Combined Notes to Condensed Financial Statements (Unaudited)
Index to Combined Notes to Condensed Financial Statements
The notes to the condensed financial statements that follow are a combined presentation. The following list indicates the Registrants to which the notes apply:
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| | Registrant |
| | PPL | | PPL Electric | | LG&E | | KU |
| 1. Interim Financial Statements | | x | | x | | x | | x |
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| 2. Segment and Related Information | | x | | x | | x | | x |
| 3. Revenue from Contracts with Customers | | x | | x | | x | | x |
| 4. Earnings Per Share | | x | | | | | | |
| 5. Income Taxes | | x | | x | | x | | x |
| 6. Utility Rate Regulation | | x | | x | | x | | x |
| 7. Financing Activities | | x | | x | | x | | x |
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| 8. Acquisitions, Development and Divestitures | | x | | | | | | |
| 9. Defined Benefits | | x | | x | | x | | x |
| 10. Commitments and Contingencies | | x | | x | | x | | x |
| 11. Related Party Transactions | | | | x | | x | | x |
| 12. Other Income (Expense) - net | | x | | x | | | | |
| 13. Fair Value Measurements | | x | | x | | x | | x |
| 14. Derivative Instruments and Hedging Activities | | x | | x | | x | | x |
| 15. Asset Retirement Obligations | | x | | | | x | | x |
| 16. Accumulated Other Comprehensive Income (Loss) | | x | | | | | | |
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1. Interim Financial Statements
(All Registrants)
Capitalized terms and abbreviations appearing in the unaudited combined notes to condensed 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 Registrant's related activities and disclosures. Within combined disclosures, amounts are disclosed for any Registrant when significant.
The accompanying unaudited condensed financial statements have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X and, therefore, do not include all of the information and footnote disclosures required by GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation in accordance with GAAP are reflected in the condensed financial statements. All adjustments are of a normal recurring nature, except as otherwise disclosed. Each Registrant's Balance Sheet at December 31, 2022 is derived from that Registrant's 2022 audited Balance Sheet. The financial statements and notes thereto should be read in conjunction with the financial statements and notes contained in each Registrant's 2022 Form 10-K. The results of operations for the three months ended March 31, 2023 are not necessarily indicative of the results to be expected for the full year ending December 31, 2023 or other future periods, because results for interim periods can be disproportionately influenced by various factors, developments and seasonal variations.
(PPL)
On May 25, 2022, PPL Rhode Island Holdings acquired 100% of the outstanding shares of common stock of Narragansett Electric from National Grid USA, a subsidiary of National Grid plc (the Acquisition) . The results of Narragansett Electric are included in the consolidated results of PPL from the date of the Acquisition. Following the closing of the Acquisition,
Narragansett Electric provides services doing business under the name Rhode Island Energy (RIE). See Note 8 for additional information.
2. Segment and Related Information
(PPL)
PPL is organized into three segments: Kentucky Regulated, Pennsylvania Regulated and Rhode Island Regulated. PPL's segments are determined by geographic location.
Beginning on January 1, 2023, the Kentucky Regulated segment consists primarily of the regulated electricity generation, transmission and distribution operations conducted by LG&E and KU, as well as LG&E's regulated distribution and sale of natural gas. Prior to January 1, 2023, the Kentucky Regulated segment also included the financing activities of LKE. The financing activity of LKE is presented in "Corporate and Other" beginning on January 1, 2023. Prior periods have been adjusted to reflect this change. As a result, PPL’s segments consist of its regulated operations in Kentucky, Pennsylvania and Rhode Island and exclude any incremental financing activities of holding companies, which Management believes is a more meaningful presentation as it provides information on the core regulated operations of PPL.
The Pennsylvania Regulated segment includes the regulated electricity transmission and distribution operations of PPL Electric.
The Rhode Island Regulated segment includes the regulated electricity transmission and distribution and natural gas distribution operations of RIE, which were acquired on May 25, 2022.
"Corporate and Other" primarily includes corporate level financing costs, certain unallocated costs, certain non-recoverable costs incurred in conjunction with the acquisition of Narragansett Electric and the financial results of Safari Energy, prior to its sale on November 1, 2022. "Corporate and Other" is presented to reconcile segment information to PPL's consolidated results.
Income Statement data for the segments and reconciliation to PPL's consolidated results for the periods ended March 31 are as follows:
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| | Three Months | | |
| | 2023 | | 2022 | | | | |
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| Operating Revenues from external customers | | | | | | | |
| Kentucky Regulated | $ | 960 | | | $ | 1,004 | | | | | |
| Pennsylvania Regulated | 891 | | | 775 | | | | | |
| Rhode Island Regulated | 565 | | | — | | | | | |
| Corporate and Other | (1) | | | 3 | | | | | |
| Total | $ | 2,415 | | | $ | 1,782 | | | | | |
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| Net Income (Loss) | | | | | | | |
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| Kentucky Regulated | $ | 166 | | | $ | 189 | | | | | |
| Pennsylvania Regulated | 138 | | | 143 | | | | | |
| Rhode Island Regulated | 54 | | | — | | | | | |
| Corporate and Other | (73) | | | (59) | | | | | |
| Total | $ | 285 | | | $ | 273 | | | | | |
The following provides Balance Sheet data for the segments and reconciliation to PPL's consolidated Balance Sheets as of:
| | | | | | | | | | | |
| March 31,
2023 | | December 31,
2022 |
| Assets | | | |
| Kentucky Regulated | $ | 16,738 | | | $ | 16,904 | |
| Pennsylvania Regulated | 13,921 | | | 13,565 | |
| Rhode Island Regulated | 6,253 | | | 6,081 | |
| Corporate and Other (a) | 1,390 | | | 1,287 | |
| Total | $ | 38,302 | | | $ | 37,837 | |
(a)Primarily consists of unallocated items, including cash, PP&E, goodwill and the elimination of inter-segment transactions.
(PPL Electric, LG&E and KU)
PPL Electric has two operating segments, distribution and transmission, which are aggregated into a single reportable segment. LG&E and KU are individually single operating and reportable segments.
3. Revenue from Contracts with Customers
(All Registrants)
See Note 3 in the Registrants' 2022 Form 10-K for a discussion of the principal activities from which PPL Electric, LG&E and KU and PPL’s Pennsylvania Regulated, Rhode Island Regulated, and Kentucky Regulated segments generate their revenues.
The following tables reconcile "Operating Revenues" included in each Registrant's Statement of Income with revenues generated from contracts with customers for the periods ended March 31.
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| 2023 Three Months |
| PPL | | PPL Electric | | LG&E | | KU |
| Operating Revenues (a) | $ | 2,415 | | | $ | 891 | | | $ | 474 | | | $ | 499 | |
| Revenues derived from: | | | | | | | |
| Alternative revenue programs (b) | 36 | | | 1 | | | 1 | | | — | |
| Other (c) | (4) | | | (2) | | | (1) | | | (1) | |
| Revenues from Contracts with Customers | $ | 2,447 | | | $ | 890 | | | $ | 474 | | | $ | 498 | |
| |
| 2022 Three Months |
| PPL | | PPL Electric | | LG&E | | KU |
| Operating Revenues (a) | $ | 1,782 | | | $ | 775 | | | $ | 493 | | | $ | 525 | |
| Revenues derived from: | | | | | | | |
| Alternative revenue programs (b) | (27) | | | (36) | | | 6 | | | 3 | |
| Other (c) | (7) | | | (4) | | | (2) | | | (1) | |
| Revenues from Contracts with Customers | $ | 1,748 | | | $ | 735 | | | $ | 497 | | | $ | 527 | |
(a)PPL includes $565 million for the three months ended March 31, 2023 of revenues from external customers reported by the Rhode Island Regulated segment. PPL Electric represents revenues from external customers reported by the Pennsylvania Regulated segment and LG&E and KU, net of intercompany power sales and transmission revenues, represent revenues from external customers reported by the Kentucky Regulated segment. See Note 2 for additional information.
(b)This line item shows the over/under collection of rate mechanisms deemed alternative revenue programs with over-collections of revenue shown as positive amounts in the table above and under-collections shown as negative amounts. For PPL Electric, the three months ended March 31, 2022, included $44 million related to the amortization of the regulatory liability recorded in 2021 for a reduction in the transmission formula rate return on equity that was reflected in rates in 2022.
(c)Represents additional revenues outside the scope of revenues from contracts with customers, such as lease and other miscellaneous revenues.
The following tables show revenues from contracts with customers disaggregated by customer class for the periods ended March 31.
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| Three Months |
| Residential | | Commercial | | Industrial | | Other (a) | | Wholesale - municipality | | Wholesale - other (b) | | Transmission | | Revenues from Contracts with Customers |
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| PPL | | | | | | | | | | | | | | | |
| 2023 | | | | | | | | | | | | | | | |
| PA Regulated | $ | 537 | | | $ | 128 | | | $ | 20 | | | $ | 13 | | | $ | — | | | $ | — | | | $ | 192 | | | $ | 890 | |
| KY Regulated | 443 | | | 274 | | | 164 | | | 60 | | | 7 | | | 11 | | | — | | | 959 | |
| RI Regulated | 229 | | | 101 | | | 9 | | | 215 | | | — | | | — | | | 45 | | | 599 | |
| Corp and Other | — | | | — | | | — | | | (1) | | | — | | | — | | | — | | | (1) | |
| Total PPL | $ | 1,209 | | | $ | 503 | | | $ | 193 | | | $ | 287 | | | $ | 7 | | | $ | 11 | | | $ | 237 | | | $ | 2,447 | |
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| Three Months |
| Residential | | Commercial | | Industrial | | Other (a) | | Wholesale - municipality | | Wholesale - other (b) | | Transmission | | Revenues from Contracts with Customers |
| 2022 | | | | | | | | | | | | | | | |
| PA Regulated | $ | 453 | | | $ | 108 | | | $ | 15 | | | $ | 12 | | | $ | — | | | $ | — | | | $ | 147 | | | $ | 735 | |
| KY Regulated | 478 | | | 270 | | | 154 | | | 83 | | | 6 | | | 19 | | | — | | | 1,010 | |
| RI Regulated | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Corp and Other | — | | | — | | | — | | | 3 | | | — | | | — | | | — | | | 3 | |
| Total PPL | $ | 931 | | | $ | 378 | | | $ | 169 | | | $ | 98 | | | $ | 6 | | | $ | 19 | | | $ | 147 | | | $ | 1,748 | |
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| PPL Electric | | | | | | | | | | | | | | | |
| 2023 | $ | 537 | | | $ | 128 | | | $ | 20 | | | $ | 13 | | | $ | — | | | $ | — | | | $ | 192 | | | $ | 890 | |
| 2022 | $ | 453 | | | $ | 108 | | | $ | 15 | | | $ | 12 | | | $ | — | | | $ | — | | | $ | 147 | | | $ | 735 | |
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| LG&E | | | | | | | | | | | | | | | |
| 2023 | $ | 241 | | | $ | 152 | | | $ | 49 | | | $ | 16 | | | $ | — | | | $ | 16 | | | $ | — | | | $ | 474 | |
| 2022 | $ | 246 | | | $ | 146 | | | $ | 45 | | | $ | 39 | | | $ | — | | | $ | 21 | | | $ | — | | | $ | 497 | |
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| KU | | | | | | | | | | | | | | | |
| 2023 | $ | 202 | | | $ | 123 | | | $ | 115 | | | $ | 44 | | | $ | 7 | | | $ | 7 | | | $ | — | | | $ | 498 | |
| 2022 | $ | 232 | | | $ | 124 | | | $ | 109 | | | $ | 44 | | | $ | 6 | | | $ | 12 | | | $ | — | | | $ | 527 | |
(a)Primarily includes revenues from pole attachments, street lighting, other public authorities and other non-core businesses. The Rhode Island Regulated segment primarily includes open access tariff revenues, which are calculated on combined customer classes.
(b)Includes wholesale power and transmission revenues. LG&E and KU amounts include intercompany power sales and transmission revenues, which are eliminated upon consolidation at the Kentucky Regulated segment.
As discussed in Note 2, PPL segments its business by geographic location. Revenues from external customers for each segment/geographic location are reconciled to revenues from contracts with customers in the footnotes to the tables above.
Contract receivables from customers are primarily included in "Accounts receivable - Customer", "Unbilled revenues", and "Other noncurrent assets" on the Balance Sheets.
The following table shows the accounts receivable and unbilled revenues balances that were impaired for the periods ended March 31.
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| | | Three Months |
| | | | | 2023 | | 2022 |
| PPL | | | | | $ | 21 | | | $ | 7 | |
| PPL Electric | | | | | 10 | | | 5 | |
| LG&E | | | | | 1 | | | 1 | |
| KU | | | | | — | | | 1 | |
The following table shows the balances and certain activity of contract liabilities resulting from contracts with customers.
