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•	the outcome of rate cases or other cost recovery or revenue proceedings;

•	changes in U.S. state or federal or U.K. tax laws or regulations;

•	the direct or indirect effects on PPL or its subsidiaries or business systems of cyber-based intrusion or the threat of cyber attacks;

•	significant decreases in demand for electricity in the U.S.;

•	expansion of alternative and distributed sources of electricity generation and storage;

•	changes in foreign currency exchange rates for British pound sterling and the related impact on unrealized gains and losses on PPL's foreign currency economic hedges;

•	the effectiveness of our risk management programs, including foreign currency and interest rate hedging;

•	non-achievement by WPD of performance targets set by Ofgem;

•	the effect of changes in RPI on WPD's revenues and index linked debt;

•	developments related to the U.K.'s withdrawal from the European Union and any responses thereto;

•	the amount of WPD's pension deficit funding recovered in revenues after March 31, 2021, following the triennial pension review which began in March 2019 and is due to conclude at the end of 2020;

•	defaults by counterparties or suppliers for energy, capacity, coal, natural gas or key commodities, goods or services;

•	capital market conditions, including the availability of capital or credit, changes in interest rates and certain economic indices, and decisions regarding capital structure;

•	a material decline in the market value of PPL's equity;

•	significant decreases in the fair value of debt and equity securities and its impact on the value of assets in defined benefit plans, and the potential cash funding requirements if fair value declines;

•	interest rates and their effect on pension and retiree medical liabilities, ARO liabilities and interest payable on certain debt securities;

•	volatility in or the impact of other changes in financial markets and economic conditions;

•	the potential impact of any unrecorded commitments and liabilities of the Registrants and their subsidiaries;

•	new accounting requirements or new interpretations or applications of existing requirements;

•	changes in the corporate credit ratings or securities analyst rankings of the Registrants and their securities;

•	any requirement to record impairment charges pursuant to GAAP with respect to any of our significant investments;

•	laws or regulations to reduce emissions of GHGs or the physical effects of climate change;

•	continuing ability to access fuel supply for LG&E and KU, as well as the 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 and other conditions affecting generation, transmission and distribution operations, operating costs and customer energy use;

•	catastrophic events such as fires, earthquakes, explosions, floods, tornadoes, hurricanes and other storms, droughts, pandemic health events or other similar occurrences;

•	war, armed conflicts, terrorist attacks, or similar disruptive events;

•	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 and approvals;

•	new state, federal or foreign legislation or regulatory developments;

•	the impact of any state, federal or foreign investigations applicable to the Registrants and their subsidiaries and the energy industry;

•	our ability to attract and retain qualified employees;

•	the effect of any business or industry restructuring;

•	development of new projects, markets and technologies;

•	performance of new ventures;

•	business dispositions or acquisitions and our ability to realize expected benefits from such business transactions;

•	collective labor bargaining negotiations; and

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•	the outcome of litigation against the Registrants and their subsidiaries.

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(a)	Represents RAV for U.K. Regulated, capitalization for Kentucky Regulated and rate base for Pennsylvania Regulated.

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•	Totex - £8.5 billion (£6.8 billion recovered as additions to RAV over time ("Slow pot"); £1.7 billion recovered in the year spent in the plan ("Fast pot"));

•	Pension deficit funding - £1.2 billion;

•	Cost of debt recovery - £1.0 billion;

•	Pass Through Charges - £1.6 billion (Property taxes, Ofgem fees and National Grid transmissions charges); and

•	Corporate income taxes recovery - £0.5 billion.

(a)	Primarily pension deficit funding, pass through costs, profiling adjustments and legacy price control adjustments.

(b)	Primarily pass through true-ups and £5 per residential customer reduction completed in the regulatory year ended March 31, 2017.

(c)	Reference Form 8-K filed February 14, 2020 for U.K. Regulated Segment GAAP Statement of Income component values.

(d)	Includes the service cost component of GAAP pension costs/income. See “Defined Benefits, Net periodic defined benefit costs (credits)” in Note 11 to the Financial Statements.

(e)	Primarily property taxes.

(f)	Primarily includes the non-service cost (credit) components of GAAP pension costs/income and gains and losses on foreign currency hedges.

(g)	Includes WPD interest and $32 million of allocated interest expense to finance the acquisition of WPD Midlands.

(h)	GAAP income taxes represent an effective tax rate of 16% for 2019, 17% for 2018, 19% for 2017 and approximately 17% going forward.

•	a return on capital from RAV;

•	a return of capital from RAV (i.e., depreciation);

•	the Fast pot recovery, see discussion “(4) Expenditure efficiency mechanisms” below;

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•	an allowance for cash taxes paid less a potential reduction for tax benefits from excess leverage if a DNO is levered more than 65% Debt/RAV;

•	pension deficit funding;

•	certain pass-through costs over which the DNO has no control;

•	profiling adjustments, see discussion “(6) Other revenue included in base revenue” below;

•	certain legacy price control adjustments from preceding price control periods, including the information quality incentive (also known as the rolling RAV incentive); and

•	fast-track incentive - because WPD's four DNOs were fast-tracked through the price control review process for RIIO-ED1, their base revenue also includes the fast-track incentive.

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•	an annual fast-track revenue incentive worth 2.5% of Totex (approximately £25 million annually for WPD);

•	a real cost of equity rate of 6.4% compared to 6.0% for slow-tracked DNOs; and,

•	cost savings retention was established at 70% for WPD compared to approximately 55% for slow-tracked DNOs.

•	The MOD provided by Ofgem in November 2016 included the TIM for the 2015/16 regulatory year, as well as the cost of debt calculation based on the 10-year trailing average to October 2016. This MOD of £12 million reduced base revenue in calendar years 2017 and 2018 by £8 million and £4 million.

•	The MOD provided by Ofgem in November 2017 for the 2016/17 regulatory year was a £39 million reduction to revenue that reduced base revenue in calendar years 2018 and 2019 by £26 million and £13 million.

•	The MOD provided by Ofgem in November 2018 for the 2017/18 regulatory year was a £42 million reduction to revenue that reduced base revenue in calendar year 2019 by £28 million and will reduce base revenue in calendar year 2020 by £14 million.

•	The MOD provided by Ofgem in November 2019 for the 2018/19 regulatory year was an £81 million reduction to revenue that will reduce base revenue in calendar years 2020 and 2021 by £54 million and £27 million.

•	The projected MOD for the 2019/20 regulatory year is a £128 million reduction to revenue that is expected to reduce base revenue in calendar years 2021 and 2022 by £85 million and £43 million.

•	The TRU for the 2015/16 regulatory year was a £31 million reduction to revenue that reduced base revenue in calendar years 2017 and 2018 by £21 million and £10 million.

•	The TRU for the 2016/17 regulatory year was a £6 million reduction to revenue that reduced base revenue in calendar years 2018 and 2019 by £4 million and £2 million.

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•	The TRU for the 2017/18 regulatory year was a £4 million increase to revenue that increased base revenue in calendar year 2019 by £3 million and will increase base revenue in calendar year 2020 by £1 million.

•	The TRU for the 2018/19 regulatory year was a £2 million reduction to revenue that will reduce base revenue in calendar years 2020 and 2021 by £1 million.

•	The projected TRU for the 2019/20 regulatory year is a £13 million reduction to revenue that is expected to reduce base revenue in calendar years 2021 and 2022 by £9 million and £4 million.

•	The IIS has two major components: (1) Customer interruptions (CIs) and (2) Customer minutes lost (CMLs), and both are designed to incentivize the DNOs to invest in and operate their networks to manage and reduce both the frequency and duration of power outages.

•	The BMCS encompasses customer satisfaction in supply interruptions, connections and general inquiries, complaints, stakeholder engagement and delivery of social obligations.

•	The TTC incentive rewards DNOs for reducing connection times for minor connections against an Ofgem set target.

(a)	Reflects projected incentive revenues.

•	The K-factor for the 2015/16 regulatory year was a £4 million under-recovery that increased allowed revenue in calendar years 2017 and 2018 by £3 million and £1 million.

•	The K-factor for the 2016/17 regulatory year was a £23 million over-recovery that reduced allowed revenue in calendar years 2018 and 2019 by £15 million and £8 million.

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•	The K-factor for the 2017/18 regulatory year was a £3 million over-recovery that reduced allowed revenue in calendar year 2019 by £2 million and will reduce allowed revenue in calendar year 2020 by £1 million.

•	The K-factor for the 2018/19 regulatory year was a £16 million over-recovery that will reduce allowed revenue in calendar years 2020 and 2021 by £11 million and £5 million.

•	The projected K-factor for the 2019/20 regulatory year is a £20 million under-recovery that is expected to increase allowed revenue in calendar years 2021 and 2022 by £13 million and £7 million.

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(a)	This generation represents decreases for LKE, LG&E and KU of 6.6%, 3.2% and 8.8% from 2018 output.

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A.	Risks Related to Our U.K. Regulated Segment

B.	Risks Related to Registrant Holding Companies

C.	Risks Related to Domestic Regulated Utility Operations

D.	Risks Specific to Kentucky Regulated Segment

E.	Risks Specific to Pennsylvania Regulated Segment

F.	Risks Related to All Segments

•	changes in laws or regulations relating to U.K. operations, including rate regulations beginning in April 2023 under RIIO-ED2, operational performance and tax laws and regulations;

•	changes in government policies, personnel or approval requirements;

•	changes in general economic conditions affecting the U.K.;

•	regulatory reviews of tariffs for DNOs;

•	changes in labor relations;

•	limitations on foreign investment or ownership of projects and returns or distributions to foreign investors;

•	limitations on the ability of foreign companies to borrow money from foreign lenders and lack of local capital or loans;

•	changes in U.S. tax law applicable to taxation of foreign earnings;

•	compliance with U.S. foreign corrupt practices laws; and

•	prolonged periods of low inflation or deflation.

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•	the terms and conditions of our service and operations;

•	financial and capital structure matters;

•	siting, construction and operation of facilities;

•	mandatory reliability and safety standards under the Energy Policy Act of 2005 and other standards of conduct;

•	accounting, depreciation and cost allocation methodologies;

•	tax matters;

•	affiliate transactions;

•	acquisition and disposal of utility assets and issuance of securities; and

•	various other matters, including energy efficiency.

•	approval, licensing and permitting;

•	land acquisition and the availability of suitable land;

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•	skilled labor or equipment shortages;

•	construction problems or delays, including disputes with third-party intervenors;

•	increases in commodity prices or labor rates; and

•	contractor performance.

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(a)	Trimble County Unit 1 and Trimble County Unit 2 are jointly owned with Illinois Municipal Electric Agency and Indiana Municipal Power Agency. Each owner is entitled to its proportionate share of the units' total output and funds its proportionate share of capital, fuel and other operating costs. See Note 12 to the Financial Statements for additional information.

(b)	There is an inlet air cooling system attributable to these units. This inlet air cooling system is not jointly owned; however, it is used to increase production on the units to which it relates, resulting in an additional 12 MW of capacity for LG&E and an additional 86 MW of capacity for KU.

(c)	This unit is a 10 MW facility and achieves such production. The 8 MW solar facility summer capacity rating is reflective of an average expected output across the peak hours during the summer period based on average weather conditions at the solar facility.

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(a)

The earnings each year were affected by several items that management considers special. See "Results of Operations - Segment Earnings" in "Item 7. Combined Management's Discussion and Analysis of Financial Condition and Results of Operations" for a description of special items in 2019 and 2018. The earnings for 2015 were also affected by the spinoff of PPL Energy Supply and the sale of the Montana hydroelectric generating facilities.

(b)	See "Item 1A. Risk Factors" and Notes 1, 7 and 13 to the Financial Statements for a discussion of uncertainties that could affect PPL's future financial condition.

(c)	2015 through 2017 reflect the retrospective application of new accounting guidance related to the income statement presentation of net periodic benefit costs adopted by PPL in January 2018.

(d)	2015 reflects the impact of the spinoff of PPL Energy Supply and a $3.2 billion related dividend.

(e)	Based on diluted EPS.

(f)	2015 includes an $879 million loss on the spinoff of PPL Energy Supply, reflecting the difference between PPL's recorded value for the Supply segment and the estimated fair value determined in accordance with GAAP. 2015 also includes five months of Supply segment earnings.

(g)	Based on year-end market prices.

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•	"Overview" provides a description of each Registrant's business strategy and a discussion of important financial and operational developments.

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"Results of Operations" for all Registrants includes a "Statement of Income Analysis," which discusses significant changes in principal line items on the Statements of Income, comparing 2019 with 2018. For PPL, "Results of Operations" also includes "Segment Earnings" and "Adjusted Gross Margins" which provide a detailed analysis of earnings by reportable segment. These discussions include non-GAAP financial measures, including "Earnings from Ongoing Operations" and "Adjusted Gross Margins" and provide explanations of the non-GAAP financial measures and a reconciliation of the non-GAAP financial measures to the most comparable GAAP measure. The "2020 Outlook" discussion identifies key factors expected to impact 2020 earnings.

•	"Financial Condition - Liquidity and Capital Resources" provides an analysis of the Registrants' liquidity positions and credit profiles. This section also includes a discussion of forecasted sources and uses of cash and rating agency actions.

•	"Financial Condition - Risk Management" provides an explanation of the Registrants' risk management programs relating to market and credit risk.

•	"Application of Critical Accounting Policies" provides an overview of the accounting policies that are particularly important to the results of operations and financial condition of the Registrants and that require their management to make significant estimates, assumptions and other judgments of inherently uncertain matters.

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•	RIIO-ED2 will be a five-year price control period, compared to eight years in the current RIIO-ED1 price control.

•	CPI or CPIH will be used for inflation measurement in calculating both RAV and allowed returns rather than RPI.

•	The baseline allowed return on equity will be set using the same methodology in all RIIO-2 sectors. The new methodology includes; (a) an equity indexation, whereby the allowed return on equity is updated to reflect changes in the risk-free rate, and (b) potentially setting the allowed return 0.5% below the expected return.

•	Full debt indexation will be retained.

•	The early settlement process (fast tracking) will be removed and replaced with an alternative mechanism to incentivize high-quality, rigorous and ambitious business plans.

•	The Totex incentive rate will be based on a confidence level for setting baseline cost allowances.

•	A new enhanced engagement model will be introduced requiring distribution companies to set up a customer engagement group to provide Ofgem with a public report of local stakeholders’ views on the companies’ business plans. Ofgem will also establish an independent RIIO-2 challenge group comprised of consumer experts to provide Ofgem with a public report on companies’ business plans.

•	There will be no change to the existing depreciation policy of using economic asset lives as the basis for depreciating RAV as part of base revenue calculations. WPD is currently transitioning to 45-year asset lives for new additions in RIIO-ED1 based on Ofgem’s extensive review of asset lives in RIIO-ED1.

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A focus of RIIO-2 will be on whole-system outcomes. Ofgem intends network companies and system operators working together to ensure the energy system as a whole is efficient and delivers the best value to consumers. Ofgem is undertaking further work to clarify the definition of whole-system and the appropriate roles of the network companies in supporting this objective. Ofgem is still undecided on how DSO functions are to be treated. Ofgem will include a DSO reopener to reassess progress made in the establishment of DSO activities.

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(a)	The increase was primarily due to reconcilable cost recovery mechanisms approved by the PUC.

(b)	The increase was primarily due to $77 million from returns on additional transmission capital investments partially offset by a $27 million unfavorable impact of the TCJA, which reduced the new revenue requirement that went into effect June 1, 2018.

(c)	The decrease was due to the estimated income tax savings owed to or already returned to distribution customers related to the reduced U.S federal corporate income taxes as a result of the TCJA. See Note 7 to the Financial Statements for additional information.

(d)	The increase was primarily due to higher base rates, inclusive of the termination of the TCJA bill credit mechanism, effective May 1, 2019.

(e)	The increase was primarily due to higher returns on additional environmental capital investments and higher recoverable depreciation expense as a result of higher depreciation rates effective May 1, 2019.

(f)	The decrease was primarily due to weather.

(g)	The decrease was primarily due to the termination of eight supply contracts with Kentucky municipalities on April 30, 2019.

(h)	The decrease was primarily due to lower recoveries of fuel and energy purchases due to lower commodity costs.

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(a)	The increase is primarily due to 2019 including a full year of other operation and maintenance expense of Safari Energy, which was acquired on June 1, 2018.

(a)	Higher depreciation rates were effective May 1, 2019 at LG&E and KU.

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(a)	In 2018, LKE recorded deferred income tax expense, primarily associated with LKE's non-regulated entities, due to the Kentucky corporate income tax rate reduction from 6% to 5%, as enacted by HB 487, effective January 1, 2018.

(b)	In 2019, LKE recorded a deferred income tax benefit associated with two projects placed into service that prepare a generation waste material for reuse and, as a result, qualify for a Kentucky recycling credit. The applicable credit provides tax benefits for a portion of the equipment costs for major recycling projects in Kentucky.

(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.

•	Unrealized gains or losses on foreign currency economic hedges (as discussed below).

•	Gains and losses on sales of assets not in the ordinary course of business.

•	Impairment charges.

•	Significant workforce reduction and other restructuring effects.

•	Acquisition and divestiture-related adjustments.

•	Other charges or credits that are, in management's view, non-recurring or otherwise not reflective of the company's ongoing operations.

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(a)	Unrealized gains (losses) on contracts that economically hedge anticipated GBP-denominated earnings.

(b)	Settlement of a contractual dispute.

(c)	Adjustments to certain provisional amounts recognized in the December 31, 2017 Statement of Income related to the enactment of the TCJA.

(d)	Primarily a payment related to the death of the WPD Chief Executive.

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•	See "Adjusted Gross Margins - Changes in Adjusted Gross Margins" for an explanation of U.K. Adjusted Gross Margins.

•	Higher other income (expense) - net in 2019 compared with 2018 primarily due to higher pension income.

(a)	Adjustments to certain provisional amounts recognized in the December 31, 2017 Statement of Income related to the enactment of the TCJA.

(b)	In 2018, LKE recorded deferred income tax expense, primarily associated with LKE's non-regulated entities, due to the Kentucky corporate income tax rate reduction from 6% to 5%, as enacted by HB 487, effective January 1, 2018.

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•	See "Adjusted Gross Margins - Changes in Adjusted Gross Margins" for an explanation of Kentucky Adjusted Gross Margins.

•	Higher depreciation expense in 2019 compared with 2018 primarily due to a $15 million increase related to higher depreciation rates effective May 1, 2019 and an $11 million increase related to additional assets placed into service, net of retirements.

•	Higher interest expense in 2019 compared with 2018 primarily due to increased borrowings and higher interest rates.

•	Lower income taxes in 2019 compared with 2018 primarily due to the recording of a deferred income tax benefit related to a Kentucky recycling credit.

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(a)	In June 2018, PPL EU Services' IT department announced an internal reorganization, which was substantially completed in the third quarter of 2018. As a result, $5 million of after-tax costs, which includes separation benefits as well as outside services for strategic consulting to establish the new IT organization, were incurred.

•	See "Adjusted Gross Margins - Changes in Adjusted Gross Margins" for an explanation of Pennsylvania Adjusted Gross Margins.

•	Higher depreciation expense in 2019 compared with 2018 primarily due to additional assets placed into service, related to the ongoing efforts to ensure the reliability of the delivery system and the replacement of aging infrastructure, net of retirements.

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(a)	PPL incurred legal expenses related to litigation with its former affiliate, Talen Montana. See Note 13 to the Financial Statements for additional information.

(b)	PPL recorded adjustments to certain provisional amounts recognized in the December 31, 2017 Statement of Income relating to the enactment of the TCJA. See Note 6 to the Financial Statements for additional information.

•

"U.K. Adjusted Gross Margins" is a single financial performance measure of the electricity distribution operations of the U.K. Regulated segment. In calculating this measure, direct costs such as connection charges from National Grid, which owns and manages the electricity transmission network in England and Wales, and Ofgem license fees (recorded in "Other operation and maintenance" on the Statements of Income) are deducted from operating revenues, as they are costs passed through to customers. As a result, this measure represents the net revenues from the delivery of electricity across WPD's distribution network in the U.K. and directly related activities.

•

"Kentucky Adjusted Gross Margins" is a single financial performance measure of the electricity generation, transmission and distribution operations of the Kentucky Regulated segment, as well as the Kentucky Regulated segment's distribution and sale of natural gas. In calculating this measure, fuel, energy purchases and certain variable costs of production (recorded in "Other operation and maintenance" on the Statements of Income) are deducted from operating revenues. In addition, certain other expenses, recorded in "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 Adjusted Gross Margins" is a single financial performance measure of the electricity transmission and distribution operations of the Pennsylvania Regulated segment. 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 are primarily Act 129, Storm Damage and Universal Service program costs), "Depreciation" (which is primarily related to the Act 129 Smart Meter program) and "Taxes, other than income," (which is primarily gross receipts tax) on the Statements of Income. This measure represents the net revenues from the Pennsylvania Regulated segment's electricity delivery operations.

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(a)	Represents amounts excluded from Adjusted Gross Margins.

(b)	As reported on the Statements of Income.

(c)	2019 and 2018 exclude $38 million of ancillary revenues.

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(a)	Distribution price variances were primarily due to reconcilable cost recovery mechanisms approved by the PUC.

(b)	Transmission Formula Rate revenues increased primarily due to $77 million from returns on additional transmission capital investments partially offset by a $27 million unfavorable impact of the TCJA, which reduced the new revenue requirement that went into effect June 1, 2018.

(c)	Represents the estimated income tax savings owed to or already returned to distribution customers related to the reduced U.S federal corporate income taxes as a result of the TCJA. See Note 7 to the Financial Statements for additional information.

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(a)	The decrease was primarily due to weather.

(b)	The decrease was primarily due to the termination of eight supply contracts with Kentucky municipalities on April 30, 2019.

(c)	The decrease was primarily due to lower recoveries of fuel and energy purchases due to lower commodity costs.

(d)	The increase was primarily due to higher base rates, inclusive of the termination of the TCJA bill credit mechanism, effective May 1, 2019.

(e)	The increase was primarily due to higher returns on additional environmental capital investments and higher recoverable depreciation expense as a result of higher depreciation rates effective May 1, 2019.

(a)	In 2019, LKE recorded a deferred income tax benefit associated with two projects placed into service that prepare a generation waste material for reuse and, as a result, qualify for a Kentucky recycling credit. The applicable credit provides tax benefits for a portion of the equipment costs for major recycling projects in Kentucky.

(b)	In 2018, LKE recorded deferred income tax expense, primarily associated with LKE's non-regulated entities, due to the Kentucky corporate income tax rate reduction from 6% to 5%, as enacted by HB 487, effective January 1, 2018.

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(a)	The increase was due to higher base rates, inclusive of the termination of the TCJA bill credit mechanism, effective May 1, 2019.

(b)	The increase was primarily due to higher returns on additional environmental capital investments and higher recoverable depreciation expense as a result of higher depreciation rates effective May 1, 2019.

(c)	The decrease was primarily due to weather.

(d)	The decrease was primarily due to lower recoveries of fuel and energy purchases due to lower commodity costs.

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(a)	The decrease was primarily due to the termination of eight supply contracts with Kentucky municipalities on April 30, 2019.

(b)	The decrease was primarily due to weather.

(c)	The decrease was primarily due to lower recoveries of fuel due to lower commodity costs.

(d)	The increase was due to higher base rates, inclusive of the termination of the TCJA bill credit mechanism, effective May 1, 2019.

(e)	The increase was primarily due to higher returns on additional environmental capital investments and higher recoverable depreciation expense as a result of higher depreciation rates effective May 1, 2019.

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(a)	At December 31, 2019, $155 million of cash and cash equivalents were denominated in GBP. If these amounts would be remitted as dividends, PPL would not anticipate an incremental U.S. tax cost. See Note 6 to the Financial Statements for additional information on undistributed earnings of WPD.

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•

Net income decreased $81 million between periods and included an increase in net non-cash charges of $241 million. The increase in net non-cash charges was primarily due to an increase in depreciation expense (primarily due to additional assets placed into service, related to the ongoing efforts to ensure reliability of the delivery system and the replacement of aging infrastructure, net of retirements and higher depreciation rates) and unrealized losses on hedging activities partially offset by an increase in the U.K. net periodic defined benefit credits (primarily due to lower levels of unrecognized losses being amortized) and a decrease in deferred income taxes (primarily due to book versus tax plant timing differences).

•

The $451 million decrease in cash from changes in working capital was primarily due to a decrease in accounts payable (primarily due to timing of payments), an increase in net regulatory assets and liabilities (primarily due to the impact of the TCJA and timing of recovery rate mechanisms), an increase in other current liabilities (primarily due to timing of payments and operating lease liability), an increase in unbilled revenue (primarily due to weather, higher retail rates effective May 1, 2019 and a change in pricing method in the model), an increase in fuel, materials and supplies (primarily due to inventory management) and an increase in other (primarily due to a decrease in taxes payable and a decrease in counter-party collateral partially offset by an increase in customer deposits).

•

The $114 million decrease in cash provided by other operating activities was primarily due to the $65 million transfer of excess benefit funds, in 2018, related to the favorable private letter ruling received by PPL from the IRS permitting a transfer of excess funds from the PPL Bargaining Unit Retiree Health Plan VEBA to a new sub-account within the VEBA, to be used to pay for medical claims of active bargaining unit employees, decrease in non-current regulatory liabilities (due to timing of rate recovery mechanisms) and an increase in other assets (primarily due to settlement of interest rate swaps and purchase of solar panels).

•

Net income increased $27 million between the periods and included a decrease in non-cash components of $17 million. The decrease in non-cash components was primarily due to a $35 million decrease in deferred income tax expense (due to book versus tax plant timing differences and Federal net operating losses, partially offset by a book to tax timing difference related to the TCJA regulatory liability) and a $15 million decrease in Other (primarily due to an increase in AFUDC and a decrease in canceled projects), partially offset by a $34 million increase in depreciation expense (primarily due to additional assets placed into service, net of retirements, related to the ongoing efforts to ensure the reliability of the delivery system and the replacement of aging infrastructure as well as the roll-out of the Act 129 Smart Meter program).

•

The $90 million decrease in cash from changes in working capital was primarily due to an increase in net regulatory assets and liabilities (due to timing of rate recovery mechanisms), an increase in unbilled revenue (primarily due to a change in pricing method in the model), an increase in other net current assets and current liabilities (primarily due to an increase in 2019 material and supplies) and an increase in accounts receivable (primarily due to timing of receipts).

•	The $8 million increase in cash provided by other operating activities was primarily due to a decrease in non-current regulatory assets (due to timing of rate recovery mechanisms, amortization of storm costs incurred in the prior year and $22 million of storm costs incurred in 2018), partially offset by a decrease in non-current liabilities (primarily due to a $41 million TCJA liability in 2018).

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•	Net income increased $23 million between the periods and included an increase in non-cash components of $64 million. The increase in non-cash components was primarily driven by an increase in depreciation expense (primarily due to higher depreciation rates and additional assets placed into service, net of retirements).

•	The decrease in cash from changes in working capital was primarily driven by an increase in net regulatory assets and liabilities (primarily due to the impact of the TCJA and timing of rate recovery mechanisms), a decrease in accounts payable (primarily due to timing of payments) and an increase in unbilled revenues (primarily due to weather).

•	Defined benefit plan funding was $97 million lower in 2019.

•	The increase in cash provided by other operating activities was driven primarily by a decrease in other assets (primarily due to non-current regulatory asset increases as a result of significant storm activity in 2018).

•	Net income decreased $1 million between the periods and included an increase in non-cash components of $33 million. The increase in non-cash components was primarily driven by an increase in depreciation expense (primarily due to higher depreciation rates and additional assets placed into service, net of retirements).

•	The decrease in cash from changes in working capital was primarily driven by an increase in net regulatory assets and liabilities (primarily due to the impact of the TCJA and timing of rate recovery mechanisms), a decrease in accounts payable (primarily due to timing of payments) and an increase in accounts receivable and unbilled revenues (primarily due to weather).

•	Defined benefit plan funding was $55 million lower in 2019.

•	The increase in cash provided by other operating activities was driven primarily by a decrease in other assets (primarily due to non-current regulatory asset increases as a result of significant storm activity in 2018).

•	Net income increased $7 million between the periods and included an increase in non-cash components of $34 million. The increase in non-cash components was primarily driven by an increase in depreciation expense (primarily due to higher depreciation rates and additional assets placed into service, net of retirements).

•	The decrease in cash from changes in working capital was primarily driven by an increase in net regulatory assets and liabilities (primarily due to the impact of the TCJA and timing of rate recovery mechanisms), a decrease in accounts payable (primarily due to timing of payments) and an increase in unbilled revenues (primarily due to weather).

•	Defined benefit plan funding was $51 million lower in 2019.

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(a)	Issuances are net of pricing discounts, where applicable, and exclude the impact of debt issuance costs. Includes debt issuances with affiliates.

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(a)	The syndicated credit facilities, KU's letter of credit facility and PPL Capital Funding's bilateral facility, each contain a financial covenant requiring debt to total capitalization not to exceed 70% for PPL Capital Funding, PPL Electric, LKE, LG&E and KU, as calculated in accordance with the facility, and other customary covenants.

(b)	Each company pays customary fees under its respective syndicated credit facility. Borrowings generally bear interest at LIBOR-based rates plus an applicable margin.

(c)	The facilities contain financial covenants to maintain an interest coverage ratio of not less than 3.0 times consolidated earnings before income taxes, depreciation and amortization and total net debt not in excess of 85% of its RAV, calculated in accordance with the credit facility.

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(a)	LG&E and KU participate in an intercompany 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 authorized a maximum aggregate short-term debt limit for each utility at $500 million from all covered sources.

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(a)	Construction expenditures include capitalized interest and AFUDC, which are expected to total approximately $93 million for PPL and $77 million for PPL Electric over the five-year period.

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(b)	The 2020 total excludes amounts included in accounts payable as of December 31, 2019.

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(a)	Reflects principal maturities based on stated maturity or earlier put dates. See Note 8 to the Financial Statements for a discussion of variable-rate remarketable bonds issued on behalf of LG&E and KU. The Registrants do not have any significant finance lease obligations.

(b)	Assumes interest payments through stated maturity or earlier put dates. For PPL, LKE, LG&E and KU the payments herein are subject to change, as payments for debt that is or becomes variable-rate debt have been estimated and for PPL, payments denominated in British pounds sterling have been translated to U.S. dollars at a current foreign currency exchange rate.

(c)	See Note 9 to the Financial Statements for additional information.

(d)

The amounts include agreements to purchase goods or services that are enforceable and legally binding and specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Primarily includes, as applicable, the purchase obligations of electricity, coal, natural gas and limestone, as well as certain construction expenditures, which are also included in the Capital Expenditures table presented above.

(e)

The amounts for PPL include WPD's contractual deficit pension funding requirements arising from actuarial valuations performed in March 2016. The U.K. electricity regulator currently allows a recovery of a substantial portion of the contributions relating to the plan deficit. The amounts also include contributions made or committed to be made in 2020 for PPL's and LKE's U.S. pension plans (for PPL Electric, LG&E and KU includes their share of these amounts). Based on the current funded status of these plans, except for WPD's plans, no cash contributions are required. See Note 11 to the Financial Statements for a discussion of expected contributions.

(f)	Represents contracts to purchase coal, natural gas and natural gas transportation. See Note 13 to the Financial Statements for additional information.

(g)	Represents future minimum payments under OVEC power purchase agreements through June 2040. See Note 13 to the Financial Statements for additional information.

(h)	Represents construction commitments, which are also reflected in the Capital Expenditures table presented above.

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•	County of Carroll, Kentucky’s $50 million 1.75% Environmental Facilities Revenue Bonds, 2004 Series A due 2034;

•	County of Carroll, Kentucky’s $54 million 1.20% Environmental Facilities Revenue Refunding Bonds, 2006 Series B due 2034;

•	County of Carroll, Kentucky’s $78 million 1.20% Environmental Facilities Revenue Bonds, 2006 Series B due 2032;

•	County of Mercer, Kentucky’s $13 million 1.30% Solid Waste Disposal Facility Revenue Bonds, 2000 Series A due 2023.

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(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 a 10% adverse movement in foreign currency exchange rates.

(c)	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.

(d)	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.

(a)	Effects of adverse movements decrease assets or increase liabilities, as applicable, which could result in an asset becoming a liability.

(b)	To economically hedge the translation of expected earnings denominated in GBP.

•	PPL Electric is required to purchase electricity to fulfill its obligation as a PLR. Potential commodity price risk is insignificant and mitigated through its PUC-approved cost recovery mechanism and full-requirement supply agreements to serve its PLR customers which transfer the risk to energy suppliers.

•	LG&E's and KU's rates include certain mechanisms for fuel, fuel-related expenses and energy purchases. In addition, LG&E's rates include a mechanism for natural gas supply expenses. These mechanisms generally provide for timely recovery of market price fluctuations associated with these expenses.

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•	WPD is exposed to volumetric risk which is significantly mitigated as a result of the method of regulation in the U.K. Under the RIIO-ED1 price control regulations, recovery of such exposure occurs on a two year lag. See Note 1 to the Financial Statements for additional information on revenue recognition under RIIO-ED1.

•	PPL Electric, LG&E and KU are exposed to volumetric risk on retail sales, mainly due to weather and other economic conditions for which there is limited mitigation between rate cases.

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(a)	Does not sponsor or participate in other postretirement benefits plans.

(b)	The pension plans sponsored by LKE and LG&E were merged effective January 1, 2020 into the LG&E and KU Pension Plan. The merged plan is sponsored by LKE. LG&E and KU participate in this plan.

•

Discount Rate - In selecting the discount rates for U.S. defined benefit plans, the plan sponsors start with a cash flow analysis of the expected benefit payment stream for their plans. The plan-specific cash flows are matched against the coupons and expected maturity values of Aa-rated non-callable (or callable with make-whole provisions) bonds that could be purchased for a hypothetical settlement portfolio. The plan sponsors then use the single discount rate derived from matching the discounted benefit payment stream to the market value of the selected bond portfolio.

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•	Expected Return on Plan Assets - The expected long-term rates of return for pension and other postretirement benefits are based on management's projections using a best-estimate of expected returns, volatilities and correlations for each asset class. Each plan's specific current and expected asset allocations are also considered in developing a reasonable return assumption.

•	Rate of Compensation Increase - Management projects employees' annual pay increases, which are used to project employees' pension benefits at retirement. In selecting a rate of compensation increase, plan sponsors consider past experience, the potential impact of movements in inflation rates and expectations of ongoing compensation practices.

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We tested the effectiveness of management’s internal controls over evaluating the likelihood of recovery in future rates of costs deferred as regulatory assets. We tested the effectiveness of management’s controls over the recognition of amounts as regulated utility plant, regulatory assets or liabilities, operating revenues, depreciation, income taxes, and note disclosures and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates or of a future reduction in rates.

•	We obtained and read relevant regulatory orders issued by the FERC, KPSC, VSCC and PUC for PPL Corporation’s U.S. regulated utilities to assess the likelihood of recovery in future rates or of a future reduction in rates.

•	We inquired of management about regulated utility plant that may be abandoned. We inspected minutes of the board of directors, regulatory orders and other filings with the commission to identify any evidence that may contradict management’s assertion regarding probability of an abandonment.

•	We evaluated PPL Corporation’s disclosures related to the impacts of rate-regulation, including the balances recorded and regulatory developments, in the financial statements.

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•	We tested the effectiveness of management’s internal controls over their goodwill impairment evaluation, including those over the determination of the fair value of the U.K. Regulated reporting unit, such as controls related to management’s RAV premiums estimate, and selection of discount and growth rates and projected operating and capital cash flows.

•	We evaluated the reasonableness of management’s projected operating and capital cash flows by comparing the forecasts to:

◦	Historical operating and capital cash flows.

◦	Internal communications to management and the board of directors.

◦	Forecasted information included in PPL Corporation’s press releases as well as in analyst and industry reports for PPL Corporation.

•	We evaluated the impact of changes in management’s forecasts from the October 1, 2019 annual measurement date to December 31, 2019.

•	With the assistance of our fair value specialists, we evaluated the reasonableness of the (1) valuation methodology, (2) RAV premiums and (3) discount and growth rates by:

◦	Testing the source information underlying the determination of the RAV premiums, and discount and growth rates and the mathematical accuracy of the calculation.

◦	Developing a range of independent estimates and comparing those to the RAV premiums, and discount and growth rates selected by management.

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•	We tested the effectiveness of management’s internal controls over the valuation allowance for income taxes, including management’s internal controls over the estimates of future taxable income and the determination of whether it is more likely than not that the deferred tax assets will be realized.

•	We evaluated the reasonableness of the methods, assumptions, and judgments used by management to determine whether a valuation allowance was necessary.

•	With the assistance of our income tax specialists, we evaluated whether the sources of management’s estimated taxable income were of the appropriate character and sufficient to utilize the deferred tax assets under the relevant tax laws.

•	We evaluated management’s ability to accurately estimate taxable income by comparing actual results to management’s historical estimates and evaluating whether there have been any changes that would affect management’s ability to continue accurately estimating taxable income.

•	We tested the reasonableness of management’s estimates of future taxable income by comparing the estimates to:

◦	Internal budgets.

◦	Historical taxable income, as adjusted for nonrecurring items.

◦	Internal communications to management and the board of directors.

◦	Forecasted information included in PPL Corporation’s press releases as well as in analyst and industry reports for PPL Corporation.

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(a)	1,560,000 shares authorized; 767,233 and 720,323 shares issued and outstanding at December 31, 2019 and December 31, 2018.

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(a)	Shares in thousands. Each share entitles the holder to one vote on any question presented at any shareowners' meeting.

(b)	Dividends declared per share of common stock at December 31, 2019, 2018 and 2017 were: $1.65, $1.64 and $1.58.

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(a)	Net income equals comprehensive income.

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(a)	170,000 shares authorized; 66,368 shares issued and outstanding at December 31, 2019 and December 31, 2018.

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(a)	Shares in thousands. All common shares of PPL Electric stock are owned by PPL.

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(a)	Net income equals comprehensive income.

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(a)	75,000 shares authorized; 21,294 shares issued and outstanding at December 31, 2019 and December 31, 2018.

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(a)	Net income approximates comprehensive income.

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(a)	80,000 shares authorized; 37,818 shares issued and outstanding at December 31, 2019 and December 31, 2018.

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(a)	Shares in thousands. All common shares of KU stock are owned by LKE.

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(All Registrants)

General

Capitalized terms and abbreviations appearing in the combined notes to 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 each Registrants' related activities and disclosures. Within combined disclosures, amounts are disclosed for any Registrant when significant.

Business and Consolidation

(PPL)

PPL is a utility holding company that, through its regulated subsidiaries, is primarily engaged in: 1) the distribution of electricity in the U.K.; 2) the generation, transmission, distribution and sale of electricity and the distribution and sale of natural gas, primarily in Kentucky; and 3) the transmission, distribution and sale of electricity in Pennsylvania. Headquartered in Allentown, PA, PPL's principal subsidiaries are PPL Global, LKE (including its principal subsidiaries, LG&E and KU) and PPL Electric. PPL's corporate level financing subsidiary is PPL Capital Funding.

