Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31,

PPL Corporation and Subsidiaries

(Millions of Dollars, except share data)

			2020						2019						2018
Operating Revenues			$	7,607					$	7,769					$	7,785
Operating Expenses
Operation
Fuel			632						709						799
Energy purchases			634						723						745
Other operation and maintenance			1,944						1,985						1,983
Depreciation			1,287						1,199						1,094
Taxes, other than income			307						313						312
Total Operating Expenses			4,804						4,929						4,933
Operating Income			2,803						2,840						2,852
Other Income (Expense) - net			169						309						396
Interest Expense			1,001						994						963
Income Before Income Taxes			1,971						2,155						2,285
Income Taxes			502						409						458
Net Income			$	1,469					$	1,746					$	1,827
Earnings Per Share of Common Stock:
Net Income Available to PPL Common Shareowners:
Basic			$	1.91					$	2.39					$	2.59
Diluted			$	1.91					$	2.37					$	2.58
Weighted-Average Shares of Common Stock Outstanding (in thousands)
Basic			768,590						728,512						704,439
Diluted			769,384						736,754						708,619

The accompanying Notes to Financial Statements are an integral part of the financial statements.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31,

PPL Corporation and Subsidiaries

(Millions of Dollars)

			2020						2019						2018
Net income			$	1,469					$	1,746					$	1,827
Other comprehensive income (loss):
Amounts arising during the period - gains (losses), net of tax (expense) benefit:
Foreign currency translation adjustments, net of tax of $0, $0, ($2)			267						108						(444)
Qualifying derivatives, net of tax of $5, 2, ($9)			(19)						(11)						36
Defined benefit plans:
Prior service costs, net of tax of $0, $0, $3			(1)						(1)						(11)
Net actuarial gain (loss), net of tax of $74, $119, $44			(341)						(592)						(187)
Reclassifications from AOCI - (gains) losses, net of tax expense (benefit):
Qualifying derivatives, net of tax of ($8), $(5), $6			24						13						(29)
Defined benefit plans:
Prior service costs, net of tax of ($1), $(1), $0			3						2						2
Net actuarial (gain) loss, net of tax of ($51), $(22), ($36)			205						87						142
Total other comprehensive income (loss)			138						(394)						(491)
Comprehensive income			$	1,607					$	1,352					$	1,336

The accompanying Notes to Financial Statements are an integral part of the financial statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31,

PPL Corporation and Subsidiaries

(Millions of Dollars)

			2020						2019						2018
Cash Flows from Operating Activities
Net income			$	1,469					$	1,746					$	1,827
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation			1,287						1,199						1,094
Amortization			72						81						78
Defined benefit plans - (income)			(201)						(263)						(192)
Deferred income taxes and investment tax credits			402						309						355
Unrealized (gains) losses on derivatives, and other hedging activities			280						73						(186)
Stock compensation expense			29						36						26
Other			(12)						(22)						(3)
Change in current assets and current liabilities
Accounts receivable			(82)						4						28
Accounts payable			10						(77)						78
Unbilled revenues			10						(5)						41
Fuel, materials and supplies			(17)						(26)						17
Regulatory assets and liabilities, net			(63)						(88)						13
Other current liabilities			(23)						(73)						(22)
Other			(1)						(33)						(2)
Other operating activities
Defined benefit plans - funding			(390)						(350)						(361)
Proceeds from transfer of excess benefit plan funds			—						—						65
Other assets			(59)						(100)						(75)
Other liabilities			35						16						40
Net cash provided by operating activities			2,746						2,427						2,821
Cash Flows from Investing Activities
Expenditures for property, plant and equipment			(3,249)						(3,083)						(3,238)
Purchase of investments			—						(55)						(65)
Proceeds from the sale of investments			9						69						6
Other investing activities			(18)						(11)						(64)
Net cash used in investing activities			(3,258)						(3,080)						(3,361)
Cash Flows from Financing Activities
Issuance of long-term debt			2,167						1,465						1,059
Retirement of long-term debt			(1,172)						(300)						(277)
Proceeds from project financing			173						—						—
Issuance of common stock			34						1,167						698
Payment of common stock dividends			(1,275)						(1,192)						(1,133)
Issuance of term loan			300						—						—
Issuance of commercial paper			73						—						—
Net increase (decrease) in short-term debt			127						(278)						363
Other financing activities			(41)						(26)						(20)
Net cash provided by financing activities			386						836						690
Effect of Exchange Rates on Cash, Cash Equivalents and Restricted Cash			17						10						(18)
Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash			(109)						193						132
Cash, Cash Equivalents and Restricted Cash at Beginning of Period			836						643						511
Cash, Cash Equivalents and Restricted Cash at End of Period			$	727					$	836					$	643
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for:
Interest - net of amount capitalized			$	939					$	905					$	910
Income taxes - net			$	95					$	93					$	127
Significant non-cash transactions:
Accrued expenditures for property, plant and equipment at December 31,			$	319					$	340					$	345
Accrued expenditures for intangible assets at December 31,			$	85					$	79					$	64

The accompanying Notes to Financial Statements are an integral part of the financial statements.

CONSOLIDATED BALANCE SHEETS AT DECEMBER 31,

PPL Corporation and Subsidiaries

(Millions of Dollars, shares in thousands)

			2020						2019
Assets
Current Assets
Cash and cash equivalents			$	708					$	815
Accounts receivable (less reserve: 2020, $75; 2019, $58)
Customer			790						687
Other			91						105
Unbilled revenues			498						504
Fuel, materials and supplies			361						332
Prepayments			96						79
Price risk management assets			94						147
Other current assets			130						98
Total Current Assets			2,768						2,767
Property, Plant and Equipment
Regulated utility plant			45,887						42,709
Less: accumulated depreciation - regulated utility plant			8,894						8,055
Regulated utility plant, net			36,993						34,654
Non-regulated property, plant and equipment			498						357
Less: accumulated depreciation - non-regulated property, plant and equipment			102						109
Non-regulated property, plant and equipment, net			396						248
Construction work in progress			1,503						1,580
Property, Plant and Equipment, net			38,892						36,482
Other Noncurrent Assets
Regulatory assets			1,262						1,492
Goodwill			3,274						3,198
Other intangibles			764						742
Pension benefit asset			706						464
Price risk management assets			52						149
Other noncurrent assets			398						386
Total Other Noncurrent Assets			6,456						6,431
Total Assets			$	48,116					$	45,680

The accompanying Notes to Financial Statements are an integral part of the financial statements.

CONSOLIDATED BALANCE SHEETS AT DECEMBER 31,

PPL Corporation and Subsidiaries

(Millions of Dollars, shares in thousands)

			2020						2019
Liabilities and Equity
Current Liabilities
Short-term debt			$	1,662					$	1,151
Long-term debt due within one year			1,574						1,172
Accounts payable			965						956
Taxes			91						99
Interest			303						294
Dividends			319						317
Customer deposits			300						261
Regulatory liabilities			79						115
Other current liabilities			684						535
Total Current Liabilities			5,977						4,900
Long-term Debt			21,553						20,721
Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes			3,568						3,088
Investment tax credits			122						124
Accrued pension obligations			200						587
Asset retirement obligations			200						212
Regulatory liabilities			2,530						2,572
Other deferred credits and noncurrent liabilities			593						485
Total Deferred Credits and Other Noncurrent Liabilities			7,213						7,068
Commitments and Contingent Liabilities (Notes 7 and 14)
Equity
Common stock - $0.01 par value (a)			8						8
Additional paid-in capital			12,270						12,214
Earnings reinvested			5,315						5,127
Accumulated other comprehensive loss			(4,220)						(4,358)
Total Equity			13,373						12,991
Total Liabilities and Equity			$	48,116					$	45,680

(a)1,560,000 shares authorized; 768,907 and 767,233 shares issued and outstanding at December 31, 2020 and December 31, 2019.

The accompanying Notes to Financial Statements are an integral part of the financial statements.

CONSOLIDATED STATEMENTS OF EQUITY

PPL Corporation and Subsidiaries

(Millions of Dollars)

			PPL Shareowners
			Common stock shares outstanding (a)						Common stock						Additional paid-in capital						Earnings reinvested						Accumulated other comprehensive loss												Total
December 31, 2017			693,398						$	7					$	10,305					$	3,871					$	(3,422)											$	10,761
Common stock issued			26,925												718																								718
Stock-based compensation															(2)																								(2)
Net income																					1,827																		1,827
Dividends and dividend equivalents (b)																					(1,156)																		(1,156)
Other comprehensive income (loss)																											(491)												(491)
Adoption of reclassification of certain tax effects from AOCI guidance cumulative effect adjustment																					51						(51)												—
December 31, 2018			720,323						$	7					$	11,021					$	4,593					$	(3,964)											$	11,657
Common stock issued			46,910						1						1,184																								1,185
Stock-based compensation															9																								9
Net income																					1,746																		1,746
Dividends and dividend equivalents (b)																					(1,212)																		(1,212)
Other comprehensive income (loss)																											(394)												(394)
December 31, 2019			767,233						$	8					$	12,214					$	5,127					$	(4,358)											$	12,991
Common stock issued			1,674												51																								51
Stock-based compensation															5																								5
Net income																					1,469																		1,469
Dividends and dividend equivalents (b)																					(1,279)																		(1,279)
Other comprehensive income (loss)																											138												138
Adoption of financial instrument credit losses guidance cumulative effect adjustment (Note 1)																					(2)																		(2)
December 31, 2020			768,907						$	8					$	12,270					$	5,315					$	(4,220)											$	13,373

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

(b)Dividends declared per share of common stock at December 31, 2020, 2019 and 2018 were: $1.66, $1.65 and $1.64.

The accompanying Notes to Financial Statements are an integral part of the financial statements.

(THIS PAGE LEFT BLANK INTENTIONALLY.)

CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31,

PPL Electric Utilities Corporation and Subsidiaries

(Millions of Dollars)

			2020						2019						2018
Operating Revenues			$	2,331					$	2,358					$	2,277
Operating Expenses
Operation
Energy purchases			491						549						544
Other operation and maintenance			513						566						578
Depreciation			403						386						352
Taxes, other than income			107						112						109
Total Operating Expenses			1,514						1,613						1,583
Operating Income			817						745						694
Other Income (Expense) - net			18						25						23
Interest Income from Affiliate			2						6						8
Interest Expense			173						170						159
Income Before Income Taxes			664						606						566
Income Taxes			167						149						136
Net Income (a)			$	497					$	457					$	430

(a)Net income equals comprehensive income.

The accompanying Notes to Financial Statements are an integral part of the financial statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31,

PPL Electric Utilities Corporation and Subsidiaries

(Millions of Dollars)

			2020						2019						2018
Cash Flows from Operating Activities
Net income			$	497					$	457					$	430
Adjustments to reconcile net income to net cash provided by (used in) operating activities
Depreciation			403						386						352
Amortization			26						24						22
Deferred income taxes and investment tax credits			83						90						125
Other			(6)						(19)						(1)
Change in current assets and current liabilities
Accounts receivable			(47)						33						47
Accounts payable			21						5						10
Unbilled revenues			13						(14)						7
Materials and supplies			(18)						(8)						9
Regulatory assets and liabilities			(40)						(43)						(19)
Other			(9)						(3)						6
Other operating activities
Defined benefit plans - funding			(21)						(21)						(28)
Other assets			(28)						15						(37)
Other liabilities			10						11						55
Net cash provided by operating activities			884						913						978
Cash Flows from Investing Activities
Expenditures for property, plant and equipment			(1,145)						(1,114)						(1,192)
Expenditures for intangible assets			(9)						(7)						(4)
Other investing activities			3						4						3
Net cash used in investing activities			(1,151)						(1,117)						(1,193)
Cash Flows from Financing Activities
Issuance of long-term debt			250						393						398
Retirement of long-term debt			—						(100)						—
Contributions from PPL			940						400						429
Payment of common stock dividends to parent			(400)						(486)						(390)
Return of capital to parent			(745)						—						—
Other financing activities			(2)						(8)						(4)
Net cash provided by financing activities			43						199						433
Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash			(224)						(5)						218
Cash, Cash Equivalents and Restricted Cash at Beginning of Period			264						269						51
Cash, Cash Equivalents and Restricted Cash at End of Period			$	40					$	264					$	269
Supplemental Disclosures of Cash Flow Information
Cash paid (received) during the period for:
Interest - net of amount capitalized			$	158					$	154					$	144
Income taxes - net			$	67					$	32					$	(20)
Significant non-cash transactions:
Accrued expenditures for property, plant and equipment at December 31,			$	156					$	180					$	158

The accompanying Notes to Financial Statements are an integral part of the financial statements.

CONSOLIDATED BALANCE SHEETS AT DECEMBER 31,

PPL Electric Utilities Corporation and Subsidiaries

(Millions of Dollars, shares in thousands)

			2020						2019
Assets
Current Assets
Cash and cash equivalents			$	40					$	262
Accounts receivable (less reserve: 2020, $41; 2019, $28)
Customer			311						258
Other			17						22
Accounts receivable from affiliates			10						11
Unbilled revenues (less reserve: 2020, $2; 2019, $0)			121						134
Materials and supplies			59						33
Prepayments			9						6
Regulatory assets			40						26
Other current assets			13						9
Total Current Assets			620						761
Property, Plant and Equipment
Regulated utility plant			13,514						12,589
Less: accumulated depreciation - regulated utility plant			3,297						3,078
Regulated utility plant, net			10,217						9,511
Construction work in progress			592						597
Property, Plant and Equipment, net			10,809						10,108
Other Noncurrent Assets
Regulatory assets			541						726
Intangibles			268						263
Other noncurrent assets			86						43
Total Other Noncurrent Assets			895						1,032
Total Assets			$	12,324					$	11,901

The accompanying Notes to Financial Statements are an integral part of the financial statements.

CONSOLIDATED BALANCE SHEETS AT DECEMBER 31,

PPL Electric Utilities Corporation and Subsidiaries

(Millions of Dollars, shares in thousands)

			2020						2019
Liabilities and Equity
Current Liabilities
Long-term debt due within one year			$	400					$	—
Accounts payable			428						438
Accounts payable to affiliates			39						32
Taxes			17						13
Interest			39						41
Regulatory liabilities			68						96
Other current liabilities			105						93
Total Current Liabilities			1,096						713
Long-term Debt			3,836						3,985
Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes			1,559						1,447
Accrued pension obligations			8						179
Regulatory liabilities			578						599
Other deferred credits and noncurrent liabilities			123						146
Total Deferred Credits and Other Noncurrent Liabilities			2,268						2,371
Commitments and Contingent Liabilities (Notes 7 and 14)
Equity
Common stock - no par value (a)			364						364
Additional paid-in capital			3,753						3,558
Earnings reinvested			1,007						910
Total Equity			5,124						4,832
Total Liabilities and Equity			$	12,324					$	11,901

(a)170,000 shares authorized; 66,368 shares issued and outstanding at December 31, 2020 and December 31, 2019.

