 December 31,
2018		 September 30,
2019		 December 31,
2018		 September 30,
2019		 December 31,
2018		September 30,
2020		December 31,
2019		September 30,
2020		December 31,
2019		September 30,
2020		December 31,
2019
Current Regulatory Liabilities:           Current Regulatory Liabilities:      
Environmental cost recovery$12
 $16
 $7
 $6
 $5
 $10
Environmental cost recovery$6 $5 $2 $1 $4 $4 
Demand side managementDemand side management2 3 1 1 1 2 
Fuel adjustment clause13
 —
 3
 —
 10
 —
Fuel adjustment clause8 8 2 0 6 8 
TCJA customer refund1
 17
 —
 7
 1
 10
Generation formula rate—
 7
 —
 —
 —
 7
Other5
 8
 2
 4
 3
 4
Other1 3 0 0 1 3 
Total current regulatory liabilities$31
 $48
 $12
 $17
 $19
 $31
Total current regulatory liabilities$17 $19 $5 $2 $12 $17 
           
Noncurrent Regulatory Liabilities:           Noncurrent Regulatory Liabilities:      
Accumulated cost of removal
of utility plant
$674
 $674
 $279
 $279
 $395
 $395
Accumulated cost of removal
of utility plant		$648 $640 $271 $266 $377 $374 
Power purchase agreement - OVEC53
 59
 37
 41
 16
 18
Power purchase agreement - OVEC45 51 31 35 14 16 
Net deferred taxes1,174
 1,197
 548
 557
 626
 640
Net deferred taxes1,140 1,168 532 544 608 624 
Defined benefit plans44
 32
 1
 —
 43
 32
Defined benefit plans42 40 0 0 42 40 
Terminated interest rate swaps69
 72
 34
 36
 35
 36
Terminated interest rate swaps66 68 33 34 33 34 
Other7
 5
 4
 2
 3
 3
Other20 6 18 4 2 2 
Total noncurrent regulatory liabilities$2,021
 $2,039
 $903
 $915
 $1,118
 $1,124
Total noncurrent regulatory liabilities$1,961 $1,973 $885 $883 $1,076 $1,090 
  
(a)For PPL, these amounts are included in "Other current assets" on the Balance Sheets.
(b)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. A petition for the distribution method back to customers of this liability was proposed to the PUC on October 4, 2019. The petition is currently under review by the PUC and contingent upon PUC approval.
(a)For PPL, these amounts are included in "Other current assets" on the Balance Sheets.

Regulatory Matters

Kentucky Activities

Rate Case Proceedings

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

In September 2018,On October 23, 2020, LG&E and KU filed requestsnotices of intent with the KPSC to file applications for an increase in annual base electricity ratesproposed adjustments of approximately $112 million at KU and increases in annual base electricitygeneral electric and gas rates of approximately $35 million and $25 million at LG&E. LG&E’s and KU’s applications also sought to include 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 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 and $12 million at LG&E.on or after November 25, 2020. The applications were based onwill also include requests for 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,CPCN to deploy Advanced Metering Infrastructure and other matters. LG&E and KU along with substantially all intervening partiescannot predict the outcome of these potential proceedings.

ECR Filings (PPL, LKE, LG&E and KU)

On March 31, 2020, LG&E and KU submitted applications to the proceeding, filed stipulationKPSC for ECR rate treatment regarding upcoming environmental construction projects relating to the EPA's regulations addressing ELGs. The construction projects are expected to begin in 2021 and recommendation agreements (stipulations) with the KPSC resolving all material issues with the parties. In additioncontinue through 2024 and are estimated to

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terminating the TCJA bill credit mechanism, the proposed stipulations provided for increases in annual revenue requirements associated with base electricity rates of cost approximately $58$405 million at KU and increases in annual base electricity and gas rates of approximately $4 million and $20($153 million at LG&E basedand $252 million at KU). The applications requested an authorized 9.725% return on a return-on-equity of 9.725%.

equity with respect to these projects consistent with the 2018 Kentucky rate cases approved in April 2019. On April 30, 2019,September 29, 2020, the KPSC issued orders ruling on open issues and approving the proposed stipulations filed in March 2019. The orders provideECR applications, permitting an authorized return on equity of 9.2% for increases in the 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. With the 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 May 1, 2019.applicable projects.

Pennsylvania Activities

PUC Petition to Distribute TCJA SavingsAct 129 (PPL and PPL Electric)

The Pennsylvania Public Utility Code requires electric distribution companies, including PPL Electric, submittedto act as a petitionDSP, which provides electricity generation supply service to customers pursuant to a PUC-approved default service procurement plan. A DSP is able to recover the costs associated with its default service procurement plan.
In March 2020, PPL Electric filed a Petition for approvalApproval of a new default service program and procurement plan with the PUC on October 4, 2019 to distribute the tax savings of $43 million associated with the TCJA for the period between JanuaryJune 1, 2018 and June 30, 2018. As of September 30, 2019, these tax savings are classified as2021 through May 31, 2025. Hearings were held in August 2020. In October 2020, the Administrative Law Judge made a noncurrent regulatory liability.recommended decision which remains pending before the PUC. PPL Electric has proposed that these amounts be distributed overcannot predict the periodoutcome of January 1, 2020 through December 31, 2020. The petition is contingent upon PUC approval.this proceeding.

45

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Federal Matters

Challenge to PPL Electric Transmission Formula Rate Return on Equity

(PPL and PPL Electric)

On May 21, 2020, PP&L Industrial Customer Alliance (PPLICA) filed a complaint with the FERC alleging that PPL Electric's base return on equity (ROE) of 11.18% used to determine PPL Electric's formula transmission rate is unjust and unreasonable, and proposing an alternative ROE of 8.0% based on its interpretation of FERC Opinion No. 569. However, also on May 21, 2020, the FERC issued Opinion No. 569-A in response to numerous requests for rehearing of Opinion No. 569, which revised the method for analyzing base ROE. On June 10, 2020, PPLICA filed a Motion to Supplement the May 21, 2020 complaint in which PPLICA continued to allege that PPL Electric’s base ROE is unjust and unreasonable, but revised its analysis of PPL Electric's base ROE to reflect the guidance provided in Opinion No. 569-A. The amended complaint proposed an updated alternative ROE of 8.5% and also requested that the FERC preserve the original refund effective date as established by the filing of the original complaint on May 21, 2020. Several parties have filed motions to intervene, including one party who filed Comments in Support of the original complaint.

On July 10, 2020, PPL Electric filed its Answer and supporting Testimony to the PPLICA filings arguing that the FERC should deny the original and amended complaints as they are without merit and fail to demonstrate the existing base ROE is unjust and unreasonable. In addition, PPL Electric contended any refund effective date should be set for no earlier than June 10, 2020 and PPLICA's proposed replacement ROE should be rejected.

On October 15, 2020, the FERC issued an order on the PPLICA complaints which established hearing and settlement procedures, set a refund effective date of May 21, 2020 and granted the motions to intervene. PPL Electric continues to believe its ROE is just and reasonable and that it has meritorious defenses against the original and amended complaints. At this time, PPL Electric cannot predict the outcome of this matter or the range of possible losses, if any, that may be incurred. However, revenue earned from May 21, 2020 through the settlement of this matter may be subject to refund. A change of 50 basis points to the base ROE would impact PPL Electric's net income by approximately $12 million on an annual basis.

FERC Transmission Rate Filing

(PPL, LKE, LG&E and KU)

In August 2018, LG&E and KU submitted an applicationapplied 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&E's and KU's parent entities and the 2006 withdrawal of LG&E and KU from the Midcontinent Independent System Operator, Inc. (MISO), a regional transmission operator and energy market. The application sought termination of LG&E's and KU's commitment to provide certain Kentucky municipalities 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 municipalities in Kentucky.KU merger and 2006 MISO withdrawal. The amounts at issue are generally waivers or credits granted to such customersa limited number of Kentucky municipalities for either certain LG&E and KU or MISO transmission charges incurred depending upon the direction of certainfor transmission service incurred by the municipalities.received. 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. OnIn March 21, 2019, the FERC issued an Order grantinggranted LG&E's and KU's request to remove the on-goingongoing 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. OnIn July 12, 2019, LG&E and KU submittedproposed their proposed transition mechanism to the FERC. OnFERC and in September 10, 2019, the FERC issued an order rejectingrejected the proposed transition mechanism. Onmechanism and issued a separate order providing clarifications of certain aspects of the March order. In October 10, 2019, LG&E and KU filed a requestrequests for rehearing and clarification on the two September order.orders. In September 2020, FERC issued its orders in the rehearing process that modified the discussion in, and set aside portions of, the September 2019 orders including adjusting factors impacting the proposed transition mechanism. In October 2020, both LG&E and KU and other parties filed separate motions for rehearing and clarification regarding FERC’s September 2020 orders. A FERC decision on these rehearing requests is expected by November 18, 2020. Certain other petitions for review of the FERC's orders have been filed by multiple parties, including LG&E and KU, with the D.C. Circuit Court of Appeals. LG&E and KU cannot predict the outcome of this proceeding.these proceedings. LG&E and KU currently receive recovery of waivers and credits provided through other rate mechanisms.

(PPL and PPL Electric)

In April 2019,2020, 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 established the revenue requirement used to set rates that took effect in June 2019. 2020.
46


Transmission Customer Complaint(PPL, LKE, LG&E and KU)

In September 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. 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 to reimburse the 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.


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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 (ADIT) as a result of the TCJA would be addressed in a Notice of Proposed Rulemaking. Also in November 2018, the FERC issued the Notice of Proposed Rulemaking, which proposed that public utility transmission providers include mechanisms in their formula rates to deduct excess ADIT from, or add deficient ADIT to, rate base and adjust their income tax allowances by amortized excess or deficient ADIT. 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 to incorporate reductions to corporate income tax rates as a result of the TCJA and HB 487. The FERC approved this request effective June 1, 2019. 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 Regulations of the FERC. Specifically, PPL Electric proposed to modify its formula rate to permit the return or recovery of excess or deficient 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 formula rate template, which were effective June 1, 2019, as well as the proposed adjustments to ADIT, effective January 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.credit losses. 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, 2020, PPL Electric purchased $303 million and $854 million of accounts receivable from alternative suppliers. During the three and nine months ended September 30, 2019, PPL Electric purchased $308 million and $927 million of accounts receivable from alternate suppliers. During the three and nine months ended September 30, 2018, PPL Electric purchased $334 million and $1 billion of accounts receivable from alternatealternative suppliers.

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 amounts borrowedborrowings under LG&E's Term Loan FacilityPPL Capital Funding's term loan agreement due March 2022, which were recorded asare reflected in "Long-term debt due within one year"debt" on the December 31, 2018 Balance Sheet.Sheets. The following credit facilities were in place at:

 September 30, 2020December 31, 2019
 Expiration
Date		CapacityBorrowedLetters of
Credit
and
Commercial
Paper
Issued		Unused
Capacity		BorrowedLetters of
Credit
and
Commercial
Paper
Issued
PPL       
U.K.       
WPD plc       
Syndicated Credit Facility (a)Jan. 2023£210 £150 £0 £58 £155 £0 
WPD (South West)       
Syndicated Credit Facility (b)May 2023220 118 0 102 40 0 
WPD (South Wales)
Syndicated Credit FacilityMay 2023125 0 0 125 0 0 
WPD (East Midlands)      
Syndicated Credit FacilityMay 2023250 0 0 250 0 0 
WPD (West Midlands)      
Syndicated Credit Facility (c)May 2023250 64 0 186 48 0 
Uncommitted Credit Facilities 100 0 4 96 0 4 
Total U.K. Credit Facilities (d) £1,155 £332 £4 £817 £243 £4 
U.S.       
PPL Capital Funding       
Syndicated Credit FacilityJan. 2024$1,450 $0 $0 $1,450 $0 $450 
Term Loan Credit FacilityMar. 2021200 200 0 0 0 0 
Bilateral Credit FacilityMar. 202150 0 0 50 0 0 
Bilateral Credit FacilityMar. 202150 0 15 35 0 15 
Term Loan Credit FacilityMar. 2021100 100 0 0 0 0 
Term Loan Credit FacilityMar. 2022100 100 0 0 0 0 
Total PPL Capital Funding Credit Facilities$1,950 $400 $15 $1,535 $0 $465 
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 September 30, 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
PPL   
  
  
  
  
  
U.K.   
  
  
  
  
  
WPD plc   
  
  
  
  
  
Syndicated Credit Facility (a)Jan. 2023 £210
 £165
 £—
 £46
 £157
 £—
WPD (South West)   
  
  
  
  
  
Syndicated Credit FacilityJuly 2021 245
 —
 —
 245
 —
 —
WPD (East Midlands)   
  
  
  
  
  
Syndicated Credit Facility (b)July 2021 300
 —
 —
 300
 38
 —
WPD (West Midlands)   
  
  
  
  
  
Syndicated Credit Facility (c)July 2021 300
 51
 —
 249
 —
 —
Uncommitted Credit Facilities (d)  100
 36
 4
 60
 —
 4
Total U.K. Credit Facilities (e)  £1,155
 £252
 £4
 £900
 £195
 £4
U.S.             
PPL Capital Funding             
Syndicated Credit FacilityJan. 2024 $1,450
 $—
 $981
 $469
 $—
 $669
Bilateral Credit FacilityMar. 2020 100
 —
 15
 85
 —
 15
Total PPL Capital Funding Credit Facilities  $1,550
 $—
 $996
 $554
 $—
 $684
              
PPL Electric   
  
  
  
  
  
Syndicated Credit FacilityJan. 2024 $650
 $—
 $1
 $649
 $—
 $1
              
LG&E   
  
  
  
  
  
Syndicated Credit FacilityJan. 2024 $500
 $—
 $99
 $401
 $—
 $279
Term Loan Credit Facility
 —
 —
 —
 —
 200
 —
Total LG&E Credit Facilities  $500
 $—
 $99
 $401
 $200
 $279
              
KU   
  
  
  
  
  
Syndicated Credit FacilityJan. 2024 $400
 $—
 $2
 $398
 $—
 $235
Letter of Credit Facility (f)  —
 —
 —
 —
 —
 198
Total KU Credit Facilities  $400
 $—
 $2
 $398
 $—
 $433
 September 30, 2020December 31, 2019
 Expiration
Date		CapacityBorrowedLetters of
Credit
and
Commercial
Paper
Issued		Unused
Capacity		BorrowedLetters of
Credit
and
Commercial
Paper
Issued
PPL Electric       
Syndicated Credit FacilityJan. 2024$650 $0 $281 $369 $0 $1 
LG&E      
Syndicated Credit FacilityJan. 2024$500 $0 $206 $294 $0 $238 
Total LG&E Credit Facilities$500 $0 $206 $294 $0 $238 
KU       
Syndicated Credit FacilityJan. 2024$400 $0 $139 $261 $0 $150 
Total KU Credit Facilities $400 $0 $139 $261 $0 $150 
 
(a)The amounts borrowed at September 30, 2019 and December 31, 2018 were USD-denominated borrowings of $200 million for both periods, which bore interest at 2.94% and 3.17%. The unused capacity reflects the amounts borrowed in GBP of £164 million as of the date borrowed.
(b)The amount borrowed at December 31, 2018 was GBP-denominated borrowings which equated to $48 million and bore interest at 1.12%.
(c)The amount borrowed at September 30, 2019 was GBP-denominated borrowings which equated to $62 million and bore interest at 1.11%.
(d)The amount borrowed at September 30, 2019 was GBP-denominated borrowings which equated to $44 million and bore interest at 1.59%.
(e)At September 30, 2019, the unused capacity under the U.K. credit facilities was $1.1 billion.
(f)KU's letter of credit facility was terminated in September 2019 in connection with the bond remarketings discussed below.
(a)    The amounts borrowed at September 30, 2020 and December 31, 2019 were USD-denominated borrowings of $200 million for both periods, which bore interest at 0.98% and 2.52%. The interest rates on the borrowings are equal to one-month USD LIBOR plus a margin. The unused capacity reflects the amounts borrowed in GBP of £152 million as of the date borrowed.
(b)    The amounts borrowed at September 30, 2020 and December 31, 2019 were GBP-denominated borrowings which equated to $158 million and $51 million and bore interest at 0.56% and 1.09%. The interest rate on the borrowing are equal to one-month GBP LIBOR plus a margin.
(c)    The amounts borrowed at September 30, 2020 and December 31, 2019 were GBP-denominated borrowings which equated to $86 million and $62 million and bore interest at 0.56% and 1.11%. The interest rates on the borrowings are equal to one-month GBP LIBOR plus a margin.
(d)    At September 30, 2020, the unused capacity under the U.K. credit facilities was $1.1 billion.

(PPL)

In March 2020, PPL Capital Funding entered into a $200 million term loan credit facility expiring in March 2021 and borrowed the full principal amount under the facility at an initial interest rate of 1.96%. The applicable interest rate on borrowings fluctuates periodically and is based on LIBOR plus a spread. The proceeds were used to repay short-term debt and for general corporate purposes.

In April 2020, PPL Capital Funding entered into a $100 million term loan credit facility expiring in March 2021 and borrowed the full principal amount under the facility at an initial interest rate of 1.73%. The applicable interest rate on borrowings fluctuates periodically and is based on LIBOR plus a spread. The proceeds were used to repay short-term debt and for general corporate purposes.

PPL has guaranteed PPL Capital Funding's obligations under these credit agreements.

(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.needs. Commercial paper issuances, included in "Short-term debt" on the Balance Sheets, are supported by the respective Registrant's credit facilities. The following commercial paper programs were in place at:

 September 30, 2020December 31, 2019
Weighted -
Average
Interest Rate		CapacityCommercial
Paper
Issuances		Unused
Capacity		Weighted -
Average
Interest Rate		Commercial
Paper
Issuances
PPL Capital Funding0%$1,500 $0 $1,500 2.13%$450 
PPL Electric
0.16%650 280 370 0 
LG&E0.20%350 206 144 2.07%238 
KU0.19%350 139 211 2.02%150 
Total $2,850 $625 $2,225  $838 
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 September 30, 2019 December 31, 2018
 
Weighted -
Average
Interest Rate
 Capacity 
Commercial
Paper
Issuances
 
Unused
Capacity
 
Weighted -
Average
Interest Rate
 
Commercial
Paper
Issuances
PPL Capital Funding2.52% $1,500
 $981
 $519
 2.82% $669
PPL Electric 

 650
 —
 650
 
 —
LG&E2.29% 350
 99
 251
 2.94% 279
KU2.24% 350
 2
 348
 2.94% 235
Total  $2,850
 $1,082
 $1,768
   $1,183


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

See Note 12 for discussion of intercompany borrowings.
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Long-term Debt

(PPL)

In June 2019, WPD plc executed and drew £50April 2020, PPL Capital Funding entered into a $100 million under a 5-year term loan credit facility due 2024expiring in March 2022 and borrowed the full principal amount under the facility at aan initial interest rate of 2.189%, to be reset quarterly as detailed in the terms of the agreement.1.72%. The borrowing equated to $63 million at the time of drawdown, net of fees. The proceeds were used for general corporate purposes.

In September 2019, WPD (East Midlands) issued £250 million of 1.75% Senior Notes due 2031. WPD (East Midlands) received proceeds of £245 million, which equated to $301 million at the time of issuance, net of feesapplicable interest rate on borrowings fluctuates periodically and is based on LIBOR plus a discount.spread. The proceeds were used to repay short-term debt and for general corporate purposes.

(PPL, LKE and LG&E)

In April 2019, LG&E2020, PPL Capital Funding issued $400 million$1 billion of 4.25% First Mortgage Bonds4.125% Senior Notes due 2049. LG&E2030. PPL Capital Funding received proceeds of $396 million, net of discounts and underwriting fees, which were used to repay commercial paper and LG&E's term loan.

In April 2019, the County of Jefferson, Kentucky remarketed $128 million of Pollution Control Revenue Bonds, 2001 Series A due 2033 previously issued on behalf of LG&E. The bonds were remarketed at a long-term rate and will bear interest at 1.85% through their mandatory purchase date of April 1, 2021.

In June 2019, the Louisville/Jefferson County Metro Government of Kentucky remarketed $31 million of Environmental Facilities Revenue Refunding Bonds, 2007 Series A due 2033 previously issued on behalf of LG&E. The bonds were remarketed at a long-term rate and will bear interest at 1.65% through their mandatory purchase date of June 1, 2021.

In June 2019, the Louisville/Jefferson Country Metro Government of Kentucky remarketed $35 million of Environmental Facilities Revenue Refunding Bonds, 2007 Series B due 2033 previously issued on behalf of LG&E. The bonds were remarketed at a long-term rate and will bear interest at 1.65% through their mandatory purchase date of June 1, 2021.

In June 2019, LG&E issued a notice to bondholders of its intention to convert the $40 million Louisville/Jefferson County Metro Government of Kentucky Pollution Control Revenue Bonds, 2005 Series A to a weekly interest rate, as permitted under the loan documents. The conversion was completed on August 1, 2019. In connection with the conversion, LG&E purchased these bonds from the remarketing agent and held them until September 17, 2019, at which time LG&E remarketed the bonds at a long-term rate that will bear interest at 1.75% through their mandatory purchase date of July 1, 2026.

(PPL, LKE and KU)

In April 2019, KU reopened its 4.375% First Mortgage Bonds due 2045 and issued an additional $300 million of this series. KU received proceeds of $303 million, including premiums and underwriting fees, which were used to repay commercial paper and for other general corporate purposes.

In September 2019, the County of Carroll, Kentucky remarketed $50 million of Environmental Facilities Revenue Bonds, 2004 Series A due 2034 previously issued on behalf of KU. The bonds were remarketed at a long-term rate and will bear interest at 1.75% through their mandatory purchase date of September 1, 2026.

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In September 2019, the County of Carroll, Kentucky remarketed $96 million of Pollution Control Revenue Refunding Bonds, 2016 Series A due 2042 previously issued on behalf of KU. The bonds were remarketed at a long-term rate and will bear interest at 1.55% through their mandatory purchase date of September 1, 2026.

In September 2019, the County of Carroll, Kentucky remarketed $54 million of Environmental Facilities Revenue Refunding Bonds, 2006 Series B due 2034 previously issued on behalf of KU. The bonds were remarketed at a long-term rate and will bear interest at 1.20% through their mandatory purchase date of June 1, 2021.

In September 2019, the County of Carroll, Kentucky remarketed $78 million of Environmental Facilities Revenue Bonds, 2008 Series A due 2032 previously issued on behalf of KU. The bonds were remarketed at a long-term rate and will bear interest at 1.20% through their mandatory purchase date of June 1, 2021.

In September 2019, the County of Mercer, Kentucky remarketed $13 million of Solid Waste Disposal Facility Revenue Bonds, 2000 Series A due 2023 previously issued on behalf of KU. The bonds were remarketed at a long-term rate and will bear interest at 1.30% through the maturity date of May 1, 2023.

(PPL and PPL Electric)

In September 2019, PPL Electric issued $400 million of 3.00% First Mortgage Bonds due 2049. PPL Electric received proceeds of $390$993 million, net of a discount and underwriting fees, which were used to repay short-term debt and for general corporate purposes.

OnPPL has guaranteed PPL Capital Funding's obligations under the credit agreement and notes.

In October 31, 2019,2020, WPD (South Wales) issued £250 million of 1.625% Senior Notes due 2035. WPD (South Wales) received proceeds of £247 million which equated to $319 million at the time of issuance, net of fees and a discount. The proceeds will be used to repay the £150 million of 9.25% Notes due in November 2020 and for general corporate purposes.

(PPL and PPL Electric)

In October 2020, PPL Electric gave noticeissued $250 million of its intent to redeem all of the currently outstanding $100 million aggregate principal amount of its Senior SecuredFirst Mortgage Bonds, 5.15%Floating Rate Series due 2023. PPL Electric received proceeds of $249 million, net of discounts and underwriting fees, which will be used to repay short-term debt and for general corporate purposes.

In October 2020, the Pennsylvania Economic Development Financing Authority (PEDFA) remarketed $90 million of Pollution Control Revenue Refunding Bonds, Series 2008 (PPL Electric Utilities Corporation Project) due 2023, previously issued on December 4, 2019.behalf of PPL Electric. The bonds were remarketed at a long-term rate and will bear interest at 0.40% through their maturity date of October 1, 2023.

(PPL)(PPL and LKE)

In August 2020, LKE redeemed $475 million of 3.75% senior notes due November 2020.

(PPL, LKE and LG&E)

In September 2020, the County of Trimble, Kentucky remarketed $125 million of Pollution Control Revenue Refunding Bonds, 2016 Series A due 2044 previously issued on behalf of LG&E. The bonds were remarketed at a long-term rate and will bear interest at 1.30% through their mandatory purchase date of September 1, 2027.

In September 2020, the Louisville/Jefferson County Metro Government of Kentucky remarketed $23 million of Pollution Control Revenue Bonds, 2001 Series A due 2026 on behalf of LG&E. The bonds were remarketed at a long-term rate and will bear interest at 0.90% through their maturity date of September 1, 2026.

(PPL, LKE and KU)

In June 2020, KU issued $500 million of 3.30% First Mortgage Bonds due 2050. KU received proceeds of $493 million, net of discounts and underwriting fees, which were initially used to repay short-term debt and for other general corporate purposes, pending application to the redemption of KU’s 3.25% First Mortgage Bonds in August 2020.

In August 2020, KU redeemed $500 million of 3.25% First Mortgage Bonds due November 2020.

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Equity Securities

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;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. There were 0 issuances under the ATM program for the nine months ended September 30, 2019.2020.

Distributions

In August 2019,2020, PPL declared a quarterly common stock dividend, payable October 1, 2019,2020, of 41.2541.5 cents per share (equivalent to $1.65$1.66 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. Acquisitions, Development and Divestitures
9. Leases

(PPL)
(All Registrants)

The Registrants determine whether contractual arrangements containOn August 10, 2020, PPL announced that it has initiated a lease by evaluating whether those arrangements either implicitly or explicitly identify an asset,formal process to sell its U.K. utility business. PPL noted that there can be no assurance of any specific outcome, including whether the Registrantssale process will result in the completion of any potential transaction, the timing or terms thereof, the value or benefits that may be realized or the effect that any potential transaction will have the right to obtain substantially allon future financial results.

As a result of the economic benefits from usepotential sale, PPL assessed the recoverability of the asset throughout the termassets 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

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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.

its U.K. utility business. PPL has also entered into various operating leases primarily for office space, land easements, telecom assets and warehouse space. 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 haveprepared 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 or 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.

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 periods ended September 30, 2019.
 Three Months
 PPL LKE LG&E KU
Lease cost:       
Operating lease cost$6
 $5
 $1
 $3
Short-term lease cost2
 1
 —
 1
Total lease cost$8
 $6
 $1
 $4
        
 Nine Months
 PPL LKE LG&E KU
Lease cost:       
Operating lease cost$21
 $17
 $7
 $9
Short-term lease cost5
 2
 1
 1
Total lease cost$26
 $19
 $8
 $10

The following table provides other key information related to the Registrants' operating leases at September 30, 2019.
 PPL LKE LG&E KU
Cash paid for amounts included in the measurement of lease liabilities:       
Operating cash flows from operating leases$21
 $17
 $8
 $9
Right-of-use asset obtained in exchange for new operating lease liabilities37
 8
 3
 5


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The following table provides the total future minimum rental payments for operating leases, as well as a reconciliation of theseprobability-weighted undiscounted cash flows to the lease liabilities recognized on the Balance Sheetsflow estimate as of September 30, 2019.2020 that considered the likelihood of the possible outcomes of the sale process, including the possibility of not selling the U.K. utility business. The resulting cash flow analysis exceeded the carrying value of the assets of the U.K. utility business. A change in the possible outcomes of the sale process could result in the carrying value of the assets of the U.K. utility business not being recoverable, which could result in an impairment in future periods.The U.K. utility business will continue to be classified as held and used until it meets the criteria to be classified as held for sale, which includes management obtaining a commitment to a plan to sell from its Board of Directors.
 PPL LKE LG&E KU
2019 (a)$8
 $5
 $2
 $3
202027
 16
 6
 10
202121
 12
 5
 7
202216
 8
 3
 5
202314
 7
 3
 3
202412
 6
 3
 3
Thereafter25
 7
 3
 3
Total$123
 $61
 $25
 $34
        
Weighted-average discount rate 
3.47% 3.97% 3.9% 4.01%
Weighted-average remaining lease term (in years)  
8
 5
 5
 5
Current lease liabilities (b)$25
 $16
 $6
 $9
Non-current lease liabilities (b)80
 39
 16
 22
Right-of-use assets (c)97
 47
 19
 27

(a)Represents future minimum lease payments for the remainder of 2019.
(b)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.
(c)Right-of-use assets are included in "Other noncurrent assets" on the Balance Sheets.

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
202021
 15
 6
 9
202115
 11
 4
 7
202213
 7
 3
 4
20238
 6
 3
 3
Thereafter33
 11
 4
 6
Total$116
 $70
 $30
 $39


Lessor Transactions

Third parties lease land from LKE, LG&E and KUShould the U.K. utility business meet the criteria to be classified as held for sale in a future period, PPL will be required at certain generation plantsthat time to produce refined coal used to generate electricity. The leases are operating leases and expire in 2021. Payments are allocated among lease and non-lease components as statedcompare the estimated fair value of its investment in the agreements. Lease payments are fixed or are determined based onU.K. utility business, less costs to sell, to its carrying value for impairment purposes. The measurement of PPL’s carrying value of the amountU.K. utility business will include the realization of refined coal used in electricity generation ataccumulated other comprehensive losses, which could arise from currency translation adjustments and defined benefit plans associated with the facility. Payments received are primarily recorded as a regulatory liability and are amortized in accordance with regulatory approvals.U.K. utility business.

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 September 30, 2019, PPL, LKE, LG&E and KU expect to receive the following fixed lease payments over the remaining term of their operating lease agreements:

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 PPL LKE LG&E KU
2019 (a)$3
 $2
 $—
 $2
202013
 7
 —
 7
202110
 5
 1
 4
20224
 —
 —
 —
20234
 1
 —
 —
20244
 —
 —
 —
Thereafter12
 —
 —
 —
Total$50
 $15
 $1
 $13
        
Lease income recognized for the three months ended September 30, 2019$6
 $4
 $2
 $2
Lease income recognized for the nine months ended September 30, 2019$16
 $10
 $4
 $6


(a)Represents future minimum lease payments for the remainder of 2019.

