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PPL PPL Electric Utilities

Filed: 4 Nov 21, 12:28pm
0000922224us-gaap:CrossCurrencyInterestRateContractMemberus-gaap:CashFlowHedgingMemberus-gaap:OtherComprehensiveIncomeMember2020-01-012020-09-30
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 September 30, 2021
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
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

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 
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 
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
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
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 
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, 750,715,902 shares outstanding at October 31, 2021.
PPL Electric Utilities Corporation    Common stock, no par value, 66,368,056 shares outstanding and all held by PPL Corporation at October 31, 2021.
Louisville Gas and Electric Company    Common stock, no par value, 21,294,223 shares outstanding and all held by LG&E and KU Energy LLC at October 31, 2021.
Kentucky Utilities Company    Common stock, no par value, 37,817,878 shares outstanding and all held by LG&E and KU Energy LLC at October 31, 2021.

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
LOUISVILLE GAS AND ELECTRIC COMPANY
KENTUCKY UTILITIES COMPANY
 
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2021
 
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, 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.
 
Unless otherwise specified, references in this Report, individually, to PPL Corporation, PPL Electric Utilities Corporation, 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 
   
   
   
   
  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 LG&E and KU, as well as to LKE and its other 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 fully and unconditionally 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 Energy Holdings - PPL Energy Holdings, LLC, a subsidiary of PPL and the parent holding company of PPL Energy Funding, LKE 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, prior to the sale of the U.K. utility business on June 14, 2021, primarily through its subsidiaries, owned and operated WPD, PPL's regulated electricity distribution businesses in the U.K. PPL Global was not included in the sale of the U.K. utility business on June 14, 2021.

PPL Rhode Island Holdings - PPL Rhode Island Holdings, LLC, a subsidiary of PPL Energy Holdings formed for the purpose of acquiring Narragansett Electric to which certain interests of PPL Energy Holdings in the Narragansett SPA were assigned.

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

PPL WPD Limited - PPL WPD Limited, a U.K. subsidiary of PPL Global. Prior to the sale of the U.K. utility business on June 14, 2021, PPL WPD Limited was an indirect parent to WPD. PPL WPD Limited was not included in the sale of the U.K. utility business on June 14, 2021.

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


i

Other terms and abbreviations

£ - British pound sterling.

2020 Form 10-K - Annual Report to the SEC on Form 10-K for the year ended December 31, 2020.
 
Act 11 - Act 11 of 2012 that became effective on April 16, 2012. The Pennsylvania legislation authorized the PUC to approve two specific ratemaking mechanisms: the use of a fully projected future test year in base rate proceedings and, subject to certain conditions, a DSIC.

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

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

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

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

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

AOCI - accumulated other comprehensive income or loss.

ARO - asset retirement obligation.

ATM Program - at-the-market stock offering program.

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

Clean Air Act - federal legislation enacted to address certain environmental issues related to air emissions, including acid rain, ozone and toxic air emissions.
 
Clean Water Act - federal legislation enacted to address certain environmental issues relating to water quality including effluent discharges, cooling water intake, and dredge and fill activities.

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

CPCN - Certificate of Public Convenience and Necessity. Authority granted by the KPSC pursuant to Kentucky Revised Statute 278.020 to provide utility service to or for the public or the construction of certain plant, equipment, property or facility for furnishing of utility service to the public. A CPCN is required for any capital addition, subject to KPSC jurisdiction, in excess of $100 million.

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

DNO - Distribution Network Operator in the U.K.

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


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.

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.

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

Narragansett Electric - The Narragansett Electric Company, an entity that serves electric and natural gas customers in Rhode Island. In March 2021, PPL and its subsidiary, PPL Energy Holdings announced a pending acquisition of Narragansett Electric.

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.

OCI - other comprehensive income or loss.
 
iii

OVEC - Ohio Valley Electric Corporation, located in Piketon, Ohio, an entity in which LG&E owns a 5.63% interest and KU owns a 2.50% interest, which are 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.

PPL WPD Investments Limited – PPL WPD Investments Limited, which was, prior to the sale of the U.K. utility business on June 14, 2021, a subsidiary of PPL WPD Limited and parent to WPD plc. PPL WPD Investments Limited was included in the sale of the U.K. utility business on June 14, 2021.
  
PUC - Pennsylvania Public Utility Commission, the state agency that regulates certain ratemaking, services, accounting and operations of Pennsylvania utilities.

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

Scrubber - an air pollution control device that can remove particulates and/or gases (primarily sulfur dioxide) from exhaust gases.
 
SEC - the U.S. Securities and Exchange Commission, a U.S. government agency primarily responsible to protect investors and maintain the integrity of the securities markets.
 
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.

iv

Talen Energy Marketing - Talen Energy Marketing, LLC, the successor name of PPL EnergyPlus after the spinoff of PPL Energy Supply that marketed and traded wholesale and retail electricity and gas, and supplied energy and energy services in competitive markets, after the June 1, 2015 spinoff of PPL Energy Supply.

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

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

U.K. utility business PPL WPD Investments Limited and its subsidiaries, including, notably, WPD plc and the four DNOs, which substantially represented PPL's U.K. Regulated segment. The U.K. utility business was sold on June 14, 2021.

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.

WPD - Prior to the sale of the U.K. utility business on June 14, 2021, refers to PPL WPD Limited and its subsidiaries. WPD was included in the sale of the U.K. utility business on June 14, 2021.

WPD (East Midlands) - Western Power Distribution (East Midlands) plc, a British regional electricity distribution utility company. WPD (East Midlands) was included in the sale of the U.K. utility business on June 14, 2021.
 
WPD plc - Western Power Distribution plc, a U.K. indirect 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 plc was included in the sale of the U.K. utility business on June 14, 2021.

WPD Midlands - refers to WPD (East Midlands) and WPD (West Midlands), collectively. WPD Midlands was included in the sale of the U.K. utility business on June 14, 2021.
 
WPD (South Wales) - Western Power Distribution (South Wales) plc, a British regional electricity distribution utility company. WPD (South Wales) was included in the sale of the U.K. utility business on June 14, 2021.
 
WPD (South West) - Western Power Distribution (South West) plc, a British regional electricity distribution utility company. WPD (South West) was included in the sale of the U.K. utility business on June 14, 2021.
 
WPD (West Midlands) - Western Power Distribution (West Midlands) plc, a British regional electricity distribution utility company. WPD (West) Midlands) was included in the sale of the U.K. utility business on June 14, 2021.
 
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 2020 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:
 
strategic acquisitions, dispositions, or similar transactions, including the expected acquisition of Narragansett Electric, and our ability to consummate these business transactions or realize expected benefits from them;
the COVID-19 pandemic and its continuing 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 extreme weather-related events (including events potentially caused or exacerbated by climate change);
the outcome of rate cases or other cost recovery or revenue proceedings;
changes in state or federal 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;
expansion of alternative and distributed sources of electricity generation and storage;
the effectiveness of our risk management programs, including interest rate hedging;
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;
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.

1

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 (LOSS)
PPL Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars, except share data)
 Three Months Ended September 30,Nine Months Ended September 30,
 2021202020212020
Operating Revenues$1,512 $1,400 $4,298 $4,103 
Operating Expenses  
Operation  
Fuel195 177 531 478 
Energy purchases167 136 524 470 
Other operation and maintenance393 346 1,164 1,054 
Depreciation274 257 810 762 
Taxes, other than income52 47 153 131 
Total Operating Expenses1,081 963 3,182 2,895 
Operating Income431 437 1,116 1,208 
Other Income (Expense) - net12 25 11 
Interest Expense183 161 810 479 
Income (Loss) from Continuing Operations Before Income Taxes260 282 331 740 
Income Taxes51 165 455 266 
Income (Loss) from Continuing Operations After Income Taxes209 117 (124)474 
Income (Loss) from Discontinued Operations (net of income taxes) (Note 9)(2)164 (1,490)705 
Net Income (Loss)$207 $281 $(1,614)$1,179 
Earnings Per Share of Common Stock:
    Basic and Diluted
Income (Loss) from Continuing Operations After Income Taxes$0.27 $0.15 $(0.16)$0.62 
Income (Loss) from Discontinued Operations (net of income taxes) 0.22 (1.94)0.91 
Net Income (Loss) Available to PPL Common Shareowners$0.27 $0.37 $(2.10)$1.53 
Weighted-Average Shares of Common Stock Outstanding
(in thousands)
    
Basic767,733 768,786 768,781 768,502 
Diluted769,849 769,660 768,781 769,270 
 The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
3

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
PPL Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)
 Three Months Ended September 30,Nine Months Ended September 30,
 2021202020212020
Net income (loss)$207 $281 $(1,614)$1,179 
Other comprehensive income (loss):  
Amounts arising during the period - gains (losses), net of tax (expense) benefit:  
Foreign currency translation adjustments, net of tax of $0, $0, ($123), $1 643 372 291 
Qualifying derivatives, net of tax of $0, $12, $11, $4 (52)(39)(16)
Defined benefit plans: 
Net actuarial gain (loss), net of tax of $4, $5, $6, $6(12)(16)(18)(17)
Reclassifications from AOCI - (gains) losses, net of tax expense (benefit):  
Qualifying derivatives, net of tax of $0, ($12), ($4), ($8)1 48 25 25 
Defined benefit plans:  
Prior service costs, net of tax of ($3), ($1), ($1), ($1)9 — 2 
Net actuarial (gain) loss, net of tax of ($4), ($12), ($30), ($35)10 52 117 146 
Reclassifications from AOCI due to sale of the U.K. utility business - (gains) losses, net of tax expense (benefit):
Foreign currency translation adjustments, net of tax of $0, $0, $140, $0 — 786 — 
Qualifying derivatives, net of tax of $0, $0, $0, $0 — 15 — 
Defined benefit plans:
Prior service costs, net of tax of $0, $0, ($2), $0 — 8 — 
Net actuarial (gain) loss, net of tax of $0, $0, ($798), $0 — 2,769 — 
Total other comprehensive income (loss)8 675 4,037 431 
Comprehensive income (loss)$215 $956 $2,423 $1,610 
 
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)
Nine Months Ended September 30,
 20212020
Cash Flows from Operating Activities  
Net income (loss)$(1,614)$1,179 
Loss (income) from discontinued operations (net of income taxes)1,490 (705)
Income from continuing operations (net of income taxes)(124)474 
Adjustments to reconcile net income to net cash provided by operating activities  
Depreciation810 762 
Amortization30 40 
Deferred income taxes and investment tax credits51 164 
Impairment of solar panels37 — 
Loss on extinguishment of debt395 — 
Other7 33 
Change in current assets and current liabilities  
Accounts payable(32)(33)
Unbilled revenues67 93 
Prepayments(33)(43)
Taxes payable75 94 
Regulatory assets and liabilities, net50 (44)
Other46 147 
Other operating activities
Defined benefit plans - funding(41)(61)
Other assets(105)(7)
Other liabilities19 (40)
Net cash provided by operating activities - continuing operations1,252 1,579 
Net cash provided by operating activities - discontinued operations726 668 
Net cash provided by operating activities1,978 2,247 
Cash Flows from Investing Activities  
Expenditures for property, plant and equipment(1,460)(1,690)
Proceeds from sale of discontinued operations, net of cash divested10,560 — 
Other investing activities(22)— 
Net cash provided by (used in) investing activities - continuing operations9,078 (1,690)
Net cash provided by (used in) investing activities - discontinued operations(607)(668)
Net cash provided by (used in) investing activities8,471 (2,358)
Cash Flows from Financing Activities  
Issuance of long-term debt650 1,598 
Retirement of long-term debt(4,606)(975)
Proceeds from project financing21 152 
Issuance of common stock5 32 
Payment of common stock dividends(961)(956)
Purchase of treasury stock(282)— 
Issuance of term loan 300 
Retirement of term loan(300)— 
Retirement of commercial paper(73)— 
Net increase (decrease) in short-term debt(795)(213)
Other financing activities(29)(21)
Net cash provided by (used in) financing activities - continuing operations(6,370)(83)
Net cash provided by (used in) financing activities - discontinued operations(411)78 
Contributions (to) from discontinued operations365 38 
Net cash provided by (used in) financing activities(6,416)33 
Effect of Exchange Rates on Cash, Cash Equivalents and Restricted Cash included in Discontinued Operations8 (6)
Net (Increase) Decrease in Cash, Cash Equivalents and Restricted Cash included in Discontinued Operations284 (72)
Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash4,325 (156)
Cash, Cash Equivalents and Restricted Cash at Beginning of Period443 660 
Cash, Cash Equivalents and Restricted Cash at End of Period$4,768 $504 
Supplemental Disclosures of Cash Flow Information
Significant non-cash transactions:
Accrued expenditures for property, plant and equipment at September 30,$214 $228 

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)
 September 30,
2021
December 31,
2020
Assets  
Current Assets  
Cash and cash equivalents$4,767 $442 
Accounts receivable (less reserve: 2021, $61; 2020, $71)  
Customer578 603 
Other73 86 
Unbilled revenues (less reserve: 2021, $2; 2020, $4)233 301 
Fuel, materials and supplies304 302 
Prepayments90 53 
Other current assets92 130 
Current assets held for sale (Note 9) 18,983 
Total Current Assets6,137 20,900 
Property, Plant and Equipment  
Regulated utility plant30,056 29,040 
Less:  accumulated depreciation - regulated utility plant6,434 6,008 
Regulated utility plant, net23,622 23,032 
Non-regulated property, plant and equipment269 237 
Less:  accumulated depreciation - non-regulated property, plant and equipment41 37 
Non-regulated property, plant and equipment, net228 200 
Construction work in progress1,356 1,268 
Property, Plant and Equipment, net25,206 24,500 
Other Noncurrent Assets  
Regulatory assets1,286 1,262 
Goodwill716 716 
Other intangibles344 351 
Other noncurrent assets (less reserve for accounts receivable: 2021, $5; 2020 $0)482 387 
Total Other Noncurrent Assets2,828 2,716 
Total Assets$34,171 $48,116 
 
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)
 September 30,
2021
December 31,
2020
Liabilities and Equity  
Current Liabilities  
Short-term debt$ $1,168 
Long-term debt due within one year474 1,074 
Accounts payable635 745 
Taxes144 69 
Interest138 113 
Dividends318 319 
Regulatory liabilities187 79 
Other current liabilities447 465 
Current liabilities held for sale (Note 9) 11,023 
Total Current Liabilities2,343 15,055 
Long-term Debt10,665 13,615 
Deferred Credits and Other Noncurrent Liabilities  
Deferred income taxes3,108 2,536 
Investment tax credits120 122 
Accrued pension obligations195 189 
Asset retirement obligations160 132 
Regulatory liabilities2,452 2,530 
Other deferred credits and noncurrent liabilities552 564 
Total Deferred Credits and Other Noncurrent Liabilities6,587 6,073 
Commitments and Contingent Liabilities (Notes 7 and 11)00
Equity  
Common stock - $0.01 par value (a)8 
Additional paid-in capital12,290 12,270 
Treasury stock(282)— 
Earnings reinvested2,743 5,315 
Accumulated other comprehensive loss(183)(4,220)
Total Equity14,576 13,373 
Total Liabilities and Equity$34,171 $48,116 
 
(a)1,560,000 shares authorized, 769,723 shares issued and 760,109 shares outstanding at September 30, 2021. 1,560,000 shares authorized; 768,907 shares issued and outstanding at December 31, 2020.