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| PPL | | PPL Electric | | LG&E | | KU |
Contract liabilities at December 31, 2022 | $ | 34 | | | $ | 23 | | | $ | 5 | | | $ | 6 | |
Contract liabilities at March 31, 2023 | 46 | | | 35 | | | 5 | | | 5 | |
Revenue recognized during the three months ended March 31, 2023 that was included in the contract liability balance at December 31, 2022 | 17 | | | 6 | | | 5 | | | 6 | |
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Contract liabilities at December 31, 2021 | $ | 42 | | | $ | 25 | | | $ | 6 | | | $ | 6 | |
Contract liabilities at March 31, 2022 | 33 | | | 17 | | | 4 | | | 5 | |
Revenue recognized during the three months ended March 31, 2022 that was included in the contract liability balance at December 31, 2021 | 22 | | | 10 | | | 6 | | | 6 | |
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 generally recognized as revenue ratably over the quarterly billing period. Payments received in excess of revenues earned to date are recognized as revenue as services are delivered in subsequent periods.
4. Earnings Per Share
(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 share-based payment awards were converted to common shares as calculated using the Two-Class Method or Treasury Stock Method. The If-Converted Method is applied to the Exchangeable Senior Notes due 2028 issued in February 2023. See Note 7 for additional information.
Reconciliations of the amounts of income and shares of PPL common stock (in thousands) for the periods ended March 31 used in the EPS calculation are:
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| | | | Three Months |
| | | | | | 2023 | | 2022 |
| Income (Numerator) | | | | | | | |
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| Net income attributable to PPL | | | | | $ | 285 | | | $ | 273 | |
| Less amounts allocated to participating securities | | | | | 1 | | | — | |
| Net income available to PPL common shareowners - Basic and Diluted | | | | | $ | 284 | | | $ | 273 | |
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| Shares of Common Stock (Denominator) | | | | | | | |
| Weighted-average shares - Basic EPS | | | | | 736,829 | | | 735,503 | |
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| Add: Dilutive share-based payment awards | | | | | 869 | | | 681 | |
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| Weighted-average shares - Diluted EPS | | | | | 737,698 | | | 736,184 | |
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| Basic and Diluted EPS | | | | | | | |
| Available to PPL common shareowners: | | | | | | | |
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| Net Income available to PPL common shareowners | | | | | $ | 0.39 | | | $ | 0.37 | |
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For the periods ended March 31, PPL issued shares of common stock related to stock-based compensation plans as follows (in thousands):
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| | | | Three Months |
| | | | | | 2023 | | 2022 |
| Stock-based compensation plans | | | | | — | | | 124 | |
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For the periods ended March 31, the following shares (in thousands) were excluded from the computations of diluted EPS because the effect would have been antidilutive.
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| | | | Three Months |
| | | | | 2023 | | 2022 |
| Stock-based compensation awards | | | | | 534 | | | 154 | |
5. Income Taxes
Reconciliations of income tax expense (benefit) for the periods ended March 31 are as follows.
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| (PPL) |
| | | Three Months |
| | | | | 2023 | | 2022 |
| Federal income tax on Income from Continuing Operations Before Income Taxes at statutory tax rate - 21% | | | | | $ | 76 | | | $ | 73 | |
| Increase (decrease) due to: | | | | | | | |
| State income taxes, net of federal income tax benefit | | | | | 22 | | | 21 | |
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| Depreciation and other items not normalized | | | | | (5) | | | (3) | |
| Amortization of excess deferred federal and state income taxes | | | | | (12) | | | (18) | |
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| Other | | | | | (2) | | | 1 | |
| Total increase (decrease) | | | | | 3 | | | 1 | |
| Total income tax expense (benefit) | | | | | $ | 79 | | | $ | 74 | |
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| (PPL Electric) | | | | | | | |
| | | Three Months |
| | | | | 2023 | | 2022 |
| Federal income tax on Income Before Income Taxes at statutory tax rate - 21% | | | | | $ | 38 | | | $ | 41 | |
| Increase (decrease) due to: | | | | | | | |
| State income taxes, net of federal income tax benefit | | | | | 14 | | | 16 | |
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| Depreciation and other items not normalized | | | | | (4) | | | (3) | |
| Amortization of excess deferred federal and state income taxes | | | | | (2) | | | (3) | |
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| Other | | | | | (1) | | | (1) | |
| Total increase (decrease) | | | | | 7 | | | 9 | |
| Total income tax expense (benefit) | | | | | $ | 45 | | | $ | 50 | |
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| (LG&E) | | | | | | | |
| | | | Three Months |
| | | | | | 2023 | | 2022 |
| Federal income tax on Income Before Income Taxes at statutory tax rate - 21% | | | | | $ | 23 | | | $ | 24 | |
| Increase (decrease) due to: | | | | | | | |
| State income taxes, net of federal income tax benefit | | | | | 4 | | | 4 | |
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| Amortization of excess deferred federal and state income taxes | | | | | (3) | | | (7) | |
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| Other | | | | | (1) | | | (2) | |
| Total increase (decrease) | | | | | — | | | (5) | |
| Total income tax expense (benefit) | | | | | $ | 23 | | | $ | 19 | |
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| (KU) | | | | | | | |
| | | | Three Months |
| | | | | | 2023 | | 2022 |
| Federal income tax on Income Before Income Taxes at statutory tax rate - 21% | | | | | $ | 23 | | | $ | 28 | |
| Increase (decrease) due to: | | | | | | | |
| State income taxes, net of federal income tax benefit | | | | | 4 | | | 5 | |
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| Amortization of excess deferred federal and state income taxes | | | | | (4) | | | (6) | |
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| Other | | | | | (1) | | | (3) | |
| Total increase (decrease) | | | | | (1) | | | (4) | |
| Total income tax expense (benefit) | | | | | $ | 22 | | | $ | 24 | |
Other
Narragansett Electric Acquisition (PPL)
The acquisition of Narragansett Electric on May 25, 2022 was deemed an asset acquisition for federal and state income tax purposes, as a result of PPL and National Grid making a tax election under Internal Revenue Code (IRC) §338(h)(10). Accordingly, the tax bases of substantially all of the assets acquired were increased to fair market value, which equaled net book value, thereby eliminating the related deferred tax assets and liabilities. This election resulted in tax goodwill that will be amortized for tax purposes over 15 years.
Pennsylvania State Tax Reform (PPL and PPL Electric)
On July 8, 2022, the Governor of Pennsylvania signed into law Pennsylvania House Bill 1342 (H.B. 1342). Among other changes to the state tax code, the bill reduces the corporate net income tax rate from 9.99% to 8.99% beginning January 1, 2023, and further reduces the rate annually by half a percentage point until the rate reaches 4.99% in 2031.
Inflation Reduction Act (All Registrants)
On August 16, 2022, the Inflation Reduction Act (IRA) was signed into law. Among other things, the IRA enacted a new 15% corporate "book minimum tax," which is based on adjusted GAAP pre-tax income and is only applicable to corporations whose pre-tax income exceeds a certain threshold. PPL does not expect to be subject to the book minimum tax in 2023. PPL will continue to assess the impacts of the IRA on its financial statements and will monitor guidance issued by the U.S. Treasury in the future. In addition, the IRA enacted numerous new tax credits, largely associated with renewable energy.
IRS Revenue Procedure 2023-15 (PPL and LG&E)
On April 14, 2023, the IRS issued Revenue Procedure 2023-15, which provides a safe harbor method of accounting that taxpayers may use to determine whether expenses to repair, maintain, replace, or improve natural gas transmission and distribution property must be capitalized for tax purposes. The Registrants are currently reviewing the revenue procedure to determine what impact the newly issued guidance may have on their financial statements.
6. Utility Rate Regulation
(All Registrants)
The following table provides information about the regulatory assets and liabilities of cost-based rate-regulated utility operations.
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| PPL | | PPL Electric | | LG&E | | KU |
| March
31, 2023 | | December 31,
2022 | | March
31, 2023 | | December 31,
2022 | | March
31, 2023 | | December 31,
2022 | | March
31, 2023 | | December 31,
2022 |
| Current Regulatory Assets: | | | | | | | | | | | | | | | |
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| Gas supply clause | $ | — | | | $ | 41 | | | $ | — | | | $ | — | | | $ | — | | | $ | 13 | | | $ | — | | | $ | — | |
| Rate adjustment mechanisms | 194 | | | 96 | | | — | | | — | | | — | | | — | | | — | | | — | |
| Rate class charge | 18 | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Renewable energy certificates | 14 | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Derivative Instruments | 13 | | 41 | | | — | | | — | | | — | | | — | | | — | | | — | |
| Smart meter rider | 4 | | | 5 | | | 4 | | | 5 | | | — | | | — | | | — | | | — | |
| Universal service rider | 20 | | | 3 | | | 20 | | | 3 | | | — | | | — | | | — | | | — | |
| Storm damage costs | 4 | | | — | | | 4 | | | — | | | — | | | — | | | — | | | — | |
| Fuel adjustment clause | 25 | | | 38 | | | — | | | — | | | 6 | | | 9 | | | 19 | | | 29 | |
| Other | 21 | | | 34 | | | 6 | | | 5 | | | 2 | | | 1 | | | 4 | | | 3 | |
| Total current regulatory assets | $ | 313 | | | $ | 258 | | | $ | 34 | | | $ | 13 | | | $ | 8 | | | $ | 23 | | | $ | 23 | | | $ | 32 | |
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| Noncurrent Regulatory Assets: | | | | | | | | | | | | | | | |
| Defined benefit plans | $ | 771 | | | $ | 778 | | | $ | 353 | | | $ | 353 | | | $ | 205 | | | $ | 209 | | | $ | 136 | | | $ | 140 | |
| Plant outage costs | 43 | | | 46 | | | — | | | — | | | 11 | | | 12 | | | 32 | | | 34 | |
| Net metering | 70 | | | 61 | | | — | | | — | | | — | | | — | | | — | | | — | |
| Environmental cost recovery | 101 | | | 102 | | | — | | | — | | | — | | | — | | | — | | | — | |
| Taxes recoverable through future rates | 46 | | | 47 | | | — | | | — | | | — | | | — | | | — | | | — | |
| Storm costs | 123 | | | 118 | | | — | | | — | | | 15 | | | 7 | | | 14 | | | 3 | |
| Unamortized loss on debt | 24 | | | 21 | | | 4 | | | 3 | | | 11 | | | 11 | | | 7 | | | 7 | |
Interest rate swaps | 8 | | | 7 | | | — | | | — | | | 8 | | | 7 | | | — | | | — | |
| Terminated interest rate swaps | 63 | | | 63 | | | — | | | — | | | 37 | | | 37 | | | 26 | | | 26 | |
| Accumulated cost of removal of utility plant | 203 | | | 212 | | | 203 | | | 212 | | | — | | | — | | | — | | | — | |
| AROs | 293 | | | 295 | | | — | | | — | | | 76 | | | 76 | | | 217 | | | 219 | |
| Derivative instruments | 7 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Other | 68 | | | 69 | | | — | | | — | | | 15 | | | 14 | | | 15 | | | 13 | |
| Total noncurrent regulatory assets | $ | 1,820 | | | $ | 1,819 | | | $ | 560 | | | $ | 568 | | | $ | 378 | | | $ | 373 | | | $ | 447 | | | $ | 442 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| PPL | | PPL Electric | | LG&E | | KU |
| March
31, 2023 | | December 31,
2022 | | March
31, 2023 | | December 31,
2022 | | March
31, 2023 | | December 31,
2022 | | March
31, 2023 | | December 31,
2022 |
| Current Regulatory Liabilities: | | | | | | | | | | | | | | | |
| Generation supply charge | $ | 48 | | | $ | 37 | | | $ | 48 | | | $ | 37 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Transmission service charge | 11 | | 14 | | | 11 | | | 7 | | | — | | | — | | | — | | | — | |
| TCJA customer refund | 6 | | | 15 | | | 6 | | | 15 | | | — | | | — | | | — | | | — | |
| Act 129 compliance rider | 16 | | | 14 | | | 16 | | | 14 | | | — | | | — | | | — | | | — | |
| Transmission formula rate | 13 | | | 12 | | | 13 | | | 12 | | | — | | | — | | | — | | | — | |
| Rate adjustment mechanism | 124 | | | 96 | | | — | | | — | | | — | | | — | | | — | | | — | |
| Energy efficiency | 23 | | | 23 | | | — | | | — | | | — | | | — | | | — | | | — | |
| Gas supply clause | 9 | | | — | | | — | | | — | | | 9 | | | — | | | — | | | — | |
| Other | 32 | | | 27 | | | — | | | — | | | 4 | | | 7 | | | 5 | | | 6 | |
| Total current regulatory liabilities | $ | 282 | | | $ | 238 | | | $ | 94 | | | $ | 85 | | | $ | 13 | | | $ | 7 | | | $ | 5 | | | $ | 6 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| PPL | | PPL Electric | | LG&E | | KU |
| March
31, 2023 | | December 31,
2022 | | March
31, 2023 | | December 31,
2022 | | March
31, 2023 | | December 31,
2022 | | March
31, 2023 | | December 31,
2022 |
| Noncurrent Regulatory Liabilities: | | | | | | | | | | | | | | | |
| Accumulated cost of removal of utility plant | $ | 965 | | | $ | 950 | | | $ | — | | | $ | — | | | $ | 293 | | | $ | 287 | | | $ | 393 | | | $ | 389 | |
| Power purchase agreement - OVEC | 24 | | | 26 | | | — | | | — | | | 17 | | | 18 | | | 7 | | | 8 | |
| Net deferred taxes | 2,086 | | | 2,094 | | | 780 | | | 775 | | | 473 | | | 477 | | | 541 | | | 546 | |
| Defined benefit plans | 212 | | | 187 | | | 52 | | | 45 | | | 21 | | | 21 | | | 57 | | | 56 | |
| Terminated interest rate swaps | 60 | | | 60 | | | — | | | — | | | 30 | | | 30 | | | 30 | | | 30 | |
| Energy efficiency | 36 | | | 32 | | | — | | | — | | | — | | | — | | | — | | | — | |
| Other | 36 | | | 63 | | | — | | | — | | | — | | | — | | | — | | | — | |
| Total noncurrent regulatory liabilities | $ | 3,419 | | | $ | 3,412 | | | $ | 832 | | | $ | 820 | | | $ | 834 | | | $ | 833 | | | $ | 1,028 | | | $ | 1,029 | |
Regulatory Matters
Rhode Island Activities (PPL)
Rate Case proceedings
Pursuant to Report and Order No. 23823 issued May 5, 2020, the RIPUC approved the terms of an Amended Settlement Agreement (ASA), reflecting an allowed return on equity (ROE) rate of 9.275% based on a common equity ratio of approximately 51%. RIE is currently in year five of the multi-year rate plan (Rate Plan). On June 30, 2021, the Rhode Island Division of Public Utilities and Carriers consented to an open-ended extension of the term of the Rate Plan. Pursuant to the settlement with the Rhode Island Office of the Attorney General in connection with the acquisition of RIE by PPL, RIE currently does not anticipate filing a new base rate case before May 25, 2025. Pursuant to the open-ended extension, the Rate Year 3 level of base distribution rates under ASA will remain in effect and RIE will continue to operate under the current Rate Plan until a new Rate Plan is approved by the RIPUC.
