Loading...
Docoh

LG&E & KU Energy (PPL)

Filed: 10 Aug 20, 1:17pm
false0000922224--12-31Large Accelerated Filerfalsefalse2020Q2false0000317187Non-accelerated Filerfalsefalsefalse0001518339Non-accelerated Filerfalsefalsefalse0000060549Non-accelerated Filerfalsefalsefalse0000055387Non-accelerated FilerfalsefalseKYVA12111111P03YP03YP10YP10Y0000922224us-gaap:ForeignExchangeContractMemberppl:CurrentAssetsMemberus-gaap:NondesignatedMember2019-12-31
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended June 30, 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
(Exact name of Registrant as specified in its charter)
Pennsylvania
Two North Ninth Street
Allentown, PA 18101-1179
(610) 774-5151
23-2758192
1-905
PPL Electric Utilities Corporation
(Exact name of Registrant as specified in its charter)
Pennsylvania
Two North Ninth Street
Allentown, PA 18101-1179
(610) 774-5151
23-0959590
333-173665
LG&E and KU Energy LLC
(Exact name of Registrant as specified in its charter)
Kentucky
220 West Main Street
Louisville, KY 40202-1377
(502) 627-2000
20-0523163
1-2893
Louisville Gas and Electric Company
(Exact name of Registrant as specified in its charter)
Kentucky
220 West Main Street
Louisville, KY 40202-1377
(502) 627-2000
61-0264150
1-3464
Kentucky Utilities Company
(Exact name of Registrant as specified in its charter)
(Kentucky and Virginia)
One Quality Street
Lexington, KY 40507-1462
(502) 627-2000
61-0247570



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 CorporationYesNo 
PPL Electric Utilities CorporationYesNo 
LG&E and KU Energy LLCYesNo 
Louisville Gas and Electric CompanyYesNo 
Kentucky Utilities CompanyYesNo 
 
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 CorporationYesNo 
PPL Electric Utilities CorporationYesNo 
LG&E and KU Energy LLCYesNo 
Louisville Gas and Electric CompanyYesNo 
Kentucky Utilities CompanyYesNo 
 
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 CorporationYesNo 
PPL Electric Utilities CorporationYesNo 
LG&E and KU Energy LLCYesNo 
Louisville Gas and Electric CompanyYesNo 
Kentucky Utilities CompanyYesNo 
 


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

PPL Corporation Common stock, $0.01 par value, 768,783,540 shares outstanding at July 31, 2020.
PPL Electric Utilities Corporation Common stock, no par value, 66,368,056 shares outstanding and all held by PPL Corporation at July 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 July 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 July 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.


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 June 30, 2020
 
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
PART I.  FINANCIAL INFORMATION 
 Item 1.  Financial Statements 
  PPL Corporation and Subsidiaries 
   
   
   
   
   
  PPL Electric Utilities Corporation and Subsidiaries 
   
   
   
   
  LG&E and KU Energy LLC and Subsidiaries 
   
   
   
   
  Louisville Gas and Electric Company 
   
   
   
   
  Kentucky Utilities Company 
   
   
   
   


 Combined Notes to Condensed Financial Statements (Unaudited) 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 Item 2.  Combined Management's Discussion and Analysis of Financial Condition and Results of Operations 
  
   
   
   
  
   
   
   
   
   
  
   
   
   
   
   
   
  
  
 
 
PART II.  OTHER INFORMATION 
 
 
 
 
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


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

 
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.

2019 Form 10-K - Annual Report to the SEC on Form 10-K for the year ended December 31, 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).

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.
 
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.

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.

ii

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.

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.

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.

MW - megawatt, one thousand kilowatts.
 
NERC - North American Electric Reliability Corporation.

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.
iii


OCI - other comprehensive income or loss.
 
Ofgem - Office of Gas and Electricity Markets, the British agency that regulates transmission, distribution and wholesale sales of electricity and gas and related matters.
 
OVEC - Ohio Valley Electric Corporation, located in Piketon, Ohio, an entity in which LKE indirectly owns an 8.13% interest (consists of LG&E's 5.63% and KU's 2.50% interests), which is 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.

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

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

RPI - retail price index, is a measure of inflation in the United Kingdom published monthly by the Office for National Statistics.
 
Sarbanes-Oxley - Sarbanes-Oxley Act of 2002, which sets requirements for management's assessment of internal controls for financial reporting. It also requires an independent auditor to make its own assessment.
iv


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.
 
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 to the spinoff of PPL Energy Supply.

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

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

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.
v

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 2019 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 withdrawal from the European Union and any responses thereto;
the amount of WPD's pension deficit funding recovered in revenues after March 31, 2021, following the triennial pension review which began in March 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 their 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;
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;
1

development of new projects, markets and technologies;
performance of new ventures;
collective labor bargaining negotiations; and
the outcome of litigation involving the Registrants and their subsidiaries.

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

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

2

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 June 30,Six Months Ended June 30,
 2020201920202019
Operating Revenues$1,739  $1,803  $3,793  $3,882  
Operating Expenses  
Operation  
Fuel138  168  301  362  
Energy purchases133  138  334  388  
Other operation and maintenance487  482  963  972  
Depreciation319  300  636  584  
Taxes, other than income67  75  147  155  
Total Operating Expenses1,144  1,163  2,381  2,461  
Operating Income595  640  1,412  1,421  
Other Income (Expense) - net76  131  201  183  
Interest Expense253  246  501  487  
Income Before Income Taxes418  525  1,112  1,117  
Income Taxes74  84  214  210  
Net Income$344  $441  $898  $907  
Earnings Per Share of Common Stock:
Net Income Available to PPL Common Shareowners:    
Basic$0.45  $0.61  $1.17  $1.26  
Diluted$0.45  $0.60  $1.17  $1.24  
Weighted-Average Shares of Common Stock Outstanding
(in thousands)
    
Basic768,768  721,785  768,358  721,406  
Diluted769,408  730,915  769,073  730,436  
 
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
3

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
PPL Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)
 Three Months Ended June 30,Six Months Ended June 30,
 2020201920202019
Net income$344  $441  $898  $907  
Other comprehensive income (loss):  
Amounts arising during the period - gains (losses), net of tax (expense) benefit:  
Foreign currency translation adjustments, net of tax of $1, $0, $1, $0(291) (377) (352) (83) 
Qualifying derivatives, net of tax of ($6), ($8), ($8), ($4)28  35  36  16  
Defined benefit plans: 
Net actuarial gain (loss), net of tax of $1, $1, $1, $2(1) (2) (1) (5) 
Reclassifications from AOCI - (gains) losses, net of tax expense (benefit):  
Qualifying derivatives, net of tax of $4, $6, $4, $0(20) (27) (23) (3) 
Defined benefit plans:  
Prior service costs, net of tax of $0, $0, $0, $0    
Net actuarial (gain) loss, net of tax of ($11), ($6), ($23), ($11)47  21  94  42  
Total other comprehensive income (loss)(236) (349) (244) (32) 
Comprehensive income$108  $92  $654  $875  
 
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.

4

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
PPL Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)
 Six Months Ended June 30,
 20202019
Cash Flows from Operating Activities  
Net income$898  $907  
Adjustments to reconcile net income to net cash provided by operating activities  
Depreciation636  584  
Amortization29  31  
Defined benefit plans - (income) expense(105) (135) 
Deferred income taxes and investment tax credits169  154  
Unrealized (gains) losses on derivatives, and other hedging activities25  22  
Stock-based compensation expense12  19  
Other (7) 
Change in current assets and current liabilities  
Accounts receivable10  22  
Accounts payable(98) (102) 
Unbilled revenues107  70  
Fuel, materials and supplies 19  
Prepayments(75) (79) 
Regulatory assets and liabilities, net(47) (72) 
Accrued interest(55) (63) 
Other current liabilities(37) (85) 
Other(7) 11  
Other operating activities
Defined benefit plans - funding(193) (207) 
Other assets27  11  
Other liabilities(5) (30) 
Net cash provided by operating activities1,299  1,070  
Cash Flows from Investing Activities  
Expenditures for property, plant and equipment(1,576) (1,474) 
Purchase of investments—  (55) 
Proceeds from the sale of investments 61  
Other investing activities(6) (11) 
Net cash used in investing activities(1,573) (1,479) 
Cash Flows from Financing Activities  
Issuance of long-term debt1,598  769  
Retirement of long-term debt—  (200) 
Proceeds from project financing96  —  
Issuance of common stock33  35  
Payment of common stock dividends(636) (594) 
Issuance of term loan300  —  
Net increase (decrease) in short-term debt(619) 206  
Other financing activities(27) (18) 
Net cash provided by financing activities745  198  
Effect of Exchange Rates on Cash, Cash Equivalents and Restricted Cash(6) (4) 
Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash465  (215) 
Cash, Cash Equivalents and Restricted Cash at Beginning of Period836  643  
Cash, Cash Equivalents and Restricted Cash at End of Period$1,301  $428  
Supplemental Disclosures of Cash Flow Information
Significant non-cash transactions:
Accrued expenditures for property, plant and equipment at June 30,$291  $278  
Accrued expenditures for intangible assets at June 30,$81  $59  

