|
UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 | |
| FORM 10-Q | |
| [X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended March 31, 2015 |
| OR | |
| [ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from _________ to ___________ |
|
Commission File Number |
Registrant; State of Incorporation; Address and Telephone Number |
IRS Employer Identification No. |
| 1-11459 |
PPL Corporation (Exact name of Registrant as specified in its charter) (Pennsylvania) Two North Ninth Street Allentown, PA 18101-1179 (610) 774-5151 |
23-2758192 |
| 1-905 |
PPL Electric Utilities Corporation (Exact name of Registrant as specified in its charter) (Pennsylvania) Two North Ninth Street Allentown, PA 18101-1179 (610) 774-5151 |
23-0959590 |
| 333-173665 |
LG&E and KU Energy LLC (Exact name of Registrant as specified in its charter) (Kentucky) 220 West Main Street Louisville, KY 40202-1377 (502) 627-2000 |
20-0523163 |
| 1-2893 |
Louisville Gas and Electric Company (Exact name of Registrant as specified in its charter) (Kentucky) 220 West Main Street Louisville, KY 40202-1377 (502) 627-2000 |
61-0264150 |
| 1-3464 |
Kentucky Utilities Company (Exact name of Registrant as specified in its charter) (Kentucky and Virginia) One Quality Street Lexington, KY 40507-1462 (502) 627-2000 |
61-0247570 |
Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days.
| PPL Corporation | Yes X | No | ||
| PPL Electric Utilities Corporation | Yes X | No | ||
| LG&E and KU Energy LLC | Yes X | No | ||
| Louisville Gas and Electric Company | Yes X | No | ||
| Kentucky Utilities Company | Yes X | No |
Indicate by check mark whether the registrants have submitted electronically and posted on their corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrants were required to submit and post such files).
| PPL Corporation | Yes X | No | ||
| PPL Electric Utilities Corporation | Yes X | No | ||
| LG&E and KU Energy LLC | Yes X | No | ||
| Louisville Gas and Electric Company | Yes X | No | ||
| Kentucky Utilities Company | Yes X | No |
Indicate by check mark whether the registrants are large accelerated filers, accelerated filers, non-accelerated filers, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
|
Large accelerated filer |
Accelerated filer |
Non-accelerated filer |
Smaller reporting company | ||
| PPL Corporation | [ X ] | [ ] | [ ] | [ ] | |
| PPL Electric Utilities Corporation | [ ] | [ ] | [ X ] | [ ] | |
| LG&E and KU Energy LLC | [ ] | [ ] | [ X ] | [ ] | |
| Louisville Gas and Electric Company | [ ] | [ ] | [ X ] | [ ] | |
| Kentucky Utilities Company | [ ] | [ ] | [ X ] | [ ] |
Indicate by check mark whether the registrants are shell companies (as defined in Rule 12b-2 of the Exchange Act).
| PPL Corporation | Yes | No X | ||
| PPL Electric Utilities Corporation | Yes | No X | ||
| LG&E and KU Energy LLC | Yes | No X | ||
| Louisville Gas and Electric Company | Yes | No X | ||
| Kentucky Utilities Company | Yes | No X |
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
| PPL Corporation | Common stock, $0.01 par value, 668,107,248 shares outstanding at April 30, 2015. | |
| PPL Electric Utilities Corporation | Common stock, no par value, 66,368,056 shares outstanding and all held by PPL Corporation at April 30, 2015. | |
| LG&E and KU Energy LLC | PPL Corporation directly holds all of the membership interests in LG&E and KU Energy LLC. | |
| Louisville Gas and Electric Company | Common stock, no par value, 21,294,223 shares outstanding and all held by LG&E and KU Energy LLC at April 30, 2015. | |
| Kentucky Utilities Company | Common stock, no par value, 37,817,878 shares outstanding and all held by LG&E and KU Energy LLC at April 30, 2015. |
This document is available free of charge at the Investor Center on PPL Corporation's website at www.pplweb.com. However, information on this website does not constitute a part of this Form 10-Q.
PPL CORPORATION
PPL ELECTRIC UTILITIES CORPORATION
LG&E and KU Energy LLC
Louisville Gas and Electric Company
Kentucky Utilities Company
FORM 10-Q
FOR THE QUARTER ENDED March 31, 2015
Table of Contents
This combined Form 10-Q is separately filed by the following Registrants in their individual capacity: PPL Corporation, PPL Electric Utilities Corporation, LG&E and KU Energy LLC, Louisville Gas and Electric Company and Kentucky Utilities Company. Information contained herein relating to any individual Registrant is filed by such Registrant solely on its own behalf, and no Registrant makes any representation as to information relating to any other Registrant, except that information under "Forward-Looking Information" relating to subsidiaries of PPL Corporation is also attributed to PPL Corporation and information relating to the subsidiaries of LG&E and KU Energy LLC is also attributed to LG&E and KU Energy LLC. Beginning in the first quarter of 2015, PPL Energy Supply, LLC is filing a separate Form 10-Q.
Unless otherwise specified, references in this Report, individually, to PPL Corporation, PPL Electric Utilities Corporation, LG&E and KU Energy LLC, Louisville Gas and Electric Company and Kentucky Utilities Company are references to such entities directly or to one or more of their subsidiaries, as the case may be, the financial results of which subsidiaries are consolidated into such Registrants in accordance with GAAP. This presentation has been applied where identification of particular subsidiaries is not material to the matter being disclosed, and to conform narrative disclosures to the presentation of financial information on a consolidated basis.
GLOSSARY OF TERMS AND ABBREVIATIONS
PPL Corporation and its subsidiaries
KU - Kentucky Utilities Company, a public utility subsidiary of LKE engaged in the regulated generation, transmission, distribution and sale of electricity, primarily in Kentucky.
LG&E - Louisville Gas and Electric Company, a public utility subsidiary of LKE engaged in the regulated generation, transmission, distribution and sale of electricity and the distribution and sale of natural gas in Kentucky.
LKE - LG&E and KU Energy LLC, a subsidiary of PPL and the parent of LG&E, KU and other subsidiaries.
LKS - LG&E and KU Services Company, a subsidiary of LKE that provides services to LKE and its subsidiaries.
PPL - PPL Corporation, the parent holding company of PPL Electric, PPL Energy Funding, PPL Capital Funding, LKE and other subsidiaries.
PPL Brunner Island - PPL Brunner Island, LLC, a subsidiary of PPL Generation that owns generating operations in Pennsylvania.
PPL Capital Funding - PPL Capital Funding, Inc., a financing subsidiary of PPL that provides financing for the operations of PPL and certain subsidiaries. Debt issued by PPL Capital Funding is guaranteed as to payment by PPL.
PPL Electric - PPL Electric Utilities Corporation, a public utility subsidiary of PPL engaged in the regulated transmission and distribution of electricity in its Pennsylvania service area and that provides electricity supply to its retail customers in this area as a PLR.
PPL Energy Funding - PPL Energy Funding Corporation, a subsidiary of PPL and the parent holding company of PPL Energy Supply, PPL Global and other subsidiaries.
PPL EnergyPlus - PPL EnergyPlus, LLC, a subsidiary of PPL Energy Supply that markets and trades wholesale and retail electricity and gas, and supplies energy and energy services in competitive markets.
PPL Energy Supply - PPL Energy Supply, LLC, a subsidiary of PPL Energy Funding and the parent company of PPL Generation, PPL EnergyPlus and other subsidiaries.
PPL EU Services - PPL EU Services Corporation, a subsidiary of PPL that, beginning in 2015, provides support services and corporate functions such as financial, supply chain, human resources and information technology services primarily to PPL Electric and its affiliates.
PPL Generation - PPL Generation, LLC, a subsidiary of PPL Energy Supply that owns and operates U.S. generating facilities through various subsidiaries.
PPL Global - PPL Global, LLC, a subsidiary of PPL Energy Funding that, primarily through its subsidiaries, owns and operates WPD, PPL's regulated electricity distribution businesses in the U.K.
PPL Montana - PPL Montana, LLC, an indirect subsidiary of PPL Generation that generates electricity for wholesale sales in Montana and the Pacific Northwest.
PPL Montour - PPL Montour, LLC, a subsidiary of PPL Generation that owns generating operations in Pennsylvania.
PPL Services - PPL Services Corporation, a subsidiary of PPL that provides services to PPL and its subsidiaries.
PPL Susquehanna - PPL Susquehanna, LLC, a subsidiary of PPL Generation that owns a nuclear-powered generating station.
PPL WPD Ltd - an indirect U.K. subsidiary of PPL Global. PPL WPD Ltd holds a liability for a closed defined benefit pension plan and a receivable with WPD Ltd.
Registrant(s) - refers to the Registrants named on the cover of this Report (each a "Registrant" and collectively, the "Registrants").
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Subsidiary Registrant(s) - Registrants that are direct or indirect wholly owned subsidiaries of PPL: PPL Energy Supply, PPL Electric, LKE, LG&E and KU.
WPD - refers to WPD Ltd and its subsidiaries together with a sister company PPL WPD Ltd.
WPD (East Midlands) - Western Power Distribution (East Midlands) plc, a British regional electricity distribution utility company.
WPD Ltd - Western Power Distribution Limited, an indirect U.K. subsidiary of PPL Global. Its principal indirectly owned subsidiaries are WPD (East Midlands), WPD (South Wales), WPD (South West) and WPD (West Midlands).
WPD Midlands - refers to WPD (East Midlands) and WPD (West Midlands), collectively.
WPD (South Wales) - Western Power Distribution (South Wales) plc, a British regional electricity distribution utility company.
WPD (South West) - Western Power Distribution (South West) plc, a British regional electricity distribution utility company.
WPD (West Midlands) - Western Power Distribution (West Midlands) plc, a British regional electricity distribution utility company.
WKE - Western Kentucky Energy Corp., a subsidiary of LKE that leased certain non-utility generating plants in western Kentucky until July 2009.
Other terms and abbreviations
£ - British pound sterling.
2014 Form 10-K - Annual Report to the SEC on Form 10-K for the year ended December 31, 2014 Form 10-K.
Act 11 - Act 11 of 2012 that became effective on April 16, 2012. The Pennsylvania legislation authorizes the PUC to approve two specific ratemaking mechanisms: the use of a fully projected future test year in base rate proceedings and, subject to certain conditions, a DSIC.
Act 129 - Act 129 of 2008 that became effective in October 2008. The law amends the Pennsylvania Public Utility Code and creates an energy efficiency and conservation program and smart metering technology requirements, adopts new PLR electricity supply procurement rules, provides remedies for market misconduct and changes to the AEPS.
AEPS - Alternative Energy Portfolio Standard.
AFUDC - Allowance for Funds Used During Construction, the cost of equity and debt funds used to finance construction projects of regulated businesses, which is capitalized as part of construction costs.
AOCI - accumulated other comprehensive income or loss.
ARO - asset retirement obligation.
Baseload generation - includes the output provided by PPL's nuclear, coal, hydroelectric and qualifying facilities.
Basis - when used in the context of derivatives and commodity trading, the commodity price differential between two locations, products or time periods.
Cane Run Unit 7 - a natural gas combined-cycle unit under construction in Kentucky, jointly owned by LG&E and KU, which is expected to provide additional electric generating capacity of 640 MW (141 MW and 499 MW to LG&E and KU) in 2015.
CCR(s) - Coal Combustion Residual(s). CCRs include fly ash, bottom ash and sulfur dioxide scrubber wastes.
| ii |
Clean Air Act - federal legislation enacted to address certain environmental issues related to air emissions, including acid rain, ozone and toxic air emissions.
COBRA - Consolidated Omnibus Budget Reconciliation Act, which provides individuals the option to temporarily continue employer group health insurance coverage after termination of employment.
CSAPR - Cross-State Air Pollution Rule.
Customer Choice Act - the Pennsylvania Electricity Generation Customer Choice and Competition Act, legislation enacted to restructure the state's electric utility industry to create retail access to a competitive market for generation of electricity.
DNO - Distribution Network Operator in the U.K.
DOJ - U.S. Department of Justice.
DPCR4 - Distribution Price Control Review 4, the U.K. five-year rate review period applicable to WPD that commenced April 1, 2005.
DPCR5 - Distribution Price Control Review 5, the U.K. five-year rate review period applicable to WPD that commenced April 1, 2010.
DRIP - Dividend Reinvestment and Direct Stock Purchase Plan.
DSIC - the Distribution System Improvement Charge authorized under Act 11, which is an alternative ratemaking mechanism providing more-timely cost recovery of qualifying distribution system capital expenditures.
DSM - Demand Side Management. Pursuant to Kentucky Revised Statute 278.285, the KPSC may determine the reasonableness of DSM plans proposed by any utility under its jurisdiction. Proposed DSM mechanisms may seek full recovery of costs and revenues lost by implementing DSM programs and/or incentives designed to provide financial rewards to the utility for implementing cost-effective DSM programs. The cost of such programs shall be assigned only to the class or classes of customers which benefit from the programs.
ECR - Environmental Cost Recovery. Pursuant to Kentucky Revised Statute 278.183, Kentucky electric utilities are entitled to the current recovery of costs of complying with the Clean Air Act, as amended, and those federal, state or local environmental requirements that apply to coal combustion wastes and by-products from the production of energy from coal.
EEI - Edison Electric Institute, the association that represents U.S. investor-owned electric companies.
EPA - Environmental Protection Agency, a U.S. government agency.
EPS - earnings per share.
Equity Unit(s) - a PPL equity unit, issued in April 2011, consisting of a Purchase Contract and, initially, a 5.0% undivided beneficial ownership interest in $1,000 principal amount of PPL Capital Funding 4.32% Junior Subordinated Notes due 2019.
ERCOT - the Electric Reliability Council of Texas, operator of the electricity transmission network and electricity energy market in most of Texas.
E.W. Brown - a generating station in Kentucky with capacity of 1,594 MW.
FERC - Federal Energy Regulatory Commission, the U.S. federal agency that regulates, among other things, interstate transmission and wholesale sales of electricity, hydroelectric power projects and related matters.
Fitch - Fitch, Inc., a credit rating agency.
FTRs - financial transmission rights, which are financial instruments established to manage price risk related to electricity transmission congestion that entitle the holder to receive compensation or require the holder to remit payment for certain congestion-related transmission charges based on the level of congestion between two pricing locations, known as source and sink.
| iii |
GAAP - Generally Accepted Accounting Principles in the U.S.
GBP - British pound sterling.
GHG - greenhouse gas(es).
GLT - Gas Line Tracker. The KPSC approved LG&E's recovery of costs associated with gas service lines, gas risers, leak mitigation, and gas main replacements. Rate recovery became effective on January 1, 2013.
Holdco - Talen Energy Holdings, Inc., a Delaware Corporation, which was formed for the purposes of the spinoff transaction.
If-Converted Method - A method applied to calculate diluted EPS for a company with outstanding convertible debt. The method is applied as follows: Interest charges (after tax) applicable to the convertible debt are added back to net income and the convertible debt is assumed to have been converted to equity at the beginning of the period, and the resulting common shares are treated as outstanding shares. Both adjustments are made only for purposes of calculating diluted EPS. This method was applied to PPL's Equity Units prior to settlement.
Intermediate and peaking generation - includes the output provided by PPL's oil- and natural gas-fired units.
Ironwood Facility - a natural gas combined-cycle unit in Lebanon, Pennsylvania with a summer rating of 660 MW.
IRS - Internal Revenue Service, a U.S. government agency.
ISO - Independent System Operator.
KPSC - Kentucky Public Service Commission, the state agency that has jurisdiction over the regulation of rates and service of utilities in Kentucky.
LIBOR - London Interbank Offered Rate.
MATS - Mercury and Air Toxics Standards.
MDEQ - Montana Department of Environmental Quality.
MEIC - Montana Environmental Information Center.
MMBtu - One million British Thermal Units.
Montana Power - The Montana Power Company, a Montana-based company that sold its generating assets to PPL Montana in December 1999. Through a series of transactions consummated during the first quarter of 2002, Montana Power sold its electricity delivery business to NorthWestern.
Moody's - Moody's Investors Service, Inc., a credit rating agency.
MW - megawatt, one thousand kilowatts.
MWh - megawatt-hour, one thousand kilowatt-hours.
NDT - PPL Susquehanna's nuclear plant decommissioning trust.
NERC - North American Electric Reliability Corporation.
NGCC - Natural gas-fired combined-cycle generating plant.
NorthWestern - NorthWestern Corporation, a Delaware corporation, and successor in interest to Montana Power's electricity delivery business, including Montana Power's rights and obligations under contracts with PPL Montana.
NPNS - the normal purchases and normal sales exception as permitted by derivative accounting rules. Derivatives that qualify for this exception may receive accrual accounting treatment.
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NRC - Nuclear Regulatory Commission, the U.S. federal agency that regulates nuclear power facilities.
OCI - other comprehensive income or loss.
Ofgem - Office of Gas and Electricity Markets, the British agency that regulates transmission, distribution and wholesale sales of electricity and related matters.
Opacity - the degree to which emissions reduce the transmission of light and obscure the view of an object in the background. There are emission regulations that limit the opacity of power plant stack gas emissions.
OVEC - Ohio Valley Electric Corporation, located in Piketon, Ohio, an entity in which LKE indirectly owns an 8.13% interest (consists of LG&E's 5.63% and KU's 2.50% interests), which is accounted for as a cost-method investment. OVEC owns and operates two coal-fired power plants, the Kyger Creek plant in Ohio and the Clifty Creek plant in Indiana, with combined summer rating capacities of 2,120 MW.
PADEP - the Pennsylvania Department of Environmental Protection, a state government agency.
PJM - PJM Interconnection, L.L.C., operator of the electricity transmission network and electricity energy market in all or parts of Delaware, Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia and the District of Columbia.
PLR - Provider of Last Resort, the role of PPL Electric in providing default electricity supply within its delivery area to retail customers who have not chosen to select an alternative electricity supplier under the Customer Choice Act.
PP&E - property, plant and equipment.
PUC - Pennsylvania Public Utility Commission, the state agency that regulates certain ratemaking, services, accounting and operations of Pennsylvania utilities.
RAV - regulatory asset value. This term, used within the U.K. regulatory environment, is also commonly known as RAB or regulatory asset base. RAV is based on historical investment costs at time of privatization, plus subsequent allowed additions less annual regulatory depreciation, and represents the value on which DNOs earn a return in accordance with the regulatory cost of capital. RAV is indexed to Retail Price Index (RPI) in order to allow for the effects of inflation. Since the beginning of DPCR5 in April 2010, RAV additions have been based on a percentage of annual total expenditures, which will continue from April 2015 under RIIO-ED1. RAV is intended to represent expenditures that have a long-term benefit to WPD (similar to capital projects for the U.S. regulated businesses that are generally included in rate base).
RCRA - Resource Conservation and Recovery Act of 1976.
RECs - Renewable Energy Credits.
Regulation S-X - SEC regulation governing the form and content of and requirements for financial statements required to be filed pursuant to the federal securities laws.
RFC - ReliabilityFirst Corporation, one of eight regional entities with delegated authority from NERC that work to safeguard the reliability of the bulk power systems throughout North America.
RIIO-ED1 - RIIO represents "Revenues = Incentive + Innovation + Outputs." RIIO-ED1 refers to the initial eight-year rate review period applicable to WPD which commenced April 1, 2015.
Riverstone - Riverstone Holdings LLC, a Delaware limited liability company and ultimate parent company of the entities that own the competitive power generation business to be contributed to Talen Energy other than the competitive power generation business to be contributed by virtue of the spinoff of a newly formed parent of PPL Energy Supply.
RJS Power - RJS Generation Holdings LLC, a Delaware limited liability company controlled by Riverstone, that owns the competitive power generation business to be contributed by its owners to Talen Energy other than the competitive power generation business to be contributed by virtue of the spinoff of a newly formed parent of PPL Energy Supply.
RMC - Risk Management Committee.
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S&P - Standard & Poor's Ratings Services, a credit rating agency.
Sarbanes-Oxley - Sarbanes-Oxley Act of 2002, which sets requirements for management's assessment of internal controls for financial reporting. It also requires an independent auditor to make its own assessment.
Scrubber - an air pollution control device that can remove particulates and/or gases (primarily sulfur dioxide) from exhaust gases.
SEC - the U.S. Securities and Exchange Commission, a U.S. government agency primarily responsible to protect investors and maintain the integrity of the securities markets.
SERC - SERC Reliability Corporation, one of eight regional entities with delegated authority from NERC that work to safeguard the reliability of the bulk power systems throughout North America.
SIFMA Index - the Securities Industry and Financial Markets Association Municipal Swap Index.
Smart meter - an electric meter that utilizes smart metering technology.
Smart metering technology - technology that can measure, among other things, time of electricity consumption to permit offering rate incentives for usage during lower cost or demand intervals. The use of this technology also has the potential to strengthen network reliability.
SNCR - selective non-catalytic reduction, a pollution control process for the removal of nitrogen oxide from exhaust gases using ammonia.
Spark Spread - a measure of gross margin representing the price of power on a per MWh basis less the equivalent measure of the natural gas cost to produce that power. This measure is used to describe the gross margin of PPL and its subsidiaries' competitive natural gas-fired generating fleet. This term is also used to describe a derivative contract in which PPL and its subsidiaries sell power and buy natural gas on a forward basis in the same contract.
Superfund - federal environmental statute that addresses remediation of contaminated sites; states also have similar statutes.
Talen Energy - Talen Energy Corporation, the Delaware corporation formed to be the publicly traded company and future owner of the competitive generation assets of PPL Energy Supply and certain affiliates of Riverstone.
Tolling agreement - agreement whereby the owner of an electricity generating facility agrees to use that facility to convert fuel provided by a third party into electricity for delivery back to the third party.
Total shareowner return - the change in market value of a share of the Company's common stock plus the value of all dividends paid on a share of the common stock during the applicable performance period, divided by the price of the common stock as of the beginning of the performance period. The price used for purposes of this calculation is the average share price for the 20 trading days at the beginning and end of the applicable period.
TRA - Tennessee Regulatory Authority, the state agency that has jurisdiction over the regulation of rates and service of utilities in Tennessee.
Treasury Stock Method - A method applied to calculate diluted EPS that assumes any proceeds that could be obtained upon exercise of options and warrants (and their equivalents) would be used to purchase common stock at the average market price during the relevant period.
VaR - value-at-risk, a statistical model that attempts to estimate the value of potential loss over a given holding period under normal market conditions at a given confidence level.
Volumetric risk - the risk that the actual load volumes provided under full-requirement sales contracts could vary significantly from forecasted volumes.
VSCC - Virginia State Corporation Commission, the state agency that has jurisdiction over the regulation of Virginia corporations, including utilities.
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Statements contained in this Form 10-Q concerning expectations, beliefs, plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements that are other than statements of historical fact are "forward-looking statements" within the meaning of the federal securities laws. Although the Registrants believe that the expectations and assumptions reflected in these statements are reasonable, there can be no assurance that these expectations will prove to be correct. Forward-looking statements are subject to many risks and uncertainties, and actual results may differ materially from the results discussed in forward-looking statements. In addition to the specific factors discussed in each Registrant's 2014 Form 10-K and in "Item 2. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Form 10-Q, the following are among the important factors that could cause actual results to differ materially from the forward-looking statements.
| · | fuel supply cost and availability; |
| · | continuing ability to recover fuel costs and environmental expenditures in a timely manner at LG&E and KU, and natural gas supply costs at LG&E; |
| · | weather conditions affecting generation, customer energy use and operating costs; |
| · | operation, availability and operating costs of existing generation facilities; |
| · | the duration of and cost, including lost revenue, associated with scheduled and unscheduled outages at our generating facilities; |
| · | transmission and distribution system conditions and operating costs; |
| · | expansion of alternative sources of electricity generation; |
| · | laws or regulations to reduce emissions of "greenhouse" gases or the physical effects of climate change; |
| · | collective labor bargaining negotiations; |
| · | the outcome of litigation against the Registrants and their subsidiaries; |
| · | potential effects of threatened or actual terrorism, war or other hostilities, cyber-based intrusions or natural disasters; |
| · | the commitments and liabilities of the Registrants and their subsidiaries; |
| · | the effectiveness of our risk management techniques, including hedging; |
| · | the effect on our operations and ability to comply with new statutory and regulatory requirements related to derivative financial instruments; |
| · | our ability to attract and retain qualified employees; |
| · | volatility in market demand and prices for energy, capacity, transmission services, emission allowances and RECs; |
| · | competition in retail and wholesale power and natural gas markets; |
| · | liquidity of wholesale power markets; |
| · | defaults by counterparties under energy, fuel or other power product contracts; |
| · | market prices of commodity inputs for ongoing capital expenditures; |
| · | capital market conditions, including the availability of capital or credit, changes in interest rates and certain economic indices, and decisions regarding capital structure; |
| · | stock price performance of PPL; |
| · | volatility in the fair value of debt and equity securities and its impact on the value of assets in the NDT funds and in defined benefit plans, and the potential cash funding requirements if fair value declines; |
| · | interest rates and their effect on pension, retiree medical, nuclear decommissioning liabilities and interest payable on certain debt securities; |
| · | volatility in or the impact of other changes in financial or commodity markets and economic conditions; |
| · | new accounting requirements or new interpretations or applications of existing requirements; |
| · | changes in securities and credit ratings; |
| · | changes in foreign currency exchange rates for British pound sterling; |
| · | current and future environmental conditions, regulations and other requirements and the related costs of compliance, including environmental capital expenditures, emission allowance costs and other expenses; |
| · | legal, regulatory, political, market or other reactions to the 2011 incident at the nuclear generating facility at Fukushima, Japan, including additional NRC requirements; |
| · | changes in political, regulatory or economic conditions in states, regions or countries where the Registrants or their subsidiaries conduct business; |
| · | receipt of necessary governmental permits, approvals and rate relief; |
| · | new state, federal or foreign legislation or regulatory developments; |
| · | the outcome of any rate cases or other cost recovery or revenue filings by PPL Electric, LG&E, KU or WPD; |
| · | the impact of any state, federal or foreign investigations applicable to the Registrants and their subsidiaries and the energy industry; |
| · | the effect of any business or industry restructuring; |
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| · | development of new projects, markets and technologies; |
| · | performance of new ventures; and |
| · | business dispositions or acquisitions, including the anticipated formation of Talen Energy via the spinoff of PPL Energy Supply and subsequent combination with Riverstone's competitive generation business and our ability to realize expected benefits from such business transactions. |
Any such forward-looking statements should be considered in light of such important factors and in conjunction with other documents of the Registrants on file with the SEC.
New factors that could cause actual results to differ materially from those described in forward-looking statements emerge from time to time, and it is not possible for the Registrants to predict all such factors, or the extent to which any such factor or combination of factors may cause actual results to differ from those contained in any forward-looking statement. Any forward-looking statement speaks only as of the date on which such statement is made, and the Registrants undertake no obligation to update the information contained in such statement to reflect subsequent developments or information.
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The accompanying
Notes to Condensed Financial Statements are an integral part of the financial statements.
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| CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | |||||||||
| PPL Corporation and Subsidiaries | |||||||||
| (Unaudited) | |||||||||
| (Millions of Dollars) | |||||||||
| Three Months Ended March 31, | |||||||||
| 2015 | 2014 | ||||||||
| Net income | $ | 647 | $ | 316 | |||||
| Other comprehensive income (loss): | |||||||||
| Amounts arising during the period - gains (losses), net of tax (expense) benefit: | |||||||||
| Foreign currency translation adjustments, net of tax of ($5), $1 | (66) | 131 | |||||||
| Available-for-sale securities, net of tax of ($6), ($6) | 5 | 5 | |||||||
| Qualifying derivatives, net of tax of $4, $25 | 6 | (46) | |||||||
| Defined benefit plans: | |||||||||
| Net actuarial gain (loss), net of tax of $0, $0 | (1) | ||||||||
| Reclassifications from AOCI - (gains) losses, net of tax expense (benefit): | |||||||||
| Available-for-sale securities, net of tax of $1, $1 | (1) | (1) | |||||||
| Qualifying derivatives, net of tax of $4, ($4) | (17) | 19 | |||||||
| Equity investees' other comprehensive (income) loss, net of | |||||||||
| tax of $1, $0 | (1) | ||||||||
| Defined benefit plans: | |||||||||
| Prior service costs, net of tax of $0, ($1) | 1 | ||||||||
| Net actuarial loss, net of tax of ($13), ($9) | 38 | 27 | |||||||
| Total other comprehensive income (loss) | (37) | 136 | |||||||
| Comprehensive income (loss) | $ | 610 | $ | 452 | |||||
The accompanying
Notes to Condensed Financial Statements are an integral part of the financial statements.
| 4 |
The accompanying
Notes to Condensed Financial Statements are an integral part of the financial statements.
| 5 |
The accompanying Notes to Condensed Financial
Statements are an integral part of the financial statements.
| 6 |
| CONDENSED CONSOLIDATED BALANCE SHEETS | |||||||||
| PPL Corporation and Subsidiaries | |||||||||
| (Unaudited) | |||||||||
| (Millions of Dollars, shares in thousands) | |||||||||
| March 31, | December 31, | ||||||||
| 2015 | 2014 | ||||||||
| Liabilities and Equity | |||||||||
| Current Liabilities | |||||||||
| Short-term debt | $ | 1,595 | $ | 1,466 | |||||
| Long-term debt due within one year | 1,535 | 1,535 | |||||||
| Accounts payable | 1,128 | 1,356 | |||||||
| Taxes | 274 | 230 | |||||||
| Interest | 345 | 314 | |||||||
| Dividends | 249 | 249 | |||||||
| Price risk management liabilities | 1,073 | 1,126 | |||||||
| Regulatory liabilities | 109 | 91 | |||||||
| Other current liabilities | 909 | 1,076 | |||||||
| Total Current Liabilities | 7,217 | 7,443 | |||||||
| Long-term Debt | 18,772 | 18,856 | |||||||
| Deferred Credits and Other Noncurrent Liabilities | |||||||||
| Deferred income taxes | 4,627 | 4,450 | |||||||
| Investment tax credits | 157 | 159 | |||||||
| Price risk management liabilities | 333 | 252 | |||||||
| Accrued pension obligations | 1,457 | 1,756 | |||||||
| Asset retirement obligations | 739 | 739 | |||||||
| Regulatory liabilities | 987 | 992 | |||||||
| Other deferred credits and noncurrent liabilities | 596 | 589 | |||||||
| Total Deferred Credits and Other Noncurrent Liabilities | 8,896 | 8,937 | |||||||
| Commitments and Contingent Liabilities (Notes 6 and 10) | |||||||||
| Equity | |||||||||
| Common stock - $0.01 par value (a) | 7 | 7 | |||||||
| Additional paid-in capital | 9,480 | 9,433 | |||||||
| Earnings reinvested | 6,860 | 6,462 | |||||||
| Accumulated other comprehensive loss | (2,311) | (2,274) | |||||||
| Total Equity | 14,036 | 13,628 | |||||||
| Total Liabilities and Equity | $ | 48,921 | $ | 48,864 | |||||
| (a) | 780,000 shares authorized; 667,713 and 665,849 shares issued and outstanding at March 31, 2015 and December 31, 2014. |
The accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
| 7 |
| (a) | Shares in thousands. Each share entitles the holder to one vote on any question presented at any shareowners' meeting. |
The accompanying Notes to Condensed Financial
Statements are an integral part of the financial statements.
| 8 |
(THIS PAGE LEFT BLANK INTENTIONALLY.)
| 9 |
| (a) | Net income approximates comprehensive income. |
The
accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
| 10 |
The accompanying
Notes to Condensed Financial Statements are an integral part of the financial statements.
| 11 |
The accompanying
Notes to Condensed Financial Statements are an integral part of the financial statements.
| 12 |
| CONDENSED CONSOLIDATED BALANCE SHEETS | |||||||||
| PPL Electric Utilities Corporation and Subsidiaries | |||||||||
| (Unaudited) | |||||||||
| (Millions of Dollars, shares in thousands) | |||||||||
| March 31, | December 31, | ||||||||
| 2015 | 2014 | ||||||||
| Liabilities and Equity | |||||||||
| Current Liabilities | |||||||||
| Short-term debt | $ | 85 | |||||||
| Long term debt due within one year | 100 | $ | 100 | ||||||
| Accounts payable | 301 | 325 | |||||||
| Accounts payable to affiliates | 70 | 70 | |||||||
| Taxes | 90 | 85 | |||||||
| Interest | 26 | 34 | |||||||
| Regulatory liabilities | 85 | 76 | |||||||
| Other current liabilities | 80 | 103 | |||||||
| Total Current Liabilities | 837 | 793 | |||||||
| Long-term Debt | 2,503 | 2,502 | |||||||
| Deferred Credits and Other Noncurrent Liabilities | |||||||||
| Deferred income taxes | 1,497 | 1,483 | |||||||
| Accrued pension obligations | 182 | 212 | |||||||
| Regulatory liabilities | 26 | 18 | |||||||
| Other deferred credits and noncurrent liabilities | 66 | 60 | |||||||
| Total Deferred Credits and Other Noncurrent Liabilities | 1,771 | 1,773 | |||||||
| Commitments and Contingent Liabilities (Notes 6 and 10) | |||||||||
| Equity | |||||||||
| Common stock - no par value (a) | 364 | 364 | |||||||
| Additional paid-in capital | 1,653 | 1,603 | |||||||
| Earnings reinvested | 793 | 750 | |||||||
| Total Equity | 2,810 | 2,717 | |||||||
| Total Liabilities and Equity | $ | 7,921 | $ | 7,785 | |||||
| (a) | 170,000 shares authorized; 66,368 shares issued and outstanding at March 31, 2015 and December 31, 2014. |
The accompanying Notes to Condensed Financial
Statements are an integral part of the financial statements.
| 13 |
| (a) | Shares in thousands. All common shares of PPL Electric stock are owned by PPL. |
The
accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
| 14 |
(THIS PAGE LEFT BLANK INTENTIONALLY.)
| 15 |
| (a) | Net income approximates comprehensive income. |
The
accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
| 16 |
The accompanying
Notes to Condensed Financial Statements are an integral part of the financial statements.
| 17 |
The accompanying
Notes to Condensed Financial Statements are an integral part of the financial statements.
| 18 |
| CONDENSED CONSOLIDATED BALANCE SHEETS | |||||||||
| LG&E and KU Energy LLC and Subsidiaries | |||||||||
| (Unaudited) | |||||||||
| (Millions of Dollars) | |||||||||
| March 31, | December 31, | ||||||||
| 2015 | 2014 | ||||||||
| Liabilities and Equity | |||||||||
| Current Liabilities | |||||||||
| Short-term debt | $ | 484 | $ | 575 | |||||
| Long-term debt due within one year | 900 | 900 | |||||||
| Notes payable with affiliates | 40 | 41 | |||||||
| Accounts payable | 350 | 399 | |||||||
| Accounts payable to affiliates | 3 | 2 | |||||||
| Customer deposits | 52 | 52 | |||||||
| Taxes | 25 | 36 | |||||||
| Price risk management liabilities | 5 | 5 | |||||||
| Price risk management liabilities with affiliates | 122 | 66 | |||||||
| Regulatory liabilities | 24 | 15 | |||||||
| Interest | 60 | 23 | |||||||
| Other current liabilities | 115 | 131 | |||||||
| Total Current Liabilities | 2,180 | 2,245 | |||||||
| Long-term Debt | 3,667 | 3,667 | |||||||
| Deferred Credits and Other Noncurrent Liabilities | |||||||||
| Deferred income taxes | 1,324 | 1,241 | |||||||
| Investment tax credits | 130 | 131 | |||||||
| Accrued pension obligations | 256 | 305 | |||||||
| Asset retirement obligations | 266 | 274 | |||||||
| Regulatory liabilities | 961 | 974 | |||||||
| Price risk management liabilities | 47 | 43 | |||||||
| Other deferred credits and noncurrent liabilities | 270 | 268 | |||||||
| Total Deferred Credits and Other Noncurrent Liabilities | 3,254 | 3,236 | |||||||
| Commitments and Contingent Liabilities (Notes 6 and 10) | |||||||||
| Member's equity | 4,342 | 4,248 | |||||||
| Total Liabilities and Equity | $ | 13,443 | $ | 13,396 | |||||
The accompanying
Notes to Condensed Financial Statements are an integral part of the financial statements.
| 19 |
The accompanying Notes to Condensed Financial
Statements are an integral part of the financial statements.
| 20 |
(THIS PAGE LEFT BLANK INTENTIONALLY.)
| 21 |
| (a) | Net income equals comprehensive income. |
The
accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
| 22 |
The accompanying
Notes to Condensed Financial Statements are an integral part of the financial statements.
| 23 |
The accompanying
Notes to Condensed Financial Statements are an integral part of the financial statements.
| 24 |
| CONDENSED BALANCE SHEETS | |||||||||
| Louisville Gas and Electric Company | |||||||||
| (Unaudited) | |||||||||
| (Millions of Dollars, shares in thousands) | |||||||||
| March 31, | December 31, | ||||||||
| 2015 | 2014 | ||||||||
| Liabilities and Equity | |||||||||
| Current Liabilities | |||||||||
| Short-term debt | $ | 216 | $ | 264 | |||||
| Long-term debt due within one year | 250 | 250 | |||||||
| Accounts payable | 222 | 240 | |||||||
| Accounts payable to affiliates | 20 | 20 | |||||||
| Customer deposits | 25 | 25 | |||||||
| Taxes | 12 | 19 | |||||||
| Price risk management liabilities | 5 | 5 | |||||||
| Price risk management liabilities with affiliates | 61 | 33 | |||||||
| Regulatory liabilities | 14 | 10 | |||||||
| Interest | 15 | 6 | |||||||
| Other current liabilities | 37 | 42 | |||||||
| Total Current Liabilities | 877 | 914 | |||||||
| Long-term Debt | 1,103 | 1,103 | |||||||
| Deferred Credits and Other Noncurrent Liabilities | |||||||||
| Deferred income taxes | 735 | 700 | |||||||
| Investment tax credits | 36 | 36 | |||||||
| Accrued pension obligations | 34 | 57 | |||||||
| Asset retirement obligations | 64 | 66 | |||||||
| Regulatory liabilities | 454 | 458 | |||||||
| Price risk management liabilities | 47 | 43 | |||||||
| Other deferred credits and noncurrent liabilities | 110 | 111 | |||||||
| Total Deferred Credits and Other Noncurrent Liabilities | 1,480 | 1,471 | |||||||
| Commitments and Contingent Liabilities (Notes 6 and 10) | |||||||||
| Stockholder's Equity | |||||||||
| Common stock - no par value (a) | 424 | 424 | |||||||
| Additional paid-in capital | 1,521 | 1,521 | |||||||
| Earnings reinvested | 259 | 229 | |||||||
| Total Equity | 2,204 | 2,174 | |||||||
| Total Liabilities and Equity | $ | 5,664 | $ | 5,662 | |||||
| (a) | 75,000 shares authorized; 21,294 shares issued and outstanding at March 31, 2015 and December 31, 2014. |
The accompanying Notes to Condensed Financial
Statements are an integral part of the financial statements.
| 25 |
| (a) | Shares in thousands. All common shares of LG&E stock are owned by LKE. |
The accompanying Notes to Condensed Financial
Statements are an integral part of the financial statements.
| 26 |
(THIS PAGE LEFT BLANK INTENTIONALLY.)
| 27 |
| (a) | Net income approximates comprehensive income. |
The
accompanying Notes to Condensed Financial Statements are an integral part of the financial statements.
| 28 |
The accompanying
Notes to Condensed Financial Statements are an integral part of the financial statements.
| 29 |
The accompanying
Notes to Condensed Financial Statements are an integral part of the financial statements.
| 30 |
| CONDENSED BALANCE SHEETS | |||||||||
| Kentucky Utilities Company | |||||||||
| (Unaudited) | |||||||||
| (Millions of Dollars, shares in thousands) | |||||||||
| March 31, | December 31, | ||||||||
| 2015 | 2014 | ||||||||
| Liabilities and Equity | |||||||||
| Current Liabilities | |||||||||
| Short-term debt | $ | 193 | $ | 236 | |||||
| Long-term debt due within one year | 250 | 250 | |||||||
| Accounts payable | 114 | 141 | |||||||
| Accounts payable to affiliates | 33 | 47 | |||||||
| Customer deposits | 27 | 27 | |||||||
| Taxes | 13 | 14 | |||||||
| Price risk management liabilities with affiliates | 61 | 33 | |||||||
| Regulatory liabilities | 10 | 5 | |||||||
| Interest | 30 | 11 | |||||||
| Other current liabilities | 48 | 41 | |||||||
| Total Current Liabilities | 779 | 805 | |||||||
| Long-term Debt | 1,841 | 1,841 | |||||||
| Deferred Credits and Other Noncurrent Liabilities | |||||||||
| Deferred income taxes | 933 | 884 | |||||||
| Investment tax credits | 94 | 95 | |||||||
| Accrued pension obligations | 44 | 59 | |||||||
| Asset retirement obligations | 202 | 208 | |||||||
| Regulatory liabilities | 507 | 516 | |||||||
| Other deferred credits and noncurrent liabilities | 101 | 101 | |||||||
| Total Deferred Credits and Other Noncurrent Liabilities | 1,881 | 1,863 | |||||||
| Commitments and Contingent Liabilities (Notes 6 and 10) | |||||||||
| Stockholder's Equity | |||||||||
| Common stock - no par value (a) | 308 | 308 | |||||||
| Additional paid-in capital | 2,596 | 2,596 | |||||||
| Accumulated other comprehensive income (loss) | (1) | ||||||||
| Earnings reinvested | 350 | 302 | |||||||
| Total Equity | 3,253 | 3,206 | |||||||
| Total Liabilities and Equity | $ | 7,754 | $ | 7,715 | |||||
| (a) | 80,000 shares authorized; 37,818 shares issued and outstanding at March 31, 2015 and December 31, 2014. |
The accompanying Notes to Condensed Financial
Statements are an integral part of the financial statements.
| 31 |
| (a) | Shares in thousands. All common shares of KU stock are owned by LKE. |
The accompanying Notes to Condensed Financial
Statements are an integral part of the financial statements.
| 32 |
Combined Notes to Condensed Financial Statements (Unaudited)
1. Interim Financial Statements
(All Registrants)
Capitalized terms and abbreviations appearing in the unaudited combined notes to condensed financial statements are defined in the glossary. Dollars are in millions, except per share data, unless otherwise noted. The specific Registrant to which disclosures are applicable is identified in parenthetical headings in italics above the applicable disclosure or within the applicable disclosure for their related activities and disclosures. Within combined disclosures, amounts are disclosed for any Registrant when significant.
The accompanying unaudited condensed financial statements have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X and, therefore, do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation in accordance with GAAP are reflected in the condensed financial statements. All adjustments are of a normal recurring nature, except as otherwise disclosed. Each Registrant's Balance Sheet at December 31, 2014 is derived from that Registrant's 2014 audited Balance Sheet. The financial statements and notes thereto should be read in conjunction with the financial statements and notes contained in each Registrant's 2014 Form 10-K. The results of operations for the three months ended March 31, 2015 are not necessarily indicative of the results to be expected for the full year ending December 31, 2015 or other future periods, because results for interim periods can be disproportionately influenced by various factors, developments and seasonal variations.
The classification of certain prior period amounts has been changed to conform to the presentation in the March 31, 2015 financial statements.
(PPL)
"Income (Loss) from Discontinued Operations (net of income taxes)" on the Statements of Income includes the activities of PPL Montana's hydroelectric generating facilities sold in the fourth quarter of 2014. See Note 8 for additional information. The Statements of Cash Flows do not separately report the cash flows of the Discontinued Operations.
2. Summary of Significant Accounting Policies
(All Registrants)
The following accounting policy disclosures represent updates to Note 1 in each Registrant's 2014 Form 10-K and should be read in conjunction with those disclosures.
Accounts Receivable (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 (including PPL EnergyPlus) at a discount, which reflects a provision for uncollectible accounts. The alternative electricity suppliers have no continuing involvement or interest in the purchased accounts receivable. The purchased accounts receivable are initially recorded at fair value using a market approach based on the purchase price paid and are classified as Level 2 in the fair value hierarchy. During the three months ended March 31, 2015, PPL Electric purchased $331 million of accounts receivable from unaffiliated third parties and $93 million from PPL EnergyPlus. During the three months ended March 31, 2014, PPL Electric purchased $362 million of accounts receivable from unaffiliated third parties and $105 million from PPL EnergyPlus.
Depreciation (PPL)
Effective January 1, 2015, after completing a review of the useful lives of its distribution network assets, WPD extended the weighted average useful lives of these assets to 69 years from 55 years. For the three months ended March 31, 2015, this change in useful lives resulted in lower depreciation of $20 million ($16 million after-tax or $0.02 per share).
| 33 |
New Accounting Guidance Adopted (All Registrants)
Reporting of Discontinued Operations
Effective January 1, 2015, the Registrants prospectively adopted accounting guidance that changes the criteria for determining what should be classified as a discontinued operation and the related presentation and disclosure requirements. A discontinued operation may include a component of an entity or a group of components of an entity, or a business activity.
A disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on the entity's operations and financial results when any of the following occurs: (1) The components of an entity or group of components of an entity meets the criteria to be classified as held for sale, (2) The component of an entity or group of components of an entity is disposed of by sale, or (3) The component of an entity or group of components of an entity is disposed of other than by sale (for example, by abandonment or in a distribution to owners in a spinoff).
The initial adoption of this guidance did not have a significant impact on the Registrants but will impact the amounts presented as discontinued operations and will enhance the related disclosure requirements related to future disposals or held for sale classifications.
3. Segment and Related Information
(PPL)
See Note 2 in PPL's 2014 Form 10-K for a discussion of reportable segments and related information.
In June 2014, PPL and PPL Energy Supply, which substantially represents PPL's Supply segment, executed definitive agreements with affiliates of Riverstone to combine their competitive power generation businesses into a new, stand-alone, publicly traded company named Talen Energy. The transaction is expected to occur on June 1, 2015. Upon completion of this transaction, PPL will no longer have a Supply segment. See Note 8 for additional information.
Financial data for the segments and reconciliation to PPL's consolidated results for the periods ended March 31 are:
| Three Months | ||||||||||||||||
| 2015 | 2014 | |||||||||||||||
| Income Statement Data | ||||||||||||||||
| Revenues from external customers | ||||||||||||||||
| U.K. Regulated | $ | 697 | $ | 648 | ||||||||||||
| Kentucky Regulated | 899 | 934 | ||||||||||||||
| Pennsylvania Regulated | 630 | 591 | ||||||||||||||
| Supply (a) | 937 | (982) | ||||||||||||||
| Corporate and Other | 2 | 3 | ||||||||||||||
| Total | $ | 3,165 | $ | 1,194 | ||||||||||||
| Intersegment electric revenues | ||||||||||||||||
| Supply | $ | 9 | $ | 27 | ||||||||||||
| Net Income | ||||||||||||||||
| U.K. Regulated (a) | $ | 375 | $ | 206 | ||||||||||||
| Kentucky Regulated | 109 | 107 | ||||||||||||||
| Pennsylvania Regulated | 87 | 85 | ||||||||||||||
| Supply (a) | 95 | (75) | ||||||||||||||
| Corporate and Other (b) | (19) | (7) | ||||||||||||||
| Total | $ | 647 | $ | 316 | ||||||||||||
| March 31, | December 31, | ||||||
| 2015 | 2014 | ||||||
| Balance Sheet Data | |||||||
| Assets | |||||||
| U.K. Regulated | $ | 16,275 | $ | 16,005 | |||
| Kentucky Regulated | 13,109 | 13,062 | |||||
| Pennsylvania Regulated | 7,921 | 7,785 | |||||
| Supply | 10,631 | 11,025 | |||||
| Corporate and Other (c) | 985 | 987 | |||||
| Total assets | $ | 48,921 | $ | 48,864 | |||
| (a) | Includes unrealized gains and losses from economic activity. See Note 14 for additional information. |
| (b) | 2015 includes most of the transaction and transition costs related to the anticipated spinoff of PPL Energy Supply. See Note 8 for additional information. |
| (c) | Primarily consists of unallocated items, including cash, PP&E and the elimination of inter-segment transactions. |
| 34 |
(PPL)
Basic EPS is computed by dividing income available to PPL common shareowners by the weighted-average number of common shares outstanding during the applicable period. Diluted EPS is computed by dividing income available to PPL common shareowners by the weighted-average number of common shares outstanding, increased by incremental shares that would be outstanding if potentially dilutive non-participating securities were converted to common shares as calculated using the Treasury Stock Method or the If-Converted Method, as applicable. Incremental non-participating securities that have a dilutive impact are detailed in the table below.
Reconciliations of the amounts of income and shares of PPL common stock (in thousands) for the period ended March 31 used in the EPS calculation are:
| Three Months | |||||||||||||||
| 2015 | 2014 | ||||||||||||||
| Income (Numerator) | |||||||||||||||
| Income from continuing operations after income taxes | $ | 647 | $ | 324 | |||||||||||
| Less amounts allocated to participating securities | 3 | 2 | |||||||||||||
| Income from continuing operations after income taxes available to PPL common shareowners - Basic | 644 | 322 | |||||||||||||
| Plus interest charges (net of tax) related to Equity Units (a) | 9 | ||||||||||||||
| Income from continuing operations after income taxes available to PPL common shareowners - Diluted | $ | 644 | $ | 331 | |||||||||||
| Income (loss) from discontinued operations (net of income taxes) available to PPL common shareowners - Basic | |||||||||||||||
| and Diluted | $ | $ | (8) | ||||||||||||
| Net income | $ | 647 | $ | 316 | |||||||||||
| Less amounts allocated to participating securities | 3 | 2 | |||||||||||||
| Net income available to PPL common shareowners - Basic | 644 | 314 | |||||||||||||
| Plus interest charges (net of tax) related to Equity Units (a) | 9 | ||||||||||||||
| Net income available to PPL common shareowners - Diluted | $ | 644 | $ | 323 | |||||||||||
| Shares of Common Stock (Denominator) | |||||||||||||||
| Weighted-average shares - Basic EPS | 666,974 | 630,749 | |||||||||||||
| Add incremental non-participating securities: | |||||||||||||||
| Share-based payment awards | 1,758 | 1,511 | |||||||||||||
| Equity Units (a) | 31,679 | ||||||||||||||
| Weighted-average shares - Diluted EPS | 668,732 | 663,939 | |||||||||||||
| Basic EPS | |||||||||||||||
| Available to PPL common shareowners: | |||||||||||||||
| Income from continuing operations after income taxes | $ | 0.97 | $ | 0.51 | |||||||||||
| Income (loss) from discontinued operations (net of income taxes) | (0.01) | ||||||||||||||
| Net Income Available to PPL common shareowners | $ | 0.97 | $ | 0.50 | |||||||||||
| Diluted EPS | |||||||||||||||
| Available to PPL common shareowners: | |||||||||||||||
| Income from continuing operations after income taxes | $ | 0.96 | $ | 0.50 | |||||||||||
| Income (loss) from discontinued operations (net of income taxes) | (0.01) | ||||||||||||||
| Net Income Available to PPL common shareowners | $ | 0.96 | $ | 0.49 | |||||||||||
| (a) | In 2014, the If-Converted Method was applied to the Equity Units prior to the March 2014 settlement. |
For the periods ended March 31, PPL issued common stock related to stock-based compensation plans as follows (in thousands):
| Three Months | ||||||||||||||
| 2015 | 2014 | |||||||||||||
| Stock-based compensation plans (a) | 1,445 | 1,096 | ||||||||||||
| DRIP | 419 | |||||||||||||
| (a) | Includes stock options exercised, vesting of performance units, vesting of restricted stock and restricted stock units and conversion of stock units granted to directors. |
For the periods ended March 31, the following shares (in thousands) were excluded from the computations of diluted EPS because the effect would have been antidilutive.
| 35 |
| Three Months | ||||||||||||
| 2015 | 2014 | |||||||||||
| Stock options | 1,473 | 2,540 | ||||||||||
| Performance units | 146 | |||||||||||
| Restricted stock units | 123 | |||||||||||
Reconciliations of income taxes for the periods ended March 31 are:
| (PPL) | ||||||||||||||||
| Three Months | ||||||||||||||||
| 2015 | 2014 | |||||||||||||||
| Federal income tax on Income from Continuing Operations Before | ||||||||||||||||
| Income Taxes at statutory tax rate - 35% | $ | 320 | $ | 153 | ||||||||||||
| Increase (decrease) due to: | ||||||||||||||||
| State income taxes, net of federal income tax benefit | 25 | 3 | ||||||||||||||
| Valuation allowance adjustments | 3 | |||||||||||||||
| Impact of lower U.K. income tax rates | (62) | (44) | ||||||||||||||
| U.S. income tax on foreign earnings - net of foreign tax credit | (1) | 11 | ||||||||||||||
| Intercompany interest on U.K. financing entities | (8) | (2) | ||||||||||||||
| Other | (9) | (7) | ||||||||||||||
| Total increase (decrease) | (52) | (39) | ||||||||||||||
| Total income taxes | $ | 268 | $ | 114 | ||||||||||||
| (PPL Electric) | ||||||||||||||||
| Three Months | ||||||||||||||||
| 2015 | 2014 | |||||||||||||||
| Federal income tax on Income Before Income Taxes at statutory tax rate - 35% | $ | 51 | $ | 48 | ||||||||||||
| Increase (decrease) due to: | ||||||||||||||||
| State income taxes, net of federal income tax benefit | 10 | 8 | ||||||||||||||
| Other | (2) | (3) | ||||||||||||||
| Total increase (decrease) | 8 | 5 | ||||||||||||||
| Total income taxes | $ | 59 | $ | 53 | ||||||||||||
| (LKE) | ||||||||||||||||
| Three Months | ||||||||||||||||
| 2015 | 2014 | |||||||||||||||
| Federal income tax on Income Before Income Taxes at statutory tax rate - 35% | $ | 68 | $ | 64 | ||||||||||||
| Increase (decrease) due to: | ||||||||||||||||
| State income taxes, net of federal income tax benefit | 7 | 7 | ||||||||||||||
| Valuation allowance adjustments | 3 | |||||||||||||||
| Other | (2) | (2) | ||||||||||||||
| Total increase (decrease) | 8 | 5 | ||||||||||||||
| Total income taxes | $ | 76 | $ | 69 | ||||||||||||
| (LG&E) | ||||||||||||||||
| Three Months | ||||||||||||||||
| 2015 | 2014 | |||||||||||||||
| Federal income tax on Income Before Income Taxes at statutory tax rate - 35% | $ | 30 | $ | 29 | ||||||||||||
| Increase (decrease) due to: | ||||||||||||||||
| State income taxes, net of federal income tax benefit | 3 | 3 | ||||||||||||||
| Other | (2) | |||||||||||||||
| Total increase (decrease) | 3 | 1 | ||||||||||||||
| Total income taxes | $ | 33 | $ | 30 | ||||||||||||
| 36 |
| (KU) | ||||||||||||||||
| Three Months | ||||||||||||||||
| 2015 | 2014 | |||||||||||||||
| Federal income tax on Income Before Income Taxes at statutory tax rate - 35% | $ | 44 | $ | 43 | ||||||||||||
| Increase (decrease) due to: | ||||||||||||||||
| State income taxes, net of federal income tax benefit | 4 | 4 | ||||||||||||||
| Other | (1) | (1) | ||||||||||||||
| Total increase (decrease) | 3 | 3 | ||||||||||||||
| Total income taxes | $ | 47 | $ | 46 | ||||||||||||
In February 2015, PPL and the IRS Appeals division reached a settlement on the amount of PPL's refund from its open audits for the years 1998 - 2011. The settlement was required to be reviewed and approved by the Joint Committee on Taxation (JCT) before it is considered final. In April 2015, PPL was notified that the JCT approved PPL's settlement. Subject to a final determination of interest on the refund, PPL expects to record a tax benefit in the range of $20 million to $30 million in the second quarter of 2015 related to the settlement of previously unrecognized tax benefits.