The accompanying Notes to Financial Statements are an integral part of the financial statements.

CONSOLIDATED STATEMENTS OF EQUITY

PPL Electric Utilities Corporation and Subsidiaries

(Millions of Dollars)

			Common stock shares outstanding (a)						Common stock						Additional paid-in capital						Earnings reinvested						Total
December 31, 2017			66,368						$	364					$	2,729					$	899					$	3,992
Net income																					430						430
Capital contributions from parent															429												429
Dividends declared on common stock																					(390)						(390)
December 31, 2018			66,368						$	364					$	3,158					$	939					$	4,461
Net income																					457						457
Capital contributions from parent															400												400
Dividends declared on common stock																					(486)						(486)
December 31, 2019			66,368						$	364					$	3,558					$	910					$	4,832
Net income																					497						497
Capital contributions from parent															940												940
Return of capital to parent															(745)												(745)
Dividends declared on common stock																					(400)						(400)
December 31, 2020			66,368						$	364					$	3,753					$	1,007					$	5,124

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

The accompanying Notes to Financial Statements are an integral part of the financial statements.

CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31,

LG&E and KU Energy LLC and Subsidiaries

(Millions of Dollars)

			2020						2019						2018
Operating Revenues			$	3,106					$	3,206					$	3,214
Operating Expenses
Operation
Fuel			632						709						799
Energy purchases			143						174						201
Other operation and maintenance			834						861						848
Depreciation			606						547						475
Taxes, other than income			77						74						70
Total Operating Expenses			2,292						2,365						2,393
Operating Income			814						841						821
Other Income (Expense) - net			2						(13)						(16)
Interest Expense			223						226						206
Interest Expense with Affiliate			37						31						25
Income Before Income Taxes			556						571						574
Income Taxes			106						103						129
Net Income			$	450					$	468					$	445

The accompanying Notes to Financial Statements are an integral part of the financial statements.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31,

LG&E and KU Energy LLC and Subsidiaries

(Millions of Dollars)

			2020						2019						2018
Net income			$	450					$	468					$	445
Other comprehensive income (loss):
Amounts arising during the period - gains (losses), net of tax (expense) benefit:
Defined benefit plans:
Prior service costs, net of tax of $0, $0, $0			(1)						(1)						—
Net actuarial gain (loss), net of tax of $2, $2, ($2)			(7)						(6)						7
Reclassifications to net income - (gains) losses, net of tax expense (benefit):
Defined benefit plans:
Prior service costs, net of tax of $0, $0, $0			2						1						2
Net actuarial (gain) loss, net of tax of ($4), ($1), ($3)			13						2						8
Total other comprehensive income (loss)			7						(4)						17
Comprehensive income			$	457					$	464					$	462

The accompanying Notes to Financial Statements are an integral part of the financial statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31,

LG&E and KU Energy LLC and Subsidiaries

(Millions of Dollars)

			2020						2019						2018
Cash Flows from Operating Activities
Net income			$	450					$	468					$	445
Adjustments to reconcile net income to net cash provided by (used in) operating activities
Depreciation			606						547						475
Amortization			19						27						18
Defined benefit plans - expense			15						11						17
Deferred income taxes and investment tax credits			64						82						94
Other			(2)						(3)						(4)
Change in current assets and current liabilities
Accounts receivable			(17)						(16)						1
Accounts payable			(11)						(26)						39
Accounts payable to affiliates			5						2						2
Unbilled revenues			(12)						5						34
Fuel, materials and supplies			10						—						7
Regulatory assets and liabilities, net			(26)						(45)						32
Taxes payable			13						(5)						(3)
Other			(13)						(8)						(24)
Other operating activities
Defined benefit plans - funding			(54)						(34)						(131)
Expenditures for asset retirement obligations			(84)						(89)						(72)
Other assets			(5)						(3)						(24)
Other liabilities			45						25						9
Net cash provided by operating activities			1,003						938						915
Cash Flows from Investing Activities
Expenditures for property, plant and equipment			(966)						(1,094)						(1,117)
Other investing activities			3						—						1
Net cash used in investing activities			(963)						(1,094)						(1,116)
Cash Flows from Financing Activities
Net increase (decrease) in notes payable with affiliates			101						37						(112)
Issuance of long-term note with affiliate			550						—						250
Issuance of long-term debt			498						705						118
Retirement of long-term debt			(975)						(200)						(27)
Acquisition of outstanding bonds			—						(40)						—
Remarketing of reacquired bonds			—						40						—
Distributions to member			(283)						(308)						(302)
Contributions from member			—						63						—
Issuance of commercial paper			73						—						—
Net increase (decrease) in short-term debt			4						(126)						270
Other financing activities			(6)						(12)						(2)
Net cash provided by (used in) financing activities			(38)						159						195
Net Increase (Decrease) in Cash and Cash Equivalents			2						3						(6)
Cash and Cash Equivalents at Beginning of Period			27						24						30
Cash and Cash Equivalents at End of Period			$	29					$	27					$	24
Supplemental Disclosures of Cash Flow Information
Cash paid (received) during the period for:
Interest - net of amount capitalized			$	248					$	237					$	218
Income taxes - net			$	38					$	29					$	46
Significant non-cash transactions:
Accrued expenditures for property, plant and equipment at December 31,			$	100					$	113					$	150

The accompanying Notes to Financial Statements are an integral part of the financial statements.

CONSOLIDATED BALANCE SHEETS AT DECEMBER 31,

LG&E and KU Energy LLC and Subsidiaries

(Millions of Dollars)

			2020						2019
Assets
Current Assets
Cash and cash equivalents			$	29					$	27
Accounts receivable (less reserve: 2020, $30; 2019, $28)
Customer			283						260
Other			69						71
Unbilled revenues (less reserve: 2020, $2; 2019, $0)			176						164
Fuel, materials and supplies			242						250
Prepayments			30						30
Regulatory assets			59						41
Other current assets			4						2
Total Current Assets			892						845
Property, Plant and Equipment
Regulated utility plant			15,557						14,646
Less: accumulated depreciation - regulated utility plant			2,717						2,356
Regulated utility plant, net			12,840						12,290
Construction work in progress			640						794
Property, Plant and Equipment, net			13,480						13,084
Other Noncurrent Assets
Regulatory assets			721						766
Goodwill			996						996
Other intangibles			61						69
Other noncurrent assets			127						171
Total Other Noncurrent Assets			1,905						2,002
Total Assets			$	16,277					$	15,931

The accompanying Notes to Financial Statements are an integral part of the financial statements.

CONSOLIDATED BALANCE SHEETS AT DECEMBER 31,

LG&E and KU Energy LLC and Subsidiaries

(Millions of Dollars)

			2020						2019
Liabilities and Equity
Current Liabilities
Short-term debt			$	465					$	388
Long-term debt due within one year			674						975
Notes payable with affiliates			251						150
Accounts payable			294						316
Accounts payable to affiliates			16						11
Customer deposits			64						62
Taxes			71						58
Price risk management liabilities			2						4
Regulatory liabilities			11						19
Interest			37						40
Asset retirement obligations			50						70
Other current liabilities			162						153
Total Current Liabilities			2,097						2,246
Long-term Debt
Long-term debt			4,200						4,377
Long-term debt to affiliate			1,200						650
Total Long-term Debt			5,400						5,027
Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes			1,175						1,069
Investment tax credits			121						124
Price risk management liabilities			21						17
Accrued pension obligations			112						233
Asset retirement obligations			132						145
Regulatory liabilities			1,952						1,973
Other deferred credits and noncurrent liabilities			151						155
Total Deferred Credits and Other Noncurrent Liabilities			3,664						3,716
Commitments and Contingent Liabilities (Notes 7 and 14)
Member's equity			5,116						4,942
Total Liabilities and Equity			$	16,277					$	15,931

The accompanying Notes to Financial Statements are an integral part of the financial statements.

CONSOLIDATED STATEMENTS OF EQUITY

LG&E and KU Energy LLC and Subsidiaries

(Millions of Dollars)

			Member's Equity
December 31, 2017			$	4,563
Net income			445
Distributions to member			(302)
Other comprehensive income (loss)			17
December 31, 2018			$	4,723
Net income			$	468
Contributions from member			63
Distributions to member			(308)
Other comprehensive income (loss)			(4)
December 31, 2019			$	4,942
Net income			$	450
Distributions to member			(283)
Other comprehensive income (loss)			7
December 31, 2020			$	5,116

The accompanying Notes to Financial Statements are an integral part of the financial statements.

(THIS PAGE LEFT BLANK INTENTIONALLY.)

STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31,

Louisville Gas and Electric Company

(Millions of Dollars)

			2020						2019						2018
Operating Revenues
Retail and wholesale			$	1,435					$	1,473					$	1,467
Electric revenue from affiliate			21						27						29
Total Operating Revenues			1,456						1,500						1,496
Operating Expenses
Operation
Fuel			246						289						308
Energy purchases			125						154						183
Energy purchases from affiliate			19						7						13
Other operation and maintenance			373						387						376
Depreciation			259						231						195
Taxes, other than income			40						39						36
Total Operating Expenses			1,062						1,107						1,111
Operating Income			394						393						385
Other Income (Expense) – net			(1)						(11)						(12)
Interest Expense			87						87						76
Income Before Income Taxes			306						295						297
Income Taxes			62						63						64
Net Income (a)			$	244					$	232					$	233

(a)Net income equals comprehensive income.

The accompanying Notes to Financial Statements are an integral part of the financial statements.

STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31,

Louisville Gas and Electric Company

(Millions of Dollars)

			2020						2019						2018
Cash Flows from Operating Activities
Net income			$	244					$	232					$	233
Adjustments to reconcile net income to net cash provided by (used in) operating activities
Depreciation			259						231						195
Amortization			9						15						14
Defined benefit plans - expense			3						3						3
Deferred income taxes and investment tax credits			3						56						60
Change in current assets and current liabilities
Accounts receivable			(3)						(9)						4
Accounts receivable from affiliates			4						6						—
Accounts payable			(18)						(10)						10
Accounts payable to affiliates			(5)						5						1
Unbilled revenues			(3)						1						14
Fuel, materials and supplies			4						5						4
Regulatory assets and liabilities, net			—						(19)						5
Taxes payable			(1)						7						1
Other			(3)						(5)						(10)
Other operating activities
Defined benefit plans - funding			(11)						(6)						(61)
Expenditures for asset retirement obligations			(20)						(30)						(22)
Other assets			(2)						(1)						(12)
Other liabilities			23						11						4
Net cash provided by operating activities			483						492						443
Cash Flows from Investing Activities
Expenditures for property, plant and equipment			(456)						(482)						(554)
Net cash used in investing activities			(456)						(482)						(554)
Cash Flows from Financing Activities
Issuance of long-term debt			—						399						100
Retirement of long-term debt			—						(200)						—
Acquisition of outstanding bonds			—						(40)						—
Remarketing of reacquired bonds			—						40						—
Payment of common stock dividends to parent			(161)						(182)						(156)
Contributions from parent			103						25						83
Issuance of commercial paper			41						—						—
Net increase (decrease) in short-term debt			(17)						(41)						80
Other financing activities			(1)						(6)						(1)
Net cash provided by (used in) financing activities			(35)						(5)						106
Net Increase (Decrease) in Cash and Cash Equivalents			(8)						5						(5)
Cash and Cash Equivalents at Beginning of Period			15						10						15
Cash and Cash Equivalents at End of Period			$	7					$	15					$	10
Supplemental Disclosures of Cash Flow Information
Cash paid (received) during the period for:
Interest - net of amount capitalized			$	82					$	77					$	71
Income taxes - net			$	63					$	2					$	7
Significant non-cash transactions:
Accrued expenditures for property, plant and equipment at December 31,			$	60					$	59					$	61

The accompanying Notes to Financial Statements are an integral part of the financial statements.

BALANCE SHEETS AT DECEMBER 31,

Louisville Gas and Electric Company

(Millions of Dollars, shares in thousands)

			2020						2019
Assets
Current Assets
Cash and cash equivalents			$	7					$	15
Accounts receivable (less reserve: 2020, $2; 2019, $1)
Customer			127						121
Other			35						41
Unbilled revenues (less reserve: 2020, $1; 2019, $0)			79						76
Accounts receivable from affiliates			16						18
Fuel, materials and supplies			119						122
Prepayments			14						14
Regulatory assets			23						25
Other current assets			1						1
Total Current Assets			421						433
Property, Plant and Equipment
Regulated utility plant			6,735						6,372
Less: accumulated depreciation - regulated utility plant			1,020						846
Regulated utility plant, net			5,715						5,526
Construction work in progress			320						297
Property, Plant and Equipment, net			6,035						5,823
Other Noncurrent Assets
Regulatory assets			351						380
Goodwill			389						389
Other intangibles			35						41
Other noncurrent assets			114						67
Total Other Noncurrent Assets			889						877
Total Assets			$	7,345					$	7,133

The accompanying Notes to Financial Statements are an integral part of the financial statements.

BALANCE SHEETS AT DECEMBER 31,

Louisville Gas and Electric Company

(Millions of Dollars, shares in thousands)

			2020						2019
Liabilities and Equity
Current Liabilities
Short-term debt			$	262					$	238
Long-term debt due within one year			292						—
Accounts payable			153						172
Accounts payable to affiliates			31						31
Customer deposits			32						31
Taxes			32						33
Price risk management liabilities			2						4
Regulatory liabilities			—						2
Interest			15						15
Asset retirement obligations			10						24
Other current liabilities			50						47
Total Current Liabilities			879						597
Long-term Debt			1,715						2,005
Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes			716						697
Investment tax credits			33						34
Price risk management liabilities			21						17
Asset retirement obligations			57						49
Regulatory liabilities			882						883
Other deferred credits and noncurrent liabilities			94						89
Total Deferred Credits and Other Noncurrent Liabilities			1,803						1,769
Commitments and Contingent Liabilities (Notes 7 and 14)
Equity
Common stock - no par value (a)			424						424
Additional paid-in capital			1,923						1,820
Earnings reinvested			601						518
Total Equity			2,948						2,762
Total Liabilities and Equity			$	7,345					$	7,133

(a)75,000 shares authorized; 21,294 shares issued and outstanding at December 31, 2020 and December 31, 2019.

