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Kentucky Utilities

Filed: 6 May 21, 12:18pm
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 March 31, 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
333-173665
LG&E and KU Energy LLC
(Exact name of Registrant as specified in its charter)
Kentucky
220 West Main Street
Louisville, KY 40202-1377
(502) 627-2000
20-0523163
1-2893
Louisville Gas and Electric Company
(Exact name of Registrant as specified in its charter)
Kentucky
220 West Main Street
Louisville, KY 40202-1377
(502) 627-2000
61-0264150
1-3464
Kentucky Utilities Company
(Exact name of Registrant as specified in its charter)
(Kentucky and Virginia)
One Quality Street
Lexington, KY 40507-1462
(502) 627-2000
61-0247570



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

Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days.
PPL CorporationYesNo 
PPL Electric Utilities CorporationYesNo 
LG&E and KU Energy LLCYesNo 
Louisville Gas and Electric CompanyYesNo 
Kentucky Utilities CompanyYesNo 
 
Indicate by check mark whether the registrants have submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrants were required to submit such files). 
PPL CorporationYesNo 
PPL Electric Utilities CorporationYesNo 
LG&E and KU Energy LLCYesNo 
Louisville Gas and Electric CompanyYesNo 
Kentucky Utilities CompanyYesNo 
 
Indicate by check mark whether the registrants are large accelerated filers, accelerated filers, non-accelerated filers, smaller reporting companies or emerging growth companies. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
 Large accelerated
filer
Accelerated
filer
Non-accelerated
filer
Smaller reporting
company
Emerging growth company
PPL Corporation
PPL Electric Utilities Corporation
LG&E and KU Energy LLC
Louisville Gas and Electric Company
Kentucky Utilities Company

If emerging growth companies, indicate by check mark if the registrants have elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
PPL Corporation
PPL Electric Utilities Corporation
LG&E and KU Energy LLC
Louisville Gas and Electric Company
Kentucky Utilities Company
 
Indicate by check mark whether the registrants are shell companies (as defined in Rule 12b-2 of the Exchange Act).
PPL CorporationYesNo 
PPL Electric Utilities CorporationYesNo 
LG&E and KU Energy LLCYesNo 
Louisville Gas and Electric CompanyYesNo 
Kentucky Utilities CompanyYesNo 
 


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

PPL Corporation    Common stock, $0.01 par value, 769,427,879 shares outstanding at April 30, 2021.
PPL Electric Utilities Corporation    Common stock, no par value, 66,368,056 shares outstanding and all held by PPL Corporation at April 30, 2021.
LG&E and KU Energy LLC    PPL Corporation holds all of the membership interests in LG&E and KU Energy LLC.
Louisville Gas and Electric Company    Common stock, no par value, 21,294,223 shares outstanding and all held by LG&E and KU Energy LLC at April 30, 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 April 30, 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
LG&E AND KU ENERGY LLC
LOUISVILLE GAS AND ELECTRIC COMPANY
KENTUCKY UTILITIES COMPANY
 
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 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, LG&E and KU Energy LLC, Louisville Gas and Electric Company and Kentucky Utilities Company. Information contained herein relating to any individual Registrant is filed by such Registrant solely on its own behalf, and no Registrant makes any representation as to information relating to any other Registrant, except that information under "Forward-Looking Information" relating to subsidiaries of PPL Corporation is also attributed to PPL Corporation and information relating to the subsidiaries of LG&E and KU Energy LLC is also attributed to LG&E and KU Energy LLC.
 
Unless otherwise specified, references in this Report, individually, to PPL Corporation, PPL Electric Utilities Corporation, LG&E and KU Energy LLC, Louisville Gas and Electric Company and Kentucky Utilities Company are references to such entities directly or to one or more of their subsidiaries, as the case may be, the financial results of which subsidiaries are consolidated into such Registrants' financial statements in accordance with GAAP. This presentation has been applied where identification of particular subsidiaries is not material to the matter being disclosed, and to conform narrative disclosures to the presentation of financial information on a consolidated basis.
 Page
PART I.  FINANCIAL INFORMATION 
 Item 1.  Financial Statements 
  PPL Corporation and Subsidiaries 
   
   
   
   
   
  PPL Electric Utilities Corporation and Subsidiaries 
   
   
   
   
  LG&E and KU Energy LLC and Subsidiaries 
   
   
   
   
  Louisville Gas and Electric Company 
   
   
   
   
  Kentucky Utilities Company 
   
   
   
   


 Combined Notes to Condensed Financial Statements (Unaudited) 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 Item 2.  Combined Management's Discussion and Analysis of Financial Condition and Results of Operations 
  
   
   
   
  
   
   
   
   
   
  
   
   
   
   
   
   
  
  
 
 
PART II.  OTHER INFORMATION 
 
 
 
 
CERTIFICATES OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
CERTIFICATES OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


GLOSSARY OF TERMS AND ABBREVIATIONS
 
PPL Corporation and its subsidiaries
 
KU - Kentucky Utilities Company, a public utility subsidiary of LKE engaged in the regulated generation, transmission, distribution and sale of electricity, primarily in Kentucky.
 
LG&E - Louisville Gas and Electric Company, a public utility subsidiary of LKE engaged in the regulated generation, transmission, distribution and sale of electricity and the distribution and sale of natural gas in Kentucky.
 
LKE - LG&E and KU Energy LLC, a subsidiary of PPL and the parent of LG&E, KU and other subsidiaries.
 
LKS - LG&E and KU Services Company, a subsidiary of LKE that provides administrative, management, and support services primarily to LKE and its subsidiaries.
 
PPL - PPL Corporation, the parent holding company of PPL Electric, PPL Energy Funding, PPL Capital Funding, LKE and other subsidiaries.
 
PPL Capital Funding - PPL Capital Funding, Inc., a financing subsidiary of PPL that provides financing for the operations of PPL and certain subsidiaries. Debt issued by PPL Capital Funding is 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, primarily through its subsidiaries, owns and operates WPD, PPL's regulated electricity distribution businesses in the U.K.

PPL Rhode Island Holdings - PPL Rhode Island Holdings, LLC, a subsidiary of PPL Energy Holdings 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 Investments Limited – a subsidiary of PPL WPD Limited and parent to WPD plc.
 
PPL WPD Limited - a U.K. subsidiary of PPL Global. Following reorganizations in October 2015 and October 2017, PPL WPD Limited is an indirect parent to WPD plc having previously been a sister company.

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

U.K. utility business Includes PPL WPD Investments Limited and its subsidiaries, including, notably, WPD plc and the four DNOs, which substantially represents PPL's U.K. Regulated segment. On March 17, 2021, PPL WPD Limited entered into an agreement to sell PPL's U.K. utility business.

WPD - refers to PPL WPD Limited and its subsidiaries.
 
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WPD (East Midlands) - Western Power Distribution (East Midlands) plc, a British regional electricity distribution utility company.
 
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 Midlands - refers to WPD (East Midlands) and WPD (West Midlands), collectively.

WPD (South Wales) - Western Power Distribution (South Wales) plc, a British regional electricity distribution utility company.
 
WPD (South West) - Western Power Distribution (South West) plc, a British regional electricity distribution utility company.
 
WPD (West Midlands) - Western Power Distribution (West Midlands) plc, a British regional electricity distribution utility company.
 
WKE - Western Kentucky Energy Corp., a subsidiary of LKE that leased certain non-regulated utility generating plants in western Kentucky until July 2009.

Other terms and abbreviations

£ - British pound sterling.

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

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

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.
 
CPI - consumer price index, a measure of inflation in the U.K. published monthly by the Office for National Statistics.

CPIH - consumer price index including owner-occupiers' housing costs. An aggregate measure of changes in the cost of living in the U.K., including a measure of owner-occupiers' housing costs.

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

DNO - Distribution Network Operator in the U.K.

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.

DSM - Demand Side Management. Pursuant to Kentucky Revised Statute 278.285, the KPSC may determine the reasonableness of DSM programs proposed by any utility under its jurisdiction. DSM programs consist of energy efficiency programs intended to reduce peak demand and delay the investment in additional power plant construction, provide customers with tools and information regarding their energy usage and support energy efficiency.

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

DSP - Default Service Provider.

Earnings from Ongoing Operations - a non-GAAP financial measure of earnings adjusted for the impact of special items and used in "Item 2. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations" (MD&A).

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

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

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

EPS - earnings per share.

FERC - Federal Energy Regulatory Commission, the U.S. federal agency that regulates, among other things, interstate transmission and wholesale sales of electricity, hydroelectric power projects and related matters.
 
GAAP - Generally Accepted Accounting Principles in the U.S.
 
GBP - British pound sterling.

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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. 

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.
 
Ofgem - Office of Gas and Electricity Markets, the British agency that regulates transmission, distribution and wholesale sales of electricity and gas and related matters.
 
OVEC - Ohio Valley Electric Corporation, located in Piketon, Ohio, an entity in which LKE indirectly owns an 8.13% interest (consists of LG&E's 5.63% and KU's 2.50% interests), which is recorded at cost. OVEC owns and operates two coal-fired power plants, the Kyger Creek plant in Ohio and the Clifty Creek plant in Indiana, with combined capacities of 2,120 MW.

PEDFA - Pennsylvania Economic Development Financing Authority.

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

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

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

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

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

RAV - regulatory asset value. This term, used within the U.K. regulatory environment, is also commonly known as RAB or regulatory asset base. RAV is based on historical investment costs at time of privatization, plus subsequent allowed additions less annual regulatory depreciation, and represents the value on which DNOs earn a return in accordance with the regulatory cost of capital. RAV is indexed to Retail Price Index (RPI) in order to allow for the effects of inflation. RAV additions have been and continue to be based on a percentage of annual total expenditures that have a long-term benefit to WPD (similar to capital projects for the U.S. regulated businesses that are generally included in rate base).
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RCRA - Resource Conservation and Recovery Act of 1976.

Registrant(s) - refers to the Registrants named on the cover of this Report (each a "Registrant" and collectively, the "Registrants").
 
Regulation S-X - SEC regulation governing the form and content of and requirements for financial statements required to be filed pursuant to the federal securities laws.
 
RIIO - Ofgem's framework for setting U.K. regulated gas and electric utility price controls which stands for "Revenues = Incentive + Innovation + Outputs." RIIO-1 refers to the first generation of price controls under the RIIO framework. RIIO-ED1 refers to the RIIO regulatory price control applicable to the operators of U.K. electricity distribution networks, the duration of which is April 2015 through March 2023. RIIO-2 refers to the second generation of price controls under the RIIO framework. RIIO-ED2 refers to the second generation of the RIIO regulatory price control applicable to the operators of U.K. electricity distribution networks, which will begin in April 2023.

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

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

Scrubber - an air pollution control device that can remove particulates and/or gases (primarily sulfur dioxide) from exhaust gases.
 
SEC - the U.S. Securities and Exchange Commission, a U.S. government agency primarily responsible to protect investors and maintain the integrity of the securities markets.
 
Smart metering technology - technology that can measure, among other things, time of electricity consumption to permit offering rate incentives for usage during lower cost or demand intervals. The use of this technology also has the potential to strengthen network reliability.

S&P - S&P Global Ratings, a credit rating agency.
 
Superfund - federal environmental statute that addresses remediation of contaminated sites; states also have similar statutes.
 
Talen Energy - Talen Energy Corporation, the Delaware corporation formed to be the publicly traded company and owner of the competitive generation assets of PPL Energy Supply and certain affiliates of Riverstone, which as of December 6, 2016, became wholly owned by Riverstone.

Talen Energy Marketing - Talen Energy Marketing, LLC, the 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.

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

VSCC - Virginia State Corporation Commission, the state agency that has jurisdiction over the regulation of Virginia corporations, including utilities.
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Forward-looking Information
 
Statements contained in this Form 10-Q concerning expectations, beliefs, plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements that are other than statements of historical fact are "forward-looking statements" within the meaning of the federal securities laws. Although the Registrants believe that the expectations and assumptions reflected in these statements are reasonable, there can be no assurance that these expectations will prove to be correct. Forward-looking statements are subject to many risks and uncertainties, and actual results may differ materially from the results discussed in forward-looking statements. In addition to the specific factors discussed in each Registrant's 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 sale of our U.K. utility business and the expected acquisition of The Narragansett Electric Company, 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 storms;
the outcome of rate cases or other cost recovery or revenue proceedings;
changes in U.S. state or federal or U.K. tax laws or regulations;
the direct or indirect effects on PPL or its subsidiaries or business systems of cyber-based intrusion or the threat of cyberattacks;
significant decreases in demand for electricity in the U.S.;
expansion of alternative and distributed sources of electricity generation and storage;
changes in foreign currency exchange rates for British pound sterling and the related impact on unrealized gains and losses on PPL's foreign currency economic hedges;
the effectiveness of our risk management programs, including foreign currency and interest rate hedging;
non-achievement by WPD of performance targets set by Ofgem;
the effect of changes in RPI on WPD's revenues and index linked debt;
developments related to the U.K.'s withdrawal from the European Union and any responses thereto;
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;
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performance of new ventures;
collective labor bargaining negotiations; and
���the outcome of litigation involving the Registrants and their subsidiaries.