The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
5

CONDENSED CONSOLIDATED BALANCE SHEETS
PPL Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars, shares in thousands)
 June 30,
2020
December 31,
2019
Assets  
Current Assets  
Cash and cash equivalents$1,278  $815  
Accounts receivable (less reserve: 2020, $66; 2019, $58)  
Customer665  687  
Other106  105  
Unbilled revenues (less reserve: 2020, $2; 2019, $0)388  504  
Fuel, materials and supplies333  332  
Prepayments153  79  
Price risk management assets234  147  
Other current assets111  98  
Total Current Assets3,268  2,767  
Property, Plant and Equipment  
Regulated utility plant43,226  42,709  
Less:  accumulated depreciation - regulated utility plant8,261  8,055  
Regulated utility plant, net34,965  34,654  
Non-regulated property, plant and equipment452  357  
Less:  accumulated depreciation - non-regulated property, plant and equipment88  109  
Non-regulated property, plant and equipment, net364  248  
Construction work in progress1,456  1,580  
Property, Plant and Equipment, net36,785  36,482  
Other Noncurrent Assets  
Regulatory assets1,472  1,492  
Goodwill3,086  3,198  
Other intangibles730  742  
Pension benefit asset740  464  
Price risk management assets75  149  
Other noncurrent assets364  386  
Total Other Noncurrent Assets6,467  6,431  
Total Assets$46,520  $45,680  
 
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.

6

CONDENSED CONSOLIDATED BALANCE SHEETS
PPL Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars, shares in thousands)
 June 30,
2020
December 31,
2019
Liabilities and Equity  
Current Liabilities  
Short-term debt$828  $1,151  
Long-term debt due within one year2,058  1,172  
Accounts payable804  956  
Taxes76  99  
Interest232  294  
Dividends319  317  
Customer deposits267  261  
Regulatory liabilities86  115  
Other current liabilities498  535  
Total Current Liabilities5,168  4,900  
Long-term Debt21,098  20,721  
Deferred Credits and Other Noncurrent Liabilities  
Deferred income taxes3,279  3,088  
Investment tax credits123  124  
Accrued pension obligations491  587  
Asset retirement obligations219  212  
Regulatory liabilities2,539  2,572  
Other deferred credits and noncurrent liabilities559  485  
Total Deferred Credits and Other Noncurrent Liabilities7,210  7,068  
Commitments and Contingent Liabilities (Notes 7 and 10)
Equity  
Common stock - $0.01 par value (a)  
Additional paid-in capital12,255  12,214  
Earnings reinvested5,383  5,127  
Accumulated other comprehensive loss(4,602) (4,358) 
Total Equity13,044  12,991  
Total Liabilities and Equity$46,520  $45,680  
 
(a)1,560,000 shares authorized; 768,783 and 767,233 shares issued and outstanding at June 30, 2020 and December 31, 2019.

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

7

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
March 31, 2020768,266  $ $12,239  $5,360  $(4,366) $13,241  
Common stock issued517  13  13  
Stock-based compensation  
Net income344  344  
Dividends and dividend equivalents (b)(321) (321) 
Other comprehensive income (loss)(236) (236) 
June 30, 2020768,783  $ $12,255  $5,383  $(4,602) $13,044  
December 31, 2019767,233  $ $12,214  $5,127  $(4,358) $12,991  
Common stock issued1,550  47  47  
Stock-based compensation(6) (6) 
Net income898  898  
Dividends and dividend equivalents (b)(640) (640) 
Other comprehensive income (loss)(244) (244) 
Adoption of financial instrument credit losses guidance cumulative effect adjustment (Note 2), net of tax of $0(2) (2) 
June 30, 2020768,783  $ $12,255  $5,383  $(4,602) $13,044  
March 31, 2019721,371  $ $11,051  $4,761  $(3,647) $12,172  
Common stock issued469  15  15  
Stock-based compensation  
Net income441  441  
Dividends and dividend equivalents (b)(299) (299) 
Other comprehensive income (loss)(349) (349) 
June 30, 2019721,840  $ $11,069  $4,903  $(3,996) $11,983  
December 31, 2018720,323  $ $11,021  $4,593  $(3,964) $11,657  
Common stock issued1,517   47    47  
Stock-based compensation      
Net income   907   907  
Dividends and dividend equivalents (b)   (597)  (597) 
Other comprehensive income (loss)    (32) (32) 
June 30, 2019721,840  $ $11,069  $4,903  $(3,996) $11,983  
 
(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 $0.4150 and $0.8300 for the three and six months ended June 30, 2020 and $0.4125 and $0.8250 for the three and six months ended June 30, 2019.

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

8

THIS PAGE INTENTIONALLY LEFT BLANK.
9

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
PPL Electric Utilities Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)
 Three Months Ended June 30,Six Months Ended June 30,
 2020201920202019
Operating Revenues$554  $521  $1,162  $1,166  
Operating Expenses  
Operation  
Energy purchases111  110  255  281  
Other operation and maintenance129  130  266  280  
Depreciation101  96  199  191  
Taxes, other than income18  24  48  55  
Total Operating Expenses359  360  768  807  
Operating Income195  161  394  359  
Other Income (Expense) - net   11  
Interest Income from Affiliate—  —    
Interest Expense42  41  86  83  
Income Before Income Taxes158  126  317  289  
Income Taxes40  32  81  74  
Net Income (a)$118  $94  $236  $215  
 
(a)Net income equals comprehensive income.

The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
10

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
PPL Electric Utilities Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)
 Six Months Ended June 30,
 20202019
Cash Flows from Operating Activities  
Net income$236  $215  
Adjustments to reconcile net income to net cash provided by operating activities  
Depreciation199  191  
Amortization13  11  
Deferred income taxes and investment tax credits61  36  
Other (9) 
Change in current assets and current liabilities  
Accounts receivable(19)  
Accounts payable(37) (39) 
Unbilled revenues44  31  
Materials and supplies(15) (1) 
Prepayments(59) (64) 
Regulatory assets and liabilities, net(32) (40) 
Taxes payable(11) (4) 
Other(10) (6) 
Other operating activities  
Defined benefit plans - funding(21) (21) 
Other assets  
Other liabilities  
Net cash provided by operating activities360  314  
Cash Flows from Investing Activities  
Expenditures for property, plant and equipment(556) (533) 
Other investing activities(2)  
Net cash used in investing activities(558) (530) 
Cash Flows from Financing Activities  
Contributions from parent255  —  
Return of capital to parent(260) —  
Payment of common stock dividends to parent(246) (215) 
Net increase in short-term debt200  185  
Other financing activities—  (1) 
Net cash used in financing activities(51) (31) 
Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash(249) (247) 
Cash, Cash Equivalents and Restricted Cash at Beginning of Period264  269  
Cash, Cash Equivalents and Restricted Cash at End of Period$15  $22  
Supplemental Disclosure of Cash Flow Information
Significant non-cash transactions:
Accrued expenditures for property, plant and equipment at June 30,$158  $158  

The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
11

CONDENSED CONSOLIDATED BALANCE SHEETS
PPL Electric Utilities Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars, shares in thousands)
 June 30,
2020
December 31,
2019
Assets  
Current Assets  
Cash and cash equivalents$13  $262  
Accounts receivable (less reserve: 2020, $35; 2019, $28)  
Customer279  258  
Other21  22  
Accounts receivable from affiliates10  11  
Unbilled revenues (less reserve: 2020, $1; 2019, $0)90  134  
Materials and supplies56  33  
Prepayments65   
Regulatory assets31  26  
Other current assets12   
Total Current Assets577  761  
Property, Plant and Equipment  
Regulated utility plant13,029  12,589  
Less: accumulated depreciation - regulated utility plant3,207  3,078  
Regulated utility plant, net9,822  9,511  
Construction work in progress597  597  
Property, Plant and Equipment, net10,419  10,108  
Other Noncurrent Assets  
Regulatory assets706  726  
Intangibles264  263  
Other noncurrent assets54  43  
Total Other Noncurrent Assets1,024  1,032  
Total Assets$12,020  $11,901  
 
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
12

CONDENSED CONSOLIDATED BALANCE SHEETS
PPL Electric Utilities Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars, shares in thousands)
 June 30,
2020
December 31,
2019
Liabilities and Equity  
Current Liabilities  
Short-term debt$200  $—  
Accounts payable370  438  
Accounts payable to affiliates41  32  
Taxes 13  
Interest40  41  
Regulatory liabilities72  96  
Other current liabilities87  93  
Total Current Liabilities812  713  
Long-term Debt3,986  3,985  
Deferred Credits and Other Noncurrent Liabilities  
Deferred income taxes1,524  1,447  
Accrued pension obligations148  179  
Regulatory liabilities586  599  
Other deferred credits and noncurrent liabilities147  146  
Total Deferred Credits and Other Noncurrent Liabilities2,405  2,371  
Commitments and Contingent Liabilities (Notes 7 and 10)
Equity  
Common stock - 0 par value (a)364  364  
Additional paid-in capital3,553  3,558  
Earnings reinvested900  910  
Total Equity4,817  4,832  
Total Liabilities and Equity$12,020  $11,901  
 
(a)170,000 shares authorized; 66,368 shares issued and outstanding at June 30, 2020 and December 31, 2019.