The accompanying Notes to Financial Statements are an integral part of the financial statements.

STATEMENTS OF EQUITY

Louisville Gas and Electric Company

(Millions of Dollars)

			Common stock shares outstanding (a)						Common stock						Additional paid-in capital						Earnings reinvested						Total
December 31, 2017			21,294						$	424					$	1,712					$	391					$	2,527
Net income																					233						233
Capital contributions from LKE															83												83
Cash dividends declared on common stock																					(156)						(156)
December 31, 2018			21,294						$	424					$	1,795					$	468					$	2,687
Net income																					232						232
Capital contributions from LKE															25												25
Cash dividends declared on common stock																					(182)						(182)
December 31, 2019			21,294						$	424					$	1,820					$	518					$	2,762
Net income																					244						244
Capital contributions from LKE															103												103
Cash dividends declared on common stock																					(161)						(161)
December 31, 2020			21,294						$	424					$	1,923					$	601					$	2,948

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

The accompanying Notes to Financial Statements are an integral part of the financial statements.

(THIS PAGE LEFT BLANK INTENTIONALLY.)

STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31,

Kentucky Utilities Company

(Millions of Dollars)

			2020						2019						2018
Operating Revenues
Retail and wholesale			$	1,671					$	1,733					$	1,747
Electric revenue from affiliate			19						7						13
Total Operating Revenues			1,690						1,740						1,760
Operating Expenses
Operation
Fuel			386						420						491
Energy purchases			18						20						18
Energy purchases from affiliate			21						27						29
Other operation and maintenance			429						438						441
Depreciation			346						315						279
Taxes, other than income			37						35						34
Total Operating Expenses			1,237						1,255						1,292
Operating Income			453						485						468
Other Income (Expense) – net			3						(4)						(6)
Interest Expense			113						109						100
Income Before Income Taxes			343						372						362
Income Taxes			63						79						76
Net Income (a)			$	280					$	293					$	286

(a)Net income equals comprehensive income.

The accompanying Notes to Financial Statements are an integral part of the financial statements.

STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31,

Kentucky Utilities Company

(Millions of Dollars)

			2020						2019						2018
Cash Flows from Operating Activities
Net income			$	280					$	293					$	286
Adjustments to reconcile net income to net cash provided by (used in) operating activities
Depreciation			346						315						279
Amortization			8						10						3
Defined benefit plans - expense			—						(1)						—
Deferred income taxes and investment tax credits			20						39						48
Other			(1)						(3)						(4)
Change in current assets and current liabilities
Accounts receivable			(13)						(3)						(4)
Accounts receivable from affiliates			(1)						—						—
Accounts payable			9						(15)						29
Accounts payable to affiliates			(16)						(2)						(3)
Unbilled revenues			(9)						4						20
Fuel, materials and supplies			6						(6)						3
Regulatory assets and liabilities, net			(26)						(26)						27
Taxes payable			2						2						5
Other			(5)						(6)						(3)
Other operating activities
Defined benefit plans - funding			(3)						(3)						(54)
Expenditures for asset retirement obligations			(64)						(59)						(50)
Other assets			(2)						(2)						(12)
Other liabilities			12						16						11
Net cash provided by operating activities			543						553						581
Cash Flows from Investing Activities
Expenditures for property, plant and equipment			(510)						(610)						(562)
Other investing activities			3						—						1
Net cash used in investing activities			(507)						(610)						(561)
Cash Flows from Financing Activities
Issuance of long-term debt			498						306						18
Retirement of long-term debt			(500)						—						(27)
Payment of common stock dividends to parent			(200)						(229)						(246)
Contributions from parent			128						68						45
Issuance of commercial paper			32						—						—
Net increase (decrease) in short-term debt			21						(85)						190
Other financing activities			(5)						(5)						(1)
Net cash provided by (used in) financing activities			(26)						55						(21)
Net Increase (Decrease) in Cash and Cash Equivalents			10						(2)						(1)
Cash and Cash Equivalents at Beginning of Period			12						14						15
Cash and Cash Equivalents at End of Period			$	22					$	12					$	14
Supplemental Disclosures of Cash Flow Information
Cash paid (received) during the period for:
Interest - net of amount capitalized			$	109					$	101					$	95
Income taxes - net			$	44					$	39					$	25
Significant non-cash transactions:
Accrued expenditures for property, plant and equipment at December 31,			$	40					$	54					$	88

The accompanying Notes to Financial Statements are an integral part of the financial statements.

BALANCE SHEETS AT DECEMBER 31,

Kentucky Utilities Company

(Millions of Dollars, shares in thousands)

			2020						2019
Assets
Current Assets
Cash and cash equivalents			$	22					$	12
Accounts receivable (less reserve: 2020, $1; 2019, $1)
Customer			156						139
Other			30						27
Unbilled revenues (less reserve: 2020, $1; 2019, $0)			97						88
Accounts receivable from affiliates			1						—
Fuel, materials and supplies			123						128
Prepayments			15						14
Regulatory assets			36						16
Other current assets			1						1
Total Current Assets			481						425
Property, Plant and Equipment
Regulated utility plant			8,808						8,262
Less: accumulated depreciation - regulated utility plant			1,690						1,507
Regulated utility plant, net			7,118						6,755
Construction work in progress			321						496
Property, Plant and Equipment, net			7,439						7,251
Other Noncurrent Assets
Regulatory assets			370						386
Goodwill			607						607
Other intangibles			26						28
Other noncurrent assets			149						128
Total Other Noncurrent Assets			1,152						1,149
Total Assets			$	9,072					$	8,825

The accompanying Notes to Financial Statements are an integral part of the financial statements.

BALANCE SHEETS AT DECEMBER 31,

Kentucky Utilities Company

(Millions of Dollars, shares in thousands)

			2020						2019
Liabilities and Equity
Current Liabilities
Short-term debt			$	203					$	150
Long-term debt due within one year			132						500
Accounts payable			121						121
Accounts payable to affiliates			43						52
Customer deposits			32						31
Taxes			29						26
Regulatory liabilities			11						17
Interest			19						20
Asset retirement obligations			40						46
Other current liabilities			59						51
Total Current Liabilities			689						1,014
Long-term Debt			2,486						2,123
Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes			835						792
Investment tax credits			88						90
Asset retirement obligations			75						96
Regulatory liabilities			1,070						1,090
Other deferred credits and noncurrent liabilities			47						46
Total Deferred Credits and Other Noncurrent Liabilities			2,115						2,114
Commitments and Contingent Liabilities (Notes 7 and 14)
Equity
Common stock - no par value (a)			308						308
Additional paid-in capital			2,857						2,729
Earnings reinvested			617						537
Total Equity			3,782						3,574
Total Liabilities and Equity			$	9,072					$	8,825

(a) 80,000 shares authorized; 37,818 shares issued and outstanding at December 31, 2020 and December 31, 2019.

The accompanying Notes to Financial Statements are an integral part of the financial statements.

STATEMENTS OF EQUITY

Kentucky Utilities Company

(Millions of Dollars)

			Common stock shares outstanding (a)						Common stock						Additional paid-in capital						Earnings reinvested						Accumulated other comprehensive income (loss)						Total
December 31, 2017			37,818						$	308					$	2,616					$	433					$	—					$	3,357
Net income																					286												286
Capital contributions from LKE															45																		45
Cash dividends declared on common stock																					(246)												(246)
December 31, 2018			37,818						$	308					$	2,661					$	473					$	—					$	3,442
Net income																					293												293
Capital contributions from LKE															68																		68
Cash dividends declared on common stock																					(229)												(229)
December 31, 2019			37,818						$	308					$	2,729					$	537					$	—					$	3,574
Net income																					280												280
Capital contributions from LKE															128																		128
Cash dividends declared on common stock																					(200)												(200)
December 31, 2020			37,818						$	308					$	2,857					$	617					$	—					$	3,782

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

The accompanying Notes to Financial Statements are an integral part of the financial statements.

COMBINED NOTES TO FINANCIAL STATEMENTS

Index to Combined Notes to Consolidated Financial Statements

The notes to the consolidated financial statements that follow are a combined presentation. The following list indicates the Registrants to which the footnotes apply:

						Registrant
						PPL						PPL Electric						LKE						LG&E						KU
1. Summary of Significant Accounting Policies						x						x						x						x						x
2. Segment and Related Information						x						x						x						x						x
3. Revenue from Contracts with Customers						x						x						x						x						x
4. Preferred Securities						x						x												x						x
5. Earnings Per Share						x
6. Income and Other Taxes						x						x						x						x						x
7. Utility Rate Regulation						x						x						x						x						x
8. Financing Activities						x						x						x						x						x
9. Acquisitions, Development and Divestitures						x
10. Leases						x						x						x						x						x
11. Stock-Based Compensation						x						x						x
12. Retirement and Postemployment Benefits						x						x						x						x						x
13. Jointly Owned Facilities						x												x						x						x
14. Commitments and Contingencies						x						x						x						x						x
15. Related Party Transactions												x						x						x						x
16. Other Income (Expense) - net						x						x
17. Fair Value Measurements						x						x						x						x						x
18. Derivative Instruments and Hedging Activities						x						x						x						x						x
19. Goodwill and Other Intangible Assets						x						x						x						x						x
20. Asset Retirement Obligations						x						x						x						x						x
21. Accumulated Other Comprehensive Income (Loss)						x												x

1. Summary of Significant Accounting Policies

(All Registrants)

General

Capitalized terms and abbreviations appearing in the combined notes to financial statements are defined in the glossary. Dollars are in millions, except per share data, unless otherwise noted. The specific Registrant to which disclosures are applicable is identified in parenthetical headings in italics above the applicable disclosure or within the applicable disclosure for each Registrants' related activities and disclosures. Within combined disclosures, amounts are disclosed for any Registrant when significant.

Business and Consolidation

(PPL)

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

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

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

(PPL and PPL Electric)

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

(PPL, LKE, LG&E and KU)

LKE is a utility holding company with cost-based rate-regulated utility operations through its subsidiaries, LG&E and KU. LG&E and KU are engaged in the generation, transmission, distribution and sale of electricity. LG&E also engages in the distribution and sale of natural gas. LG&E and KU maintain their separate identities and serve customers in Kentucky under their respective names. KU also serves customers in Virginia under the Old Dominion Power name.

(All Registrants)

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

The financial statements of PPL, LKE, LG&E and KU include their share of any undivided interests in jointly owned facilities, as well as their share of the related operating costs of those facilities. See Note 13 for additional information.

Regulation

(PPL)

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

(All Registrants)

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

Accounting Records

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

Use of Estimates

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

Loss Accruals

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

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

Earnings Per Share (PPL)

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

Price Risk Management

(All Registrants)

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

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

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

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

(PPL)

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

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

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

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

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

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

• Derivative transactions that do not qualify for cash flow or net investment hedge treatment are marked to fair value through earnings. These transactions generally include foreign currency forwards and options to hedge GBP-denominated earnings translation risk associated with PPL's U.K. subsidiaries that report their financial statements in GBP. As such, these transactions reduce earnings volatility due solely to changes in foreign currency exchange rates. PPL also hedges anticipated transactions, including the previously announced potential sale of its U.K utility business and net investments.

(All Registrants)

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

(PPL and PPL Electric)

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

See Notes 17 and 18 for additional information on derivatives.

Revenue

(All Registrants)

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

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

(PPL)

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

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

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

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

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

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

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

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

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

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

Financing Receivables

(All Registrants)

Accounts receivable are reported on the Balance Sheets at the gross outstanding amount adjusted for an allowance for doubtful accounts. Financing receivables include accounts receivable, with the exception of those items within accounts receivable that are not subject to the credit loss model.

Current Expected Credit Losses

Financing receivable collectibility is evaluated using a combination of factors, including past due status based on contractual terms, trends in write-offs and the age of the receivable. Specific events, such as bankruptcies, are also considered when applicable. Adjustments to the allowance for doubtful accounts are made when necessary based on the results of analysis, the aging of receivables and historical and industry trends. The Registrants periodically evaluate the impact of observable external factors on the collectibility of the financing receivables to determine if adjustments to the allowance for doubtful accounts should be made based on current conditions or reasonable and supportable forecasts. Accounts receivable are written off in the period in which the receivable is deemed uncollectible.

(PPL and PPL Electric)

PPL Electric has identified one class of financing receivables, “accounts receivable-customer”, which includes financing receivables for all billed and unbilled sales with residential and non-residential customers. All other financing receivables are

classified as other. Within the credit loss model for the residential customer accounts receivables, customers are disaggregated based on their projected propensity to pay, which is derived from historical trends and the current activity of the individual customer accounts. Conversely, the non-residential customer accounts receivables are not further segmented due to the varying nature of the individual customers, which lack readily identifiable risk characteristics for disaggregation.

(PPL, LKE, LG&E and KU)

LKE, LG&E and KU have identified one class of financing receivables, “accounts receivable-customer”, which includes financing receivables for all billed and unbilled sales with customers. All other financing receivables are classified as other.

(All Registrants)

The changes in the allowance for doubtful accounts are included in the following table. Amounts relate to “accounts receivable-customer” except as noted.

									Additions
			Balance at Beginning of Period						Charged to Income						Charged to Other Accounts						Deductions (b)						Balance at End of Period
PPL
2020 (a)			$	60		(a)			$	31					$	—					$	16					$	75		(c) (d)
2019			56						37						3						38						58
2018			51						41						3						39						56
PPL Electric
2020			$	30		(a)			$	19					$	—					$	8					$	41		(c)
2019			27						26						—						25						28
2018			24						29						—						26						27
LKE
2020			$	28					$	9					$	—					$	5					$	32		(d)
2019			27						8						3						10						28
2018			25						10						3						11						27
LG&E
2020			$	1					$	4					$	—					$	2					$	3
2019			1						2						2						4						1
2018			1						4						1						5						1
KU
2020			$	1					$	4					$	—					$	3					$	2
2019			2						4						1						6						1
2018			1						5						2						6						2

(a)Adjusted for $2 million cumulative-effect adjustment upon adoption of current expected credit loss guidance.

(b)Primarily related to uncollectible accounts written off.

(c)Includes $3 million related to other receivables.

(d)Includes $27 million related to other receivables.

