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Louisville Gas & Electric (PPL)

Filed: 6 Nov 14, 7:00pm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
 
FORM 10-Q
 
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended September 30, 2014
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
   
1-32944
PPL Energy Supply, LLC
(Exact name of Registrant as specified in its charter)
(Delaware)
Two North Ninth Street
Allentown, PA  18101-1179
(610) 774-5151
23-3074920
   
1-905
PPL Electric Utilities Corporation
(Exact name of Registrant as specified in its charter)
(Pennsylvania)
Two North Ninth Street
Allentown, PA  18101-1179
(610) 774-5151
23-0959590
   
333-173665
LG&E and KU Energy LLC
(Exact name of Registrant as specified in its charter)
(Kentucky)
220 West Main Street
Louisville, KY  40202-1377
(502) 627-2000
20-0523163
   
1-2893
Louisville Gas and Electric Company
(Exact name of Registrant as specified in its charter)
(Kentucky)
220 West Main Street
Louisville, KY  40202-1377
(502) 627-2000
61-0264150
   
1-3464
Kentucky Utilities Company
(Exact name of Registrant as specified in its charter)
(Kentucky and Virginia)
One Quality Street
Lexington, KY  40507-1462
(502) 627-2000
61-0247570


 
 

 
Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days.

 PPL Corporation
Yes  X   
No        
 
 PPL Energy Supply, LLC
Yes  X   
No        
 
 PPL Electric Utilities Corporation
Yes  X   
No        
 
 LG&E and KU Energy LLC
Yes  X   
No        
 
 Louisville Gas and Electric Company
Yes  X  
No        
 
 Kentucky Utilities Company
Yes  X   
No        
 

Indicate by check mark whether the registrants have submitted electronically and posted on their corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).

 PPL Corporation
Yes  X   
No        
 
 PPL Energy Supply, LLC
Yes  X   
No        
 
 PPL Electric Utilities Corporation
Yes  X   
No        
 
 LG&E and KU Energy LLC
Yes  X   
No        
 
 Louisville Gas and Electric Company
Yes  X   
No        
 
 Kentucky Utilities Company
Yes  X   
No        
 

Indicate by check mark whether the registrants are large accelerated filers, accelerated filers, non-accelerated filers, or a smaller reporting company.  See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

  
Large accelerated
filer
Accelerated
filer
Non-accelerated
filer
Smaller reporting
company
 PPL Corporation[ X ][     ][     ][     ]
 PPL Energy Supply, LLC[     ][     ][ X ][     ]
 PPL Electric Utilities Corporation[     ][     ][ X ][     ]
 LG&E and KU Energy LLC[     ][     ][ X ][     ]
 Louisville Gas and Electric Company[     ][     ][ X ][     ]
 Kentucky Utilities Company[     ][     ][ X ][     ]

Indicate by check mark whether the registrants are shell companies (as defined in Rule 12b-2 of the Exchange Act).

 PPL Corporation
Yes        
No  X   
 
 PPL Energy Supply, LLC
Yes        
No  X   
 
 PPL Electric Utilities Corporation
Yes        
No  X   
 
 LG&E and KU Energy LLC
Yes        
No  X   
 
 Louisville Gas and Electric Company
Yes        
No  X   
 
 Kentucky Utilities Company
Yes        
No  X   
 

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

 PPL CorporationCommon stock, $0.01 par value, 665,072,010 shares outstanding at October 31, 2014.
   
 PPL Energy Supply, LLCPPL Corporation indirectly holds all of the membership interests in PPL Energy Supply, LLC.
   
 PPL Electric Utilities CorporationCommon stock, no par value, 66,368,056 shares outstanding and all held by PPL Corporation at October 31, 2014.
   
 LG&E and KU Energy LLCPPL Corporation directly holds all of the membership interests in LG&E and KU Energy LLC.
   
 Louisville Gas and Electric CompanyCommon stock, no par value, 21,294,223 shares outstanding and all held by LG&E and KU Energy LLC at October 31, 2014.
   
 Kentucky Utilities CompanyCommon stock, no par value, 37,817,878 shares outstanding and all held by LG&E and KU Energy LLC at October 31, 2014.

This document is available free of charge at the Investor Center on PPL Corporation's website at www.pplweb.com.  However, information on this website does not constitute a part of this Form 10-Q.
 

 

PPL CORPORATION
PPL ENERGY SUPPLY, LLC
PPL ELECTRIC UTILITIES CORPORATION
LG&E AND KU ENERGY LLC
LOUISVILLE GAS AND ELECTRIC COMPANY
KENTUCKY UTILITIES COMPANY

FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2014


Table of Contents
 
This combined Form 10-Q is separately filed by the following Registrants in their individual capacity:  PPL Corporation, PPL Energy Supply, LLC, 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 Energy Supply, LLC, 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 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.

 
 

 

  Louisville Gas and Electric Company 
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  Kentucky Utilities Company 
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 Combined Notes to Condensed Financial Statements (Unaudited) 
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 Item 2.  Combined Management's Discussion and Analysis of Financial Condition and Results of Operations 
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GLOSSARY OF TERMS AND ABBREVIATIONS

PPL Corporation and its subsidiaries

KU - Kentucky Utilities Company, a public utility subsidiary of LKE engaged in the regulated generation, transmission, distribution and sale of electricity, primarily in Kentucky.

LG&E - Louisville Gas and Electric Company, a public utility subsidiary of LKE engaged in the regulated generation, transmission, distribution and sale of electricity and the distribution and sale of natural gas in Kentucky.

LKE - LG&E and KU Energy LLC, a subsidiary of PPL and the parent of LG&E, KU and other subsidiaries.

LKS - LG&E and KU Services Company, a subsidiary of LKE that provides services 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 Brunner Island - PPL Brunner Island, LLC, a subsidiary of PPL Generation that owns generating operations in Pennsylvania.

PPL Capital Funding - PPL Capital Funding, Inc., a financing subsidiary of PPL that provides financing for the operations of PPL and certain subsidiaries.  Debt issued by PPL Capital Funding is guaranteed as to payment by PPL.

PPL Electric - PPL Electric Utilities Corporation, a public utility subsidiary of PPL engaged in the regulated transmission and distribution of electricity in its Pennsylvania service area and that provides electricity supply to its retail customers in this area as a PLR.

PPL Energy Funding - PPL Energy Funding Corporation, a subsidiary of PPL and the parent holding company of PPL Energy Supply, PPL Global and other subsidiaries.

PPL EnergyPlus - PPL EnergyPlus, LLC, a subsidiary of PPL Energy Supply that markets and trades wholesale and retail electricity and gas, and supplies energy and energy services in competitive markets.

PPL Energy Supply - PPL Energy Supply, LLC, a subsidiary of PPL Energy Funding and the parent company of PPL Generation, PPL EnergyPlus and other subsidiaries.

PPL Generation - PPL Generation, LLC, a subsidiary of PPL Energy Supply that owns and operates U.S. generating facilities through various subsidiaries.

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 Montana - PPL Montana, LLC, an indirect subsidiary of PPL Generation that generates electricity for wholesale sales in Montana and the Pacific Northwest.

PPL Montour - PPL Montour, LLC, a subsidiary of PPL Generation that owns generating operations in Pennsylvania.

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

PPL Susquehanna - PPL Susquehanna, LLC, a subsidiary of PPL Generation that owns a nuclear-powered generating station.

PPL WEM - PPL WEM Holdings Limited, an indirect U.K. subsidiary of PPL Global.

PPL WW - PPL WW Holdings Limited, an indirect U.K. subsidiary of PPL Global.

Registrant(s) - refers to the Registrants named on the cover of this Report (each a "Registrant" and collectively, the "Registrants").

Subsidiary Registrant(s) - Registrants that are direct or indirect wholly owned subsidiaries of PPL:  PPL Energy Supply, PPL Electric, LKE, LG&E and KU.

 
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WPD - refers to PPL WW and PPL WEM and their subsidiaries.

WPD (East Midlands) - Western Power Distribution (East Midlands) plc, a British regional electricity distribution utility company.

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-utility generating plants in western Kentucky until July 2009.


Other terms and abbreviations

£ - British pound sterling.

2010 Equity Unit(s) - a PPL equity unit, issued in June 2010, consisting of a 2010 Purchase Contract and, initially, a 5.0% undivided beneficial ownership interest in $1,000 principal amount of PPL Capital Funding 4.625% Junior Subordinated Notes due 2018.

2010 Purchase Contract(s) - a contract that is a component of a 2010 Equity Unit requiring holders to purchase shares of PPL common stock on or prior to July 1, 2013.

2011 Equity Unit(s) - a PPL equity unit, issued in April 2011, consisting of a 2011 Purchase Contract and, initially, a 5.0% undivided beneficial ownership interest in $1,000 principal amount of PPL Capital Funding 4.32% Junior Subordinated Notes due 2019.

2011 Purchase Contract(s) - a contract that is a component of a 2011 Equity Unit requiring holders to purchase shares of PPL common stock on or prior to May 1, 2014.

2013 Form 10-K - Annual Report to the SEC on Form 10-K for the year ended December 31, 2013.

Act 11 - Act 11 of 2012 that became effective on April 16, 2012.  The Pennsylvania legislation authorizes 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 amends the Pennsylvania Public Utility Code and creates an energy efficiency and conservation program and smart metering technology requirements, adopts new PLR electricity supply procurement rules, provides remedies for market misconduct and changes to the AEPS.

AEPS - Alternative Energy Portfolio Standard.

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.

Baseload generation - includes the output provided by PPL's nuclear, coal, hydroelectric and qualifying facilities.

 
ii

 



Basis - when used in the context of derivatives and commodity trading, the commodity price differential between two locations, products or time periods.

CAIR - the EPA's Clean Air Interstate Rule.

Cane Run Unit 7 - a natural gas combined-cycle unit under construction in Kentucky, jointly owned by LG&E and KU, which is expected to provide additional electric generating capacity of 640 MW (141 MW and 499 MW to LG&E and KU) in 2015.

CCR - Coal Combustion Residuals.  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.

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

CPCN - Certificate of Public Convenience and Necessity.  Authority granted by the KPSC pursuant to Kentucky Revised Statute 278.020 to provide utility service to or for the public or the construction of certain plant, equipment, property or facility for the furnishing of utility service to the public.

CSAPR - Cross-State Air Pollution Rule.

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.

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

DNO - Distribution Network Operator.

DOJ - U.S. Department of Justice.

DPCR4 - Distribution Price Control Review 4, the U.K. five-year rate review period applicable to WPD that commenced April 1, 2005.

DPCR5 - Distribution Price Control Review 5, the U.K. five-year rate review period applicable to WPD that commenced April 1, 2010.

DRIP - Dividend Reinvestment and Direct Stock Purchase Plan.

DSIC - the 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 plans proposed by any utility under its jurisdiction.  Proposed DSM mechanisms may seek full recovery of costs and revenues lost by implementing DSM programs and/or incentives designed to provide financial rewards to the utility for implementing cost-effective DSM programs.  The cost of such programs shall be assigned only to the class or classes of customers which benefit from the programs.

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 by-products from the production of energy from coal.

EEI - Electric Energy, Inc., owns and operates a coal-fired plant and a natural gas facility in southern Illinois.  KU's 20% ownership interest in EEI is accounted for as an equity method investment.

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

 
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EPS - earnings per share.

Equity Units - refers collectively to the 2011 and 2010 Equity Units.

ERCOT - the Electric Reliability Council of Texas, operator of the electricity transmission network and electricity energy market in most of Texas.

ESOP - Employee Stock Ownership Plan.

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.

Fitch - Fitch, Inc., a credit rating agency.

FTRs - financial transmission rights, which are financial instruments established to manage price risk related to electricity transmission congestion that entitle the holder to receive compensation or require the holder to remit payment for certain congestion-related transmission charges based on the level of congestion between two pricing locations, known as source and sink.

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

GBP - British pound sterling.

GHG - greenhouse gas(es).

GLT - Gas Line Tracker.  The KPSC approved LG&E's recovery of costs associated with gas service lines, gas risers, leak mitigation, and gas main replacements.  Rate recovery became effective on January 1, 2013.

IBEW - International Brotherhood of Electrical Workers.

If-Converted Method - A method applied to calculate diluted EPS for a company with outstanding convertible debt.  The method is applied as follows:  Interest charges (after tax) applicable to the convertible debt are added back to net income and  the convertible debt is assumed to have been converted to equity at the beginning of the period, and the resulting common shares are treated as outstanding shares.  Both adjustments are made only for purposes of calculating diluted EPS.  This method was applied in 2013 and 2014 to PPL's Equity Units prior to settlement.

Intermediate and peaking generation - includes the output provided by PPL's oil- and natural gas-fired units.

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

ISO – Independent System Operator.

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.

LTIIP - Long Term Infrastructure Improvement Plan.

MATS - Mercury and Air Toxics Standards.

MDEQ - Montana Department of Environmental Quality.

MEIC - Montana Environmental Information Center.

MMBtu - One million British Thermal Units.

Montana Power - The Montana Power Company, a Montana-based company that sold its generating assets to PPL Montana in December 1999.  Through a series of transactions consummated during the first quarter of 2002, Montana Power sold its electricity delivery business to NorthWestern.

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

MPSC - Montana Public Service Commission.

MW - megawatt, one thousand kilowatts.

MWh - megawatt-hour, one thousand kilowatt-hours.

NDT - PPL Susquehanna's nuclear plant decommissioning trust.

NERC - North American Electric Reliability Corporation.

NGCC - Natural gas-fired combined-cycle generating plant.

NorthWestern - NorthWestern Corporation, a Delaware corporation, and successor in interest to Montana Power's electricity delivery business, including Montana Power's rights and obligations under contracts with PPL Montana.

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.

NRC - Nuclear Regulatory Commission, the U.S. federal agency that regulates nuclear power facilities.

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 related matters.

Opacity - the degree to which emissions reduce the transmission of light and obscure the view of an object in the background.  There are emission regulations that limit the opacity of power plant stack gas emissions.

OVEC - Ohio Valley Electric Corporation, located in Piketon, Ohio, an entity in which LKE indirectly owns an 8.13% interest (consists of LG&E's 5.63% and KU's 2.50% interests), which is accounted for as a cost-method investment.  OVEC owns and operates two coal-fired power plants, the Kyger Creek plant in Ohio and the Clifty Creek plant in Indiana, with combined summer rating capacities of 2,120 MW.

