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. Transfers between levels are recognized at end-of-reporting-period values. During the three and nine months ended September 30, 2013 and 2012, there were no transfers between Level 1 and Level 2. See Note 1 in each Registrant's 2012 Form 10-K for information on the levels in the fair value hierarchy.

				September 30, 2013								December 31, 2012
				Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
PPL
Assets
	Cash and cash equivalents			$	1,291	$	1,291					$	901	$	901
	Restricted cash and cash equivalents (a)				120		120						135		135
	Price risk management assets:
		Energy commodities			1,480		7	$	1,421	$	52		2,068		2	$	2,037	$	29
		Interest rate swaps			86				86				15				15
		Foreign currency contracts			1				1
		Cross-currency swaps			28				28				14				13		1
	Total price risk management assets				1,595		7		1,536		52		2,097		2		2,065		30
	NDT funds:
		Cash and cash equivalents			14		14						11		11
		Equity securities
			U.S. large-cap		494		369		125				412		308		104
			U.S. mid/small-cap		74		30		44				60		25		35
		Debt securities
			U.S. Treasury		96		96						95		95
			U.S. government sponsored agency		6				6				9				9
			Municipality		75				75				82				82
			Investment-grade corporate		40				40				40				40
			Other		3				3				3				3
		Receivables (payables), net			2				2						(2)		2
	Total NDT funds				804		509		295				712		437		275
	Auction rate securities (b)				19						19		19				3		16
Total assets				$	3,829	$	1,927	$	1,831	$	71	$	3,864	$	1,475	$	2,343	$	46

Liabilities
	Price risk management liabilities:
		Energy commodities		$	1,235	$	4	$	1,226	$	5	$	1,566	$	2	$	1,557	$	7
		Interest rate swaps			58				58				80				80
		Foreign currency contracts			67				67				44				44
		Cross-currency swaps			1				1				4				4
	Total price risk management liabilities			$	1,361	$	4	$	1,352	$	5	$	1,694	$	2	$	1,685	$	7

PPL Energy Supply
Assets
	Cash and cash equivalents			$	551	$	551					$	413	$	413
	Restricted cash and cash equivalents (a)				54		54						63		63
	Price risk management assets:
		Energy commodities			1,480		7	$	1,421	$	52		2,068		2	$	2,037	$	29
	Total price risk management assets				1,480		7		1,421		52		2,068		2		2,037		29
	NDT funds:
		Cash and cash equivalents			14		14						11		11
		Equity securities
			U.S. large-cap		494		369		125				412		308		104
			U.S. mid/small-cap		74		30		44				60		25		35
		Debt securities
			U.S. Treasury		96		96						95		95
			U.S. government sponsored agency		6				6				9				9
			Municipality		75				75				82				82
			Investment-grade corporate		40				40				40				40
			Other		3				3				3				3
		Receivables (payables), net			2				2						(2)		2
	Total NDT funds				804		509		295				712		437		275
	Auction rate securities (b)				16						16		16				3		13
Total assets				$	2,905	$	1,121	$	1,716	$	68	$	3,272	$	915	$	2,315	$	42

Liabilities
	Price risk management liabilities:
		Energy commodities		$	1,235	$	4	$	1,226	$	5	$	1,566	$	2	$	1,557	$	7
	Total price risk management liabilities			$	1,235	$	4	$	1,226	$	5	$	1,566	$	2	$	1,557	$	7

PPL Electric
Assets
	Cash and cash equivalents			$	225	$	225					$	140	$	140
	Restricted cash and cash equivalents (c)				12		12						13		13
Total assets				$	237	$	237					$	153	$	153

LKE
Assets
	Cash and cash equivalents			$	21	$	21			$	43	$	43
	Restricted cash and cash equivalents (d)				22		22				32		32
	Price risk management assets:
			Interest rate swaps								14			$	14
	Total price risk management assets										14				14
Total assets				$	43	$	43			$	89	$	75	$	14

Liabilities
	Price risk management liabilities:
		Interest rate swaps		$	55			$	55	$	58			$	58
Total price risk management liabilities				$	55			$	55	$	58			$	58

LG&E
Assets
	Cash and cash equivalents			$	12	$	12			$	22	$	22
	Restricted cash and cash equivalents (d)				22		22				32		32
	Price risk management assets:
			Interest rate swaps								7			$	7
	Total price risk management assets										7				7
Total assets				$	34	$	34			$	61	$	54	$	7