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WPD, a subsidiary of PPL Global, through indirect, wholly owned subsidiaries, operates distribution networks providing electricity service in the U.K. WPD serves end-users in South Wales and southwest and central England. Its principal subsidiaries are WPD (South Wales), WPD (South West), WPD (East Midlands) and WPD (West Midlands).

PPL consolidates WPD on a one-month lag. Material events, such as debt issuances that occur in the lag period, are recognized in the current period financial statements. Events that are significant but not material are disclosed.

(PPL and PPL Electric)

PPL Electric is a cost-based rate-regulated utility subsidiary of PPL. PPL Electric's principal business is the transmission and distribution of electricity to serve retail customers in its franchised territory in eastern and central Pennsylvania and the regulated supply of electricity to retail customers in that territory as a PLR.

(PPL, LKE, LG&E and KU)

LKE is a utility holding company with cost-based rate-regulated utility operations through its subsidiaries, LG&E and KU. 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 identities and serve customers in Kentucky under their respective names. KU also serves customers in Virginia under the Old Dominion Power name.

(All Registrants)

The financial statements of the Registrants include each company's own accounts as well as the accounts of all entities in which the company has a controlling financial interest. Entities for which a controlling financial interest is not demonstrated through voting interests are evaluated based on accounting guidance for Variable Interest Entities (VIEs). The Registrants consolidate a VIE when they are determined to have a controlling interest in the VIE and, as a result, are the primary beneficiary of the entity. The Registrants are not the primary beneficiary in any significant VIEs. Investments in entities in which a company has the ability to exercise significant influence but does not have a controlling financial interest are accounted for under the equity method. All other investments are carried at cost or fair value. All significant intercompany transactions have been eliminated.

The financial statements of PPL, LKE, LG&E and KU include their share of any undivided interests in jointly owned facilities, as well as their share of the related operating costs of those facilities. See Note 12 for additional information.

Regulation

(PPL)

WPD operates in an incentive-based regulatory structure under distribution licenses granted by Ofgem. Electricity distribution revenues are set by Ofgem for a given time period through price control reviews that are not directly based on cost recovery. The price control formula that governs WPD's allowed revenue is designed to provide economic incentives to minimize operating, capital and financing costs. As a result, WPD is not subject to accounting for the effects of certain types of regulation as prescribed by GAAP and does not record regulatory assets and liabilities.

(All Registrants)

PPL Electric, LG&E and KU are cost-based rate-regulated utilities for which rates are set by regulators to enable PPL Electric, LG&E and KU to recover the costs of providing electric or gas service, as applicable, and to provide a reasonable return to shareholders. Base rates are generally established based on a future test period. As a result, the financial statements are subject to the accounting for certain types of regulation as prescribed by GAAP and reflect the effects of regulatory actions. Regulatory assets are recognized for the effect of transactions or events where future recovery of underlying costs is probable in regulated customer rates. The effect of such accounting is to defer certain or qualifying costs that would otherwise currently be charged to expense. Regulatory liabilities are recognized for amounts expected to be returned through future regulated customer rates. In certain cases, regulatory liabilities are recorded based on an understanding or agreement with the regulator that rates have been set to recover expected future costs, and the regulated entity is accountable for any amounts charged pursuant to such rates and not yet expended for the intended purpose. The accounting for regulatory assets and regulatory liabilities is based on specific ratemaking decisions or precedent for each transaction or event as prescribed by the FERC or the applicable state regulatory commissions. See Note 7 for additional details regarding regulatory matters.

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Accounting Records

The system of accounts for domestic regulated entities is maintained in accordance with the Uniform System of Accounts prescribed by the FERC and adopted by the applicable state regulatory commissions.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Loss Accruals

Potential losses are accrued when (1) information is available that indicates it is "probable" that a loss has been incurred, given the likelihood of uncertain future events and (2) the amount of loss can be reasonably estimated. Accounting guidance defines "probable" as cases in which "the future event or events are likely to occur." The Registrants continuously assess potential loss contingencies for environmental remediation, litigation claims, regulatory penalties and other events. Loss accruals for environmental remediation are discounted when appropriate.

The accrual of contingencies that might result in gains is not recorded, unless realization is assured.

Earnings Per Share (PPL)

EPS is computed using the two-class method, which is an earnings allocation method for computing EPS that treats a participating security as having rights to earnings that would otherwise have been available to common shareowners. Share-based payment awards that provide recipients a non-forfeitable right to dividends or dividend equivalents are considered participating securities.

Price Risk Management

(All Registrants)

Interest rate contracts are used to hedge exposure to changes in the fair value of debt instruments and to hedge exposure to variability in expected cash flows associated with existing floating-rate debt instruments or forecasted fixed-rate issuances of debt. Foreign currency exchange contracts are used to hedge foreign currency exposures, primarily associated with PPL's investments in U.K. subsidiaries. Similar derivatives may receive different accounting treatment, depending on management's intended use and documentation.

Certain contracts may not meet the definition of a derivative because they lack a notional amount or a net settlement provision. In cases where there is no net settlement provision, markets are periodically assessed to determine whether market mechanisms have evolved to facilitate net settlement. Certain derivative contracts may be excluded from the requirements of derivative accounting treatment because NPNS has been elected. These contracts are accounted for using accrual accounting. Contracts that have been classified as derivative contracts are reflected on the balance sheets at fair value. The portion of derivative positions that deliver within a year are included in "Current Assets" and "Current Liabilities," while the portion of derivative positions that deliver beyond a year are recorded in "Other Noncurrent Assets" and "Deferred Credits and Other Noncurrent Liabilities."

Cash inflows and outflows related to derivative instruments are included as a component of operating, investing or financing activities on the Statements of Cash Flows, depending on the classification of the hedged items.

PPL and its subsidiaries have elected not to offset net derivative positions against the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) under master netting arrangements.

(PPL)

Processes exist that allow for subsequent review and validation of contract information as it relates to interest rate and foreign currency derivatives. The accounting department provides the treasury department with guidelines on appropriate accounting

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classifications for various contract types and strategies. Examples of accounting guidelines provided to the treasury department staff include, but are not limited to:

•	Transactions to lock in an interest rate prior to a debt issuance can be designated as cash flow hedges, to the extent the forecasted debt issuances remain probable of occurring.

•	Cross-currency transactions to hedge interest and principal repayments can be designated as cash flow hedges.

•	Transactions to hedge fluctuations in the fair value of existing debt can be designated as fair value hedges.

•	Transactions to hedge the value of a net investment of foreign operations can be designated as net investment hedges.

•

Derivative transactions that do not qualify for cash flow or net investment hedge treatment are marked to fair value through earnings. These transactions generally include foreign currency forwards and options to hedge GBP-denominated earnings translation risk associated with PPL's U.K. subsidiaries that report their financial statements in GBP. As such, these transactions reduce earnings volatility due solely to changes in foreign currency exchange rates.

(All Registrants)

•	Derivative transactions may be marked to fair value through regulatory assets/liabilities at PPL Electric, LG&E and KU, if approved by the appropriate regulatory body. These transactions generally include the effect of interest rate swaps that are included in customer rates.

(PPL and PPL Electric)

To meet its obligation as a PLR to its customers, PPL Electric has entered into certain contracts that meet the definition of a derivative. However, NPNS has been elected for these contracts.

See Notes 16 and 17 for additional information on derivatives.

Revenue

(All Registrants)

Operating revenues are primarily recorded based on energy deliveries through the end of each calendar month. Unbilled retail revenues result because customers' bills are rendered throughout the month, rather than bills being rendered at the end of the month. For LKE, LG&E and KU, unbilled revenues for a month are calculated by multiplying an estimate of unbilled kWh by the estimated average cents per kWh. Any difference between estimated and actual revenues is adjusted the following month when the previous unbilled estimate is reversed and actual billings occur. For PPL Electric, unbilled revenues for a month are calculated by multiplying the actual unbilled kWh by an average rate per customer class.

PPL Electric's, LG&E's and KU's base rates are determined based on cost of service. Some regulators have also authorized the use of additional alternative revenue programs, which enable PPL Electric, LG&E and KU to adjust future rates based on past activities or completed events. Revenues from alternative revenue programs are recognized when the specific events permitting future billings have occurred. Revenues from alternative revenue programs are required to be presented separately from revenues from contracts with customers. These amounts are, however, presented as revenues from contracts with customers, with an offsetting adjustment to alternative revenue program revenue, when they are billed to customers in future periods. See Note 3 for additional information.

(PPL)

WPD is currently operating under the eight-year price control period of RIIO-ED1, which commenced for electric distribution companies on April 1, 2015. Ofgem has adopted a price control mechanism that establishes the amount of base demand revenue WPD can earn, subject to certain true-ups, and provides for increased or reduced revenues based on incentives or penalties for performance relative to pre-established targets. WPD's allowed revenue primarily includes base demand revenue (adjusted for inflation using RPI), performance incentive revenues/penalties and adjustments for over or under-recovery from prior periods.

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As the regulatory model is incentive based rather than a cost recovery model, WPD is not subject to accounting for the effects of certain types of regulation as prescribed by GAAP. Therefore, the accounting treatment of adjustments to base demand revenue and/or allowed revenue is evaluated based on revenue recognition accounting guidance.

Unlike prior price control reviews, base demand revenue under RIIO-ED1 is adjusted during the price control period. The most significant of those adjustments are:

•	Inflation True-Up - The base demand revenue for the RIIO-ED1 period was set based on 2012/13 prices. Therefore, an inflation factor as determined by forecasted RPI, provided by HM Treasury, is applied to base demand revenue.

Forecasted RPI is trued up to actuals and affects future base demand revenue two regulatory years later. This revenue change is called the "TRU" adjustment.

•

Annual Iteration Process (AIP) - The RIIO-ED1 price control period also includes an AIP. This allows future base demand revenues agreed with Ofgem as part of the price control review, to be updated during the price control period for financial adjustments including tax, pensions, cost of debt, legacy price control adjustments from preceding price control periods and adjustments relating to actual and allowed total expenditure, together with the Totex Incentive Mechanism (TIM). Under the TIM, WPD's DNOs are able to retain 70% of any amounts not spent against the RIIO-ED1 plan and bear 70% of any over-spends. The AIP calculates an incremental change to base demand revenue, known as the "MOD" adjustment.

As both MOD and TRU are changes to future base demand revenues as determined by Ofgem, these adjustments are recognized as a component of revenues in future years in which service is provided and revenues are collected or returned to customers.

In addition to base demand revenue, certain other items are added or subtracted to arrive at allowed revenue. The most significant of these are:

•

Incentives - Ofgem has established incentives to provide opportunities for DNO's to enhance overall returns by improving network efficiency, reliability and customer service. These incentives can result in an increase or reduction in revenues based on incentives or penalties for actual performance against pre-established targets based on past performance. The annual incentives and penalties are reflected in customers' rates on a two-year lag from the time they are earned and/or assessed. Incentive revenues and penalties are included in revenues when they are billed to customers.

•

Correction Factor - During the current price control period, WPD sets its tariffs to recover allowed revenue. However, in any fiscal period, WPD's revenue could be negatively affected if its tariffs and the volume delivered do not fully recover the revenue allowed for a particular period. Conversely, WPD could also over-recover revenue. Over and under-recoveries are subtracted from or added to allowed revenue in future years when billed to customers, known as the "Correction Factor" or "K-factor." Over and under-recovered amounts arising for the period are refunded/recovered on a two year lag.

Accounts Receivable

(All Registrants)

Accounts receivable are reported on the Balance Sheets at the gross outstanding amount adjusted for an allowance for doubtful accounts.

Allowance for Doubtful Accounts

Accounts receivable collectibility is evaluated using a combination of factors, including past due status based on contractual terms, trends in write-offs and the age of the receivable. Specific events, such as bankruptcies, are also considered when applicable. Adjustments to the allowance for doubtful accounts are made when necessary based on the results of analysis, the aging of receivables and historical and industry trends.

Accounts receivable are written off in the period in which the receivable is deemed uncollectible.

The changes in the allowance for doubtful accounts were:

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					Additions
	Balance at Beginning of Period				Charged to Income				Charged to Other Accounts				Deductions (a)				Balance at End of Period
PPL
2019	$	56			$	37			$	3			$	38			$	58
2018	51				41				3				39				56
2017	54				28				(1		)		30				51
PPL Electric
2019	$	27			$	26			$	—			$	25			$	28
2018	24				29				—				26				27
2017	28				18				—				22				24
LKE
2019	$	27			$	8			$	3			$	10			$	28
2018	25				10				3				11				27
2017	24				8				(1		)		6				25
LG&E
2019	$	1			$	2			$	2			$	4			$	1
2018	1				4				1				5				1
2017	2				2				(1		)		2				1
KU
2019	$	2			$	4			$	1			$	6			$	1
2018	1				5				2				6				2
2017	2				4				(1		)		4				1

(a)	Primarily related to uncollectible accounts written off.

Cash

(All Registrants)

Cash Equivalents

All highly liquid investments with original maturities of three months or less are considered to be cash equivalents.

(PPL and PPL Electric)

Restricted Cash and Cash Equivalents

Bank deposits and other cash equivalents that are restricted by agreement or that have been clearly designated for a specific purpose are classified as restricted cash and cash equivalents. On the Balance Sheets, the current portion of restricted cash and cash equivalents is included in "Other current assets," while the noncurrent portion is included in "Other noncurrent assets."

Reconciliation of Cash, Cash Equivalents and Restricted Cash

The following provides a reconciliation of Cash, Cash Equivalents and Restricted Cash reported within the Balance Sheets that sum to the total of the same amounts shown on the Statements of Cash Flows:

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	PPL								PPL Electric
	December 31, 2019				December 31, 2018				December 31, 2019				December 31, 2018
Cash and cash equivalents	$	815			$	621			$	262			$	267
Restricted cash - current	3				3				2				2
Restricted cash - noncurrent (a)	18				19				—				—
Total Cash, Cash Equivalents and Restricted Cash	$	836			$	643			$	264			$	269

(a)	Primarily consists of funds received by WPD, which are to be spent on approved initiatives to support a low carbon environment.

(All Registrants)

Fair Value Measurements

The Registrants value certain financial and nonfinancial assets and liabilities at fair value. Generally, the most significant fair value measurements relate to price risk management assets and liabilities, investments in securities in defined benefit plans, and cash and cash equivalents. PPL and its subsidiaries use, as appropriate, 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) to measure the fair value of an asset or liability. 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 Registrants classify fair value measurements within one of three levels in the fair value hierarchy. The level assigned to a fair value measurement is based on the lowest level input that is significant to the fair value measurement in its entirety. The three levels of the fair value hierarchy are as follows:

•	Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities that are accessible at the measurement date. Active markets are those in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

•	Level 2 - inputs other than quoted prices included within Level 1 that are either directly or indirectly observable for substantially the full term of the asset or liability.

•	Level 3 - unobservable inputs that management believes are predicated on the assumptions market participants would use to measure the asset or liability at fair value.

Assessing the significance of a particular input requires judgment that considers factors specific to the asset or liability. As such, the Registrants' assessment of the significance of a particular input may affect how the assets and liabilities are classified within the fair value hierarchy.

Investments

(All Registrants)

Generally, the original maturity date of an investment and management's intent and ability to sell an investment prior to its original maturity determine the classification of investments as either short-term or long-term. Investments that would otherwise be classified as short-term, but are restricted as to withdrawal or use for other than current operations or are clearly designated for expenditure in the acquisition or construction of noncurrent assets or for the liquidation of long-term debts, are classified as long-term.

Short-term Investments

Short-term investments generally include certain deposits as well as securities that are considered highly liquid or provide for periodic reset of interest rates. Investments with original maturities greater than three months and less than a year, as well as investments with original maturities of greater than a year that management has the ability and intent to sell within a year, are included in "Other current assets" on the Balance Sheets.

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Long-Lived and Intangible Assets

Property, Plant and Equipment

(All Registrants)

PP&E is recorded at original cost, unless impaired. PP&E acquired in business combinations is recorded at fair value at the time of acquisition. If impaired, the asset is written down to fair value at that time, which becomes the new cost basis of the asset. Original cost for constructed assets includes material, labor, contractor costs, certain overheads and financing costs, where applicable. Included in PP&E are capitalized costs of software projects that were developed or obtained for internal use. The cost of repairs and minor replacements are charged to expense as incurred. The Registrants record costs associated with planned major maintenance projects in the period in which work is performed and costs are incurred.

AFUDC is capitalized at PPL Electric as part of the construction costs for cost-based rate-regulated projects for which a return on such costs is recovered after the project is placed in service. The debt component of AFUDC is credited to "Interest Expense" and the equity component is credited to "Other Income (Expense) - net" on the Statements of Income. LG&E and KU generally do not record AFUDC as a return is provided on construction work in progress.

(PPL)

PPL capitalizes interest costs as part of construction costs. Capitalized interest, including the debt component of AFUDC for PPL, was $10 million in 2019, $15 million in 2018 and $11 million 2017.

Depreciation

(All Registrants)

Depreciation is recorded over the estimated useful lives of property using various methods including the straight-line, composite and group methods. When a component of PP&E that was depreciated under the composite or group method is retired, the original cost is charged to accumulated depreciation. When all or a significant portion of an operating unit that

was depreciated under the composite or group method is retired or sold, the property and the related accumulated depreciation account is reduced and any gain or loss is included in income, unless otherwise required by regulators. LG&E and KU accrue costs of removal net of estimated salvage value through depreciation, which is included in the calculation of customer rates over the assets' depreciable lives in accordance with regulatory practices. Cost of removal amounts accrued through depreciation rates are accumulated as a regulatory liability until the removal costs are incurred. For LKE, LG&E and KU, all ARO depreciation expenses are reclassified to a regulatory asset. See "Asset Retirement Obligations" below and Note 7 for additional information. PPL Electric records net costs of removal when incurred as a regulatory asset. The regulatory asset is subsequently amortized through depreciation over a five-year period, which is recoverable in customer rates in accordance with regulatory practices.

Following are the weighted-average annual rates of depreciation, for regulated utility plant, for the years ended December 31:

	2019			2018			2017
PPL	2.84	%		2.77	%		2.65	%
PPL Electric	3.05	%		3.01	%		2.86	%
LKE	3.96	%		3.69	%		3.64	%
LG&E	3.87	%		3.63	%		3.63	%
KU	4.02	%		3.74	%		3.66	%

(All Registrants)

Goodwill and Other Intangible Assets

Goodwill represents the excess of the purchase price paid over the fair value of the identifiable net assets acquired in a business combination.

Other acquired intangible assets are initially measured based on their fair value. Intangibles that have finite useful lives are amortized over their useful lives based upon the pattern in which the economic benefits of the intangible assets are consumed

---

or otherwise used. Costs incurred to obtain an initial license and renew or extend terms of licenses are capitalized as intangible assets.

When determining the useful life of an intangible asset, including intangible assets that are renewed or extended, PPL and its subsidiaries consider:

•	the expected use of the asset;

•	the expected useful life of other assets to which the useful life of the intangible asset may relate;

•	legal, regulatory, or contractual provisions that may limit the useful life;

•	the company's historical experience as evidence of its ability to support renewal or extension;

•	the effects of obsolescence, demand, competition, and other economic factors; and,

•	the level of maintenance expenditures required to obtain the expected future cash flows from the asset.

Asset Impairment (Excluding Investments)

The Registrants review long-lived assets that are subject to depreciation or amortization, including finite-lived intangibles, for impairment when events or circumstances indicate carrying amounts may not be recoverable.

A long-lived asset classified as held and used is impaired when the carrying amount of the asset exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. If impaired, the asset's carrying value is written down to its fair value.

A long-lived asset classified as held for sale is impaired when the carrying amount of the asset (disposal group) exceeds its fair value less cost to sell. If impaired, the asset's (disposal group's) carrying value is written down to its fair value less cost to sell.

PPL, LKE, LG&E and KU review goodwill for impairment at the reporting unit level annually or more frequently when events or circumstances indicate that the carrying amount of a reporting unit may be greater than the unit's fair value. Additionally, goodwill must be tested for impairment in circumstances when a portion of goodwill has been allocated to a business to be disposed. PPL's, LKE's, LG&E's and KU's reporting units are primarily at the operating segment level.

PPL, LKE, LG&E and KU may elect either to initially make a qualitative evaluation about the likelihood of an impairment of goodwill or to bypass the qualitative evaluation and test goodwill for impairment using a two-step quantitative test. If the qualitative evaluation (referred to as "step zero") is elected and the assessment results in a determination that it is not more likely than not that the fair value of a reporting unit is less than the carrying amount, the two-step quantitative impairment test is not necessary. However, the quantitative impairment test is required if management concludes it is more likely than not that the fair value of a reporting unit is less than the carrying amount based on the step zero assessment.

If the carrying amount of the reporting unit, including goodwill, exceeds its fair value, the implied fair value of goodwill must be calculated in the same manner as goodwill in a business combination. The fair value of a reporting unit is allocated to all assets and liabilities of that unit as if the reporting unit had been acquired in a business combination. The excess of the fair value of the reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. If the implied fair value of goodwill is less than the carrying amount, goodwill is written down to its implied fair value.

PPL elected to bypass the qualitative step zero evaluation of goodwill and quantitatively tested the goodwill at its WPD reporting unit while LKE, LG&E and KU qualitatively tested the goodwill of its reporting units for impairment as of the fourth quarter of 2019. No impairment was recognized.

(PPL, LKE, LG&E and KU)

Asset Retirement Obligations

PPL and its subsidiaries record liabilities to reflect various legal obligations associated with the retirement of long-lived assets. Initially, this obligation is measured at fair value and offset with an increase in the value of the capitalized asset, which is depreciated over the asset's useful life. Until the obligation is settled, the liability is increased through the recognition of accretion expense classified within "Other operation and maintenance" on the Statements of Income to reflect changes in the obligation due to the passage of time. For LKE, LG&E and KU, all ARO accretion and depreciation expenses are reclassified as a regulatory asset. ARO regulatory assets associated with certain CCR projects are amortized to expense in accordance with regulatory approvals. For other AROs, at the time of retirement, the related ARO regulatory asset is offset against the associated cost of removal regulatory liability, PP&E and ARO liability.

---

Estimated ARO costs and settlement dates, which affect the carrying value of the ARO and the related capitalized asset, are reviewed periodically to ensure that any material changes are incorporated into the latest estimate of the ARO. Any change to the capitalized asset, positive or negative, is generally amortized over the remaining life of the associated long-lived asset. See Note 7 and Note 19 for additional information on AROs.

Compensation and Benefits

Defined Benefits (All Registrants)

Certain PPL subsidiaries sponsor various defined benefit pension and other postretirement plans. An asset or liability is recorded to recognize the funded status of all defined benefit plans with an offsetting entry to AOCI or, for LG&E, KU and PPL Electric, to regulatory assets or liabilities. Consequently, the funded status of all defined benefit plans is fully recognized on the Balance Sheets.

The expected return on plan assets is determined based on a market-related value of plan assets, which is calculated by rolling forward the prior year market-related value with contributions, disbursements and long-term expected return on investments. One-fifth of the difference between the actual value and the expected value is added (or subtracted if negative) to the expected value to determine the new market-related value.

PPL uses an accelerated amortization method for the recognition of gains and losses for its defined benefit pension plans. Under the accelerated method, actuarial gains and losses in excess of 30% of the plan's projected benefit obligation are amortized on a straight-line basis over one-half of the required amortization period. Actuarial gains and losses in excess of 10% of the greater of the plan's projected benefit obligation or the market-related value of plan assets and less than 30% of the plan's projected benefit obligation are amortized on a straight-line basis over the full required amortization period.

See Note 7 for a discussion of the regulatory treatment of defined benefit costs and Note 11 for a discussion of defined benefits.

Stock-Based Compensation (PPL, PPL Electric and LKE)

PPL has several stock-based compensation plans for purposes of granting stock options, restricted stock, restricted stock units and performance units to certain employees as well as stock units and restricted stock units to directors. PPL grants most stock-based awards in the first quarter of each year. PPL and its subsidiaries recognize compensation expense for stock-based awards based on the fair value method. Forfeitures of awards are recognized when they occur. See Note 10 for a discussion of stock-based compensation. All awards are recorded as equity or a liability on the Balance Sheets. Stock-based compensation is primarily included in "Other operation and maintenance" on the Statements of Income. Stock-based compensation expense for PPL Electric and LKE includes an allocation of PPL Services' expense.

Taxes

Income Taxes

(All Registrants)

PPL and its domestic subsidiaries file a consolidated U.S. federal income tax return.

Significant management judgment is required in developing the Registrants' provision for income taxes, primarily due to the uncertainty related to tax positions taken or expected to be taken in tax returns, valuation allowances on deferred tax assets and whether the undistributed earnings of WPD are considered indefinitely reinvested.

The Registrants use a two-step process to evaluate tax positions. The first step requires an entity to determine whether, based on the technical merits supporting a particular tax position, it is more likely than not (greater than a 50% chance) that the tax position will be sustained. This determination assumes that the relevant taxing authority will examine the tax position and is aware of all the relevant facts surrounding the tax position. The second step requires an entity to recognize in the financial statements the benefit of a tax position that meets the more-likely-than-not recognition criterion. The benefit recognized is measured at the largest amount of benefit that has a likelihood of realization, upon settlement, that exceeds 50%. Unrecognized tax benefits are classified as current to the extent management expects to settle an uncertain tax position by payment or receipt of cash within one year of the reporting date. The amounts ultimately paid upon resolution of issues raised by taxing authorities

---

may differ materially from the amounts accrued and may materially impact the financial statements of the Registrants in future periods. At December 31, 2019, no significant changes in unrecognized tax benefits are projected over the next 12 months.

Deferred income taxes reflect the net future tax effects of temporary differences between the carrying amounts of assets and liabilities for accounting purposes and their basis for income tax purposes, as well as the tax effects of net operating losses and tax credit carryforwards.

The Registrants record valuation allowances to reduce deferred income tax assets to the amounts that are more likely than not to be realized. The need for valuation allowances requires significant management judgment. If the Registrants determine that they are able to realize deferred tax assets in the future in excess of recorded net deferred tax assets, adjustments to the valuation allowances increase income by reducing tax expense in the period that such determination is made. Likewise, if the Registrants determine that they are not able to realize all or part of net deferred tax assets in the future, adjustments to the valuation allowances would decrease income by increasing tax expense in the period that such determination is made. The amount of deferred tax assets ultimately realized may differ materially from the estimates utilized in the computation of valuation allowances and may materially impact the financial statements in the future.

The Registrants defer investment tax credits when the credits are generated and amortize the deferred amounts over the average lives of the related assets.

The Registrants recognize tax-related interest and penalties in "Income Taxes" on their Statements of Income.

The Registrants use the portfolio approach method of accounting for deferred taxes related to pre-tax OCI transactions. The portfolio approach involves a strict period-by-period cumulative incremental allocation of income taxes to the change in income and losses reflected in OCI. Under this approach, the net cumulative tax effect is ignored. The net change in unrealized gains and losses recorded in AOCI under this approach would be eliminated only on the date the entire balance is sold or otherwise disposed of.

See Note 6 for additional discussion regarding income taxes, including the impact of the TCJA and management's conclusion that the undistributed earnings of WPD are considered indefinitely reinvested.

The provision for PPL's, PPL Electric's, LKE's, LG&E's and KU's deferred income taxes for regulatory assets and liabilities is based upon the ratemaking principles reflected in rates established by the regulators. The difference in the provision for deferred income taxes for regulatory assets and liabilities and the amount that otherwise would be recorded under GAAP is deferred and included on the Balance Sheets in noncurrent "Regulatory assets" or "Regulatory liabilities."

(PPL Electric, LKE, LG&E and KU)

The income tax provision for PPL Electric, LG&E and KU is calculated in accordance with an intercompany tax sharing agreement, which provides that taxable income be calculated as if PPL Electric, LG&E, KU and any domestic subsidiaries each filed a separate return. Tax benefits are not shared between companies. The entity that generates a tax benefit is the entity that is entitled to the tax benefit. The effect of PPL filing a consolidated tax return is taken into account in the settlement of current taxes and the recognition of deferred taxes.

At December 31, the following intercompany tax receivables (payables) were recorded:

	2019				2018
PPL Electric	$	3			$	19
LKE	(8		)		(16		)
LG&E	(4		)		—
KU	(6		)		(5		)

Taxes, Other Than Income (All Registrants)

The Registrants present sales taxes in "Other current liabilities" and PPL presents value-added taxes in "Taxes" on the Balance Sheets. These taxes are not reflected on the Statements of Income. See Note 6 for details on taxes included in "Taxes, other than income" on the Statements of Income.

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Other

(All Registrants)

Leases

The Registrants evaluate whether arrangements entered into contain leases for accounting purposes. See Note 9 for additional information.

Fuel, Materials and Supplies

Fuel, natural gas stored underground and materials and supplies are valued using the average cost method. Fuel costs for electricity generation are charged to expense as used. For LG&E, natural gas supply costs are charged to expense as delivered to the distribution system. See Note 7 for further discussion of the fuel adjustment clauses and gas supply clause.

(PPL, LKE, LG&E and KU)

"Fuel, materials and supplies" on the Balance Sheets consisted of the following at December 31:

	PPL								LKE								LG&E								KU
	2019				2018				2019				2018				2019				2018				2019				2018
Fuel	$	106			$	98			$	106			$	98			$	43			$	42			$	63			$	56
Natural gas stored underground	35				41				35				41				35				41				—				—
Materials and supplies	191				164				109				109				44				44				65				65
Total	$	332			$	303			$	250			$	248			$	122			$	127			$	128			$	121

Guarantees (All Registrants)

Generally, the initial measurement of a guarantee liability is the fair value of the guarantee at its inception. However, there are certain guarantees excluded from the scope of accounting guidance and other guarantees that are not subject to the initial recognition and measurement provisions of accounting guidance that only require disclosure. See Note 13 for further discussion of recorded and unrecorded guarantees.

Treasury Stock (PPL)

PPL restores all shares of common stock acquired to authorized but unissued shares of common stock upon acquisition.

Foreign Currency Translation and Transactions (PPL)

WPD's functional currency is the GBP, which is the local currency in the U.K. As such, assets and liabilities are translated to U.S. dollars at the exchange rates on the date of consolidation and related revenues and expenses are generally translated at average exchange rates prevailing during the period included in PPL's results of operations. Adjustments resulting from foreign currency translation are recorded in AOCI.

Gains or losses relating to foreign currency transactions are recognized in "Other Income (Expense) - net" on the Statements of Income. See Note 15 for additional information.

New Accounting Guidance Adopted (All Registrants)

Accounting for Leases

Effective January 1, 2019, the Registrants adopted accounting guidance that requires lessees to recognize a right-of-use asset and lease liability for leases, unless determined to meet the definition of a short-term lease. For income statement purposes, the FASB retained a dual model for lessees, requiring leases to be classified as either operating or finance. Operating leases result in straight-line expense recognition. Currently, all Registrant leases are operating leases.

Lessor accounting under the new guidance is similar to the current model, but updated to align with certain changes to the lessee model and current revenue recognition guidance. Lessors classify leases as operating, direct financing, or sales-type.

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In adopting this new guidance, the Registrants elected to use the following practical expedients:

•	The Registrants did not re-assess the lease classifications or initial direct costs of existing leases. The Registrants also did not re-assess existing contracts for leases or lease classification.

•	The Registrants did not evaluate land easements that were not previously accounted for as leases under the new guidance. New land easements are evaluated under the new guidance beginning January 1, 2019.

See Note 9 for the required disclosures resulting from the adoption of the new guidance.

(PPL, LKE, LG&E & KU)

The following table shows the amounts recorded on the Balance Sheets as of January 1, 2019 as a result of the adoption of the new lease guidance using a modified retrospective transition method with transition applied as of the beginning of the period of adoption:

	PPL				LKE				LG&E				KU
Right-of-Use Asset (a)	$	81			$	56			$	23			$	31
Lease Liability - Current (b)	23				18				9				9
Lease Liability - Noncurrent (c)	67				46				18				26

(a)	Right-of-Use Assets are recorded in "Other noncurrent assets" on the Balance Sheets.

(b)	Current lease liabilities are recorded in "Other current liabilities" on the Balance Sheets.

(c)	Noncurrent lease liabilities are recorded in "Other deferred credits and noncurrent liabilities" on the Balance Sheets.

Improvements to Accounting for Hedging Activities

Effective January 1, 2019, the Registrants adopted accounting guidance, using a modified retrospective approach, which reduces complexity when applying hedge accounting as well as improves the transparency of an entity's risk management activities. This guidance eliminates the separate measurement and reporting of hedge ineffectiveness for cash flow and net investment hedges and provides for the ability to perform subsequent qualitative effectiveness assessments. The guidance also allows entities to apply the short-cut method to partial-term fair value hedges of interest rate risk as well as expands the ability to apply the critical terms match method to cash flow hedges of groups of forecasted transactions.

See Note 17 for the additional disclosures of the income statement impacts of hedging activities required from the adoption of this guidance. Disclosures related to ineffectiveness are no longer required. Other impacts of adopting this guidance were not material.

(PPL)

PPL is organized into three segments: U.K. Regulated, Kentucky Regulated and Pennsylvania Regulated. PPL's segments are segmented by geographic location.

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 GBP into U.S. dollars, and certain costs, such as U.S. income taxes, administrative costs, and certain acquisition-related financing costs.

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 acquisition-related financing costs are allocated to the Kentucky Regulated segment.

The Pennsylvania Regulated segment includes the regulated electricity transmission and distribution operations of PPL Electric. In addition, certain costs are allocated to the Pennsylvania Regulated segment.

"Corporate and Other" primarily includes financing costs incurred at the corporate level that have not been allocated or assigned to the segments, certain other unallocated costs, as well as the financial results of Safari Energy, which is presented to reconcile segment information to PPL's consolidated results.

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Income Statement data for the segments and reconciliation to PPL's consolidated results for the years ended December 31 are as follows:

	2019				2018				2017
Operating Revenues from external customers (a)
U.K. Regulated	$	2,167			$	2,268			$	2,091
Kentucky Regulated	3,206				3,214				3,156
Pennsylvania Regulated	2,358				2,277				2,195
Corporate and Other	38				26				5
Total	$	7,769			$	7,785			$	7,447
Depreciation
U.K. Regulated	$	250			$	247			$	230
Kentucky Regulated	547				475				439
Pennsylvania Regulated	386				352				309
Corporate and Other	16				20				30
Total	$	1,199			$	1,094			$	1,008
Amortization (b)
U.K. Regulated	$	25			$	34			$	34
Kentucky Regulated	27				18				24
Pennsylvania Regulated	24				22				33
Corporate and Other	5				4				6
Total	$	81			$	78			$	97
Unrealized (gains) losses on derivatives and other hedging activities (c)
U.K. Regulated	$	62			$	(190	)		$	166
Kentucky Regulated	6				6				6
Corporate and Other	5				(2		)		6
Total	$	73			$	(186	)		$	178
Interest Expense
U.K. Regulated	$	405			$	413			$	397
Kentucky Regulated	298				274				261
Pennsylvania Regulated	169				159				142
Corporate and Other	122				117				101
Total	$	994			$	963			$	901
Income Before Income Taxes
U.K. Regulated	$	1,169			$	1,339			$	804
Kentucky Regulated	530				531				645
Pennsylvania Regulated	607				567				575
Corporate and Other	(151		)		(152		)		(112		)
Total	$	2,155			$	2,285			$	1,912
Income Taxes (d)
U.K. Regulated	$	192			$	225			$	152
Kentucky Regulated	94				120				359
Pennsylvania Regulated	149				136				216
Corporate and Other	(26		)		(23		)		57
Total	$	409			$	458			$	784
Deferred income taxes and investment tax credits (e)
U.K. Regulated	$	140			$	118			$	66
Kentucky Regulated	82				94				294
Pennsylvania Regulated	90				125				257
Corporate and Other	(3		)		18				90
Total	$	309			$	355			$	707

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	2019				2018				2017
Net Income
U.K. Regulated	$	977			$	1,114			$	652
Kentucky Regulated	436				411				286
Pennsylvania Regulated	458				431				359
Corporate and Other	(125		)		(129		)		(169		)
Total	$	1,746			$	1,827			$	1,128

(a)	See Note 1 and Note 3 for additional information on Operating Revenues.

(b)	Represents non-cash expense items that include amortization of operating lease right-of-use assets, regulatory assets, debt discounts and premiums and debt issuance costs.

(c)	Includes unrealized gains and losses from economic activity. See Note 17 for additional information.

(d)	Represents both current and deferred income taxes, including investment tax credits. See Note 6 for additional information on the impact of the TCJA in 2018 and 2017.

(e)	Represents a non-cash expense item that is also included in "Income Taxes."

Cash Flow data for the segments and reconciliation to PPL's consolidated results for the years ended December 31 are as follows:

	2019				2018				2017
Expenditures for long-lived assets
U.K. Regulated	$	857			$	954			$	1,015
Kentucky Regulated	1,097				1,117				892
Pennsylvania Regulated	1,121				1,196				1,254
Corporate and Other	32				1				10
Total	$	3,107			$	3,268			$	3,171

The following provides Balance Sheet data for the segments and reconciliation to PPL's consolidated results as of:

	As of December 31,
	2019				2018
Total Assets
U.K. Regulated (a)	$	17,622			$	16,700
Kentucky Regulated	15,597				15,078
Pennsylvania Regulated	11,918				11,257
Corporate and Other (b)	543				361
Total	$	45,680			$	43,396

(a)	Includes $13.2 billion and $12.4 billion of net PP&E as of December 31, 2019 and December 31, 2018. WPD is not subject to accounting for the effects of certain types of regulation as prescribed by GAAP.

(b)	Primarily consists of unallocated items, including cash, PP&E, goodwill, the elimination of inter-segment transactions as well as the assets of Safari Energy.

Geographic data for the years ended December 31 are as follows:

	2019				2018				2017
Revenues from external customers
U.K.	$	2,167			$	2,268			$	2,091
U.S.	5,602				5,517				5,356
Total	$	7,769			$	7,785			$	7,447

	As of December 31,
	2019				2018
Long-Lived Assets
U.K.	$	13,618			$	12,791
U.S.	23,607				22,384
Total	$	37,225			$	35,175

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(PPL Electric, LKE, LG&E and KU)

PPL Electric has two operating segments that are aggregated into a single reportable segment. LKE, LG&E and KU are individually single operating and reportable segments.

(All Registrants)

The following is a description of the principal activities from which the Registrants and PPL’s segments generate their revenues.

(PPL)

U.K. Regulated Segment Revenue

The U.K. Regulated Segment generates revenues from contracts with customers primarily from WPD’s DUoS operations.

DUoS revenues result from WPD charging licensed third-party energy suppliers for their use of WPD’s distribution systems to deliver energy to their customers. WPD satisfies its performance obligation and DUoS revenue is recognized over-time as electricity is delivered. The amount of revenue recognized is based on actual and forecasted volumes of electricity delivered during the period multiplied by a per-unit energy tariff, plus fixed charges. This method of recognition fairly presents WPD's transfer of electric service to the customer as the calculation is based on volumes, and the tariff rate is set by WPD using a methodology prescribed by Ofgem. Customers are billed monthly and outstanding amounts are typically due within 14 days of the invoice date.