(All Registrants)
The following table provides information about the regulatory assets and liabilities of cost-based rate-regulated utility operations.
| PPL | PPL Electric | ||||||||||||
| March 31, | December 31, | March 31, | December 31, | ||||||||||
| 2015 | 2014 | 2015 | 2014 | ||||||||||
| Current Regulatory Assets: | |||||||||||||
| Environmental cost recovery | $ | 10 | $ | 5 | |||||||||
| Gas supply clause | 1 | 15 | |||||||||||
| Fuel adjustment clause | 4 | 4 | |||||||||||
| Transmission service charge | 6 | $ | 6 | ||||||||||
| Other | 8 | 7 | $ | 3 | 6 | ||||||||
| Total current regulatory assets | $ | 23 | $ | 37 | $ | 3 | $ | 12 | |||||
| Noncurrent Regulatory Assets: | |||||||||||||
| Defined benefit plans | $ | 705 | $ | 720 | $ | 367 | $ | 372 | |||||
| Taxes recoverable through future rates | 317 | 316 | 317 | 316 | |||||||||
| Storm costs | 116 | 124 | 42 | 46 | |||||||||
| Unamortized loss on debt | 76 | 77 | 48 | 49 | |||||||||
| Interest rate swaps | 182 | 122 | |||||||||||
| Accumulated cost of removal of utility plant | 117 | 114 | 117 | 114 | |||||||||
| AROs | 87 | 79 | |||||||||||
| Other | 10 | 10 | |||||||||||
| Total noncurrent regulatory assets | $ | 1,610 | $ | 1,562 | $ | 891 | $ | 897 | |||||
| Current Regulatory Liabilities: | |||||||||||||
| Generation supply charge | $ | 26 | $ | 28 | $ | 26 | $ | 28 | |||||
| Demand side management | 13 | 2 | |||||||||||
| Gas supply clause | 6 | 6 | |||||||||||
| Transmission formula rate | 49 | 42 | 49 | 42 | |||||||||
| Storm damage expense | 7 | 3 | 7 | 3 | |||||||||
| Gas line tracker | 2 | 3 | |||||||||||
| Other | 6 | 7 | 3 | 3 | |||||||||
| Total current regulatory liabilities | $ | 109 | $ | 91 | $ | 85 | $ | 76 | |||||
| Noncurrent Regulatory Liabilities: | |||||||||||||
| Accumulated cost of removal of utility plant | $ | 695 | $ | 693 | |||||||||
| Coal contracts (a) | 49 | 59 | |||||||||||
| Power purchase agreement - OVEC (a) | 90 | 92 | |||||||||||
| Net deferred tax assets | 25 | 26 | |||||||||||
| Act 129 compliance rider | 26 | 18 | $ | 26 | $ | 18 | |||||||
| Defined benefit plans | 16 | 16 | |||||||||||
| Interest rate swaps | 84 | 84 | |||||||||||
| Other | 2 | 4 | |||||||||||
| Total noncurrent regulatory liabilities | $ | 987 | $ | 992 | $ | 26 | $ | 18 | |||||
| 37 |
| LKE | LG&E | KU | |||||||||||||||||
| March 31, | December 31, | March 31, | December 31, | March 31, | December 31, | ||||||||||||||
| 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | ||||||||||||||
| Current Regulatory Assets: | |||||||||||||||||||
| Environmental cost recovery | $ | 10 | $ | 5 | $ | 7 | $ | 4 | $ | 3 | $ | 1 | |||||||
| Gas supply clause | 1 | 15 | 1 | 15 | |||||||||||||||
| Fuel adjustment clause | 4 | 4 | 4 | 2 | 2 | ||||||||||||||
| Other | 5 | 1 | 5 | 1 | |||||||||||||||
| Total current regulatory assets | $ | 20 | $ | 25 | $ | 12 | $ | 21 | $ | 8 | $ | 4 | |||||||
| Noncurrent Regulatory Assets: | |||||||||||||||||||
| Defined benefit plans | $ | 338 | $ | 348 | $ | 208 | $ | 215 | $ | 130 | $ | 133 | |||||||
| Storm costs | 74 | 78 | 41 | 43 | 33 | 35 | |||||||||||||
| Unamortized loss on debt | 28 | 28 | 18 | 18 | 10 | 10 | |||||||||||||
| Interest rate swaps | 182 | 122 | 121 | 89 | 61 | 33 | |||||||||||||
| AROs | 87 | 79 | 30 | 28 | 57 | 51 | |||||||||||||
| Other | 10 | 10 | 4 | 4 | 6 | 6 | |||||||||||||
| Total noncurrent regulatory assets | $ | 719 | $ | 665 | $ | 422 | $ | 397 | $ | 297 | $ | 268 | |||||||
| Current Regulatory Liabilities: | ||||||||||||||||||||
| Demand side management | $ | 13 | $ | 2 | $ | 5 | $ | 1 | $ | 8 | $ | 1 | ||||||||
| Gas supply clause | 6 | 6 | 6 | 6 | ||||||||||||||||
| Gas line tracker | 2 | 3 | 2 | 3 | ||||||||||||||||
| Other | 3 | 4 | 1 | 2 | 4 | |||||||||||||||
| Total current regulatory liabilities | $ | 24 | $ | 15 | $ | 14 | $ | 10 | $ | 10 | $ | 5 | ||||||||
| Noncurrent Regulatory Liabilities: | ||||||||||||||||||||
| Accumulated cost of removal | ||||||||||||||||||||
| of utility plant | $ | 695 | $ | 693 | $ | 304 | $ | 302 | $ | 391 | $ | 391 | ||||||||
| Coal contracts (a) | 49 | 59 | 21 | 25 | 28 | 34 | ||||||||||||||
| Power purchase agreement - OVEC (a) | 90 | 92 | 62 | 63 | 28 | 29 | ||||||||||||||
| Net deferred tax assets | 25 | 26 | 24 | 24 | 1 | 2 | ||||||||||||||
| Defined benefit plans | 16 | 16 | 16 | 16 | ||||||||||||||||
| Interest rate swaps | 84 | 84 | 42 | 42 | 42 | 42 | ||||||||||||||
| Other | 2 | 4 | 1 | 2 | 1 | 2 | ||||||||||||||
| Total noncurrent regulatory liabilities | $ | 961 | $ | 974 | $ | 454 | $ | 458 | $ | 507 | $ | 516 | ||||||||
| (a) | These liabilities were recorded as offsets to certain intangible assets that were recorded at fair value upon the acquisition of LKE by PPL. |
U. K. Activities (PPL)
RIIO-ED1
On April 1, 2015, the RIIO-ED1 eight-year price control period commenced for WPD's four DNOs. See "Item 1. Business - Segment Information - U. K. Regulated Segment" of PPL's 2014 Form 10-K for additional information on RIIO-ED1.
Ofgem Review of Line Loss Calculation
In March 2014, Ofgem issued its final decision on the DPCR4 line loss incentives and penalties mechanism. As a result, during the first quarter of 2014 WPD increased its liability by $65 million for over-recovery of line losses with a reduction to "Utility" revenues on the Statement of Income. The liability at March 31, 2015 of $97 million will be refunded to customers from April 1, 2015 through March 31, 2019.
Kentucky Activities (PPL, LKE, LG&E and KU)
Rate Case Proceedings
On November 26, 2014, LG&E and KU filed requests with the KPSC for increases in annual base electricity rates for LG&E's electric and gas operations and KU's electric operations. On April 20, 2015, LG&E and KU, and the other parties to the proceeding, filed a unanimous settlement agreement with the KPSC. Among other things, the proposed settlement provides for increases in the annual revenue requirements associated with KU base electric rates of $125 million and LG&E base gas rates of $7 million. The annual revenue requirement associated with base electric rates at LG&E will not increase. The settlement did not establish a specific return on equity with respect to the base rates, however an authorized 10% return on equity will be utilized in the ECR and GLT mechanisms. The settlement agreement provides for deferred recovery of
| 38 |
costs associated with Green River Units 3 and 4 through their retirement. The new regulatory asset will be amortized over three years. The settlement also provides regulatory asset treatment for the difference between pension expense currently booked in accordance with LG&E and KU's pension accounting policy and such an expense using a 15 year amortization period for actuarial gains and losses. The proposed settlement remains subject to KPSC approval. If approved, the new rates and all elements of the settlement would be effective July 1, 2015.
Pennsylvania Activities (PPL and PPL Electric)
Rate Case Proceeding
On March 31, 2015, PPL Electric filed a request with the PUC for an increase in its annual distribution revenue requirement of approximately $167.5 million. The proposal would result in a rate increase of 3.9% on a total bill basis and is expected to become effective on January 1, 2016. PPL Electric's application includes a request for an authorized return-on-equity of 10.95%. The application is based on a fully projected future test year of January 1, 2016 through December 31, 2016. PPL Electric cannot predict the outcome of this proceeding.
Distribution System Improvement Charge (DSIC)
Act 11 authorizes the PUC to approve two specific ratemaking mechanisms: the use of a fully projected future test year in base rate proceedings and, subject to certain conditions, the use of a DSIC. Such alternative ratemaking procedures and mechanisms provide opportunity for accelerated cost-recovery and, therefore, are important to PPL Electric as it is in a period of significant capital investment to maintain and enhance the reliability of its delivery system, including the replacement of aging distribution assets.
On March 31, 2015, PPL Electric filed a petition requesting a waiver of the DSIC cap of 5% of billed revenues and approval to increase the maximum allowable DSIC from 5% to 7.5% for service rendered after January 1, 2016. PPL Electric filed the petition concurrently with its 2015 rate case and is requesting that the PUC consolidate these two proceedings. PPL Electric cannot predict the outcome of this proceeding.
Storm Damage Expense Rider (SDER)
In its December 28, 2012 final rate case order, the PUC directed PPL Electric to file a proposed SDER. The SDER is a reconcilable automatic adjustment clause under which PPL Electric annually will compare actual storm costs to storm costs allowed in base rates and refund or recoup any differences from customers. In March 2013, PPL Electric filed its proposed SDER with the PUC and, as part of that filing, requested recovery of the 2012 qualifying storm costs related to Hurricane Sandy. PPL Electric proposed that the SDER become effective January 1, 2013 at a zero rate with qualifying storm costs incurred in 2013 and the 2012 Hurricane Sandy costs included in rates effective January 1, 2014. In April 2014, the PUC issued a final order approving the SDER with a January 1, 2015 effective date and initially including actual storm costs compared to collections for December 2013 through November 2014. As a result, PPL Electric reduced its regulatory liability by $12 million in March 2014. Also, as part of the April 2014 order, PPL Electric was authorized to recover Hurricane Sandy storm damage costs through the SDER of $29 million over a three-year period beginning January 1, 2015.
On June 20, 2014, the Office of Consumer Advocate (OCA) filed a petition with the Commonwealth Court of Pennsylvania requesting that the Court reverse and remand the April 2014 order permitting PPL Electric to establish the SDER. This matter remains pending before the Commonwealth Court. On January 15, 2015, the PUC issued a final order closing an investigation related to an OCA complaint concerning PPL Electric's October 2014 preliminary SDER calculation and modified the effective date of the SDER to February 1, 2015.
Smart Meter Rider (SMR)
Act 129 requires installation of smart meters for new construction, upon the request of consumers and at their cost, or on a depreciation schedule not exceeding 15 years. Under Act 129, EDCs are able to recover the costs of providing smart metering technology. All of PPL Electric's metered customers currently have advanced meters installed at their service locations capable of many of the functions required under Act 129. PPL Electric conducted pilot projects and technical evaluations of its current advanced metering technology and concluded that the current technology does not meet all of the requirements of Act 129. PPL Electric recovered the cost of its evaluations through a cost recovery mechanism, the Smart Meter Rider. In August 2013, PPL Electric filed with the PUC an annual report describing the actions it was taking under its Smart Meter Plan during 2013 and its planned actions for 2014. PPL Electric also submitted revised SMR charges that became effective January 1, 2014. On June 30, 2014, PPL Electric filed its final Smart Meter Plan with the PUC. In that plan, PPL Electric proposes to replace all of its current meters with advanced meters that meet the Act 129 requirements. Full deployment of the new meters is expected to be complete by the end of 2019. The total cost of the project is estimated to
| 39 |
be approximately $450 million. PPL Electric proposes to recover these costs through the SMR which the PUC previously has approved for recovery of such costs. On April 30, 2015, the Administrative Law Judge assigned by the PUC to review PPL Electric's Smart Meter Plan issued a recommended decision approving the plan with minor modifications. The recommended decision is subject to final approval by and remains pending before the PUC.
Federal Matters
FERC Wholesale Formula Rates (LKE and KU)
In September 2013, KU filed an application with the FERC to adjust the formula rate under which KU provides wholesale requirements power sales to 12 municipal customers. Among other changes, the application requests an amended formula whereby KU would charge cost-based rates with a subsequent true-up to actual costs, replacing the current formula which does not include a true-up. KU's application proposed an authorized return on equity of 10.7%. Certain elements, including the new formula rate, became effective April 23, 2014, subject to refund. In April 2014, nine municipalities submitted notices of termination, under the original notice period provisions, to cease taking power under the wholesale requirements contracts. Such terminations are to be effective in 2019, except in the case of one municipality with a 2017 effective date. In addition, a tenth municipality which has a previously settled termination date of 2016 has given notice that it will transfer service in June 2015. In July 2014, KU agreed on settlement terms with the two municipal customers that did not provide termination notices and filed the settlement proposal with the FERC for its approval. In August 2014, the FERC issued an order on the interim settlement agreement allowing the proposed rates to become effective pending a final order. If approved, the settlement agreement will resolve the rate case with respect to these two municipalities, including an authorized return on equity of 10% or the return on equity awarded to other parties in this case, whichever is lower. Also in July 2014, KU made a contractually required filing with the FERC that addressed certain rate recovery matters affecting the nine terminating municipalities during the remaining term of their contracts. KU and the terminating municipalities continue settlement discussions in this proceeding. KU cannot currently predict the outcome of its FERC applications regarding its wholesale power agreements with the municipalities.
Credit Arrangements and Short-term Debt
(All Registrants)
The Registrants maintain credit facilities to enhance liquidity, provide credit support and provide a backstop to commercial paper programs. For reporting purposes, on a consolidated basis, the credit facilities and commercial paper programs of PPL Electric, LKE, LG&E and KU also apply to PPL and the credit facilities and commercial paper programs of LG&E and KU also apply to LKE. The amounts borrowed below are recorded as "Short-term debt" on the Balance Sheets. The following credit facilities were in place at:
| March 31, 2015 | December 31, 2014 | |||||||||||||||||||||||||
| Letters of | Letters of | |||||||||||||||||||||||||
| Credit | Credit | |||||||||||||||||||||||||
| and | and | |||||||||||||||||||||||||
| Commercial | Commercial | |||||||||||||||||||||||||
| Expiration | Paper | Unused | Paper | |||||||||||||||||||||||
| Date | Capacity | Borrowed | Issued | Capacity | Borrowed | Issued | ||||||||||||||||||||
| PPL | ||||||||||||||||||||||||||
| U.K. | ||||||||||||||||||||||||||
| WPD Ltd. | ||||||||||||||||||||||||||
| Syndicated Credit Facility | Dec. 2016 | £ | 210 | £ | 130 | £ | 80 | £ | 103 | |||||||||||||||||
| WPD (South West) | ||||||||||||||||||||||||||
| Syndicated Credit Facility | July 2019 | 245 | 245 | |||||||||||||||||||||||
| WPD (East Midlands) | ||||||||||||||||||||||||||
| Syndicated Credit Facility | July 2019 | 300 | 147 | 153 | 64 | |||||||||||||||||||||
| WPD (West Midlands) | ||||||||||||||||||||||||||
| Syndicated Credit Facility | July 2019 | 300 | 300 | |||||||||||||||||||||||
| Uncommitted Credit Facilities | 65 | £ | 5 | 60 | £ | 5 | ||||||||||||||||||||
| Total U.K. Credit Facilities (a) | £ | 1,120 | £ | 277 | £ | 5 | £ | 838 | £ | 167 | £ | 5 | ||||||||||||||
| 40 |
| March 31, 2015 | December 31, 2014 | |||||||||||||||||||||||||
| Letters of | Letters of | |||||||||||||||||||||||||
| Credit | Credit | |||||||||||||||||||||||||
| and | and | |||||||||||||||||||||||||
| Commercial | Commercial | |||||||||||||||||||||||||
| Expiration | Paper | Unused | Paper | |||||||||||||||||||||||
| Date | Capacity | Borrowed | Issued | Capacity | Borrowed | Issued | ||||||||||||||||||||
| U.S. | ||||||||||||||||||||||||||
| PPL Capital Funding | ||||||||||||||||||||||||||
| Syndicated Credit Facility | July 2019 | $ | 300 | $ | 300 | |||||||||||||||||||||
| Syndicated Credit Facility | Nov. 2018 | 300 | 300 | |||||||||||||||||||||||
| Bilateral Credit Facility | Mar. 2016 | 150 | $ | 32 | 118 | $ | 21 | |||||||||||||||||||
| Uncommitted Credit Facility | 65 | 1 | 64 | 1 | ||||||||||||||||||||||
| Total PPL Capital Funding Credit Facilities | $ | 815 | $ | 33 | $ | 782 | $ | 22 | ||||||||||||||||||
| PPL Energy Supply | ||||||||||||||||||||||||||
| Syndicated Credit Facility (b) | Nov. 2017 | $ | 3,000 | $ | 600 | $ | 267 | $ | 2,133 | $ | 630 | $ | 121 | |||||||||||||
| PPL Electric | ||||||||||||||||||||||||||
| Syndicated Credit Facility | July 2019 | $ | 300 | $ | 86 | $ | 214 | $ | 1 | |||||||||||||||||
| LKE | ||||||||||||||||||||||||||
| Syndicated Credit Facility (b) | Oct. 2018 | $ | 75 | $ | 75 | $ | 75 | |||||||||||||||||||
| LG&E | ||||||||||||||||||||||||||
| Syndicated Credit Facility | July 2019 | $ | 500 | $ | 216 | $ | 284 | $ | 264 | |||||||||||||||||
| KU | ||||||||||||||||||||||||||
| Syndicated Credit Facility | July 2019 | $ | 400 | $ | 193 | $ | 207 | $ | 236 | |||||||||||||||||
| Letter of Credit Facility | Oct. 2017 | 198 | 198 | 198 | ||||||||||||||||||||||
| Total KU Credit Facilities | $ | 598 | $ | 391 | $ | 207 | $ | 434 | ||||||||||||||||||
(PPL)
PPL Energy Supply's Letter of Credit Facility and Uncommitted Credit Facilities that existed at December 31, 2014 have either expired or matured during the first quarter of 2015. Any previously issued letters of credit under these facilities were either terminated or reissued under the PPL Energy Supply Syndicated Credit Facility at March 31, 2015.
(All Registrants)
PPL Electric, LG&E and KU maintain commercial paper programs to provide an additional financing source to fund short-term liquidity needs, as necessary. Commercial paper issuances, included in "Short-term debt" on the Balance Sheets, are supported by the respective Registrant's Syndicated Credit Facility. The following commercial paper programs were in place at:
| March 31, 2015 | December 31, 2014 | ||||||||||||||||||||||
| Weighted - | Commercial | Weighted - | Commercial | ||||||||||||||||||||
| Average | Paper | Unused | Average | Paper | |||||||||||||||||||
| Interest Rate | Capacity | Issuances | Capacity | Interest Rate | Issuances | ||||||||||||||||||
| PPL Electric | 0.57% | $ | 300 | $ | 85 | $ | 215 | ||||||||||||||||
| LG&E | 0.63% | 350 | 216 | 134 | 0.42% | $ | 264 | ||||||||||||||||
| KU | 0.62% | 350 | 193 | 157 | 0.49% | 236 | |||||||||||||||||
| Total | $ | 1,000 | $ | 494 | $ | 506 | $ | 500 | |||||||||||||||
PPL Energy Supply maintains a $500 million Facility Agreement expiring June 2017, which provides PPL Energy Supply the ability to request up to $500 million of committed letter of credit capacity at fees to be agreed upon at the time of each request, based on certain market conditions. At March 31, 2015, PPL Energy Supply had not requested any capacity for the issuance of letters of credit under this arrangement.
| 41 |
PPL Energy Supply, PPL EnergyPlus, PPL Montour and PPL Brunner Island maintain an $800 million secured energy marketing and trading facility, whereby PPL EnergyPlus will receive credit to be applied to satisfy collateral posting obligations related to its energy marketing and trading activities with counterparties participating in the facility. The credit amount is guaranteed by PPL Energy Supply, PPL Montour and PPL Brunner Island. PPL Montour and PPL Brunner Island have granted liens on their respective generating facilities to secure any amount they may owe under their guarantees. The facility expires in November 2019, but is subject to automatic one-year renewals under certain conditions. There were $88 million of secured obligations outstanding under this facility at March 31, 2015.
(LKE)
See Note 11 for discussion of intercompany borrowings.
(PPL)
At-the-Market Stock Offering Program
On February 26, 2015, PPL entered into two separate equity distribution agreements, pursuant to which PPL may sell, from time to time, up to an aggregate of $500 million of its common stock. During the period ended March 31, 2015, no sales of common stock under the equity distribution agreements were made.
Distributions
In February 2015, PPL declared its quarterly common stock dividend, payable April 1, 2015, at 37.25 cents per share (equivalent to $1.49 per annum). Future dividends, declared at the discretion of the Board of Directors, will depend upon future earnings, cash flows, financial and legal requirements and other factors.
8. Acquisitions, Development and Divestitures
(All Registrants)
The Registrants from time to time evaluate opportunities for potential acquisitions, divestitures and development projects. Development projects are 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 8 in the 2014 Form 10-K for additional information.
Divestitures
Anticipated Spinoff of PPL Energy Supply
In June 2014, PPL and PPL Energy Supply executed definitive agreements with affiliates of Riverstone to combine their competitive power generation businesses into a new, stand-alone, publicly traded company named Talen Energy. Under the terms of the agreements, at closing, PPL will spin off to PPL shareowners a newly formed entity, Holdco, which at such time will own all of the membership interests of PPL Energy Supply and all of the common stock of Talen Energy. Immediately following the spinoff, Holdco will merge with a special purpose subsidiary of Talen Energy, with Holdco continuing as the surviving company to the merger and as a wholly owned subsidiary of Talen Energy and the sole owner of PPL Energy Supply. Substantially contemporaneous with the spinoff and merger, RJS Power will be contributed by its owners to become a subsidiary of Talen Energy. Following completion of these transactions, PPL shareowners will own 65% of Talen Energy and affiliates of Riverstone will own 35%. PPL will have no continuing ownership interest in, control of, or affiliation with Talen Energy. The transaction is intended to be tax-free to PPL and its shareowners for U.S. federal income tax purposes and is subject to customary closing conditions, including receipt of required regulatory approvals from the NRC, FERC, DOJ and PUC, all of which were received by mid-April 2015. In addition, there must be available, subject to certain conditions, at least $1 billion of undrawn credit capacity under a revolving credit or similar facility of Talen Energy or one or more of its subsidiaries. Any letters of credit or other credit support measures posted in connection with energy marketing and trading transactions at the time of the spinoff are excluded from this calculation.
In connection with the FERC approval, PPL and RJS Power agreed that within 12 months after closing of the transaction, Talen Energy will divest approximately 1,300 MW of generating assets in one of two groups of assets (from PPL Energy
| 42 |
Supply's existing portfolio, this includes either the Holtwood and Wallenpaupack hydroelectric facilities or the Ironwood facility), and limit PJM energy market offers from assets it would retain in the other group to cost-based offers.
On April 29, 2015, PPL's Board of Directors declared the distribution of Holdco to PPL's shareowners of record on May 20, 2015, with the spinoff to occur on June 1, 2015. Based on the number of shares of PPL common stock outstanding at April 29, 2015, the distribution ratio is expected to be approximately 0.125 shares of Talen common stock for each share of PPL common stock. The final ratio will be determined after the record date. The spinoff will have no effect on the number of PPL common shares owned by PPL shareowners or the number of shares of PPL common stock outstanding.
Following the announcement of the transaction to form Talen Energy, efforts were initiated to identify the appropriate staffing for Talen Energy and for PPL and its subsidiaries following completion of the spinoff. Organizational plans were substantially completed in 2014. The new organizational plans identified the need to resize and restructure the organizations and as a result, in 2014, estimated charges for employee separation benefits were recorded. See Note 8 in the 2014 Form 10-K for additional information. The separation benefits include cash severance compensation, lump sum COBRA reimbursement payments and outplacement services. Most separations and payment of separation benefits are expected to be completed by the end of 2015. At March 31, 2015 and December 31, 2014, the recorded liabilities related to the separation benefits were $19 million and $30 million, which are included in "Other current liabilities" on the Balance Sheets.
Additional employee-related costs to be incurred primarily include accelerated stock-based compensation and pro-rated performance-based cash incentive and stock-based compensation awards, primarily for PPL Energy Supply employees and for PPL employees who have become PPL Energy Supply employees in connection with the transaction. These costs will be recognized at the spinoff closing date. PPL estimates these additional costs will be in the range of $30 million to $40 million.
PPL recorded $6 million of third-party costs during the three months ended March 31, 2015 related to this transaction. Of these costs, $2 million were primarily for legal and accounting fees to facilitate the transaction, and are recorded in "Other Income (Expense) - net" on the Statement of Income. An additional $4 million of consulting and other costs were incurred to ready the new Talen Energy organization and reconfigure the remaining PPL service functions. These costs are recorded in "Other operation and maintenance" on the Statement of Income. PPL recorded $27 million of third-party costs in 2014 related to this transaction. PPL currently estimates a range of total third-party costs that will ultimately be incurred of between $60 million and $70 million.
The assets and liabilities of PPL's Supply segment will continue to be classified as "held and used" on PPL's Balance Sheet until the closing of the transaction, at which time the operations of the Supply segment will be classified as discontinued operations. At the close of the transaction, unamortized losses on PPL interest rate swaps recorded in AOCI and designated as hedges of PPL Energy Supply's future interest payments will be reclassified into earnings and reflected in discontinued operations. The amount of these unamortized losses deferred in AOCI at March 31, 2015 was $55 million after-tax.
In conducting its annual goodwill impairment assessment in the fourth quarter of 2014 for its Supply segment reporting unit, PPL determined that the estimated fair value of the Supply segment exceeded its carrying value and no impairment was recognized. PPL had not identified any indicators of impairment as of March 31, 2015, but cannot predict whether an impairment loss will be recorded at the spinoff date. An impairment loss would be recognized by PPL at the spinoff date if the aggregate carrying amount of the Supply segment's assets and liabilities exceed their aggregate fair value at that date and would be reflected in discontinued operations. Upon completion of this transaction, PPL will no longer have a Supply segment.
Montana Hydro Sale
In November 2014, PPL Montana completed the sale to NorthWestern of 633 MW of hydroelectric generating facilities located in Montana for approximately $900 million in cash. The proceeds will remain with PPL and not transfer to Talen Energy as a result of the spinoff. The sale included 11 hydroelectric power facilities and related assets, included in the Supply segment.
Following are the components of Discontinued Operations in the Statement of Income for the three months ended March 31.
| 43 |
| 2014 | ||||||||||||
| Operating revenues | $ | 29 | ||||||||||
| Interest expense (a) | 2 | |||||||||||
| Income (loss) before income taxes (b) | (10) | |||||||||||
| Income (Loss) from Discontinued Operations (net of income taxes) (b) | (8) | |||||||||||
| (a) | Represents allocated interest expense based upon the discontinued operations share of the net assets of PPL Energy Supply. |
| (b) | Includes an impairment charge related to the Kerr Dam Project. See Note 13 for additional information. |
Development
Future Capacity Needs (PPL, LKE, LG&E and KU)
Construction activity is nearing completion and testing is in progress on the previously announced NGCC unit, Cane Run Unit 7, scheduled to be operational in the second quarter of 2015. On March 31, 2015, LG&E retired an older coal-fired generating unit at the Cane Run plant and anticipates retiring the remaining two coal-fired units at the Cane Run plant in the third quarter of 2015. There were no significant losses related to this retirement.
In October 2013, LG&E and KU announced plans for a 10 MW solar generation facility to be operational in 2016 at a cost of approximately $36 million. In December 2014, a final order was issued by the KPSC approving the request to construct the solar generating facility at E.W. Brown.
(PPL, LKE and LG&E)
Certain net periodic defined benefit costs are applied to accounts that are further distributed between capital and expense, including certain costs allocated to applicable subsidiaries for plans sponsored by PPL Services and LKE. Following are the net periodic defined benefit costs (credits) of the plans sponsored by PPL, and its subsidiaries, LKE and its subsidiaries and LG&E for the periods ended March 31:
| Pension Benefits | Other Postretirement Benefits | |||||||||||||||||||
| U.S. | U.K. | |||||||||||||||||||
| 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | |||||||||||||||
| PPL | ||||||||||||||||||||
| Service cost | $ | 32 | $ | 26 | $ | 20 | $ | 18 | $ | 4 | $ | 3 | ||||||||
| Interest cost | 59 | 59 | 79 | 88 | 7 | 8 | ||||||||||||||
| Expected return on plan assets | (79) | (74) | (131) | (130) | (7) | (6) | ||||||||||||||
| Amortization of: | ||||||||||||||||||||
| Prior service cost | 2 | 5 | ||||||||||||||||||
| Actuarial (gain) loss | 25 | 7 | 39 | 33 | ||||||||||||||||
| Net periodic defined benefit costs (credits) | $ | 39 | $ | 23 | $ | 7 | $ | 9 | $ | 4 | $ | 5 | ||||||||
| LKE | ||||||||||||||||||||
| Service cost | $ | 7 | $ | 6 | $ | 1 | $ | 1 | ||||||||||||
| Interest cost | 17 | 17 | 2 | 2 | ||||||||||||||||
| Expected return on plan assets | (22) | (20) | (1) | (1) | ||||||||||||||||
| Amortization of: | ||||||||||||||||||||
| Prior service cost | 2 | 1 | 1 | 1 | ||||||||||||||||
| Actuarial (gain) loss | 8 | 3 | ||||||||||||||||||
| Net periodic defined benefit costs (credits) | $ | 12 | $ | 7 | $ | 3 | $ | 3 | ||||||||||||
| LG&E | ||||||||||||||||||||
| Interest cost | $ | 3 | $ | 4 | ||||||||||||||||
| Expected return on plan assets | (5) | (5) | ||||||||||||||||||
| Amortization of: | ||||||||||||||||||||
| Prior service cost | 1 | 1 | ||||||||||||||||||
| Actuarial (gain) loss | 3 | 1 | ||||||||||||||||||
| Net periodic defined benefit costs (credits) | $ | 2 | $ | 1 | ||||||||||||||||
In addition to the specific plans it sponsors, LG&E is allocated costs of defined benefit plans sponsored by LKE based on its participation in those plans, which management believes are reasonable. PPL Electric and KU do not directly sponsor any defined benefit plans. PPL Electric is allocated costs of defined benefit plans sponsored by PPL Services and KU is allocated
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costs of defined benefit plans sponsored by LKE based on their participation in those plans, which management believes are reasonable. For the periods ended March 31, PPL Services allocated the following net periodic defined benefit costs to PPL Electric, and LKE allocated the following net periodic defined benefit costs to LG&E and KU.
| Three Months | ||||||||||||
| 2015 | 2014 | |||||||||||
| PPL Electric | $ | 8 | $ | 5 | ||||||||
| LG&E | 3 | 2 | ||||||||||
| KU | 5 | 3 |
10. Commitments and Contingencies
(PPL)
All commitments and contingencies related to PPL Energy Supply and its subsidiaries will remain with PPL Energy Supply and its subsidiaries at the spinoff date without recourse, except as otherwise provided in the definitive agreements entered into in connection with the spinoff of Talen Energy.
Energy Purchase Commitments
(PPL Electric)
See Note 11 for information on the power supply agreements between PPL EnergyPlus and PPL Electric.
(All Registrants)
PPL and its subsidiaries are involved in legal proceedings, claims and litigation in the ordinary course of business. PPL and its subsidiaries cannot predict the outcome of such matters, or whether such matters may result in material liabilities, unless otherwise noted.
WKE Indemnification (PPL and LKE)
See footnote (f) to the table in "Guarantees and Other Assurances" below for information on an LKE indemnity relating to its former WKE lease, including related legal proceedings.
(PPL)
Sierra Club Litigation
On March 6, 2013, the Sierra Club and MEIC filed a complaint in the U.S. District Court, District of Montana, Billings Division against PPL Montana and the other Colstrip Steam Electric Station (Colstrip) co-owners: Avista Corporation, Puget Sound Energy, Portland General Electric Company, NorthWestern and PacifiCorp. PPL Montana operates Colstrip on behalf of the co-owners. The complaint alleges certain violations of the Clean Air Act, including New Source Review, Title V and opacity requirements and listed 39 separate claims for relief. The complaint requests injunctive relief and civil penalties on average of $36,000 per day per violation, including a request that the owners remediate environmental damage and that $100,000 of the civil penalties be used for beneficial mitigation projects.
In July 2013, the Sierra Club and MEIC filed an additional Notice of Intent to Sue, identifying additional plant projects that are alleged not to be in compliance with the Clean Air Act and, in September 2013, filed an amended complaint. The amended complaint dropped all claims regarding pre-2001 plant projects, as well as the plaintiffs' Title V and opacity claims. It did, however, add claims with respect to a number of post-2000 plant projects, which effectively increased the number of projects subject to the litigation by about 40. PPL Montana and the other Colstrip owners filed a motion to dismiss the amended complaint in October 2013. In May 2014, the court dismissed the plaintiffs' independent Best Available Control Technology claims and their Prevention of Significant Deterioration (PSD) claims for three projects, but denied the owners' motion to dismiss the plaintiffs' other PSD claims on statute of limitation grounds. On August 27, 2014, the Sierra Club and MEIC filed a second amended complaint. This complaint includes the same causes of action articulated in the first amended complaint, but alleges those claims in regard to only eight projects at the plant between 2001 and 2013. On September 26, 2014, the Colstrip owners filed an answer to the second amended complaint. Discovery has been completed. In April 2015,
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the plaintiffs indicated they intend to pursue claims related to only four of the remaining projects. In January 2015, trial as to liability in this matter was rescheduled to November 16, 2015. A trial date with respect to remedies, if there is a finding of liability, has not been scheduled. PPL believes it and the other co-owners have numerous defenses to the allegations set forth in this complaint and will vigorously assert the same. PPL cannot predict the ultimate outcome of this matter at this time.
Notice of Intent to File Suit
In October 2014, PPL Energy Supply received a notice letter from the Chesapeake Bay Foundation (CBF) alleging violations of the Clean Water Act and Pennsylvania Clean Streams Law at the Brunner Island generation plant. The letter was sent to PPL Brunner Island and the PADEP and is intended to provide notice of the alleged violations and CBF's intent to file suit in Federal court after expiration of the 60 day statutory notice period. Among other things, the letter alleges that PPL Brunner Island failed to comply with the terms of its National Pollutant Discharge Elimination System permit and associated regulations related to the application of nutrient credits to the facility's discharges of nitrogen into the Susquehanna River. The letter also alleges that PADEP has failed to ensure that credits generated from nonpoint source pollution reduction activities that PPL Brunner Island applies to its discharges meet the eligibility and certification requirements under PADEP's nutrient trading program regulations. If a court-approved settlement cannot be reached, CBF plans to seek injunctive relief, monetary penalties, fees and costs of litigation. PPL cannot predict the outcome of this matter.
Proposed Legislation - Pacific Northwest
In the first quarter of 2015, legislation was proposed in the State of Oregon to eliminate, over time, the sale of electricity in Oregon from coal-fired generating facilities, and in the State of Washington to provide a means of cost recovery to utility owners of coal-fired generating facilities who commit to retire such facilities. Both proposals are in early stages of consideration and PPL cannot predict whether any legislation seeking to achieve the objectives of the Oregon or Washington legislation will be enacted. Were such legislation to be enacted as proposed, such laws, either individually or collectively, would not be expected to have a material adverse effect on PPL's financial condition or results of operation.
(PPL, LKE and LG&E)
Cane Run Environmental Claims
In December 2013, six residents, on behalf of themselves and others similarly situated, filed a class action complaint against LG&E and PPL in the U.S. District Court for the Western District of Kentucky alleging violations of the Clean Air Act and RCRA. In addition, these plaintiffs assert common law claims of nuisance, trespass and negligence. These plaintiffs seek injunctive relief and civil penalties, plus costs and attorney fees, for the alleged statutory violations. Under the common law claims, these plaintiffs seek monetary compensation and punitive damages for property damage and diminished property values for a class consisting of residents within four miles of the plant. In their individual capacities, these plaintiffs seek compensation for alleged adverse health effects. In response to a motion to dismiss filed by PPL and LG&E, in July 2014, the court dismissed the plaintiffs' RCRA claims and all but one of its Clean Air Act claims, but declined to dismiss their common law tort claims. Upon motion of LG&E and PPL, the district court certified for appellate review the issue of whether the state common law claims are preempted by federal statute. In December 2014, the U.S. Court of Appeals for the Sixth Circuit issued an order granting appellate review regarding the above matter and such issues as may appropriately be presented by the parties and determined by the court. PPL, LKE and LG&E cannot predict the outcome of this matter or the potential impact on operations of the Cane Run plant. LG&E retired one coal-fired unit at the Cane Run plant in March 2015 and anticipates retiring the remaining two coal-fired units at the Cane Run plant in the third quarter of 2015.
Mill Creek Environmental Claims
In May 2014, the Sierra Club filed a citizen suit against LG&E in the U.S. District Court for the Western District of Kentucky for alleged violations of the Clean Water Act. The Sierra Club alleges that various discharges at the Mill Creek plant constitute violations of the plant's water discharge permit. The Sierra Club seeks civil penalties, injunctive relief, plus costs and attorney's fees. The parties have filed various cross-motions for summary judgment which are pending before the court. PPL, LKE and LG&E cannot predict the outcome of this matter or the potential impact on the operations of the Mill Creek plant but believe the plant is operating in compliance with the permits.
Regulatory Issues
(All Registrants)
See Note 6 for information on regulatory matters related to utility rate regulation.
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(PPL and PPL Electric)
New Jersey Capacity Legislation
In January 2011, New Jersey enacted a law (the Act) that PPL believes would intervene in the wholesale capacity market to create incentives for the development of new, in-state electricity generation facilities even when, under the FERC-approved PJM economic model, such new generation would not be economic. The Act could depress capacity prices in PJM in the short-term, impacting PPL Energy Supply's revenues, and harm the long-term ability of the PJM capacity market to encourage necessary generation investment throughout PJM.
In February 2011, PPL and several other companies filed a complaint in U.S. District Court in New Jersey challenging the Act on the grounds that it violates the Supremacy and Commerce clauses of the U.S. Constitution and requesting relief barring implementation. In October 2013, the U.S. District Court in New Jersey issued a decision finding the Act unconstitutional under the Supremacy Clause on the grounds that it infringes upon the FERC's exclusive authority to regulate the wholesale sale of electricity in interstate commerce. The decision was appealed to the U.S. Court of Appeals for the Third Circuit (Third Circuit) by CPV Power Development, Inc., Hess Newark, LLC and the State of New Jersey (the Appellants). In September 2014, the Third Circuit affirmed the District Court's decision. In December 2014, the Appellants filed a petition for certiorari before the U.S. Supreme Court. In March 2015, the U.S. Supreme Court requested the U.S. Solicitor General to submit briefs expressing its views as to the issues raised in this case.
Maryland Capacity Order
In April 2012, the Maryland Public Service Commission (MD PSC) ordered (Order) three electric utilities in Maryland to enter into long-term contracts to support the construction of new electricity generating facilities in Maryland the intent of which, PPL believed, was to encourage the construction of new generation even when, under the FERC-approved PJM economic model, such new generation would not be economic. The MD PSC action could depress capacity prices in PJM in the short-term, impacting PPL Energy Supply's revenues, and harm the long-term ability of the PJM capacity market to encourage necessary generation investment throughout PJM.
In April 2012, PPL and several other companies filed a complaint in U.S. District Court (District Court) in Maryland challenging the Order on the grounds that it violates the Supremacy and Commerce clauses of the U.S. Constitution and requested declaratory and injunctive relief barring implementation of the order by the MD PSC Commissioners. In September 2013, the District Court issued a decision finding the Order unconstitutional under the Supremacy Clause on the grounds that it infringes upon the FERC's exclusive authority to regulate the wholesale sale of electricity in interstate commerce. The decision was appealed to the U.S. Court of Appeals for the Fourth Circuit (Fourth Circuit) by CPV Power Development, Inc. and the State of Maryland (the Appellants). In June 2014, the Fourth Circuit affirmed the District Court's opinion and subsequently denied the Appellants' motion for rehearing. In December 2014, the Appellants filed a petition for certiorari before the U.S. Supreme Court. In March 2015, the U.S. Supreme Court requested the U.S. Solicitor General to submit briefs expressing its views as to the issues raised in this case.
Pacific Northwest Markets (PPL)
Through its subsidiaries, PPL Energy Supply made spot market bilateral sales of power in the Pacific Northwest during the period from December 2000 through June 2001. Several parties subsequently claimed refunds at FERC as a result of these sales. In June 2003, the FERC terminated proceedings to consider whether to order refunds for spot market bilateral sales made in the Pacific Northwest, including sales made by PPL Montana, during the period December 2000 through June 2001. In August 2007, the U.S. Court of Appeals for the Ninth Circuit reversed the FERC's decision and ordered the FERC to consider additional evidence. In October 2011, FERC initiated proceedings to consider additional evidence. In July 2012, PPL Montana and the City of Tacoma, one of the two parties claiming refunds at FERC, reached a settlement whereby PPL Montana paid $75 thousand to resolve the City of Tacoma's $23 million claim. The settlement does not resolve the remaining claim outstanding by the City of Seattle for approximately $50 million. Hearings before a FERC Administrative Law Judge (ALJ) regarding the City of Seattle's refund claims were completed in October 2013 and briefing was completed in January 2014. In March 2014, the ALJ issued an initial decision denying the City of Seattle's complaint against PPL Montana. The initial decision is pending review by the FERC. In June 2015, the United States Court of Appeals for the Ninth Circuit will hold oral argument on an appeal from the FERC's October 2011 order setting out the remand process that FERC has followed from 2011 to the present.
Although PPL and its subsidiaries believe they have not engaged in any improper trading or marketing practices affecting the Pacific Northwest markets, PPL cannot predict the outcome of the above-described proceedings or whether any subsidiaries
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will be the subject of any additional governmental investigations or named in other lawsuits or refund proceedings. Consequently, PPL cannot estimate a range of reasonably possible losses, if any, related to this matter.
(All Registrants)
Electricity - Reliability Standards
The NERC is responsible for establishing and enforcing mandatory reliability standards (Reliability Standards) regarding the bulk power system. The FERC oversees this process and independently enforces the Reliability Standards.
The Reliability Standards have the force and effect of law and apply to certain users of the bulk power electricity system, including electric utility companies, generators and marketers. Under the Federal Power Act, the FERC may assess civil penalties of up to $1 million per day, per violation, for certain violations.
PPL, LG&E, KU and PPL Electric monitor their compliance with the Reliability Standards and continue to self-report potential violations of certain applicable reliability requirements and submit accompanying mitigation plans, as required. The resolution of a number of potential violations is pending. Any Regional Reliability Entity (including RFC or SERC) determination concerning the resolution of violations of the Reliability Standards remains subject to the approval of the NERC and the FERC.
In the course of implementing their programs to ensure compliance with the Reliability Standards by those PPL affiliates subject to the standards, certain other instances of potential non-compliance may be identified from time to time. The Registrants cannot predict the outcome of these matters, and cannot estimate a range of reasonably possible losses, if any.
In October 2012, the FERC initiated its consideration of proposed changes to Reliability Standards to address the impacts of geomagnetic disturbances on the reliable operation of the bulk-power system, which might, among other things, lead to a requirement to install equipment that blocks geomagnetically induced currents on implicated transformers. In May 2013, FERC issued Order No. 779, requiring NERC to submit two types of Reliability Standards for FERC's approval. The first type would require certain owners and operators of the nation's electricity infrastructure, such as the Registrants, to develop and implement operational procedures to mitigate the effects of geomagnetic disturbances on the bulk-power system. This NERC proposed standard was filed by NERC with FERC for approval in January 2014, and was approved in June 2014. The second type is to require owners and operators of the bulk-power system to assess certain geomagnetic disturbance events and develop and implement plans to protect the bulk-power system from those events. This proposal was filed by NERC with FERC for approval by January 22, 2015 and is pending consideration by FERC. The Registrants may be required to make significant expenditures in new equipment or modifications to their facilities to comply with the new requirements. The Registrants are unable to predict the amount of any expenditures that may be required as a result of the adoption of any Reliability Standards for geomagnetic disturbances.
Environmental Matters - Domestic
(All Registrants)
Due to the environmental issues discussed below or other environmental matters, it may be necessary for the Registrants to modify, curtail, replace or cease operation of certain facilities or performance of certain operations to comply with statutes, regulations and other requirements of regulatory bodies or courts. In addition, legal challenges to new environmental permits or rules add to the uncertainty of estimating the future cost of these permits and rules.
LG&E and KU are entitled to recover, through the ECR mechanism, certain costs of complying with the Clean Air Act, as amended, and those federal, state or local environmental requirements applicable to coal combustion wastes and by-products from facilities that generate electricity from coal in accordance with approved compliance plans. Costs not covered by the ECR mechanism for LG&E and KU and all such costs for PPL Electric are subject to rate recovery before the companies' respective state regulatory authorities, or the FERC, if applicable. Because PPL Electric does not own any generating plants, its exposure to related environmental compliance costs is reduced. As PPL Energy Supply is not a rate-regulated entity, it cannot seek to recover environmental compliance costs through the mechanism of rate recovery. PPL, PPL Electric, LKE, LG&E and KU can provide no assurances as to the ultimate outcome of future environmental or rate proceedings before regulatory authorities.
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(All Registrants except PPL Electric)
Air
CSAPR
The EPA's CSAPR addresses the interstate transport of fine particulates and ozone by regulating emissions of sulfur dioxide and nitrogen oxide. In accordance with an October 2014 U.S. Court of Appeals decision, CSAPR establishes interstate allowance trading programs for sulfur dioxide and nitrogen oxide emissions from fossil-fueled plants in two phases: Phase 1 commenced in January 2015 and Phase 2 commences in 2017. Sulfur dioxide emissions are subject to an annual trading program and nitrogen oxide emissions are subject to annual and ozone season programs. Oral arguments pertaining to outstanding challenges to the EPA's CSAPR were heard before the D.C. Circuit Court during February 2015.
Although PPL, LKE, LG&E and KU do not anticipate significant costs to comply with these programs, changes in market or operating conditions could result in impacts that are higher than anticipated.
National Ambient Air Quality Standards
In 2008, the EPA revised the National Ambient Air Quality Standard for ozone. As a result, states in the ozone transport region (OTR), including Pennsylvania, are required by the Clean Air Act to impose additional reductions in nitrogen oxide emissions based upon reasonably available control technologies (RACT). The PADEP is expected to finalize a RACT rule in 2015 requiring some fossil-fueled plants to operate at more stringent nitrogen oxide emission rates. The EPA proposed to further strengthen the ozone standard in November 2014, which could lead to further nitrogen oxide reductions, for PPL's fossil-fueled plants within the OTR. The EPA is under court order to finalize the standard by October 1, 2015. States are also obligated to address interstate transport issues associated with new ozone standards through the establishment of "good neighbor" state implementation plans for those states that are found to contribute significantly to another states' non-attainment. In January 2015, the EPA issued a policy memo to state agencies to facilitate the development of these plans for the 2008 standard, including modeling data defining state contributions. The implementation of such plans could have an impact on the structure and stringency of CSAPR Phase 2 reductions (discussed above), or it could lead to the development of a new ozone transport rule. Non-OTR states, including Kentucky, are working together to evaluate further nitrogen oxide reductions from fossil-fueled plants with SCRs. The nature and timing of any additional reductions resulting from these evaluations cannot be determined at this time.
In 2010, the EPA finalized a new National Ambient Air Quality Standard for sulfur dioxide and required states to identify areas that meet those standards and areas that are in "non-attainment". In July 2013, the EPA finalized non-attainment designations for parts of the country, including part of Yellowstone County in Montana (Billings area) and part of Jefferson County in Kentucky. Attainment must be achieved by 2018. Pursuant to a consent decree between the EPA and Sierra Club approved on March 2, 2015, states are working to finalize designations for other areas by the 2017 or 2020 deadline depending on which designation methodology is used. PPL, LKE, LG&E and KU anticipate that some of the measures required for compliance with the CSAPR (as discussed above), or the MATS, or the Regional Haze Rules (as discussed below), such as upgraded or new sulfur dioxide scrubbers at certain plants and, in the case of LG&E and KU, the previously announced retirement of coal-fired generating units at the Cane Run, Green River and Tyrone plants, will help to achieve compliance with the new sulfur dioxide standard. If additional reductions were to be required, the financial impact could be significant. The short-term impact on the Corette plant from the EPA's final designation of part of Yellowstone County in Montana as non-attainment (as noted above) is not expected to be significant, as the operations were suspended and the plant was retired in March 2015. In addition, MDEQ recently submitted a request to the EPA for a determination that this area is in attainment. If the EPA agrees with this request, then the deadlines associated with non-attainment would be suspended.