PADEP - the Pennsylvania Department of Environmental Protection, a state government agency.

PJM - PJM Interconnection, L.L.C., operator of the electricity transmission network and electricity energy market in all or parts of Delaware, Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia and the District of Columbia.

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

PP&E - property, plant and equipment.

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

Purchase Contract(s) - refers collectively to the 2010 and 2011 Purchase Contracts, which are components of the 2010 and 2011 Equity Units.

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 in order to allow for the effects of inflation.  Since the beginning of DPCR5 in April 2010, RAV additions have been based on a percentage of annual total expenditures.

RCRA - Resource Conservation and Recovery Act of 1976.

 
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RECs - renewable energy credits.

Regional Transmission Expansion Plan - PJM conducts a long-range Regional Transmission Expansion Planning process that identifies changes and additions to the grid necessary to ensure future needs are met for both the reliability and the economic performance of the grid.  Under PJM agreements, transmission owners are obligated to build transmission projects assigned to them by the PJM Board.

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

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

RIIO-ED1 - RIIO represents "Revenues = Incentive + Innovation + Outputs - Electricity Distribution."  RIIO-ED1 refers to the initial eight-year rate review period applicable to WPD commencing April 1, 2015.

Riverstone - Riverstone Holdings LLC, a Delaware limited liability company and ultimate parent company of the entities that own the competitive power generation business to be contributed to Talen Energy other than the competitive power generation business to be contributed by virtue of the spinoff of a newly formed parent of PPL Energy Supply.

RJS Power - RJS Power Holdings LLC, a Delaware limited liability company controlled by Riverstone, that owns the competitive power generation business to be contributed, directly or indirectly, by its owners to Talen Energy other than the  competitive power generation business to be contributed by virtue of the spinoff of a newly formed parent of PPL Energy Supply.

RMC - Risk Management Committee.

S&P - Standard & Poor's Ratings Services, a credit rating agency.

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.

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

SIFMA Index - the Securities Industry and Financial Markets Association Municipal Swap Index.

Smart meter - an electric meter that utilizes smart metering technology.

Smart metering technology - technology that can measure, among other things, time of electricity consumption to permit offering rate incentives for usage during lower cost or demand intervals.  The use of this technology also has the potential to strengthen network reliability.

SNCR - selective non-catalytic reduction, a pollution control process for the removal of nitrogen oxide from exhaust gases using ammonia.

Spark Spread - a measure of gross margin representing the price of power on a per MWh basis less the equivalent measure of the natural gas cost to produce that power.  This measure is used to describe the gross margin of PPL and its subsidiaries' competitive natural gas-fired generating fleet.  This term is also used to describe a derivative contract in which PPL and its subsidiaries sell power and buy natural gas on a forward basis in the same contract.

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

 
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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.

TC2 - Trimble County Unit 2, a coal-fired plant located in Kentucky with a net summer capacity of 732 MW.  LKE indirectly owns a 75% interest (consists of LG&E's 14.25% and KU's 60.75% interests) in TC2 or 549 MW of the capacity.

Tolling agreement - agreement whereby the owner of an electricity generating facility agrees to use that facility to convert fuel provided by a third party into electricity for delivery back to the third party.

TRA - Tennessee Regulatory Authority, the state agency that has jurisdiction over the regulation of rates and service of utilities in Tennessee.

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.

USWA – United Steelworkers of America.

VaR - value-at-risk, 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.

Volumetric risk - the risk that the actual load volumes provided under full-requirement sales contracts could vary significantly from forecasted volumes.

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 2013 Form 10-K and Form 10-Q for the period ended June 30, 2014 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 from the forward-looking statements.

·fuel supply cost and availability;
·continuing 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 conditions affecting generation, customer energy use and operating costs;
·operation, availability and operating costs of existing generation facilities;
·the duration of and cost, including lost revenue, associated with scheduled and unscheduled outages at our generating facilities;
·transmission and distribution system conditions and operating costs;
·expansion of alternative sources of electricity generation;
·laws or regulations to reduce emissions of "greenhouse" gases or the physical effects of climate change;
·collective labor bargaining negotiations;
·the outcome of litigation against the Registrants and their subsidiaries;
·potential effects of threatened or actual terrorism, war or other hostilities, cyber-based intrusions or natural disasters;
·the commitments and liabilities of the Registrants and their subsidiaries;
·volatility in market demand and prices for energy, capacity, transmission services, emission allowances and RECs;
·competition in retail and wholesale power and natural gas markets;
·liquidity of wholesale power markets;
·defaults by counterparties under energy, fuel or other power product contracts;
·market prices of commodity inputs for ongoing capital expenditures;
·capital market conditions, including the availability of capital or credit, changes in interest rates and certain economic indices, and decisions regarding capital structure;
·stock price performance of PPL;
·volatility in the fair value of debt and equity securities and its impact on the value of assets in the NDT funds and in defined benefit plans, and the potential cash funding requirements if fair value declines;
·interest rates and their effect on pension, retiree medical, nuclear decommissioning liabilities and interest payable on certain debt securities;
·volatility in or the impact of other changes in financial or commodity markets and economic conditions;
·new accounting requirements or new interpretations or applications of existing requirements;
·changes in securities and credit ratings;
·changes in foreign currency exchange rates for British pound sterling;
·current and future environmental conditions, regulations and other requirements and the related costs of compliance, including environmental capital expenditures, emission allowance costs and other expenses;
·legal, regulatory, political, market or other reactions to the 2011 incident at the nuclear generating facility at Fukushima, Japan, including additional NRC requirements;
·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, approvals and rate relief;
·new state, federal or foreign legislation or regulatory developments;
·the outcome of any rate cases or other cost recovery or revenue filings by PPL Electric, LG&E, KU or WPD;
·the impact of any state, federal or foreign investigations applicable to the Registrants and their subsidiaries and the energy industry;
·the effect of any business or industry restructuring;
·development of new projects, markets and technologies;
·performance of new ventures; and
·business dispositions or acquisitions, including the PPL Energy Supply spinoff transaction with Riverstone and the anticipated formation of Talen Energy and our ability to realize expected benefits from such business transactions.

 
1

 



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

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

 
2

 


PART I.  FINANCIAL INFORMATION
ITEM 1. Financial Statements
                
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
PPL Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars, except share data)
                
     Three Months Ended Nine Months Ended
     September 30, September 30,
     2014 2013 2014 2013
Operating Revenues          
 
Utility
 $1,860 $1,739 $5,852 $5,344
 
Unregulated wholesale energy
  1,109  913  203  2,380
 
Unregulated retail energy
  282  263  909  755
 
Energy-related businesses
  198  159  512  423
 
Total Operating Revenues
  3,449  3,074  7,476  8,902
                
Operating Expenses            
 Operation            
  
Fuel
  452  494  1,701  1,464
  
Energy purchases
  859  555  (284)  1,663
  
Other operation and maintenance
  684  658  2,082  2,009
 
Depreciation
  307  284  913  845
 
Taxes, other than income
  92  86  283  261
 
Energy-related businesses
  186  151  492  403
 
Total Operating Expenses
  2,580  2,228  5,187  6,645
                
Operating Income
  869  846  2,289  2,257
                
Other Income (Expense) - net
  144  (117)  38  18
                
Interest Expense
  258  244  775  747
                
Income from Continuing Operations Before Income Taxes
  755  485  1,552  1,528
                
Income Taxes
  265  81  520  329
                
Income from Continuing Operations After Income Taxes
  490  404  1,032  1,199
                
Income (Loss) from Discontinued Operations (net of income taxes)
  7  7  10  30
                
Net Income
  497  411  1,042  1,229
                
Net Income Attributable to Noncontrolling Interests
     1     1
                
Net Income Attributable to PPL Shareowners
 $497 $410 $1,042 $1,228
                
Amounts Attributable to PPL Shareowners:            
 
Income from Continuing Operations After Income Taxes
 $490 $403 $1,032 $1,198
 
Income (Loss) from Discontinued Operations (net of income taxes)
  7  7  10  30
 
Net Income
 $497 $410 $1,042 $1,228
                
Earnings Per Share of Common Stock:            
 Income from Continuing Operations After Income Taxes Available to PPL  
  Common Shareowners:            
  
Basic
 $0.73 $0.64 $1.58 $1.98
  
Diluted
 $0.73 $0.61 $1.56 $1.86
 Net Income Available to PPL Common Shareowners:            
  
Basic
 $0.74 $0.65 $1.60 $2.03
  
Diluted
 $0.74 $0.62 $1.57 $1.90
                
Dividends Declared Per Share of Common Stock
 $0.3725 $0.3675 $1.1175 $1.1025
                
Weighted-Average Shares of Common Stock Outstanding (in thousands)
            
  
Basic
  664,432  631,046  649,561  601,275
  
Diluted
  666,402  664,343  665,501  662,094

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

 
3

 



CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
PPL Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)
                
     Three Months Ended Nine Months Ended
     September 30, September 30,
     2014 2013 2014 2013
                
Net income
 $ 497 $ 411 $ 1,042 $ 1,229
                
Other comprehensive income (loss):            
Amounts arising during the period - gains (losses), net of tax (expense)            
 benefit:            
  
Foreign currency translation adjustments, net of tax of ($9), $8, ($3), $1
   (48)   87   80   (165)
  
Available-for-sale securities, net of tax of $1, ($15), ($20), ($42)
   (1)   15   18   40
  
Qualifying derivatives, net of tax of $2, $2, $31, ($41)
   (5)   (9)   (52)   77
  Defined benefit plans:            
   
Net actuarial gain (loss), net of tax of ($1), $0, $1, $0
   (1)      (3)   
Reclassifications from AOCI - (gains) losses, net of tax expense (benefit):            
  
Available-for-sale securities, net of tax of $4, $1, $6, $2
   (3)      (5)   (2)
  
Qualifying derivatives, net of tax of $3, $11, $4, $68
   (12)   (6)   2   (122)
  Equity investees' other comprehensive (income) loss, net of            
   
tax of $0, $0, $0, $0
      (1)      (1)
  Defined benefit plans:            
   
Prior service costs, net of tax of ($1), ($1), ($3), ($3)
   1   2   3   5
   
Net actuarial loss, net of tax of ($9), ($12), ($26), ($37)
   29   33   84   101
Total other comprehensive income (loss) attributable to PPL            
 
Shareowners
   (40)   121   127   (67)
                
Comprehensive income (loss)
   457   532   1,169   1,162
  
Comprehensive income attributable to noncontrolling interests
      1      1
Comprehensive income (loss) attributable to PPL Shareowners
 $ 457 $ 531 $ 1,169 $ 1,161

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

 
4

 



CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
PPL Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)
          
     Nine Months Ended September 30,
     2014 2013
Cash Flows from Operating Activities      
 
Net income
 $ 1,042 $ 1,229
 Adjustments to reconcile net income to net cash provided by operating activities      
  
Depreciation
   930   859
  
Amortization
   168   164
  
Defined benefit plans - expense
   71   135
  
Deferred income taxes and investment tax credits
   266   301
  
Unrealized (gains) losses on derivatives, and other hedging activities
   117   126
  
Adjustment to WPD line loss accrual
   65   45
  
Stock compensation expense
   52   45
  
Other
   38   2
 Change in current assets and current liabilities      
  
Accounts receivable
   (29)   (79)
  
Accounts payable
   (126)   (140)
  
Unbilled revenues
   163   197
  
Fuel, materials and supplies
   (60)   (14)
  
Counterparty collateral
   (18)   (77)
  
Taxes payable
   208   76
  
Uncertain tax positions
   1   (104)
  
Other
   (5)   (89)
 Other operating activities      
  
Defined benefit plans - funding
   (322)   (505)
  
Other assets
   8   (59)
  
Other liabilities
   59   111
   
Net cash provided by operating activities
   2,628   2,223
Cash Flows from Investing Activities      
 
Expenditures for property, plant and equipment
   (2,878)   (2,768)
 
Expenditures for intangible assets
   (74)   (61)
 
Purchases of nuclear plant decommissioning trust investments
   (124)   (102)
 
Proceeds from the sale of nuclear plant decommissioning trust investments
   112   92
 
Proceeds from the receipt of grants
   164   5
 
Net (increase) decrease in restricted cash and cash equivalents
   (187)   13
 
Other investing activities
   13   33
   
Net cash provided by (used in) investing activities
   (2,974)   (2,788)
Cash Flows from Financing Activities      
 
Issuance of long-term debt
   296   862
 
Retirement of long-term debt
   (545)   (309)
 
Repurchase of common stock
      (74)
 
Issuance of common stock
   1,037   1,409
 
Payment of common stock dividends
   (718)   (645)
 
Debt issuance and credit facility costs
   (21)   (37)
 
Contract adjustment payments
   (21)   (72)
 
Net increase (decrease) in short-term debt
   398   (148)
 
Other financing activities
   (7)   (20)
   
Net cash provided by (used in) financing activities
   419   966
Effect of Exchange Rates on Cash and Cash Equivalents
   13   (11)
Net Increase (Decrease) in Cash and Cash Equivalents
   86   390
Cash and Cash Equivalents at Beginning of Period
   1,102   901
Cash and Cash Equivalents at End of Period
 $ 1,188 $ 1,291

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

 
5

 



CONDENSED CONSOLIDATED BALANCE SHEETS
PPL Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars, shares in thousands)
     September 30, December 31,
     2014 2013
Assets      
          
Current Assets      
 
Cash and cash equivalents
 $ 1,188 $ 1,102
 
Restricted cash and cash equivalents
   274   83
 Accounts receivable (less reserve:  2014, $48; 2013, $64)      
  
Customer
   911   923
  
Other
   139   97
 
Unbilled revenues
   676   835
 
Fuel, materials and supplies
   763   702
 
Prepayments
   117   153
 
Deferred income taxes
   242   246
 
Price risk management assets
   732   942
 
Assets of discontinued operations
   647   
 
Regulatory assets
   28   33
 
Other current assets
   43   37
 
Total Current Assets
   5,760   5,153
          
Investments      
 
Nuclear plant decommissioning trust funds
   911   864
 
Other investments
   36   43
 
Total Investments
   947   907
          
Property, Plant and Equipment      
 
Regulated utility plant
   30,169   27,755
 
Less:  accumulated depreciation - regulated utility plant
   5,315   4,873
  
Regulated utility plant, net
   24,854   22,882
 Non-regulated property, plant and equipment      
  