DUoS customers are “at will” customers of WPD with no term contract and no minimum purchase commitment. Performance obligations are limited to the service requested and received to date. Accordingly, there is no unsatisfied performance obligation associated with WPD’s DUoS contracts.

(PPL and PPL Electric)

Pennsylvania Regulated Segment Revenue

The Pennsylvania Regulated Segment generates substantially all of its revenues from contracts with customers from PPL Electric’s tariff-based distribution and transmission of electricity.

Distribution Revenue

PPL Electric provides distribution services to residential, commercial, industrial, municipal and governmental end users of energy. PPL Electric satisfies its performance obligation to its distribution customers and revenue is recognized over-time as electricity is delivered and simultaneously consumed by the customer. The amount of revenue recognized is the volume of electricity delivered during the period multiplied by a per-unit of energy tariff, plus a monthly fixed charge. This method of recognition fairly presents PPL Electric's transfer of electric service to the customer as the calculation is based on actual volumes, and the per-unit of energy tariff rate and the monthly fixed charge are set by the PUC. Customers are typically billed monthly and outstanding amounts are normally due within 21 days of the date of the bill.

Distribution customers are "at will" customers of PPL Electric with no term contract and no minimum purchase commitment. Performance obligations are limited to the service requested and received to date. Accordingly, there is no unsatisfied performance obligation associated with PPL Electric’s retail account contracts.

Transmission Revenue

PPL Electric generates transmission revenues from a FERC-approved PJM Open Access Transmission Tariff. An annual revenue requirement for PPL Electric to provide transmission services is calculated using a formula-based rate. This revenue requirement is converted into a daily rate (dollars per day). PPL Electric satisfies its performance obligation to provide transmission services and revenue is recognized over-time as transmission services are provided and consumed. This method of

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recognition fairly presents PPL Electric's transfer of transmission services as the daily rate is set by a FERC approved formula-based rate. PJM remits payment on a weekly basis.

PPL Electric's agreement to provide transmission services contains no minimum purchase commitment. The performance obligation is limited to the service requested and received to date. Accordingly, PPL Electric has no unsatisfied performance obligations.

(PPL, LKE, LG&E and KU)

Kentucky Regulated Segment Revenue

The Kentucky Regulated Segment generates substantially all of its revenues from contracts with customers from LG&E's and KU's regulated tariff-based sales of electricity and LG&E's regulated tariff-based sales of natural gas.

LG&E and KU are engaged in the generation, transmission, distribution and sale of electricity in Kentucky and, in KU's case, Virginia. LG&E also engages in the distribution and sale of natural gas in Kentucky. Revenue from these activities is generated from tariffs approved by applicable regulatory authorities including the FERC, KPSC and VSCC. LG&E and KU satisfy their performance obligations upon LG&E's and KU's delivery of electricity and LG&E's delivery of natural gas to customers. This revenue is recognized over-time as the customer simultaneously receives and consumes the benefits provided by LG&E and KU. The amount of revenue recognized is the billed volume of electricity or natural gas delivered multiplied by a tariff rate per-unit of energy, plus any applicable fixed charges or additional regulatory mechanisms. Customers are billed monthly and outstanding amounts are typically due within 22 days of the date of the bill. Additionally, unbilled revenues are recognized as a result of customers' bills rendered throughout the month, rather than bills being rendered at the end of the month. Unbilled revenues for a month are calculated by multiplying an estimate of unbilled kWh or Mcf delivered but not yet billed by the estimated average cents per kWh or Mcf. Any difference between estimated and actual revenues is adjusted the following month when the previous unbilled estimate is reversed and actual billings occur. This method of recognition fairly presents LG&E's and KU's transfer of electricity and LG&E's transfer of natural gas to the customer as the amount recognized is based on actual and estimated volumes delivered and the tariff rate per-unit of energy and any applicable fixed charges or regulatory mechanisms as set by the respective regulatory body.

LG&E's and KU's customers generally have no minimum purchase commitment. Performance obligations are limited to the service requested and received to date. Accordingly, there is no unsatisfied performance obligation associated with these customers.

(All Registrants)

The following table reconciles "Operating Revenues" included in each Registrant's Statement of Income with revenues generated from contracts with customers for the years ended December 31:

	2019
	PPL				PPL Electric				LKE				LG&E				KU
Operating Revenues (a)	$	7,769			$	2,358			$	3,206			$	1,500			$	1,740
Revenues derived from:
Alternative revenue programs (b)	(30		)		(6		)		(24		)		(10		)		(14		)
Other (c)	(38		)		(10		)		(21		)		(9		)		(12		)
Revenues from Contracts with Customers	$	7,701			$	2,342			$	3,161			$	1,481			$	1,714

	2018
	PPL				PPL Electric				LKE				LG&E				KU
Operating Revenues (a)	$	7,785			$	2,277			$	3,214			$	1,496			$	1,760
Revenues derived from:
Alternative revenue programs (b)	32				(6		)		38				12				26
Other (c)	(38		)		(12		)		(17		)		(5		)		(12		)
Revenues from Contracts with Customers	$	7,779			$	2,259			$	3,235			$	1,503			$	1,774

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(a)	For the years ended December 31, 2019 and 2018, PPL includes $2.2 billion and $2.3 billion of revenues from external customers reported by the U.K. Regulated segment. PPL Electric and LKE represent revenues from external customers reported by the Pennsylvania Regulated and Kentucky Regulated segments. See Note 2 for additional information.

(b)	Alternative revenue programs include the transmission formula rate for PPL Electric, the ECR and DSM programs for LG&E and KU, the GLT program for LG&E, and the generation formula rate for KU. This line item shows the over/under collection of these rate mechanisms with over-collections of revenue shown as positive amounts in the table above and under-collections shown as negative amounts.

(c)	Represents additional revenues outside the scope of revenues from contracts with customers such as leases and other miscellaneous revenues.

The following table shows revenues from contracts with customers disaggregated by customer class for the years ended December 31:

	2019
	PPL (d)				PPL Electric (d)				LKE				LG&E				KU
Licensed energy suppliers (a)	$	2,032			$	—			$	—			$	—			$	—
Residential	2,610				1,288				1,322				668				654
Commercial	1,257				349				908				466				442
Industrial	621				59				562				180				382
Other (b)	495				52				277				121				156
Wholesale - municipal	43				—				43				—				43
Wholesale - other (c)	49				—				49				46				37
Transmission	594				594				—				—				—
Revenues from Contracts with Customers	$	7,701			$	2,342			$	3,161			$	1,481			$	1,714

	2018
	PPL				PPL Electric				LKE				LG&E				KU
Licensed energy suppliers (a)	$	2,127			$	—			$	—			$	—			$	—
Residential	2,704				1,379				1,325				666				659
Commercial	1,233				368				865				455				410
Industrial	624				54				570				180				390
Other (b)	489				53				278				129				149
Wholesale - municipal	118				—				118				—				118
Wholesale - other (c)	79				—				79				73				48
Transmission	405				405				—				—				—
Revenues from Contracts with Customers	$	7,779			$	2,259			$	3,235			$	1,503			$	1,774

(a)	Represents customers of WPD.

(b)	Primarily includes revenues from pole attachments, street lighting, other public authorities and other non-core businesses.

(c)	Includes wholesale power and transmission revenues. LG&E and KU amounts include intercompany power sales and transmission revenues, which are eliminated upon consolidation at LKE.

(d)	In 2019, management deemed it appropriate to present the revenue offset associated with network integration transmission service (NITS) as distribution revenue rather than transmission revenue.

As discussed in Note 2, PPL's segments are segmented by geographic location. Revenues from external customers for each segment/geographic location are reconciled to revenues from contracts with customers in the table above. For PPL Electric, revenues from contracts with customers are further disaggregated by distribution and transmission, which were $1.7 billion and $594 million for the year ended December 31, 2019 and $1.9 billion and $405 million for the year ended December 31, 2018.

Contract receivables from customers are primarily included in "Accounts receivable - Customer" and "Unbilled revenues" on the Balance Sheets. For PPL Electric, the "Accounts receivable - Customer" balance includes purchased receivables from alternative electricity suppliers. See Note 7 for additional information regarding the purchase of receivables program.

---

The following table shows the accounts receivable balances from contracts with customers that were impaired for the year ended December 31:

	2019				2018
PPL	$	27			$	34
PPL Electric	21				24
LKE	6				9
LG&E	2				4
KU	4				5

The following table shows the balances and certain activity of contract liabilities resulting from contracts with customers:

	PPL				PPL Electric				LKE				LG&E				KU
Contract liabilities as of December 31, 2019	$	44			$	21			$	9			$	5			$	4
Contract liabilities as of December 31, 2018	42				23				9				5				4
Revenue recognized during the year ended December 31, 2019 that was included in the contract liability balance at December 31, 2018	32				11				9				5				4
Contract liabilities as of December 31, 2018	$	42			$	23			$	9			$	5			$	4
Contract liabilities as of December 31, 2017	29				19				8				4				4
Revenue recognized during the year ended December 31, 2018 that was included in the contract liability balance at December 31, 2017	21				8				8				4				4

Contract liabilities result from recording contractual billings in advance for customer attachments to the Registrants' infrastructure and payments received in excess of revenues earned to date. Advanced billings for customer attachments are recognized as revenue ratably over the billing period. Payments received in excess of revenues earned to date are recognized as revenue as services are delivered in subsequent periods.

At December 31, 2019, PPL had $36 million of performance obligations attributable to Corporate and Other that have not been satisfied. Of this amount, PPL expects to recognize approximately $32 million within the next 12 months.

(PPL)

PPL is authorized to issue up to 10 million shares of preferred stock. No PPL preferred stock was issued or outstanding in 2019, 2018 or 2017.

(PPL Electric)

PPL Electric is authorized to issue up to 20,629,936 shares of preferred stock. No PPL Electric preferred stock was issued or outstanding in 2019, 2018 or 2017.

(LG&E)

LG&E is authorized to issue up to 1,720,000 shares of preferred stock at a $25 par value and 6,750,000 shares of preferred stock without par value. LG&E had no preferred stock issued or outstanding in 2019, 2018 or 2017.

(KU)

KU is authorized to issue up to 5,300,000 shares of preferred stock and 2,000,000 shares of preference stock without par value. KU had no preferred or preference stock issued or outstanding in 2019, 2018 or 2017.

---

(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. Incremental non-participating securities that have a dilutive impact are detailed in the table below. In 2019 and 2018, these securities also included the PPL common stock forward sale agreements. See Note 8 for additional information on these agreements which were partially settled in 2018 with the remaining shares settled in 2019. The forward sale agreements were dilutive under the Treasury Stock Method to the extent the average stock price of PPL's common shares exceeded the forward sale price prescribed in the agreements.

Reconciliations of the amounts of income and shares of PPL common stock (in thousands) for the periods ended December 31, used in the EPS calculation are:

	2019				2018				2017
Income (Numerator)
Net income	$	1,746			$	1,827			$	1,128
Less amounts allocated to participating securities	1				2				2
Net income available to PPL common shareowners - Basic and Diluted	$	1,745			$	1,825			$	1,126
Shares of Common Stock (Denominator)
Weighted-average shares - Basic EPS	728,512				704,439				685,240
Add incremental non-participating securities:
Share-based payment awards (a)	1,101				445				2,094
Forward sale agreements	7,141				3,735				—
Weighted-average shares - Diluted EPS	736,754				708,619				687,334
Basic EPS
Net Income available to PPL common shareowners	$	2.39			$	2.59			$	1.64
Diluted EPS
Net Income available to PPL common shareowners	$	2.37			$	2.58			$	1.64

(a)	The Treasury Stock Method was applied to non-participating share-based payment awards.

For the year ended December 31, PPL issued common stock related to stock-based compensation plans and DRIP as follows (in thousands):

	2019
Stock-based compensation plans (a)	1,936
DRIP	1,725

(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.

See Note 8 for additional information on common stock issued under ATM Program and settlement of a portion of the PPL common stock forward sales agreements.

For the years ended December 31, the following shares (in thousands) were excluded from the computations of diluted EPS because the effect would have been antidilutive:

	2019			2018			2017
Stock options	—			172			696
Performance units	5			—			—
Restricted stock units	3			11			—

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(PPL)

"Income Before Income Taxes" included the following:

	2019				2018				2017
Domestic income	$	964			$	1,127			$	874
Foreign income	1,191				1,158				1,038
Total	$	2,155			$	2,285			$	1,912

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for accounting purposes and their basis for income tax purposes and the tax effects of net operating loss and tax credit carryforwards. The provision for PPL's deferred income taxes for regulated assets and liabilities is based upon the ratemaking principles of the applicable jurisdiction. See Notes 1 and 7 for additional information.

Net deferred tax assets have been recognized based on management's estimates of future taxable income for the U.S. and the U.K.

Significant components of PPL's deferred income tax assets and liabilities were as follows:

	2019				2018
Deferred Tax Assets
Deferred investment tax credits	$	31			$	31
Regulatory liabilities	75				87
Income taxes due to customer	462				479
Accrued pension and postretirement costs	211				277
Federal loss carryforwards	324				325
State loss carryforwards	432				419
Federal and state tax credit carryforwards	402				392
Foreign capital loss carryforwards	320				313
Foreign - other	8				10
Contributions in aid of construction	112				139
Domestic - other	99				88
Valuation allowances	(834		)		(808		)
Total deferred tax assets	1,642				1,752
Deferred Tax Liabilities
Domestic plant - net	3,546				3,359
Regulatory assets	262				314
Foreign plant - net	765				724
Foreign - pensions	72				83
Domestic - other	61				40
Total deferred tax liabilities	4,706				4,520
Net deferred tax liability	$	3,064			$	2,768

State deferred taxes are determined by entity and by jurisdiction. As a result, $24 million and $28 million of net deferred tax assets are shown as "Other noncurrent assets" on the Balance Sheets for 2019 and 2018.

At December 31, 2019, PPL had the following loss and tax credit carryforwards, related deferred tax assets and valuation allowances recorded against the deferred tax assets:

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	Gross				Deferred Tax Asset				Valuation Allowance				Expiration
Loss carryforwards
Federal net operating losses	$	1,499			$	315			$	—			2032-2037
Federal charitable contributions	42				9				—				2020-2024
State net operating losses	5,879				432				(393		)		2021-2039
State charitable contributions	1				—				—				2020-2024
Foreign net operating losses	3				—				—				Indefinite
Foreign capital losses	1,880				320				(320		)		Indefinite
Federal - Other	7				1				—				Indefinite

Credit carryforwards
Federal investment tax credit			133			—			2025-2039
Federal alternative minimum tax credit (a)			8			—			Indefinite
Federal foreign tax credits (b)			218			(113	)		2024-2027
Federal - other			24			(6	)		2020-2039
State Recycling Credit			18			—			2028
State - other			1			—			Indefinite

(a)	The TCJA repealed the corporate alternative minimum tax (AMT) for tax years beginning after December 31, 2017. The existing indefinite carryforward period for AMT credits was retained.

(b)	Includes $62 million of foreign tax credits carried forward from 2016 and $156 million of additional foreign tax credits from 2017 related to the taxable deemed dividend associated with the TCJA.

Valuation allowances have been established for the amount that, more likely than not, will not be realized. The changes in deferred tax valuation allowances were as follows:

					Additions
	Balance at Beginning of Period				Charged to Income				Charged to Other Accounts				Deductions				Balance at End of Period
2019	$	808			$	31			$	—			$	5			$	834
2018	838				26				—				56			(a)	808
2017	593				256			(b)	—				11				838

(a)	Decrease in the valuation allowance of approximately $35 million due to the change in the total foreign tax credits available after finalization of the deemed dividend calculation required by the TCJA in 2017. In addition, the deferred tax assets and corresponding valuation allowances were reduced in 2018 by approximately $19 million due to the effect of foreign currency exchange rates.

(b)	Increase in valuation allowance of approximately $145 million related to expected future utilization of both 2017 foreign tax credits and pre-2017 foreign tax credits carried forward. For additional information, see the "Reconciliation of Income Tax Expense" and associated notes below.

In addition, the reduction of the U.S. federal corporate income tax rate enacted by the TCJA in 2017 resulted in a $62 million increase in federal deferred tax assets and a corresponding valuation allowance related to the federal tax benefits of state net operating losses.

PPL Global does not record U.S. income taxes on the unremitted earnings of WPD, as management has determined that such earnings are indefinitely reinvested. Current year distributions from WPD to the U.S. are sourced from a portion of the current year’s earnings of the WPD group. There have been no material changes to the facts underlying PPL’s assertion that historically reinvested earnings of WPD as well as some portion of current year earnings will continue to be indefinitely reinvested. WPD's long-term working capital forecasts and capital expenditure projections for the foreseeable future require reinvestment of WPD's undistributed earnings. Additionally, U.S. long-term working capital forecasts and capital expenditure projections for the foreseeable future do not require or contemplate annual distributions from WPD in excess of some portion of WPD's future annual earnings. The cumulative undistributed earnings are included in "Earnings reinvested" on the Balance Sheets. The amount considered indefinitely reinvested at December 31, 2019 was $7.5 billion. The foregoing is not impacted by U.S. tax reform and the associated conversion from a worldwide to a participation exemption system. It is not practicable to estimate the amount of additional taxes that could be payable on these foreign earnings in the event of repatriation to the U.S.

Details of the components of income tax expense, a reconciliation of federal income taxes derived from statutory tax rates applied to "Income Before Income Taxes" to income taxes for reporting purposes, and details of "Taxes, other than income" were as follows:

---

	2019				2018				2017
Income Tax Expense (Benefit)
Current - Federal	$	(10	)		$	(19	)		$	6
Current - State	19				17				25
Current - Foreign	91				104				45
Total Current Expense (Benefit)	100				102				76
Deferred - Federal (a)	139				203				532
Deferred - State	76				100				88
Deferred - Foreign	123				107				133
Total Deferred Expense (Benefit), excluding operating loss carryforwards	338				410				753
Amortization of investment tax credit	(3		)		(3		)		(3		)
Tax expense (benefit) of operating loss carryforwards
Deferred - Federal	7				(20		)		(16		)
Deferred - State	(33		)		(31		)		(26		)
Total Tax Expense (Benefit) of Operating Loss Carryforwards	(26		)		(51		)		(42		)
Total income tax expense (benefit)	$	409			$	458			$	784
Total income tax expense (benefit) - Federal	$	133			$	161			$	519
Total income tax expense (benefit) - State	62				86				87
Total income tax expense (benefit) - Foreign	214				211				178
Total income tax expense (benefit)	$	409			$	458			$	784

(a)	Due to the enactment of the TCJA, PPL recorded the following in 2017:

•	$220 million of deferred income tax expense related to the impact of the U.S. federal corporate income tax rate reduction from 35% to 21% on deferred tax assets and liabilities;

•	$162 million of deferred tax expense related to the utilization of current year losses resulting from the taxable deemed dividend; partially offset by,

$60 million of deferred tax benefits related to the $205 million of 2017 foreign tax credits partially offset by $145 million of valuation allowances.

In the table above, the following income tax expense (benefit) are excluded from income taxes:

	2019				2018				2017
Other comprehensive income	$	(93	)		$	(6	)		$	(34	)
Valuation allowance on state deferred taxes recorded to other comprehensive income	—				—				(1		)
Total	$	(93	)		$	(6	)		$	(35	)

	2019				2018				2017
Reconciliation of Income Tax Expense (Benefit)
Federal income tax on Income Before Income Taxes at statutory tax rate (a)	$	453			$	480			$	669
Increase (decrease) due to:
State income taxes, net of federal income tax benefit (a)	45				40				46
Valuation allowance adjustments (b)	22				21				36
Impact of lower U.K. income tax rates (c)	(25		)		(25		)		(176		)
U.S. income tax on foreign earnings - net of foreign tax credit (a)(d)	2				3				47
Foreign income return adjustments	—				—				(8		)
Impact of the U.K. Finance Act on deferred tax balances (e)	(14		)		(13		)		(16		)
Depreciation and other items not normalized	(10		)		(11		)		(10		)
Amortization of excess deferred federal and state income taxes (f)	(40		)		(37		)		—
Interest benefit on U.K. financing entities	(12		)		(17		)		(16		)
Deferred tax impact of U.S. tax reform (g)	—				—				220
Deferred tax impact of Kentucky tax reform (h)	—				9				—
Kentucky recycling credit, net of federal income tax expense (i)	(18		)		—				—
Other	6				8				(8		)
Total increase (decrease)	(44		)		(22		)		115
Total income tax expense (benefit)	$	409			$	458			$	784
Effective income tax rate	19.0		%		20.0		%		41.0		%

(a)	The U.S. federal corporate tax rate was reduced from 35% to 21%, as enacted by the TCJA, effective January 1, 2018.

(b)	In 2017, PPL recorded an increase in valuation allowances of $23 million primarily related to foreign tax credits recorded in 2016. The future utilization of these credits is expected to be lower as a result of the TCJA.

---

In 2019, 2018 and 2017, PPL recorded deferred income tax expense of $25 million, $24 million and $16 million for valuation allowances primarily related to increased Pennsylvania net operating loss carryforwards expected to be unutilized.

(c)	The reduction in the U.S. federal corporate income tax rate from 35% to 21% significantly reduced the difference between the U.K. and U.S. income tax rates in 2019 and 2018 compared with 2017.

(d)	In 2017, PPL recorded a federal income tax benefit of $35 million primarily attributable to U.K. pension contributions.

In 2017, PPL recorded deferred income tax expense of $83 million primarily related to enactment of the TCJA. The enacted tax law included a conversion from a worldwide tax system to a territorial tax system, effective January 1, 2018. In the transition to the territorial regime, a one-time transition tax was imposed on PPL’s unrepatriated accumulated foreign earnings in 2017. These earnings were treated as a taxable deemed dividend to PPL of approximately $462 million, including $205 million of foreign tax credits. As the PPL consolidated U.S. group had a taxable loss for 2017, inclusive of the taxable deemed dividend, these credits were recorded as a deferred tax asset. However, it is expected that under the TCJA, only $83 million of the $205 million of foreign tax credits will be realized in the carry forward period. Accordingly, a valuation allowance on the current year foreign tax credits in the amount of $122 million has been recorded to reflect the reduction in the future utilization of the credits. The foreign tax credits associated with the deemed repatriation result in a gross carryforward and corresponding deferred tax asset of $205 million offset by a valuation allowance of $122 million.

(e)	The U.K. Finance Act 2016, enacted in September 2016, reduced the U.K. statutory income tax rate effective April 1, 2020 to 17%. As a result, PPL reduced its net deferred tax liabilities each year as it revalued its balances at the 17% tax rate.

(f)

In 2019 and 2018, PPL recorded lower income tax expense for the amortization of excess deferred income taxes that primarily resulted from the U.S. federal corporate income tax rate reduction from 35% to 21% enacted by the TCJA. This amortization represents each year's refund amount, prior to a tax gross-up, to be paid to customers for previously collected deferred taxes at higher income tax rates.

(g)	In 2017, PPL recorded deferred income tax expense related to the U.S. federal corporate income tax rate reduction from 35% to 21% enacted by the TCJA.

In 2018, PPL recorded deferred income tax expense, primarily associated with LKE’s non-regulated entities, due to the Kentucky corporate income tax rate reduction from 6% to 5%, as enacted by HB 487, effective January 1, 2018.

(h)

In 2019, LKE recorded a deferred income tax benefit associated with two projects placed into service that prepare a generation waste material for reuse and, as a result, qualify for a Kentucky recycling credit. The applicable credit provides tax benefits for a portion of the equipment costs for major recycling projects in Kentucky, with the benefit recognized during the period in which the assets are placed into service.

(i)	In 2018, PPL filed its consolidated federal income tax return, which included updates to the TCJA provisional amounts recorded in 2017. The adjustments to the various provisional amounts that are considered complete as of the filed tax return resulted in an immaterial impact to income tax expense and are discussed in the TCJA section below.

	2019				2018				2017
Taxes, other than income
State gross receipts	$	107			$	103			$	102
State capital stock	—				—				(6		)
Foreign property	127				134				127
Domestic Other	79				75				69
Total	$	313			$	312			$	292

(PPL Electric)

The provision for PPL Electric's deferred income taxes for regulated assets and liabilities is based upon the ratemaking principles reflected in rates established by the PUC and the FERC. The difference in the provision for deferred income taxes for regulated assets and liabilities and the amount that otherwise would be recorded under GAAP is deferred and included in "Regulatory assets" or "Regulatory liabilities" on the Balance Sheets.

Significant components of PPL Electric's deferred income tax assets and liabilities were as follows:

	2019				2018
Deferred Tax Assets
Accrued pension and postretirement costs	$	81			$	110
Contributions in aid of construction	88				118
Regulatory liabilities	31				35
Income taxes due to customers	170				181
State loss carryforwards	6				14
Federal loss carryforwards	78				79
Other	23				25
Total deferred tax assets	477				562

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	2019				2018
Deferred Tax Liabilities
Electric utility plant - net	1,761				1,681
Regulatory assets	139				176
Other	24				25
Total deferred tax liabilities	1,924				1,882
Net deferred tax liability	$	1,447			$	1,320

PPL Electric expects to have adequate levels of taxable income to realize its recorded deferred income tax assets.

At December 31, 2019, PPL Electric had the following loss carryforwards and related deferred tax assets:

	Gross				Deferred Tax Asset				Expiration
Loss carryforwards
Federal net operating losses	$	363			$	76			2032-2037
Federal charitable contributions	9				2				2020-2024
State net operating losses	81				6				2031-2032

Credit carryforwards were insignificant at December 31, 2019.

Details of the components of income tax expense, a reconciliation of federal income taxes derived from statutory tax rates applied to "Income Before Income Taxes" to income taxes for reporting purposes, and details of "Taxes, other than income" were as follows:

	2019				2018				2017
Income Tax Expense (Benefit)
Current - Federal	$	44			$	2			$	(65	)
Current - State	15				9				20
Total Current Expense (Benefit)	59				11				(45		)
Deferred - Federal (a)	51				96				234
Deferred - State	39				37				29
Total Deferred Expense (Benefit), excluding operating loss carryforwards	90				133				263
Tax expense (benefit) of operating loss carryforwards
Deferred - Federal	—				(8		)		(5		)
Total Tax Expense (Benefit) of Operating Loss Carryforwards	—				(8		)		(5		)
Total income tax expense (benefit)	$	149			$	136			$	213
Total income tax expense (benefit) - Federal	$	95			$	90			$	164
Total income tax expense (benefit) - State	54				46				49
Total income tax expense (benefit)	$	149			$	136			$	213

(a)	Due to the enactment of the TCJA in 2017, PPL Electric recorded a $13 million deferred tax benefit related to the impact of the U.S. federal corporate income tax rate reduction from 35% to 21% on deferred tax assets and liabilities.

	2019				2018				2017
Reconciliation of Income Tax Expense (Benefit)
Federal income tax on Income Before Income Taxes at statutory tax rate (a)	$	127			$	119			$	201
Increase (decrease) due to:
State income taxes, net of federal income tax benefit (a)	47				43				36
Depreciation and other items not normalized	(10		)		(11		)		(8		)
Amortization of excess deferred federal income taxes (b)	(18		)		(17		)		—
Deferred tax impact of U.S. tax reform (c)	—				—				(13		)
Other	3				2				(3		)
Total increase (decrease)	22				17				12
Total income tax expense (benefit)	$	149			$	136			$	213
Effective income tax rate	24.6		%		24.0		%		37.0		%

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(a)	The U.S. federal corporate tax rate was reduced from 35% to 21%, as enacted by the TCJA, effective January 1, 2018.

(b)

In 2019 and 2018, PPL Electric recorded lower income tax expense for the amortization of excess deferred taxes that primarily resulted from the U.S. federal corporate income tax rate reduction from 35% to 21% enacted by the TCJA. This amortization represents each year's refund amount, prior to a tax gross-up, to be paid to customers for previously collected deferred taxes at higher income tax rates.

(c)	In 2017, PPL Electric recorded a deferred tax benefit related to the U.S. federal corporate income tax rate reduction from 35% to 21% enacted by the TCJA.

	2019				2018				2017
Taxes, other than income
State gross receipts	$	107			$	103			$	102
Property and other	5				6				5
Total	$	112			$	109			$	107

 

(LKE)

 

The provision for LKE's deferred income taxes for regulated assets and liabilities is based upon the ratemaking principles reflected in rates established by the KPSC, VSCC and the FERC. The difference in the provision for deferred income taxes for regulated assets and liabilities and the amount that otherwise would be recorded under GAAP is deferred and included in "Regulatory assets" or "Regulatory liabilities" on the Balance Sheets.

Significant components of LKE's deferred income tax assets and liabilities were as follows:

	2019				2018
Deferred Tax Assets
Federal loss carryforwards	$	140			$	142
State loss carryforwards	31				33
Federal tax credit carryforwards	162				169
Contributions in aid of construction	23				21
Regulatory liabilities	44				52
Accrued pension and postretirement costs	71				92
State tax credit carryforwards	19				1
Income taxes due to customers	292				299
Deferred investment tax credits	31				32
Lease liabilities	14				—
Valuation allowances	(6		)		(8		)
Other	28				28
Total deferred tax assets	849				861
Deferred Tax Liabilities
Plant - net	1,778				1,671
Regulatory assets	122				138
Lease right-of-use assets	12				—
Other	6				8
Total deferred tax liabilities	1,918				1,817
Net deferred tax liability	$	1,069			$	956

At December 31, 2019, LKE had the following loss and tax credit carryforwards, related deferred tax assets, and valuation allowances recorded against the deferred tax assets:

	Gross				Deferred Tax Asset				Valuation Allowance				Expiration
Loss carryforwards
Federal net operating losses	$	668			$	140			$	—			2032 - 2037
Federal charitable contributions	23				5				—				2020 - 2024
State net operating losses	797				31				—				2029 - 2038

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	Gross		Deferred Tax Asset			Valuation Allowance			Expiration
Credit carryforwards
Federal investment tax credit			133			—			2025 - 2028, 2036 - 2039
Federal alternative minimum tax credit (a)			7			—			Indefinite
Federal - other			22			(6	)		2020-2039
State - recycling credit			18			—			2028
State - other			1			—			Indefinite

(a)	The TCJA repealed the corporate alternative minimum tax (AMT) for tax years beginning after December 31, 2017. The existing indefinite carryforward period for AMT credits was retained.

Changes in deferred tax valuation allowances were: 

	Balance at Beginning of Period				Additions				Deductions				Balance at End of Period
2019	$	8			$	3			$	5		(a)	$	6
2018	8				—				—				8
2017	11				4				7			(a)	8

(a)	Tax credits expiring.

Details of the components of income tax expense, a reconciliation of federal income taxes derived from statutory tax rates applied to "Income Before Income Taxes" to income taxes for reporting purposes, and details of "Taxes, other than income" were:

	2019				2018				2017
Income Tax Expense (Benefit)
Current - Federal	$	20			$	31			$	74
Current - State	—				4				6
Total Current Expense (Benefit)	20				35				80
Deferred - Federal (a)	81				65				268
Deferred - State (b)	5				34				32
Total Deferred Expense (Benefit), excluding benefits of operating loss carryforwards	86				99				300
Amortization of investment tax credit - Federal	(3		)		(3		)		(3		)
Tax expense (benefit) of operating loss carryforwards
Deferred - Federal	—				(2		)		(2		)
Total Tax Expense (Benefit) of Operating Loss Carryforwards	—				(2		)		(2		)
Total income tax expense (benefit) (c)	$	103			$	129			$	375
Total income tax expense (benefit) - Federal	$	98			$	91			$	337
Total income tax expense (benefit) - State	5				38				38
Total income tax expense (benefit) (c)	$	103			$	129			$	375

(a)	Due to the enactment of the TCJA in 2017, LKE recorded $112 million of deferred income tax expense, of which $108 million related to the impact of the U.S. federal corporate income tax rate reduction from 35% to 21% on deferred tax assets and liabilities and $4 million related to valuation allowances on tax credits expiring in 2021.

(b)	In 2019, LKE recorded a deferred income tax benefit associated with two projects placed into service that prepare a generation waste material for reuse and, as a result, qualify for a Kentucky recycling credit. The applicable credit provides tax benefits for a portion of the equipment costs for major recycling projects in Kentucky

(c)	Excludes deferred federal and state tax expense (benefit) recorded to OCI of $(1) million in 2019, $5 million in 2018 and $(10) million in 2017.

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	2019				2018				2017
Reconciliation of Income Tax Expense (Benefit)
Federal income tax on Income Before Income Taxes at statutory tax rate (a)	$	120			$	121			$	242
Increase (decrease) due to:
State income taxes, net of federal income tax benefit	23				22				26
Amortization of investment tax credit	(3		)		(3		)		(3		)
Amortization of excess deferred federal and state income taxes (b)	(23		)		(20		)		(2		)
Deferred tax impact of U.S. tax reform (c)	—				—				112
Deferred tax impact of state tax reform (d)	—				9				—
Kentucky Recycling Credit, net of federal income tax expense (e)	(18		)		—				—
Other	4				—				—
Total increase (decrease)	(17		)		8				133
Total income tax expense (benefit)	$	103			$	129			$	375
Effective income tax rate	18.0		%		22.5		%		54.3		%

(a)	The U.S. federal corporate tax rate was reduced from 35% to 21%, as enacted by the TCJA, effective January 1, 2018.

(b)

In 2019 and 2018, LKE recorded lower income tax expense for the amortization of excess deferred income taxes that primarily resulted from the U.S. federal corporate income tax rate reduction from 35% to 21% enacted by the TCJA. This amortization represents each year's refund amount, prior to a tax gross-up, to be paid to customers for previously collected deferred taxes at higher income tax rates.

(c)	In 2017, LKE recorded deferred income tax expense primarily due to the U.S. federal corporate income tax rate reduction from 35% to 21% enacted by the TCJA.

(d)	In 2018, LKE recorded deferred income tax expense, primarily associated with LKE's non-regulated entities, due to the Kentucky corporate income tax rate reduction from 6% to 5%, as enacted by HB 487, effective January 1, 2018.

(e)	In 2019, LKE recorded a deferred income tax benefit associated with two projects placed into service that prepare a generation waste material for reuse and, as a result, qualify for a Kentucky recycling credit. The applicable credit provides tax benefits for a portion of the equipment costs for major recycling projects in Kentucky.

	2019				2018				2017
Taxes, other than income
Property and other	$	74			$	70			$	65
Total	$	74			$	70			$	65

(LG&E)

 

The provision for LG&E's deferred income taxes for regulated assets and liabilities is based upon the ratemaking principles reflected in rates established by the KPSC and the FERC. The difference in the provision for deferred income taxes for regulated assets and liabilities and the amount that otherwise would be recorded under GAAP is deferred and included in "Regulatory assets" or "Regulatory liabilities" on the Balance Sheets.

Significant components of LG&E's deferred income tax assets and liabilities were as follows:

	2019				2018
Deferred Tax Assets
Contributions in aid of construction	$	15			$	14
Regulatory liabilities	19				24
Accrued pension and postretirement costs	6				16
Deferred investment tax credits	8				9
Income taxes due to customers	136				139
State tax credit carryforwards	14				—
Lease liabilities	5				—
Valuation allowances	(14		)		—
Other	10				15
Total deferred tax assets	199				217

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	2019				2018
Deferred Tax Liabilities
Plant - net	811				751
Regulatory assets	77				88
Lease right-of-use assets	4				—
Other	4				6
Total deferred tax liabilities	896				845
Net deferred tax liability	$	697			$	628

At December 31, 2019 LG&E had $14 million of state credit carryforwards that expire in 2028. In 2019, LG&E recorded a $14 million valuation allowance related to state credit carryforwards due to insufficient projected Kentucky taxable income.

 

Details of the components of income tax expense, a reconciliation of federal income taxes derived from statutory tax rates applied to "Income Before Income Taxes" to income taxes for reporting purposes, and details of "Taxes, other than income" were:

	2019				2018				2017
Income Tax Expense (Benefit)
Current - Federal	$	4			$	—			$	—
Current - State	4				4				5
Total Current Expense (Benefit)	8				4				5
Deferred - Federal	46				51				112
Deferred - State	10				10				14
Total Deferred Expense (Benefit), excluding benefits of operating loss carryforwards	56				61				126
Amortization of investment tax credit - Federal	(1		)		(1		)		(1		)
Tax expense (benefit) of operating loss carryforwards
Deferred - Federal	—				—				1
Total Tax Expense (Benefit) of Operating Loss Carryforwards	—				—				1
Total income tax expense (benefit)	$	63			$	64			$	131
Total income tax expense (benefit) - Federal	$	49			$	50			$	112
Total income tax expense (benefit) - State	14				14				19
Total income tax expense (benefit)	$	63			$	64			$	131

	2019				2018				2017
Reconciliation of Income Tax Expense (Benefit)
Federal income tax on Income Before Income Taxes at statutory tax rate (a)	$	62			$	62			$	120
Increase (decrease) due to:
State income taxes, net of federal income tax benefit	12				11				14
Amortization of excess deferred federal and state income taxes (b)	(10		)		(8		)		(1		)
Kentucky recycling credit, net of federal income tax expense (c)	(14		)		—				—
Valuation allowance adjustments (c)	14				—				—
Other	(1		)		(1		)		(2		)
Total increase (decrease)	1				2				11
Total income tax expense (benefit)	$	63			$	64			$	131
Effective income tax rate	21.4		%		21.5		%		38.1		%

(a)	The U.S. federal corporate tax rate was reduced from 35% to 21%, as enacted by the TCJA, effective January 1, 2018.

(b)

In 2019 and 2018, LG&E recorded lower income tax expense for the amortization of excess deferred income taxes that primarily resulted from the U.S. federal corporate income tax rate reduction from 35% to 21% enacted by the TCJA. This amortization represents each year's refund amount, prior to a tax gross-up, to be paid to customers for previously collected deferred taxes at higher income tax rates.

(c)

In 2019, LG&E recorded a deferred income tax benefit associated with two projects placed into service that prepare a generation waste material for reuse and, as a result, qualify for a Kentucky recycling credit. The applicable credit provides tax benefits for a portion of the equipment costs for major recycling projects in Kentucky. This amount has been reserved due to insufficient Kentucky taxable income projected at LG&E.

	2019				2018				2017
Taxes, other than income
Property and other	$	39			$	36			$	33
Total	$	39			$	36			$	33

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(KU)

 

The provision for KU's deferred income taxes for regulated assets and liabilities is based upon the ratemaking principles reflected in rates established by the KPSC, VSCC and the FERC. The difference in the provision for deferred income taxes for regulated assets and liabilities and the amount that otherwise would be recorded under GAAP is deferred and included in "Regulatory assets" or "Regulatory liabilities" on the Balance Sheets.

Significant components of KU's deferred income tax assets and liabilities were as follows:

	2019				2018
Deferred Tax Assets
Contributions in aid of construction	$	8			$	7
Regulatory liabilities	25				28
Accrued pension and postretirement costs	—				7
Deferred investment tax credits	23				23
Income taxes due to customers	156				160
State tax credit carryforwards	5				—
Lease liabilities	8				—
Valuation allowances	(4		)		—
Other	3				3
Total deferred tax assets	224				228
Deferred Tax Liabilities
Plant - net	959				911
Regulatory assets	45				50
Accrued pension and postretirement costs	2				—
Lease right-of-use assets	7				—
Other	3				2
Total deferred tax liabilities	1,016				963
Net deferred tax liability	$	792			$	735

At December 31, 2019 KU had $5 million of state credit carryforwards of which $4 million will expire in 2028 and $1 million that has an indefinite carryforward period. In 2019, KU recorded a $4 million valuation allowance related to state credit carryforwards due to insufficient projected Kentucky taxable income.