In December 2012, the EPA issued final rules that tighten the annual National Ambient Air Quality Standard for fine particulates. The rules were challenged by industry groups, and in May 2014 the D.C. Circuit Court upheld them. On January 15, 2015, the EPA published a final rule establishing area designations under the standard. Non-attainment areas in Pennsylvania and Kentucky were identified; however, EPA recently approved state implementation plan revisions for both states that improved these classifications. PPL Energy Supply, LG&E and KU plants in Pennsylvania and Kentucky will not be expected to make further reductions towards achieving attainment.
Until final rules are promulgated, non-attainment designations are finalized and state compliance plans are developed, PPL, LKE, LG&E and KU cannot predict the ultimate outcome of the new National Ambient Air Quality standards for ozone, sulfur dioxide and particulate matter.
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MATS
In February 2012, the EPA finalized the MATS rule requiring reductions of mercury and other hazardous air pollutants from fossil-fuel fired power plants, known as the MATS, with an effective date of April 16, 2012. The rule was challenged by industry groups and states and was upheld by the D.C. Circuit Court in April 2014. A group of states subsequently petitioned the U.S. Supreme Court to review this decision and on March 25, 2015, oral arguments were heard as to one issue - whether or not EPA unreasonably refused to consider costs when determining whether the MATS regulation was appropriate and necessary. A U.S. Supreme Court decision is expected by June 30, 2015. The rule provides for a three-year compliance deadline with the potential for one- and two-year extensions as provided under the statute. PPL, LKE, LG&E and KU have completed installation or upgrading of relevant environmental controls at affected plants or have received compliance extensions, as applicable.
At the time the MATS rule was proposed, LG&E and KU filed requests with the KPSC for environmental cost recovery based on their expected need to install environmental controls including chemical additive and fabric-filter baghouses to remove air pollutants. Recovery of the cost of certain controls was granted by the KPSC in December 2011. LG&E's March 2015 retirement of one coal-fired generating unit at Cane Run and LG&E's and KU's anticipated retirement of remaining coal-fired electricity generating units located at Cane Run and Green River in 2015 and 2016 are in response to MATS and other environmental regulations. The retirement of these units is not expected to have a material impact on the financial condition or results of operations of PPL, LKE, LG&E or KU.
PPL believes that installation of chemical additive systems and other controls may be necessary at certain coal-fired plants in Pennsylvania, the capital cost of which is not expected to be significant. PPL continues to analyze the potential impact of MATS on operating costs. With respect to PPL's Montana plants, modifications to the air pollution controls installed at Colstrip are required, the cost of which is not expected to be significant. Operations were suspended and the Corette plant was retired in March 2015 due to expected market conditions and the costs to comply with the MATS requirements.
PPL, LKE, LG&E and KU are conducting in-depth reviews of the EPA's amendments to the final rule and certain proposed corrections, none of which are currently expected to be significant.
Regional Haze and Visibility
The EPA's regional haze programs were developed under the Clean Air Act to eliminate man-made visibility degradation by 2064. Under the programs, states are required to make reasonable progress every decade through the application, among other things, of Best Available Retrofit Technology (BART) on power plants commissioned between 1962 and 1977.
The primary power plant emissions affecting visibility are sulfur dioxide, nitrogen oxides and particulates. To date, the focus of regional haze regulation has been the western U.S. As for the eastern U.S., the EPA had determined that region-wide reductions under the CSAPR trading program could, in most instances, be utilized under state programs to satisfy BART requirements for sulfur dioxide and nitrogen oxides. However, the EPA's determination is being challenged by environmental groups and others.
LG&E's Mill Creek Units 3 and 4 are required to reduce sulfuric acid mist emissions because they were determined to have a significant regional haze impact. These reductions are required in the regional haze state implementation plan that the Kentucky Division for Air Quality submitted to the EPA. LG&E is currently installing sorbent injection technology to comply with these reductions, the costs of which are not expected to be significant.
In Montana, the EPA Region 8 developed the regional haze plan as the MDEQ declined to do so. The EPA finalized the Federal Implementation Plan (FIP) for Montana in September 2012. The final FIP assumed no additional controls for Corette or Colstrip Units 3 and 4, but proposed stricter limits for Corette and Colstrip Units 1 and 2. PPL Energy Supply was meeting these stricter permit limits at Corette without any significant changes to operations, although other requirements have led to the suspension of operations and the retirement of Corette in March 2015 (see "MATS" discussion above). Under the final FIP, Colstrip Units 1 and 2 may require additional controls, including the possible installation of an SNCR and other technology, to meet more stringent nitrogen oxides and sulfur dioxide limits. The cost of these potential additional controls, if required, could be significant. Both PPL and environmental groups have appealed the final FIP to the U.S. Court of Appeals for the Ninth Circuit, oral argument was heard in May 2014, and the parties are awaiting a decision.
New Source Review (NSR)
The EPA has continued its NSR enforcement efforts targeting coal-fired generating plants. The EPA has asserted that modification of these plants has increased their emissions and, consequently, that they are subject to stringent NSR requirements under the Clean Air Act. PPL, LKE, LG&E and KU received various EPA information requests in 2007 and
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2009, but have received no further communications from the EPA related to those requests since providing their responses. In January 2009, PPL and other companies that own or operate the Keystone plant in Pennsylvania received a notice of violation from the EPA alleging that certain projects were undertaken without proper NSR compliance. The companies responded to the EPA and the matter remains open. In May and November 2012, PPL Montana received information requests from the EPA regarding projects undertaken during a Spring 2012 maintenance outage at Colstrip Unit 1. The EPA requests remain an open matter. In September 2012, PPL Montana received an information request from the MDEQ regarding Colstrip Unit 1 and other projects. MDEQ formally suspended this request on June 6, 2014 in consideration of pending litigation (see "Legal Matters - Sierra Club Litigation" above). PPL, LKE, LG&E and KU cannot predict the outcome of these matters, and cannot estimate a range of reasonably possible losses, if any.
States and environmental groups also have commenced litigation alleging violations of the NSR regulations by coal-fired generating plants across the nation. See "Legal Matters" above for information on a lawsuit filed by environmental groups in March 2013 against PPL Montana and other owners of Colstrip.
If any PPL subsidiary is found to have violated NSR regulations by significantly increasing pollutants through a major plant modification, the subsidiary would, among other things, be required to meet stringent permit limits reflecting Best Available Control Technology (BACT) for pollutants meeting the National Ambient Air Quality Standards (NAAQS) in the area and reflecting Lowest Achievable Emission Rates for pollutants not meeting the NAAQS in the area. The costs to meet such limits, including installation of technology at certain units, could be material.
Trimble County Unit 2 Air Permit (PPL, LKE, LG&E and KU)
The Sierra Club and other environmental groups petitioned the Kentucky Environmental and Public Protection Cabinet to overturn the air permit issued for the Trimble County Unit 2 baseload coal-fired generating unit, but the agency upheld the permit in an order issued in September 2007. In response to subsequent petitions by environmental groups, the EPA ordered certain non-material changes to the permit which, in January 2010, were incorporated into a final revised permit issued by the Kentucky Division for Air Quality. In March 2010, the environmental groups petitioned the EPA to object to the revised state permit. Until the EPA issues a final ruling on the pending petition and all available appeals are exhausted, PPL, LKE, LG&E and KU cannot predict the outcome of this matter or the potential impact on plant operations, including increased capital costs, if any.
Climate Change
(All Registrants)
As a result of the April 2007 U.S. Supreme Court decision that the EPA has authority under the Clean Air Act to regulate carbon dioxide emissions from new motor vehicles, in April 2010 the EPA and the U.S. Department of Transportation issued new light-duty vehicle emissions standards that applied beginning with 2012 model year vehicles. The EPA also clarified that this standard, beginning in 2011, authorized regulation of carbon dioxide emissions from stationary sources under the NSR and Title V operating permit provisions of the Clean Air Act. The EPA's rules were challenged in court and on June 23, 2014, the U.S. Supreme Court ruled that the EPA has the authority to regulate carbon dioxide emissions under these provisions of the Clean Air Act but only for stationary sources that would otherwise have been subject to these provisions due to significant increases in emissions of other pollutants. As a result, any new sources or major modifications to an existing GHG source causing a net significant increase in carbon dioxide emissions must comply with BACT permit limits for carbon dioxide if it would otherwise be subject to BACT or lowest achievable emissions rate limits due to significant increases in other pollutants.
In June 2013, President Obama released his Climate Action Plan that reiterates the goal of reducing GHG emissions in the U.S. "in the range of" 17% below 2005 levels by 2020 through such actions as regulating power plant emissions, promoting increased use of renewables and clean energy technology, and establishing more restrictive energy efficiency standards. Additionally, the Climate Action Plan calls for the U.S. to prepare for the impacts of climate change. Requirements related to this Plan could affect the Registrants and others in the industry as modifications may be needed to electricity delivery systems to improve the ability to withstand major storms in order to meet those requirements. As further described below, the EPA has proposed rules pursuant to this directive, which it expects to finalize in the second or third quarter of 2015. The EPA has also announced that it will develop a federal implementation plan which would apply to any states that fail to submit an acceptable state implementation plan. The EPA's authority to promulgate these regulations under Section 111 of the Clean Air Act when the sources are already regulated under Section 112 is under challenge in the D.C. Circuit Court. Oral arguments were heard on April 16, 2015.
In January 2014, the EPA issued a revised proposal to regulate carbon dioxide emissions from new power plants. The revised proposal calls for separate emission standards for coal and gas units based on the application of different
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technologies. The coal standard is based on the application of partial carbon capture and sequestration technology, but because this technology is not presently commercially available, the revised proposal effectively precludes the construction of new coal-fired plants. The standard for NGCC power plants is the same as the EPA proposed in 2012 and is not continuously achievable. The preclusion of new coal-fired plants and the compliance difficulties posed for new gas-fired plants could have a significant industry-wide impact.
In June 2014, the EPA issued proposed regulations addressing carbon dioxide emissions from existing power plants. The existing plant proposal contains state-specific rate-based reduction goals and guidelines for the development, submission and implementation of state plans to achieve the state goals. State-specific goals were calculated from 2012 data by applying EPA's broad interpretation and definition of the Best System of Emission Reduction resulting in stringent targets to be met in two phases (2020-2029 and 2030 and beyond). The EPA believes it has offered some flexibility to the states as to how state compliance plans can be crafted, including the option to demonstrate compliance on a mass basis and through multi-state collaborations. The EPA is also proposing potential state plan extensions based on the type of plan filed (single or multi state). PPL has analyzed the proposal and identified potential impacts and solutions in comments filed on December 1, 2014. PPL also submitted Supplemental Comments to FERC through EEI, advocating for reliability coordination and relief in response to technical conferences hosted by FERC on the reliability implications of implementing this rule. The regulation of carbon dioxide emissions from existing power plants could have a significant industry-wide impact depending on the structure and stringency of the final rule and state implementation plans.
In June 2014, the EPA also proposed a regulation addressing carbon dioxide emissions from existing power plants that are modified or reconstructed. The Registrants, however, do not expect a significant impact from this rulemaking as there are no plans to modify or reconstruct their existing plants in a manner that would trigger the proposed requirements.
(PPL)
Based on the stringent GHG reduction requirements in the EPA's proposed rule for existing plants, and based on information gained from public input, the PADEP is no longer expecting to achieve all required GHG reductions by solely increasing efficiency at existing fossil-fuel plants and/or reducing their generation as set forth in the PADEP's April 10, 2014 white paper. In October 2014, the Governor of Pennsylvania signed into law Act 175 of 2014, requiring the PADEP to obtain General Assembly approval of any state plan addressing GHG emissions under the EPA's GHG rules for existing plants. The law includes provisions to minimize the exposure to a federal implementation plan due to legislative delay.
The MDEQ, at the request of the Governor of Montana, has issued a white paper outlining possible regulatory scenarios to implement the EPA's proposed GHG rule for existing plants, including a combination of increasing energy efficiency at coal-fired plants, adding more low- and zero-carbon generation, and carbon sequestration at Colstrip. The white paper was made public in September 2014 and the MDEQ has held public meetings to present the white paper and gather comments. Legislation drafted to require legislative approval of any related plan formulated by MDEQ was tabled.
(PPL, LKE, LG&E and KU)
In April 2014, the Kentucky General Assembly passed legislation which limits the measures that the Kentucky Energy and Environment Cabinet may consider in setting performance standards to comply with the EPA's regulations governing GHG emissions from existing sources. The legislation provides that such state GHG performance standards shall be based on emission reductions, efficiency measures, and other improvements available at each power plant, rather than renewable energy, end-use energy efficiency, fuel switching and re-dispatch. These statutory restrictions may make it more difficult for Kentucky to achieve the GHG reduction levels which the EPA has proposed for Kentucky.
(All Registrants except PPL Electric)
A number of lawsuits have been filed asserting common law claims including nuisance, trespass and negligence against various companies with GHG emitting plants and, although the decided cases to date have not sustained claims brought on the basis of these theories of liability, the law remains unsettled on these claims. In September 2009, the U.S. Court of Appeals for the Second Circuit in the case of AEP v. Connecticut reversed a federal district court's decision and ruled that several states and public interest groups, as well as the City of New York, could sue five electric utility companies under federal common law for allegedly causing a public nuisance as a result of their emissions of GHGs. In June 2011, the U.S. Supreme Court overturned the Second Circuit and held that such federal common law claims were displaced by the Clean Air Act and regulatory actions of the EPA. In addition, in Comer v. Murphy Oil (Comer case), the U.S. Court of Appeals for the Fifth Circuit (Fifth Circuit) declined to overturn a district court ruling that plaintiffs did not have standing to pursue state common law claims against companies that emit GHGs. The complaint in the Comer case named the previous indirect parent of LKE as a defendant based upon emissions from the Kentucky plants. In January 2011, the U.S. Supreme Court denied a petition to reverse the Fifth Circuit's ruling. In May 2011, the plaintiffs in the Comer case filed a substantially similar
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complaint in federal district court in Mississippi against 87 companies, including KU and three other indirect subsidiaries of LKE, under a Mississippi statute that allows the re-filing of an action in certain circumstances. In March 2012, the Mississippi federal district court granted defendants' motions to dismiss the state common law claims. Plaintiffs appealed to the U.S. Court of Appeals for the Fifth Circuit, and in May 2013, the Fifth Circuit affirmed the district court's dismissal of the case. Additional litigation in federal and state courts over such issues is continuing. The Registrants cannot predict the outcome of these lawsuits or estimate a range of reasonably possible losses, if any.
Renewable Energy Legislation
(PPL and PPL Electric)
In Pennsylvania, House Bill 100 was introduced in February 2015, proposing to increase AEPS solar and Tier 1 targets. A similar bill is in the process of being introduced in the Senate (no bill number is available at this time). PPL and PPL Electric cannot predict the outcome of this legislative effort.
(PPL)
In New Jersey, a bill (S-1475) has been introduced to increase the current Renewable Portfolio Standard (RPS) to 30% from Class I sources by 2020. The chairman of the Senate Environmental Committee convened a workgroup to look at further changes to New Jersey's RPS law to enable New Jersey to meet emissions goals established in the state's Global Warming Response Act. A bill (S-2444) was subsequently introduced to mandate that 80% of New Jersey's electricity be generated from renewable resources by 2050. PPL cannot predict the outcome of this legislation.
(All Registrants)
The Registrants believe there are financial, regulatory and operational uncertainties related to the implementation of renewable energy mandates that will need to be resolved before the impact of such requirements on them can be estimated. Such uncertainties, among others, include the need to provide back-up supply to augment intermittent renewable generation, potential generation over-supply and downward pressure on energy prices that could result from such renewable generation and back-up, impacts to PJM's capacity market and the need for substantial changes to transmission and distribution systems to accommodate renewable energy sources. These uncertainties are not directly addressed by proposed legislation. PPL cannot predict the effect on their competitive plants' future competitive position, results of operation, cash flows and financial position of renewable energy mandates that may be adopted, although the costs to implement and comply with any such requirements could be significant.
Water/Waste
(All Registrants except PPL Electric)
Coal Combustion Residuals (CCRs)
On April 17, 2015, the EPA published its final rule regulating CCRs. CCRs include fly ash, bottom ash and sulfur dioxide scrubber wastes. The rule will become effective on October 14, 2015. It imposes extensive new requirements, including location restrictions, design and operating standards, groundwater monitoring and corrective action requirements and closure and post-closure care requirements on CCR impoundments and landfills that are located on active power plants and not closed. Under the rule, the EPA will regulate CCRs as non-hazardous under Subtitle D of RCRA and allow beneficial use of CCRs, with some restrictions. This self-implementing rule requires posting of compliance documentation on a publicly accessible website and is enforceable through citizen suits. PPL expects that its plants using surface impoundments for management and disposal of CCRs or the past management of CCRs and continued use to manage waste waters will be most impacted by this rule. The rule's requirements for covered CCR impoundments and landfills include commencement or completion of closure activities generally between three and ten years from certain triggering events. PPL, LKE, LG&E and KU also anticipate incurring capital or operation and maintenance costs prior to that time to address other provisions of the rule, such as groundwater monitoring and disposal facility modifications, or to implement various compliance strategies.
PPL, LKE, LG&E and KU are reviewing the rule and are still evaluating its financial and operational impact. It is expected that these requirements will result in increases to existing AROs which will be recorded in the second quarter of 2015. PPL, LKE, LG&E and KU are not yet able to determine an estimate of the expected increases to the existing AROs. PPL, LKE, LG&E and KU believe relevant costs relating to this rule are subject to future rate recovery before the respective state regulatory agencies, or the FERC, as applicable.
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Effluent Limitations Guidelines (ELGs) and Standards
In June 2013, the EPA published proposed regulations to revise discharge limitations for steam electric generation wastewater permits. The proposed limitations are based on the EPA review of available treatment technologies and their capacity for reducing pollutants and include new requirements for fly ash and bottom ash transport water and metal cleaning waste waters, as well as new limits for scrubber wastewater and landfill leachate. The EPA's proposed ELG regulations contain requirements that would affect the inspection and operation of CCR facilities if finalized as proposed. The proposal contains alternative approaches, some of which could significantly impact PPL's, PPL Energy Supply's, LKE's, LG&E's and KU's coal-fired plants. The final regulation is expected to be issued by the third or fourth quarter of 2015. At the present time, PPL, LKE, LG&E and KU are unable to predict the outcome of this matter or estimate a range of reasonably possible costs, but the costs could be significant. Pending finalization of the ELGs, certain states (including Pennsylvania and Kentucky) and environmental groups are proposing more stringent technology-based limits in permit renewals. Depending on the final limits imposed, the costs of compliance could be significant and costs could be imposed ahead of federal timelines.
Trimble County Landfill (PPL, LKE, LG&E and KU)
In May 2011, LG&E submitted an application for a special waste landfill permit to handle CCRs generated at the Trimble County plant. In May 2013, the Kentucky Division of Waste Management denied the permit application on the grounds that the proposed facility would violate the Kentucky Cave Protection Act because it would eliminate an on-site karst feature considered to be a cave. In January 2014, LG&E submitted to the Kentucky Division of Waste Management a landfill permit application for an alternate site adjacent to the plant. LG&E has also applied for other necessary regulatory approvals including a dredge and fill permit from the U.S. Army Corps of Engineers, in which proceeding the EPA or the public have submitted certain comments to which LG&E and KU are responding. PPL, LKE, LG&E and KU are unable to determine the potential impact of this matter until all permits are issued and any resulting legal challenges are concluded.
Seepages and Groundwater Infiltration - Pennsylvania, Montana and Kentucky
(All Registrants except PPL Electric)
Seepages or groundwater infiltration have been detected at active and retired wastewater basins and landfills at various PPL, PPL Energy Supply, LKE, LG&E and KU plants. PPL, LKE, LG&E and KU have completed or are completing assessments of seepages or groundwater infiltration at various facilities and have completed or are working with agencies to respond to notices of violations and implement assessment or abatement measures, where required or applicable. A range of reasonably possible losses cannot currently be estimated.
(PPL)
In August 2012, PPL Montana entered into an Administrative Order on Consent (AOC) with the MDEQ which establishes a comprehensive process to investigate and remediate groundwater seepage impacts related to the wastewater facilities at the Colstrip power plant. The AOC requires that within five years, PPL Montana provide financial assurance to the MDEQ for the costs associated with closure and future monitoring of the waste-water treatment facilities. PPL Montana cannot predict at this time if the actions required under the AOC will create the need to adjust the existing ARO related to this facility.
In September 2012, Earthjustice filed an affidavit pursuant to Montana's Major Facility Siting Act (MFSA) that sought review of the AOC by Montana's Board of Environmental Review (BER) on behalf of the Sierra Club, the MEIC and the National Wildlife Federation. In September 2012, PPL Montana filed an election with the BER to have this proceeding conducted in Montana state district court as contemplated by the MFSA. In October 2012, Earthjustice filed a petition for review of the AOC in the Montana state district court in Rosebud County. This matter was stayed in December 2012. In April 2014, Earthjustice filed a motion for leave to amend the petition for review and to lift the stay which was granted by the court in May 2014. PPL Montana and the MDEQ responded to the amended petition and filed partial motions to dismiss in July 2014, which were both denied in October 2014. Discovery is ongoing, and a bench trial is set for April 2016.
Clean Water Act 316(b) (All Registrants except PPL Electric)
The EPA's final 316(b) rule for existing facilities became effective in October 2014, and regulates cooling water intake structures and their impact on aquatic organisms. States are allowed considerable authority to make site-specific determinations under the rule. The rule requires existing facilities to choose between several options to reduce the impact to aquatic organisms that become trapped against water intake screens (impingement) and to determine the intake structure's impact on aquatic organisms pulled through a plant's cooling water system (entrainment). Plants already equipped with closed-cycle cooling, an acceptable option, would likely not incur substantial costs. Once-through systems would likely
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require additional technology to comply with the rule. Mill Creek Unit 1 and Brunner Island (all units) are the only units expected to be impacted. PPL, LKE, LG&E and KU are evaluating compliance strategies but do not presently expect the compliance costs to be material.
(All Registrants)
Waters of the United States (WOTUS)
In April 2014, the EPA and the U.S. Army Corps of Engineers (Army Corps) published a proposed rule defining WOTUS that could greatly expand the federal government's interpretation of what constitutes WOTUS subject to regulation under the Clean Water Act. If the definition is expanded as proposed by the EPA and the Army Corps, permits and other regulatory requirements may be imposed for many matters presently not covered (including vegetation management for transmission lines and activities affecting storm water conveyances and wetlands), the implications of which could be significant. The EPA plans to make certain changes to the proposed regulation based on comments received. The U.S. House and Senate are considering legislation to block this regulation. Until a final rule is issued, the Registrants cannot predict the outcome of the pending rulemaking. A final rule is expected by summer 2015.
Other Issues
The EPA is reassessing its polychlorinated biphenyls (PCB) regulations under the Toxic Substance Control Act, which currently allow certain PCB articles to remain in use. In April 2010, the EPA issued an Advanced Notice of Proposed Rulemaking for changes to these regulations. This rulemaking could lead to a phase-out of all or some PCB-containing equipment. The EPA is planning to propose the revised regulations in 2015. PCBs are found, in varying degrees, in all of the Registrants' operations. The Registrants cannot predict at this time the outcome of these proposed EPA regulations and what impact, if any, they would have on their facilities, but the costs could be significant.
(PPL)
A subsidiary of PPL Energy Supply has investigated alternatives to exclude fish from the discharge channel at its Brunner Island plant. In June 2012, a Consent Order and Agreement (COA) with the PADEP was signed, allowing the subsidiary to study a change in a cooling tower operational method that may keep fish from entering the channel. The COA required a retrofit of impingement control technology at the intakes to the cooling towers, at a cost that would have been significant. Based on the results of the first year of study, the PADEP has suggested closing the COA and writing a new COA to resolve the issue. PPL is in negotiations with the agency at this time. PPL cannot predict at this time the outcome of the proposed new COA and what impact, if any, it would have on their facilities, but the costs could be significant.
(PPL, LKE, LG&E and KU)
In May 2010, the Kentucky Waterways Alliance and other environmental groups filed a petition with the Kentucky Energy and Environment Cabinet challenging the Kentucky Pollutant Discharge Elimination System permit issued in April 2010, which covers water discharges from the Trimble County plant. In November 2010, the Cabinet issued a final order upholding the permit. In December 2010, the environmental groups appealed the order to the Trimble Circuit Court, but the case was subsequently transferred to the Franklin Circuit Court. In September 2013, the court reversed the Cabinet order upholding the permit and remanded the permit to the agency for further proceedings. In October 2013, LG&E filed a notice of appeal with the Kentucky Court of Appeals. In February 2015, oral arguments occurred in the appellate proceeding. PPL, LKE, LG&E and KU are unable to predict the outcome of this matter or estimate a range of reasonably possible losses, if any.
Superfund and Other Remediation (All Registrants)
PPL Electric is potentially responsible for costs at several sites listed by the EPA under the federal Superfund program, including the Columbia Gas Plant site, the Metal Bank site, the Brodhead site and the Ward Transformer site. Clean-up actions have been or are being undertaken at all of these sites, the costs of which have not been significant to PPL Electric. However, should the EPA require different or additional measures in the future, or should PPL Electric's share of costs at multi-party sites increase substantially more than currently expected, the costs could be significant.
PPL Electric, LG&E and KU are remediating, have completed the remediation of, or are responding to agency inquiries regarding several sites that were not addressed under a regulatory program such as Superfund, but for which PPL Electric, LG&E and KU may be liable for remediation. These include a number of former coal gas manufacturing plants in Pennsylvania and Kentucky previously owned or operated or currently owned by predecessors or affiliates of PPL Electric, LG&E and KU. To date, the costs of these sites have not been significant. There are additional sites, formerly owned or
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operated by PPL Electric, LG&E and KU predecessors or affiliates, for which PPL Electric, LG&E and KU lack information on current site conditions and are therefore unable to predict what, if any, potential liability they may have.
Depending on the outcome of investigations at sites where investigations have not begun or been completed or developments at sites for which PPL Electric, LG&E and KU currently lack information, the costs of remediation and other liabilities could be material. PPL, PPL Electric, LKE, LG&E and KU cannot estimate a range of reasonably possible losses, if any, related to these matters.
The EPA is evaluating the risks associated with polycyclic aromatic hydrocarbons and naphthalene, chemical by-products of coal gas manufacturing. As a result of the EPA's evaluation, individual states may establish stricter standards for water quality and soil cleanup. This could require several PPL subsidiaries to take more extensive assessment and remedial actions at former coal gas manufacturing plants. PPL, PPL Electric, LKE, LG&E and KU cannot estimate a range of reasonably possible losses, if any, related to these matters.
From time to time, PPL's subsidiaries undertake remedial action in response to notices of violations, spills or other releases at various on-site and off-site locations, negotiate with the EPA and state and local agencies regarding actions necessary for compliance with applicable requirements, negotiate with property owners and other third parties alleging impacts from PPL's operations and undertake similar actions necessary to resolve environmental matters that arise in the course of normal operations. Based on analyses to date, resolution of these environmental matters is not expected to have a significant adverse impact on the operations of PPL, PPL Electric, LG&E and KU.
Future cleanup or remediation work at sites currently under review, or at sites not currently identified, may result in significant additional costs for PPL, PPL Electric, LG&E and KU.
Environmental Matters - WPD (PPL)
WPD's distribution businesses are subject to environmental regulatory and statutory requirements. PPL believes that WPD has taken and continues to take measures to comply with the applicable laws and governmental regulations for the protection of the environment.
Nuclear Insurance (PPL)
The Price-Anderson Act is a United States Federal law governing liability-related issues and ensures the availability of funds for public liability claims arising from an incident at any U.S. licensed nuclear facility. It also seeks to limit the liability of nuclear reactor owners for such claims from any single incident. At March 31, 2015, the liability limit per incident is $13.6 billion for such claims which is funded by insurance coverage from American Nuclear Insurers and an industry assessment program.
Under the industry assessment program, in the event of a nuclear incident at any of the reactors covered by The Price-Anderson Act, as amended, PPL Susquehanna could be assessed up to $255 million per incident, payable at $38 million per year.
Additionally, PPL Susquehanna purchases property insurance programs from NEIL, an industry mutual insurance company of which PPL Susquehanna is a member. At March 31, 2015, facilities at the Susquehanna plant are insured against property damage losses up to $2.0 billion. PPL Susquehanna also purchases an insurance program that provides coverage for the cost of replacement power during prolonged outages of nuclear units caused by certain specified conditions.
Under the NEIL property and replacement power insurance programs, PPL Susquehanna could be assessed retrospective premiums in the event of the insurers' adverse loss experience. This maximum assessment is $46 million at March 31, 2015. Effective April 1, 2015, this maximum assessment increased to $55 million. PPL Energy Supply has additional coverage that, under certain conditions, may reduce this exposure.
Guarantees and Other Assurances
(All Registrants)
In the normal course of business, the Registrants enter into agreements that provide financial performance assurance to third parties on behalf of certain subsidiaries. Such agreements include, for example, guarantees, stand-by letters of credit issued by financial institutions and surety bonds issued by insurance companies. These agreements are entered into primarily to support or enhance the creditworthiness attributed to a subsidiary on a stand-alone basis or to facilitate the commercial activities in which these subsidiaries engage.
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(PPL)
PPL fully and unconditionally guarantees all of the debt securities of PPL Capital Funding.
(All Registrants)
The table below details guarantees provided as of March 31, 2015. "Exposure" represents the estimated maximum potential amount of future payments that could be required to be made under the guarantee. The probability of expected payment/performance under each of these guarantees is remote except for "WPD guarantee of pension and other obligations of unconsolidated entities", "Indemnification for sales of assets" and "Indemnification of lease termination and other divestitures." The total recorded liability at March 31, 2015 and December 31, 2014, was $37 million and $38 million for PPL and $19 million for LKE for both periods. For reporting purposes, on a consolidated basis, all guarantees of PPL Electric, LKE, LG&E and KU also apply to PPL, and all guarantees of LG&E and KU also apply to LKE.
| Exposure at | Expiration | |||||
| March 31, 2015 | Date | |||||
| PPL | ||||||
| Indemnifications related to the WPD Midlands acquisition | (a) | |||||
| WPD indemnifications for entities in liquidation and sales of assets | $ | 11 | (b) | 2018 | ||
| WPD guarantee of pension and other obligations of unconsolidated entities | 114 | (c) | ||||
| Indemnifications for sales of assets | 1,150 | (d) | 2016 - 2025 | |||
| PPL Electric | ||||||
| Guarantee of inventory value | 32 | (e) | 2017 | |||
| LKE | ||||||
| Indemnification of lease termination and other divestitures | 301 | (f) | 2021 - 2023 | |||
| LG&E and KU | ||||||
| LG&E and KU guarantee of shortfall related to OVEC | (g) | |||||
| In connection with their sales of various businesses, WPD and its affiliates have provided the purchasers with indemnifications that are standard for such transactions, including indemnifications for certain pre-existing liabilities and environmental and tax matters or have agreed to continue their obligations under existing third-party guarantees, either for a set period of time following the transactions or upon the condition that the purchasers make reasonable efforts to terminate the guarantees. Finally, WPD and its affiliates remain secondarily responsible for lease payments under certain leases that they have assigned to third parties. |
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indemnified party. However, LKE is not aware of formal claims under such indemnities made by any party at this time. LKE cannot predict the ultimate outcomes of indemnification circumstances, but does not currently expect such outcomes to result in significant losses above the amounts recorded.
The Registrants provide other miscellaneous guarantees through contracts entered into in the normal course of business. These guarantees are primarily in the form of indemnification or warranties related to services or equipment and vary in duration. The amounts of these guarantees often are not explicitly stated, and the overall maximum amount of the obligation under such guarantees cannot be reasonably estimated. Historically, no significant payments have been made with respect to these types of guarantees and the probability of payment/performance under these guarantees is remote.
PPL, on behalf of itself and certain of its subsidiaries, maintains insurance that covers liability assumed under contract for bodily injury and property damage. The coverage provides maximum aggregate coverage of $225 million. This insurance may be applicable to obligations under certain of these contractual arrangements.
11. Related Party Transactions
PLR Contracts/Purchase of Accounts Receivable (PPL Electric)
PPL Electric holds competitive solicitations for PLR generation supply. PPL EnergyPlus has been awarded a portion of the PLR generation supply through these competitive solicitations. The purchases from PPL EnergyPlus are included in PPL Electric's Statements of Income as "Energy purchases from affiliate".
Under the standard Default Service Supply Master Agreement for the solicitation process, PPL Electric requires all suppliers to post collateral once credit exposures exceed defined credit limits. PPL EnergyPlus is required to post collateral with PPL Electric when: (a) the market price of electricity to be delivered by PPL EnergyPlus exceeds the contract price for the forecasted quantity of electricity to be delivered; and (b) this market price exposure exceeds a contractual credit limit. PPL EnergyPlus does not have an established credit limit. At March 31, 2015, PPL EnergyPlus was not required to post collateral. In no instance is PPL Electric required to post collateral to suppliers under these supply contracts.
PPL Electric's customers may choose an alternative supplier for their generation supply. See Note 2 for additional information regarding PPL Electric's purchases of accounts receivable from alternative suppliers, including PPL EnergyPlus.
Support Costs (All Registrants except PPL)
PPL Services and LKS provide their respective PPL and LKE subsidiaries with administrative, management and support services. In 2015, PPL EU Services was formed to provide the majority of financial, supply chain, human resources and facilities management services primarily to PPL Electric. PPL Services will continue to provide certain corporate functions. For all service companies, the costs of these services are charged to the respective recipients as direct support costs. General costs that cannot be directly attributed to a specific entity are allocated and charged to the respective recipients as indirect support costs. PPL Services and PPL EU Services use a three-factor methodology that includes the applicable recipients' invested capital, operation and maintenance expenses and number of employees to allocate indirect costs. LKS bases its indirect allocations on the subsidiaries' number of employees, total assets, revenues, number of customers and/or other statistical information. PPL Services, PPL EU Services and LKS charged the following amounts for the periods ended March 31, and believe these amounts are reasonable, including amounts applied to accounts that are further distributed between capital and expense.
| Three Months | ||||||||||||
| 2015 | 2014 | |||||||||||
| PPL Electric from PPL Services | $ | 30 | $ | 41 | ||||||||
| LKE from PPL Services | 4 | 4 | ||||||||||
| PPL Electric from PPL EU Services | 15 | |||||||||||
| LG&E from LKS | 51 | 48 | ||||||||||
| KU from LKS | 56 | 53 |
LG&E and KU also provide services to each other and to LKS. Billings between LG&E and KU relate to labor and overheads associated with union and hourly employees performing work for the other company, charges related to jointly-owned generating units and other miscellaneous charges. Tax settlements between LKE and LG&E and LKE and KU are reimbursed through LKS.
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LKE maintains a $225 million revolving line of credit with a PPL Energy Funding subsidiary whereby LKE can borrow funds on a short-term basis at market-based rates. At March 31, 2015 and December 31, 2014, $40 and $41 million were outstanding and were reflected in "Notes payable with affiliates" on the consolidated Balance Sheets. The interest rate on borrowings is equal to one-month LIBOR plus a spread. The interest rates on the outstanding borrowing at March 31, 2015 and December 31, 2014 were 1.67% and 1.65%. Interest on the revolving line of credit was not significant for the three months ended March 31, 2015 and 2014.
Intercompany Derivatives (LKE, LG&E and KU)
Periodically, LG&E and KU enter into forward-starting interest rate swaps with PPL. These hedging instruments have terms identical to forward-starting swaps entered into by PPL with third parties. See Note 14 for additional information on intercompany derivatives.
Other (PPL Electric, LG&E and KU)
See Note 9 for discussions regarding intercompany allocations associated with defined benefits.
12. Other Income (Expense) - net
(PPL)
The components of "Other Income (Expense) - net" for the periods ended March 31 were:
| Three Months | ||||||||
| 2015 | 2014 | |||||||
| Other Income | ||||||||
| Earnings on securities in NDT funds | $ | 7 | $ | 6 | ||||
| Interest income | 1 | 1 | ||||||
| AFUDC - equity component | 4 | 3 | ||||||
| Miscellaneous | 5 | 2 | ||||||
| Total Other Income | 17 | 12 | ||||||
| Other Expense | ||||||||
| Economic foreign currency exchange contracts (Note 14) | (88) | 24 | ||||||
| Charitable contributions | 5 | 7 | ||||||
| Spinoff of PPL Energy Supply transaction costs (Note 8) | 2 | |||||||
| Miscellaneous | 3 | 4 | ||||||
| Total Other Expense | (78) | 35 | ||||||
| Other Income (Expense) - net | $ | 95 | $ | (23) | ||||
The components of "Other Income (Expense) - net" for the three months ended March 31, 2015 and 2014 for PPL Electric, LKE, LG&E and KU were not significant.
13. Fair Value Measurements and Credit Concentration
(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. Transfers between levels are recognized at end-of-reporting-period values. During the three months ended March 31, 2015 and 2014, there were no transfers between Level 1 and Level 2. See Note 1 in each Registrant's 2014 Form 10-K for information on the levels in the fair value hierarchy.
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Recurring Fair Value Measurements
The assets and liabilities measured at fair value were:
| March 31, 2015 | December 31, 2014 | ||||||||||||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||
| PPL | |||||||||||||||||||||||||||
| Assets | |||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 1,335 | $ | 1,335 | $ | 1,751 | $ | 1,751 | |||||||||||||||||||
| Short-term investments | 135 | 135 | 120 | 120 | |||||||||||||||||||||||
| Restricted cash and cash equivalents (a) | 231 | 231 | 224 | 224 | |||||||||||||||||||||||
| Price risk management assets: | |||||||||||||||||||||||||||
| Energy commodities | 1,298 | 2 | $ | 1,136 | $ | 160 | 1,318 | 6 | $ | 1,171 | $ | 141 | |||||||||||||||
| Foreign currency contracts | 209 | 209 | 130 | 130 | |||||||||||||||||||||||
| Cross-currency swaps | 49 | 49 | 29 | 28 | 1 | ||||||||||||||||||||||
| Total price risk management assets | 1,556 | 2 | 1,394 | 160 | 1,477 | 6 | 1,329 | 142 | |||||||||||||||||||
| NDT funds: | |||||||||||||||||||||||||||
| Cash and cash equivalents | 20 | 20 | 19 | 19 | |||||||||||||||||||||||
| Equity securities | |||||||||||||||||||||||||||
| U.S. large-cap | 620 | 461 | 159 | 611 | 454 | 157 | |||||||||||||||||||||
| U.S. mid/small-cap | 93 | 38 | 55 | 89 | 37 | 52 | |||||||||||||||||||||
| Debt securities | |||||||||||||||||||||||||||
| U.S. Treasury | 97 | 97 | 99 | 99 | |||||||||||||||||||||||
| U.S. government sponsored agency | 8 | 8 | 9 | 9 | |||||||||||||||||||||||
| Municipality | 76 | 76 | 76 | 76 | |||||||||||||||||||||||
| Investment-grade corporate | 45 | 45 | 42 | 42 | |||||||||||||||||||||||
| Other | 3 | 3 | 3 | 3 | |||||||||||||||||||||||
| Receivables (payables), net | 3 | 1 | 2 | 2 | 2 | ||||||||||||||||||||||
| Total NDT funds | 965 | 617 | 348 | 950 | 609 | 341 | |||||||||||||||||||||
| Auction rate securities (b) | 10 | 10 | 10 | 10 | |||||||||||||||||||||||
| Total assets | $ | 4,232 | $ | 2,320 | $ | 1,742 | $ | 170 | $ | 4,532 | $ | 2,710 | $ | 1,670 | $ | 152 | |||||||||||
| Liabilities | |||||||||||||||||||||||||||
| Price risk management liabilities: | |||||||||||||||||||||||||||
| Energy commodities | $ | 1,163 | $ | 2 | $ | 1,130 | $ | 31 | $ | 1,217 | $ | 5 | $ | 1,182 | $ | 30 | |||||||||||
| Interest rate swaps | 235 | 235 | 156 | 156 | |||||||||||||||||||||||
| Foreign currency contracts | 6 | 6 | 2 | 2 | |||||||||||||||||||||||
| Cross-currency swaps | 2 | 2 | 3 | 3 | |||||||||||||||||||||||
| Total price risk management liabilities | $ | 1,406 | $ | 2 | $ | 1,373 | $ | 31 | $ | 1,378 | $ | 5 | $ | 1,343 | $ | 30 | |||||||||||
| PPL Electric | |||||||||||||||||||||||||||
| Assets | |||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 35 | $ | 35 | $ | 214 | $ | 214 | |||||||||||||||||||
| Restricted cash and cash equivalents (c) | 2 | 2 | 3 | 3 | |||||||||||||||||||||||
| Total assets | $ | 37 | $ | 37 | $ | 217 | $ | 217 | |||||||||||||||||||
| LKE | |||||||||||||||||||||||||||
| Assets | |||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 40 | $ | 40 | $ | 21 | $ | 21 | |||||||||||||||||||
| Cash collateral posted to counterparties (d) | 22 | 22 | 21 | 21 | |||||||||||||||||||||||
| Total assets | $ | 62 | $ | 62 | $ | 42 | $ | 42 | |||||||||||||||||||
| Liabilities | |||||||||||||||||||||||||||
| Price risk management liabilities: | |||||||||||||||||||||||||||
| Interest rate swaps | $ | 174 | $ | 174 | $ | 114 | $ | 114 | |||||||||||||||||||
| Total price risk management liabilities | $ | 174 | $ | 174 | $ | 114 | $ | 114 | |||||||||||||||||||
| LG&E | |||||||||||||||||||||||||||
| Assets | |||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 17 | $ | 17 | $ | 10 | $ | 10 | |||||||||||||||||||
| Cash collateral posted to counterparties (d) | 22 | 22 | 21 | 21 | |||||||||||||||||||||||
| Total assets | $ | 39 | $ | 39 | $ | 31 | $ | 31 | |||||||||||||||||||
| Liabilities | |||||||||||||||||||||||||||
| Price risk management liabilities: | |||||||||||||||||||||||||||
| Interest rate swaps | $ | 113 | $ | 113 | $ | 81 | $ | 81 | |||||||||||||||||||
| Total price risk management liabilities | $ | 113 | $ | 113 | $ | 81 | $ | 81 | |||||||||||||||||||
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| March 31, 2015 | December 31, 2014 | ||||||||||||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||
| KU | |||||||||||||||||||||||||||
| Assets | |||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 23 | $ | 23 | $ | 11 | $ | 11 | |||||||||||||||||||
| Total assets | $ | 23 | $ | 23 | $ | 11 | $ | 11 | |||||||||||||||||||
| Liabilities | |||||||||||||||||||||||||||
| Price risk management liabilities: | |||||||||||||||||||||||||||
| Interest rate swaps | $ | 61 | $ | 61 | $ | 33 | $ | 33 | |||||||||||||||||||
| Total price risk management liabilities | $ | 61 | $ | 61 | $ | 33 | $ | 33 | |||||||||||||||||||
| (a) | Current portion is included in "Restricted cash and cash equivalents" and long-term portion is included in "Other noncurrent assets" on the Balance Sheets. |
| (b) | Included in "Other investments" on the Balance Sheets. |
| (c) | Current portion is included in "Other current assets" and 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 three months ended March 31 is as follows: | ||||||||||||||||||||||||||||
| Fair Value Measurements Using Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||||||||||
| 2015 | 2014 | |||||||||||||||||||||||||||
| 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 | $ | 111 | $ | 10 | $ | 1 | $ | 122 | $ | 24 | $ | 19 | $ | 43 | ||||||||||||||
| Total realized/unrealized | ||||||||||||||||||||||||||||
| gains (losses) | ||||||||||||||||||||||||||||
| Included in earnings | (17) | (17) | (135) | (135) | ||||||||||||||||||||||||
| Included in OCI (a) | 6 | 6 | $ | (1) | (1) | |||||||||||||||||||||||
| Sales | (3) | (3) | ||||||||||||||||||||||||||
| Settlements | 30 | 30 | 128 | 128 | ||||||||||||||||||||||||
| Transfers into Level 3 | 4 | 4 | ||||||||||||||||||||||||||
| Transfers out of Level 3 | 1 | (7) | (6) | 1 | 1 | |||||||||||||||||||||||
| Balance at end of period | $ | 129 | $ | 10 | $ | $ | 139 | $ | 17 | $ | 16 | $ | $ | 33 | ||||||||||||||
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:
| March 31, 2015 | |||||||||||||
| Fair Value, net | Range | ||||||||||||
| Asset | Valuation | Unobservable | (Weighted | ||||||||||
| (Liability) | Technique | Input(s) | Average) (a) | ||||||||||
| PPL | |||||||||||||
| Energy commodities | |||||||||||||
| Natural gas contracts (b) | $ | 49 | Discounted cash flow | Proprietary model used to calculate forward prices | 11% - 100% (43%) | ||||||||
| Power sales contracts (c) | 1 | Discounted cash flow | Proprietary model used to calculate forward prices | 10% - 100% (82%) | |||||||||
| Heat rate options (e) | 79 | Discounted cash flow | Proprietary model used to calculate forward prices | 22% - 44% (40%) | |||||||||
| Auction rate securities (f) | 10 | Discounted cash flow | Modeled from SIFMA Index | 41% - 69% (53%) | |||||||||
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| December 31, 2014 | |||||||||||||
| Fair Value, net | Range | ||||||||||||
| Asset | Valuation | Unobservable | (Weighted | ||||||||||
| (Liability) | Technique | Input(s) | Average) (a) | ||||||||||
| PPL | |||||||||||||
| Energy commodities | |||||||||||||
| Natural gas contracts (b) | $ | 59 | Discounted cash flow | Proprietary model used to calculate forward prices | 11% - 100% (52%) | ||||||||
| Power sales contracts (c) | (1) | Discounted cash flow | Proprietary model used to calculate forward prices | 10% - 100% (59%) | |||||||||
| FTR purchase contracts (d) | 3 | Discounted cash flow | Historical settled prices used to model forward prices | 100% (100%) | |||||||||
| Heat rate options (e) | 50 | Discounted cash flow | Proprietary model used to calculate forward prices | 23% - 51% (45%) | |||||||||
| Auction rate securities (f) | 10 | Discounted cash flow | Modeled from SIFMA Index | 44% - 69% (63%) | |||||||||
| Cross-currency swaps (g) | 1 | Discounted cash flow | Credit valuation adjustment | 15% (15%) | |||||||||
| (d) | 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 three months ended are reported in the Statements of Income as follows:
| Energy Commodities, net | ||||||||||||||||||
| Unregulated | Unregulated | Energy | ||||||||||||||||
| Wholesale Energy | Retail Energy | Purchases | ||||||||||||||||
| 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | |||||||||||||
| PPL | ||||||||||||||||||
| Total gains (losses) included in earnings | $ | 21 | $ | (89) | $ | (40) | $ | (63) | $ | 2 | $ | 17 | ||||||
| Change in unrealized gains (losses) relating | ||||||||||||||||||
| to positions still held at the reporting date | 25 | (13) | (9) | (33) | 1 | 1 | ||||||||||||
Price Risk Management Assets/Liabilities - Energy Commodities (PPL)
Energy commodity contracts are generally valued using the income approach, except for exchange-traded derivative contracts, which are valued using the market approach and are classified as Level 1. 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 other standard industry models. 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.
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 may include significant unobservable inputs such as delivery at a location where pricing is unobservable, delivery dates that are beyond the dates for which independent quotes are available, volumetric assumptions, 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. Accounting personnel interpret the analysis quarterly to appropriately classify the forward transactions in the fair value hierarchy.
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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 2015 were changes in the availability of market information and changes in the significance of the unobservable inputs utilized in the valuation of the contracts.
Price Risk Management Assets/Liabilities - Interest Rate Swaps/Foreign Currency Contracts/Cross-Currency Swaps (PPL, LKE, LG&E and KU)
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 between Level 2 and Level 3 during 2015 and 2014 was the change in the significance of the credit valuation adjustment. Cross-currency swaps are valued by PPL's Treasury department. Accounting personnel interpret analysis quarterly to classify the contracts in the fair value hierarchy. Valuation techniques are evaluated periodically.
NDT Funds
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. |
| · | The fair value measurements of investments in commingled equity funds are classified as Level 2. 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. |
The fair value of debt securities is generally measured using a market approach, including the use of pricing models which incorporate observable inputs. Common inputs include benchmark yields, relevant trade data, 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 payment data, future predicted cash flows, collateral performance and new issue data.
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.
Auction rate securities are valued by PPL's Treasury department. Accounting personnel interpret the analysis quarterly to classify the contracts in the fair value hierarchy. Valuation techniques are evaluated periodically.
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Nonrecurring Fair Value Measurements (PPL)
The following nonrecurring fair value measurement occurred during the three months ended March 31, 2014, resulting in an asset impairment:
| Carrying | Fair Value Measurements Using | |||||||||
| Amount (a) | Level 3 | Loss (b) | ||||||||
| PPL | ||||||||||
| Kerr Dam Project | $ | 47 | $ | 29 | $ | 18 | ||||
| (a) | Represents carrying value before fair value measurement. |
| (b) | The loss on the Kerr Dam Project was recorded in the Supply segment and included in "Income (Loss) from Discontinued Operations (net of income taxes)" on the 2014 Statement of Income. |
| The significant unobservable inputs used in and the quantitative information about the nonrecurring fair value measurement of assets and liabilities classified as Level 3 are as follows: | ||||||||||||
| Fair Value, net | Significant | Range | ||||||||||
| Asset | Valuation | Unobservable | (Weighted | |||||||||
| (Liability) | Technique | Input(s) | Average)(a) | |||||||||
| Kerr Dam Project | ||||||||||||
| March 31, 2014 | $ | 29 | Discounted cash flow | Proprietary model used to calculate plant value | 38% (38%) | |||||||
| (a) | The range and weighted average represent the percentage of fair value derived from the unobservable inputs. |
Kerr Dam Project
PPL Montana previously held a joint operating license issued for the Kerr Dam Project. The license extends until 2035 and, between 2015 and 2025, the Confederated Salish and Kootenai Tribes of the Flathead Nation (the Tribes) have the option to purchase, hold and operate the Kerr Dam Project. The parties submitted the issue of the appropriate amount of the conveyance price to arbitration in February 2013. In March 2014, the arbitration panel issued its final decision holding that the conveyance price payable by the Tribes for the Kerr Dam Project is $18 million. As a result of the decision, PPL Energy Supply performed a recoverability test on the Kerr Dam Project and recorded an impairment charge. PPL Energy Supply performed an internal analysis using an income approach based on discounted cash flows (a PPL proprietary model) to assess the fair value of the Kerr Dam Project. Assumptions used in the PPL proprietary model were the conveyance price, forward energy price curves, forecasted generation, and forecasted operation and maintenance expenditures that were consistent with assumptions used in the business planning process and a market participant discount rate. Through this analysis, PPL Energy Supply determined the fair value of the Kerr Dam Project to be $29 million at March 31, 2014. The Kerr Dam Project was included in the sale of the Montana Hydroelectric facilities and the assets were removed from the Balance Sheet. See Note 8 for additional information.
The assets were valued by the PPL Energy Supply Financial Department. Accounting personnel interpreted the analysis to appropriately classify the assets in the fair value hierarchy.
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. The fair values 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. 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, 2015 | December 31, 2014 | ||||||||||||
| Carrying | Carrying | ||||||||||||
| Amount | Fair Value | Amount | Fair Value | ||||||||||
| PPL | $ | 20,307 | $ | 23,258 | $ | 20,391 | $ | 22,670 | |||||
| PPL Electric | 2,603 | 3,084 | 2,602 | 2,990 | |||||||||
| LKE | 4,567 | 5,091 | 4,567 | 4,946 | |||||||||
| LG&E | 1,353 | 1,493 | 1,353 | 1,455 | |||||||||
| KU | 2,091 | 2,396 | 2,091 | 2,313 | |||||||||
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.
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Credit Concentration Associated with Financial Instruments
(All Registrants)
Contracts are entered into with many entities for the purchase and sale of energy. When NPNS is elected, 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.
(PPL)
At March 31, 2015, PPL had credit exposure of $692 million 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 $402 million. The top ten counterparties including their affiliates accounted for $220 million, or 55%, of these exposures. Eight of these counterparties had an investment grade credit rating from S&P or Moody's and accounted for 75% of the top ten exposures. The remaining counterparties are rated below investment grade, but are current on their obligations.
PPL Electric is exposed to credit risk under energy supply contracts (including its supply contracts with PPL EnergyPlus); however, its PUC-approved recovery mechanism is anticipated to substantially mitigate this exposure.
At March 31, 2015, LKE's, LG&E's and KU's credit exposure was not significant.