Generation
   11,179   11,881
  
Nuclear fuel
   624   591
  
Other
   869   834
 
Less:  accumulated depreciation - non-regulated property, plant and equipment
   6,323   6,172
  
Non-regulated property, plant and equipment, net
   6,349   7,134
 
Construction work in progress
   3,194   3,071
 
Property, Plant and Equipment, net
   34,397   33,087
          
Other Noncurrent Assets      
 
Regulatory assets
   1,253   1,246
 
Goodwill
   4,187   4,225
 
Other intangibles
   936   947
 
Price risk management assets
   366   337
 
Other noncurrent assets
   343   357
 
Total Other Noncurrent Assets
   7,085   7,112
          
Total Assets
 $ 48,189 $ 46,259

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

 
6

 


 
 
CONDENSED CONSOLIDATED BALANCE SHEETS
PPL Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars, shares in thousands)
     September 30, December 31,
     2014 2013
Liabilities and Equity      
          
Current Liabilities      
 
Short-term debt
 $ 1,099 $ 701
 
Long-term debt due within one year
   235   315
 
Accounts payable
   1,208   1,308
 
Taxes
   281   114
 
Interest
   354   325
 
Dividends
   248   232
 
Price risk management liabilities
   897   829
 
Regulatory liabilities
   92   90
 
Other current liabilities
   998   998
 
Total Current Liabilities
   5,412   4,912
          
Long-term Debt
   20,522   20,592
          
Deferred Credits and Other Noncurrent Liabilities      
 
Deferred income taxes
   4,423   3,928
 
Investment tax credits
   161   342
 
Price risk management liabilities
   377   415
 
Accrued pension obligations
   952   1,286
 
Asset retirement obligations
   739   687
 
Regulatory liabilities
   1,028   1,048
 
Other deferred credits and noncurrent liabilities
   601   583
 
Total Deferred Credits and Other Noncurrent Liabilities
   8,281   8,289
          
Commitments and Contingent Liabilities (Notes 6 and 10)      
          
Equity      
  
Common stock - $0.01 par value (a)
   7   6
  
Additional paid-in capital
   9,388   8,316
  
Earnings reinvested
   6,017   5,709
  
Accumulated other comprehensive loss
   (1,438)   (1,565)
 
Total Equity
   13,974   12,466
          
Total Liabilities and Equity
 $ 48,189 $ 46,259

(a)780,000 shares authorized; 664,653 and 630,321 shares issued and outstanding at September 30, 2014 and December 31, 2013.        

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)
    PPL Shareowners      
    Common                  
     stock           Accumulated      
    shares     Additional     other  Non-   
    outstanding  Common  paid-in  Earnings  comprehensive  controlling   
    (a)  stock  capital  reinvested  loss  interests  Total
                       
June 30, 2014
  664,018 $ 7 $ 9,358 $ 5,768 $ (1,398)    $ 13,735
Common stock issued
  635      21            21
Stock-based compensation
        9            9
Net income
           497         497
Dividends and dividend                    
 
equivalents
           (248)         (248)
Other comprehensive                    
 
income (loss)
              (40)      (40)
September 30, 2014
  664,653 $ 7 $ 9,388 $ 6,017 $ (1,438)    $ 13,974
                       
December 31, 2013
  630,321 $ 6 $ 8,316 $ 5,709 $ (1,565)    $ 12,466
Common stock issued
  34,332   1   1,048            1,049
Stock-based compensation
        24            24
Net income
           1,042         1,042
Dividends and dividend                    
 
equivalents
           (734)         (734)
Other comprehensive                    
 
income (loss)
              127      127
September 30, 2014
  664,653 $ 7 $ 9,388 $ 6,017 $ (1,438)    $ 13,974
                       
June 30, 2013
  591,622 $ 6 $ 7,195 $ 5,863 $ (2,128) $ 18 $ 10,954
Common stock issued
  40,117      1,151            1,151
Common stock repurchased
  (1,500)      (46)            (46)
Stock-based compensation
        5            5
Net income
           410      1   411
Dividends and dividend                    
 
equivalents
           (233)      (1)   (234)
Other comprehensive                    
 
income (loss)
              121      121
September 30, 2013
  630,239 $ 6 $ 8,305 $ 6,040 $ (2,007) $ 18 $ 12,362
                       
December 31, 2012
  581,944 $ 6 $ 6,936 $ 5,478 $ (1,940) $ 18 $ 10,498
Common stock issued
  50,725      1,433            1,433
Common stock repurchased
  (2,430)      (74)            (74)
Cash settlement of equity forward                    
 
agreements
        (13)            (13)
Stock-based compensation
        23            23
Net income
           1,228      1   1,229
Dividends and dividend                    
 
equivalents
           (666)      (1)   (667)
Other comprehensive                    
 
income (loss)
              (67)      (67)
September 30, 2013
  630,239 $ 6 $ 8,305 $ 6,040 $ (2,007) $ 18 $ 12,362

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

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

 
8

 


 
 
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
PPL Energy Supply, LLC and Subsidiaries
(Unaudited)      
(Millions of Dollars)      
                
     Three Months Ended Nine Months Ended
     September 30, September 30,
     2014 2013 2014 2013
Operating Revenues            
 
Unregulated wholesale energy
 $1,109 $913 $203 $2,380
 
Unregulated wholesale energy to affiliate
  20  11  68  37
 
Unregulated retail energy
  283  265  913  758
 
Energy-related businesses
  189  143  469  378
 
Total Operating Revenues
  1,601  1,332  1,653  3,553
                
Operating Expenses            
 Operation            
  
Fuel
  212  258  953  780
  
Energy purchases
  708  389  (893)  1,088
  
Other operation and maintenance
  232  232  746  714
 
Depreciation
  74  75  225  223
 
Taxes, other than income
  14  14  45  40
 
Energy-related businesses
  172  138  451  366
 
Total Operating Expenses
  1,412  1,106  1,527  3,211
                
Operating Income
  189  226  126  342
                
Other Income (Expense) - net
  10  1  23  17
                
Interest Expense
  31  37  95  123
                
Income from Continuing Operations Before Income Taxes
  168  190  54  236
                
Income Taxes
  74  71  16  91
                
Income from Continuing Operations After Income Taxes
  94  119  38  145
                
Income (Loss) from Discontinued Operations (net of income taxes)
  7  6  10  28
                
Net Income
  101  125  48  173
                
Net Income Attributable to Noncontrolling Interests
     1     1
                
Net Income Attributable to PPL Energy Supply Member
 $101 $124 $48 $172
                
Amounts Attributable to PPL Energy Supply Member:            
 
Income from Continuing Operations After Income Taxes
 $94 $118 $38 $144
 
Income (Loss) from Discontinued Operations (net of income taxes)
  7  6  10  28
 
Net Income
 $101 $124 $48 $172

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

 
9

 


 
 
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
PPL Energy Supply, LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)
                
     Three Months Ended Nine Months Ended
     September 30, September 30,
     2014 2013 2014 2013
                
Net income
 $ 101 $ 125 $ 48 $ 173
                
Other comprehensive income (loss):            
Amounts arising during the period - gains (losses), net of tax (expense)            
 benefit:            
  
Available-for-sale securities, net of tax of $1, ($15), ($20), ($42)
   (1)   15   18   40
Reclassifications from AOCI - (gains) losses, net of tax expense (benefit):            
  
Available-for-sale securities, net of tax of $4, $1, $6, $2
   (3)      (5)   (2)
  
Qualifying derivatives, net of tax of $2, $19, $11, $63
   (5)   (29)   (18)   (96)
  Defined benefit plans:            
   
Prior service costs, net of tax of ($1), ($1), ($2), ($2)
   1   1   2   3
   
Net actuarial loss, net of tax of $0, ($2), ($2), ($7)
   1   3   4   11
Total other comprehensive income (loss) attributable to            
 
PPL Energy Supply Member
   (7)   (10)   1   (44)
                
Comprehensive income (loss)
   94   115   49   129
  
Comprehensive income attributable to noncontrolling interests
      1      1
Comprehensive income (loss) attributable to PPL Energy            
 
Supply Member
 $ 94 $ 114 $ 49 $ 128

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

 
10

 


 
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
PPL Energy Supply, LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)
          
     Nine Months Ended September 30,
     2014 2013
Cash Flows from Operating Activities      
 
Net income
 $ 48 $ 173
 Adjustments to reconcile net income to net cash provided by operating activities      
  
Depreciation
   242   237
  
Amortization
   117   111
  
Defined benefit plans - expense
   34   39
  
Deferred income taxes and investment tax credits
   (150)   112
  
Impairment of assets
   20   
  
Unrealized (gains) losses on derivatives, and other hedging activities
   216   98
  
Other
   19   9
 Change in current assets and current liabilities      
  
Accounts receivable
   (1)   71
  
Accounts payable
   (45)   (108)
  
Unbilled revenues
   41   135
  
Fuel, materials and supplies
   (67)   (18)
  
Taxes payable
   70   (43)
  
Counterparty collateral
   (18)   (77)
  
Price risk management assets and liabilities
   (34)   1
  
Other
   (9)   10
 Other operating activities      
  
Defined benefit plans - funding
   (32)   (107)
  
Other assets
   (2)   (32)
  
Other liabilities
   16   (28)
   
Net cash provided by operating activities
   465   583
Cash Flows from Investing Activities      
 
Expenditures for property, plant and equipment
   (276)   (341)
 
Expenditures for intangible assets
   (38)   (33)
 
Purchases of nuclear plant decommissioning trust investments
   (124)   (102)
 
Proceeds from the sale of nuclear plant decommissioning trust investments
   112   92
 
Proceeds from the receipt of grants
   164   4
 
Net (increase) decrease in restricted cash and cash equivalents
   (199)   9
 
Other investing activities
   17   20
   
Net cash provided by (used in) investing activities
   (344)   (351)
Cash Flows from Financing Activities      
 
Retirement of long-term debt
   (308)   (309)
 
Contributions from member
   730   980
 
Distributions to member
   (1,178)   (408)
 
Net increase (decrease) in short-term debt
   590   (356)
 
Other financing activities
      (1)
   
Net cash provided by (used in) financing activities
   (166)   (94)
Net Increase (Decrease) in Cash and Cash Equivalents
   (45)   138
 
Cash and Cash Equivalents at Beginning of Period
   239   413
 
Cash and Cash Equivalents at End of Period
 $ 194 $ 551

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

 
11

 


 
 
CONDENSED CONSOLIDATED BALANCE SHEETS
PPL Energy Supply, LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)
     September 30, December 31,
     2014 2013
Assets      
          
Current Assets      
 
Cash and cash equivalents
 $ 194 $ 239
 
Restricted cash and cash equivalents
   267   68
 Accounts receivable (less reserve:  2014, $2; 2013, $21)      
  
Customer
   203   233
  
Other
   96   97
 
Accounts receivable from affiliates
   44   45
 
Unbilled revenues
   245   286
 
Fuel, materials and supplies
   425   358
 
Prepayments
   10   20
 
Deferred income taxes
   35   
 
Price risk management assets
   713   860
 
Assets of discontinued operations
   578   
 
Other current assets
   30   27
 
Total Current Assets
   2,840   2,233
          
Investments      
 
Nuclear plant decommissioning trust funds
   911   864
 
Other investments
   32   37
 
Total Investments
   943   901
          
Property, Plant and Equipment      
 Non-regulated property, plant and equipment      
  
Generation
   11,188   11,891
  
Nuclear fuel
   624   591
  
Other
   296   288
 
Less:  accumulated depreciation - non-regulated property, plant and equipment
   6,157   6,046
  
Non-regulated property, plant and equipment, net
   5,951   6,724
 
Construction work in progress
   408   450
 
Property, Plant and Equipment, net
   6,359   7,174
          
Other Noncurrent Assets      
 
Goodwill
   72   86
 
Other intangibles
   254   266
 
Price risk management assets
   328   328
 
Other noncurrent assets
   77   86
 
Total Other Noncurrent Assets
   731   766
          
Total Assets
 $ 10,873 $ 11,074

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

 
12

 


 
 
CONDENSED CONSOLIDATED BALANCE SHEETS
PPL Energy Supply, LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)
     September 30, December 31,
     2014 2013
Liabilities and Equity      
          
Current Liabilities      
 
Short-term debt
 $ 590   
 
Long-term debt due within one year
   235 $ 304
 
Accounts payable
   272   393
 
Accounts payable to affiliates
   42   4
 
Taxes
   101   31
 
Interest
   42   22
 
Price risk management liabilities
   850   750
 
Other current liabilities
   243   278
 
Total Current Liabilities
   2,375   1,782
          
Long-term Debt
   1,983   2,221
          
Deferred Credits and Other Noncurrent Liabilities      
 
Deferred income taxes
   1,185   1,114
 
Investment tax credits
   27   205
 
Price risk management liabilities
   287   320
 
Accrued pension obligations
   103   111
 
Asset retirement obligations
   413   393
 
Other deferred credits and noncurrent liabilities
   135   130
 
Total Deferred Credits and Other Noncurrent Liabilities
   2,150   2,273
          
Commitments and Contingent Liabilities (Note 10)      
          
Member's Equity
   4,365   4,798
          
Total Liabilities and Equity
 $ 10,873 $ 11,074

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

 
13

 


 
 
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
PPL Energy Supply, LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)
          
     Non-   
  Member's controlling   
  equity interests Total
          
June 30, 2014
 $ 4,569    $ 4,569
Net income
   101      101
Other comprehensive income (loss)
   (7)      (7)
Distributions
   (298)      (298)
September 30, 2014
 $ 4,365    $ 4,365
          
December 31, 2013
 $ 4,798    $ 4,798
Net income
   48      48
Other comprehensive income (loss)
   1      1
Contributions from member
   730      730
Distributions
   (1,212)      (1,212)
September 30, 2014
 $ 4,365    $ 4,365
          
June 30, 2013
 $ 3,541 $ 18 $ 3,559
Net income
   124   1   125
Other comprehensive income (loss)
   (10)      (10)
Contributions from member
   875      875
Distributions
      (1)   (1)
September 30, 2013
 $ 4,530 $ 18 $ 4,548
          
December 31, 2012
 $ 3,830 $ 18 $ 3,848
Net income
   172   1   173
Other comprehensive income (loss)
   (44)      (44)
Contributions from member
   980      980
Distributions
   (408)   (1)   (409)
September 30, 2013
 $ 4,530 $ 18 $ 4,548

