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Acquisitions, Development and Divestitures
12 Months Ended
Dec. 31, 2011
Acquisitions Development And Divestitures [Abstract]  
Acquisitions, Development and Divestitures

8. Acquisitions, Development and Divestitures

 

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

 

The Registrants continuously evaluate opportunities for potential acquisitions, divestitures and development projects. Development projects are continuously 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 9 for information on PPL Energy Supply's distribution of its membership interest in PPL Global to its parent, PPL Energy Funding, which was presented as discontinued operations by PPL Energy Supply, and the sales of businesses that were presented as discontinued operations by PPL, PPL Energy Supply and LKE. See Note 10 for information on PPL's acquisitions of WPD Midlands and LKE.

 

(PPL, LKE, LG&E and KU)

 

Acquisition

 

Pending Bluegrass CTs Acquisition

 

In September 2011, LG&E and KU entered into an Asset Purchase Agreement with Bluegrass Generation for the purchase of the Bluegrass CTs, aggregating approximately 495 MW, plus limited associated contractual arrangements required for operation of the units, for a purchase price of $110 million. Pursuant to the Asset Purchase Agreement, LG&E and KU will jointly acquire the Bluegrass CTs as tenants in common, with LG&E as owner of a 69% undivided interest, and KU as owner of a 31% undivided interest, in the purchased assets. The purchase is subject to receipt of approvals from the KPSC, the FERC, certain permit assignments or local approvals, and other conditions. Either party can terminate the Asset Purchase Agreement should the purchase transaction fail to occur by June 30, 2012.

 

Development

 

NGCC Construction

 

In September 2011, LG&E and KU requested KPSC approval to build a 640 MW NGCC at the existing Cane Run plant site in Kentucky. This project is also subject to certain regulatory approvals. Once all approvals are received, construction is expected to begin in 2012 and be complete by 2016. The project, which includes building a natural gas supply pipeline, has an expected cost of approximately $580 million. See Note 6 for additional information.

 

In conjunction with this request and to meet new, stricter federal EPA regulations, LG&E and KU anticipate retiring six older coal-fired electric generating units at the Cane Run, Green River and Tyrone plants, which have a combined summer rating of 797 MW. The Cane Run and Green River coal units will need to remain operational until the replacement generation and associated transmission projects are completed.

 

TC2

 

In January 2011, LKE began dispatching electricity from TC2 to meet customer demand. See Note 15 for additional information regarding the construction of TC2.

 

(PPL and PPL Energy Supply)

 

Hydroelectric Expansion Projects

 

In 2009, in light of the availability of tax incentives and potential federal loan guarantees for renewable projects contained in the Economic Stimulus Package, PPL Energy Supply filed an application with the FERC to expand capacity at its Holtwood hydroelectric plant, which the FERC approved. The project's expected cost is $438 million. Construction continues on the project, with commercial operations scheduled to begin in 2013. At December 31, 2011, expected remaining expenditures are $196 million.

 

In 2009, PPL Montana received FERC approval for its request to redevelop the Rainbow hydroelectric facility at Great Falls, Montana to increase capacity by 28 MW. The project's expected cost is $207 million. Construction continues on the project, with commercial operations scheduled to begin in 2012. At December 31, 2011, expected remaining expenditures are $29 million.

 

PPL Energy Supply believes that it is qualified for either investment tax credits or Treasury grants for the projects at the Holtwood and Rainbow facilities. PPL Energy Supply has recognized investment tax credits and continues to evaluate whether to seek Treasury grants in lieu of the credits. During 2010, PPL Energy Supply recorded deferred investment tax credits of $52 million related to 2010 and 2009. During 2011, PPL Energy Supply recorded deferred investment tax credits of $52 million related to 2011. PPL Energy Supply anticipates recognizing an additional $54 million in tax credits for tax years 2012 and 2013. These credits reduce PPL Energy Supply's tax liability and will be amortized over the life of the related assets.

 

Susquehanna Uprate Project

 

In 2008, PPL Susquehanna received NRC approval for its request to increase the generation capacity of the Susquehanna nuclear plant. The project was completed in phases over several years. The final phase of the project, a 50 MW Unit 2 uprate, was completed in 2011. PPL Susquehanna's share of the total capacity increase was approximately 195 MW.