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

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

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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 March 31,
 20212020
Operating Revenues$1,498 $1,440 
Operating Expenses
Operation
Fuel177 163 
Energy purchases220 201 
Other operation and maintenance367 355 
Depreciation267 250 
Taxes, other than income52 47 
Total Operating Expenses1,083 1,016 
Operating Income415 424 
Other Income (Expense) - net0 (5)
Interest Expense153 154 
Income from Continuing Operations Before Income Taxes262 265 
Income Taxes59 61 
Income from Continuing Operations After Income Taxes203 204 
Income (Loss) from Discontinued Operations (net of income taxes) (Note 9)(2,043)350 
Net Income (Loss)$(1,840)$554 
Earnings Per Share of Common Stock:
    Basic and Diluted
Income (Loss) from Continuing Operations After Income Taxes$0.26 $0.27 
Income (Loss) from Discontinued Operations (net of income taxes)(2.65)0.45 
Net Income (Loss) Available to PPL Common Shareowners$(2.39)$0.72 
Weighted-Average Shares of Common Stock Outstanding
(in thousands)
  
Basic769,159 767,948 
Diluted770,710 768,738 
 The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
PPL Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)
 Three Months Ended March 31,
 20212020
Net income (loss)$(1,840)$554 
Other comprehensive income (loss):
Amounts arising during the period - gains (losses), net of tax (expense) benefit:
Foreign currency translation adjustments, net of tax of ($80), $0303 (61)
Qualifying derivatives, net of tax of $16, ($2)(30)
Reclassifications from AOCI - (gains) losses, net of tax expense (benefit):
Qualifying derivatives, net of tax of ($14), $025 (3)
Defined benefit plans:
Prior service costs, net of tax of $0, $00 
Net actuarial (gain) loss, net of tax of ($22), ($12)40 47 
Total other comprehensive income (loss)338 (8)
Comprehensive income (loss)$(1,502)$546 
 
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
PPL Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)
Three Months Ended March 31,
 20212020
Cash Flows from Operating Activities  
Net income (loss)$(1,840)$554 
Loss (income) from discontinued operations (net of income taxes)2,043 (350)
Income from continuing operations (net of income taxes)203 204 
Adjustments to reconcile net income to net cash provided by operating activities  
Depreciation267 250 
Amortization11 
Defined benefit plans - (income) expense4 
Deferred income taxes and investment tax credits50 75 
Unrealized (gains) losses on derivatives, and other hedging activities0 (4)
Stock-based compensation expense6 
Other(5)
Change in current assets and current liabilities  
Accounts receivable(60)
Accounts payable(42)(42)
Unbilled revenues76 62 
Fuel, materials and supplies41 12 
Prepayments(76)(75)
Regulatory assets and liabilities, net29 (25)
Accrued interest69 66 
Other current liabilities(103)(132)
Other2 22 
Other operating activities
Defined benefit plans - funding(33)(54)
Other assets(74)42 
Other liabilities31 (13)
Net cash provided by operating activities - continuing operations396 413 
Net cash provided by operating activities - discontinued operations267 279 
Net cash provided by operating activities663 692 
Cash Flows from Investing Activities  
Expenditures for property, plant and equipment(471)(616)
Other investing activities(1)(3)
Net cash used in investing activities - continuing operations(472)(619)
Net cash used in investing activities - discontinued operations(263)(214)
Net cash used in investing activities(735)(833)
Cash Flows from Financing Activities  
Proceeds from project financing5 
Issuance of common stock1 20 
Payment of common stock dividends(320)(317)
Issuance of term loan0 200 
Retirement of term loan(300)
Retirement of commercial paper(73)
Net increase (decrease) in short-term debt752 388 
Other financing activities(10)(8)
Net cash provided by financing activities - continuing operations55 283 
Net cash used in financing activities - discontinued operations(126)(43)
Net cash provided by (used in) financing activities(71)240 
Effect of Exchange Rates on Cash, Cash Equivalents and Restricted Cash included in Discontinued Operations8 
Net (Increase) Decrease in Cash, Cash Equivalents and Restricted Cash included in Discontinued Operations114 (23)
Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash(21)77 
Cash, Cash Equivalents and Restricted Cash at Beginning of Period443 660 
Cash, Cash Equivalents and Restricted Cash at End of Period$422 $737 
Supplemental Disclosures of Cash Flow Information
Significant non-cash transactions:
Accrued expenditures for property, plant and equipment at March 31,$229 $237 

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)
 March 31,
2021
December 31,
2020
Assets  
Current Assets  
Cash and cash equivalents$421 $442 
Accounts receivable (less reserve: 2021, $72; 2020, $71)  
Customer634 603 
Other77 86 
Unbilled revenues (less reserve: 2021, $3; 2020, $4)225 301 
Fuel, materials and supplies260 302 
Prepayments132 53 
Regulatory assets121 99 
Other current assets32 31 
Current assets held for sale (Note 9)18,425 18,983 
Total Current Assets20,327 20,900 
Property, Plant and Equipment  
Regulated utility plant29,354 29,040 
Less:  accumulated depreciation - regulated utility plant6,156 6,008 
Regulated utility plant, net23,198 23,032 
Non-regulated property, plant and equipment245 237 
Less:  accumulated depreciation - non-regulated property, plant and equipment38 37 
Non-regulated property, plant and equipment, net207 200 
Construction work in progress1,292 1,268 
Property, Plant and Equipment, net24,697 24,500 
Other Noncurrent Assets  
Regulatory assets1,233 1,262 
Goodwill716 716 
Other intangibles348 351 
Pension benefit asset67 24 
Other noncurrent assets393 363 
Total Other Noncurrent Assets2,757 2,716 
Total Assets$47,781 $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)
 March 31,
2021
December 31,
2020
Liabilities and Equity  
Current Liabilities  
Short-term debt$1,547 $1,168 
Long-term debt due within one year976 1,074 
Accounts payable660 745 
Taxes45 69 
Interest182 113 
Dividends320 319 
Regulatory liabilities130 79 
Other current liabilities387 465 
Current liabilities held for sale (Note 9)11,376 11,023 
Total Current Liabilities15,623 15,055 
Long-term Debt13,715 13,615 
Deferred Credits and Other Noncurrent Liabilities  
Deferred income taxes3,370 2,536 
Investment tax credits121 122 
Accrued pension obligations183 189 
Asset retirement obligations130 132 
Regulatory liabilities2,526 2,530 
Other deferred credits and noncurrent liabilities559 564 
Total Deferred Credits and Other Noncurrent Liabilities6,889 6,073 
Commitments and Contingent Liabilities (Notes 7 and 11)00
Equity  
Common stock - $0.01 par value (a)8 
Additional paid-in capital12,273 12,270 
Earnings reinvested3,155 5,315 
Accumulated other comprehensive loss(3,882)(4,220)
Total Equity11,554 13,373 
Total Liabilities and Equity$47,781 $48,116 
 
(a)1,560,000 shares authorized; 769,427 and 768,907 shares issued and outstanding at March 31, 2021 and 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
Earnings
reinvested
Accumulated
other
comprehensive
loss
Total
December 31, 2020768,907 $$12,270 $5,315 $(4,220)$13,373 
Common stock issued520 16 16 
Stock-based compensation(13)(13)
Net income (loss)(1,840)(1,840)
Dividends and dividend equivalents (b)(320)(320)
Other comprehensive income (loss)338 338 
March 31, 2021769,427 $$12,273 $3,155 $(3,882)$11,554 
December 31, 2019767,233 $$12,214 $5,127 $(4,358)$12,991 
Common stock issued1,033  34   34 
Stock-based compensation  (9)  (9)
Net income (loss)   554  554 
Dividends and dividend equivalents (b)   (319) (319)
Other comprehensive income (loss)    (8)(8)
Adoption of financial instrument credit losses guidance cumulative effect adjustment(2)(2)
March 31, 2020768,266 $$12,239 $5,360 $(4,366)$13,241 
 
(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 for the three months ended March 31, 2021 and March 31, 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 March 31,
 20212020
Operating Revenues$605 $608 
Operating Expenses
Operation
Energy purchases149 144 
Other operation and maintenance128 137 
Depreciation108 98 
Taxes, other than income32 30 
Total Operating Expenses417 409 
Operating Income188 199 
Other Income (Expense) - net5 
Interest Income from Affiliate0 
Interest Expense43 44 
Income Before Income Taxes150 159 
Income Taxes37 41 
Net Income (a)$113 $118 
 
(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)
 Three Months Ended March 31,
 20212020
Cash Flows from Operating Activities  
Net income$113 $118 
Adjustments to reconcile net income to net cash provided by operating activities  
Depreciation108 98 
Amortization6 
Defined benefit plans - expense (income)(3)(1)
Deferred income taxes and investment tax credits13 32 
Other(4)
Change in current assets and current liabilities  
Accounts receivable(37)(26)
Accounts payable(9)(20)
Unbilled revenues37 34 
Prepayments(78)(76)
Regulatory assets and liabilities, net39 (11)
Other(14)(21)
Other operating activities  
Defined benefit plans - funding(21)(21)
Other assets(27)
Other liabilities(2)
Net cash provided by operating activities121 132 
Cash Flows from Investing Activities  
Expenditures for property, plant and equipment(223)(280)
Expenditures for intangible assets(1)(1)
Other investing activities2 
Net cash used in investing activities(222)(281)
Cash Flows from Financing Activities  
Payment of common stock dividends to parent(115)(165)
Net increase in short-term debt205 85 
Net cash provided by (used in) financing activities90 (80)
Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash(11)(229)
Cash, Cash Equivalents and Restricted Cash at Beginning of Period40 264 
Cash, Cash Equivalents and Restricted Cash at End of Period$29 $35 
Supplemental Disclosure of Cash Flow Information
Significant non-cash transactions:
Accrued expenditures for property, plant and equipment at March 31,$143 $158 

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

CONDENSED CONSOLIDATED BALANCE SHEETS
PPL Electric Utilities Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars, shares in thousands)
 March 31,
2021
December 31,
2020
Assets  
Current Assets  
Cash and cash equivalents$29 $40 
Accounts receivable (less reserve: 2021, $41; 2020, $41)  
Customer346 311 
Other19 17 
Accounts receivable from affiliates10 10 
Unbilled revenues (less reserve: 2021, $1; 2020, $2)84 121 
Materials and supplies59 59 
Prepayments87 
Regulatory assets47 40 
Other current assets15 13 
Total Current Assets696 620 
Property, Plant and Equipment  
Regulated utility plant13,680 13,514 
Less: accumulated depreciation - regulated utility plant3,348 3,297 
Regulated utility plant, net10,332 10,217 
Construction work in progress588 592 
Property, Plant and Equipment, net10,920 10,809 
Other Noncurrent Assets  
Regulatory assets525 541 
Intangibles268 268 
Pension benefit asset42 12 
Other noncurrent assets103 74 
Total Other Noncurrent Assets938 895 
Total Assets$12,554 $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)
 March 31,
2021
December 31,
2020
Liabilities and Equity  
Current Liabilities  
Short-term debt$205 $
Long-term debt due within one year400 400 
Accounts payable375 428 
Accounts payable to affiliates71 39 
Taxes10 17 
Interest45 39 
Regulatory liabilities114 68 
Other current liabilities94 105 
Total Current Liabilities1,314 1,096 
Long-term Debt3,837 3,836 
Deferred Credits and Other Noncurrent Liabilities  
Deferred income taxes1,579 1,559 
Accrued pension obligations8 
Regulatory liabilities573 578 
Other deferred credits and noncurrent liabilities121 123 
Total Deferred Credits and Other Noncurrent Liabilities2,281 2,268 
Commitments and Contingent Liabilities (Notes 7 and 11)00
Equity  
Common stock - 0 par value (a)364 364 
Additional paid-in capital3,753 3,753 
Earnings reinvested1,005 1,007 
Total Equity5,122 5,124 
Total Liabilities and Equity$12,554 $12,324 
 
(a)170,000 shares authorized; 66,368 shares issued and outstanding at March 31, 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
December 31, 202066,368 $364 $3,753 $1,007 $5,124 
Net income113 113 
Dividends declared on common stock(115)(115)
March 31, 202166,368 $364 $3,753 $1,005 $5,122 
December 31, 201966,368 $364 $3,558 $910 $4,832 
Net income118 118 
Dividends declared on common stock(165)(165)
March 31, 202066,368 $364 $3,558 $863 $4,785 
 
(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 CONSOLIDATED STATEMENTS OF INCOME
LG&E and KU Energy LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)
 Three Months Ended March 31,
 20212020
Operating Revenues$885 $825 
Operating Expenses  
Operation  
Fuel177 163 
Energy purchases71 57 
Other operation and maintenance220 204 
Depreciation156 149 
Taxes, other than income21 18 
Total Operating Expenses645 591 
Operating Income240 234 
Interest Expense51 58 
Interest Expense with Affiliate13 
Income Before Income Taxes176 169 
Income Taxes30 34 
Net Income (a)$146 $135 
 
(a)Net income approximates comprehensive income.