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
PPL Electric Utilities Corporation and Subsidiaries
(Unaudited)            
(Millions of Dollars)      
               
    Three Months Ended Nine Months Ended
    September 30, September 30,
    2014 2013 2014 2013
             
Operating Revenues
 $ 477 $ 464 $ 1,518 $ 1,391
               
Operating Expenses            
 Operation            
  
Energy purchases
   128   144   431   436
  
Energy purchases from affiliate
   20   11   68   37
  
Other operation and maintenance
   133   134   402   391
 
Depreciation
   47   45   137   132
 
Taxes, other than income
   25   25   80   77
 
Total Operating Expenses
   353   359   1,118   1,073
               
Operating Income
   124   105   400   318
               
Other Income (Expense) - net
   3   2   6   5
               
Interest Expense
   33   30   91   80
               
Income Before Income Taxes
   94   77   315   243
               
Income Taxes
   37   26   121   83
               
Net Income (a)
 $ 57 $ 51 $ 194 $ 160

(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
PPL Electric Utilities Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)
          
     Nine Months Ended
     September 30,
     2014 2013
Cash Flows from Operating Activities      
 
Net income
 $ 194 $ 160
 Adjustments to reconcile net income to net cash provided by operating activities      
  
Depreciation
   137   132
  
Amortization
   13   13
  
Defined benefit plans - expense
   10   16
  
Deferred income taxes and investment tax credits
   65   103
  
Other
   (20)   (7)
 Change in current assets and current liabilities      
  
Accounts receivable
   (45)   (14)
  
Accounts payable
   (25)   (42)
  
Unbilled revenues
   40   34
  
Taxes payable
   45   24
  
Other
   4   (19)
 Other operating activities      
  
Defined benefit plans - funding
   (20)   (88)
  
Other assets
   8   6
  
Other liabilities
   6   9
   
Net cash provided by operating activities
   412   327
          
Cash Flows from Investing Activities      
 
Expenditures for property, plant and equipment
   (700)   (688)
 
Expenditures for intangible assets
   (25)   (20)
 
Net (increase) decrease in notes receivable from affiliates
   150   
 
Other investing activities
   13   11
   
Net cash provided by (used in) investing activities
   (562)   (697)
          
Cash Flows from Financing Activities      
 
Issuance of long-term debt
   296   348
 
Retirement of long-term debt
   (10)   
 
Contributions from parent
   95   205
 
Payment of common stock dividends to parent
   (121)   (94)
 
Net increase (decrease) in short-term debt
   (20)   
 
Other financing activities
   (4)   (4)
   
Net cash provided by (used in) financing activities
   236   455
          
Net Increase (Decrease) in Cash and Cash Equivalents
   86   85
Cash and Cash Equivalents at Beginning of Period
   25   140
Cash and Cash Equivalents at End of Period
 $ 111 $ 225

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

 
17

 


 
 
CONDENSED CONSOLIDATED BALANCE SHEETS
PPL Electric Utilities Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars, shares in thousands)
          
     September 30, December 31,
     2014 2013
Assets      
          
Current Assets      
 
Cash and cash equivalents
 $ 111 $ 25
 Accounts receivable (less reserve: 2014, $18; 2013, $18)      
  
Customer
   309   284
  
Other
   27   5
 
Accounts receivable from affiliates
   2   4
 
Notes receivable from affiliate
      150
 
Unbilled revenues
   76   116
 
Materials and supplies
   35   35
 
Prepayments
   28   40
 
Deferred income taxes
   89   85
 
Other current assets
   13   22
 
Total Current Assets
   690   766
          
Property, Plant and Equipment      
 
Regulated utility plant
   7,430   6,886
 
Less: accumulated depreciation - regulated utility plant
   2,523   2,417
  
Regulated utility plant, net
   4,907   4,469
 
Other, net
   2   2
 
Construction work in progress
   713   591
 
Property, Plant and Equipment, net
   5,622   5,062
          
Other Noncurrent Assets      
 
Regulatory assets
   772   772
 
Intangibles
   234   211
 
Other noncurrent assets
   37   35
 
Total Other Noncurrent Assets
   1,043   1,018
          
Total Assets
 $ 7,355 $ 6,846

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

 
18

 


 
 
CONDENSED CONSOLIDATED BALANCE SHEETS
PPL Electric Utilities Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars, shares in thousands)
          
     September 30, December 31,
     2014 2013
Liabilities and Equity      
          
Current Liabilities      
 
Short-term debt
    $ 20
 
Long term debt due within one year
      10
 
Accounts payable
 $ 280   295
 
Accounts payable to affiliates
   53   57
 
Taxes
   52   51
 
Interest
   27   34
 
Regulatory liabilities
   81   76
 
Other current liabilities
   92   82
 
Total Current Liabilities
   585   625
          
Long-term Debt
   2,602   2,305
          
Deferred Credits and Other Noncurrent Liabilities      
 
Deferred income taxes
   1,490   1,399
 
Accrued pension obligations
   84   96
 
Regulatory liabilities
   18   15
 
Other deferred credits and noncurrent liabilities
   59   57
 
Total Deferred Credits and Other Noncurrent Liabilities
   1,651   1,567
          
Commitments and Contingent Liabilities (Notes 6 and 10)      
          
Stockholder's Equity      
 
Common stock - no par value (a)
   364   364
 
Additional paid-in capital
   1,435   1,340
 
Earnings reinvested
   718   645
 
Total Equity
   2,517   2,349
          
Total Liabilities and Equity
 $ 7,355 $ 6,846

(a)170,000 shares authorized; 66,368 shares issued and outstanding at September 30, 2014 and December 31, 2013.

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

 
19

 


 
 
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
PPL Electric Utilities Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)
             
    Common        
    stock        
    shares   Additional    
    outstanding Common  paid-in Earnings  
     (a)  stock  capital  reinvested Total
                 
June 30, 2014
  66,368 $ 364 $ 1,435 $ 695 $ 2,494
Net income
           57   57
Cash dividends declared on common stock
           (34)   (34)
September 30, 2014
  66,368 $ 364 $ 1,435 $ 718 $ 2,517
                 
December 31, 2013
  66,368 $ 364 $ 1,340 $ 645 $ 2,349
Net income
           194   194
Capital contributions from PPL
        95      95
Cash dividends declared on common stock
           (121)   (121)
September 30, 2014
  66,368 $ 364 $ 1,435 $ 718 $ 2,517
                 
June 30, 2013
  66,368 $ 364 $ 1,340 $ 606 $ 2,310
Net income
           51   51
Cash dividends declared on common stock
           (28)   (28)
September 30, 2013
  66,368 $ 364 $ 1,340 $ 629 $ 2,333
                 
December 31, 2012
  66,368 $ 364 $ 1,135 $ 563 $ 2,062
Net income
           160   160
Capital contributions from PPL
        205      205
Cash dividends declared on common stock
           (94)   (94)
September 30, 2013
  66,368 $ 364 $ 1,340 $ 629 $ 2,333

(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.

 
20

 


  























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21

 


 
 
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
LG&E and KU Energy LLC and Subsidiaries
(Unaudited)            
(Millions of Dollars)      
                
     Three Months Ended Nine Months Ended
     September 30, September 30,
     2014 2013  2014  2013
             
Operating Revenues
 $ 753 $ 744 $ 2,409 $ 2,226
             
Operating Expenses            
 Operation            
  
Fuel
   240   237   748   684
  
Energy purchases
   24   23   184   146
  
Other operation and maintenance
   197   188   609   582
 
Depreciation
   89   84   262   249
 
Taxes, other than income
   13   12   39   36
 
Total Operating Expenses
   563   544   1,842   1,697
                
Operating Income
   190   200   567   529
                
Other Income (Expense) - net
   (2)   (4)   (6)   (6)
             
Interest Expense
   42   37   125   110
                
Interest Expense with Affiliate
            1
                
Income from Continuing Operations Before Income Taxes
   146   159   436   412
                
Income Taxes
   55   59   165   153
                
Income from Continuing Operations After Income Taxes
   91   100   271   259
                
Income (Loss) from Discontinued Operations (net of income taxes)
            1
                
Net Income (a)
 $ 91 $ 100 $ 271 $ 260

(a)Net income approximates comprehensive income.         

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

 
22

 


  
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
LG&E and KU Energy LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)
           
     Nine Months Ended September 30,
     2014  2013
Cash Flows from Operating Activities       
 
Net income
 $ 271  $ 260
 Adjustments to reconcile net income to net cash provided by operating activities       
  
Depreciation
   262    249
  
Amortization
   18    19
  
Defined benefit plans - expense
   18    38
  
Deferred income taxes and investment tax credits
   251    99
  
Other
   11    6
 Change in current assets and current liabilities       
  
Accounts receivable
   (31)    (78)
  
Accounts payable
   7    34
  
Accounts payable to affiliates
   (2)    1
  
Unbilled revenues
   49    19
  
Fuel, materials and supplies
   4    1
  
Taxes payable
   5    83
  
Accrued interest
   36    30
  
Other
   (10)    
 Other operating activities       
  
Defined benefit plans - funding
   (43)    (159)
  
Settlement of interest rate swaps
       98
  
Other assets
       9
  
Other liabilities
   5    14
   
Net cash provided by operating activities
   851    723
Cash Flows from Investing Activities       
 
Expenditures for property, plant and equipment
   (843)    (891)
 
Net (increase) decrease in notes receivable from affiliates
   70    
 
Other investing activities
       2
   
Net cash provided by (used in) investing activities
   (773)    (889)
Cash Flows from Financing Activities       
 
Net increase (decrease) in notes payable with affiliates
   22    27
 
Net increase (decrease) in short-term debt
   103    87
 
Debt issuance and credit facility costs
   (3)    
 
Distributions to member
   (327)    (116)
 
Contributions from member
   139    146
   
Net cash provided by (used in) financing activities
   (66)    144
Net Increase (Decrease) in Cash and Cash Equivalents
   12    (22)
Cash and Cash Equivalents at Beginning of Period
   35    43
Cash and Cash Equivalents at End of Period
 $ 47  $ 21

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

 
23

 


 
 
CONDENSED CONSOLIDATED BALANCE SHEETS
LG&E and KU Energy LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)
          
     September 30, December 31,
     2014 2013
Assets      
          
Current Assets      
 
Cash and cash equivalents
 $ 47 $ 35
 Accounts receivable (less reserve: 2014, $25; 2013, $22)      
  
Customer
   219   224
  
Other
   44   20
 
Unbilled revenues
   131   180
 
Fuel, materials and supplies
   274   278
 
Prepayments
   28   21
 
Notes receivable from affiliates
      70
 
Deferred income taxes
   69   159
 
Regulatory assets
   25   27
 
Other current assets
   4   3
 
Total Current Assets
   841   1,017
          
Property, Plant and Equipment      
 
Regulated utility plant
   9,399   8,526
 
Less: accumulated depreciation - regulated utility plant
   996   778
  
Regulated utility plant, net
   8,403   7,748
 
Other, net
   4   3
 
Construction work in progress
   1,812   1,793
 
Property, Plant and Equipment, net
   10,219   9,544
          
Other Noncurrent Assets      
 
Regulatory assets
   481   474
 
Goodwill
   996   996
 
Other intangibles
   185   221
 
Price risk management assets from affiliates
   6   
 
Other noncurrent assets
   99   98
 
Total Other Noncurrent Assets
   1,767   1,789
          
Total Assets
 $ 12,827 $ 12,350

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

 
24

 


 
 
CONDENSED CONSOLIDATED BALANCE SHEETS
LG&E and KU Energy LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)
     September 30, December 31,
     2014 2013
Liabilities and Equity      
          
Current Liabilities      
 
Short-term debt
 $ 348 $ 245
 
Notes payable with affiliates
   22   
 
Accounts payable
   429   346
 
Accounts payable to affiliates
   1   3
 
Customer deposits
   51   50
 
Taxes
   44   39
 
Price risk management liabilities
   4   4
 
Regulatory liabilities
   11   14
 
Interest
   59   23
 
Other current liabilities
   113   111
 
Total Current Liabilities
   1,082   835
          
Long-term Debt
   4,566   4,565
          
Deferred Credits and Other Noncurrent Liabilities      
 
Deferred income taxes
   1,131   965
 
Investment tax credits
   132   135
 
Accrued pension obligations
   116   152
 
Asset retirement obligations
   275   245
 
Regulatory liabilities
   1,010   1,033
 
Price risk management liabilities
   38   32
 
Price risk management liabilities with affiliates
   4   
 
Other deferred credits and noncurrent liabilities
   243   238
 
Total Deferred Credits and Other Noncurrent Liabilities
   2,949   2,800
          
Commitments and Contingent Liabilities (Notes 6 and 10)      
          
Member's equity
   4,230   4,150
          
Total Liabilities and Equity
 $ 12,827 $ 12,350

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

 
25

 


 
 
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
LG&E and KU Energy LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)
    
   Member's
   Equity
    
June 30, 2014
 $ 4,225
Net income
   91
Contributions from member
   20
Distributions to member
   (106)
September 30, 2014
 $ 4,230
    
December 31, 2013
 $ 4,150
Net income
   271
Contributions from member
   139
Distributions to member
   (327)
Other comprehensive income (loss)
   (3)
September 30, 2014
 $ 4,230
    
June 30, 2013
 $ 4,022
Net income
   100
Distributions to member
   (47)
September 30, 2013
 $ 4,075
    
December 31, 2012
 $ 3,786
Net income
   260
Contributions from member
   146
Distributions to member
   (116)
Other comprehensive income (loss)
   (1)
September 30, 2013
 $ 4,075

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
Louisville Gas and Electric Company
(Unaudited)            
(Millions of Dollars)      
                
     Three Months Ended Nine Months Ended
     September 30, September 30,
     2014 2013 2014 2013
Operating Revenues            
 
Retail and wholesale
 $ 334 $ 332 $ 1,096 $ 1,003
 
Electric revenue from affiliate
   13   11   74   46
 
Total Operating Revenues
   347   343   1,170   1,049
                
Operating Expenses            
 Operation            
  
Fuel
   99   100   320   284
  
Energy purchases
   20   18   167   129
  
Energy purchases from affiliate
   3   2   11   6
  
Other operation and maintenance
   94   93   286   278
 
Depreciation
   39   37   116   110
 
Taxes, other than income
   6   6   19   18
 
Total Operating Expenses
   261   256   919   825
                
Operating Income
   86   87   251   224
                
Other Income (Expense) - net
      (1)   (3)   (3)
                
