20. Goodwill and Other Intangible Assets

Goodwill

(PPL and PPL Energy Supply)

The changes in the carrying amount of goodwill by segment were:

		Kentucky Regulated				International Regulated				Supply				Total
		2011		2010		2011		2010		2011		2010		2011		2010
PPL
Balance at beginning of period (a)		$	662			$	679	$	715	$	420	$	91	$	1,761	$	806
	Goodwill recognized during the period (b)			$	662		2,391						334		2,391		996
	Allocation to discontinued operations (c)												(5)				(5)
	Effect of foreign currency exchange rates						(38)		(36)						(38)		(36)
Balance at end of period (a)		$	662	$	662	$	3,032	$	679	$	420	$	420	$	4,114	$	1,761

						International Regulated				Supply				Total
						2011		2010		2011		2010		2011		2010
PPL Energy Supply
Balance at beginning of period (a)						$	679	$	715	$	86	$	91	$	765	$	806
	Derecognition (d)						(679)								(679)
	Allocation to discontinued operations (c)												(5)				(5)
	Effect of foreign currency exchange rates								(36)								(36)
Balance at end of period (a)						$		$	679	$	86	$	86	$	86	$	765

(b) Activity in 2011 recognized as a result of the acquisition of WPD Midlands. Activity in 2010 recognized as a result of the acquisition of LKE. A portion of the goodwill related to the acquisition of LKE was allocated to the Supply segment. See Note 10 for additional information.

(c) Represents goodwill allocated to certain non-core generation facilities that were held for sale in 2010 and sold in 2011.

(d) Represents the amount of goodwill derecognized as a result of PPL Energy Supply's distribution of its membership interest in PPL Global to PPL Energy Supply's parent, PPL Energy Funding. See Note 9 for additional information on the distribution. Subsequent to the distribution, PPL Energy Supply operates in a single reportable segment and reporting unit.

(LKE, LG&E and KU)

The changes in the carrying amounts of goodwill were as follows.
		LKE		LG&E		KU

Balance at December 31, 2009 and October 31, 2010, Predecessor (a)		$	837
	Dispositions (b)		(837)
	Purchase accounting adjustments (c)		996	$	389	$	607
Balance at December 31, 2010 and 2011, Successor (a)		$	996	$	389	$	607

(a) The opening balances included $1.5 billion of impairment losses related to goodwill recorded in 2009. There were no accumulated impairment losses related to goodwill at December 31, 2010 or 2011.

(b) Predecessor goodwill was eliminated in purchase accounting at November 1, 2010.

(c) Recognized as a result of the November 1, 2010 acquisition by PPL. For LG&E and KU, the allocation of goodwill was based on the net asset values of the respective companies. See Note 10 for additional information.

For the 2009 annual impairment test, the estimated fair values of LG&E and KU were based on a combination of the income approach, which estimates the fair value of the reporting unit based on discounted future cash flows and the market approach, which estimates the fair value of the reporting unit based on market comparables. The discounted cash flows for LG&E and KU were based on discrete financial forecasts developed by management for planning purposes and consistent with those given to E.ON AG, LKE's former parent company. Cash flows beyond the discrete forecasts were estimated using a terminal-value calculation, which incorporated historical and forecasted financial trends for each of LG&E and KU and considered long-term earnings growth rates for publicly-traded peer companies. The level 3 income-approach valuations included a cash flow discount rate of 6.3% and a terminal-value growth rate of 1.1%. In addition, subsequent to 2009 but prior to the issuance of the 2009 financial statements, discussions were held with interested parties for the possible sale of LKE, including the regulated utilities. Data from this process was used for evaluating the carrying value of goodwill at December 31, 2009.

Based on information represented by bids received from interested parties, including PPL, LKE completed a goodwill impairment analysis at December 31, 2009. As a result of the impairment analysis described above, LKE recorded a goodwill impairment charge of $1.5 billion in 2009. The primary factors contributing to the goodwill impairment charge in 2009 were the significant economic downturn, which caused a decline in the volume of projected sales of electricity to commercial customers and an increase in the implied discount rate due to higher risk premiums. In addition, a lower control premium was assumed, based on observable market data.

Other Intangibles

(PPL)

The gross carrying amount and the accumulated amortization of other intangible assets were:

		December 31, 2011				December 31, 2010
		Gross				Gross
		Carrying		Accumulated		Carrying		Accumulated
		Amount		Amortization		Amount		Amortization
Subject to amortization:
	Contracts (a) (b)	$	611	$	155	$	597	$	49
	Land and transmission rights (c)		263		110		256		110
	Emission allowances/RECs (d) (e) (f)		20				37
	Licenses and other (g)		265		35		242		30
Total subject to amortization			1,159		300		1,132		189

Not subject to amortization due to indefinite life:
	Land and transmission rights		16				16
	Easements (h)		199				77
Total not subject to amortization due to indefinite life			215				93
Total		$	1,374	$	300	$	1,225	$	189

(a) Gross carrying amount for 2010 includes $394 million, which represents the fair value of contracts with terms favorable to market recognized as a result of the 2010 acquisition of LKE. The weighted average amortization period of these contracts was five years at the acquisition date. An offsetting regulatory liability was recorded related to these contracts, which is being amortized over the same weighted-average period as the intangible assets, eliminating any income statement impact. See Note 6 for additional information.