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
Treasury stockEarnings
reinvested
Accumulated
other
comprehensive
loss
Total
June 30, 2021769,564 $$12,281 $— $2,854 $(191)$14,952 
Common stock issued159 
Treasury stock acquired(9,614)(282)(282)
Stock-based compensation
Net income (loss)207 207 
Dividends and dividend equivalents (b)(318)(318)
Other comprehensive income (loss)
September 30, 2021760,109 $$12,290 $(282)$2,743 $(183)$14,576 
December 31, 2020768,907 $12,270 $— $5,315 $(4,220)$13,373 
Common stock issued816 24 24 
Treasury stock acquired(9,614)(282)(282)
Stock-based compensation(4)(4)
Net income (loss)(1,614)(1,614)
Dividends and dividend equivalents (b)(958)(958)
Other comprehensive income (loss)4,037 4,037 
September 30, 2021760,109 $$12,290 $(282)$2,743 $(183)$14,576 
June 30, 2020768,783 $12,255 $— $5,383 $(4,602)$13,044 
Common stock issued14 
Stock-based compensation
Net income (loss)281 281 
Dividends and dividend equivalents (b)(319)(319)
Other comprehensive income (loss)675 675 
September 30, 2020768,797 $$12,260 $— $5,345 $(3,927)$13,686 
December 31, 2019767,233 $12,214 $— $5,127 $(4,358)$12,991 
Common stock issued1,564  48   48 
Stock-based compensation  (2)  (2)
Net income (loss)  1,179  1,179 
Dividends and dividend equivalents (b)  (959) (959)
Other comprehensive income (loss)   431 431 
Adoption of financial instrument credit losses guidance cumulative effect adjustment(2)(2)
September 30, 2020768,797 $$12,260 $— $5,345 $(3,927)$13,686 
(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 $0.415 and $1.245 for the three and nine months ended September 30, 2021 and September 30, 2020.

The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
8

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9

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
PPL Electric Utilities Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)
 Three Months Ended September 30,Nine Months Ended September 30,
 2021202020212020
Operating Revenues$627 $586 $1,769 $1,748 
Operating Expenses  
Operation  
Energy purchases143 118 402 373 
Other operation and maintenance147 122 400 388 
Depreciation105 102 322 301 
Taxes, other than income30 30 88 78 
Total Operating Expenses425 372 1,212 1,140 
Operating Income202 214 557 608 
Other Income (Expense) - net6 16 15 
Interest Income from Affiliate2 2 
Interest Expense39 44 124 130 
Income Before Income Taxes171 178 451 495 
Income Taxes45 44 116 125 
Net Income (a)$126 $134 $335 $370 
 
(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)
 Nine Months Ended September 30,
 20212020
Cash Flows from Operating Activities  
Net income$335 $370 
Adjustments to reconcile net income to net cash provided by operating activities  
Depreciation322 301 
Amortization14 21 
Defined benefit plans - expense (income)(7)(1)
Deferred income taxes and investment tax credits75 68 
Other(15)— 
Change in current assets and current liabilities  
Accounts receivable(24)(35)
Accounts payable(39)(7)
Unbilled revenues37 54 
Materials and supplies3 (23)
Prepayments(32)(30)
Regulatory assets and liabilities, net81 (31)
Other5 
Other operating activities  
Defined benefit plans - funding(21)(21)
Other assets(18)(20)
Other liabilities(12)
Net cash provided by operating activities704 656 
Cash Flows from Investing Activities  
Expenditures for property, plant and equipment(680)(840)
Increase in notes receivable from affiliate(575)— 
Other investing activities(1)(4)
Net cash used in investing activities(1,256)(844)
Cash Flows from Financing Activities  
Issuance of long-term debt650 — 
Retirement of long-term debt(400)— 
Contributions from parent1,075 740 
Return of capital to parent(500)(745)
Payment of common stock dividends to parent(251)(323)
Net increase in short-term debt 280 
Other financing activities(3)— 
Net cash provided by (used in) financing activities571 (48)
Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash19 (236)
Cash, Cash Equivalents and Restricted Cash at Beginning of Period40 264 
Cash, Cash Equivalents and Restricted Cash at End of Period$59 $28 
Supplemental Disclosure of Cash Flow Information
Significant non-cash transactions:
Accrued expenditures for property, plant and equipment at September 30,$131 $150 

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)
 September 30,
2021
December 31,
2020
Assets  
Current Assets  
Cash and cash equivalents$59 $40 
Accounts receivable (less reserve: 2021, $30; 2020, $41)  
Customer295 311 
Other27 17 
Accounts receivable from affiliates11 10 
Notes receivable from affiliate575 — 
Unbilled revenues (less reserve: 2021, $1; 2020, $2)84 121 
Materials and supplies59 59 
Prepayments41 
Regulatory assets32 40 
Other current assets16 13 
Total Current Assets1,199 620 
Property, Plant and Equipment  
Regulated utility plant13,927 13,514 
Less: accumulated depreciation - regulated utility plant3,387 3,297 
Regulated utility plant, net10,540 10,217 
Construction work in progress629 592 
Property, Plant and Equipment, net11,169 10,809 
Other Noncurrent Assets  
Regulatory assets510 541 
Intangibles269 268 
Pension benefit asset49 12 
Other noncurrent assets (less reserve for accounts receivable: 2021, $5; 2020, $0)124 74 
Total Other Noncurrent Assets952 895 
Total Assets$13,320 $12,324 
 
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)
 September 30,
2021
December 31,
2020
Liabilities and Equity  
Current Liabilities  
Long-term debt due within one year$474 $400 
Accounts payable351 428 
Accounts payable to affiliates44 39 
Taxes16 17 
Interest45 39 
Regulatory liabilities146 68 
Other current liabilities103 105 
Total Current Liabilities1,179 1,096 
Long-term Debt4,009 3,836 
Deferred Credits and Other Noncurrent Liabilities  
Deferred income taxes1,656 1,559 
Accrued pension obligations8 
Regulatory liabilities565 578 
Other deferred credits and noncurrent liabilities120 123 
Total Deferred Credits and Other Noncurrent Liabilities2,349 2,268 
Commitments and Contingent Liabilities (Notes 7 and 11)00
Equity  
Common stock - no par value (a)364 364 
Additional paid-in capital4,328 3,753 
Earnings reinvested1,091 1,007 
Total Equity5,783 5,124 
Total Liabilities and Equity$13,320 $12,324 
 
(a)170,000 shares authorized; 66,368 shares issued and outstanding at September 30, 2021 and December 31, 2020.

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
June 30, 202166,368 $364 $4,503 $1,015 $5,882 
Net income126 126 
Capital contributions from parent325 325 
Return of capital to parent(500)(500)
Dividends declared on common stock(50)(50)
September 30, 202166,368 $364 $4,328 $1,091 $5,783 
December 31, 202066,368 $364 $3,753 $1,007 $5,124 
Net income335 335 
Capital contributions from parent1,075 1,075 
Return of capital to parent(500)(500)
Dividends declared on common stock(251)(251)
September 30, 202166,368 $364 $4,328 $1,091 $5,783 
June 30, 202066,368 $364 $3,553 $900 $4,817 
Net income134 134 
Capital contributions from parent485 485 
Return of capital to parent(485)(485)
Dividends declared on common stock(77)(77)
September 30, 202066,368 $364 $3,553 $957 $4,874 
December 31, 201966,368 $364 $3,558 $910 $4,832 
Net income370 370 
Capital contributions from PPL740 740 
Return of capital to parent(745)(745)
Dividends declared on common stock(323)(323)
September 30, 202066,368 $364 $3,553 $957 $4,874 
 
(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

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15

CONDENSED STATEMENTS OF INCOME
Louisville Gas and Electric Company
(Unaudited)
(Millions of Dollars)
 Three Months Ended September 30,Nine Months Ended September 30,
 2021202020212020
Operating Revenues  
Retail and wholesale$393 $362 $1,147 $1,075 
Electric revenue from affiliate2 18 17 
Total Operating Revenues395 363 1,165 1,092 
Operating Expenses    
Operation    
Fuel70 64 203 188 
Energy purchases19 13 108 83 
Energy purchases from affiliate8 16 16 
Other operation and maintenance97 93 290 277 
Depreciation72 64 206 193 
Taxes, other than income12 11 34 30 
Total Operating Expenses278 253 857 787 
Operating Income117 110 308 305 
Other Income (Expense) - net2 (1)3 (1)
Interest Expense20 22 61 66 
Income Before Income Taxes99 87 250 238 
Income Taxes17 16 48 47 
Net Income (a)$82 $71 $202 $191 
 
(a)Net income equals comprehensive income.

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

16

CONDENSED STATEMENTS OF CASH FLOWS
Louisville Gas and Electric Company
(Unaudited)
(Millions of Dollars)
 Nine Months Ended September 30,
 20212020
Cash Flows from Operating Activities  
Net income$202 $191 
Adjustments to reconcile net income to net cash provided by operating activities  
Depreciation206 193 
Amortization1 
Defined benefit plans - expense 
Deferred income taxes and investment tax credits4 
Change in current assets and current liabilities  
Accounts receivable4 
Accounts receivable from affiliates(2)
Accounts payable19 (23)
Accounts payable to affiliates(13)(8)
Unbilled revenues19 22 
Fuel, materials and supplies(7)
Regulatory assets and liabilities, net(14)
Taxes payable5 (1)
Accrued interest17 18 
Other(8)(13)
Other operating activities  
Defined benefit plans - funding(3)(6)
Expenditures for asset retirement obligations(19)(12)
Other assets(3)(1)
Other liabilities4 23 
Net cash provided by operating activities412 419 
Cash Flows from Investing Activities  
Expenditures for property, plant and equipment(339)(329)
Net cash used in investing activities(339)(329)
Cash Flows from Financing Activities  
Net increase in notes payable to affiliates284 — 
Net decrease in short-term debt(221)(32)
Retirement of commercial paper(41)— 
Payment of common stock dividends to parent(139)(115)
Contributions from parent44 53 
Other financing activities(2)(1)
Net cash used in financing activities(75)(95)
Net Decrease in Cash and Cash Equivalents(2)(5)
Cash and Cash Equivalents at Beginning of Period7 15 
Cash and Cash Equivalents at End of Period$5 $10 
Supplemental Disclosure of Cash Flow Information
Significant non-cash transactions:
Accrued expenditures for property, plant and equipment at September 30,$40 $43 
 
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
17

CONDENSED BALANCE SHEETS
Louisville Gas and Electric Company
(Unaudited)
(Millions of Dollars, shares in thousands)
 September 30,
2021
December 31,
2020
Assets  
Current Assets  
Cash and cash equivalents$5 $
Accounts receivable (less reserve: 2021, $2; 2020, $2)  
Customer121 127 
Other35 35 
Unbilled revenues (less reserve: 2021, $1; 2020, $1)60 79 
Accounts receivable from affiliates19 16 
Fuel, materials and supplies126 119 
Prepayments16 14 
Regulatory assets24 23 
Other current assets 
Total Current Assets406 421 
Property, Plant and Equipment  
Regulated utility plant7,053 6,735 
Less: accumulated depreciation - regulated utility plant1,155 1,020 
Regulated utility plant, net5,898 5,715 
Construction work in progress290 320 
Property, Plant and Equipment, net6,188 6,035 
Other Noncurrent Assets  
Regulatory assets362 351 
Goodwill389 389 
Other intangibles31 35 
Other noncurrent assets115 114 
Total Other Noncurrent Assets897 889 
Total Assets$7,491 $7,345 
 
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
18

CONDENSED BALANCE SHEETS
Louisville Gas and Electric Company
(Unaudited)
(Millions of Dollars, shares in thousands)
 September 30,
2021
December 31,
2020
Liabilities and Equity  
Current Liabilities  
Short-term debt$ $262 
Long-term debt due within one year 292 
Notes payable to affiliates284 — 
Accounts payable148 153 
Accounts payable to affiliates22 31 
Customer deposits31 32 
Taxes37 32 
Price risk management liabilities2 
Regulatory liabilities30 — 
Interest32 15 
Asset retirement obligations12 10 
Other current liabilities48 50 
Total Current Liabilities646 879 
Long-term Debt2,006 1,715 
Deferred Credits and Other Noncurrent Liabilities  
Deferred income taxes737 716 
Investment tax credits32 33 
Price risk management liabilities17 21 
Asset retirement obligations77 57 
Regulatory liabilities830 882 
Other deferred credits and noncurrent liabilities91 94 
Total Deferred Credits and Other Noncurrent Liabilities1,784 1,803 
Commitments and Contingent Liabilities (Notes 7 and 11)00
Stockholder's Equity  
Common stock - no par value (a)424 424 
Additional paid-in capital1,967 1,923 
Earnings reinvested664 601 
Total Equity3,055 2,948 
Total Liabilities and Equity$7,491 $7,345 
 
(a)75,000 shares authorized; 21,294 shares issued and outstanding at September 30, 2021 and December 31, 2020.

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

19

CONDENSED STATEMENTS OF EQUITY
Louisville Gas and Electric Company
(Unaudited)
(Millions of Dollars)
 Common
stock
shares
outstanding
(a)
Common
stock
Additional
paid-in
capital
Earnings
reinvested
Total
June 30, 202121,294 $424 $1,967 $612 $3,003 
Net income82 82 
Cash dividends declared on common stock(30)(30)
September 30, 202121,294 $424 $1,967 $664 $3,055 
December 31, 202021,294 $424 $1,923 $601 $2,948 
Net income202 202 
Capital contributions from parent44 44 
Cash dividends declared on common stock(139)(139)
September 30, 202121,294 $424 $1,967 $664 $3,055 
June 30, 202021,294 $424 $1,873 $562 $2,859 
Net income71 71 
Cash dividends declared on common stock(39)(39)
September 30, 202021,294 $424 $1,873 $594 $2,891 
December 31, 201921,294 $424 $1,820 $518 $2,762 
Net income191 191 
Capital contributions from parent53 53 
Cash dividends declared on common stock(115)(115)
September 30, 202021,294 $424 $1,873 $594 $2,891 
 
(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.

