Utility Rate Regulation

6 Months Ended

Jun. 30, 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
	June 30, 2020		December 31, 2019		June 30, 2020		December 31, 2019
Current Regulatory Assets:


Plant outage costs	$	41	$	32	$	—	$	—
Gas supply clause	4		8		—		—
Smart meter rider	17		13		17		13


Transmission formula rate	4		3		4		3
Transmission service charge	10		10		10		10
Other	6		1		—		—
Total current regulatory assets (a)	$	82	$	67	$	31	$	26


	PPL						PPL Electric
	June 30, 2020		December 31, 2019		June 30, 2020		December 31, 2019
Noncurrent Regulatory Assets:
Defined benefit plans	$	779	$	800	$	452	$	467

Storm costs	31		39		11		15
Unamortized loss on debt	35		41		13		18
Interest rate swaps	28		22		—		—
Terminated interest rate swaps	78		81		—		—
Accumulated cost of removal of utility plant	230		220		230		220
AROs	287		279		—		—
Act 129 compliance rider	—		6		—		6
Other	4		4		—		—
Total noncurrent regulatory assets	$	1,472	$	1,492	$	706	$	726


	PPL						PPL Electric
	June 30, 2020		December 31, 2019		June 30, 2020		December 31, 2019
Current Regulatory Liabilities:
Generation supply charge	$	23	$	23	$	23	$	23


Environmental cost recovery	1		5		—		—
Universal service rider	7		9		7		9

Fuel adjustment clause	8		8		—		—
TCJA customer refund	28		61		28		59
Storm damage expense rider	8		5		8		5
Act 129 compliance rider	6		—		6		—
Other	5		4		—		—
Total current regulatory liabilities	$	86	$	115	$	72	$	96



Noncurrent Regulatory Liabilities:
Accumulated cost of removal of utility plant	$	643	$	640	$	—	$	—
Power purchase agreement - OVEC	47		51		—		—
Net deferred taxes	1,722		1,756		572		588
Defined benefit plans	55		51		14		11
Terminated interest rate swaps	68		68		—		—
Other	4		6		—		—
Total noncurrent regulatory liabilities	$	2,539	$	2,572	$	586	$	599


	LKE						LG&E						KU
	June 30, 2020		December 31, 2019		June 30, 2020		December 31, 2019		June 30, 2020		December 31, 2019
Current Regulatory Assets:

Plant outage costs	$	41	$	32	$	14	$	16	$	27	$	16

Gas supply clause	4		8		4		8		—		—




Other	6		1		5		1		1		—
Total current regulatory assets	$	51	$	41	$	23	$	25	$	28	$	16


	LKE						LG&E						KU
	June 30, 2020		December 31, 2019		June 30, 2020		December 31, 2019		June 30, 2020		December 31, 2019
Noncurrent Regulatory Assets:
Defined benefit plans	$	327	$	333	$	199	$	206	$	128	$	127
Storm costs	20		24		12		14		8		10
Unamortized loss on debt	22		23		13		14		9		9
Interest rate swaps	28		22		28		22		—		—
Terminated interest rate swaps	78		81		46		47		32		34
AROs	287		279		79		76		208		203

Other	4		4		1		1		3		3
Total noncurrent regulatory assets	$	766	$	766	$	378	$	380	$	388	$	386


	LKE						LG&E						KU
	June 30, 2020		December 31, 2019		June 30, 2020		December 31, 2019		June 30, 2020		December 31, 2019
Current Regulatory Liabilities:
Environmental cost recovery	$	1	$	5	$	—	$	1	$	1	$	4
Demand side management	3		3		1		1		2		2

Fuel adjustment clause	8		8		3		—		5		8




Other	2		3		—		—		2		3
Total current regulatory liabilities	$	14	$	19	$	4	$	2	$	10	$	17

Noncurrent Regulatory Liabilities:
Accumulated cost of removal of utility plant	$	643	$	640	$	271	$	266	$	372	$	374

Power purchase agreement - OVEC	47		51		33		35		14		16
Net deferred taxes	1,150		1,168		537		544		613		624
Defined benefit plans	41		40		—		—		41		40

Terminated interest rate swaps	68		68		34		34		34		34
Other	4		6		2		4		2		2
Total noncurrent regulatory liabilities	$	1,953	$	1,973	$	877	$	883	$	1,076	$	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. LG&E and KU cannot predict the outcome of these proceedings.

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. A 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. Hearings are scheduled for August 2020. This proceeding remains pending before the PUC. PPL Electric cannot predict the outcome of this proceeding.

Federal Matters

Challenge to PPL Electric Transmission Formula Rate Return on Equity

(PPL and PPL Electric)

On May 21, 2020, PP&L Industrial Customer Alliance (PPLICA) filed a complaint with the FERC alleging that PPL Electric's base return on equity (ROE) of 11.18% used to determine PPL Electric's formula transmission rate is unjust and unreasonable, and proposing an alternative ROE of 8.0% based on its interpretation of FERC Opinion No. 569. However, also on May 21, 2020, the FERC issued Opinion No. 569-A in response to numerous requests for rehearing of Opinion No. 569, which revised the method for analyzing base ROE. On June 10, 2020, PPLICA filed a Motion to Supplement the May 21, 2020 complaint in which PPLICA continued to allege that PPL Electric’s base ROE is unjust and unreasonable, but revised its analysis of PPL Electric's base ROE to reflect the guidance provided in Opinion No. 569-A. The amended complaint proposed an updated alternative ROE of 8.5% and also requested that the FERC preserve the original refund effective date as established by the filing of the original complaint on May 21, 2020. Several parties have filed motions to intervene, including one party who filed Comments in Support of the original complaint.

On July 10, 2020, PPL Electric filed its Answer and supporting Testimony to the PPLICA filings arguing that the FERC should deny the original and amended complaints as they are without merit and fail to demonstrate the existing base ROE is unjust and unreasonable. In addition, in the event the FERC determines PPL Electric's ROE to be unjust and unreasonable, PPL Electric contends a refund effective date should be set for no earlier than June 10, 2020 and PPLICA's proposed replacement ROE should be rejected. This proceeding remains pending before the FERC. On July 27, 2020, an intervenor filed a motion for permission to respond and a response to PPL Electric’s Answer contesting the arguments made in that Answer. PPL Electric believes its ROE is just and reasonable and that it has meritorious defenses against the original and amended complaints. At this time, PPL Electric cannot predict the outcome of this matter or the range of possible losses, if any, that may be incurred. However, revenue earned from May 21, 2020 through the settlement of this matter may be subject to refund. A change of 50 basis points to the base ROE would impact PPL Electric's net income by approximately $12 million on an annual basis.

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 sought 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. Certain petitions for review of the FERC's orders have been filed by multiple parties, including LG&E and KU, with the D.C. Circuit Court of Appeals. LG&E and KU cannot predict the outcome of these 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 took 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 and six months ended June 30, 2020, PPL Electric purchased $240 million and $551 million of accounts receivable from alternative suppliers. During the three and six months ended June 30, 2019, PPL Electric purchased $271 million and $619 million of accounts receivable from alternative suppliers.