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

13

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
March 31, 202066,368  $364  $3,558  $863  $4,785  
Net income118  118  
Capital contributions from parent255  255  
Return of capital to parent(260) (260) 
Dividends declared on common stock(81) (81) 
June 30, 202066,368  $364  $3,553  $900  $4,817  
December 31, 201966,368  $364  $3,558  $910  $4,832  
Net income236  236  
Capital contributions from parent255  255  
Return of capital to parent(260) (260) 
Dividends declared on common stock(246) (246) 
June 30, 202066,368  $364  $3,553  $900  $4,817  
March 31, 201966,368  $364  $3,158  $940  $4,462  
Net income94  94  
Dividends declared on common stock(95) (95) 
June 30, 201966,368  $364  $3,158  $939  $4,461  
December 31, 201866,368  $364  $3,158  $939  $4,461  
Net income215  215  
Dividends declared on common stock(215) (215) 
June 30, 201966,368  $364  $3,158  $939  $4,461  
 
(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.
14

THIS PAGE INTENTIONALLY LEFT BLANK.


15

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
LG&E and KU Energy LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)
 Three Months Ended June 30,Six Months Ended June 30,
 2020201920202019
Operating Revenues$700  $732  $1,525  $1,577  
Operating Expenses    
Operation    
Fuel138  168  301  362  
Energy purchases22  27  79  106  
Other operation and maintenance207  208  411  422  
Depreciation151  135  300  258  
Taxes, other than income18  18  36  36  
Total Operating Expenses536  556  1,127  1,184  
Operating Income164  176  398  393  
Other Income (Expense) - net —   —  
Interest Expense58  58  116  112  
Interest Expense with Affiliate  15  16  
Income Before Income Taxes100  109  269  265  
Income Taxes17   51  35  
Net Income (a)$83  $106  $218  $230  
 
(a)Net income approximates comprehensive income.

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

16

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
LG&E and KU Energy LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)
 Six Months Ended June 30,
 20202019
Cash Flows from Operating Activities  
Net income$218  $230  
Adjustments to reconcile net income to net cash provided by operating activities  
Depreciation300  258  
Amortization10  16  
Defined benefit plans - expense  
Deferred income taxes and investment tax credits38  47  
Other(1) (1) 
Change in current assets and current liabilities  
Accounts receivable33  24  
Accounts payable(36) (34) 
Accounts payable to affiliates(2) —  
Unbilled revenues15  13  
Fuel, materials and supplies24  21  
Regulatory assets and liabilities, net(15) (32) 
Taxes payable16  (25) 
Accrued interest  
Other(30) (23) 
Other operating activities  
Defined benefit plans - funding(24) (28) 
Expenditures for asset retirement obligations(31) (45) 
Other assets(2) (1) 
Other liabilities13  13  
Net cash provided by operating activities534  445  
Cash Flows from Investing Activities  
Expenditures for property, plant and equipment(479) (530) 
Other investing activities —  
Net cash used in investing activities(476) (530) 
Cash Flows from Financing Activities  
Net increase in notes payable with affiliate102  90  
Issuance of long-term debt498  705  
Retirement of long-term debt—  (200) 
Net decrease in short-term debt(388) (418) 
Distributions to member(140) (137) 
Contributions from member—  63  
Other financing activities(5) (10) 
Net cash provided by financing activities67  93  
Net Increase in Cash and Cash Equivalents125   
Cash and Cash Equivalents at Beginning of Period27  24  
Cash and Cash Equivalents at End of Period$152  $32  
Supplemental Disclosure of Cash Flow Information
Significant non-cash transactions:
Accrued expenditures for property, plant and equipment at June 30,$90  $91  

 The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
17

CONDENSED CONSOLIDATED BALANCE SHEETS
LG&E and KU Energy LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)
June 30,
2020
December 31,
2019
Assets  
Current Assets  
Cash and cash equivalents$152  $27  
Accounts receivable (less reserve: 2020, $27; 2019, $28)  
Customer233  260  
Other62  71  
Unbilled revenues (less reserve: 2020, $0; 2019, $0)149  164  
Fuel, materials and supplies227  250  
Prepayments33  30  
Regulatory assets51  41  
Other current assets—   
Total Current Assets907  845  
Property, Plant and Equipment  
Regulated utility plant15,123  14,646  
Less: accumulated depreciation - regulated utility plant2,515  2,356  
Regulated utility plant, net12,608  12,290  
Construction work in progress681  794  
Property, Plant and Equipment, net13,289  13,084  
Other Noncurrent Assets  
Regulatory assets766  766  
Goodwill996  996  
Other intangibles65  69  
Other noncurrent assets113  171  
Total Other Noncurrent Assets1,940  2,002  
Total Assets$16,136  $15,931  
 
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
18

CONDENSED CONSOLIDATED BALANCE SHEETS
LG&E and KU Energy LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)
 June 30,
2020
December 31,
2019
Liabilities and Equity  
Current Liabilities  
Short-term debt$—  $388  
Long-term debt due within one year1,371  975  
Notes payable with affiliates252  150  
Accounts payable253  316  
Accounts payable to affiliates 11  
Customer deposits64  62  
Taxes74  58  
Price risk management liabilities  
Regulatory liabilities14  19  
Interest41  40  
Asset retirement obligations54  70  
Other current liabilities131  153  
Total Current Liabilities2,267  2,246  
Long-term Debt  
Long-term debt4,476  4,377  
Long-term debt to affiliate650  650  
Total Long-term Debt5,126  5,027  
Deferred Credits and Other Noncurrent Liabilities  
Deferred income taxes1,126  1,069  
Investment tax credits122  124  
Price risk management liabilities24  17  
Accrued pension obligations183  233  
Asset retirement obligations164  145  
Regulatory liabilities1,953  1,973  
Other deferred credits and noncurrent liabilities149  155  
Total Deferred Credits and Other Noncurrent Liabilities3,721  3,716  
Commitments and Contingent Liabilities (Notes 7 and 10)
Member's Equity5,022  4,942  
Total Liabilities and Equity$16,136  $15,931  
 
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.

19

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
LG&E and KU Energy LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)
 Member's
Equity
March 31, 2020$5,026  
Net income83  
Distributions to member(88) 
Other comprehensive income (loss) 
June 30, 2020$5,022  
December 31, 2019$4,942  
Net income218  
Distributions to member(140) 
Other comprehensive income (loss) 
June 30, 2020$5,022  
March 31, 2019$4,791  
Net income106  
Contributions from member63  
Distributions to member(81) 
Other comprehensive income(2) 
June 30, 2019$4,877  
  
December 31, 2018$4,723  
Net income230  
Contributions from member63  
Distributions to member(137) 
Other comprehensive income(2) 
June 30, 2019$4,877  
 
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
20

THIS PAGE INTENTIONALLY LEFT BLANK.
21

CONDENSED STATEMENTS OF INCOME
Louisville Gas and Electric Company
(Unaudited)
(Millions of Dollars)
 Three Months Ended June 30,Six Months Ended June 30,
 2020201920202019
Operating Revenues  
Retail and wholesale$320  $328  $713  $725  
Electric revenue from affiliate  16  19  
Total Operating Revenues322  334  729  744  
Operating Expenses    
Operation    
Fuel50  69  124  147  
Energy purchases18  22  70  96  
Energy purchases from affiliate    
Other operation and maintenance92  96  184  190  
Depreciation65  56  129  107  
Taxes, other than income 10  19  19  
Total Operating Expenses242  255  534  563  
Operating Income80  79  195  181  
Other Income (Expense) - net (1) —  (1) 
Interest Expense22  22  44  43  
Income Before Income Taxes59  56  151  137  
Income Taxes12  12  31  29  
Net Income (a)$47  $44  $120  $108  
 
(a)Net income equals comprehensive income.