Interest Expense
   13   10   37   30
                
Income Before Income Taxes
   73   76   211   191
                
Income Taxes
   27   27   78   69
                
Net Income (a)
 $ 46 $ 49 $ 133 $ 122

(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
Louisville Gas and Electric Company
(Unaudited)
(Millions of Dollars)
           
     Nine Months Ended September 30,
     2014  2013
Cash Flows from Operating Activities       
 
Net income
 $ 133  $ 122
 Adjustments to reconcile net income to net cash provided by operating activities       
  
Depreciation
   116    110
  
Amortization
   9    9
  
Defined benefit plans - expense
   7    13
  
Deferred income taxes and investment tax credits
   31    22
  
Other
   (2)    10
 Change in current assets and current liabilities       
  
Accounts receivable
   (8)    (20)
  
Accounts payable
   8    18
  
Accounts payable to affiliates
   (4)    7
  
Unbilled revenues
   27    10
  
Fuel, materials and supplies
   5    2
  
Taxes payable
   10    32
  
Accrued Interest
   9    3
  
Other
   1    9
 Other operating activities       
  
Defined benefit plans - funding
   (12)    (45)
  
Settlement of interest rate swaps
       49
  
Other assets
   1    9
  
Other liabilities
   (4)    2
   
Net cash provided by operating activities
   327    362
Cash Flows from Investing Activities       
 
Expenditures for property, plant and equipment
   (422)    (376)
   
Net cash provided by (used in) investing activities
   (422)    (376)
Cash Flows from Financing Activities       
 
Net increase (decrease) in short-term debt
   123    17
 
Debt issuance and credit facility costs
   (1)    
 
Payment of common stock dividends to parent
   (83)    (67)
 
Contributions from parent
   73    54
   
Net cash provided by (used in) financing activities
   112    4
Net Increase (Decrease) in Cash and Cash Equivalents
   17    (10)
Cash and Cash Equivalents at Beginning of Period
   8    22
Cash and Cash Equivalents at End of Period
 $ 25  $ 12

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

 
29

 


 
 
CONDENSED BALANCE SHEETS
Louisville Gas and Electric Company
(Unaudited)
(Millions of Dollars, shares in thousands)
          
     September 30, December 31,
     2014 2013
Assets      
          
Current Assets      
 
Cash and cash equivalents
 $ 25 $ 8
 Accounts receivable (less reserve: 2014, $2; 2013, $2)      
  
Customer
   93   102
  
Other
   12   9
 
Unbilled revenues
   58   85
 
Accounts receivable from affiliates
   10   
 
Fuel, materials and supplies
   149   154
 
Prepayments
   5   7
 
Regulatory assets
   23   17
 
Other current assets
   2   3
 
Total Current Assets
   377   385
          
Property, Plant and Equipment      
 
Regulated utility plant
   3,606   3,383
 
Less: accumulated depreciation - regulated utility plant
   429   332
  
Regulated utility plant, net
   3,177   3,051
 
Construction work in progress
   912   651
 
Property, Plant and Equipment, net
   4,089   3,702
          
Other Noncurrent Assets      
 
Regulatory assets
   305   303
 
Goodwill
   389   389
 
Other intangibles
   102   120
 
Price risk management assets from affiliates
   3   
 
Other noncurrent assets
   34   35
 
Total Other Noncurrent Assets
   833   847
          
Total Assets
 $ 5,299 $ 4,934

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

 
30

 


 
 
CONDENSED BALANCE SHEETS
Louisville Gas and Electric Company
(Unaudited)
(Millions of Dollars, shares in thousands)
     September 30, December 31,
     2014 2013
Liabilities and Equity      
          
Current Liabilities      
 
Short-term debt
 $ 143 $ 20
 
Accounts payable
   250   166
 
Accounts payable to affiliates
   20   24
 
Customer deposits
   24   24
 
Taxes
   21   11
 
Price risk management liabilities
   4   4
 
Regulatory liabilities
   9   9
 
Interest
   15   6
 
Other current liabilities
   33   32
 
Total Current Liabilities
   519   296
          
Long-term Debt
   1,353   1,353
       
Deferred Credits and Other Noncurrent Liabilities      
 
Deferred income taxes
   613   582
 
Investment tax credits
   37   38
 
Accrued pension obligations
   9   19
 
Asset retirement obligations
   69   68
 
Regulatory liabilities
   471   482
 
Price risk management liabilities
   38   32
 
Price risk management liabilities with affiliates
   2   
 
Other deferred credits and noncurrent liabilities
   105   104
 
Total Deferred Credits and Other Noncurrent Liabilities
   1,344   1,325
          
Commitments and Contingent Liabilities (Notes 6 and 10)      
          
Stockholder's Equity      
 
Common stock - no par value (a)
   424   424
 
Additional paid-in capital
   1,437   1,364
 
Earnings reinvested
   222   172
 
Total Equity
   2,083   1,960
          
Total Liabilities and Equity
 $ 5,299 $ 4,934

(a)75,000 shares authorized; 21,294 shares issued and outstanding at September 30, 2014 and December 31, 2013.  

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

 
31

 


 
 
CONDENSED STATEMENTS OF EQUITY
Louisville Gas and Electric Company            
(Unaudited)            
(Millions of Dollars)            
                 
    Common            
    stock            
    shares     Additional      
    outstanding  Common  paid-in  Earnings   
    (a)  stock  capital  reinvested  Total
                 
June 30, 2014
  21,294 $ 424 $ 1,417 $ 199 $ 2,040
Net income
           46   46
Capital contributions from LKE
        20      20
Cash dividends declared on common stock
           (23)   (23)
September 30, 2014
  21,294 $ 424 $ 1,437 $ 222 $ 2,083
                 
December 31, 2013
  21,294 $ 424 $ 1,364 $ 172 $ 1,960
Net income
           133   133
Capital contributions from LKE
        73      73
Cash dividends declared on common stock
           (83)   (83)
September 30, 2014
  21,294 $ 424 $ 1,437 $ 222 $ 2,083
                 
June 30, 2013
  21,294 $ 424 $ 1,332 $ 133 $ 1,889
Net income
           49   49
Cash dividends declared on common stock
           (19)   (19)
September 30, 2013
  21,294 $ 424 $ 1,332 $ 163 $ 1,919
                 
December 31, 2012
  21,294 $ 424 $ 1,278 $ 108 $ 1,810
Net income
           122   122
Capital contributions from LKE
        54      54
Cash dividends declared on common stock
           (67)   (67)
September 30, 2013
  21,294 $ 424 $ 1,332 $ 163 $ 1,919

(a)Shares in thousands.  All common shares of LG&E stock are owned by LKE.  

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

 
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(THIS PAGE LEFT BLANK INTENTIONALLY.)

 
33

 


 
 
CONDENSED STATEMENTS OF INCOME
Kentucky Utilities Company
(Unaudited)
(Millions of Dollars)
                
     Three Months Ended Nine Months Ended
     September 30, September 30,
     2014 2013 2014 2013
Operating Revenues            
 
Retail and wholesale
 $ 419 $ 412 $ 1,313 $ 1,223
 
Electric revenue from affiliate
   3   2   11   6
 
Total Operating Revenues
   422   414   1,324   1,229
                
Operating Expenses            
 Operation            
  
Fuel
   141   137   428   400
  
Energy purchases
   4   5   17   17
  
Energy purchases from affiliate
   13   11   74   46
  
Other operation and maintenance
   97   91   302   286
 
Depreciation
   50   46   145   138
 
Taxes, other than income
   7   6   20   18
 
Total Operating Expenses
   312   296   986   905
                
Operating Income
   110   118   338   324
                
Other Income (Expense) - net
   (1)   (2)   (1)   (1)
                
Interest Expense
   19   17   58   51
                
Income Before Income Taxes
   90   99   279   272
                
Income Taxes
   34   36   106   101
                
Net Income (a)
 $ 56 $ 63 $ 173 $ 171

(a)Net income approximates comprehensive income.

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

 
34

 


  
CONDENSED STATEMENTS OF CASH FLOWS
Kentucky Utilities Company
(Unaudited)
(Millions of Dollars)
           
     Nine Months Ended September 30,
     2014  2013
Cash Flows from Operating Activities       
 
Net income
 $ 173  $ 171
 Adjustments to reconcile net income to net cash provided by operating activities       
  
Depreciation
   145    138
  
Amortization
   8    9
  
Defined benefit plans - expense
   4    16
  
Deferred income taxes and investment tax credits
   129    73
  
Other
   11    (3)
 Change in current assets and current liabilities       
  
Accounts receivable
   (11)    (46)
  
Accounts payable
   6    25
  
Accounts payable to affiliates
   4    (9)
  
Unbilled revenues
   22    9
  
Fuel, materials and supplies
   (1)    (1)
  
Taxes payable
   (12)    39
  
Accrued interest
   18    15
  
Other
   (8)    (3)
 Other operating activities       
  
Defined benefit plans - funding
   (4)    (62)
  
Settlement of interest rate swaps
       49
  
Other assets
   (2)    (2)
  
Other liabilities
   4    1
   
Net cash provided by operating activities
   486    419
Cash Flows from Investing Activities       
 
Expenditures for property, plant and equipment
   (418)    (512)
 
Other investing activities
       2
   
Net cash provided by (used in) investing activities
   (418)    (510)
Cash Flows from Financing Activities       
 
Net increase (decrease) in short-term debt
   (20)    70
 
Debt issuance and credit facility costs
   (1)    
 
Payment of common stock dividends to parent
   (112)    (83)
 
Contributions from parent
   66    92
   
Net cash provided by (used in) financing activities
   (67)    79
Net Increase (Decrease) in Cash and Cash Equivalents
   1    (12)
Cash and Cash Equivalents at Beginning of Period
   21    21
Cash and Cash Equivalents at End of Period
 $ 22  $ 9

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

 
35

 


 
 
CONDENSED BALANCE SHEETS
Kentucky Utilities Company
(Unaudited)
(Millions of Dollars, shares in thousands)
          
     September 30, December 31,
     2014 2013
Assets      
          
Current Assets      
 
Cash and cash equivalents
 $ 22 $ 21
 Accounts receivable (less reserve: 2014, $3; 2013, $4)      
  
Customer
   126   122
  
Other
   8   9
 
Unbilled revenues
   73   95
 
Fuel, materials and supplies
   125   124
 
Prepayments
   11   4
 
Regulatory assets
   2   10
 
Other current assets
   3   6
 
Total Current Assets
   370   391
          
Property, Plant and Equipment      
 
Regulated utility plant
   5,793   5,143
 
Less: accumulated depreciation - regulated utility plant
   567   446
  
Regulated utility plant, net
   5,226   4,697
 
Other, net
   1   1
 
Construction work in progress
   897   1,139
 
Property, Plant and Equipment, net
   6,124   5,837
          
Other Noncurrent Assets      
 
Regulatory assets
   176   171
 
Goodwill
   607   607
 
Other intangibles
   83   101
 
Price risk management assets from affiliates
   3   
 
Other noncurrent assets
   59   56
 
Total Other Noncurrent Assets
   928   935
          
Total Assets
 $ 7,422 $ 7,163

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

 
36

 


 
 
CONDENSED BALANCE SHEETS
Kentucky Utilities Company
(Unaudited)
(Millions of Dollars, shares in thousands)
     September 30, December 31,
     2014 2013
Liabilities and Equity      
          
Current Liabilities      
 
Short-term debt
 $ 130 $ 150
 
Accounts payable
   166   159
 
Accounts payable to affiliates
   29   25
 
Customer deposits
   27   26
 
Taxes
   21   33
 
Regulatory liabilities
   2   5
 
Interest
   29   11
 
Other current liabilities
   38   36
 
Total Current Liabilities
   442   445
          
Long-term Debt
   2,091   2,091
          
Deferred Credits and Other Noncurrent Liabilities      
 
Deferred income taxes
   786   658
 
Investment tax credits
   95   97
 
Accrued pension obligations
   2   11
 
Asset retirement obligations
   206   177
 
Regulatory liabilities
   539   551
 
Price risk management liabilities with affiliates
   2   
 
Other deferred credits and noncurrent liabilities
   89   89
 
Total Deferred Credits and Other Noncurrent Liabilities
   1,719   1,583
          
Commitments and Contingent Liabilities (Notes 6 and 10)      
          
Stockholder's Equity      
 
Common stock - no par value (a)
   308   308
 
Additional paid-in capital
   2,571   2,505
 
Accumulated other comprehensive income (loss)
      1
 
Earnings reinvested
   291   230
 
Total Equity
   3,170   3,044
          
Total Liabilities and Equity
 $ 7,422 $ 7,163

(a)80,000 shares authorized; 37,818 shares issued and outstanding at September 30, 2014 and December 31, 2013.  

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

 
37

 


 
 
CONDENSED STATEMENTS OF EQUITY
Kentucky Utilities Company            
(Unaudited)            
(Millions of Dollars)            
                  
  Common          Accumulated   
  stock          other   
  shares    Additional    comprehensive   
  outstanding Common paid-in Earnings income   
  (a) stock capital reinvested (loss) Total
                  
June 30, 2014
  37,818 $ 308 $ 2,571 $ 261    $ 3,140
Net income
           56      56
Cash dividends declared on common stock
           (26)      (26)
September 30, 2014
  37,818 $ 308 $ 2,571 $ 291    $ 3,170
                  
December 31, 2013
  37,818 $ 308 $ 2,505 $ 230 $ 1 $ 3,044
Net income
           173      173
Capital contributions from LKE
        66         66
Cash dividends declared on common stock
           (112)      (112)
Other comprehensive income (loss)
              (1)   (1)
September 30, 2014
  37,818 $ 308 $ 2,571 $ 291 $  $ 3,170
                  
June 30, 2013
  37,818 $ 308 $ 2,440 $ 179 $ 1 $ 2,928
Net income
           63      63
Cash dividends declared on common stock
           (28)      (28)
September 30, 2013
  37,818 $ 308 $ 2,440 $ 214 $ 1 $ 2,963
                  
December 31, 2012
  37,818 $ 308 $ 2,348 $ 126 $ 1 $ 2,783
Net income
           171      171
Capital contributions from LKE
        92         92
Cash dividends declared on common stock
           (83)      (83)
September 30, 2013
  37,818 $ 308 $ 2,440 $ 214 $ 1 $ 2,963

(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.