The ASA includes additional provisions, including (i) an Electric Transportation Initiative (the ET Initiative) to facilitate the growth of Electric Vehicle (EV) adoption and scaling of the market for EV charging equipment to advance Rhode Island's zero emission vehicles and greenhouse gas emissions policy goals, (ii) two energy storage demonstration projects, which are on track for timely completion, (iii) an incentive-only performance incentive for System Efficiency: Annual Megawatt Capacity Savings, which sunset in 2021 and is now a tracking and reporting only metric, and (iv) several additional metrics for tracking and reporting purposes only. The RIPUC discussed the ET Initiative at an Open Meeting on August 30, 2022, advising RIE to seek RIPUC authorization to continue the ET Initiative and/or to alter any of the targets established in the ASA for Rate Year 5 and beyond. No votes or official rulings were taken; however, based on this feedback, RIE has paused the ET programs in Rate Year 5. As of March 31, 2023, the RIPUC had not made any rulings regarding the timing of crediting customers the deferral balance pursuant to the ASA.
Advanced Metering Functionality and Grid Modernization
In 2021, RIE filed its Updated Advanced Metering Functionality (AMF) Business Case and Grid Modernization Plan (GMP) with the RIPUC in accordance with the ASA, and which, among other things, sought approval to deploy smart meters throughout the service territory. In 2021, the RIPUC stayed the AMF and GMP proceedings pending further consideration following the issuance of a final Order by the Rhode Island Division of Public Utilities and Carriers on the acquisition of RIE. RIE filed notice of withdrawal of the original Updated AMF Business Case and GMP with the RIPUC, and in November 2022 filed a new AMF Business Case with the RIPUC. The new AMF Business Case filing consists of a detailed proposal for full-scale deployment of AMF across its electric service territory. The proposal will enable significant customer and grid benefits in line with the state’s climate mandates. In its filing, RIE estimated that the proposed program would cost $188 million on a net present value (NPV) basis and provide benefits of $729 million NPV over the 20-year project life, yielding a benefit-cost ratio of 3.9%. RIE believes AMF is a foundational technology that is a necessary first step to transforming Rhode Island’s electric distribution system.
In its filing, RIE requested a RIPUC decision by June 2023; the RIPUC issued a revised procedural schedule for the AMF Business Case filing that provides for hearings in July 2023. In addition, the RIPUC held a public comment hearing on April 4, 2023, and a technical session on February 22, 2023 and has scheduled additional technical sessions in May and June 2023. The
RIPUC also held a separate evidentiary hearing on April 14, 2023, regarding certain Motions for Confidential Treatment by RIE.
RIE filed a new GMP with the RIPUC on December 30, 2022. The new GMP filing consists of a holistic suite of grid modernization investments that will provide RIE with the tools and capability to manage the electric distribution system more granularly considering a range of distributed energy resources adoption levels, accelerated by Rhode Island's climate mandates, while at the same time maintaining a safe and reliable electric distribution system. The GMP is an informational guidance document that supports the grid modernization investments to be proposed in future electric ISR plans. Consequently, RIE did not request approval from the RIPUC for any specific investments or seek cost recovery as part of the GMP; rather, RIE requested that the RIPUC issue an order affirming RIE’s compliance with its obligation to file a GMP that meets the requirements of the ASA.
COVID-19 Deferral Filing
On April 30, 2021, RIE filed a petition for approval to recognize regulatory assets related to COVID-19 impacts (RIPUC Docket No. 5154). In its petition, RIE sought the RIPUC's authorization to create regulatory assets and consideration of future cost recovery for the following COVID-19 costs: (1) the increased cost of customer accounts receivable that RIE will be unable to collect as a result of the COVID-19 pandemic, and the executive orders and RIPUC orders restricting RIE's collection activities as a result of the pandemic, which will result in increased net charge-offs; (2) lost revenue from unassessed late payment charges; and (3) charges to RIE for other fees that RIE has waived pursuant to the RIPUC's orders in RIPUC Docket No. 5022. RIE is evaluating its request to create a regulatory asset for COVID-19-related bad debt expense to consider the impact, if any, of the proposed arrearage forgiveness sought in RIE’s Petition to Forgive Certain Arrearage Balances for Low-Income and Protected Customers in Docket No. 22-08-GE, which RIE filed with the RIPUC to fulfill its obligations under PPL's settlement with the Rhode Island Attorney General.
FY 2023 Gas Infrastructure, Safety and Reliability (ISR) Plan
At an Open Meeting on March 29, 2022, the RIPUC conditionally approved RIE’s FY 2023 Gas ISR Plan and associated revenue requirement, subject to further review regarding RIE's Proactive Main Replacement Program and its decision to reconstruct and purchase heating and pressure regulation equipment located at RIE’s Wampanoag and Tiverton take stations. The RIPUC held an Open Meeting on September 13, 2022, and issued its Order on November 18, 2022 regarding the Proactive Main Replacement Program and made the following rulings: (1) commencing with the Gas ISR plan to be filed in this calendar year 2022 (prospectively), new main constructed to replace leak prone pipe will not be considered used and useful, and therefore not eligible for rate base treatment, until the related old main is abandoned; and (2) approved the proactive main replacement revenue requirement set forth in the FY2023 Gas ISR plan. Also, the RIPUC directed RIE to submit prefiled testimony on the issue of its replacement of heating and pressure regulation facilities at the Wampanoag and Tiverton take stations and to address three issues, specifically: (i) a cost-benefit analysis arising from RIE's decision to take ownership of the reconstructed take station equipment; (ii) the potential that the benefits derived from the reconstruction and ownership transfer of the take station equipment will not be realized due to the future use of hydrogen or abandonment of the gas system; and (iii) the depreciation and accounting treatment of the reconstructed take station equipment. RIE filed this testimony with the RIPUC on May 16, 2022, the RIPUC has not taken any action to date on this issue.
FY 2024 Gas ISR Plan
On December 23, 2022, RIE filed its FY 2024 Gas ISR Plan with the RIPUC. At its January 20, 2023 Open Meeting, the RIPUC directed RIE to file supplemental budget and rate schedules to reflect an April 1 to March 31 fiscal year. The supplemental budget that was filed with the RIPUC on January 27, 2023 includes $187 million of capital investment spend. The supplemental rate schedules were filed on February 3, 2023. RIE and the Division reached an agreement on an approximately $171 million capital investment spending plan, and RIE filed a second supplemental budget on March 13, 2023. The RIPUC held a hearing on the plan on March 14, 2023. At an Open Meeting on March 29, 2023, the RIPUC approved the plan with an adjustment to the budget for the Proactive Main Replacement Program category resulting in a total approved FY 2024 Gas ISR Plan of $163 million for capital investment spend. On March 31, 2023, the RIPUC approved RIE's March 30, 2023 compliance filing for rates effective April 1, 2023.
FY 2024 Electric ISR Plan
On December 23, 2022, RIE filed its FY 2024 Electric ISR Plan with the RIPUC. At its January 20, 2023 Open Meeting, the RIPUC directed RIE to file supplemental budget and rate schedules to reflect an April 1 to March 31 fiscal year. The
supplemental budget filed with the RIPUC on January 27, 2023 includes $176 million of capital investment spend, $14 million of vegetation operations and management (O&M) spend and $3 million of Other O&M spend. The supplemental rate schedules were filed on February 3, 2023. RIE filed second supplemental budget schedules on March 21, 2023, which includes $166 million of capital investment spend, $14 million of vegetation management O&M spend and $1 million of Other O&M spend. The RIPUC held hearings in March 2023, and on March 29, 2023, approved the plan with modifications to the proposed capital investment spend, resulting in a total approved FY 2024 Electric ISR Plan of $112 million for capital investment spend, $14 million for vegetation management O&M spend, and $1 million for Other O&M spend. On March 31, 2023, the RIPUC approved RIE's March 30, 2023 compliance filing for rates effective April 1, 2023.
Kentucky Activities (PPL, LG&E and KU)
CPCN
On December 15, 2022, LG&E and KU filed an application with the KPSC for a CPCN for the construction of two 621 MW net summer rating NGCC combustion turbine facilities, one at LG&E's Mill Creek Generating Station in Jefferson County, Kentucky and the other at KU's E.W. Brown Generating Station in Mercer County, Kentucky, including on-site natural gas and electric transmission construction associated with those facilities and site compatibility certificates. LG&E and KU also applied for a CPCN to construct a 120 MWac solar photovoltaic electric generating facility in Mercer County, Kentucky, and for a CPCN to acquire a 120 MWac solar facility to be built by a third-party solar developer in Marion County, Kentucky. LG&E and KU further applied for a CPCN to construct a 125 MW, 4-hour battery energy storage system facility at KU's E.W. Brown Generating Station and for approval of their proposed 2024-2030 DSM programs. The plan includes adding 14 new, adjusted or expanded energy efficiency programs, which would reduce LG&E's and KU's overall need by approximately 100 MW each. Finally, LG&E and KU requested a declaratory order to confirm that their entry into non-firm energy-only power-purchase agreements for the output of four solar photovoltaic facilities with a combined capacity of 637 MW does not require KPSC approval and that LG&E and KU may recover the costs of the solar PPAs through their fuel adjustment clause mechanisms as previously approved for a prior solar PPA. LG&E and KU plan to accrue AFUDC on the constructed NGCC facilities, the solar facility in Mercer County, Kentucky and the battery energy storage system facility and have requested regulatory asset treatment to recover the financing costs of these projects.
The new NGCC facilities would be jointly owned by LG&E (31%) and KU (69%) and the solar units would be jointly owned by LG&E (37%) and KU (63%), the battery storage unit would be owned by LG&E, and the proposed PPA transactions and DSM programs would be entered into or conducted jointly by LG&E and KU, consistent with LG&E and KU's shared dispatch, cost allocation, tariff or other frameworks.