20

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21

CONDENSED STATEMENTS OF INCOME
Kentucky Utilities Company
(Unaudited)
(Millions of Dollars)
 Three Months Ended September 30,Nine Months Ended September 30,
 2021202020212020
Operating Revenues  
Retail and wholesale$486 $444 $1,358 $1,256 
Electric revenue from affiliate8 16 16 
Total Operating Revenues494 452 1,374 1,272 
Operating Expenses    
Operation    
Fuel125 113 328 290 
Energy purchases5 14 14 
Energy purchases from affiliate2 18 17 
Other operation and maintenance110 105 336 316 
Depreciation94 88 273 258 
Taxes, other than income10 10 31 27 
Total Operating Expenses346 322 1,000 922 
Operating Income148 130 374 350 
Other Income (Expense) - net1 5 
Interest Expense27 28 81 85 
Income Before Income Taxes122 103 298 267 
Income Taxes23 19 57 50 
Net Income (a)$99 $84 $241 $217 
 
(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
Kentucky Utilities Company
(Unaudited)
(Millions of Dollars)
 Nine Months Ended September 30,
 20212020
Cash Flows from Operating Activities  
Net income$241 $217 
Adjustments to reconcile net income to net cash provided by operating activities  
Depreciation273 258 
Amortization5 
Defined benefit plans - expense(2)— 
Deferred income taxes and investment tax credits 20 
Other(1)(1)
Change in current assets and current liabilities  
Accounts receivable(6)(22)
Accounts receivable from affiliates1 — 
Accounts payable(4)
Accounts payable to affiliates(4)(18)
Unbilled revenues17 15 
Fuel, materials and supplies4 12 
Regulatory assets and liabilities, net(16)(20)
Taxes payable9 
Accrued interest25 23 
Other(17)(15)
Other operating activities  
Defined benefit plans - funding(1)(1)
Expenditures for asset retirement obligations(27)(47)
Other assets2 — 
Other liabilities5 11 
Net cash provided by operating activities504 446 
Cash Flows from Investing Activities  
Expenditures for property, plant and equipment(400)(381)
Other investing activities4 
Net cash used in investing activities(396)(378)
Cash Flows from Financing Activities  
Net increase in notes payable to affiliates208 — 
Issuance of long-term debt 498 
Retirement of long-term debt (500)
Net decrease in short-term debt(171)(11)
Retirement of commercial paper(32)— 
Payment of common stock dividends to parent(186)(145)
Contributions from parent60 98 
Other financing activities(1)(5)
Net cash used in financing activities(122)(65)
Net Increase (Decrease) in Cash and Cash Equivalents(14)
Cash and Cash Equivalents at Beginning of Period22 12 
Cash and Cash Equivalents at End of Period$8 $15 
Supplemental Disclosure of Cash Flow Information
Significant non-cash transactions:
Accrued expenditures for property, plant and equipment at September 30,$43 $35 
 
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
23

CONDENSED BALANCE SHEETS
Kentucky Utilities Company
(Unaudited)
(Millions of Dollars, shares in thousands)
 September 30,
2021
December 31,
2020
Assets  
Current Assets  
Cash and cash equivalents$8 $22 
Accounts receivable (less reserve: 2021, $1; 2020, $1)  
Customer158 156 
Other7 30 
Unbilled revenues (less reserve: 2021, $1; 2020, $1)80 97 
Accounts receivable from affiliates 
Fuel, materials and supplies120 123 
Prepayments18 15 
Regulatory assets4 36 
Other current assets 
Total Current Assets395 481 
Property, Plant and Equipment  
Regulated utility plant9,093 8,808 
Less: accumulated depreciation - regulated utility plant1,892 1,690 
Regulated utility plant, net7,201 7,118 
Construction work in progress393 321 
Property, Plant and Equipment, net7,594 7,439 
Other Noncurrent Assets  
Regulatory assets414 370 
Goodwill607 607 
Other intangibles23 26 
Other noncurrent assets155 149 
Total Other Noncurrent Assets1,199 1,152 
Total Assets$9,188 $9,072 
 
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
24

CONDENSED BALANCE SHEETS
Kentucky Utilities Company
(Unaudited)
(Millions of Dollars, shares in thousands)
 September 30,
2021
December 31,
2020
Liabilities and Equity  
Current Liabilities  
Short-term debt$ $203 
Long-term debt due within one year 132 
Notes payable to affiliates208 — 
Accounts payable92 121 
Accounts payable to affiliates44 43 
Customer deposits32 32 
Taxes38 29 
Regulatory liabilities11 11 
Interest44 19 
Asset retirement obligations29 40 
Other current liabilities48 59 
Total Current Liabilities546 689 
Long-term Debt2,618 2,486 
Deferred Credits and Other Noncurrent Liabilities  
Deferred income taxes856 835 
Investment tax credits87 88 
Asset retirement obligations83 75 
Regulatory liabilities1,057 1,070 
Other deferred credits and noncurrent liabilities44 47 
Total Deferred Credits and Other Noncurrent Liabilities2,127 2,115 
Commitments and Contingent Liabilities (Notes 7 and 11)00
Stockholder's Equity  
Common stock - no par value (a)308 308 
Additional paid-in capital2,917 2,857 
Earnings reinvested672 617 
Total Equity3,897 3,782 
Total Liabilities and Equity$9,188 $9,072 
 
(a)80,000 shares authorized; 37,818 shares issued and outstanding at September 30, 2021 and December 31, 2020.

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

25

CONDENSED STATEMENTS OF EQUITY
Kentucky Utilities Company
(Unaudited)
(Millions of Dollars)
 Common
stock
shares
outstanding
(a)
Common
stock
Additional
paid-in
capital
Earnings
reinvested
Total
June 30, 202137,818 $308 $2,917 $648 $3,873 
Net income99 99 
Cash dividends declared on common stock(75)(75)
September 30, 202137,818 $308 $2,917 $672 $3,897 
December 31, 202037,818 $308 $2,857 $617 $3,782 
Net income241 241 
Capital contributions from parent60 60 
Cash dividends declared on common stock(186)(186)
September 30, 202137,818 $308 $2,917 $672 $3,897 
June 30, 202037,818 $308 $2,766 $581 $3,655 
Net income84 84 
Capital contributions from parent61 61 
Cash dividends declared on common stock(56)(56)
September 30, 202037,818 $308 $2,827 $609 $3,744 
December 31, 201937,818 $308 $2,729 $537 $3,574 
Net income217 217 
Capital contributions from parent98 98 
Cash dividends declared on common stock(145)(145)
September 30, 202037,818 $308 $2,827 $609 $3,744 
 
(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.

 
26

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 ElectricLG&EKU
1. Interim Financial Statementsxxxx
2. Summary of Significant Accounting Policiesxxxx
3. Segment and Related Informationxxxx
4. Revenue from Contracts with Customersxxxx
5. Earnings Per Sharex
6. Income Taxesxxxx
7. Utility Rate Regulationxxxx
8. Financing Activitiesxxxx
9. Acquisitions, Development and Divestituresx
10. Defined Benefitsxxxx
11. Commitments and Contingenciesxxxx
12. Related Party Transactionsxxx
13. Other Income (Expense) - netx
14. Fair Value Measurementsxxxx
15. Derivative Instruments and Hedging Activitiesxxxx
16. Asset Retirement Obligationsxxx
17. Accumulated Other Comprehensive Income (Loss)x

1. Interim Financial Statements
 
(All Registrants)
 
Capitalized terms and abbreviations appearing in the unaudited combined notes to condensed financial statements are defined in the glossary. Dollars are in millions, except per share data, unless otherwise noted. The specific Registrant to which disclosures are applicable is identified in parenthetical headings in italics above the applicable disclosure or within the applicable disclosure for each 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, 2020 is derived from that Registrant's 2020 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 2020 Form 10-K. The results of operations for the three and nine months ended September 30, 2021 are not necessarily indicative of the results to be expected for the full year ending December 31, 2021 or other future periods, because results for interim periods can be disproportionately influenced by various factors, developments and seasonal variations.

(PPL)

On March 17, 2021, PPL WPD Limited entered into a share purchase agreement to sell PPL's U.K. utility business, which substantially represented PPL's U.K. Regulated segment, to a subsidiary of National Grid plc. The sale was completed on
June 14, 2021. The results of operations of the U.K. utility business are classified as Discontinued Operations on PPL's Statements of Income. The assets and liabilities of the U.K. utility business as of December 31, 2020 have been classified as
27

assets and liabilities held for sale on PPL's Balance Sheets. PPL has elected to separately report the cash flows of continuing and discontinued operations on the Statements of Cash Flows. Unless otherwise noted, the notes to these financial statements exclude amounts related to discontinued operations and assets and liabilities held for sale for all periods presented. See Note 9 for additional information.

On July 1, 2021, LKE redeemed, at par, its $250 million 4.375% Senior Notes due 2021 and on July 9, 2021, LKE filed a Form 15 with the SEC to suspend its duty to file reports under sections 13 and 15(d) of the Securities Exchange Act of 1934. As a result, beginning with the June 30, 2021 Form 10-Q, LKE was no longer reported as a Registrant.

2. Summary of Significant Accounting Policies

(All Registrants)

The following accounting policy disclosures represent updates to Note 1 in each Registrant's 2020 Form 10-K and should be read in conjunction with those disclosures.

Restricted Cash and Cash Equivalents (PPL)

Reconciliation of Cash, Cash Equivalents and Restricted Cash

The following provides a reconciliation of Cash, Cash Equivalents and Restricted Cash reported within the Balance Sheets that sum to the total of the same amounts shown on the Statements of Cash Flows:
PPL
September 30,
2021
December 31,
2020
Cash and cash equivalents$4,767 $442 
Restricted cash - current (a)
Total Cash, Cash Equivalents and Restricted Cash$4,768 $443 

(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."

Current Expected Credit Losses

(All Registrants)

The following table shows changes in the allowance for credit losses for the nine months ended September 30, 2021:
Balance at
Beginning of Period
Charged to IncomeDeductions (a)Balance at
End of Period
PPL    
Accounts Receivable - Customer and Unbilled Revenue (c)$44 $$17 $36 
Other (b)28 — 29 
PPL Electric    
Accounts Receivable - Customer and Unbilled Revenue (c)$39 $$11 $32 
Other— — 
LG&E    
Accounts Receivable - Customer and Unbilled Revenue$$$$
Other— — 
KU    
Accounts Receivable - Customer and Unbilled Revenue$$$$

(a)Primarily related to uncollectible accounts receivable written off.
(b)Primarily related to receivables at Western Kentucky Energy Corp., a subsidiary of LKE, which are fully reserved.
(c)Includes $5 million related to Noncurrent Accounts Receivable – Customer included in “Other noncurrent assets” on the PPL and PPL Electric Balance Sheets at September 30, 2021.
28


Income Taxes

The TCJA included new provisions requiring that certain income, referred to as global intangible low-tax income (GILTI), earned by certain foreign subsidiaries must be included in the gross income of their U.S. shareholder. Accounting guidance allows a policy election regarding the timing of inclusion of GILTI in an entity’s financial statements. The election may be either to record deferred taxes for expected GILTI in future periods or record such taxes as a current-period expense when incurred. PPL has elected to record the tax effect of expected GILTI inclusions and thus, records deferred taxes relating to such inclusions.

In light of the disposition of PPL's U.K. utility business, indefinite reinvestment is no longer relevant. As such, PPL realized the outside book-tax basis difference in those assets. Accordingly, in June 2021, a current tax liability was recorded to reflect the estimated tax cost associated with the realization of that basis difference.

See Note 6 for additional discussion regarding income taxes.

Asset Impairment (Excluding Investments)

(PPL)

During the three month-period ended June 30, 2021, Safari Energy determined that the carrying value of its solar panel inventory would not be fully recoverable due to a decrease in the net realizable value of the modules. The decrease was due primarily to the combination of the three following factors: (1) a continued decrease in the fair value of the modules on hand due to more efficient modules being available on the market, (2) the federal government's extension of certain investment tax credits which make modules on the open market eligible for those credits at higher levels of credits and (3) an increase in commodity prices for materials used in various types of solar projects, all of which place pressure on the economics of those projects, making the cost of Safari's solar panels uncompetitive. As a result, Safari Energy recorded a loss of $37 million ($28 million after-tax) in June 2021 to record the solar panels at fair value. The loss was recorded to "Other operation and maintenance" expense on the Statement of Income. Solar panel inventories of $49 million are included in "Other noncurrent assets" on PPL's Balance Sheet at September 30, 2021.

PPL considered whether the events and circumstances that led to the impairment of Safari Energy's solar panels would more likely than not reduce the fair value of PPL's Distributed Energy Resources reporting unit below its carrying amount. Based on PPL's assessment, a quantitative impairment test was not required, however, a goodwill impairment charge could occur in future periods if there is a degradation of expected future cash flows or unfavorable movements in discount rates or market multiples used in determining fair value.

3. Segment and Related Information

(PPL)

See Note 2 in PPL's 2020 Form 10-K for a discussion of reportable segments and related information.

On March 17, 2021, PPL WPD Limited entered into a share purchase agreement to sell PPL's U.K. utility business, which substantially represented PPL's U.K. Regulated segment. As a result, PPL determined segment information for the U.K. Regulated segment would no longer be provided beginning with the March 31, 2021 Form 10-Q. The sale of the U.K. utility business was completed on June 14, 2021. See Note 9 for additional information.
29


Income Statement data for the segments and reconciliation to PPL's consolidated results for the periods ended September 30 are as follows:
 Three MonthsNine Months
 2021202020212020
Operating Revenues from external customers  
Kentucky Regulated$879 $806 $2,505 $2,331 
Pennsylvania Regulated627 586 1,769 1,748 
Corporate and Other24 24 
Total$1,512 $1,400 $4,298 $4,103 
Net Income    
Kentucky Regulated (a)$159 $129 $389 $330 
Pennsylvania Regulated (a)126 135 335 371 
Corporate and Other (a)(b)(c)(76)(147)(848)(227)
Discontinued Operations (d)(2)164 (1,490)705 
Total$207 $281 $(1,614)$1,179 

(a)Beginning in 2021, corporate level financing costs are no longer allocated to the reportable segments and are being reported in Corporate and Other. For the three and nine months ended September 30, 2020, corporate level financing costs of $8 million, net of $2 million of income taxes, and $25 million, net of $6 million of income taxes, were allocated to the Kentucky Regulated segment. For the three and nine months ended September 30, 2020, an immaterial amount of financing costs were allocated to the Pennsylvania Regulated segment.
(b)The amounts for the periods ended September 30, 2020 have been adjusted for certain costs that were previously included in the U.K. Regulated segment.
(c)2021 includes losses from the extinguishment of PPL Capital Funding debt. See Note 8 for additional information.
(d)See Note 9 for additional information.

The following provides Balance Sheet data for the segments and reconciliation to PPL's consolidated Balance Sheets as of:
September 30,
2021
December 31,
2020
Assets  
Kentucky Regulated$16,250 $15,943 
Pennsylvania Regulated13,350 12,347 
Corporate and Other (a)4,571 843 
Assets Held for Sale (b)— 18,983 
Total$34,171 $48,116 

(a)Primarily consists of unallocated items, including cash, PP&E, goodwill, the elimination of inter-segment transactions as well as the assets of Safari Energy.
(b)See Note 9 for additional information.

(PPL Electric, LG&E and KU)

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

4. Revenue from Contracts with Customers

(All Registrants)

See Note 3 in the Registrants' 2020 Form 10-K for a discussion of the principal activities from which the Registrants and PPL’s segments generate their revenues.

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

2021 Three Months
PPLPPL ElectricLG&EKU
Operating Revenues (a)$1,512 $627 $395 $494 
   Revenues derived from:
Alternative revenue programs (b)19 22 (1)(2)
Other (c)(4)— (2)(2)
Revenues from Contracts with Customers$1,527 $649 $392 $490 
2020 Three Months
PPLPPL ElectricLG&EKU
Operating Revenues (a)$1,400 $586 $363 $452 
   Revenues derived from:
Alternative revenue programs (b)(1)(5)
Other (c)(4)— (2)(2)
Revenues from Contracts with Customers$1,395 $581 $363 $452 
2021 Nine Months
PPLPPL ElectricLG&EKU
Operating Revenues (a)$4,298 $1,769 $1,165 $1,374 
   Revenues derived from:
Alternative revenue programs (b)62 68 (2)(4)
Other (c)(15)— (7)(8)
Revenues from Contracts with Customers$4,345 $1,837 $1,156 $1,362 
2020 Nine Months
PPLPPL ElectricLG&EKU
Operating Revenues (a)$4,103 $1,748 $1,092 $1,272 
   Revenues derived from:
Alternative revenue programs (b)(12)(6)(2)(4)
Other (c)(17)(3)(6)(8)
Revenues from Contracts with Customers$4,074 $1,739 $1,084 $1,260 

(a)PPL Electric represents revenues from external customers reported by the Pennsylvania Regulated segment and LG&E and KU, net of intercompany power sales and transmission revenues, represent revenues from external customers reported by the Kentucky Regulated segment. Kentucky Regulated segment revenues from contracts with customers were $872 million and $2,484 million for the three and nine month periods ended September 30, 2021 and $806 million and $2,311 million for the three and nine month periods ended September 30, 2020. 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 and gas supply clause incentive mechanism for LG&E, and the generation formula rate for KU. For PPL Electric, the three months and nine months ended September 30, 2021 include a $13 million and $64 million reserve recorded for a reduction in the transmission formula rate return on equity. See Note 7 for additional information. This line item shows the over/under collection of these rate mechanisms with over-collections of revenue shown as positive amounts in the table above and under-collections shown as negative amounts.
(c)Represents additional revenues outside the scope of revenues from contracts with customers, such as lease and other miscellaneous revenues.