 
38

 


 
 

Combined Notes to Condensed Financial Statements (Unaudited)


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 their 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 footnotes 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, 2013 is derived from that Registrant's 2013 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 2013 Form 10-K.  The results of operations for the three and nine months ended September 30, 2014 are not necessarily indicative of the results to be expected for the full year ending December 31, 2014 or other future periods, because results for interim periods can be disproportionately influenced by various factors, developments and seasonal variations.

The classification of certain prior period amounts has been changed to conform to the presentation in the September 30, 2014 financial statements.

(PPL and PPL Energy Supply)

"Income (Loss) from Discontinued Operations (net of income taxes)" on the Statements of Income includes the activities of PPL Montana's hydroelectric generating facilities expected to be sold in the fourth quarter of 2014.  "Assets of discontinued operations" on the Balance Sheet at September 30, 2014, includes the related assets.  Corresponding amounts at December 31, 2013, have not been reclassified on the Balance Sheet as of that date.  See Note 8 for additional information.  The Statements of Cash Flows do not separately report the cash flows of the Discontinued Operations.

(PPL Energy Supply)

During the three and nine months ended September 30, 2014, PPL Energy Supply recorded $14 million ($9 million after-tax) and $17 million ($11 million after-tax) increases to "Energy-related businesses" revenues on the 2014 Statement of Income related to prior periods and the timing of revenue recognition for a mechanical contracting and engineering subsidiary.  The impact of the errors is not material to the previously-issued financial statements and is not expected to be material to the full year results for 2014.       

2.  Summary of Significant Accounting Policies

(All Registrants)

The following accounting policy disclosures represent updates to Note 1 in each Registrant's 2013 Form 10-K and should be read in conjunction with those disclosures.

Accounts Receivable (PPL, PPL Energy Supply and PPL Electric)

In accordance with a PUC-approved purchase of accounts receivable program designed to facilitate competitive markets for electricity in Pennsylvania, PPL Electric purchases certain accounts receivable from alternative electricity suppliers (including PPL EnergyPlus) 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. ��The purchased accounts receivable are initially recorded at fair value using a market approach based on the purchase price paid and are classified as Level 2 in the fair value hierarchy.  During the three and nine months ended September 30, 2014, PPL Electric purchased $260 million and $874 million of accounts receivable from unaffiliated third parties and $77 million and $261 million from

 
39

 


PPL EnergyPlus.  During the three and nine months ended September 30, 2013, PPL Electric purchased $259 million and $738 million of accounts receivable from unaffiliated third parties and $75 million and $222 million from PPL EnergyPlus.       

New Accounting Guidance Adopted (All Registrants)

Accounting for Obligations Resulting from Joint and Several Liability Arrangements

Effective January 1, 2014, the Registrants retrospectively adopted accounting guidance for the recognition, measurement and disclosure of certain obligations resulting from joint and several liability arrangements when the amount of the obligation is fixed at the reporting date.  If the obligation is determined to be in the scope of this guidance, it will be measured as the sum of the amount the reporting entity agreed to pay on the basis of its arrangements among its co-obligors and any additional amount the reporting entity expects to pay on behalf of its co-obligors.  This guidance also requires additional disclosures for these obligations.

The adoption of this guidance did not have a significant impact on the Registrants.

Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity

Effective January 1, 2014, PPL prospectively adopted accounting guidance that requires a cumulative translation adjustment to be released into earnings when an entity ceases to have a controlling financial interest in a subsidiary or group of assets within a consolidated foreign entity and the sale or transfer results in the complete or substantially complete liquidation of the foreign entity.  For the step acquisition of previously held equity method investments that are foreign entities, this guidance clarifies that the amount of accumulated other comprehensive income that is reclassified and included in the calculation of a gain or loss shall include any foreign currency translation adjustment related to that previously held investment.

The initial adoption of this guidance did not have a significant impact on PPL; however, the impact in future periods could be material. 

Presentation of Unrecognized Tax Benefits When Net Operating Loss Carryforwards, Similar Tax Losses, or Tax Credit Carryforwards Exist

Effective January 1, 2014, the Registrants prospectively adopted accounting guidance that requires an unrecognized tax benefit, or a portion of an unrecognized tax benefit, to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward.  To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position, or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets.

The adoption of this guidance did not have a significant impact on the Registrants.    

3.  Segment and Related Information

(PPL)

See Note 2 in PPL's 2013 Form 10-K for a discussion of reportable segments and related information.

In June 2014, PPL and PPL Energy Supply, which primarily represents PPL's Supply segment, executed definitive agreements with affiliates of Riverstone to combine their competitive power generation businesses into a new, stand-alone, publicly traded company named Talen Energy.  The transaction is expected to close in the first or second quarter of 2015.  Upon completion of this transaction, PPL will no longer have a Supply segment.  See Note 8 for additional information.

Financial data for the segments and reconciliation to PPL's consolidated results for the periods ended September 30 are:       

 
40

 



      Three Months Nine Months
  2014 2013 2014 2013
Income Statement Data            
Revenues from external customers            
 U.K. Regulated $ 644 $ 543 $ 1,964 $ 1,763
 Kentucky Regulated   753   744   2,409   2,226
 Pennsylvania Regulated   477   463   1,516   1,388
 Supply (a)   1,571   1,321   1,575   3,516
 Corporate and Other   4   3   12   9
Total $ 3,449 $ 3,074 $ 7,476 $ 8,902
                 
Intersegment electric revenues            
 Supply $ 20 $ 11 $ 68 $ 37
                 
Net Income Attributable to PPL Shareowners            
 U.K. Regulated (a) $ 295 $ 183 $ 688 $ 741
 Kentucky Regulated   82   93   247   227
 Pennsylvania Regulated   57   51   194   160
 Supply (a)   86   91   16   122
 Corporate and Other (b)   (23)   (8)   (103)   (22)
Total $ 497 $ 410 $ 1,042 $ 1,228

   September 30, December 31,
   2014 2013
Balance Sheet Data      
Assets      
 U.K. Regulated $ 16,543 $ 15,895
 Kentucky Regulated   12,493   12,016
 Pennsylvania Regulated   7,355   6,846
 Supply   11,210   11,408
 Corporate and Other (c)   588   94
Total assets $ 48,189 $ 46,259

(a)
Includes unrealized gains and losses from economic activity.  See Note 14 for additional information.
(b)2014 includes certain costs related to the anticipated spinoff of PPL Energy Supply, including deferred income tax expense, third party transaction costs, and separation benefits.  See Note 8 for additional information.
(c)Primarily consists of unallocated items, including cash, PP&E and the elimination of inter-segment transactions.            

4.  Earnings Per Share

(PPL)

Basic EPS is computed by dividing income available to PPL common shareowners by the weighted-average number of common shares outstanding during the applicable period.  Diluted EPS is computed by dividing income available to PPL common shareowners by the weighted-average number of common shares outstanding, increased by incremental shares that would be outstanding if potentially dilutive non-participating securities were converted to common shares as calculated using the Treasury Stock method or the If-Converted Method, as applicable.  Incremental non-participating securities that have a dilutive impact are detailed in the table below.

Reconciliations of the amounts of income and shares of PPL common stock (in thousands) for the periods ended September 30 used in the EPS calculation are:          

     Three Months Nine Months
     2014 2013 2014 2013
Income (Numerator)            
Income from continuing operations after income taxes attributable to PPL            
 shareowners $ 490 $ 403 $ 1,032 $ 1,198
Less amounts allocated to participating securities   2   2   5   6
Income from continuing operations after income taxes available to PPL            
 common shareowners - Basic   488   401   1,027   1,192
Plus interest charges (net of tax) related to Equity Units (a)      7   9   37
Income from continuing operations after income taxes available to PPL            
 common shareowners - Diluted $ 488 $ 408 $ 1,036 $ 1,229
                
Income (loss) from discontinued operations (net of income taxes) available            
 to PPL common shareowners - Basic and Diluted $ 7 $ 7 $ 10 $ 30

 
41

 


     Three Months Nine Months
     2014 2013 2014 2013
Net income attributable to PPL shareowners $ 497 $ 410 $ 1,042 $ 1,228
Less amounts allocated to participating securities   2   2   5   6
Net income available to PPL common shareowners - Basic   495   408   1,037   1,222
Plus interest charges (net of tax) related to Equity Units (a)      7   9   37
Net income available to PPL common shareowners - Diluted $ 495 $ 415 $ 1,046 $ 1,259
                
Shares of Common Stock (Denominator)            
Weighted-average shares - Basic EPS   664,432   631,046   649,561   601,275
Add incremental non-participating securities:            
  Share-based payment awards   1,970   1,163   1,860   1,035
  Equity Units (a)      32,134   14,080   59,171
  Forward sale agreements            613
Weighted-average shares - Diluted EPS   666,402   664,343   665,501   662,094
                
Basic EPS            
Available to PPL common shareowners:            
  Income from continuing operations after income taxes $ 0.73 $ 0.64 $ 1.58 $ 1.98
  Income (loss) from discontinued operations (net of income taxes)   0.01   0.01   0.02   0.05
  Net Income Available to PPL common shareowners $ 0.74 $ 0.65 $ 1.60 $ 2.03
                
Diluted EPS            
Available to PPL common shareowners:            
  Income from continuing operations after income taxes $ 0.73 $ 0.61 $ 1.56 $ 1.86
  Income (loss) from discontinued operations (net of income taxes)   0.01   0.01   0.01   0.04
  Net Income Available to PPL common shareowners $ 0.74 $ 0.62 $ 1.57 $ 1.90

(a)
The If-Converted Method was applied to the Equity Units prior to settlement.  See Note 7 for additional information on the 2011 Equity Units, including the issuance of PPL common stock on May 1, 2014 to settle the 2011 Purchase Contracts.               

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

  Three Months Nine Months
    2014 2013 2014 2013
               
Stock-based compensation plans (a)   210   85   2,228   1,469
ESOP            275
DRIP   425      425   549

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

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

  Three Months Nine Months
  2014 2013 2014 2013
             
Stock options   527   1,136   1,901   4,793
Performance units      1      73
Restricted stock units         41   39

5.  Income Taxes

Reconciliations of income taxes for the periods ended September 30 are:     

 
42

 



(PPL)
                 
      Three Months Nine Months
      2014 2013 2014 2013
             
Federal income tax on Income from Continuing Operations Before            
 Income Taxes at statutory tax rate - 35% $ 264 $ 170 $ 543 $ 535
Increase (decrease) due to:            
  State income taxes, net of federal income tax benefit   27   11   21   27
  State valuation allowance adjustments (a)   3   38   49   38
  Impact of lower U.K. income tax rates (b)   (50)   (38)   (126)   (101)
  U.S. income tax on foreign earnings - net of foreign tax credit (c)   26   10   47   5
  Federal and state tax reserve adjustments (d)   (1)   (1)      (41)
  Federal and state income tax return adjustments   2   (4)   2   (4)
  Impact of the U.K. Finance Acts on deferred tax balances (b)      (93)      (93)
  Federal income tax credits      (3)   (3)   (8)
  Amortization of investment tax credit   (1)      (5)   (5)
  Depreciation not normalized   (3)   (2)   (7)   (6)
  Intercompany interest on U.K. financing entities   (2)   (2)   (6)   (7)
  Other      (5)   5   (11)
   Total increase (decrease)   1   (89)   (23)   (206)
Total income taxes $ 265 $ 81 $ 520 $ 329

(a)
As a result of the PPL Energy Supply spinoff announcement, PPL recorded deferred income tax expense during the three and nine months ended September 30, 2014 to adjust valuation allowances on deferred tax assets primarily for state net operating loss carryforwards that were previously supported by the future earnings of PPL Energy Supply.  See Note 8 for additional information on the anticipated spinoff.

 During the three and nine months ended September 30, 2013, PPL recorded an increase in state deferred income tax expense related to a deferred tax valuation allowance primarily due to a decrease in projected future taxable income over the remaining carryforward period of Pennsylvania net operating losses.   
(b)The U.K.'s Finance Act of 2013, enacted in July 2013, reduced the U.K. statutory income tax rate from 23% to 21%, effective April 1, 2014 and from 21% to 20% effective April 1, 2015.  As a result, PPL reduced its net deferred tax liabilities and recognized a deferred tax benefit in the third quarter of 2013 related to both rate decreases.   
(c)For the three and nine months ended September 30, 2014, PPL recorded $19 million and $40 million increases to income tax expense primarily attributable to the expected taxable amount of cash repatriation in 2014.

 During the three and nine months ended September 30, 2013, PPL recorded $10 million and $24 million increases to income tax expense primarily attributable to a revision in the expected taxable amount of cash repatriation in 2013.  

 During the nine months ended September 30, 2013, PPL recorded a tax benefit of $19 million associated with a ruling obtained from the IRS impacting the recalculation of 2010 U.K. earnings and profits that was reflected on an amended 2010 U.S. tax return.
(d)In 1997, the U.K. imposed a Windfall Profits Tax (WPT) on privatized utilities, including WPD.  PPL filed its tax returns for years subsequent to its 1997 and 1998 claims for refund on the basis that the U.K. WPT was creditable.  In September 2010, the U.S. Tax Court (Tax Court) ruled in PPL's favor in a dispute with the IRS, concluding that the U.K. WPT is a creditable tax for U.S. tax purposes.  In January 2011, the IRS appealed the Tax Court's decision to the U.S. Court of Appeals for the Third Circuit (Third Circuit).  In December 2011, the Third Circuit issued its opinion reversing the Tax Court's decision, holding that the U.K. WPT is not a creditable tax.  As a result of the Third Circuit's adverse determination, PPL recorded a $39 million expense in 2011.  In June 2012, the U.S. Court of Appeals for the Fifth Circuit issued a contrary opinion in an identical case involving another company.  In July 2012, PPL filed a petition for a writ of certiorari seeking U.S. Supreme Court review of the Third Circuit's opinion.  The Supreme Court granted PPL's petition and oral argument was held in February 2013.  In May 2013, the Supreme Court reversed the Third Circuit's opinion and ruled that the WPT is a creditable tax.  As a result of the Supreme Court ruling, PPL recorded a tax benefit of $44 million during the nine months ended September 30, 2013, of which $19 million relates to interest.          