Cash

(All Registrants)

Cash Equivalents

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

(PPL and PPL Electric)

Restricted Cash and Cash Equivalents

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

Reconciliation of Cash, Cash Equivalents and Restricted Cash

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

			PPL												PPL Electric
			December 31, 2020						December 31, 2019						December 31, 2020						December 31, 2019
Cash and cash equivalents			$	708					$	815					$	40					$	262
Restricted cash - current			1						3						—						2
Restricted cash - noncurrent (a)			18						18						—						—
Total Cash, Cash Equivalents and Restricted Cash			$	727					$	836					$	40					$	264

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

(All Registrants)

Fair Value Measurements

The Registrants value certain financial and nonfinancial assets and liabilities at fair value. Generally, the most significant fair value measurements relate to price risk management assets and liabilities, investments in securities in defined benefit plans, and cash and cash equivalents. PPL and its subsidiaries use, as appropriate, a market approach (generally, data from market transactions), an income approach (generally, present value techniques and option-pricing models) and/or a cost approach (generally, replacement cost) to measure the fair value of an asset or liability. These valuation approaches incorporate inputs such as observable, independent market data and/or unobservable data that management believes are predicated on the assumptions market participants would use to price an asset or liability. These inputs may incorporate, as applicable, certain risks such as nonperformance risk, which includes credit risk.

The Registrants classify fair value measurements within one of three levels in the fair value hierarchy. The level assigned to a fair value measurement is based on the lowest level input that is significant to the fair value measurement in its entirety. The three levels of the fair value hierarchy are as follows:

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

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

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

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

Investments

(All Registrants)

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

Short-term Investments

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

Long-Lived and Intangible Assets

Property, Plant and Equipment

(All Registrants)

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

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

(PPL)

PPL capitalizes interest costs as part of construction costs. Capitalized interest, including the debt component of AFUDC for PPL, was $9 million in 2020, $10 million in 2019 and $15 million 2018.

(PPL Electric)

PPL Electric capitalizes interest costs as part of construction costs. Capitalized interest, including the debt component of AFUDC for PPL Electric was $7 million in 2020, $8 million in 2019 and $7 million in 2018.

Depreciation

(All Registrants)

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

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

amortized through depreciation over a five-year period, which is recoverable in customer rates in accordance with regulatory practices.

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

			2020						2019						2018
PPL			2.81		%				2.84		%				2.77		%
PPL Electric			2.99		%				3.05		%				3.01		%
LKE			4.00		%				3.96		%				3.69		%
LG&E			4.00		%				3.87		%				3.63		%
KU			4.00		%				4.02		%				3.74		%

(All Registrants)

Goodwill and Other Intangible Assets

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

Other acquired intangible assets are initially measured based on their fair value. Intangibles that have finite useful lives are amortized over their useful lives based upon the pattern in which the economic benefits of the intangible assets are consumed or otherwise used. Costs incurred to obtain an initial license and renew or extend terms of licenses are capitalized as intangible assets.

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

• the expected use of the asset;

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

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

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

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

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

Asset Impairment (Excluding Investments)

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

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

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

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

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

In the first quarter of 2020, PPL, LKE, LG&E and KU considered whether the economic events associated with COVID-19, which resulted in PPL's shares experiencing volatility and a decrease in market value, would more likely than not reduce the fair value of the Registrants’ reporting units below their carrying amounts. Based on the assessment, a quantitative impairment test was not required for the LKE, LG&E and KU reporting units, but was required for the U.K. Regulated segment reporting unit, the allocated goodwill of which was $2.5 billion at March 31, 2020. The test did not indicate impairment of the reporting unit.

In the fourth quarter of 2020, PPL (for its U.K. Regulated and Kentucky Regulated segments), and individually, LKE, LG&E and KU elected to perform qualitative step zero evaluations for their annual goodwill impairment tests, as of October 1, 2020. Based on these evaluations, management concluded it was not more likely than not that the fair value of these reporting units was less than their carrying values. As such, quantitative impairment tests were not performed.

(PPL, LKE, LG&E and KU)

Asset Retirement Obligations

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

Estimated ARO costs and settlement dates, which affect the carrying value of the ARO and the related capitalized asset, are reviewed periodically to ensure that any material changes are incorporated into the latest estimate of the ARO. Any change to the capitalized asset, positive or negative, is generally amortized over the remaining life of the associated long-lived asset. See Note 7 and Note 20 for additional information on AROs.

Compensation and Benefits

Defined Benefits (All Registrants)

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

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

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

See Note 7 for a discussion of the regulatory treatment of defined benefit costs and Note 12 for a discussion of defined benefits.

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

PPL has several stock-based compensation plans for purposes of granting stock options, restricted stock, restricted stock units and performance units to certain employees as well as stock units and restricted stock units to directors. PPL grants most stock-based awards in the first quarter of each year. PPL and its subsidiaries recognize compensation expense for stock-based awards based on the fair value method. Forfeitures of awards are recognized when they occur. See Note 11 for a discussion of stock-

based compensation. All awards are recorded as equity or a liability on the Balance Sheets. Stock-based compensation is primarily included in "Other operation and maintenance" on the Statements of Income. Stock-based compensation expense for PPL Electric and LKE includes an allocation of PPL Services' expense.

Taxes

Income Taxes

(All Registrants)

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

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

The Registrants use a two-step process to evaluate tax positions. The first step requires an entity to determine whether, based on the technical merits supporting a particular tax position, it is more likely than not (greater than a 50% chance) that the tax position will be sustained. This determination assumes that the relevant taxing authority will examine the tax position and is aware of all the relevant facts surrounding the tax position. The second step requires an entity to recognize in its financial statements the benefit of a tax position that meets the more-likely-than-not recognition criterion. The benefit recognized is measured at the largest amount of benefit that has a likelihood of realization upon settlement that exceeds 50%. Unrecognized tax benefits are classified as current to the extent management expects to settle the uncertain tax position by payment or receipt of cash within one year of the reporting date. The amounts ultimately paid upon resolution of issues raised by taxing authorities may differ materially from the amounts accrued and may materially impact the financial statements of the Registrants in future periods. At December 31, 2020, no significant changes in unrecognized tax benefits were projected over the next 12 months.

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

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

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

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

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

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

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

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

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

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

			2020						2019
PPL Electric			$	(9)					$	3
LKE			(12)						(8)
LG&E			(1)						(4)
KU			(5)						(6)

Taxes, Other Than Income (All Registrants)

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

Other

(All Registrants)

Leases

The Registrants evaluate whether arrangements entered into contain leases for accounting purposes. See Note 10 for additional information.

Fuel, Materials and Supplies

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

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

			2020
			PPL						PPL Electric						LKE						LG&E						KU
Fuel			$	95					$	—					$	95					$	38					$	57
Natural gas stored underground			30						—						30						30						—
Materials and supplies			236						59						117						51						66
Total			$	361					$	59					$	242					$	119					$	123

			2019
			PPL						PPL Electric						LKE						LG&E						KU
Fuel			$	106					$	—					$	106					$	43					$	63
Natural gas stored underground			35						—						35						35						—
Materials and supplies			191						33						109						44						65
Total			$	332					$	33					$	250					$	122					$	128

Guarantees (All Registrants)

Generally, the initial measurement of a guarantee liability is the fair value of the guarantee at its inception. However, there are certain guarantees excluded from the scope of accounting guidance and other guarantees that are not subject to the initial

recognition and measurement provisions of accounting guidance that only require disclosure. See Note 14 for further discussion of recorded and unrecorded guarantees.

Treasury Stock (PPL)

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

Foreign Currency Translation and Transactions (PPL)

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

Gains or losses relating to foreign currency transactions are recognized in "Other Income (Expense) - net" on the Statements of Income. See Note 16 for additional information.

New Accounting Guidance Adopted

(All Registrants)

Accounting for Financial Instrument Credit Losses

Effective January 1, 2020, the Registrants adopted accounting guidance, using a modified retrospective approach, that requires the use of a current expected credit loss (CECL) model for the measurement of credit losses on financial instruments within the scope of the guidance, which includes accounts receivable. The CECL model requires an entity to measure credit losses using historical information, current information and reasonable and supportable forecasts of future events, rather than the incurred loss impairment model required under previous GAAP. The adoption of this guidance did not have a material impact on the Registrants.

Accounting for Implementation Costs in a Cloud Computing Service Arrangement

Effective January 1, 2020, the Registrants prospectively adopted accounting guidance that requires a customer in a cloud computing hosting arrangement that is a service contract to capitalize implementation costs consistent with internal-use software guidance for non-service arrangements. The guidance requires these capitalized implementation costs to be amortized over the term of the hosting arrangement to the statement of income line item where the service arrangement costs are recorded. The guidance also prescribes the financial statement classification of the capitalized implementation costs and cash flows associated with the arrangement. The adoption of this guidance did not have a material impact on the Registrants.

(PPL, LKE, LG&E and KU)

Simplifying the Test for Goodwill Impairment

Effective January 1, 2020, the Registrants adopted accounting guidance that simplifies the test for goodwill impairment by eliminating the second step of the quantitative test. The second step of the quantitative test required a calculation of the implied fair value of goodwill, which was determined in the same manner as the amount of goodwill in a business combination. Under the new guidance, the fair value of a reporting unit will be compared with the carrying value and an impairment charge will be recognized if the carrying amount exceeds the fair value of the reporting unit. The adoption of this guidance did not have a material impact on the Registrants

2. Segment and Related Information

(PPL)

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

The U.K. Regulated segment consists of PPL Global, which primarily includes WPD's regulated electricity distribution operations, the results of hedging the translation of WPD's earnings from GBP into U.S. dollars, and certain costs, such as U.S. income taxes, administrative costs, and certain acquisition-related financing costs.

The Kentucky Regulated segment consists primarily of LKE's regulated electricity generation, transmission and distribution operations conducted by LG&E and KU, as well as LG&E's regulated distribution and sale of natural gas. In addition, certain acquisition-related financing costs are allocated to the Kentucky Regulated segment.

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

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

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

			2020						2019						2018
Operating Revenues from external customers (a)
U.K. Regulated			$	2,133					$	2,167					$	2,268
Kentucky Regulated			3,106						3,206						3,214
Pennsylvania Regulated			2,330						2,358						2,277
Corporate and Other			38						38						26
Total			$	7,607					$	7,769					$	7,785
Depreciation
U.K. Regulated			$	265					$	250					$	247
Kentucky Regulated			606						547						475
Pennsylvania Regulated			403						386						352
Corporate and Other			13						16						20
Total			$	1,287					$	1,199					$	1,094
Amortization (b)
U.K. Regulated			$	16					$	25					$	34
Kentucky Regulated			19						27						18
Pennsylvania Regulated			26						24						22
Corporate and Other			11						5						4
Total			$	72					$	81					$	78
Unrealized (gains) losses on derivatives and other hedging activities (c)
U.K. Regulated			$	271					$	62					$	(190)
Kentucky Regulated			5						6						6
Corporate and Other			4						5						(2)
Total			$	280					$	73					$	(186)
Interest Expense
U.K. Regulated			$	400					$	405					$	413
Kentucky Regulated			300						298						274
Pennsylvania Regulated			172						169						159
Corporate and Other			129						122						117
Total			$	1,001					$	994					$	963
Income Before Income Taxes
U.K. Regulated			$	958					$	1,169					$	1,339
Kentucky Regulated			516						530						531
Pennsylvania Regulated			664						607						567
Corporate and Other			(167)						(151)						(152)
Total			$	1,971					$	2,155					$	2,285

			2020						2019						2018
Income Taxes (d)
U.K. Regulated			$	272					$	192					$	225
Kentucky Regulated			98						94						120
Pennsylvania Regulated			167						149						136
Corporate and Other			(35)						(26)						(23)
Total			$	502					$	409					$	458
Deferred income taxes and investment tax credits (e)
U.K. Regulated			$	233					$	140					$	118
Kentucky Regulated			64						82						94
Pennsylvania Regulated			82						90						125
Corporate and Other			23						(3)						18
Total			$	402					$	309					$	355
Net Income
U.K. Regulated			$	686					$	977					$	1,114
Kentucky Regulated			418						436						411
Pennsylvania Regulated			497						458						431
Corporate and Other			(132)						(125)						(129)
Total			$	1,469					$	1,746					$	1,827

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

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

(c)Includes unrealized gains and losses from economic activity. See Note 18 for additional information.

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

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

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

			2020						2019						2018
Expenditures for long-lived assets
U.K. Regulated			$	995					$	857					$	954
Kentucky Regulated			966						1,097						1,117
Pennsylvania Regulated			1,154						1,121						1,196
Corporate and Other			158						32						1
Total			$	3,273					$	3,107					$	3,268

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

			As of December 31,
			2020						2019
Total Assets
U.K. Regulated (a)			$	19,094					$	17,622
Kentucky Regulated			15,943						15,597
Pennsylvania Regulated			12,347						11,918
Corporate and Other (b)			732						543
Total			$	48,116					$	45,680

(a)Includes $14.4 billion and $13.2 billion of net PP&E as of December 31, 2020 and December 31, 2019. WPD is not subject to accounting for the effects of certain types of regulation as prescribed by GAAP.

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

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

			2020						2019						2018
Revenues from external customers
U.K.			$	2,133					$	2,167					$	2,268
U.S.			5,474						5,602						5,517
Total			$	7,607					$	7,769					$	7,785

			As of December 31,
			2020						2019
Long-Lived Assets
U.K.			$	14,805					$	13,618
U.S.			24,851						23,607
Total			$	39,656					$	37,225

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

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

3. Revenue from Contracts with Customers

(All Registrants)

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

(PPL)

U.K. Regulated Segment Revenue

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

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

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

(PPL and PPL Electric)

Pennsylvania Regulated Segment Revenue

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

Distribution Revenue

PPL Electric provides distribution services to residential, commercial, industrial, municipal and governmental end users of energy. PPL Electric satisfies its performance obligation to its distribution customers and revenue is recognized over-time as electricity is delivered and simultaneously consumed by the customer. The amount of revenue recognized is the volume of electricity delivered during the period multiplied by the price per tariff, plus a monthly fixed charge. This method of recognition fairly presents PPL Electric's transfer of electric service to the customer as the calculation is based on actual volumes, and the

price per tariff and the monthly fixed charge are set by the PUC. Customers are typically billed monthly and outstanding amounts are normally due within 21 days of the date of the bill.

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

Transmission Revenue

PPL Electric generates transmission revenues from a FERC-approved PJM Open Access Transmission Tariff. An annual revenue requirement for PPL Electric to provide transmission services is calculated using a formula-based rate. This revenue requirement is converted into a daily rate (dollars per day). PPL Electric satisfies its performance obligation to provide transmission services and revenue is recognized over-time as transmission services are provided and consumed. This method of recognition fairly presents PPL Electric's transfer of transmission services as the daily rate is set by a FERC approved formula-based rate. PJM remits payment on a weekly basis.