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, regulatory assets and regulatory liabilities, 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:
 Pension Benefits
 Three Months Nine Months
 U.S. U.K. U.S. U.K.
 2019 2018 2019 2018 2019 2018 2019 2018
PPL               
Service cost$13
 $15
 $17
 $21
 $38
 $46
 $51
 $63
Interest cost41
 39
 45
 46
 123
 117
 140
 140
Expected return on plan assets(62) (62) (144) (145) (184) (186) (442) (445)
Amortization of:               
Prior service cost2
 2
 1
 —
 6
 7
 1
 —
Actuarial loss15
 22
 22
 37
 42
 63
 69
 114
Net periodic defined benefit costs (credits) before settlements9
 16
 (59) (41) 25
 47
 (181) (128)
Settlements—
 —
 —
 —
 1
 —
 —
 —
Net periodic defined benefit costs (credits)$9
 $16
 $(59) $(41) $26
 $47
 $(181) $(128)
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Pension Benefits
 Three MonthsNine Months
 U.S.U.K.U.S.U.K.
 20202019202020192020201920202019
PPL    
Service cost$14 $13 $22 $17 $42 $38 $66 $51 
Interest cost35 41 36 45 109 123 107 140 
Expected return on plan assets(62)(62)(155)(144)(185)(184)(464)(442)
Amortization of:
Prior service cost3 2 1 1 7 6 1 1 
Actuarial loss23 15 52 22 67 42 158 69 
Net periodic defined benefit costs (credits) before settlements13 9 (44)(59)40 25 (132)(181)
Settlements (a)13 0 0 0 13 1 0 0 
Net periodic defined benefit costs (credits)$26 $9 $(44)$(59)$53 $26 $(132)$(181)

(a)Due to the amount of lump sum payment distributions from the LKE qualified pension plan, an estimated settlement charge of $13 million for the three and nine months ended September 30, 2020 was incurred. In accordance with existing regulatory accounting treatment, LG&E and KU have primarily maintained the settlement charge in regulatory assets to be amortized over fifteen years. The portion of the settlement attributed to LKE's unregulated operations has been charged to expense.

Pension Benefits
Three MonthsNine Months
 2020201920202019
LKE
Service cost$6 $5 $18 $16 
Interest cost14 16 43 49 
Expected return on plan assets(25)(25)(75)(76)
Amortization of:
Prior service cost2 2 6 6 
Actuarial loss (a)11 7 30 17 
Net periodic defined benefit costs (credits) before settlements8 5 22 12 
Settlements (b)13 0 13 0 
Net periodic defined benefit costs (credits) (c)$21 $5 $35 $12 

(a)    As a result of treatment approved by the KPSC, the difference between actuarial loss calculated in accordance with LKE's accounting policy and actuarial loss calculated using a 15-year amortization period was $3 million and $9 million for the three and nine months ended September 30, 2020 and $2 million and $3 million for the three and nine months ended September 30, 2019. This difference is recorded as a regulatory asset.
(b) Due to the amount of lump sum payment distributions from the LKE qualified pension plan, an estimated settlement charge of $13 million for the three and nine months ended September 30, 2020 was incurred. In accordance with existing regulatory accounting treatment, LG&E and KU have primarily maintained the settlement charge in regulatory assets to be amortized over fifteen years. The portion of the settlement attributed to LKE's unregulated operations has been charged to expense.
(c)     Due to the amount of lump sum payment distributions from the LG&E qualified pension plan, a settlement charge of $5 million for the three and nine months ended September 30, 2019 was incurred. In accordance with existing regulatory accounting treatment, LG&E maintained the settlement charge in regulatory assets. The amount is being amortized over fifteen years.
Pension Benefits
 Three MonthsNine Months
 2019 (a)2019 (a)
LG&E
Service cost$0 $1 
Interest cost2 8 
Expected return on plan assets(5)(16)
Amortization of: 
Prior service cost1 4 
Actuarial loss (b)4 7 
Net periodic defined benefit costs (c)$2 $4 

 Pension Benefits
 Three Months Nine Months
 2019 2018 2019 2018
LKE       
Service cost$5
 $6
 $16
 $18
Interest cost16
 16
 49
 48
Expected return on plan assets(25) (25) (76) (76)
Amortization of:       
Prior service cost2
 3
 6
 7
Actuarial loss (a)7
 8
 17
 26
Net periodic defined benefit costs (b)$5
 $8
 $12
 $23
51


(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 $3 million for the three and nine months ended September 30, 2019 and $2 million and $8 million for the three and nine months ended September 30, 2018. This difference is recorded as a regulatory asset.

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(b)Due to the amount of lump sum payment distributions from the LG&E qualified pension plan, a settlement charge of $5 million for the three and nine months ended September 30, 2019 and $1 million and $5 million for the three and nine months ended September 30, 2018 was incurred. In accordance with existing regulatory accounting treatment, LG&E has maintained the settlement charge in regulatory assets. The amount is being amortized in accordance with existing regulatory practice.
(a)    The pension plans sponsored by LKE and LG&E were merged effective January 1, 2020 into the LG&E and KU Pension Plan, sponsored by LKE.
 Pension Benefits
 Three Months Nine Months
 2019 2018 2019 2018
LG&E       
Service cost$—
 $—
 $1
 $1
Interest cost2
 3
 8
 9
Expected return on plan assets(5) (6) (16) (17)
Amortization of:       
Prior service cost1
 1
 4
 4
Actuarial loss (a)4
 2
 7
 5
Net periodic defined benefit costs (b)$2
 $—
 $4
 $2
(b) 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 and $2 million for the three and nine months ended September 30, 2019. This difference is recorded as a regulatory asset.

(c) Due to the amount of lump sum payment distributions from the LG&E qualified pension plan, a settlement charge of $5 million for the three and nine months ended September 30, 2019 was incurred. In accordance with existing regulatory accounting treatment, LG&E maintained the settlement charge in regulatory assets. The amount is being amortized over fifteen years.
(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 and $2 million for the three and nine months ended September 30, 2019 and $1 million for the nine months ended September 30, 2018. This difference is recorded as a regulatory asset.
(b)Due to the amount of lump sum payment distributions from the LG&E qualified pension plan, a settlement charge of $5 million for the three and nine months ended September 30, 2019 and $1 million and $5 million for the three and nine months ended September 30, 2018 was incurred. In accordance with existing regulatory accounting treatment, LG&E has maintained the settlement charge in regulatory assets. The amount is being amortized in accordance with existing regulatory practice.
 Other Postretirement Benefits
 Three Months Nine Months
 2019 2018 2019 2018
PPL       
Service cost$2
 $1
 $4
 $5
Interest cost5
 5
 16
 15
Expected return on plan assets(5) (4) (14) (17)
Amortization of actuarial loss1
 —
 1
 —
Net periodic defined benefit costs$3
 $2
 $7
 $3
        
LKE       
Service cost$1
 $1
 $3
 $3
Interest cost2
 2
 6
 6
Expected return on plan assets(2) (2) (6) (6)
Amortization of:       
Prior service cost—
 —
 1
 1
Actuarial gain—
 —
 (1) (1)
Net periodic defined benefit costs$1
 $1
 $3
 $3

 Other Postretirement Benefits
 Three MonthsNine Months
 2020201920202019
PPL  
Service cost$2 $2 $5 $4 
Interest cost4 5 14 16 
Expected return on plan assets(5)(5)(16)(14)
Amortization of:
Prior service cost0 0 1 0 
Actuarial loss0 1 0 1 
Net periodic defined benefit costs$1 $3 $4 $7 
LKE  
Service cost$1 $1 $3 $3 
Interest cost2 2 6 6 
Expected return on plan assets(2)(2)(7)(6)
Amortization of:
Prior service cost1 0 1 1 
Actuarial gain(1)0 (1)(1)
Net periodic defined benefit costs$1 $1 $2 $3 

(PPL Electric, LG&E and KU)

In addition to the specific plan it sponsors, LG&E is allocated costs of defined benefit plans sponsored by LKE. PPL Electric and KU do not directly sponsor any defined benefit plans. PPL Electric is allocated costs of defined benefit plans sponsored by PPL Services and LG&E and KU isare 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 12 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, 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 MonthsNine Months
 2020201920202019
PPL Electric$3 $3 $9 $8 
LG&E (a)9 1 14 3 
KU4 0 5 0 
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 Three Months Nine Months
 2019 2018 2019 2018
PPL Electric$3
 $5
 $8
 $12
LG&E1
 1
 3
 5
KU—
 1
 —
 3

(a)    Allocations to LG&E increased in 2020 primarily due to the merger of plans sponsored by LKE and LG&E effective January 1, 2020 into the LG&E and KU Pension Plan.

(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 13 for additional information.

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Cash Flows - U.S. Pension Plans

(PPL, LKE and LG&E)

During the nine months ended September 30, 2020, LKE contributed $22 million to its pension plans. LKE anticipates making $23 million in additional contributions in the fourth quarter of 2020.

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.

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 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 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, Lewis & 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 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 engaged in limited jurisdictional discovery, and the Court heard oral argument regarding the PPL parties' motion to dismiss on August 22, 2019. We are awaiting the Court's decision regarding the motion to dismiss.


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

Also onOn 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 thea November 2014 distribution.distribution of proceeds from the sale of then-PPL Montana's hydroelectric generating facilities. The action was filed 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 (Talen Putative Class Action). The plaintiffs assertPlaintiff asserts 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 arePlaintiff is 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 to the United States District Court for the District of Montana, Billings Division (MT Federal Court). In January 2019, the plaintiffsplaintiff moved to remand the Talen Putative Class Action back to state court, and dismissed without prejudice all current and former PPL Corporation directors from the case. In September 2019, the MT Federal Court granted plaintiffs'plaintiff's motion to remand the case back to state court, andcourt. Although, the PPL defendants promptly petitioned the Ninth Circuit Court of Appeals to grant an appeal of the remand decision. The petition for appeal is under consideration bydecision, in November 2019, the Ninth Circuit Court of Appeals.Appeals denied that request and in December 2019, Talen Montana Retirement Plan filed a Second Amended Complaint in the Sixteenth Judicial District of the State of Montana, Rosebud County, which removed Talen Energy Marketing as a plaintiff. In January 2020, PPL defendants filed a motion to dismiss the Second Amended Complaint or, in the alternative, to stay the proceedings pending the resolution of the below mentioned Delaware Action. The Court held a hearing on June 24, 2020 regarding the motion to dismiss. On September 11, 2020, the Court granted PPL defendants' alternative Motion for a Stay of the proceedings.
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PPL Corporation et al. vs. Riverstone Holdings LLC, Talen Energy Corporation et al.

On November 30, 2018, PPL, certain PPL affiliates, and certain current and former officers and directors (PPL plaintiffs) filed a complaint in the Court of Chancery of the State of Delaware seeking various forms of relief against Riverstone, Talen Energy and certain of their affiliates (Delaware Action)., in response to and as part of the defense strategy for an action filed by Talen Montana, LLC (the Talen Direct Action, since dismissed) and the Talen Putative Class Action described above (together, the Montana Actions) originally filed in Montana state court in October 2018. 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, 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;time; 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 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 against Riverstone affiliates for breach of the implied covenant of good faith and fair dealing. The complaint was subsequently amended on January 11, 2019 and March 20, 2019, including to addinclude, among other things, claims related to indemnification with respect to the Talen Direct Action and the Talen Putative Class Action (together, the Montana Actions),Actions, request a declaration that the Montana Actions are time-barred under the spinoff agreements, and allege additional facts to support the tortious interference claim. In April 2019, the defendants filed motions to dismiss the amended complaint. In July 2019, the Court heard oral arguments from the parties regarding the motions to dismiss. Ondismiss, and in October 23, 2019, the Delaware Court of Chancery returned itsissued an opinion on the defendants’ motions to dismiss sustaining all of the PPL plaintiffs' claims except for the claim for breach of implied covenant of good faith and fair dealing. As a result of the dismissal of the Talen Direct Action in December 2019, in January 2020, Talen Energy filed a new motion to dismiss five of the remaining eight claims in the amended complaint. The Court heard oral argument on the motion to dismiss on May 28, 2020, and on June 22, 2020, issued an opinion denying the motion in its entirety. Discovery is proceeding, and a trial has been scheduled for June 2021.

With respect to each of the Talen-related matters described above, PPL believes that the 2014 distribution of proceeds was made in compliance with all applicable laws and that PPL Montana was solvent at all relevant times. Additionally, the agreements entered into in connection with the spinoff, which PPL and affiliates of Talen Energy and Riverstone negotiated and executed prior to the 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.

PPL believes that it has meritorious defenses to the claims made in the Montana ActionsTalen Putative Class Action and intends to continue to vigorously defend against these actions.this action. The Montana ActionsTalen Putative Class Action and the Delaware Action are allboth 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.

(PPL, LKE and LG&E)

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

In December 2013, 6 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 4 miles of the Cane Run plant, which retired 3 coal-fired units in 2015. In their individual capacities, these plaintiffs sought compensation for alleged adverse health effects. In July 2014, the court U.S. District Court
dismissed the RCRA claims and

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all but 1 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 dismissingdismissed PPL as a defendant and dismissingdismissed the final federal claim against LG&E. In&E, and in April 2017, the U.S. District Court issued an Order declining to exercise supplemental jurisdiction on the state law claims and dismisseddismissing 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 1 to 3 miles of the plant. Proceedings are currently underway regarding potentialOn January 8, 2020, the Jefferson Circuit Court issued an order denying the plaintiffs’ request for class certification,certification. On January 14, 2020, the plaintiffs filed a notice of appeal in the Kentucky Court of Appeals with oral arguments scheduled for which a decision may be rendered in 2019.November 17, 2020. PPL, LKE and LG&E cannot predict the outcome of this matter and an estimate or range of possible losses cannot be determined.

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(PPL, LKE and KU)

E.W. Brown Environmental Claims

In July 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’splant's water discharge permit, and alleging contamination that may present an imminent and substantial endangerment in violation of the RCRA. The plaintiffs’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. In December 2017, the U.S. District Court issued an Order dismissing the Clean Water Act and RCRA complaints against KU in their entirety. In January 2018, the plaintiffs appealed the dismissal Order to the U.S. Court of Appeals for the Sixth Circuit. In September 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 but reversing its dismissal of the RCRA claims against KU and remanding the latter to the U.S. District Court. In October 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. OnIn January 8, 2019, KU filed an answer to plaintiffs’ complaint in the U.S. District Court. A trial has been scheduled to begin on October 5, 2020.in February 2021. 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 work preparing for 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 wasare being undertaken pursuant to a 2017 agreed Order with the Kentucky Energy and Environment Cabinet (KEEC). KU conducted sampling of Herrington Lake in 2017 and 2018. In June 2019, KU submitted to the KEEC the required aquatic study and risk assessment, conducted by an independent third-party consultant, to the KEEC in June 2019 finding that discharges from the E.W. Brown plant have not had any significant impact on Herrington Lake and that the water in the lake is safe for recreational use and meets safe drinking water standards. However, until the KEEC assesses the study and issues any regulatory determinations, PPL, LKE and KU are unable to determine whether additional remedial measures will be required at the E.W. Brown plant.

Air

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. On July 31, 2020, the U.S. Department of Justice filed a complaint in the U.S. District Court for the Western District of Kentucky alleging violations specified in the EPA notice of violation and seeking civil penalties and injunctive relief. In October 2020, LG&E filed a motion to dismiss the complaint. In October 2020, the U.S. Department of Justice indicated plans to file an amended complaint, as authorized by an agreed order of the court and parties. 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. An estimate or range of possible losses cannot be determined.

Water/Waste

(PPL, LKE, LG&E and KU)

ELGs

In 2015, the EPA finalized ELGs for wastewater discharge permits for new and existing steam electricity generating facilities. These guidelines require deployment of additional control technologies providing physical, chemical and biological treatment and mandate operational changes including "no discharge" requirements for certain wastewaters. The implementation date for individual generating stations was to be determined by the states on a case-by-case basis according to criteria provided by the
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EPA. Legal challenges to the final rule were 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 issued a rule to postpone the compliance date for certain requirements. On October 13, 2020, the EPA published final revisions to its best available technology standards for certain wastewaters and potential extensions to compliance dates. The rule will be implemented by the states or applicable permitting authorities in the course of their normal permitting activities. LG&E and KU have developed responsive compliance strategies and schedules. 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. Certain costs are included in the Registrants' capital plans and expected to be recovered from customers through rate recovery mechanisms, but additional costs and recovery will depend on further regulatory developments at the state level. See Note 7 for additional information regarding LG&E’s and KU’s applications for ECR rate treatment of construction costs relating to regulations addressing ELGs.

CCRs

In 2015, the EPA issued a final rule governing management of CCRs which include fly ash, bottom ash and sulfur dioxide scrubber wastes. The CCR Rule imposes extensive new requirements for certain CCR impoundments and landfills, including public notifications, location restrictions, design and operating standards, groundwater monitoring and corrective action requirements, and closure and post-closure care requirements, and specifies restrictions relating to the beneficial use of CCRs. In July 2018, the EPA issued a final rule extending the deadline for closure of certain impoundments and adopting other substantive changes. In August 2018, the D.C. Circuit Court of Appeals vacated and remanded portions of the CCR Rule. In December 2019, the EPA addressed the deficiencies identified by the court and proposed amendments to change the closure deadline. In August 2020, the EPA published a final rule extending the deadline to initiate closure to April 11, 2021, while providing for certain extensions. EPA has announced that additional amendments to the rule are planned. PPL, LKE, LG&E and KU are unable to predict the outcome of the ongoing litigation and rulemaking or potential impacts on current LG&E and KU compliance plans. The Registrants are currently finalizing closure plans and schedules.

In January 2017, Kentucky issued a new state rule relating to CCR management, effective May 2017, aimed at reflecting the requirements of the federal CCR rule. As a result of a subsequent legal challenge, in January 2018, the Franklin County, Kentucky Circuit Court issued an opinion invalidating certain procedural elements of the rule. LG&E and KU presently operate their facilities under continuing permits authorized under the former program and do not currently anticipate material impacts as a result of the judicial ruling. The Kentucky Energy and Environmental Cabinet has announced it intends to propose new state rules aimed at addressing procedural deficiencies identified by the court and providing the regulatory framework necessary for operation of the state program in lieu of the federal CCR Rule. Associated costs are expected to be subject to rate recovery.

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. Since 2017, LG&E and KU have commenced closure of many of the subject impoundments and have completed closure of some of their smaller impoundments. LG&E and KU expect to commence closure of the remaining impoundments no later than April 2021. LG&E and KU generally expect to complete impoundment closures within five years of commencement, although a longer period may be required to complete closure of some facilities. Associated costs are expected to be subject to rate recovery.

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 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.

(All Registrants)

Superfund and Other Remediation
PPL Electric, LG&E and KU are potentially responsible for investigating and remediating contamination under the federal Superfund program and similar state programs. Actions are under way at certain sites including former coal gas manufacturing plants in Pennsylvania and Kentucky previously owned or operated by, or currently owned by predecessors or affiliates of, PPL Electric, LG&E and KU. PPL Electric is potentially responsible for a share of clean-up costs at certain sites including the
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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.
As of September 30, 2020 and December 31, 2019, PPL Electric had a recorded liability of $10 million representing its best estimate of the probable loss to be incurred to remediate the sites identified above. Depending on the outcome of investigations at identified 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. PPL Electric, LG&E and KU lack sufficient information about such additional sites to estimate any potential liability or range of reasonably possible losses, if any, related to these sites. Such costs, however, are not currently expected to be significant.

The EPA is evaluating the risks associated with polycyclic aromatic hydrocarbons and naphthalene, chemical by-products of coal gas manufacturing. As a result, individual states may establish stricter standards for water quality and soil cleanup, that 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 possible losses, if any, related to these matters.

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

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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 MattersOther

Labor Union Agreements
 
(All Registrants)LKE and KU)

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.

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 combustion in accordance with approved compliance plans. Costs not covered by the ECR mechanism for LG&E andAugust 2020, 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, hasSteelworkers of America ratified 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.three-year labor agreement through August 2023. The six pollutants are carbon monoxide, lead, nitrogen dioxide, ozone (contributed to by nitrogen oxide emissions), particulate matter and sulfur dioxide.agreement covers approximately 48 employees. 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.

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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. In April 2018, the EPA designated Jefferson County, Kentucky (Louisville) as being in nonattainment with the ozone standard. Although implementation of the 2015 ozone standard could potentially require the addition of SCRs at LG&E's Mill Creek station, PPL, LKE and LG&E are unable to determine what, if any, compliance measures may ultimately be required until the Louisville Metro Air Pollution District prepares a state implementation plan.

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. In July 2018, the EPA approved Kentucky's 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. In September 2018, the EPA denied petitions filed by Maryland and Delaware and in September 2019, denied a petition filed by New York 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.

Climate Change
There is continuing world-wide attention focused on issues related to climate change. In June 2016, President Obama announced that the United States, Canada and Mexico established the North American Climate, Clean Energy, and Environment Partnership Plan, which specifies actions to promote clean energy, address climate change and protect the environment. The plan includes a goal to provide 50% of the energy used in North America from clean energy sources by 2025. The plan does not impose any nation-specific requirements.

In December 2015, 195 nations, including the U.S., signed the Paris Agreement on Climate, which establishes a comprehensive framework for the reduction of GHG emissions from both developed and developing nations. Although the agreement does not establish binding reduction requirements, it requires each nation to prepare, communicate, and maintain GHG reduction commitments. Reductions can be achieved in a variety of ways, including energy conservation, power plant efficiency improvements, reduced utilization of coal-fired generation or replacing coal-fired generation with natural gas or renewable generation. Based on the EPA's 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. 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 thatnew labor agreement are applicable to WPD. WPD is subject to requirements under the Streamlined Energy and Carbon Reporting framework along with a tax (called “Climate Change Levy”). The cost of the tax is not significant and is included in WPD’s operating expenses.
The EPA's Affordable Clean Energy Rule
In 2015, the EPA finalized rules imposing stringent GHG emission standards for both new and existing power plants based on plant specific energy efficiency upgrades, fuel switching from coal to natural gas, and deployment of renewable generation (the Clean Power Plan).

Following legal challenges to the Clean Power Plan, a stay of those rules by the U.S. Supreme Court and the March 2017 Executive Order requiring the EPA to review the Clean Power Plan, in October 2017, the EPA proposed to rescind the Clean Power Plan. In July 2019, the EPA rescinded the Clean Power Plan and finalized the Affordable Clean Energy (ACE) Rule as a replacement with respect to existing sources. The ACE Rule gives states broad latitude in establishing emission guidelines providing for plant-specific efficiency upgrades or "heat-rate improvements" that will reduce GHG emissions per unit of electricity generated. The ACE Rule provides a list of "candidate technologies" that will be considered by the states in

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establishing standards of performance on a case by case basis at individual power plants. States are generally allowed three years to submit state plans establishing standards of performance. While compliance deadlines will be imposed on a plant-specific basis, the EPA anticipates that most facilities will be required to demonstrate compliance within two years of plan approval. In the final rule, the EPA did not finalize its proposed new criteria for determining whether such efficiency projects would trigger New Source Review and thus be subject to more stringent emission controls. Instead, the agency intends to take final action on the proposed New Source Review revisions in a separate final action at a later date. Various entities have filed petitions for review and petitions for reconsideration. PPL, LKE, LG&E and KU cannot predict the outcome of the pending litigation and regulatory proceedings.

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 federal requirements for GHG emission reductions. The legislation provides that such state GHG performance standards will be strictly based on emission reductions, efficiency measures and other improvements available at each power plant. These statutory restrictions are broadly consistent with the EPA's ACE Rule.

LG&E and KU are monitoring developments at the state and federal level. Until legal challenges and regulatory determinations relating to repeal and replacement of the Clean Power Plan are completed 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 January 31, 2020. The parties are conducting initial negotiations regarding potential settlement of the matter. PPL, LKE and LG&E are unable to predict the outcome of this matter or the potential impact on operations of the Mill Creek plant, including increased capital or operating costs, and potential civil penalties or remedial measures, if any.

Water/Waste

(PPL, LKE, LG&E and KU)
CCRs
In April 2015, the EPA published its final rule regulating CCRs. CCRs include fly ash, bottom ash and sulfur dioxide scrubber wastes. The rule became effective in October 2015. It imposes extensive new requirements, including location restrictions, design and operating standards, groundwater monitoring and corrective action requirements, and closure and post-closure care requirements on CCR impoundments and landfills that are not already closed and located on active power plants in the United States. 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. In March 2018, the EPA proposed amendments to the CCR rule primarily relating to impoundment closure and remediation requirements. In July 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. In July 2019, the EPA released proposed amendments to the CCR Rule relating to reporting, public information, boron standards, beneficial use and waste piles. The EPA released additional proposed amendments to the rule on November 4, 2019, with further proposed amendments expected in the future. In August 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 Court granted the EPA’s motion for voluntary remand of the amended rule without voiding it. Consequently, the CCR Rule amendments, including the 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

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rulemaking or potential impacts on current LG&E and KU compliance plans. Associated costs are expected to be subject to rate recovery. 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 management aimed at reflecting the requirements of the federal CCR rule. As a result of a subsequent legal challenge in January 2018, the Franklin County, Kentucky Court issued an opinion invalidating certain procedural elements of the rule. LG&E and KU presently operate their facilities under continuing permits authorized under the former program and do not currently anticipate material impacts as a result of the judicial ruling. The Kentucky Energy and Environmental Cabinet has announced it expects to propose new state rules in 2019 aimed at addressing the 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. Associated costs are expected to be subject to rate recovery.
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. Since 2017, LG&E and KU have commenced closure of many of the subject impoundments and have completed closure of some of the smaller impoundments. LG&E and KU expect to commence closure of the remaining impoundments no later than October 31, 2020. LG&E and KU generally expect to complete impoundment closures within five years of commencement, although a longer period may be required to complete closure of some facilities. Associated costs are expected to be subject to rate recovery.
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' 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 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.

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 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 contaminants to groundwater which reach surface water via a direct hydrologic connection. 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. On February 19, 2019, the U.S. Supreme Court agreed to review a lower court ruling on the issue. The U.S. Supreme Court’s ruling in that case, likely to be issued in the first half of 2020, is expected to provide additional clarification on the scope of Clean Water Act jurisdiction. Extending Clean Water Act jurisdiction to such discharges could potentially subject certain releases from CCR impoundments to additional permitting and remediation requirements.


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PPL, LKE, LG&E and KU are unable to predict the outcome of current or future regulatory 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. The proposed rule is expected to be finalized by the end of 2019. 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 released proposed rules on November 4, 2019 and expects to complete its reconsideration of best available technology standards by the fall of 2020. Upon completion of the ongoing regulatory proceedings, the rule will be implemented by the states in the course of their normal permitting activities. LG&E and KU are developing compliance strategies and schedules. PPL, LKE, LG&E and KU are unable to predict the outcome of the EPA's pending reconsideration of the rule or fully estimate compliance costs or timing. Additionally, certain aspects of these compliance plans and estimates relate to developments in state water quality standards, which are separate from the ELG rule or its implementation. Costs to comply with ELGs or other discharge limits are expected to be 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.

(PPL Electric, LG&E and KU)

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.

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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 operationsfinancial results of PPL Electric,LKE or KU.

(LKE and LG&E)

On November 4, 2020, LG&E and KU.

PPL Electric hadthe IBEW reached an agreement in principle regarding a recorded liabilitynew three-year collective bargaining agreement. The proposed agreement is to be submitted to a vote of $11 million at September 30, 2019 and December 31, 2018 representing its best estimateIBEW union members during early November 2020. The agreement covers approximately 640 employees. The terms 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 costsproposed labor agreement are not expected to be significant.have a significant impact on the financial results of LKE or LG&E. The Registrants cannot predict the ultimate outcome of this matter.

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 costs or other obligations related to these matters, but the amount
57

Table of insurance coverage or reimbursement cannot be estimated or assured.Contents

Other

Guarantees and Other Assurances
 
(All Registrants)

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

(All Registrants)
 
The table below details guarantees provided as of September 30, 2019.2020. "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," for which PPL has a total recorded liability of $5 million at September 30, 20192020 and $6 million at December 31, 2018.2019. 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, 2020Expiration
Date
PPL   
WPD indemnifications for entities in liquidation and sales of assets$10 (a)2022
WPD guarantee of pension and other obligations of unconsolidated entities90 (b) 
LKE   
Indemnification of lease termination and other divestitures200 (c)2021
LG&E and KU   
LG&E and KU obligation of shortfall related to OVEC(d) 
 Exposure at
September 30, 2019		 Expiration
Date
PPL    
Indemnifications related to the WPD Midlands acquisition (a)  
WPD indemnifications for entities in liquidation and sales of assets$10
(b) 2021
WPD guarantee of pension and other obligations of unconsolidated entities77
(c)  
     
PPL Electric    
Guarantee of inventory value26
(d) 2020
     
LKE    
Indemnification of lease termination and other divestitures200
(e) 2021
     
LG&E and KU    
LG&E and KU obligation of shortfall related to OVEC (f)  


(a)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 2 to 7 years subsequent to the date of dissolution of the entities. The exposure noted only includes those cases where the agreements provide for specific limits.
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(a)
Indemnifications related to certain liabilities, including a specific unresolved tax issue and those relating to properties and assets owned by the seller that were transferred to WPD Midlands in connection with the acquisition. A cross indemnity has been received from the seller on the tax issue. The maximum exposure and expiration of these indemnifications cannot be estimated because the maximum potential liability is not capped and the expiration date is not specified in the transaction documents.
(b)Indemnification to the liquidators and certain others for existing liabilities or expenses or liabilities arising during the liquidation process. The indemnifications are limited to distributions made from the subsidiary to its parent either prior or subsequent to liquidation or are not explicitly stated in the agreements. The indemnifications generally expire 2 to 7 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, 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 above the amounts recorded.
(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 $111 million at September 30, 2019, consisting of LG&E's share of $77 million and KU's share of $34
(b)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, 2020, 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.
(c)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 above the amounts recorded.
(d)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 $105 million at September 30, 2020, consisting of LG&E's share of $73 million and KU's share of $32 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 2019 Form 10-K for additional information on the OVEC power purchase contract.

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 2018 Form 10-K for additional information on the OVEC power purchase contract.