The filing also notes planned retirement dates for certain existing coal-fired generation units, including Mill Creek 1 (300 MW) in 2024 and E.W. Brown 3 (412 MW) in 2028, and updates and advances the planned retirement dates for Mill Creek 2 (297 MW) to 2027 and Ghent 2 (486 MW) to 2028. LG&E and KU anticipate the recovery of associated retirement costs, including the remaining net book value, for these coal-fired generating units through the RAR or other rate mechanisms.
The KPSC accepted the filing as of January 6, 2023 and has indicated its intention to issue an order on all issues by November 6, 2023. PPL, LG&E and KU cannot predict the outcome of these matters.
Kentucky Law on Retirement of Fossil-Fueled Generation
On March 24, 2023, the Kentucky General Assembly enacted legislation requiring Kentucky public utilities to apply for and receive KPSC approval prior to retiring fossil-fuel electric generating units. The law establishes a rebuttable presumption against retirement and certain regulatory standards for approval of such retirements or recovery of related costs, including relating to matters of reliability and resiliency, avoidable incremental ratepayer costs, and absence of federal incentives. The law provides for a 30-day prior notice and an approximate 180-day approval process for such regulatory applications and approvals. On April 10, 2023, LG&E and KU filed their notice of intent to make such a filing and anticipate submitting an application in May 2023 in connection with relevant proposed retirements of certain existing coal-fired generation units contemplated in LG&E's and KU's December 2022 CPCN application. PPL, LG&E and KU do not expect the new law to impact the timing of a KPSC decision on the CPCN filing as discussed above. PPL, LG&E and KU cannot predict the ultimate outcome of any such proceedings. PPL, LG&E and KU continue to assess the new law, but do not currently anticipate that it will have a material effect on their operations or financial condition.
Kentucky March 2023 Storm
On March 3, 2023, LG&E and KU experienced significant windstorm activity in their service territories, resulting in substantial damage to certain of LG&E's and KU's assets with total costs incurred through March 31, 2023 of $72 million ($31 million at LG&E and $41 million at KU). On March 17, 2023, LG&E and KU submitted a filing with the KPSC requesting regulatory asset treatment of the extraordinary operations and maintenance expenses portion of the costs incurred related to the windstorm. On April 5, 2023, the KPSC issued an order approving the request for accounting purposes, noting that approval for recovery would be determined in LG&E’s and KU’s next base rate cases. As of March 31, 2023, LG&E and KU recorded regulatory assets related to the storm of $8 million and $11 million.
Pennsylvania Activities (PPL and PPL Electric)
PAPUC investigation into billing issues
On January 31, 2023, the PAPUC initiated an investigation focused on billing issues related to estimated, irregular bills and customer service concerns following customer complaints, which for many customers were driven by increased prices for electricity supply. Certain bills issued during the time period of December 20, 2022 through January 25, 2023 were estimated due to a technical issue that prevented PPL Electric from providing actual collected meter data to customer facing and other internal systems. Customers also reported difficulties accessing PPL Electric's website and contacting the customer service call center. The PAPUC’s Bureau of Investigation & Enforcement has directed PPL Electric to respond to certain inquiries and document requests. PPL Electric has submitted and will continue to submit its responses to the information request and cooperate fully with the investigation. PPL Electric cannot predict the outcome of this matter.
Federal Matters
FERC Transmission Rate Filing (PPL, 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. In 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, which was subsequently filed, modified, and approved by the FERC in 2020 and 2021. In 2020, LG&E and KU and other parties filed appeals with the D.C. Circuit Court of Appeals regarding the FERC's orders on the elimination of the mitigation and required transition mechanism. On August 4, 2022, the D.C. Circuit Court of Appeals issued an order remanding the proceedings back to the FERC. LG&E and KU cannot predict the outcome of the proceedings at the FERC on remand. LG&E and KU currently receive recovery of the waivers and credits provided through other rate mechanisms and such rate recovery would be anticipated to be adjusted consistent with potential changes or terminations of the waivers and credits, as such become effective.
Recovery of Transmission Costs (PPL)
Until December 2022, RIE's transmission facilities were operated in combination with the transmission facilities of National Grid's New England affiliates, Massachusetts Electric Company (MECO) and New England Power (NEP), as a single integrated system with NEP designated as the combined operator. As of January 1, 2023, RIE operates its own transmission facilities. NE-ISO allocates RIE's costs among transmission customers in New England, in accordance with the ISO Open Access Transmission Tariff (ISO-NE OATT). According to the FERC orders, RIE is compensated for its actual monthly transmission costs, with its authorized maximum ROE of 11.74% on its transmission assets.
The ROE for transmission rates under the ISO-NE OATT is the subject of four complaints that are pending before the FERC. On October 16, 2014, the FERC issued an order on the first complaint, Opinion No. 531-A, resetting the base ROE applicable to transmission assets under the ISO-NE OATT from 11.14% to 10.57% effective as of October 16, 2014 and establishing a maximum ROE of 11.74%. On April 14, 2017, this order was vacated and remanded by the D. C. Circuit Court of Appeals
(Court of Appeals). After the remand, the FERC issued an order on October 16, 2018 applicable to all four pending cases where it proposed a new base ROE methodology that, with subsequent input and support from the New England Transmission Owners (NETO), yielded a base ROE of 10.41%. Subsequent to the FERC's October 2018 order in the New England Transmission Owners cases, the FERC further refined its ROE methodology in another proceeding and has applied that refined methodology to transmission owners’ ROEs in other jurisdictions, and the NETOs filed further information in the New England matters to distinguishing their case. Those determinations in other jurisdictions are currently on appeal before the Court of Appeals. The proceeding and the final base rate ROE determination in the New England matters remain open, pending a final order from the FERC. PPL cannot predict the outcome of this matter, and an estimate of the impact cannot be determined.
Other
Purchase of Receivables Program
(PPL and PPL Electric)
In accordance with a PAPUC-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 the three months ended March 31, 2023 and 2022, PPL Electric purchased $358 million and $348 million of accounts receivable from alternative suppliers.
(PPL)
In 2021 and 2022, the RIPUC approved various components of a Purchase of Receivables Program (POR) in Rhode Island for effect on April 1, 2022. Municipal aggregators and non-regulated power producers (collectively, Competitive Suppliers) are eligible to participate in accordance with RIE's approved electric tariffs for municipal aggregation and non-regulated power producers. Under the POR program, RIE will purchase the Competitive Suppliers' accounts receivables, including existing receivables, at discounted rates, regardless of whether RIE has collected the owed monies from customers. The program is intended to make RIE whole through the implementation of a discount rate or Standard Complete Bill Percentage (SCBP) paid by Competitive Suppliers. RIE calculates the SCBP for each customer class and file the calculations with the RIPUC for review and approval by February 15 of each year. At an Open Meeting on March 29, 2023, the RIPUC approved the SCBP for effect beginning on April 1, 2023, for a one-year period.
7. Financing Activities
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, LG&E and KU are attributable to PPL. The amounts listed in the borrowed column below are recorded as "Short-term debt" on the Balance Sheets except for borrowings under PPL Electric's term loan agreement due March 2024 and borrowings under LG&E's and KU's term loan agreements due July 2024, which are reflected in "Long-term debt" at December 31, 2022. The following credit facilities were in place at:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2023 | | December 31, 2022 |
| | Expiration
Date | | Capacity | | Borrowed | | Letters of
Credit
and
Commercial
Paper
Issued (d) | | Unused
Capacity | | Borrowed | | Letters of
Credit
and
Commercial
Paper
Issued (d) |
| PPL | | | | | | | | | | | | | |
| PPL Capital Funding (a) | | | | | | | | | | | | | |
| Syndicated Credit Facility (b) | Dec. 2027 | | $ | 1,250 | | | $ | — | | | $ | — | | | $ | 1,250 | | | $ | — | | | $ | 561 | |
| | | | | | | | | | | | | |
| Bilateral Credit Facility | Mar. 2024 | | 100 | | | — | | | — | | | 100 | | | — | | | — | |
| Bilateral Credit Facility (c) | Mar. 2024 | | 100 | | | — | | | 58 | | | 42 | | | — | | | 58 | |
| Total PPL Capital Funding Credit Facilities | | | $ | 1,450 | | | $ | — | | | $ | 58 | | | $ | 1,392 | | | $ | — | | | $ | 619 | |
| | | | | | | | | | | | | |
| PPL Electric | | | | | | | | | | | | | |
| Syndicated Credit Facility | Dec. 2027 | | $ | 650 | | | $ | — | | | $ | 1 | | | $ | 649 | | | $ | — | | | $ | 146 | |
| Term Loan Credit Facility | Mar. 2024 | | — | | | — | | | — | | | — | | | 250 | | | — | |
| Total PPL Electric Credit Facilities | | | $ | 650 | | | $ | — | | | $ | 1 | | | $ | 649 | | | $ | 250 | | | $ | 146 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| LG&E | | | | | | | | | | | | | |
| Syndicated Credit Facility | Dec. 2027 | | $ | 500 | | | $ | — | | | $ | — | | | $ | 500 | | | $ | — | | | $ | 180 | |
| Term Loan Credit Facility | Jul. 2024 | | — | | | — | | | — | | | — | | | 300 | | | — | |
| Total LG&E Credit Facilities | | | $ | 500 | | | $ | — | | | $ | — | | | $ | 500 | | | $ | 300 | | | $ | 180 | |
| | | | | | | | | | | | | |
| KU | | | | | | | | | | | | | |
| Syndicated Credit Facility | Dec. 2027 | | $ | 400 | | | $ | — | | | $ | — | | | $ | 400 | | | $ | — | | | $ | 101 | |
| Term Loan Credit Facility | Jul. 2024 | | — | | | — | | | — | | | — | | | 300 | | | — | |
| Total KU Credit Facilities | | | $ | 400 | | | $ | — | | | $ | — | | | $ | 400 | | | $ | 300 | | | $ | 101 | |
(a)PPL Capital Funding's obligations are fully and unconditionally guaranteed by PPL.
(b)Includes a $250 million borrowing sublimit for RIE and a $1 billion sublimit for PPL Capital Funding.
(c)Includes a $45 million letter of credit on behalf of RIE.
(d)Commercial paper issued reflects the undiscounted face value of the issuance.
(PPL)
In March 2023, RIE was added as an authorized borrower under the PPL Capital Funding syndicated credit facility. At March 31, 2023, RIE’s borrowing limit under the facility was set at $250 million and PPL Capital Funding's borrowing limit was set at $1.0 billion. At March 31, 2023, neither PPL Capital Funding nor RIE had any borrowings outstanding under the facility.
(PPL and PPL Electric)
In March 2023, PPL Electric repaid its $250 million term loan expiring in March 2024 and terminated the facility.
(PPL and LG&E)
In March 2023, LG&E repaid its $300 million term loan expiring in July 2024 and terminated the facility.
(PPL and KU)
In March 2023, KU repaid its $300 million term loan expiring in July 2024 and terminated the facility.
(All Registrants)
PPL Capital Funding, 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:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2023 | | December 31, 2022 |
| Weighted -
Average
Interest Rate | | Capacity | | Commercial
Paper
Issuances (b) | | Unused
Capacity | | Weighted -
Average
Interest Rate | | Commercial
Paper
Issuances (b) |
| PPL Capital Funding (a) | | | $ | 1,350 | | | $ | — | | | $ | 1,350 | | | 4.84% | | $ | 561 | |
PPL Electric | | | 650 | | | — | | | 650 | | | 4.74% | | 145 | |
| LG&E | | | 500 | | | — | | | 500 | | | 4.94% | | 180 | |
| KU | | | 400 | | | — | | | 400 | | | 4.90% | | 101 | |
| Total | | | $ | 2,900 | | | $ | — | | | $ | 2,900 | | | | | $ | 987 | |
(a)PPL Capital Funding's obligations are fully and unconditionally guaranteed by PPL.
(b)Commercial paper issued reflects the undiscounted face value of the issuance.
(PPL Electric, LG&E, and KU)
See Note 11 for discussion of intercompany borrowings.
Long-term Debt
(PPL)
In February 2023, PPL Capital Funding issued $1.0 billion of 2.875% Exchangeable Senior Notes due 2028 (the Notes). PPL Capital Funding received proceeds of $980 million, net of underwriting fees, which were used to repay short-term debt and for general corporate purposes. The Notes are senior unsecured notes, fully guaranteed by PPL. The Notes are scheduled to mature on March 15, 2028, unless earlier exchanged, redeemed or repurchased.