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

(PPL, LKE, LG&E and KU)

Kentucky Regulated Segment Revenue

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

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

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

(All Registrants)

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

			2020
			PPL						PPL Electric						LKE						LG&E						KU
Operating Revenues (a)			$	7,607					$	2,331					$	3,106					$	1,456					$	1,690
Revenues derived from:
Alternative revenue programs (b)			(24)						(12)						(12)						(8)						(4)
Other (c)			(27)						(3)						(17)						(7)						(10)
Revenues from Contracts with Customers			$	7,556					$	2,316					$	3,077					$	1,441					$	1,676

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

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

(a)For the years ended December 31, 2020 and 2019, PPL includes $2.1 billion and $2.2 billion of revenues from external customers reported by the U.K. Regulated segment. PPL Electric and LKE represent revenues from external customers reported by the Pennsylvania Regulated and Kentucky Regulated segments. See Note 2 for additional information.

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

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

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

			2020
			PPL (d)						PPL Electric (d)						LKE						LG&E						KU
Licensed energy suppliers (a)			$	1,990					$	—					$	—					$	—					$	—
Residential			2,585						1,238						1,347						676						671
Commercial			1,185						314						871						444						427
Industrial			582						44						538						173						365
Other (b)			484						50						261						114						147
Wholesale - municipal			20						—						20						—						20
Wholesale - other (c)			40						—						40						34						46
Transmission			670						670						—						—						—
Revenues from Contracts with Customers			$	7,556					$	2,316					$	3,077					$	1,441					$	1,676

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

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

(a)Represents customers of WPD.

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

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

(d)In 2020 and 2019, management deemed it appropriate to present the revenue offset associated with network integration transmission service (NITS) as distribution revenue rather than transmission revenue.

As discussed in Note 2, PPL 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. PPL Electric's revenues from contracts with customers are further disaggregated by distribution and transmission as indicated in the above tables.

Contract receivables from customers are primarily included in "Accounts receivable - Customer" and "Unbilled revenues" on the Balance Sheets.

The following table shows the accounts receivable and unbilled revenues balances that were impaired for the year ended December 31:

			2020						2019						2018
PPL			$	29					$	27					$	34
PPL Electric			17						21						24
LKE			8						6						9
LG&E			4						2						4
KU			4						4						5

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

			PPL						PPL Electric						LKE						LG&E						KU
Contract liabilities as of December 31, 2020			$	48					$	23					$	11					$	5					$	6
Contract liabilities as of December 31, 2019			44						21						9						5						4
Revenue recognized during the year ended December 31, 2020 that was included in the contract liability balance at December 31, 2019			29						9						9						5						4
Contract liabilities as of December 31, 2019			$	44					$	21					$	9					$	5					$	4
Contract liabilities as of December 31, 2018			42						23						9						5						4
Revenue recognized during the year ended December 31, 2019 that was included in the contract liability balance at December 31, 2018			32						11						9						5						4
Contract liabilities as of December 31, 2018			$	42					$	23					$	9					$	5					$	4
Contract liabilities as of December 31, 2017			29						19						8						4						4
Revenue recognized during the year ended December 31, 2018 that was included in the contract liability balance at December 31, 2017			21						8						8						4						4

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

At December 31, 2020, PPL had $46 million of performance obligations attributable to Corporate and Other that have not been satisfied. Of this amount, PPL expects to recognize approximately $46 million within the next 12 months.

4. Preferred Securities

(PPL)

PPL is authorized to issue up to 10 million shares of preferred stock. No PPL preferred stock was issued or outstanding in 2020, 2019 or 2018.

(PPL Electric)

PPL Electric is authorized to issue up to 20,629,936 shares of preferred stock. No PPL Electric preferred stock was issued or outstanding in 2020, 2019 or 2018.

(LG&E)

LG&E is authorized to issue up to 1,720,000 shares of preferred stock at a $25 par value and 6,750,000 shares of preferred stock without par value. LG&E had no preferred stock issued or outstanding in 2020, 2019 or 2018.

(KU)

KU is authorized to issue up to 5,300,000 shares of preferred stock and 2,000,000 shares of preference stock without par value. KU had no preferred or preference stock issued or outstanding in 2020, 2019 or 2018.

5. 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 non-participating securities were converted to common shares as calculated using the Treasury Stock Method. Incremental non-participating securities that have a dilutive impact are detailed in the table below.

In 2019 and 2018, these securities also included the PPL common stock forward sale agreements, which were partially settled in 2018 with the remaining shares settled in 2019. The forward sale agreements were dilutive under the Treasury Stock Method to the extent the average stock price of PPL's common shares exceeded the forward sale price prescribed in the agreements.

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

			2020						2019						2018
Income (Numerator)
Net income			$	1,469					$	1,746					$	1,827
Less amounts allocated to participating securities			1						1						2
Net income available to PPL common shareowners - Basic and Diluted			$	1,468					$	1,745					$	1,825
Shares of Common Stock (Denominator)
Weighted-average shares - Basic EPS			768,590						728,512						704,439
Add incremental non-participating securities:
Share-based payment awards (a)			794						1,101						445
Forward sale agreements			—						7,141						3,735
Weighted-average shares - Diluted EPS			769,384						736,754						708,619
Basic EPS
Net Income available to PPL common shareowners			$	1.91					$	2.39					$	2.59
Diluted EPS
Net Income available to PPL common shareowners			$	1.91					$	2.37					$	2.58

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

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

			2020
Stock-based compensation plans (a)			731
DRIP			943

(a)Includes stock options exercised, vesting of performance units, vesting of restricted stock and restricted stock units and conversion of stock units granted to directors.

See Note 8 for additional information on common stock issued under the ATM Program.

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

			2020						2019						2018
Stock-based compensation awards			452						8						183

6. Income and Other Taxes

(PPL)

"Income Before Income Taxes" included the following:

			2020						2019						2018
Domestic income			$	902					$	964					$	1,127
Foreign income			1,069						1,191						1,158
Total			$	1,971					$	2,155					$	2,285

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for accounting purposes and their basis for income tax purposes and the tax effects of net operating loss and tax credit

carryforwards. The provision for PPL's deferred income taxes for regulated assets and liabilities is based upon the ratemaking principles of the applicable jurisdiction. See Notes 1 and 7 for additional information.

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

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

			2020						2019
Deferred Tax Assets
Deferred investment tax credits			$	30					$	31
Regulatory liabilities			68						75
Income taxes due to customers			444						462
Accrued pension and postretirement costs			106						211
Federal loss carryforwards			234						324
State loss carryforwards			448						432
Federal and state tax credit carryforwards			401						402
Foreign capital loss carryforwards			370						320
Foreign - other			6						8
Contributions in aid of construction			115						112
Domestic - other			136						99
Valuation allowances			(906)						(834)
Total deferred tax assets			1,452						1,642
Deferred Tax Liabilities
Domestic plant - net			3,700						3,546
Regulatory assets			195						262
Foreign plant - net			911						765
Foreign - pensions			127						72
Domestic - other			70						61
Total deferred tax liabilities			5,003						4,706
Net deferred tax liability			$	3,551					$	3,064

State deferred taxes are determined by entity and by jurisdiction. As a result, $17 million and $24 million of net deferred tax assets are shown as "Other noncurrent assets" on the Balance Sheets for 2020 and 2019.

At December 31, 2020, PPL had the following loss and tax credit carryforwards, related deferred tax assets and valuation allowances recorded against the deferred tax assets:

			Gross						Deferred Tax Asset						Valuation Allowance						Expiration
Loss and other carryforwards
Federal net operating losses			$	1,111					$	234					$	—					2035-2037
State net operating losses			6,032						448						(419)						2021-2040
Foreign capital losses (a)			1,945						370						(370)						Indefinite
Federal - Other			13						2						—						Indefinite
State - Other			2						—						—						Indefinite

Credit carryforwards
Federal investment tax credit									134						—						2025-2040
Federal foreign tax credits (b)									218						(113)						2024-2027
Federal - other									32						(4)						2021-2040
State Recycling Credit									16						—						2028
State - other									1						—						Indefinite

(a)In 2020, the U.K. Finance Act 2020 cancelled the tax rate reduction from 19% to 17%. The primary impact of the cancellation of the corporation tax rate reduction was an increase in deferred tax liabilities and a corresponding deferred tax expense of $106 million.

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

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

									Additions
			Balance at Beginning of Period						Charged to Income						Charged to Other Accounts						Deductions						Balance at End of Period
2020			$	834					$	69		(a)			$	7					$	4					$	906
2019			808						31						—						5						834
2018			838						26						—						56			(b)			808

(a)The cancellation of the reduction of the U.K. statutory income tax rate in 2020 resulted in a $38 million increase in deferred tax assets and corresponding valuation allowances. See "Reconciliation of Income Tax Expense" below for additional information on the impact of the U.K. Finance Act 2020. In addition, deferred tax assets and corresponding valuation allowances were increased in 2020 by approximately $11 million due to the effect of foreign currency exchange rates.

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

A U.S. based company with foreign subsidiaries may be required to record deferred taxes associated with the reversal of differences in the outside book-tax basis of those subsidiaries. The primary component of such outside basis differences is ordinarily accumulated unremitted earnings. PPL Global does not record deferred U.S. income taxes associated with the accumulated unremitted earnings of WPD, as management has determined that such earnings are indefinitely reinvested. Current year distributions from WPD to the U.S. are sourced from a portion of the current year’s earnings of the WPD group. There have been no material changes to the facts underlying PPL’s assertion that historically reinvested earnings of WPD as well as some portion of current year earnings will continue to be indefinitely reinvested. WPD's long-term working capital forecasts and capital expenditure projections for the foreseeable future require reinvestment of WPD's undistributed earnings. Additionally, U.S. long-term working capital forecasts and capital expenditure projections for the foreseeable future do not require or contemplate annual distributions from WPD in excess of some portion of WPD's future annual earnings. The cumulative undistributed earnings are included in "Earnings reinvested" on the Balance Sheets. The amount considered indefinitely reinvested at December 31, 2020 was $8.0 billion. It is not practicable to estimate the amount of additional taxes that could be payable on these foreign earnings in the event of repatriation to the U.S., but it could be material. PPL will reassess the indefinite reinvestment of these earnings if and when the U.K. utility business meets the criteria to be classified as held for sale.

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

			2020						2019						2018
Income Tax Expense (Benefit)
Current - Federal			$	(9)					$	(10)					$	(19)
Current - State			24						19						17
Current - Foreign			85						91						104
Total Current Expense (Benefit)			100						100						102
Deferred - Federal			123						139						203
Deferred - State			94						76						100
Deferred - Foreign (a)			215						123						107
Total Deferred Expense (Benefit), excluding operating loss carryforwards			432						338						410
Amortization of investment tax credit			(3)						(3)						(3)
Tax expense (benefit) of operating loss carryforwards
Deferred - Federal			6						7						(20)
Deferred - State			(33)						(33)						(31)
Total Tax Expense (Benefit) of Operating Loss Carryforwards			(27)						(26)						(51)
Total income tax expense (benefit)			$	502					$	409					$	458
Total income tax expense (benefit) - Federal			$	117					$	133					$	161
Total income tax expense (benefit) - State			85						62						86
Total income tax expense (benefit) - Foreign			300						214						211
Total income tax expense (benefit)			$	502					$	409					$	458

(a)In 2020, the U.K. Finance Act 2020 cancelled the tax rate reduction from 19% to 17%. The primary impact of the cancellation of the corporation tax rate reduction was an increase in deferred tax liabilities and a corresponding deferred tax expense of $106 million.

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

			2020						2019						2018
Other comprehensive income			$	(19)					$	(93)					$	(6)
Total			$	(19)					$	(93)					$	(6)

			2020						2019						2018
Reconciliation of Income Tax Expense (Benefit)
Federal income tax on Income Before Income Taxes at statutory tax rate - 21%			$	414					$	453					$	480
Increase (decrease) due to:
State income taxes, net of federal income tax benefit			48						45						40
Valuation allowance adjustments (a)			26						22						21
Impact of lower U.K. income tax rates			(26)						(25)						(25)
U.S. income tax on foreign earnings - net of foreign tax credit			11						2						3
Federal and state income tax return adjustments			(9)						1						—
Impact of the U.K. Finance Acts on deferred tax balances (b)			101						(14)						(13)
Depreciation and other items not normalized			(5)						(10)						(11)
Amortization of excess deferred federal and state income taxes			(43)						(40)						(37)
Interest benefit on U.K. financing activities			(12)						(12)						(17)
Deferred tax impact of Kentucky tax reform (c)			—						—						9
Kentucky recycling credit, net of federal income tax expense (d)			—						(18)						—
Other			(3)						5						8
Total increase (decrease)			88						(44)						(22)
Total income tax expense (benefit)			$	502					$	409					$	458
Effective income tax rate			25.5%						19.0%						20.0%

(a)In 2020, 2019 and 2018, PPL recorded deferred income tax expense of $24 million, $25 million and $24 million for valuation allowances primarily related to increased Pennsylvania net operating loss carryforwards expected to be unutilized.

(b)In 2018 and 2019, PPL reduced its net deferred tax liabilities as a result of the U.K. Finance Act 2016 that was enacted in September 2016 and reduced the U.K. statutory income tax rate effective April, 2020 to 17%. In 2020, the U.K. Finance Act 2020 cancelled the tax rate reduction to 17%. The primary impact of the cancellation of the corporation tax rate reduction was an increase in deferred tax liabilities and a corresponding deferred tax expense of $106 million.