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

16

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
LG&E and KU Energy LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)
 Three Months Ended March 31,
 20212020
Cash Flows from Operating Activities  
Net income$146 $135 
Adjustments to reconcile net income to net cash provided by operating activities  
Depreciation156 149 
Amortization4 
Defined benefit plans - expense5 
Deferred income taxes and investment tax credits20 31 
Change in current assets and current liabilities  
Accounts receivable3 20 
Accounts payable(4)(18)
Accounts payable to affiliates9 
Unbilled revenues39 27 
Fuel, materials and supplies42 24 
Regulatory assets and liabilities, net(10)(14)
Taxes payable(18)(27)
Accrued interest45 51 
Other(51)(37)
Other operating activities  
Defined benefit plans - funding(2)(23)
Expenditures for asset retirement obligations(15)(15)
Other assets1 
Other liabilities6 
Net cash provided by operating activities376 320 
Cash Flows from Investing Activities  
Expenditures for property, plant and equipment(238)(255)
Net cash used in investing activities(238)(255)
Cash Flows from Financing Activities  
Net increase in notes payable with affiliate(24)92 
Net increase (decrease) in short-term debt8 (85)
Retirement of commercial paper(73)
Distributions to member(62)(52)
Net cash used in financing activities(151)(45)
Net Increase (Decrease) in Cash and Cash Equivalents(13)20 
Cash and Cash Equivalents at Beginning of Period29 27 
Cash and Cash Equivalents at End of Period$16 $47 
Supplemental Disclosure of Cash Flow Information
Significant non-cash transactions:
Accrued expenditures for property, plant and equipment at March 31,$86 $78 

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

CONDENSED CONSOLIDATED BALANCE SHEETS
LG&E and KU Energy LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)
March 31,
2021
December 31,
2020
Assets  
Current Assets  
Cash and cash equivalents$16 $29 
Accounts receivable (less reserve: 2021, $30; 2020, $30)  
Customer282 283 
Other52 69 
Unbilled revenues (less reserve: 2021, $2; 2020, $2)137 176 
Fuel, materials and supplies200 242 
Prepayments27 30 
Regulatory assets74 59 
Other current assets1 
Total Current Assets789 892 
Property, Plant and Equipment  
Regulated utility plant15,706 15,557 
Less: accumulated depreciation - regulated utility plant2,816 2,717 
Regulated utility plant, net12,890 12,840 
Construction work in progress669 640 
Property, Plant and Equipment, net13,559 13,480 
Other Noncurrent Assets  
Regulatory assets708 721 
Goodwill996 996 
Other intangibles59 61 
Other noncurrent assets127 127 
Total Other Noncurrent Assets1,890 1,905 
Total Assets$16,238 $16,277 
 
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
18

CONDENSED CONSOLIDATED BALANCE SHEETS
LG&E and KU Energy LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)
 March 31,
2021
December 31,
2020
Liabilities and Equity  
Current Liabilities  
Short-term debt$400 $465 
Long-term debt due within one year476 674 
Notes payable with affiliates227 251 
Accounts payable261 294 
Accounts payable to affiliates25 16 
Customer deposits64 64 
Taxes53 71 
Price risk management liabilities1 
Regulatory liabilities16 11 
Interest82 37 
Asset retirement obligations41 50 
Other current liabilities108 162 
Total Current Liabilities1,754 2,097 
Long-term Debt  
Long-term debt4,399 4,200 
Long-term debt to affiliate1,200 1,200 
Total Long-term Debt5,599 5,400 
Deferred Credits and Other Noncurrent Liabilities  
Deferred income taxes1,208 1,175 
Investment tax credits121 121 
Price risk management liabilities16 21 
Accrued pension obligations106 112 
Asset retirement obligations130 132 
Regulatory liabilities1,953 1,952 
Other deferred credits and noncurrent liabilities148 151 
Total Deferred Credits and Other Noncurrent Liabilities3,682 3,664 
Commitments and Contingent Liabilities (Notes 7 and 11)00
Member's Equity5,203 5,116 
Total Liabilities and Equity$16,238 $16,277 
 
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.

19

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
LG&E and KU Energy LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)
 Member's
Equity
December 31, 2020$5,116 
Net income146 
Distributions to member(62)
Other comprehensive income
March 31, 2021$5,203 
December 31, 2019$4,942 
Net income135 
Distributions to member(52)
Other comprehensive income
March 31, 2020$5,026 
 
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
Louisville Gas and Electric Company
(Unaudited)
(Millions of Dollars)
 Three Months Ended March 31,
 20212020
Operating Revenues
Retail and wholesale$421 $393 
Electric revenue from affiliate7 14 
Total Operating Revenues428 407 
Operating Expenses  
Operation  
Fuel67 74 
Energy purchases66 52 
Energy purchases from affiliate5 
Other operation and maintenance96 92 
Depreciation66 64 
Taxes, other than income11 10 
Total Operating Expenses311 292 
Operating Income117 115 
Other Income (Expense) - net(2)(1)
Interest Expense21 22 
Income Before Income Taxes94 92 
Income Taxes19 19 
Net Income (a)$75 $73 
 
(a)Net income equals comprehensive income.

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

22

CONDENSED STATEMENTS OF CASH FLOWS
Louisville Gas and Electric Company
(Unaudited)
(Millions of Dollars)
 Three Months Ended March 31,
 20212020
Cash Flows from Operating Activities  
Net income$75 $73 
Adjustments to reconcile net income to net cash provided by operating activities  
Depreciation66 64 
Amortization2 
Defined benefit plans - expense1 
Deferred income taxes and investment tax credits(1)
Change in current assets and current liabilities  
Accounts receivable(1)14 
Accounts receivable from affiliates(3)(6)
Accounts payable8 (12)
Accounts payable to affiliates(5)(4)
Unbilled revenues19 11 
Fuel, materials and supplies28 27 
Regulatory assets and liabilities, net(10)(2)
Taxes payable4 
Accrued interest18 18 
Other(17)(10)
Other operating activities  
Defined benefit plans - funding(1)(4)
Expenditures for asset retirement obligations(6)(4)
Other assets0 (1)
Other liabilities4 
Net cash provided by operating activities181 171 
Cash Flows from Investing Activities  
Expenditures for property, plant and equipment(111)(117)
Net cash used in investing activities(111)(117)
Cash Flows from Financing Activities  
Net increase in notes payable with affiliates0 21 
Net increase (decrease) in short-term debt31 (79)
Retirement of commercial paper(41)
Payment of common stock dividends to parent(60)(29)
Contributions from parent0 25 
Net cash used in financing activities(70)(62)
Net Increase (Decrease) in Cash and Cash Equivalents0 (8)
Cash and Cash Equivalents at Beginning of Period7 15 
Cash and Cash Equivalents at End of Period$7 $
Supplemental Disclosure of Cash Flow Information
Significant non-cash transactions:
Accrued expenditures for property, plant and equipment at March 31,$46 $39 
 
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
23

CONDENSED BALANCE SHEETS
Louisville Gas and Electric Company
(Unaudited)
(Millions of Dollars, shares in thousands)
 March 31,
2021
December 31,
2020
Assets  
Current Assets  
Cash and cash equivalents$7 $
Accounts receivable (less reserve: 2021, $2; 2020, $2)  
Customer129 127 
Other25 35 
Unbilled revenues (less reserve: 2021, $1; 2020, $1)60 79 
Accounts receivable from affiliates19 16 
Fuel, materials and supplies91 119 
Prepayments13 14 
Regulatory assets36 23 
Other current assets1 
Total Current Assets381 421 
Property, Plant and Equipment  
Regulated utility plant6,805 6,735 
Less: accumulated depreciation - regulated utility plant1,056 1,020 
Regulated utility plant, net5,749 5,715 
Construction work in progress319 320 
Property, Plant and Equipment, net6,068 6,035 
Other Noncurrent Assets  
Regulatory assets339 351 
Goodwill389 389 
Other intangibles34 35 
Other noncurrent assets117 114 
Total Other Noncurrent Assets879 889 
Total Assets$7,328 $7,345 
 
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
24

CONDENSED BALANCE SHEETS
Louisville Gas and Electric Company
(Unaudited)
(Millions of Dollars, shares in thousands)
 March 31,
2021
December 31,
2020
Liabilities and Equity  
Current Liabilities  
Short-term debt$252 $262 
Long-term debt due within one year94 292 
Accounts payable137 153 
Accounts payable to affiliates27 31 
Customer deposits31 32 
Taxes36 32 
Price risk management liabilities1 
Regulatory liabilities3 
Interest33 15 
Asset retirement obligations14 10 
Other current liabilities33 50 
Total Current Liabilities661 879 
Long-term Debt1,913 1,715 
Deferred Credits and Other Noncurrent Liabilities  
Deferred income taxes719 716 
Investment tax credits33 33 
Price risk management liabilities16 21 
Asset retirement obligations48 57 
Regulatory liabilities881 882 
Other deferred credits and noncurrent liabilities94 94 
Total Deferred Credits and Other Noncurrent Liabilities1,791 1,803 
Commitments and Contingent Liabilities (Notes 7 and 11)00
Stockholder's Equity  
Common stock - 0 par value (a)424 424 
Additional paid-in capital1,923 1,923 
Earnings reinvested616 601 
Total Equity2,963 2,948 
Total Liabilities and Equity$7,328 $7,345 
 
(a)75,000 shares authorized; 21,294 shares issued and outstanding at March 31, 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
Louisville Gas and Electric Company
(Unaudited)
(Millions of Dollars)
 Common
stock
shares
outstanding
(a)
Common
stock
Additional
paid-in
capital
Earnings
reinvested
Total
December 31, 202021,294 $424 $1,923 $601 $2,948 
Net income75 75 
Cash dividends declared on common stock(60)(60)
March 31, 202121,294 $424 $1,923 $616 $2,963 
December 31, 201921,294 $424 $1,820 $518 $2,762 
Net income73 73 
Capital contributions from parent25 25 
Cash dividends declared on common stock(29)(29)
March 31, 202021,294 $424 $1,845 $562 $2,831 
 
(a)Shares in thousands. All common shares of LG&E stock are owned by LKE.

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

26

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27

CONDENSED STATEMENTS OF INCOME
Kentucky Utilities Company
(Unaudited)
(Millions of Dollars)
 Three Months Ended March 31,
 20212020
Operating Revenues
Retail and wholesale$464 $432 
Electric revenue from affiliate5 
Total Operating Revenues469 432 
Operating Expenses  
Operation  
Fuel110 89 
Energy purchases5 
Energy purchases from affiliate7 14 
Other operation and maintenance115 104 
Depreciation89 84 
Taxes, other than income10 
Total Operating Expenses336 305 
Operating Income133 127 
Other Income (Expense) - net1 
Interest Expense27 28 
Income Before Income Taxes107 100 
Income Taxes21 20 
Net Income (a)$86 $80 
 
(a)Net income equals comprehensive income.