The following tables show revenues from contracts with customers disaggregated by customer class for the periods ended September 30.
2021 Three Months
PPLPPL ElectricLG&EKU
Residential$684 $324 $180 $180 
Commercial345 95 123 127 
Industrial168 14 46 108 
Other (a)100 13 37 44 
Wholesale - municipality— — 
Wholesale - other (b)20 — 24 
Transmission203 203 — — 
Revenues from Contracts with Customers$1,527 $649 $392 $490 
31

2020 Three Months
PPLPPL ElectricLG&EKU
Residential$651 $303 $173 $175 
Commercial310 79 112 119 
Industrial156 13 47 96 
Other (a)86 12 28 38 
Wholesale - municipality— — 
Wholesale - other (b)11 — 17 
Transmission174 174 — — 
Revenues from Contracts with Customers$1,395 $581 $363 $452 
2021 Nine Months
PPLPPL ElectricLG&EKU
Residential$2,025 $964 $529 $532 
Commercial955 260 351 344 
Industrial474 39 135 300 
Other (a)284 38 102 120 
Wholesale - municipality18 — — 18 
Wholesale - other (b)53 — 39 48 
Transmission536 536 — — 
Revenues from Contracts with Customers$4,345 $1,837 $1,156 $1,362 
2020 Nine Months
PPLPPL ElectricLG&EKU
Residential$1,948 $937 $509 $502 
Commercial896 234 336 326 
Industrial434 33 130 271 
Other (a)256 38 84 110 
Wholesale - municipality15 — — 15 
Wholesale - other (b)28 — 25 36 
Transmission497 497 — — 
Revenues from Contracts with Customers$4,074 $1,739 $1,084 $1,260 

(a)Primarily includes revenues from pole attachments, street lighting, other public authorities and other non-core businesses.
(b)Includes wholesale power and transmission revenues. LG&E and KU amounts include intercompany power sales and transmission revenues, which are eliminated upon consolidation at the Kentucky Regulated segment.

As discussed in Note 2 in PPL's 2020 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.

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

The following table shows the accounts receivable and unbilled revenues balances that were impaired for the periods ended September 30.
Three MonthsNine Months
2021202020212020
PPL$$$$19 
PPL Electric12 
LG&E
KU

The following table shows the balances and certain activity of contract liabilities resulting from contracts with customers.
32

PPLPPL ElectricLG&EKU
Contract liabilities at December 31, 2020$40 $23 $$
Contract liabilities at September 30, 202137 21 
Revenue recognized during the nine months ended September 30, 2021 that was included in the contract liability balance at December 31, 202024 11 
Contract liabilities at December 31, 2019$37 $21 $$
Contract liabilities at September 30, 202032 18 
Revenue recognized during the nine months ended September 30, 2020 that was included in the contract liability balance at December 31, 201921 

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

At September 30, 2021, PPL had $48 million of performance obligations attributable to Corporate and Other that have not been satisfied. Of this amount, PPL expects to recognize approximately $42 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 share-based payment awards were converted to common shares as calculated using the Two-Class Method or Treasury Stock Method.
 
Reconciliations of the amounts of income and shares of PPL common stock (in thousands) for the periods ended September 30 used in the EPS calculation are:
 Three MonthsNine Months
 2021202020212020
Income (Numerator)    
Income (loss) from continuing operations after income taxes available to PPL common shareowners - Basic and Diluted$209 $117 $(124)$474 
Income (loss) from discontinued operations (net of income taxes) available to PPL common shareowners - Basic and Diluted$(2)$164 $(1,490)$705 
Net income (loss) available to PPL common shareowners - Basic and Diluted$207 $281 $(1,614)$1,179 
Shares of Common Stock (Denominator)    
Weighted-average shares - Basic EPS767,733 768,786 768,781 768,502 
Add: Dilutive share-based payment awards (a)2,116 874 — 768 
Weighted-average shares - Diluted EPS769,849 769,660 768,781 769,270 
Basic and Diluted EPS    
Available to PPL common shareowners:
Income from continuing operations after income taxes$0.27 $0.15 $(0.16)$0.62 
Income (loss) from discontinued operations (net of income taxes)— 0.22 (1.94)0.91 
Net Income (Loss) available to PPL common shareowners$0.27 $0.37 $(2.10)$1.53 
(a)    All share-based payment awards were excluded from dilutive shares under the Treasury Stock Method for the nine months ended September 30, 2021, as their effect would have been anti-dilutive due to the loss from continuing operations.
33


For the periods ended September 30, PPL issued common stock related to stock-based compensation plans and the DRIP as follows (in thousands):
 Three MonthsNine Months
 2021202020212020
Stock-based compensation plans158 14 816 621 
DRIP— — — 943 

See Note 8 for common stock repurchased under an authorized share repurchase program.

For the periods ended September 30, the following shares (in thousands) were excluded from the computations of diluted EPS because the effect would have been antidilutive.
 Three MonthsNine Months
2021202020212020
Stock-based compensation awards135 364 2,339 595 
 
6. Income Taxes

Reconciliations of income tax expense (benefit) for the periods ended September 30 are as follows.
(PPL)
Three MonthsNine Months
2021202020212020
Federal income tax on Income from Continuing Operations Before Income Taxes at statutory tax rate - 21%$55 $59 $70 $155 
Increase (decrease) due to:    
State income taxes, net of federal income tax benefit (a)17 15 12 39 
Valuation allowance adjustments (a)39 19 
Impact of the U.K. Finance Acts on deferred tax balances (b)— 104 383 101 
Amortization of excess deferred federal and state income taxes(18)(11)(38)(34)
Federal and state income tax return adjustments(4)(9)(4)(9)
Other(4)— (7)(5)
Total increase (decrease)(4)106 385 111 
Total income tax expense (benefit)$51 $165 $455 $266 

(a)    In 2021, PPL recorded a $31 million state deferred tax benefit on a net operating loss and an offsetting valuation allowance in connection with the loss on extinguishment associated with a tender offer to purchase and retire PPL Capital Funding's outstanding Senior Notes. See Note 8 for additional information on the tender offer.

(b)The U.K. Finance Act 2020, formally enacted on July 22, 2020, cancelled the U.K. corporation tax rate reduction to 17%, thereby maintaining the corporation tax rate at 19% for financial years 2020 and 2021. The primary impact of the cancellation of the corporate tax rate reduction was an increase in deferred tax liabilities and a corresponding deferred tax expense of $102 million in the third quarter of 2020.

The U.K. Finance Act 2021, formally enacted on June 10, 2021, increased the U.K. corporation tax rate from 19% to 25%, effective April 1, 2023. The primary impact of the corporation tax rate increase was an increase in deferred tax liabilities of the U.K. utility business, which was sold on June 14, 2021, and a corresponding deferred tax expense of $383 million, which was recognized in continuing operations in the second quarter of 2021.

34

(PPL Electric)  
 Three MonthsNine Months
 2021202020212020
Federal income tax on Income Before Income Taxes at statutory tax rate - 21%$36 $37 $95 $104 
Increase (decrease) due to:    
State income taxes, net of federal income tax benefit13 14 36 39 
Federal and state income tax return adjustments— (4)— (4)
Depreciation and other items not normalized— — (4)(4)
Amortization of excess deferred federal and state income taxes(5)(4)(11)(12)
Other— 
Total increase (decrease)21 21 
Total income tax expense (benefit)$45 $44 $116 $125 

(LG&E)  
 Three MonthsNine Months
 2021202020212020
Federal income tax on Income Before Income Taxes at statutory tax rate - 21%$21 $18 $53 $50 
Increase (decrease) due to:    
State income taxes, net of federal income tax benefit10 
Amortization of excess deferred federal and state income taxes(7)(3)(13)(8)
Federal and state income tax return adjustments— (2)— (2)
Other(1)— (2)(2)
Total increase (decrease)(4)(2)(5)(3)
Total income tax expense (benefit)$17 $16 $48 $47 

(KU)  
 Three MonthsNine Months
 2021202020212020
Federal income tax on Income Before Income Taxes at statutory tax rate - 21%$26 $22 $63 $56 
Increase (decrease) due to:    
State income taxes, net of federal income tax benefit12 11 
Amortization of excess deferred federal and state income taxes(6)(4)(14)(12)
Federal and state income tax return adjustments(1)(3)(1)(3)
Other(1)— (3)(2)
Total increase (decrease)(3)(3)(6)(6)
Total income tax expense (benefit)$23 $19 $57 $50 

Other

Net Operating Loss and Tax Credit Carryforwards (All Registrants)

PPL utilized federal net operating losses of $1,111 million and tax credit carryforwards of $272 million in June 2021 as a result of the completion of the sale of the U.K. utility business on June 14, 2021. The related deferred tax assets decreased by approximately $506 million, with a corresponding reduction in current income taxes.

7. Utility Rate Regulation

(All Registrants)

The following table provides information about the regulatory assets and liabilities of cost-based rate-regulated utility operations.
35

PPLPPL Electric
September 30,
2021
December 31,
2020
September 30,
2021
December 31,
2020
Current Regulatory Assets:    
Plant outage costs$— $46 $— $— 
Gas supply clause12 — — 
Smart meter rider15 17 15 17 
Storm damage expense rider— — 
Transmission formula rate11 15 11 15 
Gas line tracker— — 
Storm costs
Generation formula rate— — 
Other— 
Total current regulatory assets$60 $99 $32 $40 
Noncurrent Regulatory Assets:    
Defined benefit plans$555 $570 $274 $290 
Storm costs12 17 — — 
Unamortized loss on debt25 30 
Interest rate swaps19 23 — — 
Terminated interest rate swaps71 75 — — 
Accumulated cost of removal of utility plant232 240 232 240 
AROs312 300 — — 
Plant outage costs55 — — — 
Other— 
Total noncurrent regulatory assets$1,286 $1,262 $510 $541 
PPLPPL Electric
September 30,
2021
December 31,
2020
September 30,
2021
December 31,
2020
Current Regulatory Liabilities:    
Generation supply charge$11 $21 $11 $21 
Transmission service charge26 26 
Environmental cost recovery— — — 
Universal service rider16 22 16 22 
Fuel adjustment clause— — — 
TCJA customer refund22 11 22 11 
Storm damage expense rider— — 
Act 129 compliance rider
Transmission formula rate return on equity reserve (a)64 — 64 — 
Economic relief billing credit (b)38 — — — 
Other— — 
Total current regulatory liabilities$187 $79 $146 $68 
Noncurrent Regulatory Liabilities:    
Accumulated cost of removal of utility plant$669 $653 $— $— 
Power purchase agreement - OVEC36 43 — — 
Net deferred taxes1,609 1,690 539 560 
Defined benefit plans74 60 26 18 
Terminated interest rate swaps64 66 — — 
Other— 18 — — 
Total noncurrent regulatory liabilities$2,452 $2,530 $565 $578 

36

 LG&EKU
September 30,
2021
December 31,
2020
September 30,
2021
December 31,
2020
Current Regulatory Assets:    
Gas supply clause$12 $$— $— 
Gas line tracker— — 
Plant outage costs— 12 — 34 
Generation formula rate— — 
Other— 
Total current regulatory assets$24 $23 $$36 
Noncurrent Regulatory Assets:    
Defined benefit plans$175 $174 $106 $106 
Storm costs11 
Unamortized loss on debt13 13 
Interest rate swaps19 23 — — 
Terminated interest rate swaps42 44 29 31 
AROs87 85 225 215 
Plant outage costs15 — 40 — 
Other
Total noncurrent regulatory assets$362 $351 $414 $370 

LG&EKU
September 30,
2021
December 31,
2020
September 30,
2021
December 31,
2020
Current Regulatory Liabilities:    
Environmental cost recovery$— $— $— $
Fuel adjustment clause— — — 
Economic relief billing credit (b)29 — — 
Other— 
Total current regulatory liabilities$30 $— $11 $11 
Noncurrent Regulatory Liabilities:    
Accumulated cost of removal of utility plant$277 $274 $392 $379 
Power purchase agreement - OVEC25 30 11 13 
Net deferred taxes495 528 575 602 
Defined benefit plans— 47 42 
Terminated interest rate swaps32 33 32 33 
Other— 17 — 
Total noncurrent regulatory liabilities$830 $882 $1,057 $1,070 
  
(a)See “Regulatory Matters - Federal Matters - PPL Electric Transmission Formula Rate Return on Equity” below for additional information.
(b)Represents regulatory liabilities to be returned to customers through June 30, 2022, as agreed to in the Kentucky rate case, in recognition of the economic impact of COVID-19. See "Regulatory Matters – Kentucky Activities – Rate Case Proceedings" below for additional information.

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Regulatory Matters

Kentucky Activities (PPL, LG&E and KU)

Rate Case Proceedings

On November 25, 2020, LG&E and KU filed requests with the KPSC for an increase in annual electricity and gas revenues of approximately $331 million ($131 million and $170 million in electricity revenues at LG&E and KU and $30 million in gas revenues at LG&E). The revenue increases would be an increase of 11.6% and 10.4% in electricity revenues at LG&E and KU, and an increase of 8.3% in gas revenues at LG&E. In recognition of the economic impact of COVID-19, LG&E and KU requested approval of a one-year billing credit which will credit customers approximately $53 million ($41 million at LG&E and $12 million at KU). The billing credit represents the return to customers of certain regulatory liabilities on LG&E’s and KU’s Balance Sheets and serves to partially mitigate the rate increases during the first year in which the new rates are in effect.

LG&E’s and KU’s applications also included a request for a CPCN to deploy Advanced Metering Infrastructure across LG&E’s and KU’s service territories in Kentucky.
The applications were based on a forecasted test year of July 1, 2021 through June 30, 2022 and requested an authorized return on equity of 10.0%.

On April 19, 2021, LG&E and KU entered into an agreement with all intervening parties to the proceedings resolving all matters in their applications, with the explicit exception of LG&E's and KU's net metering proposals. The agreement proposed increases in annual revenues of $217 million ($77 million and $116 million in electricity revenues at LG&E and KU and $24 million in gas revenues at LG&E) based on an authorized return on equity of 9.55%. The proposal included an authorized 9.35% return on equity for the ECR and GLT mechanisms. The agreement did not modify the requested one-year billing credit. The agreement proposed that the KPSC should grant LG&E’s and KU’s request for a CPCN to deploy Advanced Metering Infrastructure and proposed the establishment of a Retired Asset Recovery rider (RAR) to provide for recovery of and return on the remaining investment in certain electric generating units upon their retirement over a ten-year period following retirement. In respect of the RAR rider, the agreement proposed that LG&E and KU will continue to use currently approved depreciation rates for Mill Creek Units 1 and 2 and Brown Unit 3. The agreement also proposed a four-year "stay-out" commitment from LG&E and KU to refrain from effective base rate increases before July 1, 2025, subject to certain exceptions.

On June 30, 2021, the KPSC issued orders approving the proposed agreement filed in April 2021, with certain modifications. The orders provide for increases in annual revenues of $199 million ($73 million and $106 million in electricity revenues at LG&E and KU and $20 million in gas revenues at LG&E) based on an authorized return on equity of 9.425%. The order grants the requested authorized 9.35% return on equity for the ECR and GLT mechanisms and does not modify the requested one-year billing credit. The orders approve the CPCN to deploy Advanced Metering Infrastructure and provide regulatory asset treatment for the remaining net book value of legacy meters upon full implementation of the Advanced Metering Infrastructure program. The orders also approve the establishment of the RAR rider and accepted the four-year "stay-out". The orders, however, disallowed certain legal costs that were included in the settlement. On July 23, 2021, LG&E and KU filed motions for partial rehearing and clarification of the return on equity, the disallowed legal costs and certain other matters related to the KPSC's orders. On August 12, 2021, the KPSC granted rehearing and clarification of the disallowed legal costs and certain other matters and denied rehearing and clarification of the return on equity. On September 24, 2021, the KPSC issued orders providing adjustments to previous net metering proposals. These adjustments did not impact the previously ordered annual revenue increases. PPL, LG&E and KU cannot predict the outcome of the remaining issues subject to partial rehearing and clarification.