Details of the components of income tax expense, a reconciliation of federal income taxes derived from statutory tax rates applied to "Income Before Income Taxes" to income taxes for reporting purposes, and details of "Taxes, other than income" were: 

	2019				2018				2017
Income Tax Expense (Benefit)
Current - Federal	$	35			$	22			$	—
Current - State	5				6				7
Total Current Expense (Benefit)	40				28				7
Deferred - Federal	28				40				138
Deferred - State	13				10				16
Total Deferred Expense (Benefit)	41				50				154
Amortization of investment tax credit - Federal	(2		)		(2		)		(2		)
Total income tax expense (benefit)	$	79			$	76			$	159
Total income tax expense (benefit) - Federal	$	61			$	60			$	136
Total income tax expense (benefit) - State	18				16				23
Total income tax expense (benefit)	$	79			$	76			$	159

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	2019				2018				2017
Reconciliation of Income Tax Expense (Benefit)
Federal income tax on Income Before Income Taxes at statutory tax rate (a)	$	78			$	76			$	146
Increase (decrease) due to:
State income taxes, net of federal income tax benefit	15				13				15
Amortization of investment tax credit	(2		)		(2		)		(2		)
Amortization of excess deferred federal and state income taxes (b)	(13		)		(12		)		(1		)
Kentucky recycling credit, net of federal income tax expense (c)	(4		)		—				—
Valuation allowance adjustments (c)	4				—				—
Other	1				1				1
Total increase (decrease)	1				—				13
Total income tax expense (benefit)	$	79			$	76			$	159
Effective income tax rate	21.2		%		21.0		%		38.0		%

(a)	The U.S. federal corporate tax rate was reduced from 35% to 21%, as enacted by the TCJA, effective January 1, 2018.

(b)	In 2019 and 2018, KU recorded lower income tax expense for the amortization of excess deferred income taxes that primarily resulted from the U.S. federal corporate income tax rate reduction from 35% to 21% enacted by the TCJA. This amortization represents each year's refund amount, prior to a tax gross-up, to be paid to customers for previously collected deferred taxes at higher income tax rates.

(c)

In 2019, KU recorded a deferred income tax benefit associated with two projects placed into service that prepare a generation waste material for reuse and, as a result, qualify for a Kentucky recycling credit. The applicable credit provides tax benefits for a portion of the equipment costs for major recycling projects in Kentucky. This amount has been reserved due to insufficient Kentucky taxable income projected at KU.

	2019				2018				2017
Taxes, other than income
Property and other	$	35			$	34			$	32
Total	$	35			$	34			$	32

Unrecognized Tax Benefits (All Registrants)

 

PPL or its subsidiaries file tax returns in four major tax jurisdictions. The income tax provisions for PPL Electric, LG&E and KU are calculated in accordance with an intercompany tax sharing agreement, which provides that taxable income be calculated as if each domestic subsidiary filed a separate consolidated return. PPL Electric or its subsidiaries indirectly or directly file tax returns in two major tax jurisdictions, and LKE, LG&E and KU or their subsidiaries indirectly or directly file tax returns in two major tax jurisdictions. With few exceptions, at December 31, 2019, these jurisdictions, as well as the tax years that are no longer subject to examination, were as follows. 

	PPL		PPL Electric		LKE		LG&E		KU
U.S. (federal)	2015 and prior		2015 and prior		2015 and prior		2015 and prior		2015 and prior
Pennsylvania (state) (a)	2015 and prior		2015 and prior
Kentucky (state)	2014 and prior				2014 and prior		2014 and prior		2014 and prior
U.K. (foreign)	2015 and prior

(a)	Tax year 2013 is still subject to examination.

Tax Cuts and Jobs Act (TCJA)

On December 22, 2017, President Trump signed into law the TCJA. Substantially all of the provisions of the TCJA were effective for taxable years beginning after December 31, 2017. The TCJA included significant changes to the taxation of corporations, including provisions specifically applicable to regulated public utilities. The more significant changes that impact the Registrants were:

•	The reduction in the U.S. federal corporate income tax rate from a top marginal rate of 35% to a flat rate of 21%, effective January 1, 2018;

•	The exclusion from U.S. federal taxable income of dividends from foreign subsidiaries and the associated "transition tax;"

•	Limitations on the tax deductibility of interest expense, with an exception to these limitations for regulated public utilities;

•	Full current year expensing of capital expenditures with an exception for regulated public utilities that qualify for the exception to the interest expense limitation; and

•	The continuation of certain rate normalization requirements for accelerated depreciation benefits. For non-regulated businesses, the TCJA generally provides for full expensing of property acquired after September 27, 2017.

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Under GAAP, the tax effect of changes in tax laws must be recognized in the period in which the law is enacted, or December 2017 for the TCJA. The changes enacted by the TCJA were recorded as an adjustment to the Registrants' deferred tax provisions, and were reflected in "Income Taxes" on the Statement of Income for the year ended December 31, 2017 as follows:

	PPL				PPL Electric				LKE				LG&E				KU
Income tax expense (benefit)	$	321			$	(13	)		$	112			$	—			$	—

The components of these adjustments are discussed below:

Reduction of U.S. Federal Corporate Income Tax Rate

GAAP requires deferred tax assets and liabilities to be measured at the enacted tax rate expected to apply when temporary differences are to be realized or settled. Thus, at the date of enactment, the Registrants' deferred taxes were remeasured based upon the U.S. federal corporate income tax rate of 21%. For PPL’s regulated entities, the changes in deferred taxes were, in large part, recorded as an offset to either a regulatory asset or regulatory liability and will be reflected in future rates charged to customers. The tax rate reduction impacts on non-regulated deferred tax assets and liabilities were recorded as an adjustment to the Registrants' deferred tax provisions, and were reflected in "Income Taxes" on the Statement of Income for the year ended December 31, 2017 as follows:

	PPL				PPL Electric				LKE				LG&E				KU
Income tax expense (benefit)	$	220			$	(13	)		$	112			$	—			$	—

As indicated in Note 1 - "Summary of Significant Accounting Policies - Income Taxes", PPL’s U.S. regulated operations' accounting for income taxes are impacted by rate regulation. Therefore, reductions in accumulated deferred income tax balances due to the reduction in the U.S. federal corporate income tax rate to 21% under the provisions of the TCJA resulted in amounts previously collected from utility customers for these deferred taxes to be refundable to such customers over a period of time. The TCJA included provisions that stipulate how these excess deferred taxes are to be passed back to customers for certain accelerated tax depreciation benefits. Refunds of other deferred taxes either have been or will be determined by the Registrants’ regulators. The Balance Sheets at December 31, 2017 reflected the increase to the Registrants' net regulatory liabilities as a result of the TCJA as follows:

	PPL				PPL Electric				LKE				LG&E				KU
Net Increase in Regulatory Liabilities	$	2,185			$	1,019			$	1,166			$	532			$	634

Transition Tax

The TCJA included a conversion from a worldwide tax system to a territorial tax system, effective January 1, 2018. In the transition to the territorial regime, a one-time transition tax was imposed on PPL’s unrepatriated accumulated foreign earnings in 2017. These earnings were treated as a taxable deemed dividend to PPL of approximately $462 million for purposes of the 2017 tax provision. As the PPL consolidated U.S. group had a taxable loss for 2017, inclusive of the taxable deemed dividend, the foreign tax credits associated with the deemed dividend were recorded as a deferred tax asset. However, it is expected that under the TCJA, the current and prior year foreign tax credit carryforwards will not be fully realizable.

As a result, the net deferred income tax expense impact of the deemed repatriation was $101 million and was recorded in "Income Taxes" on the PPL Statement of Income for the year ended December 31, 2017 and "Deferred tax liabilities" on the PPL Balance Sheet at December 31, 2017.

2018 Impacts of TCJA

The Registrants recognized certain provisional amounts relating to the impact of the enactment of the TCJA in their December 31, 2017 financial statements, in accordance with SEC guidance. Included in those provisional amounts were estimates of tax depreciation, deductible executive compensation, accumulated foreign earnings, foreign tax credits, and deemed dividends from foreign subsidiaries, all of which were based on the interpretation and application of various provisions of the TCJA.

In the third quarter of 2018, PPL filed its consolidated federal income tax return, which was prepared using guidance issued by the U.S. Treasury Department and the IRS since the filing of each Registrant's 2017 Form 10-K. Accordingly, the Registrants updated the following provisional amounts and now consider them to be complete: (1) the amount of the deemed dividend and associated foreign tax credits relating to the transition tax imposed on accumulated foreign earnings as of December 31, 2017;

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(2) the amount of accelerated 100% "bonus" depreciation PPL was eligible to claim in its 2017 federal income tax return; and (3) the related impacts on PPL's 2017 consolidated federal net operating loss to be carried forward to future periods. In addition, the Registrants recorded the tax impact of the U.S. federal corporate income tax rate reduction from 35% to 21% on the changes to deferred tax assets and liabilities resulting from the completed provisional amounts. The completed provisional amounts related to the tax rate reduction had an insignificant impact on the net regulatory liabilities of PPL's U.S. regulated operations. In the fourth quarter of 2018, PPL completed its analysis of the deductibility of executive compensation awarded as of November 2, 2017 and concluded that no material change to the provisional amounts was required. The final amounts reported in PPL's 2017 federal income tax return, provisional amounts for the year ended December 31, 2017, the related measurement period adjustments, and the resulting tax impact for the year ended December 31, 2018 were as follows:

	Taxable Income (Loss) (a)
	Adjustments per 2017 Tax Return				Adjustments per 2017 Tax Provision				2018 Adjustments
PPL
Deemed Dividend	$	397			$	462			$	(65	)
Bonus Depreciation (b)	(67		)		—				(67		)
Consolidated Federal Net Operating Loss due to the TCJA (c)	(330		)		(462		)		132
Total	$	—			$	—			$	—
PPL Electric
Bonus Depreciation (b)	$	(39	)		$	—			$	(39	)
Consolidated Federal Net Operating Loss reallocated due to the TCJA (c)	(68		)		(105		)		37
Total	$	(107	)		$	(105	)		$	(2	)
LKE
Bonus Depreciation (b)	$	(28	)		$	—			$	(28	)
Consolidated Federal Net Operating Loss reallocated due to the TCJA (c)	(32		)		(45		)		13
Total	$	(60	)		$	(45	)		$	(15	)
LG&E
Bonus Depreciation (b)	$	(17	)		$	—			$	(17	)
Consolidated Federal Net Operating Loss reallocated due to the TCJA (c)	17				—				17
Total	$	—			$	—			$	—
KU
Bonus Depreciation (b)	$	(11	)		$	—			$	(11	)
Consolidated Federal Net Operating Loss reallocated due to the TCJA (c)	11				—				11
Total	$	—			$	—			$	—

(a)	The above table reflects, for each item, the amount subject to change as a result of the TCJA and does not reflect the total amount of each item included in the return and the provision.

(b)	The TCJA increased the bonus depreciation percentage from 50% to 100% for qualified property acquired and placed in service after September 27, 2017 and before January 1, 2018. Increases in tax depreciation reduce the Registrants' taxes payable and increase net deferred tax liabilities with no impact to “Income Taxes” on the Statements of Income.

(c)	An increase in the consolidated federal net operating loss reduces net deferred tax liabilities with the opposite effect if there is a decrease in the consolidated federal net operating loss. These increases or decreases have no impact to “Income Taxes” on the Statements of Income.

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	Income Tax Expense (Benefit)
	Adjustments per 2017 Tax Return				Adjustments per 2017 Tax Provision				2018 Adjustments
PPL
Deemed Dividend	$	139			$	161			$	(22	)
Foreign Tax Credits	(157		)		(205		)		48
Valuation of Foreign Tax Credit Carryforward	110				145				(35		)
Reduction in U.S. federal income tax rate	229				220				9
Total	$	321			$	321			$	—
PPL Electric
Reduction in U.S. federal income tax rate	$	(13	)		$	(13	)		$	—
LKE
Reduction in U.S. federal income tax rate	$	110			$	112			$	(2	)

The Registrants' accounting related to the effects of the TCJA on financial results for the period ended December 31, 2017 was complete as of December 31, 2018 with respect to all provisional amounts.

2019 TCJA Regulatory Update

The IRS issued proposed regulations for certain provisions of the TCJA in 2018, including interest deductibility and Global Intangible Low-Taxed Income (GILTI). In 2019, final and new proposed regulations were issued relating to the GILTI provisions. PPL has determined that neither the final or new proposed regulations materially change PPL's conclusion that currently no incremental tax arises under these rules. Proposed regulations relating to the limitation on the deductibility of interest expense were issued in November 2018 and such regulations provide detailed rules implementing the broader statutory provisions. These proposed regulations should not apply to the Registrants until the year in which the regulations are issued in final form, which is expected to be in 2020. It is uncertain what form the final regulations will take and, therefore, the Registrants cannot predict what impact the final regulations will have on the tax deductibility of interest expense. However, if the proposed regulations were issued as final in their current form, the Registrants could have a limitation on a portion of their interest expense deduction for tax purposes and such limitation could be significant. PPL expressed its views on these proposed regulations in a comment letter addressed to the IRS on February 26, 2019.

Other

Kentucky State Tax Reform (All Registrants)

HB 487, which became law on April 27, 2018, provides for significant changes to the Kentucky tax code including (1) adopting mandatory combined reporting for corporate members of unitary business groups for taxable years beginning on or after January 1, 2019 (members of a unitary business group may make an eight-year binding election to file consolidated corporate income tax returns with all members of their federal affiliated group) and (2) a reduction in the Kentucky corporate income tax rate from 6% to 5% for taxable years beginning after December 31, 2017. PPL is evaluating the impact, if any, of unitary or elective consolidated income tax reporting on all its Registrants. LKE recognized a deferred tax charge of $9 million in 2018 primarily associated with the remeasurement of non-regulated accumulated deferred income tax balances.

As indicated in Note 1, LG&E's and KU's accounting for income taxes is impacted by rate regulation. Therefore, reductions in regulated accumulated deferred income tax balances due to the reduction in the Kentucky corporate income tax rate to 5% under the provisions of HB 487 will result in amounts previously collected from utility customers for these deferred taxes to be refundable to such customers in future periods. In 2018, LG&E and KU recorded the impact of the reduced tax rate, related to the remeasurement of deferred income taxes, as an increase in regulatory liabilities of $16 million and $19 million. In 2019, LG&E and KU began returning state excess deferred income taxes to customers in conjunction with the 2018 Kentucky base rate case. See Note 7 for additional information related to the rate case proceedings.

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Regulatory Assets and Liabilities

(All Registrants)

PPL, PPL Electric, LKE, LG&E and KU reflect the effects of regulatory actions in the financial statements for their cost-based rate-regulated utility operations. Regulatory assets and liabilities are classified as current if, upon initial recognition, the entire amount related to an item will be recovered or refunded within a year of the balance sheet date.

(PPL)

WPD is not subject to accounting for the effects of certain types of regulation as prescribed by GAAP and does not record regulatory assets and liabilities. See Note 1 for additional information.

(PPL, LKE, LG&E and KU)

LG&E is subject to the jurisdiction of the KPSC and FERC, and KU is subject to the jurisdiction of the KPSC, FERC and VSCC.

LG&E's and KU's Kentucky base rates are calculated based on a return on capitalization (common equity, long-term debt and short-term debt) including adjustments for certain net investments and costs recovered separately through other means. As such, LG&E and KU generally earn a return on regulatory assets.

(PPL, LKE and KU)

KU's Virginia base rates are calculated based on a return on rate base (net utility plant plus working capital less accumulated deferred income taxes and miscellaneous deductions). As all regulatory assets and liabilities, except for regulatory assets and liabilities related to the levelized fuel factor, pension and postretirement benefits, and AROs related to certain CCR impoundments, are excluded from the return on rate base utilized in the calculation of Virginia base rates, no return is earned on the related assets.

KU's rates to municipal customers for wholesale power requirements are calculated based on annual updates to a formula rate that utilizes a return on rate base (net utility plant plus working capital less accumulated deferred income taxes and miscellaneous deductions). As all regulatory assets and liabilities are excluded from the return on rate base utilized in the development of municipal rates, no return is earned on the related assets.

(PPL and PPL Electric)

PPL Electric's distribution base rates are calculated based on recovery of costs as well as a return on distribution rate base (net utility plant plus a working capital allowance less plant-related deferred taxes and other miscellaneous additions and deductions). PPL Electric's transmission revenues are billed in accordance with a FERC tariff that allows for recovery of transmission costs incurred, a return on transmission-related rate base (net utility plant plus a working capital allowance less plant-related deferred taxes and other miscellaneous additions and deductions) and an automatic annual update. See "Transmission Formula Rate" below for additional information on this tariff. All regulatory assets and liabilities are excluded from distribution and transmission return on investment calculations; therefore, generally no return is earned on PPL Electric's regulatory assets.

(All Registrants)

The following table provides information about the regulatory assets and liabilities of cost-based rate-regulated utility operations at December 31:

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	PPL								PPL Electric
	2019				2018				2019				2018
Current Regulatory Assets:
Gas supply clause	$	8			$	12			$	—			$	—
Smart meter rider	13				11				13				11
Plant outage costs	32				10				—				—
Transmission formula rate	—				—				3				—
Transmission service charge	10				—				10				—
Other	4				3				—				—
Total current regulatory assets (a)	$	67			$	36			$	26			$	11
Noncurrent Regulatory Assets:
Defined benefit plans	$	800			$	963			$	467			$	558
Storm costs	39				56				15				22
Unamortized loss on debt	41				45				18				22
Interest rate swaps	22				20				—				—
Terminated interest rate swaps	81				87				—				—
Accumulated cost of removal of utility plant	220				200				220				200
AROs	279				273				—				—
Act 129 compliance rider	6				19				6				19
Other	4				10				—				3
Total noncurrent regulatory assets	$	1,492			$	1,673			$	726			$	824

	PPL								PPL Electric
	2019				2018				2019				2018
Current Regulatory Liabilities:
Generation supply charge	$	23			$	33			$	23			$	33
Transmission service charge	—				—				—				3
Environmental cost recovery	5				16				—				—
Universal service rider	9				27				9				27
Transmission formula rate	—				—				—				3
Fuel adjustment clause	8				—				—				—
TCJA customer refund	61				20				59				3
Storm damage expense rider	5				5				5				5
Generation formula rate	1				7				—				—
Other	3				14				—				—
Total current regulatory liabilities	$	115			$	122			$	96			$	74
Noncurrent Regulatory Liabilities:
Accumulated cost of removal of utility plant	$	640			$	674			$	—			$	—
Power purchase agreement - OVEC	51				59				—				—
Net deferred taxes	1,756				1,826				588				629
Defined benefit plans	51				37				11				5
Terminated interest rate swaps	68				72				—				—
TCJA customer refund	—				41				—				41
Other	6				5				—				—
Total noncurrent regulatory liabilities	$	2,572			$	2,714			$	599			$	675

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	LKE								LG&E								KU
	2019				2018				2019				2018				2019				2018
Current Regulatory Assets:
Plant outage costs	$	32			$	10			$	16			$	7			$	16			$	3
Gas supply clause	8				12				8				12				—				—
Other	1				3				1				2				—				1
Total current regulatory assets	$	41			$	25			$	25			$	21			$	16			$	4
Noncurrent Regulatory Assets:
Defined benefit plans	$	333			$	405			$	206			$	249			$	127			$	156
Storm costs	24				34				14				20				10				14
Unamortized loss on debt	23				23				14				15				9				8
Interest rate swaps	22				20				22				20				—				—
Terminated interest rate swaps	81				87				47				51				34				36
AROs	279				273				76				75				203				198
Other	4				7				1				1				3				6
Total noncurrent regulatory assets	$	766			$	849			$	380			$	431			$	386			$	418

	LKE								LG&E								KU
	2019				2018				2019				2018				2019				2018
Current Regulatory Liabilities:
Environmental cost recovery	$	5			$	16			$	1			$	6			$	4			$	10
Fuel adjustment clauses	8				—				—				—				8				—
TCJA customer refund	2				17				—				7				2				10
Generation formula rate	1				7				—				—				1				7
Other	3				8				1				4				2				4
Total current regulatory liabilities	$	19			$	48			$	2			$	17			$	17			$	31
Noncurrent Regulatory Liabilities:
Accumulated cost of removal of utility plant	$	640			$	674			$	266			$	279			$	374			$	395
Power purchase agreement - OVEC	51				59				35				41				16				18
Net deferred taxes	1,168				1,197				544				557				624				640
Defined benefit plans	40				32				—				—				40				32
Terminated interest rate swaps	68				72				34				36				34				36
Other	6				5				4				2				2				3
Total noncurrent regulatory liabilities	$	1,973			$	2,039			$	883			$	915			$	1,090			$	1,124

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

Following is an overview of selected regulatory assets and liabilities detailed in the preceding tables. Specific developments with respect to certain of these regulatory assets and liabilities are discussed in "Regulatory Matters."

Defined Benefit Plans

(All Registrants)

Defined benefit plan regulatory assets and liabilities represent prior service cost and net actuarial gains and losses that will be recovered in defined benefit plans expense through future base rates based upon established regulatory practices and, generally, are amortized over the average remaining service lives of plan participants. These regulatory assets and liabilities are adjusted at least annually or whenever the funded status of defined benefit plans is remeasured.

(PPL, LKE, LG&E and KU)

As a result of the 2014 Kentucky rate case settlement that became effective July 1, 2015, the difference between pension cost calculated in accordance with LG&E's and KU's pension accounting policy and pension cost calculated using a 15-year amortization period for actuarial gains and losses is recorded as a regulatory asset. As of December 31, 2019, the balances were $51 million for PPL and LKE, $29 million for LG&E and $22 million for KU. As of December 31, 2018, the balances were $45 million for PPL and LKE, $25 million for LG&E and $20 million for KU.

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(All Registrants)

Storm Costs

PPL Electric, LG&E and KU have the ability to request from the PUC, KPSC and VSCC, as applicable, the authority to treat expenses related to specific extraordinary storms as a regulatory asset and defer such costs for regulatory accounting and reporting purposes. Once such authority is granted, LG&E and KU can request recovery of those expenses in a base rate case and begin amortizing the costs when recovery starts. PPL Electric can recover qualifying expenses caused by major storm events, as defined in its retail tariff, over three years through the Storm Damage Expense Rider commencing in the application year after the storm occurred. PPL Electric's regulatory assets for storm costs are being amortized through various dates ending in 2021. LG&E's and KU's regulatory assets for storm costs are being amortized through various dates ending in 2029.

Unamortized Loss on Debt

Unamortized loss on reacquired debt represents losses on long-term debt reacquired or redeemed that have been deferred and will be amortized and recovered over either the original life of the extinguished debt or the life of the replacement debt (in the case of refinancing). Such costs are being amortized through 2029 for PPL Electric, through 2042 for KU, and through 2044 for LG&E.

Accumulated Cost of Removal of Utility Plant

LG&E and KU charge costs of removal through depreciation expense with an offsetting credit to a regulatory liability. The regulatory liability is relieved as costs are incurred.

PPL Electric does not accrue for costs of removal. When costs of removal are incurred, PPL Electric records the costs as a regulatory asset. Such deferral is included in rates and amortized over the subsequent five-year period.

TCJA Customer Refund

As a result of the reduced U.S. federal corporate income tax rate as enacted by the TCJA, the regulators of PPL Electric, LG&E and KU have ruled that these tax benefits should be refunded to customers. In some instances, timing differences occur between the recognition of these tax benefits and the refund of the benefit to the customers which create a regulatory asset or liability.

LG&E and KU distributed these tax savings for Kentucky customers through the TCJA bill credit prior to incorporating them into base rates effective May 1, 2019. See "Regulatory Matters" for additional information. The remaining liability represents TCJA savings to be distributed to Virginia customers in 2020.

PPL Electric's current liability relates to two time periods. The liability of $16 million related to the period of July 1, 2018 through December 31, 2019 will be credited back to distribution customers through a negative surcharge. The liability of $43 million related to the period of January 1, 2018 through June 30, 2018 will be credited back to customers over the period of January 1, 2020 through December 31, 2020 utilizing the same negative surcharge mechanism referred to above, as approved by the PUC in November 2019.

Net Deferred Taxes

Regulatory liabilities associated with net deferred taxes represent the future revenue impact from the adjustment of deferred income taxes required primarily for excess deferred taxes and unamortized investment tax credits, largely a result of the TCJA enacted in 2017. See Note 6 for additional information on the TCJA.

(PPL and PPL Electric)

Generation Supply Charge (GSC)

The GSC is a cost recovery mechanism that permits PPL Electric to recover costs incurred to provide generation supply to PLR customers who receive basic generation supply service. The recovery includes charges for generation supply, as well as administration of the acquisition process. In addition, the GSC contains a reconciliation mechanism whereby any over- or

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under-recovery from prior quarters is refunded to, or recovered from, customers through the adjustment factor determined for the subsequent rate filing period.

Transmission Service Charge (TSC)

PPL Electric is charged by PJM for transmission service-related costs applicable to its PLR customers. PPL Electric passes these costs on to customers, who receive basic generation supply service through the PUC-approved TSC cost recovery mechanism. The TSC contains a reconciliation mechanism whereby any over- or under-recovery from customers is either refunded to, or recovered from, customers through the adjustment factor determined for the subsequent year.

Transmission Formula Rate

PPL Electric's transmission revenues are billed in accordance with a FERC-approved Open Access Transmission Tariff that utilizes a formula-based rate recovery mechanism. Under this formula, rates are put into effect in June of each year based upon prior year actual expenditures and current year forecasted capital additions. Rates are then adjusted the following year to reflect actual annual expenses and capital additions, as reported in PPL Electric's annual FERC Form 1, filed under the FERC's Uniform System of Accounts. Any difference between the revenue requirement in effect for the prior year and actual expenditures incurred for that year is recorded as a regulatory asset or regulatory liability.

Storm Damage Expense Rider (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 recover any differences from customers. In the 2015 rate case settlement approved by the PUC in November 2015, it was determined that reportable storm damage expenses to be recovered annually through base rates will be set at $20 million. The SDER will recover from or refund to customers, as appropriate, only applicable expenses from reportable storms that are greater than or less than $20 million recovered annually through base rates. Storm costs incurred in PPL Electric's territory from a March 2018 storm are being amortized through 2021.

Act 129 Compliance Rider

In compliance with Pennsylvania's Act 129 of 2008 and implementing regulations, PPL Electric is currently in Phase III of the energy efficiency and conservation plan which was approved in June 2016. Phase III allows PPL Electric to recover the maximum $313 million over the five-year period, June 1, 2016 through May 31, 2021. The plan includes programs intended to reduce electricity consumption. The recoverable costs include direct and indirect charges, including design and development costs, general and administrative costs and applicable state evaluator costs. The rates are applied to customers who receive distribution service through the Act 129 Compliance Rider. The actual Phase III program costs are reconcilable after each 12 month period, and any over- or under-recovery from customers will be refunded or recovered over the next rate filing period.

Smart Meter Rider (SMR)

Act 129 requires each electric distribution company (EDC) with more than 100,000 customers to have a PUC approved Smart Meter Technology Procurement and Installation Plan (SMP). As of December 31, 2019, PPL Electric replaced substantially all of its old meters with meters that meet the Act 129 requirements under its SMP. In accordance with Act 129, EDCs are able to recover the costs and earn a return on capital of providing smart metering technology. PPL Electric uses the SMR to recover the costs to implement its SMP. The SMR is a reconciliation mechanism whereby any over- or under-recovery from prior years is refunded to, or recovered from, customers through the adjustment factor determined for the subsequent quarters.

Universal Service Rider (USR)

The USR provides for recovery of costs associated with universal service programs, OnTrack and Winter Relief Assistance Program (WRAP), provided by PPL Electric to residential customers. OnTrack is a special payment program for low-income households and WRAP provides low-income customers a means to reduce electric bills through energy saving methods. The USR rate is applied to residential customers who receive distribution service. The actual program costs are reconcilable, and any over- or under-recovery from customers will be refunded or recovered annually in the subsequent year.

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(PPL, LKE, LG&E and KU)

Environmental Cost Recovery

Kentucky law permits LG&E and KU to recover the costs, including a return of operating expenses and a return of and on capital invested, of complying with the Clean Air Act and those federal, state or local environmental requirements, which apply to coal combustion wastes and by-products from coal-fired electricity generating facilities. The KPSC requires reviews of the past operations of the environmental surcharge for six-month and two-year billing periods to evaluate the related charges, credits and rates of return, as well as to provide for the roll-in of ECR amounts to base rates each two-year period. The KPSC has authorized a return on equity of 9.725% for all existing approved ECR plans and projects. The ECR regulatory asset or liability represents the amount that has been under- or over-recovered due to timing or adjustments to the mechanism and is typically recovered or refunded within 12 months.

Fuel Adjustment Clauses

LG&E's and KU's retail electric rates contain a fuel adjustment clause, whereby variances in the cost of fuel to generate electricity, including transportation costs, from the costs embedded in base rates are adjusted in LG&E's and KU's rates. The KPSC requires public hearings at six-month intervals to examine past fuel adjustments and at two-year intervals to review past operations of the fuel adjustment clause and, to the extent appropriate, reestablish the fuel charge included in base rates. The regulatory assets or liabilities represent the amounts that have been under- or over-recovered due to timing or adjustments to the mechanism and are typically recovered within 12 months. LG&E's fuel adjustment clause asset is included within other current regulatory assets above.

KU also employs a levelized fuel factor mechanism for Virginia customers using an average fuel cost factor based primarily on projected fuel costs. The Virginia levelized fuel factor allows fuel recovery based on projected fuel costs for the coming year plus an adjustment for any under- or over-recovery of fuel expenses from the prior year. The regulatory assets or liabilities represent the amounts that have been under- or over-recovered due to timing or adjustments to the mechanism and are typically recovered or refunded within 12 months.

AROs

As discussed in Note 1, for LKE, LG&E and KU, all ARO accretion and depreciation expenses are reclassified as a regulatory asset. ARO regulatory assets associated with certain CCR projects are amortized to expense in accordance with regulatory approvals. For other AROs, at the time of retirement, the related ARO regulatory asset is offset against the associated cost of removal regulatory liability, PP&E and ARO liability.

Power Purchase Agreement - OVEC

As a result of purchase accounting associated with PPL's acquisition of LKE, the fair values of the OVEC power purchase agreement were recorded on the balance sheets of LKE, LG&E and KU with offsets to regulatory liabilities. The regulatory liabilities are being amortized using the units-of-production method until March 2026, the expiration date of the agreement at the date of the acquisition. LG&E's and KU's customer rates continue to reflect the original contracts. See Notes 13 and 18 for additional discussion of the power purchase agreement.

Interest Rate Swaps

LG&E's unrealized gains and losses are recorded as regulatory assets or regulatory liabilities until they are realized as interest expense. Interest expense from existing swaps is realized and recovered over the terms of the associated debt, which matures through 2033.

Terminated Interest Rate Swaps

Net realized gains and losses on all interest rate 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 are primarily recognized in "Interest Expense" on the Statements of Income over the life of the associated debt.

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Plant Outage Costs

Since July 1, 2017, plant outage costs in Kentucky have been normalized for ratemaking purposes based on an average level of expenses. Plant outage expenses that are greater or less than the average are collected from or returned to customers, through future base rates. Effective May 1, 2019 plant outage costs are normalized based on a five-year average of historical expenses with over or under recoveries collected or returned over an eight-year period.

(PPL, LKE and LG&E)

Gas Supply Clause

LG&E's natural gas rates contain a gas supply clause, whereby the expected cost of natural gas supply and variances between actual and expected costs from prior periods are adjusted quarterly in LG&E's rates, subject to approval by the KPSC. The gas supply clause also includes a separate natural gas procurement incentive mechanism, which allows LG&E's rates to be adjusted annually to share savings between the actual cost of gas purchases and market indices, with the shareholders and the customers during each performance-based rate year (12 months ending October 31). The regulatory assets or liabilities represent the total amounts that have been under- or over-recovered due to timing or adjustments to the mechanisms and are typically recovered or refunded within 18 months.

(PPL, LKE and KU)

Generation Formula Rate

KU provides wholesale requirements service to its municipal customers and bills for this service pursuant to a FERC approved generation formula rate. Under this formula, rates are put into effect each July utilizing a return on rate base calculation and actual expenses from the preceding year. The regulatory asset or liability represents the difference between the revenue requirement in effect for the current year and actual expenditures incurred for the current year.

Regulatory Matters

(PPL, LKE, LG&E and KU)

Kentucky Activities

Rate Case Proceedings

In September 2018, LG&E and KU filed requests with the KPSC for an increase in annual base electricity rates of approximately $112 million at KU and increases in annual base electricity and gas rates of approximately $35 million and $25 million at LG&E. LG&E's and KU's applications also sought to include changes associated with the TCJA and state tax reform in the calculation of the proposed base rates and to terminate the TCJA bill credit mechanism when new base rates would go into effect. The elimination of the TCJA bill credit mechanism will result in an estimated annual electricity revenue increase of approximately $58 million at KU and increases in electricity and gas revenues of approximately $40 million and $12 million at LG&E. The applications were based on a forecasted test year of May 1, 2019 through April 30, 2020 with a requested return-on-equity of 10.42%.

In March 2019, LG&E and KU, along with substantially all intervening parties to the proceeding, filed stipulation and recommendation agreements (stipulations) with the KPSC resolving all material issues with the parties. In addition to terminating the TCJA bill credit mechanism, the proposed stipulations provided for increases in annual revenue requirements associated with base electricity rates of approximately $58 million at KU and increases in annual base electricity and gas rates of approximately $4 million and $20 million at LG&E, based on a 9.725% return-on-equity.

On April 30, 2019, the KPSC issued orders ruling on open issues and approving the proposed stipulations filed in March 2019. The orders provide for increases in the revenue requirements associated with base electricity rates of $56 million at KU and increases associated with base electricity and gas rates of $2 million and $19 million at LG&E. With the termination of the TCJA bill credit mechanism, this represents annual revenue increases of $187 million ($114 million at KU and $73 million at LG&E). The new base rates and all elements of the orders became effective on May 1, 2019.

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(PPL and PPL Electric)

Pennsylvania Activities

Distribution of TCJA Savings

In November 2019, the PUC approved PPL Electric's October 2019 petition to distribute the $43 million of TCJA tax savings for the period between January 1, 2018 and June 30, 2018 over the period January 1, 2020 through December 31, 2020.

Federal Matters

FERC Transmission Formula Rate

In April 2019, PPL Electric filed its annual transmission formula rate update with the FERC, reflecting a revised revenue requirement, which includes the impact of the TCJA. The filing established the revenue requirement used to set rates that took effect in June 2019.

(PPL, LKE, LG&E and KU)

FERC Transmission Rate Filing

In 2018, LG&E and KU applied to the FERC requesting elimination of certain on-going credits to a sub-set of transmission customers relating to the 1998 merger of LG&E's and KU's parent entities and the 2006 withdrawal of LG&E and KU from the Midcontinent Independent System Operator, Inc. (MISO), a regional transmission operator and energy market. The application seeks termination of LG&E's and KU's commitment to provide certain Kentucky municipalities mitigation for certain horizontal market power concerns arising out of the 1998 LG&E and KU merger and 2006 MISO withdrawal. The amounts at issue are generally waivers or credits granted to a limited number of Kentucky Municipalities for either certain LG&E and KU or MISO transmission charges incurred for transmission service received. Due to the development of robust, accessible energy markets over time, LG&E and KU believe the mitigation commitments are no longer relevant or appropriate. In March 2019, the FERC granted LG&E's and KU's request to remove the on-going credits, conditioned upon the implementation by LG&E and KU of a transition mechanism for certain existing power supply arrangements, subject to FERC review and approval. In July 2019, LG&E and KU proposed their transition mechanism to the FERC and in September 2019, the FERC rejected the proposed transition mechanism and issued a separate order providing clarifications of certain aspects of the March order. In October 2019, LG&E and KU filed requests for rehearing and clarification on the two September orders. These rehearing requests are currently pending before FERC. Additionally, certain petitions for review of FERC's orders have been filed by multiple parties, including LG&E and KU, at the D.C. Circuit Court of Appeals. LG&E and KU cannot predict the outcome of the proceedings. LG&E and KU currently receive recovery of waivers and credits provided through other rate mechanisms.

(All Registrants)

TCJA Impact on FERC Rates

In November 2019, the FERC published Final Rules providing that public utility transmission providers include mechanisms in their formula rates to deduct excess ADIT from, or add deficient ADIT to, rate base and adjust their income tax allowances by amortized excess or deficient ADIT, and to make a related compliance filing.

In February 2019, PPL Electric filed with the FERC proposed revisions to its transmission formula rate template pursuant to Section 205 of the Federal Power Act and Section 35.13 of the FERC Rules and Regulations. Specifically, PPL Electric proposed to modify its formula rate to permit the return or recovery of excess or deficient ADIT resulting from the TCJA and permit PPL Electric to prospectively account for the income tax expense associated with the depreciation of the equity component of the AFUDC. In April 2019, the FERC accepted the proposed revisions to the formula rate template, which were effective June 1, 2019, as well as the proposed adjustments to ADIT, effective January 1, 2018.

In February 2019, in connection with the requirements of the TCJA and Kentucky HB 487, LG&E and KU filed a request with the FERC to amend their transmission formula rates resulting from the laws’ reductions to corporate income tax rates. The FERC approved this request effective June 1, 2019. LG&E and KU are currently reviewing the Final Rule and will submit a compliance filing addressing excess ADIT by June 1, 2020. LG&E and KU do not anticipate the impact of the TCJA and Kentucky HB 487 related to their FERC-jurisdictional rates to be significant.

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Other

Purchase of Receivables Program

(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 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. Accounts receivable that are acquired are initially recorded at fair value on the date of acquisition. During 2019, 2018 and 2017, PPL Electric purchased $1.2 billion, $1.3 billion and $1.3 billion of accounts receivable from alternative suppliers.