Liabilities
	Price risk management liabilities:
		Interest rate swaps		$	48			$	48	$	58			$	58
Total price risk management liabilities				$	48			$	48	$	58			$	58

KU
Assets
	Cash and cash equivalents			$	9	$	9			$	21	$	21
	Price risk management assets:
			Interest rate swaps								7			$	7
	Total price risk management assets										7				7
Total assets				$	9	$	9			$	28	$	21	$	7

Liabilities
	Price risk management liabilities:
		Interest rate swaps		$	7			$	7
Total price risk management liabilities				$	7			$	7

(a) Current portion is included in "Restricted cash and cash equivalents" and the long-term portion is included in "Other noncurrent assets" on the Balance Sheets.

(c) Current portion is included in "Other current assets" and the long-term portion is included in "Other noncurrent assets" on the Balance Sheets.

A reconciliation of net assets and liabilities classified as Level 3 for the periods ended September 30, 2013 is as follows:

					Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
					Three Months								Nine Months
					Energy		Auction		Cross-				Energy		Auction		Cross-
					Commodities,		Rate		Currency				Commodities,		Rate		Currency
					net		Securities		Swaps		Total		net		Securities		Swaps		Total
PPL
Balance at beginning of
	period				$	40	$	19	$	3	$	62	$	22	$	16	$	1	$	39
		Total realized/unrealized
			gains (losses)
				Included in earnings		18						18		23						23
				Included in OCI (a)						(2)		(2)						1		1
		Sales												(2)						(2)
		Settlements				(2)						(2)		1						1
		Transfers into Level 3				(7)						(7)		1		3		3		7
		Transfers out of Level 3				(2)				(1)		(3)		2				(5)		(3)
Balance at end of period					$	47	$	19	$		$	66	$	47	$	19	$		$	66

PPL Energy Supply
Balance at beginning of
	period				$	40	$	16			$	56	$	22	$	13			$	35
		Total realized/unrealized
			gains (losses)
				Included in earnings		18						18		23						23
		Sales												(2)						(2)
		Settlements				(2)						(2)		1						1
		Transfers into Level 3				(7)						(7)		1		3				4
		Transfers out of Level 3				(2)						(2)		2						2
Balance at end of period					$	47	$	16			$	63	$	47	$	16			$	63

(a) "Energy Commodities, net" and "Cross-Currency Swaps" are included in "Qualifying derivatives" and "Auction Rate Securities" are included in "Available-for-sale securities" on the Statements of Comprehensive Income.

A reconciliation of net assets and liabilities classified as Level 3 for the periods ended September 30, 2012 is as follows:

					Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
					Three Months								Nine Months
					Energy		Auction		Cross-				Energy		Auction		Cross-
					Commodities,		Rate		Currency				Commodities,		Rate		Currency
					net		Securities		Swaps		Total		net		Securities		Swaps		Total
PPL
Balance at beginning of
	period				$	34	$	15	$	10	$	59	$	13	$	24	$	4	$	41
		Total realized/unrealized
			gains (losses)
				Included in earnings		(17)						(17)		(1)				(1)		(2)
				Included in OCI (a)				1		(8)		(7)		1				2		3
		Sales														(5)				(5)
		Settlements				2						2		(9)						(9)
		Transfers into Level 3				(2)						(2)		12						12
		Transfers out of Level 3				8						8		9		(3)		(3)		3
Balance at end of period					$	25	$	16	$	2	$	43	$	25	$	16	$	2	$	43

PPL Energy Supply
Balance at beginning of
	period				$	34	$	12			$	46	$	13	$	19			$	32
		Total realized/unrealized
			gains (losses)
				Included in earnings		(17)						(17)		(1)						(1)
				Included in OCI (a)				1				1		1						1
		Sales														(3)				(3)
		Settlements				2						2		(9)						(9)
		Transfers into Level 3				(2)						(2)		12						12
		Transfers out of Level 3				8						8		9		(3)				6
Balance at end of period					$	25	$	13			$	38	$	25	$	13			$	38

The significant unobservable inputs used in and quantitative information about the fair value measurement of assets and liabilities classified as Level 3 are as follows:

September 30, 2013

Fair Value, net

Range

Asset

Valuation

Unobservable

(Weighted

(Liability)

