Utility Rate Regulation

(All Registrants)

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



	PPL				PPL Electric
	June 30, 2016		December 31, 2015		June 30, 2016		December 31, 2015
Current Regulatory Assets:
Environmental cost recovery	$	6	$	24	$	—	$	—
Generation formula rate	13		7		—		—
Transmission service charge	10		10		10		10
Other	5		7		2		3
Total current regulatory assets (a)	$	34	$	48	$	12	$	13



	PPL				PPL Electric
	June 30, 2016		December 31, 2015		June 30, 2016		December 31, 2015
Noncurrent Regulatory Assets:
Defined benefit plans	$	800	$	809	$	460	$	469
Taxes recoverable through future rates	331		326		331		326
Storm costs	79		93		23		30
Unamortized loss on debt	66		68		41		42
Interest rate swaps	148		141		—		—
Accumulated cost of removal of utility plant	139		137		139		137
AROs	187		143		—		—
Other	12		16		1		2
Total noncurrent regulatory assets	$	1,762	$	1,733	$	995	$	1,006



Current Regulatory Liabilities:
Generation supply charge	$	26	$	41	$	26	$	41
Demand side management	10		8		—		—
Gas supply clause	—		6		—		—
Universal service rider	6		5		6		5
Transmission formula rate	27		48		27		48
Fuel adjustment clause	10		14		—		—
Storm damage expense	14		16		14		16
Other	6		7		1		3
Total current regulatory liabilities	$	99	$	145	$	74	$	113

Noncurrent Regulatory Liabilities:
Accumulated cost of removal of utility plant	$	695	$	691	$	—	$	—
Coal contracts (b)	8		17		—		—
Power purchase agreement - OVEC (b)	79		83		—		—
Net deferred tax assets	24		23		—		—
Act 129 compliance rider	19		22		19		22
Defined benefit plans	27		24		—		—
Interest rate swaps	80		82		—		—
Other	3		3		—		—
Total noncurrent regulatory liabilities	$	935	$	945	$	19	$	22



	LKE				LG&E				KU
	June 30, 2016		December 31, 2015		June 30, 2016		December 31, 2015		June 30, 2016		December 31, 2015
Current Regulatory Assets:
Environmental cost recovery	$	6	$	24	$	6	$	13	$	—	$	11
Generation formula rate	13		7		—		—		13		7
Other	3		4		2		3		1		1
Total current regulatory assets	$	22	$	35	$	8	$	16	$	14	$	19



	LKE				LG&E				KU
	June 30, 2016		December 31, 2015		June 30, 2016		December 31, 2015		June 30, 2016		December 31, 2015
Noncurrent Regulatory Assets:
Defined benefit plans	$	340	$	340	$	215	$	215	$	125	$	125
Storm costs	56		63		31		35		25		28
Unamortized loss on debt	25		26		16		17		9		9
Interest rate swaps	148		141		106		98		42		43
AROs	187		143		70		57		117		86
Plant retirement costs	5		6		—		—		5		6
Other	6		8		2		2		4		6
Total noncurrent regulatory assets	$	767	$	727	$	440	$	424	$	327	$	303



Current Regulatory Liabilities:
Demand side management	$	10	$	8	$	5	$	4	$	5	$	4
Gas supply clause	—		6		—		6		—		—
Fuel adjustment clause	10		14		2		2		8		12
Other	5		4		1		1		4		3
Total current regulatory liabilities	$	25	$	32	$	8	$	13	$	17	$	19

Noncurrent Regulatory Liabilities:
Accumulated cost of removal of utility plant	$	695	$	691	$	304	$	301	$	391	$	390
Coal contracts (b)	8		17		3		7		5		10
Power purchase agreement - OVEC (b)	79		83		54		57		25		26
Net deferred tax assets	24		23		23		23		1		—
Defined benefit plans	27		24		—		—		27		24
Interest rate swaps	80		82		40		41		40		41
Other	3		3		3		2		—		1
Total noncurrent regulatory liabilities	$	916	$	923	$	427	$	431	$	489	$	492


(a)	These amounts are included in "Other current assets" on the Balance Sheets.


(b)	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 2014, Ofgem issued its final decision on the DPCR4 line loss incentives and penalties mechanism. WPD began refunding its liability for over-recovery of line losses to customers on April 1, 2015 and will continue through March 31, 2019. The liability at June 30, 2016 was $39 million.

Kentucky Activities

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

On January 29, 2016, LG&E and KU submitted applications to the KPSC for CPCNs and for ECR rate treatment regarding upcoming environmental construction projects relating to the EPA's regulations addressing the handling of coal combustion by-products and MATS. The construction projects are expected to begin in 2016 and continue through 2023 and are estimated to cost approximately $316 million at LG&E and $678 million at KU. On June 13, 2016, LG&E and KU filed a unanimous settlement agreement with intervenors in the proceedings. The proposed settlement provided for recovery of the costs incurred by LG&E and KU for the projects requested in the original applications, with adjustments for amortization or depreciation methods and periods for CCR impoundment projects. The proposed settlement also included the parties' support for LG&E's and KU's requested 10% authorized return on equity. On August 8, 2016, the KPSC issued an order approving the majority of the settlement's terms and provisions, but establishing a 9.8% authorized return on equity for these projects. Recovery of costs will commence with bills rendered on and after August 31, 2016.

Gas Franchise (LKE and LG&E)

LG&E’s existing gas franchise agreement for the Louisville/Jefferson County service area expired on March 31, 2016. Pursuant to Kentucky law, upon expiration of a franchise, LG&E retains a revocable license to own and operate its facilities and to provide service. LG&E submitted a bid for a new franchise agreement on June 9, 2016 and is awaiting action from the Louisville/Jefferson County Metro Council. On July 28, 2016, Metro Council introduced an ordinance to award the bid to LG&E and assigned the ordinance to committee for review and recommendation. In the interim, LG&E continues to provide gas service to customers in this service area at existing rates, but without collecting or remitting a franchise fee. LG&E cannot predict the outcome of this matter but does not anticipate that it will have a material effect on its financial condition or results of operation.

Pennsylvania Activities (PPL and PPL Electric)

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. In November 2015, PPL Electric filed with the PUC its Act 129 Phase III Energy Efficiency and Conservation Plan for the period June 1, 2016 through May 31, 2021. In January 2016, PPL Electric and the other parties reached a settlement of all major issues in the case and filed that settlement with the Administrative Law Judge. In June 2016, the PUC issued a final order approving PPL Electric's Phase III Plan as modified by the settlement, allowing PPL Electric to recover a maximum $313 million in program cost over the five-year period June 1, 2016 through May 31, 2021 through the Act 129 compliance rider.

Act 129 also 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.

PPL Electric has received PUC approval of biannual DSP procurement plans for all periods required under Act 129. In January 2016, PPL Electric filed a Petition for Approval of a new DSP procurement plan with the PUC for the period June 1, 2017 through May 31, 2021. The parties have reached a settlement on all but one issue in the proceeding. A partial settlement agreement and briefs on the litigated issue were submitted to the Administrative Law Judge in July 2016. This proceeding remains pending before the PUC. PPL Electric cannot predict the outcome of this proceeding.