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

28

CONDENSED STATEMENTS OF CASH FLOWS
Kentucky Utilities Company
(Unaudited)
(Millions of Dollars)
 Three Months Ended March 31,
 20212020
Cash Flows from Operating Activities  
Net income$86 $80 
Adjustments to reconcile net income to net cash provided by operating activities  
Depreciation89 84 
Amortization2 
Deferred income taxes and investment tax credits(2)
Change in current assets and current liabilities  
Accounts receivable2 
Accounts receivable from affiliates1 
Accounts payable(7)(2)
Accounts payable to affiliates2 (3)
Unbilled revenues20 16 
Fuel, materials and supplies15 (3)
Regulatory assets and liabilities, net0 (12)
Taxes payable13 
Accrued interest25 25 
Other(17)(4)
Other operating activities  
Defined benefit plans - funding0 (1)
Expenditures for asset retirement obligations(9)(11)
Other assets0 
Other liabilities4 
Net cash provided by operating activities224 193 
Cash Flows from Investing Activities  
Expenditures for property, plant and equipment(127)(138)
Net increase in notes receivable with affiliates0 (21)
Net cash used in investing activities(127)(159)
Cash Flows from Financing Activities  
Net decrease in short-term debt(23)(6)
Retirement of commercial paper(32)
Payment of common stock dividends to parent(56)(37)
Contributions from parent0 37 
Net cash used in financing activities(111)(6)
Net Increase (Decrease) in Cash and Cash Equivalents(14)28 
Cash and Cash Equivalents at Beginning of Period22 12 
Cash and Cash Equivalents at End of Period$8 $40 
Supplemental Disclosure of Cash Flow Information
Significant non-cash transactions:
Accrued expenditures for property, plant and equipment at March 31,$40 $39 
 
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
29

CONDENSED BALANCE SHEETS
Kentucky Utilities Company
(Unaudited)
(Millions of Dollars, shares in thousands)
 March 31,
2021
December 31,
2020
Assets  
Current Assets  
Cash and cash equivalents$8 $22 
Accounts receivable (less reserve: 2021, $1; 2020, $1)  
Customer153 156 
Other25 30 
Unbilled revenues (less reserve: 2021, $1; 2020, $1)77 97 
Accounts receivable from affiliates0 
Fuel, materials and supplies109 123 
Prepayments13 15 
Regulatory assets38 36 
Other current assets0 
Total Current Assets423 481 
Property, Plant and Equipment  
Regulated utility plant8,886 8,808 
Less: accumulated depreciation - regulated utility plant1,753 1,690 
Regulated utility plant, net7,133 7,118 
Construction work in progress350 321 
Property, Plant and Equipment, net7,483 7,439 
Other Noncurrent Assets  
Regulatory assets369 370 
Goodwill607 607 
Other intangibles25 26 
Other noncurrent assets153 149 
Total Other Noncurrent Assets1,154 1,152 
Total Assets$9,060 $9,072 
 
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
30

CONDENSED BALANCE SHEETS
Kentucky Utilities Company
(Unaudited)
(Millions of Dollars, shares in thousands)
 March 31,
2021
December 31,
2020
Liabilities and Equity  
Current Liabilities  
Short-term debt$148 $203 
Long-term debt due within one year132 132 
Accounts payable109 121 
Accounts payable to affiliates46 43 
Customer deposits33 32 
Taxes42 29 
Regulatory liabilities13 11 
Interest44 19 
Asset retirement obligations27 40 
Other current liabilities40 59 
Total Current Liabilities634 689 
Long-term Debt2,486 2,486 
Deferred Credits and Other Noncurrent Liabilities  
Deferred income taxes839 835 
Investment tax credits88 88 
Asset retirement obligations82 75 
Regulatory liabilities1,072 1,070 
Other deferred credits and noncurrent liabilities47 47 
Total Deferred Credits and Other Noncurrent Liabilities2,128 2,115 
Commitments and Contingent Liabilities (Notes 7 and 11)00
Stockholder's Equity  
Common stock - 0 par value (a)308 308 
Additional paid-in capital2,857 2,857 
Earnings reinvested647 617 
Total Equity3,812 3,782 
Total Liabilities and Equity$9,060 $9,072 
 
(a)80,000 shares authorized; 37,818 shares issued and outstanding at March 31, 2021 and December 31, 2020.

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

31

CONDENSED STATEMENTS OF EQUITY
Kentucky Utilities Company
(Unaudited)
(Millions of Dollars)
 Common
stock
shares
outstanding
(a)
Common
stock
Additional
paid-in
capital
Earnings
reinvested
Total
December 31, 202037,818 $308 $2,857 $617 $3,782 
Net income86 86 
Cash dividends declared on common stock(56)(56)
March 31, 202137,818 $308 $2,857 $647 $3,812 
December 31, 201937,818 $308 $2,729 $537 $3,574 
Net income80 80 
Capital contributions from parent37 37 
Cash dividends declared on common stock(37)(37)
March 31, 202037,818 $308 $2,766 $580 $3,654 
 
(a)Shares in thousands. All common shares of KU stock are owned by LKE.

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

 
32

Combined Notes to Condensed Financial Statements (Unaudited)

Index to Combined Notes to Condensed Financial Statements

The notes to the condensed financial statements that follow are a combined presentation. The following list indicates the Registrants to which the notes apply:
Registrant
PPLPPL ElectricLKELG&EKU
1. Interim Financial Statementsxxxxx
2. Summary of Significant Accounting Policiesxxxxx
3. Segment and Related Informationxxxxx
4. Revenue from Contracts with Customersxxxxx
5. Earnings Per Sharex
6. Income Taxesxxxxx
7. Utility Rate Regulationxxxxx
8. Financing Activitiesxxxxx
9. Acquisitions, Development and Divestituresx
10. Defined Benefitsxxxxx
11. Commitments and Contingenciesxxxxx
12. Related Party Transactionsxxxx
13. Other Income (Expense) - netx
14. Fair Value Measurementsxxxxx
15. Derivative Instruments and Hedging Activitiesxxxxx
16. Asset Retirement Obligationsxxxx
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 months ended March 31, 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 represents PPL’s U.K. Regulated segment, to a subsidiary of National Grid plc. The results of operations of the U.K. utility business have been classified as Discontinued Operations on PPL's Statements of Income. The assets and liabilities of the U.K. utility business have been classified as assets and liabilities held for sale on PPL's Balance Sheets. PPL has elected
33

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.

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
March 31,
2021
December 31,
2020
Cash and cash equivalents$421 $442 
Restricted cash - current (a)
Total Cash, Cash Equivalents and Restricted Cash$422 $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 three months ended March 31, 2021:
    
Balance at
Beginning of Period
Charged to IncomeDeductions (a)Balance at
End of Period
PPL    
Accounts Receivable - Customer and Unbilled Revenue$44 $$$45 
Other (b)28 28 
PPL Electric    
Accounts Receivable - Customer and Unbilled Revenue$39 $$$40 
Other
LKE    
Accounts Receivable - Customer and Unbilled Revenue$$$$
Other (b)27 27 
LG&E    
Accounts Receivable - Customer and Unbilled Revenue$$$$
KU    
Accounts Receivable - Customer and Unbilled Revenue$$$$

(a)Primarily related to uncollectible accounts receivable written off.
(b)Primarily related to receivables at WKE, which are fully reserved.




34

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 anticipated sale of PPL's U.K. utility business and the associated classification of that business as assets held for sale, indefinite reinvestment is no longer relevant. As such, PPL expects to realize the outside book-tax basis difference in those assets in the foreseeable future. Accordingly, a deferred tax liability is recorded reflecting the expected tax cost associated with the realization of that basis difference.

See Note 6 for additional discussion regarding income taxes, including the impact of the TCJA.

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 represents PPL's U.K. Regulated segment. As a result of this strategic shift in the operations of the business, PPL will no longer provide segment information for the U.K. Regulated segment. See Note 9 for additional information.

Income Statement data for the segments and reconciliation to PPL's consolidated results for the periods ended March 31 are as follows:
 Three Months
 20212020
Operating Revenues from external customers  
Kentucky Regulated$885 $825 
Pennsylvania Regulated605 608 
Corporate and Other
Total$1,498 $1,440 
Net Income  
Kentucky Regulated (a)$146 $127 
Pennsylvania Regulated (a)113 118 
Corporate and Other (a)(56)(41)
Discontinued Operations (b)(2,043)350 
Total$(1,840)$554 

(a)For the period ended March 31, 2020, corporate level financing costs of $8 million, net of $2 million of income taxes, and an immaterial amount were allocated to the Kentucky Regulated and Pennsylvania Regulated segments. Beginning in 2021, corporate level financing costs will no longer be allocated to the reportable segments and are being reported in Corporate and Other.
(b)Includes unrealized gains and losses from hedging foreign currency economic activity. 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:
March 31,
2021
December 31,
2020
Assets  
Kentucky Regulated$15,904 $15,943 
Pennsylvania Regulated12,585 12,347 
Corporate and Other (a)867 843 
Assets Held for Sale (b)18,425 18,983 
Total$47,781 $48,116 
35


(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, LKE, LG&E and KU)

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

4. Revenue from Contracts with Customers

(All Registrants)

See Note 3 in PPL's 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 March 31.
2021 Three Months
PPLPPL ElectricLKELG&EKU
Operating Revenues (a)$1,498 $605 $885 $428 $469 
   Revenues derived from:
Alternative revenue programs (b)24 22 
Other (c)(6)(6)(3)(3)
Revenues from Contracts with Customers$1,516 $627 $881 $425 $468 
2020 Three Months
PPLPPL ElectricLKELG&EKU
Operating Revenues (a)$1,440 $608 $825 $407 $432 
   Revenues derived from:
Alternative revenue programs (b)(3)(3)(3)
Other (c)(8)(2)(6)(3)(3)
Revenues from Contracts with Customers$1,429 $606 $816 $401 $429 

(a)PPL Electric and LKE represent revenues from external customers reported by the Pennsylvania Regulated and Kentucky Regulated segments. See Note 3 for additional information.
(b)Alternative revenue programs include the transmission formula rate for PPL Electric, the ECR and DSM programs for LG&E and KU, the GLT program for LG&E, and the generation formula rate for KU. For PPL Electric, the three months ended March 31, 2021 includes a $27 million reserve recorded as a result of a challenge to the transmission formula rate return on equity. See Note 7 for further 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.

36

The following tables show revenues from contracts with customers disaggregated by customer class for the periods ended March 31.
2021 Three Months
PPLPPL ElectricLKELG&EKU
Residential$774 $361 $413 $205 $208 
Commercial313 82 231 121 110 
Industrial152 12 140 46 94 
Other (a)91 12 71 34 37 
Wholesale - municipality
Wholesale - other (b)20 20 19 13 
Transmission160 160 
Revenues from Contracts with Customers$1,516 $627 $881 $425 $468 
2020 Three Months
PPLPPL ElectricLKELG&EKU
Residential$714 $344 $370 $187 $183 
Commercial312 81 231 124 107 
Industrial144 136 45 91 
Other (a)87 14 66 28 38 
Wholesale - municipality
Wholesale - other (b)17 
Transmission159 159 
Revenues from Contracts with Customers$1,429 $606 $816 $401 $429 

(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 LKE.

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" and "Unbilled revenues" on the Balance Sheets.