Pennsylvania Activities (PPL and PPL Electric)
 
Act 129
 
Act 129 requires Pennsylvania Electric Distribution Companies (EDCs) to meet, by specified dates, specified goals for reduction in customer electricity usage and peak demand. EDCs not meeting the requirements of Act 129 are subject to significant penalties. PPL Electric filed with the PUC its Act 129 Phase IV Energy Efficiency and Conservation Plan (Phase IV Act 129 Plan) on November 30, 2020, for the five-year period starting June 1, 2021 and ending on May 31, 2026. PPL Electric's Phase IV Act 129 Plan was approved by the PUC at its March 25, 2021, public meeting.

38

Federal Matters

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 was unjust and unreasonable.

On August 20, 2021, PPL Electric entered into a settlement agreement (the "Settlement") with PPLICA and all other parties, including intervenors, with respect to the complaint filed by PPLICA on May 21, 2020.

The key aspects of the Settlement include:
changes to PPL Electric’s base ROE:
beginning as of May 21, 2020 and continuing through May 31, 2022, the ROE shall be 9.90%;
beginning on June 1, 2022 and continuing through May 31, 2023, the ROE shall be 9.95%;
beginning on June 1, 2023, the ROE shall be 10.00%, which shall continue in effect unless and until changed as permitted by the terms of the Settlement;
changes the equity component of PPL Electric’s capital structure to be the lower of (i) PPL Electric’s actual equity component, calculated in accordance with the formula rate template, or (ii) 56.00%;
allows modification of the current rate year of June 1 to May 31 to a calendar year of January 1 to December 31; and
allows modification of the current formula rate based on a historic test year to a projected test year.

Refunds will be paid by PPL Electric based on the difference between charges that were calculated using the ROE in effect at the time and reduced charges calculated using the ROE provided for in the Settlement, plus interest at the FERC interest rate. In the three and nine months ended September 30, 2021, PPL Electric recorded a revenue reserve of $13 million ($10 million after-tax) and $64 million ($46 million after-tax) representing revenue subject to refund for the period May 21, 2020 through September 30, 2021. The reserve recorded in the nine months ended September 30, 2021, includes $28 million ($20 million after-tax) related to the period from May 21, 2020 to December 31, 2020.

The Settlement is subject to review and action by the FERC, including approval, denial or modification. PPL Electric cannot predict the outcome of the FERC’s review of the Settlement.

While the FERC's review of the settlement is pending, on October 15, 2021, PPL Electric filed a request to the FERC Chief Administrative Law Judge for authorization to implement interim rates to reflect the agreed-to base ROE in the Settlement effective December 1, 2021. The requested interim settlement rates were accepted on October 20, 2021.

FERC Transmission Rate Filing (PPL, 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. In September 2020, the FERC issued orders in the rehearing process that modified various aspects of the September 2019 orders which had approved future termination of the credits, including adjusting which customer arrangements are covered by the transition mechanism and respective future periods or dates for termination of credits. In November 2020, the FERC denied the parties' rehearing requests. In November 2020 and January 2021, LG&E and KU and other parties appealed the September 2020 and November 2020 orders at the D.C. Circuit Court of Appeals. The appellate proceedings are continuing, and also include certain additional prior pending petitions for review relating to the matter. On January 15, 2021, LG&E and KU made a filing seeking FERC acceptance of a new proposal for a transition mechanism. On March 16, 2021, the FERC accepted the filed transition mechanism agreements effective on March 17, 2021 but subject to refund, and established hearing and settlement procedures. LG&E and KU cannot predict the outcome of the respective
39

appellate and FERC proceedings. LG&E and KU currently receive recovery of the waivers and credits provided through other rate mechanisms and such rate recovery would be anticipated to be adjusted consistent with potential changes or terminations of the waivers and credits, as such become effective.

Other

Purchase of Receivables Program (PPL and PPL Electric)

In accordance with a PUC-approved purchase of accounts receivable program, PPL Electric purchases certain accounts receivable from alternative electricity suppliers at a discount, which reflects a provision for uncollectible accounts. The alternative electricity suppliers have no continuing involvement or interest in the purchased accounts receivable. Accounts receivable that are acquired are initially recorded at fair value on the date of acquisition. During the three and nine months ended September 30, 2021, PPL Electric purchased $309 million and $883 million of accounts receivable from alternative suppliers. During the three and nine months ended September 30, 2020, PPL Electric purchased $303 million and $854 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, PPL's arrangements listed below include the credit facilities and commercial paper programs of PPL Electric, LG&E and KU. 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” at December 31, 2020. The following credit facilities were in place at:
 September 30, 2021December 31, 2020
 Expiration
Date
CapacityBorrowedLetters of
Credit
and
Commercial
Paper
Issued
Unused
Capacity
BorrowedLetters of
Credit
and
Commercial
Paper
Issued
PPL       
PPL Capital Funding       
Syndicated Credit FacilityJan. 2024$1,450 $— $— $1,450 $— $402 
Bilateral Credit FacilityMar. 202250 — — 50 — — 
Bilateral Credit FacilityMar. 202250 — 15 35 — 15 
Term Loan Credit FacilityMar. 2022— — — — 100 — 
Term Loan Credit FacilityMar. 2021— — — — 100 — 
Term Loan Credit FacilityMar. 2021— — — — 200 — 
Total PPL Capital Funding Credit Facilities$1,550 $— $15 $1,535 $400 $417 
PPL Electric       
Syndicated Credit FacilityJan. 2024$650 $— $$649 $— $
LG&E      
Syndicated Credit FacilityJan. 2024$500 $— $— $500 $— $262 
KU       
Syndicated Credit FacilityJan. 2024$400 $— $— $400 $— $203 

PPL Capital Funding, 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:
40

 September 30, 2021December 31, 2020
Weighted -
Average
Interest Rate
CapacityCommercial
Paper
Issuances
Unused
Capacity
Weighted -
Average
Interest Rate
Commercial
Paper
Issuances
PPL Capital Funding$1,500 $— $1,500 0.25%$402 
PPL Electric
650 — 650 — 
LG&E (a)425 — 425 0.28%262 
KU350 — 350 0.28%203 
Total $2,925 $— $2,925  $867 

(a)In March 2021, the capacity for the LG&E commercial paper program was increased from $350 million to $425 million.

(PPL Electric, LG&E, and KU)

See Note 12 for discussion of intercompany borrowings.

Long-term Debt

(PPL)

In April 2021, PPL Capital Funding repaid its $100 million term loan expiring in March 2022.

In June 2021, PPL Capital Funding commenced a tender offer to purchase for cash and retire (1) any and all of its outstanding 4.20% Senior Notes due 2022, 3.50% Senior Notes due 2022, 3.40% Senior Notes due 2023 and 3.95% Senior Notes due 2024 and (2) up to $1 billion aggregate purchase price of its outstanding 4.70% Senior Notes due 2043, 5.00% Senior Notes due 2044, 4.00% Senior Notes due 2047, 4.125% Senior Notes due 2030 and 3.10% Senior Notes due 2026.

In June 2021, in connection with the tender offer, PPL Capital Funding retired $1,962 million combined aggregate principal amount of its outstanding Senior Notes for $2,293 million aggregate cash purchase price that included the tender premium and accrued interest. These Senior Notes had a weighted average interest rate of 4.14%. The loss on extinguishment associated with the transaction was $322 million, which included the tender premium, bank fees and unamortized fees, hedges and discounts. This loss on extinguishment was recorded to "Interest Expense" on the Statements of Income.

In July 2021, PPL Capital Funding redeemed the remaining $1,072 million combined aggregate principal amount of its outstanding 4.20% Senior Notes due 2022, 3.50% Senior Notes due 2022, 3.40% Senior Notes due 2023 and 3.95% Senior Notes due 2024 that had not been validly tendered for an aggregate cash purchase price of $1,133 million, which included make-whole premiums and accrued interest. These Senior Notes had a weighted average interest rate of 3.71%. The loss on extinguishment associated with the transaction was $58 million, which included make-whole premiums, unamortized fees, hedges and discounts. PPL Capital Funding also redeemed its $450 million of 5.90% Junior Subordinated Notes due in 2073 at par. The loss on extinguishment associated with this transaction was $15 million, which included unamortized fees.

In July 2021, LKE redeemed at par the $250 million 4.375% Senior Notes due 2021.

(PPL and LG&E)

In April 2021, the Louisville/Jefferson County Metro Government of Kentucky remarketed $128 million of Pollution Control Revenue Bonds, 2003 Series A due 2033 previously issued on behalf of LG&E. The bonds were remarketed at a long-term rate and will bear interest at 2.00% through their maturity date of October 1, 2033.

In May 2021, the County of Trimble, Kentucky remarketed $35 million of Pollution Control Revenue Bonds, 2001 Series B due 2027 previously issued on behalf of LG&E. The bonds were remarketed at a long-term rate and will bear interest at 1.35% through their maturity date of November 1, 2027.

In May 2021, the Louisville/Jefferson County Metro Government of Kentucky remarketed $35 million of Pollution Control Revenue Bonds, 2001 Series B due 2027 previously issued on behalf of LG&E. The bonds were remarketed at a long-term rate and will bear interest at 1.35% through their maturity date of November 1, 2027.

41

In June 2021, LG&E converted the $31 million of Louisville/Jefferson County Metro Government of Kentucky Environmental Facilities Revenue Refunding Bonds, 2007 Series A issued on its behalf to a weekly interest rate, as permitted under loan documents. The bonds mature on June 1, 2033.

In June 2021, LG&E converted the $35 million of Louisville/Jefferson County Metro Government, of Kentucky Environmental Facilities Revenue Refunding Bonds, 2007 Series B issued on its behalf to a weekly interest rate, as permitted under loan documents. The bonds mature on June 1, 2033.

In September 2021, the County of Trimble, Kentucky remarketed $28 million of Pollution Control Revenue Bonds, 2001 Series A due 2026, previously issued on behalf of LG&E. The bonds were remarketed at a long-term rate and will bear interest at 0.625% through their maturity date of September 1, 2026.

(PPL and KU)

In June 2021, the County of Carroll, Kentucky remarketed $54 million of Environmental Facilities Revenue Refunding Bonds, 2006 Series B due 2034 previously issued on behalf of KU. The bonds were remarketed at a long-term rate and will bear interest at 2.125% though their maturity date of October 1, 2034.

In June 2021, the County of Carroll, Kentucky remarketed $78 million of Environmental Facilities Revenue Bonds 2008 Series A due 2032 previously issued on behalf of KU. The bonds were remarketed at a long-term rate and will bear interest at 2.00% through their maturity date of February 1, 2032.

(PPL and PPL Electric)

In June 2021, PPL Electric issued $650 million of First Mortgage Bonds, Floating Rate Series due 2024. PPL Electric received proceeds of $647 million, net of underwriting fees, which were used to redeem its $400 million outstanding First Mortgage Bonds, 3% Series due 2021 in July 2021 and for general corporate purposes.

(PPL)

Equity Securities

Share Repurchase

In August 2021, PPL's Board of Directors authorized share repurchases of up to $3 billion of PPL common shares. PPL currently expects to repurchase approximately $1 billion by the end of 2021. The actual amount repurchased will depend on various factors, including PPL’s share price, market conditions, and the determination of other uses for the proceeds from the sale of the U.K. utility business, including for incremental capital expenditures. PPL may purchase shares on each trading day subject to market conditions and principles of best execution.

During the three and nine months ended September 30, 2021, PPL repurchased 9.6 million shares at a cost of $282 million.

From October 1 to October 31, 2021, PPL repurchased an additional 9.4 million shares at a cost of $269 million.

Commission fees incurred, which have been included in the cost of repurchases above, were insignificant through October 31, 2021.

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 no issuances under the ATM program for the nine months ended September 30, 2021. The ATM program expired in February 2021.

42

Distributions

In August 2021, PPL declared a quarterly common stock dividend, payable October 1, 2021, of 41.5 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. Acquisitions, Development and Divestitures

(PPL)

Discontinued Operations

Sale of the U.K. Utility Business

On March 17, 2021, PPL WPD Limited (WPD Limited) entered into a share purchase agreement (WPD SPA) to sell PPL's U.K. utility business to National Grid Holdings One plc (National Grid U.K.), a subsidiary of National Grid plc. Pursuant to the WPD SPA, National Grid U.K. would acquire 100% of the issued share capital of PPL WPD Investments Limited (WPD Investments) for £7.8 billion in cash. WPD Limited would also receive an additional amount of £548,000 for each day during the period from January 1, 2021 to the closing date if the dividends usually declared by WPD Investments to WPD Limited are not paid for that period.

On June 14, 2021, the sale of the U.K. utility business was completed. The transaction resulted in cash proceeds of $10.7 billion inclusive of foreign currency hedges executed by PPL. PPL received net proceeds, after taxes and fees, of $10.4 billion.

WPD Limited and National Grid U.K. each made customary representations and warranties in the WPD SPA. National Grid U.K., at its expense, purchased warranty and indemnity insurance. WPD Limited agreed to indemnify National Grid U.K. for certain tax related matters. See Note 11 for additional information. PPL has not had and will not have any significant involvement with the U.K. utility business after completion of the sale.

Loss on Sale

The following table summarizes the pre-tax loss recorded upon completion of the sale.
 Loss on sale for the nine month period ended September 30, 2021
Sales proceeds, net of realized foreign currency hedge losses (a)$10,732 
Unrealized foreign currency hedge losses recognized in 2020125 
Less: Costs to sell (b)69 
Less: Carrying value (c)12,397 
Loss on sale$(1,609)

(a)Includes the fixed and additional consideration of £7,881 million specified in the WPD SPA, converted at a spot rate of $1.4107 per GBP, offset by $386 million of realized foreign currency hedge losses to hedge the proceeds from the sale.
(b)Includes bank advisory, legal and accounting fees to facilitate the transaction.
(c)Represents the carrying value of the U.K. utility business at the time of sale and includes the realization of AOCI of $3.6 billion, which arose primarily from currency translation adjustments and defined benefit plans associated with the U.K. utility business.

Summarized Results of Discontinued Operations

The operations of the U.K. utility business are included in "Income (Loss) from Discontinued Operations (net of income taxes)" on the Statements of Income. Following are the components of discontinued operations in the Statements of Income for the periods ended September 30:
43

Three MonthsNine Months
2021202020212020
Operating Revenues$— $485 $1,344 $1,575 
Operating Expenses— 235 466 684 
Other Income (Expense) - net— 46 202 242 
Interest Expense (a)— 88 209 271 
Income before income taxes— 208 871 862 
Gain (Loss) on sale— — (1,609)— 
Income taxes44 752 157 
Income (Loss) from Discontinued Operations (net of income taxes)$(2)$164 $(1,490)$705 

(a)No interest from corporate level debt was allocated to discontinued operations.

Summarized Assets and Liabilities Held for Sale

The following major classes of assets and liabilities of the U.K. utility business were reclassified on PPL's Balance Sheet to "Current assets held for sale" and "Current liabilities held for sale" as of December 31, 2020:
Held for Sale at December 31, 2020
Cash and cash equivalents$266 
Accounts receivable and unbilled revenues389 
Price risk management assets146 
Property, plant and equipment, net (a)14,392 
Goodwill2,558 
Other intangibles413 
Pension benefit asset682 
Other assets137 
Total Assets$18,983 
Short-term debt and long-term debt due within one year$994 
Accounts payable220 
Customer deposits217 
Accrued interest190 
Long-term debt7,938 
Total deferred income taxes1,032 
Price risk management liabilities137 
Other deferred credits and liabilities295 
Total Liabilities$11,023 
Net assets (b)$7,960 

(a)Depreciation of fixed assets ceased upon classification as held for sale in the first quarter of 2021.
(b)The net assets and liabilities held for sale exclude $4.0 billion of AOCI related to the U.K. utility business that are required to be included in the carrying value of an entity classified as held for sale when assessing impairment and determining the gain or loss on sale. Prior to the sale, AOCI related to the U.K. utility business was reported as a component of PPL’s equity.