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

22

CONDENSED STATEMENTS OF CASH FLOWS
Louisville Gas and Electric Company
(Unaudited)
(Millions of Dollars)
 Six Months Ended June 30,
 20202019
Cash Flows from Operating Activities  
Net income$120  $108  
Adjustments to reconcile net income to net cash provided by operating activities  
Depreciation129  107  
Amortization 11  
Defined benefit plans - expense  
Deferred income taxes and investment tax credits 28  
Change in current assets and current liabilities  
Accounts receivable18  15  
Accounts receivable from affiliates  
Accounts payable(25) (16) 
Accounts payable to affiliates(9) (4) 
Unbilled revenues  
Fuel, materials and supplies20  27  
Regulatory assets and liabilities, net (13) 
Taxes payable21  (7) 
Accrued interest—   
Other(9) (8) 
Other operating activities  
Defined benefit plans - funding(5) (4) 
Expenditures for asset retirement obligations(8) (12) 
Other assets(2) (1) 
Other liabilities  
Net cash provided by operating activities275  258  
Cash Flows from Investing Activities  
Expenditures for property, plant and equipment(214) (224) 
Net cash used in investing activities(214) (224) 
Cash Flows from Financing Activities  
Net increase in notes payable with affiliates190  —  
Issuance of long-term debt—  399  
Retirement of long-term debt—  (200) 
Net decrease in short-term debt(238) (183) 
Payment of common stock dividends to parent(76) (71) 
Contributions from parent53  25  
Other financing activities—  (5) 
Net cash used in financing activities(71) (35) 
Net Decrease in Cash and Cash Equivalents(10) (1) 
Cash and Cash Equivalents at Beginning of Period15  10  
Cash and Cash Equivalents at End of Period$ $ 
Supplemental Disclosure of Cash Flow Information
Significant non-cash transactions:
Accrued expenditures for property, plant and equipment at June 30,$49  $40  
 
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
23

CONDENSED BALANCE SHEETS
Louisville Gas and Electric Company
(Unaudited)
(Millions of Dollars, shares in thousands)
 June 30,
2020
December 31,
2019
Assets  
Current Assets  
Cash and cash equivalents$ $15  
Accounts receivable (less reserve: 2020, $1; 2019, $1)  
Customer107  121  
Other31  41  
Unbilled revenues (less reserve: 2020, $0; 2019, $0)68  76  
Accounts receivable from affiliates16  18  
Fuel, materials and supplies102  122  
Prepayments16  14  
Regulatory assets23  25  
Other current assets  
Total Current Assets369  433  
Property, Plant and Equipment  
Regulated utility plant6,522  6,372  
Less: accumulated depreciation - regulated utility plant931  846  
Regulated utility plant, net5,591  5,526  
Construction work in progress316  297  
Property, Plant and Equipment, net5,907  5,823  
Other Noncurrent Assets  
Regulatory assets378  380  
Goodwill389  389  
Other intangibles38  41  
Other noncurrent assets75  67  
Total Other Noncurrent Assets880  877  
Total Assets$7,156  $7,133  
 
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
24

CONDENSED BALANCE SHEETS
Louisville Gas and Electric Company
(Unaudited)
(Millions of Dollars, shares in thousands)
 June 30,
2020
December 31,
2019
Liabilities and Equity  
Current Liabilities  
Short-term debt$—  $238  
Long-term debt due within one year264  —  
Notes payable with affiliate190  —  
Accounts payable131  172  
Accounts payable to affiliates22  31  
Customer deposits32  31  
Taxes54  33  
Price risk management liabilities  
Regulatory liabilities  
Interest15  15  
Asset retirement obligations18  24  
Other current liabilities41  47  
Total Current Liabilities775  597  
Long-term Debt1,741  2,005  
Deferred Credits and Other Noncurrent Liabilities  
Deferred income taxes707  697  
Investment tax credits33  34  
Price risk management liabilities24  17  
Asset retirement obligations49  49  
Regulatory liabilities877  883  
Other deferred credits and noncurrent liabilities91  89  
Total Deferred Credits and Other Noncurrent Liabilities1,781  1,769  
Commitments and Contingent Liabilities (Notes 7 and 10)
Stockholder's Equity  
Common stock - 0 par value (a)424  424  
Additional paid-in capital1,873  1,820  
Earnings reinvested562  518  
Total Equity2,859  2,762  
Total Liabilities and Equity$7,156  $7,133  
 
(a)75,000 shares authorized; 21,294 shares issued and outstanding at June 30, 2020 and December 31, 2019.

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

25

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
March 31, 202021,294  $424  $1,845  $562  $2,831  
Net income47  47  
Capital contributions from parent28  28  
Cash dividends declared on common stock(47) (47) 
June 30, 202021,294  $424  $1,873  $562  $2,859  
December 31, 201921,294  $424  $1,820  $518  $2,762  
Net income120  120  
Capital contributions from parent53  53  
Cash dividends declared on common stock(76) (76) 
June 30, 202021,294  $424  $1,873  $562  $2,859  
March 31, 201921,294  $424  $1,795  $502  $2,721  
Net income44  44  
Capital contributions from parent25  25  
Cash dividends declared on common stock(41) (41) 
June 30, 201921,294  $424  $1,820  $505  $2,749  
December 31, 201821,294  $424  $1,795  $468  $2,687  
Net income108  108  
Capital contributions from parent25  25  
Cash dividends declared on common stock(71) (71) 
June 30, 201921,294  $424  $1,820  $505  $2,749  
 
(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.

26

THIS PAGE INTENTIONALLY LEFT BLANK.
27

CONDENSED STATEMENTS OF INCOME
Kentucky Utilities Company
(Unaudited)
(Millions of Dollars)
 Three Months Ended June 30,Six Months Ended June 30,
 2020201920202019
Operating Revenues  
Retail and wholesale$380  $404  $812  $852  
Electric revenue from affiliate    
Total Operating Revenues388  406  820  856  
Operating Expenses    
Operation    
Fuel88  99  177  215  
Energy purchases   10  
Energy purchases from affiliate  16  19  
Other operation and maintenance107  105  211  213  
Depreciation86  78  170  150  
Taxes, other than income  17  17  
Total Operating Expenses295  301  600  624  
Operating Income93  105  220  232  
Other Income (Expense) - net—  (2)  —  
Interest Expense29  28  57  54  
Income Before Income Taxes64  75  164  178  
Income Taxes11  14  31  36  
Net Income (a)$53  $61  $133  $142  
 
(a)Net income equals comprehensive income.

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

28

CONDENSED STATEMENTS OF CASH FLOWS
Kentucky Utilities Company
(Unaudited)
(Millions of Dollars)
 Six Months Ended June 30,
 20202019
Cash Flows from Operating Activities  
Net income$133  $142  
Adjustments to reconcile net income to net cash provided by operating activities  
Depreciation170  150  
Amortization  
Deferred income taxes and investment tax credits 29  
Other(1) (2) 
Change in current assets and current liabilities  
Accounts receivable15  14  
Accounts payable(7) (8) 
Accounts payable to affiliates(15) (15) 
Unbilled revenues  
Fuel, materials and supplies (6) 
Regulatory assets and liabilities, net(19) (19) 
Taxes payable24  (2) 
Accrued interest  
Other(12)  
Other operating activities  
Defined benefit plans - funding(1) (2) 
Expenditures for asset retirement obligations(23) (33) 
Other assets—   
Other liabilities  
Net cash provided by operating activities293  270  
Cash Flows from Investing Activities  
Expenditures for property, plant and equipment(264) (305) 
Net increase in notes receivable with affiliates(190) —  
Other investing activities —  
Net cash used in investing activities(451) (305) 
Cash Flows from Financing Activities  
Issuance of long-term debt498  306  
Net decrease in short-term debt(150) (235) 
Payment of common stock dividends to parent(89) (91) 
Contributions from parent37  68  
Other financing activities(5) (4) 
Net cash provided by financing activities291  44  
Net Increase in Cash and Cash Equivalents133   
Cash and Cash Equivalents at Beginning of Period12  14  
Cash and Cash Equivalents at End of Period$145  $23  
Supplemental Disclosure of Cash Flow Information
Significant non-cash transactions:
Accrued expenditures for property, plant and equipment at June 30,$41  $52  
 
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
29

CONDENSED BALANCE SHEETS
Kentucky Utilities Company
(Unaudited)
(Millions of Dollars, shares in thousands)
 June 30,
2020
December 31,
2019
Assets  
Current Assets  
Cash and cash equivalents$145  $12  
Accounts receivable (less reserve: 2020, $1; 2019, $1)  
Customer126  139  
Other28  27  
Unbilled revenues (less reserve: 2020, $0; 2019, $0)81  88  
Notes receivable from affiliate190  —  
Fuel, materials and supplies125  128  
Prepayments15  14  
Regulatory assets28  16  
Other current assets—   
Total Current Assets738  425  
Property, Plant and Equipment  
Regulated utility plant8,587  8,262  
Less: accumulated depreciation - regulated utility plant1,579  1,507  
Regulated utility plant, net7,008  6,755  
Construction work in progress364  496  
Property, Plant and Equipment, net7,372  7,251  
Other Noncurrent Assets  
Regulatory assets388  386  
Goodwill607  607  
Other intangibles27  28  
Other noncurrent assets111  128  
Total Other Noncurrent Assets1,133  1,149  
Total Assets$9,243  $8,825  
 
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
30

CONDENSED BALANCE SHEETS
Kentucky Utilities Company
(Unaudited)
(Millions of Dollars, shares in thousands)
 June 30,
2020
December 31,
2019
Liabilities and Equity  
Current Liabilities  
Short-term debt$—  $150  
Long-term debt due within one year632  500  
Accounts payable103  121  
Accounts payable to affiliates39  52  
Customer deposits32  31  
Taxes50  26  
Regulatory liabilities10  17  
Interest21  20  
Asset retirement obligations36  46  
Other current liabilities44  51  
Total Current Liabilities967  1,014  
Long-term Debt2,485  2,123  
Deferred Credits and Other Noncurrent Liabilities  
Deferred income taxes808  792  
Investment tax credits89  90  
Asset retirement obligations115  96  
Regulatory liabilities1,076  1,090  
Other deferred credits and noncurrent liabilities48  46  
Total Deferred Credits and Other Noncurrent Liabilities2,136  2,114  
Commitments and Contingent Liabilities (Notes 7 and 10)
Stockholder's Equity  
Common stock - 0 par value (a)308  308  
Additional paid-in capital2,766  2,729  
Earnings reinvested581  537  
Total Equity3,655  3,574  
Total Liabilities and Equity$9,243  $8,825  
 
(a)80,000 shares authorized; 37,818 shares issued and outstanding at June 30, 2020 and December 31, 2019.