14. Derivative Instruments and Hedging Activities
Risk Management Objectives
(All Registrants)
PPL has a risk management policy approved by the Board of Directors to manage market risk associated with commodities, interest rates on debt issuances and foreign exchange (including price, liquidity and volumetric risk) and credit risk (including non-performance risk and payment default risk). The RMC, comprised of senior management and chaired by the Chief Risk Officer, oversees the risk management function. Key risk control activities designed to ensure compliance with the risk policy and detailed programs include, but are not limited to, credit review and approval, validation of transactions and market prices, verification of risk and transaction limits, VaR analyses, portfolio stress tests, gross margin at risk analyses, sensitivity analyses and daily portfolio reporting, including open positions, determinations of fair value, and other risk management metrics.
Market Risk
Market risk includes the potential loss that may be incurred as a result of price changes associated with a particular financial or commodity instrument as well as market liquidity and volumetric risks. Forward contracts, futures contracts, options, swaps and structured transactions are utilized as part of risk management strategies to minimize unanticipated fluctuations in earnings caused by changes in commodity prices, volumes of full-requirement sales contracts, basis exposure, interest rates and foreign currency exchange rates. Many of the contracts meet the definition of a derivative. All derivatives are recognized on the Balance Sheets at their fair value, unless NPNS is elected.
The table below summarizes the market risks that affect PPL and its Subsidiary Registrants.
| PPL | PPL Electric | LKE | LG&E | KU | ||||||||||||
| Commodity price risk (including basis and volumetric risk) | X | M | M | M | M | |||||||||||
| Interest rate risk: | ||||||||||||||||
| Debt issuances | X | M | M | M | M | |||||||||||
| Defined benefit plans | X | M | M | M | M | |||||||||||
| NDT securities | X | |||||||||||||||
| Equity securities price risk: | ||||||||||||||||
| Defined benefit plans | X | M | M | M | M | |||||||||||
| NDT securities | X | |||||||||||||||
| Future stock transactions | X | |||||||||||||||
| Foreign currency risk - WPD investment and earnings | X | |||||||||||||||
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| X | = PPL actively mitigates market risks through its risk management programs described above. |
| M | = The regulatory environments for PPL's regulated entities, by definition, significantly mitigate market risk. |
Commodity price risk
| · | PPL is exposed to commodity price risk through its domestic subsidiaries as described below. WPD is exposed to volumetric risk which is significantly mitigated as a result of the method of regulation in the U.K. |
| · | PPL is exposed to commodity price risk for energy and energy-related products associated with the sale of electricity from its generating assets and other electricity and gas marketing activities and the purchase of fuel and fuel-related commodities for generating assets, as well as for proprietary trading activities. |
| · | PPL Electric is exposed to commodity price risk from its obligation as PLR; however, its PUC-approved cost recovery mechanism substantially eliminates its exposure to this risk. PPL Electric also mitigates its exposure to volumetric risk by entering into full-requirement supply agreements to serve its PLR customers. These supply agreements transfer the volumetric risk associated with the PLR obligation to the energy suppliers. |
| · | LG&E's and KU's rates include certain mechanisms for fuel and environmental expenses. In addition, LG&E's rates include certain mechanisms for gas supply. These mechanisms generally provide for timely recovery of market price and volumetric fluctuations associated with these expenses. |
Interest rate risk
| · | PPL and its subsidiaries are exposed to interest rate risk associated with forecasted fixed-rate and existing floating-rate debt issuances. WPD holds over-the-counter cross currency swaps to limit exposure to market fluctuations on interest and principal payments from changes in foreign currency exchange rates and interest rates. LG&E utilizes over-the-counter interest rate swaps to limit exposure to market fluctuations on floating-rate debt, and LG&E and KU utilize forward starting interest rate swaps to hedge changes in benchmark interest rates, when appropriate, in connection with future debt issuances. |
| · | PPL and its subsidiaries are exposed to interest rate risk associated with debt securities held by defined benefit plans. This risk is significantly mitigated to the extent that the plans are sponsored at, or sponsored on behalf of, the regulated domestic utilities and for certain plans at WPD due to the recovery mechanisms in place. Additionally, PPL is exposed to interest rate risk associated with debt securities held by the NDT. |
Equity securities price risk
| · | PPL and its subsidiaries are exposed to equity securities price risk associated with defined benefit plans. This risk is significantly mitigated at the regulated domestic utilities and for certain plans at WPD due to the recovery mechanisms in place. Additionally, PPL is exposed to equity securities price risk in the NDT funds. |
| · | PPL is exposed to equity securities price risk from future stock sales and/or purchases. |
Foreign currency risk
| · | PPL is exposed to foreign currency exchange risk primarily associated with its investments in and earnings of U.K. affiliates. |
Credit Risk
Credit risk is the potential loss that may be incurred due to a counterparty's non-performance.
PPL is exposed to credit risk from "in-the-money" interest rate and foreign currency derivatives with financial institutions, as well as additional credit risk through certain of its subsidiaries, as discussed below.
PPL is exposed to credit risk from "in-the-money" commodity derivatives with its energy trading partners, which include other energy companies, fuel suppliers, financial institutions, other wholesale customers and retail customers.
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The majority of PPL's credit risk stems from commodity derivatives for multi-year contracts for energy sales and purchases entered into by PPL Energy Supply. If PPL Energy Supply's counterparties fail to perform their obligations under such contracts and PPL Energy Supply could not replace the sales or purchases at the same or better prices as those under the defaulted contracts, PPL Energy Supply would incur financial losses. Those losses would be recognized immediately or through lower revenues or higher costs in future years, depending on the accounting treatment for the defaulted contracts. In the event a supplier of LKE (through its subsidiaries LG&E and KU) or PPL Electric defaults on its obligation, those entities would be required to seek replacement power or replacement fuel in the market. In general, subject to regulatory review or other processes, appropriate incremental costs incurred by these entities would be recoverable from customers through applicable rate mechanisms, thus mitigating the financial risk for these entities.
PPL and its subsidiaries have credit policies in place to manage credit risk, including the use of an established credit approval process, daily monitoring of counterparty positions and the use of master netting agreements or provisions. These agreements generally include credit mitigation provisions, such as margin, prepayment or collateral requirements. PPL and its subsidiaries may request additional credit assurance, in certain circumstances, in the event that the counterparties' credit ratings fall below investment grade, their tangible net worth falls below specified percentages or their exposures exceed an established credit limit. See Note 13 for credit concentration associated with energy trading partners.
Master Netting Arrangements
Net derivative positions on the balance sheets are not offset against the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) under master netting arrangements.
PPL's obligation to return counterparty cash collateral under master netting arrangements was $11 million at March 31, 2015 and December 31, 2014.
PPL Electric, LKE and LG&E had no obligation to return cash collateral under master netting arrangements at March 31, 2015 and December 31, 2014.
PPL, LKE and LG&E posted $22 million and $21 million of cash collateral under master netting arrangements at March 31, 2015 and December 31, 2014.
PPL Electric and KU did not post any cash collateral under master netting arrangements at March 31, 2015 and December 31, 2014.
See "Offsetting Derivative Investments" below for a summary of derivative positions presented in the balance sheets where a right of setoff exists under these arrangements.
Commodity Price Risk (Non-trading)
Commodity price risk, including basis and volumetric risk, is among PPL's most significant risks due to the level of investment that PPL Energy Supply maintains in its competitive generation assets, as well as the extent of its marketing activities. Several factors influence price levels and volatilities. These factors include, but are not limited to, seasonal changes in demand, weather conditions, available generating assets within regions, transportation/transmission availability and reliability within and between regions, market liquidity, and the nature and extent of current and potential federal and state regulations.
PPL Energy Supply maximizes the value of its unregulated wholesale and unregulated retail energy portfolios through the use of non-trading strategies that include sales of competitive baseload generation, optimization of competitive intermediate and peaking generation and marketing activities.
PPL Energy Supply has a formal hedging program to economically hedge the forecasted purchase and sale of electricity and related fuels for its competitive baseload generation fleet, which includes 6,496 MW (summer rating) of nuclear, coal and hydroelectric generating capacity. PPL Energy Supply attempts to optimize the overall value of its competitive intermediate and peaking fleet, which includes 3,252 MW (summer rating) of natural gas and oil-fired generation. PPL Energy Supply's marketing portfolio is comprised of full-requirement sales contracts and related supply contracts, retail natural gas and electricity sales contracts and other marketing activities. The strategies that PPL Energy Supply uses to hedge its full-requirement sales contracts include purchasing energy (at a liquid trading hub or directly at the load delivery zone), capacity and RECs in the market and/or supplying the energy, capacity and RECs from its generation assets.
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PPL Energy Supply enters into financial and physical derivative contracts, including forwards, futures, swaps and options, to hedge the price risk associated with electricity, natural gas, oil and other commodities. Certain contracts are non-derivatives or NPNS is elected and therefore they are not reflected in the financial statements until delivery. PPL Energy Supply segregates its non-trading activities into two categories: cash flow hedges and economic activity as discussed below.
Cash Flow Hedges
Certain derivative contracts have qualified for hedge accounting so that the effective portion of a derivative's gain or loss is deferred in AOCI and reclassified into earnings when the forecasted transaction occurs. In 2015 and 2014, there were no active cash flow hedges and there was no hedge ineffectiveness associated with energy derivatives. At March 31, 2015, the accumulated net unrecognized after-tax gains (losses) that are expected to be reclassified into earnings during the next 12 months were $18 million. Cash flow hedges are discontinued if it is no longer probable that the original forecasted transaction will occur by the end of the originally specified time periods and any amounts previously recorded in AOCI are reclassified into earnings once it is determined that the hedge transaction is probable of not occurring. There were no such reclassifications for the three months ended March 31, 2015 and 2014.
Economic Activity
Many derivative contracts economically hedge the commodity price risk associated with electricity, natural gas, oil and other commodities but do not receive hedge accounting treatment because they were not eligible for hedge accounting or because hedge accounting was not elected. These derivatives hedge a portion of the economic value of PPL Energy Supply's competitive generation assets and unregulated full-requirement and retail contracts, which are subject to changes in fair value due to market price volatility and volume expectations. The derivative contracts in this category that existed at March 31, 2015 range in maturity through 2020.
Examples of economic activity may include hedges on sales of baseload generation, certain purchase contracts used to supply full-requirement sales contracts, FTRs or basis swaps used to hedge basis risk associated with the sale of competitive generation or supplying full-requirement sales contracts, Spark Spread hedging contracts, retail electric and natural gas activities, and fuel oil swaps used to hedge price escalation clauses in coal transportation and other fuel-related contracts. PPL Energy Supply also uses options, which include the sale of call options and the purchase of put options tied to a particular generating unit. Since the physical generating capacity is owned, price exposure is generally capped at the price at which the generating unit would be dispatched and therefore does not expose PPL Energy Supply to uncovered market price risk.
The unrealized gains (losses) for economic activity for the periods ended March 31 were as follows.
| Three Months | |||||||||||||
| 2015 | 2014 | ||||||||||||
| Operating Revenues | |||||||||||||
| Unregulated wholesale energy | $ | (92) | $ | (789) | |||||||||
| Unregulated retail energy | (13) | (26) | |||||||||||
| Operating Expenses | |||||||||||||
| Fuel | (1) | ||||||||||||
| Energy purchases | 145 | 580 | |||||||||||
Commodity Price Risk (Trading)
PPL Energy Supply has a proprietary trading strategy which is utilized to take advantage of market opportunities primarily in its geographic footprint. As a result, PPL Energy Supply may at times create a net open position in its portfolio that could result in losses if prices do not move in the manner or direction anticipated. Net energy trading margins, which are included in "Unregulated wholesale energy" on the Statements of Income, were insignificant for the three months ended March 31, 2015 and 2014.
Commodity Volumes
At March 31, 2015, the net volumes of derivative (sales)/purchase contracts used in support of the various strategies discussed above were as follows.
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| Volumes (a) | ||||||||||
| Commodity | Unit of Measure | 2015 (b) | 2016 | 2017 | Thereafter | |||||
| Power | MWh | (30,874,062) | (8,521,382) | (248,329) | 2,236,333 | |||||
| Capacity | MW-Month | (3,998) | (878) | 6 | 3 | |||||
| Gas | MMBtu | 157,995,389 | 87,545,701 | 13,742,416 | 20,314,625 | |||||
| FTRs | MW-Month | 532 | ||||||||
| Oil | Barrels | 300,328 | 387,429 | 257,483 | 60,000 | |||||
| (a) | Volumes for option contracts factor in the probability of an option being exercised and may be less than the notional amount of the option. |
| (b) | Represents balance of the current year. |
(PPL, LKE, LG&E and KU)
PPL and its subsidiaries issue debt to finance their operations, which exposes them to interest rate risk. Various financial derivative instruments are utilized to adjust the mix of fixed and floating interest rates in their debt portfolio, adjust the duration of the debt portfolio and lock in benchmark interest rates in anticipation of future financing, when appropriate. Risk limits under PPL's risk management program are designed to balance risk exposure to volatility in interest expense and changes in the fair value of the debt portfolio due to changes in benchmark interest rates.
Cash Flow Hedges
(PPL)
Interest rate risks include exposure to adverse interest rate movements for outstanding variable rate debt and for future anticipated financings. Financial interest rate swap contracts that qualify as cash flow hedges may be entered into to hedge floating interest rate risk associated with both existing and anticipated debt issuances. At March 31, 2015, PPL held an aggregate notional value in interest rate swap contracts of $1.6 billion that range in maturity through 2045. The amount outstanding includes swaps entered into by PPL on behalf of LG&E and KU. Realized gains and losses on the LG&E and KU swaps are probable of recovery through regulated rates; as such, any gains and losses on these derivatives are included in regulatory assets or liabilities and will be recognized in "Interest Expense" on the Statements of Income over the life of the underlying debt at the time the underlying hedged interest expense is recorded.
At March 31, 2015, PPL held an aggregate notional value in cross-currency interest rate swap contracts of $1.3 billion that range in maturity from 2016 through 2028 to hedge the interest payments and principal of WPD's U.S. dollar-denominated senior notes.
For the three months ended March 31, 2015, PPL had no hedge ineffectiveness associated with interest rate derivatives and an insignificant amount for the three months ended March 31, 2014.
Cash flow hedges are discontinued if it is no longer probable that the original forecasted transaction will occur by the end of the originally specified time period and any amounts previously recorded in AOCI are reclassified into earnings once it is determined that the hedged transaction is probable of not occurring. PPL had no such reclassifications for the three months ended March 31, 2015 associated with discontinued cash flow hedges and an insignificant amount reclassified for the three months ended March 31, 2014.
At March 31, 2015, the accumulated net unrecognized after-tax gains (losses) on qualifying derivatives that are expected to be reclassified into earnings during the next 12 months were $(13) million. In addition, see Note 8 for unamortized losses on PPL interest rate swaps expected to be reclassified into earnings and reflected in discontinued operations at the close of the spinoff transaction. Amounts are reclassified as the hedged interest expense is recorded.
Periodically, LG&E and KU enter into forward-starting interest rate swaps with PPL that have terms identical to forward-starting swaps entered into by PPL with third parties. Realized gains and losses on all of these swaps are probable of recovery through regulated rates; as such, any gains and losses on these derivatives are included in regulatory assets or liabilities and will be recognized in "Interest Expense" on the Statements of Income over the life of the underlying debt at the time the underlying hedged interest expense is recorded. At March 31, 2015, the total notional amount of forward starting interest rate swaps outstanding was $1 billion (LG&E and KU each held contracts of $500 million). The swaps range in maturity through 2045.
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Economic Activity (PPL, LKE and LG&E)
LG&E enters into interest rate swap contracts that economically hedge interest payments on variable rate debt. Because realized gains and losses from the swaps, including a terminated swap contract, are recoverable through regulated rates, any subsequent changes in fair value of these derivatives are included in regulatory assets or liabilities until they are realized as interest expense. Realized gains and losses are recognized in "Interest Expense" on the Statements of Income at the time the underlying hedged interest expense is recorded. At March 31, 2015, LG&E held contracts with a notional amount of $179 million that range in maturity through 2033.
(PPL)
PPL is exposed to foreign currency risk, primarily through investments in and earnings of U.K. affiliates. PPL has adopted a foreign currency risk management program designed to hedge certain foreign currency exposures, including firm commitments, recognized assets or liabilities, anticipated transactions and net investments. In addition, PPL enters into financial instruments to protect against foreign currency translation risk of expected GBP earnings.
Net Investment Hedges
PPL enters into foreign currency contracts on behalf of a subsidiary to protect the value of a portion of its net investment in WPD. The contracts outstanding at March 31, 2015 had a notional amount of £217 million (approximately $355 million based on contracted rates). The settlement dates of these contracts range from May 2015 through June 2016.
At March 31, 2015, PPL had $24 million of accumulated net investment hedge after tax gains (losses) that were included in the foreign currency translation adjustment component of AOCI, compared to $14 million at December 31, 2014.
Economic Activity
PPL enters into foreign currency contracts on behalf of a subsidiary to economically hedge GBP-denominated anticipated earnings. At March 31, 2015, the total exposure hedged by PPL was approximately £1.3 billion (approximately $2.1 billion based on contracted rates). These contracts had termination dates ranging from April 2015 through March 2017.
(All Registrants)
All derivative instruments are recorded at fair value on the Balance Sheet as an asset or liability unless NPNS is elected. NPNS contracts for PPL Energy Supply include certain full-requirement sales contracts, other physical purchase and sales contracts and certain retail energy and physical capacity contracts, and for PPL Electric include certain full-requirement purchase contracts and other physical purchase contracts. Changes in the fair value of derivatives not designated as NPNS are recognized currently in earnings unless specific hedge accounting criteria are met and designated as such, except for the changes in fair values of LG&E's and KU's interest rate swaps that are recognized as regulatory assets or regulatory liabilities. See Note 6 for amounts recorded in regulatory assets and regulatory liabilities at March 31, 2015 and December 31, 2014. PPL Energy Supply has many physical and financial commodity purchases and sales contracts that economically hedge commodity price risk but do not receive hedge accounting treatment. As such, realized and unrealized gains (losses) on these contracts are recorded currently in earnings. Generally each contract is considered a unit of account and PPL presents gains (losses) on physical and financial commodity sales contracts in "Unregulated wholesale energy" or "Unregulated retail energy" and (gains) losses on physical and financial commodity purchase contracts in "Fuel" or "Energy purchases" on the Statements of Income. Certain of the economic hedging strategies employed by PPL Energy Supply utilize a combination of financial purchases and sales contracts which are similarly reported gross as an expense and revenue, respectively, on PPL's Statements of Income. PPL records realized hourly net sales or purchases of physical power with PJM in its Statements of Income as "Unregulated wholesale energy" if in a net sales position and "Energy purchases" if in a net purchase position.
See Notes 1 and 17 in each Registrant's 2014 Form 10-K for additional information on accounting policies related to derivative instruments.
| 70 |
The following table presents the fair value and location of derivative instruments recorded on the Balance Sheets.
| March 31, 2015 | December 31, 2014 | ||||||||||||||||||||||||||||
| Derivatives designated as | Derivatives not designated | Derivatives designated as | Derivatives not designated | ||||||||||||||||||||||||||
| hedging instruments | as hedging instruments | hedging instruments | as hedging instruments | ||||||||||||||||||||||||||
| Assets | Liabilities | Assets | Liabilities | Assets | Liabilities | Assets | Liabilities | ||||||||||||||||||||||
| Current: | |||||||||||||||||||||||||||||
| Price Risk Management | |||||||||||||||||||||||||||||
| Assets/Liabilities (a): | |||||||||||||||||||||||||||||
| Interest rate swaps (b) | $ | 160 | $ | 5 | $ | 94 | $ | 5 | |||||||||||||||||||||
| Cross-currency swaps (b) | $ | 1 | 2 | 3 | |||||||||||||||||||||||||
| Foreign currency | |||||||||||||||||||||||||||||
| contracts | 24 | $ | 106 | 2 | $ | 12 | $ | 67 | |||||||||||||||||||||
| Commodity contracts | 988 | 904 | 1,079 | 1,024 | |||||||||||||||||||||||||
| Total current | 25 | 162 | 1,094 | 911 | 12 | 97 | 1,146 | 1,029 | |||||||||||||||||||||
| Noncurrent: | |||||||||||||||||||||||||||||
| Price Risk Management | |||||||||||||||||||||||||||||
| Assets/Liabilities (a): | |||||||||||||||||||||||||||||
| Interest rate swaps (b) | 23 | 47 | 14 | 43 | |||||||||||||||||||||||||
| Cross-currency swaps (b) | 48 | 29 | |||||||||||||||||||||||||||
| Foreign currency | |||||||||||||||||||||||||||||
| contracts | 10 | 69 | 4 | 5 | 46 | 2 | |||||||||||||||||||||||
| Commodity contracts | 310 | 259 | 239 | 193 | |||||||||||||||||||||||||
| Total noncurrent | 58 | 23 | 379 | 310 | 34 | 14 | 285 | 238 | |||||||||||||||||||||
| Total derivatives | $ | 83 | $ | 185 | $ | 1,473 | $ | 1,221 | $ | 46 | $ | 111 | $ | 1,431 | $ | 1,267 | |||||||||||||
| (a) | Represents the location on the Balance Sheets. |
| (b) | Excludes accrued interest, if applicable. |
The following tables present the pre-tax effect of derivative instruments recognized in income, OCI or regulatory assets and regulatory liabilities for the three months ended March 31.
| 2015 | 2014 | |||||||||||||||||||||||
| Gain (Loss) | Gain (Loss) | |||||||||||||||||||||||
| Recognized | Recognized | |||||||||||||||||||||||
| in Income | in Income | |||||||||||||||||||||||
| on Derivative | Gain (Loss) | on Derivative | ||||||||||||||||||||||
| Gain (Loss) | (Ineffective | Reclassified | (Ineffective | |||||||||||||||||||||
| Location of | Reclassified | Portion and | from AOCI | Portion and | ||||||||||||||||||||
| Derivative Gain | Gain (Loss) | from AOCI | Amount | into | Amount | |||||||||||||||||||
| (Loss) Recognized in | Recognized | into Income | Excluded from | Income | Excluded from | |||||||||||||||||||
| Derivative | OCI (Effective Portion) | in Income | (Effective | Effectiveness | (Effective | Effectiveness | ||||||||||||||||||
| Relationships | 2015 | 2014 | on Derivative | Portion) | Testing) | Portion) | Testing) | |||||||||||||||||
| Cash Flow Hedges: | ||||||||||||||||||||||||
| Interest rate swaps | $ | (19) | $ | (46) | Interest expense | $ | (4) | $ | (5) | $ | 2 | |||||||||||||
| Cross-currency swaps | 21 | (25) | Interest expense | 1 | ||||||||||||||||||||
| Other income | ||||||||||||||||||||||||
| (expense) - net | 17 | (29) | ||||||||||||||||||||||
| Commodity contracts | Unregulated | |||||||||||||||||||||||
| wholesale energy | (2) | (1) | ||||||||||||||||||||||
| Energy purchases | 8 | 7 | ||||||||||||||||||||||
| Depreciation | 1 | 1 | ||||||||||||||||||||||
| Discontinued operations | 2 | |||||||||||||||||||||||
| Total | $ | 2 | $ | (71) | $ | 21 | $ | (25) | $ | 2 | ||||||||||||||
| Net Investment Hedges: | ||||||||||||||||||||||||
| Foreign currency contracts | $ | 16 | $ | (4) | ||||||||||||||||||||
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| Derivatives Not Designated as | Location of Gain (Loss) Recognized in | |||||||
| Hedging Instruments | Income on Derivative | 2015 | 2014 | |||||
| Foreign currency contracts | Other income (expense) - net | $ | 88 | $ | (24) | |||
| Interest rate swaps | Interest expense | (2) | (2) | |||||
| Commodity contracts | Unregulated wholesale energy (a) | (229) | (3,042) | |||||
| Unregulated retail energy | (39) | (64) | ||||||
| Fuel | (3) | (1) | ||||||
| Energy purchases (b) | 196 | 2,364 | ||||||
| Discontinued operations | (2) | |||||||
| Total | $ | 11 | $ | (771) | ||||
| Derivatives Designated as | Location of Gain (Loss) Recognized as | |||||||
| Hedging Instruments | Regulatory Liabilities/Assets | 2015 | 2014 | |||||
| Interest rate swaps | Regulatory assets- noncurrent | $ | (56) | |||||
| Derivatives Not Designated as | Location of Gain (Loss) Recognized as | |||||||
| Hedging Instruments | Regulatory Liabilities/Assets | 2015 | 2014 | |||||
| Interest rate swaps | Regulatory assets - noncurrent | $ | (4) | $ | (4) | |||
| (a) | 2014 includes significant realized and unrealized losses on physical and financial commodity sales contracts due to the unusually cold weather. |
| (b) | 2014 includes significant realized and unrealized gains on physical and financial commodity purchase contracts due to the unusually cold weather. |
The following table presents the fair value and the location on the Balance Sheets of derivative instruments designated as cash flow hedges.
| March 31, 2015 | December 31, 2014 | |||||||||||||||||
| Assets | Liabilities | Assets | Liabilities | |||||||||||||||
| Current: | ||||||||||||||||||
| Price Risk Management | ||||||||||||||||||
| Assets/Liabilities (a): | ||||||||||||||||||
| Interest rate swaps | $ | 122 | $ | 66 | ||||||||||||||
| (a) | Represents the location on the Balance Sheets. |
The following table presents the pre-tax effect of derivative instruments designated as cash flow hedges that are recognized in regulatory assets for the three months ended March 31.
| Location of Gain (Loss) Recognized in | ||||||||
| Derivative Instruments | Regulatory Assets | 2015 | 2014 | |||||
| Interest rate swaps | Regulatory assets - noncurrent | $ | (56) | |||||
The following table presents the fair value and the location on the Balance Sheets of derivative instruments designated as cash flow hedges.
| March 31, 2015 | December 31, 2014 | |||||||||||||||||
| Assets | Liabilities | Assets | Liabilities | |||||||||||||||
| Current: | ||||||||||||||||||
| Price Risk Management | ||||||||||||||||||
| Assets/Liabilities (a): | ||||||||||||||||||
| Interest rate swaps | $ | 61 | $ | 33 | ||||||||||||||
| (a) | Represents the location on the Balance Sheets. |
The following table presents the pre-tax effect of derivative instruments designated as cash flow hedges that are recognized in regulatory assets for the three months ended March 31.
| 72 |
| Location of Gain (Loss) Recognized in | ||||||||
| Derivative Instruments | Regulatory Assets | 2015 | 2014 | |||||
| Interest rate swaps | Regulatory assets - noncurrent | $ | (28) | |||||
The following table presents the fair value and the location on the Balance Sheets of derivative instruments designated as cash flow hedges.
| March 31, 2015 | December 31, 2014 | |||||||||||||||||
| Assets | Liabilities | Assets | Liabilities | |||||||||||||||
| Current: | ||||||||||||||||||
| Price Risk Management | ||||||||||||||||||
| Assets/Liabilities (a): | ||||||||||||||||||
| Interest rate swaps | $ | 61 | $ | 33 | ||||||||||||||
| (a) | Represents the location on the Balance Sheets. |
The following table presents the pre-tax effect of derivative instruments designated as cash flow hedges that are recognized in regulatory assets for the three months ended March 31.
| Location of Gain (Loss) Recognized in | ||||||||
| Derivative Instruments | Regulatory Assets | 2015 | 2014 | |||||
| Interest rate swaps | Regulatory assets - noncurrent | $ | (28) | |||||
The following table presents the fair value and the location on the Balance Sheets of derivatives not designated as hedging instruments.
| March 31, 2015 | December 31, 2014 | |||||||||||||||||
| Assets | Liabilities | Assets | Liabilities | |||||||||||||||
| Current: | ||||||||||||||||||
| Price Risk Management | ||||||||||||||||||
| Assets/Liabilities (a): | ||||||||||||||||||
| Interest rate swaps | $ | 5 | $ | 5 | ||||||||||||||
| Total current | 5 | 5 | ||||||||||||||||
| Noncurrent: | ||||||||||||||||||
| Price Risk Management | ||||||||||||||||||
| Assets/Liabilities (a): | ||||||||||||||||||
| Interest rate swaps | 47 | 43 | ||||||||||||||||
| Total noncurrent | 47 | 43 | ||||||||||||||||
| Total derivatives | $ | 52 | $ | 48 | ||||||||||||||
| (a) | Represents the location on the Balance Sheets. |
The following tables present the pre-tax effect of derivatives not designated as cash flow hedges that are recognized in income or regulatory assets for the three months ended March 31.
| Location of Gain (Loss) Recognized in | ||||||||
| Derivative Instruments | Income on Derivatives | 2015 | 2014 | |||||
| Interest rate swaps | Interest expense | $ | (2) | $ | (2) | |||
| Location of Gain (Loss) Recognized in | ||||||||
| Derivative Instruments | Regulatory Assets | 2015 | 2014 | |||||
| Interest rate swaps | Regulatory assets - noncurrent | $ | (4) | $ | (4) | |||
(All Registrants except PPL Electric)
Offsetting Derivative Instruments
PPL, LKE, LG&E and KU or certain of their subsidiaries have master netting arrangements or similar agreements in place including derivative clearing agreements with futures commission merchants (FCMs) to permit the trading of cleared
| 73 |
derivative products on one or more futures exchanges. The clearing arrangements permit a FCM to use and apply any property in its possession as a set off to pay amounts or discharge obligations owed by a customer upon default of the customer and typically do not place any restrictions on the FCM's use of collateral posted by the customer. PPL, LKE, LG&E and KU and their subsidiaries also enter into agreements pursuant to which they trade certain energy and other products. Under the agreements, upon termination of the agreement as a result of a default or other termination event, the non-defaulting party typically would have a right to setoff amounts owed under the agreement against any other obligations arising between the two parties (whether under the agreement or not), whether matured or contingent and irrespective of the currency, place of payment or place of booking of the obligation.
PPL, LKE, LG&E and KU have elected not to offset derivative assets and liabilities and not to offset net derivative positions against the right to reclaim cash collateral pledged (an asset) or the obligation to return cash collateral received (a liability) under derivatives agreements. The table below summarizes the derivative positions presented in the balance sheets where a right of setoff exists under these arrangements and related cash collateral received or pledged.
| Assets | Liabilities | ||||||||||||||||||||||||
| Eligible for Offset | Eligible for Offset | ||||||||||||||||||||||||
| Cash | Cash | ||||||||||||||||||||||||
| Derivative | Collateral | Derivative | Collateral | ||||||||||||||||||||||
| Gross | Instruments | Received | Net | Gross | Instruments | Pledged | Net | ||||||||||||||||||
| March 31, 2015 | |||||||||||||||||||||||||
| PPL | |||||||||||||||||||||||||
| Energy Commodities | $ | 1,298 | $ | 990 | $ | 11 | $ | 297 | $ | 1,163 | $ | 990 | $ | 49 | $ | 124 | |||||||||
| Treasury Derivatives | 258 | 105 | 153 | 243 | 105 | 21 | 117 | ||||||||||||||||||
| Total | $ | 1,556 | $ | 1,095 | $ | 11 | $ | 450 | $ | 1,406 | $ | 1,095 | $ | 70 | $ | 241 | |||||||||
| LKE | |||||||||||||||||||||||||
| Treasury Derivatives | $ | 174 | $ | 21 | $ | 153 | |||||||||||||||||||
| LG&E | |||||||||||||||||||||||||
| Treasury Derivatives | $ | 113 | $ | 21 | $ | 92 | |||||||||||||||||||
| KU | |||||||||||||||||||||||||
| Treasury Derivatives | $ | 61 | $ | $ | 61 | ||||||||||||||||||||
| December 31, 2014 | |||||||||||||||||||||||||
| PPL | |||||||||||||||||||||||||
| Energy Commodities | $ | 1,318 | $ | 1,060 | $ | 10 | $ | 248 | $ | 1,217 | $ | 1,060 | $ | 58 | $ | 99 | |||||||||
| Treasury Derivatives | 159 | 65 | 94 | 161 | 65 | 21 | 75 | ||||||||||||||||||
| Total | $ | 1,477 | $ | 1,125 | $ | 10 | $ | 342 | $ | 1,378 | $ | 1,125 | $ | 79 | $ | 174 | |||||||||
| LKE | |||||||||||||||||||||||||
| Treasury Derivatives | $ | 114 | $ | 20 | $ | 94 | |||||||||||||||||||
| LG&E | |||||||||||||||||||||||||
| Treasury Derivatives | $ | 81 | $ | 20 | $ | 61 | |||||||||||||||||||
| KU | |||||||||||||||||||||||||
| Treasury Derivatives | $ | 33 | $ | 33 | |||||||||||||||||||||
Credit Risk-Related Contingent Features
Certain derivative contracts contain credit risk-related contingent features which, when in a net liability position, would permit the counterparties to require the transfer of additional collateral upon a decrease in the credit ratings of PPL, LKE, LG&E and KU or certain of their subsidiaries. Most of these features would require the transfer of additional collateral or permit the counterparty to terminate the contract if the applicable credit rating were to fall below investment grade. Some of these features also would allow the counterparty to require additional collateral upon each downgrade in the credit rating at levels that remain above investment grade. In either case, if the applicable credit rating were to fall below investment grade, and assuming no assignment to an investment grade affiliate were allowed, most of these credit contingent features require either immediate payment of the net liability as a termination payment or immediate and ongoing full collateralization on derivative instruments in net liability positions.
Additionally, certain derivative contracts contain credit risk-related contingent features that require adequate assurance of performance be provided if the other party has reasonable concerns regarding the performance of PPL's, LKE's, LG&E's, and KU's obligations under the contracts. A counterparty demanding adequate assurance could require a transfer of additional collateral or other security, including letters of credit, cash and guarantees from a creditworthy entity. This would typically
| 74 |
involve negotiations among the parties. However, amounts disclosed below represent assumed immediate payment or immediate and ongoing full collateralization for derivative instruments in net liability positions with "adequate assurance" features.
(All Registrants except PPL Electric and KU)
At March 31, 2015, derivative contracts in a net liability position that contain credit risk-related contingent features, collateral posted on those positions and the related effect of a decrease in credit ratings below investment grade are summarized as follows:
| PPL | LKE | LG&E | |||||||||
| Aggregate fair value of derivative instruments in a net liability position with credit risk-related | |||||||||||
| contingent features | $ | 241 | $ | 31 | $ | 31 | |||||
| Aggregate fair value of collateral posted on these derivative instruments | 140 | 22 | 22 | ||||||||
| Aggregate fair value of additional collateral requirements in the event of | |||||||||||
| a credit downgrade below investment grade (a) | 128 | (b) | 10 | 10 | |||||||
| (a) | Includes the effect of net receivables and payables already recorded on the Balance Sheet. |
| (b) | PPL Energy Supply's credit rating is currently below investment grade. Amounts related to PPL Energy Supply represent net liability positions subject to further adequate assurance features. |
(PPL)
The change in the carrying amount of goodwill for the three months ended March 31, 2015 was due to the effect of foreign currency exchange rates on the U.K. Regulated segment.
Substantially all of the ARO balances are classified as noncurrent at March 31, 2015 and December 31, 2014.
See Note 10 for information on a CCR rule that is expected to require the recording of additional AROs in the second quarter of 2015.
PPL's most significant ARO relates to the decommissioning of the Susquehanna nuclear plant. See Notes 13 and 17 for additional information on the assets in the NDT funds that are legally restricted for the purposes of settling this ARO.
(All Registrants except PPL Electric)
LG&E's and KU's accretion and ARO-related depreciation expense are recorded as a regulatory asset, such that there is no net earnings impact.
17. Available-for-Sale Securities
(PPL)
Securities held by the NDT funds and auction rate securities are classified as available-for-sale. Available-for-sale securities are carried on the Balance Sheets at fair value. Unrealized gains and losses on these securities are reported, net of tax, in OCI
| 75 |
or are recognized currently in earnings when a decline in fair value is determined to be other-than-temporary. The specific identification method is used to calculate realized gains and losses.
The following table shows the amortized cost, the gross unrealized gains and losses recorded in AOCI and the fair value of available-for-sale securities.
| March 31, 2015 | December 31, 2014 | ||||||||||||||||||||||||||||
| Gross | Gross | Gross | Gross | ||||||||||||||||||||||||||
| Amortized | Unrealized | Unrealized | Amortized | Unrealized | Unrealized | ||||||||||||||||||||||||
| Cost | Gains | Losses | Fair Value | Cost | Gains | Losses | Fair Value | ||||||||||||||||||||||
| NDT funds: | |||||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 20 | $ | 20 | $ | 19 | $ | 19 | |||||||||||||||||||||
| Equity securities | 287 | $ | 426 | 713 | 283 | $ | 417 | 700 | |||||||||||||||||||||
| Debt securities | 218 | 12 | $ | 1 | 229 | 218 | 11 | 229 | |||||||||||||||||||||
| Receivables/payables, net | 3 | 3 | 2 | 2 | |||||||||||||||||||||||||
| Total NDT funds | $ | 528 | $ | 438 | $ | 1 | $ | 965 | $ | 522 | $ | 428 | $ | 950 | |||||||||||||||
| Auction rate securities | |||||||||||||||||||||||||||||
| PPL | $ | 11 | $ | 1 | $ | 10 | $ | 11 | $ | 1 | $ | 10 | |||||||||||||||||
See Note 13 for details on the securities held by the NDT funds.
There were no securities with credit losses at March 31, 2015 and December 31, 2014.
The following table shows the scheduled maturity dates of debt securities held at March 31, 2015.
| Maturity | Maturity | Maturity | Maturity | |||||||||||||
| Less Than | 1-5 | 6-10 | in Excess | |||||||||||||
| 1 Year | Years | Years | of 10 Years | Total | ||||||||||||
| Amortized cost | $ | 11 | $ | 82 | $ | 67 | $ | 69 | $ | 229 | ||||||
| Fair value | 11 | 84 | 70 | 74 | 239 | |||||||||||
The following table shows proceeds from and realized gains and losses on sales of available-for-sale securities for the periods ended March 31.
| Three Months | |||||||||||||
| 2015 | 2014 | ||||||||||||
| Proceeds from sales of NDT securities (a) | $ | 38 | $ | 27 | |||||||||
| Other proceeds from sales | 3 | ||||||||||||
| Gross realized gains (b) | 5 | 3 | |||||||||||
| Gross realized losses (b) | 3 | 1 | |||||||||||
| (a) | These proceeds are used to pay income taxes and fees related to managing the trust. Remaining proceeds are reinvested in the trust. |
| (b) | Excludes the impact of other-than-temporary impairment charges recognized
on the Statements of Income. |
18. Accumulated Other Comprehensive Income (Loss)
(PPL)
The after-tax changes in AOCI by component for the three months ended March 31 were as follows.
| Foreign | Unrealized gains (losses) | Defined benefit plans | ||||||||||||||||||||||
| currency | Available- | Equity | Prior | Actuarial | Transition | |||||||||||||||||||
| translation | for-sale | Qualifying | investees' | service | gain | asset | ||||||||||||||||||
| adjustments | securities | derivatives | AOCI | costs | (loss) | (obligation) | Total | |||||||||||||||||
| December 31, 2014 | $ | (286) | $ | 202 | $ | 20 | $ | 1 | $ | 3 | $ | (2,215) | $ | 1 | $ | (2,274) | ||||||||
| Amounts arising during the period | (66) | 5 | 6 | (1) | (56) | |||||||||||||||||||
| Reclassifications from AOCI | (1) | (17) | (1) | 38 | 19 | |||||||||||||||||||
| Net OCI during the period | (66) | 4 | (11) | (1) | 37 | (37) | ||||||||||||||||||
| March 31, 2015 | $ | (352) | $ | 206 | $ | 9 | $ | $ | 3 | $ | (2,178) | $ | 1 | $ | (2,311) | |||||||||
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| Foreign | Unrealized gains (losses) | Defined benefit plans | ||||||||||||||||||||||
| currency | Available- | Equity | Prior | Actuarial | Transition | |||||||||||||||||||
| translation | for-sale | Qualifying | investees' | service | gain | asset | ||||||||||||||||||
| adjustments | securities | derivatives | AOCI | costs | (loss) | (obligation) | Total | |||||||||||||||||
| December 31, 2013 | $ | (11) | $ | 173 | $ | 94 | $ | 1 | $ | (6) | $ | (1,817) | $ | 1 | $ | (1,565) | ||||||||
| Amounts arising during the period | 131 | 5 | (46) | 90 | ||||||||||||||||||||
| Reclassifications from AOCI | (1) | 19 | 1 | 27 | 46 | |||||||||||||||||||
| Net OCI during the period | 131 | 4 | (27) | 1 | 27 | 136 | ||||||||||||||||||
| March 31, 2014 | $ | 120 | $ | 177 | $ | 67 | $ | 1 | $ | (5) | $ | (1,790) | $ | 1 | $ | (1,429) | ||||||||
The following table presents the gains (losses) and related income taxes for reclassifications from AOCI for the three months ended March 31. The defined benefit plan components of AOCI are not reflected in their entirety in the statement of income during the periods; rather, they are included in the computation of net periodic defined benefit costs (credits). See Note 9 for additional information.
| Affected Line Item on the | ||||||||||
| Details about AOCI | 2015 | 2014 | Statements of Income | |||||||
| Available-for-sale securities | $ | 2 | $ | 2 | Other Income (Expense) - net | |||||
| Total Pre-tax | 2 | 2 | ||||||||
| Income Taxes | (1) | (1) | ||||||||
| Total After-tax | 1 | 1 | ||||||||
| Qualifying derivatives | ||||||||||
| Interest rate swaps | (4) | (3) | Interest Expense | |||||||
| Cross-currency swaps | 17 | (29) | Other Income (Expense) - net | |||||||
| 1 | Interest Expense | |||||||||
| Energy commodities | (2) | (1) | Unregulated wholesale energy | |||||||
| 8 | 7 | Energy purchases | ||||||||
| 2 | Discontinued operations | |||||||||
| 1 | 1 | Other | ||||||||
| Total Pre-tax | 21 | (23) | ||||||||
| Income Taxes | (4) | 4 | ||||||||
| Total After-tax | 17 | (19) | ||||||||
| Equity investees' AOCI | 2 | Other Income (Expense) - net | ||||||||
| Total Pre-tax | 2 | |||||||||
| Income Taxes | (1) | |||||||||
| Total After-tax | 1 | |||||||||
| Defined benefit plans | ||||||||||
| Prior service costs | (2) | |||||||||
| Net actuarial loss | (51) | (36) | ||||||||
| Total Pre-tax | (51) | (38) | ||||||||
| Income Taxes | 13 | 10 | ||||||||
| Total After-tax | (38) | (28) | ||||||||
| Total reclassifications during the period | $ | (19) | $ | (46) | ||||||
19. New Accounting Guidance Pending Adoption
(All Registrants)
Accounting for Revenue from Contracts with Customers
In May 2014, the FASB issued accounting guidance that establishes a comprehensive new model for the recognition of revenue from contracts with customers. This model is based on the core principle that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
For public business entities, this guidance can be applied using either a full retrospective or modified retrospective transition method, beginning in annual reporting periods beginning after December 15, 2016 and interim periods within those years. Early adoption is not permitted. The Registrants will adopt this guidance effective January 1, 2017.
The Registrants are currently assessing the impact of adopting this guidance, as well as the transition method they will use.
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Reporting Uncertainties about an Entity's Ability to Continue as a Going Concern
In August 2014, the FASB issued accounting guidance which will require management to assess, for each interim and annual period, whether there are conditions or events that raise substantial doubt about an entity's ability to continue as a going concern. Substantial doubt about an entity's ability to continue as a going concern exists when relevant conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as they become due within one year after the date the financial statements are issued.
When management identifies conditions or events that raise substantial doubt about an entity's ability to continue as a going concern, management is required to disclose information that enables users of the financial statements to understand the principal conditions or events that raised substantial doubt about the entity's ability to continue as a going concern and management's evaluation of the significance of those conditions or events. If substantial doubt about the entity's ability to continue as a going concern has been alleviated as a result of management's plan, the entity should disclose information that allows the users of the financial statements to understand those plans. If the substantial doubt about the entity's ability to continue as a going concern is not alleviated by management's plans, management's plans to mitigate the conditions or events that gave rise to the substantial doubt about the entity's ability to continue as a going concern should be disclosed, as well as a statement that there is substantial doubt the entity's ability to continue as a going concern within one year after the date the financial statements are issued.
For all entities, this guidance should be applied prospectively within the annual periods ending after December 15, 2016, and for annual periods and interim periods thereafter. Early adoption is permitted.
The Registrants will adopt this guidance for the annual period ending December 31, 2016. The adoption of this guidance is not expected to have a significant impact on the Registrants.
Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity
In November 2014, the FASB issued guidance that clarifies how current accounting guidance should be interpreted when evaluating the economic characteristics and risks of a host contract of a hybrid financial instrument issued in the form of a share. This guidance does not change the current criteria for determining whether separation of an embedded derivative feature from a hybrid financial instrument is required. Entities are still required to evaluate whether the economic risks of the embedded derivative feature are clearly and closely related to those of the host contract, among other relevant criteria.
An entity should consider the substantive terms and features of the entire hybrid financial instrument, including the embedded derivative feature being evaluated for bifurcation, in evaluating the nature of the host contract to determine whether the host contract is more akin to a debt instrument or more akin to an equity instrument. An entity should assess the relative strength of the debt-like and equity-like terms and features when determining how to weight those terms and features.
For public business entities, this guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015 and should be applied using a modified retrospective method for existing hybrid financial instruments issued in the form of a share as of the beginning of the fiscal year the guidance is adopted. Early adoption is permitted. Retrospective application is permitted but not required.
The Registrants will adopt this guidance on January 1, 2016. The adoption of this guidance is not expected to have a significant impact on the Registrants.
Income Statement Presentation of Extraordinary and Unusual Items
In January 2015, the FASB issued accounting guidance that eliminates the concept of extraordinary items, which requires an entity to separately classify, present in the income statement and disclose material events and transactions that are both unusual and occur infrequently. The requirement to report material events or transactions that are unusual or infrequent as a separate component of income from continuing operations has been retained, as has the requirement to separately present the nature and financial effects of each event or transaction in the income statement as a separate component of continuing operations or disclose them within the notes to the financial statements. The scope of these requirements has been expanded to include items that are both unusual and occur infrequently.
For all entities, this guidance is effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption is permitted provided that an entity applies the guidance from the beginning of the fiscal year of adoption. The guidance may be applied either retrospectively or prospectively.
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The Registrants will adopt this guidance on January 1, 2016. The adoption of this guidance is not expected to have a significant impact on the Registrants.
Simplifying the Presentation of Debt Issuance Costs
In April 2015, the FASB issued accounting guidance to simplify the presentation of debt issuance costs by requiring debt issuance costs to be presented on the balance sheet as a direct deduction from the carrying amount of the associated debt liability, consistent with the presentation of debt discounts.
For public business entities, this guidance should be applied retrospectively for financial statements issued for fiscal years beginning after December 15, 2015 and interim periods within those fiscal years. Early adoption is permitted.
The Registrants are assessing in which period they will adopt this new guidance. The adoption of this guidance will require the Registrants to reclassify debt issuance costs from assets to long-term debt, and is not expected to have a significant impact on the Registrants.
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Item 2. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations
(All Registrants)
This "Item 2. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations" is separately filed by PPL Corporation, PPL Electric, LKE, LG&E and KU. Information contained herein relating to any individual Registrant is filed by such Registrant solely on its own behalf, and no Registrant makes any representation as to information relating to any other Registrant. The specific Registrant to which disclosures are applicable is identified in parenthetical headings in italics above the applicable disclosure or within the applicable disclosure for each Registrant's related activities and disclosures. Within combined disclosures, amounts are disclosed for any Registrant when significant.
The following should be read in conjunction with the Registrants' Condensed Consolidated Financial Statements and the accompanying Notes and with the Registrants' 2014 Form 10-K. Capitalized terms and abbreviations are defined in the glossary. Dollars are in millions, except per share data, unless otherwise noted.
"Management's Discussion and Analysis of Financial Condition and Results of Operations" includes the following information:
| · | "Overview" provides a description of each Registrant's business strategy, a description of key factors expected to impact future earnings and a discussion of important financial and operational developments. |
| · | "Results of Operations" for PPL provides a detailed analysis of earnings by segment, and for PPL Electric, LKE, LG&E and KU, includes a summary of earnings. For all Registrants, "Margins" provides explanations of non-GAAP financial measures and "Statement of Income Analysis" addresses significant changes in principal line items on the Statements of Income, comparing the three months ended March 31, 2015 with the same period in 2014. |
| · | "Financial Condition - Liquidity and Capital Resources" provides an analysis of the Registrants' liquidity positions and credit profiles. This section also includes a discussion of rating agency actions. |
| · | "Financial Condition - Risk Management" provides an explanation of the Registrants' risk management programs relating to market and credit risk. |
(PPL)
PPL, headquartered in Allentown, Pennsylvania, is an energy and utility holding company. Through subsidiaries, PPL delivers electricity to customers in the U.K., Pennsylvania, Kentucky, Virginia and Tennessee; delivers natural gas to customers in Kentucky; generates electricity from power plants in the northeastern, northwestern and southeastern U.S.; and markets wholesale or retail energy primarily in the northeastern and northwestern portions of the U.S.
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PPL's principal subsidiaries are shown below (* denotes an SEC registrant).
| PPL Corporation* | |||||||||||||||||||||||||||
| PPL Capital Funding | |||||||||||||||||||||||||||
|
PPL Global ● Engages in the regulated distribution of electricity in the U.K. |
LKE*
|
PPL Electric* ● Engages in the regulated transmission and distribution of electricity in Pennsylvania |
PPL Energy Supply*
|
||||||||||||||||||||||||
|
LG&E* ● Engages in the regulated generation, transmission, distribution and sale of electricity and distribution and sale of natural gas in Kentucky |
KU* ● Engages in the regulated generation, transmission, distribution and sale of electricity, primarily in Kentucky |
PPL EnergyPlus ● Performs energy marketing and trading activities ● Purchases fuel |
PPL Generation ● Engages in the competitive generation of electricity, primarily in Pennsylvania and Montana | ||||||||||||||||||||||||
| U.K. Regulated Segment |
Kentucky Regulated Segment | Pennsylvania Regulated Segment | Supply Segment |
||||||||||||||||||||||||
PPL's reportable segments' results primarily represent the results of its related Subsidiary Registrants, except that the reportable segments are also allocated certain corporate level financing and other costs that are not included in the results of the applicable Subsidiary Registrants. The U.K. Regulated segment does not have a related Subsidiary Registrant.
In June 2014, PPL and PPL Energy Supply executed definitive agreements with affiliates of Riverstone to combine their competitive power generation businesses into a new, stand-alone, publicly traded company named Talen Energy. See "Business Strategy" and "Financial and Operational Developments - Other Financial and Operational Developments - Anticipated Spinoff of PPL Energy Supply" below for additional information. Beginning in the first quarter of 2015, PPL Energy Supply is filing a separate Form 10-Q.
In addition to PPL, the other Registrants included in this filing are as follows.
(PPL Electric)
PPL Electric, headquartered in Allentown, Pennsylvania, is a direct wholly owned subsidiary of PPL and a regulated public utility that is an electricity transmission and distribution service provider in eastern and central Pennsylvania. PPL Electric is subject to regulation as a public utility by the PUC, and certain of its transmission activities are subject to the jurisdiction of FERC under the Federal Power Act. PPL Electric delivers electricity in its Pennsylvania service area and provides electricity supply to retail customers in that area as a PLR under the Customer Choice Act.
(LKE)
LKE, headquartered in Louisville, Kentucky, is a wholly owned subsidiary of PPL and a holding company that owns regulated utility operations through its subsidiaries, LG&E and KU, which constitute substantially all of LKE's assets. LG&E and KU are engaged in the generation, transmission, distribution and sale of electricity. LG&E also engages in the distribution and sale of natural gas. LG&E and KU maintain their separate corporate identities and serve customers in Kentucky under their respective names. KU also serves customers in Virginia under the Old Dominion Power name and in Tennessee under the KU name.
(LG&E)
LG&E, headquartered in Louisville, Kentucky, is a wholly owned subsidiary of LKE and a regulated utility engaged in the generation, transmission, distribution and sale of electricity and distribution and sale of natural gas in Kentucky. LG&E is subject to regulation as a public utility by the KPSC, and certain of its transmission activities are subject to the jurisdiction of the FERC under the Federal Power Act.
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(KU)
KU, headquartered in Lexington, Kentucky, is a wholly owned subsidiary of LKE and a regulated utility engaged in the generation, transmission, distribution and sale of electricity in Kentucky, Virginia and Tennessee. KU is subject to regulation as a public utility by the KPSC, the VSCC and the TRA, and certain of its transmission and wholesale power activities are subject to the jurisdiction of the FERC under the Federal Power Act. KU serves its Virginia customers under the Old Dominion Power name and its Kentucky and Tennessee customers under the KU name.