In March 2018, a co-sponsorsponsor with a 4.85% 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 other entities challenged the contract rejection, the
58

bankruptcy plan confirmation and regulatory aspects of the plan in various forums. In October 2019,May 2020, OVEC and the relevant sponsor announced a settlement resolving all disputed matters in the bankruptcy court issued an order confirmingand other proceedings, including providing that the co-sponsor's proposed reorganization plan.sponsor will withdraw its request to reject the power purchase agreement. The plan's effective date remains subject to certain conditions precedent, including remaining regulatory approvals, and to relevant current or future appellate rights or proceedings.settlement was implemented in July 2020. Periodically, OVEC and certain of its sponsors, including LG&E and KU, are analyzingmay consider 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 co-sponsor bankruptcy and related appellate or regulatory proceedings and challenges 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.

Risks and Uncertainties(All Registrants)

The COVID-19 pandemic has disrupted the U.S. and global economies and continues to present extraordinary challenges to businesses, communities, workforces and markets. In the U.S. and throughout the world, governmental authorities have taken urgent and extensive actions to contain the spread of the virus and mitigate known or foreseeable impacts. In the Registrants’ service territories, mitigation measures have included quarantines, stay-at-home orders, travel restrictions, reduced operations or closures of businesses, schools and governmental agencies, and legislative or regulatory actions to address health or other pandemic-related concerns, all of which have the potential to adversely impact the Registrants' business and operations, especially if these measures remain in effect for a prolonged period of time.

To date, the Registrants have not experienced a significant impact on their business, results of operations, financial condition, liquidity, operations or on their supply chain as a result of COVID-19; however, the duration and severity of the outbreak and its ultimate effects on the global economy, the financial markets, or the Registrants’ workforce, customers and suppliers are uncertain. A protracted slowdown of broad sectors of the economy, prolonged or pervasive restrictions on businesses and their workforces, or significant changes in legislation or regulatory policy to address the COVID-19 pandemic all present significant risks to the Registrants. These or other unpredictable events resulting from the pandemic could further reduce customer demand for electricity and gas, impact the Registrants’ employees and supply chains, result in an increase in certain costs, delay payments or increase bad debts, or result in changes in the fair value of their assets and liabilities, which could materially and adversely affect the Registrants’ business, results of operations, financial condition or liquidity.

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 services companies, the costs of 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

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and LKS charged the following amounts for the periods ended September 30, including amounts applied to accounts that are further distributed between capital and expense on the books of the recipients, based on methods that are believed to be reasonable.
 Three MonthsNine Months
 2020201920202019
PPL Electric from PPL Services
$11 $14 $37 $43 
LKE from PPL Services6 6 19 20 
PPL Electric from PPL EU Services44 38 126 112 
LG&E from LKS43 37 125 112 
KU from LKS45 42 132 126 
 Three Months Nine Months
 2019 2018 2019 2018
PPL Electric from PPL Services 
$14
 $14
 $43
 $45
LKE from PPL Services6
 5
 20
 19
PPL Electric from PPL EU Services38
 34
 112
 110
LG&E from LKS37
 36
 112
 113
KU from LKS42
 42
 126
 127
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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. At September 30, 2019, $546 million was outstanding and reflected in "Notes receivable from affiliate" on the Balance Sheet. NaN balance was outstanding at September 30, 2020 and December 31, 2018.2019. The interest rates on borrowings are equal to one-month LIBOR plus a spread. The interest rate on the outstanding borrowing at September 30, 2019 was 3.84% andInterest income is reflected in "Interest Income from Affiliate" on the Statements of Income.Income Statements.

(LKE)

LKE maintains a $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. The interest rates on borrowings are equal to one-month LIBOR plus a spread. At September 30, 20192020 and December 31, 2018, $1292019, $153 million and $113$150 million were outstanding and reflected in "Notes payable with affiliates" on the Balance Sheets. The interest rates on the outstanding borrowings at September 30, 20192020 and December 31, 20182019 were 3.59%1.66% and 3.85%3.20%. Interest expense on the revolving line of credit was not significant$1 million and $4 million for the three and nine months ended September 30, 20192020 and 2018.$2 million and $5 million for the three and nine months ended September 30, 2019.

LKE maintains an agreement with a PPL affiliate that has a $300 million borrowing limit whereby LKE can loan funds on a short-term basis at market-based rates. NaN balance was outstanding at September 30, 20192020 and December 31, 2018.2019. The interest rate on the loan is based on the PPL affiliate's credit rating and equal to one-month LIBOR plus a spread.

LKE maintains ten-yearten-year notes of $400 million and $250 million with a PPL affiliate with interest rates of 3.5% and 4%. At September 30, 20192020 and December 31, 2018,2019, the notes were reflected in "Long-term debt to affiliate" on the Balance Sheets. Interest expense on the $400 million note was $4 million and $11 million for the three and nine months ended September 30, 20192020 and 2018.2019. Interest expense on the $250 million note was $3 million and $8 million for the three and nine months ended September 30, 20192020 and $32019.

In May 2020, LKE entered into a $450 million term loan credit agreement with a PPL affiliate whereby LKE could borrow funds on a short-term basis at market-based rates. Interest on borrowings is determined as the lower of the daily rate for 30-day non-financial commercial paper programs plus a spread or one-month LIBOR plus a spread. The agreement expired on August 31, 2020. NaN balances were outstanding at September 30, 2020. Interest expense on borrowings was not significant for the three and $4nine months ended September 30, 2020.

In August 2020, LKE entered into a ten-year note of $550 million with a PPL affiliate with an interest rate of 4.125%. At September 30, 2020, this note was reflected in "Long-term debt to affiliate" on the Balance Sheets. Interest expense on the note was $3 million for the three and nine months ended September 30, 2018.2020.

(LG&E and KU)

LG&E participates in an intercompany money pool agreement whereby LKE and/or KU make available to LG&E funds up to $750 million at an interest rate based on a market index of commercial paper issues. NaN balances were outstanding at September 30, 2020 and December 31, 2019.

KU participates in an intercompany money pool agreement whereby LKE and/or LG&E make available to KU funds up to $650 million at an interest rate based on a market index of commercial paper issues. NaN balances were outstanding at September 30, 2020 and December 31, 2019.

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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 $37$27 million as of September 30, 2019,2020, of which $10 million was reflected in "Accounts receivable from affiliates" and $27$17 million was reflected in "Other noncurrent assets" on the PPL Electric Balance Sheet. The intercompany receivable balance associated with these funds was $45$32 million as of December 31, 2018,2019, of which $10 million was reflected in "Account"Accounts receivable from affiliates" and $35$22 million was reflected in "Other noncurrent assets" on the PPL Electric Balance Sheets.Sheet.

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Other (PPL Electric, LG&E and KU)

See Note 10 for discussions regarding intercompany allocations associated with defined benefits.

13. Other Income (Expense) - net

(PPL)

The details of "Other Income (Expense) - net" for the periods ended September 30, were:
 Three MonthsNine Months
2020201920202019
Other Income  
Economic foreign currency exchange contracts (Note 15)$(19)$44 $44 $56 
Defined benefit plans - non-service credits (Note 10)67 77 202 237 
Interest income1 3 3 12 
AFUDC - equity component6 6 14 17 
Miscellaneous0 1 2 6 
Total Other Income55 131 265 328 
Other Expense    
Charitable contributions0 1 2 3 
Miscellaneous3 4 10 16 
Total Other Expense3 5 12 19 
Other Income (Expense) - net$52 $126 $253 $309 
 Three Months Nine Months
 2019 2018 2019 2018
Other Income     
  
Economic foreign currency exchange contracts (Note 15)$44
 $40
 $56
 $92
Defined benefit plans - non-service credits (Note 10)77
 61
 237
 195
Interest income3
 3
 12
 5
AFUDC - equity component6
 5
 17
 15
Miscellaneous1
 2
 6
 3
Total Other Income131
 111
 328
 310
Other Expense 
  
  
  
Charitable contributions1
 1
 3
 6
Miscellaneous4
 4
 16
 7
Total Other Expense5
 5
 19
 13
Other Income (Expense) - net$126
 $106
 $309
 $297


(PPL Electric)

The details of "Other Income (Expense) - net" for the periods ended September 30, were:
Three MonthsNine Months
2020201920202019
Other Income
AFUDC - equity component$6 $6 $14 $17 
Defined benefit plans - non-service credits (Note 10)1 1 3 3 
Interest income1 0 1 1 
Total Other Income8 7 18 21 
Other Expense
Charitable contributions0 0 1 2 
Miscellaneous1 0 2 1 
Total Other Expense1 0 3 3 
Other Income (Expense) - net$7 $7 $15 $18 
 Three Months Nine Months
 2019 2018 2019 2018
Other Income     
  
AFUDC - equity component$6
 $5
 $17
 $15
Defined benefit plans - non-service credits (Note 10)1
 1
 3
 4
Interest income—
 —
 1
 —
Miscellaneous—
 —
 —
 1
Total Other Income7
 6
 21
 20
Other Expense 
  
  
  
Charitable contributions—
 1
 2
 2
Miscellaneous—
 —
 1
 —
Total Other Expense—
 1
 3
 2
Other Income (Expense) - net$7
 $5
 $18
 $18


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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

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and liabilities is measured on a net basis. See Note 1 in each Registrant's 20182019 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:
September 30, 2019 December 31, 2018 September 30, 2020December 31, 2019
Total Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 TotalLevel 1Level 2Level 3TotalLevel 1Level 2Level 3
PPL 
  
  
  
  
  
  
  
PPL        
Assets               Assets        
Cash and cash equivalents$670
 $670
 $—
 $—
 $621
 $621
 $—
 $—
Cash and cash equivalents$746 $746 $0 $0 $815 $815 $0 $0 
Restricted cash and cash equivalents (a)20
 20
 —
 —
 22
 22
 —
 —
Restricted cash and cash equivalents (a)22 22 0 0 21 21 0 0 
Special use funds (a):               Special use funds (a):
Money market fund2
 2
 —
 —
 59
 59
 —
 —
Commingled debt fund measured at NAV (b)29
 —
 —
 —
 —
 —
 —
 —
Commingled debt fund measured at NAV (b)27 — — — 29 — — — 
Commingled equity fund measured at NAV (b)28
 —
 —
 —
 —
 —
 —
 —
Commingled equity fund measured at NAV (b)27 — — — 27 — — — 
Total special use funds59
 2
 —
 —
 59
 59
 —
 —
Total special use funds54 0 0 0 56 0 0 0 
Price risk management assets (c): 
  
 

 

  
  
  
  
Price risk management assets (c):      
Foreign currency contracts224
 —
 224
 —
 202
 —
 202
 —
Foreign currency contracts42 0 42 0 142 0 142 0 
Cross-currency swaps195
 —
 195
 —
 135
 —
 135
 —
Cross-currency swaps147 0 147 0 154 0 154 0 
Total price risk management assets419
 —
 419
 —
 337
 —
 337
 —
Total price risk management assets189 0 189 0 296 0 296 0 
Total assets$1,168
 $692
 $419
 $—
 $1,039
 $702
 $337
 $—
Total assets$1,011 $768 $189 $0 $1,188 $836 $296 $0 
               
Liabilities 
  
  
  
  
  
  
  
Liabilities        
Price risk management liabilities (c): 
  
  
  
  
  
  
  
Price risk management liabilities (c):        
Interest rate swaps$25
 $—
 $25
 $—
 $20
 $—
 $20
 $—
Interest rate swaps$34 $0 $34 $0 $21 $0 $21 $0 
Foreign currency contracts3
 —
 3
 —
 2
 —
 2
 —
Foreign currency contracts1 0 1 0 5 0 5 0 
Total price risk management liabilities$28
 $—
 $28
 $—
 $22
 $—
 $22
 $—
Total price risk management liabilities$35 $0 $35 $0 $26 $0 $26 $0 
               
PPL Electric 
  
  
  
  
  
  
  
PPL Electric        
Assets 
  
  
  
  
  
  
  
Assets        
Cash and cash equivalents$27
 $27
 $—
 $—
 $267
 $267
 $—
 $—
Cash and cash equivalents$26 $26 $0 $0 $262 $262 $0 $0 
Restricted cash and cash equivalents (a)2
 2
 —
 —
 2
 2
 —
 —
Restricted cash and cash equivalents (a)2 2 0 0 2 2 0 0 
Total assets$29
 $29
 $—
 $—
 $269
 $269
 $—
 $—
Total assets$28 $28 $0 $0 $264 $264 $0 $0 
               
LKE 
  
  
  
  
  
    LKE      
Assets               Assets      
Cash and cash equivalents $30
 $30
 $—
 $—
 $24
 $24
 $—
 $—
Cash and cash equivalents $25 $25 $0 $0 $27 $27 $0 $0 
Cash collateral posted to counterparties (d)Cash collateral posted to counterparties (d)1 1 0 0 0 0 0 0 
Total assets$30
 $30
 $—
 $—
 $24
 $24
 $—
 $—
Total assets$26 $26 $0 $0 $27 $27 $0 $0 
               
Liabilities 
  
  
  
  
  
    
Price risk management liabilities: 
  
  
  
  
  
    
Interest rate swaps$25
 $—
 $25
 $—
 $20
 $—
 $20
 $—
Total price risk management liabilities$25
 $—
 $25
 $—
 $20
 $—
 $20
 $—
               
LG&E 
  
  
  
  
  
    
Assets 
  
  
  
  
  
    
Cash and cash equivalents$12
 $12
 $—
 $—
 $10
 $10
 $—
 $—
Total assets$12
 $12
 $—
 $—
 $10
 $10
 $—
 $—
               
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 September 30, 2020December 31, 2019
 TotalLevel 1Level 2Level 3TotalLevel 1Level 2Level 3
Liabilities      
Price risk management liabilities:      
Interest rate swaps$26 $0 $26 $0 $21 $0 $21 $0 
Total price risk management liabilities$26 $0 $26 $0 $21 $0 $21 $0 
LG&E      
Assets      
Cash and cash equivalents$10 $10 $0 $0 $15 $15 $0 $0 
Cash collateral posted to counterparties (d)1 1 0 0 0 0 0 0 
Total assets$11 $11 $0 $0 $15 $15 $0 $0 
Liabilities      
Price risk management liabilities:      
Interest rate swaps$26 $0 $26 $0 $21 $0 $21 $0 
Total price risk management liabilities$26 $0 $26 $0 $21 $0 $21 $0 
KU        
Assets        
Cash and cash equivalents$15 $15 $0 $0 $12 $12 $0 $0 
Total assets$15 $15 $0 $0 $12 $12 $0 $0 

 September 30, 2019 December 31, 2018
 Total Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3
Liabilities 
  
  
  
  
  
    
Price risk management liabilities: 
  
  
  
  
  
    
Interest rate swaps$25
 $—
 $25
 $—
 $20
 $—
 $20
 $—
Total price risk management liabilities$25
 $—
 $25
 $—
 $20
 $—
 $20
 $—
                
KU               
Assets               
Cash and cash equivalents$18
 $18
 $—
 $—
 $14
 $14
 $—
 $—
Total assets$18
 $18
 $—
 $—
 $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 net asset value per share (NAV), or its equivalent, 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 Balance Sheets.
(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.
(d)Included in "Other noncurrent assets" on the Balance Sheets. Represents cash collateral posted to offset the exposure with counterparties related to certain interest rate swaps under master netting arrangements that are not offset.

(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 net asset value per share (NAV), or its equivalent, 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.

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. In 2019, theThe funds are invested primarily in commingled debt and equity funds measured at NAV. In 2018,NAV and are classified as investments in equity securities. Changes in fair value of the funds were invested in money market funds.are recorded to the Statements of Income.

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.

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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, 2019 December 31, 2018
 Carrying
Amount (a)		 Fair Value Carrying
Amount (a)		 Fair Value
PPL$21,547
 $25,506
 $20,599
 $22,939
PPL Electric4,085
 4,764
 3,694
 3,901
LKE6,001
 6,901
 5,502
 5,768
LG&E2,004
 2,322
 1,809
 1,874
KU2,623
 3,064
 2,321
 2,451

 September 30, 2020December 31, 2019
Carrying
Amount (a)		Fair ValueCarrying
Amount (a)		Fair Value
PPL$22,768 $28,085 $21,893 $25,481 
PPL Electric3,587 5,030 3,985 4,589 
LKE6,073 7,588 6,002 6,766 
LG&E2,006 2,490 2,005 2,278 
KU2,617 3,310 2,623 3,003 
 
(a)Amounts are net of debt issuance costs.

(a)Amounts are net of debt issuance costs.
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The carrying amounts of other current financial instruments (except for long-term debt due within one year) approximate their fair values because of their short-term nature.
 
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.
 
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, WPD, 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.

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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.

Table•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 Contentsmarket price fluctuations associated with these expenses.




Volumetric Risk
 
Volumetric risk is the risk related to the changes in volume of retail sales due to weather, economic conditions or other factors. PPL is exposed to volumetric risk through its subsidiaries as described below.
 
•
WPD is exposed to volumetric risk which is significantly mitigated as a result of the method of regulation in the U.K. Under the RIIO-ED1 price control regulations, recovery of such exposure occurs on a two year lag. See Note 1 in PPL's 2018
•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 2019 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.

•
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.

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.
 
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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 $40$9 million and $14 million obligation to return cash collateral under master netting arrangements at September 30, 20192020 and December 31, 2018.2019.

PPL had 0 obligation to post cash collateral under master netting arrangements at September 30, 2019 and December 31, 2018.

LKE, LG&E and KU had 0 obligation to return cash collateral under master netting arrangements at September 30, 20192020 and December 31, 2018.2019.
 
PPL, LKE and LG&E posted $1 million of cash collateral under master netting arrangements at September 30, 2020. KU had 0 obligation to post cash collateral under master netting arrangements at September 30, 2020. PPL, LKE, LG&E and KU had 0 obligation to post cash collateral under master netting arrangements at September 30, 2019 and December 31, 2018.2019.

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

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Interest Rate Risk
 
(All Registrants)
 
PPL and its subsidiaries issue debt to finance their operations, which exposes them to interest rate risk. A variety of financial derivative instruments are utilized to adjust the mix of fixed and floating interest rates in their debt 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 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. PPL had no such contracts atAt September 30, 2019.2020, PPL held an aggregate notional value in interest rate swap contracts of £126 million (approximately $168 million based on spot rates) that mature in 2035 to hedge interest payments on WPD's £250 million debt issuance which occurred in October 2020.

At September 30, 2019,2020, 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.

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, 20192020 and 2018,2019, PPL had 0 cash flow hedges reclassified into earnings associated with discontinued cash flow hedges.
 
At September 30, 2019,2020, 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.payments. 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
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expense is recorded. At September 30, 2019,2020, 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, including the previously announced potential sale of its U.K. utility business, 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, 2019.2020.
 
At September 30, 20192020 and December 31, 2018,2019, PPL had $31$33 million and $32 million of accumulated net investment hedge after tax gains (losses) that were included in the foreign currency translation adjustment component of AOCI.

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Economic Activity
 
PPL enters into foreign currency contracts on behalf of a subsidiary to economically hedge GBP-denominated anticipated earnings. At September 30, 2019,2020, the total exposure hedged by PPL was approximately £1 billion£340 million (approximately $1.5 billion$482 million based on contracted rates). These contracts have termination dates ranging from October 20192020 through December 2020.July 2021.
 
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 include certain full-requirementfull 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, 20192020 and December 31, 2018.2019.
 
See Note 1 in each Registrant's 20182019 Form 10-K for additional information on accounting policies related to derivative instruments.
 
(PPL)
 
The following table presents the fair value and location of derivative instruments recorded on the Balance Sheets.
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September 30, 2019 December 31, 2018 September 30, 2020December 31, 2019
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 AssetsLiabilitiesAssetsLiabilitiesAssetsLiabilitiesAssetsLiabilities
Current: 
  
  
  
      
  
Current:        
Price Risk Management 
  
  
  
  
  
  
  
Price Risk Management        
Assets/Liabilities (a): 
  
  
  
  
  
  
  
Assets/Liabilities (a):        
Interest rate swaps (b)$—
 $—
 $—
 $5
 $—
 $—
 $—
 $4
Interest rate swaps (b)$0 $8 $0 $2 $0 $0 $0 $4 
Cross-currency swaps (b)7
 —
 —
 —
 6
 —
 —
 —
Cross-currency swaps (b)94 0 0 0 5 0 0 0 
Foreign currency contracts—
 —
 202
 3
 —
 —
 103
 2
Foreign currency contracts0 0 42 1 0 0 142 5 
Total current7
 —
 202
 8
 6
 —
 103
 6
Total current94 8 42 3 5 0 142 9 
Noncurrent: 
  
  
  
  
  
  
  
Noncurrent:        
Price Risk Management 
  
  
  
  
  
  
  
Price Risk Management        
Assets/Liabilities (a): 
  
  
  
  
  
  
  
Assets/Liabilities (a):        
Interest rate swaps (b)—
 —
 —
 20
 —
 —
 —
 16
Interest rate swaps (b)0 0 0 24 0 0 0 17 
Cross-currency swaps (b)188
 —
 —
 —
 129
 —
 —
 —
Cross-currency swaps (b)53 0 0 0 149 0 0 0 
Foreign currency contracts—
 —
 22
 —
 —
 —
 99
 —
Foreign currency contracts0 0 0 0 0 0 0 0 
Total noncurrent188
 —
 22
 20
 129
 —
 99
 16
Total noncurrent53 0 0 24 149 0 0 17 
Total derivatives$195
 $—
 $224
 $28
 $135
 $—
 $202
 $22
Total derivatives$147 $8 $42 $27 $154 $0 $142 $26 
 
(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.
(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 periodsperiod ended September 30, 2019.2020.

 Three MonthsNine Months Three MonthsNine Months
Derivative
Relationships		Derivative Gain
(Loss) Recognized in
OCI		Derivative Gain
(Loss) Recognized in
OCI		Location of
Gain (Loss)
Recognized
in Income
on Derivative		Gain (Loss)
Reclassified
from AOCI
into Income		Gain (Loss)
Reclassified
from AOCI
into
Income
Cash Flow Hedges:     
Interest rate swaps$3 $(7)Interest expense$(4)$(9)
Cross-currency swaps(67)(13)Other income (expense) - net(56)(24)
Total$(64)$(20) $(60)$(33)
Net Investment Hedges:    
    Foreign currency contracts$0 $1    

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  Three Months Nine Months   Three Months Nine Months
Derivative
Relationships		 
Derivative Gain
(Loss) Recognized in
OCI
 Derivative Gain
(Loss) Recognized in
OCI		 Location of
Gain (Loss)
Recognized
in Income
on Derivative		 Gain (Loss)
Reclassified
from AOCI
into Income		 Gain (Loss)
Reclassified
from AOCI
into
Income
Cash Flow Hedges:          
Interest rate swaps $(22) $(30) Interest expense $(2) $(6)
Cross-currency swaps 41
 69
 Other income (expense) - net 27
 34
Total $19
 $39
   $25
 $28
Net Investment Hedges:   
      
    Foreign currency contracts $—
 $1
      
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 $44
 $56
Interest rate swaps Interest expense (1) (3)
  Total $43
 $53
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) $(5)

Derivatives Not Designated as
Hedging Instruments		Location of Gain (Loss) Recognized in
Income on Derivative		Three MonthsNine Months
Foreign currency contractsOther income (expense) - net$(19)$44 
Interest rate swapsInterest expense(1)(4)
 Total$(20)$40 
Derivatives Not Designated as
Hedging Instruments		Location of Gain (Loss) Recognized as
Regulatory Liabilities/Assets		Three MonthsNine Months
Interest rate swapsRegulatory assets - noncurrent$2 $(5)
 
The following tables present the pre-tax effect of derivative instruments recognized in income, OCI or regulatory assets and regulatory liabilities for the periodsperiod ended September 30, 2018.
  Three Months Nine Months   Three Months Nine Months
Derivative
Relationships		 Derivative Gain
(Loss) Recognized in
OCI		 Derivative Gain
(Loss) Recognized in
OCI		 Location of
Gain (Loss)
Recognized
in Income
on Derivative		 Gain (Loss)
Reclassified
from AOCI
into Income		 Gain (Loss)
Reclassified
from AOCI
into Income
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
      
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 $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
 $7
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 Three MonthsNine Months Three MonthsNine Months
Derivative
Relationships		Derivative Gain
(Loss) Recognized in
OCI		Derivative Gain
(Loss) Recognized in
OCI		Location of
Gain (Loss)
Recognized
in Income
on Derivative		Gain (Loss)
Reclassified
from AOCI
into Income		Gain (Loss)
Reclassified
from AOCI
into Income
Cash Flow Hedges:     
Interest rate swaps$(22)$(30)Interest expense$(2)$(6)
Cross-currency swaps41 69 Other income (expense) - net27 34 
Total$19 $39  $25 $28 
Net Investment Hedges:     
    Foreign currency contracts$0 $1    
Derivatives Not Designated as
Hedging Instruments		Location of Gain (Loss) Recognized in
Income on Derivative		Three MonthsNine Months
Foreign currency contractsOther income (expense) - net$44 $56 
Interest rate swapsInterest expense(1)(3)
 Total$43 $53 
Derivatives Not Designated as
Hedging Instruments		Location of Gain (Loss) Recognized as
Regulatory Liabilities/Assets		Three MonthsNine Months
Interest rate swapsRegulatory assets - noncurrent$(2)$(5)

The following table presents the effect of cash flow hedge activity on the Statement of Income for the periods endperiod ended September 30, 2020.
Location and Amount of Gain (Loss) Recognized in Income on Hedging Relationships
Three MonthsNine Months
Interest ExpenseOther Income (Expense) - netInterest ExpenseOther Income (Expense) - net
Total income and expense line items presented in the income statement in which the effect of cash flow hedges are recorded$249 $52 $750 $253 
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(4)0 (9)0 
Cross-currency swaps:
Hedged items0 56 0 24 
Amount of gain (loss) reclassified from AOCI to income0 (56)0 (24)

The following table presents the effect of cash flow hedge activity on the Statement of Income for the period ended September 30, 2019.

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Location and Amount of Gain (Loss) Recognized in Income on Hedging Relationships
Three MonthsNine Months
Interest ExpenseOther Income (Expense) - netInterest ExpenseOther Income (Expense) - net
Total income and expense line items presented in the income statement in which the effect of cash flow hedges are recorded$259 $126 $746 $309 
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)0 (6)0 
Cross-currency swaps:
Hedged items0 (27)0 (34)
Amount of gain (loss) reclassified from AOCI to income0 27 0 34 
  Location and Amount of Gain (Loss) Recognized in Income on Hedging Relationships
  Three Months Nine Months
  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$259
 $126
 $746
 $309
 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) —
 (6) —
 Cross-currency swaps:       
 Hedged items—
 (27) —
 (34)
 Amount of gain (loss) reclassified from AOCI to income—
 27
 —
 34
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(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, 2019 December 31, 2018 September 30, 2020December 31, 2019
Assets Liabilities Assets Liabilities AssetsLiabilities AssetsLiabilities
Current:       
Current:     
Price Risk Management       
Price Risk Management     
Assets/Liabilities:       
Assets/Liabilities:     
Interest rate swaps$—
 $5
 $—
 $4
Interest rate swaps$0 $2  $0 $4 
Total current—
 5
 —
 4
Total current0 2  0 4 
Noncurrent:     
  
Noncurrent:     
Price Risk Management     
  
Price Risk Management     
Assets/Liabilities:     
  
Assets/Liabilities:     
Interest rate swaps—
 20
 —
 16
Interest rate swaps0 24  0 17 
Total noncurrent—
 20
 —
 16
Total noncurrent0 24  0 17 
Total derivatives$—
 $25
 $—
 $20
Total derivatives$0 $26  $0 $21 
 
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 periodsperiod ended September 30, 2019.2020.
 Location of Gain (Loss) Recognized in  
Derivative InstrumentsIncome on DerivativesThree MonthsNine Months
Interest rate swapsInterest expense$(1)$(4)
 Location of Gain (Loss) Recognized in  
Derivative InstrumentsRegulatory AssetsThree MonthsNine Months
Interest rate swapsRegulatory assets - noncurrent$2 $(5)
  Location of Gain (Loss) Recognized in    
Derivative Instruments Income on Derivatives Three Months Nine Months
Interest rate swaps Interest expense $(1) $(3)
  Location of Gain (Loss) Recognized in    
Derivative Instruments Regulatory Assets Three Months Nine Months
Interest rate swaps Regulatory assets - noncurrent $(2) $(5)

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 periodsperiod ended September 30, 2018.2019. 
  Location of Gain (Loss) Recognized in    
Derivative Instruments Income on Derivatives Three Months Nine Months
Interest rate swaps Interest expense $(1) $(4)
  Location of Gain (Loss) Recognized in    
Derivative Instruments Regulatory Assets Three Months Nine Months
Interest rate swaps Regulatory assets - noncurrent $2
 $7

 Location of Gain (Loss) Recognized in  
Derivative InstrumentsIncome on DerivativesThree MonthsNine Months
Interest rate swapsInterest expense$(1)$(3)
 Location of Gain (Loss) Recognized in  
Derivative InstrumentsRegulatory AssetsThree MonthsNine Months
Interest rate swapsRegulatory assets - noncurrent$(2)$(5)

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(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.
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AssetsLiabilities
Assets Liabilities  Eligible for Offset  Eligible for Offset 
  Eligible for Offset     Eligible for Offset  GrossDerivative
Instruments		Cash
Collateral
Received		NetGrossDerivative
Instruments		Cash
Collateral
Pledged		Net
Gross 
Derivative
Instruments
 
Cash
Collateral
Received
 Net Gross 
Derivative
Instruments
 
Cash
Collateral
Pledged
 Net
September 30, 2019               
September 30, 2020September 30, 2020        
Treasury Derivatives               Treasury Derivatives        
PPL$419
 $3
 $40
 $376
 $28
 $3
 $—
 $25
PPL$189 $1 $9 $179 $35 $1 $1 $33 
LKE—
 —
 —
 —
 25
 —
 —
 25
LKE0 0 0 0 26 0 1 25 
LG&E—
 —
 —
 —
 25
 —
 —
 25
LG&E0 0 0 0 26 0 1 25 
 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$337
 $2
 $40
 $295
 $22
 $2
 $—
 $20
LKE—
 —
 —
 —
 20
 —
 —
 20
LG&E—
 —
 —
 —
 20
 —
 —
 20

 AssetsLiabilities
  Eligible for Offset  Eligible for Offset 
GrossDerivative
Instruments		Cash
Collateral
Received		NetGrossDerivative
Instruments		Cash
Collateral
Pledged		Net
December 31, 2019       
Treasury Derivatives       
PPL$296 $5 $14 $277 $26 $5 $0 $21 
LKE0 0 0 0 21 0 0 21 
LG&E0 0 0 0 21 0 0 21 
 
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.