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

31

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
March 31, 202037,818  $308  $2,766  $580  $3,654  
Net income53  53  
Cash dividends declared on common stock(52) (52) 
June 30, 202037,818  $308  $2,766  $581  $3,655  
December 31, 201937,818  $308  $2,729  $537  $3,574  
Net income133  133  
Capital contributions from parent37  37  
Cash dividends declared on common stock(89) (89) 
June 30, 202037,818  $308  $2,766  $581  $3,655  
March 31, 201937,818  $308  $2,689  $515  $3,512  
Net income61  61  
Capital contributions from parent40  40  
Cash dividends declared on common stock(52) (52) 
June 30, 201937,818  $308  $2,729  $524  $3,561  
December 31, 201837,818  $308  $2,661  $473  $3,442  
Net income142  142  
Capital contributions from parent68  68  
Cash dividends declared on common stock(91) (91) 
June 30, 201937,818  $308  $2,729  $524  $3,561  
 
(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.

 
32

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. Defined Benefitsxxxxx
10. Commitments and Contingenciesxxxxx
11. Related Party Transactionsxxxx
12. Other Income (Expense) - netx
13. Fair Value Measurementsxxxxx
14. Derivative Instruments and Hedging Activitiesxxxxx
15. Asset Retirement Obligationsxxxx
16. Accumulated Other Comprehensive Income (Loss)x
17. Subsequent Eventsx

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 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, 2019 is derived from that Registrant's 2019 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 2019 Form 10-K. The results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of the results to be expected for the full year ending December 31, 2020 or other future periods, because results for interim periods can be disproportionately influenced by various factors, developments and seasonal variations.

2. Summary of Significant Accounting Policies

(All Registrants)

The following accounting policy disclosures represent updates to Note 1 in each Registrant's 2019 Form 10-K and should be read in conjunction with those disclosures.

33

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
June 30,
2020
December 31,
2019
June 30,
2020
December 31,
2019
Cash and cash equivalents$1,278  $815  $13  $262  
Restricted cash - current (a)    
Restricted cash - noncurrent (a)20  18  —  —  
Total Cash, Cash Equivalents and Restricted Cash$1,301  $836  $15  $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 collectibility 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 collectibility 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 six months ended June 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  $15  $ $38  
Other (c)27    27  
PPL Electric    
Accounts Receivable - Customer and Unbilled Revenue$25  $ $ $31  
Other  —   
34

    
Balance at
Beginning of Period (a)
Charged to IncomeDeductions (b)Balance at
End of Period
LKE    
Accounts Receivable - Customer and Unbilled Revenue$ $ $ $ 
Other (c)26  —   25  
LG&E    
Accounts Receivable - Customer and Unbilled Revenue$ $ $ $ 
KU    
Accounts Receivable - Customer and Unbilled Revenue$ $ $ $ 

(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.

(PPL, LKE, LG&E and KU)

Asset Impairment (Excluding Investments)

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 10 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 months ended June 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.

New Accounting Guidance Adopted

(All Registrants)

Accounting for Financial Instrument Credit Losses

Effective January 1, 2020, the Registrants adopted accounting guidance, using a modified retrospective approach, 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 the 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 previous GAAP. The adoption of this guidance did not have a material impact on the Registrants.

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 prescribes the financial statement classification of the capitalized implementation costs and cash flows associated with the arrangement. The adoption of this guidance did not have a material impact on the Registrants.

35

(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 the 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 did not have a material impact on the Registrants.

3. Segment and Related Information

(PPL)

See Note 2 in PPL's 2019 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 June 30 are as follows:
 Three MonthsSix Months
 2020201920202019
Operating Revenues from external customers  
U.K. Regulated$476  $541  $1,090  $1,124  
Kentucky Regulated700  732  1,525  1,577  
Pennsylvania Regulated554  521  1,162  1,166  
Corporate and Other  16  15  
Total$1,739  $1,803  $3,793  $3,882  
Net Income    
U.K. Regulated (a)$179  $284  $519  $548  
Kentucky Regulated74  97  201  214  
Pennsylvania Regulated118  94  236  215  
Corporate and Other(27) (34) (58) (70) 
Total$344  $441  $898  $907  

(a)Includes unrealized gains and losses from hedging foreign currency economic activity. See Note 14 for additional information.

The following provides Balance Sheet data for the segments and reconciliation to PPL's consolidated Balance Sheets as of:
June 30,
2020
December 31,
2019
Assets  
U.K. Regulated (a) (b)$17,479  $17,622  
Kentucky Regulated15,802  15,597  
Pennsylvania Regulated12,036  11,918  
Corporate and Other (c)1,203  543  
Total$46,520  $45,680  

(a)Includes $12.9 billion and $13.2 billion of net PP&E as of June 30, 2020 and December 31, 2019. WPD is not subject to accounting for the effects of certain types of regulation as prescribed by GAAP.
(b)Includes $2.4 billion and $2.5 billion of goodwill as of June 30, 2020 and December 31, 2019.
(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 two 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.

36

4. Revenue from Contracts with Customers

(All Registrants)

See Note 3 in PPL's 2019 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 June 30.
2020 Three Months
PPLPPL ElectricLKELG&EKU
Operating Revenues (a)$1,739  $554  $700  $322  $388  
   Revenues derived from:
Alternative revenue programs (b)(8) (1) (7) (1) (6) 
Other (c)(7) (1) (4) (1) (3) 
Revenues from Contracts with Customers$1,724  $552  $689  $320  $379  
2019 Three Months
PPLPPL ElectricLKELG&EKU
Operating Revenues (a)$1,803  $521  $732  $334  $406  
   Revenues derived from:
Alternative revenue programs (b)(20) (2) (18) (3) (15) 
Other (c)(10) (2) (6) (3) (3) 
Revenues from Contracts with Customers$1,773  $517  $708  $328  $388  

2020 Six Months
PPLPPL ElectricLKELG&EKU
Operating Revenues (a)$3,793  $1,162  $1,525  $729  $820  
   Revenues derived from:
Alternative revenue programs (b)(11) (1) (10) (4) (6) 
Other (c)(17) (3) (10) (4) (6) 
Revenues from Contracts with Customers$3,765  $1,158  $1,505  $721  $808  
2019 Six Months
PPLPPL ElectricLKELG&EKU
Operating Revenues (a)$3,882  $1,166  $1,577  $744  $856  
   Revenues derived from:
Alternative revenue programs (b)(26) (6) (20) (5) (15) 
Other (c)(19) (5) (10) (4) (6) 
Revenues from Contracts with Customers$3,837  $1,155  $1,547  $735  $835  

(a)PPL includes $476 million and $1,090 million for the three and six months ended June 30, 2020 and $541 million and $1,124 million for the three and six months ended June 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.
(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.

37

The following tables show revenues from contracts with customers disaggregated by customer class for the periods ended June 30.
2020 Three Months
PPL (d)PPL Electric (d)LKELG&EKU
Licensed energy suppliers (a)$449  $—  $—  $—  $—  
Residential583  290  293  149  144  
Commercial274  74  200  100  100  
Industrial134  12  122  38  84  
Other (b)108  12  62  28  34  
Wholesale - municipality —   —   
Wholesale - other (c) —    14  
Transmission164  164  —  —  —  
Revenues from Contracts with Customers$1,724  $552  $689  $320  $379  
2019 Three Months
PPLPPL ElectricLKELG&EKU
Licensed energy suppliers (a)$510  $—  $—  $—  $—  
Residential572  301  271  138  133  
Commercial302  87  215  108  107  
Industrial156  15  141  43  98  
Other (b)117  13  66  29  37  
Wholesale - municipality —   —   
Wholesale - other (c)11  —  11  10   
Transmission101  101  —  —  —  
Revenues from Contracts with Customers$1,773  $517  $708  $328  $388  

2020 Six Months
PPL (d)PPL Electric (d)LKELG&EKU
Licensed energy suppliers (a)$1,032  $—  $—  $—  $—  
Residential1,297  634  663  336  327  
Commercial586  155  431  224  207  
Industrial278  20  258  83  175  
Other (b)224  26  128  56  72  
Wholesale - municipality —   —   
Wholesale - other (c)17  —  17  22  19  
Transmission323  323  —  —  —  
Revenues from Contracts with Customers$3,765  $1,158  $1,505  $721  $808  
2019 Six Months
PPLPPL ElectricLKELG&EKU
Licensed energy suppliers (a)$1,066  $—  $—  $—  $—  
Residential1,350  708  642  327  315  
Commercial621  182  439  229  210  
Industrial306  32  274  87  187  
Other (b)232  27  136  62  74  
Wholesale - municipality32  —  32  —  32  
Wholesale - other (c)24  —  24  30  17  
Transmission206  206  —  —  —  
Revenues from Contracts with Customers$3,837  $1,155  $1,547  $735  $835  

(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.
38

(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.