44

Acquisitions

Share Purchase Agreement to Acquire Narragansett Electric

On March 17, 2021, PPL and its subsidiary, PPL Energy Holdings, entered into a share purchase agreement (Narragansett SPA) with National Grid USA (National Grid U.S.), a subsidiary of National Grid plc to acquire 100% of the outstanding shares of common stock of Narragansett Electric for approximately $3.8 billion in cash. On May 3, 2021, an Assignment and Assumption Agreement was entered into by PPL, PPL Energy Holdings, PPL Rhode Island Holdings and National Grid U.S. whereby certain interests of PPL Energy Holdings in the Narragansett SPA were assigned to and assumed by PPL Rhode Island Holdings. Pursuant to that Assignment and Assumption Agreement, PPL Rhode Island Holdings became the purchasing entity under the Narragansett SPA. The acquisition is expected to be funded with proceeds from the sale of the U.K. utility business. PPL has agreed to guarantee all obligations of PPL Energy Holdings and PPL Rhode Island Holdings under the Narragansett SPA and the related Assignment and Assumption Agreement.

The closing of the acquisition, which is currently expected to occur by March 2022, is subject to the receipt of certain U.S. regulatory approvals or waivers, including, among others, authorizations or waivers from the Rhode Island Division of Public Utilities and Carriers, the Massachusetts Department of Public Utilities, the Federal Communications Commission (FCC), and the FERC, as well as review under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and other customary conditions to closing, including the execution and delivery of certain related transaction documents. The waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, with respect to the acquisition, expired on June 2, 2021. On July 14, 2021, the FCC consented to the Transfer of Control Application for the transfer of control of certain communications licenses held by Narragansett Electric from National Grid U.S. to PPL. The Massachusetts Department of Public Utilities granted a waiver of jurisdiction with respect to the acquisition on July 16, 2021. On September 23, 2021, the FERC issued an order authorizing, as consistent with the public interest, the disposition of jurisdictional facilities that will result in PPL Rhode Island Holdings, LLC, acquiring 100% of the outstanding shares of common stock of Narragansett Electric. The regulatory approvals and waiver remain subject to any applicable appeal periods. The remaining required regulatory approval from the Rhode Island Division of Public Utilities and Carriers is proceeding as expected.

PPL Energy Holdings and PPL Rhode Island Holdings and National Grid U.S. have each made customary representations, warranties and covenants in the Narragansett SPA, including, among others, customary indemnification provisions and covenants by National Grid U.S. to conduct the Narragansett Electric business in the ordinary course between the execution of the Narragansett SPA and the closing of the acquisition. The consummation of the transaction is not subject to a financing condition.

In connection with the acquisition, National Grid U.S. and one or more of its subsidiaries and Narragansett Electric will enter into a transition services agreement, pursuant to which National Grid U.S. and/or one or more of its affiliates will agree to provide certain transition services to Narragansett Electric and its affiliates to facilitate the operation of Narragansett Electric following the consummation of the acquisition and the transition of operations to PPL, as agreed upon in the Narragansett SPA.

10. Defined Benefits

(PPL)

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 for the periods ended September 30:
45

Pension Benefits
 Three MonthsNine Months
 2021202020212020
PPL  
Service cost$14 $14 $42 $42 
Interest cost30 35 91 109 
Expected return on plan assets(64)(62)(191)(185)
Amortization of:
Prior service cost
Actuarial loss21 23 70 67 
Net periodic defined benefit costs (credits) before settlements13 18 40 
Settlements (a)14 13 14 13 
Net periodic defined benefit costs (credits)$17 $26 $32 $53 

(a)    Settlement charges were incurred due to the amount of lump sum payment distributions from the LKE qualified pension plan. In accordance with existing regulatory accounting treatment, LG&E and KU have primarily maintained the settlement charge in regulatory assets to be amortized over fifteen years.

 Other Postretirement Benefits
 Three MonthsNine Months
 2021202020212020
PPL  
Service cost$$$$
Interest cost12 14 
Expected return on plan assets(6)(5)(18)(16)
Amortization of:
Prior service cost— — 
Actuarial loss(1)— (1)— 
Net periodic defined benefit costs$(1)$$(1)$

(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 12 for additional information on costs allocated to LG&E and KU from LKS. These allocations are based on participation in those plans, which management believes are reasonable. For the periods ended September 30, PPL Services allocated the following net periodic defined benefit costs to PPL Electric, and LKE allocated the following net periodic defined benefit costs to LG&E and KU:
 Three MonthsNine Months
 2021202020212020
PPL Electric$— $$$
LG&E14 
KU— 

(All Registrants)

The non-service cost components of net periodic defined benefit costs (credits) (interest cost, expected return on plan assets, amortization of prior service cost and amortization of actuarial gain and loss) are presented in "Other Income (Expense) - net" on the Statements of Income. See Note 13 for additional information.

46

11. Commitments and Contingencies

Legal Matters

(All Registrants)

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

Talen Litigation (PPL)

Background

In September 2013, one of PPL's former subsidiaries, PPL Montana entered into an agreement to sell its hydroelectric generating facilities. In June 2014, PPL and PPL Energy Supply, the parent company of PPL Montana, entered into various definitive agreements with affiliates of Riverstone to spin off PPL Energy Supply and ultimately combine it with Riverstone's competitive power generation businesses to form a stand-alone company named Talen Energy. In November 2014, after executing the spinoff agreements but prior to the closing of the spinoff transaction, PPL Montana closed the sale of its hydroelectric generating facilities. Subsequently, on June 1, 2015, the spinoff of PPL Energy Supply was completed. Following the spinoff transaction, PPL had no continuing ownership interest in or control of PPL Energy Supply. In connection with the spinoff transaction, PPL Montana became Talen Montana, LLC (Talen Montana), a subsidiary of Talen Energy. Talen Energy Marketing also became a subsidiary of Talen Energy as a result of the June 2015 spinoff of PPL Energy Supply. Talen Energy has owned and operated both Talen Montana and Talen Energy Marketing since the spinoff. At the time of the spinoff, affiliates of Riverstone acquired a 35% ownership interest in Talen Energy. Riverstone subsequently acquired the remaining interests in Talen Energy in a take private transaction in December 2016.

Talen Montana 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 or, in the alternative, to stay the proceedings pending the resolution of the below mentioned Delaware Action. The Court held a hearing on June 24, 2020 regarding the motions. On September 11, 2020, the Court granted PPL defendants' alternative Motion for a Stay of the proceedings.

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
47

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 Talen's 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 February 2022.

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 was stayed at an early stage of litigation. While the Delaware Action is progressing, at this time PPL cannot predict the outcome of either 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 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. On December 11, 2020, the Court of Appeals issued an order affirming the lower court’s denial of class certification. In December 2020, plaintiffs filed a petition for discretionary review with the Kentucky Supreme Court. On April 20, 2021, the Kentucky Supreme Court denied further review of the lower court order. The case was remanded to the Jefferson Circuit Court for the claims of the three remaining petitioners. LG&E has agreed to a settlement with each of the three remaining petitioners for an amount that will not have a significant impact on LG&E's operations or financial condition.

(PPL 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
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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 January 2019, KU filed an answer to plaintiffs’ complaint in the U.S. District Court. In May 2021, the U.S. District Court issued an order granting KU's motion for summary judgment and dismissed the case. In June 2021, the plaintiffs appealed the district court's order to the U.S. Court of Appeals for the Sixth Circuit. In September 2021, the parties entered into a settlement agreement, providing for dismissal of the appellate proceedings and release of other claims.

KU is undertaking extensive remedial measures at the E.W. Brown plant including closure of the former ash pond, implementation of a groundwater remedial action plan and performance of a corrective action plan including aquatic study of adjacent surface waters and risk assessment. The aquatic study and risk assessment are being undertaken pursuant to a 2017 agreed Order with the Kentucky Energy and Environment Cabinet (KEEC). KU conducted sampling of Herrington Lake in 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. On May 31, 2021, the KEEC approved the report and released a response to public comments. On August 6, 2021, KU submitted a Supplemental Remedial Alternatives Analysis (SRAA) report to the KEEC that outlines proposed additional fish, water, and sediment testing. The KEEC will review the submitted SRAA report.

Air

Sulfuric Acid Mist Emissions (PPL 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 and Louisville Metro Air Pollution Control District filed a complaint in the U.S. District Court for the Western District of Kentucky alleging violations specified in the EPA notice of violation and seeking civil penalties and injunctive relief. In October 2020, LG&E filed a motion to dismiss the complaint. In December 2020, the U.S. Department of Justice and the Louisville Metro Air Pollution Control District filed an amended complaint. In February 2021, LG&E filed a renewed motion to dismiss regarding the amended complaint. In June 2021, the U.S. District Court approved the parties' request for a three-month stay in connection with settlement discussions occurring among the parties. In September 2021, the parties reached a tentative agreement providing for dismissal of the court action, the payment by LG&E of a penalty amount and performance of a supplemental environmental project (SEP). The parties are currently in the process of obtaining required approvals from the U.S. Department of Justice, the U.S. District Court, the EPA and Louisville Metro Air Pollution Control District for the resulting consent decree. PPL and LG&E are unable to predict the final outcome of this matter but do not believe the matter, including the agreed penalty and SEP, will have a significant impact on LG&E's operations or financial condition.

Water/Waste

(PPL, 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 postpone the compliance date for certain requirements. On October 13, 2020, the EPA published final revisions to its best available technology standards for certain wastewaters and potential extensions to compliance dates (the Reconsideration Rule).
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The rule is expected to be implemented by the states or applicable permitting authorities in the course of their normal permitting activities. LG&E and KU are currently implementing responsive compliance strategies and schedules. Certain aspects of these compliance plans and estimates relate to developments in state water quality standards, which are separate from the ELG rule or its implementation. Certain costs are included in the Registrants' capital plans and expected to be recovered from customers through rate recovery mechanisms, but additional costs and recovery will depend on further regulatory developments at the state level. In August 2021, the EPA published a notice of rulemaking initiative announcing that it will propose revisions to the Reconsideration Rule and determine "whether more stringent limitations and standards are appropriate." Compliance with the Reconsideration Rule is required during the pendency of the rulemaking process.

CCRs

In 2015, the EPA issued a final rule governing management of CCRs which include fly ash, bottom ash and sulfur dioxide scrubber wastes. The CCR Rule imposes extensive new requirements for certain CCR impoundments and landfills, including public notifications, location restrictions, design and operating standards, groundwater monitoring and corrective action requirements, and closure and post-closure care requirements, and specifies restrictions relating to the beneficial use of CCRs. In July 2018, the EPA issued a final rule extending the deadline for closure of certain impoundments and adopting other substantive changes. In August 2018, the D.C. Circuit Court of Appeals vacated and remanded portions of the CCR Rule. In December 2019, the EPA addressed the deficiencies identified by the court and proposed amendments to change the closure deadline. In August 2020, the EPA published a final rule extending the deadline to initiate closure to April 11, 2021, while providing for certain extensions. The EPA is conducting ongoing rulemaking actions regarding various other amendments to the rule. Certain ongoing legal challenges to various provisions of the CCR Rule have been held in abeyance pending review by the EPA pursuant to the President's executive order. PPL, 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. 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. As of April 2021, LG&E and KU have commenced closure of all of the subject impoundments and have completed closure of some of their smaller impoundments. LG&E and KU generally expect to complete impoundment closures within five years of commencement, although a longer period may be required to complete closure of some facilities. Associated costs are expected to be subject to rate recovery.

In connection with the final CCR rule, LG&E and KU recorded adjustments to existing AROs beginning in 2015 and continue to record adjustments as required. See Note 16 for additional information. Further changes to AROs, current capital plans or operating costs may be required as estimates are refined based on closure developments, groundwater monitoring results, and regulatory or legal proceedings. Costs relating to this rule are subject to rate recovery.

(All Registrants)

Superfund and Other Remediation
 
PPL Electric, LG&E and KU are potentially responsible for investigating and remediating contamination under the federal Superfund program and similar state programs. Actions are under way at certain sites including former coal gas manufacturing plants in Pennsylvania and Kentucky previously owned or operated by, or currently owned by predecessors or affiliates of, PPL Electric, LG&E and KU. PPL Electric is potentially responsible for a share of clean-up costs at certain sites including the Columbia Gas Plant site and the Brodhead site. Cleanup actions have been or are being undertaken at these sites as requested by governmental agencies, the costs of which have not been and are not expected to be significant to PPL Electric.
 
As of September 30, 2021 and December 31, 2020, 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
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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. The Registrants cannot reasonably 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.

Gas - Security Directives (PPL and LG&E)

In May and July of 2021, the Department of Homeland Security’s (DHS) Transportation Security Administration (TSA) released two security directives applicable to certain notified owners and operators of natural gas pipeline facilities (including local distribution companies) that TSA has determined to be critical. The first security directive required notified owners/operators to implement cybersecurity incident reporting to the DHS, designate a cybersecurity coordinator, and perform a gap assessment of current entity cybersecurity practices against certain voluntary TSA security guidelines and report relevant results and proposed mitigation to applicable DHS agencies. The second security directive requires notified entities to implement a significant number of specified cyber security controls and processes. LG&E does not believe the security directives will have a significant impact on LG&E’s operations or financial condition.

Other

Labor Union Agreements

(PPL and PPL Electric)

For PPL and PPL Electric, labor agreement negotiations with the IBEW are expected to commence in the first quarter of 2022. The current five-year agreement expires in May 2022.

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(KU)

KU has 70 employees that are represented by the IBEW labor union. On August 1, 2021, KU and the IBEW ratified a three-year labor agreement through August 2024. The terms of the new labor agreement are not expected to have a significant impact on the financial results of KU.

Guarantees and Other Assurances
 
(All Registrants)

In the normal course of business, the Registrants enter into agreements that provide financial performance assurance to third parties on behalf of certain subsidiaries. Such agreements include, for example, guarantees, stand-by letters of credit issued by financial institutions and surety bonds issued by insurance companies. These agreements are entered into primarily to support or enhance the creditworthiness attributed to a subsidiary on a stand-alone basis or to facilitate the commercial activities in which these subsidiaries engage.
 
(PPL)
 
PPL fully and unconditionally guarantees all of the debt securities and loan obligations of PPL Capital Funding.
 
(All Registrants)
 
The table below details guarantees provided as of September 30, 2021. "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. For reporting purposes, on a consolidated basis, the guarantees of PPL include the guarantees of its subsidiary Registrants.
Exposure at September 30, 2021Expiration
Date
PPL  
Indemnifications related to the sale of the U.K. utility business£7,881 (a)2021
Indemnifications related to certain tax liabilities related to the sale of the U.K. utility business£50 (b)2028
LG&E and KU   
LG&E and KU obligation of shortfall related to OVEC(c) 

(a)PPL WPD Limited agreed to provide a standard indemnity regarding “leakage” amounts, which includes amounts taken out of the sold assets through dividends, return of capital, bonuses or similar method, received or waived by WPD (or its affiliates defined as members of the Sellers Group in the SPA) during the period from April 1, 2020 through June 14, 2021, except such amounts permitted under the WPD SPA. The amount of the cap on this indemnity is the amount paid to PPL WPD Limited at closing.
(b)PPL WPD Limited entered into a Tax Deed dated June 9, 2021 in which it agreed to a tax indemnity regarding certain potential tax liabilities of the entities sold with respect to periods prior to the completion of the sale, subject to customary exclusions and limitations. Because National Grid Holdings One plc, the buyer, agreed to purchase indemnity insurance, the amount of the cap on the indemnity for these liabilities is £1, except with respect to certain surrenders of tax losses, for which the amount of the cap on the indemnity is £50 million.
(c)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. PPL's proportionate share of OVEC's outstanding debt was $94 million at September 30, 2021, consisting of LG&E's share of $65 million and KU's share of $29 million. The maximum exposure and the expiration date of these potential obligations are not presently determinable. See "Energy Purchase Commitments" in Note 14 in PPL's, LG&E's and KU's 2020 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.

