Utility Rate Regulation

3 Months Ended

Mar. 31, 2020

7. Utility Rate Regulation

(All Registrants)

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



	PPL				PPL Electric
	March 31, 2020		December 31, 2019		March 31, 2020		December 31, 2019
Current Regulatory Assets:
Plant outage costs	$	44	$	32	$	—	$	—
Gas supply clause	5		8		—		—
Smart meter rider	15		13		15		13
Transmission formula rate	—		—		3		3
Transmission service charge	5		10		5		10
Other	6		4		—		—
Total current regulatory assets (a)	$	75	$	67	$	23	$	26

Noncurrent Regulatory Assets:
Defined benefit plans	$	788	$	800	$	460	$	467
Storm costs	34		39		12		15
Unamortized loss on debt	37		41		15		18
Interest rate swaps	29		22		—		—
Terminated interest rate swaps	80		81		—		—
Accumulated cost of removal of utility plant	222		220		222		220
AROs	282		279		—		—
Act 129 compliance rider	—		6		—		6
Other	5		4		1		—
Total noncurrent regulatory assets	$	1,477	$	1,492	$	710	$	726



	PPL				PPL Electric
	March 31, 2020		December 31, 2019		March 31, 2020		December 31, 2019
Current Regulatory Liabilities:
Generation supply charge	$	24	$	23	$	24	$	23
Environmental cost recovery	4		5		—		—
Universal service rider	5		9		5		9
Fuel adjustment clause	6		8		—		—
TCJA customer refund	46		61		46		59
Storm damage expense rider	8		5		8		5
Other	6		4		—		—
Total current regulatory liabilities	$	99	$	115	$	83	$	96

Noncurrent Regulatory Liabilities:
Accumulated cost of removal of utility plant	$	640	$	640	$	—	$	—
Power purchase agreement - OVEC	49		51		—		—
Net deferred taxes	1,739		1,756		580		588
Defined benefit plans	53		51		13		11
Terminated interest rate swaps	68		68		—		—
Act 129 compliance rider	—		—		2		—
Other	8		6		—		—
Total noncurrent regulatory liabilities	$	2,557	$	2,572	$	595	$	599



	LKE				LG&E				KU
	March 31, 2020		December 31, 2019		March 31, 2020		December 31, 2019		March 31, 2020		December 31, 2019
Current Regulatory Assets:
Plant outage costs	$	44	$	32	$	18	$	16	$	26	$	16
Gas supply clause	5		8		5		8		—		—
Other	3		1		3		1		—		—
Total current regulatory assets	$	52	$	41	$	26	$	25	$	26	$	16

Noncurrent Regulatory Assets:
Defined benefit plans	$	328	$	333	$	202	$	206	$	126	$	127
Storm costs	22		24		14		14		8		10
Unamortized loss on debt	22		23		13		14		9		9
Interest rate swaps	29		22		29		22		—		—
Terminated interest rate swaps	80		81		47		47		33		34
AROs	282		279		77		76		205		203
Other	4		4		1		1		3		3
Total noncurrent regulatory assets	$	767	$	766	$	383	$	380	$	384	$	386



	LKE				LG&E				KU
	March 31, 2020		December 31, 2019		March 31, 2020		December 31, 2019		March 31, 2020		December 31, 2019
Current Regulatory Liabilities:
Environmental cost recovery	$	4	$	5	$	—	$	1	$	4	$	4
Demand side management	2		3		1		1		1		2
Fuel adjustment clause	6		8		—		—		6		8
Other	4		3		—		—		4		3
Total current regulatory liabilities	$	16	$	19	$	1	$	2	$	15	$	17

Noncurrent Regulatory Liabilities:
Accumulated cost of removal of utility plant	$	640	$	640	$	267	$	266	$	373	$	374
Power purchase agreement - OVEC	49		51		34		35		15		16
Net deferred taxes	1,159		1,168		540		544		619		624
Defined benefit plans	40		40		—		—		40		40
Terminated interest rate swaps	68		68		34		34		34		34
Other	6		6		4		4		2		2
Total noncurrent regulatory liabilities	$	1,962	$	1,973	$	879	$	883	$	1,083	$	1,090


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

Regulatory Matters

Kentucky Activities

ECR Filings (PPL, LKE, LG&E and KU)

On March 31, 2020, LG&E and KU submitted applications to the KPSC for ECR rate treatment regarding upcoming environmental construction projects relating to the EPA's regulations addressing ELGs. The construction projects are expected to begin in 2020 and continue through 2024 and are estimated to cost approximately $405 million ($153 million at LG&E and $252 million at KU). The applications request an authorized 9.725% return on equity with respect to LG&E's and KU's ECR mechanisms consistent with the 2018 Kentucky rate cases approved in April 2019. Decisions on the applications are currently expected in September 2020.

Pennsylvania Activities

Act 129 (PPL and PPL Electric)

The Pennsylvania Public Utility Code requires electric distribution companies, including PPL Electric, to act as a DSP, which provides electricity generation supply service to customers pursuant to a PUC-approved default service procurement plan. The DSP is able to recover the costs associated with its default service procurement plan.

In March 2020, PPL Electric filed a Petition for Approval of a new default service program and procurement plan with the PUC for the period June 1, 2021 through May 31, 2025. This proceeding remains pending before the PUC. PPL Electric cannot predict the outcome of this proceeding.

Federal Matters

FERC Transmission Rate Filing

(PPL, LKE, LG&E and KU)

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 ongoing 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. In November 2019, the FERC granted LG&E and KU's and other parties' rehearing requests. 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. In February 2020, the D.C. Circuit Court of Appeals issued an order holding the various appeals in abeyance pending the FERC's rehearing process. LG&E and KU currently receive recovery of waivers and credits provided through other rate mechanisms.

(PPL and PPL Electric)

In April 2020, PPL Electric filed its annual transmission formula rate update with the FERC, reflecting a revised revenue requirement that will take effect in June 2020.

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 credit losses. 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 the three months ended March 31, 2020 and 2019, PPL Electric purchased $311 million and $348 million of accounts receivable from alternate suppliers.