(All Registrants)
The strategy for the regulated businesses of WPD, PPL Electric, LG&E and KU is to provide efficient, reliable and safe operations and strong customer service, maintain constructive regulatory relationships and achieve timely recovery of costs. These regulated businesses also focus on providing competitively priced energy to customers and achieving stable, long-term growth in earnings and rate base, or RAV, as applicable. Both rate base and RAV are expected to grow for the foreseeable future as a result of significant capital expenditure programs to maintain existing assets and to improve system reliability and, for LKE, LG&E and KU, to comply with federal and state environmental regulations related to coal-fired electricity generation facilities.
For the U.K. regulated businesses, effective April 1, 2015 for the RIIO-ED1 price control period, 80% of network related expenditures are added to the RAV and, together with adjustments for inflation as measured by Retail Price Index (RPI) and a return on the RAV, recovered through allowed revenue with the remaining 20% of expenditures being recovered in the current regulatory year. RAV is intended to represent expenditures that have a long-term benefit to WPD (similar to capital projects for the U.S. regulated businesses). The RAV balance at March 31, 2015 will continue to be recovered over 20 years and additions after April 1, 2023 will be recovered over 45 years; a transitional arrangement will gradually change the life over the current price control period which commenced April 1, 2015, resulting in an expected average useful life of 35 years for RAV additions in that period. In addition, incentive targets have been adjusted in RIIO-ED1, resulting in lower overall incentive revenues available to be earned. See "Financial and Operational Developments - Other Financial and Operational Developments - RIIO-ED1" below for additional information.
For the U. S. regulated businesses, recovery of capital project costs is attained through various rate-making mechanisms, including periodic base rate case proceedings, FERC formula rate mechanisms, and other regulatory agency-approved recovery mechanisms. In Kentucky, the KPSC has adopted a series of regulatory mechanisms (ECR, DSM, GLT, fuel adjustment clause, gas supply clause and recovery on certain construction work-in-progress) that reduce regulatory lag and provide for timely recovery of and a return on, as appropriate, prudently incurred costs. In Pennsylvania, the FERC transmission formula rate, DSIC mechanism and other recovery mechanisms are in place to reduce regulatory lag and provide for timely recovery of and a return on, as appropriate, prudently incurred costs.
To manage financing costs and access to credit markets, and to fund capital expenditures, a key objective of the Registrants is to maintain investment grade credit ratings and adequate liquidity positions. In addition, the Registrants have financial and operational risk management programs that, among other things, are designed to monitor and manage exposure to earnings and cash flow volatility related to, as applicable, changes in energy and fuel prices, interest rates, counterparty credit quality and the operating performance of generating units. To manage these risks, PPL generally uses contracts such as forwards, options, swaps and insurance contracts.
(PPL)
In June 2014, PPL and PPL Energy Supply executed definitive agreements with affiliates of Riverstone to combine their competitive power generation businesses into a new, stand-alone, publicly traded company named Talen Energy. Under the terms of the agreements, at closing, PPL will spin off to PPL shareowners a newly formed entity, Holdco, which at such time will own all of the membership interests of PPL Energy Supply and all of the common stock of Talen Energy. Immediately following the spinoff, Holdco will merge with a special purpose subsidiary of Talen Energy, with Holdco continuing as the surviving company to the merger and as a wholly owned subsidiary of Talen Energy and the sole owner of PPL Energy Supply. Substantially contemporaneous with the spinoff and merger, RJS Power will be contributed by its owners to become a subsidiary of Talen Energy. Following completion of these transactions, PPL shareowners will own 65% of Talen Energy and affiliates of Riverstone will own 35%. PPL will have no continuing ownership interest in, control of, or affiliation with Talen Energy. The transaction is intended to be tax-free to PPL and its shareowners for U.S. federal income tax purposes and is subject to customary closing conditions, including receipt of required regulatory approvals from the NRC, FERC, DOJ and
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PUC, all of which were received by mid-April 2015. In addition, there must be available, subject to certain conditions, at least $1 billion of undrawn credit capacity under a revolving credit or similar facility of Talen Energy or one or more of its subsidiaries. Any letters of credit or other credit support measures posted in connection with energy marketing and trading transactions at the time of the spinoff are excluded from this calculation.
In connection with the FERC approval, PPL and RJS Power have agreed that within 12 months after closing of the transaction, Talen Energy will divest approximately 1,300 MW of generating assets in one of two groups of assets (from PPL Energy Supply's existing portfolio, this includes either the Holtwood and Wallenpaupack hydroelectric facilities or the Ironwood facility), and limit PJM energy market offers from assets it would retain in the other group to cost-based offers.
On April 29, 2015, PPL's Board of Directors declared the distribution of Holdco to PPL's shareowners of record on May 20, 2015, with the spinoff to occur on June 1, 2015. Based on the number of shares of PPL common stock outstanding at April 29, 2015, the distribution ratio is expected to be approximately 0.125 shares of Talen common stock for each share of PPL common stock. The final ratio will be determined after the record date. The spinoff will have no effect on the number of PPL common shares owned by PPL shareowners or the number of shares of PPL common stock outstanding.
Talen Energy will own and operate a diverse mix of approximately 14,000 MW (after divestitures to meet FERC market power standards) of generating capacity in certain U.S. competitive energy markets primarily in PJM and ERCOT.
Following the transaction, PPL's focus will be on its regulated utility businesses in the U.K., Kentucky and Pennsylvania, serving more than 10 million customers. PPL intends to maintain a strong balance sheet and manage its finances consistent with maintaining investment grade credit ratings and providing a competitive total shareowner return, including an attractive dividend. Excluding costs required to provide transition services to Talen Energy and following the spinoff transaction, PPL expects to reduce annual ongoing corporate support costs by approximately $75 million.
See "Financial and Operational Developments - Other Financial and Operational Developments - Anticipated Spinoff of PPL Energy Supply" below for additional information.
The strategy for PPL Energy Supply is to optimize the value from its competitive generation asset and marketing portfolios while mitigating near-term volatility in both cash flows and earnings. PPL Energy Supply endeavors to do this by matching energy supply with load, or customer demand, under contracts of varying durations with creditworthy counterparties to capture profits while effectively managing exposure to energy and fuel price volatility, counterparty credit risk and operational risk. PPL Energy Supply is focused on maintaining profitability and positive cash flow during this current period of low energy and capacity prices.
Earnings generated by PPL's U.K. subsidiaries are subject to foreign currency translation risk. The U.K. subsidiaries also have currency exposure to the U.S. dollar to the extent they have U.S. dollar denominated debt. To manage these risks, PPL generally uses contracts such as forwards, options and cross currency swaps that contain characteristics of both interest rate and foreign currency exchange contracts.
Financial and Operational Developments
PPL's earnings by reportable segments for the periods ended March 31, were as follows:
| Three Months | |||||||||||
| 2015 | 2014 | $ Change | |||||||||
| U.K. Regulated | $ | 375 | $ | 206 | $ | 169 | |||||
| Kentucky Regulated | 109 | 107 | 2 | ||||||||
| Pennsylvania Regulated | 87 | 85 | 2 | ||||||||
| Supply | 95 | (75) | 170 | ||||||||
| Corporate and Other (a) | (19) | (7) | (12) | ||||||||
| Net Income | $ | 647 | $ | 316 | $ | 331 | |||||
| EPS - basic | $ | 0.97 | $ | 0.50 | $ | 0.47 | |||||
| EPS - diluted (b) | $ | 0.96 | $ | 0.49 | $ | 0.47 | |||||
| (a) | Primarily represents financing and certain other costs incurred at the corporate level that have not been allocated or assigned to the segments, which are presented to reconcile segment information to PPL's consolidated results. 2015 includes certain costs related to the anticipated spinoff of PPL Energy Supply. See the following table of special items for additional information. |
| (b) | See Note 4 to the Financial Statements for information on the Equity Units' impact on the calculation of diluted EPS. |
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The following after-tax gains (losses), in total, which management considers special items, impacted PPL's results for the periods ended March 31. See PPL's "Results of Operations - Segment Earnings" for details of each segment's special items.
| Three Months | |||||||||||
| 2015 | 2014 | $ Change | |||||||||
| U.K. Regulated | $ | 39 | $ | (58) | $ | 97 | |||||
| Supply (a) | 95 | (75) | 170 | ||||||||
| Corporate and Other (b) | (6) | (6) | |||||||||
| Total PPL | $ | 128 | $ | (133) | $ | 261 | |||||
| (a) | As a result of the anticipated spinoff of PPL Energy Supply, substantially representing PPL's Supply segment, management is now considering the operating results of the Supply segment to be a special item. See Note 8 to the Financial Statements for additional information. |
| (b) | Primarily includes external transaction and transition costs related to the anticipated spinoff of PPL Energy Supply. See Note 8 to the Financial Statements for additional information. |
(PPL)
In anticipation of the spinoff of PPL Energy Supply, no forward looking information, including an earnings forecast, is being provided for the Supply segment.
Excluding special items, including Supply segment earnings, higher earnings are expected in 2015 compared with 2014, after adjusting 2014 to include certain dissynergies in the Corporate and Other category that were recorded in the Supply segment. The following projections and factors underlying these projections (on an after-tax basis) are provided for PPL's other segments and the Corporate and Other category and the related Registrants.
(PPL's U.K. Regulated Segment)
Excluding special items, higher earnings are projected in 2015 compared with 2014, primarily driven by lower income taxes, lower depreciation expense and effects of foreign currency, partially offset by lower utility revenue as Western Power Distribution transitions to a new eight-year price control period (RIIO-ED1) effective April 1, 2015. The remaining 2015 foreign currency earnings exposure for this segment is 97 percent hedged.
(PPL's Kentucky Regulated Segment and LKE, LG&E and KU)
Higher earnings are projected in 2015 compared with 2014, primarily driven by anticipated electric and gas base rate increases and returns on additional environmental capital investments, partially offset by higher operation and maintenance expense, higher depreciation and higher financing costs.
(PPL's Pennsylvania Regulated Segment and PPL Electric)
Excluding special items, lower earnings are projected in 2015 compared with 2014, primarily driven by higher operation and maintenance expense, higher depreciation, higher financing costs and a benefit recorded in the first quarter of 2014 for a change in estimate of a regulatory liability, partially offset by higher transmission margins and returns on distribution improvement capital investments.
(PPL's Corporate and Other Category)
Excluding special items, lower costs are projected in 2015 compared with 2014, after adjusting 2014 to include certain dissynergies in the Corporate and Other category that were recorded in the Supply segment, primarily driven by the reduction of those dissynergies in 2015 through corporate restructuring efforts and lower income taxes.
(All Registrants)
Earnings in future periods are subject to various risks and uncertainties. See "Forward-Looking Information," the rest of this Item 2, Notes 6 and 10 to the Financial Statements and "Item 1A. Risk Factors" in this Form 10-Q (as applicable) and "Item 1. Business" and "Item 1A. Risk Factors" in the Registrants' 2014 Form 10-K for a discussion of the risks, uncertainties and factors that may impact future earnings.
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Other Financial and Operational Developments
Economic and Market Conditions
(All Registrants except PPL Electric)
The businesses of PPL Energy Supply, LKE, LG&E and KU are subject to extensive federal, state and local environmental laws, rules and regulations, including those pertaining to CCRs, GHG, effluent limitation guidelines and MATS. See "Financial Condition - Environmental Matters" below for additional information on these requirements. These and other stringent environmental requirements, combined with low energy margins for competitive generation, have led several energy companies, including PPL, PPL Energy Supply, LKE, LG&E and KU, to announce plans either to temporarily or permanently close, and/or impair certain of their coal-fired generating plants.
(PPL)
Given current and forecasted economic and market conditions, the announced transaction with affiliates of Riverstone to form Talen Energy, PPL Energy Supply's current sub-investment grade credit rating and Talen Energy's expected sub-investment grade credit rating, PPL Energy Supply will continue to monitor its business and operational plans, including capital and operation and maintenance expenditures, its hedging strategies and potential plant modifications to burn lower cost fuels. See "Margins - Changes in Non-GAAP Financial Measures - Unregulated Gross Energy Margins" below for additional information on energy margins.
(All Registrants)
The Registrants cannot predict the impact that future economic and market conditions and regulatory requirements may have on their financial condition or results of operations.
(PPL)
Anticipated Spinoff of PPL Energy Supply
Following the announcement of the transaction to form Talen Energy as discussed in "Business Strategy" above, efforts were initiated to identify the appropriate staffing for Talen Energy and for PPL and its subsidiaries following completion of the spinoff. Organizational plans were substantially completed in 2014. The new organizational plans identified the need to resize and restructure the organizations and as a result, in 2014, estimated charges for employee separation benefits were recorded. See Note 8 in the 2014 Form 10-K for additional information. The separation benefits include cash severance compensation, lump sum COBRA reimbursement payments and outplacement services. Most separations and payment of separation benefits are expected to be completed by the end of 2015. At March 31, 2015 and December 31, 2014, the recorded liabilities related to the separation benefits were $19 million and $30 million, which are included in "Other current liabilities" on the Balance Sheets.
Additional employee-related costs to be incurred primarily include accelerated stock-based compensation and pro-rated performance-based cash incentive and stock-based compensation awards, primarily for PPL Energy Supply employees and for PPL employees who have become PPL Energy Supply employees in connection with the transaction. These costs will be recognized at the spinoff closing date. PPL estimates these additional costs will be in the range of $30 million to $40 million.
PPL recorded $6 million of third-party costs during the three months ended March 31, 2015 related to this transaction. Of these costs, $2 million were primarily for legal and accounting fees to facilitate the transaction, and are recorded in "Other Income (Expense) - net" on the Statement of Income. An additional $4 million of consulting and other costs were incurred to ready the new Talen Energy organization and reconfigure the remaining PPL service functions. These costs are recorded in "Other operation and maintenance" on the Statement of Income. PPL recorded $27 million of third-party costs in 2014 related to this transaction. PPL currently estimates a range of total third-party costs that will ultimately be incurred of between $60 million and $70 million.
The assets and liabilities of PPL's Supply segment will continue to be classified as "held and used" on PPL's Balance Sheet until the closing of the transaction, at which time the operations of the Supply segment will be classified as discontinued operations. At the close of the transaction, unamortized losses on PPL interest rate swaps recorded in AOCI and designated as hedges of PPL Energy Supply's future interest payments will be reclassified into earnings and reflected in discontinued operations. The amount of these unamortized losses deferred in AOCI at March 31, 2015 was $55 million after-tax.
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In conducting its annual goodwill impairment assessment in the fourth quarter of 2014 for its Supply segment reporting unit, PPL determined that the estimated fair value of the Supply segment exceeded its carrying value and no impairment was recognized. PPL had not identified any indicators of impairment as of March 31, 2015, but cannot predict whether an impairment loss will be recorded at the spinoff date. An impairment loss would be recognized by PPL at the spinoff date if the aggregate carrying amount of the Supply segment's assets and liabilities exceed their aggregate fair value at that date and would be reflected in discontinued operations. Upon completion of this transaction, PPL will no longer have a Supply segment.
RIIO-ED1
On April 1, 2015, the RIIO-ED1 eight-year price control period commenced for WPD's four DNOs. In February 2014, Ofgem published formal confirmation that WPD's Business Plans submitted by its four DNOs under RIIO-ED1 were accepted as submitted, or "fast-tracked." Fast tracking affords several benefits to the WPD DNOs including the ability to collect additional revenue equivalent to 2.5% of total annual expenditures during the eight-year price control period, or approximately $43 million annually, greater revenue certainty and a higher level of cost savings retention. See "Item 1. Business - Segment Information - U.K. Regulated Segment" of PPL's 2014 Form 10-K for additional information on RIIO-ED1.
Depreciation
Effective January 1, 2015, after completing a review of the useful lives of its distribution network assets, WPD extended the weighted average useful lives of these assets to 69 years from 55 years. For the three months ended March 31, 2015, this change in useful lives resulted in lower depreciation of $20 million ($16 million after-tax or $0.02 per share). It is expected to result in an annual reduction in depreciation of approximately $81 million ($65 million after-tax or $0.10 per share) in 2015.
Susquehanna Turbine Blade Inspection
PPL Susquehanna continues to make modifications to address the causes of turbine blade cracking at the PPL Susquehanna nuclear plant first identified in 2011. Unit 1 completed its planned refueling and turbine inspection outage in June 2014 and installed newly designed shorter last stage blades on one of the low pressure turbines. This change allowed Unit 1 to run with reduced blade vibration and no identified cracking during 2014. In the first, second and third quarters of 2014, Unit 2 was shut down for blade inspection and replacement, as well as additional maintenance. The financial impact of the Unit 2 outages was not material. Based on the positive experience on Unit 1, the same short blade modifications are currently being installed on two of the three turbines on Unit 2 during the spring 2015 scheduled refueling outage. All remaining turbine blade modifications are scheduled to be performed during planned refueling and maintenance outages. Inspections will be performed over the next several maintenance cycles to validate the performance of the modifications and ensure that the problem has been corrected. PPL Susquehanna does not expect additional unscheduled turbine maintenance outages after these modifications are complete.
IRS Audits for 1998 - 2011
In February 2015, PPL and the IRS Appeals division reached a settlement on the amount of PPL's refund from its open audits for the years 1998 - 2011. The settlement was required to be reviewed and approved by the Joint Committee on Taxation (JCT) before it is considered final. In April 2015, PPL was notified that the JCT approved PPL's settlement. Subject to a final determination of interest on the refund, PPL expects to record a tax benefit in the range of $20 million to $30 million in the second quarter of 2015 related to the settlement of previously unrecognized tax benefits.
(PPL and PPL Electric)
Rate Case Proceedings
On March 31, 2015, PPL Electric filed a request with the PUC for an increase in its annual distribution revenue requirement of approximately $167.5 million. The proposal would result in a rate increase of 3.9% on a total bill basis and is expected to become effective on January 1, 2016. PPL Electric's application includes a request for an authorized return-on-equity of 10.95%. The application is based on a fully projected future test year of January 1, 2016 through December 31, 2016.
Concurrently, PPL Electric filed a petition requesting a waiver of the DSIC cap of 5% of billed revenues and approval to increase the maximum allowable DSIC from 5% to 7.5% for service rendered after January 1, 2016. PPL Electric is requesting that the PUC consolidate these two proceedings and cannot predict the outcome.
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(PPL, LKE and KU)
FERC Wholesale Formula Rates
In September 2013, KU filed an application with the FERC to adjust the formula rate under which KU provides wholesale requirements power sales to 12 municipal customers. Among other changes, the application requests an amended formula whereby KU would charge cost-based rates with a subsequent true-up to actual costs, replacing the current formula which does not include a true-up. KU's application proposed an authorized return on equity of 10.7%. Certain elements, including the new formula rate, became effective April 23, 2014, subject to refund. In April 2014, nine municipalities submitted notices of termination, under the original notice period provisions, to cease taking power under the wholesale requirements contracts. Such terminations are to be effective in 2019, except in the case of one municipality with a 2017 effective date. In addition, a tenth municipality which has a previously settled termination date of 2016 has given notice that it will transfer service in June 2015. In July 2014, KU agreed on settlement terms with the two municipal customers that did not provide termination notices and filed the settlement proposal with the FERC for its approval. In August 2014, the FERC issued an order on the interim settlement agreement allowing the proposed rates to become effective pending a final order. If approved, the settlement agreement will resolve the rate case with respect to these two municipalities, including an authorized return on equity of 10% or the return on equity awarded to other parties in this case, whichever is lower. Also in July 2014, KU made a contractually required filing with the FERC that addressed certain rate recovery matters affecting the nine terminating municipalities during the remaining term of their contracts. KU and the terminating municipalities continue settlement discussions in this proceeding. KU cannot currently predict the outcome of its FERC applications regarding its wholesale power agreements with the municipalities.
(PPL, LKE, LG&E and KU)
Rate Case Proceedings
On November 26, 2014, LG&E and KU filed requests with the KPSC for increases in annual base electricity rates for LG&E's electric and gas operations and KU's electric operations. On April 20, 2015, LG&E and KU, and the other parties to the proceeding, filed a unanimous settlement agreement with the KPSC. Among other things, the proposed settlement provides for increases in the annual revenue requirements associated with KU base electric rates of $125 million and LG&E base gas rates of $7 million. The annual revenue requirement associated with base electric rates at LG&E will not increase. The settlement did not establish a specific return on equity with respect to the base rates, however an authorized 10% return on equity will be utilized in the ECR and GLT mechanisms. The settlement agreement provides for deferred recovery of costs associated with Green River Units 3 and 4 through their retirement. The new regulatory asset will be amortized over three years. The settlement also provides regulatory asset treatment for the difference between pension expense currently booked in accordance with LG&E and KU's pension accounting policy and such an expense using a 15 year amortization period for actuarial gains and losses. The proposed settlement remains subject to KPSC approval. If approved, the new rates and all elements of the settlement would be effective July 1, 2015.
(PPL)
The discussion for PPL provides a review of results by reportable segment. The "Margins" discussion provides explanations of non-GAAP financial measures (Kentucky Gross Margins, Pennsylvania Gross Delivery Margins and Unregulated Gross Energy Margins) and a reconciliation of non-GAAP financial measures to "Operating Income." The "Statement of Income Analysis" discussion addresses significant changes in principal line items on PPL's Statements of Income, comparing the three months ended March 31, 2015 with the same period in 2014. "Segment Earnings, Margins and Statement of Income Analysis" is presented separately for PPL.
Tables analyzing changes in amounts between periods within "Segment Earnings" and "Statement of Income Analysis" are presented on a constant U.K. foreign currency exchange rate basis, where applicable, in order to isolate the impact of the change in the exchange rate on the item being explained. Results computed on a constant U.K. foreign currency exchange rate basis are calculated by translating current year results at the prior year weighted-average U.K. foreign currency exchange rate.
(Subsidiary Registrants)
The discussion for each of PPL Electric, LKE, LG&E and KU provides a summary of earnings. The "Margins" discussion includes a reconciliation of non-GAAP financial measures to "Operating Income" and "Statement of Income Analysis"
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addresses significant changes in principal line items on the Statements of Income comparing the three months ended March 31, 2015 with the same period in 2014. "Earnings, Margins and Statement of Income Analysis" is presented separately for PPL Electric, LKE, LG&E and KU.
(All Registrants)
The results for interim periods can be disproportionately influenced by numerous factors and developments and by seasonal variations. As such, the results of operations for interim periods do not necessarily indicate results or trends for the year or future periods.
PPL: Segment Earnings, Margins and Statement of Income Analysis
Segment Earnings
U.K. Regulated Segment
The U.K. Regulated segment consists of PPL Global which primarily includes WPD's regulated electricity distribution operations, the results of hedging the translation of WPD's earnings from British pound sterling into U.S. dollars, and certain costs, such as U.S. income taxes, administrative costs, and allocated financing costs. The U.K. Regulated segment represents 58% of Net Income for the three months ended March 31, 2015 and 33% of PPL's assets at March 31, 2015.
Net Income for the periods ended March 31 includes the following results:
| Three Months | |||||||||||
| 2015 | 2014 | $ Change | |||||||||
| Utility revenues | $ | 686 | $ | 637 | $ | 49 | |||||
| Energy-related businesses | 11 | 11 | |||||||||
| Total operating revenues | 697 | 648 | 49 | ||||||||
| Other operation and maintenance | 103 | 108 | (5) | ||||||||
| Depreciation | 59 | 83 | (24) | ||||||||
| Taxes, other than income | 36 | 38 | (2) | ||||||||
| Energy-related businesses | 7 | 7 | |||||||||
| Total operating expenses | 205 | 236 | (31) | ||||||||
| Other Income (Expense) - net | 88 | (24) | 112 | ||||||||
| Interest Expense | 100 | 122 | (22) | ||||||||
| Income Taxes | 105 | 60 | 45 | ||||||||
| Net Income | $ | 375 | $ | 206 | $ | 169 | |||||
The changes in the results of the U.K. Regulated segment between these periods were due to the factors set forth below, which reflect certain items that management considers special and effects of movements in foreign currency exchange on separate lines within the table and not in their respective Statement of Income line items. See below for additional detail of the special items.
| Three Months | |||||
| U.K. | |||||
| Utility revenues | $ | 33 | |||
| Other operation and maintenance | (3) | ||||
| Depreciation | 20 | ||||
| Interest expense | 5 | ||||
| Income taxes | (6) | ||||
| U.S. | |||||
| Interest expense and other | 9 | ||||
| Income taxes | 7 | ||||
| Foreign currency exchange, after-tax | 7 | ||||
| Special items, after-tax | 97 | ||||
| Total | $ | 169 | |||
U.K.
| · | Higher utility revenues primarily due to $42 million from the April 1, 2014 price increase, partially offset by $10 million of lower volume. |
| · | Lower depreciation expense primarily due to a $20 million impact of an extension of the network asset lives. See Note 2 to the Financial Statements for additional information. |
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The following after-tax gains (losses), which management considers special items, also impacted the U.K. Regulated segment's results during the periods ended March 31.
| Income Statement | Three Months | |||||||||
| Line Item | 2015 | 2014 | ||||||||
| Other Income | ||||||||||
| Foreign currency-related economic hedges, net of tax of $(20), $3 (a) | (Expense)-net | $ | 37 | $ | (6) | |||||
| Other operation | ||||||||||
| WPD Midlands acquisition-related adjustment, net of tax of $(1), $0 | and maintenance | 2 | ||||||||
| Change in WPD line loss accrual, net of tax of $0, $13 (b) | Utility | (52) | ||||||||
| Total | $ | 39 | $ | (58) | ||||||
(a) Represents unrealized gains (losses) on contracts that economically hedge anticipated GBP denominated earnings.
| (b) | In March 2014, Ofgem issued its final decision on the DPCR4 line loss incentives and penalties mechanism. As a result, WPD increased its existing liability by $65 million, pre-tax, for over-recovery of line losses. See Note 6 to the Financial Statements for additional information. |
Kentucky Regulated Segment
The Kentucky Regulated segment consists primarily of LKE's regulated electricity generation, transmission and distribution operations of LG&E and KU, as well as LG&E's regulated distribution and sale of natural gas. In addition, certain financing costs are allocated to the Kentucky Regulated segment. The Kentucky Regulated segment represents 17% of Net Income for the three months ended March 31, 2015 and 27% of PPL's assets at March 31, 2015.
Net Income for the periods ended March 31 includes the following results:
| Three Months | |||||||||||
| 2015 | 2014 | $ Change | |||||||||
| Utility revenues | $ | 899 | $ | 934 | $ | (35) | |||||
| Fuel | 253 | 277 | (24) | ||||||||
| Energy purchases | 92 | 124 | (32) | ||||||||
| Other operation and maintenance | 209 | 206 | 3 | ||||||||
| Depreciation | 95 | 86 | 9 | ||||||||
| Taxes, other than income | 14 | 13 | 1 | ||||||||
| Total operating expenses | 663 | 706 | (43) | ||||||||
| Other Income (Expense) - net | (1) | (2) | 1 | ||||||||
| Interest Expense | 55 | 55 | |||||||||
| Income Taxes | 71 | 64 | 7 | ||||||||
| Net Income | $ | 109 | $ | 107 | $ | 2 | |||||
The changes in the results of the Kentucky Regulated segment between these periods were due to the factors set forth below, which reflect amounts classified as Kentucky Gross Margins on a separate line within the table and not in their respective Statement of Income line items.
| Three Months | ||||
| Kentucky Gross Margins | $ | 14 | ||
| Other operation and maintenance | (2) | |||
| Depreciation | (4) | |||
| Other Income (Expense) - net | 1 | |||
| Income taxes | (7) | |||
| Total | $ | 2 | ||
| · | See "Margins - Changes in Non-GAAP Financial Measures" for an explanation of Kentucky Gross Margins. |
| · | Higher depreciation expense primarily due to PP&E additions, net. |
| · | Higher income taxes due to higher pre-tax income which increased income taxes by $4 million and the establishment of a valuation allowance on a deferred tax asset of $3 million. |
Pennsylvania Regulated Segment
The Pennsylvania Regulated segment includes the regulated electricity transmission and distribution operations of PPL Electric. The Pennsylvania Regulated segment represents 13% of Net Income for the three months ended March 31, 2015 and 16% of PPL's assets at March 31, 2015.
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| Net Income for the periods ended March 31 includes the following results: | |||||||||||
| Three Months | |||||||||||
| 2015 | 2014 | $ Change | |||||||||
| Utility revenues | $ | 630 | $ | 592 | $ | 38 | |||||
| Energy purchases | |||||||||||
| External | 227 | 189 | 38 | ||||||||
| Intersegment | 9 | 27 | (18) | ||||||||
| Other operation and maintenance | 133 | 134 | (1) | ||||||||
| Depreciation | 51 | 45 | 6 | ||||||||
| Taxes, other than income | 35 | 32 | 3 | ||||||||
| Total operating expenses | 455 | 427 | 28 | ||||||||
| Other Income (Expense) - net | 2 | 2 | |||||||||
| Interest Expense | 31 | 29 | 2 | ||||||||
| Income Taxes | 59 | 53 | 6 | ||||||||
| Net Income | $ | 87 | $ | 85 | $ | 2 | |||||
The changes in the components of the Pennsylvania Regulated segment's results between these periods were due to the factors set forth below, which reflect amounts classified as Pennsylvania Gross Delivery Margins on a separate line and not in their respective Statement of Income line items.
| Three Months | ||||
| Pennsylvania Gross Delivery Margins | $ | 13 | ||
| Other operation and maintenance | 2 | |||
| Depreciation | (6) | |||
| Interest expense | (2) | |||
| Other | 1 | |||
| Income taxes | (6) | |||
| Total | $ | 2 | ||
| · | See "Margins - Changes in Non-GAAP Financial Measures" for an explanation of Pennsylvania Gross Delivery Margins. |
| · | Higher depreciation expense primarily due to transmission PP&E additions, net as well as additions related to the ongoing efforts to ensure the reliability of the delivery system and the replacement of aging infrastructure. |
| · | Higher income taxes primarily due to higher pre-tax income. |
Supply Segment
The Supply segment primarily consists of PPL Energy Supply's wholesale, retail, marketing and trading activities, as well as its competitive generation operations. In addition, certain financing and other costs are allocated to the Supply segment. The Supply segment represents 15% of Net Income for the three months ended March 31, 2015 and 22% of PPL's assets at March 31, 2015.
In June 2014, PPL and PPL Energy Supply, which primarily represents PPL's Supply segment, executed definitive agreements with affiliates of Riverstone to combine their competitive power generation businesses into a new, stand-alone, publicly traded company named Talen Energy. Upon completion of this transaction, PPL will no longer have a Supply segment. See Note 8 to the Financial Statements for additional information.
| Net Income for the periods ended March 31 includes the following results: | |||||||||||
| Three Months | |||||||||||
| 2015 | 2014 | $ Change | |||||||||
| Energy revenues | |||||||||||
| External (a) (b) | $ | 833 | $ | (1,107) | $ | 1,940 | |||||
| Intersegment | 9 | 27 | (18) | ||||||||
| Energy-related businesses | 104 | 125 | (21) | ||||||||
| Total operating revenues | 946 | (955) | 1,901 | ||||||||
| Fuel (a) | 351 | 482 | (131) | ||||||||
| Energy purchases (a) (c) | 1 | (1,804) | 1,805 | ||||||||
| Other operation and maintenance | 226 | 229 | (3) | ||||||||
| Depreciation | 77 | 75 | 2 | ||||||||
| Taxes, other than income | 15 | 18 | (3) | ||||||||
| Energy-related businesses | 98 | 124 | (26) | ||||||||
| Total operating expenses | 768 | (876) | 1,644 | ||||||||
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| Three Months | |||||||||||
| 2015 | 2014 | $ Change | |||||||||
| Other Income (Expense) - net | 7 | 6 | 1 | ||||||||
| Interest Expense | 38 | 46 | (8) | ||||||||
| Income Taxes | 52 | (52) | 104 | ||||||||
| Income (Loss) from Discontinued Operations | (8) | 8 | |||||||||
| Net Income | $ | 95 | $ | (75) | $ | 170 | |||||
| (a) | Includes the impact from energy-related economic activity. See "Commodity Price Risk (Non-trading) - Economic Activity" in Note 14 to the Financial Statements for additional information. |
| (b) | 2014 includes significant realized and unrealized losses on physical and financial commodity sales contracts due to the unusually cold weather experienced in the first quarter of 2014. |
| (c) | 2014 includes significant realized and unrealized gains on physical and financial commodity purchase contracts due to the unusually cold weather experienced in the first quarter of 2014. |
The changes in the results of the Supply segment between these periods were due to the factors set forth below, which reflect amounts classified as Unregulated Gross Energy Margins and certain other items on separate lines and not in their respective Statement of Income line items. See below for additional detail of these other items.
| Three Months | ||||
| Unregulated Gross Energy Margins | $ | (58) | ||
| Other operation and maintenance | 8 | |||
| Other Income (Expense) - net | 1 | |||
| Interest expense | 9 | |||
| Other | 2 | |||
| Income taxes | 5 | |||
| Energy-related businesses | 5 | |||
| Discontinued operations, after-tax | 27 | |||
| Other items, after-tax | 171 | |||
| Total | $ | 170 | ||
| · | See "Margins - Changes in Non-GAAP Financial Measures" for an explanation of Unregulated Gross Energy Margins. |
| · | Lower other operation and maintenance primarily due to lower labor costs attributable to restructuring activities. |
| · | Lower interest expense primarily due to certain PPL Capital Funding debt no longer being associated with the Supply segment in 2015 and represents a dissynergy for PPL related to the spinoff of PPL Energy Supply. |
The following after-tax gains (losses), reflected as "Other items, after-tax" in the table above, also impacted the Supply segment's results during the periods ended March 31.
| Income Statement | Three Months | |||||||||
| Line Item | 2015 | 2014 | ||||||||
| Adjusted energy-related economic activity - net, net of tax of $(18), $95 | (a) | $ | 27 | $ | (139) | |||||
| Discontinued | ||||||||||
| Kerr Dam Project impairment, net of tax of $0, $8 (b) | Operations | (10) | ||||||||
| Other operation | ||||||||||
| Corette closure costs, net of tax of $2, $0 (c) | and maintenance | (3) | ||||||||
| Spinoff of PPL Energy Supply: | ||||||||||
| Other operation | ||||||||||
| Transition costs, net of tax of $0, $0 | and maintenance | (1) | ||||||||
| Other operation | ||||||||||
| Employee transitional services, net of tax of $1, $0 | and maintenance | (1) | ||||||||
| Total | $ | 22 | $ | (149) | ||||||
| (a) | Represents unrealized gains (losses), after-tax, on economic activity. See "Commodity Price Risk (Non-trading) - Economic Activity" in Note 14 to the Financial Statements for additional information. Amounts have been adjusted for insignificant option premiums. |
| (b) | In 2014, an arbitration panel issued its final decision holding that the conveyance price payable to PPL Montana was $18 million. As a result, PPL determined the Kerr Dam Project was impaired and recorded a pre-tax charge of $18 million. See Note 13 to the Financial Statements for additional information. |
| (c) | Operations were suspended and the Corette plant was retired in March 2015. |
Margins
Non-GAAP Financial Measures
Management utilizes the following non-GAAP financial measures as indicators of performance for its businesses.
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| · | "Kentucky Gross Margins" is a single financial performance measure of the electricity generation, transmission and distribution operations of the Kentucky Regulated segment, LKE, LG&E and KU, as well as the Kentucky Regulated segment's, LKE's and LG&E's distribution and sale of natural gas. In calculating this measure, fuel, energy purchases and certain variable costs of production (recorded as "Other operation and maintenance" on the Statements of Income) are deducted from revenues. In addition, certain other expenses, recorded as "Other operation and maintenance", "Depreciation" and "Taxes, other than income" on the Statements of Income, associated with approved cost recovery mechanisms are offset against the recovery of those expenses, which are included in revenues. These mechanisms allow for direct recovery of these expenses and, in some cases, returns on capital investments and performance incentives. As a result, this measure represents the net revenues from electricity and gas operations. |
| · | "Pennsylvania Gross Delivery Margins" is a single financial performance measure of the electricity delivery operations of the Pennsylvania Regulated segment and PPL Electric, which includes transmission and distribution activities. In calculating this measure, utility revenues and expenses associated with approved recovery mechanisms, including energy provided as a PLR, are offset with minimal impact on earnings. Costs associated with these mechanisms are recorded in "Energy purchases," "Other operation and maintenance," which is primarily Act 129 costs, and "Taxes, other than income," which is primarily gross receipts tax. This performance measure includes PLR energy purchases by PPL Electric from PPL EnergyPlus, which are reflected in "PLR intersegment utility revenue (expense)" in the reconciliation table below (in "Energy purchases from affiliate" in PPL Electric's reconciliation table). As a result, this measure represents the net revenues from the Pennsylvania Regulated segment's and PPL Electric's electricity delivery operations. |
| · | "Unregulated Gross Energy Margins" is a single financial performance measure of the Supply segment's competitive energy activities, which are managed on a geographic basis. In calculating this measure, energy revenues, including operating revenues associated with certain businesses classified as discontinued operations, are offset by the cost of fuel, energy purchases, certain other operation and maintenance expenses, primarily ancillary charges, gross receipts tax, recorded in "Taxes, other than income," and operating expenses associated with certain businesses classified as discontinued operations. This performance measure is relevant due to the volatility in the individual revenue and expense lines on the Statements of Income that comprise "Unregulated Gross Energy Margins." This volatility stems from a number of factors, including the required netting of certain transactions with ISOs and significant fluctuations in unrealized gains and losses. Such factors could result in gains or losses being recorded in either "Unregulated wholesale energy," "Unregulated retail energy" or "Energy purchases" on the Statements of Income. This performance measure includes PLR revenues from energy sales to PPL Electric by PPL EnergyPlus, which are reflected in "PLR intersegment utility revenue (expense)" in the reconciliation table below. "Unregulated Gross Energy Margins" excludes adjusted energy-related economic activity, which includes the changes in fair value of positions used to economically hedge a portion of the economic value of the competitive generation assets, full-requirement sales contracts and retail activities. This economic value is subject to changes in fair value due to market price volatility of the input and output commodities (e.g., fuel and power) prior to the delivery period that was hedged. Adjusted energy-related economic activity includes the ineffective portion of qualifying cash flow hedges and premium amortization associated with options. Unrealized gains and losses related to this activity are deferred and included in "Unregulated Gross Energy Margins" over the delivery period of the item that was hedged or upon realization. |
These measures are not intended to replace "Operating Income," which is determined in accordance with GAAP, as an indicator of overall operating performance. Other companies may use different measures to analyze and report their results of operations. Management believes these measures provide additional useful criteria to make investment decisions. These performance measures are used, in conjunction with other information, by senior management and PPL's Board of Directors to manage the operations and analyze actual results compared with budget.
Reconciliation of Non-GAAP Financial Measures
The following table contains the components from the Statement of Income that are included in the non-GAAP financial measures and a reconciliation to PPL's "Operating Income" for the periods ended March 31.
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| 2015 Three Months | 2014 Three Months | |||||||||||||||||||||||||||||||||||
| Unregulated | Unregulated | |||||||||||||||||||||||||||||||||||
| Kentucky | PA Gross | Gross | Kentucky | PA Gross | Gross | |||||||||||||||||||||||||||||||
| Gross | Delivery | Energy | Operating | Gross | Delivery | Energy | Operating | |||||||||||||||||||||||||||||
| Margins | Margins | Margins | Other (a) | Income (b) | Margins | Margins | Margins | Other (a) | Income (b) | |||||||||||||||||||||||||||
| Operating Revenues | ||||||||||||||||||||||||||||||||||||
| Utility | $ | 899 | $ | 630 | $ | 685 | (c) | $ | 2,214 | $ | 934 | $ | 592 | $ | 636 | (c) | $ | 2,162 | ||||||||||||||||||
| PLR intersegment utility | ||||||||||||||||||||||||||||||||||||
| revenue (expense) (d) | (9) | $ | 9 | (27) | $ | 27 | ||||||||||||||||||||||||||||||
| Unregulated wholesale energy | 614 | (93) | (e) | 521 | (665) | (792) | (e) | (1,457) | ||||||||||||||||||||||||||||
| Unregulated retail energy | 324 | (14) | (e) | 310 | 377 | (29) | (e) | 348 | ||||||||||||||||||||||||||||
| Energy-related businesses | 120 | 120 | 141 | 141 | ||||||||||||||||||||||||||||||||
| Total Operating Revenues | 899 | 621 | 947 | 698 | 3,165 | 934 | 565 | (261) | (44) | 1,194 | ||||||||||||||||||||||||||
| Operating Expenses | ||||||||||||||||||||||||||||||||||||
| Fuel | 253 | 351 | 604 | 277 | 481 | 758 | ||||||||||||||||||||||||||||||
| Energy purchases | 92 | 227 | 152 | (150) | (e) | 321 | 124 | 189 | (1,219) | (588) | (e) | (1,494) | ||||||||||||||||||||||||
| Other operation and | ||||||||||||||||||||||||||||||||||||
| maintenance | 24 | 26 | 4 | 614 | 668 | 23 | 25 | 7 | 613 | 668 | ||||||||||||||||||||||||||
| Depreciation | 7 | 286 | 293 | 2 | 298 | 300 | ||||||||||||||||||||||||||||||
| Taxes, other than income | 1 | 33 | 12 | 55 | 101 | 29 | 13 | 59 | 101 | |||||||||||||||||||||||||||
| Energy-related businesses | 2 | 109 | 111 | 2 | 136 | 138 | ||||||||||||||||||||||||||||||
| Total Operating Expenses | 377 | 286 | 521 | 914 | 2,098 | 426 | 243 | (716) | 518 | 471 | ||||||||||||||||||||||||||
| Income (Loss) from | ||||||||||||||||||||||||||||||||||||
| Discontinued Operations | 29 | (29) | (f) | |||||||||||||||||||||||||||||||||
| Total | $ | 522 | $ | 335 | $ | 426 | $ | (216) | $ | 1,067 | $ | 508 | $ | 322 | $ | 484 | $ | (591) | $ | 723 | ||||||||||||||||
| (a) | Represents amounts excluded from Margins. |
| (b) | As reported on the Statements of Income. |
| (c) | Primarily represents WPD's utility revenue. |
| (d) | Primarily related to PLR supply sold by PPL EnergyPlus to PPL Electric. |
| (e) | Includes energy-related economic activity, which is subject to fluctuations in value due to market price volatility. See "Commodity Price Risk (Non-trading) - Economic Activity" in Note 14 to the Financial Statements. Amounts have been adjusted for insignificant option premiums. |
| (f) | Represents the revenues associated with the hydroelectric generating facilities located in Montana that are classified as discontinued operations. These revenues are not reflected in "Operating Income" on the Statements of Income. |
Changes in Non-GAAP Financial Measures
The following table shows the non-GAAP financial measures by PPL's reportable segment and by component, as applicable, for the three months ended March 31 as well as the change between periods. The factors that gave rise to the changes are described following the table.
| Three Months | |||||||||||
| 2015 | 2014 | $ Change | |||||||||
| Kentucky Regulated | |||||||||||
| Kentucky Gross Margins | |||||||||||
| LG&E | $ | 230 | $ | 226 | $ | 4 | |||||
| KU | 292 | 282 | 10 | ||||||||
| LKE | $ | 522 | $ | 508 | $ | 14 | |||||
| Pennsylvania Regulated | |||||||||||
| Pennsylvania Gross Delivery Margins | |||||||||||
| Distribution | $ | 242 | $ | 249 | $ | (7) | |||||
| Transmission | 93 | 73 | 20 | ||||||||
| Total | $ | 335 | $ | 322 | $ | 13 | |||||
| Supply | |||||||||||
| Unregulated Gross Energy Margins | |||||||||||
| Eastern U.S. | $ | 405 | $ | 435 | $ | (30) | |||||
| Western U.S. | 21 | 49 | (28) | ||||||||
| Total | $ | 426 | $ | 484 | $ | (58) | |||||
Kentucky Gross Margins
Kentucky Gross Margins increased primarily due to returns on additional environmental capital investments of $18 million ($10 million at LG&E and $8 million at KU) and higher demand revenue of $7 million ($6 million at KU and $1 million at LG&E) partially offset by lower sales volume of $10 million ($6 million at KU and $4 million at LG&E). The change in sales volume was primarily attributable to milder winter weather conditions in 2015 compared to 2014.
| 93 |
Pennsylvania Gross Delivery Margins
Distribution
Distribution margins decreased primarily due to a $12 million benefit recorded in the first quarter of 2014 as a result of a change in estimate of a regulatory liability partially offset by a $4 million favorable effect of distribution improvement capital investments and a $4 million impact of favorable weather.
Transmission
Transmission margins increased primarily due to increased capital investments.
Unregulated Gross Energy Margins
Eastern U.S.
Eastern margins decreased primarily due to lower capacity prices of $69 million, unusually cold weather conditions in 2014 as discussed below of $38 million, net change on commodity positions of $28 million and full-requirement sales contracts of $22 million, partially offset by higher baseload energy prices of $75 million and favorable asset performance of $49 million.
During the first quarter of 2014, the PJM region experienced unusually cold weather conditions, higher demand and congestion patterns, causing rising natural gas and electricity prices in spot and near-term forward markets. Due to these market dynamics, PPL Energy Supply captured opportunities on unhedged generation, which were offset primarily by losses incurred by under-hedged full-requirement sales contracts and retail electric portfolios which were not fully hedged or able to be fully hedged given the extreme load conditions and lack of market liquidity.
Western U.S.
Western margins decreased primarily due to the sale of the Montana hydroelectric generating facilities in November 2014.
| Statement of Income Analysis -- | |||||||
| Utility Revenues | |||||||
| The increase (decrease) in utility revenues for the period ended March 31, 2015 compared with 2014 was due to: | |||||||
| Three Months | |||||||
| Domestic: | |||||||
| PPL Electric (a) | $ | 38 | |||||
| LKE (b) | (35) | ||||||
| Total Domestic | 3 | ||||||
| U.K.: | |||||||
| Price (c) | 42 | ||||||
| Foreign currency exchange rates | (48) | ||||||
| Volume | (10) | ||||||
| Line loss accrual adjustments (d) | 65 | ||||||
| Total U.K. | 49 | ||||||
| Total | $ | 52 | |||||
| (a) | See "Pennsylvania Gross Delivery Margins" for further information. |
| (b) | See "Kentucky Gross Margins" for further information. |
| (c) | The increase was due to a price increase effective April 1, 2014. |
| (d) | The increase was due to unfavorable accrual adjustments in 2014 based on Ofgem's final decision on the DPCR4 line loss incentives and penalties. See Note 6 to the Financial Statements for additional information. |
Certain Operating Revenues and Expenses Included in "Margins"
The following Statement of Income line items and their related increase (decrease) during the period ended March 31, 2015 compared with 2014 are included above within "Margins" and are not discussed separately.
| Three Months | |||||
| Unregulated wholesale energy (a) | $ | 1,978 | |||
| Unregulated retail energy | (38) | ||||
| Fuel | (154) | ||||
| Energy purchases (b) | 1,815 | ||||
| 94 |
| (a) | 2014 includes significant realized and unrealized losses on physical and financial commodity sales contracts due to the unusually cold weather |
| (b) | 2014 includes significant realized and unrealized gains on physical and financial commodity purchase contracts due to the unusually cold weather. |
Energy-Related Businesses
Net contributions from energy-related businesses increased by $6 million for the period ended March 31, 2015 compared with 2014 primarily due to higher margins on existing construction projects at the mechanical contracting and engineering subsidiaries.
| Other Operation and Maintenance | ||||||
| The increase (decrease) in other operation and maintenance for the period ended March 31, 2015 compared with 2014 was due to: | ||||||
| Three Months | ||||||
| Domestic: | ||||||
| Fossil and hydroelectric plants (a) | $ | 4 | ||||
| PPL EnergyPlus (b) | (9) | |||||
| PPL Electric storm costs | (10) | |||||
| PPL Electric Act 129 | 5 | |||||
| External transition costs associated with the spinoff of PPL Energy Supply | 4 | |||||
| Uncollectible accounts | 3 | |||||
| Other | 9 | |||||
| U.K.: | ||||||
| Network maintenance | (5) | |||||
| Foreign currency exchange rates | (7) | |||||
| Pension | (4) | |||||
| Engineering management | 9 | |||||
| WPD Midlands acquisition-related adjustment | (3) | |||||
| Other | 4 | |||||
| Total | $ | |||||
| (a) | The increase was primarily due to costs related to the retirement of the Corette plant in March 2015. |
| (b) | The decrease was primarily due to lower labor costs attributable to restructuring activities. |
Depreciation
Depreciation decreased by $7 million for the three months ended March 31, 2015 compared with 2014, primarily due to a $20 million reduction from an extension of the WPD network asset lives partially offset by additions to PP&E, net. See Note 2 to the Financial Statements for additional information on the extension of WPD network asset lives.
Other Income (Expense) - net
Other income (expense) - net increased by $118 million for the three months ended March 31, 2015 compared with 2014, primarily due to an increase of $112 million from realized and unrealized gains on foreign currency contracts to economically hedge GBP denominated earnings from WPD.
See Note 12 to the Financial Statements for additional information.
| Interest Expense | |||||
| The increase (decrease) in interest expense for the period ended March 31, 2015 compared with 2014 was due to: | |||||
| Three Months | |||||
| Loss on extinguishment of debt (a) | $ | (9) | |||
| Foreign currency exchange rates | (7) | ||||
| Other | 1 | ||||
| Total | $ | (15) | |||
| (a) | In March 2014, PPL Capital Funding remarketed and exchanged junior subordinated notes that were originally issued in April 2011 as a component of PPL's 2011 Equity Units. |
| Income Taxes | |||||
| The increase (decrease) in income taxes for the period ended March 31, 2015 compared with 2014 was due to: | |||||
| 95 |
| Three Months | |||||
| Change in pre-tax income at current period tax rates | $ | 165 | |||
| Valuation allowance adjustments | 3 | ||||
| U.S. income tax on foreign earnings net of foreign tax credit | (12) | ||||
| Intercompany interest on U.K. financing entities | (6) | ||||
| Impact of lower U.K. income tax rates | 6 | ||||
| Other | (2) | ||||
| Total | $ | 154 | |||
See Note 5 to the Financial Statements for additional information.
Income (Loss) from Discontinued Operations (net of income taxes)
Income (Loss) from Discontinued Operations (net of income taxes) for the three months ended March 31, 2014 includes the results of operations of the Montana hydroelectric generating facilities, which were sold in November 2014. See "Discontinued Operations - Montana Hydro Sale" in Note 8 to the Financial Statements for additional information.
PPL Electric: Earnings, Margins and Statement of Income Analysis
| Earnings | ||||||||
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2015 | 2014 | |||||||
| Net Income | $ | 87 | $ | 85 | ||||
Earnings increased slightly for the three month period in 2015 compared with 2014 primarily due to higher margins from additional transmission capital investments, partially offset by higher depreciation expense. The first quarter of 2014 also benefited from a change in estimate of a regulatory liability.
The table below quantifies the changes in the components of Net Income between these periods, which reflects amounts classified as Pennsylvania Gross Delivery Margins on a separate line and not in their respective Statement of Income line items.
| Three Months | ||||
| Pennsylvania Gross Delivery Margins | $ | 13 | ||
| Other operation and maintenance | 2 | |||
| Depreciation | (6) | |||
| Other | 1 | |||
| Interest expense | (2) | |||
| Income taxes | (6) | |||
| Total | $ | 2 | ||
Margins
"Pennsylvania Gross Delivery Margins" is a non-GAAP financial performance measure that management utilizes as an indicator of the performance of its business. See PPL's "Results of Operations - Margins" for information on why management believes this measure is useful and for explanations of the underlying drivers of the changes between periods.