(b) Gross carrying amount for 2011 includes $10 million, which represents the fair value of customer contracts with terms favorable to market recognized as a result of the 2011 acquisition of WPD Midlands. The weighted-average amortization period of these contracts was ten years at the acquisition date. See Note 10 for additional information.

(c) Gross carrying amount for 2010 includes $14 million, which represents the fair value of land and transmission rights recognized as a result of the 2010 acquisition of LKE. The weighted-average amortization period of these rights was 14 years at the acquisition date. An offsetting regulatory liability was recorded related to these rights, which is being amortized over the same weighted-average period as the intangible assets, eliminating any income statement impact. See Note 6 for additional information.

(d) These emission allowances/RECs are expensed when consumed or sold. Consumption expense was $16 million, $45 million, and $32 million in 2011, 2010 and 2009. Consumption expense is expected to be insignificant in future periods.

(e) Gross carrying amount for 2010 includes the fair value of emission allowances recognized as a result of the 2010 acquisition of LKE. An offsetting regulatory liability was recorded related to these emission allowances, which is being amortized as the emission allowances are consumed, eliminating any income statement impact. See Note 6 for additional information. The carrying amounts of these emission allowances were $5 million and $16 million as of December 31, 2011 and 2010. Consumption related to these emission allowances was $11 million and $2 million for 2011 and 2010.

(f) During 2011 and 2010, PPL recorded $7 million and $17 million of impairment charges. See Note 18 for additional information.

(g) "Other" includes costs for the development of licenses, the most significant of which is the COLA. Amortization of these costs begins when the related asset is placed in service. See Note 8 for additional information on the COLA.

(h) Gross carrying amount for 2011 includes $88 million, which represents the fair value of easements recognized as a result of the 2011 acquisition of WPD Midlands. See Note 10 for additional information.

Current intangible assets are included in "Other current assets" and long-term intangible assets are included in "Other intangibles" in their respective areas on the Balance Sheets.

Amortization expense, excluding consumption of emission allowances/RECs, was as follows:

		2011		2010		2009

Intangible assets with no regulatory offset	$	25	$	24	$	22
Intangible assets with regulatory offset		87		11
Total	$	112	$	35	$	22

Amortization expense for each of the next five years, excluding consumption of emission allowances/RECs, is estimated to be:

		2012		2013		2014		2015		2016

Intangible assets with no regulatory offset	$	24	$	24	$	24	$	24	$	22
Intangible assets with a regulatory offset		46		52		46		51		27
Total	$	70	$	76	$	70	$	75	$	49

(PPL Energy Supply)

The gross carrying amount and the accumulated amortization of other intangible assets were:

		December 31, 2011				December 31, 2010
		Gross				Gross
		Carrying		Accumulated		Carrying		Accumulated
		Amount		Amortization		Amount		Amortization
Subject to amortization:
	Contracts	$	203	$	53	$	203	$	38
	Land and transmission rights		17		13		19		16
	Emission allowances/RECs (a) (b)		15				20
	Licenses and other (c)		255		30		239		29
Total subject to amortization			490		96		481		83

Not subject to amortization due to indefinite life:
	Easements (d)						77
Total		$	490	$	96	$	558	$	83

(a) Removed from the Balance Sheets and expensed when consumed or sold. Consumption expense was $16 million, $46 million, and $32 million in 2011, 2010, and 2009. Consumption expense is expected to be insignificant in future periods.

(b) During 2011 and 2010, PPL Energy Supply recorded $7 million and $16 million of impairment charges. See Note 18 for additional information.

(c) "Other" includes costs for the development of licenses, the most significant of which is the COLA. Amortization of these costs begins when the related asset is placed in service. See Note 8 for additional information on the COLA.

(d) Easements for 2010 pertain to WPD. As a result of PPL Energy Supply's January 2011 distribution of its membership interest in PPL Global to its parent, PPL Energy Funding, the assets and liabilities of PPL Global, including WPD's easements at December 31, 2010 were removed from PPL Energy Supply's balance sheet in 2011. See Note 9 for additional information.

Current intangible assets are included in "Other current assets" and long-term intangible assets are presented as "Other intangibles" in their respective areas on the Balance Sheets.