(PPL Energy Supply)            
                 
      Three Months Nine Months
      2014 2013 2014 2013
Federal income tax on Income from Continuing Operations Before            
 Income Taxes at statutory tax rate - 35% $ 59 $ 67 $ 19 $ 83
Increase (decrease) due to:            
  State income taxes, net of federal income tax benefit   16   6   (3)   8
  State valuation allowance adjustments      4      4
  Federal and state tax reserve adjustments   (1)         6
  Federal income tax credits   (3)   (3)   (5)   (6)
  State deferred tax rate change         3   
  Other   3   (3)   2   (4)
   Total increase (decrease)   15   4   (3)   8
Total income taxes $ 74 $ 71 $ 16 $ 91

 
43

 



(PPL Electric)            
             
      Three Months Nine Months
      2014 2013 2014 2013
                 
Federal income tax on Income Before Income Taxes at statutory            
 tax rate - 35% $ 33 $ 27 $ 110 $ 85
Increase (decrease) due to:            
  State income taxes, net of federal income tax benefit   5   5   17   13
  Federal and state tax reserve adjustments      (2)   (1)   (6)
  Depreciation not normalized   (2)   (2)   (5)   (6)
  Other   1   (2)      (3)
   Total increase (decrease)   4   (1)   11   (2)
Total income taxes $ 37 $ 26 $ 121 $ 83

(LKE)            
                 
      Three Months Nine Months
      2014 2013 2014 2013
             
Federal income tax on Income from Continuing Operations Before            
 Income Taxes at statutory tax rate - 35% $ 51 $ 56 $ 153 $ 144
Increase (decrease) due to:            
  State income taxes, net of federal income tax benefit   6   6   16   14
  Amortization of investment tax credit   (1)   (1)   (3)   (3)
  Other   (1)   (2)   (1)   (2)
   Total increase (decrease)   4   3   12   9
Total income taxes $ 55 $ 59 $ 165 $ 153

(LG&E)            
                 
      Three Months Nine Months
      2014 2013 2014 2013
             
Federal income tax on Income Before Income Taxes at statutory            
  tax rate - 35% $ 26 $ 27 $ 74 $ 67
Increase (decrease) due to:            
  State income taxes, net of federal income tax benefit   3   3   8   7
  Other   (2)   (3)   (4)   (5)
   Total increase (decrease)   1      4   2
Total income taxes $ 27 $ 27 $ 78 $ 69

(KU)            
                 
      Three Months Nine Months
      2014 2013 2014 2013
             
Federal income tax on Income Before Income Taxes at statutory            
 tax rate - 35% $ 32 $ 35 $ 98 $ 95
Increase (decrease) due to:            
  State income taxes, net of federal income tax benefit   3   4   10   10
  Other   (1)   (3)   (2)   (4)
   Total increase (decrease)   2   1   8   6
Total income taxes $ 34 $ 36 $ 106 $ 101

6.  Utility Rate Regulation

(All Registrants except PPL Energy Supply)

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

 
44

 



   PPL PPL Electric
   September 30, December 31, September 30, December 31,
   2014 2013 2014 2013
              
Current Regulatory Assets:            
 Environmental cost recovery $ 3 $ 7      
 Gas supply clause   20   10      
 Fuel adjustment clause      2      
 Demand side management      8      
 Other   5   6 $ 3 $ 6
Total current regulatory assets $ 28 $ 33 $ 3 $ 6
              
Noncurrent Regulatory Assets:            
 Defined benefit plans $ 486 $ 509 $ 250 $ 257
 Taxes recoverable through future rates   313   306   313   306
 Storm costs   130   147   47   53
 Unamortized loss on debt   79   85   51   57
 Interest rate swaps   54   44      
 Accumulated cost of removal of utility plant   111   98   111   98
 AROs   72   44      
 Other   8   13      1
Total noncurrent regulatory assets $ 1,253 $ 1,246 $ 772 $ 772

Current Regulatory Liabilities:            
 Generation supply charge $ 33 $ 23 $ 33 $ 23
 Gas supply clause   4   3      
 Transmission service charge   2   8   2   8
 Fuel adjustment clause   1   4      
 Transmission formula rate   42   20   42   20
 Universal service rider      10      10
 Storm damage expense   1   14   1   14
 Gas line tracker   5   6      
 Other   4   2   3   1
Total current regulatory liabilities $ 92 $ 90 $ 81 $ 76
              
Noncurrent Regulatory Liabilities:            
 Accumulated cost of removal of utility plant $ 697 $ 688      
 Coal contracts (a)   69   98      
 Power purchase agreement - OVEC (a)   94   100      
 Net deferred tax assets   27   30      
 Act 129 compliance rider   18   15 $ 18 $ 15
 Defined benefit plans   29   26      
 Interest rate swaps   90   86      
 Other   4   5      
Total noncurrent regulatory liabilities $ 1,028 $ 1,048 $ 18 $ 15

   LKE LG&E KU
   September 30, December 31, September 30, December 31, September 30, December 31,
   2014 2013 2014 2013 2014 2013
                    
Current Regulatory Assets:                  
 Environmental cost recovery $ 3 $ 7 $ 3 $ 2    $ 5
 Gas supply clause   20   10   20   10      
 Fuel adjustment clause      2      2      
 Demand side management      8      3      5
 Other   2          $ 2   
Total current regulatory assets $ 25 $ 27 $ 23 $ 17 $ 2 $ 10
                    
Noncurrent Regulatory Assets:                  
 Defined benefit plans $ 236 $ 252 $ 159 $ 164 $ 77 $ 88
 Storm costs   83   94   45   51   38   43
 Unamortized loss on debt   28   28   18   18   10   10
 Interest rate swaps   54   44   52   44   2   
 AROs   72   44   27   21   45   23
 Other   8   12   4   5   4   7
Total noncurrent regulatory assets $ 481 $ 474 $ 305 $ 303 $ 176 $ 171

Current Regulatory Liabilities:                  
  Gas supply clause $ 4 $ 3 $ 4 $ 3      
  Fuel adjustment clause   1   4       $ 1 $ 4
  Gas line tracker   5   6   5   6      
  Other   1   1         1   1
Total current regulatory liabilities $ 11 $ 14 $ 9 $ 9 $ 2 $ 5

 
45

 
  LKE LG&E KU
  September 30, December 31, September 30, December 31, September 30, December 31,
  2014 2013 2014 2013 2014 2013
Noncurrent Regulatory Liabilities:                  
 Accumulated cost of removal                  
  of utility plant $ 697 $ 688 $ 305 $ 299 $ 392 $ 389
 Coal contracts (a)   69   98   30   43   39   55
 Power purchase agreement - OVEC (a)   94   100   65   69   29   31
 Net deferred tax assets   27   30   24   26   3   4
 Defined benefit plans   29   26         29   26
 Interest rate swaps   90   86   45   43   45   43
 Other   4   5   2   2   2   3
Total noncurrent regulatory liabilities $ 1,010 $ 1,033 $ 471 $ 482 $ 539 $ 551

(a)
These liabilities were recorded as offsets to certain intangible assets that were recorded at fair value upon the acquisition of LKE by PPL.                  

Regulatory Matters

U. K. Activities (PPL)

Ofgem Review of Line Loss Calculation

In March 2014, Ofgem issued its final decision on the DPCR4 line loss incentives and penalties mechanism.  As a result, during the first quarter of 2014 WPD increased its existing liability by $65 million for over-recovery of line losses with a reduction to "Utility" revenues on the Statement of Income.  The total recorded liability at September 30, 2014 was $105 million, all of which will be refunded to customers from April 1, 2015 through March 31, 2019.  The recorded liability at December 31, 2013 was $74 million.  Other activity impacting the liability included reductions in the liability that have been included in tariffs and foreign exchange movements.  In June 2014, WPD applied for judicial review of certain of Ofgem's decisions related to closing out the DPCR4 line loss mechanism.  The court has set a hearing for November 20, 2014 to hear WPD's application for permission to seek judicial review.  The primary relief sought is for Ofgem to reconsider the overall proportionality of penalties imposed on WPD.  The entire process could last through the second quarter of 2015.  PPL cannot predict the outcome of this matter.      

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

CPCN Filings

In January 2014, LG&E and KU filed an application for a CPCN with the KPSC requesting approval to build an NGCC generating unit, Green River Unit 5, at KU's Green River generating site and a solar generating facility at the E. W. Brown generating site.  In April 2014, LG&E and KU filed a motion to hold further proceedings in abeyance to allow the companies to assess the potential impact of certain events on their future capacity needs, including the receipt of termination notices to be generally effective in 2019 from certain KU municipal wholesale customers.  In August 2014, LG&E and KU submitted a motion to withdraw their request to construct the Green River NGCC and the KPSC issued an order granting that request.  LG&E's and KU's CPCN application continues to request approval to construct the E. W. Brown solar generating facility.  LG&E and KU entered into a stipulation in this proceeding agreeing to certain matters with some interveners.  A hearing is scheduled to be held in November 2014, and a final order is anticipated before the end of the year.  See "Federal Matters - FERC Wholesale Formula Rates" below for additional information relating to the municipal wholesale customers.

Rate Case Proceedings

On November 4, 2014, LG&E and KU announced that on November 26, 2014, they anticipate filing requests with the KPSC for increases in annual base electricity rates of approximately $30 million at LG&E and approximately $153 million at KU and an increase in annual base gas rates of approximately $14 million at LG&E.  The proposed base rate increases would result in electricity rate increases of 2.7% at LG&E and 9.6% at KU and a gas rate increase of 4.2% at LG&E and would become effective in July 2015.  LG&E's and KU's applications each include a request for authorized returns-on-equity of 10.50%.  The applications are based on a forecasted test year of July 1, 2015 through June 30, 2016.  LG&E and KU cannot predict the outcome of these proceedings.   

 
46

 



Pennsylvania Activities (PPL and PPL Electric)

Storm Damage Expense Rider

In its December 2012 final rate case order, the PUC directed PPL Electric to file a proposed Storm Damage Expense Rider (SDER).  In March 2013, PPL Electric filed its proposed SDER with the PUC and, as part of that filing, requested recovery of the 2012 qualifying storm costs related to Hurricane Sandy.  PPL Electric proposed that the SDER become effective January 1, 2013 at a zero rate with qualifying storm costs incurred in 2013 and the 2012 Hurricane Sandy costs included in rates effective January 1, 2014.  As of December 31, 2013, PPL Electric had a $14 million regulatory liability balance for amounts expected to be refunded to customers for revenues collected to cover storm costs in excess of actual storm costs incurred during 2013.  In April 2014, the PUC issued a final order approving the SDER.  The SDER will be effective January 1, 2015 and initially include actual storm costs compared to collections from December 2013 through November 2014.  As a result of the order, PPL Electric reduced its regulatory liability by $12 million.  Also, as part of the order, PPL Electric can recover Hurricane Sandy storm damage costs through the SDER over a three-year period beginning January 2015.  On June 20, 2014, the Office of Consumer Advocate filed a petition for review of the April 2014 order with the Commonwealth Court of Pennsylvania.  The case remains pending.  See "Storm Costs" below for additional information on Hurricane Sandy costs.

Storm Costs

In February 2013, PPL Electric received an order from the PUC granting permission to defer qualifying costs in excess of insurance recoveries associated with Hurricane Sandy.  At September 30, 2014 and December 31, 2013, $29 million was included on the Balance Sheets as a regulatory asset.

Act 129

Act 129 requires Pennsylvania Electric Distribution Companies (EDCs) to meet specified goals for reduction in customer electricity usage and peak demand by specified dates.  EDCs not meeting the requirements of Act 129 are subject to significant penalties.

Act 129 requires Default Service Providers (DSP) to provide electricity generation supply service to customers pursuant to a PUC-approved default service procurement plan through auctions, requests for proposal and bilateral contracts at the sole discretion of the DSP.  Act 129 requires a mix of spot market purchases, short-term contracts and long-term contracts (4 to 20 years), with long-term contracts limited to 25% of load unless otherwise approved by the PUC.  A DSP is able to recover the costs associated with its default service procurement plan.

In January 2013, the PUC approved PPL Electric's DSP procurement plan for the period June 1, 2013 through May 31, 2015.  In April 2014, PPL Electric filed a new DSP procurement plan with the PUC for the period June 1, 2015 through May 31, 2017.  In September 2014, the parties filed with the presiding Administrative Law Judge a partial settlement resolving all but two issues in the proceeding related to the structure of the DSP, without direct financial impact on PPL Electric.  The parties filed briefs on those two issues.  In October 2014, a Recommended Decision was issued approving the partial settlement.  This proceeding remains pending before the PUC but is not expected to have a material impact on PPL Electric.
 
Smart Meter Rider

Act 129 also requires installation of smart meters for new construction, upon the request of consumers and at their cost, or on a depreciation schedule not exceeding 15 years.  Under Act 129, EDCs are able to recover the costs of providing smart metering technology.  All of PPL Electric's metered customers currently have advanced meters installed at their service locations capable of many of the functions required under Act 129.  PPL Electric conducted pilot projects and technical evaluations of its current advanced metering technology and concluded that the current technology does not meet all of the Act 129 requirements.  PPL Electric recovered the cost of its evaluations through a cost recovery mechanism, the Smart Meter Rider (SMR).  In August 2013, PPL Electric filed with the PUC an annual report describing the actions it was taking under its Smart Meter Plan during 2013 and its planned actions for 2014.  PPL Electric also submitted revised SMR charges that became effective January 1, 2014.  On June 30, 2014, PPL Electric filed its final Smart Meter Plan with the PUC.  In that plan, PPL Electric proposes to replace all of its current meters with advanced meters that meet the Act 129 requirements.  Full deployment of the new meters is expected to be complete by the end of 2019.  The total cost of the project is estimated to be approximately $450 million.  PPL Electric proposes to recover these costs through the SMR which the PUC previously has approved for recovery of such costs.  The PUC assigned PPL Electric's plan to an Administrative Law Judge for hearings and preparation of a recommended decision.  PPL Electric cannot predict the outcome of this proceeding.

 
47

 



Distribution System Improvement Charge

Act 11 authorizes 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, the use of a DSIC.  Such alternative ratemaking procedures and mechanisms provide opportunity for accelerated cost-recovery and, therefore, are important to PPL Electric as it begins a period of significant capital investment to maintain and enhance the reliability of its delivery system, including the replacement of aging distribution assets.  In August 2012, the PUC issued a Final Implementation Order adopting procedures, guidelines and a model tariff for the implementation of Act 11.  Act 11 requires utilities to file an LTIIP as a prerequisite to filing for recovery through the DSIC.  The LTIIP is mandated to be a five- to ten-year plan describing projects eligible for inclusion in the DSIC.