The following tables contain the components from the Statements of Income that are included in this non-GAAP financial measure and a reconciliation to "Operating Income" for the periods ended March 31.
| 2015 Three Months | 2014 Three Months | ||||||||||||||||||||
| PA Gross | PA Gross | ||||||||||||||||||||
| Delivery | Operating | Delivery | Operating | ||||||||||||||||||
| Margins | Other (a) | Income (b) | Margins | Other (a) | Income (b) | ||||||||||||||||
| Operating Revenues | $ | 630 | $ | 630 | $ | 592 | $ | 592 | |||||||||||||
| Operating Expenses | |||||||||||||||||||||
| Energy purchases | 227 | 227 | 189 | 189 | |||||||||||||||||
| Energy purchases from affiliate | 9 | 9 | 27 | 27 | |||||||||||||||||
| Other operation and maintenance | 26 | $ | 107 | 133 | 25 | $ | 109 | 134 | |||||||||||||
| Depreciation | 51 | 51 | 45 | 45 | |||||||||||||||||
| Taxes, other than income | 33 | 2 | 35 | 29 | 3 | 32 | |||||||||||||||
| Total Operating Expenses | 295 | 160 | 455 | 270 | 157 | 427 | |||||||||||||||
| Total | $ | 335 | $ | (160) | $ | 175 | $ | 322 | $ | (157) | $ | 165 | |||||||||
| 96 |
| (a) | Represents amounts excluded from Margins. |
| (b) | As reported on the Statements of Income. |
Statement of Income Analysis --
Certain Operating Revenues and Expenses Included in "Margins"
The following Statement of Income line items and their related increase (decrease) during the period ended March 31, 2015 compared with 2014 are included above within "Margins" and are not discussed separately.
| Three Months | |||||
| Operating revenues | $ | 38 | |||
| Energy purchases | 38 | ||||
| Energy purchases from affiliate | (18) | ||||
| Other Operation and Maintenance | |||||
| The increase (decrease) in other operation and maintenance for the period ended March 31, 2015 compared with 2014 was due to: | |||||
| Three Months | |||||
| Vegetation management | $ | (2) | |||
| Storm costs | (10) | ||||
| Act 129 | 5 | ||||
| Uncollectible accounts | 3 | ||||
| Corporate service costs | 3 | ||||
| Total | $ | (1) | |||
Depreciation
Depreciation increased by $6 million for the three months ended March 31, 2015 compared with 2014, primarily due to transmission PP&E additions, net as well as additions related to the ongoing efforts to ensure the reliability of the delivery system and the replacement of aging infrastructure.
| Income Taxes | ||||
| The increase (decrease) in income taxes for the period ended March 31, 2015 compared with 2014 was due to: | ||||
| Three Months | ||||
| Change in pre-tax income at current period tax rates | $ | 5 | ||
| Other | 1 | |||
| Total | $ | 6 | ||
See Note 5 to the Financial Statements for additional information.
LKE: Earnings, Margins and Statement of Income Analysis
| Earnings | ||||||||
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2015 | 2014 | |||||||
| Net Income | $ | 117 | $ | 115 | ||||
Earnings increased slightly for the three month period in 2015 compared with 2014 primarily due to returns on additional environmental capital investments and higher demand revenue partially offset by lower sales volume, higher depreciation expense and higher income tax expense. The change in sales volume was primarily attributable to milder winter weather conditions in 2015 compared to 2014.
The table below quantifies the changes in the components of Net Income between these periods, which reflect amounts classified as Margins on a separate line within the table and not in their respective Statement of Income line items.
| 97 |
| Three Months | ||||
| Margins | $ | 14 | ||
| Other operation and maintenance | (2) | |||
| Depreciation | (4) | |||
| Other Income (Expense)- net | 1 | |||
| Income taxes | (7) | |||
| Total | $ | 2 | ||
Margins
"Margins" is a non-GAAP financial performance measure that management utilizes as an indicator of the performance of its business. See PPL's "Results of Operations - Margins" for an explanation of why management believes this measure is useful and the underlying drivers of the changes between periods. Within PPL's discussion, LKE's Margins are referred to as "Kentucky Gross Margins."
The following tables contain the components from the Statements of Income that are included in this non-GAAP financial measure and a reconciliation to "Operating Income" for the periods ended March 31.
| 2015 Three Months | 2014 Three Months | ||||||||||||||||||||||
| Operating | Operating | ||||||||||||||||||||||
| Margins | Other (a) | Income (b) | Margins | Other (a) | Income (b) | ||||||||||||||||||
| Operating Revenues | $ | 899 | $ | 899 | $ | 934 | $ | 934 | |||||||||||||||
| Operating Expenses | |||||||||||||||||||||||
| Fuel | 253 | 253 | 277 | 277 | |||||||||||||||||||
| Energy purchases | 92 | 92 | 124 | 124 | |||||||||||||||||||
| Other operation and maintenance | 24 | $ | 185 | 209 | 23 | $ | 183 | 206 | |||||||||||||||
| Depreciation | 7 | 88 | 95 | 2 | 84 | 86 | |||||||||||||||||
| Taxes, other than income | 1 | 13 | 14 | 13 | 13 | ||||||||||||||||||
| Total Operating Expenses | 377 | 286 | 663 | 426 | 280 | 706 | |||||||||||||||||
| Total | $ | 522 | $ | (286) | $ | 236 | $ | 508 | $ | (280) | $ | 228 | |||||||||||
| (a) | Represents amounts excluded from Margins. |
| (b) | As reported on the Statements of Income. |
Statement of Income Analysis --
Certain Operating Revenues and Expenses included in "Margins"
The following Statement of Income line items and their related decrease during the period ended March 31, 2015 compared with 2014 are included above within "Margins" and are not discussed separately.
| Three Months | |||||
| Operating revenues | $ | 35 | |||
| Fuel | 24 | ||||
| Energy purchases | 32 | ||||
Depreciation
Depreciation increased by $9 million for the three months ended March 31, 2015 compared with 2014 primarily due to additions to PP&E, net.
Income Taxes
Income taxes increased by $7 million for the three months ended March 31, 2015 compared with 2014 due to the change in pre-tax income of $4 million and the establishment of a valuation allowance on a deferred tax asset of $3 million.
| 98 |
LG&E: Earnings, Margins and Statement of Income Analysis
| Earnings | ||||||||
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2015 | 2014 | |||||||
| Net Income | $ | 53 | $ | 52 | ||||
Earnings increased slightly for the three month period in 2015 compared with 2014 primarily due to returns on additional environmental capital investments partially offset by lower sales volume and higher depreciation expense. The change in sales volume was primarily attributable to milder winter weather conditions in 2015 compared to 2014.
The table below quantifies the changes in the components of Net Income between these periods, which reflect amounts classified as Margins on a separate line within the table and not in their respective Statement of Income line items.
| Three Months | ||||
| Margins | $ | 4 | ||
| Other operation and maintenance | 2 | |||
| Depreciation | (2) | |||
| Other Income (Expense) - net | 1 | |||
| Interest expense | (1) | |||
| Income taxes | (3) | |||
| Total | $ | 1 | ||
Margins
"Margins" is a non-GAAP financial performance measure that management utilizes as an indicator of the performance of its business. See PPL's "Results of Operations - Margins" for an explanation of why management believes this measure is useful and the underlying drivers of the changes between periods. Within PPL's discussion, LG&E's Margins are included in "Kentucky Gross Margins."
The following tables contain the components from the Statements of Income that are included in this non-GAAP financial measure and a reconciliation to "Operating Income" for the periods ended March 31.
| 2015 Three Months | 2014 Three Months | ||||||||||||||||||||||
| Operating | Operating | ||||||||||||||||||||||
| Margins | Other (a) | Income (b) | Margins | Other (a) | Income (b) | ||||||||||||||||||
| Operating Revenues | $ | 439 | $ | 439 | $ | 479 | $ | 479 | |||||||||||||||
| Operating Expenses | |||||||||||||||||||||||
| Fuel | 103 | 103 | 117 | 117 | |||||||||||||||||||
| Energy purchases, including affiliate | 91 | 91 | 124 | 124 | |||||||||||||||||||
| Other operation and maintenance | 11 | $ | 85 | 96 | 11 | $ | 87 | 98 | |||||||||||||||
| Depreciation | 3 | 39 | 42 | 1 | 37 | 38 | |||||||||||||||||
| Taxes, other than income | 1 | 6 | 7 | 6 | 6 | ||||||||||||||||||
| Total Operating Expenses | 209 | 130 | 339 | 253 | 130 | 383 | |||||||||||||||||
| Total | $ | 230 | $ | (130) | $ | 100 | $ | 226 | $ | (130) | $ | 96 | |||||||||||
| (a) | Represents amounts excluded from Margins. |
| (b) | As reported on the Statements of Income. |
Statement of Income Analysis --
Certain Operating Revenues and Expenses included in "Margins"
The following Statement of Income line items and their related decrease during the period ended March 31, 2015 compared with 2014 are included above within "Margins" and are not discussed separately.
| 99 |
| Three Months | |||||
| Retail and wholesale | $ | 25 | |||
| Electric revenue from affiliate | 15 | ||||
| Fuel | 14 | ||||
| Energy purchases | 30 | ||||
| Energy purchases from affiliate | 3 | ||||
Depreciation
Depreciation increased by $4 million for the three months ended March 31, 2015 compared with 2014 primarily due to additions to PP&E, net.
KU: Earnings, Margins and Statement of Income Analysis
| Earnings | ||||||||
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2015 | 2014 | |||||||
| Net Income | $ | 78 | $ | 77 | ||||
Earnings increased slightly for the three month period in 2015 compared with 2014 primarily due to returns on additional environmental capital investments and higher demand revenue partially offset by lower sales volume, higher expenses related to scheduled maintenance outages and higher depreciation expense. The change in sales volume was primarily attributable to milder winter weather conditions in 2015 compared to 2014.
The table below quantifies the changes in the components of Net Income between these periods, which reflect amounts classified as Margins on a separate line within the table and not in their respective Statement of Income line items.
| Three Months | ||||
| Margins | $ | 10 | ||
| Other operation and maintenance | (5) | |||
| Depreciation | (2) | |||
| Other Income (Expense)- net | (1) | |||
| Income taxes | (1) | |||
| Total | $ | 1 | ||
Margins
"Margins" is a non-GAAP financial performance measure that management utilizes as an indicator of the performance of its business. See PPL's "Results of Operations - Margins" for an explanation of why management believes this measure is useful and the underlying drivers of the changes between periods. Within PPL's discussion, KU's Margins are included in "Kentucky Gross Margins."
The following tables contain the components from the Statements of Income that are included in this non-GAAP financial measure and a reconciliation to "Operating Income" for the periods ended March 31.
| 2015 Three Months | 2014 Three Months | ||||||||||||||||||||||
| Operating | Operating | ||||||||||||||||||||||
| Margins | Other (a) | Income (b) | Margins | Other (a) | Income (b) | ||||||||||||||||||
| Operating Revenues | $ | 485 | $ | 485 | $ | 498 | $ | 498 | |||||||||||||||
| Operating Expenses | |||||||||||||||||||||||
| Fuel | 150 | 150 | 160 | 160 | |||||||||||||||||||
| Energy purchases, including affiliate | 26 | 26 | 43 | 43 | |||||||||||||||||||
| Other operation and maintenance | 13 | $ | 91 | 104 | 12 | $ | 86 | 98 | |||||||||||||||
| Depreciation | 4 | 49 | 53 | 1 | 47 | 48 | |||||||||||||||||
| Taxes, other than income | 7 | 7 | 7 | 7 | |||||||||||||||||||
| Total Operating Expenses | 193 | 147 | 340 | 216 | 140 | 356 | |||||||||||||||||
| Total | $ | 292 | $ | (147) | $ | 145 | $ | 282 | $ | (140) | $ | 142 | |||||||||||
| (a) | Represents amounts excluded from Margins. |
| (b) | As reported on the Statements of Income. |
| 100 |
Statement of Income Analysis --
Certain Operating Revenues and Expenses included in "Margins"
The following Statement of Income line items and their related decrease during the period ended March 31, 2015 compared with 2014 are included above within "Margins" and are not discussed separately.
| Three Months | |||||
| Retail and wholesale | $ | 10 | |||
| Electric revenue from affiliate | 3 | ||||
| Fuel | 10 | ||||
| Energy purchases | 2 | ||||
| Energy purchases from affiliate | 15 | ||||
| Other Operation and Maintenance | |||||
| The increase (decrease) in other operation and maintenance expense for the period ended March 31, 2015 compared with 2014 was due to: | |||||
| Three Months | |||||
| Timing and scope of generation maintenance | $ | 2 | |||
| Pension | 3 | ||||
| Storm expenses | (2) | ||||
| Other | 3 | ||||
| Total | $ | 6 | |||
Depreciation
Depreciation increased by $5 million for the three months ended March 31, 2015 compared with 2014 primarily due to additions to PP&E, net.
| (a) | At March 31, 2015, $416 million of cash and cash equivalents were denominated in GBP. If these amounts would be remitted as dividends, PPL would not anticipate a material incremental U.S. tax cost. Historically, dividends paid by foreign subsidiaries have been limited to distributions of the current year's earnings. See Note 5 to the Financial Statements in PPL's 2014 Form 10-K for additional information on undistributed earnings of WPD. |
Net cash provided by (used in) operating, investing and financing activities for the three month period ended March 31, and the changes between periods, were as follows.
| 101 |
| PPL | PPL Electric | LKE | LG&E | KU | |||||||||||
| 2015 | |||||||||||||||
| Operating activities | $ | 673 | $ | (45) | $ | 451 | $ | 251 | $ | 229 | |||||
| Investing activities | (990) | (225) | (317) | (173) | (144) | ||||||||||
| Financing activities | (97) | 91 | (115) | (71) | (73) | ||||||||||
| 2014 | |||||||||||||||
| Operating activities | $ | 931 | $ | (4) | $ | 310 | $ | 149 | $ | 191 | |||||
| Investing activities | (1,183) | (42) | (206) | (116) | (154) | ||||||||||
| Financing activities | 392 | 63 | (109) | (32) | (37) | ||||||||||
| Change - Cash Provided (Used) | |||||||||||||||
| Operating activities | $ | (258) | $ | (41) | $ | 141 | $ | 102 | $ | 38 | |||||
| Investing activities | 193 | (183) | (111) | (57) | 10 | ||||||||||
| Financing activities | (489) | 28 | (6) | (39) | (36) | ||||||||||
Operating Activities
The components of the change in cash provided by (used in) operating activities for the three months ended March 31, 2015 compared with 2014 were as follows.
| PPL | PPL Electric | LKE | LG&E | KU | ||||||||||||||
| Change - Cash Provided (Used) | ||||||||||||||||||
| Net income | $ | 331 | $ | 2 | $ | 2 | $ | 1 | $ | 1 | ||||||||
| Non-cash components | (255) | 31 | 50 | 15 | ||||||||||||||
| Working capital | (171) | (31) | 126 | 68 | 37 | |||||||||||||
| Defined benefit plan funding | (136) | (14) | (15) | (13) | (12) | |||||||||||||
| Other operating activities | (27) | 2 | (3) | (4) | (3) | |||||||||||||
| Total | $ | (258) | $ | (41) | $ | 141 | $ | 102 | $ | 38 | ||||||||
(PPL)
PPL had a $258 million decrease in cash provided by operating activities in 2015 compared with 2014.
| · | Net income improved by $331 million between the periods. However, this included an additional $255 million of net non-cash benefits, including a $331 million decrease in unrealized losses on hedging activities, which was partially offset by a $150 million increase in deferred income tax expense. The net $76 million increase from net income and non-cash components in 2015 compared with 2014 reflects higher revenues in the U.K. and higher margins in the Pennsylvania and Kentucky regulated segments. |
| · | The $171 million decrease in cash from changes in working capital was primarily due to decreases in accounts payable, in part due to lower swaps payable and the impact of market price changes on electric trading and timing of payments. The decrease also reflects lower taxes payable and other current liabilities. These cash outflows were partially offset by the positive impact of lower unbilled revenues. |
| · | Defined benefit plan funding was $136 million higher in 2015. |
(PPL Electric)
PPL Electric had a $41 million increase in cash used in operating activities in 2015 compared with 2014.
| · | Net income improved by $2 million between the periods. There was no change in net non-cash components of net income. |
| · | The $31 million decline in cash from changes in working capital was partially due to a decrease in accounts payable with affiliates (primarily due to lower federal income taxes payable to PPL) partially offset by a decrease in accounts receivable. |
| · | Defined benefit plan funding was $14 million higher in 2015. |
(LKE)
LKE had a $141 million increase in cash provided by operating activities in 2015 compared with 2014.
| 102 |
| · | LKE's non-cash components of net income included a $9 million increase in depreciation expense due to additional assets in service since the first quarter of 2014, a $1 million increase in deferred income taxes primarily due to an increase in accelerated depreciation over book depreciation of $34 million, partially offset by a decrease in utilization of Federal net operating losses of $36 million, and a net $21 million change in regulatory assets and regulatory liabilities due to the timing of rate recovery mechanisms. |
| · | The increase in cash from working capital was driven primarily by a decrease in income tax receivable as a result of receiving payment from PPL for the use of excess tax depreciation deductions in 2014, a decrease in coal inventory due to fewer purchases and a decrease in natural gas stored underground due to increased withdrawals, partially offset by a decrease in accounts payable due to the timing of fuel purchases. |
(LG&E)
LG&E had a $102 million increase in cash provided by operating activities in 2015 compared with 2014.
| · | LG&E's non-cash components of net income included a $4 million increase in depreciation expense due to additional assets in service since the first quarter of 2014, a $25 million increase in deferred income taxes primarily due to an increase in accelerated depreciation over book depreciation of $18 million, and a net $18 million increase in regulatory assets and regulatory liabilities due to the timing of rate recovery mechanisms. |
| · | The increase in cash from working capital was driven primarily by a decrease in income tax receivable as a result of receiving payment from LKE for the use of excess tax depreciation deductions in 2014, a decrease in accounts receivable from affiliates due to timing of intercompany settlements associated with capital expenditures and inventory, a decrease in coal inventory due to fewer purchases and a decrease in natural gas stored underground due to increased withdrawals, partially offset by a decrease in accounts payable due to the timing of fuel purchases. |
(KU)
KU had a $38 million increase in cash provided by operating activities in 2015 compared with 2014.
| · | KU's non-cash components of net income included a $5 million increase in depreciation expense due to additional assets in service since the first quarter of 2014 and a $9 million increase in deferred income taxes primarily due to an increase in accelerated depreciation over book depreciation of $16 million, offset by a $6 million Federal net operating loss accrual. |
| · | The increase in cash from working capital was driven primarily by a decrease in income tax receivable as a result of receiving payments from LKE for the use of excess tax depreciation deductions in 2014, and a decrease in coal inventory due to fewer purchases, partially offset by a decrease in accounts payable due to the timing of fuel purchases and a decrease in accounts payable to affiliates due to timing of intercompany settlements associated with capital expenditures and inventory. |
Investing Activities
(All Registrants)
Expenditures for Property, Plant and Equipment
The primary use of cash within investing activities is expenditures for PP&E. The change in these expenditures for the three months ended March 31, 2015 compared with 2014 was as follows.
| PPL | PPL Electric | LKE | LG&E | KU | |||||||||||
| (Increase) Decrease | $ | (50) | $ | (23) | $ | (49) | $ | (57) | $ | 6 | |||||
The increase in expenditures for PP&E for PPL was primarily due to the changes in project expenditures at PPL Electric, LG&E and KU, partially offset by lower expenditures at WPD. The increase in expenditures for PPL Electric was primarily due to increases in expenditures for the Northeast Pocono reliability project, smart grid projects and other various projects, partially offset by the near completion of the Susquehanna-Roseland transmission project. The increase in expenditures for LG&E was primarily due to environmental air projects at LG&E's Mill Creek plant, partially offset by lower expenditures for the construction of Cane Run Unit 7. The decrease in expenditures for KU was related to lower expenditures for the construction of Cane Run Unit 7 and CCR projects at KU's Ghent and E.W. Brown plants, partially offset by higher expenditures for environmental air projects at KU's Ghent and E.W. Brown plants.
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Other Significant Changes in Components of Investing Activities
For PPL, the change in investing activities for the three months ended March 31, 2015 compared with 2014 reflects decreases of $324 million in additional cash restricted for collateral requirements to support PPL Energy Supply's commodity hedging program. This was primarily due to an increase in forward prices in the three months ended March 31, 2014.
PPL also had investing inflows of $56 million for the three months ended March 31, 2014 from U.S. Department of Treasury grants for the Rainbow hydroelectric expansion projects.
PPL Electric received $150 million during the three months ended March 31, 2014 on notes receivable from affiliates.
Financing Activities
(All Registrants)
The components of the change in cash provided by (used in) financing activities for the three months ended March 31, 2015 compared with 2014 was as follows.
| PPL | PPL Electric | LKE | LG&E | KU | ||||||||||||
| Change - Cash Provided (Used) | ||||||||||||||||
| Long-term debt issuances/retirements, net | $ | 238 | $ | 10 | ||||||||||||
| Stock issuances/redemptions, net | 20 | |||||||||||||||
| Dividends | (16) | (12) | $ | 4 | $ | 7 | ||||||||||
| Capital contributions/distributions, net | (15) | $ | 41 | (40) | ||||||||||||
| Change in short-term debt, net | (745) | 45 | (46) | (43) | (3) | |||||||||||
| Other financing activities | 14 | (1) | ||||||||||||||
| Total | $ | (489) | $ | 28 | $ | (6) | $ | (39) | $ | (36) | ||||||
For the three months ended March 31, 2015, PPL required $489 million less cash from financing activities primarily due to lower cash requirements to support PPL Energy Supply's commodity hedging program and the ability to use cash from operating activities and cash-on-hand to support the significant capital expenditure programs of its subsidiaries.
For the three months ended March 31, 2015, PPL Electric required $28 million more cash from financing activities. In the first quarter of 2014, PPL Electric financed its capital expenditures program with proceeds from a $150 million note with an affiliate. In the first quarter of 2015, PPL Electric financed its capital expenditures program with cash-on-hand and additional short-term debt.
See Note 7 to the Financial Statements in this Form 10-Q for information on 2015 short and long-term debt activity, equity transactions and PPL dividends. See the Registrants' 2014 Form 10-K for information on 2014 activity.
Credit Facilities
The Registrants maintain credit facilities to enhance liquidity, provide credit support and provide a backstop to commercial paper programs. Amounts borrowed under these credit facilities are reflected in "Short-term debt" on the Balance Sheets. At March 31, 2015, the total committed borrowing capacity and the use of that capacity under these credit facilities was as follows:
External (All Registrants)
| Letters of | |||||||||||||
| Credit | |||||||||||||
| and | |||||||||||||
| Committed | Commercial | Unused | |||||||||||
| Capacity | Borrowed | Paper Issued | Capacity | ||||||||||
| PPL Capital Funding Credit Facilities | $ | 750 | $ | 32 | $ | 718 | |||||||
| PPL Energy Supply Credit Facility | 3,000 | $ | 600 | 267 | 2,133 | ||||||||
| PPL Electric Credit Facility | 300 | 86 | 214 | ||||||||||
| LKE Credit Facility | 75 | 75 | |||||||||||
| LG&E Credit Facility | 500 | 216 | 284 | ||||||||||
| KU Credit Facilities | 598 | 391 | 207 | ||||||||||
| Total LKE | 1,173 | 75 | 607 | 491 | |||||||||
| Total U.S. Credit Facilities (a) | $ | 5,223 | $ | 675 | $ | 992 | $ | 3,556 | |||||
| Total U.K. Credit Facilities (b) | £ | 1,055 | £ | 277 | £ | 778 | |||||||
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| (a) | The commitments under the U.S. credit facilities are provided by a diverse bank group, with no one bank and its affiliates providing an aggregate commitment of more than the following percentages of the total committed capacity: PPL - 7%, PPL Electric - 7%, LKE - 21%, LG&E - 7% and KU - 37%. |
| (b) | The amounts borrowed at March 31, 2015 were USD-denominated borrowings of $200 million and GPB-denominated borrowings which equated to $226 million. At March 31, 2015, the USD equivalent of unused capacity under the U.K. committed credit facilities was $1.2 billion. |
| The commitments under the U.K. credit facilities are provided by a diverse bank group, with no one bank providing more than 14% of the total committed capacity. |
As a result of the proposed spinoff transaction, PPL Energy Supply has syndicated a $1.85 billion credit facility which is currently fully committed. This syndicated credit facility will replace the existing $3 billion PPL Energy Supply syndicated credit facility and will be effective upon closing of the spinoff transaction. See "Overview - Business Strategy" and "Financial and Operational Developments - Other Financial and Operational Developments - Anticipated Spinoff of PPL Energy Supply" above for additional information.
See Note 7 to the Financial Statements for further discussion of the Registrants' credit facilities.
Intercompany (LKE, LG&E and KU)
| Committed | Other Used | Unused | ||||||||||
| Capacity | Borrowed | Capacity | Capacity | |||||||||
| LKE Credit Facility | $ | 225 | $ | 40 | $ | 185 | ||||||
| LG&E Money Pool (a) | 500 | $ | 216 | 284 | ||||||||
| KU Money Pool (a) | 500 | 193 | 307 | |||||||||
| (a) | LG&E and KU participate in an intercompany money pool agreement whereby LKE, LG&E and/or KU make available funds up to $500 million at an interest rate based on a market index of commercial paper issues. However, the FERC has issued a maximum short-term debt limit for each utility at $500 million from any source. |
See Note 11 to the Financial Statements for further discussion of intercompany credit facilities.
Commercial Paper (All Registrants)
PPL Electric, LG&E and KU maintain commercial paper programs to provide an additional financing source to fund short-term liquidity needs, as necessary. Commercial paper issuances, included in "Short-term debt" on the Balance Sheets, are supported by the respective Registrant's Syndicated Credit Facility. The following commercial paper programs were in place at March 31, 2015:
| Commercial | ||||||||||
| Paper | Unused | |||||||||
| Capacity | Issuances | Capacity | ||||||||
| PPL Electric | $ | 300 | $ | 85 | $ | 215 | ||||
| LG&E | 350 | 216 | 134 | |||||||
| KU | 350 | 193 | 157 | |||||||
| Total LKE | 700 | 409 | 291 | |||||||
| Total PPL | $ | 1,000 | $ | 494 | $ | 506 | ||||
Common Stock Dividends (PPL)
In February 2015, PPL declared its quarterly common stock dividend, payable April 1, 2015, at 37.25 cents per share (equivalent to $1.49 per annum). Future dividends, declared at the discretion of the Board of Directors, will be dependent upon future earnings, cash flows, financial and legal requirements and other factors.
Rating Agency Actions
(All Registrants)
Moody's, S&P and Fitch have periodically reviewed the credit ratings of the debt of the Registrants and their subsidiaries. Based on their respective independent reviews, the rating agencies may make certain ratings revisions or ratings affirmations.
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A credit rating reflects an assessment by the rating agency of the creditworthiness associated with an issuer and particular securities that it issues. The credit ratings of the Registrants and their subsidiaries are based on information provided by the Registrants and other sources. The ratings of Moody's, S&P and Fitch are not a recommendation to buy, sell or hold any securities of the Registrants or their subsidiaries. Such ratings may be subject to revisions or withdrawal by the agencies at any time and should be evaluated independently of each other and any other rating that may be assigned to the securities. The credit ratings of the Registrants and their subsidiaries affect their liquidity, access to capital markets and cost of borrowing under their credit facilities.
The rating agencies have taken the following actions related to the Registrants and their subsidiaries during 2015:
In January 2015, Fitch withdrew its ratings for PPL, PPL Capital Funding, PPL Energy Supply, PPL Electric, LKE, LG&E, and KU.
Ratings Triggers
(All Registrants except PPL Electric)
Various derivative and non-derivative contracts, including contracts for the sale and purchase of electricity and fuel, commodity transportation and storage, interest rate and foreign currency instruments (for PPL), contain provisions that require the posting of additional collateral or permit the counterparty to terminate the contract, if PPL's, LKE's, LG&E's or KU's or their subsidiaries' credit rating, as applicable, were to fall below investment grade. See Note 14 to the Financial Statements for a discussion of "Credit Risk-Related Contingent Features," including a discussion of the potential additional collateral requirements for PPL, LKE and LG&E for derivative contracts in a net liability position at March 31, 2015.
(All Registrants)
For additional information on the Registrants' liquidity and capital resources, see "Item 7. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations," in the Registrants' 2014 Form 10-K.
Market Risk
(All Registrants)
See Notes 13 and 14 to the Financial Statements for information about the Registrants' risk management objectives, valuation techniques and accounting designations.
The forward-looking information presented below provides estimates of what may occur in the future, assuming certain adverse market conditions and model assumptions. Actual future results may differ materially from those presented. These disclosures are not precise indicators of expected future losses, but only indicators of possible losses under normal market conditions at a given confidence level.
Commodity Price Risk (Non-trading)
(PPL, LKE, LG&E and KU)
LG&E's and KU's retail electric and natural gas rates and municipal wholesale electric rates are set by regulatory commissions and the fuel costs incurred are directly recoverable from customers. As a result, LG&E and KU are subject to commodity price risk for only a small portion of their business operations. LG&E and KU sell excess economic generation to maximize the value of the physical assets at times when the assets are not required to serve LG&E's or KU's customers. See Note 14 to the Financial Statements for additional information.
(PPL and PPL Electric)
PPL Electric is exposed to market price and volumetric risks from its obligation as a PLR. The PUC has approved a cost recovery mechanism that allows PPL Electric to pass through to customers the cost associated with fulfilling its PLR obligation. This cost recovery mechanism substantially eliminates PPL Electric's exposure to market price risk. PPL Electric also mitigates its exposure to volumetric risk by entering into full-requirement energy supply contracts for the majority of its
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PLR obligations. These supply contracts transfer the volumetric risk associated with the PLR obligation to the energy suppliers.
(PPL)
PPL Energy Supply segregates its non-trading activities into two categories: hedge activity and economic activity. Transactions that are accounted for as hedge activity qualify for hedge accounting treatment. The economic activity category includes transactions that address a specific risk, but were not eligible for hedge accounting or for which hedge accounting was not elected. This activity includes the changes in fair value of positions used to hedge a portion of the economic value of PPL Energy Supply's competitive generation assets and full-requirement sales and retail contracts. This economic activity is subject to changes in fair value due to market price volatility of the input and output commodities (e.g., fuel and power). Although they do not receive hedge accounting treatment, these transactions are considered non-trading activity. See Note 14 to the Financial Statements for additional information.
To hedge the impact of market price volatility on PPL Energy Supply's energy-related assets, liabilities and other contractual arrangements, PPL Energy Supply both sells and purchases physical energy at the wholesale level under FERC market-based tariffs throughout the U.S. and enters into financial exchange-traded and over-the-counter contracts. PPL Energy Supply's non-trading commodity derivative contracts range in maturity through 2020.
The following tables sets forth the changes in the net fair value of non-trading commodity derivative contracts for the period ended March 31. See Notes 13 and 14 to the Financial Statements for additional information.
| Gains (Losses) | |||||||
| Three Months | |||||||
| 2015 | 2014 | ||||||
| Fair value of contracts outstanding at the beginning of the period | $ | 53 | $ | 107 | |||
| Contracts realized or otherwise settled during the period | 133 | 505 | |||||
| Fair value of new contracts entered into during the period (a) | (5) | (16) | |||||
| Other changes in fair value | (92) | (737) | |||||
| Fair value of contracts outstanding at the end of the period | $ | 89 | $ | (141) | |||
| (a) | Represents the fair value of contracts at the end of the quarter of their inception. |
The following table segregates the net fair value of non-trading commodity derivative contracts at March 31, 2015, based on the observability of the information used to determine the fair value.
| Net Asset (Liability) | ||||||||||||||||
| Maturity | Maturity | |||||||||||||||
| Less Than | Maturity | Maturity | in Excess | Total Fair | ||||||||||||
| 1 Year | 1-3 Years | 4-5 Years | of 5 Years | Value | ||||||||||||
| Source of Fair Value | ||||||||||||||||
| Prices based on significant observable inputs (Level 2) | $ | 53 | $ | (34) | $ | 13 | $ | 32 | ||||||||
| Prices based on significant unobservable inputs (Level 3) | 32 | 23 | 2 | 57 | ||||||||||||
| Fair value of contracts outstanding at the end of the period | $ | 85 | $ | (11) | $ | 15 | $ | 89 | ||||||||
PPL Energy Supply sells electricity, capacity and related services and buys fuel on a forward basis to hedge the value of energy from its generation assets. If PPL Energy Supply were unable to deliver firm capacity and energy or to accept the delivery of fuel under its agreements, under certain circumstances it could be required to pay liquidating damages. These damages would be based on the difference between the market price and the contract price of the commodity. Depending on price changes in the wholesale energy markets, such damages could be significant. Extreme weather conditions, unplanned power plant outages, transmission disruptions, nonperformance by counterparties (or their counterparties) with which it has energy contracts and other factors could affect PPL Energy Supply's ability to meet its obligations, or cause significant increases in the market price of replacement energy. Although PPL Energy Supply attempts to mitigate these risks, there can be no assurance that it will be able to fully meet its firm obligations, that it will not be required to pay damages for failure to perform, or that it will not experience counterparty nonperformance in the future.
Commodity Price Risk (Trading)
PPL Energy Supply's trading commodity derivative contracts range in maturity through 2020. The following table sets forth changes in the net fair value of trading commodity derivative contracts for the periods ended March 31. See Notes 13 and 14 to the Financial Statements for additional information.
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| Gains (Losses) | |||||||
| Three Months | |||||||
| 2015 | 2014 | ||||||
| Fair value of contracts outstanding at the beginning of the period | $ | 48 | $ | 11 | |||
| Contracts realized or otherwise settled during the period | (30) | ||||||
| Fair value of new contracts entered into during the period (a) | (7) | (13) | |||||
| Other changes in fair value | 35 | 33 | |||||
| Fair value of contracts outstanding at the end of the period | $ | 46 | $ | 31 | |||
| (a) | Represents the fair value of contracts at the end of the quarter of their inception. |
The following table segregates the net fair value of trading commodity derivative contracts at March 31, 2015, based on the observability of the information used to determine the fair value.
| Net Asset (Liability) | |||||||||||||||
| Maturity | Maturity | ||||||||||||||
| Less Than | Maturity | Maturity | in Excess | Total Fair | |||||||||||
| 1 Year | 1-3 Years | 4-5 Years | of 5 Years | Value | |||||||||||
| Source of Fair Value | |||||||||||||||
| Prices based on significant observable inputs (Level 2) | $ | (6) | $ | (11) | $ | (9) | $ | (26) | |||||||
| Prices based on significant unobservable inputs (Level 3) | 4 | 33 | 33 | $ | 2 | 72 | |||||||||
| Fair value of contracts outstanding at the end of the period | $ | (2) | $ | 22 | $ | 24 | $ | 2 | $ | 46 | |||||
VaR Models
A VaR model is utilized to measure commodity price risk in unregulated gross energy margins for the non-trading and trading portfolios. VaR is a statistical model that attempts to estimate the value of potential loss over a given holding period under normal market conditions at a given confidence level. VaR is calculated using a Monte Carlo simulation technique based on a five-day holding period at a 95% confidence level. Given the company's disciplined hedging program, the non-trading VaR exposure is expected to be limited in the short-term. The VaR for portfolios using end-of-month results for the three months ended March 31, 2015 was as follows.
| Trading | Non-Trading | ||||||
| 95% Confidence Level, Five-Day Holding Period | |||||||
| Period End | $ | 4 | $ | 12 | |||
| Average for the Period | 4 | 10 | |||||
| High | 4 | 12 | |||||
| Low | 4 | 8 | |||||
The trading portfolio includes all proprietary trading positions, regardless of the delivery period. All positions not considered proprietary trading are considered non-trading. The non-trading portfolio includes the entire portfolio, including generation, with delivery periods through the next 12 months. Both the trading and non-trading VaR computations exclude FTRs due to the absence of reliable spot and forward markets. The fair value of the non-trading and trading FTR positions was insignificant at March 31, 2015.
Interest Rate Risk (All Registrants)
The Registrants and their subsidiaries issue debt to finance their operations, which exposes them to interest rate risk. The Registrants and their subsidiaries utilize various financial derivative instruments to adjust the mix of fixed and floating interest rates in their debt portfolios, adjust the duration of their debt portfolios and lock in benchmark interest rates in anticipation of future financing, when appropriate. Risk limits under the risk management program are designed to balance risk exposure to volatility in interest expense and changes in the fair value of the debt portfolios due to changes in the absolute level of interest rates.
The following interest rate hedges were outstanding at March 31, 2015.
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| Effect of a | ||||||||||||
| Fair Value, | 10% Adverse | Maturities | ||||||||||
| Exposure | Net - Asset | Movement | Ranging | |||||||||
| Hedged | (Liability) (a) | in Rates (b) | Through | |||||||||
| PPL | ||||||||||||
| Cash flow hedges | ||||||||||||
| Interest rate swaps (c) | $ | 1,600 | $ | (183) | $ | (54) | 2045 | |||||
| Cross-currency swaps (d) | 1,262 | 47 | (162) | 2028 | ||||||||
| Economic hedges | ||||||||||||
| Interest rate swaps (e) | 179 | (52) | (3) | 2033 | ||||||||
| LKE | ||||||||||||
| Cash flow hedges | ||||||||||||
| Interest rate swaps (c) | 1,000 | (122) | (40) | 2045 | ||||||||
| Economic hedges | ||||||||||||
| Interest rate swaps (e) | 179 | (52) | (3) | 2033 | ||||||||
| LG&E | ||||||||||||
| Cash flow hedges | ||||||||||||
| Interest rate swaps (c) | 500 | (61) | (20) | 2045 | ||||||||
| Economic hedges | ||||||||||||
| Interest rate swaps (e) | 179 | (52) | (3) | 2033 | ||||||||
| KU | ||||||||||||
| Cash flow hedges | ||||||||||||
| Interest rate swaps (c) | 500 | (61) | (20) | 2045 | ||||||||
| (a) | Includes accrued interest, if applicable. |
| (b) | Effects of adverse movements decrease assets or increase liabilities, as applicable, which could result in an asset becoming a liability. Sensitivities represent a 10% adverse movement in interest rates, except for cross-currency swaps which also includes foreign currency exchange rates. |
| (c) | Changes in the fair value of such cash flow hedges are recorded in equity or as regulatory assets or regulatory liabilities, if recoverable through regulated rates, and reclassified into earnings in the same period during which the item being hedged affects earnings. |
| (d) | Cross-currency swaps are utilized to hedge the principal and interest payments of WPD's U.S. dollar-denominated senior notes. Changes in the fair value of these instruments are recorded in equity and reclassified into earnings in the same period during which the item being hedged affects earnings. |
| (e) | Realized changes in the fair value of such economic hedges are recoverable through regulated rates and any subsequent changes in the fair value of these derivatives are included in regulatory assets or regulatory liabilities. |
The Registrants are exposed to a potential increase in interest expense and to changes in the fair value of their debt portfolios. The estimated impact of a 10% adverse movement in interest rates at March 31, 2015 is shown below.
| PPL | PPL Electric | LKE | LG&E | KU | ||||||||||||
| Increase in interest expense | Not | Not | Not | Not | Not | |||||||||||
| Significant | Significant | Significant | Significant | Significant | ||||||||||||
| Increase in fair value of debt | $ | 662 | $ | 128 | $ | 133 | $ | 43 | $ | 79 | ||||||
Foreign Currency Risk (PPL)
PPL is exposed to foreign currency risk, primarily through investments in U.K. affiliates. In addition, PPL's domestic operations may make purchases of equipment in currencies other than U.S. dollars.
PPL has adopted a foreign currency risk management program designed to hedge certain foreign currency exposures, including firm commitments, recognized assets or liabilities, anticipated transactions and net investments. In addition, PPL enters into financial instruments to protect against foreign currency translation risk of expected earnings.
The following foreign currency hedges were outstanding at March 31, 2015.
| Effect of a | ||||||||||||
| 10% | ||||||||||||
| Adverse | ||||||||||||
| Movement | ||||||||||||
| in Foreign | ||||||||||||
| Fair Value, | Currency | Maturities | ||||||||||
| Exposure | Net - Asset | Exchange | Ranging | |||||||||
| Hedged | (Liability) | Rates (a) | Through | |||||||||
| Net investment hedges (b) | £ | 217 | $ | 34 | $ | (32) | 2016 | |||||
| Economic hedges (c) | 1,306 | 169 | (177) | 2017 | ||||||||
| (a) | Effects of adverse movements decrease assets or increase liabilities, as applicable, which could result in an asset becoming a liability. |
| (b) | To protect the value of a portion of its net investment in WPD, PPL executes forward contracts to sell GBP. |
| (c) | To economically hedge the translation of expected earnings denominated in GBP to U.S. dollars. |
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NDT Funds - Securities Price Risk (PPL)
In connection with certain NRC requirements, PPL Susquehanna maintains trust funds to fund certain costs of decommissioning the PPL Susquehanna nuclear plant (Susquehanna). At March 31, 2015, these funds were invested primarily in domestic equity securities and fixed-rate, fixed-income securities and are reflected at fair value on the Balance Sheet. The mix of securities is designed to provide returns sufficient to fund Susquehanna's decommissioning and to compensate for inflationary increases in decommissioning costs. However, the equity securities included in the trusts are exposed to price fluctuation in equity markets, and the values of fixed-rate, fixed-income securities are primarily exposed to changes in interest rates. PPL actively monitors the investment performance and periodically reviews asset allocation in accordance with its nuclear decommissioning trust policy statement. At March 31, 2015, a hypothetical 10% increase in interest rates and a 10% decrease in equity prices would have resulted in an estimated $74 million reduction in the fair value of the trust assets. See Notes 13 and 17 to the Financial Statements for additional information regarding the NDT funds.
Credit Risk (All Registrants)
See Notes 13 and 14 to the Financial Statements in this Form 10-Q and "Risk Management - Credit Risk" in the Registrants' 2014 Form 10-K for additional information.
Foreign Currency Translation (PPL)
The value of the British pound sterling fluctuates in relation to the U.S. dollar. Changes in this exchange rate resulted in a foreign currency translation loss of $77 million for the three months ended March 31, 2015, which primarily reflected a $199 million decrease to PP&E and goodwill offset by a decrease of $122 million to net liabilities. Changes in this exchange rate resulted in a foreign currency translation gain of $135 million for the three months ended March 31, 2014, which primarily reflected a $334 million increase to PP&E and goodwill offset by an increase of $199 million to net liabilities. The impact of foreign currency translation is recorded in AOCI.
Related Party Transactions (All Registrants)
The Registrants are not aware of any material ownership interests or operating responsibility by senior management in outside partnerships, including leasing transactions with variable interest entities, or other entities doing business with the Registrants. See Note 11 to the Financial Statements for additional information on related party transactions for PPL Electric, LKE, LG&E and KU.
Acquisitions, Development and Divestitures
(All Registrants)
The Registrants from time to time evaluate opportunities for potential acquisitions, divestitures and development projects. Development projects are 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. See Note 8 to the Financial Statements for information on the more significant activities.
(PPL)
See Note 8 to the Financial Statements for information on the anticipated spinoff of PPL Energy Supply and the completed Montana hydro sale.
(All Registrants except PPL Electric)
Extensive federal, state and local environmental laws and regulations are applicable to PPL's, LKE's, LG&E's and KU's air emissions, water discharges and the management of hazardous and solid waste, as well as other aspects of the Registrants' businesses. The cost of compliance or alleged non-compliance cannot be predicted with certainty but could be material. In addition, costs may increase significantly if the requirements or scope of environmental laws or regulations, or similar rules, are expanded or changed. Costs may take the form of increased capital expenditures or operating and maintenance expenses, monetary fines, penalties or other restrictions. Many of these environmental law considerations are also applicable to the operations of key suppliers, or customers, such as coal producers and industrial power users, and may impact the cost for their products or their demand for the Registrants' services.
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The following is a discussion of the more significant environmental matters. See Note 10 to the Financial Statements and "Item 1. Business - Environmental Matters" for additional information on environmental matters.
Climate Change
Physical effects associated with climate change could include the impact of changes in weather patterns, such as storm frequency and intensity, and the resultant potential damage, as applicable, to the Registrants' generation assets, electricity transmission and delivery systems, as well as impacts on the Registrants' customers. In addition, changed weather patterns could potentially reduce annual rainfall in areas where PPL, PPL Energy Supply, LKE, LG&E and KU have hydroelectric generating facilities or where river water is used to cool their fossil and nuclear (as applicable) powered generators. The Registrants cannot currently predict whether their businesses will experience these potential risks or estimate the cost of their related consequences.
In June 2013, President Obama released his Climate Action Plan which reiterates the goal of reducing GHG emissions in the U.S. through such actions as regulating power plant emissions, promoting increased use of renewables and clean energy technology, and establishing more restrictive energy efficiency standards. Additionally, the Climate Action Plan calls for the U.S. to prepare for the impacts of climate change. Requirements related to this plan could affect the Registrants and others in the industry as modifications may be needed to electricity delivery systems to improve the ability to withstand major storms in order to meet those requirements. As further described below, the EPA has proposed rules pursuant to this directive, which it expects to finalize in the second or third quarter of 2015. The EPA has also announced that it will develop a federal implementation plan which would apply to any states that fail to submit an acceptable state implementation plan. The EPA's authority to promulgate these regulations under Section 111 of the Clean Air Act when the sources are already regulated under Section 112 is under challenge in the D.C. Circuit Court. Oral arguments were heard on April 16, 2015.
In January 2014, the EPA issued a revised proposal to regulate carbon dioxide emissions from new power plants. The proposed limits for coal-fired plants can only be achieved through carbon capture and sequestration, a technology that is not presently commercially viable and, therefore, effectively preclude the construction of new coal-fired plants. The proposed standards for new gas-fired plants may also not be continuously achievable. The preclusion of new coal-fired plants and the compliance difficulties posed for new gas-fired plants could have a significant industry-wide impact.
In June 2014, the EPA issued a proposed regulation addressing carbon dioxide emissions from existing power plants. The existing plant proposal contains stringent, state-specific rate-based reduction goals to be achieved in two phases (2020-2029 and 2030 and beyond). The EPA believes it has offered some flexibility to the states as to how state compliance plans can be crafted, including the option to demonstrate compliance on a mass basis and through multi-state collaborations. The EPA is also proposing potential state plan extensions based on the type of plan filed (single or multi-state). PPL has analyzed the proposal and identified potential impacts and solutions in comments filed on December 1, 2014. PPL also submitted Supplemental Comments to FERC through EEI, advocating for reliability coordination and relief in response to technical conferences hosted by FERC on the reliability implications of implementing this rule. The regulation of carbon dioxide emissions from existing plants could have a significant industry-wide impact depending on the structure and stringency of the final rule and state implementation plans.
Waters of the United States (WOTUS)
In April 2014, the EPA and the U.S. Army Corps of Engineers published a proposed rule that could greatly expand the Clean Water Act definition of Waters of the United States. If the definition is expanded as proposed, permits and other regulatory requirements may be imposed for many matters presently not covered (including vegetation management for transmission lines and activities affecting storm water conveyances and wetlands), the implications of which could be significant. The EPA plans to make certain changes to the proposed regulation based on comments received. The U.S. House and Senate are considering legislation to block this regulation. Until a final rule is issued, the Registrants cannot predict the outcome of the pending rulemaking. A final rule is expected by summer 2015.
Coal Combustion Residuals (CCRs)
On April 17, 2015, the EPA published its final rule regulating CCRs, imposing extensive new requirements, including location restrictions, design and operating standards, groundwater monitoring and corrective action requirements and closure and post-closure care requirements on CCR impoundments and landfills that are located on active power plants and not closed. Under the rule, the EPA will regulate CCRs as non-hazardous under Subtitle D of RCRA and allow beneficial use of CCRs, with some restrictions. The CCR rule will become effective on October 14, 2015. This self-implementing rule requires posting of compliance documentation on a publicly accessible website and is enforceable through citizen suits. PPL expects that its plants using surface impoundments for management and disposal of CCRs or the past management of CCRs and continued use to manage waste waters will be most impacted by this rule. The rule's requirements for covered CCR impoundments and landfills include commencement or completion of closure activities generally between three and ten years from certain triggering events. PPL, LKE, LG&E and KU also anticipate incurring capital or operation and maintenance
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costs prior to that time to address other provisions of the rule, such as groundwater monitoring and disposal facility modifications, or to implement various compliance strategies.
PPL, LKE, LG&E and KU are reviewing the rule and are still evaluating its financial and operational impact. It is expected that these requirements will result in increases to existing AROs which will be recorded in the second quarter of 2015. PPL, LKE, LG&E and KU are not yet able to determine an estimate of the expected increases to the existing AROs. PPL, LKE, LG&E and KU believe relevant costs relating to this rule are subject to future rate recovery before the respective state regulatory agencies, or the FERC, as applicable.
Effluent Limitation Guidelines (ELGs) and Standards
In June 2013, the EPA published proposed regulations to revise discharge limitations for steam electric generation wastewater permits. The proposed limitations are based on the EPA review of available treatment technologies and their capacity for reducing pollutants and include new requirements for fly ash and bottom ash transport water and metal cleaning waste waters, as well as new limits for scrubber wastewater and landfill leachate. The EPA's proposed ELG regulations also contain some requirements that would affect the inspection and operation of CCR facilities, if finalized as proposed. The proposal contains several alternative approaches, some of which could significantly impact PPL's, PPL Energy Supply's, LKE's, LG&E's and KU's coal-fired plants. The final regulation is expected to be issued by the third or fourth quarter of 2015. At the present time, PPL, LKE, LG&E and KU are unable to predict the outcome of this matter or estimate a range of reasonably possible costs, but the costs could be significant. Pending finalization of the ELGs, certain states (including Pennsylvania and Kentucky) and environmental groups are proposing more stringent technology-based limits in permit renewals. Depending on the final limits imposed, the costs of compliance could vary significantly from the current capital expenditures projections and costs could be imposed ahead of federal timelines.
Clean Water Act 316(b)
The EPA's final 316(b) rule for existing facilities became effective in October 2014, and regulates cooling water intake structures and their impact on aquatic organisms. States are allowed considerable authority to make site-specific determinations under the rule. The rule requires existing facilities to choose between several options to reduce the impact to aquatic organisms that become trapped against water intake screens (impingement) and to determine the intake structure's impact on aquatic organisms pulled through a plant's cooling water system (entrainment). Plants already equipped with closed-cycle cooling, an acceptable option, would likely not incur substantial costs. Once-through systems would likely require additional technology to comply with the rule. Mill Creek Unit 1 and Brunner Island (all units) are the only units expected to be impacted. PPL, LKE, LG&E and KU are evaluating compliance strategies but do not presently expect the compliance costs to be material.
MATS
In February 2012, the EPA finalized the MATS rule requiring fossil-fuel fired plants to reduce emissions of mercury and other hazardous air pollutants by April 16, 2015. The rule was challenged by industry groups and states, and was upheld by the D.C. Circuit Court in April 2014. A group of states subsequently petitioned the U.S. Supreme Court to review this decision and on March 25, 2015, oral arguments were heard as to one issue - whether or not EPA unreasonably refused to consider costs when determining whether the MATS regulation was appropriate and necessary. A U.S. Supreme Court decision is expected by June 30, 2015. The rule provides for a three-year compliance deadline with the potential for one- and two-year extensions as provided under the statute. PPL, LKE, LG&E and KU have completed installation or upgrading of relevant environmental controls at affected plants or have received compliance extensions, as applicable.
PPL believes that installation of chemical additive systems and other controls may be necessary at certain coal-fired plants in Pennsylvania, the capital cost of which is not expected to be significant. PPL continues to analyze the potential impact of MATS on operating costs. With respect to PPL's Montana plants, modifications to the air pollution controls installed at Colstrip are required, the cost of which is not expected to be significant. Operations were suspended and the Corette plant was retired in March 2015 due to expected market conditions and the costs to comply with the MATS requirements.
LG&E's March 2015 retirement of one coal-fired generating unit at Cane Run and LG&E's and KU's anticipated retirement of remaining coal-fired electricity generating units located at Cane Run and Green River in 2015 and 2016 are in response to MATS and other environmental regulations. The retirement of these units is not expected to have a material impact on the financial condition or results of operations of PPL, LKE, LG&E or KU.
CSAPR
The EPA's CSAPR addresses the interstate transport of fine particulates and ozone by regulating emissions of sulfur dioxide and nitrogen oxide. In accordance with an October 2014 U.S. Court of Appeals decision, CSAPR establishes interstate allowance trading programs for sulfur dioxide and nitrogen oxide emissions from fossil-fueled plants in two phases: Phase 1 commenced in January 2015 and Phase 2 commences in 2017. Sulfur dioxide emissions are subject to an annual trading
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program and nitrogen oxide emissions are subject to annual and ozone season programs. Oral arguments pertaining to outstanding challenges to the EPA's CSAPR were heard before the D.C. Circuit Court during February 2015.
Although PPL, LKE, LG&E and KU do not anticipate incurring significant costs to comply with these programs, changes in market or operating conditions could result in impacts that are higher than anticipated.
Regional Haze
Under the EPA's regional haze programs (developed to eliminate man-made visibility degradation by 2064), states are required to make reasonable progress every decade through the application, among other things, of Best Available Retrofit Technology (BART) on power plants commissioned between 1962 and 1977. To date, the focus of regional haze regulation has been on the western U.S. As for the eastern U.S., the EPA determined that region-wide reductions under the CSAPR trading program could, in most instances, be utilized under state programs to satisfy BART requirements for sulfur dioxide and nitrogen oxides. However, the EPA's determination is being challenged by environmental groups and others.
LG&E's Mill Creek Units 3 and 4 are required to reduce sulfuric acid mist emissions because they were determined to have a regional haze impact. These reductions are required in the regional haze state implementation plan that the Kentucky Division for Air Quality submitted to the EPA. LG&E is currently installing sorbent injection technology to comply with these reductions, the costs of which are not expected to be significant.