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

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

Risks and Uncertainties (All Registrants)

The COVID-19 pandemic has disrupted the U.S. and global economies and continues to present challenges to businesses, communities, workforces and markets. In the U.S. and throughout the world, governmental authorities have taken actions to contain the spread of the virus and mitigate known or foreseeable impacts. In the Registrants’ service territories, mitigation measures 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. Many restrictions that had been imposed are in the process of being lifted but may be reenacted in the future. These actions 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, there has been no material impact on the Registrants’ operations, financial condition, liquidity 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 reduce customer demand for electricity and gas, impact the Registrants’ employees and supply chains, result in an increase in certain costs, delay payments or increase bad debts, or result in changes in the fair value of their assets and liabilities, which could materially and adversely affect the Registrants’ business, results of operations, financial condition or liquidity.

12. Related Party Transactions

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

PPL Services, PPL EU Services and LKS provide the Registrants, their respective subsidiaries 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 attributed to a specific entity are allocated and charged to the respective recipients as indirect support costs. PPL Services and PPL EU Services use a three-factor methodology that includes the applicable recipients' invested capital, operation and maintenance expenses and number of employees to allocate indirect costs. PPL Services may also use a ratio of overall direct and indirect costs or a weighted average cost ratio. LKS bases its indirect allocations on the subsidiaries' number of employees, total assets, revenues, number of customers and/or other statistical information. PPL Services, PPL EU Services and LKS charged the following amounts for the periods ended September 30, including amounts applied to accounts that are further distributed between capital and expense on the books of the recipients, based on methods that are believed to be reasonable.
 Three MonthsNine Months
 2021202020212020
PPL Electric from PPL Services
$15 $11 $36 $37 
PPL Electric from PPL EU Services48 44 147 126 
LG&E from LKS40 43 126 125 
KU from LKS43 45 132 132 

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 PPL and LG&E and KU are reimbursed through LKS.

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Intercompany Borrowings

(PPL Electric)

PPL Energy Funding maintains a $1,200 million revolving line of credit with a PPL Electric subsidiary. At September 30, 2021, PPL Energy Funding had borrowings outstanding in the amount of $575 million. This balance is reflected in "Notes receivable from affiliate" on the PPL Electric balance sheet. NaN balance was outstanding at December 31, 2020. 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.

(LG&E and KU)

LG&E participates in an intercompany money pool agreement whereby LKE and/or KU make available to LG&E funds up to the difference between LG&E's FERC borrowing limit and LG&E's commercial paper limit at an interest rate based on the lower of a market index of commercial paper issues and two additional rate options based on LIBOR. LG&E's money pool borrowing limit is $325 million. At September 30, 2021, LG&E had borrowings outstanding from LKE in the amount of $284 million. This balance is reflected in "Notes payable to affiliates" on the LG&E balance sheets. No balances were outstanding at December 31, 2020.

KU participates in an intercompany money pool agreement whereby LKE and/or LG&E make available to KU funds up to the difference between KU's FERC borrowing limit and KU's commercial paper limit at an interest rate based on the lower of a market index of commercial paper issues and two additional rate options based on LIBOR. KU's money pool borrowing limit is $300 million. At September 30, 2021, KU had borrowings outstanding from LKE in the amount of $208 million. This balance is reflected in "Notes payable to affiliates" on the KU balance sheets. No balances were outstanding at December 31, 2020.

VEBA Funds Receivable (PPL Electric)

In May 2018, PPL received a favorable private letter ruling from the IRS permitting a transfer of excess funds from the PPL Bargaining Unit Retiree Health Plan VEBA to a new subaccount within the VEBA, to be used to pay medical claims of active bargaining unit employees. Based on PPL Electric's participation in PPL’s Other Postretirement Benefit plan, PPL Electric was allocated a portion of the excess funds from PPL Services. These funds have been recorded as an intercompany receivable on PPL Electric's Balance Sheets. The receivable balance decreases as PPL Electric pays incurred medical claims and is reimbursed by PPL Services. The intercompany receivable balance associated with these funds was $14 million as of September 30, 2021, of which $10 million was reflected in "Accounts receivable from affiliates" and $4 million was reflected in "Other noncurrent assets" on the PPL Electric Balance Sheet. The intercompany receivable balance associated with these funds was $22 million as of December 31, 2020, of which $10 million was reflected in "Accounts receivable from affiliates" and $12 million was reflected in "Other noncurrent assets" on the PPL Electric balance sheets.

Other (PPL Electric, LG&E and KU)

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

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13. Other Income (Expense) - net

(PPL)

The details of "Other Income (Expense) - net" for the periods ended September 30, were:
 Three MonthsNine Months
2021202020212020
Other Income  
Defined benefit plans - non-service credits (Note 10)$$$18 $
Interest Income— 10 
AFUDC - equity component13 15 
Miscellaneous
Total Other Income18 48 23 
Other Expense    
Charitable contributions— — 
Miscellaneous21 10 
Total Other Expense23 12 
Other Income (Expense) - net$12 $$25 $11 

0
14. Fair Value Measurements
 
(All Registrants)
 
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). A market approach (generally, data from market transactions), an income approach (generally, present value techniques and option-pricing models) and/or a cost approach (generally, replacement cost) are used to measure the fair value of an asset or liability, as appropriate. These valuation approaches incorporate inputs such as observable, independent market data and/or unobservable data that management believes are predicated on the assumptions market participants would use to price an asset or liability. These inputs may incorporate, as applicable, certain risks such as nonperformance risk, which includes credit risk. The fair value of a group of financial assets and liabilities is measured on a net basis. See Note 1 in each Registrant's 2020 Form 10-K for information on the levels in the fair value hierarchy.
 
Recurring Fair Value Measurements

The assets and liabilities measured at fair value were:
 September 30, 2021December 31, 2020
 TotalLevel 1Level 2Level 3TotalLevel 1Level 2Level 3
PPL        
Assets        
Cash and cash equivalents$4,767 $4,767 $— $— $442 $442 $— $— 
Restricted cash and cash equivalents (a)— — — — 
Special use funds (a):
Money market fund— — — — — — 
Commingled debt fund measured at NAV (b)23 — — — 26 — — — 
Commingled equity fund measured at NAV (b)20 — — — 25 — — — 
Total special use funds46 — — 51 — — — 
Total assets$4,814 $4,771 $— $— $494 $443 $— $— 
Liabilities        
Price risk management liabilities (c):        
Interest rate swaps$19 $— $19 $— $23 $— $23 $— 
Total price risk management liabilities$19 $— $19 $— $23 $— $23 $— 
55

 September 30, 2021December 31, 2020
 TotalLevel 1Level 2Level 3TotalLevel 1Level 2Level 3
PPL Electric        
Assets        
Cash and cash equivalents$59 $59 $— $— $40 $40 $— $— 
Total assets$59 $59 $— $— $40 $40 $— $— 
LG&E      
Assets      
Cash and cash equivalents$$$— $— $$$— $— 
Total assets$$$— $— $$$— $— 
Liabilities      
Price risk management liabilities:      
Interest rate swaps$19 $— $19 $— $23 $— $23 $— 
Total price risk management liabilities$19 $— $19 $— $23 $— $23 $— 
KU        
Assets        
Cash and cash equivalents$$$— $— $22 $22 $— $— 
Total assets$$$— $— $22 $22 $— $— 

(a)Included in "Other current assets" on the Balance Sheets.
(b)In accordance with accounting guidance, certain investments that are measured at fair value using net asset value per share (NAV), or its equivalent, have not been classified in the fair value hierarchy. The fair value amounts presented in the table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the Balance Sheets.
(c)Current portion is included in "Other current liabilities" and noncurrent portion is included in "Other deferred credits and noncurrent liabilities" on the Balance Sheets.

Special Use Funds

(PPL)

The special use funds are investments restricted for paying active union employee medical costs. In May 2018, PPL received a favorable private letter ruling from the IRS permitting a transfer of excess funds from the PPL Bargaining Unit Retiree Health Plan VEBA to a new subaccount within the VEBA to be used to pay medical claims of active bargaining unit employees. The funds are invested primarily in commingled debt and equity funds measured at NAV and are classified as investments in equity securities. Changes in fair value of the funds are recorded to the Statements of Income.

Price Risk Management Assets/Liabilities - Interest Rate Swaps/Foreign Currency Contracts/Cross-Currency Swaps

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

Financial Instruments Not Recorded at Fair Value (All Registrants)
 
The carrying amounts of long-term debt on the Balance Sheets and their estimated fair values are set forth below. Long-term debt is classified as Level 2. The effect of third-party credit enhancements is not included in the fair value measurement.
56

 September 30, 2021December 31, 2020
Carrying
Amount (a)
Fair ValueCarrying
Amount (a)
Fair Value
PPL$11,139 $13,091 $14,689 $17,774 
PPL Electric4,483 5,296 4,236 5,338 
LG&E2,006 2,387 2,007 2,499 
KU2,618 3,157 2,618 3,334 
 
(a)Amounts are net of debt issuance costs.

The carrying amounts of other current financial instruments (except for long-term debt due within one year) approximate their fair values because of their short-term nature.
 
15. Derivative Instruments and Hedging Activities
 
Risk Management Objectives
 
(All Registrants)
 
PPL has a risk management policy approved by the Board of Directors to manage market risk associated with commodities, interest rates on debt issuances and foreign exchange (including price, liquidity and volumetric risk) and credit risk (including non-performance risk and payment default risk). The Risk Management Committee, comprised of senior management and chaired by the Senior Director-Risk Management, oversees the risk management function. Key risk control activities designed to ensure compliance with the risk policy and detailed programs include, but are not limited to, credit review and approval, validation of transactions, verification of risk and transaction limits, value-at-risk analyses (VaR, a statistical model that attempts to estimate the value of potential loss over a given holding period under normal market conditions at a given confidence level) and the coordination and reporting of the Enterprise Risk Management program.
 
Market Risk
 
Market risk includes the potential loss that may be incurred as a result of price changes associated with a particular financial or commodity instrument as well as market liquidity and volumetric risks. Forward contracts, futures contracts, options, swaps and structured transactions are utilized as part of risk management strategies to minimize unanticipated fluctuations in earnings caused by changes in commodity prices, interest rates and foreign currency exchange rates. Many of these contracts meet the definition of a derivative. All derivatives are recognized on the Balance Sheets at their fair value, unless NPNS is elected.
 
The following summarizes the market risks that affect PPL and its subsidiaries.
 
Interest Rate Risk
 
PPL and its subsidiaries are exposed to interest rate risk associated with forecasted fixed-rate and existing floating-rate debt issuances. Prior to the sale of the U.K. utility business on June 14, 2021, PPL and WPD held over-the-counter cross currency swaps to limit exposure to market fluctuations on interest and principal payments from changes in foreign currency exchange rates and interest rates. PPL and LG&E utilize over-the-counter interest rate swaps to limit exposure to market fluctuations on floating-rate debt. PPL, LG&E and KU utilize forward starting interest rate swaps to hedge changes in benchmark interest rates, when appropriate, in connection with future debt issuances.
PPL and its subsidiaries are exposed to interest rate risk associated with debt securities and derivatives held by defined benefit plans. This risk is significantly mitigated to the extent that the plans are sponsored at, or sponsored on behalf of, the regulated domestic utilities and, prior to the sale of the U.K. utility business on June 14, 2021, for certain plans at WPD due to the recovery methods in place.

Foreign Currency Risk (PPL)

Prior to the sale of the U.K. utility business on June 14, 2021, PPL was exposed to foreign currency exchange risk primarily associated with its investments in and earnings of U.K. affiliates.
57


(All Registrants)

Commodity Price Risk
 
PPL is exposed to commodity price risk through its domestic subsidiaries as described below.
 
PPL Electric is required to purchase electricity to fulfill its obligation as a PLR. Potential commodity price risk is insignificant and mitigated through its PUC-approved cost recovery mechanism and full-requirement supply agreements to serve its PLR customers which transfer the risk to energy suppliers.
LG&E's and KU's rates include certain mechanisms for fuel, fuel-related expenses and energy purchases. In addition, LG&E's rates include a mechanism for natural gas supply expenses. These mechanisms generally provide for timely recovery of market price fluctuations associated with these expenses.

Volumetric Risk

Volumetric risk is the risk related to the changes in volume of retail sales due to weather, economic conditions or other factors. PPL is exposed to volumetric risk through its subsidiaries as described below.

Prior to the sale of the U.K. utility business on June 14, 2021, WPD was exposed to volumetric risk which was significantly mitigated as a result of the method of regulation in the U.K. Under the RIIO-ED1 price control regulations, recovery of such exposure occurs on a two year lag. See Note 1 in PPL's 2020 Form 10-K for additional information on revenue recognition under RIIO-ED1.
PPL Electric, LG&E and KU are exposed to volumetric risk on retail sales, mainly due to weather and other economic conditions for which there is limited mitigation between rate cases.
 
Equity Securities Price Risk
 
PPL and its subsidiaries are exposed to equity securities price risk associated with the fair value of the defined benefit plans' assets. This risk is significantly mitigated at the regulated domestic utilities and, prior to the sale of the U.K. utility business on June 14, 2021, for certain plans at WPD due to the recovery methods in place.
PPL is exposed to equity securities price risk from future stock sales and/or purchases.

Credit Risk
 
Credit risk is the potential loss that may be incurred due to a counterparty's non-performance.
 
PPL is exposed to credit risk from "in-the-money" interest rate derivatives with financial institutions, as well as additional credit risk through certain of its subsidiaries, as discussed below.
 
In the event a supplier of PPL Electric, LG&E or KU defaults on its obligation, those Registrants would be required to seek replacement power or replacement fuel in the market. In general, subject to regulatory review or other processes, appropriate incremental costs incurred by these entities would be recoverable from customers through applicable rate mechanisms, thereby mitigating the financial risk for these entities.
 
PPL and its subsidiaries have credit policies in place to manage credit risk, including the use of an established credit approval process, daily monitoring of counterparty positions and the use of master netting agreements or provisions. These agreements generally include credit mitigation provisions, such as margin, prepayment or collateral requirements. PPL and its subsidiaries may request additional credit assurance, in certain circumstances, in the event that the counterparties' credit ratings fall below investment grade, their tangible net worth falls below specified percentages or their exposures exceed an established credit limit.
 
Master Netting Arrangements (PPL, LG&E and KU)
 
Net derivative positions on the balance sheets are not offset against the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) under master netting arrangements.

58

PPL had 0 obligation and an immaterial obligation to return cash collateral under master netting arrangements at September 30, 2021 and December 31, 2020.

PPL had 0 obligation to post cash collateral under master netting arrangements at September 30, 2021 and December 31, 2020.

LG&E and KU had 0 obligation to return cash collateral under master netting arrangements at September 30, 2021 and December 31, 2020.
 
LG&E and KU had 0 obligation to post cash collateral under master netting arrangements at September 30, 2021 and December 31, 2020.

See "Offsetting Derivative Instruments" below for a summary of derivative positions presented in the balance sheets where a right of setoff exists under these arrangements.
 
Interest Rate Risk
 
(All Registrants)
 
PPL and its subsidiaries issue debt to finance their operations, which exposes them to interest rate risk. A variety of financial derivative instruments are utilized to adjust the mix of fixed and floating interest rates in their debt portfolios, adjust the duration of the debt portfolios and lock in benchmark interest rates in anticipation of future financing, when appropriate. Risk limits under PPL's risk management program are designed to balance risk exposure to volatility in interest expense and changes in the fair value of the debt portfolio due to changes in benchmark interest rates. In addition, the interest rate risk of certain subsidiaries is potentially mitigated as a result of the existing regulatory framework or the timing of rate cases.

Cash Flow Hedges (PPL)
 
Interest rate risks include exposure to adverse interest rate movements for outstanding variable rate debt and for future anticipated financings. Financial interest rate swap contracts that qualify as cash flow hedges may be entered into to hedge floating interest rate risk associated with both existing and anticipated debt issuances. PPL had no such contracts at September 30, 2021.