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 except for borrowings under LG&E's Term Loan Facility which are recorded as "Long-term debt due within one year" on the December 31, 2018 Balance Sheet. The following credit facilities were in place at:

	December 31, 2019																		December 31, 2018
	Expiration Date		Capacity				Borrowed				Letters of Credit and Commercial Paper Issued				Unused Capacity				Borrowed				Letters of Credit and Commercial Paper Issued
PPL
U.K.
WPD plc
Syndicated Credit Facility (a)(b)(c)	Jan. 2023		£	210			£	155			£	—			£	55			£	157			£	—
WPD (South West)
Syndicated Credit Facility (a)(b)(c)	July 2021		245				40				—				205				—				—
WPD (East Midlands)
Syndicated Credit Facility (a)(b)(c)	July 2021		300				—				—				300				38				—
WPD (West Midlands)
Syndicated Credit Facility (a)(b)(c)	July 2021		300				48				—				252				—				—
Uncommitted Credit Facilities			100				—				4				96				—				4
Total U.K. Credit Facilities (b)			£	1,155			£	243			£	4			£	908			£	195			£	4
U.S.
PPL Capital Funding
Syndicated Credit Facility (c) (d)	Jan 2024		$	1,450							$	450			$	1,000			$	—			$	669
Bilateral Credit Facility (c) (d)	Mar 2020		100				—				15				85				—				15
Total PPL Capital Funding Credit Facilities			$	1,550			$	—			$	465			$	1,085			$	—			$	684
PPL Electric
Syndicated Credit Facility (c) (d)	Jan 2024		$	650			$	—			$	1			$	649			$	—			$	1

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	December 31, 2019																		December 31, 2018
	Expiration Date		Capacity				Borrowed				Letters of Credit and Commercial Paper Issued				Unused Capacity				Borrowed				Letters of Credit and Commercial Paper Issued
LG&E
Syndicated Credit Facility (c) (d)	Jan 2024		$	500			$	—			$	238			$	262			$	—			$	279
Term Loan Credit Facility (c) (e)			—				—				—				—				200				—
Total LG&E Credit Facilities			$	500			$	—			$	238			$	262			$	200			$	279
KU
Syndicated Credit Facility (c) (d)	Jan 2024		$	400			$	—			$	150			$	250			$	—			$	235
Letter of Credit Facility (f)			—				—				—				—				—				198
Total KU Credit Facilities			$	400			$	—			$	150			$	250			$	—			$	433

(a)	The facilities contain financial covenants to maintain an interest coverage ratio of not less than 3.0 times consolidated earnings before income taxes, depreciation and amortization and total net debt not in excess of 85% of its RAV, calculated in accordance with the credit facility.

(b)

The WPD plc amounts borrowed at December 31, 2019 and 2018 included USD-denominated borrowings of $200 million for both periods, which bore interest at 2.52% and 3.17%. The WPD (South West) amount borrowed at December 31, 2019 was a GBP-denominated borrowing, which equated to $51 million and bore interest at 1.09%. The WPD (East Midlands) amount borrowed at December 31, 2018 was a GBP- denominated borrowing which equated to $48 million and bore interest at 1.12%. The WPD (West Midlands) amount borrowed at December 31, 2019 was a GBP-denominated borrowing, which equated to $62 million and bore interest at 1.11%. At December 31, 2019, the unused capacity under the U.K. credit facilities was approximately $1.2 billion.

(c)	Each company pays customary fees under its respective facility and borrowings generally bear interest at LIBOR-based rates plus an applicable margin.

(d)

The facilities contain a financial covenant requiring debt to total capitalization not to exceed 70% for PPL Capital Funding, PPL Electric, LG&E and KU, as calculated in accordance with the facilities and other customary covenants. Additionally, subject to certain conditions, PPL Capital Funding may request that the capacity of its bilateral credit facility expiring in March 2020 be increased by up to $30 million and PPL Capital Funding, PPL Electric, LG&E and KU may each request up to a $250 million increase in its syndicated credit facility's capacity.

(e)	LG&E entered into a $200 million term loan credit agreement in October 2017. All borrowings were repaid and the facility expired in 2019. The outstanding borrowings at December 31, 2018 bore interest at an average rate of 2.97%.

(f)	KU's letter of credit facility was terminated in September 2019 in connection with the bond remarketings discussed below.

PPL, PPL Electric, LG&E and KU maintain commercial paper programs to provide an additional financing source to fund short-term liquidity needs. Commercial paper issuances, included in "Short-term debt" on the Balance Sheets, are supported by the respective Registrant's credit facilities. The following commercial paper programs were in place at:

	December 31, 2019														December 31, 2018
	Weighted - Average Interest Rate		Capacity				Commercial Paper Issuances				Unused Capacity				Weighted - Average Interest Rate		Commercial Paper Issuances
PPL Capital Funding	2.13%		$	1,500			$	450			$	1,050			2.82%		$	669
PPL Electric			650				—				650						—
LG&E	2.07%		350				238				112				2.94%		279
KU	2.02%		350				150				200				2.94%		235
Total			$	2,850			$	838			$	2,012					$	1,183

(PPL Electric, LKE, LG&E and KU)

See Note 14 for a discussion of intercompany borrowings.

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Long-term Debt (All Registrants)

						December 31,
	Weighted-Average Rate (g)			Maturities (g)		2019				2018
PPL
U.S.
Senior Unsecured Notes	3.88	%		2020 - 2047		$	4,325			$	4,325
Senior Secured Notes/First Mortgage Bonds (a) (b) (c)	3.95	%		2020 - 2049		8,705				7,705
Junior Subordinated Notes	5.24	%		2067 - 2073		930				930
Term Loan Credit Facility				2019		—				200
Total U.S. Long-term Debt						13,960				13,160
U.K.
Senior Unsecured Notes (d)	4.97	%		2020 - 2040		6,874				6,471
Index-linked Senior Unsecured Notes (e)	1.45	%		2026 - 2056		1,104				1,063
Term Loan Credit Facility	2.18	%		2024 - 2024		64				—
Total U.K. Long-term Debt (f)						8,042				7,534
Total Long-term Debt Before Adjustments						22,002				20,694
Fair market value adjustments						12				16
Unamortized premium and (discount), net						5				9
Unamortized debt issuance costs						(126		)		(120		)
Total Long-term Debt						21,893				20,599
Less current portion of Long-term Debt						1,172				530
Total Long-term Debt, noncurrent						$	20,721			$	20,069
PPL Electric
Senior Secured Notes/First Mortgage Bonds (a) (b)	4.08	%		2021 - 2049		$	4,039			$	3,739
Total Long-term Debt Before Adjustments						4,039				3,739
Unamortized discount						(24		)		(18		)
Unamortized debt issuance costs						(30		)		(27		)
Total Long-term Debt						3,985				3,694
Less current portion of Long-term Debt						—				—
Total Long-term Debt, noncurrent						$	3,985			$	3,694
LKE
Senior Unsecured Notes	3.97	%		2020 - 2021		$	725			$	725
Term Loan Credit Facility						—				200
First Mortgage Bonds (a) (c)	3.84	%		2020 - 2049		4,666				3,966
Long-term debt to affiliate	3.69	%		2026 - 2028		650				650
Total Long-term Debt Before Adjustments						6,041				5,541
Unamortized premium						5				—
Unamortized discount						(12		)		(13		)
Unamortized debt issuance costs						(32		)		(26		)
Total Long-term Debt						6,002				5,502
Less current portion of Long-term Debt						975				530
Total Long-term Debt, noncurrent						$	5,027			$	4,972

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						December 31,
	Weighted-Average Rate (g)			Maturities (g)		2019				2018
LG&E
Term Loan Credit Facility						$	—			$	200
First Mortgage Bonds (a) (c)	3.73	%		2025 - 2049		2,024				1,624
Total Long-term Debt Before Adjustments						2,024				1,824
Unamortized discount						(4		)		(4		)
Unamortized debt issuance costs						(15		)		(11		)
Total Long-term Debt						2,005				1,809
Less current portion of Long-term Debt						—				434
Total Long-term Debt, noncurrent						$	2,005			$	1,375
KU
First Mortgage Bonds (a) (c)	3.93	%		2020 - 2045		$	2,642			$	2,342
Total Long-term Debt Before Adjustments						2,642				2,342
Unamortized premium						5				—
Unamortized discount						(8		)		(8		)
Unamortized debt issuance costs						(16		)		(13		)
Total Long-term Debt						2,623				2,321
Less current portion of Long-term Debt						500				96
Total Long-term Debt, noncurrent						$	2,123			$	2,225

(a)

Includes PPL Electric's senior secured and first mortgage bonds that are secured by the lien of PPL Electric's 2001 Mortgage Indenture, which covers substantially all of PPL Electric’s tangible distribution properties and certain of its tangible transmission properties located in Pennsylvania, subject to certain exceptions and exclusions. The carrying value of PPL Electric's property, plant and equipment was approximately $10.1 billion and $9.4 billion at December 31, 2019 and 2018.

Includes LG&E's first mortgage bonds that are secured by the lien of the LG&E 2010 Mortgage Indenture which creates a lien, subject to certain exceptions and exclusions, on substantially all of LG&E's real and tangible personal property located in Kentucky and used or to be used in connection with the generation, transmission and distribution of electricity and the storage and distribution of natural gas. The aggregate carrying value of the property subject to the lien was $5.3 billion and $5.1 billion at December 31, 2019 and 2018.

Includes KU's first mortgage bonds that are secured by the lien of the KU 2010 Mortgage Indenture which creates a lien, subject to certain exceptions and exclusions, on substantially all of KU's real and tangible personal property located in Kentucky and used or to be used in connection with the generation, transmission and distribution of electricity. The aggregate carrying value of the property subject to the lien was $6.6 billion and $6.3 billion at December 31, 2019 and 2018.

(b)

Includes PPL Electric's series of senior secured bonds that secure its obligations to make payments with respect to each series of Pollution Control Bonds that were issued by the LCIDA and the PEDFA on behalf of PPL Electric. These senior secured bonds were issued in the same principal amount, contain payment and redemption provisions that correspond to and bear the same interest rate as such Pollution Control Bonds. These senior secured bonds were issued under PPL Electric's 2001 Mortgage Indenture and are secured as noted in (a) above. This amount includes $224 million of which PPL Electric is allowed to convert the interest rate mode on the bonds from time to time to a commercial paper rate, daily rate, weekly rate, or term rate of at least one year and $90 million that may be redeemed, in whole or in part, at par beginning in October 2020, and are subject to mandatory redemption upon determination that the interest rate on the bonds would be included in the holders' gross income for federal tax purposes.

(c)

Includes LG&E's and KU's series of first mortgage bonds that were issued to the respective trustees of tax-exempt revenue bonds to secure its respective obligations to make payments with respect to each series of bonds. The first mortgage bonds were issued in the same principal amounts, contain payment and redemption provisions that correspond to and bear the same interest rate as such tax-exempt revenue bonds. These first mortgage bonds were issued under the LG&E 2010 Mortgage Indenture and the KU 2010 Mortgage Indenture and are secured as noted in (a) above. The related tax-exempt revenue bonds were issued by various governmental entities, principally counties in Kentucky, on behalf of LG&E and KU. The related revenue bond documents allow LG&E and KU to convert the interest rate mode on the bonds from time to time to a commercial paper rate, daily rate, weekly rate, term rate of at least one year or, in some cases, an auction rate or a LIBOR index rate.

At December 31, 2019, the aggregate tax-exempt revenue bonds issued on behalf of LG&E and KU that were in a term rate mode totaled $700 million for LKE, comprised of $392 million and $308 million for LG&E and KU respectively. At December 31, 2019, the aggregate tax-exempt revenue bonds issued on behalf of LG&E and KU that were in a variable rate mode totaled $181 million for LKE, comprised of $148 million and $33 million for LG&E and KU respectively. These variable rate tax-exempt revenue bonds are subject to tender for purchase by LG&E and KU at the option of the holder and to mandatory tender for purchase by LG&E and KU upon the occurrence of certain events.

(d)	Includes £225 million ($291 million at December 31, 2019) of notes that may be redeemed, in total but not in part, on December 21, 2026, at the greater of the principal value or a value determined by reference to the gross redemption yield on a nominated U.K. Government bond.

(e)	The principal amount of the notes issued by WPD (South West), WPD (East Midlands) and WPD (South Wales) is adjusted based on changes in a specified index, as detailed in the terms of the related indentures. The adjustment to the principal amounts from 2018 to 2019 was an increase of

---

approximately £20 million ($26 million) resulting from inflation. In addition, this amount includes £327 million ($423 million at December 31, 2019) of notes issued by WPD (South West) that may be redeemed, in total by series, on December 1, 2026, at the greater of the adjusted principal value and a make-whole value determined by reference to the gross real yield on a nominated U.K. government bond.

(f)

Includes £5.7 billion ($7.4 billion at December 31, 2019) of notes that may be put by the holders to the issuer for redemption if the long-term credit ratings assigned to the notes are withdrawn by any of the rating agencies (Moody's or S&P) or reduced to a non-investment grade rating of Ba1 or BB+ or lower in connection with a restructuring event, which includes the loss of, or a material adverse change to, the distribution licenses under which the issuer operates.

(g)	The table reflects principal maturities only, based on stated maturities or earlier put dates, and the weighted-average rates as of December 31, 2019.

None of the outstanding debt securities noted above have sinking fund requirements. The aggregate maturities of long-term debt, based on stated maturities or earlier put dates, for the periods 2020 through 2024 and thereafter are as follows:

	PPL				PPL Electric				LKE				LG&E				KU
2020	$	1,169			$	—			$	975			$	—			$	500
2021	1,574				400				674				292				132
2022	1,274				474				—				—				—
2023	2,254				90				13				—				13
2024	932				—				—				—				—
Thereafter	14,799				3,075				4,379				1,732				1,997
Total	$	22,002			$	4,039			$	6,041			$	2,024			$	2,642

(PPL)

In June 2019, WPD plc executed and drew £50 million under a 5-year term loan facility due 2024 at a rate of 2.189%, to be reset quarterly as detailed in the terms of the facility. The borrowing equated to $63 million at the time of drawdown, net of fees. The proceeds were used for general corporate purposes.

In September 2019, WPD (East Midlands) issued £250 million of 1.75% Senior Notes due 2031. WPD (East Midlands) received proceeds of £245 million, which equated to $301 million at the time of issuance, net of fees and a discount. The proceeds were used to repay short-term debt and for general corporate purposes.

(PPL and PPL Electric)

In September 2019, PPL Electric issued $400 million of 3.00% First Mortgage Bonds due 2049. PPL Electric received proceeds of $390 million, net of a discount and underwriting fees, which were used to repay short-term debt and for general corporate purposes.

In December 2019, PPL Electric redeemed all of the outstanding $100 million aggregate principal amount of its Senior Secured Bonds, 5.15% Series due 2020.

(PPL, LKE and LG&E)

In April 2019, LG&E issued $400 million of 4.25% First Mortgage Bonds due 2049. LG&E received proceeds of $396 million, net of discounts and underwriting fees, which were used to repay commercial paper and LG&E's term loan.

In April 2019, the County of Jefferson, Kentucky remarketed $128 million of Pollution Control Revenue Bonds, 2001 Series A due 2033 previously issued on behalf of LG&E. The bonds were remarketed at a long-term rate and will bear interest at 1.85% through their mandatory purchase date of April 1, 2021.

In June 2019, the Louisville/Jefferson County Metro Government of Kentucky remarketed $31 million of Environmental Facilities Revenue Refunding Bonds, 2007 Series A due 2033 previously issued on behalf of LG&E. The bonds were remarketed at a long-term rate and will bear interest at 1.65% through their mandatory purchase date of June 1, 2021.

In June 2019, the Louisville/Jefferson County Metro Government of Kentucky remarketed $35 million of Environmental Facilities Revenue Refunding Bonds, 2007 Series B due 2033 previously issued on behalf of LG&E. The bonds were remarketed at a long-term rate and will bear interest at 1.65% through their mandatory purchase date of June 1, 2021.

In June 2019, LG&E issued a notice to bondholders of its intention to convert the $40 million Louisville/Jefferson County Metro Government of Kentucky Pollution Control Revenue Bonds, 2005 Series A to a weekly interest rate, as permitted under the loan documents. The conversion was completed on August 1, 2019. In connection with the conversation, LG&E purchased

---

these bonds from the remarketing agent and held them until September 17, 2019, at which time LG&E remarketed the bonds at a long-term rate that will bear interest at 1.75% through their mandatory purchase date of July 1, 2026.

(PPL, LKE and KU)

In April 2019, KU reopened its 4.375% First Mortgage Bonds due 2045 and issued an additional $300 million of this series. KU received proceeds of $303 million, including premiums and underwriting fees, which were used to repay commercial paper and for other general corporate purposes.

In September 2019, the County of Carroll, Kentucky remarketed $50 million of Environmental Facilities Revenue Bonds, 2004 Series A due 2034 previously issued on behalf of KU. The bonds were remarketed at a long-term rate and will bear interest at 1.75% through their mandatory purchase date of September 1, 2026.

In September 2019, the County of Carroll, Kentucky remarketed $96 million of Pollution Control Revenue Bonds, 2016 Series A due 2042 previously issued on behalf of KU. The bonds were remarketed at a long-term rate and will bear interest at 1.55% through their mandatory purchase date of September 1, 2026.

In September 2019, the County of Carroll, Kentucky remarketed $54 million of Environmental Facilities Revenue Bonds, 2006 Series B due 2034 previously issued on behalf of KU. The bonds were remarketed at a long-term rate and will bear interest at 1.20% through their mandatory purchase date of June 1, 2021.

In September 2019, the County of Carroll, Kentucky remarketed $78 million of Environmental Facilities Revenue Bonds, 2008 Series A due 2032 previously issued on behalf of KU. The bonds were remarketed at a long-term rate and will bear interest at 1.20% through their mandatory purchase date of June 1, 2021.

In September 2019, the County of Mercer, Kentucky remarketed $13 million of Solid Waste Disposal Facility Revenue Bonds, 2000 Series A due 2023 previously issued on behalf of KU. The bonds were remarketed at a long-term rate and will bear interest at 1.30% through their maturity date of May 1, 2023.

See Note 14 for additional information related to intercompany borrowings.

Legal Separateness (All Registrants)

The subsidiaries of PPL are separate legal entities. PPL's subsidiaries are not liable for the debts of PPL. Accordingly, creditors of PPL may not satisfy their debts from the assets of PPL's subsidiaries absent a specific contractual undertaking by a subsidiary to pay PPL's creditors or as required by applicable law or regulation. Similarly, PPL is not liable for the debts of its subsidiaries, nor are its subsidiaries liable for the debts of one another. Accordingly, creditors of PPL's subsidiaries may not satisfy their debts from the assets of PPL or its other subsidiaries absent a specific contractual undertaking by PPL or its other subsidiaries to pay the creditors or as required by applicable law or regulation.

Similarly, the subsidiaries of PPL Electric and LKE are each separate legal entities. These subsidiaries are not liable for the debts of PPL Electric and LKE. Accordingly, creditors of PPL Electric and LKE may not satisfy their debts from the assets of their subsidiaries absent a specific contractual undertaking by a subsidiary to pay the creditors or as required by applicable law or regulation. Similarly, PPL Electric and LKE are not liable for the debts of their subsidiaries, nor are their subsidiaries liable for the debts of one another. Accordingly, creditors of these subsidiaries may not satisfy their debts from the assets of PPL Electric and LKE (or their other subsidiaries) absent a specific contractual undertaking by that parent or other subsidiary to pay such creditors or as required by applicable law or regulation.

(PPL)

Equity Securities

Equity Forward Contracts

In May 2018, PPL completed a registered underwritten public offering of 55 million shares of its common stock. In conjunction with that offering, the underwriters exercised an option to purchase 8.25 million additional shares of PPL common stock solely to cover over-allotments.

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In connection with the registered public offering, PPL entered into forward sale agreements with two counterparties covering the total 63.25 million shares of PPL common stock. Under the forward sale agreements, PPL was obligated to settle these forward sale agreements no later than November 2019. The forward sale agreements were classified as equity transactions.

In September 2018, PPL settled a portion of the initial forward sale agreements by issuing 20 million shares of PPL common stock, resulting in net cash proceeds of $520 million. In November 2019, PPL settled the remaining 43.25 million shares of PPL common stock, resulting in net cash proceeds of $1.1 billion. The net proceeds received will be used for general corporate purposes. See Note 5 for information on the forward sale agreements impact on the calculation of diluted EPS.

ATM Program

In February 2018, PPL entered into an equity distribution agreement, pursuant to which PPL may sell, from time to time, up to an aggregate of $1.0 billion of its common stock through an at-the-market offering program, including a forward sales component. The compensation paid to the selling agents by PPL may be up to 2% of the gross offering proceeds of the shares. There were no issuances under the ATM program for the twelve months ended December 31, 2019. PPL issued 42 million shares of common stock and received proceeds of $119 million for the year ended December 31, 2018.

Distributions and Related Restrictions

In November 2019, PPL declared its quarterly common stock dividend, payable January 2, 2020, at 41.25 cents per share (equivalent to $1.65 per annum). On February 14, 2020, PPL announced an increase of its quarterly common stock dividend to 41.5 cents per share (equivalent to $1.66 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.

Neither PPL Capital Funding nor PPL may declare or pay any cash dividend or distribution on its capital stock during any period in which PPL Capital Funding defers interest payments on its 2007 Series A Junior Subordinated Notes due 2067 or 2013 Series B Junior Subordinated Notes due 2073. At December 31, 2019, no interest payments were deferred.

WPD subsidiaries have financing arrangements that limit their ability to pay dividends. However, PPL does not, at this time, expect that any of such limitations would significantly impact PPL's ability to meet its cash obligations.

(All Registrants)

PPL relies on dividends or loans from its subsidiaries to fund PPL's dividends to its common shareholders. The net assets of certain PPL subsidiaries are subject to legal restrictions. LKE primarily relies on dividends from its subsidiaries to fund its distributions to PPL. LG&E, KU and PPL Electric are subject to Section 305(a) of the Federal Power Act, which makes it unlawful for a public utility to make or pay a dividend from any funds "properly included in capital account." The meaning of this limitation has never been clarified under the Federal Power Act. LG&E, KU and PPL Electric believe, however, that this statutory restriction, as applied to their circumstances, would not be construed or applied by the FERC to prohibit the payment from retained earnings of dividends that are not excessive and are for lawful and legitimate business purposes. In February 2012, LG&E and KU petitioned the FERC requesting authorization to pay dividends in the future based on retained earnings balances calculated without giving effect to the impact of purchase accounting adjustments for PPL's 2010 acquisition of LKE. In May 2012, the FERC approved the petitions with the further condition that each utility may not pay dividends if such payment would cause its adjusted equity ratio to fall below 30% of total capitalization. Accordingly, at December 31, 2019, net assets of $3 billion ($1.3 billion for LG&E and $1.7 billion for KU) were restricted for purposes of paying dividends to LKE, and net assets of $3.3 billion ($1.5 billion for LG&E and $1.8 billion for KU) were available for payment of dividends to LKE. LG&E and KU believe they will not be required to change their current dividend practices as a result of the foregoing requirement. In addition, under Virginia law, KU is prohibited from making loans to affiliates without the prior approval of the VSCC. There are no comparable statutes under Kentucky law applicable to LG&E and KU, or under Pennsylvania law applicable to PPL Electric. However, orders from the KPSC require LG&E and KU to obtain prior consent or approval before lending amounts to PPL.

(All Registrants)

The Registrants determine whether contractual arrangements contain a lease by evaluating whether those arrangements either implicitly or explicitly identify an asset, whether the Registrants have the right to obtain substantially all of the economic benefits from use of the asset throughout the term of the arrangement, and whether the Registrants have the right to direct the

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use of the asset. Renewal options are included in the lease term if it is reasonably certain the Registrants will exercise those options. Periods for which the Registrants are reasonably certain not to exercise termination options are also included in the lease term. The Registrants have certain agreements with lease and non-lease components, such as office space leases, which are generally accounted for separately.

LKE, LG&E and KU have entered into various operating leases primarily for office space, vehicles and railcars. The leases generally have fixed payments with expiration dates ranging from 2020 to 2025, some of which have options to extend the leases from one year to ten years and some have options to terminate at LKE's, LG&E's and KU's discretion. For leases that existed as of December 31, 2018, payments associated with renewal options are not included in the measurement of the lease liability and right-of-use (ROU) asset.

PPL has also entered into various operating leases primarily for office space, land easements, telecom assets and warehouse space. These leases generally have fixed payments with expiration dates ranging from 2020 through 2029, except for the land agreements which extend through 2116.

PPL Electric also has operating leases which do not have a significant impact to its operations.

Short-term Leases

Short-term leases are leases with a term that is 12 months or less and do not include a purchase option or option to extend the initial term of the lease to greater than 12 months that the Registrants are reasonably certain to exercise. The Registrants have made an accounting policy election to not recognize the ROU asset and the lease liability arising from leases classified as short-term. Expenses related to short-term leases are included in the tables below.

Discount Rate

The discount rate for a lease is the rate implicit in the lease unless that rate cannot be readily determined. In that case, the Registrants are required to use their incremental borrowing rate, which is the rate the Registrants would have to pay to borrow, on a collateralized basis over a similar term, an amount equal to the lease payments in a similar economic environment.

The Registrants receive secured borrowing rates from financial institutions based on their applicable credit profiles. The Registrants use the secured rate which corresponds with the term of the applicable lease.

Practical Expedients

See Note 1 for information on the adoption of the new lease guidance as well as the practical expedients the Registrants have elected as part of the transition.

(PPL, LKE, LG&E and KU)

Lessee Transactions

The following table provides the components of lease cost for the Registrants' operating leases for the year ended December 31, 2019.

	PPL				LKE				LG&E				KU
Lease cost:
Operating lease cost	$	33			$	25			$	12			$	13
Short-term lease cost	7				2				1				1
Total lease cost	$	40			$	27			$	13			$	14

The following table provides other key information related to the Registrants' operating leases at December 31, 2019.

	PPL				LKE				LG&E				KU
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	29			$	21			$	9			$	11
Right-of-use asset obtained in exchange for new operating lease liabilities	46				16				5				11

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The following table provides the total future minimum rental payments for operating leases, as well as a reconciliation of these undiscounted cash flows to the lease liabilities recognized on the Balance Sheets as of December 31, 2019.

	PPL				LKE				LG&E				KU
2020	$	29			$	18			$	7			$	11
2021	22				13				5				8
2022	17				9				4				5
2023	15				7				3				4
2024	12				6				2				4
Thereafter	27				8				3				4
Total	$	122			$	61			$	24			$	36
Weighted-average discount rate	3.48		%		3.96		%		3.89		%		4.01		%
Weighted-average remaining lease term (in years)	8				5				5				5
Current lease liabilities (a)	$	26			$	16			$	6			$	10
Non-current lease liabilities (a)	78				39				15				23
Right-of-use assets (b)	96				47				18				28

(a)	Current lease liabilities are included in "Other Current Liabilities" on the Balance Sheets. Non-current lease liabilities are included in "Other deferred credits and noncurrent liabilities" on the Balance Sheets. The difference between the total future minimum lease payments and the recorded lease liabilities is due to the impact of discounting.

(b)	Right-of-use assets are included in "Other noncurrent assets" on the Balance Sheets.

At December 31, 2018, the total future minimum rental payments for all operating leases were estimated to be:

	PPL				LKE				LG&E				KU
2019	$	26			$	20			$	10			$	10
2020	21				15				6				9
2021	15				11				4				7
2022	13				7				3				4
2023	8				6				3				3
Thereafter	33				11				4				6
Total	$	116			$	70			$	30			$	39

Lessor Transactions

Third parties lease land from LKE, LG&E and KU at certain generation plants to produce refined coal used to generate electricity. The leases are operating leases and expire in 2021. Payments are allocated among lease and non-lease components as stated in the agreements. Lease payments are fixed or are determined based on the amount of refined coal used in electricity generation at the facility. Payments received are primarily recorded as a regulatory liability and are amortized in accordance with regulatory approvals.

WPD leases property and telecom assets to third parties, which generally expire through 2029. These leases are operating leases. Generally, lease payments are fixed and include only a lease component.

At December 31, 2019, PPL, LKE, LG&E and KU expect to receive the following fixed lease payments over the remaining term of their operating lease agreements:

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	PPL				LKE				LG&E				KU
2020	$	13			$	7			$	—			$	7
2021	11				5				—				5
2022	5				—				—				—
2023	5				1				—				—
2024	3				—				—				—
Thereafter	12				—				—				—
Total	$	49			$	13			$	—			$	12
Lease income recognized for the twelve months ended December 31, 2019	$	21			$	13			$	5			$	8

(PPL, PPL Electric and LKE)

Under the ICP, SIP and the ICPKE (together, the Plans), restricted shares of PPL common stock, restricted stock units, performance units and stock options may be granted to officers and other key employees of PPL, PPL Electric, LKE and other affiliated companies. Awards under the Plans are made by the Compensation, Governance and Nominating Committee (CGNC) of the PPL Board of Directors, in the case of the ICP and SIP, and by the PPL Corporate Leadership Council (CLC), in the case of the ICPKE.

The following table details the award limits under each of the Plans.

Total Plan

Annual Grant Limit Total As % of Outstanding

Annual Grant

Annual Grant Limit For Individual Participants - Performance Based Awards

Award Limit

PPL Common Stock On First Day of

Limit Options

For awards denominated in

For awards denominated in

Plan

(Shares)

Each Calendar Year

(Shares)

shares (Shares)

cash (in dollars)

SIP

15,000,000

2,000,000

750,000

$

15,000,000

ICPKE

14,199,796

2

%

3,000,000

Any portion of these awards that has not been granted may be carried over and used in any subsequent year. If any award lapses, the rights of the participant terminate, or, with respect to certain awards, is forfeited, and the shares of PPL common stock underlying such an award are again available for grant. Shares delivered under the Plans may be in the form of authorized and unissued PPL common stock, common stock held in treasury by PPL or PPL common stock purchased on the open market (including private purchases) in accordance with applicable securities laws.

Restricted Stock Units

Restricted stock units represent the right to receive shares of PPL common stock in the future, generally three years after the date of grant, in an amount based on the fair value of PPL common stock on the date of grant.

Under the SIP, each restricted stock unit entitles the grant recipient to accrue additional restricted stock units equal to the amount of quarterly dividends paid on PPL stock. These additional restricted stock units are deferred and payable in shares of PPL common stock at the end of the restriction period. Dividend equivalents on restricted stock unit awards granted under the ICPKE are currently paid in cash when dividends are declared by PPL.

The fair value of restricted stock units granted is recognized on a straight-line basis over the restriction period or through the date at which the employee reaches retirement eligibility. The fair value of restricted stock units granted to retirement-eligible employees is recognized as compensation expense immediately upon the date of grant. Recipients of restricted stock units granted under the ICPKE may also be granted the right to receive dividend equivalents through the end of the restriction period or until the award is forfeited. Restricted stock units are subject to forfeiture or accelerated payout under the plan provisions for termination, retirement, disability and death of employees. Restrictions lapse on restricted stock units fully, in certain situations, as defined by each of the Plans.

The weighted-average grant date fair value of restricted stock units granted was:

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	2019				2018				2017
PPL	$	31.95			$	30.58			$	35.30
PPL Electric	32.33				30.00				35.45
LKE	30.65				30.98				35.25

Restricted stock unit activity for 2019 was:

	Restricted Shares/Units			Weighted- Average Grant Date Fair Value Per Share
PPL
Nonvested, beginning of period	1,098,203			$	33.45
Granted	479,428			31.95
Vested	(429,258	)		33.64
Forfeited	(10,688	)		31.53
Nonvested, end of period	1,137,685			32.76
PPL Electric
Nonvested, beginning of period	187,337			$	33.09
Transfer between registrants	(3,305	)		33.06
Granted	112,138			32.33
Vested	(59,661	)		33.77
Forfeited	(6,649	)		31.01
Nonvested, end of period	229,860			32.61
LKE
Nonvested, beginning of period	133,030			$	33.45
Granted	76,256			30.65
Vested	(42,841	)		33.75
Nonvested, end of period	166,445			32.09

Substantially all restricted stock unit awards are expected to vest.

The total fair value of restricted stock units vesting for the years ended December 31 was:

	2019				2018				2017
PPL	$	13			$	16			$	20
PPL Electric	2				2				3
LKE	1				5				4

Performance Units - Total Shareowner Return

Performance units based on relative Total Shareowner Return (TSR) are intended to encourage and reward future corporate performance. Performance units represent a target number of shares (Target Award) of PPL's common stock that the recipient would receive upon PPL's attainment of the applicable performance goal. Performance is determined based on TSR during a three-year performance period. At the end of the period, payout is determined by comparing PPL's performance to the TSR of the companies included in the Philadelphia Stock Exchange Utility Index. Awards are payable on a graduated basis based on thresholds that measure PPL's performance relative to peers that comprise the applicable index on which each year's awards are measured. Awards can be paid up to 200% of the Target Award or forfeited with no payout if performance is below a minimum established performance threshold. Dividends payable during the performance cycle accumulate and are converted into additional performance units and are payable in shares of PPL common stock upon completion of the performance period based on the CGNC's determination of achievement of the performance goals. Under the plan provisions, TSR performance units are subject to forfeiture upon termination of employment other than retirement, one year or more from commencement of the performance period, disability or death of an employee.

The fair value of TSR performance units granted to retirement-eligible employees is recognized as compensation expense on a straight-line basis over a one-year period, the minimum vesting period required for an employee to be entitled to payout of the

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awards with no proration. For employees who are not retirement-eligible, compensation expense is recognized over the shorter of the three-year performance period or the period until the employee is retirement-eligible, with a minimum vesting and recognition period of one-year. If an employee retires before the one-year vesting period, the performance units are forfeited. Performance units vest on a pro rata basis, in certain situations, as defined by each of the Plans.

The fair value of each performance unit granted was estimated using a Monte Carlo pricing model that considers stock beta, a risk-free interest rate, expected stock volatility and expected life. The stock beta was calculated comparing the risk of the individual securities to the average risk of the companies in the index group. The risk-free interest rate reflects the yield on a U.S. Treasury bond commensurate with the expected life of the performance unit. Volatility over the expected term of the performance unit is calculated using daily stock price observations for PPL and all companies in the index group and is evaluated with consideration given to prior periods that may need to be excluded based on events not likely to recur that had impacted PPL and the companies in the index group. PPL uses a mix of historic and implied volatility to value awards.

The weighted-average assumptions used in the model were:

	2019			2018			2017
Expected stock volatility	17.57	%		17.60	%		17.40	%
Expected life	3 years			3 years			3 years

The weighted-average grant date fair value of TSR performance units granted was:

	2019				2018				2017
PPL	$	35.83			$	38.26			$	38.38
PPL Electric	35.68				38.37				38.37
LKE	35.93				38.32				38.24

TSR performance unit activity for 2019 was:

	TSR Performance Units			Weighted- Average Grant Date Fair Value Per Share
PPL
Nonvested, beginning of period	840,124			$	37.89
Granted	250,734			35.83
Forfeited (a)	(351,466	)		37.24
Nonvested, end of period	739,392			37.50
PPL Electric
Nonvested, beginning of period	67,863			$	37.86
Granted	24,158			35.68
Forfeited (a)	(25,222	)		36.92
Nonvested, end of period	66,799			37.43
LKE
Nonvested, beginning of period	148,996			$	37.81
Granted	39,453			35.93
Forfeited (a)	(57,916	)		37.02
Nonvested, end of period	130,533			37.60

(a)	Primarily related to the forfeiture of 2016 performance units as performance during the period was below the minimum established performance threshold, which resulted in no payout.

There were no TSR performance units vesting for the year ended December 31, 2019 and the total fair value of TSR performance units vesting for the year ended December 31, 2018 and 2017 was $3 million and $8 million for PPL and insignificant for PPL Electric and LKE.

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Performance Units - Return on Equity

Beginning in 2017, PPL changed its executive compensation mix to add performance units based on achievement of a corporate Return on Equity (ROE). ROE performance units are intended to further align compensation with the company’s strategy and reward for future corporate performance.

Payout of these performance units will be based on the calculated average of the annual corporate ROE for each year of the three-year performance period for PPL Corporation. ROE performance units represent a target number of shares (Target Award) of PPL's common stock that the recipient would receive upon PPL's attainment of the applicable ROE performance goal. ROE performance units can be paid up to 200% of the Target Award or forfeited with no payout if performance is below a minimum established performance threshold. Dividends payable during the performance cycle accumulate and are converted into additional performance units and are payable in shares of PPL common stock upon completion of the performance period based on the CGNC's determination of achievement of the performance goals. Under the plan provisions, these performance units are subject to forfeiture upon termination of employment other than retirement, disability or death of an employee.

The fair value of each ROE performance unit is based on the closing price of PPL Common Stock on the date of grant. The fair value of ROE performance units is recognized on a straight-line basis over the service period or through the date at which the employee reaches retirement eligibility. The fair value awards granted to retirement-eligible employees is recognized as compensation expense immediately upon the date of grant. As these awards are based on performance conditions, the level of attainment is monitored each reporting period and compensation expense is adjusted based on the expected attainment level.

The weighted-average grant date fair value of ROE performance units granted was:

	2019				2018				2017
PPL	$	30.89			$	32.21			$	32.42
PPL Electric	30.76				32.32				34.41
LKE	30.99				32.28				34.29

ROE performance unit activity for 2019 was:

	ROE Performance Unit			Weighted- Average Grant Date Fair Value Per Share
PPL
Nonvested, beginning of period	328,958			$	32.86
Granted	241,807			30.89
Nonvested, end of period	570,765			32.02
PPL Electric
Nonvested, beginning of period	25,960			$	32.96
Granted	23,234			30.76
Nonvested, end of period	49,194			31.92
LKE
Nonvested, beginning of period	69,620			$	32.87
Granted	38,185			30.99
Nonvested, end of period	107,805			32.20

Stock Options

PPL's CGNC eliminated the use of stock options due to changes in its long-term incentive mix beginning in January 2014.

Under the Plans, stock options had been granted with an option exercise price per share not less than the fair value of PPL's common stock on the date of grant. Options outstanding at December 31, 2019, are fully vested. All options expire no later than 10 years from the grant date. The options become exercisable immediately in certain situations, as defined by each of the Plans.

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Stock option activity for 2019 was:

	Number of Options			Weighted Average Exercise Price Per Share				Weighted- Average Remaining Contractual Term (years)		Aggregate Total Intrinsic Value
PPL
Outstanding at beginning of period	2,914,525			$	26.26
Exercised	(1,578,554	)		26.31
Forfeited	(5,028	)		28.77
Outstanding and exercisable at end of period	1,330,943			26.20				2.5		$	13

For 2019, 2018 and 2017, PPL received $53 million, $5 million and $19 million in cash from stock options exercised. The total intrinsic value of stock options exercised for 2019 was $11 million, insignificant in 2018 and $8 million for 2017. The related income tax benefits realized were not significant.

Compensation Expense

Compensation expense for restricted stock, restricted stock units, performance units and stock options accounted for as equity awards, which for PPL Electric and LKE includes an allocation of PPL Services' expense, was:

	2019				2018				2017
PPL	$	35			$	25			$	32
PPL Electric	12				10				18
LKE	9				8				8

The income tax benefit related to above compensation expense was as follows:

	2019				2018				2017
PPL	$	10			$	10			$	13
PPL Electric	3				3				8
LKE	2				2				3

At December 31, 2019, unrecognized compensation expense related to nonvested stock awards was:

	Unrecognized Compensation Expense				Weighted- Average Period for Recognition
PPL	$	14			1.9
PPL Electric	3				2.2
LKE	1				1.5

 

(All Registrants)

 

Defined Benefits

 

Certain employees of PPL's domestic subsidiaries are eligible for pension benefits under non-contributory defined benefit pension plans with benefits based on length of service and final average pay, as defined by the plans. Effective January 1, 2012, PPL's primary defined benefit pension plan was closed to all newly hired salaried employees. Effective July 1, 2014, PPL's primary defined benefit pension plan was closed to all newly hired bargaining unit employees. Newly hired employees are eligible to participate in the PPL Retirement Savings Plan, a 401(k) savings plan with enhanced employer contributions.