In Montana, the EPA finalized a Federal Implementation Plan (FIP) of the Regional Haze Rules in September 2012, with stricter emissions limits for PPL Energy Supply's Colstrip Units 1 & 2 based on the installation of new controls (no limits or additional controls were specified for Colstrip Units 3 & 4), and stricter emission limits for the Corette plant (which are not based on additional controls). The cost of the additional controls for Colstrip Units 1 & 2 could be significant. PPL Energy Supply was meeting the stricter permit limits at Corette without any significant changes to operations, although other requirements led to the suspension of operations and the retirement of Corette in March 2015 (see "MATS" discussion above). Both PPL and environmental groups have appealed the final FIP to the U.S. Court of Appeals for the Ninth Circuit and litigation is ongoing.
National Ambient Air Quality Standards
In 2008, the EPA revised the National Ambient Air Quality Standard for ozone. As a result, states in the ozone transport region (OTR), including Pennsylvania, are required by the Clean Air Act to impose additional reductions in nitrogen oxide emissions based upon reasonably available control technologies (RACT). The PADEP is finalizing a RACT rule in 2015 requiring some fossil-fueled plants to operate at more stringent nitrogen oxide emission rates. The EPA proposed to further strengthen the ozone standard in November 2014, which could lead to further nitrogen oxide reductions for PPL's fossil-fueled plants within the OTR. The EPA is under court order to finalize the standard by October 1, 2015. States are also obligated to address interstate transport issues associated with new ozone standards through the establishment of "good neighbor" state implementation plans for those states that are found to contribute significantly to another states' non-attainment. The EPA recently sent a policy memo to state agencies to facilitate the development of these plans for the 2008 standard, including modeling data showing which states are contributing. The implementation of such plans could have an impact on the structure and stringency of CSAPR Phase 2 reductions (discussed above), or it could lead to the development of a new ozone transport rule. Non-OTR states, including Kentucky, are working together to evaluate further nitrogen oxide reductions from fossil-fueled plants with SCRs. The nature and timing of any additional reductions resulting from these evaluations cannot be determined at this time.
In 2010, the EPA finalized a new, more stringent ambient air standard for sulfur dioxide and required states to identify areas that meet the standard and areas that are in "non-attainment". In July 2013, the EPA finalized non-attainment designations for parts of the country, including part of Jefferson County in Kentucky and part of Yellowstone County in Montana. Attainment is due for both areas by 2018. Pursuant to a consent decree between the EPA and Sierra Club approved on March 2, 2015, states are working to finalize designations for other areas by the 2017 or 2020 deadline depending on which designation methodology is used. PPL, PPL Energy Supply, LKE, LG&E and KU anticipate that some of the measures required for compliance with the CSAPR, the MATS, or the Regional Haze Rules (as discussed above), such as upgraded or new sulfur dioxide scrubbers at certain plants and, in the case of LG&E and KU, the previously announced retirement of coal-fired generating units at the Cane Run, Green River and Tyrone plants, will help to achieve compliance with the new sulfur dioxide standard. If additional reductions were to be required, the financial impact could be significant. The short-term impact on the Corette plant from the EPA's final designation of part of Yellowstone County in Montana as non-attainment is not expected to be significant, as the plant's operations were suspended and the plant was retired in March 2015. In addition, MDEQ submitted a request to the EPA for a determination that this area is in attainment. If the EPA agrees with this request, then the deadlines associated with non-attainment would be suspended.
In December 2012, the EPA finalized a new, more stringent, annual National Ambient Air Quality Standard for fine particulates. The rules were challenged by the D.C. Circuit Court and upheld in May 2014. Final designations for the 2012
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particulate standard were published in January 2015. Non-attainment areas in Pennsylvania and Kentucky were identified; however, EPA recently approved state implementation plan revisions for both states that improved these classifications. PPL Energy Supply, LG&E and KU plants in Pennsylvania and Kentucky will not be expected to make further reductions towards achieving attainment.
New Accounting Guidance (All Registrants)
See Notes 2 and 19 to the Financial Statements for a discussion of new accounting guidance adopted and pending adoption.
Application of Critical Accounting Policies (All Registrants)
Financial condition and results of operations are impacted by the methods, assumptions and estimates used in the application of critical accounting policies. The following table summarizes the accounting policies by Registrant that are particularly important to an understanding of the reported financial condition or results of operations, and require management to make estimates or other judgments of matters that are inherently uncertain. See "Item 7. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Registrants' 2014 Form 10-K for a discussion of each critical accounting policy.
| PPL | ||||||||||||||||
| PPL | Electric | LKE | LG&E | KU | ||||||||||||
| Defined Benefits | X | X | X | X | X | |||||||||||
| Loss Accruals | X | X | X | X | X | |||||||||||
| Income Taxes | X | X | X | X | X | |||||||||||
| Asset Impairments (Excluding Investments) | X | X | X | X | ||||||||||||
| AROs | X | X | X | X | ||||||||||||
| Price Risk Management | X | X | X | X | ||||||||||||
| Regulatory Assets and Liabilities | X | X | X | X | X | |||||||||||
| Revenue Recognition - unbilled revenue | X | X | X | X | ||||||||||||
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PPL Corporation
PPL Electric Utilities Corporation
LG&E and KU Energy LLC
Louisville Gas and Electric Company
Kentucky Utilities Company
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Reference is made to "Risk Management" in "Item 2. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations."
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures.
The Registrants' principal executive officers and principal financial officers, based on their evaluation of the Registrants' disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934) have concluded that, as of March 31, 2015, the Registrants' disclosure controls and procedures are effective to ensure that material information relating to the Registrants and their consolidated subsidiaries is recorded, processed, summarized and reported within the time periods specified by the SEC's rules and forms, particularly during the period for which this quarterly report has been prepared. The aforementioned principal officers have concluded that the disclosure controls and procedures are also effective to ensure that information required to be disclosed in reports filed under the Exchange Act is accumulated and communicated to management, including the principal executive and principal financial officers, to allow for timely decisions regarding required disclosure.
(b) Change in internal controls over financial reporting.
The Registrants' principal executive officers and principal financial officers have concluded that there were no changes in the Registrants' internal control over financial reporting during the Registrants' first fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Registrants' internal control over financial reporting.
PPL Corporation
Following the announcement of the transaction to spin off PPL Energy Supply, LLC to form Talen Energy, management determined the appropriate staffing for Talen Energy and for PPL and its subsidiaries. During the three months ended March 31, 2015, staffing changes, including the consolidation of certain positions and transition of responsibilities, resulted in changes in certain individuals responsible for executing internal controls. However, changes to system applications, business processes and the associated internal controls were not significant. Management has taken steps to minimize the risk from the changes in individuals executing internal controls.
PART II. OTHER INFORMATION
For information regarding pending administrative and judicial proceedings involving regulatory, environmental and other matters, which information is incorporated by reference into this Part II, see:
| · | "Item 3. Legal Proceedings" in each Registrant's 2014 Form 10-K; and | ||
| · | Notes 6 and 10 to the Financial Statements. |
There have been no material changes in the Registrants' risk factors from those disclosed in "Item 1A. Risk Factors" of the Registrants' 2014 Form 10-K.
Item 4. Mine Safety Disclosures
Not applicable.
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The following Exhibits indicated by an asterisk preceding the Exhibit number are filed herewith. The balance of the Exhibits has heretofore been filed with the Commission and pursuant to Rule 12(b)-32 are incorporated herein by reference. Exhibits indicated by a [_] are filed or listed pursuant to Item 601(b)(10)(iii) of Regulation S-K.
| 1(a) | - | Equity Distribution Agreement, dated February 26, 2015, by and among PPL Corporation and Merrill Lynch, Pierce, Fenner & Smith Incorporated (Exhibit 1.1 to PPL Corporation Form 8-K Report (File No. 1-11459) dated February 26, 2015) |
| 1(b) | - | Equity Distribution Agreement, dated February 26, 2015, by and among PPL Corporation and Morgan Stanley & Co. LLC (Exhibit 1.2 to PPL Corporation Form 8-K Report (File No. 1-11459) dated February 26, 2015) |
| *1(c) | - | Final Terms of the Western Power Distribution (East Midlands) plc £25,000,000 1.676% Index Linked Notes due September 24, 2052 under the £3,000,000,000 Euro Medium Term Note Programme |
| *[_]10(a) | - | Service Agreement, dated March 16, 2015, between Western Power Distribution (South West) plc and Robert A. Symons |
| *[_]10(b) | - | Amendment No. 6 to PPL Corporation Directors Deferred Compensation Plan, dated as of April 15, 2015 |
| *12(a) | - | PPL Corporation and Subsidiaries Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends |
| *12(b) | - | PPL Electric Utilities Corporation and Subsidiaries Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends |
| *12(c) | - | LG&E and KU Energy LLC and Subsidiaries Computation of Ratio of Earnings to Fixed Charges |
| *12(d) | - | Louisville Gas and Electric Company Computation of Ratio of Earnings to Fixed Charges |
| *12(e) | - | Kentucky Utilities Company Computation of Ratio of Earnings to Fixed Charges |
| Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, for the quarterly period ended March 31, 2015, filed by the following officers for the following companies: | ||
| *31(a) | - | PPL Corporation's principal executive officer |
| *31(b) | - | PPL Corporation's principal financial officer |
| *31(c) | - | PPL Electric Utilities Corporation's principal executive officer |
| *31(d) | - | PPL Electric Utilities Corporation's principal financial officer |
| *31(e) | - | LG&E and KU Energy LLC's principal executive officer |
| *31(f) | - | LG&E and KU Energy LLC's principal financial officer |
| *31(g) | - | Louisville Gas and Electric Company's principal executive officer |
| *31(h) | - | Louisville Gas and Electric Company's principal financial officer |
| *31(i) | - | Kentucky Utilities Company's principal executive officer |
| *31(j) | - | Kentucky Utilities Company's principal financial officer |
| Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, for the quarterly period ended March 31, 2015, furnished by the following officers for the following companies: | ||
| *32(a) | - | PPL Corporation's principal executive officer and principal financial officer |
| *32(b) | - | PPL Electric Utilities Corporation's principal executive officer and principal financial officer |
| *32(c) | - | LG&E and KU Energy LLC's principal executive officer and principal financial officer |
| *32(d) | - | Louisville Gas and Electric Company's principal executive officer and principal financial officer |
| *32(e) | - | Kentucky Utilities Company's principal executive officer and principal financial officer |
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| 101.INS | - | XBRL Instance Document |
| 101.SCH | - | XBRL Taxonomy Extension Schema |
| 101.CAL | - | XBRL Taxonomy Extension Calculation Linkbase |
| 101.DEF | - | XBRL Taxonomy Extension Definition Linkbase |
| 101.LAB | - | XBRL Taxonomy Extension Label Linkbase |
| 101.PRE | - | XBRL Taxonomy Extension Presentation Linkbase |
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Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized. The signature for each undersigned company shall be deemed to relate only to matters having reference to such company or its subsidiaries.
| PPL Corporation | ||
| (Registrant) | ||
| Date: May 7, 2015 | /s/ Stephen K. Breininger | |
| Stephen K. Breininger | ||
| Vice President and Controller | ||
| (Principal Accounting Officer) | ||
| PPL Electric Utilities Corporation | ||
| (Registrant) | ||
| Date: May 7, 2015 | /s/ Dennis A. Urban, Jr. | |
| Dennis A. Urban, Jr. | ||
| Controller | ||
| (Principal Financial Officer and Principal Accounting Officer) | ||
| LG&E and KU Energy LLC | ||
| (Registrant) | ||
| Louisville Gas and Electric Company | ||
| (Registrant) | ||
| Kentucky Utilities Company | ||
| (Registrant) | ||
| Date: May 7, 2015 | /s/ Kent W. Blake | |
|
Kent W. Blake Chief Financial Officer |
||
| (Principal Financial Officer and Principal Accounting Officer) | ||
118
Exhibit 1(c)
FINAL TERMS
22 April 2015
Western Power Distribution (East Midlands) plc
Issue of £25,000,000 1.676
per cent. Index Linked Notes due 24 September 2052
(to be consolidated and form a single Series with the existing £40,000,000 1.676 per cent. Index Linked Notes due 24 September
2052 issued on 24 September 2013 and the £25,000,000 1.676 per cent. Index Linked Notes due 24 September 2052 issued on 1
October 2013)
under the £3,000,000,000
Euro Medium Term Note Programme
Part A
Contractual Terms
Terms used herein shall be deemed to be defined as such for the purposes of the Conditions (the Conditions) set forth in the prospectus dated 10 September 2013, which are incorporated by reference into the Prospectus dated 14 April 2015. This document constitutes the Final Terms of the Notes described herein for the purposes of Article 5.4 of the Prospectus Directive (Directive 2003/71/EC), as amended (the Prospectus Directive) and must be read in conjunction with the Prospectus dated 14 April 2015, which constitutes a base prospectus for the purposes of the Prospectus Directive, including the Conditions incorporated by reference in the Prospectus. The Prospectuses are available for viewing at www.westernpower.co.uk and during normal business hours at Avonbank, Feeder Road, Bristol BS2 0TB and copies may be obtained from Avonbank, Feeder Road, Bristol BS2 0TB. The Prospectus and the applicable Final Terms will also be published on the website of the London Stock Exchange: www.londonstockexchange.com/exchange/news/market-news/market-news-home.html.
| 1. | Issuer: | Western Power Distribution (East Midlands) plc |
| 2. | (i) Series Number: | 2013-1 |
| (ii) Tranche Number: | 3 | |
| (iii) Date on which the Notes will be consolidated and form a single Series | The Notes will be consolidated and form a single Series with the existing £40,000,000 1.676 per cent. Index Linked Notes due 24 September 2052 issued on 24 September 2013 and the £25,000,000 1.676 per cent. Index Linked Notes due 24 September 2052 issued on 1 October 2013 (the Existing Notes) on exchange of the Temporary Global Note for interests in the permanent Global Note, as referred to in paragraph 24(i) below, which is expected to occur on or about 40 days after the Issue Date (subject to certification of non-U.S. beneficial ownership). | |
| 3. | Specified Currency or Currencies: | Pound Sterling (£) |
| 4. | Aggregate Nominal Amount: | |
| (i) Series Number: | £90,000,000 with effect from the date on which the Temporary Global Note is exchanged for interests in the permanent Global Note, as described under paragraphs 2(iii) and 24(i). | |
| (ii) Tranche: | £25,000,000 |
| 5. | (i) Issue Price of Tranche: | 143.747 per cent. of the Aggregate Nominal Amount of the Tranche, plus accrued interest of £35,067.91 in respect of the period from, and including, 24 March 2015 to, but excluding, the Issue Date. |
| 6. | (i) Specified Denominations: | £100,000 |
| (ii) Calculation Amount: (Applicable to Notes in definitive form) | £100,000 | |
| 7. | (i) Issue Date: | 23 April 2015 |
| (ii) Interest Commencement Date: | 24 March 2015 | |
| 8. | Maturity Date: | 24 September 2052 |
| 9. | Interest Basis: | Index Linked Interest |
| (further particulars specified below) | ||
| 10. | Redemption Basis: | Index Linked Redemption |
| 11. | Change of Interest Basis or Redemption/ Payment Basis: | Not Applicable |
| 12. | Put/Call Options: | Investor Put |
| (further particulars specified below) | ||
| 13. | Date approval by Committee of the Board of Directors for issuance of Notes obtained: | 22 April 2015 |
| Provisions Relating to Interest (if any) Payable | ||
| 14. | Fixed Rate Note Provisions | Applicable (paragraph 17 (Index Linked Interest Note Provisions) below is also applicable) |
| (i) Rate of Interest: | 1.676 per cent. per annum payable semi-annually in arrear | |
| (ii) Interest Payment Date(s): | 24 March and 24 September in each year up to and including the Maturity Date | |
| (iii) Fixed Coupon Amount(s): (Applicable to Notes in definitive form) | £838 per Calculation Amount | |
| (iv) Broken Amount(s): (Applicable to Notes in definitive form) | Not Applicable | |
| (v) Day Count Fraction: | Actual/Actual ICMA | |
| (vi) Determination Date(s): | 24 March and 24 September in each year | |
| 15. | Floating Rate Note Provisions | Not Applicable |
| 16. | Zero Coupon Note Provisions | Not Applicable |
| 17. | Index Linked Interest Note Provisions | Applicable |
| (i) Rate of Interest: | Fixed, calculated in accordance with paragraph 14 above | |
| (ii) Minimum Indexation Factor: | Not Applicable | |
| (iii) Maximum Indexation Factor: | Not Applicable | |
| (iv) Base Index Figure: | 249.7 | |
| (v) Limited Indexation Month(s): | Not Applicable | |
| (vi) Reference Gilt: | 0.250 per cent. Index-Linked Treasury Stock due 2052 | |
| (vii) Index Figure applicable | 3 months lag | |
| 18. | Ratings Downgrade Rate Adjustment | Not Applicable |
| Provisions Relating to Redemption | ||
| 19. | Index Linked Redemption Provisions | Applicable |
| (i) Minimum Indexation Factor: | Not Applicable | |
| (ii) Maximum Indexation Factor: | Not Applicable | |
| (iii) Base Index Figure: | 249.7 | |
| (iv) Reference Gilt: | 0.250 per cent. Index-Linked Treasury Stock due 2052 | |
| (v) Index Figure applicable | 3 months lag | |
| (vi) Redeemable in part: | Not Applicable | |
| 20. | Issuer Call | Not Applicable |
| 21. | Investor Put | Applicable. Condition 6(g) (Redemption at the Option of the Noteholders on a Restructuring Event) applies. |
| (i) Optional Redemption Date(s): | On the Put Date (as specified in the relevant Put Event Notice) (where Condition 6(g) (Redemption at the Option of the Noteholders on a Restructuring Event) applies) | |
| (ii) Notice Period: | As per Condition 6(g) (Redemption at the Option of the Noteholders on a Restructuring Event) | |
| (iii) Optional Redemption Amount(s): | £100,000 (as adjusted in accordance with Condition 7(a) and paragraph 19 (Index Linked Redemption Provisions) above) per Calculation Amount |
| 22. | Final Redemption Amount: | £100,000 (as adjusted in accordance with Condition 7(a) and paragraph 19 (Index Linked Redemption Provisions) above) per Calculation Amount |
| 23. | Early Redemption Amount payable on redemption for taxation reasons or on event of default and/or the method of calculating the same (if required): | £100,000 (as adjusted in accordance with Condition 7(a) and paragraph 19 (Index Linked Redemption Provisions) above) per Calculation Amount |
| General Provisions Applicable to the Notes | ||
| 24. | Form of Notes: | Bearer |
| (i) if issued in Bearer form: | Temporary Global Note exchangeable for a permanent Global Note which is exchangeable for Definitive Notes in the limited circumstances specified in the permanent Global Note. | |
| New Global Note/NSS: | Yes (NGN) | |
| 25. | Additional Financial Centre(s) or other special provisions relating to payment dates: | Not Applicable |
| 26. | Talons for future Coupons to be attached to Definitive Notes (and dates on which such Talons mature): | Yes |
Signed on behalf of
Western Power Distribution (East Midlands) plc
……………………………………..
By:
Part B
Other Information
| 1. | Listing and Admission to Trading | |
| (i) Listing and admission to trading: | Application has been made by the Issuer (or on its behalf) for the Notes to be admitted to trading on the London Stock Exchange’s regulated market and listing on the Official List of the UK Listing Authority with effect from 23 April 2015. | |
| (ii) Estimate of total expenses related to admission to trading: | £1,750 | |
| 2. | Ratings | |
| Ratings | The Notes to be issued have been rated: | |
| Baa1 (Stable) by Moody’s Investors Service Limited (Moody’s) | ||
| BBB (Positive) by Standard & Poor’s Credit Market Services Europe Limited (S&P) | ||
| Each of Moody’s and S&P is established in the European Union and is registered under Regulation (EC) No. 1060/2009 (as amended) (the CRA Regulation) | ||
| 3. | Interests of Natural and Legal Persons Involved in the Issue | |
| 4. | Reasons for the Offer, Estimated Net Proceeds and Total Expenses | |
| (i) Reasons for the offer | The net proceeds of the offer will be used by the Issuer for its general corporate purposes. | |
| (ii) Estimated net proceeds: | £36,804,532.30 | |
| (iii) Estimated total expenses: | Not Applicable | |
| 5. | Operational Information | |
| (i) ISIN Code: |
Until consolidation with the Existing Notes: Temporary ISIN: XS1223860666 Upon consolidation with the Existing Notes: ISIN: XS0974143439 | |
| (ii) Common Code: |
Until consolidation with the Existing Notes: Temporary Common Code: 122386066 Upon consolidation with the Existing Notes: Common Code: 097414343 | |
| (iii) Any clearing system(s) other than Euroclear Bank SA/NV and Clearstream Banking, société anonyme and the relevant identification number(s): | Not Applicable | |
| (iv) Delivery: | Delivery against payment | |
| (v) Names and addresses of additional Paying Agent(s) (if any): | Not Applicable |
Exhibit 10(a)
SERVICE AGREEMENT
AGREEMENT dated the 16th day of March 2015
BETWEEN
| (1) | WESTERN POWER DISTRIBUTION (SOUTH WEST) plc ("the Company") whose registered office is at Avonbank, Feeder Road Bristol BS2 0TB |
and
| (2) | ROBERT ARTHUR SYMONS ("the Director") whose address is Trevear Farm, St Issey, Wadebridge, Cornwall PL27 7RQ |
This Agreement is intended to consolidate and replace the Director’s Service Contract dated 29 February 2000 and amendments to such Service Contract by letters dated 31 January 2002, 11 May 2006, and 10 December 2013 between the two parties.
References in this Agreement to "Group" shall mean the Company and any holding company of the Company or any subsidiary or subsidiary undertaking of the Company or the Company's holding company as defined in the Companies Act 2006 and any reference to the Company shall, where the context so requires or implies, include a reference to any company which controls the Company or which the Company controls or any subsidiary or any subsidiary undertaking.
NOW IT IS HEREBY AGREED:
1. Appointment and Term
| (a) | The Director is appointed to serve the Company as Chief Executive in accordance with the terms and conditions of this Agreement from the thirty first day of March 2000 (the "Employment"). The Director's employment with the Company and by a former Electricity Board (as defined in the Electricity Act 1989) from the 6 September 1971 will be treated as continuous with this Employment. The Employment will continue until: |
(i) it is determined in accordance with Clause 14; or
| (ii) | the expiry of 6 months' notice to terminate this Agreement given by the Company to the Director or 6 months' notice to terminate this Agreement given by the Director to the Company |
| (b) | The Company may without prior notice suspend and/or exclude the Director from all or any premises of the Company or the Group for any period not exceeding 6 months provided that throughout such period the Director's salary and other contractual benefits shall continue to be paid and the Director shall keep himself available for work notwithstanding that the Company shall not be obliged to provide any work for the Director during such period. |
2. Duties
During the Employment, the Director must:
| (a) | in relation to the Group perform the duties and exercise the functions as may from time to time reasonably be assigned to or vested in him by the Chairman of the Company, |
| (b) | well and faithfully serve the Company to the best of his knowledge, power and ability and use his utmost endeavours to promote the interests and welfare of the Group; and |
| (c) | comply with all lawful and reasonable requests, instructions and regulations made by the Chairman or by anyone authorised by him and promptly provide such explanations, information and assistance as to his activities in the business of the Group as are reasonable. |
3. Place and Time of Work
(a) The Company's hours of work are from 8.30 am to 5.00 pm Monday to Friday.
However the Director will be required and expected to devote to the affairs of the Group the whole of his time and attention during normal business hours and at such other times as his duties may reasonably require.
| (b) | The Director shall perform his duties at the head office of the Company or at such other place as the Company shall reasonably require from time to time. If the Director is required subsequently to relocate the Company shall pay all reasonable expenses in accordance with the Company's relocation scheme in force from time to time. |
4. Conflicts of Interest
The Director must:
| (a) | not during his Employment hereunder (except in the proper performance of his duties or with the prior written consent of the Company) be directly or indirectly engaged, concerned or interested in any other business or activity (where such engagement concern or interest may reasonably be expected to interfere with the performance of his duties in the Employment) provided that this provision shall not inhibit the holding (directly or through nominees) of quoted investments as long as not more than 5 per cent of the shares or stock of any class of any one company shall be so held; |
| (b) | comply with the Company's Code of Ethics as approved by the Company and as may be modified from time to time. |
5. Remuneration
| (a) | As remuneration for his services in the Employment the Director shall (unless and until otherwise agreed) receive a base salary at the rate of £535,000 per annum as of the date of this Agreement which shall accrue from day to day and be payable in instalments monthly, such salary being inclusive of any fees to which the Director may be entitled as a Director of any company in the Group. |
| (b) | The Company shall review the Director's salary as provided for in the sub-clause above annually and any changes consequent upon the said review shall take effect from 1st April of the same year. |
| (c) | In addition to the salary referred to above, the Director shall be eligible to participate at the Company's discretion in any bonus or incentive schemes for senior executives and/or directors that the Company may operate from time to time subject to and in accordance with the rules of such schemes. Any awards made to the Director under any bonus or incentive scheme, prior to the date of this Agreement, shall be unaffected by entering into this agreement. |
6. Expenses
The Director shall be reimbursed such expenses as are properly and reasonably incurred by him in the performance of his duties and are detailed in the Company's policy on expenses from time to time. The Director shall produce such vouchers and receipts if practical as may be required.
7. Pension
The Director was a participant in the Electricity Supply Pension Scheme (“ESPS”) until 6 April 2006, at which time he ceased to accrue any benefits under the ESPS. The Director elected to begin drawing on his pension benefits under the ESPS as of 20 March 2012. The Director’s pension benefits determined by the ESPS and the enhanced benefits provided to the Director from time to time shall not be affected by the entering into of this Agreement and shall continue to be governed by the rules of the ESPS.
Given the Director is drawing pension benefits while in Service with the Company, the Company procures that if the Director dies thereafter while in service with the Company, a lump sum benefit will be payable from either a policy of life insurance that satisfies the conditions below, or directly by the Company. The lump sum shall be £4.75 million indexed on each policy anniversary in line with the index of retail prices. The conditions to be satisfied are that the policy does not constitute a registered pension scheme; is not issued, or held in connection with, nor forms an agreement under, a registered pension scheme; and the provision of this benefit does not otherwise prejudice the Director’s enhanced protection.
8. Car
The Director shall be entitled to car usership benefits and private fuel benefits in accordance with the Company's Executive User Car Scheme as published and varied from time to time. In addition, the Director shall be entitled to Chauffer services as needed in performance of his duties.
The total value of the Director’s Car benefits under this paragraph shall be capped at an amount of £20,000 annually. The Director shall reimburse the Company at the end of each year for any benefits received in excess of £20,000.
9. Private Medical Insurance
The Director, his wife and dependent children up to age 21, or up to age 25 if in full time education, shall be entitled to participate in a private medical insurance scheme to be provided by and at the expense of the Company.
1 0. Holidays
| (a) | In addition to the usual bank and public holidays, the Director shall be entitled to 25 working days' holiday in each Company Holiday Year (1st April to 31st March) to be taken at a time or times agreed with him by the Chairman of the Company. Accrued but untaken holiday will lapse at the end of the Holiday Year in which the entitlement arises and may not be carried forward for use in the next Holiday Year unless otherwise agreed with the Chairman. |
(b) Upon the termination of the Employment for whatever reason the Director:
| (i) | shall be entitled to payment in lieu of accrued but untaken holiday entitlement for the current Holiday Year, and |
| (ii) | may be required to repay the Company any salary received in respect of holiday taken in excess of his proportionate holiday entitlement. |
11. Illness
| (a) | Should the Director be prevented by sickness, injury or other incapacity from properly performing his duties in the Employment he shall report the fact directly or indirectly to the Chairman of the Company as soon as is reasonably practicable. |
| (b) | For sickness, injury or other incapacity of seven days or less, upon his return to work, the Director shall complete an Absence Self-Certificate. For sickness, injury or other incapacity of eight days or more the Director must obtain a doctor's statement which he shall submit to the Company at appropriate intervals. |
| (c) | Provided the Director complies with sub-clauses (a) and (b) above he shall be entitled to receive his full basic rate of remuneration (to include any statutory sick pay or social security benefits payable) for the first twenty six weeks of any sickness, injury or other incapacity in any one year of employment under this Agreement (whether such weeks are consecutive or in aggregate). For the next twenty six week period payment shall be at half the Director's basic rate of remuneration for so much of the next twenty six week period as the Director suffers sickness, injury or other incapacity m any one year. |
| (d) | For any injury or illness in excess of eight days or in the case of persistent or recurring injury or illness the Company shall be entitled to approach the Director's own doctor having obtained on each occasion the Director's specific prior consent and/or to require the Director to attend a medical examination with a doctor nominated by the Company at the Company's expense. |
12. Confidentiality
The Director must not at any time without the previous consent in writing of the Company, other than in the course of his duties, divulge or make known to anyone any secrets or any technical, commercial, financial or other information of a confidential nature relating to the business or customers of the Group save to the extent that such information has become a matter of public record. All papers and documents used by the Director in the course of this Employment are and will remain the property of the Company and must be delivered up to the Company on termination of the Agreement. This clause operates independently of the existence of the Agreement.
13. Non-Solicitation
By accepting this Employment and continuing to be employed by the Company the Director undertakes and covenants with the Company that unless otherwise agreed and consented to by the Company the Director shall not during this Employment nor for a period of twelve months it has come to an end solicit, entice, procure or endeavour to persuade any other director, officer, manager, supervisor or senior technical or sales employee of the Company or the Group with whom the Director shall have had personal contact or dealings during the course of his employment to leave the employment of the Group.
14. Summary Termination
Without prejudice to any remedy which it may have against the Director for breach or non-performance of any of the provisions of this Agreement the Company may by notice in writing to the Director forthwith determine this Agreement if he:
| (a) | becomes bankrupt or makes any composition or enters into any deed of arrangement with his creditors; or |
(b) is prevented by law from holding the office of director; or
(c) is guilty of;
(i) any gross misconduct; or
(ii) gross negligence in the performance of his duties; or
(iii) any breach of any fundamental term of this Agreement; or
| (iv) | persistent neglect of his duties or persistent non-observance of any condition of this Agreement (provided that in each case the Company shall first have given due written warning of such neglect or non-observance as the case may be). |
15. Change of Control
The Director shall be entitled to certain benefits related to a change in control of the Company. For the purposes of this clause,
(a) Relevant Event means either;
| (i) | the giving of notice by the Company or the termination of the Director's employment (other than for reason of gross misconduct or material breach of contract on the Director's part (an "excluded reason"); or |
| (ii) | without a Director's express written consent, after written notice to his Employing Company, and after a thirty (30) day opportunity for the Employing Company to cure, the continuing occurrence of any of the following events: |
a. Inconsistent Duties. A meaningful and detrimental alteration in the Director's position or in the nature or status of his responsibilities from those in effect immediately prior to the Change in Control;
b. Reduced Salary. A reduction of five percent (5%) or more by the Employing Company in either of the following: (i) the Director's highest annual base salary rate as in effect at any time during the twelve (12) month period immediately preceding the date of the Change in Control ("Base Salary") (except for a less than ten percent (10%), across-the-board Base Salary rate reduction similarly affecting at least ninety five percent (95%) of all Employees of the Employing Company); or (ii) the sum of the Director's Base Salary plus target bonus under the Employing Company's short term bonus plan, as in effect immediately prior to the Change in Control (except for a less than ten percent (10%), across-the-board reduction of Base Salary plus target bonus under such short term plan similarly affecting at least ninety-five percent (95%) of all Employees of the Employing Company);
c. Pension and Compensation Plans. The failure by the Employing Company to continue in effect any "pension plan or agreement" or "compensation plan or agreement" in which the Director participates as of the date of the Change in Control or the elimination of the Director's participation in any such plan (except for across-the board plan changes or terminations similarly affecting at least ninety-five percent (95%) of all Employees of the Employing Company). For purposes of this subsection (c), a "pension plan or agreement" shall mean any written arrangement executed by an authorized officer of the Employing Company which provides for payments upon retirement; and a "compensation plan or agreement" shall mean any written arrangement executed by an authorized officer of the Employing Company which provides for periodic, non-discretionary compensatory payments to employees in the nature of bonuses;
d. Relocation. A change in the Director's work location to a location more than fifty (50) miles from the facility where the Director was located immediately prior to the Change in Control, unless such new work location is within fifty (50) miles from the Director's principal place of residence at the time of the Change in Control. The acceptance, if any, by the Director by an Employing Company at a work location which is outside the fifty (50) mile radius set forth in this Section shall not be a waiver of the Director's right to refuse subsequent transfer by the Employing Company to a location which is more than fifty (50) miles from the Director's principal place of residence at the time of the Change in Control, and such subsequent, unconsented transfer shall be "Relevant Event" under this Policy; or
e. Benefits and Perquisites. The taking of any action by the Employing Company that would directly or indirectly materially reduce the benefits enjoyed by the Director under the Employing Company's retirement, life insurance, medical, health and accident, disability, deferred compensation or savings plans in which the Director was participating immediately prior to the Change in Control, or the failure by the Employing Company to provide the Director with the number of paid vacation days to which the Director is entitled on the basis of years of service with the Employing Company in accordance with the Employing Company's normal vacation policy in effect immediately prior to the Change in Control (except for across-the-board plan or vacation policy changes or plan terminations similarly affecting at least ninety-five percent (95%) of all Employees of the Employing Company).
Relevant Event shall not include the Director's Death or Disability. The fact that the Director may be eligible for Retirement shall not prevent him from resigning for a Relevant Event provided a Relevant Event shall have occurred. Any dispute as to whether a Relevant Event shall have occurred or been cured on a timely basis shall be resolved by the PPL Corporation Board of Directors. Any such resolution by the PPL Board of Directors shall be binding on the Employing Company and the Director.
The Relevant Event occurs if the Director's employment is involuntarily terminated by the Employing Company at any time during the two (2) year period following a Change in Control for any reason other than for Cause or who shall voluntarily terminate his employment with his Employment Company for a Relevant Event at any time during the two (2) year period following a Change of Control. Notwithstanding anything to the contrary above, a Relevant Event does not occur if the Director:
w. is on leave of absence as of his Termination Date, unless such Director is capable of returning to work within twelve (12) weeks of such leave of absence from work;
x. voluntarily terminates his employment with the Employing Company other than for a Relevant Event;
y. has his employment terminated by the Employing Company for Cause; or
z. terminates from employment by reason of his Death or Disability.
| (b) | Change of Control means where; |
| (i) | the Company comes under the control of any person or persons acting in concert (as those terms are defined for the time being in the City Code on Takeovers and Mergers) not having control of the Company at the date of this agreement; or |
| (ii) | the person or persons having the right to control, directly or indirectly, a majority of the votes which may ordinarily be cast at general meetings of the Company or the right to control the composition of the Board, cease to have those rights, |
Change of control does not occur where PPL maintains at least 50% equity or voting interest.
| (c) | To the extent that terms used in this clause are not defined elsewhere in this Agreement, the definitions set out in clause 46 of the Electricity Supply Pension Scheme shall apply. |
| (d) | If a Relevant Event occurs the Company shall |
| (i) | pay to the Director within 7 days of the termination of his employment a sum equal to two times his taxable pay (as would fall to be included in the amount shown on the annual forms P 60 and PllD) received from the Company during the twelve months immediately preceding the Change of Control; |
| (ii) | procure that the Director's benefits under the Electricity Supply Pension Scheme which have accrued at the date of termination of employment are augmented by crediting him with two additional years' Pensionable Service subject to the Director contributing 6% of his Pensionable Salary to the pension scheme and the Company shall make such additional contributions to the Electricity Supply Pension Scheme as are necessary to secure that augmentation and, if this is not possible, due to Inland Revenue limits, procure the payment of such cash sum as is of equivalent value; |
| (iii) | procure the payment of pension benefits to the Director by the Electricity Supply Pension Scheme in accordance with the provisions of the letter from the Company to him dated 23 March 2000 on the basis of his termination of employment being caused by reorganisation, such benefits to include the augmentation described in above. |
| (e) | Subject to any rights accrued at the date of termination of the Director's employment under the provisions of any pension scheme of the Company, any payment by the Company pursuant to this clause shall be made in full and final settlement of all and any claims arising from or in connection with the Director's employment or its termination or his office of Director and its loss in each case in respect of the Company or the Group. |
| (f) | All payments to be made pursuant to this clause shall be paid less any necessary withholdings. |
| (g) | The Director hereby agrees that he shall not bring any claim before any court or employment tribunal relating to his employment and/or its termination except in so far as such claim is brought solely to enforce the provisions of this clause. The Director agrees to enter into an agreed form of compromise agreement on or around the date of termination of his employment to give effect to this clause. |
| (h) | The Director is also entitled to certain benefits related to a change in control of the Company as set forth in the Agreement dated 11 May 2006 by and between PPL Corporation and the Director, which is attached to this Agreement as Attachment A. |
16. Resignation from Directorships Following Termination of Employment
Upon termination of this Employment for whatever reason the Director must forthwith tender his resignation as a Director of any Group company without compensation.
The Director hereby irrevocably authorises the Company to appoint some person in his name and on his behalf to sign any documents and do any things necessary to give effect thereto, if the Director shall fail to sign or do the same himself The Director shall also promptly return all Company property, equipment and documents (including all copies) to the Company.
17. Effect of Termination of this Agreement
The expiry or termination of this Agreement howsoever arising shall not operate to affect any of the provisions hereof which are expressed to operate or have effect thereafter and shall not prejudice the exercise of any right to remedy of either party accrued beforehand.
18. Disciplinary and Grievance Procedure
If the Director is dissatisfied with any disciplinary action or has any grievance concerning this Employment he should raise the matter with the Chairman.
19. Patents, Secrets, Processes and Improvements
| (a) | Any discovery or invention or secret process or improvement in procedure made or discovered by the Director while in the service of the Company whether before or after the date of this Agreement with or in any way affecting or relating to the business of the Company or of any company in the Group or capable of being used or adapted for use therein or in connection therewith shall forthwith be disclosed to the Company and shall belong to and be the absolute property of the Company. |
| (b) | The Director shall, if and whenever required so to do by the Company at the expense of the Company, apply to join with the Company in applying for letters patent or other equivalent protection in the United Kingdom and in any part of the world for any such discovery, invention, process or improvement as aforesaid and shall at the expense of the Company execute and do all instruments and things necessary for vesting the said letters patent or other equivalent protection when obtained and all rights, title to, and interest in the same in the Company absolutely and as sole beneficial owner or in such other person as the Company may specify. The Director hereby irrevocably appoints the Company to be his attorney in his name and on his behalf to execute and to do any such instrument or thing and generally to use his name for the purpose of giving to the Company the full benefit of the provisions of this clause but not otherwise in favour of any third party a certificate in writing signed by any Director or the Secretary of the Company that any instrument or act falls within the authority hereby conferred shall be conclusive evidence that such is the case. |
| 20. | Governing Law |
| This Agreement and the Employment shall be governed by and construed in accordance with English law in all respects. The parties agree that the English Courts and Tribunals shall have exclusive jurisdiction to determine any disputes or claims arising under or in connection with this Agreement, the Employment or the termination of either or both of them. |
21. Notices
Any notice to be given hereunder shall be writing. Notice to the Director shall be sufficiently served by being delivered personally to him or by being sent by first class post addressed to him at his usual or last known place of abode. Any notice if so posted shall be deemed served upon the first day following that on which it was posted. Notice to the Company shall be sufficiently served by being delivered to the Company Secretary at the Registered Office of the Company.
|
SIGNED on behalf of the Company by R L Klingensmith, Chairman in the presence of: |
……………………………………………...
|
|
Witness signature Name (block capitals) Address |
…………………………………………….. …………………………………………….. …………………………………………….. …………………………………………….. |
|
SIGNED by the Director R A Symons in the presence of:
|
…………………………………………….. |
|
Witness signature Name (block capitals) Address |
…………………………………………….. …………………………………………….. …………………………………………….. …………………………………………….. |
ATTACHMENT A
AGREEMENT
THIS AGREEMENT, effective as of May 11, 2006 is made by and between PPL Corporation, a Pennsylvania corporation and Robert A. Symons (the "Executive").
WHEREAS, the Company considers it essential to the best interests of its shareowners to foster the continued employment of key management personnel by the Company or any Group Company;
WHEREAS, the Board of Directors of the Company (the "Board") recognizes that, as is the case with many publicly-held corporations, the possibility of a Change in Control (as defined in the last Section hereof) exists and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of management personnel employed by the Company or any Group Company to the detriment of the Company and its shareowners;
WHEREAS, the Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of management, including the Executive, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a Change in Control; and
WHEREAS, the Executive is employed by Western Power Distribution (South West) plc (a Group Company) and accordingly it is intended that any entitlements arising under the arrangements applying in respect of his employment by Western Power Distribution (South West) plc, shall not be prejudiced by any terms of this Agreement, and shall be set off against the entitlements of the Executive under this Agreement.
NOW THEREFORE, in consideration of the premises and the mutual covenants herein contained, the Company and the Executive hereby agree as follows:
1. Defined Terms
The definitions of capitalized terms used in this Agreement are provided in the last
Section hereof.
2. Effect of Agreement
| 2.1 | The parties acknowledge and agree that nothing in this Agreement shall disapply, replace, prejudice or otherwise affect the Executive's entitlements under the WPD Employment Contract and nor shall this Agreement be interpreted as a guarantee by the Company of any such entitlements. |
| 2.2 | Save in respect of the obligation referred to in Section 6.1(c) below where the circumstances that give rise to any entitlement of the Executive under the terms of this Agreement also give rise to an entitlement of the Executive under the WPD Employment Contract, the obligation of the Company to make any payment or provide any benefit under this Agreement shall be limited solely to the extent that such |
payment or benefit due under this Agreement shall exceed the Executive's entitlement to a corresponding type or description of payment or benefit under the WPD Employment Contract. For the avoidance of doubt an entitlement to a benefit of a particular type or description under the WPD Employment Contract shall only be set off against the corresponding type or description of benefit provided for under this Agreement. In respect of the obligation referred to in Section 6.l(c) below, the obligation of the Company to make a payment or provide a benefit shall be limited to the extent that such payment or benefit shall exceed the value of any augmentation payable under clause 14.A.2(b) of the WPD Employment Contract (or such clause as shall have replaced such clause).
| 2.3 | The provisions of this section 2 override any terms of this Agreement which are inconsistent with these provisions and the parties confirm that their intention is that the Executive's entitlements under this Agreement are cumulative to the extent they exceed any entitlement to a corresponding type or description of benefit under the WPD Employment Contract. |
3. Term of Agreement
The Term of this Agreement shall commence on the date hereof and shall continue in effect through December 31, 2007; provided, however, that commencing on January 1,
2007 and each January 1 thereafter, the Term shall automatically be extended for one additional year unless, either the Company or the Executive gives at least 15 months advance notice of termination by, not later than September 30 of the year preceding the year in which the Term is then scheduled to expire, giving notice not to extend the Term; and further provided, however, that if a Change in Control shall have occurred during the Term, the Term shall expire no earlier than thirty-six (36) months beyond the month in which such Change in Control occurred. Notwithstanding the foregoing in the event that (a) prior to the occurrence of a Change in Control or Potential Change in Control, the Executive's Employment is terminated for any reason or the Executive is no longer Vice President- United Kingdom, PPL Global, LLC , or (b) following the occurrence of a Potential Change in Control but prior to the occurrence of a Change in Control, the Executive is no longer Vice President - United Kingdom, PPL Global, LLC, and such change does not constitute Good Reason under the circumstances described in clauses (B) and (C) of the second sentence of Section 6.1 hereof (treating all references in paragraphs (i) through (vi) of the definition of Good Reason to a "Change in Control" as references to a "Potential Change in Control") then this Agreement shall terminate as of the date that the Executive's Employment is terminated, or the Executive's position or title has been so changed, as the case may be.
4. Company's Covenants Summarized
In order to induce the Executive to remain in the Employment and in consideration of the Executive's covenants set forth in Section 5 hereof, the Company agrees, under the conditions described herein (and subject to Section 2.2 above), to pay the Executive the Severance Payments and the other payments and benefits described herein. Except as provided in Section 8.1 hereof, no Severance Payments shall be payable under this Agreement unless there shall have been (or, under the terms of the second sentence of Section 6.1 hereof, there shall be deemed to have been) a termination of the
Executive's Employment following a Change in Control and during the Term. This Agreement shall not be construed as creating an express or implied contract of employment with the Company and, except as otherwise agreed to in writing between the Executive and the Company, the Executive shall not have any right to be retained in the employ of the Company.
5. The Executive's Covenants
The Executive agrees that, subject to the terms and conditions of this Agreement, in the event of a Potential Change in Control during the Term, the Executive will remain in the Employment until the earliest of (i) a date which is six (6) months after the date of such Potential Change of Control, (ii) the date of a Change in Control, (iii) the date of termination by the Executive of the Executive's Employment for Good Reason or by reason of death, Disability or Retirement, or (iv) the termination of the Executive's Employment for any reason.
6. Severance Payments
6.1 Subject to Sections 2.2, 6.2, 6.5 and 6.6 hereof, the Company shall pay the Executive the payments, and provide the Executive the benefits, described in this Section 6.1 (the "Severance Payments") upon the termination of the Executive's Employment following a Change in Control and during the Term, unless such termination is (i) for Cause, (ii) by reason of death, Disability or Retirement, or (iii) by the Executive without Good Reason. For purposes of this Agreement, the Executive's Employment shall be deemed to have been terminated following a Change in Control without Cause or by the Executive with Good Reason if (A) the Executive's Employment is terminated without Cause prior to a Change in Control (whether or not a Change in Control ever occurs) and such termination was at the request or direction of a Person who has entered into an agreement with the Company the consummation of which would constitute a Change in Control or (B) if the Executive terminates his Employment for Good Reason prior to a Change in Control (whether or not a Change in Control ever occurs) and the circumstance or event which constitutes Good Reason occurs at the request or direction of such Person, or (C) the Executive's Employment is terminated without Cause or by the Executive for Good Reason and such termination or the circumstance or event which constitutes Good Reason is otherwise in connection with or in anticipation of a Change in Control (whether or not a Change in Control ever occurs). For purposes of any determination regarding the applicability of the immediately preceding sentence, any position taken by the Executive shall be presumed to be correct unless the Company establishes to the Board by clear and convincing evidence that such position is not correct.
(a) The Company shall pay to the Executive a lump sum severance payment, in cash, equal to two times the sum of (i) the Executive's base salary as in effect immediately prior to the Date of Termination or, if higher, in effect immediately prior to the first occurrence of an event or circumstance constituting Good Reason; (ii) the Executive's annual rate of Pension Compensation Adjustment as in effect immediately prior to the Date of Termination or, if higher, in effect immediately prior to the first occurrence of an event or circumstance constituting Good Reason; and (iii) the highest annual bonus earned by the Executive pursuant to any annual bonus or incentive plan
| maintained in relation to the Employment in respect of any of the last three fiscal years ending immediately prior to the fiscal year in which occurs the Date of Termination or, if higher, immediately prior to the fiscal year in which occurs the first event or circumstance constituting Good Reason (including as an amount so paid any amount that would have been so paid but for the Executive's request that the amount not be paid, for example where the Executive requests to exchange some or all of any annual bonus for grants of restricted stock awards or stock options in accordance with the Company's Cash Incentive Premium Exchange Programme). For purposes of determining the value of the annual bonus earned by the Executive in any calendar year, the value of any other restricted stock awards or stock options earned by the Executive in any such year shall not be included in the value of the annual bonus for such year; | ||
| (b) | The Executive is not eligible for PPL Corporation's or PPL Global, LLC's life, disability, accident, and health insurance benefits, and therefore there is no provision for any extension of such benefits after the Date of Termination. | |
| (c) | In addition to the retirement benefits to which the Executive may be entitled under each Pension Plan, if any, or any successor plan thereto, the Company shall pay the Executive a lump sum amount, in cash, equal to the actuarial equivalent value of twenty four (24) additional months of service credit under the Pension Plan (calculated as if the Executive was an active member of the Pension Plan at the Date of Termination) less (i) the value of the Pension Compensation Adjustment that would have been received by the Executive during the said twenty four month period (assuming he had continued in employment that entitled him to payment of the Pension Compensation Adjustment) based on the level of annual compensation/remuneration paid to him at the Date of Termination; (ii) the value of the contributions that would have been paid by the Executive during the said twenty four month period if he had' been an active member of the Pension Plan; (iii) interest in respect of (i) and (ii) above. For purposes of this Section 6.l(c), "actuarial equivalent" shall be determined using the same assumptions utilized under the PPL Supplemental Executive Retirement Plan or any successor plan, immediately prior to the Date of Termination, or, if more favorable to the Executive, immediately prior to the first occurrence of an event or circumstance constituting Good Reason. | |
| (d) | The Executive is not eligible for PPL Corporation's or PPL Global, LLC's post-retirement health care or life insurance plans, and therefore there is no provision for any extension of such benefits after the Date of Termination. | |
| (e) | The Company shall provide the Executive with outplacement services suitable | |
| to the Executive's position for a period of two years or, if earlier, until the first | ||
| acceptance by the Executive of an offer of employment. | ||
| 6.2 | ||
| (a) | Notwithstanding any other provisions of this Agreement, in the event that any | |
| payment or benefit received or to be received by the Executive in connection | ||
with a Change in Control or the termination of the Executive's Employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any Person whose actions result in a Change in Control or any Person affiliated with the Company or such Person) (all such payments and benefits, including the Severance Payments, being hereinafter called "Total Payments") would be subject (in whole or part), to the Excise Tax, then the cash Severance Payments shall be reduced (if necessary to zero) to the extent necessary so that no portion of the Total Payments is subject to the Excise Tax (after taking into account any reduction in the Total Payments provided by reason of section 280G of the Code in such other plan, arrangement or agreement) and all other Severance Payments shall thereafter be reduced (if necessary, to zero) so that no portion of the Total Payments is subject to the Excise Tax, if (i) the net amount of such Total Payments, as so reduced, (and after deduction of the net amount of federal, state and local income tax on such reduced Total Payments) is greater than (ii) the excess of (x) the net amount of such Total Payments, without reduction (but after deduction of the net amount of federal, state and local income tax on such Total Payments), over (y) the amount of Excise Tax to which the Executive would be subject in respect of such Total Payments.
(b) For purposes of determining whether and the extent to which the Total Payments will be subject to the Excise Tax, (i) no portion of the Total Payments the receipt or enjoyment of which the Executive shall have waived at such time and in such manner as not to constitute a "payment" within the meaning of section 280G(b) of the Code shall be taken into account, (ii) no portion of the Total Payments shall be taken into account which, in the opinion of tax counsel selected by the accounting firm that was, immediately prior to the Change in Control, the Company's independent auditor (the "Auditor"), does not constitute a "parachute payment" within the meaning of section
280G(b)(2) of the Code, (including by reason of section 280G(b)(4)(A) of the
Code) and, in calculating the Excise Tax, no portion of such Total Payments shall be taken into account which constitutes reasonable compensation for services actually rendered, within the meaning of section 280G(b)(4)(B) of the Code, in excess of the Base Amount allocable to such reasonable compensation, and (iii) the value of any non-cash benefit or any deferred payment or benefit included in the Total Payments shall be determined by the Auditor in accordance with the principles of sections 280G(d)(3) and (4) of the Code. Prior to the payment date set forth in Section 6.3 hereof, the Company shall provide the Executive with its calculation of the amounts referred to in this Section and such supporting materials as are reasonably necessary for the Executive to evaluate the Company's calculations. If the Executive objects to the Company's calculations, the Company shall pay to the Executive such portion of the Severance Payments (up to 100% thereof) as the Executive determines is necessary to result in the Executive receiving the greater of clauses (i) and (ii) of Section 6.2(a) hereof.