As discussed in Note 2 in PPL's 2019 Form 10-K, PPL segments its 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. PPL Electric's revenues from contracts with customers are further disaggregated by distribution and transmission, which were $388 million and $164 million for the three months ended June 30, 2020 and $835 million and $323 million for the six months ended June 30, 2020. PPL Electric's revenue from contracts with customers disaggregated by distribution and transmission were $416 million and $101 million for the three months ended June 30, 2019 and $949 million and $206 million for the six months ended June 30, 2019.

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 June 30.
Three MonthsSix Months
2020201920202019
PPL$ $ $15  $11  
PPL Electric —    
LKE    
LG&E—  —    
KU    

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  $ $ $ 
Contract liabilities at June 30, 202037  16     
Revenue recognized during the six months ended June 30, 2020 that was included in the contract liability balance at December 31, 201928      
Contract liabilities at December 31, 2018$42  $23  $ $ $ 
Contract liabilities at June 30, 201947  22     
Revenue recognized during the six months ended June 30, 2019 that was included in the contract liability balance at December 31, 201829  11     

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

At June 30, 2020, PPL had $30 million of performance obligations attributable to Corporate and Other that have not been satisfied. Of this amount, PPL expects to recognize approximately $29 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 include the PPL common stock forward sale agreements, which were settled in 2019. The forward sale agreements were dilutive under the Treasury Stock Method to the extent the average stock price of PPL's common shares exceeded the forward sale price prescribed in the agreements.
 
39

Reconciliations of the amounts of income and shares of PPL common stock (in thousands) for the periods ended June 30 used in the EPS calculation are:
 Three MonthsSix Months
 2020201920202019
Income (Numerator)    
Net income$344  $441  $898  $907  
Less amounts allocated to participating securities    
Net income available to PPL common shareowners - Basic and Diluted$343  $440  $897  $906  
Shares of Common Stock (Denominator)    
Weighted-average shares - Basic EPS768,768  721,785  768,358  721,406  
Add incremental non-participating securities:    
Share-based payment awards640  897  715  960  
Forward sale agreements—  8,233  —  8,070  
Weighted-average shares - Diluted EPS769,408  730,915  769,073  730,436  
Basic EPS    
Net Income available to PPL common shareowners$0.45  $0.61  $1.17  $1.26  
Diluted EPS    
Net Income available to PPL common shareowners$0.45  $0.60  $1.17  $1.24  
 
For the periods ended June 30, PPL issued common stock related to stock-based compensation plans and the DRIP as follows (in thousands):
 Three MonthsSix Months
 2020201920202019
Stock-based compensation plans 52  607  642  
DRIP509  417  943  875  

For the periods ended June 30, the following shares (in thousands) were excluded from the computations of diluted EPS because the effect would have been antidilutive.
 Three MonthsSix Months
2020201920202019
Stock-based compensation awards1,170  —  710  —  
 
6. Income Taxes

Reconciliations of income tax expense (benefit) for the periods ended June 30 are as follows.
(PPL)
Three MonthsSix Months
 2020201920202019
Federal income tax on Income Before Income Taxes at statutory tax rate - 21%$88  $110  $234  $235  
Increase (decrease) due to:    
State income taxes, net of federal income tax benefit11   24  21  
Valuation allowance adjustments (a)  13  14  
Impact of lower U.K. income tax rates(9) (6) (20) (14) 
Amortization of excess deferred federal and state income taxes(12) (10) (23) (21) 
Interest benefit on U.K. financing entities(3) (3) (5) (6) 
Kentucky recycling credit, net of federal income tax expense (a)—  (20) —  (20) 
Other(8) (2) (9)  
Total increase (decrease)(14) (26) (20) (25) 
Total income tax expense (benefit)$74  $84  $214  $210  

40

(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.

(PPL Electric)  
 Three MonthsSix Months
 2020201920202019
Federal income tax on Income Before Income Taxes at statutory tax rate - 21%$33  $26  $67  $61  
Increase (decrease) due to:    
State income taxes, net of federal income tax benefit12  10  25  23  
Depreciation and other items not normalized(2) (1) (4) (3) 
Amortization of excess deferred federal and state income taxes(5) (4) (8) (8) 
Other    
Total increase (decrease)  14  13  
Total income tax expense (benefit)$40  $32  $81  $74  

(LKE)  
 Three MonthsSix Months
 2020201920202019
Federal income tax on Income Before Income Taxes at statutory tax rate - 21%$21  $23  $56  $56  
Increase (decrease) due to:    
State income taxes, net of federal income tax benefit  11  10  
Valuation allowance adjustments (a)—   —   
Amortization of excess deferred federal and state income taxes(6) (6) (13) (12) 
Kentucky recycling credit, net of federal income tax expense (a)—  (20) —  (20) 
Other(2) (1) (3) (2) 
Total increase (decrease)(4) (20) (5) (21) 
Total income tax expense (benefit)$17  $ $51  $35  

(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.

(LG&E)  
 Three MonthsSix Months
 2020201920202019
Federal income tax on Income Before Income Taxes at statutory tax rate - 21%$12  $12  $32  $29  
Increase (decrease) due to:    
State income taxes, net of federal income tax benefit    
Valuation allowance adjustments (a)—  15  —  15  
Amortization of excess deferred federal and state income taxes(2) (2) (5) (5) 
Kentucky recycling credit, net of federal income tax expense (a)—  (15) —  (15) 
Other—  —  (2) —  
Total increase (decrease)—  —  (1) —  
Total income tax expense (benefit)$12  $12  $31  $29  

(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.

41

(KU)  
 Three MonthsSix Months
 2020201920202019
Federal income tax on Income Before Income Taxes at statutory tax rate - 21%$13  $16  $34  $37  
Increase (decrease) due to:    
State income taxes, net of federal income tax benefit    
Valuation allowance adjustments (a)—   —   
Amortization of excess deferred federal and state income taxes(4) (4) (8) (7) 
Kentucky recycling credit, net of federal income tax expense (a)—  (5) —  (5) 
Other(1) (1) (1) (1) 
Total increase (decrease)(2) (2) (3) (1) 
Total income tax expense (benefit)$11  $14  $31  $36  

(a)During the second quarter of 2019, KU 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 KU.

Other

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% for financial years 2020 and 2021. The Finance Act 2020 was formally enacted on July 22, 2020. The impact of the cancellation of the corporate tax rate reduction will result in an increase in deferred tax liabilities and a corresponding deferred tax expense of approximately $100 million to $110 million, which will be recorded in the third quarter of 2020.

2020 TCJA Regulatory Update (All Registrants)

In July 2020, the IRS issued final and new proposed regulations relating to limitations on interest deductibility for tax purposes. The final regulations are expected to apply to the Registrants for 2020, while the proposed regulations will apply in the year in which the regulations are issued in final form, which is expected to be in 2021. The Registrants are evaluating the final and proposed regulations, but do not expect the regulations to have a material impact on the Registrants’ financial condition or results of 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
June 30,
2020
December 31,
2019
June 30,
2020
December 31,
2019
Current Regulatory Assets:    
Plant outage costs$41  $32  $—  $—  
Gas supply clause  —  —  
Smart meter rider17  13  17  13  
Transmission formula rate    
Transmission service charge10  10  10  10  
Other  —  —  
Total current regulatory assets (a)$82  $67  $31  $26  
42

PPLPPL Electric
June 30,
2020
December 31,
2019
June 30,
2020
December 31,
2019
Noncurrent Regulatory Assets:    
Defined benefit plans$779  $800  $452  $467  
Storm costs31  39  11  15  
Unamortized loss on debt35  41  13  18  
Interest rate swaps28  22  —  —  
Terminated interest rate swaps78  81  —  —  
Accumulated cost of removal of utility plant230  220  230  220  
AROs287  279  —  —  
Act 129 compliance rider—   —   
Other  —  —  
Total noncurrent regulatory assets$1,472  $1,492  $706  $726  

PPLPPL Electric
June 30,
2020
December 31,
2019
June 30,
2020
December 31,
2019
Current Regulatory Liabilities:    
Generation supply charge$23  $23  $23  $23  
Environmental cost recovery  —  —  
Universal service rider    
Fuel adjustment clause  —  —  
TCJA customer refund28  61  28  59  
Storm damage expense rider    
Act 129 compliance rider —   —  
Other  —  —  
Total current regulatory liabilities$86  $115  $72  $96  
Noncurrent Regulatory Liabilities:    
Accumulated cost of removal of utility plant$643  $640  $—  $—  
Power purchase agreement - OVEC47  51  —  —  
Net deferred taxes1,722  1,756  572  588  
Defined benefit plans55  51  14  11  
Terminated interest rate swaps68  68  —  —  
Other  —  —  
Total noncurrent regulatory liabilities$2,539  $2,572  $586  $599  

 LKELG&EKU
June 30,
2020
December 31,
2019
June 30,
2020
December 31,
2019
June 30,
2020
December 31,
2019
Current Regulatory Assets:      
Plant outage costs$41  $32  $14  $16  $27  $16  
Gas supply clause    —  —  
Other     —  
Total current regulatory assets$51  $41  $23  $25  $28  $16  
43