The Notes are exchangeable at an initial exchange rate of 29.3432 shares of PPL's common stock per $1,000 principal amount (equivalent to an initial exchange price of approximately $34.08 per share of common stock). The initial exchange rate is subject to adjustment, as provided in the indenture for anti-dilutive events and fundamental change and redemption provisions. Upon exchange of the Notes, PPL Capital Funding will redeem the aggregate principal amount of the Notes in cash. PPL Capital Funding will pay cash, deliver shares of common stock or a combination of cash and shares of common stock, at PPL Capital Funding's election, in respect of the remainder, if any, of its exchange obligation in excess of the aggregate principal amount of the Notes being exchanged. Prior to December 15, 2027, the Notes will be exchangeable at the option of the noteholders only upon the satisfaction of specified conditions and during certain periods described in the indenture pursuant to which the Notes were issued. On or after December 15, 2027 until the maturity date, the Notes will be exchangeable at the option of the noteholders at any time regardless of these conditions or periods.
PPL Capital Funding may redeem all or any portion of the Notes, at its option, on or after March 20, 2026, if the last reported sale price of the common stock has been at least 130% of the exchange price then in effect for at least 20 trading days (whether or not consecutive), during any 30 consecutive trading day period, at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus any accrued and unpaid interest. No sinking fund is provided for the Notes.
Subject to certain conditions, holders of the Notes will have the right to require PPL Capital Funding to repurchase all or a portion of their Notes upon the occurrence of a fundamental change, as defined in the indenture pursuant to which the Notes were issued at a repurchase price of 100% of their principal amount plus any accrued and unpaid interest. In connection with certain corporate events or if PPL Capital Funding calls any Notes for redemption, PPL Capital Funding will, under certain circumstances, increase the exchange rate for noteholders who elect to exchange their Notes in connection with any such corporate event or exchange their Notes called for redemption.
(PPL and PPL Electric)
In March 2023, PPL Electric issued $600 million of 5.00% First Mortgage Bonds due 2033 and $750 million of 5.25% First Mortgage Bonds due 2053. PPL Electric received proceeds of $1.32 billion, net of discounts and underwriting fees, which were used to repay debt, including PPL Electric's $250 million term loan, and for other general corporate purposes.
In March 2023, PPL Electric redeemed all of the outstanding $650 million aggregate principal amount of its First Mortgage Bonds, Floating Rate Series due 2024.
In March 2023, PPL Electric redeemed all of the outstanding $250 million aggregate principal amount of its First Mortgage Bonds, Floating Rate Series due 2023.
(PPL and LG&E)
In March 2023, LG&E issued $400 million of 5.45% First Mortgage Bonds due 2033. LG&E received proceeds of $396 million, net of discounts and underwriting fees, which were used to repay LG&E's $300 million term loan and for other general corporate purposes.
(PPL and KU)
In March 2023, KU issued $400 million of 5.45% First Mortgage Bonds due 2033. KU received proceeds of $396 million, net of discounts and underwriting fees, which were used to repay KU's $300 million term loan and for general corporate purposes.
Dividends (PPL)
In February 2023, PPL declared a quarterly cash dividend on its common stock, payable April 3, 2023, of 24.0 cents per share (equivalent to 96.0 cents per annum).
8. Acquisitions, Development and Divestitures
(PPL)
Acquisitions
Acquisition of Narragansett Electric
On May 25, 2022, PPL Rhode Island Holdings acquired 100% of the outstanding shares of common stock of Narragansett Electric from National Grid USA, a subsidiary of National Grid plc (the Acquisition) for approximately $3.8 billion. Following the closing of the Acquisition, Narragansett Electric provides services doing business under the name Rhode Island Energy (RIE).
In connection with the Acquisition, National Grid USA Service Company, Inc., National Grid USA and Narragansett Electric have entered into a transition services agreement (TSA), pursuant to which National Grid has agreed to provide certain transition services to Narragansett Electric to facilitate the transition of the operation of Narragansett Electric to PPL following the Acquisition, as agreed upon in the Narragansett share purchase agreement. The TSA is for an initial two-year term and is subject to extension as necessary to complete the successful transition. TSA costs of $58 million were incurred during the three months ended March 31, 2023.
Commitments to the Rhode Island Division of Public Utilities and Carriers and the Attorney General of the State of Rhode Island
As a condition to the Acquisition, PPL made certain commitments to the Rhode Island Division of Public Utilities and Carriers and the Attorney General of the State of Rhode Island. See Note 9 in PPL's 2022 Form 10-K for a complete listing of those commitments. PPL incurred the following expenses related to some of the remaining commitments for the three months ended March 31, 2023:
•RIE will forgo potential recovery of any and all transition costs which includes (1) the installation of certain information technology systems; (2) modification and enhancements to physical facilities in Rhode Island; and (3)
incurring costs related to severance payments, communications and branding changes, and other transition related costs. These costs, which are being expensed as incurred, were $54 million for the three months ended March 31, 2023.
•RIE will not seek to recover in rates any markup charged by National Grid USA and/or its affiliates under the TSA which were $2 million for the three months ended March 31, 2023.
Divestitures
Sale of Safari Holdings
On September 29, 2022, PPL signed a definitive agreement to sell all of Safari Holdings membership interests to Aspen Power Services, LLC (Aspen Power). On November 1, 2022, PPL completed the sale of Safari Holdings (the Transaction).
The accounting for the closing of the Transaction was substantially completed in the fourth quarter of 2022. Final closing adjustments were completed in the first quarter of 2023, resulting in an increase to the loss on sale of $6 million ($4 million net of tax), which was recorded in "Other operation and maintenance" on the Statements of Income for the quarter ended March 31, 2023.
In connection with the closing of the Transaction, PPL provided certain guarantees and other assurances. See Note 10 to the Financial Statements for additional information.
9. Defined Benefits
(PPL)
Certain net periodic defined benefit costs are applied to accounts that are further distributed among capital, expense, regulatory assets and regulatory liabilities, including certain costs allocated to applicable subsidiaries for plans sponsored by PPL Services and LKE. Following are the net periodic defined benefit costs (credits) of the plans sponsored by PPL and its subsidiaries for the periods ended March 31:
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| | | | Three Months |
| | | | | | 2023 | | 2022 |
| PPL | | | | | | | |
| Service cost | | | | | $ | 9 | | | $ | 12 | |
| Interest cost | | | | | 46 | | | 32 | |
| Expected return on plan assets | | | | | (78) | | | (64) | |
| Amortization of: | | | | | | | |
| Prior service cost | | | | | 2 | | | 2 | |
| Actuarial loss | | | | | — | | | 12 | |
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| Net periodic defined benefit costs (credits) | | | | | $ | (21) | | | $ | (6) | |
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| | | | Three Months |
| | | | | | 2023 | | 2022 |
| PPL | | | | | | | |
| Service cost | | | | | $ | 2 | | | $ | 1 | |
| Interest cost | | | | | 7 | | | 4 | |
| Expected return on plan assets | | | | | (8) | | | (6) | |
| Amortization of: | | | | | | | |
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| Actuarial loss | | | | | (1) | | | — | |
| Net periodic defined benefit costs (credits) | | | | | $ | — | | | $ | (1) | |
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(All Registrants)
The non-service cost components of net periodic defined benefit costs (credits) (interest cost, expected return on plan assets, amortization of prior service cost and amortization of actuarial gain and loss) are presented in "Other Income (Expense) - net" on the Statements of Income. See Note 12 for additional information.
10. Commitments and Contingencies
Long-term Contracts for Renewable Energy (PPL)
In July 2022, Rhode Island passed an amendment to the Affordable Clean Energy Security Act (ACES) that requires RIE to issue a request for proposals (RFP) for at least 600 MW but no greater than 1,000 MW of newly developed offshore wind capacity no later than October 15, 2022. The RFP was issued on October 14, 2022, following a public comment period, and subsequently revised on November 7, 2022. On March 17, 2023, RIE announced that it will evaluate a joint proposal from Orsted and Eversource to develop 884 MW of offshore wind, which was the sole response to RIE’s RFP. RIE must negotiate in good faith to achieve a commercially reasonable contract and must file such contract with the RIPUC for approval no later than March 15, 2024, unless RIE can show that the bids are unlikely to lead to a contract that meets all the statutory requirements.
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
Background (PPL)
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 and Talen Energy Marketing, LLC also became a subsidiary of Talen Energy. Talen Energy has owned and operated both Talen Montana and Talen Energy Marketing, LLC 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.
In October 2018, Talen Montana Retirement Plan and Talen Energy Marketing, LLC filed a putative class action complaint on behalf of current and contingent creditors of Talen Montana (the Montana Action) who allegedly suffered harm or allegedly will suffer reasonably foreseeable harm as a result of, among other things, the November 2014 allegedly fraudulent transfer of proceeds from the sale of then-PPL Montana's hydroelectric generating facilities.
In November 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 (the Delaware Action), in response to the Montana Action and as part of the defense strategy.
Talen Energy Supply, LLC et al. and Talen Montana LLC v. PPL Corp., PPL Capital Funding, Inc., PPL Electric Utilities Corp., and PPL Energy Funding (PPL and PPL Electric)
On May 9, 2022, Talen Energy Supply, LLC and 71 affiliates, including Talen Montana, LLC, filed petitions for protection under Chapter 11 of the Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of Texas (Texas Bankruptcy Court).
On May 10, 2022, Talen Montana, LLC, as debtor-in-possession, filed a complaint initiating an adversary proceeding (Adversary Proceeding) in the Texas Bankruptcy Court against PPL Corporation, PPL Capital Funding, Inc., PPL Electric Utilities Corporation, and PPL Energy Funding Corporation. Similar to the litigation in Montana, the Adversary Proceeding seeks the recovery of an allegedly fraudulent transfer relating to PPL Montana’s November 2014 sale of hydroelectric assets to Northwestern and subsequent distribution of certain proceeds of that sale of approximately $900 million, reiterating claims that the parties had already been litigating in Montana and Delaware.
Both the Montana Action and the Delaware Action have now been transferred to and consolidated in the Texas Bankruptcy Court. PPL has filed its Answer and asserted a Counterclaim against the Talen and Riverstone entities, similar to the claims previously asserted in the Delaware Action, and has filed a motion for partial summary judgment that was heard on October 31, 2022. Mediation occurred on February 22, 2023 before Judge David R. Jones of the Texas Bankruptcy Court. The parties did not settle the case, and mediation was discontinued. The motion for partial summary judgment is still pending.
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 Adversary Proceeding and intends to vigorously defend against this action. At this time, PPL cannot predict the outcome of the Adversary Proceeding or estimate the range of possible losses, if any, that PPL might incur as a result of the claims, although they could be material.
Narragansett Electric Litigation (PPL)
Energy Efficiency Programs Investigation
Narragansett Electric, while under the ownership of National Grid, performed an internal investigation into conduct associated with its energy efficiency programs. Any adjustments that may be a result of the internal investigation remain subject to review and approval by the RIPUC. At this time, it is not possible to predict the final outcome or determine the total amount of any additional liabilities that may be incurred in connection with it by Narragansett Electric. This review by the RIPUC may be impacted by other investigations that are ongoing related to National Grid. Narragansett Electric does not expect this matter will have a material adverse effect on its results of operations, financial position or cash flows.
On June 27, 2022, the RIPUC opened a new docket (RIPUC Docket 22-05-EE) to investigate RIE’s actions and the actions of its National Grid employees during the time RIE was a National Grid USA affiliate being provided services by National Grid USA Service Company, Inc. relating to the manipulation of the reporting of invoices affecting the calculation of past energy efficiency shareholder incentives and the resulting impact on customers. The Rhode Island Attorney General and National Grid USA intervened in the docket. On January 19, 2023, the Rhode Island Division of Public Utilities and Carriers (the Division) filed a motion to dismiss the docket without prejudice. As grounds for its motion, the Division stated that sufficient evidence exists in the docket to warrant an independent summary investigation by the Division, to include an audit of RIE, pursuant to Rhode Island General Laws Section 39-4-13. If the Division finds sufficient grounds, the Division may proceed to a formal hearing regarding the matters under investigation pursuant to Rhode Island General Laws Sections 39-4-14 and 39-4-15. Upon the conclusion of its investigation, the Division will provide the RIPUC with a report outlining the Division’s findings and final decision. On January 30, 2023, the Rhode Island Attorney General filed an objection to the Division’s motion to dismiss; RIE and National Grid each filed responses with the RIPUC requesting that any additional action taken by the RIPUC or the Division be considered after National Grid completes its internal investigation report, which National Grid filed with the RIPUC on March 10, 2023. The RIPUC held a hearing on March 28, 2023 to hear oral arguments regarding the Division’s motion to dismiss and subsequently denied the motion.