(c) If it is established pursuant to a final determination of a court or an Internal Revenue Service proceeding that, notwithstanding the good faith of the Executive and the Company in applying the terms of this Section 6.2, the Total
Payments paid to or for the Executive's benefit are in an amount that would result in any portion of such Total Payments being subject to the Excise Tax, then, if such repayment would result in (i) no portion of the remaining Total Payments being subject to the Excise Tax and (ii) a dollar-for-dollar reduction in the Executive's taxable income and wages for purposes of federal, state and local income and employment taxes, the Executive shall have an obligation to pay the Company upon demand an amount equal to the sum of (i) the excess of the Total Payments paid to or for the Executive's benefit over the Total Payments that could have been paid to or for the Executive's benefit without any portion of such Total Payments being subject to the Excise Tax; and (ii) interest on the amount set forth in clause (i) of this sentence at the rate provided in section 1274(b)(2)(B) of the Code from the date of the Executive's receipt of such excess until the date of such payment.
| 6.3 | The payments provided in subsection 6.1(a) and (c) hereof shall be made not later than the fifth day following the Date of Termination; provided, however, that if the amounts of such payments, and the limitation on such payments set forth in Section |
6.2 hereof, cannot be finally determined on or before such day, the Company shall pay to the Executive on such day an estimate, as determined in good faith by the Company, of the minimum amount of such payments to which the Executive is clearly entitled and shall pay the remainder of such payments (together with interest on the unpaid remainder (or on such payments to the extent the Company fails to make such payments when due) at 120% of the rate provided in section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth (30th) day after the Date of Termination. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to the Executive, payable on the fifth (5th) business day after demand by the Company (together with interest at 120% of the rate provided in section 1274(b)(2)(B) of the Code). At the time that payments are made under this Agreement, the Company shall provide the Executive with a written statement setting forth the manner in which such payments were calculated and the basis for such calculations including, without limitation, any opinions or other advice the Company has received from Tax Counsel, the Auditor or other advisors or consultants (and any such opinions or advice which are in writing shall be attached to the statement).
| 6.4 | The Company also shall pay to the Executive all legal fees and expenses incurred by the Executive in disputing in good faith any issue hereunder or in seeking in good faith to obtain or enforce any benefit or right provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of section |
4999 of the Code to any payment or benefit provided hereunder. Such payments shall be made within five (5) business days after delivery of the Executive's written requests for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require.
| 6.5 | The payment and/or provision of the Severance Payments described in Section 6.1 shall be conditional upon the Executive first having entered into a compromise agreement in a form to be determined by the Company (the "Compromise Agreement") with: |
(a) the Company; and/or
(b) any Group Company; and/or
(c) any Successor
under the terms of which the Executive shall waive any claim, right, entitlement, or liability owing, whether under contract or statute, in connection with his Employment and/or the termination of such Employment but excluding any claim, right, entitlement or liability owing under contract that the Executive may have against WPD South West under the terms of the WPD Employment Contract or any right he may have under the Pension Plan.
| 6.6 | If the Executive is awarded any compensation or damages by a court or tribunal pursuant to any action, claim or proceedings in any court or tribunal in the United Kingdom against the Company, any Group Company, any Successor, or any of its or their officers, employees or agents in respect of any matter that is the subject of the waiver contained in the Compromise Agreement ("Proceedings"), the Executive shall repay to the Company or such Group Company as the case may be, immediately upon demand, the Severance Payments or such amount of the Severance Payments as shall be equivalent to the total amount of the compensation or damages (including interest) awarded, together with the full amount of any legal fees incurred by the Company or such Group Company or Successor in defending such Proceedings. Any part of the Severance Payments which remains outstanding shall cease to be payable under this Agreement with effect from the date of commencement of Proceedings. |
7. No Mitigation
The Company agrees that, if the Executive's Employment terminates during the Term, the Executive is not required to seek other employment or to attempt in any way to reduce any amounts payable to the Executive by the Company pursuant to Section 6 hereof. Further, the amount of any payment or benefit provided for in this Agreement shall not be reduced by any compensation earned by the Executive as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company, or otherwise.
8. Successors; Binding Agreement
| 8.1 | In addition to any obligations imposed by law upon any successor to the Company or PPL Global, LLC, the Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company or PPL Global, LLC to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as the Executive would be entitled to hereunder if the Executive were to terminate the Executive's Employment for Good Reason after a Change in Control, |
except that, for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination.
8.2 This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive shall die while any amount would still be payable to the Executive hereunder (other than amounts which, by their terms, terminate upon the death of the Executive) if the Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the executors, personal representatives or administrators of the Executive's estate.
9. Notices
For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed, to the Executive at the last known address maintained in the Company's personnel records, and to the Company, to the address set forth below, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon actual receipt:
To the Company: PPL Corporation
Two North 9th Street
Allentown, Pennsylvania 18101
Attention: Corporate Secretary
10. Miscellaneous
No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or any lack of compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. This Agreement supersedes any other agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof, which have been made by either party. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the Commonwealth of Pennsylvania. All references to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law and any additional withholding to which the Executive has agreed. The obligations of the Company and the Executive under this Agreement that by their nature may require
either partial or total performance after the expiration of the Term (including, without limitation, those under Section 6 hereof) shall survive such expiration.
11. Validity; Pooling
The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. In the event that the Company is party to a transaction that is otherwise intended to qualify for "pooling of interests" accounting treatment then (a) this Agreement shall, to the extent practicable, be interpreted so as to permit such accounting treatment, and (b) to the extent that the application of clause (a) of this Section 11 does not preserve the availability of such accounting treatment, then, to the extent that any provision of this Agreement disqualifies the transaction as a "pooling" transaction (including, if applicable, the entire Agreement), such provision shall be null and void as of the date hereof. All determinations under this Section 11 shall be made by the accounting firm whose opinion with respect to "pooling of interests" is required as a condition to the consummation of such transaction.
12. Counterparts
This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.
13. Settlement of Disputes; Arbitration
The Board shall make all determinations as to the Executive's right to benefits under this Agreement. Any denial by the Board of a claim for benefits under this Agreement shall be stated in writing and delivered or mailed to the Executive and such notice shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon, and shall be written in a manner that may be understood without legal or actuarial counsel. In addition, the Board shall afford a reasonable opportunity to the Executive for a review of the decision denying the Executive's claim and, in the event of continued disagreement, the Executive may appeal within a period of 60 days after receipt of notification of denial. Failure to perfect an appeal within the
60-day period shall make the decision conclusive. Any further dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Philadelphia, Pennsylvania in accordance with the rules of the American Arbitration Association then in effect; provided, however, that the evidentiary standards set forth in this Agreement shall apply. Judgment may be entered on the arbitrator's award in any court having jurisdiction.
14. Definitions
For purposes of this Agreement, the following terms shall have the meanings indicated below:
(a) "Base Amount" shall have the meaning set forth in section 280G(b)(3) of the
Code.
(b) "Beneficial Owner" shall have the meaning set forth in Rule 13d-3 under the
Exchange Act.
(c) "Board" shall mean the Board of Directors of the Company.
(d) "Cause" for termination of the Executive's Employment shall mean (i) the willful and continued failure by the Executive to substantially perform the Executive's duties (other than any such failure resulting from the Executive's incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination for Good Reason by the Executive) after a written demand for substantial performance is delivered to the Executive, which demand specifically identifies the manner in which the Executive has not substantially performed the Executive's duties, or (ii) the willful engaging by the Executive in conduct which is demonstrably and materially injurious to the Company or its subsidiaries, monetarily or otherwise. For purposes of clauses (i) and (ii) of this definition, (x) no act, or failure to act, on the Executive's part shall be deemed "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive's act, or failure to act, was in the best interest of the Company or any Group Company, and (y) in the event of a dispute concerning the application of this provision, no claim by the Company that Cause exists shall be given effect unless the Company establishes to the Board by clear and convincing evidence that Cause exists.
(e) "Change in Control" means the occurrence of any one of the following events:
(i) the following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on the date hereof, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election by the Company's shareowners was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved or recommended;
(ii) any Person becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities entitled to vote generally in the election of directors;
(iii) there is consummated a merger or consolidation of the Company or PPL Global, LLC, other than (I) a merger or consolidation which would result in the voting securities of the Company and PPL Global, LLC outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof), in combination with the ownership of any trustee or other
fiduciary holding securities under an employee benefit plan of the Company or any subsidiary of the Company, at least 60% of the combined voting power of the securities of the Company and at least
60% of the combined voting power of the securities of PPL Global, LLC, or at least 60% of the combined voting power of the securities of such surviving entity or any parent thereof outstanding immediately after such merger or consolidation; or (II) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (excluding in the securities Beneficially Owned by such Person any securities acquired directly from the Company or its Affiliates) representing 20% or more of the combined voting power of the Company's then outstanding securities;
(iv) the shareowners of the Company approve a plan of complete liquidation or dissolution of the Company;
(v) the Board adopts a resolution to the effect that a "Change in Control" has occurred or is anticipated to occur;
(vi) all or substantially all of the assets of subsidiaries of PPL Global, LLC that are located in the United Kingdom are sold, or all or substantially all of the United Kingdom assets of the subsidiaries of PPL Global, LLC are transferred to the ownership of one or more business entities that have less than 50% of their ownership interests attributable to PPL Global, LLC and its subsidiaries after such transfer and PPL Global, LLC does not exercise active operational control of such entity or entities;
(vii) either (a) WPD South West comes under the control of any person or persons acting in concert (as those terms are defined for the time being in the City Code on Takeovers and Mergers of the United Kingdom) not having control of WPD South West at the date of this Agreement, or (b) the person or persons having the right to control, directly or indirectly, a majority of the votes which may ordinarily be cast at general meetings of WPD South West or the right to control the composition of the Board of Directors of WPD South West, cease to have those rights, provided, under (a) or (b), the Company does not maintain an equity or voting interest of at least 50%.
(f) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time.
(g) "Company" shall mean PPL Corporation and, except in determining, under Section 14(e) hereof, whether or not any Change in Control of the Company has occurred in connection with such succession, shall include its subsidiaries and any successor to its business and/or assets which assumes and agrees to perform this Agreement by operation of law, or otherwise.
(h) "Date of Termination" shall mean the date on which the Employment terminates.
(i) "Disability" shall be deemed the reason for the termination of the Executive's Employment, if, as a result of the Executive's incapacity due to physical or mental illness, the Executive shall have been absent from the full-time performance of the Executive's duties for a period of six (6) consecutive months, the Executive shall have been given a Notice of Termination for Disability, and, within thirty (30) days after such Notice of Termination is given, the Executive shall not have returned to the full-time performance of the Executive's duties.
(j) "Employment" shall mean the employment of the Executive by WPD South West or by any other Group Company (or Successor) as shall employ the Executive at the relevant time.
(k) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time.
(1) "Excise Tax" shall mean any excise tax imposed under section 4999 of the
Code.
(m) "Executive" shall mean the individual named in the first paragraph of this
Agreement.
(n) "Good Reason" for termination of the Executive's Employment by such Executive shall mean the occurrence (without the Executive's express written consent) after a Change in Control, or prior to a Change in Control under the circumstances described in clauses (B) and (C) of the second sentence of Section 6.1 hereof (treating all references in paragraphs (i) through (vi) below to a "Change in Control" as references to a "Potential Change in Control"), of any one of the following acts, or failures to act:
(i) the assignment to the Executive of any duties inconsistent with the Executive's status as an executive officer or key employee of the Company or a substantial adverse alteration in the nature or status of the Executive's responsibilities from those in effect immediately prior to a Change in Control;
(ii) a reduction of the Executive's annual base salary as in effect on the date of this Agreement, or as the same may be increased from time to time, except for across-the-board decreases uniformly affecting management, key employees and salaried employees of the business unit in which the Executive is then employed;
(iii) the relocation of the Executive's principal work location to a location more than 30 miles from the vicinity of such work location immediately prior to a Change in Control or the Executive being required to be based anywhere other than such principal place of employment (or
permitted relocation thereof) except for required travel on business to an extent substantially consistent with the Executive's present business travel obligations;
(iv) the failure to pay to the Executive any portion of the Executive's current compensation or to pay to the Executive any portion of an installment of deferred compensation under any deferred compensation program applying to the Employment, within seven (7) days of the date such compensation is due, except for across-the-board compensation deferrals uniformly affecting management, key employees and salaried employees of the business unit in which the Executive is then employed;
(v) the failure to continue in effect any compensation or benefit plan in which the Executive participates immediately prior to a Change in Control which is material to the Executive's total compensation, or any substitute plans adopted prior to a Change in Control, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure to continue the Executive's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount or timing of payment of benefits provided and the level of the Executive's participation relative to other participants, as existed immediately prior to the Change in Control; or
(vi) the failure to continue to provide the Executive with benefits substantially similar to those enjoyed by the Executive under any of the Company's pension, savings, life insurance, medical, health and accident, or disability plans in which the Executive was participating immediately prior to a Change in Control, except for across-the-board changes to any such plans uniformly affecting all participants in such plans, the taking of any other action which would directly or indirectly materially reduce any of such benefits or deprive the Executive of any material fringe benefit enjoyed by the Executive at the time of the Change in Control, or the failure to provide the Executive with the number of paid vacation days to which the Executive is entitled on the basis of years of service in accordance with the normal vacation policy at the time of the Change in Control.
The Executive's right to terminate his or her Employment for Good Reason shall not be affected by the Executive's incapacity due to physical or mental illness. The Executive's continued Employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder.
For purposes of any determination regarding the existence of Good Reason, any claim by the Executive that Good Reason exists shall be presumed correct unless the Company established to the Board by clear and convincing evidence that Good Reason does not exist.
(o) "Group Company" shall mean the Company, PPL Global, LLC and any subsidiary of the Company or PPL Global, LLC.
(p) "Notice of Termination" shall mean notice to terminate the Employment given by WPD South West or such other Group Company as shall employ the Executive at the relevant time.
(q) "Pension Compensation Adjustment" shall have the meaning set out in the WPD Employment Contract.
(r) "Pension Plan" shall mean any tax-qualified, supplemental or excess defined benefit pension plan maintained by WPD South West (or any other Group Company) and any other agreement entered into between the Executive and WPD South West (or any other Group Company) which is designed to provide the Executive with supplemental retirement benefits.
(s) "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof; provided, however, a Person shall not include (i) the Company or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the shareowners of the Company in substantially the same proportions as their ownership of stock of the Company.
(t) "Potential Change in Control" shall be deemed to have occurred if the conditions set forth in any one of the following paragraphs shall have been satisfied:
(i) the Company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control;
(ii) any Person publicly announces an intention to take or to consider taking actions which if consummated would constitute a Change in Control;
(iii) any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 5% or more of the combined voting power of the Company's then outstanding securities entitled to vote generally in the election of directors; or
(iv) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control has occurred.
(u) "Retirement" shall be deemed the reason for the termination by the Executive of the Executive's Employment if such employment is terminated in accordance with the applicable retirement policy, including early retirement, generally applicable to its salaried employees.
(v) "Severance Payments" shall have the meaning set forth in Section 6.1 hereof.
(w) "Successor" shall mean any person (whether a corporation or otherwise) who shall succeed any Group Company as the employer of the Executive in connection with any Change in Control.
(x) "Term" shall mean the period of time described in Section 3 hereof (including any extension, continuation or termination described therein).
(y) "Total Payments" shall mean those payments described in Section 6.2 hereof.
(z) "WPD Employment Contract" shall mean the arrangements applying as at the
date of the relevant Change in Control in respect of the Executive's employment by WPD South West (and to the extent applicable at that time, the
2002 Letter and the 2006 Letter) or such other Group Company as shall employ the Executive at that time.
(aa) "WPD South West" shall mean Western Power Distribution (South West) plc whose registered office is at Avonbank, Feeder Road, Bristol BS2 OTB.
(bb) "2002 Letter" shall mean the letter dated 31 January 2002 from WPD South
West to the Executive (setting out amendments to his service contract dated 29
February 2000).
(cc) "2006 Letter" shall mean the letter dated 1 March 2006 from WPD South West to the Executive (setting out special terms in respect of his pension benefits).
PPL CORPORATION
By
William F. Hecht Date
Chairman and CEO
Robert A. Symons Date
Exhibit 10(b)
AMENDMENT NO. 6
TO
PPL CORPORATION
DIRECTORS DEFERRED COMPENSATION PLAN
WHEREAS, PPL Services Corporation (“PPL”) assumed sponsorship of the PPL Corporation Directors Deferred Compensation Plan (the “Plan”) effective July 1, 2000; and
WHEREAS, the Plan was most recently amended and restated effective February 14, 2000, and subsequently amended by Amendments No. 1, 2, 3, 4 and 5; and
WHEREAS, PPL desires to further amend the Plan and the PPL Corporation Employee Benefit Plan Board has authorized the following changes.
NOW, THEREFORE, the Plan is hereby amended as follows:
I. Effective as of the Separation Time, Paragraph 7.1 is amended to read:
(e)
| (i) | Notwithstanding anything to the contrary, upon the Separation Time, Participant’s Stock Account shall be credited for each share of PPL Corporation Common Stock in such Stock Account with a number of Talen Energy Corporation (“Talen”) Restricted Stock Units to be calculated to be the same as the number of shares of common stock of Talen (“Talen Common Stock”) that would be received in respect of PPL Corporation Common Stock pursuant to the Separation Agreement and the Transaction Agreement. Each restricted stock unit of Talen (each, a “Talen Restricted Stock Unit”) that is credited to Participant’s Stock Account shall be subject to vesting, transfer and settlement restrictions that are substantially identical to such vesting, transfer and settlement restrictions that applied to Participant’s Stock Units immediately before the Separation Time; provided, however, that in no event shall a Participant be permitted (A) to elect to convert all or any portion of such Participant’s Stock Account or Cash Account into additional Talen Restricted Stock Units or (B) to convert the Talen Restricted Stock Units into Stock Units of PPL Corporation Common Stock; and provided further that the EBPB may impose any additional restrictions on Participants’ ability (if at all) to convert Talen Restricted Stock Units as the EBPB may determine in its sole discretion. |
| (ii) | Notwithstanding Section 7.1(c), as of each date a cash dividend or other distribution (other than distributions in the form of additional shares of Talen Common Stock) is paid or made with respect to the Talen Common Stock to holders of record on any record date after the Separation Date, the Participant’s Cash Account shall be credited with an amount of cash equal to the product of: (i) the cash amount of such dividend or cash value of such distribution paid with respect to one share of Talen Common Stock, multiplied by (ii) the number of Talen Restricted Stock Units held by the Participant, with the fair market value of any such non-cash dividend or distribution to be determined by the EBPB, in good faith. As of each date a dividend or other distribution in the form of additional shares of Talen Common Stock is paid or made with respect to the Talen Common Stock to holders of record on any record date after the Separation Date, the Participant’s Stock Account shall be credited with additional shares of Talen Common Stock equal to the product of (x) the number of shares of Talen Common Stock paid or made with respect to one share of Talen Common Stock multiplied by (y) the number of Talen Restricted Stock Units held by the Participant in such Participant’s Stock Account. Any such amounts credited to the Participant’s Cash Account or Stock Account, as applicable, shall be paid to the Participant at the same time(s) when the shares of Talen Common Stock underlying the Participant's Talen Restricted Stock Units are delivered to the Participant. The EBPB may determine to impose transfer restrictions on any shares of Talen Common Stock issued to a Participant to the extent that the EBPB determines that such restrictions are necessary or advisable for purposes of applicable securities laws or otherwise. |
(f) Capitalized terms used in this Paragraph 7.1 but not otherwise defined shall have the definitions ascribed to such term in the Employee Matters Agreement by and among PPL Corporation, Talen, C/R Energy Jade, LLC, Sapphire Power Holdings LLC and Raven Power Holdings LLC, dated as of June 9, 2014 (the “EMA”).
II. Except as provided for in this Amendment No. 6, all other provisions of the Plan shall remain in full force and effect.
IN WITNESS WHEREOF, this Amendment No. 6 is executed this _____ day of _____________, 2015.
| PPL SERVICES CORPORATION | |
| By: ___________________________ | |
| Title: ___________________________ |
| Exhibit 12(a) | |||||||||||||||||||||||
| PPL CORPORATION AND SUBSIDIARIES | |||||||||||||||||||||||
| COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND | |||||||||||||||||||||||
| PREFERRED STOCK DIVIDENDS | |||||||||||||||||||||||
| (Millions of Dollars) | |||||||||||||||||||||||
| 3 Months | |||||||||||||||||||||||
| Ended | |||||||||||||||||||||||
| March 31, | Years Ended December 31, | ||||||||||||||||||||||
| 2015 | 2014(a) | 2013(a) | 2012(a) | 2011(a) | 2010(a) | ||||||||||||||||||
| Earnings, as defined: | |||||||||||||||||||||||
| Income from Continuing Operations Before | |||||||||||||||||||||||
| Income Taxes (b) | $ | 915 | $ | 2,364 | $ | 1,260 | $ | 2,009 | $ | 2,050 | $ | 1,218 | |||||||||||
| Adjustment to reflect earnings from equity method | |||||||||||||||||||||||
| investments on a cash basis (c) | (2) | 34 | 1 | 7 | |||||||||||||||||||
| 913 | 2,364 | 1,260 | 2,043 | 2,051 | 1,225 | ||||||||||||||||||
| Total fixed charges as below | 258 | 1,095 | 1,096 | 1,065 | 1,022 | 698 | |||||||||||||||||
| Less: | |||||||||||||||||||||||
| Capitalized interest | 6 | 33 | 46 | 43 | 42 | 24 | |||||||||||||||||
| Preferred security distributions of subsidiaries | |||||||||||||||||||||||
| on a pre-tax basis | 5 | 23 | 21 | ||||||||||||||||||||
| Interest expense and fixed charges related to | |||||||||||||||||||||||
| discontinued operations | 10 | 14 | 12 | 6 | 34 | ||||||||||||||||||
| Total fixed charges included in Income from | |||||||||||||||||||||||
| Continuing Operations Before Income Taxes | 252 | 1,052 | 1,036 | 1,005 | 951 | 619 | |||||||||||||||||
| Total earnings | $ | 1,165 | $ | 3,416 | $ | 2,296 | $ | 3,048 | $ | 3,002 | $ | 1,844 | |||||||||||
| Fixed charges, as defined: | |||||||||||||||||||||||
| Interest charges (d) | $ | 255 | $ | 1,073 | $ | 1,058 | $ | 1,019 | $ | 955 | $ | 637 | |||||||||||
| Estimated interest component of operating rentals | 3 | 22 | 38 | 41 | 44 | 39 | |||||||||||||||||
| Preferred security distributions of subsidiaries | |||||||||||||||||||||||
| on a pre-tax basis | 5 | 23 | 21 | ||||||||||||||||||||
| Fixed charges of majority-owned share of 50% or | |||||||||||||||||||||||
| less-owned persons | 1 | ||||||||||||||||||||||
| Total fixed charges (e) | $ | 258 | $ | 1,095 | $ | 1,096 | $ | 1,065 | $ | 1,022 | $ | 698 | |||||||||||
| Ratio of earnings to fixed charges | 4.5 | 3.1 | 2.1 | 2.9 | 2.9 | 2.6 | |||||||||||||||||
| Ratio of earnings to combined fixed charges and | |||||||||||||||||||||||
| preferred stock dividends (f) | 4.5 | 3.1 | 2.1 | 2.9 | 2.9 | 2.6 | |||||||||||||||||
119
| Exhibit 12(b) | |||||||||||||||||||||||
| PPL ELECTRIC UTILITIES CORPORATION AND SUBSIDIARIES | |||||||||||||||||||||||
| COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND | |||||||||||||||||||||||
| PREFERRED STOCK DIVIDENDS | |||||||||||||||||||||||
| (Millions of Dollars) | |||||||||||||||||||||||
| 3 Months | |||||||||||||||||||||||
| Ended | |||||||||||||||||||||||
| March 31, | Years Ended December 31, | ||||||||||||||||||||||
| 2015 | 2014 | 2013 | 2012 | 2011 | 2010 | ||||||||||||||||||
| Earnings, as defined: | |||||||||||||||||||||||
| Income Before Income Taxes | $ | 146 | $ | 423 | $ | 317 | $ | 204 | $ | 257 | $ | 192 | |||||||||||
| Total fixed charges as below | 33 | 131 | 117 | 107 | 105 | 102 | |||||||||||||||||
| Total earnings | $ | 179 | $ | 554 | $ | 434 | $ | 311 | $ | 362 | $ | 294 | |||||||||||
| Fixed charges, as defined: | |||||||||||||||||||||||
| Interest charges (a) | $ | 32 | $ | 127 | $ | 113 | $ | 104 | $ | 102 | $ | 101 | |||||||||||
| Estimated interest component of operating rentals | 1 | 4 | 4 | 3 | 3 | 1 | |||||||||||||||||
| Total fixed charges (b) | $ | 33 | $ | 131 | $ | 117 | $ | 107 | $ | 105 | $ | 102 | |||||||||||
| Ratio of earnings to fixed charges | 5.4 | 4.2 | 3.7 | 2.9 | 3.4 | 2.9 | |||||||||||||||||
| Preferred stock dividend requirements on a pre-tax | |||||||||||||||||||||||
| basis | $ | 6 | $ | 21 | $ | 23 | |||||||||||||||||
| Fixed charges, as above | $ | 33 | $ | 131 | $ | 117 | 107 | 105 | 102 | ||||||||||||||
| Total fixed charges and preferred stock dividends | $ | 33 | $ | 131 | $ | 117 | $ | 113 | $ | 126 | $ | 125 | |||||||||||
| Ratio of earnings to combined fixed charges and | |||||||||||||||||||||||
| preferred stock dividends | 5.4 | 4.2 | 3.7 | 2.8 | 2.9 | 2.4 | |||||||||||||||||
120
| Exhibit 12(c) | ||||||||||||||||||||||||||||
| LG&E AND KU ENERGY LLC AND SUBSIDIARIES | ||||||||||||||||||||||||||||
| COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES | ||||||||||||||||||||||||||||
| (Millions of Dollars) | ||||||||||||||||||||||||||||
| Predeces- | ||||||||||||||||||||||||||||
| Successor (a) | sor (b) | |||||||||||||||||||||||||||
| 3 Months | Year | Year | Year | Year | 2 Months | 10 Months | ||||||||||||||||||||||
| Ended | Ended | Ended | Ended | Ended | Ended | Ended | ||||||||||||||||||||||
| Mar. 31, | Dec. 31, | Dec. 31, | Dec. 31, | Dec. 31, | Dec. 31, | Oct. 31, | ||||||||||||||||||||||
| 2015 | 2014 | 2013 | 2012 | 2011 | 2010 | 2010 | ||||||||||||||||||||||
| Earnings, as defined: | ||||||||||||||||||||||||||||
| Income from Continuing Operations | ||||||||||||||||||||||||||||
| Before Income Taxes | $ | 193 | $ | 553 | $ | 551 | $ | 331 | $ | 419 | $ | 70 | $ | 300 | ||||||||||||||
| Adjustment to reflect earnings from | ||||||||||||||||||||||||||||
| equity method investments on a cash | ||||||||||||||||||||||||||||
| basis (c) | (2) | (1) | (1) | 33 | (1) | (4) | ||||||||||||||||||||||
| Mark to market impact of derivative | ||||||||||||||||||||||||||||
| instruments | 2 | (20) | ||||||||||||||||||||||||||
| 191 | 552 | 550 | 364 | 418 | 72 | 276 | ||||||||||||||||||||||
| Total fixed charges as below | 44 | 173 | 151 | 157 | 153 | 25 | 158 | |||||||||||||||||||||
| Total earnings | $ | 235 | $ | 725 | $ | 701 | $ | 521 | $ | 571 | $ | 97 | $ | 434 | ||||||||||||||
| Fixed charges, as defined: | ||||||||||||||||||||||||||||
| Interest charges (d) (e) | $ | 42 | $ | 167 | $ | 145 | $ | 151 | $ | 147 | $ | 24 | $ | 153 | ||||||||||||||
| Estimated interest component of | ||||||||||||||||||||||||||||
| operating rentals | 2 | 6 | 6 | 6 | 6 | 1 | 5 | |||||||||||||||||||||
| Total fixed charges | $ | 44 | $ | 173 | $ | 151 | $ | 157 | $ | 153 | $ | 25 | $ | 158 | ||||||||||||||
| Ratio of earnings to fixed charges | 5.3 | 4.2 | 4.6 | 3.3 | 3.7 | 3.9 | 2.7 | |||||||||||||||||||||
121
| Exhibit 12(d) | ||||||||||||||||||||||||||||
| LOUISVILLE GAS AND ELECTRIC COMPANY | ||||||||||||||||||||||||||||
| COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES | ||||||||||||||||||||||||||||
| (Millions of Dollars) | ||||||||||||||||||||||||||||
| Predeces- | ||||||||||||||||||||||||||||
| Successor (a) | sor (b) | |||||||||||||||||||||||||||
| 3 Months | Year | Year | Year | Year | 2 Months | 10 Months | ||||||||||||||||||||||
| Ended | Ended | Ended | Ended | Ended | Ended | Ended | ||||||||||||||||||||||
| Mar. 31, | Dec. 31, | Dec. 31, | Dec. 31, | Dec. 31, | Dec. 31, | Oct. 31, | ||||||||||||||||||||||
| 2015 | 2014 | 2013 | 2012 | 2011 | 2010 | 2010 | ||||||||||||||||||||||
| Earnings, as defined: | ||||||||||||||||||||||||||||
| Income Before Income Taxes | $ | 86 | $ | 272 | $ | 257 | $ | 192 | $ | 195 | $ | 29 | $ | 167 | ||||||||||||||
| Mark to market impact of derivative | ||||||||||||||||||||||||||||
| instruments | 1 | (20) | ||||||||||||||||||||||||||
| 86 | 272 | 257 | 192 | 195 | 30 | 147 | ||||||||||||||||||||||
| Total fixed charges as below | 14 | 51 | 36 | 44 | 46 | 8 | 40 | |||||||||||||||||||||
| Total earnings | $ | 100 | $ | 323 | $ | 293 | $ | 236 | $ | 241 | $ | 38 | $ | 187 | ||||||||||||||
| Fixed charges, as defined: | ||||||||||||||||||||||||||||
| Interest charges (c) (d) | $ | 13 | $ | 49 | $ | 34 | $ | 42 | $ | 44 | $ | 8 | $ | 38 | ||||||||||||||
| Estimated interest component of | ||||||||||||||||||||||||||||
| operating rentals | 1 | 2 | 2 | 2 | 2 | 2 | ||||||||||||||||||||||
| Total fixed charges | $ | 14 | $ | 51 | $ | 36 | $ | 44 | $ | 46 | $ | 8 | $ | 40 | ||||||||||||||
| Ratio of earnings fixed charges | 7.1 | 6.3 | 8.1 | 5.4 | 5.2 | 4.8 | 4.7 | |||||||||||||||||||||
122
| Exhibit 12(e) | ||||||||||||||||||||||||||||
| KENTUCKY UTILITIES COMPANY | ||||||||||||||||||||||||||||
| COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES | ||||||||||||||||||||||||||||
| (Millions of Dollars) | ||||||||||||||||||||||||||||
| Predeces- | ||||||||||||||||||||||||||||
| Successor (a) | sor (b) | |||||||||||||||||||||||||||
| 3 Months | Year | Year | Year | Year | 2 Months | 10 Months | ||||||||||||||||||||||
| Ended | Ended | Ended | Ended | Ended | Ended | Ended | ||||||||||||||||||||||
| Mar. 31, | Dec. 31, | Dec. 31, | Dec. 31, | Dec. 31, | Dec. 31, | Oct. 31, | ||||||||||||||||||||||
| 2015 | 2014 | 2013 | 2012 | 2011 | 2010 | 2010 | ||||||||||||||||||||||
| Earnings, as defined: | ||||||||||||||||||||||||||||
| Income Before Income Taxes | $ | 125 | $ | 355 | $ | 360 | $ | 215 | $ | 282 | $ | 55 | $ | 218 | ||||||||||||||
| Adjustment to reflect earnings from | ||||||||||||||||||||||||||||
| equity method investments on a cash | ||||||||||||||||||||||||||||
| basis (c) | (2) | (1) | (1) | 33 | (1) | (4) | ||||||||||||||||||||||
| 123 | 354 | 359 | 248 | 281 | 55 | 214 | ||||||||||||||||||||||
| Total fixed charges as below | 20 | 80 | 73 | 72 | 73 | 11 | 71 | |||||||||||||||||||||
| Total earnings | $ | 143 | $ | 434 | $ | 432 | $ | 320 | $ | 354 | $ | 66 | $ | 285 | ||||||||||||||
| Fixed charges, as defined: | ||||||||||||||||||||||||||||
| Interest charges (d) | $ | 19 | $ | 77 | $ | 70 | $ | 69 | $ | 70 | $ | 10 | $ | 69 | ||||||||||||||
| Estimated interest component of | ||||||||||||||||||||||||||||
| operating rentals | 1 | 3 | 3 | 3 | 3 | 1 | 2 | |||||||||||||||||||||
| Total fixed charges | $ | 20 | $ | 80 | $ | 73 | $ | 72 | $ | 73 | $ | 11 | $ | 71 | ||||||||||||||
| Ratio of earnings to fixed charges | 7.2 | 5.4 | 5.9 | 4.4 | 4.8 | 6.0 | 4.0 | |||||||||||||||||||||
123
Exhibit 31(a)
CERTIFICATION | ||||
| I, WILLIAM H. SPENCE, certify that: | ||||
| 1. | I have reviewed this quarterly report on Form 10-Q of PPL Corporation (the "registrant"); | |||
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |||
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |||
| 4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: | |||
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |||
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |||
| c. | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |||
| d. | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and | |||
| 5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): | |||
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and | |||
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. | |||
| Date: May 7, 2015 | /s/ William H. Spence | |||
William H. Spence Chairman, President and Chief Executive Officer (Principal Executive Officer) PPL Corporation | ||||
124
Exhibit 31(b)
CERTIFICATION | ||||
| I, VINCENT SORGI, certify that: | ||||
| 1. | I have reviewed this quarterly report on Form 10-Q of PPL Corporation (the "registrant"); | |||
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |||
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |||
| 4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: | |||
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |||
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |||
| c. | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |||
| d. | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and | |||
| 5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): | |||
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and | |||
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. | |||
| Date: May 7, 2015 | /s/ Vincent Sorgi | |||
Vincent Sorgi Senior Vice President and Chief Financial Officer (Principal Financial Officer) PPL Corporation | ||||
125
Exhibit 31(c)
CERTIFICATION | ||||
| I, GREGORY N. DUDKIN, certify that: | ||||
| 1. | I have reviewed this quarterly report on Form 10-Q of PPL Electric Utilities Corporation (the "registrant"); | |||
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |||
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |||
| 4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: | |||
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |||
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |||
| c. | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |||
| d. | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and | |||
| 5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): | |||
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and | |||
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. | |||
| Date: May 7, 2015 | /s/ Gregory N. Dudkin | |||
Gregory N. Dudkin President (Principal Executive Officer) PPL Electric Utilities Corporation | ||||
126
Exhibit 31(d)
CERTIFICATION | ||||
| I, DENNIS A. URBAN, JR., certify that: | ||||
| 1. | I have reviewed this quarterly report on Form 10-Q of PPL Electric Utilities Corporation (the "registrant"); | |||
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |||
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |||
| 4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: | |||
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |||
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |||
| c. | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |||
| d. | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and | |||
| 5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): | |||
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and | |||
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. | |||
| Date: May 7, 2015 | /s/ Dennis A. Urban, Jr. | |||
Dennis A. Urban, Jr. Controller (Principal Financial Officer and Principal Accounting Officer) PPL Electric Utilities Corporation | ||||
127
Exhibit 31(e)
CERTIFICATION | ||||
| I, VICTOR A. STAFFIERI, certify that: | ||||
| 1. | I have reviewed this quarterly report on Form 10-Q of LG&E and KU Energy LLC (the "registrant"); | |||
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |||
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |||
| 4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: | |||
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |||
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |||
| c. | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |||
| d. | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and | |||
| 5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): | |||
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and | |||
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. | |||
| Date: May 7, 2015 | /s/ Victor A. Staffieri | |||
Victor A. Staffieri Chairman of the Board, Chief Executive Officer and President (Principal Executive Officer) LG&E and KU Energy LLC | ||||
128
Exhibit 31(f)
CERTIFICATION | ||||
| I, KENT W. BLAKE, certify that: | ||||
| 1. | I have reviewed this quarterly report on Form 10-Q of LG&E and KU Energy LLC (the "registrant"); | |||
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |||
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |||
| 4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: | |||
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |||
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |||
| c. | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |||
| d. | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and | |||
| 5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): | |||
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and | |||
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. | |||
| Date: May 7, 2015 | /s/ Kent W. Blake | |||
Kent W. Blake Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) LG&E and KU Energy LLC | ||||
129
Exhibit 31(g)
CERTIFICATION | ||||
| I, VICTOR A. STAFFIERI, certify that: | ||||
| 1. | I have reviewed this quarterly report on Form 10-Q of Louisville Gas and Electric Company (the "registrant"); | |||
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |||
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |||
| 4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: | |||
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |||
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |||
| c. | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |||
| d. | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and | |||
| 5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): | |||
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and | |||
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. | |||
| Date: May 7, 2015 | /s/ Victor A. Staffieri | |||
Victor A. Staffieri Chairman of the Board, Chief Executive Officer and President (Principal Executive Officer) Louisville Gas and Electric Company | ||||
130
Exhibit 31(h)
CERTIFICATION | ||||
| I, KENT W. BLAKE, certify that: | ||||
| 1. | I have reviewed this quarterly report on Form 10-Q of Louisville Gas and Electric Company (the "registrant"); | |||
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |||
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |||
| 4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: | |||
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |||
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |||
| c. | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |||
| d. | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and | |||
| 5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): | |||
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and | |||
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. | |||
| Date: May 7, 2015 | /s/ Kent W. Blake | |||
Kent W. Blake Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) Louisville Gas and Electric Company | ||||
131
Exhibit 31(i)
CERTIFICATION | ||||
| I, VICTOR A. STAFFIERI, certify that: | ||||
| 1. | I have reviewed this quarterly report on Form 10-Q of Kentucky Utilities Company (the "registrant"); | |||
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |||
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |||
| 4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: | |||
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |||
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |||
| c. | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |||
| d. | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and | |||
| 5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): | |||
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and | |||
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. | |||
| Date: May 7, 2015 | /s/ Victor A. Staffieri | |||
Victor A. Staffieri Chairman of the Board, Chief Executive Officer and President (Principal Executive Officer) Kentucky Utilities Company | ||||
132
Exhibit 31(j)
CERTIFICATION | ||||
| I, KENT W. BLAKE, certify that: | ||||
| 1. | I have reviewed this quarterly report on Form 10-Q of Kentucky Utilities Company (the "registrant"); | |||
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |||
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |||
| 4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: | |||
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |||
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |||
| c. | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |||
| d. | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and | |||
| 5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): | |||
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and | |||
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. | |||
| Date: May 7, 2015 | /s/ Kent W. Blake | |||
Kent W. Blake Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) Kentucky Utilities Company | ||||
133
Exhibit 32(a)
CERTIFICATE PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
FOR PPL CORPORATION'S FORM 10-Q FOR THE QUARTER ENDED March 31, 2015
In connection with the quarterly report on Form 10-Q of PPL Corporation (the "Company") for the quarter ended March 31, 2015, as filed with the Securities and Exchange Commission on the date hereof (the "Covered Report"), we, William H. Spence, the Principal Executive Officer of the Company, and Vincent Sorgi, the Principal Financial Officer of the Company, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, hereby certify that:
| · | The Covered Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and | |
| · | The information contained in the Covered Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: May 7, 2015 | /s/ William H. Spence | ||
William H. Spence Chairman, President and Chief Executive Officer (Principal Executive Officer) PPL Corporation
| |||
| /s/ Vincent Sorgi | |||
Vincent Sorgi Senior Vice President and Chief Financial Officer (Principal Financial Officer) PPL Corporation |
|||
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
134
Exhibit 32(b)
CERTIFICATE PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
FOR PPL ELECTRIC UTILITIES CORPORATION'S FORM 10-Q FOR THE QUARTER ENDED March 31, 2015
In connection with the quarterly report on Form 10-Q of PPL Electric Utilities Corporation (the "Company") for the quarter ended March 31, 2015, as filed with the Securities and Exchange Commission on the date hereof (the "Covered Report"), we, Gregory N. Dudkin, the Principal Executive Officer of the Company, and Dennis A. Urban, Jr., the Principal Financial Officer and Principal Accounting Officer of the Company, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, hereby certify that:
| · | The Covered Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and | |
| · | The information contained in the Covered Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: May 7, 2015 | /s/ Gregory N. Dudkin | |
Gregory N. Dudkin President (Principal Executive Officer) PPL Electric Utilities Corporation | ||
| /s/ Dennis A. Urban, Jr. | ||
Dennis A. Urban, Jr. Controller (Principal Financial Officer and Principal Accounting Officer) PPL Electric Utilities Corporation | ||
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
135
Exhibit 32(c)
CERTIFICATE PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
FOR LG&E AND KU ENERGY LLC'S FORM 10-Q FOR THE QUARTER ENDED March 31, 2015
In connection with the quarterly report on Form 10-Q of LG&E and KU Energy LLC (the "Company") for the quarter ended March 31, 2015, as filed with the Securities and Exchange Commission on the date hereof (the "Covered Report"), we, Victor A. Staffieri, the Principal Executive Officer of the Company, and Kent W. Blake, the Principal Financial Officer of the Company, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, hereby certify that:
| · | The Covered Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and | |
| · | The information contained in the Covered Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: May 7, 2015 | /s/ Victor A. Staffieri | |
Victor A. Staffieri Chairman of the Board, Chief Executive Officer and President (Principal Executive Officer) LG&E and KU Energy LLC | ||
| /s/ Kent W. Blake | ||
Kent W. Blake Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) LG&E and KU Energy LLC | ||
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
136
Exhibit 32(d)
CERTIFICATE PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
FOR LOUISVILLE GAS AND ELECTRIC COMPANY'S FORM 10-Q FOR THE QUARTER ENDED March 31, 2015
In connection with the quarterly report on Form 10-Q of Louisville Gas and Electric Company (the "Company") for the quarter ended March 31, 2015, as filed with the Securities and Exchange Commission on the date hereof (the "Covered Report"), we, Victor A. Staffieri, the Principal Executive Officer of the Company, and Kent W. Blake, the Principal Financial Officer of the Company, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, hereby certify that:
| · | The Covered Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and | |
| · | The information contained in the Covered Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: May 7, 2015 | /s/ Victor A. Staffieri | |
Victor A. Staffieri Chairman of the Board, Chief Executive Officer and President (Principal Executive Officer) Louisville Gas and Electric Company | ||
| /s/ Kent W. Blake | ||
Kent W. Blake Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) Louisville Gas and Electric Company | ||
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
137
Exhibit 32(e)
CERTIFICATE PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
FOR KENTUCKY UTILITIES COMPANY'S FORM 10-Q FOR THE QUARTER ENDED March 31, 2015
In connection with the quarterly report on Form 10-Q of Kentucky Utilities Company (the "Company") for the quarter ended March 31, 2015, as filed with the Securities and Exchange Commission on the date hereof (the "Covered Report"), we, Victor A. Staffieri, the Principal Executive Officer of the Company, and Kent W. Blake, the Principal Financial Officer of the Company, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, hereby certify that:
| · | The Covered Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and | |
| · | The information contained in the Covered Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: May 7, 2015 | /s/ Victor A. Staffieri | |
Victor A. Staffieri Chairman of the Board, Chief Executive Officer and President (Principal Executive Officer) Kentucky Utilities Company | ||
| /s/ Kent W. Blake | ||
Kent W. Blake Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) Kentucky Utilities Company | ||
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
138
780,000 shares authorized; 667,713 and 665,849 shares issued and outstanding at March 31, 2015 and December 31, 2014 .
170,000 shares authorized; 66,368 shares issued and outstanding at March 31, 2015 and December 31, 2014 .
75 , 000 shares authorized ; 21 , 294 shares issued and outstanding at March 31, 2015 and December 31, 2014 .
Shares in thousands. All common shares of LG&E stock are owned by LKE .
80,000 shares authorized; 37 , 818 shares issued and outstanding at March 31, 2015 and December 31, 2014 .
Shares in thousands. All common shares of K U stock are owned by LKE .
These liabilities were recorded as offsets to certain intangible assets that were recorded at fair value upon the acquisition of LKE by PPL.
Volumes for option contracts factor in the probability of an option being exercised and may be less than the notional amount of the option.
Represents balance of the current year.
Represents carrying value before fair value measurement.
The loss on the Kerr Dam Project was recorded in the Supply segment and included in "Income (Loss) from Discontinued Operations (net of income taxes)" on the 2014 Statement of Income.
Current portion is included in "Restricted cash and cash equivalents" and long-term portion is included in "Other noncurrent assets" on the Balance Sheets.
Included in "Other investments" on the Balance Sheets.
Current portion is included in "Other current assets" and long-term portion is included in "Other noncurrent assets" on the Balance Sheets.
As the forward price of natural gas increases/(decreases), the fair value of purchase contracts increases/(decreases). As the forward price of natural gas increases/(decreases), the fair value of sales contracts (decreases)/increases.
As forward market prices increase/(decrease), the fair value of contracts (decreases)/increases. As volumetric assumptions for contracts in a gain position increase/(decrease), the fair value of contract s increases/(decreases). As volumetric assumptions for contracts in a loss position increase/(decrease), the fair value of the contracts (decreases)/increases.
The proprietary model used to calculate fair value incorporates market heat rates, correlations and volatilities. As the market implied heat rate increases/(decreases), the fair value of the contracts increases/(decreases).
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).
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 change in fair value due to the unobservable inputs used in the mode l to calculate the credit valuation adjustment.
Indemnification to the liquidators and certain others for existing liabilities or expenses or liabilities arising during the liquidation process. The indemnifications are limited to distributions made from the subsidiary to its parent either prior or subsequent to liquidation or are not explicitly stated in the agreements. The indemnifications generally expire two to seven years subsequent to the date of dissolution of the entities. The exposure noted only includes those cases where the agre ements provide for specific limits.
In connection with their sales of various businesses, WPD and its affiliates have provided the purchasers with indemnifications that are standard for such transactions, including indemnifications for certain pre- existing liabilities and environmental and tax matters or have agreed to continue their obligations under existing third-party guarantees, either for a set period of time following the transactions or upon the condition that the purchasers make reasonable efforts to terminate the guarantees. Finally, WPD and its affiliates remain secondarily responsible for lease payments under certain leases that they have assigned to third parties.
Relates to certain obligations of discontinued or modified electric associations that were guaranteed at the time of privatization by the participating members. Costs are allocated to the members and can be reallocated if an existing member becomes insolvent. At March 31, 2015 , WPD has recorded an estimated disc ounted liability for which the expected payment/performance is probable. Neither the expiration date nor the maximum amount of potential payments for certain obligations is explicitly stated in the related agreements, and as a result, the exposure has bee n estimated.
A third party logistics firm provides inventory procurement and fulfillment services. The logistics firm has title to the inventory, however, upon termination of the contracts, PPL Electric has guaranteed to purchase any remaining inv entory that has not been used or sold.
LKE provides certain indemnifications, the most significant of which relate to the termination of the WKE lease in July 2009. These guarantees cover the due and punctual payment, performance and discharge by each party of its respective present and future obligations. The most comprehensive of these WKE-related guarantees is the LKE guarantee covering operational, regulatory and environmental commitments and indemnifications made by WKE under the WKE Trans action Termination Agreement. This guarantee has a term of 12 years ending July 2021, and a cumulative maximum exposure of $ 200 million. Certain items such as government fines and penalties fall outsid e the cumulative cap. Another WKE-related LKE guarantee covers other indemnifications, has a term expiring in 2023, and a maximum exposure of $ 100 million. In May 2012, LKE's indemnitee received an unfavorable arbitration pa nel's decision interpreting this matter, which granted LKE’s indemnitee certain rights of first refusal to purchase excess power at a market-based price rather than at an absolute fixed price. In January 2013, LKE's indemnitee commenced a proceeding in th e Kentucky Court of Appeals appealing a December 2012 order of the Henderson Circuit Court, confirming the arbitration award. In May 2014, the Court of Appeals issued an opinion affirming the lower court decision. LKE’s indemnitee filed a Motion for Disc retionary Review with the Kentucky S upreme Court in October 2014. LKE believes its indemnification obligations in this matter remain subject to various uncertainties, including potential for additional legal challenges regarding the arbitration decision a s well as future prices, availability and demand for the subject excess power. LKE continues to evaluate various legal and commercial options with respect to this indemnification matter. The ultimate outcomes of the WKE termination-related indemnificatio ns cannot be predicted at this time. Additionally, LKE has indemnified various third parties related to historical obligations for other divested subsidiaries and affiliates. The indemnifications vary by entity and the maximum exposures range from being capped at the sale price to no specified maximum; LKE could be required to perform on these indemnifications in the event of covered losses or liabilities being claimed by an indemnified party. However, LKE is not aware of formal claims under such indemni ties made by any party at this time. LKE cannot predict the ultimate outcomes of indemnification circumstances, but does not currently expect such outcomes to result in significant losses above the amounts recorded.
The range and weighted average represent the percentage of fair value derived from the unobservable inputs.
Shares in thousands. Each share entitles the holder to one vote on any question presented at any shareowners' meeting.
Shares in thousands. All common shares of PPL Electric stock are owned by PPL.
Represents the location on the Balance Shee ts
Excludes accrued interest, if applicable.
Primarily consists of unallocated items, including cash, PP&E and the elimination of inter-segment transactions.
Included in "Other noncurrent assets" on the Balance Sheets. R epresent s cash collateral posted to offset the exposure with counterparties related to certain interest rate swaps under master netting arrangements that are not offset.
WPD Ltd. 's amounts borrowed at March 31, 2015 and December 31, 2014 were USD-denominated borrowings of $ 200 million and $ 161 million, which bore interest at 1.87% and 1.86% . WPD (East Midlands) amounts borrowed at March 31, 2015 and December 31, 2014 were GBP-denominated borrowings which equated to $ 226 million and $ 100 million, which bore interes t at 1.00% for both periods. At March 31, 2015 , the unused capacity under the U.K. credit facilities was $ 1.3 billion.
Net income approximates comprehensive income.
Net income equals comprehensive income.
2014 i ncludes significant realized and unrealized gains on physical and financial commodity purchase contracts due to the unusu ally cold weather .
2014 i ncludes significant realized and unrealized losses on physical and financial commodity sales contracts due to the unusually cold weather .
Includes stock options exercised, vesting of performance units, vesting of restricted stock and restricted stock units and conversion of stock units granted to directors.
In 2014, the If-Converted Method was applied to the Equity Units prior to the March 2014 settlement.
These proceeds are used to pay income taxes and fees related to managing the trust. Remaining proceeds are reinvested in the trust.
Excludes the impact of other-than-temporary impairment charges recognized on the Statements of Income.
As the forward implied spread increases/(decreases), the fair value of the contract s increases/(decreases).
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.
Includes unrealized gains and losses from economic activity. See Note 14 for additional information.
2015 includes most of the transaction and transition costs related to the anticipated spinoff of PPL Energy Supply. See Note 8 for additional information.
PPL Energy Supply 's credit rating is currently below investment grade. Amounts related to PPL Energy Supply represent net liability positions subject to further adequate assurance features.
At March 31, 2015 , PPL Energy Supply’s and LKE’s interest rates on outstand ing borrowings were 2.12% and 1.68% . At December 31, 2014 , PPL Energy Supply’s and LKE’s interest rates on outstanding borrowings were 2.05% and 1.67% .
Represents allocated interest expense based upon the discontinued operations share of the net assets of PPL Energy Supply.
Includes an impairment charge related to the Kerr Dam Project. See Note 13 for additional information.
Includes the effect of net receivables and payables alread y recorded on the Balance Sheet.
"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.
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Defined Benefits (Tables)
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3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
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Mar. 31, 2015
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| Defined Benefits [Line Items] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule Of Net Periodic Defined Benefit Costs (Credits) | Following are the net periodic defined benefit costs (credits) of the plans sponsored by PPL, and its subsidiaries, LKE and its subsidiaries and LG&E for the periods ended March 31:
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| PPL Electric Utilities Corp [Member] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Defined Benefits [Line Items] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Allocation of Net Periodic Benefit Costs | For the periods ended March 31, PPL Services allocated the following net periodic defined benefit costs to PPL Electric, and LKE allocated the following net periodic defined benefit costs to LG&E and KU.
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| LG And E And KU Energy LLC [Member] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Defined Benefits [Line Items] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule Of Net Periodic Defined Benefit Costs (Credits) | Following are the net periodic defined benefit costs (credits) of the plans sponsored by PPL, and its subsidiaries, LKE and its subsidiaries and LG&E for the periods ended March 31:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Louisville Gas And Electric Co [Member] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Defined Benefits [Line Items] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule Of Net Periodic Defined Benefit Costs (Credits) | Following are the net periodic defined benefit costs (credits) of the plans sponsored by PPL, and its subsidiaries, LKE and its subsidiaries and LG&E for the periods ended March 31:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Allocation of Net Periodic Benefit Costs | For the periods ended March 31, PPL Services allocated the following net periodic defined benefit costs to PPL Electric, and LKE allocated the following net periodic defined benefit costs to LG&E and KU.
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Kentucky Utilities Co [Member] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Defined Benefits [Line Items] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Allocation of Net Periodic Benefit Costs | For the periods ended March 31, PPL Services allocated the following net periodic defined benefit costs to PPL Electric, and LKE allocated the following net periodic defined benefit costs to LG&E and KU.
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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