The following table shows the accounts receivable and unbilled revenues balances that were impaired for the periods ended March 31.
Three Months
20212020
PPL$$
PPL Electric
LKE
LG&E
KU

The following table shows the balances and certain activity of contract liabilities resulting from contracts with customers.
PPLPPL ElectricLKELG&EKU
Contract liabilities at December 31, 2020$40 $23 $11 $$
Contract liabilities at March 31, 202133 16 10 
Revenue recognized during the three months ended March 31, 2021 that was included in the contract liability balance at December 31, 202021 11 
Contract liabilities at December 31, 2019$37 $21 $$$
Contract liabilities at March 31, 202034 15 14 10 
Revenue recognized during the three months ended March 31, 2020 that was included in the contract liability balance at December 31, 201919 

37

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 March 31, 2021, PPL had $47 million of performance obligations attributable to Corporate and Other that have not been satisfied. Of this amount, PPL expects to recognize approximately $38 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 March 31 used in the EPS calculation are:
 Three Months
 20212020
Income (Numerator)  
Income from continuing operations after income taxes available to PPL common shareowners - Basic and Diluted$203 $204 
Income (loss) from discontinued operations (net of income taxes) available to PPL common shareowners - Basic and Diluted$(2,043)$350 
Net income (loss) available to PPL common shareowners - Basic and Diluted$(1,840)$554 
Shares of Common Stock (Denominator)  
Weighted-average shares - Basic EPS769,159 767,948 
Add: Dilutive share-based payment awards1,551 790 
Weighted-average shares - Diluted EPS770,710 768,738 
Basic and Diluted EPS  
Available to PPL common shareowners:
Income from continuing operations after income taxes$0.26 $0.27 
Income (loss) from discontinued operations (net of income taxes)(2.65)0.45 
Net Income (Loss) available to PPL common shareowners$(2.39)$0.72 
 
For the periods ended March 31, PPL issued common stock related to stock-based compensation plans and the DRIP as follows (in thousands):
 Three Months
 20212020
Stock-based compensation plans520 598 
DRIP434 

For the periods ended March 31, the following shares (in thousands) were excluded from the computations of diluted EPS because the effect would have been antidilutive.
 Three Months
20212020
Stock-based compensation awards233 250 
 
38

6. Income Taxes

Reconciliations of income tax expense (benefit) for the periods ended March 31 are as follows.
(PPL)
Three Months
20212020
Federal income tax on Income from Continuing Operations Before Income Taxes at statutory tax rate - 21%$55 $56 
Increase (decrease) due to:  
State income taxes, net of federal income tax benefit12 13 
Valuation allowance adjustments
Depreciation and other items not normalized(2)(2)
Amortization of excess deferred federal and state income taxes(12)(11)
Other(2)(1)
Total increase (decrease)
Total income tax expense (benefit)$59 $61 

(PPL Electric)  
 Three Months
 20212020
Federal income tax on Income Before Income Taxes at statutory tax rate - 21%$32 $33 
Increase (decrease) due to:  
State income taxes, net of federal income tax benefit12 13 
Depreciation and other items not normalized(2)(2)
Amortization of excess deferred federal and state income taxes(3)(3)
Other(2)
Total increase (decrease)
Total income tax expense (benefit)$37 $41 

(LKE)  
 Three Months
 20212020
Federal income tax on Income Before Income Taxes at statutory tax rate - 21%$37 $35 
Increase (decrease) due to:  
State income taxes, net of federal income tax benefit
Valuation allowance adjustments(4)
Amortization of excess deferred federal and state income taxes(7)(7)
Other(3)(1)
Total increase (decrease)(7)(1)
Total income tax expense (benefit)$30 $34 

(LG&E)  
 Three Months
 20212020
Federal income tax on Income Before Income Taxes at statutory tax rate - 21%$20 $19 
Increase (decrease) due to:  
State income taxes, net of federal income tax benefit
Amortization of excess deferred federal and state income taxes(3)(3)
Other(2)(1)
Total increase (decrease)(1)
Total income tax expense (benefit)$19 $19 

39

(KU)  
 Three Months
 20212020
Federal income tax on Income Before Income Taxes at statutory tax rate - 21%$22 $21 
Increase (decrease) due to:  
State income taxes, net of federal income tax benefit
Amortization of excess deferred federal and state income taxes(4)(4)
Other(1)(1)
Total increase (decrease)(1)(1)
Total income tax expense (benefit)$21 $20 

Other

TCJA Regulatory Update (All Registrants)

In July 2020, the IRS issued final and new proposed regulations relating to the limitation on interest deductibility. The final regulations do not apply to the Registrants until the 2021 tax year. The new proposed regulations were finalized on January 5, 2021 and will apply to the Registrants in the 2022 tax year. The Registrants have evaluated the final regulations issued in 2021 and concluded that neither the 2020 or 2021 regulations should have a material impact on the Registrants’ financial condition or results of operations.

7. Utility Rate Regulation

(All Registrants)

The following table provides information about the regulatory assets and liabilities of cost-based rate-regulated utility operations.
PPLPPL Electric
March 31,
2021
December 31,
2020
March 31,
2021
December 31,
2020
Current Regulatory Assets:    
Plant outage costs$55 $46 $$
Gas supply clause
Smart meter rider21 17 21 17 
Transmission formula rate20 15 20 15 
Storm costs
Other12 10 
Total current regulatory assets$121 $99 $47 $40 
Noncurrent Regulatory Assets:    
Defined benefit plans$556 $570 $282 $290 
Storm costs14 17 
Unamortized loss on debt29 30 
Interest rate swaps18 23 
Terminated interest rate swaps74 75 
Accumulated cost of removal of utility plant234 240 234 240 
AROs304 300 
Other
Total noncurrent regulatory assets$1,233 $1,262 $525 $541 

40

PPLPPL Electric
March 31,
2021
December 31,
2020
March 31,
2021
December 31,
2020
Current Regulatory Liabilities:    
Generation supply charge$18 $21 $18 $21 
Transmission service charge27 27 
Environmental cost recovery
Universal service rider16 22 16 22 
Fuel adjustment clause
TCJA customer refund15 11 15 11 
Storm damage expense rider
Act 129 compliance rider
Challenge to transmission formula rate return on equity reserve (a)27 27 
Other
Total current regulatory liabilities$130 $79 $114 $68 
Noncurrent Regulatory Liabilities:    
Accumulated cost of removal of utility plant$665 $653 $$
Power purchase agreement - OVEC41 43 
Net deferred taxes1,673 1,690 552 560 
Defined benefit plans64 60 21 18 
Terminated interest rate swaps65 66 
Other18 18 
Total noncurrent regulatory liabilities$2,526 $2,530 $573 $578 

 LKELG&EKU
March 31,
2021
December 31,
2020
March 31,
2021
December 31,
2020
March 31,
2021
December 31,
2020
Current Regulatory Assets:      
Plant outage costs$55 $46 $20 $12 $35 $34 
Gas supply clause
Other11 
Total current regulatory assets$74 $59 $36 $23 $38 $36 
Noncurrent Regulatory Assets:      
Defined benefit plans$274 $280 $170 $174 $104 $106 
Storm costs14 17 11 
Unamortized loss on debt22 22 13 13 
Interest rate swaps18 23 18 23 
Terminated interest rate swaps74 75 43 44 31 31 
AROs304 300 85 85 219 215 
Other
Total noncurrent regulatory assets$708 $721 $339 $351 $369 $370 

41

LKELG&EKU
March 31,
2021
December 31,
2020
March 31,
2021
December 31,
2020
March 31,
2021
December 31,
2020
Current Regulatory Liabilities:      
Environmental cost recovery$$$$$$
Fuel adjustment clause
Other
Total current regulatory liabilities$16 $11 $$$13 $11 
Noncurrent Regulatory Liabilities:      
Accumulated cost of removal
of utility plant
$665 $653 $278 $274 $387 $379 
Power purchase agreement - OVEC41 43 28 30 13 13 
Net deferred taxes1,121 1,130 525 528 596 602 
Defined benefit plans43 42 42 42 
Terminated interest rate swaps65 66 33 33 32 33 
Other18 18 16 17 
Total noncurrent regulatory liabilities$1,953 $1,952 $881 $882 $1,072 $1,070 
  
(a)See “Regulatory Matters - Federal Matters - Challenge to PPL Electric Transmission Formula Rate Return on Equity” below for further information.

Regulatory Matters

Kentucky Activities (PPL, LKE, 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 proposes 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 includes an authorized 9.35% return on equity for the ECR and GLT mechanisms. The agreement does not modify the requested one-year billing credit. The agreement proposes that the KPSC should grant LG&E’s and KU’s request for a CPCN to deploy Advanced Metering Infrastructure and proposes 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 proposes 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 proposes 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.

A hearing on the agreement, and the underlying proceedings, was completed on April 28, 2021. Subject to KPSC approval, the rates, decreased by the amount of the billing credit, are expected to become effective July 1, 2021. An Order on the net metering issues is expected by the end of September 2021. PPL, LKE, LG&E and KU cannot predict the outcome of these proceedings.
42


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.

Federal Matters

Challenge to PPL Electric Transmission Formula Rate Return on Equity (PPL and PPL Electric)

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

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

On October 15, 2020, the FERC issued an order on the PPLICA complaints which established hearing and settlement procedures, set a refund effective date of May 21, 2020 and granted the motions to intervene. On November 16, 2020, PPL Electric filed a request for rehearing of the portion of the October 15, 2020 Order that set the May 21, 2020 refund effective date. On December 17, 2020, the FERC issued a Notice of Denial of Rehearing by Operation of Law and Providing for Further Consideration. On February 16 and April 19, 2021, PPL Electric filed Petitions for Review with the United States Court of Appeals for the District of Columbia Circuit of the portion of the October 15, 2020 Order that set the May 21, 2020 refund effective date.

PPL Electric continues to believe its ROE is just and reasonable and that it has meritorious defenses against the original and amended complaints. Settlement negotiations are currently proceeding, but there can be no assurance that they will result in a final settlement. Although PPL Electric cannot predict the outcome of this matter, in the first quarter of 2021, PPL Electric recorded a revenue reserve of $19 million after-tax. Of this amount, $13 million relates to the period from May 21, 2020 to December 31, 2020. Additional revenue earned from May 21, 2020 through the ultimate resolution of this matter may be subject to refund. A change of 50 basis points to the base ROE would impact PPL Electric's net income by approximately $12 million on an annual basis.

FERC Transmission Rate Filing (PPL, LKE, LG&E and KU)

In 2018, LG&E and KU applied to the FERC requesting elimination of certain on-going credits to a sub-set of transmission customers relating to the 1998 merger of LG&E's and KU's parent entities and the 2006 withdrawal of LG&E and KU from the Midcontinent Independent System Operator, Inc. (MISO), a regional transmission operator and energy market. The application sought termination of LG&E's and KU's commitment to provide certain Kentucky municipalities mitigation for certain horizontal market power concerns arising out of the 1998 LG&E and KU merger and 2006 MISO withdrawal. The amounts at issue are generally waivers or credits granted to a limited number of Kentucky municipalities for either certain LG&E and KU or MISO transmission charges incurred for transmission service received. Due to the development of robust, accessible energy markets over time, LG&E and KU believe the mitigation commitments are no longer relevant or appropriate. In March 2019, the FERC granted LG&E's and KU's request to remove the ongoing credits, conditioned upon the implementation by LG&E
43

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 are also required to make certain compliance filings consistent with the March 16, 2021 order. LG&E and KU cannot predict the outcome of the respective 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 months ended March 31, 2021, and 2020, PPL Electric purchased $324 million and $311 million of accounts receivable from alternative suppliers.

8. Financing Activities

Credit Arrangements and Short-term Debt

(All Registrants)

The Registrants maintain credit facilities to enhance liquidity, provide credit support and act as a backstop to commercial paper programs. For reporting purposes, on a consolidated basis, the credit facilities and commercial paper programs of PPL Electric, LKE, LG&E and KU also apply to PPL and the credit facilities and commercial paper programs of LG&E and KU also apply to LKE. The amounts listed in the borrowed column below are recorded as "Short-term debt" on the Balance Sheets except for borrowings under PPL Capital Funding’s term loan agreement due March 2022, which are reflected in “Long-term debt due within one year” at March 31, 2021 and “Long-term debt” at December 31, 2020. The following credit facilities were in place at:
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 March 31, 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 $$942 $508 $$402 
Term Loan Credit FacilityMar. 2022100 100 100 
Bilateral Credit FacilityMar. 202250 50 
Bilateral Credit FacilityMar. 202250 15 35 15 
Term Loan Credit FacilityMar. 2021100 
Term Loan Credit FacilityMar. 2021200 
Total PPL Capital Funding Credit Facilities$1,650 $100 $957 $593 $400 $417 
PPL Electric       
Syndicated Credit FacilityJan. 2024$650 $$206 $444 $$
LG&E      
Syndicated Credit FacilityJan. 2024$500 $$252 $248 $$262 
KU       
Syndicated Credit FacilityJan. 2024$400 $$148 $252 $$203 

(All Registrants)

PPL, PPL Electric, LG&E and KU maintain commercial paper programs to provide an additional financing source to fund short-term liquidity needs. Commercial paper issuances, included in "Short-term debt" on the Balance Sheets, are supported by the respective Registrant's credit facilities. The following commercial paper programs were in place at:
 March 31, 2021December 31, 2020
Weighted -
Average
Interest Rate
CapacityCommercial
Paper
Issuances
Unused
Capacity
Weighted -
Average
Interest Rate
Commercial
Paper
Issuances
PPL Capital Funding0.22%$1,500 $942 $558 0.25%$402 
PPL Electric
0.20%650 205 445 
LG&E (a)0.22%425 252 173 0.28%262 
KU0.21%350 148 202 0.28%203 
Total $2,925 $1,547 $1,378  $867 

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

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

See Note 12 for discussion of intercompany borrowings.

Long-term Debt

(PPL)

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

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(PPL, LKE 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.

