Fair Value Measurements

3 Months Ended

Mar. 31, 2022

13. Fair Value Measurements

(All Registrants)

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). A market approach (generally, data from market transactions), an income approach (generally, present value techniques and option-pricing models) and/or a cost approach (generally, replacement cost) are used to measure the fair value of an asset or liability, as appropriate. These valuation approaches incorporate inputs such as observable, independent market data and/or unobservable data that management believes are predicated on the assumptions market participants would use to price an asset or liability. These inputs may incorporate, as applicable, certain risks such as nonperformance risk, which includes credit risk. The fair value of a group of financial assets and liabilities is measured on a net basis. See Note 1 in each Registrant's 2021 Form 10-K for information on the levels in the fair value hierarchy.

Recurring Fair Value Measurements

The assets and liabilities measured at fair value were:


	March 31, 2022								December 31, 2021
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
PPL
Assets
Cash and cash equivalents	$	4,249	$	4,249	$	—	$	—	$	3,571	$	3,571	$	—	$	—
Restricted cash and cash equivalents (a)	1		1		—		—		1		1		—		—
Total Cash, Cash Equivalents and Restricted Cash (b)	4,250		4,250		—		—		3,572		3,572		—		—
Special use funds (a):
Money market fund	1		1		—		—		2		2		—		—
Commingled debt fund measured at NAV (c)	20		—		—		—		22		—		—		—
Commingled equity fund measured at NAV (c)	19		—		—		—		21		—		—		—
Total special use funds	40		1		—		—		45		2		—		—

Total assets	$	4,290	$	4,251	$	—	$	—	$	3,617	$	3,574	$	—	$	—

Liabilities
Price risk management liabilities (d):
Interest rate swaps	$	14	$	—	$	14	$	—	$	18	$	—	$	18	$	—
Total price risk management liabilities	$	14	$	—	$	14	$	—	$	18	$	—	$	18	$	—

PPL Electric
Assets
Cash and cash equivalents	$	46	$	46	$	—	$	—	$	21	$	21	$	—	$	—

Total assets	$	46	$	46	$	—	$	—	$	21	$	21	$	—	$	—

LG&E
Assets
Cash and cash equivalents	$	9	$	9	$	—	$	—	$	9	$	9	$	—	$	—

Total assets	$	9	$	9	$	—	$	—	$	9	$	9	$	—	$	—

Liabilities
Price risk management liabilities:
Interest rate swaps	$	14	$	—	$	14	$	—	$	18	$	—	$	18	$	—
Total price risk management liabilities	$	14	$	—	$	14	$	—	$	18	$	—	$	18	$	—

KU
Assets
Cash and cash equivalents	$	8	$	8	$	—	$	—	$	13	$	13	$	—	$	—
Total assets	$	8	$	8	$	—	$	—	$	13	$	13	$	—	$	—

(a)Included in "Other current assets" on the Balance Sheets.

(b)Total Cash, Cash Equivalents and Restricted Cash provides a reconciliation of these items reported within the Balance Sheets to the sum shown on the Statements of Cash Flows.

(c)In accordance with accounting guidance, certain investments that are measured at fair value using net asset value per share (NAV), or its equivalent, have not been classified in the fair value hierarchy. The fair value amounts presented in the table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the Balance Sheets.

(d)Current portion is included in "Other current liabilities" and noncurrent portion is included in "Other deferred credits and noncurrent liabilities" on the Balance Sheets.

Special Use Funds

(PPL)

The special use funds are investments restricted for paying active union employee medical costs. In 2018, PPL received a favorable private letter ruling from the IRS permitting a transfer of excess funds from the PPL Bargaining Unit Retiree Health

Plan VEBA to a new subaccount within the VEBA to be used to pay medical claims of active bargaining unit employees. The funds are invested primarily in commingled debt and equity funds measured at NAV and are classified as investments in equity securities. Changes in the fair value of the funds are recorded to the Statements of Income.

Price Risk Management Assets/Liabilities - Interest Rate Swaps

(PPL, LG&E and KU)

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

Financial Instruments Not Recorded at Fair Value (All Registrants)

The carrying amounts of long-term debt on the Balance Sheets and their estimated fair values are set forth below. Long-term debt is classified as Level 2. The effect of third-party credit enhancements is not included in the fair value measurement.


	March 31, 2022				December 31, 2021
	Carrying Amount (a)		Fair Value		Carrying Amount (a)		Fair Value
PPL	$	11,142	$	11,720	$	11,140	$	12,955
PPL Electric	4,485		4,789		4,484		5,272
LG&E	2,006		2,131		2,006		2,363
KU	2,619		2,779		2,618		3,120

(a)Amounts are net of debt issuance costs.

The carrying amounts of other current financial instruments (except for long-term debt due within one year) approximate their fair values because of their short-term nature.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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