Technique

Input(s)

Average) (a)

PPL

Energy commodities

Retail natural gas sales contracts (b)

Discounted cash flow

Observable wholesale prices used as proxy for retail delivery points

13% - 100% (80%)

Heat rate call options (d)

Discounted cash flow

Implied correlation, implied volatility, and market implied heat rate

33% - 60% (58%)

FTR purchase contracts (g)

Discounted cash flow

Historical settled prices used to model forward prices

100% (100%)

Auction rate securities (e)

Discounted cash flow

Modeled from SIFMA Index

12% - 80% (64%)

PPL Energy Supply

Energy commodities

Retail natural gas sales contracts (b)

Discounted cash flow

Observable wholesale prices used as proxy for retail delivery points

13% - 100% (80%)

Heat rate call options (d)

Discounted cash flow

Implied correlation, implied volatility, and market implied heat rate

33% - 60% (58%)

FTR purchase contracts (g)

Discounted cash flow

Historical settled prices used to model forward prices

100% (100%)

Auction rate securities (e)

Discounted cash flow

Modeled from SIFMA Index

12% - 80% (63%)

December 31, 2012

Fair Value, net

Range

Asset

Valuation

Unobservable

(Weighted

(Liability)

Technique

Input(s)

Average) (a)

PPL

Energy commodities

Retail natural gas sales contracts (b)

Discounted cash flow

Observable wholesale prices used as proxy for retail delivery points

21% - 100% (75%)

Power sales contracts (c)

(4)

Discounted cash flow

Proprietary model used to calculate forward basis prices

24% (24%)

FTR purchase contracts (g)

Discounted cash flow

Historical settled prices used to model forward prices

100% (100%)

Auction rate securities (e)

Discounted cash flow

Modeled from SIFMA Index

54% - 74% (64%)

Cross-currency swaps (f)

Discounted cash flow

Credit valuation adjustment

22% (22%)

PPL Energy Supply

Energy commodities

Retail natural gas sales contracts (b)

Discounted cash flow

Observable wholesale prices used as proxy for retail delivery points

21% - 100% (75%)

Power sales contracts (c)

(4)

Discounted cash flow

Proprietary model used to calculate forward basis prices

24% (24%)

FTR purchase contracts (g)

Discounted cash flow

Historical settled prices used to model forward prices

100% (100%)

Auction rate securities (e)

Discounted cash flow

Modeled from SIFMA Index

57% - 74% (65%)

(a) For energy commodities and auction rate securities, the range and weighted average represent the percentage of fair value derived from the unobservable inputs. For cross-currency swaps, the range and weighted average represent the percentage decrease in fair value due to the unobservable inputs used in the model to calculate the credit valuation adjustment.

(b) At September 30, 2013, retail natural gas sales contracts extend through 2019, and $14 million of the fair value is scheduled to deliver within the next 12 months. As the forward price of natural gas increases/(decreases), the fair value of the contracts (decreases)/increases.

(d) At September 30, 2013, heat rate call options extend through 2020, and $1 million of the fair value is scheduled to deliver within the next 12 months. As the implied correlation in heat rate call options increases/(decreases), the fair value of the heat rate call options (decreases)/increases, as all implied volatilities in heat rate call options increase/(decrease), the fair value of the heat rate call options increases/(decreases), and as the market implied heat rate increases/(decreases), the fair value of the heat rate call options increases/(decreases).

(e) At September 30, 2013, auction rate securities have a weighted average contractual maturity of 22 years. The model used to calculate fair value incorporates an assumption that the auctions will continue to fail. As the modeled forward rates of the SIFMA Index increase/(decrease), the fair value of the securities increases/(decreases).

(f) The credit valuation adjustment incorporates projected probabilities of default and estimated recovery rates. As the credit valuation adjustment increases/(decreases), the fair value of the swaps (decreases)/increases.

(g) At September 30, 2013, FTR purchase contracts extend through 2015, and $1 million of the fair value is scheduled to deliver within the next 12 months. As the forward implied spread increases/(decreases), the fair value of the contracts increases/(decreases).