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(PPL, LKE and LG&E)

At September 30, 2019,2020, 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 PPLLKELG&E
Aggregate fair value of derivative instruments in a net liability position with credit risk-related contingent features$4
 $4
 $4
Aggregate fair value of derivative instruments in a net liability position with credit risk-related contingent features$6 $1 $1 
Aggregate fair value of collateral posted on these derivative instruments—
 —
 —
Aggregate fair value of collateral posted on these derivative instruments0 0 0 
Aggregate fair value of additional collateral requirements in the event of a credit downgrade below investment grade (a)4
 4
 4
Aggregate fair value of additional collateral requirements in the event of a credit downgrade below investment grade (a)6 1 1 
 
(a)Includes the effect of net receivables and payables already recorded on the Balance Sheet.

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

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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 11 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.

The changes in the carrying amounts of AROs were as follows.
 PPL LKE LG&E KU
Balance at December 31, 2018$347
 $296
 $103
 $193
Accretion13
 12
 4
 8
Effect of foreign exchange rates(2) —
 —
 —
Changes in estimated timing or cost(5) (2) (2) —
Obligations settled(67) (67) (22) (45)
Balance at September 30, 2019$286
 $239
 $83
 $156

 PPLLKELG&EKU
Balance at December 31, 2019$282 $215 $73 $142 
Accretion13 12 4 8 
Changes in estimated timing or cost35 44 16 28 
Effect of foreign currency exchange rates1 0 0 0 
Obligations settled(64)(64)(16)(48)
Balance at September 30, 2020$267 $207 $77 $130 
 
17. Accumulated Other Comprehensive Income (Loss)
 
(PPL)(PPL and LKE)
 
The after-tax changes in AOCI by component for the periods ended September 30 were as follows.
 Foreign
currency
translation
adjustments		Unrealized gains (losses)
on qualifying
derivatives		Defined benefit plans 
Prior
service
costs		Actuarial
gain
(loss)		Total
PPL
June 30, 2020$(1,777)$8 $(16)$(2,817)$(4,602)
Amounts arising during the period643 (52)0 (16)575 
Reclassifications from AOCI0 48 0 52 100 
Net OCI during the period643 (4)0 36 675 
September 30, 2020$(1,134)$4 $(16)$(2,781)$(3,927)
December 31, 2019$(1,425)$(5)$(18)$(2,910)$(4,358)
Amounts arising during the period291 (16)0 (17)258 
Reclassifications from AOCI0 25 2 146 173 
Net OCI during the period291 9 2 129 431 
September 30, 2020$(1,134)$4 $(16)$(2,781)$(3,927)
June 30, 2019$(1,616)$6 $(18)$(2,368)$(3,996)
Amounts arising during the period(285)16 0 (5)(274)
Reclassifications from AOCI0 (22)0 20 (2)
Net OCI during the period(285)(6)0 15 (276)
September 30, 2019$(1,901)$0 $(18)$(2,353)$(4,272)
December 31, 2018$(1,533)$(7)$(19)$(2,405)$(3,964)
Amounts arising during the period(368)32 0 (10)(346)
Reclassifications from AOCI0 (25)1 62 38 
Net OCI during the period(368)7 1 52 (308)
September 30, 2019$(1,901)$0 $(18)$(2,353)$(4,272)
 
Foreign
currency
translation
adjustments
 
Unrealized gains (losses)
 on qualifying
derivatives
 Defined benefit plans  
   
Prior
service
costs
 
Actuarial
gain
(loss)
 Total
PPL         
June 30, 2019$(1,616) $6
 $(18) $(2,368) $(3,996)
Amounts arising during the period(285) 16
 —
 (5) (274)
Reclassifications from AOCI—
 (22) —
 20
 (2)
Net OCI during the period(285) (6) —
 15
 (276)
September 30, 2019$(1,901) $—
 $(18) $(2,353) $(4,272)
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 Foreign
currency
translation
adjustments		Unrealized gains (losses)
on qualifying
derivatives		Defined benefit plans 
Prior
service
costs		Actuarial
gain
(loss)		Total
LKE
June 30, 2020$(8)$(83)$(91)
Amounts arising during the period0 (8)(8)
Reclassifications from AOCI0 5 5 
Net OCI during the period0 (3)(3)
September 30, 2020$(8)$(86)$(94)
December 31, 2019$(9)$(84)$(93)
Amounts arising during the period0 (9)(9)
Reclassifications from AOCI1 7 8 
Net OCI during the period1 (2)(1)
September 30, 2020$(8)$(86)$(94)
June 30, 2019$(8)$(83)$(91)
Amounts arising during the period0 0 0 
Reclassifications from AOCI0 0 0 
Net OCI during the period0 0 0 
September 30, 2019$(8)$(83)$(91)
December 31, 2018$(9)$(80)$(89)
Amounts arising during the period0 (2)(2)
Reclassifications from AOCI1 (1)0 
Net OCI during the period1 (3)(2)
September 30, 2019$(8)$(83)$(91)
 
Foreign
currency
translation
adjustments
 
Unrealized gains (losses)
 on qualifying
derivatives
 Defined benefit plans  
   
Prior
service
costs
 
Actuarial
gain
(loss)
 Total
          
December 31, 2018$(1,533) $(7) $(19) $(2,405) $(3,964)
Amounts arising during the period(368) 32
 —
 (10) (346)
Reclassifications from AOCI—
 (25) 1
 62
 38
Net OCI during the period(368) 7
 1
 52
 (308)
September 30, 2019$(1,901) $—
 $(18) $(2,353) $(4,272)
          
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)


The following table presents PPL's gains (losses) and related income taxes for reclassifications from AOCI for the periods ended September 30.
 Three MonthsNine MonthsAffected Line Item on the
Details about AOCI2020201920202019Statements of Income
Qualifying derivatives     
Interest rate swaps$(4)$(2)$(9)$(6)Interest Expense
Cross-currency swaps(56)27 (24)34 Other Income (Expense) - net
Total Pre-tax(60)25 (33)28 
Income Taxes12 (3)8 (3) 
Total After-tax(48)22 (25)25  
Defined benefit plans    
Prior service costs (a)(1)(1)(3)(2)
Net actuarial loss (a)(64)(25)(181)(78)
Total Pre-tax(65)(26)(184)(80)
Income Taxes13 6 36 17 
Total After-tax(52)(20)(148)(63)
Total reclassifications during the period$(100)$2 $(173)$(38)
  Three Months Nine Months Affected Line Item on the
Details about AOCI 2019 2018 2019 2018 Statements of Income
Qualifying derivatives          
Interest rate swaps $(2) $(2) $(6) $(6) Interest Expense
Cross-currency swaps 27
 18
 34
 30
 Other Income (Expense) - net
  —
 1
 —
 1
 Interest Expense
Total Pre-tax 25
 17
 28
 25
  
Income Taxes (3) (3) (3) (4)  
Total After-tax 22
 14
 25
 21
  
           
Defined benefit plans          
Prior service costs (a) (1) (1) (2) (2)  
Net actuarial loss (a) (25) (42) (78) (130)  
Total Pre-tax (26) (43) (80) (132)  
Income Taxes 6
 9
 17
 27
  
Total After-tax (20) (34) (63) (105)  
           
Total reclassifications during the period $2
 $(20) $(38) $(84)  


(a)(a)    These AOCI components are included in the computation of net periodic defined benefit cost. See Note 10 for additional information.


18. New Accounting Guidance Pending Adoption

(All Registrants)

Accounting for Financial Instrument Credit Losses

In June 2016, the FASB issued accounting guidance that requires the use of a current expected credit loss (CECL) model for the measurement of credit losses on financial instruments within the scope of this guidance, which includes accounts receivable. The CECL model requires an entity to measure credit losses using historical information, current information and reasonable and supportable forecasts of future events, rather than the incurred loss impairment model required under current GAAP.
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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. The Registrants are currently assessing the impact of adopting this guidance and will adopt this standard on January 1, 2020 with a modified retrospective approach through a cumulative-effect adjustment to retained earnings at the date of adoption. Key implementation activities in process include finalizing the population of financial instruments within the scope of this guidance and identifying potential differences between the Registrants’ current credit loss models and the requirements of this guidance.

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. 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 prospectively as of the beginning of the period adopted, which will 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. The Registrants will adopt this guidance on January 1, 2020. The Registrants are currently assessing the impact of adopting this guidance.

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Item 2. Combined Management's Discussion and Analysis of Financial Condition and
Results of Operations
 
(All Registrants)
 
This "Item 2. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations" is separately filed by PPL, PPL Electric, LKE, LG&E and KU. Information contained herein relating to any individual Registrant is filed by such Registrant solely on its own behalf, and no Registrant makes any representation as to information relating to any other Registrant. The specific Registrant to which disclosures are applicable is identified in parenthetical headings in italics above the applicable disclosure or within the applicable disclosure for each Registrant's related activities and disclosures. Within combined disclosures, amounts are disclosed for individual Registrants when significant.
 
The following should be read in conjunction with the Registrants' Condensed Consolidated Financial Statements and the accompanying Notes and with the Registrants' 20182019 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"Analysis," which discusses significant changes in principal line items on the Statements of Income, comparing the three and nine months ended September 30, 20192020 with the same periods in 2018.2019. For PPL, "Results of Operations" also includes "Segment Earnings" and "Adjusted Gross Margins"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. 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 and Virginia; delivers natural gas to customers in Kentucky; and generates electricity from power plants in Kentucky.

PPL's principal subsidiaries are shown below (* denotes a Registrant).
 
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PPL Corporation*
PPL Capital Funding
Provides financing for the operations of PPL and certain subsidiaries
PPL Global
Engages in the regulated distribution of electricity in the U.K.
LKE*
 
PPL Electric*
Engages in the regulated transmission and distribution of electricity in Pennsylvania
LG&E*
Engages in the regulated generation, transmission, distribution and sale of electricity and regulated distribution and sale of natural gas in Kentucky
 
KU*
Engages in the regulated generation, transmission, distribution and sale of electricity, primarily in Kentucky
U.K.

Regulated Segment
Kentucky

Regulated Segment
Pennsylvania

Regulated Segment
 
PPL's reportable segments' results primarily represent the results of PPL Global, LKE and PPL Electric, except that the reportable segments are also allocated certain corporate level financing and other costs that are not included in the results of PPL Global, LKE and PPL Electric. PPL Global is not a Registrant. Unaudited annual consolidated financial statements for the U.K. Regulated segment are furnished by PPL 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, acquired in 2010 and 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.
 
(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 and Virginia. KU is subject to regulation as a public
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utility by the KPSC and 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.
 
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 earnings and dividend growth potential.
 
PPL's strategy, and that of the other Registrants, is to deliver best-in-sector operational performance, invest in a sustainable energy future, provide superior customer service, 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 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) and recovery on construction work-in-progress that reduce regulatory lag and provide timely recovery of and return on, as appropriate, prudently incurred costs. In addition, the KPSC requires a utility to obtain a CPCN prior to constructing a facility, unless the construction is an ordinary extension of existing facilities in the usual course of business or does not involve sufficient capital 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 operate to reduce regulatory lag and provide for timely recovery of and a return on, as appropriate, prudently incurred costs.

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 inWithdrawal from 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 the Registrants operate (U.K., U.S. federal and state). This is supported by a strong culture of integrity and delivering on commitments to customers, regulators and shareowners, and a commitment to continue to improve customer service, reliability and operational efficiency.
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Financial and Operational Developments

Initiation of Formal Process to Sell U.K. Utility Business (PPL)

On August 10, 2020, PPL announced that it has initiated a formal process to sell its U.K. utility business. PPL noted that there can be no assurance of any specific outcome, including whether the sale process will result in the completion of any potential transaction, the timing or terms thereof, the value or benefits that may be realized or the effect that any potential transaction will have on future financial results.

As a result of the potential sale, PPL assessed the recoverability of the assets of its U.K. utility business. PPL prepared a probability-weighted undiscounted cash flow estimate as of September 30, 2020 that considered the likelihood of the possible outcomes of the sale process, including the possibility of not selling the U.K. utility business. The resulting cash flow analysis exceeded the carrying value of the assets of the U.K. utility business. A change in the possible outcomes of the sale process could result in the carrying value of the assets of the U.K. utility business not being recoverable, which could result in an impairment in future periods.The U.K. utility business will continue to be classified as held and used until it meets the criteria to be classified as held for sale, which includes management obtaining a commitment to a plan to sell from its Board of Directors.

Should the U.K. utility business meet the criteria to be classified as held for sale in a future period, PPL will be required at that time to compare the estimated fair value of its investment in the U.K. utility business, less costs to sell, to its carrying value for impairment purposes. The measurement of PPL’s carrying value of the U.K. utility business will include the realization of accumulated other comprehensive losses, which could arise from currency translation adjustments and defined benefit plans associated with the U.K. utility business.

Outbreak of COVID-19(All Registrants)

The continued spread of COVID-19 has led to global economic disruption and volatility in financial markets. The Registrants have taken significant steps to mitigate the potential spread of COVID-19 to our customers, suppliers and employees. PPL has successfully implemented its company-wide pandemic plan, which guides the emergency response. Business continuity and other precautionary measures have been taken to ensure we can continue to safely provide reliable electricity and gas service to our customers. The Registrants have implemented social distancing measures for all employees including work from home arrangements where possible and continue to implement strong physical and cyber security measures to ensure that systems function effectively to serve operational and remote workforce needs. The Registrants continue to monitor developments affecting their workforces and customers and will take additional actions as appropriate to respond to changing conditions and mitigate the impacts.

This is a rapidly evolving situation that could lead to extended disruption of economic activity in the Registrants’ markets for an undetermined period of time. Lock-down or closure of non-essential businesses has occurred in each of the Registrants’ service territories, which has resulted in reductions in commercial and industrial demand and an increase in residential demand for electricity service. The impact of this net reduction in load has not been material to the Registrants' year to date 2020 financial condition. The impact on future periods will depend upon various factors, including the pace and extent to which the Registrants' jurisdictions reopen their economies and community response to the reopening of businesses as well as the extent that businesses continue work from home protocols. We cannot predict these factors and therefore cannot quantify the overall impact COVID-19 will have on our 2020 results of operations.

The Registrants are committed to supporting their customers and communities and have followed federal and state mandates to suspend disconnections for non-payment and new late fees, reconnect service for customers who had previously been disconnected and develop late payment plans with customers, where appropriate. The Registrants have experienced an increase in aged accounts receivable, resulting in an increase in credit losses. See "Current Expected Credit Losses" in Note 2 to the Financial Statements for additional information. The Registrants will continue to monitor cash receipts and accounts receivable aging to determine if further increases in their allowance for uncollectible accounts are required.

At September 30, 2020, the Registrants had approximately $3.6 billion of combined unused credit facility capacity.In addition, PPL Capital Funding, PPL Electric, LG&E and KU may, subject to certain conditions, increase their syndicated credit facilities in an aggregate amount of up to $1 billion. In April 2020, PPL Capital Funding issued $1 billion in senior notes. In June 2020, KU issued $500 million of First Mortgage Bonds due 2050. In October 2020, PPL Electric issued $250 million of First Mortgage Bonds, Floating Rate Series due 2023. In October 2020, WPD (South Wales) issued £250 million of 1.625% Senior
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Notes due 2035. Based on available liquidity and access to capital markets, the Registrants do not anticipate a significant impact on their financial condition or liquidity, and do not foresee difficulties in accessing the capital markets in the near-term. See Note 8 to the Financial Statements for additional information.

The Registrants have assessed the fair value of their assets and liabilities and no impairment charges were required. See “Goodwill Assessment” below for additional information on the interim goodwill impairment test performed for the U.K. Regulated segment reporting unit in the first quarter of 2020.

PPL’s pension plans continue to be well-funded as its liability-driven investment strategy and active management function to mitigate investment losses resulting from market volatility.

In response to COVID-19, on March 27, 2020, President Donald Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act). PPL evaluated the provisions of the CARES Act and believes there is no significant effect on its financial statements. Certain tax provisions may result in immaterial cash benefits in 2020.

To date, there has been no material impact on the Registrants’ business, financial condition, liquidity or on their supply chain as a result of COVID-19. For the three and nine months ended September 30, 2020, the following estimated changes in revenue and incremental costs incurred resulted from the impact of COVID-19:
Increase (Reduction) in RevenueIncremental Costs
Three MonthsNine MonthsThree MonthsNine Months
PPL$(33)$(94)$6 $26 
WPD(30)(70)4 19 
LKE(3)(24)— 5 
LG&E(5)(14)— 2 
KU2 (10)— 3 

WPD tariffs are set to recover allowed revenues. Any under-recoveries, including the estimated amounts shown above, will be added to revenue, with interest, in future years through K-factor. See discussion of K-factor in “Item 1. Business” of PPL’s 2019 Form 10-K.The impact on revenue and incremental COVID-19 related costs were not significant at PPL Electric.

The ultimate severity or duration of the outbreak or its effects on the global economy, the capital markets, or the Registrants’ workforce, contractors, customers and suppliers is uncertain. The Registrants cannot predict the ultimate impact COVID-19 will have on their financial position, results of operations, cash flows or liquidity.

Goodwill Assessment (PPL, LKE, LG&E and KU)

The COVID-19 pandemic has disrupted the U.S. and global economies and continues to present extraordinary challenges to businesses, communities, workforces and markets. In the U.S. and throughout the world, governmental authorities have taken urgent and extensive actions to contain the spread of the virus and mitigate known or foreseeable impacts. In the Registrants’ service territories, mitigation measures have included quarantines, stay-at-home orders, travel restrictions, reduced operations or closures of businesses, schools and governmental agencies, and legislative or regulatory actions to address health or other pandemic-related concerns, all of which have the potential to adversely impact the Registrants' business and operations, especially if these measures remain in effect for a prolonged period of time. PPL’s shares have experienced volatility and a decrease in market value since the outbreak of COVID-19.

During the three month period ended March 31, 2020, PPL, LKE, LG&E and KU considered whether these events would more likely than not reduce the fair value of the Registrants’ reporting units below their carrying amounts. Based on our assessment, a quantitative impairment test was not required for the LKE, LG&E and KU reporting units, but was required for the U.K. Regulated segment reporting unit, the allocated goodwill of which was $2.5 billion at March 31, 2020. The test did not indicate impairment of the reporting unit.

Management used both discounted cash flows and market multiples, including implied RAV premiums, which required significant assumptions, to estimate the fair value of the reporting units. Significant assumptions used in the discounted cash flows include discount and growth rates, the finalization of RIIO-ED2, and projected operating and capital cash flows. Projected operating and capital cash flows are based on the internal business plans, which assume the occurrence of certain
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future events. Significant assumptions used in the market multiples include sector market performance and comparable transactions.

A high degree of judgment is required to develop estimates related to fair value conclusions. A decrease in the forecasted cash flows of 10%, an increase in the discount rate of 10%, or a 10% decrease in the market multiples would not have resulted in an impairment of goodwill for the U.K. Regulated segment reporting unit.

During the three month periods ended June 30, 2020 and September 30, 2020, no goodwill impairment triggers were identified. However, an impairment charge could occur in future periods if PPL’s share price or any of the assumptions used in determining fair value of the reporting units are negatively impacted.

U.K. Corporation Tax Rate Change(PPL)

The U.K. corporation tax rate was scheduled to be reduced from 19% to 17%, effective April 1, 2020. On March 11, 2020, the U.K. Finance Act 2020 included a cancellation of the tax rate reduction to 17%, thereby maintaining the corporation tax rate at 19%. The Finance Act 2020 was formally enacted on July 22, 2020. The primary impact of the cancellation of the corporation tax rate reduction was an increase in deferred tax liabilities and a corresponding deferred tax expense of $106 million.

U.S. Tax Reform (All Registrants)

TheIRS issued proposed regulations for certain provisions of the TCJA in 2018, including interest deductibility and Global Intangible Low-Taxed Income (GILTI). In June 2019,July 2020, the IRS issued both final and new proposed regulations relating to GILTI. PPL has determined that neither theselimitations on interest deductibility for tax purposes. The Registrants will apply the final norregulations beginning in the 2021 tax year. The proposed regulations materially change PPL's current interpretation of the statutory impact of these rules on the Registrants. Proposed regulations relating to the limitation on the deductibility of interest expense were issuedwill apply 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 in the fourth quarter of 2019. It is uncertain what form2021 or later. The Registrants are evaluating the final and proposed regulations, will take and, therefore,but do not expect the Registrants cannot predict whatregulations to have a material impact the final regulations will have on the tax deductibilityRegistrants’ financial condition or results of interest expense. However, if the proposed regulations were issued as final in their current form, the Registrants could have a limitation on a portion of their interest expense deduction for tax purposes and such limitation could be significant. PPL expressed its views on these proposed regulations in a comment letter addressed to the IRS on February 26, 2019.operations.

U.K. Membership inWithdrawal from European Union (PPL)
Following a June 2016 voter referendum, onIn March 29, 2017, the U.K. Government invoked Article 50 (Article 50) of the Lisbon Treaty, formally beginning the two-year period provided by Article 50 for the U.K. to negotiate an agreement specifying the terms of its withdrawal from the European Union (EU), popularly referred to as Brexit. Any withdrawal agreement is subject to approval by the parliaments of both the U.K. and EU. In the absence of a withdrawal agreement, unless an extension of the two-year Article 50 time period were granted or the U.K. were to rescind its Article 50 notification, the U.K.’s membershipAfter repeated extensions, in the EU would originally have terminated on March 29, 2019. On April 10, 2019, the U.K. requested an extension of the Article 50 process and the EU approved an extension until October 31, 2019. On October 28, 2019, the EU agreed to extend the Article 50 process until January 31, 2020. The U.K. Parliament subsequently approvedFollowing an early general election in December 2019, which resulted in a substantial Conservative Party Parliamentary majority, the U.K. and EU Parliaments voted to approve the EU withdrawal agreement negotiated by Prime Minister Boris Johnson.

The U.K. formally left the EU on January 31, 2020, entering a transition period that is scheduled to end on December 31, 2020. During the transition period, the U.K. will seek to negotiate a free trade arrangement with the EU and also negotiate new trade terms with countries outside of the EU. The deadline for December 12, 2019.

the U.K. requesting an extension to the transition period passed on June 30, 2020. Significant uncertainty continues to surround the outcome of the Brexit process.transition period. PPL believes that its greatest risk relatedrisks relate to Brexit is anany extended period of depressed value of the GBP or the potential further decline in the value of the GBP compared to the U.S. dollar, particularly if the U.K. leaves the EU without a withdrawal agreement.dollar. A decline in the value of the GBP compared to the U.S. dollar will reduce the value of WPD's earnings to PPL.

PPL has executed hedges to mitigate the foreign exchange risk to its U.K. earnings. As of September 30, 2019,2020, PPL's foreign exchange exposure related to budgeted earnings is 100% hedged for the remainder of 20192020 at an average rate of $1.45 per GBP and 70% hedged for 2020 at an average rate of $1.46 per GBP.

PPL cannot predict the impact, in either the short-term or long-term, on foreign exchange rates or 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 material.

PPL does not expect the financial condition and results of operations of WPD, itself, to change significantly as a result of Brexit. The regulatory environment and operation of WPD's businesses are not expected to change. RIIO-ED1, the current price control, with allowed revenues agreed with Ofgem runs through March 2023. The impact of a slower economy or recession on WPD would be mitigated in part because U.K. 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 20182019 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
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be partially offset by higher operation and maintenance expenses 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.


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Regulatory Requirements

(All Registrants)

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

(PPL, LKE, LG&E and KU)

The businesses of LKE, LG&E and KU are subject to extensive federal, state and local environmental laws, rules and regulations, including those pertaining to CCRs, GHG, and ELGs. See Notes 7, 11 and 16 to the Financial Statements for a discussion of these significant environmental matters. These and other stringent environmental requirements led PPL, LKE, LG&E and KU to retire approximately 1,0001,200 MW of coal-fired generating plants in Kentucky since 2015.

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 (ADIT) as a result of the TCJA would be addressed in a Notice of Proposed Rulemaking. Also in November 2018, the FERC issued the Notice of Proposed Rulemaking, which proposed that public utility transmission providers include mechanisms in their formula rates to deduct excess ADIT from, or add deficient ADIT to, rate base and adjust their income tax allowances by amortized excess or deficient ADIT. The Notice of Proposed Rulemaking did not prescribe the mechanism companies should use to adjust their formula rates.

2010.
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 to incorporate reductions to corporate income tax rates as a result of the TCJA and HB 487. The FERC approved this request effective June 1, 2019. 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 Regulations of the FERC. Specifically, PPL Electric proposed to modify its formula rate to permit the return or recovery of excess or deficient 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 formula rate template, which were effective June 1, 2019, as well as the proposed adjustments to ADIT, effective January 1, 2018.

Pennsylvania Alternative Ratemaking (PPL and PPL Electric)

In June 2018, Governor Tom Wolf signed into law Act 58 of 2018 (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 was August 27, 2018. Under the new law, a public utility 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, decoupling mechanisms, performance-based rates, formula rates, multi-year rate plans, or a combination of those or other mechanisms.

On April 25, 2019, the PUC issued an Implementation Order adopting its interpretation and implementation of Act 58 and establishing the procedures through which utilities may seek PUC approval of alternative rates and rate mechanisms.

RIIO-ED2 ReviewRIIO-2 Framework (PPL)

In 2018, Ofgem publishedissued its decisionconsultation document on the overall RIIO-2 framework, which coverscovering all U.K. gas and electricity transmission and distribution price controls,controls. The current electricity distribution price control, RIIO-ED1, continues through March 31, 2023 and will not be impacted by the RIIO-2 consultation process. Later in 2018, Ofgem published its decision following its RIIO-2 framework consultation process earlier inafter consideration of comments received including those from WPD and PPL.

In August 2019, Ofgem published an open letter seeking views on its proposed sector specific approach on the year. See “Item 7. Combined Management's DiscussionRIIO-ED2 framework. WPD and 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 decision document. Management expects significant electricity distribution network investment will be required in RIIO-ED2PPL provided responses 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.


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On August 6,this open letter. In December 2019, Ofgem published its open letter consultation officially commencingdecision on the RIIO-ED2 process. framework, thus confirming the following points in its RIIO-2 and RIIO-ED2 framework decision documents:

•RIIO-ED2 will be a five-year price control period, compared to eight years in the current RIIO-ED1 price control.
•CPI or CPIH will be used for inflation measurement in calculating both RAV and allowed returns rather than RPI.
•The baseline allowed return on equity will be set using the same methodology in all RIIO-2 sectors. The new methodology includes; (a) an equity indexation, whereby the allowed return on equity is updated to reflect changes in the risk-free rate, and (b) potentially setting the allowed return 0.5% below the expected return.
•Full debt indexation will be retained.
•The early settlement process (fast tracking) will be removed and replaced with an alternative mechanism to incentivize high-quality, rigorous and ambitious business plans.
•The Totex incentive rate will be based on a confidence level for setting baseline cost allowances.
•A new enhanced engagement model will be introduced requiring distribution companies to set up a customer engagement group to provide Ofgem with a public report of local stakeholders’ views on the companies’ business plans. 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.
•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.
•A focus of RIIO-2 will be on whole-system outcomes. Ofgem intends for network companies and system operators to work together to ensure the energy system as a whole is efficient and delivers the 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 this objective. Ofgem is still undecided on how DSO functions are to be treated. Ofgem will include a DSO reopener to reassess progress made in the establishment of DSO activities.

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On July 30, 2020 Ofgem published its consultation on the RIIO-ED2 price control methodology which Ofgem will use to apply its framework decisions listed above. Some of the key aspects in Ofgem’s consultation include:

•Proposing a suite of Net-Zero related investment and innovation mechanisms, including a Net Zero re-opener, to ensure that RIIO-ED2 is adaptable and can keep pace with changes in the wider policy and technological environment.
•Consulting on four different models for managing strategic investment to enable more flexibility within the price control and allow DNOs to adapt their investment plans to keep pace with Net Zero.
•Consulting on debt allowance proposals including the debt allowance calibration, the index used, and a possible additional cost of borrowing allowance.
•Consulting on whether the three-stage equity indexation methodology for baseline allowance returns proposed in the Gas Distribution and Transmission Draft Determination should equally apply to the ED sector and if the estimation approach for systematic risk should differ for ED2.
•Proposing to introduce a suite of reforms to define and regulate the distribution system operation. In the first instance, those reforms will apply to DNOs.

WPD and PPL have beencontinue to be fully engaged in the RIIO-2 process and have responded to thisRIIO-ED2 process. The comment period on the July 30, 2020 consultation which closed on October 15, 2019. At this stage,1, 2020, which WPD provided a response to, and a decision on the RIIO-ED2 Sector Specific Methodology will be made in December 2020. Final Determinations for RIIO-ED2 will be made in December 2022. The RIIO-ED2 price control will come into effect on April 1, 2023. PPL cannot predict the outcome of this process or the long-term impact the final RIIO-ED2 frameworkprice control will have on its financial condition or results of operations. Any decision

Challenge to PPL Electric Transmission Formula Rate Return on Equity

(PPL and PPL Electric)

On May 21, 2020, PP&L Industrial Customer Alliance (PPLICA) filed a complaint with the FERC alleging that PPL Electric's base return on equity (ROE) of 11.18% used to determine PPL Electric's formula transmission rate is unjust and unreasonable, and proposing an alternative ROE of 8.0% based on its interpretation of FERC Opinion No. 569. However, also on May 21, 2020, the FERC issued Opinion No. 569-A in response to numerous requests for RIIO-ED2 will notrehearing of Opinion No. 569, which revised the method for analyzing base ROE. On June 10, 2020, PPLICA filed a Motion to Supplement the May 21, 2020 complaint in which PPLICA continued to allege that PPL Electric’s base ROE is unjust and unreasonable, but revised its analysis of PPL Electric's base ROE to reflect the guidance provided in Opinion No. 569-A. The amended complaint proposed an updated alternative ROE of 8.5% and also requested that the FERC preserve the original refund effective date as established by the filing of the original complaint on May 21, 2020. Several parties have filed motions to intervene, including one party who filed Comments in Support of the original complaint.

On July 10, 2020, PPL Electric filed its Answer and supporting Testimony to the PPLICA filings arguing that the FERC should deny the original and amended complaints as they are without merit and fail to demonstrate the existing base ROE is unjust and unreasonable. In addition, PPL Electric contended any refund effective date should be finalized until November 2022. The RIIO-ED2 price control will come into effectset for no earlier than June 10, 2020 and PPLICA's proposed replacement ROE should be rejected.

