Utility Rate Regulation

9 Months Ended

Sep. 30, 2020

7. 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
	September 30, 2020		December 31, 2019		September 30, 2020		December 31, 2019
Current Regulatory Assets:


Plant outage costs	$	44	$	32	$	—	$	—
Gas supply clause	4		8		—		—
Smart meter rider	17		13		17		13


Transmission formula rate	9		3		9		3
Transmission service charge	2		10		2		10
Other	6		1		—		—
Total current regulatory assets (a)	$	82	$	67	$	28	$	26

Noncurrent Regulatory Assets:
Defined benefit plans	$	750	$	800	$	450	$	467

Storm costs	27		39		9		15
Unamortized loss on debt	33		41		11		18
Interest rate swaps	26		22		—		—
Terminated interest rate swaps	77		81		—		—
Accumulated cost of removal of utility plant	237		220		237		220
AROs	297		279		—		—
Act 129 compliance rider	—		6		—		6
Other	3		4		1		—
Total noncurrent regulatory assets	$	1,450	$	1,492	$	708	$	726


	PPL				PPL Electric
	September 30, 2020		December 31, 2019		September 30, 2020		December 31, 2019
Current Regulatory Liabilities:
Generation supply charge	$	23	$	23	$	23	$	23


Environmental cost recovery	6		5		—		—
Universal service rider	14		9		14		9

Fuel adjustment clause	8		8		—		—
TCJA customer refund	21		61		21		59
Storm damage expense rider	7		5		7		5
Act 129 compliance rider	8		—		8		—
Other	3		4		—		—
Total current regulatory liabilities	$	90	$	115	$	73	$	96



Noncurrent Regulatory Liabilities:
Accumulated cost of removal of utility plant	$	648	$	640	$	—	$	—
Power purchase agreement - OVEC	45		51		—		—
Net deferred taxes	1,705		1,756		565		588
Defined benefit plans	59		51		17		11
Terminated interest rate swaps	66		68		—		—
Other	20		6		—		—
Total noncurrent regulatory liabilities	$	2,543	$	2,572	$	582	$	599


	LKE				LG&E				KU
	September 30, 2020		December 31, 2019		September 30, 2020		December 31, 2019		September 30, 2020		December 31, 2019
Current Regulatory Assets:

Plant outage costs	$	44	$	32	$	14	$	16	$	30	$	16

Gas supply clause	4		8		4		8		—		—




Other	6		1		5		1		1		—
Total current regulatory assets	$	54	$	41	$	23	$	25	$	31	$	16

Noncurrent Regulatory Assets:
Defined benefit plans	$	300	$	333	$	179	$	206	$	121	$	127
Storm costs	18		24		11		14		7		10
Unamortized loss on debt	22		23		13		14		9		9
Interest rate swaps	26		22		26		22		—		—
Terminated interest rate swaps	77		81		45		47		32		34
AROs	297		279		85		76		212		203

Other	2		4		1		1		1		3
Total noncurrent regulatory assets	$	742	$	766	$	360	$	380	$	382	$	386


	LKE				LG&E				KU
	September 30, 2020		December 31, 2019		September 30, 2020		December 31, 2019		September 30, 2020		December 31, 2019
Current Regulatory Liabilities:
Environmental cost recovery	$	6	$	5	$	2	$	1	$	4	$	4
Demand side management	2		3		1		1		1		2

Fuel adjustment clause	8		8		2		—		6		8




Other	1		3		—		—		1		3
Total current regulatory liabilities	$	17	$	19	$	5	$	2	$	12	$	17

Noncurrent Regulatory Liabilities:
Accumulated cost of removal of utility plant	$	648	$	640	$	271	$	266	$	377	$	374

Power purchase agreement - OVEC	45		51		31		35		14		16
Net deferred taxes	1,140		1,168		532		544		608		624
Defined benefit plans	42		40		—		—		42		40

Terminated interest rate swaps	66		68		33		34		33		34
Other	20		6		18		4		2		2
Total noncurrent regulatory liabilities	$	1,961	$	1,973	$	885	$	883	$	1,076	$	1,090

(a)For PPL, these amounts are included in "Other current assets" on the Balance Sheets.

Regulatory Matters

Kentucky Activities

Rate Case Proceedings

(PPL, LKE, LG&E and KU)

On October 23, 2020, LG&E and KU filed notices of intent with the KPSC to file applications for proposed adjustments of general electric and gas rates on or after November 25, 2020. The applications will also include requests for a CPCN to deploy Advanced Metering Infrastructure and other matters. LG&E and KU cannot predict the outcome of these potential proceedings.