Net gains and losses on assets and liabilities classified as Level 3 and included in earnings for the periods ended September 30 are reported in the Statements of Income as follows:

		Nine Months
																					Cross-Currency
		Energy Commodities, net																			Swaps

		Unregulated				Wholesale
		Retail				Energy				Net Energy							Energy
		Electric and Gas				Marketing				Trading Margins				Fuel			Purchases				Interest Expense
		2013		2012		2013		2012		2013		2012		2013		2012	2013		2012		2013	2012
PPL
Total gains (losses) included
	in earnings	$	18	$	16	$	(15)	$	(7)	$	8	$	(9)	$	3		$	9	$	(1)		$	(1)
Change in unrealized gains
	(losses) relating to positions
	still held at the reporting date		18		29		(1)				8		2					5		1

PPL Energy Supply
Total gains (losses) included
	in earnings	$	18	$	16	$	(15)	$	(7)	$	8	$	(9)	$	3		$	9	$	(1)
Change in unrealized gains
	(losses) relating to positions
	still held at the reporting date		18		29		(1)				8		2					5		1

Price Risk Management Assets/Liabilities - Energy Commodities (PPL and PPL Energy Supply)

Energy commodity contracts for electricity, gas, oil and/or emission allowances are generally valued using the income approach, except for exchange-traded derivative gas and oil contracts, which are valued using the market approach and are classified as Level 1. When the lowest level inputs that are significant to the fair value measurement of a contract are observable, the contract is classified as Level 2. Level 2 contracts are valued using inputs which may include quotes obtained from an exchange (where there is insufficient market liquidity to warrant inclusion in Level 1), binding and non-binding broker quotes, prices posted by ISOs or published tariff rates. Furthermore, independent quotes are obtained from the market to validate the forward price curves. Energy commodity contracts include forwards, futures, swaps, options and structured transactions and may be offset with similar positions in exchange-traded markets. To the extent possible, fair value measurements utilize various inputs that include quoted prices for similar contracts or market-corroborated inputs. In certain instances, these contracts may be valued using models, including standard option valuation models and standard industry models. For example, the fair value of a full-requirement sales contract that delivers power to an illiquid delivery point may be measured by valuing the nearest liquid trading point plus the value of the basis between the two points. The basis input may be from market quotes or historical prices.

When unobservable inputs are significant to the fair value measurement, a contract is classified as Level 3. Level 3 contracts are valued using PPL proprietary models which include significant unobservable inputs such as delivery at a location where pricing is unobservable, assumptions for customer migration, delivery dates that are beyond the dates for which independent quotes are available, implied volatilities, implied correlations, and market implied heat rates. Forward transactions, including forward transactions classified as Level 3, are analyzed by PPL's Risk Management department, which reports to the Chief Financial Officer (CFO). Accounting personnel, who also report to the CFO, interpret the analysis quarterly to appropriately classify the forward transactions in the fair value hierarchy. Valuation techniques are evaluated periodically. Additionally, Level 2 and Level 3 fair value measurements include adjustments for credit risk based on PPL's own creditworthiness (for net liabilities) and its counterparties' creditworthiness (for net assets). PPL's credit department assesses all reasonably available market information which is used by accounting personnel to calculate the credit valuation adjustment.

In certain instances, energy commodity contracts are transferred between Level 2 and Level 3. The primary reasons for the transfers during 2013 and 2012 were changes in the availability of market information and changes in the significance of the unobservable inputs utilized in the valuation of the contract. As the delivery period of a contract becomes closer, market information may become available. When this occurs, the model's unobservable inputs are replaced with observable market information.

Price Risk Management Assets/Liabilities - Interest Rate Swaps/Foreign Currency Contracts/Cross-Currency Swaps (PPL and Kentucky Registrants)

To manage interest rate risk, PPL, LKE, LG&E and KU use interest rate contracts such as forward-starting swaps, floating-to-fixed swaps and fixed-to-floating swaps. To manage foreign currency exchange risk, PPL uses foreign currency contracts such as forwards, options and cross-currency swaps that contain characteristics of both interest rate and foreign currency contracts. 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) and forward foreign currency exchange rates (e.g., GBP), 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. For PPL, the primary reason for the transfers during 2013 and 2012 was the change in the significance of the credit valuation adjustment. Cross-currency swaps classified as Level 3 are valued by PPL's Treasury department, which reports to the CFO. Accounting personnel, who also report to the CFO, interpret analysis quarterly to classify the contracts in the fair value hierarchy. Valuation techniques are evaluated periodically.

The market approach is used to measure the fair value of equity securities held in the NDT funds.