On October 15, 2020, the FERC issued an order on April 1, 2023.the PPLICA complaints which established hearing and settlement procedures, set a refund effective date of May 21, 2020 and granted the motions to intervene. PPL Electric continues to believe its ROE is just and reasonable and that it has meritorious defenses against the original and amended complaints. At this time, PPL Electric cannot predict the outcome of this matter or the range of possible losses, if any, that may be incurred. However, revenue earned from May 21, 2020 through the settlement of this matter may be subject to refund. A change of 50 basis points to the base ROE would impact PPL Electric's net income by approximately $12 million on an annual basis.

FERC Transmission Rate Filing

(PPL, LKE, LG&E and KU)

In August 2018, LG&E and KU submitted an applicationapplied 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&E's and KU's parent entities and the 2006 withdrawal of LG&E and KU from the Midcontinent Independent System Operator, Inc. (MISO), a regional transmission operator and energy market. The application sought termination of LG&E's and KU's commitment to provide certain Kentucky municipalities 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 municipalities in Kentucky.KU merger and 2006 MISO withdrawal. The amounts at
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issue are generally waivers or credits granted to such customersa limited number of Kentucky municipalities for either certain LG&E and KU or MISO transmission charges incurred depending upon the direction of certainfor transmission service incurred by the municipalities.received. 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. OnIn March 21, 2019, the FERC issued an Order grantinggranted LG&E's and KU's request to remove the on-goingongoing 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. OnIn July 12, 2019, LG&E and KU submittedproposed their proposed transition mechanism to the FERC. OnFERC and in September 10, 2019, the FERC issued an order rejectingrejected the proposed transition mechanism. Onmechanism and issued a separate order providing clarifications of certain aspects of the March order. In October 10, 2019, LG&E and KU filed a requestrequests for rehearing and clarification on the two September order.orders. In September 2020, FERC issued its orders in the rehearing process that modified the discussion in, and set aside portions of, the September 2019 orders including adjusting factors impacting the proposed transition mechanism. In October 2020, both LG&E and KU and other parties filed separate motions for rehearing and clarification regarding FERC’s September 2020 orders. A FERC decision on these rehearing requests is expected by November 18, 2020. Certain other petitions for review of the FERC's orders have been filed by multiple parties, including LG&E and KU, with the D.C. Circuit Court of Appeals. LG&E and KU cannot predict the outcome of this proceeding.these proceedings. LG&E and KU currently receive recovery of waivers and credits provided through other rate mechanisms.

(PPL and PPL Electric)

In April 2019,2020, 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 established the revenue requirement used to set rates that took effect in June 2019.2020.

Rate Case Proceedings

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

On September 28, 2018,October 23, 2020, LG&E and KU filed requestsnotices of intent with the KPSC to file applications for an increase in annual base electricity ratesproposed adjustments of general electric and gas rates on or after November 25, 2020. The applications will also include requests for a CPCN to deploy Advanced Metering Infrastructure and other matters. LG&E and KU cannot predict the eliminationoutcome of the TCJA bill credit mechanism. On April 30, 2019, the KPSC issued orders eliminating the TCJA bill credit mechanism and increasing annual base electricity and gas rates providing for an annual revenue increase of $187 million ($114 million at KU and $73 million at LG&E), based on a 9.725% return-on-equity. The new base rates and all elements of the orders became effective May 1, 2019. See Note 7 to the financial statements for additional information.these potential proceedings.

(LKEand KU)

OnIn July 12, 2019, KU filed a request with the VSCC for an increase in annual Virginia base electricity ratesrevenues of approximately $13 million, representing an increase of 18.2%. KU's request is basedIn January 2020, KU reached a partial settlement agreement including an increase in annual Virginia base electricity revenues of $9 million effective May 1, 2020, representing an increase of 12.9%. A hearing on the settlement and certain tariff provisions was held in January 2020. On April 6, 2020, the VSCC issued an authorized 10.5% return on equity. Subject to regulatory revieworder approving the settlement and approval,Hearing Examiner tariff provision recommendations. KU implemented the new rates would become effective April 12,on May 1, 2020.

PUC Petition to Distribute TCJA Savings

(PPL and PPL Electric)

PPL Electric submitted a petition for approval with the PUC on October 4, 2019 to distribute the tax savings of $43 million associated with the TCJA for the period between January 1, 2018 and June 30, 2018. As of September 30, 2019, these tax savings are classified as a noncurrent regulatory liability. PPL Electric has proposed that these amounts be distributed over the period of January 1, 2020 through December 31, 2020. The petition is contingent upon PUC approval.


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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, 20192020 with the same periods in 2018.2019. 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.

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.

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

A "Statement of Income Analysis, Earnings and Adjusted Gross Margins"Analysis" 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, 20192020 with the same periods in 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."2019.

(All Registrants)

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

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

Statement of Income Analysis

Net income for the periods ended September 30 includes the following results.results:
 Three MonthsNine Months
 20202019$ Change20202019$ Change
Operating Revenues$1,885 $1,933 $(48)$5,678 $5,815 $(137)
Operating Expenses
Operation
Fuel177 194 (17)478 556 (78)
Energy purchases136 150 (14)470 538 (68)
Other operation and maintenance483 480 3 1,446 1,452 (6)
Depreciation323 306 17 959 890 69 
Taxes, other than income79 77 2 226 232 (6)
Total Operating Expenses1,198 1,207 (9)3,579 3,668 (89)
Other Income (Expense) - net52 126 (74)253 309 (56)
Interest Expense249 259 (10)750 746 4 
Income Taxes209 118 91 423 328 95 
Net Income$281 $475 $(194)$1,179 $1,382 $(203)

83
 Three Months Nine Months
 2019 2018 $ Change 2019 2018 $ Change
Operating Revenues$1,933
 $1,872
 $61
 $5,815
 $5,846
 $(31)
Operating Expenses           
Operation           
Fuel194
 206
 (12) 556
 609
 (53)
Energy purchases150
 149
 1
 538
 538
 —
Other operation and maintenance480
 479
 1
 1,452
 1,453
 (1)
Depreciation306
 275
 31
 890
 817
 73
Taxes, other than income77
 77
 —
 232
 234
 (2)
Total Operating Expenses1,207
 1,186
 21
 3,668
 3,651
 17
Other Income (Expense) - net126
 106
 20
 309
 297
 12
Interest Expense259
 244
 15
 746
 718
 28
Income Taxes118
 103
 15
 328
 362
 (34)
Net Income$475
 $445
 $30
 $1,382
 $1,412
 $(30)


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Operating Revenues

The increase (decrease) in operating revenues was due to:
Three MonthsNine Months
Domestic:
PPL Electric Distribution price (a)$(16)$(16)
PPL Electric Distribution volumes (b)6 (11)
PPL Electric PLR (c)(13)(38)
PPL Electric Transmission Formula Rate (d)24 63 
LKE Retail Rates (e)— 64 
LKE ECR (f)— 28 
LKE Fuel and other energy prices (g)(3)(42)
LKE Municipal supply (h)— (28)
LKE Volumes (i)(33)(84)
LKE Demand (j)(8)(32)
Other1 (1)
Total Domestic(42)(97)
U.K.:
Price(4)19 
Volumes (j)(22)(62)
Foreign currency exchange rates14 (3)
Engineering recharge income8 7 
Other(2)(1)
Total U.K.(6)(40)
Total$(48)$(137)

(a)The distribution price variances are primarily due to reconcilable cost recovery mechanisms approved by the PUC.
(b)The decrease for the periodsnine months ended September 30, 2019 compared2020 was primarily due to warmer weather in the first quarter of 2020, partially offset by warmer weather in the third quarter of 2020.
(c)The decrease for the three months ended September 30, 2020 was primarily the result of lower energy prices, partially offset by higher volumes of non-shopping customers and favorable weather. The decrease for the nine months ended September 30, 2020 was primarily the result of lower energy prices and unfavorable weather, partially offset by higher volumes of non-shopping customers in 2020.
(d)The increases were primarily due to returns on additional capital investments.
(e)The increase was primarily due to higher base rates, inclusive of the termination of the TCJA bill credit mechanism, effective May 1, 2019.
(f)The increase was primarily due to higher recoverable depreciation expense as a result of higher depreciation rates effective May 1, 2019.
(g)The decreases were primarily due to lower recoveries of fuel and energy purchases due to lower commodity costs.
(h)The decrease was primarily due to the termination of eight supply contracts with 2018 wasKentucky municipalities on April 30, 2019.
(i)The decreases were primarily due to:to weather.
(j)The decreases were primarily due to COVID-19.
 Three Months Nine Months
Domestic:   
PPL Electric Distribution price (a)$18
 $20
PPL Electric PLR (b)6
 11
PPL Electric Transmission Formula Rate (c)17
 29
LKE Retail Rates (d)42
 77
LKE ECR21
 40
LKE Fuel and other energy purchase prices(7) (16)
LKE Municipal supply (e)(22) (37)
LKE Volumes (f)9
 (65)
Other3
 11
Total Domestic87
 70
U.K.:   
Price15
 66
Volume(10) (54)
Foreign currency exchange rates(27) (100)
Other(4) (13)
Total U.K.(26) (101)
Total$61
 $(31)

(a)Distribution price variances were primarily due to reconcilable cost recovery mechanisms approved by the PUC.
(b)The increase for the nine months ended September 30, 2019 was primarily due to higher energy volumes partially offset by lower energy prices and lower transmission enhancement expenses.
(c)The increase for the three months ended September 30, 2019 was primarily due to increased returns on capital investments. The increase for the nine months ended September 30, 2019 was primarily due to $60 million of increased returns on capital investments partially offset by a $27 million unfavorable impact of the TCJA which reduced the revenue requirement that went into effect June 1, 2018.
(d)The higher retail rates were due to higher base rates, inclusive of the termination of the TCJA bill credit mechanism, effective May 1, 2019.
(e)The decreases were primarily due to the termination of eight supply contracts with Kentucky municipalities on April 30, 2019.
(f)The decrease for the nine months ended September 30, 2019 was primarily due to weather.


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Fuel

Fuel decreased $12$17 million for the three months ended September 30, 20192020 compared with 2019, primarily due to an $13 million decrease in volumes driven by weather and a $2 million decrease in commodity costs.

2018,
Fuel decreased $78 million for the nine months ended September 30, 2020 compared with 2019, primarily due to a $9$43 million decrease in volumes driven by weather, a $27 million decrease in commodity costs and an $8a $9 million decrease in volumes driven by the termination of eight supply contracts with Kentucky municipalities on April 30, 2019.

Energy Purchases

Energy purchases decreased $14 million for the three months ended September 30, 2020 compared with 2019, primarily due to lower PLR prices of $21 million, partially offset by a $3higher PLR volumes of $7 million increase in volumes driven by weather in Kentucky.

at PPL Electric.
Fuel decreased
$53 million for the nine months endedSeptember 30, 2019 compared with 2018, primarily due to a $22 million decrease in commodity costs, a $21 million decrease in volumes driven by weather, and a $14 million decrease in volumes driven by the termination of eight supply contracts with Kentucky municipalities on April 30, 2019 in Kentucky.

Energy Purchases

Energy purchases remained flatdecreased $68 million for the nine months ended September 30, 20192020 compared with 2018,2019, primarily due to higherlower PLR volumesprices of $28$54 million, partially offset by lower PLR prices of $12 million and lowerhigher transmission enhancement expenses of $8$12 million at PPL Electric as well as a $5$22 million decrease indue to lower commodity costs and a $4 million decrease in volumes due to expirationat LKE.

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Table of a capacity purchase tolling agreement at LG&E.Contents

Other Operation and Maintenance

The increase (decrease) in other operation and maintenance for the periods ended September 30, 2019 compared with 2018 was due to:
 Three MonthsNine Months
Domestic:  
PPL Electric Act 129$(5)$(12)
PPL Electric bad debts(7)(3)
PPL Electric universal service rider(4)(8)
PPL Electric canceled projects— 9 
LKE plant operations and maintenance(1)(9)
LKE COVID-19 impact— 5 
Storm costs8 (15)
Other(6)(10)
U.K.:  
Pension2 5 
Foreign currency exchange rates4 (2)
Third-party engineering8 8 
Engineering management(1)4 
COVID-19 impact4 19 
Other1 3 
Total$3 $(6)
 Three Months Nine Months
Domestic:   
LKE plant operations and maintenance$(7) $(9)
LKE gas distribution maintenance and compliance2
 6
LKE transmission credits3
 10
LKE DSM program costs(4) (11)
Storm Costs(13) (13)
Vegetation Management6
 10
Other operation and maintenance of Safari Energy (a)5
 18
Other17
 11
U.K.:   
Foreign currency exchange rates(6) (21)
Third-party engineering(4) (9)
Other2
 7
Total$1
 $(1)

(a)Represents the increase for the three and nine months ended September 30. 2019 resulting from the other operation and maintenance expense of Safari Energy, which was acquired on June 1, 2018.

Depreciation

The increase (decrease) in depreciation for the periods ended September 30, 2019 compared with 2018 was due to:
 Three MonthsNine Months
Additions to PP&E, net$12 $38 
Foreign currency exchange rates2 (1)
Depreciation rates (a)— 26 
Other3 6 
Total$17 $69 
 Three Months Nine Months
Additions to PP&E, net$16
 $52
Foreign currency exchange rates(3) (11)
Depreciation rates (a)20
 33
Other(2) (1)
Total$31
 $73


(a)Higher depreciation rates were effective May 1, 2019 at LG&E and KU.

(a)Higher depreciation rates were effective May 1, 2019 at LG&E and KU.

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Other Income (Expense) - net

The increase (decrease) in other income (expense) - net for the periods ended September 30, 2019 compared with 2018 was due to:
Three MonthsNine Months
Economic foreign currency exchange contracts (Note 15)$(63)$(12)
Defined benefit plans - non-service credits (Note 10)(10)(35)
Other(1)(9)
Total$(74)$(56)
 Three Months Nine Months
Economic foreign currency exchange contracts (Note 15)$4
 $(36)
Defined benefit plans - non-service credits (Note 10)16
 42
Other—
 6
Total$20
 $12

Interest Expense

The increase (decrease) in interest expense for the periods ended September 30, 2019 compared with 2018 was due to:
Three MonthsNine Months
Long-term debt interest expense$(6)$20 
Short-term debt interest expense(8)(15)
Foreign currency exchange rates3 — 
Other1 (1)
Total$(10)$4 

85
 Three Months Nine Months
Long-term debt interest expense$17
 $31
Short-term debt interest expense3
 7
Foreign currency exchange rates(5) (17)
Other—
 7
Total$15
 $28

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Income Taxes

The increase (decrease) in income taxes for the periods ended September 30, 2019 compared with 2018 was due to:
Three MonthsNine Months
Change in pre-tax income$(12)$(16)
Federal and state income tax return adjustments(9)(10)
Impact of the U.K. Finance Acts on deferred tax balances (a)109 109 
Amortization of excess deferred income taxes(2)(4)
Kentucky recycling credit, net of federal income tax expense (b)— 20 
Other5 (4)
Total$91 $95 
 Three Months Nine Months
Change in pre-tax income$15
 $(14)
Valuation allowances (a)2
 4
Deferred tax impact of Kentucky state tax reform (b)—
 (9)
Kentucky recycling credit, net of federal income tax expense (a)—
 (20)
Other(2) 5
Total$15
 $(34)

(a)The U.K. corporation tax rate was scheduled to be reduced from 19% to 17%, effective April 1, 2020. On March 11, 2020, the U.K. Finance Act 2020 included a cancellation of the tax rate reduction to 17%, thereby maintaining the corporation tax rate at 19%. The Finance Act 2020 was formally enacted on July 22, 2020. The primary impact of the cancellation of the corporation tax rate reduction was an increase in deferred tax liabilities and a corresponding deferred tax expense of $106 million.
(b)During the second quarter of 2019, LKE recorded a deferred income tax benefit associated with two projects placed into service that prepare a generation waste material for reuse and, as a result, qualify for a Kentucky recycling credit. The applicable credit provides tax benefits for a portion of the equipment costs for major recycling projects in Kentucky. A portion of this amount has been reserved due to insufficient Kentucky taxable income projected at LKE.

(a)During the second quarter of 2019, LKE recorded a deferred income tax benefit associated with two projects placed into service that prepare a generation waste material for reuse and, as a result, qualify for a Kentucky recycling credit. The applicable credit provides tax benefits for a portion of the equipment costs for major recycling projects in Kentucky, with the benefit recognized during the period in which the assets are placed into service. A valuation allowance of $3 million has been recognized related to this credit due to insufficient Kentucky taxable income projected at LKE. During the third quarter of 2019, LKE filed the Kentucky recycling credit application with the Kentucky Department of Revenue and expects a ruling in the fourth quarter of 2019.
(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.

Segment Earnings

PPL's Net Income by reportable segment for the periods ended September 30 was as follows:
 Three MonthsNine Months
 20202019$ Change20202019$ Change
U.K. Regulated$55 $236 $(181)$574 $784 $(210)
Kentucky Regulated129 150 (21)330 364 (34)
Pennsylvania Regulated135 118 17 371 333 38 
Corporate and Other (a)(38)(29)(9)(96)(99)3 
Net Income$281 $475 $(194)$1,179 $1,382 $(203)
 Three Months Nine Months
 2019 2018 $ Change 2019 2018 $ Change
U.K. Regulated$236
 $245
 $(9) $784
 $836
 $(52)
Kentucky Regulated150
 122
 28
 364
 332
 32
Pennsylvania Regulated118
 112
 6
 333
 335
 (2)
Corporate and Other (a)(29) (34) 5
 (99) (91) (8)
Net Income$475
 $445
 $30
 $1,382
 $1,412
 $(30)

(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.

(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.

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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 effectivestatutory tax rate of the entity where the activity is recorded. Special items 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.
• Other charges or credits that are, in management's view, non-recurring or otherwise not reflective of the company's ongoing operations.

Unrealized gains or losses on foreign currency economic hedges include the changes in fair value of foreign currency contracts used to hedge GBP-denominated anticipated earnings. The changes in fair value of these contracts are recognized immediately within GAAP earnings. Management believes that excluding these amounts from Earnings from Ongoing Operations until
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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 15 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 were as follows:
 Three MonthsNine Months
 20202019$ Change20202019$ Change
U.K. Regulated$213 $205 $8 $767 $773 $(6)
Kentucky Regulated129 150 (21)334 364 (30)
Pennsylvania Regulated136 118 18 372 333 39 
Corporate and Other(28)(28)— $(82)(95)13 
Earnings from Ongoing Operations$450 $445 $5 $1,391 $1,375 $16 
 Three Months Nine Months
 2019 2018 $ Change 2019 2018 $ Change
U.K. Regulated$205
 $214
 $(9) $773
 $730
 $43
Kentucky Regulated150
 120
 30
 364
 339
 25
Pennsylvania Regulated118
 117
 1
 333
 340
 (7)
Corporate and Other(28) (29) 1
 (95) (86) (9)
Earnings from Ongoing Operations$445
 $422
 $23
 $1,375
 $1,323
 $52

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 57%49% of PPL's Net Income for the nine months ended September 30, 20192020 and 38%40% of PPL's assets at September 30, 2019.2020.

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

Three MonthsNine Months
20202019$ Change20202019$ Change
Operating revenues$485 $491 $(6)$1,575 $1,615 $(40)
Other operation and maintenance141 125 16 412 376 36 
Depreciation66 60 6 197 186 11 
Taxes, other than income32 32 — 95 96 (1)
Total operating expenses239 217 22 704 658 46 
Other Income (Expense) - net46 120 (74)241 289 (48)
Interest Expense97 110 (13)296 305 (9)
Income Taxes140 48 92 242 157 85 
Net Income55 236 (181)574 784 (210)
Less: Special Items(158)31 (189)(193)11 (204)
Earnings from Ongoing Operations$213 $205 $8 $767 $773 $(6)
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 Three Months Nine Months
 2019 2018 $ Change 2019 2018 $ Change
Operating revenues$491
 $517
 $(26) $1,615

$1,716
 $(101)
Other operation and maintenance125
 131
 (6) 376
 400
 (24)
Depreciation60
 61
 (1) 186
 186
 —
Taxes, other than income32
 33
 (1) 96
 101
 (5)
Total operating expenses217
 225
 (8) 658
 687
 (29)
Other Income (Expense) - net120
 102
 18
 289
 284
 5
Interest Expense110
 106
 4
 305
 310
 (5)
Income Taxes48
 43
 5
 157
 167
 (10)
Net Income236

245
 (9) 784

836
 (52)
Less: Special Items31
 31
 —
 11
 106
 (95)
Earnings from Ongoing Operations$205
 $214
 $(9) $773
 $730
 $43
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.
 Income Statement Line ItemThree MonthsNine Months
 2020201920202019
Foreign currency economic hedges, net of tax of $14, ($8), $20, ($4) (a)Other Income (Expense) - net$(53)$31 $(76)$15 
COVID-19 impact, net of tax of $1, $0, $4, $0 (b)Other operation and maintenance(3)— (15)— 
U.K. tax rate change (c)Income Taxes(102)— (102)— 
Other, net of tax of $0, $0, $0, $1 (d)Other operation and maintenance— — — (4)
Total Special Items $(158)$31 $(193)$11 
 Income Statement Line Item Three Months Nine Months
  2019 2018 2019 2018
Foreign currency economic hedges, net of tax of ($8), ($7), ($4), ($27) (a)Other Income (Expense) - net $31
 $28
 $15
 $103
Other, net of tax of $0, $0, $1, $0 (b)Other operation and maintenance —
 —
 (4) —
U.S. tax reform (c)Income Taxes —
 3
 —
 3
Total Special Items  $31
 $31
 $11
 $106

(a)Unrealized gains (losses) on contracts that economically hedge anticipated GBP-denominated earnings.
(a)Unrealized gains (losses) on contracts that economically hedge anticipated GBP-denominated earnings.
(b)Settlement of a contractual dispute.
(c)Adjustments to certain provisional amounts recognized in the December 31, 2017 Statement of Income related to the enactment of the TCJA.
(b)Incremental costs for labor not chargeable to capital projects due to U.K. government lockdown restrictions, purchases of personal protective equipment and other safety related actions associated with the COVID-19 pandemic.
(c)The U.K. Finance Act 2020, formally enacted on July 22, 2020, canceled the reduction of the corporation tax rate from 19% to 17%. See Note 6 to the Financial Statements for additional information.
(d) Settlement of a contractual dispute.

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
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effects of movements in foreign currency exchange, including the effects of foreign currency hedge contracts, on separate lines and not in their respective Statement of Income line items.
 Three MonthsNine Months
U.K. 
U.K. Adjusted Gross Margins$(27)$(44)
Other operation and maintenance— (16)
Depreciation(5)(12)
Other Income (Expense) - net(12)(35)
Interest expense15 9 
Income taxes(2)15 
U.S.
Income taxes(1)(3)
Other— (1)
Foreign currency exchange, after-tax40 81 
Earnings from Ongoing Operations8 (6)
Special items, after-tax(189)(204)
Net Income$(181)$(210)
 Three Months Nine Months
U.K. 
  
U.K. Adjusted Gross Margins$3
 $7
Other operation and maintenance(2) —
Depreciation(2) (11)
Other Income (Expense) - net18
 57
Interest expense(10) (13)
Income taxes(4) (8)
U.S.   
Income taxes1
 2
Other—
 (1)
Foreign currency exchange, after-tax(13) 10
Earnings from Ongoing Operations(9) 43
Special items, after-tax—
 (95)
Net Income$(9) $(52)

U.K.

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

•Higher other operation and maintenance expense for the nine month period primarily due to increases in various costs that were not individually significant in comparison to the prior year.

•Lower other income (expense) - net for the three and nine month periods primarily from higherdue to lower pension income.


•Lower interest expense for the three month period primarily due to interest on the index-linked bonds.
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•Higher income taxes for the three month period primarily due to a $7 million impact from the tax rate change, partially offset by $6 million lower income taxes due to lower pre-tax income.


Kentucky Regulated Segment

The Kentucky Regulated segment consists primarily of LKE's regulated electricity generation, transmission and distribution operations conducted by 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 26%28% of PPL's Net Income for the nine months ended September 30, 20192020 and 35%33% of PPL's assets at September 30, 2019.2020.

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


Three MonthsNine Months
20202019$ Change20202019$ Change
Operating revenues$806 $844 $(38)$2,331 $2,421 $(90)
Fuel  177 194 (17)478 556 (78)
Energy purchases18 19 (1)97 125 (28)
Other operation and maintenance205 205 — 616 627 (11)
Depreciation152 144 8 452 402 50 
Taxes, other than income21 19 2 57 55 2 
Total operating expenses573 581 (8)1,700 1,765 (65)
Other Income (Expense) - net1 2 (1)3 2 1 
Interest Expense76 74 2 228 222 6 
Income Taxes29 41 (12)76 72 4 
Net Income129 150 (21)330 364 (34)
Less: Special Items— — — (4)— (4)
Earnings from Ongoing Operations$129 $150 $(21)$334 $364 $(30)

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Three Months Nine Months
 2019 2018 $ Change 2019 2018 $ Change
Operating revenues$844
 $802
 $42
 $2,421
 $2,417
 $4
Fuel  194
 206
 (12) 556
 609
 (53)
Energy purchases19
 22
 (3) 125
 135
 (10)
Other operation and maintenance205
 216
 (11) 627
 632
 (5)
Depreciation144
 119
 25
 402
 354
 48
Taxes, other than income19
 18
 1
 55
 53
 2
Total operating expenses581
 581
 —
 1,765
 1,783
 (18)
Other Income (Expense) - net2
 —
 2
 2
 (2) 4
Interest Expense74
 69
 5
 222
 205
 17
Income Taxes41
 30
 11
 72
 95
 (23)
Net Income150
 122
 28
 364
 332
 32
Less: Special Items—
 2
 (2) —
 (7) 7
Earnings from Ongoing Operations$150
 $120
 $30
 $364
 $339
 $25

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 ItemThree MonthsNine Months
2020201920202019
COVID-19 impact, net of tax of $0, $0, $1, $0 (a)Other operation and maintenance$— $— $(4)$— 
Total Special Items$— $— $(4)$— 
 Income Statement Line Item Three Months Nine Months
  2019 2018 2019 2018
Kentucky state tax reform (a)Income Taxes $—
 $—
 $—
 $(9)
U.S. tax reform (b)Income Taxes —
 2
 —
 2
Total Special Items  $—
 $2
 $—
 $(7)

(a)Incremental costs for outside services, customer payment processing, personal protective equipment and other safety related actions associated with the COVID-19 pandemic.
(a)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.
(b)Adjustments to certain provisional amounts recognized in the December 31, 2017 Statement of Income related to the enactment of the TCJA.

The changes in the components of the Kentucky Regulated segment's results between these periods arewere due to the factors set forth below, which reflect amounts classified as Kentucky Adjusted Gross Margins and the items that management considers special on separate lines and not in their respective Statement of Income line items.
 Three MonthsNine Months
Kentucky Adjusted Gross Margins$(26)$(14)
Other operation and maintenance— 12 
Depreciation(2)(17)
Taxes, other than income(2)(1)
Other Income (Expense) - net(1)1 
Interest Expense(2)(6)
Income Taxes12 (5)
Earnings from Ongoing Operations(21)(30)
Special items, after-tax— (4)
Net Income$(21)$(34)
 Three Months Nine Months
Kentucky Adjusted Gross Margins$44
 $42
Other operation and maintenance10
 1
Depreciation(10) (19)
Taxes, other than income(2) (2)
Other Income (Expense) - net2
 4
Interest Expense(5) (17)
Income Taxes(9) 16
Earnings from Ongoing Operations30
 25
Special items, after-tax(2) 7
Net Income$28
 $32

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

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Lower other operation and maintenance expense for the three month period primarily due to a decrease in storm costs.

Higher depreciation expense for the three month period primarily due to a $6 million increase related to higher depreciation rates effective May 1, 2019 and a $4 million increase related to additional assets placed into service, net of retirements.

Higher depreciation expense for the nine month period primarily due to a $10 million increase related to higher depreciation rates effective May 1, 2019 and a $9 million increase related to additional assets placed into service, net of retirements.

Higher interest expense for the nine month period primarily due to increased borrowings and higher interest rates.

Higher income taxes for the three month period primarily due to the higherlower pre-tax income.

Lower•Higher income taxes for the nine month period primarily due to the recording of a deferred income tax benefit recorded in 2019 related to a Kentucky recycling credit.credit of $17 million, partially offset by lower income tax expense of $6 million due to lower pre-tax income.

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%31% of PPL's Net Income for the nine months ended September 30, 20192020 and 27%26% of PPL's assets at September 30, 2019.2020.

Net Income and Earnings from Ongoing Operations for the periods ended September 30 include the following results.
Three MonthsNine Months
  
20202019$ Change20202019$ Change
Operating revenues$586 $590 $(4)$1,748 $1,756 $(8)
Energy purchases118 132 (14)373 413 (40)
Other operation and maintenance122 137 (15)388 417 (29)
Depreciation102 99 3 301 290 11 
Taxes, other than income30 29 1 78 84 (6)
Total operating expenses372 397 (25)1,140 1,204 (64)
Other Income (Expense) - net8 8 — 17 21 (4)
Interest Expense44 43 1 130 126 4 
Income Taxes43 40 3 124 114 10 
Net Income135 118 17 371 333 38 
Less: Special Item(1)— (1)(1)— (1)
Earnings from Ongoing Operations$136 $118 $18 $372 $333 $39 


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 Three Months Nine Months
  
2019 2018 $ Change 2019 2018 $ Change
Operating revenues$590
 $548
 $42
 $1,756
 $1,704
 $52
Energy purchases132
 127
 5
 413
 403
 10
Other operation and maintenance137
 127
 10
 417
 419
 (2)
Depreciation99
 89
 10
 290
 262
 28
Taxes, other than income29
 27
 2
 84
 81
 3
Total operating expenses397
 370
 27
 1,204
 1,165
 39
Other Income (Expense) - net8
 9
 (1) 21
 23
 (2)
Interest Expense43
 40
 3
 126
 116
 10
Income Taxes40
 35
 5
 114
 111
 3
Net Income118
 112
 6
 333
 335
 (2)
Less: Special Item—

(5) 5
 —

(5) 5
Earnings from Ongoing Operations$118
 $117
 $1
 $333
 $340
 $(7)


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The following after-tax gains (losses), which management considers special items, impacted the Pennsylvania Regulated segment's results and are excluded from Earnings from Ongoing Operations during the periods ended September 30.
Income Statement Line ItemThree MonthsNine Months
2020201920202019
COVID-19 impact, net of tax of $0, $0, $0, $0 (a)Other operation and maintenance$(1)$— $(1)$— 
Total Special Items$(1)$— $(1)$— 
 Income Statement Line Item Three Months Nine Months
  2019 2018 2019 2018
IT transformation, net of tax of $0, $2, $0, $2 (a)Other operation and maintenance $—
 $(5) $—
 $(5)
Total Special Item  $—
 $(5) $—
 $(5)

(a) Incremental costs for outside services, personal protective equipment and other safety related actions associated with the COVID-19 pandemic.