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

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

			2020						2019						2018
Taxes, other than income
State gross receipts			$	100					$	107					$	103
Foreign property			127						127						134
Domestic - other			80						79						75
Total			$	307					$	313					$	312

(PPL Electric)

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

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

			2020						2019
Deferred Tax Assets
Accrued pension and postretirement costs			$	25					$	81
Contributions in aid of construction			91						88
Regulatory liabilities			24						31
Income taxes due to customers			162						170
State loss carryforwards			—						6
Federal loss carryforwards			52						78
Other			29						23
Total deferred tax assets			383						477
Deferred Tax Liabilities
Electric utility plant - net			1,826						1,761
Regulatory assets			86						139
Other			30						24
Total deferred tax liabilities			1,942						1,924
Net deferred tax liability			$	1,559					$	1,447

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

At December 31, 2020, PPL Electric had the following loss and tax credit carryforwards and related deferred tax assets:

			Gross						Deferred Tax Asset						Expiration
Loss carryforwards
Federal net operating losses			$	248					$	52					2035-2037

Credit carryforwards
Federal - other															5						2031-2040

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

			2020						2019						2018
Income Tax Expense (Benefit)
Current - Federal			$	61					$	44					$	2
Current - State			23						15						9
Total Current Expense (Benefit)			84						59						11
Deferred - Federal			45						51						96
Deferred - State			38						39						37
Total Deferred Expense (Benefit), excluding operating loss carryforwards			83						90						133
Tax expense (benefit) of operating loss carryforwards
Deferred - Federal			—						—						(8)
Total Tax Expense (Benefit) of Operating Loss Carryforwards			—						—						(8)
Total income tax expense (benefit)			$	167					$	149					$	136
Total income tax expense (benefit) - Federal			$	106					$	95					$	90
Total income tax expense (benefit) - State			61						54						46
Total income tax expense (benefit)			$	167					$	149					$	136

			2020						2019						2018
Reconciliation of Income Tax Expense (Benefit)
Federal income tax on Income Before Income Taxes at statutory tax rate - 21%			$	139					$	127					$	119
Increase (decrease) due to:
State income taxes, net of federal income tax benefit			52						47						43
Federal and state income tax return adjustments			(4)						1						—
Depreciation and other items not normalized			(5)						(10)						(11)
Amortization of excess deferred federal income taxes (a)			(16)						(18)						(17)
Other			1						2						2
Total increase (decrease)			28						22						17
Total income tax expense (benefit)			$	167					$	149					$	136
Effective income tax rate			25.2%						24.6%						24.0%

(a)In 2020, 2019 and 2018, PPL Electric recorded lower income tax expense for the amortization of excess deferred taxes that primarily resulted from the U.S. federal corporate income tax rate reduction from 35% to 21% enacted by the TCJA. This amortization represents each year's refund amount, prior to a tax gross-up, to be paid to customers for previously collected deferred taxes at higher income tax rates.

			2020						2019						2018
Taxes, other than income
State gross receipts			$	100					$	107					$	103
Property and other			7						5						6
Total			$	107					$	112					$	109

(LKE)

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

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

			2020						2019
Deferred Tax Assets
Federal loss carryforwards			$	107					$	140
State loss carryforwards			28						31
Federal tax credit carryforwards			159						162
Contributions in aid of construction			23						23
Regulatory liabilities			43						44
Accrued pension and postretirement costs			57						71
State tax credit carryforwards			17						19
Income taxes due to customers			282						292
Deferred investment tax credits			30						31
Lease liabilities			13						14
Valuation allowances			(4)						(6)
Other			29						28
Total deferred tax assets			784						849
Deferred Tax Liabilities
Plant - net			1,831						1,778
Regulatory assets			109						122
Lease right-of-use assets			11						12
Other			8						6
Total deferred tax liabilities			1,959						1,918
Net deferred tax liability			$	1,175					$	1,069

At December 31, 2020, LKE had the following loss and tax credit carryforwards, related deferred tax assets, and valuation allowances recorded against the deferred tax assets:

			Gross						Deferred Tax Asset						Valuation Allowance						Expiration
Loss carryforwards
Federal net operating losses			$	511					$	107					$	—					2035 - 2037
Federal charitable contributions			1						—						—						2024
State net operating losses			710						28						—						2029 - 2038

			Gross						Deferred Tax Asset						Valuation Allowance						Expiration
Credit carryforwards
Federal investment tax credit									134						—						2025 - 2028, 2036 - 2040
Federal - other									25						(4)						2021-2040
State - recycling credit									16						—						2028
State - other									1						—						Indefinite

Changes in deferred tax valuation allowances were:

			Balance at Beginning of Period						Additions						Deductions						Balance at End of Period
2020			$	6					$	—					$	2		(a)			$	4
2019			8						3						5			(a)			6
2018			8						—						—						8

(a)Tax credits expiring.

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

			2020						2019						2018
Income Tax Expense (Benefit)
Current - Federal			$	41					$	20					$	31
Current - State			1						—						4
Total Current Expense (Benefit)			42						20						35
Deferred - Federal			43						81						65
Deferred - State (a)			24						5						34
Total Deferred Expense (Benefit), excluding benefits of operating loss carryforwards			67						86						99
Amortization of investment tax credit - Federal			(3)						(3)						(3)
Tax expense (benefit) of operating loss carryforwards
Deferred - Federal			—						—						(2)
Total Tax Expense (Benefit) of Operating Loss Carryforwards			—						—						(2)
Total income tax expense (benefit) (b)			$	106					$	103					$	129
Total income tax expense (benefit) - Federal			$	81					$	98					$	91
Total income tax expense (benefit) - State			25						5						38
Total income tax expense (benefit) (b)			$	106					$	103					$	129

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

(b)Excludes deferred federal and state tax expense (benefit) recorded to OCI of $2 million in 2020, $(1) million in 2019 and $5 million in 2018.

			2020						2019						2018
Reconciliation of Income Tax Expense (Benefit)
Federal income tax on Income Before Income Taxes at statutory tax rate - 21%			$	117					$	120					$	121
Increase (decrease) due to:
State income taxes, net of federal income tax benefit			22						23						22
Amortization of investment tax credit			(3)						(3)						(3)
Amortization of excess deferred federal and state income taxes			(28)						(23)						(20)
Deferred tax impact of state tax reform (a)			—						—						9
Kentucky Recycling Credit, net of federal income tax expense (b)			—						(18)						—
Other			(2)						4						—
Total increase (decrease)			(11)						(17)						8
Total income tax expense (benefit)			$	106					$	103					$	129
Effective income tax rate			19.1%						18.0%						22.5%

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

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

			2020						2019						2018
Taxes, other than income
Property and other			$	77					$	74					$	70
Total			$	77					$	74					$	70

(LG&E)

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

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

			2020						2019
Deferred Tax Assets
Contributions in aid of construction			$	15					$	15
Regulatory liabilities			20						19
Accrued pension and postretirement costs			—						6
Deferred investment tax credits			8						8
Income taxes due to customers			132						136
State tax credit carryforwards			12						14
Lease liabilities			5						5
Valuation allowances			(12)						(14)
Other			11						10
Total deferred tax assets			191						199
Deferred Tax Liabilities
Plant - net			833						811
Regulatory assets			66						77
Lease right-of-use assets			4						4
Other			4						4
Total deferred tax liabilities			907						896
Net deferred tax liability			$	716					$	697

At December 31, 2020 LG&E had $12 million of state credit carryforwards that expire in 2028 and a $12 million valuation allowance related to state credit carryforwards due to insufficient projected Kentucky taxable income.

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

			2020						2019						2018
Income Tax Expense (Benefit)
Current - Federal			$	53					$	4					$	—
Current - State			7						4						4
Total Current Expense (Benefit)			60						8						4
Deferred - Federal			(4)						46						51
Deferred - State			7						10						10
Total Deferred Expense (Benefit)			3						56						61
Amortization of investment tax credit - Federal			(1)						(1)						(1)
Total income tax expense (benefit)			$	62					$	63					$	64
Total income tax expense (benefit) - Federal			$	48					$	49					$	50
Total income tax expense (benefit) - State			14						14						14
Total income tax expense (benefit)			$	62					$	63					$	64

			2020						2019						2018
Reconciliation of Income Tax Expense (Benefit)
Federal income tax on Income Before Income Taxes at statutory tax rate - 21%			$	64					$	62					$	62
Increase (decrease) due to:
State income taxes, net of federal income tax benefit			12						12						11
Amortization of excess deferred federal and state income taxes			(11)						(10)						(8)
Kentucky recycling credit, net of federal income tax expense (a)			—						(14)						—
Valuation allowance adjustments (a)			—						14						—
Other			(3)						(1)						(1)
Total increase (decrease)			(2)						1						2
Total income tax expense (benefit)			$	62					$	63					$	64
Effective income tax rate			20.3%						21.4%						21.5%

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

			2020						2019						2018
Taxes, other than income
Property and other			$	40					$	39					$	36
Total			$	40					$	39					$	36

(KU)

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

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

			2020						2019
Deferred Tax Assets
Contributions in aid of construction			$	8					$	8
Regulatory liabilities			23						25
Deferred investment tax credits			22						23
Income taxes due to customers			150						156
State tax credit carryforwards			5						5
Lease liabilities			8						8
Valuation allowances			(4)						(4)
Other			4						3
Total deferred tax assets			216						224
Deferred Tax Liabilities
Plant - net			992						959
Regulatory assets			43						45
Accrued pension and postretirement costs			8						2
Lease right-of-use assets			7						7
Other			1						3
Total deferred tax liabilities			1,051						1,016
Net deferred tax liability			$	835					$	792

At December 31, 2020 KU had $5 million of state credit carryforwards of which $4 million will expire in 2028 and $1 million that has an indefinite carryforward period. At December 31, 2020 KU had a $4 million valuation allowance related to state credit carryforwards due to insufficient projected Kentucky taxable income.

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

			2020						2019						2018
Income Tax Expense (Benefit)
Current - Federal			$	40					$	35					$	22
Current - State			3						5						6
Total Current Expense (Benefit)			43						40						28
Deferred - Federal			11						28						40
Deferred - State			11						13						10
Total Deferred Expense (Benefit)			22						41						50
Amortization of investment tax credit - Federal			(2)						(2)						(2)
Total income tax expense (benefit)			$	63					$	79					$	76
Total income tax expense (benefit) - Federal			$	49					$	61					$	60
Total income tax expense (benefit) - State			14						18						16
Total income tax expense (benefit)			$	63					$	79					$	76

			2020						2019						2018
Reconciliation of Income Tax Expense (Benefit)
Federal income tax on Income Before Income Taxes at statutory tax rate - 21%			$	72					$	78					$	76
Increase (decrease) due to:
State income taxes, net of federal income tax benefit			14						15						13
Amortization of investment tax credit			(2)						(2)						(2)
Amortization of excess deferred federal and state income taxes			(17)						(13)						(12)
Kentucky recycling credit, net of federal income tax expense (a)			—						(4)						—
Valuation allowance adjustments (a)			—						4						—
Other			(4)						1						1
Total increase (decrease)			(9)						1						—
Total income tax expense (benefit)			$	63					$	79					$	76
Effective income tax rate			18.4%						21.2%						21.0%

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

			2020						2019						2018
Taxes, other than income
Property and other			$	37					$	35					$	34
Total			$	37					$	35					$	34

(All Registrants)

Unrecognized Tax Benefits

PPL or its subsidiaries file tax returns in four major tax jurisdictions. The income tax provisions for PPL Electric, LG&E and KU are calculated in accordance with an intercompany tax sharing agreement, which provides that taxable income be calculated as if each domestic subsidiary filed a separate consolidated return. PPL Electric or its subsidiaries indirectly or directly file tax returns in two major tax jurisdictions, and LKE, LG&E and KU or their subsidiaries indirectly or directly file tax returns in two major tax jurisdictions. With few exceptions, at December 31, 2020, these jurisdictions, as well as the tax years that are no longer subject to examination, were as follows.

			PPL						PPL Electric						LKE						LG&E						KU
U.S. (federal)			2016 and prior						2016 and prior						2016 and prior						2016 and prior						2016 and prior
Pennsylvania (state)			2016 and prior						2016 and prior
Kentucky (state)			2014 and prior												2014 and prior						2014 and prior						2014 and prior
U.K. (foreign)			2016 and prior

Tax Cuts and Jobs Act (TCJA)

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

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

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

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

• Full current year expensing of capital expenditures with an exception for regulated public utilities for capital projects commencing after December 31, 2017 that qualify for the exception to the interest expense limitation; and

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

2018 Impacts of TCJA

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

In the third quarter of 2018, PPL filed its consolidated federal income tax return, which was prepared using guidance issued by the U.S. Treasury Department and the IRS since the filing of each Registrant's 2017 Form 10-K. Accordingly, the Registrants updated the following provisional amounts and now consider them to be complete: (1) the amount of the deemed dividend and associated foreign tax credits relating to the transition tax imposed on accumulated foreign earnings as of December 31, 2017; (2) the amount of accelerated 100% "bonus" depreciation PPL was eligible to claim in its 2017 federal income tax return; and (3) the related impacts on PPL's 2017 consolidated federal net operating loss to be carried forward to future periods. In addition, the Registrants recorded the tax impact of the U.S. federal corporate income tax rate reduction from 35% to 21% on the changes to deferred tax assets and liabilities resulting from the completed provisional amounts. The completed provisional amounts related to the tax rate reduction had an insignificant impact on the net regulatory liabilities of PPL's U.S. regulated operations. In the fourth quarter of 2018, PPL completed its analysis of the deductibility of executive compensation awarded as of

November 2, 2017 and concluded that no material change to the provisional amounts was required. The final amounts reported in PPL's 2017 federal income tax return, provisional amounts for the year ended December 31, 2017, the related measurement period adjustments, and the resulting tax impact for the year ended December 31, 2018 were as follows.

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

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

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

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

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

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

TCJA Regulatory Update

The IRS issued proposed regulations for certain provisions of the TCJA in 2018, including interest deductibility and Global Intangible Low-Taxed Income (GILTI). In 2019, final and new proposed regulations were issued relating to the GILTI provisions. PPL has determined that neither the final or new proposed regulations materially change PPL's conclusion that currently no incremental tax arises under these rules. Proposed regulations relating to the limitation on the deductibility of interest expense were issued in November 2018 and such regulations provide detailed rules implementing the broader statutory provisions. These proposed regulations did not apply to the Registrants in 2019.

In July 2020, the IRS issued final and new proposed regulations relating to the limitation on interest deductibility. The final regulations do not apply to the Registrants until the 2021 tax year. The new proposed regulations were finalized on January 5, 2021 and will apply to the Registrants in the 2022 tax year. The Registrants are evaluating the final regulations issued in 2021, but do not expect these regulations or the 2020 final regulations to have a material impact on the Registrants’ financial condition or results of operations.

7. Utility Rate Regulation

Regulatory Assets and Liabilities

(All Registrants)

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

(PPL)

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

(PPL, LKE, LG&E and KU)

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

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

(PPL, LKE and KU)

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

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

(PPL and PPL Electric)

PPL Electric's distribution base rates are calculated based on recovery of costs as well as a return on distribution rate base (net utility plant plus a working capital allowance less plant-related deferred taxes and other miscellaneous additions and deductions). PPL Electric's transmission revenues are billed in accordance with a FERC tariff that allows for recovery of transmission costs incurred, a return on transmission-related rate base (net utility plant plus a working capital allowance less

plant-related deferred taxes and other miscellaneous additions and deductions) and an automatic annual update. See "Transmission Formula Rate" below for additional information on this tariff. All regulatory assets and liabilities are excluded from distribution and transmission return on investment calculations; therefore, generally no return is earned on PPL Electric's regulatory assets.