 The fair value measurements of equity securities classified as Level 1 are based on quoted prices in active markets and are comprised of securities that are representative of the Wilshire 5000 Total Market Index.

 Investments in commingled equity funds are classified as Level 2 and represent securities that track the S&P 500 Index, Dow Jones U.S. Total Stock Market Index and the Dow Jones U.S. Completion Total Stock Market Index. These fair value measurements are based on firm quotes of net asset values per share, which are not obtained from a quoted price in an active market.

Debt securities are generally measured using a market approach, including the use of matrix pricing. Common inputs include reported trades, broker/dealer bid/ask prices, benchmark securities and credit valuation adjustments. When necessary, the fair value of debt securities is measured using the income approach, which incorporates similar observable inputs as well as benchmark yields, credit valuation adjustments, reference data from market research publications, monthly payment data, collateral performance and new issue data.

The debt securities held in the NDT funds at September 30, 2013 have a weighted-average coupon of 3.94% and a weighted-average maturity of 7.8 years.

Auction rate securities include Federal Family Education Loan Program guaranteed student loan revenue bonds, as well as various municipal bond issues. The probability of realizing losses on these securities is not significant.

The fair value of auction rate securities is estimated using an income approach that includes readily observable inputs, such as principal payments and discount curves for bonds with credit ratings and maturities similar to the securities, and unobservable inputs, such as future interest rates that are estimated based on the SIFMA Index, creditworthiness, and liquidity assumptions driven by the impact of auction failures. When the present value of future interest payments is significant to the overall valuation, the auction rate securities are classified as Level 3. The primary reason for the transfers in and out of Level 3 in 2013 and 2012 was the change in discount rates and SIFMA Index.

Auction rate securities are valued by PPL's Treasury department, which reports to the CFO. Accounting personnel, who also report to the CFO, interpret the analysis quarterly to classify the contracts in the fair value hierarchy. Valuation techniques are evaluated periodically.

The carrying amounts of contract adjustment payments related to the Purchase Contract component of the Equity Units and long-term debt on the Balance Sheets and their estimated fair values are set forth below. The fair values of these instruments were estimated using an income approach by discounting future cash flows at estimated current cost of funding rates, which incorporate the credit risk of the Registrants. These instruments are classified as Level 2. The effect of third-party credit enhancements is not included in the fair value measurement.

(a) Reflected in "Other current liabilities" and "Other deferred credits and noncurrent liabilities" on the Balance Sheets.

The carrying value of short-term debt (including notes between affiliates), when outstanding, approximates fair value due to the variable interest rates associated with the short-term debt and is classified as Level 2.

Contracts are entered into with many entities for the purchase and sale of energy. Many of these contracts qualify for NPNS and, as such, the fair value of these contracts is not reflected in the financial statements. However, the fair value of these contracts is considered when committing to new business from a credit perspective. See Note 14 for information on credit policies used to manage credit risk, including master netting arrangements and collateral requirements.

At September 30, 2013, PPL had credit exposure of $1.1 billion from energy trading partners, excluding the effects of netting arrangements, reserves and collateral. As a result of netting arrangements, reserves and collateral, PPL's credit exposure was reduced to $541 million. The top ten counterparties including their affiliates accounted for $292 million, or 54%, of this exposure. Nine of these counterparties had an investment grade credit rating from S&P or Moody's and accounted for 95% of the top ten exposure. The remaining counterparty has not been rated by S&P or Moody's, but is current on its obligations.

At September 30, 2013, PPL Energy Supply had credit exposure of $1.1 billion from energy trading partners, excluding exposure from related parties and the effects of netting arrangements, reserves and collateral. As a result of netting arrangements, reserves and collateral, this credit exposure was reduced to $540 million. The top ten counterparties including their affiliates accounted for $292 million, or 54%, of this exposure. Nine of these counterparties had an investment grade credit rating from S&P or Moody's and accounted for 95% of the top ten exposure. The remaining counterparty has not been rated by S&P or Moody's, but is current on its obligations. See Note 11 for information regarding the related party credit exposure.

PPL Electric is exposed to credit risk under energy supply contracts (including its supply contracts with PPL EnergyPlus); however, its PUC-approved cost recovery mechanism is anticipated to substantially eliminate this exposure.

At September 30, 2013, LKE's, LG&E's and KU's credit exposure was not significant.