 LKELG&EKU
June 30,
2020
December 31,
2019
June 30,
2020
December 31,
2019
June 30,
2020
December 31,
2019
Noncurrent Regulatory Assets:      
Defined benefit plans$327  $333  $199  $206  $128  $127  
Storm costs20  24  12  14   10  
Unamortized loss on debt22  23  13  14    
Interest rate swaps28  22  28  22  —  —  
Terminated interest rate swaps78  81  46  47  32  34  
AROs287  279  79  76  208  203  
Other      
Total noncurrent regulatory assets$766  $766  $378  $380  $388  $386  

LKELG&EKU
June 30,
2020
December 31,
2019
June 30,
2020
December 31,
2019
June 30,
2020
December 31,
2019
Current Regulatory Liabilities:      
Environmental cost recovery$ $ $—  $ $ $ 
Demand side management      
Fuel adjustment clause   —    
Other  —  —    
Total current regulatory liabilities$14  $19  $ $ $10  $17  
Noncurrent Regulatory Liabilities:      
Accumulated cost of removal
of utility plant
$643  $640  $271  $266  $372  $374  
Power purchase agreement - OVEC47  51  33  35  14  16  
Net deferred taxes1,150  1,168  537  544  613  624  
Defined benefit plans41  40  —  —  41  40  
Terminated interest rate swaps68  68  34  34  34  34  
Other      
Total noncurrent regulatory liabilities$1,953  $1,973  $877  $883  $1,076  $1,090  
  
(a)For PPL, these amounts are included in "Other current assets" on the Balance Sheets.

Regulatory Matters

Kentucky Activities

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

On March 31, 2020, LG&E and KU submitted applications to the KPSC 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 2020 and continue through 2024 and are estimated to cost approximately $405 million ($153 million at LG&E and $252 million at KU). The applications request an authorized 9.725% return on equity with respect to LG&E's and KU's ECR mechanisms consistent with the 2018 Kentucky rate cases approved in April 2019. Decisions on the applications are currently expected in September 2020. LG&E and KU cannot predict the outcome of these proceedings.

Pennsylvania Activities 
 
Act 129 (PPL and PPL Electric)
 
The Pennsylvania Public Utility Code requires electric distribution companies, including PPL Electric, to act as a DSP, 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.
 
44

In March 2020, PPL Electric filed a Petition for Approval of a new default service program and procurement plan with the PUC for the period June 1, 2021 through May 31, 2025. Hearings are scheduled for August 2020. This proceeding remains pending before the PUC. PPL Electric cannot predict the outcome of this proceeding.

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, in the event the FERC determines PPL Electric's ROE to be unjust and unreasonable, PPL Electric contends a refund effective date should be set for no earlier than June 10, 2020 and PPLICA's proposed replacement ROE should be rejected. This proceeding remains pending before the FERC. On July 27, 2020, an intervenor filed a motion for permission to respond and a response to PPL Electric’s Answer contesting the arguments made in that Answer. PPL Electric believes 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 2018, LG&E and KU applied to the FERC requesting elimination of certain on-going credits to a sub-set of transmission customers relating to the 1998 merger of LG&E's and KU's parent entities and the 2006 withdrawal of LG&E and KU from the Midcontinent Independent System Operator, Inc. (MISO), a regional transmission operator and energy market. The application 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 LG&E and KU merger and 2006 MISO withdrawal. The amounts at issue are generally waivers or credits granted to a limited number of Kentucky municipalities for either certain LG&E and KU or MISO transmission charges incurred for transmission service 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. In March 2019, the FERC granted LG&E's and KU's request to remove the ongoing credits, conditioned upon the implementation by LG&E and KU of a transition mechanism for certain existing power supply arrangements, subject to FERC review and approval. In July 2019, LG&E and KU proposed their transition mechanism to the FERC and in September 2019, the FERC rejected the proposed transition mechanism and issued a separate order providing clarifications of certain aspects of the March order. In October 2019, LG&E and KU filed requests for rehearing and clarification on the two September orders. Certain 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 these proceedings. In February 2020, the D.C. Circuit Court of Appeals issued an order holding the various appeals in abeyance pending the FERC's rehearing process. LG&E and KU currently receive recovery of waivers and credits provided through other rate mechanisms.

(PPL and PPL Electric)

In April 2020, PPL Electric filed its annual transmission formula rate update with the FERC, reflecting a revised revenue requirement that took effect in June 2020.
45


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 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 six months ended June 30, 2020, PPL Electric purchased $240 million and $551 million of accounts receivable from alternative suppliers. During the three and six months ended June 30, 2019, PPL Electric purchased $271 million and $619 million of accounts receivable from alternative 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 borrowings under PPL Capital Funding's term loan agreement due March 2022, which are reflected in "Long-term debt" on the Balance Sheets. The following credit facilities were in place at:
46

 June 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  £162  £—  £48  £155  £—  
WPD (South West)       
Syndicated Credit Facility (b)May 2023220  —  —  220  40  —  
WPD (South Wales)
Syndicated Credit Facility (c)May 2023125   —  120  —  —  
WPD (East Midlands)      
Syndicated Credit FacilityMay 2023250  —  —  250  —  —  
WPD (West Midlands)      
Syndicated Credit Facility (d)May 2023250  39  —  211  48  —  
Uncommitted Credit Facilities (e) 100  60   36  —   
Total U.K. Credit Facilities (f) £1,155  £266  £ £885  £243  £ 
U.S.       
PPL Capital Funding (g)       
Syndicated Credit FacilityJan. 2024$1,450  $—  $—  $1,450  $—  $450  
Term Loan Credit FacilityMar. 2021200  200  —  —  —  —  
Bilateral Credit FacilityMar. 202150  —  —  50  —  —  
Bilateral Credit FacilityMar. 202150  —  15  35  —  15  
Term Loan Credit FacilityMar. 2021100  100  —  —  —  —  
Term Loan Credit FacilityMar. 2022100  100  —  —  —  —  
Total PPL Capital Funding Credit Facilities$1,950  $400  $15  $1,535  $—  $465  
PPL Electric       
Syndicated Credit FacilityJan. 2024$650  $—  $201  $449  $—  $ 
LG&E      
Syndicated Credit FacilityJan. 2024$500  $—  $—�� $500  $—  $238  
Total LG&E Credit Facilities$500  $—  $—  $500  $—  $238  
KU       
Syndicated Credit FacilityJan. 2024$400  $—  $—  $400  $—  $150  
Total KU Credit Facilities $400  $—  $—  $400  $—  $150  
 
(a) The amounts borrowed at June 30, 2020 and December 31, 2019 were USD-denominated borrowings of $200 million for both periods, which bore interest at 1.00% and 2.52%. The interest rates on the borrowings are equal to one-month USD LIBOR plus a spread.
(b) The amount borrowed at December 31, 2019 was GBP-denominated borrowings which equated to $51 million and bore interest at 1.09%. The interest rate on the borrowing are equal to one-month GBP LIBOR plus a margin.
(c) The amount borrowed at June 30, 2020 was GBP-denominated borrowing which equated to $6 million and bore interest at 0.60%. The interest rate on the borrowing are equal to one-month GBP LIBOR plus a margin.
(d) The amount borrowed at June 30, 2020 and December 31, 2019 were GBP-denominated borrowings which equated to $48 million and $62 million and bore interest at 0.60% and 1.11%. The interest rates on the borrowings are equal to one-month GBP LIBOR plus a margin.
(e) The amount borrowed at June 30, 2020 was GBP-denominated borrowings which equated to $74 million and bore interest at 1.35%.
(f) At June 30, 2020, the unused capacity under the U.K. credit facilities was $1.1 billion.
(g) The interest rates on the borrowings are based on one-month LIBOR plus a spread, which resulted in a weighted-average rate of 1.04% at June 30, 2020.


47

(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. 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:
 June 30, 2020December 31, 2019
Weighted -
Average
Interest Rate
CapacityCommercial
Paper
Issuances
Unused
Capacity
Weighted -
Average
Interest Rate
Commercial
Paper
Issuances
PPL Capital Funding—%$1,500  $—  $1,500  2.13%$450  
PPL Electric
0.26%650  200  450  —  
LG&E—%350  —  350  2.07%238  
KU—%350  —  350  2.02%150  
Total $2,850  $200  $2,650   $838  

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

See Note 11 for discussion of intercompany borrowings.

Long-term Debt

(PPL)

In April 2020, PPL Capital Funding entered into a $100 million term loan credit facility expiring in March 2022 and borrowed the full principal amount under the facility at an initial interest rate of 1.72%. 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 issued $1 billion of 4.125% Senior Notes due 2030. PPL Capital Funding received proceeds of $993 million, net of a discount and underwriting fees, which were used to repay short-term debt and for general corporate purposes.

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

(PPL and LKE)

In June 2020, LKE issued a notice to redeem its series of $475 million of 3.75% senior notes due November 2020 on August 15, 2020.

(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.
48


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

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, 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 six months ended June 30, 2020.