In September 2012, PPL Electric filed its LTIIP describing projects eligible for inclusion in the DSIC and, in an order entered on May 23, 2013, the PUC approved PPL Electric's proposed DSIC with an initial rate effective July 1, 2013, subject to refund after hearings.  The PUC also assigned four technical recovery calculation issues to the Office of Administrative Law Judge for hearing and preparation of a recommended decision.  In August 2014, the presiding Administrative Law Judge issued a recommended decision which would not have a significant impact on PPL Electric.  This matter remains pending before the PUC.

Federal Matters

FERC Formula Rates (PPL and PPL Electric)

Transmission rates are regulated by the FERC.  PPL Electric's transmission revenues are billed in accordance with a FERC-approved PJM open access transmission tariff that utilizes a formula-based rate recovery mechanism.  The formula rate is calculated, in part, based on financial results as reported in PPL Electric's annual FERC Form 1 filed under the FERC's Uniform System of Accounts.

PPL Electric initiated its formula rate 2012, 2011 and 2010 Annual Updates.  Each update was subsequently challenged by a group of municipal customers, whose challenges were opposed by PPL Electric.  Between 2011 and 2013, numerous hearings before the FERC and settlement conferences were convened in an attempt to resolve these matters.  Beginning in the second half of 2013, PPL Electric and the group of municipal customers exchanged confidential settlement proposals.  In September 2014, the parties filed a Joint Offer of Settlement with the FERC resolving all issues in the pending challenges, and including refunds of certain insignificant amounts to the municipalities.  The settlement judge certified the uncontested settlement to the FERC with a recommendation that it be approved.

FERC Wholesale Formula Rates (LKE and KU)

In September 2013, KU filed an application with the FERC to adjust the formula rate under which KU provides wholesale requirements power sales to 12 municipal customers.  Among other changes, the application requests an amended formula whereby KU would charge cost-based rates with a subsequent true-up to actual costs, replacing the current formula which does not include a true-up.  KU's application proposed an authorized return on equity of 10.7%.  Certain elements, including the new formula rate, became effective April 23, 2014, subject to refund.  In April 2014, nine municipalities submitted notices of termination, under the original notice period provisions, to cease taking power under the wholesale requirements contracts.  Such terminations are to be effective in 2019, except in the case of one municipality with a 2017 effective date.  In July 2014, KU agreed on settlement terms with the two municipal customers that did not provide termination notices and filed the settlement proposal with the FERC for its approval.  In August 2014, the FERC issued an order on the interim settlement agreement allowing the proposed rates to become effective pending a final order.  If approved, the settlement agreement will resolve the rate case with respect to these two municipalities, including an authorized return on equity of 10% or the return on equity awarded to other parties in this case, whichever is lower.  Also in July 2014, KU made a contractually required filing with the FERC that addressed certain rate recovery matters affecting the nine terminating municipalities during the remaining term of their contracts.  KU and the terminating municipalities continue settlement discussions in this proceeding.  KU cannot currently predict the outcome of its FERC applications regarding its wholesale power agreements with the municipalities.        

 
48

 



7.  Financing Activities

Credit Arrangements and Short-term Debt

(All Registrants)

The Registrants maintain credit facilities to enhance liquidity, provide credit support and provide a backstop to commercial paper programs.  For reporting purposes, on a consolidated basis, the credit facilities and commercial paper programs of PPL Energy Supply, 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 borrowed below are recorded as "Short-term debt" on the Balance Sheets.  The following credit facilities were in place at:            

       September 30, 2014 December 31, 2013
                Letters of      Letters of
                Credit Issued       Credit Issued
                and       and
                Commercial       Commercial
       Expiration      Paper Unused   Paper
        Date Capacity Borrowed Issued Capacity Borrowed Issued
PPL                    
U.K.                    
  PPL WW Syndicated                    
   Credit Facility Dec. 2016 £ 210 £ 97    £ 113 £ 103   
  WPD (South West)                    
   Syndicated Credit Facility July 2019   245         245      
  WPD (East Midlands)                    
   Syndicated Credit Facility July 2019   300         300      
  WPD (West Midlands)                    
   Syndicated Credit Facility July 2019   300         300      
  Uncommitted Credit Facilities     105    £ 5   100    £ 5
   Total U.K. Credit Facilities (a)   £ 1,160 £ 97 £ 5 £ 1,058 £ 103 £ 5
                           
U.S.                    
 PPL Capital Funding                    
  Syndicated Credit Facility July 2019 $ 300       $ 300      
  Syndicated Credit Facility (b) Nov. 2018   300         300 $ 270   
  Bilateral Credit Facility Mar. 2015   150         150      
  Uncommitted Credit Facility     65         65      
   Total PPL Capital Funding Credit Facilities $ 815       $ 815 $ 270   
                           
PPL Energy Supply                    
 Syndicated Credit Facility (b) Nov. 2017 $ 3,000 $ 590 $ 82 $ 2,328    $ 29
 Letter of Credit Facility Mar. 2015   150      113   37      138
 Uncommitted Credit Facilities     175      74   101      77
   Total PPL Energy Supply Credit Facilities  $ 3,325 $ 590 $ 269 $ 2,466    $ 244
                           
PPL Electric                    
 Syndicated Credit Facility July 2019 $ 300    $ 1 $ 299    $ 21
                           
LKE                    
 Syndicated Credit Facility (b) Oct. 2018 $ 75 $ 75       $ 75   
                           
LG&E                    
 Syndicated Credit Facility July 2019 $ 500    $ 143 $ 357    $ 20
                           
KU                    
 Syndicated Credit Facility July 2019 $ 400    $ 130 $ 270    $ 150
 Letter of Credit Facility (c) May 2016   198      198         198
   Total KU Credit Facilities   $ 598    $ 328 $ 270    $ 348

(a)
PPL WW's amounts borrowed at September 30, 2014 and December 31, 2013 were USD-denominated borrowings of $161 million and $166 million, which bore interest at 1.86% and 1.87%.  At September 30, 2014, the unused capacity under the U.K. credit facilities was $1.8 billion.  
(b)At September 30, 2014, interest rates on outstanding borrowings were 2.04% for PPL Energy Supply and 1.66% for LKE.  At December 31, 2013, interest rates on outstanding borrowings were 1.79% for PPL Capital Funding and 1.67% for LKE.  
(c)In October 2014, the KU letter of credit facility was terminated and replaced with a new letter of credit facility with the same capacity expiring October 2017.  

PPL Electric, LG&E and KU maintain commercial paper programs to provide an additional financing source to fund short-term liquidity needs, as necessary.  Commercial paper issuances, included in "Short-term debt" on the Balance Sheets, are

 
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supported by the respective Registrant's Syndicated Credit Facility.  The following commercial paper programs were in place at:       

       September 30, 2014 December 31, 2013
       Weighted -    Commercial   Weighted - Commercial
       Average    Paper Unused Average Paper
       Interest Rate Capacity Issuances Capacity Interest Rate Issuances
                        
 PPL Electric   $ 300    $ 300  0.23% $ 20
 LG&E 0.29%   350 $ 143   207  0.29%   20
 KU 0.29%   350   130   220  0.32%   150
   Total   $ 1,000 $ 273 $ 727    $ 190

In August 2014, PPL Energy Supply terminated its commercial paper program.

(PPL and PPL Energy Supply)

PPL Energy Supply maintains a $500 million Facility Agreement expiring June 2017, which provides PPL Energy Supply the ability to request up to $500 million of committed letter of credit capacity at fees to be agreed upon at the time of each request, based on certain market conditions.  At September 30, 2014, PPL Energy Supply had not requested any capacity for the issuance of letters of credit under this arrangement.

PPL Energy Supply, PPL EnergyPlus, PPL Montour and PPL Brunner Island maintain an $800 million secured energy marketing and trading facility, whereby PPL EnergyPlus will receive credit to be applied to satisfy collateral posting obligations related to its energy marketing and trading activities with counterparties participating in the facility.  The credit amount is guaranteed by PPL Energy Supply, PPL Montour and PPL Brunner Island.  PPL Montour and PPL Brunner Island have granted liens on their respective generating facilities to secure any amount they may owe under their guarantees.  The facility expires in November 2018, but is subject to automatic one-year renewals under certain conditions.  There were $59 million of secured obligations outstanding under this facility at September 30, 2014.

(PPL Electric and LKE)

See Note 11 for discussion of intercompany borrowings.

Long-term Debt and Equity Securities

(PPL)

In March 2014, PPL Capital Funding remarketed $978 million of 4.32% Junior Subordinated Notes due 2019 that were originally issued in April 2011 as a component of PPL's 2011 Equity Units.  In connection with the remarketing, PPL Capital Funding retired $228 million of the 4.32% Junior Subordinated Notes due 2019 and issued $350 million of 2.189% Junior Subordinated Notes due 2017 and $400 million of 3.184% Junior Subordinated Notes due 2019.  Simultaneously, the newly issued Junior Subordinated Notes were exchanged for $350 million of 3.95% Senior Notes due 2024 and $400 million of 5.00% Senior Notes due 2044.  The transaction was accounted for as a debt extinguishment, resulting in a $(9) million gain (loss) on extinguishment of the Junior Subordinated Notes, recorded to "Interest Expense" on the Statement of Income.  Except for the $228 million retirement of the 4.32% Junior Subordinated Notes and fees related to the transactions, the activity was non-cash and was excluded from the Statement of Cash Flows for the nine months ended September 30, 2014.  In May 2014, PPL issued 31.7 million shares of common stock at $30.86 per share to settle the 2011 Purchase Contracts.  PPL received net cash proceeds of $978 million, which were used to repay short-term debt and for general corporate purposes.

(PPL and PPL Energy Supply)

In August 2014, PPL Energy Supply repaid the entire $300 million principal amount of its 5.40% Senior Notes upon maturity.

(PPL and PPL Electric)

In June 2014, PPL Electric issued $300 million of 4.125% First Mortgage Bonds due 2044.  PPL Electric received proceeds of $294 million, net of a discount and underwriting fees, which were used for capital expenditures, to repay short-term debt and for general corporate purposes.

 
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Distributions (PPL)

In August 2014, PPL declared its quarterly common stock dividend, payable October 1, 2014, at 37.25 cents per share (equivalent to $1.49 per annum).  Future dividends, declared at the discretion of the Board of Directors, will be dependent upon future earnings, cash flows, financial and legal requirements and other factors.           

8.  Acquisitions, Development and Divestitures

(All Registrants)

The Registrants from time to time evaluate opportunities for potential acquisitions, divestitures and development projects.  Development projects are reexamined based on market conditions and other factors to determine whether to proceed with the projects, sell, cancel or expand them, execute tolling agreements or pursue other options.  Any resulting transactions may impact future financial results.  See Note 8 in the 2013 Form 10-K for additional information.       

Divestitures

Anticipated Spinoff of PPL Energy Supply

(PPL and PPL Energy Supply)

In June 2014, PPL and PPL Energy Supply executed definitive agreements with affiliates of Riverstone to combine their competitive power generation businesses into a new, stand-alone, publicly traded company named Talen Energy.  Under the terms of the agreements, at closing, PPL will spin off to PPL shareowners the parent of PPL Energy Supply, recently formed for purposes of this transaction, which by merging with a special purpose subsidiary of Talen Energy, will immediately thereafter become a subsidiary of Talen Energy.  Substantially contemporaneous with the spinoff and merger, RJS Power will be contributed, directly or indirectly, by its owners to become a subsidiary of Talen Energy.  Following completion of these transactions, PPL shareowners will own 65% of Talen Energy and affiliates of Riverstone will own 35%.  PPL will have no continuing ownership interest in, control of, or affiliation with Talen Energy and PPL's shareowners will receive a number of Talen Energy shares at closing based on the number of PPL shares owned as of the spinoff record date.  The spinoff will have no effect on the number of PPL common shares owned by PPL shareowners or the number of shares of PPL common stock outstanding.  The transaction is intended to be tax-free to PPL and its shareowners for U.S. federal income tax purposes and is subject to customary closing conditions, including receipt of certain regulatory approvals by the NRC, FERC, DOJ and PUC.  In addition, there must be available, subject to certain conditions, at least $1 billion of undrawn capacity after excluding any letters of credit or other credit support measures posted in connection with energy marketing and trading transactions then outstanding, under a Talen Energy (or its subsidiaries) revolving credit or similar facility.  The transaction is expected to close in the first or second quarter of 2015.

(PPL, PPL Energy Supply and PPL Electric)

Following the announcement of the transaction to form Talen Energy, efforts were initiated to identify the appropriate staffing for Talen Energy and for PPL and its subsidiaries following completion of the spinoff.  Organizational plans were substantially completed in the third quarter of 2014 and staffing selections are in progress and expected to be completed by the end of 2014.

The new organizational plans identify the need to resize and restructure the organizations of both PPL and PPL Energy Supply.  As a result, during the third quarter of 2014, estimated charges for employee separation benefits were recorded in "Other operation and maintenance" on the Statement of Income and in "Other current liabilities" on the Balance Sheet as follows.           

     PPL Energy PPL
  PPL Supply Electric
          
Separation benefits $30 $12 $1
Number of positions  265  100  10

The separation benefits incurred include cash severance compensation, lump sum COBRA reimbursement payments and outplacement services.  As staffing selections are completed, revisions to the estimated costs will be recognized primarily in the fourth quarter of 2014.

 
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Additional costs to be incurred include accelerated stock based compensation and pro-rated performance based cash incentive and stock based compensation awards primarily for PPL Energy Supply employees and for PPL employees who will become PPL Energy Supply employees in connection with the transaction.  These costs will be recognized at the spinoff closing date.  PPL and PPL Energy Supply estimate these additional costs will be in the range of $30 million to $40 million.

(PPL)

As a result of the spinoff announcement, PPL recorded $3 million and $49 million of deferred income tax expense during the three and nine months ended September 30, 2014, to adjust valuation allowances on deferred tax assets primarily for state net operating loss carryforwards that were previously supported by the future earnings of PPL Energy Supply.

In addition, PPL recorded $5 million and $21 million of third-party costs during the three and nine months ended September 30, 2014 related to this transaction primarily in "Other Income (Expense) - net" on the Statement of Income, for investment bank advisory, legal, consulting and accounting fees.  PPL currently estimates a range of total third-party costs that will ultimately be incurred of between $60 million and $70 million.