(PPL)

Equity Securities

ATM Program

In February 2018, PPL entered into an equity distribution agreement, pursuant to which PPL may sell, from time to time, up to an aggregate of $1.0 billion of its common stock through an at-the-market offering program, including a forward sales component. The compensation paid to the selling agents by PPL may be up to 2% of the gross offering proceeds of the shares. There were 0 issuances under the ATM program for the three months ended March 31, 2021. The ATM program expired in February 2021.

Distributions

In February 2021, PPL declared a quarterly common stock dividend, payable April 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.

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9. Acquisitions, Development and Divestitures

(PPL)

Discontinued Operations

Share Purchase Agreement to Sell 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. will acquire 100% of the issued share capital of PPL WPD Investments Limited (WPD Investments) for £7.8 billion in cash. WPD Limited will 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.

The completion of the transaction, which is currently expected to occur by the end of July 2021, is subject to approval by National Grid plc's shareholders and receipt of regulatory approvals from the Financial Conduct Authority (the FCA), the Guernsey Financial Services Commission and, if applicable at the time of closing, from the U.K. Secretary of State in connection with the National Security and Investment Bill 2020. On April 22, 2021, National Grid plc’s shareholders approved the transaction pursuant to the listing rules of the FCA. On May 4, 2021, the Guernsey Financial Services Commission approved the transaction. The approval of the FCA is the sole remaining approval before the transaction can be consummated.

WPD Limited and National Grid U.K. have each made customary representations and warranties in the WPD SPA, as well as certain customary covenants by WPD Limited to conduct the businesses that are subject to the WPD SPA in the ordinary course between the execution of the WPD SPA and the closing of the sale. National Grid U.K., at its expense, has purchased warranty and indemnity insurance. The consummation of the transaction is not subject to a financing condition. PPL will not have any significant involvement with the U.K. utility business after completion of the sale.

Loss on Sale

In connection with entering into the WPD SPA, the U.K. utility business has met the accounting criteria to be classified as assets and liabilities held for sale and discontinued operations beginning with the first quarter of 2021. Accordingly, PPL’s investment in the U.K. utility business has been reported at its estimated fair value, less costs to sell, resulting in an estimated pre-tax loss on sale of $1.6 billion as of March 31, 2021, as determined below.
 Three Months
 2021
Sales proceeds (a)$10,806 
Costs to sell (b)48 
Carrying value (c)12,405 
Loss on Sale (d)(1,647)

(a)Amount represents a contractual selling price of £7.8 billion (a Level 1 fair value measurement) as well as accrued additional consideration of approximately £49 million converted at the March 31, 2021 spot rate of $1.38 per GBP.
(b)Estimated amounts incurred for bank advisory, legal and accounting fees to facilitate the transaction.
(c)The measurement of PPL’s carrying value of the U.K. utility business includes the realization of accumulated other comprehensive losses of $3.7 billion, which arose primarily from currency translation adjustments and defined benefit plans associated with the U.K. utility business.
(d)This loss has been recorded as a reduction to goodwill.

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 March 31:
47

Three Months
20212020
Operating Revenues$634 $614 
Operating Expenses252 222 
Other Income (Expense) - net66 130 
Interest Expense (a)93 93 
Income before income taxes355 429 
Loss on sale(1,647)
Income tax expense (b)751 79 
Income (loss) from Discontinued Operations (net of income taxes)$(2,043)$350 

(a)No interest from corporate level debt was allocated to discontinued operations.
(b)2021 primarily includes a federal tax expense of $689 million for the recognition of the tax cost associated with the realization of the book-tax outside basis difference in PPL's investment in the U.K. utility business and foreign tax expense of $73 million on current year operations.

Summarized Assets and Liabilities Held for Sale

The assets and liabilities of PPL's U.K. utility business at March 31, 2021 and December 31, 2020 are included in "Current assets held for sale" and "Current liabilities held for sale" on PPL's Balance Sheets. The following major classes of assets and liabilities were reclassified on PPL's Balance Sheet as of March 31, 2021 and December 31, 2020:
Held for Sale at March 31, 2021Held for Sale at December 31, 2020
Cash and cash equivalents$152 $266 
Accounts receivable and unbilled revenues459 389 
Price risk management assets62 146 
Property, plant and equipment, net (a)15,236 14,392 
Goodwill (b)1,029 2,558 
Other intangibles434 413 
Pension benefit asset911 682 
Other assets142 137 
Total Assets$18,425 $18,983 
Short-term debt and long-term debt due within one year$812 $994 
Accounts payable199 220 
Customer deposits240 217 
Accrued interest178 190 
Long-term debt8,297 7,938 
Total deferred income taxes1,123 1,032 
Price risk management liabilities180 137 
Other deferred credits and liabilities347 295 
Total Liabilities$11,376 $11,023 
Net assets (c)$7,049 $7,960 

(a)Depreciation of fixed assets ceased upon classification as held for sale.
(b)The change in Goodwill is due to the loss on sale of $1,647 million and a gain on foreign currency translation of $118 million.
(c)The net assets and liabilities held for sale exclude $3.7 billion of accumulated other comprehensive losses related to the U.K. utility business that are required to be included in the carrying value of the loss on sale calculation presented above. Accumulated other comprehensive losses related to the U.K. utility business will be reported as a component of PPL’s equity until the sale of the U.K. utility business occurs.

48

Acquisitions

Share Purchase Agreement to Acquire The Narragansett Electric Company

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 The Narragansett Electric Company (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 prior closing of the sale of WPD Investments to National Grid U.K. and is also subject to the receipt of certain U.S. regulatory approvals, including, among others, clearance under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, receipt of the approvals, authorizations or waivers from the Rhode Island Division of Public Utilities and Carriers, the FERC and the Massachusetts Department of Public Utilities, as well as other customary conditions to closing, including the execution and delivery of certain related transaction documents. 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 PPL Energy Holdings and/or one or more of its subsidiaries 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, LKE and LG&E)

Certain net periodic defined benefit costs are applied to accounts that are further distributed among capital, expense, regulatory assets and regulatory liabilities, including certain costs allocated to applicable subsidiaries for plans sponsored by PPL Services and LKE. Following are the net periodic defined benefit costs (credits) of the plans sponsored by PPL and its subsidiaries, LKE, and LG&E for the periods ended March 31:
Pension Benefits
 Three Months
 U.S.U.K. (a)
 2021202020212020
PPL
Service cost$13 $13 $25 $23 
Interest cost32 38 29 36 
Expected return on plan assets(61)(60)(177)(158)
Amortization of:
Prior service cost
Actuarial loss25 20 54 54 
Net periodic defined benefit costs (credits)$11 $13 $(69)$(45)

(a)    U.K. amounts are reflected in discontinued operations. See Note 9 for additional information on the share purchase agreement to sell the U.K. utility business.

49

Pension Benefits
Three Months
 20212020
LKE
Service cost$$
Interest cost14 16 
Expected return on plan assets(24)(24)
Amortization of:
Prior service cost
Actuarial loss (a)11 
Net periodic defined benefit costs (credits)$$

(a)    As a result of treatment approved by the KPSC, the difference between actuarial loss calculated in accordance with LKE's accounting policy and actuarial loss calculated using a 15-year amortization period was $3 million for the three months ended March 31, 2021 and 2020.
.
 Other Postretirement Benefits
 Three Months
 20212020
PPL
Service cost$$
Interest cost
Expected return on plan assets(5)(5)
Net periodic defined benefit costs$$
LKE
Service cost$$
Interest cost
Expected return on plan assets(2)(2)
Net periodic defined benefit costs$$

(PPL Electric, LG&E and KU)

PPL Electric is allocated costs of defined benefit plans sponsored by PPL Services and LG&E and KU are allocated costs of defined benefit plans sponsored by LKE. LG&E and KU are also allocated costs of defined benefit plans from LKS for defined benefit plans sponsored by LKE. See Note 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 March 31, PPL Services allocated the following net periodic defined benefit costs to PPL Electric, and LKE allocated the following net periodic defined benefit costs to LG&E and KU:
 Three Months
 20212020
PPL Electric$$
LG&E
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.

50

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
51

agreement governing the spinoff of PPL Energy Supply, all related claims that arise must be heard in Delaware; that the statute of limitations in Delaware and the spinoff agreement bar these claims at this time; that PPL is not liable for the claims in either the Talen Direct Action or the Talen Putative Class Action as PPL Montana was solvent at all relevant times; and that the separation agreement requires that Talen Energy indemnify PPL for all losses arising from the debts of Talen Montana, among other things. PPL's complaint also seeks damages against Riverstone for interfering with the separation agreement and against Riverstone affiliates for breach of the implied covenant of good faith and fair dealing. The complaint was subsequently amended on January 11, 2019 and March 20, 2019, to include, among other things, claims related to indemnification with respect to the Montana Actions, request a declaration that the Montana Actions are time-barred under the spinoff agreements, and allege additional facts to support the tortious interference claim. In April 2019, the defendants filed motions to dismiss the amended complaint. In July 2019, the Court heard oral arguments from the parties regarding the motions to dismiss, and in October 2019, the Delaware Court of Chancery issued an opinion sustaining all of the PPL plaintiffs' claims except for the claim for breach of implied covenant of good faith and fair dealing. As a result of the dismissal of the Talen Direct Action in December 2019, in January 2020, Talen Energy filed a new motion to dismiss five of the remaining eight claims in the amended complaint. The Court heard oral argument on the motion to dismiss on May 28, 2020, and on June 22, 2020, issued an opinion denying the motion in its entirety. Discovery is proceeding, and a trial has been scheduled for 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 and the Delaware Action are both in early stages of litigation; at this time, PPL cannot predict the outcome of these matters or estimate the range of possible losses, if any, that PPL might incur as a result of the claims, although they could be material.

(PPL, LKE and LG&E)

Cane Run Environmental Claims

In December 2013, 6 residents, on behalf of themselves and others similarly situated, filed a class action complaint against LG&E and PPL in the U.S. District Court for the Western District of Kentucky (U.S. District Court) alleging violations of the Clean Air Act, RCRA, and common law claims of nuisance, trespass and negligence. In July 2014, the U.S. District Court dismissed the RCRA claims and all but 1 Clean Air Act claim, but declined to dismiss the common law tort claims. In February 2017, the U.S. District Court dismissed PPL as a defendant and dismissed the final federal claim against LG&E, and in April 2017, issued an Order declining to exercise supplemental jurisdiction on the state law claims dismissing the case in its entirety. In June 2017, the plaintiffs filed a class action complaint in Jefferson County, Kentucky Circuit Court, against LG&E alleging state law nuisance, negligence and trespass tort claims. The plaintiffs seek compensatory and punitive damages for alleged property damage due to purported plant emissions on behalf of a class of residents within 1 to 3 miles of the plant. On January 8, 2020, the Jefferson Circuit Court issued an order denying the plaintiffs’ request for class certification. On January 14, 2020, the plaintiffs filed a notice of appeal in the Kentucky Court of Appeals. 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 21, 2021, the Kentucky Supreme Court denied further review of the lower court order. The case will be remanded to the Jefferson Circuit Court for the claims of the three remaining petitioners to be heard on an individual basis. PPL, LKE and LG&E cannot predict the ultimate outcome of the remaining proceedings, but do not anticipate this matter will have a material impact on operations or financial condition.

(PPL, LKE and KU)

E.W. Brown Environmental Claims

In July 2017, the Kentucky Waterways Alliance and the Sierra Club filed a citizen suit complaint against KU in the U.S. District Court for the Eastern District of Kentucky (U.S. District Court) alleging discharges at the E.W. Brown plant in violation of the Clean Water Act and the plant's water discharge permit and alleging contamination that may present an imminent and substantial endangerment in violation of the RCRA. The plaintiffs' suit relates to prior notices of intent to file a citizen suit submitted in October and November 2015 and October 2016. These plaintiffs sought injunctive relief ordering KU
52

to take all actions necessary to comply with the Clean Water Act and RCRA, including ceasing the discharges in question, abating effects associated with prior discharges and eliminating the alleged imminent and substantial endangerment. These plaintiffs also sought assessment of civil penalties and an award of litigation costs and attorney fees. In December 2017, the U.S. District Court issued an Order dismissing the Clean Water Act and RCRA complaints against KU in their entirety. In January 2018, the plaintiffs appealed the dismissal Order to the U.S. Court of Appeals for the Sixth Circuit. In September 2018, the U.S. Court of Appeals for the Sixth Circuit issued its ruling affirming the lower court's decision to dismiss the Clean Water Act claims but reversing its dismissal of the RCRA claims against KU and remanding the latter to the U.S. District Court. In October 2018, KU filed a petition for rehearing to the U.S. Court of Appeals for the Sixth Circuit regarding the RCRA claims. In November 2018, the U.S. Court of Appeals for the Sixth Circuit denied KU's petition for rehearing regarding the RCRA claims. In January 2019, KU filed an answer to plaintiffs’ complaint in the U.S. District Court. Discovery is complete and the parties' motions for partial summary judgment are pending. In December 2020, the U.S. District Court delayed the trial scheduled for February 2, 2021 indefinitely due to pandemic considerations. PPL, LKE and KU cannot predict the outcome of these matters and an estimate or range of possible losses cannot be determined.