The defined benefit pension plans of LKE and its subsidiaries were closed to new salaried and bargaining unit employees hired after December 31, 2005. Employees hired after December 31, 2005 receive additional company contributions above the standard matching contributions to their savings plans. The pension plans sponsored by LKE and LG&E were merged effective January 1, 2020 into the LG&E and KU Pension Plan. The merged plan is sponsored by LKE. LG&E and KU participate in this plan.

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Effective April 1, 2010, the principal defined benefit pension plan applicable to WPD (South West) and WPD (South Wales) was closed to most new employees, except for those meeting specific grandfathered participation rights. WPD Midlands' defined benefit plan had been closed to new members, except for those meeting specific grandfathered participation rights, prior to acquisition. New employees not eligible to participate in the plans are offered benefits under a defined contribution plan.

PPL and certain of its subsidiaries also provide supplemental retirement benefits to executives and other key management employees through unfunded nonqualified retirement plans.

 

Certain employees of PPL's domestic subsidiaries are eligible for certain health care and life insurance benefits upon retirement through contributory plans. Effective January 1, 2014, the PPL Postretirement Medical Plan was closed to all newly hired salaried employees. Effective July 1, 2014, the PPL Postretirement Medical Plan was closed to all newly hired bargaining unit employees. Postretirement health benefits may be paid from 401(h) accounts established as part of the PPL Retirement Plan and the LG&E and KU Pension Plan within the PPL Services Corporation Master Trust, funded VEBA trusts and company funds. WPD does not sponsor any postretirement benefit plans other than pensions.

 

(PPL)

 

The following table provides the components of net periodic defined benefit costs (credits) for PPL's domestic (U.S.) and WPD's (U.K.) pension and other postretirement benefit plans for the years ended December 31.

	Pension Benefits
	U.S.												U.K.												Other Postretirement Benefits
	2019				2018				2017				2019				2018				2017				2019				2018				2017
Net periodic defined benefit costs (credits):
Service cost	$	50			$	62			$	65			$	68			$	82			$	76			$	6			$	7			$	7
Interest cost	164				156				168				187				185				178				22				21				23
Expected return on plan assets	(245		)		(249		)		(231		)		(588		)		(587		)		(514		)		(18		)		(23		)		(22		)
Amortization of:
Prior service cost (credit)	8				10				10				1				—				—				(1		)		(1		)		(1		)
Actuarial (gain) loss	56				84				69				92				151				144				1				—				1
Net periodic defined benefit costs (credits) prior to settlements and termination benefits	33				63				81				(240		)		(169		)		(116		)		10				4				8
Settlements	1				—				1				—				—				—				—				—				—
Termination benefits	—				—				1				—				—				—				—				—				—
Net periodic defined benefit costs (credits)	$	34			$	63			$	83			$	(240	)		$	(169	)		$	(116	)		$	10			$	4			$	8
Other Changes in Plan Assets and Benefit Obligations Recognized in OCI and Regulatory Assets/Liabilities - Gross:
Settlement	(1		)		—				(1		)		—				—				—				—				—				—
Net (gain) loss	(121		)		157				27				723				201				346				(18		)		8				(28		)
Prior service cost (credit)	2				1				(1		)		—				13				—				—				—				8
Amortization of:
Prior service (cost) credit	(8		)		(10		)		(10		)		(1		)		—				—				1				1				1
Actuarial gain (loss)	(56		)		(84		)		(69		)		(92		)		(151		)		(144		)		(1		)		—				(1		)
Total recognized in OCI and regulatory assets/liabilities (a)	(184		)		64				(54		)		630				63				202				(18		)		9				(20		)
Total recognized in net periodic defined benefit costs, OCI and regulatory assets/liabilities (a)	$	(150	)		$	127			$	29			$	390			$	(106	)		$	86			$	(8	)		$	13			$	(12	)

 

(a)	WPD is not subject to accounting for the effects of certain types of regulation as prescribed by GAAP. As a result, WPD does not record regulatory assets/liabilities.

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For PPL's U.S. pension benefits and for other postretirement benefits, the amounts recognized in OCI and regulatory assets/liabilities for the years ended December 31 were as follows:

	U.S. Pension Benefits												Other Postretirement Benefits
	2019				2018				2017				2019				2018				2017
OCI	$	(194	)		$	90			$	(53	)		$	(13	)		$	20			$	(25	)
Regulatory assets/liabilities	10				(26		)		(1		)		(5		)		(11		)		5
Total recognized in OCI and regulatory assets/liabilities	$	(184	)		$	64			$	(54	)		$	(18	)		$	9			$	(20	)

 

(LKE)

 

The following table provides the components of net periodic defined benefit costs for LKE's pension and other postretirement benefit plans for the years ended December 31.

	Pension Benefits												Other Postretirement Benefits
	2019				2018				2017				2019				2018				2017
Net periodic defined benefit costs (credits):
Service cost	$	22			$	25			$	24			$	4			$	4			$	4
Interest cost	66				63				68				8				8				9
Expected return on plan assets	(101		)		(102		)		(92		)		(8		)		(9		)		(7		)
Amortization of:
Prior service cost	8				9				8				1				1				1
Actuarial (gain) loss (a)	22				35				31				(1		)		—				—
Net periodic defined benefit costs (b)	$	17			$	30			$	39			$	4			$	4			$	7
Other Changes in Plan Assets and Benefit Obligations Recognized in OCI and Regulatory Assets/Liabilities - Gross:
Net (gain) loss	$	(37	)		$	40			$	30			$	(14	)		$	1			$	(14	)
Prior service cost	2				—				7				—				—				8
Amortization of:
Prior service credit	(8		)		(9		)		(8		)		(1		)		(1		)		(1		)
Actuarial gain (loss)	(22		)		(35		)		(32		)		1				—				—
Total recognized in OCI and regulatory assets/liabilities	(65		)		(4		)		(3		)		(14		)		—				(7		)
Total recognized in net periodic defined benefit costs, OCI and regulatory assets/liabilities	$	(48	)		$	26			$	36			$	(10	)		$	4			$	—

 

(a)	As a result of the 2014 Kentucky rate case settlement that became effective July 1, 2015, the difference between actuarial (gain)/loss calculated in accordance with LKE's pension accounting policy and actuarial (gain)/loss calculated using a 15 year amortization period was $5 million in 2019 and $11 million in 2018 and 2017.

(b)	Due to the amount of lump sum payment distributions from the LG&E qualified pension plan, settlement charges of $5 million in 2019, $6 million in 2018 and $5 million in 2017 were incurred. In accordance with existing regulatory accounting treatment, LG&E has maintained the settlement charge in regulatory assets. The amount will be amortized in accordance with existing regulatory practice.

For LKE's pension and other postretirement benefits, the amounts recognized in OCI and regulatory assets/liabilities for the years ended December 31 were as follows:

	Pension Benefits												Other Postretirement Benefits
	2019				2018				2017				2019				2018				2017
OCI	$	13			$	(25	)		$	33			$	(7	)		$	4			$	(2	)
Regulatory assets/liabilities	(78		)		21				(36		)		(7		)		(4		)		(5		)
Total recognized in OCI and regulatory assets/liabilities	$	(65	)		$	(4	)		$	(3	)		$	(14	)		$	—			$	(7	)

  

(LG&E)

 

The following table provides the components of net periodic defined benefit costs for LG&E's pension benefit plan for the years ended December 31.

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	Pension Benefits
	2019				2018				2017
Net periodic defined benefit costs (credits):
Service cost	$	1			$	1			$	1
Interest cost	11				12				13
Expected return on plan assets	(21		)		(22		)		(22		)
Amortization of:
Prior service cost	5				5				5
Actuarial loss (a)	9				7				9
Net periodic defined benefit costs (b)	$	5			$	3			$	6
Other Changes in Plan Assets and Benefit Obligations Recognized in Regulatory Assets - Gross:
Net (gain) loss	$	(19	)		$	22			$	(9	)
Prior service cost	—				—				7
Amortization of:
Prior service credit	(5		)		(5		)		(5		)
Actuarial gain	(9		)		(7		)		(9		)
Total recognized in regulatory assets/liabilities	(33		)		10				(16		)
Total recognized in net periodic defined benefit costs and regulatory assets	$	(28	)		$	13			$	(10	)

 

(a)	As a result of the 2014 Kentucky rate case settlement that became effective July 1, 2015, the difference between actuarial (gain)/loss calculated in accordance with LG&E's pension accounting policy and actuarial (gain)/loss calculated using a 15 year amortization period was $3 million in 2019, $2 million in 2018 and $7 million in 2017.

(b)	Due to the amount of lump sum payment distributions from the LG&E qualified pension plan, settlement charges of $5 million in 2019, $6 million in 2018 and $5 million in 2017 were incurred. In accordance with existing regulatory accounting treatment, LG&E has maintained the settlement charge in regulatory assets. The amount will be amortized in accordance with existing regulatory practice.

 

(All Registrants)

 

The following net periodic defined benefit costs (credits) were charged to expense or regulatory assets, excluding amounts charged to construction and other non-expense accounts. The U.K. pension benefits apply to PPL only.

	Pension Benefits
	U.S.												U.K.												Other Postretirement Benefits
	2019				2018				2017				2019				2018				2017				2019				2018				2017
PPL	$	18			$	40			$	59			$	(287	)		$	(226	)		$	(151	)		$	8			$	2			$	5
PPL Electric (a)	(4		)		4				12																4				(1		)		—
LKE (b)	12				21				28																2				3				5
LG&E (b)	3				4				8																2				2				3
KU (a) (b)	(1		)		2				4																—				1				1

 

(a)

PPL Electric and KU do not directly sponsor any defined benefit plans. PPL Electric and KU were allocated these costs of defined benefit plans sponsored by PPL Services (for PPL Electric) and by LKE (for KU), based on their participation in those plans, which management believes are reasonable. KU is also allocated costs of defined benefit plans from LKS for defined benefit plans sponsored by LKE. See Note 14 for additional information on costs allocated to KU from LKS.

(b)

As a result of the 2014 Kentucky rate case settlement that became effective July 1, 2015, the difference between net periodic defined benefit costs calculated in accordance with LKE's, LG&E's and KU's pension accounting policy and the net periodic defined benefit costs calculated using a 15 year amortization period for gains and losses is recorded as a regulatory asset. Of the costs charged to Other operation and maintenance, Other Income (Expense) - net or regulatory assets, excluding amounts charged to construction and other non-expense accounts, $2 million for LG&E and $1 million for KU were recorded as regulatory assets in 2019, $3 million for LG&E and $2 million for KU were recorded as regulatory assets in 2018 and $4 million for LG&E and $2 million for KU were recorded as regulatory assets in 2017.

In the table above, LG&E amounts include costs for the specific plans it sponsors and the following allocated costs of defined benefit plans sponsored by LKE. LG&E is also allocated costs of defined benefit plans from LKS for defined benefit plans sponsored by LKE. See Note 14 for additional information on costs allocated to LG&E from LKS. These allocations are based on LG&E's participation in those plans, which management believes are reasonable:

	Pension Benefits												Other Postretirement Benefits
	2019				2018				2017				2019				2018				2017
LG&E Non-Union Only	$	—			$	2			$	5			$	2			$	2			$	3

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(PPL, LKE and LG&E)

 

PPL, LKE and LG&E use the base mortality tables issued by the Society of Actuaries in October 2014 (RP-2014 base tables with collar and factor adjustments, where applicable) for all U.S. defined benefit pension and other postretirement benefit plans. In 2017, PPL, LKE and LG&E updated to the MP-2017 mortality improvement scale from 2006 on a generational basis and continued to use this improvement scale in 2019.

 

The following weighted-average assumptions were used in the valuation of the benefit obligations at December 31. The U.K. pension benefits apply to PPL only.

	Pension Benefits
	U.S.						U.K.						Other Postretirement Benefits
	2019			2018			2019			2018			2019			2018
PPL
Discount rate	3.64	%		4.35	%		1.94	%		2.98	%		3.60	%		4.31	%
Rate of compensation increase	3.79	%		3.79	%		3.25	%		3.50	%		3.76	%		3.76	%
LKE
Discount rate	3.62	%		4.35	%								3.59	%		4.32	%
Rate of compensation increase	3.50	%		3.50	%								3.50	%		3.50	%
LG&E
Discount rate	3.60	%		4.33	%

 

The following weighted-average assumptions were used to determine the net periodic defined benefit costs for the years ended December 31. The U.K. pension benefits apply to PPL only.

	Pension Benefits
	U.S.									U.K.									Other Postretirement Benefits
	2019			2018			2017			2019			2018			2017			2019			2018			2017
PPL
Discount rate service cost	4.35	%		3.70	%		4.21	%		3.12	%		2.73	%		2.99	%		4.31	%		3.64	%		4.11	%
Discount rate interest cost	4.35	%		3.70	%		4.21	%		2.62	%		2.31	%		2.41	%		4.31	%		3.64	%		4.11	%
Rate of compensation increase	3.79	%		3.78	%		3.95	%		3.50	%		3.50	%		3.50	%		3.76	%		3.75	%		3.92	%
Expected return on plan assets	7.25	%		7.25	%		7.00	%		7.21	%		7.23	%		7.22	%		6.46	%		6.40	%		6.21	%
LKE
Discount rate	4.35	%		3.69	%		4.19	%											4.32	%		3.65	%		4.12	%
Rate of compensation increase	3.50	%		3.50	%		3.50	%											3.50	%		3.50	%		3.50	%
Expected return on plan assets (a)	7.25	%		7.25	%		7.00	%											7.00	%		7.15	%		6.82	%
LG&E
Discount rate	4.33	%		3.65	%		4.13	%
Expected return on plan assets (a)	7.25	%		7.25	%		7.00	%

 

(a)	The expected long-term rates of return for pension and other postretirement benefits are based on management's projections using a best-estimate of expected returns, volatilities and correlations for each asset class. Each plan's specific current and expected asset allocations are also considered in developing a reasonable return assumption.

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(PPL and LKE)

 

The following table provides the assumed health care cost trend rates for the years ended December 31:

	2019			2018			2017
PPL and LKE
Health care cost trend rate assumed for next year
– obligations	6.6	%		6.6	%		6.6	%
– cost	6.6	%		6.6	%		7.0	%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)
– obligations	5.0	%		5.0	%		5.0	%
– cost	5.0	%		5.0	%		5.0	%
Year that the rate reaches the ultimate trend rate
– obligations	2024			2023			2022
– cost	2023			2022			2022

(PPL)

The funded status of PPL's plans at December 31 was as follows:

	Pension Benefits
	U.S.								U.K.								Other Postretirement Benefits
	2019				2018				2019				2018				2019				2018
Change in Benefit Obligation
Benefit Obligation, beginning of period	$	3,883			$	4,288			$	7,275			$	8,219			$	538			$	589
Service cost	50				62				68				82				6				7
Interest cost	164				156				187				185				22				21
Participant contributions	—				—				12				13				14				13
Plan amendments	2				1				—				12				—				—
Actuarial (gain) loss	368				(352		)		1,220				(406		)		34				(34		)
Settlements	(21		)		—				—				—				—				—
Gross benefits paid	(300		)		(272		)		(363		)		(381		)		(58		)		(58		)
Federal subsidy	—				—				—				—				1				—
Currency conversion	—				—				116				(449		)		—				—
Benefit Obligation, end of period	4,146				3,883				8,515				7,275				557				538
Change in Plan Assets
Plan assets at fair value, beginning of period	3,109				3,488				7,801				8,490				301				405
Actual return on plan assets	735				(260		)		1,095				(30		)		71				(20		)
Employer contributions	63				153				278				188				10				23
Participant contributions	—				—				12				13				10				11
Transfer out (a)	—				—				—				—				—				(65		)
Settlements	(22		)		—				—				—				—				—
Gross benefits paid	(300		)		(272		)		(363		)		(381		)		(52		)		(53		)
Currency conversion	—				—				122				(479		)		—				—
Plan assets at fair value, end of period	3,585				3,109				8,945				7,801				340				301
Funded Status, end of period	$	(561	)		$	(774	)		$	430			$	526			$	(217	)		$	(237	)
Amounts recognized in the Balance Sheets consist of:
Noncurrent asset	$	24			$	—			$	440			$	535			$	11			$	2
Current liability	(8		)		(13		)		(1		)		(1		)		(2		)		(3		)
Noncurrent liability	(577		)		(761		)		(9		)		(8		)		(226		)		(236		)
Net amount recognized, end of period	$	(561	)		$	(774	)		$	430			$	526			$	(217	)		$	(237	)

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	Pension Benefits
	U.S.								U.K.								Other Postretirement Benefits
	2019				2018				2019				2018				2019				2018
Amounts recognized in AOCI and regulatory assets/liabilities (pre-tax) consist of:
Prior service cost (credit)	$	34			$	40			$	11			$	12			$	10			$	10
Net actuarial (gain) loss	1,029				1,207				3,435				2,806				6				24
Total (b)	$	1,063			$	1,247			$	3,446			$	2,818			$	16			$	34
Total accumulated benefit obligation for defined benefit pension plans	$	3,910			$	3,668			$	7,821			$	6,689

(a)	In May 2018, PPL received a favorable private letter ruling from the IRS permitting a transfer of excess funds from the PPL Bargaining Unit Retiree Health Plan VEBA to a new subaccount within the VEBA to be used to pay medical claims of active bargaining unit employees.

(b)	WPD is not subject to accounting for the effects of certain types of regulation as prescribed by GAAP and as a result, does not record regulatory assets/liabilities.

For PPL's U.S. pension and other postretirement benefit plans, the amounts recognized in AOCI and regulatory assets/liabilities at December 31 were as follows:

	U.S. Pension Benefits								Other Postretirement Benefits
	2019				2018				2019				2018
AOCI	$	352			$	370			$	13			$	21
Regulatory assets/liabilities	711				877				3				13
Total	$	1,063			$	1,247			$	16			$	34

 

The actuarial (gain) loss for all pension plans in 2019 and 2018 was primarily related to a change in the discount rate used to measure the benefit obligations of those plans.

The following tables provide information on pension plans where the projected benefit obligation (PBO) or accumulated benefit obligation (ABO) exceed the fair value of plan assets:

	U.S.								U.K.
	PBO in excess of plan assets								PBO in excess of plan assets
	2019				2018				2019				2018
Projected benefit obligation	$	3,861			$	3,883			$	10			$	9
Fair value of plan assets	3,275				3,109				—				—
	U.S.								U.K.
	ABO in excess of plan assets								ABO in excess of plan assets
	2019				2018				2019				2018
Accumulated benefit obligation	$	3,624			$	3,668			$	10			$	9
Fair value of plan assets	3,275				3,109				—				—

 

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(LKE)

The funded status of LKE's plans at December 31 was as follows:

	Pension Benefits								Other Postretirement Benefits
	2019				2018				2019				2018
Change in Benefit Obligation
Benefit Obligation, beginning of period	$	1,580			$	1,771			$	205			$	223
Service cost	22				25				4				4
Interest cost	66				63				8				8
Participant contributions	—				—				7				8
Plan amendments	2				—				—				—
Actuarial (gain) loss (b)	166				(168		)		5				(16		)
Settlements	(16		)		—				—				—
Gross benefits paid (a)	(136		)		(111		)		(21		)		(22		)
Benefit Obligation, end of period	1,684				1,580				208				205
Change in Plan Assets
Plan assets at fair value, beginning of period	1,294				1,402				117				116
Actual return on plan assets	304				(106		)		27				(9		)
Employer contributions	24				109				11				24
Participant contributions	—				—				7				8
Settlements	(16		)		—				—				—
Gross benefits paid	(136		)		(111		)		(21		)		(22		)
Plan assets at fair value, end of period	1,470				1,294				141				117
Funded Status, end of period	$	(214	)		$	(286	)		$	(67	)		$	(88	)
Amounts recognized in the Balance Sheets consist of:
Noncurrent asset	$	24			$	—			$	11			$	2
Current liability	(5		)		(4		)		(2		)		(3		)
Noncurrent liability	(233		)		(282		)		(76		)		(87		)
Net amount recognized, end of period	$	(214	)		$	(286	)		$	(67	)		$	(88	)
Amounts recognized in AOCI and regulatory assets/liabilities (pre-tax) consist of:
Prior service cost	$	30			$	35			$	10			$	12
Net actuarial (gain) loss	380				439				(37		)		(25		)
Total	$	410			$	474			$	(27	)		$	(13	)
Total accumulated benefit obligation for defined benefit pension plans	$	1,561			$	1,467

 

(a)	Gross benefits paid by the plans include lump-sum cash payments made to participants during 2019 and 2018 of $74 million and $52 million.

(b)	The actuarial (gain) loss for all pension plans in 2019 and 2018 was primarily related to changes in the discount rate used to measure the benefit obligations of those plans.

The amounts recognized in AOCI and regulatory assets/liabilities at December 31 were as follows:

	Pension Benefits								Other Postretirement Benefits
	2019				2018				2019				2018
AOCI	$	132			$	118			$	4			$	10
Regulatory assets/liabilities	278				356				(31		)		(23		)
Total	$	410			$	474			$	(27	)		$	(13	)

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The following tables provide information on pension plans where the projected benefit obligation (PBO) or accumulated benefit obligations (ABO) exceed the fair value of plan assets: 

	PBO in excess of plan assets
	2019				2018
Projected benefit obligation	$	1,398			$	1,580
Fair value of plan assets	1,160				1,294
	ABO in excess of plan assets
	2019				2018
Accumulated benefit obligation	$	1,276			$	1,467
Fair value of plan assets	1,160				1,294

(LG&E)

The funded status of LG&E's plan at December 31, was as follows:

	Pension Benefits
	2019				2018
Change in Benefit Obligation
Benefit Obligation, beginning of period	$	285			$	326
Service cost	1				1
Interest cost	11				12
Actuarial (gain) loss	25				(24		)
Gross benefits paid (a)	(36		)		(30		)
Benefit Obligation, end of period	286				285
Change in Plan Assets
Plan assets at fair value, beginning of period	281				325
Actual return on plan assets	64				(24		)
Employer contributions	1				10
Gross benefits paid	(36		)		(30		)
Plan assets at fair value, end of period	310				281
Funded Status, end of period	$	24			$	(4	)
Amounts recognized in the Balance Sheets consist of:
Noncurrent asset (liability)	$	24			$	(4	)
Net amount recognized, end of period	$	24			$	(4	)
Amounts recognized in regulatory assets (pre-tax) consist of:
Prior service cost	$	17			$	22
Net actuarial loss	79				107
Total	$	96			$	129
Total accumulated benefit obligation for defined benefit pension plan	$	286			$	285

 

(a)	Gross benefits paid by the plan include lump-sum cash payments made to participants during 2019 and 2018 of $21 million and $16 million.

LG&E's pension plan had plan assets in excess of projected and accumulated benefit obligations at December 31, 2019. LG&E's pension plan had projected and accumulated benefit obligations in excess of plan assets at December 31, 2018.

 

In addition to the plan it sponsors, LG&E is allocated a portion of the funded status and costs of certain defined benefit plans sponsored by LKE. LG&E is also allocated costs of defined benefit plans from LKS for defined benefit plans sponsored by LKE. See Note 14 for additional information on costs allocated to LG&E from LKS. These allocations are based on LG&E's participation in those plans, which management believes are reasonable. The actuarially determined obligations of current active employees and retired employees are used as a basis to allocate total plan activity, including active and retiree costs and obligations. Allocations to LG&E resulted in (assets)/liabilities at December 31 as follows:

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	2019				2018
Pension	$	(7	)		$	7
Other postretirement benefits	63				65

 

(PPL Electric)

 

Although PPL Electric does not directly sponsor any defined benefit plans, it is allocated a portion of the funded status and costs of plans sponsored by PPL Services based on its participation in those plans, which management believes are reasonable. The actuarially determined obligations of current active employees and retirees are used as a basis to allocate total plan activity, including active and retiree costs and obligations. Allocations to PPL Electric resulted in liabilities at December 31 as follows:

	2019				2018
Pension	$	179			$	285
Other postretirement benefits	122				120

 

(KU)

 

Although KU does not directly sponsor any defined benefit plans, it is allocated a portion of the funded status and costs of plans sponsored by LKE. KU is also allocated costs of defined benefit plans from LKS for defined benefit plans sponsored by LKE. See Note 14 for additional information on costs allocated to KU from LKS. These allocations are based on KU's participation in those plans, which management believes are reasonable. The actuarially determined obligations of current active employees and retired employees of KU are used as a basis to allocate total plan activity, including active and retiree costs and obligations. Allocations to KU resulted in (assets)/liabilities at December 31 as follows.

	2019				2018
Pension	$	(31	)		$	1
Other postretirement benefits	16				25

 

Plan Assets - U.S. Pension Plans

 

(PPL, LKE and LG&E)

 

PPL's primary legacy pension plan and the pension plans sponsored by LKE and LG&E are invested in the PPL Services Corporation Master Trust (the Master Trust) that also includes 401(h) accounts that are restricted for certain other postretirement benefit obligations of PPL and LKE. The investment strategy for the Master Trust is to achieve a risk-adjusted return on a mix of assets that, in combination with PPL's funding policy, will ensure that sufficient assets are available to provide long-term growth and liquidity for benefit payments, while also managing the duration of the assets to complement the duration of the liabilities. The Master Trust benefits from a wide diversification of asset types, investment fund strategies and external investment fund managers, and therefore has no significant concentration of risk.

 

The investment policy of the Master Trust outlines investment objectives and defines the responsibilities of the EBPB, external investment managers, investment advisor and trustee and custodian. The investment policy is reviewed annually by PPL's Board of Directors.

 

The EBPB created a risk management framework around the trust assets and pension liabilities. This framework considers the trust assets as being composed of three sub-portfolios: growth, immunizing and liquidity portfolios. The growth portfolio is comprised of investments that generate a return at a reasonable risk, including equity securities, certain debt securities and alternative investments. The immunizing portfolio consists of debt securities, generally with long durations, and derivative positions. The immunizing portfolio is designed to offset a portion of the change in the pension liabilities due to changes in interest rates. The liquidity portfolio consists primarily of cash and cash equivalents.

 

Target allocation ranges have been developed for each portfolio based on input from external consultants with a goal of limiting funded status volatility. The EBPB monitors the investments in each portfolio, and seeks to obtain a target portfolio that emphasizes reduction of risk of loss from market volatility. In pursuing that goal, the EBPB establishes revised guidelines from time to time. EBPB investment guidelines as of the end of 2019 are presented below.

 

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The asset allocation for the trust and the target allocation by portfolio at December 31 are as follows:

	Percentage of trust assets						2019
	2019 (a)			2018 (a)			Target Asset Allocation (a)
Growth Portfolio	57	%		55	%		55	%
Equity securities	34	%		30	%
Debt securities (b)	14	%		15	%
Alternative investments	9	%		10	%
Immunizing Portfolio	42	%		43	%		43	%
Debt securities (b)	35	%		39	%
Derivatives	7	%		4	%
Liquidity Portfolio	1	%		2	%		2	%
Total	100	%		100	%		100	%

 

(a)	Allocations exclude consideration of a group annuity contract held by the LG&E and KU Retirement Plan.

(b)	Includes commingled debt funds, which PPL treats as debt securities for asset allocation purposes.

(LKE)

 

LKE has pension plans, including LG&E's plan, whose assets are invested solely in the Master Trust, which is fully disclosed below. The fair value of these plans' assets of $1.5 billion and $1.3 billion at December 31, 2019 and 2018 represents an interest of approximately 41% and 42% in the Master Trust.

 

(LG&E)

 

LG&E has a pension plan whose assets are invested solely in the Master Trust, which is fully disclosed below. The fair value of this plan's assets of $310 million and $281 million at December 31, 2019 and 2018 represents an interest of approximately 9% in the Master Trust.

 

(PPL, LKE and LG&E)

 

The fair value of net assets in the Master Trust by asset class and level within the fair value hierarchy was:

	December 31, 2019																December 31, 2018
					Fair Value Measurements Using																Fair Value Measurements Using
	Total				Level 1				Level 2				Level 3				Total				Level 1				Level 2				Level 3
PPL Services Corporation Master Trust
Cash and cash equivalents	$	182			$	182			$	—			$	—			$	220			$	220			$	—			$	—
Equity securities:
U.S. Equity	194				194				—				—				159				159				—				—
U.S. Equity fund measured at NAV (a)	451				—				—				—				340				—				—				—
International equity fund at NAV (a)	554				—				—				—				466				—				—				—
Commingled debt measured at NAV (a)	621				—				—				—				543				—				—				—
Debt securities:
U.S. Treasury and U.S. government sponsored agency	310				309				1				—				212				212				—				—
Corporate	951				—				931				20				899				—				874				25
Other	14				—				14				—				17				—				17				—
Alternative investments:
Real estate measured at NAV (a)	88				—				—				—				90				—				—				—
Private equity measured at NAV (a)	62				—				—				—				65				—				—				—
Hedge funds measured at NAV (a)	194				—				—				—				175				—				—				—

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	December 31, 2019																December 31, 2018
					Fair Value Measurements Using																Fair Value Measurements Using
	Total				Level 1				Level 2				Level 3				Total				Level 1				Level 2				Level 3
Derivatives	3				—				3				—				33				—				33				—
Insurance contracts	4				—				—				4				21				—				—				21
PPL Services Corporation Master Trust assets, at fair value	3,628				$	685			$	949			$	24			3,240				$	591			$	924			$	46
Receivables and payables, net (b)	99																(2		)
401(h) accounts restricted for other postretirement benefit obligations	(142		)														(129		)
Total PPL Services Corporation Master Trust pension assets	$	3,585															$	3,109

 

(a)

In accordance with accounting guidance certain investments that are measured at fair value using the net asset value per share (NAV), or its equivalent, practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in the table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the statement of financial position.

(b)	Receivables and payables, net represents amounts for investments sold/purchased but not yet settled along with interest and dividends earned but not yet received.

A reconciliation of the Master Trust assets classified as Level 3 at December 31, 2019 is as follows:

	Corporate debt				Insurance contracts				Total
Balance at beginning of period	$	25			$	21			$	46
Actual return on plan assets
Relating to assets still held at the reporting date	(1		)		4				3
Relating to assets sold during the period	3				—				3
Purchases, sales and settlements	(7		)		(21		)		(28		)
Balance at end of period	$	20			$	4			$	24

 

A reconciliation of the Master Trust assets classified as Level 3 at December 31, 2018 is as follows: 

	Corporate debt				Insurance contracts				Total
Balance at beginning of period	$	13			$	24			$	37
Actual return on plan assets
Relating to assets still held at the reporting date	(2		)		1				(1		)
Relating to assets sold during the period	3				—				3
Purchases, sales and settlements	11				(4		)		7
Balance at end of period	$	25			$	21			$	46

 

The fair value measurements of cash and cash equivalents are based on the amounts on deposit.

 

The market approach is used to measure fair value of equity securities. The fair value measurements of equity securities (excluding commingled funds), which are generally classified as Level 1, are based on quoted prices in active markets. These securities represent actively and passively managed investments that are managed against various equity indices.

 

Investments in commingled equity and debt funds are categorized as equity securities. Investments in commingled equity funds include funds that invest in U.S. and international equity securities. Investments in commingled debt funds include funds that invest in a diversified portfolio of emerging market debt obligations, as well as funds that invest in investment grade long-duration fixed-income securities.

The fair value measurements of debt securities are generally based on evaluations that reflect observable market information, such as actual trade information for identical securities or for similar securities, adjusted for observable differences. 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. For the Master Trust, these securities represent investments in securities issued by U.S. Treasury and U.S. government sponsored agencies; investments securitized by residential mortgages, auto loans, credit cards

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and other pooled loans; investments in investment grade and non-investment grade bonds issued by U.S. companies across several industries; investments in debt securities issued by foreign governments and corporations.

 

Investments in real estate represent an investment in a partnership whose purpose is to manage investments in core U.S. real estate properties diversified geographically and across major property types (e.g., office, industrial, retail, etc.). The strategy is focused on properties with high occupancy rates with quality tenants. This results in a focus on high income and stable cash flows with appreciation being a secondary factor. Core real estate generally has a lower degree of leverage when compared with more speculative real estate investing strategies. The partnership has limitations on the amounts that may be redeemed based on available cash to fund redemptions. Additionally, the general partner may decline to accept redemptions when necessary to avoid adverse consequences for the partnership, including legal and tax implications, among others. The fair value of the investment is based upon a partnership unit value.

 

Investments in private equity represent interests in partnerships in multiple early-stage venture capital funds and private equity fund of funds that use a number of diverse investment strategies. The partnerships have limited lives of at least 10 years, after which liquidating distributions will be received. Prior to the end of each partnership's life, the investment cannot be redeemed with the partnership; however, the interest may be sold to other parties, subject to the general partner's approval. The Master Trust has unfunded commitments of $63 million that may be required during the lives of the partnerships. Fair value is based on an ownership interest in partners' capital to which a proportionate share of net assets is attributed.

 

Investments in hedge funds represent investments in a fund of hedge funds. Hedge funds seek a return utilizing a number of diverse investment strategies. The strategies, when combined aim to reduce volatility and risk while attempting to deliver positive returns under most market conditions. Major investment strategies for the fund of hedge funds include long/short equity, tactical trading, event driven, and relative value. Shares may be redeemed with 45 days prior written notice. The fund is subject to short term lockups and other restrictions. The fair value for the fund has been estimated using the net asset value per share.

 

The fair value measurements of derivative instruments utilize various inputs that include quoted prices for similar contracts or market-corroborated inputs. In certain instances, these instruments may be valued using models, including standard option valuation models and standard industry models. These securities primarily represent investments in treasury futures, total return swaps, interest rate swaps and swaptions (the option to enter into an interest rate swap), which are valued based on quoted prices, changes in the value of the underlying exposure or on the swap details, such as swap curves, notional amount, index and term of index, reset frequency, volatility and payer/receiver credit ratings.

 

In 2018, insurance contracts, classified as Level 3, represent an investment in an immediate participation guaranteed group annuity contract. The fair value is based on contract value, which represents cost plus interest income less distributions for benefit payments and administrative expenses. In 2019, obligations underlying the guaranteed group annuity contract were assumed by the insurance company, with a residual amount remaining in the general account of the insurer that will be paid into the master trust or distributed to participants.

 

Plan Assets - U.S. Other Postretirement Benefit Plans

The investment strategy with respect to other postretirement benefit obligations is to fund VEBA trusts and/or 401(h) accounts with voluntary contributions and to invest in a tax efficient manner. Excluding the 401(h) accounts included in the Master Trust, other postretirement benefit plans are invested in a mix of assets for long-term growth with an objective of earning returns that provide liquidity as required for benefit payments. These plans benefit from diversification of asset types, investment fund strategies and investment fund managers and, therefore, have no significant concentration of risk. Equity securities include investments in domestic large-cap commingled funds. Ownership interests in commingled funds that invest entirely in debt securities are classified as equity securities, but treated as debt securities for asset allocation and target allocation purposes. Ownership interests in money market funds are treated as cash and cash equivalents for asset allocation and target allocation purposes. The asset allocation for the PPL VEBA trusts, excluding LKE, and the target allocation, by asset class, at December 31 are detailed below.

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	Percentage of plan assets						Target Asset Allocation
	2019			2018			2019
Asset Class
U.S. Equity securities	45	%		40	%		45	%
Debt securities (a)	52	%		56	%		50	%
Cash and cash equivalents (b)	3	%		4	%		5	%
Total	100	%		100	%		100	%

 

(a)	Includes commingled debt funds and debt securities.

(b)	Includes money market funds.

LKE's other postretirement benefit plan is invested primarily in a 401(h) account, as disclosed in the PPL Services Corporation Master Trust, with insignificant amounts invested in money market funds within VEBA trusts for liquidity.

 

The fair value of assets in the U.S. other postretirement benefit plans by asset class and level within the fair value hierarchy was:

	December 31, 2019																December 31, 2018
					Fair Value Measurement Using																Fair Value Measurement Using
	Total				Level 1				Level 2				Level 3				Total				Level 1				Level 2				Level 3
Money market funds	$	6			$	6			$	—			$	—			$	6			$	6			$	—			$	—
U.S. Equity securities:
Large-cap equity fund measure at NAV (a)	89				—				—				—				69				—				—				—
Commingled debt fund measured at NAV (a)	68				—				—				—				68				—				—				—
Debt securities:
Corporate bonds	35				—				35				—				28				—				28				—
Total VEBA trust assets, at fair value	198				$	6			$	35			$	—			171				$	6			$	28			$	—
Receivables and payables, net (b)	—																1
401(h) account assets	142																129
Total other postretirement benefit plan assets	$	340															$	301

 

(a)

In accordance with accounting guidance certain investments that are measured at fair value using the net asset value per share (NAV), or its equivalent, practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in the table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the statement of financial position.

(b)	Receivables and payables represent amounts for investments sold/purchased but not yet settled along with interest and dividends earned but not yet received.

Investments in money market funds represent investments in funds that invest primarily in a diversified portfolio of investment grade money market instruments, including, but not limited to, commercial paper, notes, repurchase agreements and other evidences of indebtedness with a maturity not exceeding 13 months from the date of purchase. The primary objective of the fund is a level of current income consistent with stability of principal and liquidity. Redemptions can be made daily on this fund.

 

Investments in large-cap equity securities represent investments in a passively managed equity index fund that invests in securities and a combination of other collective funds. Fair value measurements are not obtained from a quoted price in an active market but are based on firm quotes of net asset values per share as provided by the trustee of the fund. Redemptions can be made daily on this fund.

 

Investments in commingled debt securities represent investments in a fund that invests in a diversified portfolio of investment grade long-duration fixed income securities. Redemptions can be made daily on these funds.

Investments in corporate bonds represent investment in a diversified portfolio of investment grade long-duration fixed income securities. The fair value of debt securities are generally based on evaluations that reflect observable market information, such as actual trade information for identical securities or for similar securities, adjusted for observable differences.

Plan Assets - U.K. Pension Plans (PPL)

 

The overall investment strategy of WPD's pension plans is developed by each plan's independent trustees in its Statement of Investment Principles in compliance with the U.K. Pensions Act of 1995 and other U.K. legislation. The trustees' primary focus

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is to ensure that assets are sufficient to meet members' benefits as they fall due with a longer term objective to reduce investment risk. The investment strategy is intended to maximize investment returns while not incurring excessive volatility in the funding position. WPD's plans are invested in a wide diversification of asset types, fund strategies and fund managers; and therefore, have no significant concentration of risk. Commingled funds that consist entirely of debt securities are traded as equity units, but treated by WPD as debt securities for asset allocation and target allocation purposes. These include investments in U.K. corporate bonds and U.K. gilts.

 

The asset allocation and target allocation at December 31 of WPD's pension plans are detailed below.

							Target Asset
	Percentage of plan assets						Allocation
	2019			2018			2019
Asset Class
Cash and cash equivalents	2	%		2	%		—	%
Equity securities
U.K.	—	%		—	%		2	%
European (excluding the U.K.)	—	%		1	%		1	%
Asian-Pacific	—	%		1	%		1	%
North American	1	%		1	%		1	%
Emerging markets	—	%		1	%		1	%
Global equities	19	%		19	%		9	%
Global Tactical Asset Allocation	29	%		31	%		41	%
Debt securities (a)	43	%		38	%		38	%
Alternative investments	6	%		6	%		6	%
Total	100	%		100	%		100	%

 

(a)	Includes commingled debt funds.