(a)In June 2018, PPL EU Services' IT department announced an internal reorganization, which was substantially completed in 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.

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

Three MonthsNine Months
Pennsylvania Adjusted Gross Margins$17 $52 
Other operation and maintenance9 7 
Depreciation(4)(9)
Taxes, other than income— 7 
Other Income (Expense) - net— (4)
Interest Expense(1)(4)
Income Taxes(3)(10)
Earnings from Ongoing Operations18 39 
Special Item, after tax(1)(1)
Net Income$17 $38 
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 Three Months Nine Months
Pennsylvania Adjusted Gross Margins$24
 $30
Other operation and maintenance(10) (5)
Depreciation(6) (18)
Taxes, other than income—
 (1)
Other Income (Expense) - net(1) (2)
Interest Expense(3) (10)
Income Taxes(3) (1)
Earnings from Ongoing Operations1
 (7)
Special Item, after tax5
 5
Net Income$6
 $(2)
•See "Adjusted Gross Margins - Changes in Adjusted Gross Margins" for an explanation of Pennsylvania Adjusted Gross Margins.

Higher•Lower other operation and maintenance expense for the three month period primarily due to a $4 million increase related to higher vegetation management costs and a $2 million increase related to higher support costs.lower bad debt expense.

Higher depreciation expense for the nine month period 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 June 2018 issuance of $400 million of 4.15% First Mortgage Bonds due 2048 and the September 2019 issuance of $400 million of 3.00% First Mortgage Bonds due 2049.

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.
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 2019 Three Months
 
U.K.
Regulated
 
KY
Regulated
 
PA
Regulated
 
Corporate
and Other
 Total
Net Income$236
 $150
 $118
 $(29) $475
Less: Special Items (expense) benefit:         
Foreign currency economic hedges, net of tax of ($8)31
 —
 —
 —
 31
Talen litigation costs, net of tax of $0 (a)—
 —
 —
 (1) (1)
Total Special Items31
 —
 —
 (1) 30
Earnings from Ongoing Operations$205
 $150
 $118
 $(28) $445
          
 2018 Three Months
 U.K.
Regulated		 KY
Regulated		 PA
Regulated		 Corporate
and Other		 Total
Net Income$245
 $122
 $112
 $(34) $445
Less: Special Items (expense) benefit:         
Foreign currency economic hedges, net of tax of ($7)28
 —
 —
 —
 28
U.S. tax reform3
 2
 —
 (5) —
IT transformation, net of tax of $2—
 —
 (5) —
 (5)
Total Special Items31
 2
 (5) (5) 23
Earnings from Ongoing Operations$214
 $120
 $117
 $(29) $422



 

 

 

 



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2020 Three Months
U.K.
Regulated		KY
Regulated		PA
Regulated		Corporate
and Other		Total
Net Income$55 $129 $135 $(38)$281 
Less: Special Item (expense) benefit:
Foreign currency economic hedges, net of tax of $14(53)— — — (53)
Talen litigation costs, net of tax of $1 (a)— — — (2)(2)
COVID-19 impact, net of tax of $1, $0, $0, $0(3)— (1)(1)(5)
U.K. tax rate change(102)— — — (102)
Strategic corporate initiatives, net of tax of $2 (b)— — — (7)(7)
Total Special Items(158)— (1)(10)(169)
Earnings from Ongoing Operations$213 $129 $136 $(28)$450 
2019 Three Months
U.K.
Regulated		KY
Regulated		PA
Regulated		Corporate
and Other		Total
Net Income$236 $150 $118 $(29)$475 
Less: Special Item (expense) benefit:
Foreign currency economic hedges, net of tax of ($8)31 — — — 31 
Talen litigation costs, net of tax of $0 (a)— — — (1)(1)
Total Special Items31 — — (1)30 
Earnings from Ongoing Operations$205 $150 $118 $(28)$445 
2020 Nine Months
U.K.
Regulated		KY
Regulated		PA
Regulated		Corporate
and Other		Total
Net Income$574 $330 $371 $(96)$1,179 
Less: Special Items (expense) benefit:
Foreign currency economic hedges, net of tax of $20(76)— — — (76)
Talen litigation costs, net of tax of $2 (a)— — — (6)(6)
COVID-19 impact, net of tax of $4, $1, $0, $0(15)(4)(1)(1)(21)
U.K. tax rate change(102)— — — (102)
Strategic corporate initiatives, net of tax of $2 (b)— — — (7)(7)
Total Special Items(193)(4)(1)(14)(212)
Earnings from Ongoing Operations$767 $334 $372 $(82)$1,391 
2019 Nine Months
U.K.
Regulated		KY
Regulated		PA
Regulated		Corporate
and Other		Total
Net Income$784 $364 $333 $(99)$1,382 
Less: Special Items (expense) benefit:
Foreign currency economic hedges, net of tax of ($4)15 — — — 15 
Talen litigation costs, net of tax of $1 (a)— — — (4)(4)
Other, net of tax of $1(4)— — — (4)
Total Special Items11 — — (4)7 
Earnings from Ongoing Operations$773 $364 $333 $(95)$1,375 

 2019 Nine Months
 U.K.
Regulated		 KY
Regulated		 PA
Regulated		 Corporate
and Other		 Total
Net Income$784
 $364
 $333
 $(99) $1,382
Less: Special Items (expense) benefit:         
Foreign currency economic hedges, net of tax of ($4)15
 —
 —
 —
 15
Talen litigation costs, net of tax of $1 (a)—
 —
 —
 (4) (4)
Other, net of tax of $1(4) —
 —
 —
 (4)
Total Special Items11
 —
 —
 (4) 7
Earnings from Ongoing Operations$773
 $364
 $333
 $(95) $1,375
          
 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 reform3
 2
 —
 (5) —
Kentucky state tax reform—
 (9) —
 —
 (9)
IT transformation, net of tax of $2—
 —
 (5) —
 (5)
Total Special Items106
 (7) (5) (5) 89
Earnings from Ongoing Operations$730
 $339
 $340
 $(86) $1,323
(a)PPL incurred legal expenses related to litigation with its former affiliate, Talen Montana. See Note 11 to the Financial Statements for additional information.
(b)Costs related to the process to sell WPD, announced on August 10, 2020. Similar costs of $4 million, after-tax, were incurred in 2019, but not treated as a special item. See Note 9 to the Financial Statements for additional information.

(a)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:

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•"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",maintenance," "Depreciation" and "Taxes, other than income" on the Statements of Income, associated with approved cost recovery mechanisms are offset against the recovery of those expenses, which are included in revenues. These mechanisms allow for direct recovery of these expenses and, in some cases, returns on capital investments and performance incentives. As a result, this measure represents the net revenues from electricity and gas operations.

•"Pennsylvania Adjusted Gross Margins" is a single financial performance measure of the electricity transmission and distribution operations of the Pennsylvania Regulated segment and PPL Electric.segment. 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,"maintenance" (which are primarily Act 129, Storm Damage and Universal Service program costs), "Depreciation,""Depreciation" (which is primarily related to the Act 129 Smart Meter program) and "Taxes, other than income,"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.


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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 as well as the change between periods. The factors that gave rise to the changes are described following the table.
 Three MonthsNine Months
 20202019$ Change20202019$ Change
U.K. Regulated      
U.K. Adjusted Gross Margins$431 $446 $(15)$1,445 $1,492 $(47)
Impact of changes in foreign currency exchange rates  12   (3)
U.K. Adjusted Gross Margins excluding impact of foreign currency exchange rates  $(27)  $(44)
Kentucky Regulated      
Kentucky Adjusted Gross Margins$546 $572 $(26)$1,572 $1,586 $(14)
Pennsylvania Regulated   
Pennsylvania Adjusted Gross Margins   
Distribution$225 $232 $(7)$685 $696 $(11)
Transmission179 155 24 503 440 63 
Total Pennsylvania Adjusted Gross Margins$404 $387 $17 $1,188 $1,136 $52 
 Three Months Nine Months
 2019 2018 $ Change 2019 2018 $ Change
U.K. Regulated 
  
  
  
  
  
U.K. Adjusted Gross Margins$446
 $467
 $(21) $1,492
 $1,578
 $(86)
Impact of changes in foreign currency exchange rates    (24)     (93)
U.K. Adjusted Gross Margins excluding impact of foreign currency exchange rates    $3
     $7
            
Kentucky Regulated           
Kentucky Adjusted Gross Margins           
LG&E$262
 $240
 $22
 $720
 $697
 $23
KU310
 288
 22
 866
 847
 19
Total Kentucky Adjusted Gross Margins$572
 $528
 $44
 $1,586
 $1,544
 $42
            
Pennsylvania Regulated           
Pennsylvania Adjusted Gross Margins           
Distribution$232
 $225
 $7
 $696
 $695
 $1
Transmission155
 138
 17
 440
 411
 29
Total Pennsylvania Adjusted Gross Margins$387
 $363
 $24
 $1,136
 $1,106
 $30

U.K. Adjusted Gross Margins

U.K. Adjusted Gross Margins, excluding the impact of changes in foreign currency exchange rates, increaseddecreased for the three months ended September 30, 20192020, compared with 2018,2019, primarily due to $15$22 million of lower volumes, of which $30 million
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was due to the COVID-19 lockdown restrictions that were effective beginning the latter half of March 2020 and $4 million from the April 1, 20192020 price increase, partially offset by $10 million of lower volumes.decrease.

U.K. Adjusted Gross Margins, excluding the impact of changes in foreign currency exchange rates, increaseddecreased for the nine months ended September 30, 20192020, compared with 2018,2019, primarily due to $66$62 million of lower volumes, of which $70 million was due to the COVID-19 lockdown restrictions that were effective beginning the latter half of March 2020, partially offset by $19 million from the April 1, 20182019 and 20192020 price increases, partially offset by $54 million of lower volumes.changes.

Kentucky Adjusted Gross Margins

Kentucky Adjusted Gross Margins increaseddecreased for the three months ended September 30, 20192020 compared with 2018, primarily2019, due to higher retail rates approved by the KPSC of $42 million ($15 million at LG&E and $27 million at KU), inclusive of the termination of the TCJA bill credit mechanism and $9$18 million of increaseddecreased sales volumes primarily due to weather ($4and $8 million at LG&Eof lower commercial and $5industrial demand revenue primarily due to impacts of COVID-19.

Kentucky Adjusted Gross Margins decreased for the nine months ended September 30, 2020 compared with 2019, due to $36 million at KU). This was partially offset byof decreased sales volumes primarily due to weather, $32 million of lower commercial and industrial demand revenue primarily due to impacts of COVID-19 and a $14$17 million decrease at KU primarily due to the termination of eight supply contracts with Kentucky municipalities on April 30, 2019.

Kentucky Adjusted Gross Margins increased for the nine months ended September 30, 2019, compared with 2018, primarily due topartially offset by higher retail rates approved by the KPSC effective May 1, 2019 of $77$64 million, ($29 million at LG&E and $48 million at KU), inclusive of the termination of the TCJA bill credit mechanism. This was partially offset by $27 million of decreased sales volumes primarily due to weather ($12 million at LG&E and $15 million at KU) and a $22 million decrease at KU primarily due to the termination of eight supply contracts with Kentucky municipalities on April 30, 2019.


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Pennsylvania Adjusted Gross Margins

Distribution

Distribution Adjusted Gross Margins increaseddecreased for the three and nine months ended September 30, 20192020, compared with 2018, primarily due2019. No items were individually significant in comparison to returns on additional distribution system improvement capital investments.the prior year.

Transmission

Transmission Adjusted Gross Margins increased for the three months ended September 30, 2019 compared with 2018, primarily due to an increase from returns on additional transmission capital investments focused on replacing aging infrastructure.

Transmission Adjusted Gross Margins increased for theand nine months ended September 30, 20192020, compared with 2018,2019, primarily due to an increase of $60 million from returns on additional transmission capital investments focused on replacing aging infrastructure and improving reliability, partially offset by $27 million from the impact of the reduced U.S. federal corporate income taxes as a result of the TCJA in the first five months of 2019.reliability.

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.
2019 Three Months 2020 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$481
(c)$844
 $590
 $18
 $1,933
Operating Revenues$476 (c)$806 $586 $17 $1,885 
Operating Expenses         Operating Expenses   
Fuel—
 194
 —
 —
 194
Fuel—  177 — — 177 
Energy purchases—
 19
 132
 (1) 150
Energy purchases—  18 118 — 136 
Energy purchases from affiliateEnergy purchases from affiliate—  — — — 
Other operation and maintenance35
 25
 30
 390
 480
Other operation and maintenance45  25 23 390 483 
Depreciation—
 33
 14
 259
 306
Depreciation—  39 13 271 323 
Taxes, other than income—
 1
 27
 49
 77
Taxes, other than income—  1 28 50 79 
Total Operating Expenses35
 272
 203
 697
 1,207
Total Operating Expenses45  260 182 711 1,198 
Total $446
 $572
 $387
 $(679) $726
Total $431  $546 $404 $(694)$687 
         
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 maintenance41
 26
 23
 389
 479
Depreciation—
 18
 10
 247
 275
Taxes, other than income—
 2
 25
 50
 77
Total Operating Expenses41
 274
 185
 686
 1,186
Total $467
 $528
 $363
 $(672) $686
         
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 2019 Three Months
U.K.
Adjusted Gross
Margins		Kentucky
Adjusted Gross
Margins		Pennsylvania Adjusted Gross
Margins		Other (a)Operating
Income (b)
Operating Revenues$481 (c)$844 $590 $18 $1,933 
Operating Expenses    
Fuel—  194 — — 194 
Energy purchases—  19 132 (1)150 
Other operation and maintenance35  25 30 390 480 
Depreciation—  33 14 259 306 
Taxes, other than income—  1 27 49 77 
Total Operating Expenses35  272 203 697 1,207 
Total   $446  $572 $387 $(679)$726 
2020 Nine Months
U.K.
Adjusted Gross
Margins		Kentucky
Adjusted Gross
Margins		Pennsylvania Adjusted Gross
Margins		Other (a)Operating
Income (b)
Operating Revenues$1,547 (c)$2,331 $1,748 $52 $5,678 
Operating Expenses
Fuel— 478 — — 478 
Energy purchases— 97 373 — 470 
Energy purchases from affiliate— — — — — 
Other operation and maintenance102 66 69 1,209 1,446 
Depreciation— 114 38 807 959 
Taxes, other than income— 4 80 142 226 
Total Operating Expenses102 759 560 2,158 3,579 
Total   $1,445 $1,572 $1,188 $(2,106)$2,099 
 2019 Nine Months
U.K.
Adjusted Gross
Margins		Kentucky
Adjusted Gross
Margins		Pennsylvania Adjusted Gross
Margins		Other (a)Operating
Income (b)
Operating Revenues$1,586 (c)$2,421 $1,756 $52 $5,815 
Operating Expenses
Fuel— 556 — — 556 
Energy purchases— 125 413 — 538 
Other operation and maintenance94 70 92 1,196 1,452 
Depreciation— 81 36 773 890 
Taxes, other than income— 3 79 150 232 
Total Operating Expenses94 835 620 2,119 3,668 
Total   $1,492 $1,586 $1,136 $(2,067)$2,147 

(a)Represents amounts excluded from Adjusted Gross Margins.
(b)As reported on the Statements of Income.
(c)Excludes ancillary revenues of $9 million and $28 million for the three and nine months ended September 30, 2020 and $10 million and $29 million for the three and nine months ended September 30, 2019.

94
 2019 Nine Months
 U.K.
Adjusted Gross
Margins		 Kentucky
Adjusted Gross
Margins		 Pennsylvania Adjusted Gross
Margins		 Other (a) Operating
Income (b)
Operating Revenues$1,586
(c)$2,421
 $1,756
 $52
 $5,815
Operating Expenses         
Fuel—
 556
 —
 —
 556
Energy purchases—
 125
 413
 —
 538
Other operation and maintenance94
 70
 92
 1,196
 1,452
Depreciation—
 81
 36
 773
 890
Taxes, other than income—
 3
 79
 150
 232
Total Operating Expenses94
 835
 620
 2,119
 3,668
Total   $1,492
 $1,586
 $1,136
 $(2,067) $2,147
          
 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 maintenance109
 74
 92
 1,178
 1,453
Depreciation—
 52
 26
 739
 817
Taxes, other than income—
 3
 77
 154
 234
Total Operating Expenses109
 873
 598
 2,071
 3,651
Total   $1,578
 $1,544
 $1,106
 $(2,033) $2,195

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(a)Represents amounts excluded from Adjusted Gross Margins.
(b)As reported on the Statements of Income.
(c)Excludes ancillary revenues of $10 million and $29 million for the three and nine months ended September 30, 2019 and $8 million and $29 million for the three and nine months ended September 30, 2018.

PPL Electric: Statement of Income Analysis Earnings and Adjusted Gross Margins

Statement of Income Analysis

Net income for the periods ended September 30 includes the following results.
 Three MonthsNine Months
 20202019$ Change20202019$ Change
Operating Revenues$586 $590 $(4)$1,748 $1,756 $(8)
Operating Expenses
Operation
Energy purchases118 132 (14)373 413 (40)
Other operation and maintenance122 137 (15)388 417 (29)
Depreciation102 99 3 301 290 11 
Taxes, other than income30 29 1 78 84 (6)
Total Operating Expenses372 397 (25)1,140 1,204 (64)
Other Income (Expense) - net7 7 — 15 18 (3)
Interest Income from Affiliate1 1 — 2 3 (1)
Interest Expense44 43 1 130 126 4 
Income Taxes44 40 4 125 114 11 
Net Income$134 $118 $16 $370 $333 $37 
 Three Months Nine Months
 2019 2018 $ Change 2019 2018 $ Change
Operating Revenues$590
 $548
 $42
 $1,756
 $1,704
 $52
Operating Expenses           
Operation           
Energy purchases132
 127
 5
 413
 403
 10
Other operation and maintenance137
 127
 10
 417
 419
 (2)
Depreciation99
 89
 10
 290
 262
 28
Taxes, other than income29
 27
 2
 84
 81
 3
Total Operating Expenses397
 370
 27
 1,204
 1,165
 39
Other Income (Expense) - net7
 5
 2
 18
 18
 —
Interest Income from Affiliate1
 4
 (3) 3
 5
 (2)
Interest Expense43
 41
 2
 126
 117
 9
Income Taxes40
 35
 5
 114
 111
 3
Net Income$118
 $111
 $7
 $333
 $334
 $(1)


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Operating Revenues

The increase (decrease) in operating revenues was due to:
Three MonthsNine Months
Distribution price (a)$(16)$(16)
Distribution volumes (b)6 (11)
PLR (c)(13)(38)
Transmission Formula Rate (d)24 63 
Other(5)(6)
Total$(4)$(8)

(a)The distribution price variances are primarily due to reconcilable cost recovery mechanisms approved by the PUC.
(b)The decrease for the periodsnine months ended September 30, 2019 compared with 20182020 was primarily due to:to warmer weather in the first quarter of 2020, partially offset by warmer weather in the third quarter of 2020.
(c)The decrease for the three months ended September 30, 2020 was primarily the result of lower energy prices, partially offset by higher volumes of non-shopping customers and favorable weather. The decrease for the nine months ended September 30, 2020 was primarily the result of lower energy prices and unfavorable weather, partially offset by higher volumes of non-shopping customers in 2020.
 Three Months Nine Months
Distribution price (a)$18
 $20
Distribution volume1
 (3)
PLR (b)6
 11
Transmission Formula Rate (c)17
 29
TCJA refund (d)1
 (6)
Other(1) 1
Total$42
 $52
(d)The increases were primarily due to returns on additional capital investments.

(a)Distribution price variances were primarily due to reconcilable cost recovery mechanisms approved by the PUC.
(b)The increase for the nine months ended September 30, 2019 was primarily due to higher energy volumes partially offset by lower energy prices and lower transmission enhancement expenses as described below.
(c)The increase for the three months ended September 30, 2019 was primarily due to increased returns on capital investments. The increase for the nine months ended September 30, 2019 was primarily due to $60 million of increased returns on capital investments partially offset by a $27 million unfavorable impact of the TCJA which reduced the revenue requirement that went into effect June 1, 2018.
(d)Represents the estimated income tax savings owed to or already returned to distribution customers related to the reduced U.S. federal corporate income taxes as a result of the TCJA. The TCJA customer refund for the period January through June 2018 was recorded as a regulatory liability during the second quarter of 2018 and the negative surcharge rate for distribution customers went into effect July 1, 2018, based on the PUC Order.

Energy Purchases

Energy purchases increased $10decreased $14 million for the three months ended September 30, 2020 compared with 2019, primarily due to lower PLR prices of $21 million, partially offset by higher PLR volumes of $7 million.

Energy purchases decreased $40 million for the nine months ended September 30, 20192020 compared with 2018,2019, primarily due to higherlower PLR volumesprices of $28$54 million, partially offset by lower PLR prices of $12 million and lowerhigher transmission enhancement expenses of $8$12 million.

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Other Operation and Maintenance

The decreaseincrease (decrease) in other operation and maintenance for the periods ended September 30, 2019 compared with 2018 was due to:
Three MonthsNine Months
Act 129$(5)$(12)
Storm costs8 (9)
Universal service rider(4)(8)
Bad debts(7)(3)
Canceled projects— 9 
Other(7)(6)
Total$(15)$(29)
 Three Months Nine Months
Storm costs$(4) $(5)
Vegetation management4
 7
Support costs2
 (4)
Act 1294
 3
Act 129 Smart Meter Program—
 (3)
Contractor-related expenses(3) 3
Other7
 (3)
Total$10
 $(2)


Depreciation

Depreciation increased $10 million and $28 million for the three and nine months ended September 30, 2019 compared with 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.

Interest Expense

Interest expense increased $9 million for the nine months ended September 30, 2019 compared with 2018, primarily due to the June 2018 issuance of $400 million of 4.15% First Mortgage Bonds due 2048 and the September 2019 issuance of $400 million of 3.00% First Mortgage Bonds due 2049.


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Income Taxes

The increase (decrease) in income taxes for the periods ended September 30, 2019 compared with 2018 was due to:
Three MonthsNine Months
Change in pre-tax income at current period tax rates$5 $13 
Federal and state tax return adjustments(4)(5)
Other3 3 
Total$4 $11 
 Three Months Nine Months
Change in pre-tax income$4
 $2
Other1
 1
Total$5
 $3


Earnings
 Three Months Ended Nine Months Ended
 September 30, September 30,
 2019 2018 2019 2018
Net Income$118
 $111
 $333
 $334
Special Item, gain (loss), after-tax (a)—
 (5) —
 (5)

(a)In June 2018, PPL EU Services' IT department announced an internal reorganization which was substantially completed in 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.

Earnings increased for the three month period in 2019 compared with 2018, driven primarily by returns on additional capital investments in transmission primarily offset by higher operation and maintenance expense.

Earnings decreased for the nine month period in 2019 compared with 2018, driven primarily by year-over-year differences in the impact of reduced income taxes in rates due to U.S. tax reform, higher depreciation expense and higher interest expense, offset by returns on additional capital investments in 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 separate lines and not in their respective Statement of Income line items.

 Three Months Nine Months
Pennsylvania Adjusted Gross Margins$24
 $30
Other operation and maintenance(10) (5)
Depreciation(6) (18)
Taxes, other than income—
 (1)
Other Income (Expense) - net(1) (2)
Interest Expense(2) (9)
Income Taxes(3) (1)
Special Item, after tax (a)5
 5
Net Income$7
 $(1)

(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.

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 2019 Three Months 2018 Three Months
 
Adjusted Gross
Margins
 Other (a) 
Operating
Income (b)
 
Adjusted Gross
Margins
 Other (a) 
Operating
Income (b)
Operating Revenues$590
 $—
 $590
 $548
 $—
 $548
Operating Expenses           
Energy purchases132
 —
 132
 127
 —
 127
Other operation and maintenance30
 107
 137
 23
 104
 127
Depreciation14
 85
 99
 10
 79
 89
Taxes, other than income27
 2
 29
 25
 2
 27
Total Operating Expenses203
 194
 397
 185
 185
 370
Total   $387
 $(194) $193
 $363
 $(185) $178
            
 2019 Nine Months 2018 Nine Months
 
Adjusted Gross
Margins
 Other (a) 
Operating
Income (b)
 
Adjusted Gross
Margins
 Other (a) 
Operating
Income (b)
Operating Revenues$1,756
 $—
 $1,756
 $1,704
 $—
 $1,704
Operating Expenses           
Energy purchases413
 —
 413
 403
 —
 403
Other operation and maintenance92
 325
 417
 92
 327
 419
Depreciation36
 254
 290
 26
 236
 262
Taxes, other than income79
 5
 84
 77
 4
 81
Total Operating Expenses620
 584
 1,204
 598
 567
 1,165
Total   $1,136
 $(584) $552
 $1,106
 $(567) $539

(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 includes the following results.
 Three MonthsNine Months
 20202019$ Change20202019$ Change
Operating Revenues$806 $844 $(38)$2,331 $2,421 $(90)
Operating Expenses
Operation
Fuel177 194 (17)478 556 (78)
Energy purchases18 19 (1)97 125 (28)
Other operation and maintenance205 205 — 616 627 (11)
Depreciation152 144 8 452 402 50 
Taxes, other than income21 19 2 57 55 2 
Total Operating Expenses573 581 (8)1,700 1,765 (65)
Other Income (Expense) - net1 2 (1)3 2 1 
Interest Expense56 57 (1)172 169 3 
Interest Expense with Affiliate10 7 3 25 23 2 
Income Taxes31 43 (12)82 78 4 
Net Income$137 $158 $(21)$355 $388 $(33)
 Three Months Nine Months
 2019 2018 $ Change 2019 2018 $ Change
Operating Revenues$844
 $802
 $42
 $2,421
 $2,417
 $4
Operating Expenses           
Operation           
Fuel194
 206
 (12) 556
 609
 (53)
Energy purchases19
 22
 (3) 125
 135
 (10)
Other operation and maintenance205
 216
 (11) 627
 632
 (5)
Depreciation144
 119
 25
 402
 354
 48
Taxes, other than income19
 18
 1
 55
 53
 2
Total Operating Expenses581
 581
 —
 1,765
 1,783
 (18)
Other Income (Expense) - net2
 —
 2
 2
 (2) 4
Interest Expense57
 52
 5
 169
 154
 15
Interest Expense with Affiliate7
 7
 —
 23
 18
 5
Income Taxes43
 32
 11
 78
 102
 (24)
Net Income$158
 $130
 $28
 $388
 $358
 $30

Operating Revenues

The increase (decrease) in operating revenues for the periods ended September 30, 2019 compared with 2018 was due to:
96

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Three MonthsNine Months
Volumes (a)$(33)$(84)
Fuel and other energy prices (b)(3)(42)
Demand (c)(8)(32)
Municipal supply (d)— (28)
Retail rates (e)— 64 
ECR (f)— 28 
Other6 4 
Total$(38)$(90)

 Three Months Nine Months
Higher retail rates (a)$42
 $77
ECR21
 40
Fuel and other energy purchase prices(7) (16)
Municipal supply (b)(22) (37)
Volumes (c)9
 (65)
Other(1) 5
Total$42
 $4
(a)The decreases were primarily due to weather.
(b)The decreases were primarily due to lower recoveries of fuel and energy purchases due to lower commodity costs.
(c)The decreases were primarily due to COVID-19.
(d)The decrease was primarily due to the termination of eight supply contracts with Kentucky municipalities on April 30, 2019.
(e)The increase was primarily due to higher base rates, inclusive of the termination of the TCJA bill credit mechanism, effective May 1, 2019.
(f)The increase was primarily due to higher recoverable depreciation expense as a result of higher depreciation rates effective May 1, 2019.

(a)The higher retail rates were due to higher base rates, inclusive of the termination of the TCJA bill credit mechanism, effective May 1, 2019.
(b)The decreases were primarily due to the termination of eight supply contracts with Kentucky municipalities on April 30, 2019.
(c)The decrease for the nine months ended September 30, 2019 was primarily due to weather.

Fuel

Fuel decreased $12$17 million for the three months ended September 30, 20192020 compared with 2018,2019, primarily due to a $9$13 million decrease in volumes driven by weather and a $2 million decrease in commodity costs.

Fuel decreased $78 million for the nine months ended September 30, 2020 compared with 2019, primarily due to a $43 million decrease in volumes driven by weather, a $27 million decrease in commodity costs and an $8a $9 million decrease in volumes driven by the termination of eight supply contracts with Kentucky municipalities on April 30, 2019.

Energy Purchases

Energy purchases decreased $28 million for the nine months ended September 30, 2020 compared with 2019, primarily due to a decrease in commodity costs.

Depreciation

Depreciation increased $8 million for the three months ended September 30, 2020 compared with 2019, primarily due to additional assets placed into service, net of retirements.

Depreciation increased $50 million for the nine months ended September 30, 2020 compared with 2019, primarily due to a $26 million increase related to higher depreciation rates effective May 1, 2019 and a $21 million increase related to additional assets placed into service, net of retirements.

Income taxes

Income taxes decreased $12 million for the three months ended September 30, 2020 compared with 2019, primarily due to lower pre-tax income.

Income taxes increased $4 million for the nine months ended September 30, 2020 compared with 2019, primarily due to a deferred income tax benefit recorded in 2019 related to a Kentucky recycling credit of $17 million, partially offset by lower income tax expense of $7 million due to lower pre-tax income.