KU is undertaking extensive remedial measures at the E.W. Brown plant including closure of the former ash pond, implementation of a groundwater remedial action plan and performance of a corrective action plan including aquatic study of adjacent surface waters and risk assessment. The aquatic study and risk assessment are being undertaken pursuant to a 2017 agreed Order with the Kentucky Energy and Environment Cabinet (KEEC). KU conducted sampling of Herrington Lake in 2017 and 2018. In June 2019, KU submitted to the KEEC the required aquatic study and risk assessment, conducted by an independent third-party consultant, finding that discharges from the E.W. Brown plant have not had any significant impact on Herrington Lake and that the water in the lake is safe for recreational use and meets safe drinking water standards. However, until the KEEC assesses the study and issues any regulatory determinations, PPL, LKE and KU are unable to determine whether additional remedial measures will be required at the E.W. Brown plant.

Air

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

In June 2016, the EPA issued a notice of violation under the Clean Air Act alleging that LG&E violated applicable rules relating to sulfuric acid mist emissions at its Mill Creek plant. The notice alleges failure to install proper controls, failure to operate the facility consistent with good air pollution control practice, and causing emissions exceeding applicable requirements or constituting a nuisance or endangerment. LG&E believes it has complied with applicable regulations during the relevant time period. On July 31, 2020, the U.S. Department of Justice 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. PPL, LKE and LG&E are unable to predict the outcome of this matter or the potential impact on operations of the Mill Creek plant, including increased capital or operating costs, and potential civil penalties or remedial measures, if any. An estimate or range of possible losses cannot be determined.

Water/Waste

(PPL, LKE, LG&E and KU)

ELGs

In 2015, the EPA finalized ELGs for wastewater discharge permits for new and existing steam electricity generating facilities. These guidelines require deployment of additional control technologies providing physical, chemical and biological treatment and mandate operational changes including "no discharge" requirements for certain wastewaters. The implementation date for individual generating stations was to be determined by the states on a case-by-case basis according to criteria provided by the EPA. Legal challenges to the final rule were consolidated before the U.S. Court of Appeals for the Fifth Circuit. In April 2017, the EPA announced that it would grant petitions for reconsideration of the rule. In September 2017, the EPA issued a rule to postpone the compliance date for certain requirements. On October 13, 2020, the EPA published final revisions to its best available technology standards for certain wastewaters and potential extensions to compliance dates. The rule 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.
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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.

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, LKE, LG&E and KU are unable to predict the outcome of the ongoing litigation and rulemaking or potential impacts on current LG&E and KU compliance plans. The Registrants are currently finalizing closure plans and schedules.

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

LG&E and KU received KPSC approval for a compliance plan providing for the closure of impoundments at the Mill Creek, Trimble County, E.W. Brown, and Ghent stations, and construction of process water management facilities at those plants. In addition to the foregoing measures required for compliance with the federal CCR rule, KU also received KPSC approval for its plans to close impoundments at the retired Green River, Pineville and Tyrone plants to comply with applicable state law. 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 March 31, 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 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.
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The EPA is evaluating the risks associated with polycyclic aromatic hydrocarbons and naphthalene, chemical by-products of coal gas manufacturing. As a result, individual states may establish stricter standards for water quality and soil cleanup, that could require several PPL subsidiaries to take more extensive assessment and remedial actions at former coal gas manufacturing plants. PPL, PPL Electric, LKE, LG&E and KU cannot estimate a range of possible losses, if any, related to these matters.

Regulatory Issues (All Registrants)

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

Electricity - Reliability Standards

The NERC is responsible for establishing and enforcing mandatory reliability standards (Reliability Standards) regarding the bulk electric system in North America. The FERC oversees this process and independently enforces the Reliability Standards.

The Reliability Standards have the force and effect of law and apply to certain users of the bulk electric system, including electric utility companies, generators and marketers. Under the Federal Power Act, the FERC may assess civil penalties for certain violations.

PPL Electric, LG&E and KU monitor their compliance with the Reliability Standards and self-report or self-log potential violations of applicable reliability requirements whenever identified, and submit accompanying mitigation plans, as required. The resolution of a small number of potential violations is pending. Penalties incurred to date have not been significant. Any Regional Reliability Entity determination concerning the resolution of violations of the Reliability Standards remains subject to the approval of the NERC and the FERC.

In the course of implementing their programs to ensure compliance with the Reliability Standards by those PPL affiliates subject to the standards, certain other instances of potential non-compliance may be identified from time to time. The Registrants cannot predict the outcome of these matters, and an estimate or range of possible losses cannot be determined.

Other

Guarantees and Other Assurances
 
(All Registrants)

In the normal course of business, the Registrants enter into agreements that provide financial performance assurance to third parties on behalf of certain subsidiaries. Such agreements include, for example, guarantees, stand-by letters of credit issued by financial institutions and surety bonds issued by insurance companies. These agreements are entered into primarily to support or enhance the creditworthiness attributed to a subsidiary on a stand-alone basis or to facilitate the commercial activities in which these subsidiaries engage.
 
(PPL)
 
PPL fully and unconditionally guarantees all of the debt securities of PPL Capital Funding.
 
(All Registrants)
 
The table below details guarantees provided as of March 31, 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 except for "WPD guarantee of pension and other obligations of unconsolidated entities," for which PPL has a total recorded liability of $4 million at March 31, 2021 and $5 million at December 31, 2020, which is included in “Current liabilities held for sale” on the Balance Sheets. For reporting purposes, on a consolidated basis, all guarantees of PPL Electric, LKE, LG&E and KU also apply to PPL, and all guarantees of LG&E and KU also apply to LKE.

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Exposure at March 31, 2021Expiration
Date
PPL   
WPD indemnifications for entities in liquidation and sales of assets$11 (a)2023
WPD guarantee of pension and other obligations of unconsolidated entities96 (b) 
LKE   
Indemnification of lease termination and other divestitures$200 (c)2021
LG&E and KU   
LG&E and KU obligation of shortfall related to OVEC(d) 

(a)Indemnification to the liquidators and certain others for existing liabilities or expenses or liabilities arising during the liquidation process. The indemnifications are limited to distributions made from the subsidiary to its parent either prior or subsequent to liquidation or are not explicitly stated in the agreements. The indemnifications generally expire 2 to 7 years subsequent to the date of dissolution of the entities. The exposure noted only includes those cases where the agreements provide for specific limits.

In connection with their sales of various businesses, WPD and its affiliates have provided the purchasers with indemnifications that are standard for such transactions, including indemnifications for certain pre-existing liabilities and environmental and tax matters or have agreed to continue their obligations under existing third-party guarantees, either for a set period of time following the transactions or upon the condition that the purchasers make reasonable efforts to terminate the guarantees. Additionally, WPD and its affiliates remain secondarily responsible for lease payments under certain leases that they have assigned to third parties.
(b)Relates to certain obligations of discontinued or modified electric associations that were guaranteed at the time of privatization by the participating members. Costs are allocated to the members and can be reallocated if an existing member becomes insolvent. At March 31, 2021, WPD has recorded an estimated discounted liability for which the expected payment/performance is probable. Neither the expiration date nor the maximum amount of potential payments for certain obligations is explicitly stated in the related agreements, and as a result, the exposure has been estimated.
(c)LKE provides certain indemnifications covering the due and punctual payment, performance and discharge by each party of its respective obligations. The most comprehensive of these guarantees is the LKE guarantee covering operational, regulatory and environmental commitments and indemnifications made by WKE under a 2009 Transaction Termination Agreement. This guarantee has a term of 12 years ending July 2021, and a maximum exposure of $200 million exclusive of certain items such as government fines and penalties that may exceed the maximum. Additionally, LKE has indemnified various third parties related to historical obligations for other divested subsidiaries and affiliates. The indemnifications vary by entity and the maximum exposures range from being capped at the sale price to no specified maximum. LKE could be required to perform on these indemnifications in the event of covered losses or liabilities being claimed by an indemnified party. LKE cannot predict the ultimate outcomes of the various indemnification scenarios, but does not expect such outcomes to result in significant losses above the amounts recorded.
(d)Pursuant to the OVEC power purchase contract, LG&E and KU are obligated to pay for their share of OVEC's excess debt service, post-retirement and decommissioning costs, as well as any shortfall from amounts included within a demand charge designed and expected to cover these costs over the term of the contract. LKE's proportionate share of OVEC's outstanding debt was $103 million at March 31, 2021, consisting of LG&E's share of $71 million and KU's share of $32 million. The maximum exposure and the expiration date of these potential obligations are not presently determinable. See "Energy Purchase Commitments" in Note 11 in PPL's, LKE'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.

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

Risks and Uncertainties (All Registrants)

The COVID-19 pandemic has disrupted the U.S. and global economies and continues to present extraordinary challenges to businesses, communities, workforces and markets. In the U.S. and throughout the world, governmental authorities have taken urgent and extensive actions to contain the spread of the virus and mitigate known or foreseeable impacts. In the Registrants’ service territories, mitigation measures have included quarantines, stay-at-home orders, travel restrictions, reduced operations or closures of businesses, schools and governmental agencies, and legislative or regulatory actions to address health or other pandemic-related concerns, all of which have the potential to adversely impact the Registrants' business and operations, especially if these measures remain in effect for a prolonged period of time.
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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 further reduce customer demand for electricity and gas, impact the Registrants’ employees and supply chains, result in an increase in certain costs, delay payments or increase bad debts, or result in changes in the fair value of their assets and liabilities, which could materially and adversely affect the Registrants’ business, results of operations, financial condition or liquidity.

12. Related Party Transactions

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

PPL Services, PPL EU Services and LKS provide PPL, PPL Electric and LKE, their respective subsidiaries, including LG&E and KU, and each other with administrative, management and support services. For all services companies, the costs of directly assignable and attributable services are charged to the respective recipients as direct support costs. General costs that cannot be directly 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 March 31, including amounts applied to accounts that are further distributed between capital and expense on the books of the recipients, based on methods that are believed to be reasonable.
 Three Months
 20212020
PPL Electric from PPL Services
$10 $10 
LKE from PPL Services
PPL Electric from PPL EU Services50 41 
LG&E from LKS42 38 
KU from LKS44 41 

In addition to the charges for services noted above, LKS makes payments on behalf of LG&E and KU for fuel purchases and other costs for products or services provided by third parties. LG&E and KU also provide services to each other and to LKS. Billings between LG&E and KU relate to labor and overheads associated with union and hourly employees performing work for the other company, charges related to jointly-owned generating units and other miscellaneous charges. Tax settlements between LKE and LG&E and KU are reimbursed through LKS.

Intercompany Borrowings

(PPL Electric)

PPL Energy Funding maintains a $650 million revolving line of credit with a PPL Electric subsidiary. NaN balance was outstanding at March 31, 2021 and 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.

(LKE)

LKE maintains a $375 million revolving line of credit with a PPL Energy Funding subsidiary whereby LKE can borrow funds on a short-term basis at market-based rates. The interest rates on borrowings are equal to one-month LIBOR plus a spread. At March 31, 2021 and December 31, 2020, $227 million and $251 million were outstanding and reflected in "Notes payable with affiliates" on the Balance Sheets. The interest rates on the outstanding borrowings at March 31, 2021 and December 31, 2020 were 1.62% and 1.65%. Interest expense on the revolving line of credit was not significant for the three months ended March 31, 2021 and 2020.

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LKE maintains an agreement with a PPL affiliate that has a $300 million borrowing limit whereby LKE can loan funds on a short-term basis at market-based rates. NaN balance was outstanding at March 31, 2021 and December 31, 2020. The interest rate on the loan is based on the PPL affiliate's credit rating and equal to one-month LIBOR plus a spread.

LKE maintains ten-year notes with a combined value of $1.2 billion with a PPL affiliate with a weighted-average interest rate of 3.89% and maturities ranging from 2026 to 2030. At March 31, 2021 and December 31, 2020, the notes were reflected in "Long-term debt to affiliate" on the Balance Sheets. The total interest expense on the 10-year notes was $12 million and $7 million for the three months ended March 31, 2021 and 2020.

