6. Utility Rate Regulation

(All Registrants)

The following table provides information about the regulatory assets and liabilities of cost-based rate-regulated utility operations.



	PPL				PPL Electric
	June 30, 2017		December 31, 2016		June 30, 2017		December 31, 2016
Current Regulatory Assets:
Environmental cost recovery	$	6	$	6	$	—	$	—
Generation formula rate	10		11		—		—
Transmission service charge	—		7		—		7
Gas supply clause	7		3		—		—
Smart meter rider	10		6		10		6
Storm costs	3		5		3		5
Other	1		1		1		1
Total current regulatory assets (a)	$	37	$	39	$	14	$	19

Noncurrent Regulatory Assets:
Defined benefit plans	$	920	$	947	$	537	$	549
Taxes recoverable through future rates	345		340		345		340
Storm costs	40		58		—		10
Unamortized loss on debt	57		61		32		36
Interest rate swaps	124		129		—		—
Accumulated cost of removal of utility plant	162		159		162		159
AROs	245		211		—		—
Other	13		13		—		—
Total noncurrent regulatory assets	$	1,906	$	1,918	$	1,076	$	1,094



	PPL				PPL Electric
	June 30, 2017		December 31, 2016		June 30, 2017		December 31, 2016
Current Regulatory Liabilities:
Generation supply charge	$	19	$	23	$	19	$	23
Transmission service charge	6		—		6		—
Universal service rider	14		14		14		14
Transmission formula rate	3		15		3		15
Fuel adjustment clause	13		11		—		—
Act 129 compliance rider	11		17		11		17
Storm damage expense	4		13		4		13
Other	1		8		—		1
Total current regulatory liabilities	$	71	$	101	$	57	$	83

Noncurrent Regulatory Liabilities:
Accumulated cost of removal of utility plant	$	703	$	700	$	—	$	—
Power purchase agreement - OVEC (b)	72		75		—		—
Net deferred tax assets	21		23		—		—
Defined benefit plans	27		23		—		—
Interest rate swaps	76		78		—		—
Other	3		—		—		—
Total noncurrent regulatory liabilities	$	902	$	899	$	—	$	—



	LKE				LG&E				KU
	June 30, 2017		December 31, 2016		June 30, 2017		December 31, 2016		June 30, 2017		December 31, 2016
Current Regulatory Assets:
Environmental cost recovery	$	6	$	6	$	4	$	6	$	2	$	—
Generation formula rate	10		11		—		—		10		11
Gas supply clause	7		3		7		3		—		—
Total current regulatory assets	$	23	$	20	$	11	$	9	$	12	$	11

Noncurrent Regulatory Assets:
Defined benefit plans	$	383	$	398	$	238	$	246	$	145	$	152
Storm costs	40		48		22		26		18		22
Unamortized loss on debt	25		25		16		16		9		9
Interest rate swaps	124		129		85		88		39		41
AROs	245		211		84		70		161		141
Plant retirement costs	3		4		—		—		3		4
Other	10		9		4		4		6		5
Total noncurrent regulatory assets	$	830	$	824	$	449	$	450	$	381	$	374



	LKE				LG&E				KU
	June 30, 2017		December 31, 2016		June 30, 2017		December 31, 2016		June 30, 2017		December 31, 2016
Current Regulatory Liabilities:
Demand side management	$	—	$	3	$	—	$	2	$	—	$	1
Fuel adjustment clause	13		11		4		2		9		9
Other	1		4		—		1		1		3
Total current regulatory liabilities	$	14	$	18	$	4	$	5	$	10	$	13

Noncurrent Regulatory Liabilities:
Accumulated cost of removal of utility plant	$	703	$	700	$	308	$	305	$	395	$	395
Power purchase agreement - OVEC (b)	72		75		50		52		22		23
Net deferred tax assets	21		23		21		23		—		—
Defined benefit plans	27		23		—		—		27		23
Interest rate swaps	76		78		38		39		38		39
Other	3		—		1		—		2		—
Total noncurrent regulatory liabilities	$	902	$	899	$	418	$	419	$	484	$	480


(a)	For PPL, these amounts are included in "Other current assets" on the Balance Sheets.