(All Registrants)

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

			PPL												PPL Electric
			2020						2019						2020						2019
Current Regulatory Assets:
Plant outage costs			$	46					$	32					$	—					$	—
Gas supply clause			4						8						—						—
Smart meter rider			17						13						17						13
Storm costs			7						—						7						—
Transmission formula rate			15						3						15						3
Transmission service charge			—						10						—						10
Other			10						1						1						—
Total current regulatory assets (a)			$	99					$	67					$	40					$	26
Noncurrent Regulatory Assets:
Defined benefit plans			$	570					$	800					$	290					$	467
Storm costs			17						39						—						15
Unamortized loss on debt			30						41						8						18
Interest rate swaps			23						22						—						—
Terminated interest rate swaps			75						81						—						—
Accumulated cost of removal of utility plant			240						220						240						220
AROs			300						279						—						—
Act 129 compliance rider			—						6						—						6
Other			7						4						3						—
Total noncurrent regulatory assets			$	1,262					$	1,492					$	541					$	726

			PPL												PPL Electric
			2020						2019						2020						2019
Current Regulatory Liabilities:
Generation supply charge			$	21					$	23					$	21					$	23
Environmental cost recovery			4						5						—						—
Universal service rider			22						9						22						9
Fuel adjustment clause			5						8						—						—
TCJA customer refund			11						61						11						59
Storm damage expense rider			6						5						6						5
Act 129 compliance rider			7						—						7						—
Other			3						4						1						—
Total current regulatory liabilities			$	79					$	115					$	68					$	96
Noncurrent Regulatory Liabilities:
Accumulated cost of removal of utility plant			$	653					$	640					$	—					$	—
Power purchase agreement - OVEC			43						51						—						—
Net deferred taxes			1,690						1,756						560						588
Defined benefit plans			60						51						18						11
Terminated interest rate swaps			66						68						—						—
Other			18						6						—						—
Total noncurrent regulatory liabilities			$	2,530					$	2,572					$	578					$	599

			LKE												LG&E												KU
			2020						2019						2020						2019						2020						2019
Current Regulatory Assets:
Plant outage costs			$	46					$	32					$	12					$	16					$	34					$	16
Gas supply clause			4						8						4						8						—						—
Other			9						1						7						1						2						—
Total current regulatory assets			$	59					$	41					$	23					$	25					$	36					$	16
Noncurrent Regulatory Assets:
Defined benefit plans			$	280					$	333					$	174					$	206					$	106					$	127
Storm costs			17						24						11						14						6						10
Unamortized loss on debt			22						23						13						14						9						9
Interest rate swaps			23						22						23						22						—						—
Terminated interest rate swaps			75						81						44						47						31						34
AROs			300						279						85						76						215						203
Other			4						4						1						1						3						3
Total noncurrent regulatory assets			$	721					$	766					$	351					$	380					$	370					$	386

			LKE												LG&E												KU
			2020						2019						2020						2019						2020						2019
Current Regulatory Liabilities:
Environmental cost recovery			$	4					$	5					$	—					$	1					$	4					$	4
Fuel adjustment clauses			5						8						—						—						5						8
Other			2						6						—						1						2						5
Total current regulatory liabilities			$	11					$	19					$	—					$	2					$	11					$	17
Noncurrent Regulatory Liabilities:
Accumulated cost of removal of utility plant			$	653					$	640					$	274					$	266					$	379					$	374
Power purchase agreement - OVEC			43						51						30						35						13						16
Net deferred taxes			1,130						1,168						528						544						602						624
Defined benefit plans			42						40						—						—						42						40
Terminated interest rate swaps			66						68						33						34						33						34
Other			18						6						17						4						1						2
Total noncurrent regulatory liabilities			$	1,952					$	1,973					$	882					$	883					$	1,070					$	1,090

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

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

Defined Benefit Plans

(All Registrants)

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

(PPL, LKE, LG&E and KU)

As a result of the 2014 Kentucky rate case settlement that became effective July 1, 2015, the difference between pension cost calculated in accordance with LG&E's and KU's pension accounting policy and pension cost calculated using a 15-year amortization period for actuarial gains and losses is recorded as a regulatory asset. As of December 31, 2020, the balances were $79 million for PPL and LKE, $44 million for LG&E and $35 million for KU. As of December 31, 2019, the balances were $51 million for PPL and LKE, $29 million for LG&E and $22 million for KU.

(All Registrants)

Storm Costs

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

Unamortized Loss on Debt

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

Accumulated Cost of Removal of Utility Plant

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

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

Net Deferred Taxes

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

(PPL and PPL Electric)

Generation Supply Charge (GSC)

The GSC is a cost recovery mechanism that permits PPL Electric to recover costs incurred to provide generation supply to PLR customers who receive basic generation supply service. The recovery includes charges for generation supply, as well as administration of the acquisition process. In addition, the GSC contains a reconciliation mechanism whereby any over- or under-recovery from prior periods is refunded to, or recovered from, customers through the adjustment factor determined for the subsequent rate filing period.

Transmission Service Charge (TSC)

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

Transmission Formula Rate

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

Storm Damage Expense Rider (SDER)

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

Act 129 Compliance Rider

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

Smart Meter Rider (SMR)

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

Universal Service Rider (USR)

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

TCJA Customer Refund

As a result of the reduced U.S federal corporate income tax rate as enacted by the TCJA, the PUC ruled that these tax benefits should be refunded to customers. Timing differences between the recognition of these tax benefits and the refund of the benefit to the customer creates a regulatory liability.

PPL Electric's liability related to the period of July 1, 2018 through December 31, 2020 is being credited back to distribution customers through a negative surcharge. The liability related to the period of January 1, 2018 through June 30, 2018 was $43 million and was credited back to customers over the period of January 1, 2020 through December 31, 2020 utilizing the same negative surcharge mechanism referred to above, as approved by the PUC in November 2019.

(PPL, LKE, LG&E and KU)

Environmental Cost Recovery

Kentucky law permits LG&E and KU to recover the costs, including a return of operating expenses and a return of and on capital invested, of complying with the Clean Air Act and those federal, state or local environmental requirements, which apply to coal combustion wastes and by-products from coal-fired electricity generating facilities. The KPSC requires reviews of the past operations of the environmental surcharge for six-month and two-year billing periods to evaluate the related charges, credits and rates of return, as well as to provide for the roll-in of ECR amounts to base rates each two-year period. The KPSC has authorized returns on equity of 9.2% and 9.725% for existing approved ECR projects. The ECR regulatory asset or liability represents the amount that has been under- or over-recovered due to timing or adjustments to the mechanism and is typically recovered or refunded within 12 months.

Fuel Adjustment Clauses

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

KU also employs a levelized fuel factor mechanism for Virginia customers using an average fuel cost factor based primarily on projected fuel costs and load for the fuel year (12 months ending March 31). The Virginia levelized fuel factor allows fuel recovery based on projected fuel costs for the fuel year plus an adjustment for any under- or over-recovery of fuel expenses from the prior fuel year. The regulatory assets or liabilities represent the amounts that have been under- or over-recovered due to timing or adjustments to the mechanism and are typically recovered or refunded within 12 months.

AROs

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

Power Purchase Agreement - OVEC

As a result of purchase accounting associated with PPL's acquisition of LKE, the fair values of the OVEC power purchase agreement were recorded on the balance sheets of LKE, LG&E and KU with offsets to regulatory liabilities. The regulatory liabilities are being amortized using the units-of-production method until March 2026, the expiration date of the agreement at the date of the acquisition. LG&E's and KU's customer rates continue to reflect the original contracts. See Notes 14 and 19 for additional discussion of the power purchase agreement.

Interest Rate Swaps

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

Terminated Interest Rate Swaps

Net realized gains and losses on all interest rate swaps are probable of recovery through regulated rates. As such, any gains and losses on these derivatives are included in regulatory assets or liabilities and are primarily recognized in "Interest Expense" on the Statements of Income over the life of the associated debt.

Plant Outage Costs

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

Gas Supply Clause (PPL, LKE and LG&E)

LG&E's natural gas rates contain a gas supply clause, whereby the expected cost of natural gas supply and variances between actual and expected costs from prior periods are adjusted quarterly in LG&E's rates, subject to approval by the KPSC. The gas supply clause also includes a separate natural gas procurement incentive mechanism, which allows LG&E's rates to be adjusted annually to share savings between the actual cost of gas purchases and market indices, with the shareholders and the customers during each performance-based rate year (12 months ending October 31). LG&E currently has a proceeding pending with the KPSC in which LG&E proposed renewal of and modification to its natural gas procurement incentive mechanism, which is currently approved through September 1, 2021. LG&E cannot predict the outcome of this proceeding. The regulatory assets or

liabilities represent the total amounts that have been under- or over-recovered due to timing or adjustments to the mechanisms and are typically recovered or refunded within 18 months.

Generation Formula Rate (PPL, LKE and KU)

KU provides wholesale requirements service to its municipal customers and bills for this service pursuant to a FERC approved generation formula rate. Under this formula, rates are put into effect each July utilizing a return on rate base calculation and actual expenses from the preceding year. The regulatory asset or liability represents the difference between the revenue requirement in effect for the current year and actual expenditures incurred for the current year. Amounts are included in other current regulatory assets for 2020 and other current regulatory liabilities for 2019 in the table above.

Regulatory Matters

Kentucky Activities (PPL, LKE, LG&E and KU)

Rate Case Proceedings

On November 25, 2020, LG&E and KU filed requests with the KPSC for an increase in annual electricity and gas revenues of approximately $331 million ($131 million and $170 million in electricity revenues at LG&E and KU and $30 million in gas revenues at LG&E). The revenue increases would be an increase of 11.6% and 10.4% in electricity revenues at LG&E and KU, and an increase of 8.3% in gas revenues at LG&E. LG&E and KU are also requesting approval of a one-year billing credit which will credit customers approximately $53 million ($41 million at LG&E and $12 million at KU). The billing credit represents the return to customers of certain regulatory liabilities on LG&E’s and KU’s balance sheets and serves to partially mitigate the rate increases during the first year in which the new rates are in effect.

LG&E’s and KU’s applications also include a request for a CPCN to deploy Advanced Metering Infrastructure across LG&E’s and KU’s service territories in Kentucky.

The applications are based on a forecasted test year of July 1, 2021 through June 30, 2022 and request an authorized return on equity of 10.0%. Subject to KPSC approval, the requested rates, decreased by the amount of the billing credit, are expected to become effective July 1, 2021. Certain counterparties have intervened in the proceedings. Data discovery and the filing of written testimony will continue through April 2021 and a hearing is expected to occur during the second quarter of 2021. PPL, LKE, LG&E and KU cannot predict the outcome of these proceedings.

ECR Filings

On March 31, 2020, LG&E and KU submitted applications to the KPSC for ECR rate treatment regarding upcoming environmental construction projects relating to the EPA's regulations addressing ELGs. The construction projects are expected to begin in 2021 and continue through 2024 and are estimated to cost approximately $405 million ($153 million at LG&E and $252 million at KU). The applications requested an authorized 9.725% return on equity with respect to these projects consistent with the authorized return on equity approved for the 2018 Kentucky rate cases in April 2019. On September 29, 2020, the KPSC issued orders approving the ECR applications, permitting an authorized return on equity of 9.2% for the applicable projects.

Pennsylvania Activities (PPL and PPL Electric)

Act 129

Act 129 requires Pennsylvania Electric Distribution Companies (EDCs) to meet, by specified dates, specified goals for reduction in customer electricity usage and peak demand. EDCs not meeting the requirements of Act 129 are subject to significant penalties. PPL Electric filed with the PUC its Act 129 Phase IV Energy Efficiency and Conservation Plan on November 30, 2020, for the five-year period starting June 1, 2021 and ending on May 31, 2026. Hearings were held February 8, 2021. This proceeding remains pending before the PUC. PPL Electric cannot predict the outcome of this proceeding.

Act 129 also requires EDCs to act as a default service provider (DSP), which provides electricity generation supply service to customers pursuant to a PUC-approved default service procurement plan. A DSP is able to recover the costs associated with its default service procurement plan.

In March 2020, PPL Electric filed a Petition for Approval of a new default service program and procurement plan with the PUC for the period June 1, 2021 through May 31, 2025. Hearings were held in August 2020. PPL Electric received a Recommended Decision from the Administrative Law Judge on October 13, 2020. Several parties filed Exceptions and Reply Exceptions on October 26, 2020 and November 2, 2020, respectively. On December 17, 2020, the PUC issued a final Order approving the partial settlement reached by parties, including the PPL Electric default service plan for the period of June 2021 through May 2025, and ruling on the issues reserved for litigation. This matter is not expected to have a significant impact on the financial condition of PPL Electric.

Federal Matters

Challenge to PPL Electric Transmission Formula Rate Return on Equity

(PPL and PPL Electric)

On May 21, 2020, PP&L Industrial Customer Alliance (PPLICA) filed a complaint with the FERC alleging that PPL Electric's base return on equity (ROE) of 11.18% used to determine PPL Electric's formula transmission rate is unjust and unreasonable, and proposing an alternative ROE of 8.00% based on its interpretation of FERC Opinion No. 569. However, also on May 21, 2020, the FERC issued Opinion No. 569-A in response to numerous requests for rehearing of Opinion No. 569, which revised the method for analyzing base ROE. On June 10, 2020, PPLICA filed a Motion to Supplement the May 21, 2020 complaint in which PPLICA continued to allege that PPL Electric’s base ROE is unjust and unreasonable, but revised its analysis of PPL Electric's base ROE to reflect the guidance provided in Opinion No. 569-A. The amended complaint proposed an updated alternative ROE of 8.50% and also requested that the FERC preserve the original refund effective date as established by the filing of the original complaint on May 21, 2020. Several parties have filed motions to intervene, including one party who filed Comments in Support of the original complaint.

On July 10, 2020, PPL Electric filed its Answer and supporting Testimony to the PPLICA filings arguing that the FERC should deny the original and amended complaints as they are without merit and fail to demonstrate the existing base ROE is unjust and unreasonable. In addition, PPL Electric contended any refund effective date should be set for no earlier than June 10, 2020 and PPLICA's proposed replacement ROE should be rejected.

On October 15, 2020, the FERC issued an order on the PPLICA complaints which established hearing and settlement procedures, set a refund effective date of May 21, 2020 and granted the motions to intervene. On November 16, 2020, PPL Electric filed a request for rehearing of the portion of the October 15, 2020 Order that set the May 21, 2020 refund effective date. On December 17, 2020, the FERC issued a Notice of Denial of Rehearing by Operation of Law and Providing for Further Consideration. On February 16, 2021, PPL Electric filed a Petition for Review with the United States Court of Appeals for the District of Columbia Circuit of the portion of the October 15, 2020 Order that set the May 21, 2020 refund effective date.