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LG&E: Statement of Income Analysis

Statement of Income Analysis

Net income for the periods ended September 30 includes the following results.
 Three MonthsNine Months
 20202019$ Change20202019$ Change
Operating Revenues
Retail and wholesale$362 $380 $(18)$1,075 $1,105 $(30)
Electric revenue from affiliate1 2 (1)17 21 (4)
Total Operating Revenues363 382 (19)1,092 1,126 (34)
Operating Expenses
Operation
Fuel64 79 (15)188 226 (38)
Energy purchases13 14 (1)83 110 (27)
Energy purchases from affiliate8 2 6 16 6 10 
Other operation and maintenance93 92 1 277 282 (5)
Depreciation64 61 3 193 168 25 
Taxes, other than income11 10 1 30 29 1 
Total Operating Expenses253 258 (5)787 821 (34)
Other Income (Expense) - net(1)— (1)(1)(1)— 
Interest Expense22 22 — 66 65 1 
Income Taxes16 22 (6)47 51 (4)
Net Income$71 $80 $(9)$191 $188 $3 
Operating Revenues

The increase (decrease) in operating revenues was due to:
Three MonthsNine Months
Volumes (a)$(20)$(44)
Fuel and other energy prices (b)(1)(22)
Demand (c)(4)(13)
Retail rates (d)— 27 
ECR (e)1 13 
Other5 5 
Total$(19)$(34)

(a)The decreases were primarily due to weather.
(b)The decreases were primarily due to lower recoveries of fuel and energy purchases due to lower commodity costs.
(c)The decreases were primarily due to COVID-19.
(d)The increase was primarily due to higher base rates, inclusive of the termination of the TCJA bill credit mechanism, effective May 1, 2019.
(e)The increase for the nine month period was primarily due to higher recoverable depreciation expense as a $3result of higher depreciation rates effective May 1, 2019.

Fuel

Fuel decreased $15 million increasefor the three months ended September 30, 2020 compared with 2019, primarily due a decrease in volumes driven by weather.


Fuel decreased $53$38 million for the nine months endedSeptember 30, 20192020 compared with 2018, primarily2019, due to a $22 million decrease in commodity costs, a $21$32 million decrease in volumes driven by weather and a $14$6 million decrease in volumes driven by the termination of eight supply contracts with Kentucky municipalities on April 30, 2019.commodity costs.


Energy Purchases
Other Operation and Maintenance

The increase (decrease) in other operation and maintenance for the periods ended September 30, 2019 compared with 2018 was due to:
 Three Months Nine Months
DSM program costs$(4) $(11)
Plant operations and maintenance(7) (9)
Storm costs(9) (8)
Administrative and general2
 2
Vegetation management2
 3
Gas distribution maintenance and compliance2
 6
Transmission credits3
 10
Other—
 2
Total$(11) $(5)

Depreciation

Depreciation increased $25 million for the three months ended September 30, 2019 compared with 2018, primarily due to higher depreciation rates effective May 1, 2019.

Depreciation increased $48Energy purchases decreased $27 million for the nine months ended September 30, 20192020 compared with 2018,2019, primarily due to a $33decrease in commodity costs.

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Energy Purchases from affiliate

Energy purchases from affiliate increased $6 million and $10 million for the three and nine months ended September 30, 2020 compared with 2019, primarily due to the timing of generation maintenance outages.

Depreciation

Depreciation increased $25 million for the nine months ended September 30, 2020 compared with 2019, primarily due to a $13 million increase related to higher depreciation rates effective May 1, 2019 and an $11 million increase related to additional assets placed into service, net of retirements.


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Income Taxestaxes

The increase (decrease) inIncome taxes decreased $6 million for the three months ended September 30, 2020 compared with 2019, primarily due to lower pre-tax income.

KU: Statement of Income Analysis

Statement of Income Analysis
Net income taxes for the periods ended September 30 2019 compared with 2018includes the following results.
 Three MonthsNine Months
 20202019$ Change20202019$ Change
Operating Revenues
Retail and wholesale$444 $464 $(20)$1,256 $1,316 $(60)
Electric revenue from affiliate8 2 6 16 6 10 
Total Operating Revenues452 466 (14)1,272 1,322 (50)
Operating Expenses
Operation
Fuel113 115 (2)290 330 (40)
Energy purchases5 5 — 14 15 (1)
Energy purchases from affiliate1 2 (1)17 21 (4)
Other operation and maintenance105 107 (2)316 320 (4)
Depreciation88 83 5 258 233 25 
Taxes, other than income10 9 1 27 26 1 
Total Operating Expenses322 321 1 922 945 (23)
Other Income (Expense) - net1 4 (3)2 4 (2)
Interest Expense28 28 — 85 82 3 
Income Taxes19 26 (7)50 62 (12)
Net Income$84 $95 $(11)$217 $237 $(20)

Operating Revenues
The increase (decrease) in operating revenues was due to:
Three MonthsNine Months
Volumes (a)$(9)$(33)
Municipal supply (b)— (28)
Fuel and other energy prices (c)(2)(20)
Demand (d)(4)(19)
Retail rates (e)— 37 
ECR (f)(1)15 
Other2 (2)
Total$(14)$(50)
 Three Months Nine Months
Change in pre-tax income$10
 $1
Amortization of excess deferred income tax(2) (3)
Kentucky state tax reform (a)—
 (9)
Kentucky recycling credit, net of federal income tax expense (b)—
 (20)
Valuation allowance adjustments (b)—
 3
Other3
 4
Total$11
 $(24)


(a)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.
(b)During the second quarter of 2019, LKE recorded a deferred income tax benefit associated with two projects placed into service that prepare a generation waste material for reuse and, as a result, qualify for a Kentucky recycling credit. The applicable credit provides tax benefits for a portion of the equipment costs for major recycling projects in Kentucky, with the benefit recognized during the period in which the assets are placed into service. A portion of this amount has been reserved due to insufficient Kentucky taxable income projected at LKE. During the third quarter of 2019, LKE filed the Kentucky recycling credit application with the Kentucky Department of Revenue and expects a ruling in the fourth quarter of 2019.

Earnings
 Three Months Ended Nine Months Ended
 September 30, September 30,
 2019 2018 2019 2018
Net Income$158
 $130
 $388
 $358
Special items, gains (losses), after-tax—
 2
 —
 (7)

Excluding special items, earnings increased for the three month period in 2019 compared with 2018,(a)The decreases were primarily due to higher retail rates approved by the KPSC, inclusive of the termination of the TCJA bill credit mechanism, effective May 1, 2019, higher sales volumes primarily driven by weather and lower other operation and maintenance expense. Thisweather.
(b)The decrease was partially offset by lower municipal supply revenues primarily due to the termination of eight supply contracts with Kentucky municipalities on April 30, 2019, higher depreciation expense2019.
(c)The decreases were primarily due to lower recoveries of fuel and higher income taxes.energy purchases due to lower commodity costs.

(d)The decreases were primarily due to COVID-19.
Excluding special items, earnings increased for the nine month period in 2019 compared with 2018,
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(e)The increase was primarily due to higher retailbase rates, approved by the KPSC, inclusive of the termination of the TCJA bill credit mechanism, effective May 1, 2019, lower other operation and maintenance expense and lower income taxes. This2019.
(f)The increase for the nine month period was partially offset by lower municipal supply revenues primarily due to the terminationhigher recoverable depreciation expense as a result of eight supply contracts with Kentucky municipalities, lower sales volumes primarily driven by weather, higher depreciation expense and higher interest expense.rates effective May 1, 2019.

The table below quantifies the changes in the components of Net Income between these periods, which reflect amounts classified as Adjusted Gross Margins and the items that management considers special on separate lines and not in their respective Statement of Income line items.  
 Three Months Nine Months
Adjusted Gross Margins$44
 $42
Other operation and maintenance10
 1
Depreciation(10) (19)
Taxes, other than income(2) (2)
Other Income (Expense) - net2
 4
Interest Expense(5) (20)
Income Taxes(9) 17
Special items, gains (losses), after-tax (a)(2) 7
Net Income$28
 $30

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


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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."
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.
 2019 Three Months 2018 Three Months
 Adjusted Gross Margins Other (a) Operating
Income (b)		 Adjusted Gross Margins Other (a) Operating
Income (b)
Operating Revenues$844
 $—
 $844
 $802
 $—
 $802
Operating Expenses           
Fuel194
 —
 194
 206
 —
 206
Energy purchases19
 —
 19
 22
 —
 22
Other operation and maintenance25
 180
 205
 26
 190
 216
Depreciation33
 111
 144
 18
 101
 119
Taxes, other than income1
 18
 19
 2
 16
 18
Total Operating Expenses272
 309
 581
 274
 307
 581
Total$572
 $(309) $263
 $528
 $(307) $221
            
 2019 Nine Months 2018 Nine Months
 Adjusted Gross Margins Other (a) Operating
Income (b)		 Adjusted Gross Margins Other (a) Operating
Income (b)
Operating Revenues$2,421
 $—
 $2,421
 $2,417
 $—
 $2,417
Operating Expenses           
Fuel556
 —
 556
 609
 —
 609
Energy purchases125
 —
 125
 135
 —
 135
Other operation and maintenance70
 557
 627
 74
 558
 632
Depreciation81
 321
 402
 52
 302
 354
Taxes, other than income3
 52
 55
 3
 50
 53
Total Operating Expenses835
 930
 1,765
 873
 910
 1,783
Total$1,586
 $(930) $656
 $1,544
 $(910) $634

(a)Represents amounts excluded from Adjusted Gross Margins.
(b)As reported on the Statements of Income.


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LG&E: Statement of Income Analysis, Earnings and Adjusted Gross Margins
Statement of Income Analysis

Net income for the periods ended September 30 includes the following results.
 Three Months Nine Months
 2019 2018 $ Change 2019 2018 $ Change
Operating Revenues    

     

Retail and wholesale$380
 $357
 $23
 $1,105
 $1,095
 $10
Electric revenue from affiliate2
 5
 (3) 21
 21
 —
Total Operating Revenues382
 362
 20
 1,126
 1,116
 10
Operating Expenses    

     

Operation           
Fuel79
 83
 (4) 226
 234
 (8)
Energy purchases14
 17
 (3) 110
 121
 (11)
Energy purchases from affiliate2
 2
 —
 6
 10
 (4)
Other operation and maintenance92
 95
 (3) 282
 277
 5
Depreciation61
 49
 12
 168
 146
 22
Taxes, other than income10
 9
 1
 29
 27
 2
Total Operating Expenses258
 255
 3
 821
 815
 6
Other Income (Expense) - net—
 (3) 3
 (1) (5) 4
Interest Expense22
 20
 2
 65
 57
 8
Income Taxes22
 18
 4
 51
 51
 —
Net Income$80
 $66
 $14
 $188
 $188
 $—
Operating Revenues

The increase (decrease) in operating revenues for the periods ended September 30, 2019 compared with 2018 was due to:
 Three Months Nine Months
Higher retail rates (a)$15
 $29
ECR8
 17
Fuel and other energy purchase prices(3) (2)
Volumes (b)1
 (35)
Other(1) 1
Total$20
 $10

(a)The higher retail rates were due to higher base rates, inclusive of the termination of the TCJA bill credit mechanism, effective May 1, 2019.
(b)For the nine months ended September 30, 2019, the decrease was primarily due to weather.

Fuel

Fuel decreased $4 million for the three months ended September 30, 2019 compared with 2018, primarily due to a decrease in commodity costs.

Energy Purchases

Energy purchases decreased $11$40 million for the nine months ended September 30, 20192020 compared with 2018,2019, primarily due to a $5$21 million decrease in commodity costs, and a $4 million decrease in volumes due to the expiration of a capacity purchase tolling agreement.

Depreciation

Depreciation increased $12 million for the three months ended September 30, 2019 compared with 2018, primarily due to higher depreciation rates effective May 1, 2019.


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Depreciation increased $22 million for the nine months ended September 30, 2019 compared with 2018, primarily due to a $16 million increase related to higher depreciation rates effective May 1, 2019 and a $6 million increase related to additional assets placed into service, net of retirements.

Income Taxes

Income taxes increased $4 million for the three months ended September 30, 2019 compared with 2018 primarily due to higher pre-tax income.

Earnings
 Three Months Ended Nine Months Ended
 September 30, September 30,
 2019 2018 2019 2018
Net Income$80
 $66
 $188
 $188
Special items, gains (losses), after-tax (a)—
 —
 —
 —

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

Earnings increased for the three month period in 2019 compared with 2018, primarily due to higher retail rates approved by the KPSC, inclusive of the termination of the TCJA bill credit mechanism, effective May 1, 2019 and higher sales volumes primarily driven by weather, partially offset by higher depreciation expense and higher income taxes.

Earnings are comparable for the nine month period in 2019 compared with 2018, primarily due to higher retail rates approved by the KPSC, inclusive of the termination of the TCJA bill credit mechanism, effective May 1, 2019 offset by lower sales volumes primarily driven by weather, higher other operation and maintenance expense, higher depreciation expense and higher 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.
 Three Months Nine Months
Adjusted Gross Margins$22
 $23
Other operation and maintenance2
 (8)
Depreciation(4) (8)
Taxes, other than income(3) (3)
Other Income (Expense) - net3
 4
Interest Expense(2) (8)
Income Taxes(4) —
Net Income$14
 $—
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."
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.

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 2019 Three Months 2018 Three Months
 Adjusted Gross Margins Other (a) Operating Income (b) Adjusted Gross Margins Other (a) Operating Income (b)
Operating Revenues$382
 $—
 $382
 $362
 $—
 $362
Operating Expenses           
Fuel79
 —
 79
 83
 —
 83
Energy purchases, including affiliate16
 —
 16
 19
 —
 19
Other operation and maintenance9
 83
 92
 10
 85
 95
Depreciation16
 45
 61
 8
 41
 49
Taxes, other than income—
 10
 10
 2
 7
 9
Total Operating Expenses120
 138
 258
 122
 133
 255
Total   $262
 $(138) $124
 $240
 $(133) $107
            
 2019 Nine Months 2018 Nine Months
 Adjusted Gross Margins Other (a) Operating Income (b) Adjusted Gross Margins Other (a) Operating Income (b)
Operating Revenues$1,126
 $—
 $1,126
 $1,116
 $—
 $1,116
Operating Expenses           
Fuel226
 —
 226
 234
 —
 234
Energy purchases, including affiliate116
 —
 116
 131
 —
 131
Other operation and maintenance26
 256
 282
 29
 248
 277
Depreciation37
 131
 168
 23
 123
 146
Taxes, other than income1
 28
 29
 2
 25
 27
Total Operating Expenses406
 415
 821
 419
 396
 815
Total   $720
 $(415) $305
 $697
 $(396) $301
(a)Represents amounts excluded from Adjusted Gross Margins.
(b)As reported on the Statements of Income.


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

Statement of Income Analysis
Net income for the periods ended September 30 includes the following results.
 Three Months Nine Months
 2019 2018 $ Change 2019 2018 $ Change
Operating Revenues           
Retail and wholesale$464
 $445
 $19
 $1,316
 $1,322
 $(6)
Electric revenue from affiliate2
 2
 —
 6
 10
 (4)
Total Operating Revenues466
 447
 19
 1,322
 1,332
 (10)
Operating Expenses           
Operation           
Fuel115
 123
 (8) 330
 375
 (45)
Energy purchases5
 5
 —
 15
 14
 1
Energy purchases from affiliate2
 5
 (3) 21
 21
 —
Other operation and maintenance107
 114
 (7) 320
 331
 (11)
Depreciation83
 70
 13
 233
 208
 25
Taxes, other than income9
 9
 —
 26
 26
 —
Total Operating Expenses321
 326
 (5) 945
 975
 (30)
Other Income (Expense) - net4
 1
 3
 4
 1
 3
Interest Expense28
 24
 4
 82
 74
 8
Income Taxes26
 21
 5
 62
 59
 3
Net Income$95
 $77
 $18
 $237
 $225
 $12

Operating Revenues
The increase (decrease) in operating revenues for the periods ended September 30, 2019 compared with 2018 was due to:
 Three Months Nine Months
Municipal supply (a)(22) (37)
Volumes (b)7
 (29)
Fuel and other energy purchase prices(4) (16)
ECR13
 23
Higher Retail Rates (c)27
 48
Other(2) 1
Total$19
 $(10)

(a)The decreases were primarily due to the termination of eight supply contracts with Kentucky municipalities on April 30, 2019.
(b)For the nine months ended September 30, 2019, the decrease was primarily due to weather.
(c)The higher retail rates were due to higher base rates, inclusive of the termination of the TCJA bill credit mechanism, effective May 1, 2019.

Fuel

Fuel decreased $8 million for the three months ended September 30, 2019 compared with 2018, primarily due to an $8 million decrease in volumes driven by the termination of eight supply contracts with Kentucky municipalities on April 30, 2019 and a $6 million decrease in commodity costs, partially offset by a $5 million increase in volumes primarily driven by weather.

Fuel decreased $45 million for the nine months ended September 30, 2019 compared with 2018, primarily due to a $17$11 million decrease in volumes driven by weather a $16 million decrease in commodity costs and a $14$9 million decrease in volumes driven by the termination of eight supply contracts with Kentucky municipalities on April 30, 2019.

Other Operation and Maintenance

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

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 Three Months Nine Months
Plant operations and maintenance$(6) $(10)
DSM program costs(2) (5)
Storm costs(5) (5)
Transmission credits2
 7
Other4
 2
Total$(7) $(11)

Depreciation

Depreciation increased $13$5 million for the three months ended September 30, 20192020 compared with 2018,2019, primarily due to higher depreciation rates effective May 1, 2019.

additional assets placed into service, net of retirements.

Depreciation increased $25 million for the nine months ended September 30, 20192020 compared with 2018,2019, primarily due to a $17$13 million increase related to higher depreciation rates effective May 1, 2019 and a $5$10 million increase related to additional assets placed into service, net of retirements.

Income Taxestaxes

Income taxes increased $5decreased $7 million and $12 million for the three and nine months ended September 30, 20192020 compared with 20182019, primarily due to higherlower pre-tax income.

Earnings
 Three Months Ended Nine Months Ended
 September 30, September 30,
 2019 2018 2019 2018
Net Income$95
 $77
 $237
 $225
Special items, gains (losses), after-tax (a)—
 —
 —
 —

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

Earnings increased for the three month period in 2019 compared with 2018, primarily due to higher retail rates approved by the KPSC, inclusive of the termination of the TCJA bill credit mechanism, effective May 1, 2019, higher sales volumes primarily driven by weather and lower other operation and maintenance expense, partially offset by lower municipal supply revenues primarily due to the termination of eight supply contracts with Kentucky municipalities, higher depreciation expense and higher income taxes.

Earnings increased for the nine month period in 2019 compared with 2018, primarily due to higher retail rates approved by the KPSC, inclusive of the termination of the TCJA bill credit mechanism, effective May 1, 2019, and lower other operation and maintenance expense, partially offset by lower municipal supply revenues primarily due to the termination of eight supply contracts with Kentucky municipalities, lower sales volumes primarily driven by weather, higher depreciation expense and higher 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.
 Three Months Nine Months
Adjusted Gross Margins$22
 $19
Other operation and maintenance7
 10
Depreciation(6) (10)
Taxes, other than income1
 1
Other Income (Expense) - net3
 3
Interest Expense(4) (8)
Income Taxes(5) (3)
Net Income$18
 $12

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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."
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.
 2019 Three Months 2018 Three Months
 Adjusted Gross Margins Other (a) Operating
Income (b)		 Adjusted Gross Margins Other (a) Operating
Income (b)
Operating Revenues$466
 $—
 $466
 $447
 $—
 $447
Operating Expenses           
Fuel115
 —
 115
 123
 —
 123
Energy purchases, including affiliate7
 —
 7
 10
 —
 10
Other operation and maintenance16
 91
 107
 16
 98
 114
Depreciation17
 66
 83
 10
 60
 70
Taxes, other than income1
 8
 9
 —
 9
 9
Total Operating Expenses156
 165
 321
 159
 167
 326
Total$310
 $(165) $145
 $288
 $(167) $121
            
 2019 Nine Months 2018 Nine Months
 Adjusted Gross Margins Other (a) Operating
Income (b)		 Adjusted Gross Margins Other (a) Operating
Income (b)
Operating Revenues$1,322
 $—
 $1,322
 $1,332
 $—
 $1,332
Operating Expenses           
Fuel330
 —
 330
 375
 —
 375
Energy purchases, including affiliate36
 —
 36
 35
 —
 35
Other operation and maintenance44
 276
 320
 45
 286
 331
Depreciation44
 189
 233
 29
 179
 208
Taxes, other than income2
 24
 26
 1
 25
 26
Total Operating Expenses456
 489
 945
 485
 490
 975
Total$866
 $(489) $377
 $847
 $(490) $357

(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 ElectricLKELG&EKU
September 30, 2020September 30, 2020     
Cash and cash equivalentsCash and cash equivalents$746 $26 $25 $10 $15 
PPL (a) PPL Electric LKE LG&E KU
September 30, 2019         
Short-term debtShort-term debt1,368 280 345 206 139 
Long-term debt due within one yearLong-term debt due within one year1,525 400 424 292 132 
Notes payable with affiliatesNotes payable with affiliates— 153 — — 
December 31, 2019December 31, 2019     
Cash and cash equivalents$670
 $27
 $30
 $12
 $18
Cash and cash equivalents$815 $262 $27 $15 $12 
Short-term debt1,387
 —
 101
 99
 2
Short-term debt1,151 — 388 238 150 
Long-term debt due within one year—
 —
 —
 —
 —
Long-term debt due within one year1,172 — 975 — 500 
Notes payable with affiliates  —
 129
 —
 —
Notes payable with affiliates— 150 — — 
         
December 31, 2018         
Cash and cash equivalents$621
 $267
 $24
 $10
 $14
Short-term debt1,430
 —
 514
 279
 235
Long-term debt due within one year530
 —
 530
 434
 96
Notes payable with affiliates  —
 113
 —
 —
 
(a)At September 30, 2019, $279 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 6 to the Financial Statements in PPL's 2018 Form 10-K for additional information on undistributed earnings of WPD.
(a)At September 30, 2020, $237 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 6 to the Financial Statements in PPL's 2019 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 month periods ended September 30, and the changes between periods, were as follows.
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PPLPPL ElectricLKELG&EKU
PPL PPL Electric LKE LG&E KU
2019         
20202020     
Operating activities$1,888
 $609
 $813
 $417
 $471
Operating activities$2,247 $656 $872 $419 $446 
Investing activities(2,194) (1,361) (761) (323) (436)Investing activities(2,358)(844)(707)(329)(378)
Financing activities363
 512
 (46) (92) (31)Financing activities33 (48)(167)(95)(65)
2018         
20192019     
Operating activities$2,210
 $650
 $787
 $410
 $485
Operating activities$1,888 $609 $813 $417 $471 
Investing activities(2,466) (837) (825) (420) (404)Investing activities(2,194)(1,361)(761)(323)(436)
Financing activities618
 552
 37
 6
 (78)Financing activities363 512 (46)(92)(31)
Change - Cash Provided (Used)         Change - Cash Provided (Used)     
Operating activities$(322) $(41) $26
 $7
 $(14)Operating activities$359 $47 $59 $2 $(25)
Investing activities272
 (524) 64
 97
 (32)Investing activities(164)517 54 (6)58 
Financing activities(255) (40) (83) (98) 47
Financing activities(330)(560)(121)(3)(34)
 
Operating Activities
 
The components of the change in cash provided by (used in) operating activities for the nine months ended September 30, 20192020 compared with 20182019 were as follows.

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PPL PPL Electric LKE LG&E KUPPLPPL ElectricLKELG&EKU
Change - Cash Provided (Used)         Change - Cash Provided (Used)     
Net income$(30) $(1) $30
 $—
 $12
Net income$(203)$37 $(33)$3 $(20)
Non-cash components138
 19
 59
 24
 36
Non-cash components315 25 27 (26)2 
Working capital(282) (68) (140) (74) (97)Working capital156 15 26 2 (10)
Defined benefit plan funding3
 7
 92
 53
 50
Defined benefit plan funding17 — 6 — 2 
Other operating activities(151) 2
 (15) 4
 (15)Other operating activities74 (30)33 23 1 
Total$(322) $(41) $26
 $7
 $(14)Total$359 $47 $59 $2 $(25)
 
(PPL)

PPL's cash provided by operating activities in 2019 decreased $3222020 increased $359 million compared with 2018.2019.
•Net income decreased $30$203 million between the periods and included an increase in non-cash charges of $138$315 million. The increase in non-cash charges was primarily due to a decrease in unrealized gains on hedging activities and an increase in depreciation expense (primarily due to higher depreciation rates and additional assets placed into service, relatednet of retirements), an increase in deferred income taxes (due to the ongoing efforts to ensure the reliabilitycancellation of the delivery systemU.K. corporation tax rate reduction, book versus tax plant timing differences and the replacement of aging infrastructure,Federal net of retirementsoperating losses) and higher depreciation rates),an increase in unrealized gains on derivatives, and other hedging activities, partially offset by ana decrease in amortization expense.

•The $156 million increase in the U.K. net periodic defined benefit credits (primarily due to lower levels of unrecognized losses being amortized).

The $282 million decrease in cash from changes in working capital was primarily due to an increase in accounts payable (primarily due to timing of disbursement of payments), a decrease in unbilled revenues (primarily due to weather), and an increase in other current liabilities, partially offset by an increase in accounts receivable (primarily due to timing of receipts) and an increase in materials and supplies (primarily due to a contract termination and subsequent guaranteed purchase of inventory from a third-party logistics firm).

•The $74 million increase in cash provided by other operating activities was driven primarily by an increase in other liabilities (primarily related to regulatory liabilities and deferral of payroll taxes).

(PPL Electric)
PPL Electric's cash provided by operating activities in 2020 increased $47 million compared with 2019.
•Net income increased $37 million between the periods and included an increase in non-cash components of $25 million. The increase in non-cash components was primarily due to an increase in depreciation expense and an increase in other expenses (primarily due to an increase in canceled projects).

•The $15 million increase in cash from changes in working capital was primarily due to a decrease in unbilled revenues (primarily due to weather), an increase in accounts payable (primarily due to timing of payments), and a decrease in
101

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other net regulatorycurrent assets and current liabilities, partially offset by an increase in accounts receivable (primarily due to the impacttiming of receipts).

•The $30 million decrease in cash provided by other operating activities was driven primarily by an increase in non-current assets (primarily related to prepayments).

(LKE)
LKE's cash provided by operating activities in 2020 increased $59 million compared with 2019.
•Net income decreased $33 million between the TCJAperiods and included an increase in non-cash components of $27 million. The increase in non-cash components was primarily driven by an increase in depreciation expense (primarily due to higher depreciation rates and additional assets placed into service, net of retirements), partially offset by a decrease in deferred income tax expense (primarily due to book versus tax plant timing differences).

•The increase in cash from changes in working capital was primarily driven by a decrease in unbilled revenue (primarily due to weather) and an increase in accounts payable (primarily due to timing of payments), partially offset by an increase in accounts receivable (primarily due to increase in aged receivables due to COVID-19 related disconnection moratoriums) and a decrease in interest payable (primarily due to timing of payments).

•The increase in cash provided by other operating activities was driven primarily by an increase in other liabilities (primarily related to regulatory liabilities and deferral of payroll taxes).

(LG&E)
LG&E's cash provided by operating activities in 2020 increased $2 million compared with 2019.
•Net income increased $3 million between the periods and included a decrease in non-cash components of $26 million. The decrease in non-cash components was primarily driven by a decrease in deferred income tax expense (primarily due to book versus tax plant timing differences), partially offset by an increase in depreciation expense (primarily due to higher depreciation rates and additional assets placed into service, net of retirements).

•The increase in cash from changes in working capital was primarily driven by a decrease in unbilled revenues (primarily due to weather) and net regulatory assets (primarily due to the timing of rate recovery mechanisms), an increase in unbilled revenues (primarily due to weather and higher retail rates effective May 1, 2019),partially offset by a decrease in accounts payable (primarily due to timing of payments) and an increase in accounts receivables (primarily due to increase in aged receivables due to COVID-19 related disconnection moratoriums).

•The increase in cash provided by other operating activities was driven primarily by an increase in other liabilities (primarily related to regulatory liabilities) and a decrease in ARO expenditures.

(KU)
KU's cash provided by operating activities in 2020 decreased $25 million compared with 2019.
•Net income decreased $20 million between the periods and included an increase in non-cash charges of $2 million. The increase in non-cash components was driven by an increase in depreciation expense (primarily due to higher depreciation rates and additional assets placed into service, net of retirements), partially offset by a decrease in deferred income tax expense (primarily due to book versus tax plant timing differences).

•The decrease in cash from changes in working capital was primarily driven by an increase in accounts receivable (primarily due to increase in aged receivables due to COVID-19 related disconnection moratoriums) and a decrease in other current liabilities (primarily due to timing of payments), partially offset by an increase in accrued interest (primarily due larger debt balances and timing of interest payments).

The $151 million decrease in cash provided by other operating activities was primarily due to the $65 million transfer of excess benefits funds, in 2018, related to the favorable private letter ruling received by PPL from the IRS permitting a transfer of excess funds from the PPL Bargaining Unit Retiree Health Plan VEBA to a new subaccount within the VEBA, to be used to pay for medical claims of active bargaining unit employees, a decrease in non-current regulatory liabilities (primarily due to a $41 million TCJA liability in 2018) and an increase in ARO expenditures.

(PPL Electric)
PPL Electric's cash provided by operating activities in 2019 decreased $41 million compared with 2018.
Net income decreased $1 million between the periods and included an increase in non-cash components of $19 million. The increase in non-cash components was primarily due to a $28 million increase in depreciation expense (primarily due to additional assets placed into service, related to the ongoing efforts to ensure 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 $7 million decrease in deferred income taxes (due to book versus tax plant timing differences and Federal net operating losses, partially offset by a book to tax timing difference related to the TCJA regulatory liability).

The $68 million decrease in cash from changes in working capital was primarily due to an increase in unbilled revenue (primarily due to colder weather in the fourth quarter of 2017 compared with 2018), an increase in prepayments (primarily due to an increase in the 2019 gross receipts tax prepayment compared to 2018 and a 2018 state income tax overpayment to be applied to the 2019 state income tax liability), an increase in net regulatory assets and liabilities (due to timing of rate recovery mechanisms and colder weather in the fourth quarter of 2018 compared with the third quarter of 2019) and in increase in Other (primarily due to timing of payments for other current liabilities and a 2018 initiative to decrease material and supply levels), partially offset by a decrease in accounts receivable (primarily due to timing of receipts).

Defined benefit plan funding was $7 million lower in 2019.

The $2 million increase in cash provided by other operating activities was primarily due to a decrease in non-current regulatory liabilities (primarily due to a $41 million TCJA liability in 2018), partially offset by a decrease in non-current regulatory assets (due to timing of rate recovery mechanisms, amortization of storm costs incurred in the prior year and $22 million of storm costs incurred in 2018).