Amortization expense for each of the next five years, excluding consumption of emission allowances/RECs, is estimated to be:

		2012		2013		2014		2015		2016

Estimated amortization expense	$	20	$	20	$	20	$	20	$	18

(PPL Electric)

The gross carrying amount and the accumulated amortization of other intangible assets were:

		December 31, 2011				December 31, 2010
		Gross				Gross
		Carrying		Accumulated		Carrying		Accumulated
		Amount		Amortization		Amount		Amortization
Subject to amortization:
	Land and transmission rights	$	232	$	96	$	222	$	93
	Licenses and other		4		1		3		1
Total subject to amortization			236		97		225		94

Not subject to amortization due to indefinite life:
	Land and transmission rights		16				16
Total		$	252	$	97	$	241	$	94

Amortization expense was insignificant in 2011, 2010 and 2009, and is expected to be insignificant in future years.

(LKE)

The gross carrying amount and the accumulated amortization of other intangible assets were:

		December 31, 2011				December 31, 2010
		Gross				Gross
		Carrying		Accumulated		Carrying		Accumulated
		Amount		Amortization		Amount		Amortization
Subject to amortization:
	Coal contracts (a)	$	269	$	89	$	269	$	9
	Land and transmission rights (b)		14		1		14
	Emission allowances (c)		5				16
	OVEC power purchase agreement (d)		126		9		126		2
Total subject to amortization		$	414	$	99	$	425	$	11

(a) Gross carrying amount represents the fair value of contracts with terms favorable to market recognized as a result of the 2010 acquisition by PPL. An offsetting regulatory liability was recorded related to these contracts, which is being amortized over the same period as the intangible assets, eliminating any income statement impact. See Note 6 for additional information.

(b) Gross carrying amount represents the fair value of land and transmission rights recognized as an intangible asset as a result of adopting PPL's accounting policies in the Successor period. Amortization expense is recovered through base rates and is expected to be insignificant for future periods.

(c) Represents the fair value of emission allowances recognized as a result of the 2010 acquisition by PPL. An offsetting regulatory liability was recorded related to these emission allowances, which is being amortized as the emission allowances are consumed, eliminating any income statement impact. Consumption related to these emission allowances was $11 million and $2 million for 2011 and 2010.

(d) Gross carrying amount represents the fair value of the OVEC power purchase contract recognized as a result of the 2010 acquisition by PPL. See Note 6 for additional information.

Current intangible assets and long-term intangible assets are presented as "Other intangibles" in their respective areas on the Balance Sheets.

Amortization expense for the Successor, excluding consumption of emission allowances, was as follows:

		2011		2010

Intangible assets with no regulatory offset	$	1
Intangible assets with regulatory offset		87	$	11
Total	$	88	$	11

Amortization expense for each of the next five years, excluding consumption of emission allowances, is estimated to be:

		2012		2013		2014		2015		2016

Intangibles with regulatory offset	$	46	$	52	$	46	$	51	$	27

(LG&E)

The gross carrying amount and the accumulated amortization of other intangible assets were:

		December 31, 2011				December 31, 2010
		Gross				Gross
		Carrying		Accumulated		Carrying		Accumulated
		Amount		Amortization		Amount		Amortization
Subject to amortization:
	Coal contracts (a)	$	124	$	46	$	124	$	6
	Land and transmission rights (b)		6		1		6
	Emission allowances (c)		2				7
	OVEC power purchase agreement (d)		87		6		87		1
Total subject to amortization		$	219	$	53	$	224	$	7

(d) Gross carrying amount represents the fair value of the OVEC power purchase contract recognized as a result of the 2010 acquisition by PPL. See Note 6 for additional information.

Current intangible assets and long-term intangible assets are presented as "Other intangibles" in their respective areas on the Balance Sheets.

Amortization expense for the Successor, excluding consumption of emission allowances, was as follows:

		2011		2010

Intangible assets with no regulatory offset	$	1
Intangible assets with regulatory offset		45	$	7
Total	$	46	$	7

Amortization expense for each of the next five years, excluding consumption of emission allowances, is estimated to be:

		2012		2013		2014		2015		2016

Intangibles with regulatory offset	$	22	$	25	$	23	$	24	$	14

(KU)

The gross carrying amount and the accumulated amortization of other intangible assets were:

		December 31, 2011				December 31, 2010
		Gross				Gross
		Carrying		Accumulated		Carrying		Accumulated
		Amount		Amortization		Amount		Amortization
Subject to amortization:
	Contracts (a)	$	145	$	43	$	145	$	3
	Land and transmission rights (b)		8				8
	Emission allowances (c)		3				9
	OVEC power purchase agreement (d)		39		3		39		1
Total subject to amortization		$	195	$	46	$	201	$	4

(d) Gross carrying amount represents the fair value of the OVEC power purchase contract recognized as a result of the 2010 acquisition by PPL. See Note 6 for additional information.

Current intangible assets and long-term intangible assets are presented as "Other intangibles" in their respective areas on the Balance Sheets.

Amortization expense for each of the next five years, excluding consumption of emission allowances, is estimated to be:

		2012		2013		2014		2015		2016

Intangibles with regulatory offset	$	24	$	27	$	23	$	27	$	13