The fair value of assets in the U.K. pension plans by asset class and level within the fair value hierarchy was:

	December 31, 2019																December 31, 2018
					Fair Value Measurement Using																Fair Value Measurement Using
	Total				Level 1				Level 2				Level 3				Total				Level 1				Level 2				Level 3
Cash and cash equivalents	$	154			$	154			$	—			$	—			$	147			$	147			$	—			$	—
Equity securities measured at NAV (a) :
U.K. companies	22				—				—				—				27				—				—				—
European companies (excluding the U.K.)	54				—				—				—				76				—				—				—
Asian-Pacific companies	35				—				—				—				49				—				—				—
North American companies	74				—				—				—				105				—				—				—
Emerging markets companies	32				—				—				—				44				—				—				—
Global Equities	1,684				—				—				—				1,465				—				—				—
Other	2,584				—				—				—				2,437				—				—				—
Debt Securities:
U.K. corporate bonds	5				—				5				—				4				—				4				—
U.K. gilts	3,819				—				3,819				—				2,933				—				2,933				—
Alternative investments:
Real estate measured at NAV (a)	519				—				—				—				485				—				—				—
Fair value - U.K. pension plans	8,982				$	154			$	3,824			$	—			7,772				$	147			$	2,937			$	—
Receivables and payables, net (b)	(37		)														29
Total U.K. pension assets	$	8,945															$	7,801

 

(a)

In accordance with accounting guidance certain investments that are measured at fair value using the net asset value per share (NAV), or its equivalent, practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in the table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the statement of financial position.

(b)	Receivables and payables, net represents amounts for investments sold/purchased but not yet settled along with interest and dividends earned but not yet received.

Except for investments in real estate, the fair value measurements of WPD's pension plan assets are based on the same inputs and measurement techniques used to measure the U.S. pension plan assets described above.

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Investments in equity securities represent actively and passively managed funds that are measured against various equity indices.

Other comprises a range of investment strategies, which invest in a variety of assets including equities, bonds, currencies, real estate and forestry held in unitized funds, which are considered in the Global Tactical Asset Allocation target.

 

U.K. corporate bonds include investment grade corporate bonds of companies from diversified U.K. industries.

 

U.K. gilts include gilts, index-linked gilts and swaps intended to track a portion of the plans' liabilities.

 

Investments in real estate represent holdings in a U.K. unitized fund that owns and manages U.K. industrial and commercial real estate with a strategy of earning current rental income and achieving capital growth. The fair value measurement of the fund is based upon a net asset value per share, which is based on the value of underlying properties that are independently appraised in accordance with Royal Institution of Chartered Surveyors valuation standards at least annually with quarterly valuation updates based on recent sales of similar properties, leasing levels, property operations and/or market conditions. The fund may be subject to redemption restrictions in the unlikely event of a large forced sale in order to ensure other unit holders are not disadvantaged.

 

Expected Cash Flows - U.S. Defined Benefit Plans (PPL)

 

While PPL's U.S. defined benefit pension plans have the option to utilize available prior year credit balances to meet current and future contribution requirements, PPL contributed $52 million to its U.S. pension plans in January 2020. No additional contributions are expected in 2020.

 

PPL sponsors various non-qualified supplemental pension plans for which no assets are segregated from corporate assets. PPL expects to make approximately $9 million of benefit payments under these plans in 2020.

 

PPL is not required to make contributions to its other postretirement benefit plans but has historically funded these plans in amounts equal to the postretirement benefit costs recognized. Continuation of this past practice would cause PPL to contribute $14 million to its other postretirement benefit plans in 2020.

 

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid by the plans and the following federal subsidy payments are expected to be received by PPL.

					Other Postretirement
	Pension				Benefit Payment				Expected Federal Subsidy
2020	$	271			$	50			$	1
2021	267				48				1
2022	266				47				—
2023	264				46				—
2024	265				44				—
2025-2029	1,278				200				1

 

(LKE)

 

Effective January 1, 2020, the LKE and LG&E defined benefit pension plans were merged into a combined defined benefit pension plan. The following disclosures relate to the new combined LKE plan.

While LKE's defined benefit pension plan has the option to utilize available prior year credit balances to meet current and future contribution requirements, LKE contributed $22 million to its pension plan in January 2020. No additional contributions are expected in 2020.

 

LKE sponsors various non-qualified supplemental pension plans for which no assets are segregated from corporate assets. LKE expects to make $5 million of benefit payments under these plans in 2020.

 

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LKE is not required to make contributions to its other postretirement benefit plan but has historically funded this plan in amounts equal to the postretirement benefit costs recognized. Continuation of this past practice would cause LKE to contribute a projected $14 million to its other postretirement benefit plan in 2020.

 

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid by the plans and the following federal subsidy payments are expected to be received by LKE.

					Other Postretirement
	Pension				Benefit Payment				Expected Federal Subsidy
2020	$	114			$	14			$	1
2021	115				15				—
2022	115				15				—
2023	113				15				—
2024	115				15				—
2025-2029	545				72				1

 

Expected Cash Flows - U.K. Pension Plans (PPL)

 

The pension plans of WPD are subject to formal actuarial valuations every three years, which are used to determine funding requirements. Contribution requirements were evaluated in accordance with the valuation performed as of March 31, 2016. WPD expects to make contributions of approximately $273 million in 2020. WPD is currently permitted to recover in current revenues approximately 78% of its pension funding requirements for its primary pension plans.

 

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid by the plans.

	Pension
2020	$	353
2021	351
2022	356
2023	359
2024	364
2025-2029	1,826

 

Savings Plans (All Registrants)

 

Substantially all employees of PPL's subsidiaries are eligible to participate in deferred savings plans (401(k)s). Employer contributions to the plans were:

	2019				2018				2017
PPL	$	42			$	40			$	36
PPL Electric	6				6				6
LKE	21				20				18
LG&E	6				6				5
KU	5				5				4

(PPL, LKE, LG&E and KU)

At December 31, 2019 and 2018, the Balance Sheets reflect the owned interests in the generating plants listed below.

		Ownership Interest			Electric Plant				Accumulated Depreciation				Construction Work in Progress
PPL and LKE
	December 31, 2019
	Trimble County Unit 1	75.00	%		$	440			$	54			$	2
	Trimble County Unit 2	75.00	%		1,278				203				134

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		Ownership Interest			Electric Plant				Accumulated Depreciation				Construction Work in Progress
	December 31, 2018
	Trimble County Unit 1	75.00	%		$	427			$	77			$	—
	Trimble County Unit 2	75.00	%		1,063				199				293
LG&E
	December 31, 2019
	E.W. Brown Units 6-7	38.00	%		$	45			$	20			$	—
	Paddy's Run Unit 13 & E.W. Brown Unit 5	53.00	%		52				20				—
	Trimble County Unit 1	75.00	%		440				54				2
	Trimble County Unit 2	14.25	%		340				43				69
	Trimble County Units 5-6	29.00	%		32				12				—
	Trimble County Units 7-10	37.00	%		78				27				—
	Cane Run Unit 7	22.00	%		119				13				—
	E.W. Brown Solar Unit	39.00	%		10				2				—
	Solar Share	44.00	%		1				—				—
	December 31, 2018
	E.W. Brown Units 6-7	38.00	%		$	41			$	20			$	—
	Paddy's Run Unit 13 & E.W. Brown Unit 5	53.00	%		51				17				—
	Trimble County Unit 1	75.00	%		427				77				—
	Trimble County Unit 2	14.25	%		226				39				152
	Trimble County Units 5-6	29.00	%		32				11				—
	Trimble County Units 7-10	37.00	%		77				24				—
	Cane Run Unit 7	22.00	%		119				9				—
	E.W. Brown Solar Unit	39.00	%		10				1				—
KU
	December 31, 2019
	E.W. Brown Units 6-7	62.00	%		$	75			$	32			$	—
	Paddy's Run Unit 13 & E.W. Brown Unit 5	47.00	%		46				14				—
	Trimble County Unit 2	60.75	%		938				160				65
	Trimble County Units 5-6	71.00	%		76				29				—
	Trimble County Units 7-10	63.00	%		128				46				—
	Cane Run Unit 7	78.00	%		429				49				1
	E.W. Brown Solar Unit	61.00	%		16				2				—
	Solar Share	56.00	%		2				—				—
	December 31, 2018
	E.W. Brown Units 6-7	62.00	%		$	66			$	31			$	—
	Paddy's Run Unit 13 & E.W. Brown Unit 5	47.00	%		46				15				—
	Trimble County Unit 2	60.75	%		837				160				141
	Trimble County Units 5-6	71.00	%		76				25				—
	Trimble County Units 7-10	63.00	%		129				41				—
	Cane Run Unit 7	78.00	%		428				36				—
	E.W. Brown Solar Unit	61.00	%		16				2				—

Each subsidiary owning these interests provides its own funding for its share of the facility. Each receives a portion of the total output of the generating plants equal to its percentage ownership. The share of fuel and other operating costs associated with the plants is included in the corresponding operating expenses on the Statements of Income.

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Energy Purchase Commitments (PPL, LKE, LG&E and KU)

LG&E and KU enter into purchase contracts to supply the coal and natural gas requirements for generation facilities and LG&E's retail natural gas supply operations. These contracts include the following commitments:

Contract Type	Maximum Maturity Date
Natural Gas Fuel	2022
Natural Gas Retail Supply	2021
Coal	2024
Coal Transportation and Fleeting Services	2027
Natural Gas Transportation	2026

LG&E and KU have a power purchase agreement with OVEC expiring in June 2040. See footnote (f) to the table in "Guarantees and Other Assurances" below for information on the OVEC power purchase contract, including recent developments in credit or debt conditions relating to OVEC. Future obligations for power purchases from OVEC are demand payments, comprised of debt-service payments and contractually-required reimbursements of plant operating, maintenance and other expenses, and are projected as follows:

	LG&E				KU				Total
2020	$	21			$	10			$	31
2021	21				10				31
2022	21				10				31
2023	21				10				31
2024	22				9				31
Thereafter	276				123				399
Total	$	382			$	172			$	554

LG&E and KU had total energy purchases under the OVEC power purchase agreement for the years ended December 31 as follows:

	2019				2018				2017
LG&E	$	15			$	14			$	14
KU	7				6				6
Total	$	22			$	20			$	20

Legal Matters

(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.

Talen Litigation (PPL)

Background

In September 2013, one of PPL's former subsidiaries, PPL Montana entered into an agreement to sell its hydroelectric generating facilities. In June 2014, PPL and PPL Energy Supply, the parent company of PPL Montana, entered into various definitive agreements with affiliates of Riverstone to spin off PPL Energy Supply and ultimately combine it with Riverstone's competitive power generation businesses to form a stand-alone company named Talen Energy. In November 2014, after executing the spinoff agreements but prior to the closing of the spinoff transaction, PPL Montana closed the sale of its hydroelectric generating facilities. Subsequently, on June 1, 2015, the spinoff of PPL Energy Supply was completed. Following the spinoff transaction, PPL had no continuing ownership interest in or control of PPL Energy Supply. In connection with the spinoff transaction, PPL Montana became Talen Montana, LLC (Talen Montana), a subsidiary of Talen Energy. Talen Energy

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Marketing also became a subsidiary of Talen Energy as a result of the June 2015 spinoff of PPL Energy Supply. Talen Energy has owned and operated both Talen Montana and Talen Energy Marketing since the spinoff. At the time of the spinoff, affiliates of Riverstone acquired a 35% ownership interest in Talen Energy. Riverstone subsequently acquired the remaining interests in Talen Energy in a take private transaction in December 2016.

Talen Montana, LLC v. PPL Corporation et al.

On October 29, 2018, Talen Montana filed a complaint against PPL and certain of its affiliates and current and former officers and directors in the First Judicial District of the State of Montana, Lewis & Clark County (Talen Direct Action). Talen Montana alleges that in November 2014, PPL and certain officers and directors improperly distributed to PPL's subsidiaries $733 million of the proceeds from the sale of Talen Montana's (then PPL Montana's) hydroelectric generating facilities, rendering PPL Montana insolvent. The complaint includes claims for, among other things, breach of fiduciary duty; aiding and abetting breach of fiduciary duty; breach of an LLC agreement; breach of the implied duty of good faith and fair dealing; tortious interference; negligent misrepresentation; and constructive fraud. Talen Montana is seeking unspecified damages, including punitive damages, and other relief. In December 2018, PPL moved to dismiss the Talen Direct Action for lack of jurisdiction and, in the alternative, to dismiss because Delaware is the appropriate forum to decide this case. In January 2019, Talen Montana dismissed without prejudice all current and former PPL Corporation directors from the case. The parties engaged in limited jurisdictional discovery, and the Court heard oral argument regarding the PPL parties' motion to dismiss on August 22, 2019. On December 4, 2019, the Court granted PPL's motion to dismiss and on December 26, 2019, a judgment dismissing all claims against all defendants with prejudice was signed by the Court.

Talen Montana Retirement Plan and Talen Energy Marketing, LLC, Individually and on Behalf of All Others Similarly Situated v. PPL Corporation et al.

Also on October 29, 2018, Talen Montana Retirement Plan and Talen Energy Marketing filed a putative class action complaint on behalf of current and contingent creditors of Talen Montana who allegedly suffered harm or allegedly will suffer reasonably foreseeable harm as a result of the November 2014 distribution. The action was filed in the Sixteenth Judicial District of the State of Montana, Rosebud County, against PPL and certain of its affiliates and current and former officers and directors (Talen Putative Class Action). The plaintiffs assert claims for, among other things, fraudulent transfer, both actual and constructive; recovery against subsequent transferees; civil conspiracy; aiding and abetting tortious conduct; and unjust enrichment. They are seeking avoidance of the purportedly fraudulent transfer, unspecified damages, including punitive damages, the imposition of a constructive trust, and other relief. In December 2018, PPL removed the Talen Putative Class Action from the Sixteenth Judicial District of the State of Montana to the United States District Court for the District of Montana, Billings Division (MT Federal Court). In January 2019, the plaintiffs moved to remand the Talen Putative Class Action back to state court, and dismissed without prejudice all current and former PPL Corporation directors from the case. In September 2019, the MT Federal Court granted plaintiffs' motion to remand the case back to state court, and the PPL defendants promptly petitioned the Ninth Circuit Court of Appeals to grant an appeal of the remand decision. On November 21, 2019, the Ninth Circuit Court of Appeals denied that request and on December 30, 2019, Talen Montana Retirement Plan filed a Second Amended Complaint in the Sixteenth Judicial District of the State of Montana, Rosebud County, which removed Talen Energy Marketing, LLC as a plaintiff. On January 31, 2020, PPL defendants filed a motion to dismiss the Second Amended Complaint.

PPL Corporation et al. vs. Riverstone Holdings LLC, Talen Energy Corporation et al.

On November 30, 2018, PPL, certain PPL affiliates, and certain current and former officers and directors (PPL plaintiffs) filed a complaint in the Court of Chancery of the State of Delaware seeking various forms of relief against Riverstone, Talen Energy and certain of their affiliates (Delaware Action). In the complaint, the PPL plaintiffs ask the Delaware Court of Chancery for declaratory and injunctive relief. This includes a declaratory judgment that, under the separation agreement governing the spinoff of PPL Energy Supply, all related claims that arise must be heard in Delaware; that the statute of limitations in Delaware and the spinoff agreement bar these claims at this point; that PPL is not liable for the claims in either the Talen Direct Action or the Talen Putative Class Action as PPL Montana was solvent at all relevant times; and that the separation agreement requires that Talen Energy indemnify PPL for all losses arising from the debts of Talen Montana, among other things. PPL's complaint also seeks damages against Riverstone for interfering with the separation agreement and against Riverstone affiliates for breach of the implied covenant of good faith and fair dealing. The complaint was subsequently amended on January 11, 2019 and March 20, 2019, including to add claims related to indemnification with respect to the Talen Direct Action and the Talen Putative Class Action (together, the Montana Actions), request a declaration that the Montana Actions are time-barred under the spinoff agreements, and allege additional facts to support the tortious interference claim. In April 2019, the defendants filed motions to dismiss the amended complaint. In July 2019, the Court heard oral arguments from the parties regarding the motions to dismiss. On October 23, 2019, the Delaware Court of Chancery returned its opinion on the defendants’ motions to dismiss sustaining all of the PPL plaintiffs' claims except for the claim for breach of implied covenant of good faith

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and fair dealing. Discovery is underway, however, on January 30, 2020, the defendants filed new motions to dismiss five of the remaining eight claims in the amended complaint; the PPL plaintiffs are preparing their response. A tentative trial date has been scheduled for June 2021.

With respect to each of the Talen-related matters described above, PPL believes that the 2014 distribution of proceeds was made in compliance with all applicable laws and that PPL Montana was solvent at all relevant times. Additionally, the agreements entered into in connection with the spinoff, which PPL and affiliates of Talen Energy and Riverstone negotiated and executed prior to the 2014 distribution, directly address the treatment of the proceeds from the sale of PPL Montana's hydroelectric generating facilities; in those agreements, Talen Energy and Riverstone definitively agreed that PPL was entitled to retain the proceeds.

PPL believes that it has meritorious defenses to the claims made in the Talen Putative Class Action and intends to continue to vigorously defend against this action. The Talen Putative Class Action and the Delaware Action are both in early stages of litigation; at this time, PPL cannot predict the outcome of these matters or estimate the range of possible losses, if any, that PPL might incur as a result of the claims, although they could be material.

(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 (U.S. District Court) alleging violations of the Clean Air Act, RCRA, and common law claims of nuisance, trespass and negligence. In July 2014, the U.S. District Court dismissed the RCRA claims and all but one Clean Air Act claim, but declined to dismiss the common law tort claims. In February 2017, the U.S. District Court dismissed PPL as a defendant and dismissed the final federal claim against LG&E, and in April 2017, issued an Order declining to exercise supplemental jurisdiction on the state law claims dismissing the case in its entirety. In June 2017, the plaintiffs filed a class action complaint in Jefferson County, Kentucky Circuit Court, against LG&E alleging state law nuisance, negligence and trespass tort claims. The plaintiffs seek compensatory and punitive damages for alleged property damage due to purported plant emissions on behalf of a class of residents within one to three miles of the plant. On January 8, 2020, the Jefferson Circuit Court issued an order denying the plaintiffs’ request for class certification. On January 14, 2020, the plaintiffs filed a notice of appeal in the Kentucky Court of Appeals. PPL, LKE and LG&E cannot predict the outcome of this matter and an estimate or range of possible losses cannot be determined.

(PPL, LKE and KU)

E.W. Brown Environmental Claims

In July 2017, the Kentucky Waterways Alliance and the Sierra Club filed a citizen suit complaint against KU in the U.S. District Court for the Eastern District of Kentucky (U.S. District Court) alleging discharges at the E.W. Brown plant in violation of the Clean Water Act and the plant's water discharge permit and alleging contamination that may present an imminent and substantial endangerment in violation of the RCRA. The plaintiffs' suit relates to prior notices of intent to file a citizen suit submitted in October and November 2015 and October 2016. These plaintiffs sought injunctive relief ordering KU to take all actions necessary to comply with the Clean Water Act and RCRA, including ceasing the discharges in question, abating effects associated with prior discharges and eliminating the alleged imminent and substantial endangerment. These plaintiffs also sought assessment of civil penalties and an award of litigation costs and attorney fees. In December 2017, the U.S. District Court issued an Order dismissing the Clean Water Act and RCRA complaints against KU in their entirety. In January 2018, the plaintiffs appealed the dismissal Order to the U.S. Court of Appeals for the Sixth Circuit. In September 2018, the U.S. Court of Appeals for the Sixth Circuit issued its ruling affirming the lower court's decision to dismiss the Clean Water Act claims but reversing its dismissal of the RCRA claims against KU and remanding the latter to the U.S. District Court. In October 2018, KU filed a petition for rehearing to the U.S. Court of Appeals for the Sixth Circuit regarding the RCRA claims. In November 2018, the U.S. Court of Appeals for the Sixth Circuit denied KU's petition for rehearing regarding the RCRA claims. In January 2019, KU filed an answer to plaintiffs’ complaint in the U.S. District Court. A trial has been scheduled to begin on October 5, 2020. PPL, LKE and KU cannot predict the outcome of these matters and an estimate or range of possible losses cannot be determined.

KU is undertaking extensive remedial measures at the E.W. Brown plant including closure of the former ash pond, implementation of a groundwater remedial action plan and performance of a corrective action plan including aquatic study of adjacent surface waters and risk assessment. The aquatic study and risk assessment are being undertaken pursuant to a 2017

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agreed Order with the Kentucky Energy and Environment Cabinet (KEEC). KU conducted sampling of Herrington Lake in 2017 and 2018. In June 2019, KU submitted to the KEEC the required aquatic study and risk assessment, conducted by an independent third-party consultant, finding that discharges from the E.W. Brown plant have not had any significant impact on Herrington Lake and that the water in the lake is safe for recreational use and meets safe drinking water standards. However, until the KEEC assesses the study and issues any regulatory determinations, PPL, LKE and KU are unable to determine whether additional remedial measures will be required at the E.W. Brown plant.

Air

Sulfuric Acid Mist Emissions (PPL, LKE and LG&E)

In June 2016, the EPA issued a notice of violation under the Clean Air Act alleging that LG&E violated applicable rules relating to sulfuric acid mist emissions at its Mill Creek plant. The notice alleges failure to install proper controls, failure to operate the facility consistent with good air pollution control practice, and causing emissions exceeding applicable requirements or constituting a nuisance or endangerment. LG&E believes it has complied with applicable regulations during the relevant time period. Discussions between the EPA and LG&E are ongoing. The parties have entered into a tolling agreement with respect to this matter through July 31, 2020. The parties are conducting initial negotiations regarding potential settlement of the matter. PPL, LKE and LG&E are unable to predict the outcome of this matter or the potential impact on operations of the Mill Creek plant, including increased capital or operating costs, and potential civil penalties or remedial measures, if any.

Water/Waste

(PPL, LKE, LG&E and KU)

ELGs

In 2015, the EPA finalized ELGs for wastewater discharge permits for new and existing steam electricity generating facilities. These guidelines require deployment of additional control technologies providing physical, chemical and biological treatment and mandate operational changes including "no discharge" requirements for certain wastewaters. The implementation date for individual generating stations was to be determined by the states on a case-by-case basis according to criteria provided by the EPA. Legal challenges to the final rule were consolidated before the U.S. Court of Appeals for the Fifth Circuit. In April 2017, the EPA announced that it would grant petitions for reconsideration of the rule. In September 2017, the EPA issued a proposed rule to postpone the compliance date for certain requirements. The EPA expects to complete its reconsideration of best available technology standards by the fall of 2020. Upon completion of the ongoing regulatory proceedings, the rule will be implemented by the states in the course of their normal permitting activities. LG&E and KU are developing compliance strategies and schedules. PPL, LKE, LG&E and KU are unable to predict the outcome of the EPA's pending reconsideration of the rule or fully estimate compliance costs or timing. Additionally, certain aspects of these compliance plans and estimates relate to developments in state water quality standards, which are separate from the ELG rule or its implementation. Costs to comply with ELGs or other discharge limits are expected to be significant. Certain costs are included in the Registrants' capital plans and are subject to rate recovery.

CCRs

In 2015, the EPA issued a final rule governing management of CCRs which include fly ash, bottom ash and sulfur dioxide scrubber wastes. The CCR Rule imposes extensive new requirements for certain CCR impoundments and landfills, including public notifications, location restrictions, design and operating standards, groundwater monitoring and corrective action requirements, and closure and post-closure care requirements, and specifies restrictions relating to the beneficial use of CCRs. Legal challenges to the final rule are pending before the D.C. Circuit Court of Appeals. In July 2018, the EPA issued a final rule extending the deadline for closure of certain impoundments and adopting other substantive changes. In August 2018, the D.C. Circuit Court of Appeals vacated and remanded portions of the CCR Rule. In December 2019, the EPA addressed the deficiencies identified by the court and proposed amendments to change the closure deadline to August 31, 2020, but allow certain extensions. EPA has announced that additional amendments to the rule are planned. PPL, LKE, LG&E and KU are unable to predict the outcome of the ongoing litigation and rulemaking or potential impacts on current LG&E and KU compliance plans. The Registrants are currently finalizing closure plans and schedules.

In January 2017, Kentucky issued a new state rule relating to CCR management, effective May 2017, aimed at reflecting the requirements of the federal CCR rule. As a result of a subsequent legal challenge, in January 2018, the Franklin County, Kentucky Circuit Court issued an opinion invalidating certain procedural elements of the rule. LG&E and KU presently operate their facilities under continuing permits authorized under the former program and do not currently anticipate material impacts

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as a result of the judicial ruling. The Kentucky Energy and Environmental Cabinet has announced it intends to propose new state rules aimed at addressing procedural deficiencies identified by the court and providing the regulatory framework necessary for operation of the state program in lieu of the federal CCR Rule. Associated costs are expected to be subject to rate recovery.

LG&E and KU received KPSC approval for a compliance plan providing for the closure of impoundments at the Mill Creek, Trimble County, E.W. Brown, and Ghent stations, and construction of process water management facilities at those plants. In addition to the foregoing measures required for compliance with the federal CCR rule, KU also received KPSC approval for its plans to close impoundments at the retired Green River, Pineville and Tyrone plants to comply with applicable state law. Since 2017, LG&E and KU have commenced closure of many of the subject impoundments and have completed closure of some of their smaller impoundments. LG&E and KU expect to commence closure of the remaining impoundments no later than August 2020. LG&E and KU generally expect to complete impoundment closures within five years of commencement, although a longer period may be required to complete closure of some facilities. Associated costs are expected to be subject to rate recovery.

In connection with the final CCR rule, LG&E and KU recorded adjustments to existing AROs beginning in 2015, and continue to record adjustments as required. See Note 19 for additional information. Further changes to AROs, current capital plans or operating costs may be required as estimates are refined based on closure developments, groundwater monitoring results, and regulatory or legal proceedings. Costs relating to this rule are subject to rate recovery.

(All Registrants)

Superfund and Other Remediation

PPL Electric, LG&E and KU are potentially responsible for investigating and remediating contamination under the federal Superfund program and similar state programs. Actions are under way at certain sites including former coal gas manufacturing plants in Pennsylvania and Kentucky previously owned or operated by, or currently owned by predecessors or affiliates of, PPL Electric, LG&E and KU. PPL Electric is potentially responsible for a share of clean-up costs at certain sites including the Columbia Gas Plant site and the Brodhead site. Cleanup actions have been or are being undertaken at all of these sites, the costs of which have not been and are not expected to be significant to PPL Electric.

As of December 31, 2019 and December 31, 2018, PPL Electric had a recorded liability of $10 million and $11 million representing its best estimate of the probable loss incurred to remediate the sites identified above. Depending on the outcome of investigations at identified sites where investigations have not begun or been completed, or developments at sites for which information is incomplete, additional costs of remediation could be incurred. PPL Electric, LG&E and KU lack sufficient information about such additional sites to estimate any potential liability or range of reasonably possible losses, if any, related to these sites. Such costs, however, are not expected to be significant.

The EPA is evaluating the risks associated with polycyclic aromatic hydrocarbons and naphthalene, chemical by-products of coal gas manufacturing. As a result, individual states may establish stricter standards for water quality and soil cleanup, that 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 possible losses, if any, related to these matters.

Regulatory Issues

See Note 7 for information on regulatory matters related to utility rate regulation.

Electricity - Reliability Standards

The NERC is responsible for establishing and enforcing mandatory reliability standards (Reliability Standards) regarding the bulk electric system in North America. 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 electric system, including electric utility companies, generators and marketers. Under the Federal Power Act, the FERC may assess civil penalties for certain violations.

PPL Electric, LG&E and KU monitor their compliance with the Reliability Standards and self-report or self-log potential violations of applicable reliability requirements whenever identified, and submit accompanying mitigation plans, as required.

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The resolution of a small number of potential violations is pending. Penalties incurred to date have not been significant. 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 an estimate or range of possible losses cannot be determined.

Other

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.

(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 December 31, 2019. "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," for which PPL has a total recorded liability of $5 million at December 31, 2019 and $6 million at December 31, 2018. 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 December 31, 2019				Expiration Date
PPL
Indemnifications related to the WPD Midlands acquisition				(a)
WPD indemnifications for entities in liquidation and sales of assets	$	10		(b)	2021
WPD guarantee of pension and other obligations of unconsolidated entities	83			(c)
PPL Electric
Guarantee of inventory value	26			(d)	2020
LKE
Indemnification of lease termination and other divestitures	200			(e)	2021
LG&E and KU
LG&E and KU obligation of shortfall related to OVEC				(f)

(a)

Indemnifications related to certain liabilities, including a specific unresolved tax issue and those relating to properties and assets owned by the seller that were transferred to WPD Midlands in connection with the acquisition. A cross indemnity has been received from the seller on the tax issue. The maximum exposure and expiration of these indemnifications cannot be estimated because the maximum potential liability is not capped and the expiration date is not specified in the transaction documents.

(b)

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 agreements 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. Additionally, WPD and its affiliates remain secondarily responsible for lease payments under certain leases that they have assigned to third parties.

(c)	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 December 31, 2019, WPD has recorded

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an estimated discounted 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 been estimated.

(d)

A third party logistics firm provides inventory procurement and fulfillment services. The logistics firm currently has title to the inventory, however, upon termination of the contracts, PPL Electric has guaranteed to purchase any remaining inventory that has not been used or sold. In December 2019, PPL Electric declared its intent to terminate the firm’s inventory procurement and fulfillment services effective March 2020. This guarantee has an estimated exposure of $26 million, which PPL Electric will assume subsequent to the termination date. In accordance with the agreement termination terms, PPL Electric has an obligation to purchase any remaining inventory within 90 days from termination date.

(e)

LKE provides certain indemnifications covering the due and punctual payment, performance and discharge by each party of its respective obligations. The most comprehensive of these guarantees is the LKE guarantee covering operational, regulatory and environmental commitments and indemnifications made by WKE under a 2009 Transaction Termination Agreement. This guarantee has a term of 12 years ending July 2021, and a maximum exposure of $200 million, exclusive of certain items such as government fines and penalties that may exceed the maximum. 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. LKE cannot predict the ultimate outcomes of the various indemnification scenarios, but does not expect such outcomes to result in significant losses above the amounts recorded.

(f)

Pursuant to the OVEC power purchase contract, LG&E and KU are obligated to pay for their share of OVEC's excess debt service, post-retirement and decommissioning costs, as well as any shortfall from amounts included within a demand charge designed and expected to cover these costs over the term of the contract. LKE's proportionate share of OVEC's outstanding debt was $110 million at December 31, 2019, consisting of LG&E's share of $76 million and KU's share of $34 million. The maximum exposure and the expiration date of these potential obligations are not presently determinable. See "Energy Purchase Commitments" above for additional information on the OVEC power purchase contract.

In March 2018, a sponsor with a 4.85% pro-rata share of OVEC obligations filed for bankruptcy under Chapter 11 and, in August 2018, received a rejection order for the OVEC power purchase contract in the bankruptcy proceeding. In October 2019, the bankruptcy court issued an order confirming the sponsor's proposed reorganization plan. OVEC and other entities are challenging the contract rejection, the bankruptcy plan confirmation and potential FERC approval of the plan in various forums, and, in December 2019, an appellate court remanded the contract rejection issue for further proceedings. The plan's effective date remains subject to certain conditions precedent, including FERC regulatory approval, and relevant aspects of the contract rejection and the plan subject to on-going appellate, bankruptcy and regulatory proceedings. OVEC and certain of its sponsors, including LG&E and KU, are analyzing certain potential additional credit support actions to preserve OVEC's access to credit markets or mitigate risks or adverse impacts relating thereto, including increased interest costs, establishing or continuing debt reserve accounts or other changes involving OVEC's existing short and long-term debt. The ultimate outcome of these matters, including the sponsor bankruptcy and related appellate or regulatory proceedings, OVEC structural or financial steps relating thereto and any other potential impact on LG&E's and KU's obligations relating to OVEC under the power purchase contract cannot be predicted.

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.

Wholesale Sales and Purchases (LG&E and KU) 

LG&E and KU jointly dispatch their generation units with the lowest cost generation used to serve their retail customers. When LG&E has excess generation capacity after serving its own retail customers and its generation cost is lower than that of KU, KU purchases electricity from LG&E and vice versa. These transactions are reflected in the Statements of Income as "Electric revenue from affiliate" and "Energy purchases from affiliate" and are recorded at a price equal to the seller's fuel cost plus any split savings. Savings realized from such intercompany transactions are shared equally between both companies. The volume of energy each company has to sell to the other is dependent on its retail customers' needs and its available generation.

Support Costs (PPL Electric, LKE, LG&E and KU)

PPL Services, PPL EU Services and LKS provide PPL, PPL Electric and LKE, their respective subsidiaries, including LG&E and KU, and each other with administrative, management and support services. For all services companies, the costs of directly assignable and attributable 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. PPL Services may also use a ratio of overall direct and indirect costs or a weighted average cost ratio. 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 years ended December 31, including amounts applied to accounts that are

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further distributed between capital and expense on the books of the recipients, based on methods that are believed to be reasonable.

	2019				2018				2017
PPL Electric from PPL Services	$	59			$	59			$	182
LKE from PPL Services	28				26				20
PPL Electric from PPL EU Services	152				148				64
LG&E from LKS	160				151				169
KU from LKS	178				169				190

In addition to the charges for services noted above, LKS makes payments on behalf of LG&E and KU for fuel purchases and other costs for products or services provided by third parties. 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 KU are reimbursed through LKS.

Intercompany Borrowings

(PPL Electric)

PPL Energy Funding maintains a $650 million revolving line of credit with a PPL Electric subsidiary. No balance was outstanding at December 31, 2019 and 2018. The interest rates on borrowings are equal to one-month LIBOR plus a spread. Interest income is reflected in "Interest Income from Affiliate" on the Income Statements.

(LKE)

LKE maintains a $375 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. The interest rates on borrowings are equal to one-month LIBOR plus a spread. At December 31, 2019 and 2018, $150 million and $113 million were outstanding and reflected in "Notes payable with affiliates" on the Balance Sheets. The interest rate on the outstanding borrowings at December 31, 2019 and 2018 were 3.20% and 3.85%. Interest expense on the revolving line of credit was not significant for 2019, 2018 or 2017.

LKE maintains an agreement with a PPL affiliate that has a $300 million borrowing limit whereby LKE can loan funds on a short-term basis at market-based rates. No balance was outstanding at December 31, 2019 and 2018. The interest rate on the

loan based on the PPL affiliates credit rating is currently equal to one-month LIBOR plus a spread.

LKE maintains ten-year notes of $400 million and $250 million with a PPL affiliate with interest rates of 3.5% and 4%. At December 31, 2019 and 2018, the notes were reflected in "Long-term debt to affiliate" on the Balance Sheets. Interest expense on the $400 million note was $14 million for 2019, 2018 and 2017. Interest Expense on the $250 million note was $10 million for 2019 and $7 million for 2018.

(LG&E)

LG&E participates in an intercompany money pool agreement whereby LKE and/or KU make available to LG&E funds up to $500 million at an interest rate based on a market index of commercial paper issues. No balances were outstanding at December 31, 2019 and 2018.

(KU)

KU participates in an intercompany money pool agreement whereby LKE and/or LG&E make available to KU funds up to $500 million at an interest rate based on a market index of commercial paper issues. No balances were outstanding at December 31, 2019 and 2018.

VEBA Funds Receivable (PPL Electric)

In May 2018, PPL received a favorable private letter ruling from the IRS permitting a transfer of excess funds from the PPL Bargaining Unit Retiree Health Plan VEBA to a new subaccount within the VEBA, to be used to pay medical claims of active bargaining unit employees. Based on PPL Electric's participation in PPL’s Other Postretirement Benefit plan, PPL Electric was allocated a portion of the excess funds from PPL Services. These funds have been recorded as an intercompany receivable on

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the Balance Sheets. The receivable balance decreases as PPL Electric pays incurred medical claims and is reimbursed by PPL Services. The intercompany receivable balance associated with these funds was $32 million as of December 31, 2019, of which $10 million was reflected in "Accounts receivable from affiliates" and $22 million was reflected in "Other noncurrent assets" on the Balance Sheets.

Other (PPL Electric, LKE, LG&E and KU)

See Note 1 for discussions regarding the intercompany tax sharing agreement (for PPL Electric, LKE, LG&E and KU) and intercompany allocations of stock-based compensation expense (for PPL Electric and LKE). For PPL Electric, LG&E and KU, see Note 11 for discussions regarding intercompany allocations associated with defined benefits.

(PPL)

The components of "Other Income (Expense) - net" for the years ended December 31, were:

	2019				2018				2017
Other Income
Economic foreign currency exchange contracts (Note 17)	$	(14	)		$	150			$	(261	)
Defined benefit plans - non-service credits (Note 11)	316				257				167
Interest income	16				6				2
AFUDC - equity component	23				21				16
Miscellaneous	7				6				17
Total Other Income	348				440				(59		)
Other Expense
Charitable contributions	17				24				8
Miscellaneous	22				20				21
Total Other Expense	39				44				29
Other Income (Expense) - net	$	309			$	396			$	(88	)

(PPL Electric)

The components of "Other Income (Expense) - net" for the years ended December 31, were:

	2019				2018				2017
Other Income
Defined benefit plans - non-service credits (Note 11)	$	4			$	5			$	1
Interest income	2				2				1
AFUDC - equity component	23				20				15
Total Other Income	29				27				17
Other Expense
Charitable contributions	3				3				2
Miscellaneous	1				1				3
Total Other Expense	4				4				5
Other Income (Expense) - net	$	25			$	23			$	12

(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

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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. See Note 1 for information on the levels in the fair value hierarchy.