 

Bell Bend COLA

 

In 2008, a PPL Energy Supply subsidiary, PPL Bell Bend, LLC (PPL Bell Bend) submitted a COLA to the NRC for the proposed Bell Bend nuclear generating unit (Bell Bend) to be built adjacent to the Susquehanna plant. Also in 2008, the COLA was formally docketed and accepted for review by the NRC. PPL Bell Bend continues to respond to questions from the NRC regarding technical and site specific information provided in the initial COLA and subsequent amendments. PPL Bell Bend does not expect to complete the COLA review process with the NRC prior to 2014.

 

In 2008, PPL Bell Bend submitted Parts I and II of an application for a federal loan guarantee for Bell Bend to the DOE. The DOE is expected in the first half of 2012 to finalize the first nuclear loan guarantee for a project in Georgia. Eight of the ten applicants that submitted Part II applications remain active in the DOE program; however, the DOE has stated that the $18.5 billion currently appropriated to support new nuclear projects would not likely be enough for more than three projects. PPL Bell Bend submits quarterly application updates for Bell Bend to the DOE to remain active in the loan guarantee application process.

 

PPL Bell Bend has made no decision to proceed with construction of Bell Bend and expects that such decision will not be made for several years given the anticipated lengthy NRC license approval process. Additionally, PPL Bell Bend has announced that it does not expect to proceed with construction absent favorable economics, a joint arrangement with other interested parties and a federal loan guarantee or other acceptable financing. PPL Bell Bend is currently authorized to spend up to $162 million through 2012 on the COLA and other permitting costs (including land costs) necessary for construction. At December 31, 2011 and 2010, $131 million and $109 million of costs associated with the licensing application were capitalized and are included on the Balance Sheets in noncurrent "Other intangibles." PPL Bell Bend believes it is probable that these costs are ultimately recoverable following NRC approval of the COLA either through construction of the new nuclear unit, transfer of the COLA rights to a joint venture, or sale of the COLA rights to another party.

 

Susquehanna-Roseland Transmission Line (PPL and PPL Electric)

 

In 2007, PJM directed the construction of a new 150-mile, 500-kilovolt transmission line between the Susquehanna substation in Pennsylvania and the Roseland substation in New Jersey that it identified as essential to long-term reliability of the Mid-Atlantic electricity grid. PJM determined that the line is needed to prevent potential overloads that could occur on several existing transmission lines in the interconnected PJM system. PJM has directed PPL Electric to construct the portion of the Susquehanna-Roseland line in Pennsylvania and has directed Public Service Electric & Gas Company to construct the portion of the line in New Jersey, in each case by June 1, 2012. PPL Electric's estimated share of the project costs is approximately $500 million.

 

This project is pending certain regulatory approvals. PPL Electric has identified the approximately 100-mile route for the Pennsylvania portion of the line. In February 2010, the PUC and the New Jersey Board of Public Utilities approved the project. Several parties appealed the PUC decision to the Commonwealth Court of Pennsylvania. In July 2011, the Commonwealth Court affirmed the PUC's order approving the project, and no further appeals were filed.

 

In addition, both companies are working with the National Park Service to obtain any approvals that may be required to route the line through the Delaware Water Gap National Recreation Area. The National Park Service record of decision for the project is scheduled to be issued on October 1, 2012. In October 2011, the project was placed on the initial list of projects for the Rapid Response Team for Transmission (RRTT), an initiative of the White House to facilitate coordination among federal agencies to improve the overall quality and timeliness of electric transmission infrastructure permitting, review and consultation. The RRTT has reaffirmed the issuance date of the National Park Service record of decision for the project. The National Park Service has stated that it will announce the preferred route for the transmission line in March 2012 with an expected Record of Decision in October 2012. PPL Electric cannot predict the ultimate outcome or timing of the National Park Service approval.

 

PPL Electric anticipates the delays in the approval process will postpone the in-service date to 2015. In 2011, PJM issued an updated assessment of the new line within its 2010 Regional Transmission Expansion Plan, which confirms that the line is needed to prevent overloads on other power lines in the region. PJM has developed a strategy to manage potential reliability problems until the line is built. PPL Electric cannot predict what action, if any, PJM might take in the event of a further delay to its scheduled in-service date for the new line.