As of September 30, 2021, PPL had no aggregate notional value in cross-currency interest rate swap contracts. In March 2021, $500 million of WPD's U.S. dollar-denominated senior notes were repaid prior to maturity and $500 million notional value of cross-currency interest rate swap contracts matured.

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

For the three and nine months ended September 30, 2021 and 2020, PPL had no cash flow hedges reclassified into earnings associated with discontinued cash flow hedges.
 
At September 30, 2021, the amount of accumulated net unrecognized after-tax gains (losses) on qualifying derivatives expected to be reclassified into earnings during the next 12 months is insignificant. Amounts are reclassified as the hedged interest expense is recorded.
 
Economic Activity (PPL and LG&E)
 
LG&E enters into interest rate swap contracts that economically hedge interest payments. Because realized gains and losses from the swaps, including terminated swap contracts, are recoverable through regulated rates, any subsequent changes in fair value of these derivatives are included in regulatory assets or liabilities until they are realized as interest expense. Realized gains and losses are recognized in "Interest Expense" on the Statements of Income at the time the underlying hedged interest expense is recorded. At September 30, 2021, LG&E held contracts with a notional amount of $64 million that mature in 2033.
 
59

Foreign Currency Risk (PPL)

Prior to the sale of the U.K. utility business on June 14, 2021, PPL was exposed to foreign currency risk, primarily through investments in and earnings of U.K. affiliates. PPL had adopted a foreign currency risk management program designed to hedge certain foreign currency exposures, including firm commitments, recognized assets or liabilities, anticipated transactions, including the sale of its U.K. utility business and net investments. In addition, PPL entered into financial instruments to protect against foreign currency translation risk of expected GBP earnings.

Net Investment Hedges

Prior to the sale of the U.K. utility business on June 14, 2021, PPL entered into foreign currency contracts on behalf of a subsidiary to protect the value of a portion of its net investment in WPD. There were no contracts outstanding at September 30, 2021.

At December 31, 2020, PPL had $33 million of accumulated net investment hedge after tax gains (losses) that were included in the foreign currency translation adjustment component of AOCI. The remaining balance was transferred out of AOCI and realized in discontinued operations as a result of the sale of the U.K. utility business.

Economic Activity

Prior to the sale of the U.K. utility business on June 14, 2021, PPL entered into foreign currency contracts on behalf of a subsidiary to economically hedge GBP-denominated anticipated earnings and anticipated transactions, including the sale of its U.K. utility business.

Accounting and Reporting
 
(All Registrants)
 
All derivative instruments are recorded at fair value on the Balance Sheet as an asset or liability unless NPNS is elected. NPNS contracts include certain full requirement purchase contracts and other physical purchase contracts. Changes in the fair value of derivatives not designated as NPNS are recognized in earnings unless specific hedge accounting criteria are met and designated as such, except for the changes in fair values of LG&E's interest rate swaps that are recognized as regulatory assets or regulatory liabilities. See Note 7 for amounts recorded in regulatory assets and regulatory liabilities at September 30, 2021 and December 31, 2020.
 
See Note 1 in each Registrant's 2020 Form 10-K for additional information on accounting policies related to derivative instruments.
 
(PPL)
 
The following table presents the fair value and location of derivative instruments recorded on the Balance Sheets.
60

 September 30, 2021December 31, 2020
Derivatives designated as
hedging instruments
Derivatives not designated
as hedging instruments
Derivatives designated as
hedging instruments
Derivatives not designated
as hedging instruments
 AssetsLiabilitiesAssetsLiabilitiesAssetsLiabilitiesAssetsLiabilities
Current:        
Price Risk Management        
Assets/Liabilities:        
Interest rate swaps (a) (b)$— $— $— $$— $— $— $
Cross-currency swaps (c)— — — — 94 — — — 
Foreign currency contracts (c)— — — — — — — 137 
Total current— — — 94 — — 139 
Noncurrent:        
Price Risk Management        
Assets/Liabilities:        
Interest rate swaps (a) (b)— — — 17 — — — 21 
Cross-currency swaps (c)— — — — 52 — — — 
Total noncurrent— — — 17 52 — — 21 
Total derivatives$— $— $— $19 $146 $— $— $160 
 
(a)Current portion is included in "Price risk management assets" and "Other current liabilities" and noncurrent portion is included in "Price risk management assets" and "Other deferred credits and noncurrent liabilities" on the Balance Sheets.
(b)Excludes accrued interest, if applicable.
(c)Included in "Current assets held for sale" and "Current liabilities held for sale" on the Balance Sheets.

The following tables present the pre-tax effect of derivative instruments recognized in income, OCI or regulatory assets and regulatory liabilities for the period ended September 30, 2021.

 Three MonthsNine Months Three MonthsNine Months
Derivative
Relationships
Derivative Gain
(Loss) Recognized in
OCI
Derivative Gain
(Loss) Recognized in
OCI
Location of
Gain (Loss)
Recognized
in Income
on Derivative
Gain (Loss)
Reclassified
from AOCI
into Income
Gain (Loss)
Reclassified
from AOCI
into
Income
Cash Flow Hedges:     
Interest rate swaps$— $— Interest expense$(1)$12 
Income (Loss) from Discontinued Operations (net of taxes)— (2)
Cross-currency swaps— (50)Income (Loss) from Discontinued Operations (net of taxes)— (39)
Total$— $(50) $(1)$(29)
Derivatives Not Designated as
Hedging Instruments
Location of Gain (Loss) Recognized in
Income on Derivative
Three MonthsNine Months
Foreign currency contractsIncome (Loss) from Discontinued Operations (net of taxes)$— $(266)
Interest rate swapsInterest expense— (2)
 Total$— $(268)
Derivatives Not Designated as
Hedging Instruments
Location of Gain (Loss) Recognized as
Regulatory Liabilities/Assets
Three MonthsNine Months
Interest rate swapsRegulatory assets - noncurrent$$
 
The following tables present the pre-tax effect of derivative instruments recognized in income, OCI or regulatory assets and regulatory liabilities for the period ended September 30, 2020.
61

 Three MonthsNine Months Three MonthsNine Months
Derivative
Relationships
Derivative Gain
(Loss) Recognized in
OCI
Derivative Gain
(Loss) Recognized in
OCI
Location of
Gain (Loss)
Recognized
in Income
on Derivative
Gain (Loss)
Reclassified
from AOCI
into Income
Gain (Loss)
Reclassified
from AOCI
into Income
Cash Flow Hedges:     
Interest rate swaps$$(7)Interest expense$(3)$(7)
Income (Loss) from Discontinued Operations (net of taxes)(1)(2)
Cross-currency swaps(67)(13)Income (Loss) from Discontinued Operations (net of taxes)(56)(24)
Total$(64)$(20) $(60)$(33)
Net Investment Hedges:
Foreign currency contracts in discontinued operations$— $
Derivatives Not Designated as
Hedging Instruments
Location of Gain (Loss) Recognized in
Income on Derivative
Three MonthsNine Months
Foreign currency contractsIncome (Loss) from Discontinued operations (net of taxes)$(19)$44 
Interest rate swapsInterest expense(1)(4)
 Total$(20)$40 
Derivatives Not Designated as
Hedging Instruments
Location of Gain (Loss) Recognized as
Regulatory Liabilities/Assets
Three MonthsNine Months
Interest rate swapsRegulatory assets - noncurrent$$(5)

The following table presents the effect of cash flow hedge activity on the Statement of Income for the period ended September 30, 2021.
Location and Amount of Gain (Loss) Recognized in Income on Hedging Relationships
Three MonthsNine Months
Interest ExpenseIncome (Loss) from Discontinued Operations (net of income taxes)Interest ExpenseIncome (Loss) from Discontinued Operations (net of income taxes)
Total income and expense line items presented in the income statement in which the effect of cash flow hedges are recorded$183 $(2)$810 $(1,490)
The effects of cash flow hedges:
Gain (Loss) on cash flow hedging relationships:
Interest rate swaps:
Amount of gain (loss) reclassified from AOCI to income(1)— 12 (2)
Cross-currency swaps:
Hedged items— — — 39 
Amount of gain (loss) reclassified from AOCI to Income— — — (39)

The following table presents the effect of cash flow hedge activity on the Statement of Income for the period ended September 30, 2020.
62

Location and Amount of Gain (Loss) Recognized in Income on Hedging Relationships
Three MonthsNine Months
Interest ExpenseIncome (Loss) from Discontinued Operations (net of taxes)Interest ExpenseIncome (Loss) from Discontinued Operations (net of taxes)
Total income and expense line items presented in the income statement in which the effect of cash flow hedges are recorded$161 $164 $479 $705 
The effects of cash flow hedges:
Gain (Loss) on cash flow hedging relationships:
Interest rate swaps:
Amount of gain (loss) reclassified from AOCI to income(3)(1)(7)(2)
Cross-currency swaps:
Hedged items— 56 — 24 
Amount of gain (loss) reclassified from AOCI to Income— (56)— (24)

(LG&E)
 
The following table presents the fair value and the location on the Balance Sheets of derivatives not designated as hedging instruments.
 September 30, 2021December 31, 2020
 AssetsLiabilities AssetsLiabilities
Current:     
Price Risk Management     
Assets/Liabilities:     
Interest rate swaps$— $ $— $
Total current—  — 
Noncurrent:     
Price Risk Management     
Assets/Liabilities:     
Interest rate swaps— 17  — 21 
Total noncurrent— 17  — 21 
Total derivatives$— $19  $— $23 
 
The following tables present the pre-tax effect of derivatives not designated as cash flow hedges that are recognized in income or regulatory assets for the period ended September 30, 2021.
 Location of Gain (Loss) Recognized in  
Derivative InstrumentsIncome on DerivativesThree MonthsNine Months
Interest rate swapsInterest expense$— $(2)
 Location of Gain (Loss) Recognized in  
Derivative InstrumentsRegulatory AssetsThree MonthsNine Months
Interest rate swapsRegulatory assets - noncurrent$$

The following tables present the pre-tax effect of derivatives not designated as cash flow hedges that are recognized in income or regulatory assets for the period ended September 30, 2020. 
 Location of Gain (Loss) Recognized in  
Derivative InstrumentsIncome on DerivativesThree MonthsNine Months
Interest rate swapsInterest expense$(1)$(4)
 Location of Gain (Loss) Recognized in  
Derivative InstrumentsRegulatory AssetsThree MonthsNine Months
Interest rate swapsRegulatory assets - noncurrent$$(5)
63

(PPL, LG&E and KU)
 
Offsetting Derivative Instruments
 
PPL, LG&E and KU or certain of their subsidiaries have master netting arrangements in place and also enter into agreements pursuant to which they purchase or sell certain energy and other products. Under the agreements, upon termination of the agreement as a result of a default or other termination event, the non-defaulting party typically would have a right to set off amounts owed under the agreement against any other obligations arising between the two parties (whether under the agreement or not), whether matured or contingent and irrespective of the currency, place of payment or place of booking of the obligation.
 
PPL, LG&E and KU have elected not to offset derivative assets and liabilities and not to offset net derivative positions against the right to reclaim cash collateral pledged (an asset) or the obligation to return cash collateral received (a liability) under derivatives agreements. The table below summarizes the derivative positions presented in the balance sheets where a right of setoff exists under these arrangements and related cash collateral received or pledged.
 AssetsLiabilities
  Eligible for Offset  Eligible for Offset 
GrossDerivative
Instruments
Cash
Collateral
Received
NetGrossDerivative
Instruments
Cash
Collateral
Pledged
Net
September 30, 2021        
Treasury Derivatives        
PPL$— $— $— $— $19 $— $— $19 
LG&E— — — — 19 — — 19 
 AssetsLiabilities
  Eligible for Offset  Eligible for Offset 
GrossDerivative
Instruments
Cash
Collateral
Received
NetGrossDerivative
Instruments
Cash
Collateral
Pledged
Net
December 31, 2020       
Treasury Derivatives       
PPL$146 $34 $— $112 $160 $34 $— $126 
LG&E— — — — 23 — — 23 
 
Credit Risk-Related Contingent Features
 
Certain derivative contracts contain credit risk-related contingent features which, when in a net liability position, would permit the counterparties to require the transfer of additional collateral upon a decrease in the credit ratings of PPL, LG&E and KU or certain of their subsidiaries. Most of these features would require the transfer of additional collateral or permit the counterparty to terminate the contract if the applicable credit rating were to fall below investment grade. Some of these features also would allow the counterparty to require additional collateral upon each downgrade in credit rating at levels that remain above investment grade. In either case, if the applicable credit rating were to fall below investment grade, and assuming no assignment to an investment grade affiliate were allowed, most of these credit contingent features require either immediate payment of the net liability as a termination payment or immediate and ongoing full collateralization on derivative instruments in net liability positions.
 
Additionally, certain derivative contracts contain credit risk-related contingent features that require adequate assurance of performance be provided if the other party has reasonable concerns regarding the performance of PPL's, LG&E's and KU's obligations under the contracts. A counterparty demanding adequate assurance could require a transfer of additional collateral or other security, including letters of credit, cash and guarantees from a creditworthy entity. This would typically involve negotiations among the parties. However, amounts disclosed below represent assumed immediate payment or immediate and ongoing full collateralization for derivative instruments in net liability positions with "adequate assurance" features.
 
(PPL)

At September 30, 2021, there were no derivative contracts in a net liability position that contain credit risk-related contingent features, collateral posted on those positions and the related effect of a decrease in credit ratings below investment grade.
64


16. Asset Retirement Obligations

(PPL, LG&E and KU)

PPL's, LG&E's and KU's ARO liabilities are primarily related to CCR closure costs. See Note 11 for information on the CCR rule. LG&E also has AROs related to natural gas mains and wells. LG&E's and KU's transmission and distribution lines largely operate under perpetual property easement agreements, which do not generally require restoration upon removal of the property. Therefore, no material AROs are recorded for transmission and distribution assets. For LG&E and KU, all ARO accretion and depreciation expenses are reclassified as a regulatory asset. ARO regulatory assets associated with certain CCR projects are amortized to expense in accordance with regulatory approvals. For other AROs, at the time of retirement, the related ARO regulatory asset is offset against the associated cost of removal regulatory liability, PP&E and ARO liability.

The changes in the carrying amounts of AROs were as follows.
 PPLLG&EKU
Balance at December 31, 2020$182 $67 $115 
Accretion12 
Changes in estimated timing or cost50 34 16 
Obligations settled(43)(16)(27)
Balance at September 30, 2021$201 $89 $112 
 
17. Accumulated Other Comprehensive Income (Loss)
 
(PPL)
 
The after-tax changes in AOCI by component for the periods ended September 30 were as follows.
 Foreign
currency
translation
adjustments
Unrealized gains (losses)
 on qualifying
derivatives
Defined benefit plans 
Prior
service
costs
Actuarial
gain
(loss)
Total
PPL
June 30, 2021$— $— $(15)$(176)$(191)
Amounts arising during the period— — — (12)(12)
Reclassifications from AOCI— 10 20 
Net OCI during the period— (2)
September 30, 2021$— $$(6)$(178)$(183)
December 31, 2020$(1,158)$— $(16)$(3,046)$(4,220)
Amounts arising during the period372 (39)— (18)315 
Reclassifications from AOCI— 25 117 144 
Reclassifications from AOCI due to the sale of the U.K. utility business (Note 9)786 15 2,769 3,578 
Net OCI during the period1,158 10 2,868 4,037 
September 30, 2021$— $$(6)$(178)$(183)
June 30, 2020$(1,777)$$(16)$(2,817)$(4,602)
Amounts arising during the period643 (52)— (16)575 
Reclassifications from AOCI— 48 — 52 100 
Net OCI during the period643 (4)— 36 675 
September 30, 2020$(1,134)$$(16)$(2,781)$(3,927)
December 31, 2019$(1,425)$(5)