Distributions

In May 2020, PPL declared a quarterly common stock dividend, payable July 1, 2020, of 41.50 cents per share (equivalent to $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. 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 June 30:
Pension Benefits
 Three MonthsSix Months
 U.S.U.K.U.S.U.K.
 20202019202020192020201920202019
PPL    
Service cost$15  $12  $21  $17  $28  $25  $44  $34  
Interest cost36  41  35  48  74  82  71  95  
Expected return on plan assets(63) (61) (151) (150) (123) (122) (309) (298) 
Amortization of:
Prior service cost  —  —    —  —  
Actuarial loss24  14  52  23  44  27  106  47  
Net periodic defined benefit costs (credits) before settlements14   (43) (62) 27  16  (88) (122) 
Settlements—  —  —  —  —   —  —  
Net periodic defined benefit costs (credits)$14  $ $(43) $(62) $27  $17  $(88) $(122) 

Pension Benefits
Three MonthsSix Months
 2020201920202019
LKE
Service cost$ $ $12  $11  
Interest cost13  17  29  33  
Expected return on plan assets(26) (26) (50) (51) 
Amortization of:
Prior service cost    
Actuarial loss (a)10   19  10  
Net periodic defined benefit costs$ $ $14  $ 

49

(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 $6 million for the three and six months ended June 30, 2020 and $1 million for the three and six months ended June 30, 2019. This difference is recorded as a regulatory asset.
Pension Benefits
 Three MonthsSix Months
 2019 (a)2019 (a)
LG&E
Service cost$ $ 
Interest cost  
Expected return on plan assets(5) (11) 
Amortization of: 
Prior service cost  
Actuarial loss  
Net periodic defined benefit costs$ $ 

(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.
 Other Postretirement Benefits
 Three MonthsSix Months
 2020201920202019
PPL  
Service cost$ $ $ $ 
Interest cost  10  11  
Expected return on plan assets(6) (4) (11) (9) 
Amortization of prior service cost —   —  
Net periodic defined benefit costs$ $ $ $ 
LKE  
Service cost$ $ $ $ 
Interest cost    
Expected return on plan assets(3) (2) (5) (4) 
Amortization of:
Prior service cost—   —   
Actuarial gain—  (1) —  (1) 
Net periodic defined benefit costs$—  $ $ $ 

(PPL Electric, LG&E and KU)

PPL Electric is allocated costs of defined benefit plans sponsored by PPL Services and LG&E and KU are 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 11 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 June 30, PPL Services allocated the following net periodic defined benefit costs to PPL Electric, and LKE allocated the following net periodic defined benefit costs to LG&E and KU:
 Three MonthsSix Months
 2020201920202019
PPL Electric$ $ $ $ 
LG&E (a)    
KU—  —   —  

(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.

50

(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 12 for additional information.

10. Commitments and Contingencies

Legal Matters

(All Registrants)

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

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

On October 29, 2018, Talen Montana Retirement Plan and Talen Energy Marketing filed a putative class action complaint on behalf of current and contingent creditors of Talen Montana who allegedly suffered harm or allegedly will suffer reasonably foreseeable harm as a result of a November 2014 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). Plaintiff 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. Plaintiff 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 plaintiff 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 plaintiff's motion to remand the case back to state court. Although, the PPL defendants petitioned the Ninth Circuit Court of Appeals to grant an appeal of the remand decision, in November 2019, the Ninth Circuit Court of 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. The Court held a hearing on June 24, 2020 regarding the motion to dismiss. PPL cannot predict the Court's decision.
51


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 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, to include, among other things, claims related to indemnification with respect to the Montana 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, and in October 2019, the Delaware Court of Chancery issued an opinion 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 Talen Putative Class Action and intends to continue to vigorously defend against this action. The Talen Putative Class Action and the Delaware Action are both in 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

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. In July 2014, the U.S. District Court
dismissed the RCRA claims and all but 1 Clean Air Act claim, but declined to dismiss the common law tort claims. In February 2017, the U.S. District Court dismissed PPL as a defendant and dismissed the final federal claim against LG&E, and in April 2017, issued an Order declining to exercise supplemental jurisdiction on the state law claims dismissing 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. On January 8, 2020, the Jefferson Circuit Court issued an order denying the plaintiffs’ request for class certification. On January 14, 2020, the plaintiffs filed a notice of appeal in the Kentucky Court of Appeals. PPL, LKE and LG&E cannot predict the outcome of this matter and an estimate or range of possible losses cannot be determined.

52

(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's water discharge permit, and alleging contamination that may present an imminent and substantial endangerment in violation of the RCRA. The plaintiffs' suit relates to prior notices of intent to file a citizen suit submitted in October and November 2015 and October 2016. These plaintiffs sought injunctive relief ordering KU to take all actions necessary to comply with the Clean Water Act and RCRA, including ceasing the discharges in question, abating effects associated with prior discharges and eliminating the alleged imminent and substantial endangerment. These plaintiffs also sought assessment of civil penalties and an award of litigation costs and attorney fees. 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. In January 2019, KU filed an answer to plaintiffs’ complaint in the U.S. District Court. A trial has been scheduled to begin 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 are 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, 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. 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 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
53

postpone the compliance date for certain requirements. On November 22, 2019, the EPA issued proposed revisions to its best available technology standards for certain wastewaters. The EPA has indicated that it 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 responsive 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. 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. Legal challenges to the final rule are pending before the D.C. Circuit Court of Appeals. 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 July 2020, the EPA issued a final rule extending the closure deadline 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 August 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 15 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
54

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 June 30, 2020 and December 31, 2019, PPL Electric had a recorded liability of $10 million representing its best estimate of the probable loss 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 Regional Reliability Entity 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.

Other

Labor Union Agreements
 
(LKE and KU)

In August 2020, KU and the United Steelworkers of America ratified a three-year labor agreement through August 2023. The agreement covers approximately 48 employees. The terms of the new labor agreement are not expected to have a significant impact on the financial results of LKE or KU.

Guarantees and Other Assurances
 
(All Registrants)

In the normal course of business, the Registrants enter into agreements that provide financial performance assurance to third parties on behalf of certain subsidiaries. Such agreements include, for example, guarantees, stand-by letters of credit issued by financial institutions and surety bonds issued by insurance companies. These agreements are entered into primarily to support or enhance the creditworthiness attributed to a subsidiary on a stand-alone basis or to facilitate the commercial activities in which these subsidiaries engage.
 
55

(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 June 30, 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 $4 million at June 30, 2020 and $5 million at December 31, 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 June 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 entities77  (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) 

(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.

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.
(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 June 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 $106 million at June 30, 2020, consisting of LG&E's share of $74 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.

In March 2018, a sponsor with a 4.85% pro-rata share of OVEC obligations 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 bankruptcy plan confirmation and regulatory aspects of the plan in various forums. In May 2020, OVEC and the relevant sponsor announced a settlement resolving all disputed matters in the bankruptcy and other proceedings, including providing that the sponsor will withdraw its request to reject the power purchase agreement. The settlement was implemented in July 2020. Periodically, OVEC and certain of its sponsors, including LG&E and KU, may consider certain potential additional credit support actions to preserve OVEC's access to credit markets, including establishing or continuing debt reserve accounts or other changes involving OVEC's existing short and long-term debt.

The Registrants provide other miscellaneous guarantees through contracts entered into in the normal course of business. These guarantees are primarily in the form of indemnification or warranties related to services or equipment and vary in duration. The amounts of these guarantees often are not explicitly stated, and the overall maximum amount of the obligation under such guarantees cannot be reasonably estimated. Historically, no significant payments have been made with respect to these types of guarantees and the probability of payment/performance under these guarantees is remote.
56


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.

11. Related Party Transactions

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

PPL Services, PPL EU Services and LKS provide PPL, PPL Electric, LKE, their respective subsidiaries, including LG&E and KU, and each other 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 and LKS charged the following amounts for the periods ended June 30, including amounts applied to accounts that are further distributed between capital and expense on the books of the recipients, based on methods that are believed to be reasonable.
 Three MonthsSix Months
 2020201920202019
PPL Electric from PPL Services
$14  $13  $26  $29  
LKE from PPL Services  13  14  
PPL Electric from PPL EU Services41  37  82  74  
LG&E from LKS44  37  82  75  
KU from LKS46  41  87  84  

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.

57

Intercompany Borrowings

(PPL Electric)

PPL Energy Funding maintains a $650 million revolving line of credit with a PPL Electric subsidiary. NaN balance was outstanding at June 30, 2020 and December 31, 2019. The interest rates on borrowings are equal to one-month LIBOR plus a spread. Interest income is reflected in "Interest Income from Affiliate" on the Income 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 June 30, 2020 and December 31, 2019, $252 million and $150 million were outstanding and reflected in "Notes payable with affiliates" on the Balance Sheets. The interest rates on the outstanding borrowings at June 30, 2020 and December 31, 2019 were 1.68% and 3.20%. Interest expense on the revolving line of credit was not significant for the three and six months ended June 30, 2020 and 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 June 30, 2020 and December 31, 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-year notes of $400 million and $250 million with a PPL affiliate with i