E.W. Brown Environmental Assessment (PPL and KU)
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 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. On May 31, 2021, the KEEC approved the report and released a response to public comments. On August 6, 2021, KU submitted a Supplemental Remedial Alternatives Analysis report to the KEEC that outlines proposed additional fish, water, and sediment testing. On February 18, 2022, the KEEC provided approval to KU to proceed with the proposed sampling, which commenced in the spring of 2022. On November 17, 2022, KU submitted a Supplemental Performance Monitoring Report to the KEEC finding that there are no significant unaddressed risks to human health or the environment at the plant.
Water/Waste (PPL, 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 "zero 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 rule to postpone the compliance date for certain requirements. In October 2020, the EPA published final revisions to its best available technology standards for certain wastewaters and potential extensions to compliance dates (the Reconsideration Rule). In March 2023, the EPA released a proposed rule that would modify the 2020 ELG revisions. The proposed rule would increase the stringency of previous control technology and zero discharge requirements, revise certain exemptions for generating units planned for retirement, and require case-by-case limitations for legacy wastewaters based on the best professional judgment of the state regulators. Compliance with the Reconsideration Rule is required during the pendency of the rulemaking process. The proposed rule is currently under evaluation, but could potentially result in significant operational changes and additional controls for LG&E and KU plants. The ELGs are expected to be implemented by the states or applicable permitting authorities in the course of their normal permitting activities. LG&E and KU are currently implementing responsive compliance strategies and schedules. 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. Certain costs are included in the Registrants' capital plans and expected to be recovered from customers through rate recovery mechanisms, but additional costs and recovery will depend on further regulatory developments at the state level.
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. 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 certain deficiencies identified by the court and proposed amendments to change the closure deadline. In August 2020, the EPA published a final rule extending the deadline to initiate closure to April 11, 2021, while providing for certain extensions. The EPA is conducting ongoing rulemaking actions regarding various other amendments to the rule including potentially making the rule applicable to certain inactive impoundments and landfills not currently subject to the rule. Certain ongoing legal challenges to various provisions of the CCR Rule have been held in abeyance pending review by the EPA pursuant to the President's executive order. PPL, LG&E, and KU are monitoring the EPA’s ongoing efforts to refine and implement the regulatory program under the CCR Rule. In January 2022, the EPA issued several proposed regulatory determinations, facility notifications, and public announcements which indicate increased scrutiny by the EPA to determine the adequacy of measures taken by facility owners and operators to achieve closure of CCR surface impoundments and landfills. In particular, the agency indicated that it will focus on certain practices which it views as posing a threat of continuing groundwater contamination. Future guidance, regulatory determinations, rulemakings, and other developments could potentially require revisions to current LG&E and KU compliance plans including additional monitoring and remediation at surface impoundments and landfills, the cost of which could be substantial. PPL, LG&E and KU are unable to predict the outcome of the ongoing litigation, rulemaking, and regulatory determinations 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 as a result of the judicial ruling. 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. LG&E and KU have completed planned closure measures at most of the subject impoundments and have commenced post closure groundwater monitoring as required at those facilities. LG&E and KU generally expect to complete all 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 15 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 expected to be subject to rate recovery.
Superfund and Other Remediation
(All Registrants)
The Registrants 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, Rhode Island and Kentucky previously owned or operated by, or currently owned by predecessors or affiliates of, PPL subsidiaries.
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, 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 currently 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. The Registrants cannot reasonably estimate a range of possible losses, if any, related to these matters.
(PPL and PPL Electric)
PPL Electric is a potentially responsible party 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 these sites as requested by governmental agencies, the costs of which have not been and are not expected to be significant to PPL Electric.
As of March 31, 2023 and December 31, 2022, PPL Electric had a recorded liability of $11 million, representing its best estimate of the probable loss incurred to remediate the sites identified above.
(PPL)
RIE is a potentially responsible party for a share of clean-up costs at certain sites including former manufactured gas plant (MGP) facilities formerly owned by the Blackstone Valley Gas and Electric Company and the Rhode Island gas distribution assets of the New England Gas division of Southern Union Company and electric operations at certain RIE facilities. RIE is currently investigating and remediating, as necessary, those MGP sites and certain other properties under agreements with governmental agencies, the costs of which have not been and are not expected to be significant to PPL.
As of March 31, 2023 and December 31, 2022, PPL had a recorded liability of $100 million, representing its best estimate of the remaining costs of RIE's environmental remediation activities. These undiscounted costs are expected to be incurred over approximately 30 years and generally to be subject to rate recovery. However, remediation costs for each site may be materially higher than estimated, depending on changing technologies and regulatory standards, selected end uses for each site, and actual environmental conditions encountered. RIE has recovered amounts from certain insurers and potentially responsible parties, and, where appropriate, may seek additional recovery from other insurers and from other potentially responsible parties, but it is uncertain whether, and to what extent, such efforts will be successful.
The RIPUC has approved two settlement agreements that provide for rate recovery of qualified remediation costs of certain contaminated sites located in Rhode Island and Massachusetts. Rate-recoverable contributions for electric operations of approximately $3 million are added annually to RIE's Environmental Response Fund, established with RIPUC approval in March 2000 to address such costs, along with interest and any recoveries from insurance carriers and other third parties. In addition, RIE recovers approximately $1 million annually for gas operations under a distribution adjustment charge in which the qualified remediation costs are amortized over 10 years. See Note 6 for additional information on RIE's recorded environmental regulatory assets and liabilities.
Regulatory Issues
(All Registrants)
See Note 6 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, KU and RIE 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. The resolution of a small number of potential violations is pending. Penalties incurred to date have not been significant. Any Regional Reliability Entity 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.
Gas - Security Directives (PPL and LG&E)
In May and July of 2021, the Department of Homeland Security’s (DHS) Transportation Security Administration (TSA) released two security directives applicable to certain notified owners and operators of natural gas pipeline facilities (including local distribution companies) that the TSA has determined to be critical. The TSA has determined that LG&E is within scope of the directive, while RIE has not been notified of this distinction. The first security directive required notified owners/operators to implement cybersecurity incident reporting to the DHS, designate a cybersecurity coordinator, and perform a gap assessment of current entity cybersecurity practices against certain voluntary TSA security guidelines and report relevant results and proposed mitigation to applicable DHS agencies. The second security directive, revised in July of 2022, requires the submission of a cybersecurity implementation plan and upon approval, the development of a cybersecurity assessment program. LG&E does not believe the security directives have had or will have a significant impact on LG&E’s operations or financial condition.
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. Examples of such agreements include: 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 and loan obligations of PPL Capital Funding.
(All Registrants)
The table below details guarantees provided as of March 31, 2023. "Exposure" represents the estimated maximum potential amount of future payments that could be required to be made under the guarantee. The Registrants believe the probability of expected payment/performance under each of these guarantees is remote, except for the guarantees and indemnifications related to the sale of Safari Holdings, which PPL believes are reasonably possible but not probable of occurring. For reporting purposes, on a consolidated basis, the guarantees of PPL include the guarantees of its subsidiary Registrants.
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| Exposure at March 31, 2023 | | | Expiration
Date | |
| PPL | | | | | |
Indemnifications related to certain tax liabilities related to the sale of the U.K. utility business | £ | 50 | | (a) | | 2028 | |
| PPL guarantee of Safari payment obligations under certain sale/leaseback financing transactions related to the sale of Safari Holdings | $ | 146 | | (b) | | 2028 | |
PPL guarantee of Safari payment obligations under certain PPAs related to the sale of Safari Holdings | 55 | | (c) | | | |
| Indemnifications for losses suffered related to items not covered by Aspen Power's representation and warranty insurance associated with the sale of Safari Holdings | 140 | | (d) | | 2028 | |
| LG&E and KU | | | | | |
| LG&E and KU obligation of shortfall related to OVEC | | (e) | | | |
(a)PPL WPD Limited entered into a Tax Deed dated June 9, 2021, in which it agreed to a tax indemnity regarding certain potential tax liabilities of the entities sold with respect to periods prior to the completion of the sale, subject to customary exclusions and limitations. Because National Grid Holdings One plc, the buyer, agreed to purchase indemnity insurance, the amount of the cap on the indemnity for these liabilities is £1, except with respect to certain surrenders of tax losses, for which the amount of the cap on the indemnity is £50 million.
(b)PPL guaranteed the payment obligations of Safari under certain sale/leaseback financing transactions executed by Safari. These guarantees will remain in place until Safari exercises its option to buy-out the projects under the sale/leaseback financings by the year 2028. Safari will indemnify PPL for any payments made by PPL or claims against PPL under the sale/leaseback transaction guarantees up to $25 million. The estimated maximum exposure of this guarantee is $146 million.
(c)PPL guaranteed the payment obligations of Safari under certain PPAs executed by Safari. Aspen Power is expected to replace these guarantees and retain liability for any payments made by PPL or claims against PPL under any guarantee that is not replaced. The estimated maximum exposure of this guarantee is $55 million.
(d)Aspen Power has obtained representation and warranty insurance, therefore, PPL generally has no liability for its representations and warranties under the agreement except for losses suffered related to items not covered. Pursuant to the agreement, expiration of these indemnifications range from 18 months to 6 years from the date of the closing of the transaction, and PPL’s aggregate liability for these claims will not exceed $140 million, pursuant to the agreement, subject to certain adjustments plus the support obligations provided by PPL under sale-leaseback financings and PPAs that will be replaced by Aspen Power.
(e)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. PPL's proportionate share of OVEC's outstanding debt was $88 million at March 31, 2023, consisting of LG&E's share of $61 million and KU's share of $27 million. The maximum exposure and the expiration date of these potential obligations are not presently determinable. See "Energy Purchase Commitments" in Note 14 in PPL's, LG&E's and KU's 2022 Form 10-K for additional information on the OVEC power purchase contract.
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 generally 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.
11. Related Party Transactions
Support Costs (PPL Electric, LG&E and KU)
PPL Services and LKS provide the Registrants, their respective subsidiaries 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 uses a three-factor methodology that includes the applicable recipients' invested capital, operation and maintenance expenses and number of employees to allocate indirect costs. LKS bases its indirect allocations on the subsidiaries' number of employees, total assets, revenues, number of customers and/or other statistical information. PPL Services and LKS charged the following amounts for the periods ended March 31, including amounts applied to accounts that are further distributed between capital and expense on the books of the recipients, based on methods that are believed to be reasonable.
| | | | | | | | | | | | | | | |
| | | | Three Months |
| | | | | | 2023 | | 2022 |
PPL Electric from PPL Services | | | | | $ | 59 | | | $ | 61 | |
| LG&E from LKS | | | | | 32 | | | 39 | |
| LG&E from PPL Services | | | | | 8 | | | — | |
| KU from LKS | | | | | 41 | | | 44 | |
| KU from PPL Services | | | | | 9 | | | — | |
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 PPL and LG&E and KU are reimbursed through LKS.
Intercompany Borrowings
(PPL Electric)
CEP Reserves maintains a $500 million revolving line of credit with a PPL Electric subsidiary. At March 31, 2023 and December 31, 2022, CEP Reserves had no borrowings outstanding. 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 applicable Income Statements.
(LG&E and KU)
LG&E participates in an intercompany money pool agreement whereby LKE and/or KU make available to LG&E funds up to the difference between LG&E's FERC borrowing limit and LG&E's commercial paper issued at an interest rate based on the lower of a market index of commercial paper issues and two additional rate options based on LIBOR. At March 31, 2023, LG&E's money pool unused capacity was $750 million. At March 31, 2023 and December 31, 2022, LG&E had no borrowings outstanding from KU and/or LKE.
KU participates in an intercompany money pool agreement whereby LKE and/or LG&E make available to KU funds up to the difference between KU's FERC borrowing limit and KU's commercial paper issued at an interest rate based on the lower of a market index of commercial paper issues and two additional rate options based on LIBOR. At March 31, 2023, KU's money pool unused capacity was $641 million. At March 31, 2023, KU had borrowings outstanding from LG&E and/or LKE of $9 million. These balances are reflected in "Notes payable to affiliates" on the KU Balance Sheets. At December 31, 2022, KU had no borrowings outstanding from LG&E and/or LKE.
VEBA Funds Receivable (PPL Electric)
In 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 PPL Electric's Balance Sheets. The receivable balance decreases as PPL Electric pays incurred medical claims and is reimbursed by PPL Services. There was no intercompany receivable balance associated with these funds as of March 31, 2023, which would be reflected in "Accounts receivable from affiliates" on the PPL Electric Balance Sheets. The intercompany receivable balance associated with these funds was immaterial as of December 31, 2022.