(b)	This liability was recorded as an offset to an intangible asset that was recorded at fair value upon the acquisition of LKE by PPL.

Regulatory Matters

Kentucky Activities

(PPL, LKE, LG&E and KU)

Rate Case Proceedings

In November 2016, LG&E and KU filed requests with the KPSC for increases in annual base electricity and gas rates. LG&E's and KU's applications included requests for CPCNs for implementing an Advanced Metering System program and a Distribution Automation program.

On April 19, 2017 and May 1, 2017, LG&E and KU, along with all intervening parties to the proceeding, filed with the KPSC, stipulation and recommendation agreements (stipulations) resolving all issues with the parties. Among other things, the proposed stipulations provided for increases in annual revenue requirements associated with KU base electricity rates of $55 million, LG&E base electricity rates of $59 million and LG&E base gas rates of $8 million, reflecting a return on equity of 9.75%, the withdrawal of LG&E's and KU's request for a CPCN for the Advanced Metering System and other changes to the revenue requirements, which dealt primarily with the timing of cost recovery, including depreciation rates.

On June 22, 2017, the KPSC issued orders approving, with certain modifications, the proposed stipulations filed in April and May 2017. On June 29, 2017, the KPSC issued further orders correcting certain revenue requirement and rate calculations and making other technical corrections to the June 22, 2017 orders. The combined KPSC orders modified the stipulations to provide for increases in annual revenue requirements associated with KU base electricity rates of $52 million, LG&E base electricity rates of $57 million and LG&E base gas rates of $7 million, and incorporate an authorized return on equity of 9.7%. Consistent with the stipulations, the orders approved LG&E's and KU's request for implementing a Distribution Automation program and their withdrawal of a request for a CPCN for the Advanced Metering System program. The orders also approved new depreciation rates for LG&E and KU that will result in higher depreciation of approximately $15 million ($4 million for LG&E and $11 million for KU) in 2017, exclusive of net additions to PP&E. The orders result in a base electricity rate increase of 3.2% at KU and base electricity and gas rate increases of 5.2% and 2.1% at LG&E. The new base rates and all elements of the orders became effective July 1, 2017. On June 23, 2017, the KPSC also issued orders establishing an authorized return on equity of 9.7% for all of LG&E's and KU's existing approved ECR plans and projects, replacing the prior authorized return on equity levels of 9.8% for CCR projects and 10% for all other ECR approved projects, effective with bills issued in August 2017. The impact of the new authorized return for ECR projects is not expected to be significant in 2017.

Gas Franchise (LKE and LG&E)

LG&E’s gas franchise agreement for the Louisville/Jefferson County service area expired in March 2016. In August 2016, LG&E and Louisville/Jefferson County entered into a revised franchise agreement with a 5-year term (with renewal options). The franchise fee may be modified at Louisville/Jefferson County's election upon 60 days' notice. However, any franchise fee is capped at 3% of gross receipts for natural gas service within the franchise area. The agreement further provides that if the KPSC determines that the franchise fee should be recovered from LG&E's customers, the franchise fee will revert to zero. In August 2016, LG&E filed an application in a KPSC proceeding to review and rule upon the recoverability of the franchise fee.

In August 2016, Louisville/Jefferson County submitted a motion to dismiss the proceeding filed by LG&E and, in November 2016, filed an amended complaint against LG&E relating to these issues. LG&E submitted KPSC filings to respond to, request dismissal of and consolidate certain claims or aspects of the proceedings. In January 2017, the KPSC issued an order denying Louisville/Jefferson County's motion to dismiss, consolidating the matter with LG&E's filed application and establishing a procedural schedule for the case. Louisville/Jefferson County and LG&E continue to file certain procedural motions, testimony and discovery with the KPSC. Until the KPSC issues a final order in this proceeding, LG&E cannot predict the ultimate outcome of this matter but does not anticipate that it will have a material effect on its financial condition or results of operation. LG&E continues to provide gas service to customers in this franchise area at existing rates, but without collecting or remitting a franchise fee.