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(LKE)
LKE's cash provided by operating activities in 2019 increased $26 million compared with 2018.
•
Net income increased $30 million between the periods and included an increase in non-cash charges of $59 million. The increase in non-cash charges was primarily driven by an increase in depreciation expense (primarily due to higher depreciation rates and additional assets placed into service, net of retirements).

The decrease in cash from changes in working capital was primarily driven by an increase in net regulatory assets and liabilities (primarily due to the impact of the TCJA and timing of rate recovery mechanisms), an increase in unbilled revenues (primarily due to weather and higher retail rates effective May 1, 2019) and a decrease in accounts payable (primarily due to timing of payments).

•
Defined benefit plan funding was $92 million lower in 2019.

The and a 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 2019 increased $7 million compared with 2018.
•
Net income was consistent between the periods and included an increase in non-cash charges of $24 million. The increase in non-cash charges was primarily driven by an increase in depreciation expense (primarily due to higher depreciation rates and additional assets placed into service, net of retirements).

The decrease in cash from changes in working capital was primarily driven by 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 in unbilled revenues (primarily due to weather and higher retail rates effective May 1, 2019) and a decrease in accounts payable (primarily due to timing of payments)weather).

•
Defined benefit plan funding was $53 million lower in 2019.

(KU)
KU's cash provided by operating activities in 2019 decreased $14 million compared with 2018.
•
Net income increased $12 million between the periods and included an increase in non-cash charges of $36 million. The increase in non-cash charges was primarily driven by an increase in depreciation expense (primarily due to higher depreciation rates and additional assets placed into service, net of retirements).

The decrease in cash from changes in working capital was primarily driven by an increase in net regulatory assets and liabilities (primarily due to the impact of the TCJA and timing of rate recovery mechanisms), an increase in unbilled revenues (primarily due to weather and higher retail rates effective May 1, 2019) and a decrease in accounts payable (primarily due to timing of payments).

Defined benefit plan funding was $50 million lower in 2019.

The decrease in cash from KU's other operating activities was primarily driven by an increase in ARO expenditures.

Investing Activities

Expenditures for Property, Plant and Equipment (All Registrants)
 
Investment in PP&E is the primary investing activityThe components of the Registrants. The changeschange in cash used in expenditures for PP&Eprovided by (used in) investing activities for the nine months ended September 30, 20192020 compared with 20182019 were as follows.
102
 PPL PPL Electric LKE LG&E KU
Change - Cash Provided (Used)         
Expenditures for PP&E$147
 $20
 $65
 $97
 $(31)



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 PPLPPL ElectricLKELG&EKU
Change - Cash Provided (Used)
Expenditures for PP&E$(151)$(25)$51 $(6)$55 
Purchase of investments55 — — — — 
Proceeds from the sale of investments(61)— — — — 
Notes receivable from affiliate— 546 — — — 
Other investing activities(7)(4)3 — 3 
Total$(164)$517 $54 $(6)$58 

For PPL, the decreaseincrease in expenditures for PP&E was due to lowerhigher project expenditures at WPD and PPL Electric, LKE and LG&E, partially offset by highera decrease in project expenditures at LKE, LG&E and KU. The decreaseincrease in expenditures at WPD was primarily due to a decreasean increase in expenditures to enhance system reliability and a decrease in foreign currency exchange rates.reliability. The decreaseincrease in expenditures at PPL Electric was primarily due to timing differences on capital spending projects related to the ongoing efforts to improve reliability and replace aging infrastructure. The decrease in expenditures at LKE was primarily due to decreased spending for environmental water projects at LG&E and KU's Trimble County plant, LG&E's Mill Creek and Trimble County plantsplant and KU's Ghent plant, partially offset by spending on gas transmission projects at LG&E and spending on various other projects at LG&E and KU that are not individually significant.

(PPL Electric)
Other Significant Changes in Components of Investing Activities
 (PPL Electric)

For PPL Electric, the changeschange in "Notes receivable with affiliates activity, net"from affiliate" resulted from funding in funding2019 of $546 million to affiliatesan affiliate for general corporate purposes.

Financing Activities
 
(All Registrants)
 
The components of the change in cash provided by (used in) financing activities for the nine months ended September 30, 20192020 compared with 20182019 were as follows.
PPL PPL Electric LKE LG&E KU PPLPPL ElectricLKELG&EKU
Change - Cash Provided (Used)         Change - Cash Provided (Used)     
Debt issuance/retirement, net$940
 $(5) $414
 $99
 $315
Debt issuance/retirement, net$(642)$(393)$(982)$(199)$(308)
Debt issuance/retirement with affiliate, net  —
 (250) —
 —
Debt issuance/retirement with affiliate, net— 550 — — 
Proceeds from project financingProceeds from project financing152 — — — — 
Stock issuances/redemptions, net(629) —
 —
 —
 —
Stock issuances/redemptions, net(17)— — — — 
Dividends(47) (5) —
 (17) 29
Dividends(63)(47)— 15 22 
Capital contributions/distributions, net—
 (29) 74
 (18) 23
Capital contributions/distributions, net— (405)(51)28 30 
Issuance of term loanIssuance of term loan300 — — — — 
Change in short-term debt, net(515) —
 (473) (157) (316)Change in short-term debt, net(60)280 370 148 222 
Notes payable with affiliate  —
 161
 —
 —
Notes payable with affiliate— (13)— — 
Other financing activities(4) (1) (9) (5) (4)Other financing activities— 5 5 5 — 
Total$(255) $(40) $(83) $(98) $47
Total$(330)$(560)$(121)$(3)$(34)
 
See Note 8 to the Financial Statements in this Form 10-Q for information on 20192020 short-term and long-term debt activity, equity transactions and PPL dividends. See Note 8 to the Financial Statements in the Registrants' 20182019 Form 10-K for information on 20182019 activity.
 
Credit Facilities
 
The Registrants maintain credit facilities to enhance liquidity, provide credit support and provide a backstop to commercial paper programs. Amounts borrowed under these credit facilities are reflected in "Short-term debt" on the Balance Sheets except for borrowings of $100 million under PPL Capital Funding's term loan agreement due in March 2022, which are reflected in "Long-term Debt" on the Balance Sheets. At September 30, 2019,2020, 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$1,550
 $—
 $996
 $554
PPL Electric Credit Facility650
 —
 1
 649
        
LG&E Credit Facilities500
 —
 99
 401
KU Credit Facilities400
 —
 2
 398
Total LKE900
 —
 101
 799
Total U.S. Credit Facilities (a)$3,100
 $—
 $1,098
 $2,002
Total U.K. Credit Facilities (b)£1,055
 £216
 £—
 £840

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Committed
Capacity		BorrowedLetters of
Credit
and
Commercial
Paper Issued		Unused
Capacity
PPL Capital Funding Credit Facilities$1,900 $400 $— $1,500 
PPL Electric Credit Facility650 — 281 369 
LG&E Credit Facilities500 — 206 294 
KU Credit Facilities400 — 139 261 
Total LKE900 — 345 555 
Total U.S. Credit Facilities (a)$3,450 $400 $626 $2,424 
Total U.K. Credit Facilities (b)£1,055 £332 £— £721 
 
(a)The commitments under the U.S. credit facilities are provided by a diverse bank group, with no one bank and its affiliates providing an aggregate commitment of more than the following percentages of the total committed capacity: PPL - 8%, PPL Electric - 6%, LKE - 7%, LG&E - 7% and KU - 7%.
(b)The amounts borrowed at September 30, 2019 were a USD-denominated borrowing of $200 million and GBP-denominated borrowings of £51 million which equated to $62 million. The unused capacity reflects the USD denominated borrowing amount borrowed in GBP of £164 million as of the date borrowed. At September 30, 2019, the USD equivalent of unused capacity under the U.K. committed credit facilities was $1 billion.
(a)The commitments under the U.S. credit facilities are provided by a diverse bank group, with no one bank and its affiliates providing an aggregate commitment of more than the following percentages of the total committed capacity: PPL - 12%, PPL Electric - 6%, LKE - 7%, LG&E - 7% and KU - 7%.
(b)The amounts borrowed at September 30, 2020 were a USD-denominated borrowing of $200 million and GBP-denominated borrowings of £182 million which equated to $243 million. The unused capacity reflects the amounts borrowed in GBP of £152 million as of the date borrowed. At September 30, 2020, the USD equivalent of unused capacity under the U.K. committed credit facilities was $1 billion.

The commitments under the U.K. credit facilities are provided by a diverse bank group, with no one bank providing more than 13%14% of the total committed capacity.
 
In September 2019, KU terminated its $198 million letter of credit facility in connection with the remarketing of variable rate debt to long-term mode bonds.

See Note 8 to the Financial Statements for further discussion of the Registrants' credit facilities.

Intercompany (LKE, LG&E and KU)


Committed
Capacity		BorrowedNon-affiliate Used
Capacity		Unused
Capacity
LKE Credit Facility$375 $153 $— $222 
LG&E Money Pool (a)750 — 206 544 
KU Money Pool (a)650 — 139 511 
 
Committed
Capacity
 Borrowed 
Non-affiliate Used
Capacity
 
Unused
Capacity
LKE Credit Facility$375
 $129
 $—
 $246
LG&E Money Pool (a)500
 —
 99
 401
KU Money Pool (a)500
 —
 2
 498

(a)LG&E and KU participate in an intercompany money pool agreement whereby LKE and/or KU make available to LG&E funds up to $750 million and LKE and/or LG&E make available to KU funds up to $650 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 at $750 million for LG&E and $650 million for KU from all covered sources.

(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 12 to the Financial Statements for further discussion of intercompany credit facilities.
 
Commercial Paper (All Registrants)
 
PPL, PPL Electric, LG&E and KU maintain commercial paper programs to provide an additional financing source to fund short-term liquidity needs, as necessary. Commercial paper issuances, included in "Short-term debt" on the Balance Sheets, are supported by the respective Registrant's credit facility. The following commercial paper programs were in place at September 30, 2019:2020:
CapacityCommercial
Paper
Issuances		Unused
Capacity
PPL Capital Funding$1,500 $— $1,500 
PPL Electric650 280 370 
LG&E350 206 144 
KU350 139 211 
Total LKE700 345 355 
Total PPL$2,850 $625 $2,225 
 Capacity 
Commercial
Paper
Issuances
 
Unused
Capacity
PPL Capital Funding$1,500
 $981
 $519
PPL Electric650
 —
 650
      
LG&E350
 99
 251
KU350
 2
 348
Total LKE700
 101
 599
Total PPL$2,850
 $1,082
 $1,768

Long-term Debt (All Registrants)

See Note 8 to the Financial Statements for information regarding the Registrants’ long-term debt activities.

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(PPL)

Equity Securities Activities

ATM

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

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component. The compensation paid to the selling agents by PPL may be up to 2% of the gross offering proceeds of the shares. There were no issuances under the ATM program for the three and nine months ended September 30, 2019.2020.

Common Stock Dividends
 
In August 2019,2020, PPL declared a quarterly common stock dividend, payable October 1, 2019,2020, of 41.2541.5 cents per share (equivalent to $1.65$1.66 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.

Rating Agency Actions
 
(All Registrants)
 
Moody's and S&P periodically 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 2019:2020:

(PPL)

In September 2019, Moody'sApril 2020, Moody’s and S&P assigned ratings of Baa1Baa2 and A-BBB+ to WPD (East Midlands) £250 million of 1.75%PPL Capital Funding’s $1 billion 4.125% Senior Notes due 2031.2030. The notes were issued April 1, 2020.

(PPL, LKE and LG&E)

In 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, due 2033, previously issued on behalf of LG&E. The bonds were remarketed April 1, 2019.

In May 2019, Moody's assigned a rating of A1, and in June 2019, S&P assigned a rating of A to the County of Jefferson, Kentucky's $31 million 1.65% Series A Environmental Facilities Revenue Refunding Bonds, due 2033, previously issued on behalf of LG&E. The bonds were remarketed June 1, 2019.

In May 2019, Moody's assigned a rating of A1, and in June 2019, S&P assigned a rating of A to the County of Jefferson, Kentucky's $35 million 1.65% Series B Environmental Facilities Revenue Refunding Bonds, due 2033, previously issued on behalf of LG&E. The bonds were remarketed June 1, 2019.

In September 2019,August 2020, Moody's and S&P assigned ratings of A1 and A to the Louisville/Jefferson County of Jefferson,Metro Government, Kentucky's $40$23 million 1.75%0.90% Pollution Control Revenue Bonds, 20052001 Series A, due 2035,2026, previously issued on behalf of LG&E. The bonds were remarketed September 3, 2020.

(PPL, LKE and KU)

In March 2019, Moody’sAugust 2020, Moody's and S&P assigned a ratingratings of A1 and S&P assigned a rating of A to KU’s $300 million 4.375% First Mortgage Bonds due 2045. The bonds were issued April 1, 2019.

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In August 2019, Moody's assigned a rating of A1, and in September 2019, S&P assigned a rating of AA/A-2 to the County of Carroll,Trimble, Kentucky's $96$125 million 1.55%1.30% Pollution Control Revenue Refunding Bonds, 2016 Series A, (Kentucky Utilities Company Project), due 2042,2044, previously issued on behalf of KU.LG&E. The bonds were remarketed September 3, 2019.2020.

(PPL, LKE and KU)

In August 2019,May 2020, Moody's and S&P assigned a ratingratings of A1 and in September 2019, S&P lowered its rating to A to the following bonds:
County of Carroll, Kentucky���s $50KU's $500 million 1.75% Environmental Facilities Revenue3.30% First Mortgage Bonds 2004 Series A due 2034;
County of Carroll, Kentucky’s $54 million 1.20% Environmental Facilities Revenue Refunding Bonds, 2006 Series B due 2034;
County of Carroll, Kentucky’s $78 million 1.20% Environmental Facilities Revenue Bonds, 2006 Series B due 2032;
County of Mercer, Kentucky’s $13 million 1.30% Solid Waste Disposal Facility Revenue Bonds, 2000 Series A due 2023.
2050. The bonds previouslywere issued on behalfJune 3, 2020.

105

Table of KU, were remarketed September 3, 2019. S&P and Moody’s lowered their ratings as a result of KU's termination of the letters of credit that previously provided credit enhancement for these bonds. See Note 8 to the Financial Statements for additional information.Contents

(PPL and PPL Electric)

In September 2019, Moody’s2020, Moody's and S&P assigned ratings of A1 and A to PPL Electric’s $400Electric's $250 million 3.00% First Mortgage Bonds, Floating Rate Series, due 2049.2023. The bonds were issued October 1, 2020.

In September 2020, Moody's and S&P assigned ratings of A1 and A to PEDFA's $90 million Pollution Control Revenue Refunding Bonds, Series 2008, due 2023, previously issued on behalf of PPL Electric. The bonds were remarketed October 1, 2020.

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 15 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, 2019.2020.
 
(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' 20182019 Form 10-K.

Risk Management
 
Market Risk
 
(All Registrants)
 
See Notes 14 and 15 to the Financial Statements for information about the Registrants' risk management objectives, valuation techniques and accounting designations.
 
The forward-looking information presented below provides estimates of what may occur in the future, assuming certain adverse market conditions and model assumptions. Actual future results may differ materially from those presented. These are not precise indicators of expected future losses, but are rather only indicators of possible losses under normal market conditions at a given confidence level.
 
Interest Rate Risk
 
The Registrants and their subsidiaries issue debt to finance their operations, which exposes them to interest rate risk. The Registrants and their subsidiaries utilize various financial derivative instruments to adjust the mix of fixed and floating interest rates in their debt portfolios, adjust the duration of their debt portfolios and lock in benchmark interest rates in anticipation of future financing, when appropriate. Risk limits under the risk management program are designed to balance risk exposure to volatility in interest expense and changes in the fair value of the debt portfolios due to changes in the absolute level of interest

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rates. In addition, the interest rate risk of certain subsidiaries is potentially mitigated as a result of the existing regulatory framework or the timing of rate cases.

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The following interest rate hedges were outstanding at September 30, 2019.2020.
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 
  
  
  PPL    
Cash flow hedges       Cash flow hedges    
Interest rate swaps (c)Interest rate swaps (c)$168 $(7)$(1)2035
Cross-currency swaps (c)$702
 $198
 $(69) 2028Cross-currency swaps (c)702 149 (70)2028
Economic hedges       Economic hedges    
Interest rate swaps (d)147
 (25) (1) 2033Interest rate swaps (d)147 (26)— 2033
LKE       LKE    
Economic hedges 
  
  
  Economic hedges    
Interest rate swaps (d)147
 (25) (1) 2033Interest rate swaps (d)147 (26)— 2033
LG&E 
  
  
  LG&E    
Economic hedges 
  
  
  Economic hedges    
Interest rate swaps (d)147
 (25) (1) 2033Interest rate swaps (d)147 (26)— 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.
(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, 20192020 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, 20192020 is shown below.
 
10% Adverse
Movement
in Rates
PPL$641
PPL Electric198
LKE198
LG&E85
KU104
10% Adverse
Movement
in Rates
PPL$611 
PPL Electric180 
LKE205 
LG&E77 
KU122 
 
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 mayis permitted to enter into financial instruments to hedge certain foreign currency exposures, including translation risk of expected earnings, firm commitments, recognized assets or liabilities, anticipated transactions, including the previously announced potential sale of its U.K. utility business, and net investments.
 
The following foreign currency hedges were outstanding at September 30, 2019.2020.
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)£340 $41 $(30)2021
(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.

107
 
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)£1,004
 $220
 $(105) 2020


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(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.

•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.

•
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
 
Volumetric risk is the risk related to the changes in volume of retail sales due to weather, economic conditions or other factors. PPL is exposed to volumetric risk through its subsidiaries as described below.
 
•
WPD is exposed to volumetric risk which is significantly mitigated as a result of the method of regulation in the U.K. Under the RIIO-ED1 price control regulations, recovery of such exposure occurs on a two year lag. See Note 1 in PPL's 2018
•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 2019 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.

•
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 14 and 15 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' 20182019 Form 10-K for additional information.
 
Foreign Currency Translation (PPL)
 
The value of the British pound sterling fluctuates in relation to the U.S. dollar. Changes in this exchange rate resulted in a foreign currency translation gain of $292 million for the nine months ended September 30, 2020, which primarily reflected a $477 million increase to PP&E, an $85 million increase to goodwill, a $46 million increase to other net assets, partially offset by a $229 million increase to long-term debt, a $48 million increase to long term debt due within one year, and a $39 million increase to deferred income taxes. Changes in this exchange rate resulted in a foreign currency translation loss of $369 million for the nine months ended September 30, 2019, which primarily reflected a $599 million decrease to PP&E, a $114 million decrease to goodwill and a $16 million decrease to other net assets, partially offset by a $360 million decrease to long-term debt. Changes in this exchange rate resulted in a foreign currency translation loss of $330 million for the nine months ended September 30, 2018, which primarily reflected a $549 million decrease to PP&E and a $110 million decrease to goodwill, partially offset by a $319 million decrease to long-term debt and a $10 million decrease to other net liabilities. The impact of foreign currency translation is recorded in AOCI.
 
Related Party Transactions (All Registrants)
 
The Registrants are not aware of any material ownership interests or operating responsibility by senior management in outside partnerships, including leasing transactions with variable interest entities, or other entities doing business with the Registrants. See Note 12 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 9 to the Financial Statements for information on significant activities.


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Capacity Needs(PPL, LKE, LG&E and KU)s

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 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 costcosts 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 costcosts 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"Environmental Matters" in Item 1. "Business" in the Registrants' 2019 Form 10-K for further discussion ofinformation about environmental laws and regulations affecting the EPA's CCR Rule andRegistrants' business. See "Legal Matters" in Note 11 to the Financial Statements for a discussion of other significant environmental matters including Legalclaims. See "Financial Condition - Liquidity and Capital Resources - Forecasted Uses of Cash - Capital Expenditures" in "Item 7. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Registrants' 2019 Form 10-K for information on projected environmental capital expenditures for 2020 through 2024. See Note 16 to the Financial Statements for information related to the impacts of CCRs on AROs.

(PPL, LKE, LG&E and KU)

The information below represents an update to “Item 1. Business – Environmental Matters NAAQS, Climate Change,– Air – NAAQS” and ELGs. Additionally, see "Item 1. Business - Environmental Matters"Matters - Water/Waste - Clean Water Act Jurisdiction" in the Registrants' 20182019 Form 10-K10-K.

NAAQS

In October 2020, the EPA released proposed revisions to the Cross-State Air Pollution Rule (CSAPR) providing for additional information.

EPA’s CCR Rule (reductions in ozone season nitrogen oxide emissions for 2021 and subsequent years from sources in 12 states, including Kentucky. PPL, LKE, LG&E and KU)

OverKU are unable to determine the next several years,impact of the rule on operations until the rule is finalized, and certain implementation determinations are made by the EPA and Kentucky.Compliance with the NAAQS, CSAPR and related requirements may require installation of additional pollution controls or other compliance actions, the costs of which PPL, LKE, LG&E and KU anticipate undertaking extensive measures, including significant capital expenditures,believe would be subject to complyrate recovery.

Clean Water Act Jurisdiction

Environmental groups and others have claimed that discharges to groundwater from leaking CCR impoundments at power plants are subject to Clean Water Act permitting. A citizen suit raising such claims has been filed against KU with respect to the provisionsE.W. Brown plant, as discussed under “Legal Matters” - “E.W. Brown Environmental Claims” in Note 10 to the Financial Statements. On April 12, 2019, the EPA released regulatory clarification finding that Clean Water Act jurisdiction does not cover such discharges to groundwater. On January 23, 2020, the EPA announced a final rule modifying the jurisdictional scope of the EPA's CCR Rule. Although LG&E and KU have identified compliance strategies and are finalizing closure plans and schedules as required byClean Water Act. The announced rule revises the CCR Rule, remaining regulatory uncertainties could substantially impact current plans. Asdefinition of the "Waters of the United States," including a revision to exclude groundwater from the definition. In April 2020, the U.S. Supreme Court issued a ruling that Clean Water Act jurisdiction may apply to certain discharges to groundwater that result in the functional equivalent of a judicial settlement, legislative amendments, and the EPA's review of the current program, the EPA is in the process of undertaking significant revisionsdirect discharge to the CCR Rule. In July 2018, the EPA published certain amendments to the CCR Rule which include extending the deadline for commencement of closure of certain impoundments to October 2020. The EPA released additional proposed amendments to the rule on November 4, 2019, with further proposed amendments expected in the future. In August 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 provisions exempting certain inactive impoundments from regulation. The exact impact of the judicial decision will be highly dependent on the EPA's rulemaking actions on remand and any subsequent legal challenges.navigable waters. PPL, LKE, LG&E, and KU are evaluatingunaware of any unpermitted releases from their facilities that are subject to Clean Water Act jurisdiction, but future guidance from the specific plan impacts of developmentsEPA and judicial rulings could potentially subject certain releases from CCR impoundments and landfills to dateadditional permitting and will continueremediation requirements, which could impose substantial costs. If any, associated costs are expected to monitor the EPA's ongoing regulatory proceedings.

In connection with the final CCR Rule,be subject to rate recovery. PPL, LKE, LG&E and KU recorded adjustmentsare unable to existing AROs beginning in 2015 and continue to record adjustments as required. See Note 16 in this Form 10-Q and Note 19 topredict the Financial Statements in the Registrants’ 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 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 resultoutcome or financial impact of ongoingfuture regulatory proceedings or other 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 basis, LG&E and KU will update their cost estimates and record any changes as necessary to their ARO liability, which could be material. These costs are subject to rate recovery.litigation.

New Accounting Guidance (All Registrants)
 
See NotesNote 2 and 18 to the Financial Statements for a discussion of new accounting guidance adopted and pending adoption.adopted.
 
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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' 20182019 Form 10-K for a discussion of each critical accounting policy.
PPL
PPLElectricLKELG&EKU
Defined BenefitsXXXXX
Income TaxesXXXXX
Regulatory Assets and LiabilitiesXXXXX
Price Risk ManagementX
Goodwill ImpairmentXXXX
AROsXXXX
Revenue Recognition - Unbilled RevenueXXX


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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

Although the COVID-19 pandemic prompted the Registrants to make certain procedural adjustments to accommodate an increased remote workforce, PPL’s accounting and reporting systems and functions were well prepared to perform necessary accounting and reporting activities as of September 30, 2020 and to maintain the effectiveness of its disclosure controls and procedures and internal control over financial reporting.

(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, 2019,2020, 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 controls over financial reporting during the Registrants' third 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 quarter of 20192020 see:
 
•"Item 3. Legal Proceedings" in each Registrant's 20182019 Form 10-K; and
•Notes 6, 7 and 11 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' 20182019 Form 10-K.10-K, except for the following:

The COVID-19 pandemic and resultant impact on business and economic conditions could negatively affect our business.

The COVID-19 pandemic has disrupted the U.S. and global economies and continues to present extraordinary challenges to businesses, communities, workforces and markets. In the U.S. and throughout the world, governmental authorities have taken urgent and extensive actions to contain the spread of the virus and mitigate known or foreseeable impacts. In the Registrants’ service territories, mitigation measures have included quarantines, stay-at-home orders, travel restrictions, reduced operations or
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closures of businesses, schools and governmental agencies, and executive, legislative or regulatory actions to address health or other pandemic-related concerns.

Until COVID-19 is contained or an effective vaccine is identified and widely-available, the COVID-19 virus poses significant risks to the health and welfare of the Registrants’ customers, employees, contractors and suppliers, and to the conduct of their business. Mandates to stay at home, shelter in place, or quarantine and resulting lock-down or closures of non-essential businesses could reduce demand for electricity and gas, or cause shifts in demand between residential, commercial and industrial customers that could negatively impact the Registrants’ financial condition. Customers experiencing financial strain from unemployment, furloughs, or reduced work hours may not be able to pay their bills on a timely basis, which could negatively impact our liquidity. Continued economic disruption may further depress the GBP to U.S. dollar exchange rate and increase PPL's foreign exchange exposure. New or changing legislation or regulatory orders may unfavorably impact the Registrants or the utility industry generally.

All of these factors have the potential to materially and adversely affect the Registrants’ business and operations, especially if they remain in effect for a prolonged period of time. At this time, the Registrants’ cannot predict the extent to which these or other pandemic-related factors may affect their business, earnings or other financial results, as it depends on the duration and scope of the outbreak, the measures undertaken in response and other future developments, all of which are highly uncertain. In addition to the factors discussed above, investors should be aware that other COVID-19-related risks may emerge in the future and may prove to be significant. Investors should carefully consider the discussion of COVID-19 related items presented in this Quarterly Report and the risks presented in the Registrants’ Annual Report on Form 10-K for 2019, especially to the extent that the COVID-19 pandemic may exacerbate or increase those risks.

Item 4. Mine Safety Disclosures

Not applicable.


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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)-23 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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-Final Terms, dated SeptemberOctober 5, 2019,2020, of Western Power Distribution (East Midlands)(South Wales) plc £250,000,000 1.625 per cent Fixed Rate Notes due 20312035 under the £4,000,000,000 Euro Medium Term Note Programme (Exhibit 1.1. to PPL Corporation Form 8-K Report (File No. 1-11459) dated October 8, 2020)
-Supplemental Indenture No. 21,22, dated as of September 15, 2020, to Indenture, dated as of August 1, 2019, of2000, among PPL Electric Utilities Corporation to Theand the Bank of New York Mellon, as Trustee (Exhibit 4(a) to PPL Corporation Form 8-K Report (File No. 1-11459) dated September 6, 2019)October 1, 2020)
-Subscription Agreement, dated October 5, 2020, by and among Western Power Distribution (South Wales) plc as Issuer, Barclays Bank plc, Lloyds Bank Corporate Markets plc, MUFG Securities EMEA plc, Natwest Markets plc as Joint Lead Managers (Exhibit 4.1 to PPL Corporation Form 8-K Report (File No. 1-11459) dated October 8, 2020)
-Amended and Restated Trust Deed, dated August 21, 2020, 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 (Exhibit 4.2 to PPL Corporation Form 8-K Report (File No. 1-11459) dated October 8, 2020)
-£4,000,000,000 Euro Medium Term Note Programme entered into by Western Power Distribution (East Midlands) plc, Western Power Distribution (South Wales) plc, Western Power Distribution (South West) plc and Western Power Distribution (West Midlands) plc dated as of August 21, 2020 (Exhibit 4.3 to PPL Corporation Form 8-K Report (File No. 1-11459) dated October 8, 2020
Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, for the quarterly period ended September 30, 2019,2020, filed by the following officers for the following companies:
-PPL Corporation's principal executive officer
-PPL Corporation's principal financial officer
-PPL Electric Utilities Corporation's principal executive officer
-PPL Electric Utilities Corporation's principal financial officer
-LG&E and KU Energy LLC's principal executive officer
-LG&E and KU Energy LLC's principal financial officer
-Louisville Gas and Electric Company's principal executive officer
-Louisville Gas and Electric Company's principal financial officer
-Kentucky Utilities Company's principal executive officer
-Kentucky Utilities Company's principal financial officer
Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, for the quarterly period ended September 30, 2019,2020, furnished by the following officers for the following companies:
-PPL Corporation's principal executive officer and principal financial officer
-PPL Electric Utilities Corporation's principal executive officer and principal financial officer
-LG&E and KU Energy LLC's principal executive officer and principal financial officer
-Louisville Gas and Electric Company's principal executive officer and principal financial officer
-Kentucky Utilities Company's principal executive officer and principal financial officer
101.INS-XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL 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
104-The Cover Page Interactive Data File is formatted as Inline XBRL and contained in Exhibits 101.
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SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized. The signature for each undersigned company shall be deemed to relate only to matters having reference to such company or its subsidiaries.
 
PPL Corporation
(Registrant)
Date:November 5, 2020/s/  Marlene C. Beers
Marlene C. Beers
Vice President and Controller
(Principal Accounting Officer)
PPL Electric Utilities Corporation
(Registrant)
Date:November 5, 2020/s/  Stephen K. Breininger
Stephen K. Breininger
Vice President-Finance and Regulatory Affairs and Controller
(Principal Financial Officer and Principal Accounting Officer)
PPL Corporation
(Registrant)LG&E and KU Energy LLC
(Registrant)
Louisville Gas and Electric Company
Date:(Registrant)
Kentucky Utilities Company
(Registrant)
Date:November 5, 20192020/s/  Marlene C. BeersKent W. Blake
Marlene C. Beers
Vice President and Controller
Kent W. Blake
Chief Financial Officer
(Principal Accounting Officer)
PPL Electric Utilities Corporation
(Registrant)
Date:November 5, 2019/s/  Stephen K. Breininger
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 5, 2019/s/  Kent W. Blake
Kent W. Blake
Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)







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