12. Other Income (Expense) - net
(PPL)
The details of "Other Income (Expense) - net" for the periods ended March 31, were:
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | Three Months | | | | |
| | | | | 2023 | | 2022 | | | | | | | | |
| | | | | | | | | | | | | | | |
| Defined benefit plans - non-service credits (Note 9) | | | | | $ | 17 | | | $ | 10 | | | | | | | | | |
| Interest income (expense) | | | | | 9 | | | (1) | | | | | | | | | |
| AFUDC - equity component | | | | | 6 | | | 4 | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Charitable contributions | | | | | (1) | | | (1) | | | | | | | | | |
| Miscellaneous | | | | | (1) | | | (12) | | | | | | | | | |
| Other Income (Expense) - net | | | | | $ | 30 | | | $ | — | | | | | | | | | |
(PPL Electric)
The details of "Other Income (Expense) - net" for the periods ended March 31, were:
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | Three Months | | | | |
| | | | | 2023 | | 2022 | | | | | | | | |
| | | | | | | | | | | | | | | |
| Defined benefit plans - non-service credits (Note 9) | | | | | $ | 5 | | | $ | 4 | | | | | | | | | |
| Interest income (expense) | | | | | 4 | | | 1 | | | | | | | | | |
| AFUDC - equity component | | | | | 4 | | | 4 | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Charitable contributions | | | | | (1) | | | (1) | | | | | | | | | |
| Miscellaneous | | | | | — | | | (2) | | | | | | | | | |
| Other Income (Expense) - net | | | | | $ | 12 | | | $ | 6 | | | | | | | | | |
13. Fair Value Measurements
(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 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 in each Registrant's 2022 Form 10-K for information on the levels in the fair value hierarchy.
Recurring Fair Value Measurements
The assets and liabilities measured at fair value were:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2023 | | December 31, 2022 |
| | Total | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 |
| PPL | | | | | | | | | | | | | | | |
| Assets | | | | | | | | | | | | | | | |
| Cash and cash equivalents | $ | 460 | | | $ | 460 | | | $ | — | | | $ | — | | | $ | 356 | | | $ | 356 | | | $ | — | | | $ | — | |
| Restricted cash and cash equivalents (a) | 1 | | | 1 | | | — | | | — | | | 1 | | | 1 | | | — | | | — | |
| Total Cash, Cash Equivalents and Restricted Cash (b) | 461 | | | 461 | | | — | | | — | | | 357 | | | 357 | | | — | | | — | |
| Special use funds (a): | | | | | | | | | | | | | | | |
| Money market fund | 1 | | | 1 | | | — | | | — | | | 1 | | | 1 | | | — | | | — | |
| Commingled debt fund measured at NAV (c) | 12 | | | — | | | — | | | — | | | 13 | | | — | | | — | | | — | |
| Commingled equity fund measured at NAV (c) | 12 | | | — | | | — | | | — | | | 11 | | | — | | | — | | | — | |
| Total special use funds | 25 | | | 1 | | | — | | | — | | | 25 | | | 1 | | | — | | | — | |
| Price risk management assets (d): | | | | | | | | | | | | | | | |
| Gas contracts | 1 | | | — | | | 1 | | | — | | | 25 | | | — | | | 25 | | | — | |
| Total assets | $ | 487 | | | $ | 462 | | | $ | 1 | | | $ | — | | | $ | 407 | | | $ | 358 | | | $ | 25 | | | $ | — | |
| | | | | | | | | | | | | | | |
| Liabilities | | | | | | | | | | | | | | | |
| Price risk management liabilities (d): | | | | | | | | | | | | | | | |
| Interest rate swaps | $ | 8 | | | $ | — | | | $ | 8 | | | $ | — | | | $ | 7 | | | $ | — | | | $ | 7 | | | $ | — | |
| Gas contracts | 23 | | | — | | | 22 | | | 1 | | | 66 | | | — | | | 10 | | | 56 | |
| Total price risk management liabilities | $ | 31 | | | $ | — | | | $ | 30 | | | $ | 1 | | | $ | 73 | | | $ | — | | | $ | 17 | | | $ | 56 | |
| | | | | | | | | | | | | | | |
| PPL Electric | | | | | | | | | | | | | | | |
| Assets | | | | | | | | | | | | | | | |
| Cash and cash equivalents | $ | 56 | | | $ | 56 | | | $ | — | | | $ | — | | | $ | 25 | | | $ | 25 | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | |
| Total assets | $ | 56 | | | $ | 56 | | | $ | — | | | $ | — | | | $ | 25 | | | $ | 25 | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | |
| LG&E | | | | | | | | | | | | | | | |
| Assets | | | | | | | | | | | | | | | |
| Cash and cash equivalents | $ | 28 | | | $ | 28 | | | $ | — | | | $ | — | | | $ | 93 | | | $ | 93 | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | |
| Total assets | $ | 28 | | | $ | 28 | | | $ | — | | | $ | — | | | $ | 93 | | | $ | 93 | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | |
| Liabilities | | | | | | | | | | | | | | | |
| Price risk management liabilities: | | | | | | | | | | | | | | | |
| Interest rate swaps | $ | 8 | | | $ | — | | | $ | 8 | | | $ | — | | | $ | 7 | | | $ | — | | | $ | 7 | | | $ | — | |
| Total price risk management liabilities | $ | 8 | | | $ | — | | | $ | 8 | | | $ | — | | | $ | 7 | | | $ | — | | | $ | 7 | | | $ | — | |
| | | | | | | | | | | | | | | |
| KU | | | | | | | | | | | | | | | |
| Assets | | | | | | | | | | | | | | | |
| Cash and cash equivalents | $ | 9 | | | $ | 9 | | | $ | — | | | $ | — | | | $ | 21 | | | $ | 21 | | | $ | — | | | $ | — | |
| Total assets | $ | 9 | | | $ | 9 | | | $ | — | | | $ | — | | | $ | 21 | | | $ | 21 | | | $ | — | | | $ | — | |
(a)Included in "Other current assets" on the Balance Sheets.
(b)Total Cash, Cash Equivalents and Restricted Cash provides a reconciliation of these items reported within the Balance Sheets to the sum shown on the Statements of Cash Flows.
(c)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 Balance Sheets.
(d)Current portion is included in "Other current asset" and "Other current liabilities" and noncurrent portion is included in "Other noncurrent assets" and "Other deferred credits and noncurrent liabilities" on the Balance Sheets.
A reconciliation of net assets and liabilities classified as Level 3 for the year ended March 31 is as follows:
| | | | | |
| Gas Contracts |
| 2023 | |
| Balance at beginning of period | $ | 56 | |
| |
| |
| |
| Settlements | (55) | |
| Balance at end of period | $ | 1 | |
Special Use Funds (PPL)
The special use funds are investments restricted for paying active union employee medical costs. In 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. The funds are invested primarily in commingled debt and equity funds measured at NAV and are classified as investments in equity securities. Changes in the fair value of the funds are recorded to the Statements of Income.
Price Risk Management Assets/Liabilities
Interest Rate Swaps (PPL, LG&E and KU)
To manage interest rate risk, PPL, LG&E and KU use interest rate contracts such as forward-starting swaps, floating-to-fixed swaps and fixed-to-floating swaps. 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, SOFR and government security rates), 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.
Gas Contracts (PPL)
To manage gas commodity price risk associated with natural gas purchases, RIE utilizes over-the-counter (OTC) gas swaps contracts with pricing inputs obtained from the New York Mercantile Exchange (NYMEX) and the Intercontinental Exchange (ICE), except in cases where the ICE publishes seasonal averages or where there were no transactions within the last seven days. RIE may utilize discounting based on quoted interest rate curves, including consideration of non-performance risk, and may include a liquidity reserve calculated based on bid/ask spread. Substantially all of these price curves are observable in the marketplace throughout at least 95% of the remaining contractual quantity, or they could be constructed from market observable curves with correlation coefficients of 95% or higher. These contracts are classified as Level 2.
RIE also utilizes gas option and purchase and capacity transactions, which are valued based on internally developed models. Industry-standard valuation techniques, such as the Black-Scholes pricing model, are used for valuing such instruments. For valuations that include both observable and unobservable inputs, if the unobservable input is determined to be significant to the overall inputs, the entire valuation is classified as Level 3. This includes derivative instruments valued using indicative price quotations whose contract tenure extends into unobservable periods. In instances where observable data is unavailable, consideration is given to the assumptions that market participants would use in valuing the asset or liability. This includes assumptions about market risks such as liquidity, volatility, and contract duration. Such instruments are classified as in Level 3 as the model inputs generally are not observable. RIE considers non-performance risk and liquidity risk in the valuation of derivative instruments classified as Level 2 and Level 3.
The significant unobservable inputs used in the fair value measurement of the gas derivative instruments are implied volatility and gas forward curves. A relative change in commodity price at various locations underlying the open positions can result in significantly different fair value estimates.
Financial Instruments Not Recorded at Fair Value (All Registrants)
Long-term debt is classified as Level 2. The effect of third-party credit enhancements is not included in the fair value measurement. The carrying amounts of long-term debt on the Balance Sheets and their estimated fair values are set forth below.
| | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2023 | | December 31, 2022 |
| Carrying
Amount (a) | | Fair Value | | Carrying
Amount (a) | | Fair Value |
| PPL | $ | 14,585 | | | $ | 14,023 | | | $ | 13,243 | | | $ | 12,239 | |
| PPL Electric | 4,656 | | | 4,604 | | | 4,486 | | | 4,259 | |
| LG&E | 2,404 | | | 2,291 | | | 2,307 | | | 2,128 | |
| KU | 3,016 | | | 2,814 | | | 2,920 | | | 2,616 | |
(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.
14. Derivative Instruments and Hedging Activities
(All Registrants)
Risk Management Objectives
PPL has a risk management policy approved by the Board of Directors to manage market risk associated with commodities, interest rates on debt issuances (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 and interest 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 LG&E utilize over-the-counter interest rate swaps to limit exposure to market fluctuations on floating-rate debt. PPL, LG&E and KU utilize forward starting interest rate swaps to hedge changes in benchmark interest rates, when appropriate, in connection with future debt issuance.
•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 utilities due to the recovery methods in place.
Commodity Price Risk
PPL is exposed to commodity price risk through its subsidiaries as described below.
•PPL Electric is required to purchase electricity to fulfill its obligation as a PLR. Potential commodity price risk is mitigated through its PAPUC-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 costs. These mechanisms generally provide for timely recovery of market price fluctuations associated with these costs.
•RIE utilizes derivative instruments pursuant to its RIPUC-approved plan to manage commodity price risk associated with its natural gas purchases. RIE's commodity price risk management strategy is to reduce fluctuations in firm gas sales prices to its customers. RIE's costs associated with derivatives instruments are recoverable through its RIPUC-approved cost recovery mechanisms. RIE is required to purchase electricity to fulfill its obligation to provide Last Resort Service (LRS). Potential commodity price risk is mitigated through its RIPUC-approved cost recovery mechanisms and full requirements service agreements to serve LRS customers, which transfer the risk to energy suppliers. RIE is required to contract through long-term agreements for clean energy supply under the Rhode Island Renewable Energy Growth program and Long-term Clean Energy Standard. Potential commodity price risk is mitigated through its RIPUC-approved cost recovery mechanisms, which true-up cost differences between contract prices and market prices.
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:
•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.
•RIE is exposed to volumetric risk, which is significantly mitigated by regulatory mechanisms. RIE's electric and gas distribution rates both have a revenue decoupling mechanism, which allows for annual adjustments to RIE's delivery rates.
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 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, PPL Electric, LG&E or KU defaults on its contractual 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, 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 no obligation to return or post cash collateral under master netting arrangements at March 31, 2023 and December 31, 2022.
LG&E and KU had no obligation to return or post cash collateral under master netting arrangements at March 31, 2023 and December 31, 2022.
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 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 March 31, 2023.
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 the three months ended March 31, 2023 and 2022, PPL had no cash flow hedges reclassified into earnings associated with discontinued cash flow hedges.
At March 31, 2023, 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 and LG&E)
LG&E enters into interest rate swap contracts that economically hedge interest payments. 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 March 31, 2023, LG&E held contracts with a notional amount of $64 million that mature in 2033.
Commodity Price Risk (PPL)
Economic Activity
RIE enters into financial and physical derivative contracts that economically hedge natural gas purchases. Realized gains and losses from the derivatives are recoverable through regulated rates, therefore subsequent changes in fair value are included in regulatory assets or liabilities until they are realized as purchased gas. Realized gains and losses are recognized in "Energy Purchases" on the Statements of Income upon settlement of the contracts. At March 31, 2023, RIE held contracts with notional volumes of 40 Bcf that range in maturity through 2025.
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 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 and certain RIE commodity gas contracts that are recognized as regulatory assets or regulatory liabilities. See Note 6 for amounts recorded in regulatory assets and regulatory liabilities at March 31, 2023 and December 31, 2022.