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

On March 31, 2020, LG&E and KU submitted applications to the KPSC for ECR rate treatment regarding upcoming environmental construction projects relating to the EPA's regulations addressing ELGs. The construction projects are expected to begin in 2021 and continue through 2024 and are estimated to cost approximately $405 million ($153 million at LG&E and $252 million at KU). The applications requested an authorized 9.725% return on equity with respect to these projects consistent with the 2018 Kentucky rate cases approved in April 2019. On September 29, 2020, the KPSC issued orders approving the ECR applications, permitting an authorized return on equity of 9.2% for the applicable projects.

Pennsylvania Activities

Act 129 (PPL and PPL Electric)

The Pennsylvania Public Utility Code requires electric distribution companies, including PPL Electric, to act as a DSP, which provides electricity generation supply service to customers pursuant to a PUC-approved default service procurement plan. A DSP is able to recover the costs associated with its default service procurement plan.

In March 2020, PPL Electric filed a Petition for Approval of a new default service program and procurement plan with the PUC for the period June 1, 2021 through May 31, 2025. Hearings were held in August 2020. In October 2020, the Administrative Law Judge made a recommended decision which remains pending before the PUC. PPL Electric cannot predict the outcome of this proceeding.

Federal Matters

Challenge to PPL Electric Transmission Formula Rate Return on Equity

(PPL and PPL Electric)

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

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

On October 15, 2020, the FERC issued an order on the PPLICA complaints which established hearing and settlement procedures, set a refund effective date of May 21, 2020 and granted the motions to intervene. PPL Electric continues to believe its ROE is just and reasonable and that it has meritorious defenses against the original and amended complaints. At this time, PPL Electric cannot predict the outcome of this matter or the range of possible losses, if any, that may be incurred. However, revenue earned from May 21, 2020 through the settlement of this matter may be subject to refund. A change of 50 basis points to the base ROE would impact PPL Electric's net income by approximately $12 million on an annual basis.

FERC Transmission Rate Filing

(PPL, LKE, LG&E and KU)

In 2018, LG&E and KU applied to the FERC requesting elimination of certain on-going credits to a sub-set of transmission customers relating to the 1998 merger of LG&E's and KU's parent entities and the 2006 withdrawal of LG&E and KU from the Midcontinent Independent System Operator, Inc. (MISO), a regional transmission operator and energy market. The application sought termination of LG&E's and KU's commitment to provide certain Kentucky municipalities mitigation for certain horizontal market power concerns arising out of the 1998 LG&E and KU merger and 2006 MISO withdrawal. The amounts at issue are generally waivers or credits granted to a limited number of Kentucky municipalities for either certain LG&E and KU or MISO transmission charges incurred for transmission service received. Due to the development of robust, accessible energy markets over time, LG&E and KU believe the mitigation commitments are no longer relevant or appropriate. In March 2019, the FERC granted LG&E's and KU's request to remove the ongoing credits, conditioned upon the implementation by LG&E and KU of a transition mechanism for certain existing power supply arrangements, subject to FERC review and approval. In July 2019, LG&E and KU proposed their transition mechanism to the FERC and in September 2019, the FERC rejected the proposed transition mechanism and issued a separate order providing clarifications of certain aspects of the March order. In October 2019, LG&E and KU filed requests for rehearing and clarification on the two September orders. In September 2020, FERC issued its orders in the rehearing process that modified the discussion in, and set aside portions of, the September 2019 orders including adjusting factors impacting the proposed transition mechanism. In October 2020, both LG&E and KU and other parties filed separate motions for rehearing and clarification regarding FERC’s September 2020 orders. A FERC decision on these rehearing requests is expected by November 18, 2020. Certain other petitions for review of the FERC's orders have been filed by multiple parties, including LG&E and KU, with the D.C. Circuit Court of Appeals. LG&E and KU cannot predict the outcome of these proceedings. LG&E and KU currently receive recovery of waivers and credits provided through other rate mechanisms.

(PPL and PPL Electric)

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

Other

Purchase of Receivables Program (PPL and PPL Electric)

In accordance with a PUC-approved purchase of accounts receivable program, PPL Electric purchases certain accounts receivable from alternative electricity suppliers at a discount, which reflects a provision for credit losses. The alternative electricity suppliers have no continuing involvement or interest in the purchased accounts receivable. Accounts receivable that are acquired are initially recorded at fair value on the date of acquisition. During the three and nine months ended September 30, 2020, PPL Electric purchased $303 million and $854 million of accounts receivable from alternative suppliers. During the three and nine months ended September 30, 2019, PPL Electric purchased $308 million and $927 million of accounts receivable from alternative suppliers.