Recurring Fair Value Measurements

The assets and liabilities measured at fair value were:

	December 31, 2019																December 31, 2018
	Total				Level 1				Level 2				Level 3				Total				Level 1				Level 2				Level 3
PPL
Assets
Cash and cash equivalents	$	815			$	815			$	—			$	—			$	621			$	621			$	—			$	—
Restricted cash and cash equivalents (a)	21				21				—				—				22				22				—				—
Special use funds (a):
Money market fund	—				—				—				—				59				59				—				—
Commingled debt fund measured at NAV (b)	29				—				—				—				—				—				—				—
Commingled equity fund measured at NAV (b)	27				—				—				—				—				—				—				—
Total special use funds	56				—				—				—				59				59				—				—
Price risk management assets (c):
Foreign currency contracts	142				—				142				—				202				—				202				—
Cross-currency swaps	154				—				154				—				135				—				135				—
Total price risk management assets	296				—				296				—				337				—				337				—
Total assets	$	1,188			$	836			$	296			$	—			$	1,039			$	702			$	337			$	—
Liabilities
Price risk management liabilities (c):
Interest rate swaps	$	21			$	—			$	21			$	—			$	20			$	—			$	20			$	—
Foreign currency contracts	5				—				5				—				2				—				2				—
Total price risk management liabilities	$	26			$	—			$	26			$	—			$	22			$	—			$	22			$	—
PPL Electric
Assets
Cash and cash equivalents	$	262			$	262			$	—			$	—			$	267			$	267			$	—			$	—
Restricted cash and cash equivalents (a)	2				2				—				—				2				2				—				—
Total assets	$	264			$	264			$	—			$	—			$	269			$	269			$	—			$	—
LKE
Assets
Cash and cash equivalents	$	27			$	27			$	—			$	—			$	24			$	24			$	—			$	—
Total assets	$	27			$	27			$	—			$	—			$	24			$	24			$	—			$	—
Liabilities
Price risk management liabilities:
Interest rate swaps	$	21			$	—			$	21			$	—			$	20			$	—			$	20			$	—
Total price risk management liabilities	$	21			$	—			$	21			$	—			$	20			$	—			$	20			$	—
LG&E
Assets
Cash and cash equivalents	$	15			$	15			$	—			$	—			$	10			$	10			$	—			$	—
Total assets	$	15			$	15			$	—			$	—			$	10			$	10			$	—			$	—
Liabilities
Price risk management liabilities:
Interest rate swaps	$	21			$	—			$	21			$	—			$	20			$	—			$	20			$	—
Total price risk management liabilities	$	21			$	—			$	21			$	—			$	20			$	—			$	20			$	—

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	December 31, 2019																December 31, 2018
	Total				Level 1				Level 2				Level 3				Total				Level 1				Level 2				Level 3
KU
Assets
Cash and cash equivalents	$	12			$	12			$	—			$	—			$	14			$	14			$	—			$	—
Total assets	$	12			$	12			$	—			$	—			$	14			$	14			$	—			$	—

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

(b)	In accordance with accounting guidance, certain investments that are measured at fair value using net asset value per share (NAV), or its equivalent, have not been classified in the fair value hierarchy. The fair value amounts presented in the table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the statement of financial position.

(c)	Current portion is included in "Price risk management assets" and "Other current liabilities" and noncurrent portion is included in "Price risk management assets" and "Other deferred credits and noncurrent liabilities" on the Balance Sheets.

Special Use Funds

(PPL)

The special use funds are investments restricted for paying active union employee medical costs. In May 2018, PPL received a favorable private letter ruling from the IRS permitting a transfer of excess funds from the PPL Bargaining Unit Retiree Health Plan VEBA to a new subaccount within the VEBA to be used to pay medical claims of active bargaining unit employees. In 2019, the funds are invested primarily in commingled debt and equity funds measured at NAV. The funds are classified as investments in equity securities. Changes in the fair value of the funds are recorded to the Statement of Income. In 2018, the funds were invested in money market funds.

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.

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. Long-term debt is classified as Level 2. The effect of third-party credit enhancements is not included in the fair value measurement.

	December 31, 2019								December 31, 2018
	Carrying Amount (a)				Fair Value				Carrying Amount (a)				Fair Value
PPL	$	21,893			$	25,481			$	20,599			$	22,939
PPL Electric	3,985				4,589				3,694				3,901
LKE	6,002				6,766				5,502				5,768
LG&E	2,005				2,278				1,809				1,874
KU	2,623				3,003				2,321				2,451

(a)	Amounts are net of debt issuance costs.

The carrying amounts of other current financial instruments (except for long-term debt due within one year) approximate their fair values because of their short-term nature.

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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 Risk Management Committee, comprised of senior management and chaired by the Senior Director-Risk Management, 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, verification of risk and transaction limits, value-at-risk analyses (VaR, 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) and the coordination and reporting of the Enterprise Risk Management program.

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, interest rates and foreign currency exchange rates. Many of these contracts meet the definition of a derivative. All derivatives are recognized on the Balance Sheets at their fair value, unless NPNS is elected.

The following summarizes the market risks that affect PPL and its subsidiaries.

Interest Rate Risk

•

PPL and its subsidiaries are exposed to interest rate risk associated with forecasted fixed-rate and existing floating-rate debt issuances. PPL and WPD hold 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. PPL, LKE and LG&E utilize over-the-counter interest rate swaps to limit exposure to market fluctuations on floating-rate debt. PPL, LKE, 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 and derivatives 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 methods in place.

Foreign Currency Risk (PPL)

•	PPL is exposed to foreign currency exchange risk primarily associated with its investments in and earnings of U.K. affiliates.

(All Registrants)

Commodity Price Risk

PPL is exposed to commodity price risk through its domestic subsidiaries as described below.

•	PPL Electric is required to purchase electricity to fulfill its obligation as a PLR. Potential commodity price risk is insignificant and mitigated through its PUC-approved cost recovery mechanism and full-requirement supply agreements to serve its PLR customers which transfer the risk to energy suppliers.

•	LG&E's and KU's rates include certain mechanisms for fuel, fuel-related expenses and energy purchases. In addition, LG&E's rates include a mechanism for natural gas supply expenses. These mechanisms generally provide for timely recovery of market price fluctuations associated with these expenses.

Volumetric Risk

Volumetric risk is the risk related to the changes in volume of retail sales due to weather, economic conditions or other factors. PPL is exposed to volumetric risk through its subsidiaries as described below.

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•	WPD is exposed to volumetric risk which is significantly mitigated as a result of the method of regulation in the U.K. Under the RIIO-ED1 price control regulations, recovery of such exposure occurs on a two year lag. See Note 1 for additional information on revenue recognition under RIIO-ED1.

•	PPL Electric, LG&E and KU are exposed to volumetric risk on retail sales, mainly due to weather and other economic conditions for which there is limited mitigation between rate cases.

Equity Securities Price Risk

•	PPL and its subsidiaries are exposed to equity securities price risk associated with the fair value of the defined benefit plans' assets. This risk is significantly mitigated at the regulated domestic utilities and for certain plans at WPD due to the recovery methods in place.

•	PPL is exposed to equity securities price risk from future stock sales and/or purchases.

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" transactions with counterparties, as well as additional credit risk through certain of its subsidiaries, as discussed below.

In the event a supplier of PPL Electric, LG&E or KU defaults on its obligation, those Registrants 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, thereby 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.

Master Netting Arrangements (PPL, LKE, LG&E and KU)

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 had a $14 million and $40 million obligation to return cash collateral under master netting arrangements at December 31, 2019 and 2018.

PPL had no obligation to post cash collateral under master netting arrangements at December 31, 2019 and 2018.

LKE, LG&E and KU had no obligation to return cash collateral under master netting arrangements at December 31, 2019 and 2018.

LKE, LG&E and KU had no cash collateral posted under master netting arrangements at December 31, 2019 and 2018.

See "Offsetting Derivative Instruments" below for a summary of derivative positions presented in the balance sheets where a right of setoff exists under these arrangements.

Interest Rate Risk

(All Registrants)

PPL and its subsidiaries issue debt to finance their operations, which exposes them to interest rate risk. A variety of financial derivative instruments are utilized to adjust the mix of fixed and floating interest rates in their debt portfolios, adjust the duration of the debt portfolios 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

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in the fair value of the debt portfolio due to changes in benchmark interest rates. In addition, the interest rate risk of certain subsidiaries is potentially mitigated as a result of the existing regulatory framework or the timing of rate cases.

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. PPL had no such contracts at December 31, 2019.

At December 31, 2019, PPL held an aggregate notional value in cross-currency interest rate swap contracts of $702 million that range in maturity from 2021 through 2028 to hedge the interest payments and principal of WPD's U.S. dollar-denominated senior notes.

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 not probable of occurring.

For 2019 and 2018, PPL had no cash flow hedges reclassified into earnings associated with discontinued cash flow hedges and had an insignificant amount of cash flow hedges reclassified into earnings associated with discontinued cash flow hedges in 2017.

At December 31, 2019, the amount of accumulated net unrecognized after-tax gains (losses) on qualifying derivatives expected to be reclassified into earnings during the next 12 months is insignificant. Amounts are reclassified as the hedged interest expense is recorded.

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 terminated swap contracts, 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 December 31, 2019, LG&E held contracts with a notional amount of $147 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. There were no contracts outstanding at December 31, 2019.

At December 31, 2019 and 2018, PPL had $32 million and $31 million of accumulated net investment hedge after tax gains (losses) that were included in the foreign currency translation adjustment component of AOCI.

Economic Activity

PPL enters into foreign currency contracts on behalf of a subsidiary to economically hedge GBP-denominated anticipated earnings. At December 31, 2019, the total exposure hedged by PPL was approximately £859 million (approximately $1.3 billion based on contracted rates). These contracts have termination dates ranging from January 2020 through December 2020.

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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 and 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 in earnings unless specific hedge accounting criteria are met and designated as such, except for the changes in fair values of LG&E's interest rate swaps that are recognized as regulatory assets or regulatory liabilities. See Note 7 for amounts recorded in regulatory assets and regulatory liabilities at December 31, 2019 and 2018.

See Note 1 for 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:

	December 31, 2019																December 31, 2018
	Derivatives designated as hedging instruments								Derivatives not designated as hedging instruments								Derivatives designated as hedging instruments								Derivatives not designated as hedging instruments
	Assets				Liabilities				Assets				Liabilities				Assets				Liabilities				Assets				Liabilities
Current:
Price Risk Management
Assets/Liabilities (a):
Interest rate swaps (b)	$	—			$	—			$	—			$	4			$	—			$	—			$	—			$	4
Cross-currency swaps (b)	5				—				—				—				6				—				—				—
Foreign currency contracts	—				—				142				5				—				—				103				2
Total current	5				—				142				9				6				—				103				6
Noncurrent:
Price Risk Management
Assets/Liabilities (a):
Interest rate swaps (b)	—				—				—				17				—				—				—				16
Cross-currency swaps (b)	149				—				—				—				129				—				—				—
Foreign currency contracts	—				—				—				—				—				—				99				—
Total noncurrent	149				—				—				17				129				—				99				16
Total derivatives	$	154			$	—			$	142			$	26			$	135			$	—			$	202			$	22

(a)	Current portion is included in "Price risk management assets" and "Other current liabilities" and noncurrent portion is included in "Price risk management assets" and "Other deferred credits and noncurrent liabilities" 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:

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Derivative Relationships		Derivative Gain (Loss) Recognized in OCI				Location of Gain (Loss) Recognized in Income on Derivative		Gain (Loss) Reclassified from AOCI into Income
2019
Cash Flow Hedges:
Interest rate swaps		$	(30	)		Interest Expense		$	(9	)
Cross-currency swaps		17				Other Income (Expense) - net		(9		)
Total		$	(13	)				$	(18	)
Net Investment Hedges:
Foreign currency contracts		$	2
2018
Cash Flow Hedges:
Interest rate swaps		$	4			Interest Expense		$	(8	)
Cross-currency swaps		41				Other Income (Expense) - net		42
						Interest Expense		1
Total		$	45					$	35
Net Investment Hedges:
Foreign currency contracts		$	11
2017
Cash Flow Hedges:
Interest rate swaps		$	—			Interest Expense		$	(9	)
Cross-currency swaps		(98		)		Other Income (Expense) - net		(82		)
Total		$	(98	)				$	(91	)
Net Investment Hedges:
Foreign currency contracts		$	1

Derivatives Not Designated as Hedging Instruments		Location of Gain (Loss) Recognized in Income on Derivative		2019				2018				2017
Foreign currency contracts		Other Income (Expense) - net		$	(14	)		$	150			$	(261	)
Interest rate swaps		Interest Expense		(5		)		(5		)		(6		)
		Total		$	(19	)		$	145			$	(267	)

Derivatives Not Designated as Hedging Instruments		Location of Gain (Loss) Recognized as Regulatory Liabilities/Assets		2019				2018				2017
Interest rate swaps		Regulatory assets - noncurrent		$	(1	)		$	6			$	5

The following table presents the effect of cash flow hedge activity on the Statement of Income for the year ended December 31, 2019:

		Location and Amount of Gain (Loss) Recognized in Income on Hedging Relationships
		Interest Expense				Other Income (Expense) - net
	Total income and expense line items presented in the income statement in which the effect of cash flow hedges are recorded	$	994			$	309
	The effects of cash flow hedges:
	Gain (Loss) on cash flow hedging relationships:
	Interest rate swaps:
	Amount of gain (loss) reclassified from AOCI to income	(9		)		—
	Cross-currency swaps:
	Hedged items	—				9
	Amount of gain (loss) reclassified from AOCI to income	—				(9		)

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(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:

		December 31, 2019								December 31, 2018
		Assets				Liabilities				Assets				Liabilities
Current:
Price Risk Management
Assets/Liabilities:
Interest rate swaps		$	—			$	4			$	—			$	4
Total current		—				4				—				4
Noncurrent:
Price Risk Management
Assets/Liabilities:
Interest rate swaps		—				17				—				16
Total noncurrent		—				17				—				16
Total derivatives		$	—			$	21			$	—			$	20

The following tables present the pre-tax effect of derivatives not designated as cash flow hedges that are recognized in income or regulatory assets:

Derivative Instruments		Location of Gain (Loss)		2019				2018				2017
Interest rate swaps		Interest Expense		$	(5	)		$	(5	)		$	(6	)

Derivative Instruments		Location of Gain (Loss)		2019				2018				2017
Interest rate swaps		Regulatory assets - noncurrent		$	(1	)		$	6			$	5

(PPL, LKE, LG&E and KU)

Offsetting Derivative Instruments

PPL, LKE, LG&E and KU or certain of their subsidiaries have master netting arrangements in place and also enter into agreements pursuant to which they purchase or sell 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 set off 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
		Gross				Derivative Instruments				Cash Collateral Received				Net				Gross				Derivative Instruments				Cash Collateral Pledged				Net
December 31, 2019
Treasury Derivatives
PPL		$	296			$	5			$	14			$	277			$	26			$	5			$	—			$	21
LKE		—				—				—				—				21				—				—				21
LG&E		—				—				—				—				21				—				—				21

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		Assets																Liabilities
						Eligible for Offset																Eligible for Offset
		Gross				Derivative Instruments				Cash Collateral Received				Net				Gross				Derivative Instruments				Cash Collateral Pledged				Net
December 31, 2018
Treasury Derivatives
PPL		$	337			$	2			$	40			$	295			$	22			$	2			$	—			$	20
LKE		—				—				—				—				20				—				—				20
LG&E		—				—				—				—				20				—				—				20

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 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.

(PPL, LKE and LG&E)

At December 31, 2019, 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		$	3			$	3			$	3
Aggregate fair value of collateral posted on these derivative instruments		—				—				—
Aggregate fair value of additional collateral requirements in the event of a credit downgrade below investment grade (a)		3				3				3

(a)	Includes the effect of net receivables and payables already recorded on the Balance Sheet.

Goodwill

(PPL)

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

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	U.K. Regulated								Kentucky Regulated								Corporate and Other								Total
	2019				2018				2019				2018				2019				2018				2019				2018
Balance at beginning of period (a)	$	2,447			$	2,596			$	662			$	662			$	53			$	—			$	3,162			$	3,258
Effect of foreign currency exchange rates	34				(149		)		—				—				—				—				34				(149		)
Goodwill recognized during the period (b)	—				—				—				—				—				53				—				53
Other	2				—				—				—				—				—				2				—
Balance at end of period (a)	$	2,483			$	2,447			$	662			$	662			$	53			$	53			$	3,198			$	3,162

(a)	There were no accumulated impairment losses related to goodwill.

(b)	Recognized as a result of the acquisition of Safari Energy.

Other Intangible Assets

(PPL)

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

	December 31, 2019								December 31, 2018
	Gross Carrying Amount				Accumulated Amortization				Gross Carrying Amount				Accumulated Amortization
Subject to amortization:
Contracts (a)	$	136			$	84			$	137			$	75
Land rights and easements	440				135				418				128
Licenses and other	22				3				21				1
Total subject to amortization	598				222				576				204
Not subject to amortization due to indefinite life:
Land rights and easements	361				—				339				—
Other	6				—				6				—
Total not subject to amortization due to indefinite life	367				—				345				—
Total	$	965			$	222			$	921			$	204

(a)	Gross carrying amount in 2019 and 2018 includes the fair value at the acquisition date of the OVEC power purchase contract with terms favorable to market recognized as a result of the 2010 acquisition of LKE by PPL.

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

Amortization expense was as follows:
	2019				2018				2017
Intangible assets with no regulatory offset	$	9			$	7			$	6
Intangible assets with regulatory offset	9				8				9
Total	$	18			$	15			$	15

Amortization expense for each of the next five years is estimated to be:

	2020				2021				2022				2023				2024
Intangible assets with no regulatory offset	$	9			$	9			$	9			$	9			$	9
Intangible assets with regulatory offset	8				8				8				8				8
Total	$	17			$	17			$	17			$	17			$	17

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(PPL Electric)

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

	December 31, 2019								December 31, 2018
	Gross Carrying Amount				Accumulated Amortization				Gross Carrying Amount				Accumulated Amortization
Subject to amortization:
Land rights and easements	$	370			$	125			$	363			$	121
Licenses and other	3				1				2				1
Total subject to amortization	373				126				365				122
Not subject to amortization due to indefinite life:
Land rights and easements	17				—				17				—
Total	$	390			$	126			$	382			$	122

Intangible assets are shown as "Intangibles" on the Balance Sheets.

Amortization expense was insignificant in 2019, 2018 and 2017 and is expected to be insignificant in future years.

(LKE)

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

	December 31, 2019								December 31, 2018
	Gross Carrying Amount				Accumulated Amortization				Gross Carrying Amount				Accumulated Amortization
Subject to amortization:
Land rights and easements	$	22			$	4			$	21			$	3
OVEC power purchase agreement (a)	125				74				126				66
Total subject to amortization	$	147			$	78			$	147			$	69

(a)	Gross carrying amount represents the fair value at the acquisition date of the OVEC power purchase contract recognized as a result of the 2010 acquisition by PPL. An offsetting regulatory liability was recorded related to this contract, which is being amortized over the same period as the intangible asset, eliminating any income statement impact. See Note 7 for additional information.

Long-term intangible assets are presented as "Other intangibles" on the Balance Sheets.

Amortization expense was as follows:

	2019				2018				2017
Intangible assets with regulatory offset	$	9			$	8			$	9

Amortization expense for each of the next five years is estimated to be:

	2020				2021				2022				2023				2024
Intangible assets with regulatory offset	$	8			$	8			$	8			$	8			$	8

 

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(LG&E)

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

	December 31, 2019								December 31, 2018
	Gross Carrying Amount				Accumulated Amortization				Gross Carrying Amount				Accumulated Amortization
Subject to amortization:
Land rights and easements	$	7			$	1			$	7			$	1
OVEC power purchase agreement (a)	86				51				87				46
Total subject to amortization	$	93			$	52			$	94			$	47

(a)	Gross carrying amount represents the fair value at the acquisition date of the OVEC power purchase contract recognized as a result of the 2010 acquisition by PPL. An offsetting regulatory liability was recorded related to this contract, which is being amortized over the same period as the intangible asset, eliminating any income statement impact. See Note 7 for additional information.

Long-term intangible assets are presented as "Other intangibles" on the Balance Sheets.

Amortization expense was as follows:

	2019				2018				2017
Intangible assets with regulatory offset	$	6			$	6			$	6

Amortization expense for each of the next five years is estimated to be:

	2020				2021				2022				2023				2024
Intangible assets with regulatory offset	$	6			$	6			$	6			$	6			$	6

(KU)

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

	December 31, 2019								December 31, 2018
	Gross Carrying Amount				Accumulated Amortization				Gross Carrying Amount				Accumulated Amortization
Subject to amortization:
Land rights and easements	$	15			$	3			$	14			$	2
OVEC power purchase agreement (a)	39				23				39				20
Total subject to amortization	$	54			$	26			$	53			$	22

(a)	Gross carrying amount represents the fair value at the acquisition date of the OVEC power purchase contract recognized as a result of the 2010 acquisition by PPL. An offsetting regulatory liability was recorded related to this contract, which is being amortized over the same period as the intangible asset, eliminating any income statement impact. See Note 7 for additional information.

Long-term intangible assets are presented as "Other intangibles" on the Balance Sheets.

Amortization expense was as follows:

	2019				2018				2017
Intangible assets with regulatory offset	$	3			$	2			$	3

Amortization expense for each of the next five years is estimated to be:

	2020				2021				2022				2023				2024
Intangible assets with regulatory offset	$	2			$	2			$	2			$	2			$	2

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(PPL)

WPD has recorded conditional AROs required by U.K. law related to treated wood poles, gas-filled switchgear and fluid-filled cables.

(PPL and PPL Electric)

PPL Electric has identified legal retirement obligations for the retirement of certain transmission assets that could not be reasonably estimated due to indeterminable settlement dates. These assets are located on rights-of-way that allow the grantor to require PPL Electric to relocate or remove the assets. Since this option is at the discretion of the grantor of the right-of-way, PPL Electric is unable to determine when these events may occur.

(PPL, LKE, LG&E and KU)

PPL's LKE's, LG&E's and KU's ARO liabilities are primarily related to CCR closure costs. See Note 13 for information on the CCR rule. LG&E also has AROs related to natural gas mains and wells. LG&E's and KU's transmission and distribution lines largely operate under perpetual property easement agreements, which do not generally require restoration upon removal of the property. Therefore, no material AROs are recorded for transmission and distribution assets. For LKE, LG&E and KU, all ARO accretion and depreciation expenses are reclassified as a regulatory asset. For other AROs, at the time of retirement, the related ARO regulatory asset is offset against the associated cost of removal regulatory liability, PP&E and ARO liability.

The changes in the carrying amounts of AROs were as follows:

	PPL								LKE								LG&E								KU
	2019				2018				2019				2018				2019				2018				2019				2018
ARO at beginning of period	$	347			$	397			$	296			$	356			$	103			$	121			$	193			$	235
Accretion	19				20				17				18				6				6				11				12
Obligations incurred	—				8				—				8				—				—				—				8
Changes in estimated timing or cost	12				(3		)		(2		)		(14		)		(2		)		(2		)		—				(12		)
Effect of foreign currency exchange rates	—				(3		)		—				—				—				—				—				—
Obligations settled	(96		)		(72		)		(96		)		(72		)		(34		)		(22		)		(62		)		(50		)
ARO at end of period	$	282			$	347			$	215			$	296			$	73			$	103			$	142			$	193

(PPL and LKE)

The after-tax changes in AOCI by component for the years ended December 31 were as follows:

													Defined benefit plans
	Foreign currency translation adjustments				Unrealized gains (losses) on qualifying derivatives				Equity investees' AOCI				Prior service costs				Actuarial gain (loss)				Total
PPL
December 31, 2016	$	(1,627	)		$	(7	)		$	(1	)		$	(8	)		$	(2,135	)		$	(3,778	)
Amounts arising during the year	538				(79		)		—				—				(308		)		151
Reclassifications from AOCI	—				73				1				1				130				205
Net OCI during the year	538				(6		)		1				1				(178		)		356
December 31, 2017	$	(1,089	)		$	(13	)		$	—			$	(7	)		$	(2,313	)		$	(3,422	)

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													Defined benefit plans
	Foreign currency translation adjustments				Unrealized gains (losses) on qualifying derivatives				Equity investees' AOCI				Prior service costs				Actuarial gain (loss)				Total
Amounts arising during the year	(444		)		36				—				(11		)		(187		)		(606		)
Reclassifications from AOCI	—				(29		)		—				2				142				115
Net OCI during the year	(444		)		7				—				(9		)		(45		)		(491		)
Adoption of reclassification of certain tax effects from AOCI guidance cumulative effect adjustment (Note 1)	—				(1		)		—				(3		)		(47		)		(51		)
December 31, 2018	$	(1,533	)		$	(7	)		$	—			$	(19	)		$	(2,405	)		$	(3,964	)
Amounts arising during the year	108				(11		)		—				(1		)		(592		)		(496		)
Reclassifications from AOCI	—				13				—				2				87				102
Net OCI during the year	108				2				—				1				(505		)		(394		)
December 31, 2019	$	(1,425	)		$	(5	)		$	—			$	(18	)		$	(2,910	)		$	(4,358	)
LKE
December 31, 2016									$	(1	)		$	(8	)		$	(61	)		$	(70	)
Amounts arising during the year									—				(2		)		(23		)		(25		)
Reclassifications from AOCI									1				1				5				7
Net OCI during the year									1				(1		)		(18		)		(18		)
December 31, 2017									$	—			$	(9	)		$	(79	)		$	(88	)
Amounts arising during the year									—				—				7				7
Reclassifications from AOCI									—				2				8				10
Net OCI during the year									—				2				15				17
Adoption of reclassification of certain tax effects from AOCI guidance cumulative effect adjustment (Note 1)									—				(2		)		(16		)		(18		)
December 31, 2018									$	—			$	(9	)		$	(80	)		$	(89	)
Amounts arising during the year									—				(1		)		(6		)		(7		)
Reclassifications from AOCI									—				1				2				3
Net OCI during the year									—				—				(4		)		(4		)
December 31, 2019									$	—			$	(9	)		$	(84	)		$	(93	)

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The following table presents PPL's gains (losses) and related income taxes for reclassifications from AOCI for the years ended December 31, 2019, 2018 and 2017. LKE amounts are insignificant for the years ended December 31, 2019, 2018 and 2017. The defined benefit plan components of AOCI are not reflected in their entirety in the statement of income; rather, they are included in the computation of net periodic defined benefit costs (credits) and subject to capitalization. See Note 11 for additional information.

		PPL
Details about AOCI		2019				2018				2017				Affected Line Item on the Statements of Income
Qualifying derivatives
Interest rate swaps		$	(9	)		$	(8	)		$	(9	)		Interest Expense
Cross-currency swaps		(9		)		42				(82		)		Other Income (Expense) - net
		—				1				—				Interest Expense
Total Pre-tax		(18		)		35				(91		)
Income Taxes		5				(6		)		18
Total After-tax		(13		)		29				(73		)
Equity Investees' AOCI		—				—				(1		)		Other Income (Expense) - net
Total Pre-tax		—				—				(1		)
Income Taxes		—				—				—
Total After-tax		—				—				(1		)
Defined benefit plans
Prior service costs		(3		)		(2		)		(2		)
Net actuarial loss		(109		)		(178		)		(167		)
Total Pre-tax		(112		)		(180		)		(169		)
Income Taxes		23				36				38
Total After-tax		(89		)		(144		)		(131		)
Total reclassifications during the year		$	(102	)		$	(115	)		$	(205	)

(All Registrants)

Accounting for Financial Instrument Credit Losses

In June 2016, the FASB issued accounting guidance that requires the use of a current expected credit loss (CECL) model for the measurement of credit losses on financial instruments within the scope of this guidance, which includes accounts receivable. The CECL model requires an entity to measure credit losses using historical information, current information and reasonable and supportable forecasts of future events, rather than the incurred loss impairment model required under current GAAP.

The Registrants adopted the guidance using a modified retrospective through a cumulative-effect adjustment to retained earnings on January 1, 2020. The adoption of this guidance did not have a significant impact on the Registrants.

Accounting for Implementation Costs in a Cloud Computing Service Arrangement

In August 2018, the FASB issued accounting guidance that requires a customer in a cloud computing hosting arrangement that is a service contract to capitalize implementation costs consistent with internal-use software guidance for non-service arrangements. Prior guidance had not addressed these implementation costs. The guidance requires these capitalized implementation costs to be amortized over the term of the hosting arrangement to the statement of income line item where the service arrangement costs are recorded. The guidance also prescribes the financial statement classification of the capitalized implementation costs and cash flows associated with the arrangement. Additional quantitative and qualitative disclosures are also required.

The Registrants adopted this guidance prospectively effective January 1, 2020. The adoption of this guidance did not have a significant impact on the Registrants.

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Simplifying the Test for Goodwill Impairment (PPL, LKE, LG&E and KU)

In January 2017, the FASB issued accounting guidance that simplifies the test for goodwill impairment by eliminating the second step of the quantitative test. The second step of the quantitative test requires a calculation of the implied fair value of goodwill, which is determined in the same manner as the amount of goodwill in a business combination. Under this new guidance, an entity will now compare the estimated fair value of a reporting unit with its carrying value and recognize an impairment charge for the amount the carrying amount exceeds the fair value of the reporting unit.

The Registrants adopted this guidance on January 1, 2020. The adoption of this guidance did not have a significant impact on the Registrants.

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SCHEDULE I - LG&E and KU Energy LLC

CONDENSED UNCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31,

(Millions of Dollars)

	2019				2018				2017
Other Income (Expense) - net
Equity in Earnings of Subsidiaries	$	477			$	470			$	397
Interest Income with Affiliate	28				25				14
Total	505				495				411
Interest Expense	30				29				30
Interest Expense with Affiliate	32				28				20
Income Before Income Taxes	443				438				361
Income Tax Expense (Benefit)	(25		)		(7		)		45
Net Income	$	468			$	445			$	316
Total other comprehensive income (loss)	(4		)		17				(18		)
Comprehensive Income Attributable to Member	$	464			$	462			$	298

The accompanying Notes to Condensed Unconsolidated Financial Statements are an integral part of the financial statements.

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SCHEDULE I - LG&E and KU Energy LLC

CONDENSED UNCONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31,

(Millions of Dollars)

	2019				2018				2017
Cash Flows from Operating Activities
Net cash provided by (used in) operating activities	$	368			$	346			$	401
Cash Flows from Investing Activities
Capital contributions to affiliated subsidiaries	(93		)		(128		)		(30		)
Net decrease (increase) in notes receivable from affiliates	(44		)		(26		)		(28		)
Net cash provided by (used in) investing activities	(137		)		(154		)		(58		)
Cash Flows from Financing Activities
Net increase (decrease) in notes payable with affiliates	14				110				58
Contribution from member	63				—				—
Distribution to member	(308		)		(302		)		(402		)
Net cash provided by (used in) financing activities	(231		)		(192		)		(344		)
Net Increase (Decrease) in Cash and Cash Equivalents	—				—				(1		)
Cash and Cash Equivalents at Beginning of Period	—				—				1
Cash and Cash Equivalents at End of Period	$	—			$	—			$	—
Supplemental disclosures of cash flow information:
Cash Dividends Received from Subsidiaries	$	411			$	402			$	418

The accompanying Notes to Condensed Unconsolidated Financial Statements are an integral part of the financial statements.

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SCHEDULE I - LG&E and KU Energy LLC

CONDENSED UNCONSOLIDATED BALANCE SHEETS AT DECEMBER 31,

(Millions of Dollars)

	2019				2018
Assets
Current Assets
Accounts receivable from affiliates	$	3			$	—
Income taxes receivable	3				—
Notes receivable from affiliates	1,105				1,061
Total Current Assets	1,111				1,061
Investments
Affiliated companies at equity	5,577				5,422
Other Noncurrent Assets
Deferred income taxes	314				299
Total Assets	$	7,002			$	6,782
Liabilities and Equity
Current Liabilities
Notes payable to affiliates	$	150			$	177
Long-term debt due within one year	475				—
Accounts payable to affiliates	489				487
Taxes	—				11
Other current liabilities	6				6
Total Current Liabilities	1,120				681
Long-term Debt
Long-term debt	249				723
Notes payable to affiliates	691				650
Total Long-term Debt	940				1,373
Deferred Credits and Other Noncurrent Liabilities	—				5
Equity	4,942				4,723
Total Liabilities and Equity	$	7,002			$	6,782

The accompanying Notes to Condensed Unconsolidated Financial Statements are an integral part of the financial statements.

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Schedule I - LG&E and KU Energy LLC

Notes to Condensed Unconsolidated Financial Statements

 

1. Basis of Presentation

LG&E and KU Energy LLC (LKE) is a holding company and conducts substantially all of its business operations through its subsidiaries. Substantially all of its consolidated assets are held by such subsidiaries. LKE uses the equity method to account for its investments in entities in which it has a controlling financial interest. LKE's cash flow and its ability to meet its obligations are largely dependent upon the earnings of these subsidiaries and the distribution or other payment of such earnings to it in the form of dividends or repayment of loans and advances from the subsidiaries. These condensed financial statements and related footnotes have been prepared in accordance with Reg. §210.12-04 of Regulation S-X. These statements should be read in conjunction with the consolidated financial statements and notes thereto of LKE.

 

LKE indirectly or directly owns all of the ownership interests of its significant subsidiaries. LKE relies primarily on dividends from its subsidiaries to fund LKE's distributions to its member and to meet its other cash requirements. See Note 8 to LKE's consolidated financial statements for discussions related to restricted net assets of its subsidiaries for the purposes of transferring funds to LKE in the form of distributions, loans or advances.

 

2. Commitments and Contingencies

See Note 13 to LKE's consolidated financial statements for commitments and contingencies of its subsidiaries.

 

Guarantees

 

LKE provides certain indemnifications covering the due and punctual payment, performance and discharge by each party of its respective obligations. The most comprehensive of these guarantees is the LKE guarantee covering operational, regulatory and environmental commitments and indemnifications made by WKE under a 2009 Transaction Termination Agreement. This guarantee has a term of 12 years ending July 2021, and a maximum exposure of $200 million, exclusive of certain items such as government fines and penalties that may exceed the maximum.

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. LKE cannot predict the ultimate outcomes of the various indemnification scenarios, but does not expect such outcomes to result in significant losses above the amounts recorded.

3. Long-Term Debt

See Note 8 to LKE's consolidated financial statements for the terms of LKE's outstanding senior unsecured notes outstanding. Of the total outstanding, $475 million matures in 2020 and $250 million matures in 2021. These maturities are based on stated maturities. Also see Note 8 to LKE's consolidated financial statements for the terms of LKE's $650 million in notes payable to a PPL affiliate. These notes range in maturity through 2028.

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QUARTERLY FINANCIAL AND DIVIDEND DATA (Unaudited)

PPL Corporation and Subsidiaries

(Millions of Dollars, except per share data)

	For the Quarters Ended (a)
	March 31				June 30				Sept. 30				Dec. 31
2019
Operating revenues	$	2,079			$	1,803			$	1,933			$	1,954
Operating income	781				640				726				693
Net income	466				441				475				364
Net income available to PPL common shareowners: (b)
Basic EPS	0.65				0.61				0.66				0.49
Diluted EPS	0.64				0.60				0.65				0.48
2018
Operating revenues	$	2,126			$	1,848			$	1,872			$	1,939
Operating income	851				658				686				657
Net income	452				515				445				415
Net income available to PPL common shareowners: (b)
Basic EPS	0.65				0.74				0.63				0.57
Diluted EPS	0.65				0.73				0.62				0.57

(a)	Quarterly results can vary depending on, among other things, weather. Accordingly, comparisons among quarters of a year may not be indicative of overall trends and changes in operations.

(b)	The sum of the quarterly amounts may not equal annual earnings per share due to changes in the number of common shares outstanding during the year or rounding.

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QUARTERLY FINANCIAL DATA (Unaudited)

PPL Electric Utilities Corporation and Subsidiaries

(Millions of Dollars)

	For the Quarters Ended (a)
	March 31				June 30				Sept. 30				Dec. 31
2019
Operating revenues	$	645			$	521			$	590			$	602
Operating income	198				161				193				193
Net income	121				94				118				124
2018
Operating revenues	$	639			$	517			$	548			$	573
Operating income	228				133				178				155
Net income	148				75				111				96

 

(a)	PPL Electric's business is seasonal in nature, with peak sales periods generally occurring in the winter and summer months. Accordingly, comparisons among quarters of a year may not be indicative of overall trends and changes in operations.

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(a)	Evaluation of disclosure controls and procedures.

(b)	Changes in internal control over financial reporting.

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(a)	Designated an executive officer of PPL by virtue of their respective positions at a PPL subsidiary.

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(1)

Includes (a) the ICP, under which stock options, restricted stock, restricted stock units, performance units, dividend equivalents and other stock-based awards were awarded to executive officers of PPL and no awards remain for issuance under this plan; (b) the ICPKE, under which stock options, restricted stock, restricted stock units, performance units, dividend equivalents and other stock-based awards may be awarded to non-executive key employees of PPL and its subsidiaries; (c) the PPL 2012 SIP approved by shareowners in 2012 under which stock options, restricted stock, restricted stock units, performance units, dividend equivalents and other stock-based awards may be awarded to executive officers of PPL and its subsidiaries; and (d) the DDCP, under which stock units may be awarded to directors of PPL. See Note 10 to the Financial Statements for additional information.

(2)	All of PPL's current compensation plans under which equity securities of PPL are authorized for issuance have been approved by PPL's shareowners.

(3)

Relates to common stock issuable upon the exercise of stock options awarded under the ICP, SIP and ICPKE as of December 31, 2019. In addition, as of December 31, 2019, the following other securities had been awarded and are outstanding under the ICP, SIP, ICPKE and DDCP:  369,827 restricted stock units, 524,632 TSR performance awards and 392,509 ROE performance awards under the SIP; 767,858 restricted stock units 214,759 TSR performance awards and 178,257 ROE performance awards under the ICPKE; and 563,356 stock units under the DDCP.

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(4)

Based upon the following aggregate award limitations under the ICP, SIP, ICPKE and DDCP: (a) under the ICP, 15,769,431 awards (i.e., 5% of the total PPL common stock outstanding as of April 23, 1999) granted after April 23, 1999; (b) under the SIP, 15,000,000 awards; (c) under the ICPKE, 16,573,608 awards (i.e., 5% of the total PPL common stock outstanding as of January 1, 2003) granted after April 25, 2003, reduced by outstanding awards for which common stock was not yet issued as of such date of 2,373,812 resulting in a limit of 14,199,796; and (d) under the DDCP, the number of stock units available for issuance was reduced to 2,000,000 stock units in March 2012. In addition, each of the ICP and ICPKE includes an annual award limitation of 2% of total PPL common stock outstanding as of January 1 of each year.

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(a)	Includes estimated fees for audit of annual financial statements and review of financial statements included in PPL Electric's Quarterly Reports on Form 10-Q and for services in connection with statutory and regulatory filings or engagements, including comfort letters and consents for financings and filings made with the SEC.

(b)	Fees for agreed-upon procedures related to annual EPA filings.

(c)	Fees for services related to Puerto Rico hurricane recovery efforts.

(a)	Includes estimated fees for audit of annual financial statements and review of financial statements included in LKE's Quarterly Reports on Form 10-Q and for services in connection with statutory and regulatory filings or engagements, including comfort letters and consents for financings and filings made with the SEC.

(b)	Includes fees for agreed-upon procedures related to Kentucky Energy and Environment Cabinet forms.

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(a)	Includes estimated fees for audit of annual financial statements and review of financial statements included in LG&E's Quarterly Reports on Form 10-Q and for services in connection with statutory and regulatory filings or engagements, including comfort letters and consents for financings and filings made with the SEC.

(b)	Includes fees for agreed-upon procedures related to Kentucky Energy and Environment Cabinet forms.

(a)	Includes estimated fees for audit of annual financial statements and review of financial statements included in KU's Quarterly Reports on Form 10-Q and for services in connection with statutory and regulatory filings or engagements, including comfort letters and consents for financings and filings made with the SEC.

(b)	Includes fees for agreed-upon procedures related to Kentucky Energy and Environment Cabinet forms.

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1.	Financial Statements - Refer to the "Table of Contents" for an index of the financial statements included in this report.

2.	Supplementary Data and Supplemental Financial Statement Schedule - included in response to Item 8.

3.	Exhibits

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