See Note 1 in each Registrant's 2022 Form 10-K for additional information on accounting policies related to derivative instruments.
(PPL)
The following table presents the fair value and the location on the Balance Sheets of derivatives not designated as hedging instruments.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | March 31, 2023 | | | | | | December 31, 2022 |
| | | | | | Assets | | Liabilities | | | | | | Assets | | Liabilities |
| Current: | | | | | | | | | | | | | | | |
| Price Risk Management Assets/Liabilities: | | | | | | | | | | | | | | | |
| Interest rate swaps (a) | | | | | $ | — | | | $ | 1 | | | | | | | $ | — | | | $ | 1 | |
| Gas contracts (a) | | | | | 1 | | | 15 | | | | | | | 20 | | | 62 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Total current | | | | | 1 | | | 16 | | | | | | | 20 | | | 63 | |
| Noncurrent: | | | | | | | | | | | | | | | |
| Price Risk Management Assets/Liabilities: | | | | | | | | | | | | | | | |
| Interest rate swaps (a) | | | | | — | | | 7 | | | | | | | — | | | 6 | |
| Gas contracts (a) | | | | | — | | | 8 | | | | | | | 5 | | | 4 | |
| | | | | | | | | | | | | | | |
| Total noncurrent | | | | | — | | | 15 | | | | | | | 5 | | | 10 | |
| Total derivatives | | | | | $ | 1 | | | $ | 31 | | | | | | | $ | 25 | | | $ | 73 | |
(a)Current portion is included in "Other current assets" and "Other current liabilities" and noncurrent portion is included in "Other noncurrent assets" and "Other deferred credits and noncurrent liabilities" on the Balance Sheets. Excludes accrued interest, if applicable.
The following tables present the pre-tax effect of derivative instruments recognized in income, OCI or regulatory assets and regulatory liabilities for the period ended March 31, 2023.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Three Months | | | | | | Three Months |
Derivative
Relationships | | | | Derivative Gain
(Loss) Recognized in
OCI | | Location of
Gain (Loss)
Recognized
in Income
on Derivative | | | | Gain (Loss)
Reclassified
from AOCI
into
Income |
| Cash Flow Hedges: | | | | | | | | | | |
| Interest rate swaps | | | | $ | — | | | Interest expense | | | | $ | (1) | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| Total | | | | $ | — | | | | | | | $ | (1) | |
| | | | | | | | | | | | | | | | |
Derivatives Not Designated as
Hedging Instruments | | Location of Gain (Loss) Recognized in
Income on Derivative | | | | Three Months |
| | | | | | |
| Interest rate swaps | | Interest expense | | | | $ | — | |
| Gas contracts | | Energy purchases | | | | (2) | |
| | Other income(expense) -net | | | | 1 | |
| | Total | | | | $ | (1) | |
| | | | | | |
| | | | | | |
Derivatives Not Designated as
Hedging Instruments | | Location of Gain (Loss) Recognized as
Regulatory Liabilities/Assets | | | | Three Months |
| Interest rate swaps | | Regulatory assets - noncurrent | | | | $ | (1) | |
| Gas contracts | | Regulatory assets - current | | | | 28 | |
| | Regulatory assets - noncurrent | | | | (7) | |
| | Total | | | | $ | 20 | |
The following tables present the pre-tax effect of derivative instruments recognized in income, OCI or regulatory assets and regulatory liabilities for the period ended March 31, 2022.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Three Months | | | | | | Three Months |
Derivative
Relationships | | | | Derivative Gain
(Loss) Recognized in
OCI | | Location of
Gain (Loss)
Recognized
in Income
on Derivative | | | | Gain (Loss)
Reclassified
from AOCI
into Income |
| Cash Flow Hedges: | | | | | | | | | | |
| Interest rate swaps | | | | $ | — | | | Interest expense | | | | $ | (1) | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Derivatives Not Designated as
Hedging Instruments | | Location of Gain (Loss) Recognized in
Income on Derivative | | | | Three Months |
| Interest rate swaps | | Interest expense | | | | $ | 1 | |
Derivatives Not Designated as
Hedging Instruments | | Location of Gain (Loss) Recognized as
Regulatory Liabilities/Assets | | | | Three Months |
| Interest rate swaps | | Regulatory assets - noncurrent | | | | $ | 4 | |
| | | | | | |
| | | | | | |
| | | | | | |
The following table presents the effect of cash flow hedge activity on the Statement of Income for the period ended March 31, 2023.
| | | | | | | | | | | | | | | | | | |
| | | | | Location and Amount of Gain (Loss) Recognized in Income on Hedging Relationships | |
| | | Three Months | |
| | | | | 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 | | | | | $ | 164 | | | | | $ | 30 | | |
| 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 | | | | | (1) | | | | | — | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
The following table presents the effect of cash flow hedge activity on the Statement of Income for the period ended March 31, 2022.
| | | | | | | | | | | | | | | | | | |
| | | | | Location and Amount of Gain (Loss) Recognized in Income on Hedging Relationships | |
| | | Three Months | |
| | | | | Interest Expense | | | | Income (Loss) from Discontinued Operations (net of taxes) | |
| Total income and expense line items presented in the income statement in which the effect of cash flow hedges are recorded | | | | | $ | 107 | | | | | $ | — | | |
| 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 | | | | | (1) | | | | | — | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
(LG&E)
The following table presents the fair value and the location on the Balance Sheets of derivatives not designated as hedging instruments.
| | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2023 | | December 31, 2022 |
| | Assets | | Liabilities | | Assets | | Liabilities |
| Current: | | | | | | | |
| Price Risk Management Assets/Liabilities: | | | | | | | |
| Interest rate swaps | $ | — | | | $ | 1 | | | $ | — | | | $ | 1 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Total current | — | | | 1 | | | — | | | 1 | |
| Noncurrent: | | | | | | | |
| Price Risk Management Assets/Liabilities: | | | | | | | |
| Interest rate swaps | — | | | 7 | | | — | | | 6 | |
| Total noncurrent | — | | | 7 | | | — | | | 6 | |
| Total derivatives | $ | — | | | $ | 8 | | | $ | — | | | $ | 7 | |
The following tables present the pre-tax effect of derivatives not designated as cash flow hedges that are recognized in income or regulatory assets for the period ended March 31, 2023.
| | | | | | | | | | | | | | | | |
| | | Location of Gain (Loss) Recognized in | | | | |
| Derivative Instruments | | Income on Derivatives | | | | Three Months |
| Interest rate swaps | | Interest expense | | | | $ | — | |
| | | Location of Gain (Loss) Recognized in | | | | |
| Derivative Instruments | | Regulatory Assets | | | | Three Months |
| Interest rate swaps | | Regulatory assets - noncurrent | | | | $ | (1) | |
The following tables present the pre-tax effect of derivatives not designated as cash flow hedges that are recognized in income or regulatory assets for the period ended March 31, 2022.
| | | | | | | | | | | | | | | | |
| | | Location of Gain (Loss) Recognized in | | | | |
| Derivative Instruments | | Income on Derivatives | | | | Three Months |
| Interest rate swaps | | Interest expense | | | | $ | 1 | |
| | | Location of Gain (Loss) Recognized in | | | | |
| Derivative Instruments | | Regulatory Assets | | | | Three Months |
| Interest rate swaps | | Regulatory assets - noncurrent | | | | $ | 4 | |
(PPL, LG&E and KU)
Offsetting Derivative Instruments
PPL, 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, 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 |
| March 31, 2023 | | | | | | | | | | | | | | | |
| Derivatives | | | | | | | | | | | | | | | |
PPL | $ | 1 | | | $ | 1 | | | $ | — | | | $ | — | | | $ | 31 | | | $ | 1 | | | $ | — | | | $ | 30 | |
| LG&E | — | | | — | | | — | | | — | | | 8 | | | — | | | — | | | 8 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Assets | | Liabilities |
| | | | Eligible for Offset | | | | | | Eligible for Offset | | |
| Gross | | Derivative
Instruments | | Cash
Collateral
Received | | Net | | Gross | | Derivative
Instruments | | Cash
Collateral
Pledged | | Net |
| December 31, 2022 | | | | | | | | | | | | | | | |
| Derivatives | | | | | | | | | | | | | | | |
| PPL | $ | 25 | | | $ | 20 | | | $ | — | | | $ | 5 | | | $ | 73 | | | $ | 62 | | | $ | — | | | $ | 11 | |
| LG&E | — | | | — | | | — | | | — | | | 7 | | | — | | | — | | | 7 | |
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, 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, 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 would represent assumed immediate payment or immediate and ongoing full collateralization for derivative instruments in net liability positions with "adequate assurance" features.
(PPL)
At March 31, 2023, 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 was $19 million. The aggregate fair value of additional collateral requirements in the event of a credit downgrade below investment grade was $20 million.
15. Asset Retirement Obligations
(PPL, LG&E and KU)
PPL's, LG&E's and KU's ARO liabilities are primarily related to CCR closure costs. See Note 10 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 LG&E and KU, all ARO accretion and depreciation expenses are reclassified as a regulatory asset or regulatory liability. ARO regulatory assets associated with certain CCR projects are amortized to expense in accordance with regulatory approvals. For other AROs, deferred accretion and depreciation expense is recovered through cost of removal.
The changes in the carrying amounts of AROs were as follows.
| | | | | | | | | | | | | | | | | |
| | PPL | | LG&E | | KU |
| Balance at December 31, 2022 | $ | 177 | | | $ | 86 | | | $ | 82 | |
| Accretion | 2 | | | 1 | | | 1 | |
| | | | | |
| | | | | |
| Changes in estimated cash flow or settlement date | (2) | | | — | | | — | |
| Obligations settled | (7) | | | (2) | | | (5) | |
| Other | (5) | | | (6) | | | — | |
| Balance at March 31, 2023 | $ | 165 | | | $ | 79 | | | $ | 78 | |
16. Accumulated Other Comprehensive Income (Loss)
(PPL)
The after-tax changes in AOCI by component for the periods ended March 31 were as follows.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Unrealized gains (losses)
on qualifying
derivatives | | | | Defined benefit plans | | |
| | | | | | Equity
investees'
AOCI | | Prior
service
costs | | Actuarial
gain
(loss) | | Total |
| PPL | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| December 31, 2022 | | | | | | | $ | 3 | | | $ | 2 | | | $ | (5) | | | $ | (124) | | | $ | (124) | |
| Amounts arising during the period | | | | | | | — | | | 1 | | | — | | | — | | | 1 | |
| Reclassifications from AOCI | | | | | | | 1 | | | — | | | — | | | (1) | | | — | |
| Net OCI during the period | | | | | | | 1 | | | 1 | | | — | | | (1) | | | 1 | |
| March 31, 2023 | | | | | | | $ | 4 | | | $ | 3 | | | $ | (5) | | | $ | (125) | | | $ | (123) | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| December 31, 2021 | | | | | | | $ | 1 | | | $ | — | | | $ | (6) | | | $ | (152) | | | $ | (157) | |
| Amounts arising during the period | | | | | | | — | | | 1 | | | (1) | | | — | | | — | |
| Reclassifications from AOCI | | | | | | | 1 | | | — | | | 1 | | | 3 | | | 5 | |
| | | | | | | | | | | | | | | |
| Net OCI during the period | | | | | | | 1 | | | 1 | | | — | | | 3 | | | 5 | |
| March 31, 2022 | | | | | | | $ | 2 | | | $ | 1 | | | $ | (6) | | | $ | (149) | | | $ | (152) | |
The following table presents PPL's gains (losses) and related income taxes for reclassifications from AOCI for the periods ended March 31.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Three Months | | Affected Line Item on the |
| Details about AOCI | | | | | | 2023 | | 2022 | | Statements of Income |
| Qualifying derivatives | | | | | | | | | | |
| Interest rate swaps | | | | | | $ | (1) | | | $ | (1) | | | Interest Expense |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| Total Pre-tax | | | | | | (1) | | | (1) | | | |
| Income Taxes | | | | | | — | | | — | | | |
| Total After-tax | | | | | | (1) | | | (1) | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| Defined benefit plans | | | | | | | | | | |
| Prior service costs (a) | | | | | | — | | | (1) | | | |
| Net actuarial loss (a) | | | | | | 1 | | | (4) | | | |
| Total Pre-tax | | | | | | 1 | | | (5) | | | |
| Income Taxes | | | | | | — | | | 1 | | | |
| Total After-tax | | | | | | 1 | | | (4) | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| Total reclassifications during the period | | | | | | $ | — | | | $ | (5) | | | |
(a) These AOCI components are included in the computation of net periodic defined benefit cost. See Note 9 for additional information.