(LG&E and KU)

LG&E participates in an intercompany money pool agreement whereby LKE and/or KU make available to LG&E funds up to the difference between LG&E's FERC borrowing limit and LG&E's commercial paper capacity 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. NaN balances were outstanding at March 31, 2021 and 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 capacity 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. NaN balances were outstanding at March 31, 2021 and 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 $20 million as of March 31, 2021, of which $10 million was reflected in "Accounts receivable from affiliates" and $10 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 Sheet.

Other (PPL Electric, LG&E and KU)

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

13. Other Income (Expense) - net

(PPL)

The details of "Other Income (Expense) - net" for the periods ended March 31, were:
 Three Months
20212020
Other Income  
Defined benefit plans - non-service credits (Note 10)$$
AFUDC - equity component
Miscellaneous
Total Other Income
Other Expense  
Charitable contributions
Miscellaneous
Total Other Expense10 
Other Income (Expense) - net$$(5)

0
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14. Fair Value Measurements
 
(All Registrants)
 
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). A market approach (generally, data from market transactions), an income approach (generally, present value techniques and option-pricing models) and/or a cost approach (generally, replacement cost) are used to measure the fair value of an asset or liability, as appropriate. These valuation approaches incorporate inputs such as observable, independent market data and/or unobservable data that management believes are predicated on the assumptions market participants would use to price an asset or liability. These inputs may incorporate, as applicable, certain risks such as nonperformance risk, which includes credit risk. The fair value of a group of financial assets 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:
 March 31, 2021December 31, 2020
 TotalLevel 1Level 2Level 3TotalLevel 1Level 2Level 3
PPL        
Assets        
Cash and cash equivalents$421 $421 $$$442 $442 $$
Restricted cash and cash equivalents (a)
Special use funds (a):
Commingled debt fund measured at NAV (b)25 — — — 26 — — — 
Commingled equity fund measured at NAV (b)24 — — — 25 — — — 
Total special use funds49 51 
Total assets$471 $422 $$$494 $443 $$
Liabilities        
Price risk management liabilities (c):        
Interest rate swaps$17 $$17 $$23 $$23 $
Total price risk management liabilities$17 $$17 $$23 $$23 $
PPL Electric        
Assets        
Cash and cash equivalents$29 $29 $$$40 $40 $$
Total assets$29 $29 $$$40 $40 $$
LKE      
Assets      
Cash and cash equivalents       $16 $16 $$$29 $29 $$
Total assets$16 $16 $$$29 $29 $$
Liabilities      
Price risk management liabilities:      
Interest rate swaps$17 $$17 $$23 $$23 $
Total price risk management liabilities$17 $$17 $$23 $$23 $
LG&E      
Assets      
Cash and cash equivalents$$$$$$$$
Total assets$$$$$$$$
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 March 31, 2021December 31, 2020
 TotalLevel 1Level 2Level 3TotalLevel 1Level 2Level 3
Liabilities      
Price risk management liabilities:      
Interest rate swaps$17 $$17 $$23 $$23 $
Total price risk management liabilities$17 $$17 $$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, LKE, LG&E and KU)
 
To manage interest rate risk, PPL, LKE, LG&E and KU use interest rate contracts such as forward-starting swaps, floating-to-fixed swaps and fixed-to-floating swaps. To manage foreign currency exchange risk, PPL uses foreign currency contracts such as forwards, options and cross-currency swaps that contain characteristics of both interest rate and foreign currency contracts. An income approach is used to measure the fair value of these contracts, utilizing readily observable inputs, such as forward interest rates (e.g., LIBOR and government security rates) and forward foreign currency exchange rates (e.g., GBP), as well as inputs that may not be observable, such as credit valuation adjustments. In certain cases, market information cannot practicably be obtained to value credit risk and therefore internal models are relied upon. These models use projected probabilities of default and estimated recovery rates based on historical observances. When the credit valuation adjustment is significant to the overall valuation, the contracts are classified as Level 3.

Nonrecurring Fair Value Measurements (PPL)

See Note 9 for information regarding the estimated fair value of the U.K. utility business which is classified as held for sale as of March 31, 2021.

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.
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 March 31, 2021December 31, 2020
Carrying
Amount (a)
Fair ValueCarrying
Amount (a)
Fair Value
PPL$14,691 $16,607 $14,689 $17,774 
PPL Electric4,237 4,881 4,236 5,338 
LKE6,075 7,051 6,074 7,589 
LG&E2,007 2,321 2,007 2,499 
KU2,618 3,042 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. PPL and WPD hold over-the-counter cross currency swaps to limit exposure to market fluctuations on interest and principal payments from changes in foreign currency exchange rates and interest rates. PPL, LKE and LG&E utilize over-the-counter interest rate swaps to limit exposure to market fluctuations on floating-rate debt. PPL, LKE, LG&E and KU utilize forward starting interest rate swaps to hedge changes in benchmark interest rates, when appropriate, in connection with future debt issuances.
PPL and its subsidiaries are exposed to interest rate risk associated with debt securities and derivatives held by defined benefit plans. This risk is significantly mitigated to the extent that the plans are sponsored at, or sponsored on behalf of, the regulated domestic utilities and for certain plans at WPD due to the recovery methods in place.

Foreign Currency Risk (PPL)

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

WPD is exposed to volumetric risk which is significantly mitigated as a result of the method of regulation in the U.K. Under the RIIO-ED1 price control regulations, recovery of such exposure occurs on a two year lag. See Note 1 in PPL's 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 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, LKE, LG&E and KU)
 
Net derivative positions on the balance sheets are not offset against the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) under master netting arrangements.

PPL had no obligation and an immaterial obligation to return cash collateral under master netting arrangements at March 31, 2021 and December 31, 2020.
62


PPL had a $22 million obligation and 0 obligation to post cash collateral under master netting arrangements at March 31, 2021 and December 31, 2020.

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

At March 31, 2021, PPL held an aggregate notional value in cross-currency interest rate swap contracts of $202 million that mature in 2028 to hedge the interest payments and principal of WPD's U.S. dollar-denominated senior notes. 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 months ended March 31, 2021 and 2020, PPL had 0 cash flow hedges reclassified into earnings associated with discontinued cash flow hedges.
 
At March 31, 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, LKE 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 March 31, 2021, LG&E held contracts with a notional amount of $64 million that mature in 2033.
 
63

Foreign Currency Risk (PPL)

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

Net Investment Hedges

PPL enters into foreign currency contracts on behalf of a subsidiary to protect the value of a portion of its net investment in WPD. There were no contracts outstanding at March 31, 2021.

At March 31, 2021 and 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.

Economic Activity

PPL enters into foreign currency contracts on behalf of a subsidiary to economically hedge GBP-denominated anticipated earnings and anticipated transactions, including the anticipated sale of its U.K. utility business. At March 31, 2021, the total exposure hedged by PPL was approximately £7.5 billion.

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 March 31, 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.
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 March 31, 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)$$$$$$$$
Cross-currency swaps (c)94 
Foreign currency contracts (c)23 180 137 
Total current23 180 94 139 
Noncurrent:        
Price Risk Management        
Assets/Liabilities:        
Interest rate swaps (a) (b)16 21 
Cross-currency swaps (c)37 52 
Total noncurrent37 16 52 21 
Total derivatives$39 $17 $23 $180 $146 $$$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 March 31, 2021.
 Three Months Three Months
Derivative
Relationships
Derivative Gain
(Loss) Recognized in
OCI
Location of
Gain (Loss)
Recognized
in Income
on Derivative
Gain (Loss)
Reclassified
from AOCI
into
Income
Cash Flow Hedges:   
Interest rate swaps$Interest expense$(1)
Income (Loss) from Discontinued Operations (net of taxes)(1)
Cross-currency swaps(46)Income (Loss) from Discontinued Operations (net of taxes)(37)
Total$(46) $(39)
Derivatives Not Designated as
Hedging Instruments
Location of Gain (Loss) Recognized in
Income on Derivative
Three Months
Foreign currency contractsIncome (Loss) from Discontinued Operations (net of taxes)$(25)
Interest rate swapsInterest expense(1)
 Total$(26)
Derivatives Not Designated as
Hedging Instruments
Location of Gain (Loss) Recognized as
Regulatory Liabilities/Assets
Three Months
Interest rate swapsRegulatory assets - noncurrent$
 
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 March 31, 2020.
65

 Three Months Three Months
Derivative
Relationships
Derivative Gain
(Loss) Recognized in
OCI
Location of
Gain (Loss)
Recognized
in Income
on Derivative
Gain (Loss)
Reclassified
from AOCI
into Income
Cash Flow Hedges:   
Interest rate swaps$(5)Interest expense$(2)
Income (Loss) from Discontinued Operations (net of taxes)(1)
Cross-currency swaps15 Income (Loss) from Discontinued Operations (net of taxes)
Total$10  $
Derivatives Not Designated as
Hedging Instruments
Location of Gain (Loss) Recognized in
Income on Derivative
Three Months
Foreign currency contractsIncome (Loss) from Discontinued operations (net of taxes)$62 
Interest rate swapsInterest expense(1)
 Total$61 
Derivatives Not Designated as
Hedging Instruments
Location of Gain (Loss) Recognized as
Regulatory Liabilities/Assets
Three Months
Interest rate swapsRegulatory assets - noncurrent$(8)

The following table presents the effect of cash flow hedge activity on the Statement of Income for the period ended March 31, 2021.
Location and Amount of Gain (Loss) Recognized in Income on Hedging Relationships
Three Months
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$153 $(2,043)
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)(1)
Cross-currency swaps:
Hedged items37 
Amount of gain (loss) reclassified from AOCI to Income(37)

The following table presents the effect of cash flow hedge activity on the Statement of Income for the period ended March 31, 2020.

Location and Amount of Gain (Loss) Recognized in Income on Hedging Relationships
Three Months
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$154 $350 
The effects of cash flow hedges:
Gain (Loss) on cash flow hedging relationships:
Interest rate swaps:
Amount of gain (loss) reclassified from AOCI to income(2)(1)
Cross-currency swaps:
Hedged items(6)
Amount of gain (loss) reclassified from AOCI to Income
66


(LKE and LG&E)
 
The following table presents the fair value and the location on the Balance Sheets of derivatives not designated as hedging instruments.
 March 31, 2021December 31, 2020
 AssetsLiabilities AssetsLiabilities
Current:     
Price Risk Management     
Assets/Liabilities:     
Interest rate swaps$$ $$
Total current 
Noncurrent:     
Price Risk Management     
Assets/Liabilities:     
Interest rate swaps16  21 
Total noncurrent16  21 
Total derivatives$$17  $$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 March 31, 2021.
 Location of Gain (Loss) Recognized in 
Derivative InstrumentsIncome on DerivativesThree Months
Interest rate swapsInterest expense$(1)
 Location of Gain (Loss) Recognized in 
Derivative InstrumentsRegulatory AssetsThree Months
Interest rate swapsRegulatory assets - noncurrent$

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 March 31, 2020. 
 Location of Gain (Loss) Recognized in 
Derivative InstrumentsIncome on DerivativesThree Months
Interest rate swapsInterest expense$(1)
 Location of Gain (Loss) Recognized in 
Derivative InstrumentsRegulatory AssetsThree Months
Interest rate swapsRegulatory assets - noncurrent$(8)
(PPL, LKE, LG&E and KU)
 
Offsetting Derivative Instruments
 
PPL, LKE, LG&E and KU or certain of their subsidiaries have master netting arrangements in place and also enter into agreements pursuant to which they purchase or sell certain energy and other products. Under the agreements, upon termination of the agreement as a result of a default or other termination event, the non-defaulting party typically would have a right to set off amounts owed under the agreement against any other obligations arising between the two parties (whether under the agreement or not), whether matured or contingent and irrespective of the currency, place of payment or place of booking of the obligation.
 
PPL, LKE, LG&E and KU have elected not to offset derivative assets and liabilities and not to offset net derivative positions against the right to reclaim cash collateral pledged (an asset) or the obligation to return cash collateral received (a liability) under derivatives agreements. The table below summarizes the derivative positions presented in the balance sheets where a right of setoff exists under these arrangements and related cash collateral received or pledged.
67

 AssetsLiabilities
  Eligible for Offset  Eligible for Offset 
GrossDerivative
Instruments
Cash
Collateral
Received
NetGrossDerivative
Instruments
Cash
Collateral
Pledged
Net
March 31, 2021