Derivative Instruments and Hedging Activities

3 Months Ended

Mar. 31, 2015

Derivative Instruments and Hedging Activities [Abstract]

Derivative Instruments and Hedging Activities

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 transactionsare 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

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 pricerisk

 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.

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.

(PPL)

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.

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, 2015and 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.

		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.

Interest Rate Risk

(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 endedMarch 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 endedMarch 31, 2015 associated with discontinued cash flow hedges and an insignificant amount reclassified for the three months endedMarch 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.

(LKE, LG&E and KU)

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.

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.

Foreign Currency Risk

(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 $24million of accumulated net investment hedge after tax gains (losses) that were included in the foreign currency translation adjustment component of AOCI, compared to$14million 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.

Accounting and Reporting

(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 theStatements 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, onPPL'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-Kfor additional information on accounting policies related to derivative instruments.

(PPL)

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)

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.

(LKE)

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 endedMarch 31.

	Location of Gain (Loss) Recognized in
Derivative Instruments	Regulatory Assets	2015		2014
Interest rate swaps	Regulatory assets - noncurrent	$	(56)

(LG&E)

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)

(KU)

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)

(LKE and LG&E)

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 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 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.