PPL Electric continues to believe its ROE is just and reasonable and that it has meritorious defenses against the original and amended complaints. At this time, PPL Electric cannot predict the outcome of this matter or the range of possible losses, if any, that may be incurred. However, revenue earned from May 21, 2020 through the settlement of this matter may be subject to refund. A change of 50 basis points to the base ROE would impact PPL Electric's net income by approximately $12 million on an annual basis.

(PPL, LKE, LG&E and KU)

FERC Transmission Rate Filing

In 2018, LG&E and KU applied to the FERC requesting elimination of certain on-going credits to a sub-set of transmission customers relating to the 1998 merger of LG&E's and KU's parent entities and the 2006 withdrawal of LG&E and KU from the Midcontinent Independent System Operator, Inc. (MISO), a regional transmission operator and energy market. The application sought termination of LG&E's and KU's commitment to provide certain Kentucky municipalities mitigation for certain horizontal market power concerns arising out of the 1998 LG&E and KU merger and 2006 MISO withdrawal. The amounts at issue are generally waivers or credits granted to a limited number of Kentucky municipalities for either certain LG&E and KU or MISO transmission charges incurred for transmission service received. Due to the development of robust, accessible energy markets over time, LG&E and KU believe the mitigation commitments are no longer relevant or appropriate. In March 2019, the FERC granted LG&E's and KU's request to remove the ongoing credits, conditioned upon the implementation by LG&E and KU of a transition mechanism for certain existing power supply arrangements, subject to FERC review and approval. In July 2019, LG&E and KU proposed their transition mechanism to the FERC and in September 2019, the FERC rejected the proposed transition mechanism and issued a separate order providing clarifications of certain aspects of the March order. In October 2019, LG&E and KU filed requests for rehearing and clarification on the two September orders. In September 2020, the FERC issued its orders in the rehearing process that modified the discussion in, and set aside portions of, the September 2019 orders including adjusting factors impacting the proposed transition mechanism. In October 2020, both LG&E and KU and other parties filed separate motions for rehearing and clarification regarding FERC’s September 2020 orders. In November 2020, the FERC denied the parties’ rehearing requests. In November 2020 and January 2021, LG&E and KU and other parties filed for appeal of the September 2020 and November 2020 orders with the D.C. Circuit Court of Appeals, where certain additional prior petitions for review relating to the proceedings are also pending. On January 15, 2021, LG&E and KU made a filing seeking FERC acceptance of a new proposal for a transition mechanism. LG&E and KU cannot predict the outcome of these proceedings. LG&E and KU currently receive recovery of the waivers and credits provided through other rate mechanisms.

(All Registrants)

TCJA Impact on FERC Rates

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

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

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

Other

Purchase of Receivables Program

(PPL and PPL Electric)

In accordance with a PUC-approved purchase of accounts receivable program, PPL Electric purchases certain accounts receivable from alternative electricity suppliers at a discount, which reflects a provision for uncollectible accounts. The alternative electricity suppliers have no continuing involvement or interest in the purchased accounts receivable. Accounts receivable that are acquired are initially recorded at fair value on the date of acquisition. During 2020, 2019 and 2018, PPL Electric purchased $1.1 billion, $1.2 billion and $1.3 billion of accounts receivable from alternative suppliers.

8. 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, LKE, LG&E and KU also apply to PPL and the credit facilities and commercial paper programs of LG&E and KU also apply to LKE. The amounts listed in the borrowed column below are recorded as "Short-term debt" on the Balance Sheets except for borrowings under PPL Capital Funding's term loan agreement due March 2022, which are reflected in "Long-term debt" on the Balance Sheets. The following credit facilities were in place at:

			December 31, 2020																														December 31, 2019
			Expiration Date						Capacity						Borrowed						Letters of Credit and Commercial Paper Issued						Unused Capacity						Borrowed						Letters of Credit and Commercial Paper Issued
PPL
U.K.
WPD plc
Syndicated Credit Facility (a) (b) (c)			Jan. 2023						£	210					£	187					£	—					£	23					£	155					£	—
WPD (South West)
Syndicated Credit Facility (a) (b) (c)			May 2023						220						50						—						170						40						—
WPD (South Wales)
Syndicated Credit Facility (a) (b) (c)			May 2023						125						—						—						125						—						—
WPD (East Midlands)
Syndicated Credit Facility (a) (b) (c)			May 2023						250						—						—						250						—						—
WPD (West Midlands)
Syndicated Credit Facility (a) (b) (c)			May 2023						250						74						—						176						48						—
Uncommitted Credit Facilities									100						60						4						36						—						4
Total U.K. Credit Facilities (b)									£	1,155					£	371					£	4					£	780					£	243					£	4
U.S.
PPL Capital Funding
Syndicated Credit Facility (c) (d)			Jan 2024						1,450						—						402						1,048						—						450
Term Loan Credit Facility (c) (d)			Mar 2021						200						200						—						—						—						—
Bilateral Credit Facility (c) (d)			Mar 2021						50						—						—						50						—						—
Bilateral Credit Facility (c) (d)			Mar 2021						50						—						15						35						—						15
Term Loan Credit Facility (c) (d)			Mar 2021						100						100						—						—						—						—
Term Loan Credit Facility (c) (d)			Mar 2022						100						100						—						—						—						—
Total PPL Capital Funding Credit Facilities									$	1,950					$	400					$	417					$	1,133					$	—					$	465
PPL Electric
Syndicated Credit Facility (c) (d)			Jan 2024						$	650					$	—					$	1					$	649					$	—					$	1
LG&E
Syndicated Credit Facility (c) (d)			Jan 2024						$	500					$	—					$	262					$	238					$	—					$	238
Total LG&E Credit Facilities									$	500					$	—					$	262					$	238					$	—					$	238
KU
Syndicated Credit Facility (c) (d)			Jan 2024						$	400					$	—					$	203					$	197					$	—					$	150
Total KU Credit Facilities									$	400					$	—					$	203					$	197					$	—					$	150

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

(b)The WPD plc amounts borrowed at December 31, 2020 and 2019 included USD-denominated borrowings of $249 million and $200 million, which bore interest at weighted average rate of 0.95% and 2.52%. The WPD (South West) amounts borrowed at December 31, 2020 and 2019 were GBP-denominated borrowings, which equated to $67 million and $51 million and bore interest at 0.54% and 1.09%. The WPD (West Midlands) amounts borrowed at December 31, 2020 and 2019 were GBP-denominated borrowings, which equated to $99 million and $62 million and bore interest at 0.54%

and 1.11%. The interest rates on the borrowings are equal to one-month USD LIBOR plus a margin. At December 31, 2020, the unused capacity under the U.K. credit facilities was approximately $1.0 billion.

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

(d)The facilities contain a financial covenant requiring debt to total capitalization not to exceed 70% for PPL Capital Funding, PPL Electric, LG&E and KU, as calculated in accordance with the facilities and other customary covenants. Additionally, subject to certain conditions, PPL Capital Funding may request that the capacity of its bilateral credit facility expiring in March 2021 be increased by up to $30 million and PPL Capital Funding, PPL Electric, LG&E and KU may each request up to a $250 million increase in its syndicated credit facility's capacity.

(PPL)

In March 2020, PPL Capital Funding entered into a $200 million term loan credit facility expiring in March 2021 and borrowed the full principal amount under the facility at an initial interest rate of 1.96%. The applicable interest rate on borrowings fluctuates periodically and is based on LIBOR plus a spread. The proceeds were used to repay short-term debt and for general corporate purposes.

In April 2020, PPL Capital Funding entered into a $100 million term loan credit facility expiring in March 2021 and borrowed the full principal amount under the facility at an initial interest rate of 1.73%. The applicable interest rate on borrowings fluctuates periodically and is based on LIBOR plus a spread. The proceeds were used to repay short-term debt and for general corporate purposes.

PPL has guaranteed PPL Capital Funding's obligations under these credit agreements.

(All Registrants)

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

			December 31, 2020																								December 31, 2019
			Weighted - Average Interest Rate						Capacity						Commercial Paper Issuances						Unused Capacity						Weighted - Average Interest Rate						Commercial Paper Issuances
PPL Capital Funding			0.25%						$	1,500					$	402					$	1,098					2.13%						$	450
PPL Electric									650						—						650												—
LG&E			0.28%						350						262						88						2.07%						238
KU			0.28%						350						203						147						2.02%						150
Total									$	2,850					$	867					$	1,983											$	838

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

See Note 15 for a discussion of intercompany borrowings.

Long-term Debt (All Registrants)

															December 31,
			Weighted-Average Rate (g)						Maturities (g)						2020						2019
PPL
U.S.
Senior Unsecured Notes			3.95		%				2021 - 2047						$	4,850					$	4,325
Senior Secured Notes/First Mortgage Bonds (a) (b) (c)			3.81		%				2021 - 2050						8,955						8,705
Junior Subordinated Notes			4.35		%				2067 - 2073						930						930
Term Loan Credit Facility			0.85		%				2022						100						—
Total U.S. Long-term Debt															14,835						13,960
U.K.
Senior Unsecured Notes (d)			4.69		%				2021 - 2040						7,197						6,874
Index-linked Senior Unsecured Notes (e)			1.42		%				2028 - 2056						1,150						1,104
Term Loan Credit Facility			1.46		%				2024						67						64
Total U.K. Long-term Debt (f)															8,414						8,042
Total Long-term Debt Before Adjustments															23,249						22,002
Fair market value adjustments															8						12
Unamortized premium and (discount), net															2						5
Unamortized debt issuance costs															(132)						(126)
Total Long-term Debt															23,127						21,893
Less current portion of Long-term Debt															1,574						1,172
Total Long-term Debt, noncurrent															$	21,553					$	20,721
PPL Electric
Senior Secured Notes/First Mortgage Bonds (a) (b)			3.79		%				2021 - 2049						$	4,289					$	4,039
Total Long-term Debt Before Adjustments															4,289						4,039
Unamortized discount															(23)						(24)
Unamortized debt issuance costs															(30)						(30)
Total Long-term Debt															4,236						3,985
Less current portion of Long-term Debt															400						—
Total Long-term Debt, noncurrent															$	3,836					$	3,985
LKE
Senior Unsecured Notes			4.38		%				2021						$	250					$	725
First Mortgage Bonds (a) (c)			3.82		%				2023 - 2050						4,666						4,666
Long-term debt to affiliate			3.89		%				2026 - 2030						1,200						650
Total Long-term Debt Before Adjustments															6,116						6,041
Unamortized premium															5						5
Unamortized discount															(13)						(12)
Unamortized debt issuance costs															(34)						(32)
Total Long-term Debt															6,074						6,002
Less current portion of Long-term Debt															674						975
Total Long-term Debt, noncurrent															$	5,400					$	5,027

															December 31,
			Weighted-Average Rate (g)						Maturities (g)						2020						2019
LG&E
First Mortgage Bonds (a) (c)			3.69		%				2025 - 2049						$	2,024					$	2,024
Total Long-term Debt Before Adjustments															2,024						2,024
Unamortized discount															(4)						(4)
Unamortized debt issuance costs															(13)						(15)
Total Long-term Debt															2,007						2,005
Less current portion of Long-term Debt															292						—
Total Long-term Debt, noncurrent															$	1,715					$	2,005
KU
First Mortgage Bonds (a) (c)			3.92		%				2023 - 2050						$	2,642					$	2,642
Total Long-term Debt Before Adjustments															2,642						2,642
Unamortized premium															5						5
Unamortized discount															(9)						(8)
Unamortized debt issuance costs															(20)						(16)
Total Long-term Debt															2,618						2,623
Less current portion of Long-term Debt															132						500
Total Long-term Debt, noncurrent															$	2,486					$	2,123

(a)Includes PPL Electric's senior secured and first mortgage bonds that are secured by the lien of PPL Electric's 2001 Mortgage Indenture, which covers substantially all of PPL Electric’s tangible distribution properties and certain of its tangible transmission properties located in Pennsylvania, subject to certain exceptions and exclusions. The carrying value of PPL Electric's property, plant and equipment was approximately $10.8 billion and $10.1 billion at December 31, 2020 and 2019.

Includes LG&E's first mortgage bonds that are secured by the lien of the LG&E 2010 Mortgage Indenture which creates a lien, subject to certain exceptions and exclusions, on substantially all of LG&E's real and tangible personal property located in Kentucky and used or to be used in connection with the generation, transmission and distribution of electricity and the storage and distribution of natural gas. The aggregate carrying value of the property subject to the lien was $5.5 billion and $5.3 billion at December 31, 2020 and 2019.

Includes KU's first mortgage bonds that are secured by the lien of the KU 2010 Mortgage Indenture which creates a lien, subject to certain exceptions and exclusions, on substantially all of KU's real and tangible personal property located in Kentucky and used or to be used in connection with the generation, transmission and distribution of electricity. The aggregate carrying value of the property subject to the lien was $6.7 billion and $6.6 billion at December 31, 2020 and 2019.

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

Includes $250 million of notes that may be called on or after September 28, 2021, at a redemption price equal to 100% of the principal amount of the bonds, plus accrued and unpaid interest to, but excluding, such redemption date.

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

At December 31, 2020, the aggregate tax-exempt revenue bonds issued on behalf of LG&E and KU that were in a term rate mode totaled $848 million for LKE, comprised of $539 million and $309 million for LG&E and KU respectively. At December 31, 2020, the aggregate tax-exempt revenue bonds issued on behalf of LG&E and KU that were in a variable rate mode totaled $33 million for LKE and KU respectively. These variable rate tax-exempt revenue bonds are subject to tender for purchase by LG&E and KU at the option of the holder and to mandatory tender for purchase by LG&E and KU upon the occurrence of certain events.

(d)Includes £225 million ($300 million at December 31, 2020) of notes that may be redeemed, in total but not in part, on December 21, 2026, at the greater of the principal value or a value determined by reference to the gross redemption yield on a nominated U.K. Government bond.

(e)The principal amount of the notes issued by WPD (South West), WPD (East Midlands) and WPD (South Wales) is adjusted based on changes in a specified index, as detailed in the terms of the related indentures. The adjustment to the principal amounts from 2019 to 2020 was an increase of approximately £10 million ($13 million) resulting from inflation. In addition, this amount includes £331 million ($441 million at December 31, 2020) of notes issued by WPD (South West) that may be redeemed, in total by series, on December 1, 2026, at the greater of the adjusted principal value and a make-whole value determined by reference to the gross real yield on a nominated U.K. government bond.

(f)Includes £5.8 billion ($7.7 billion at December 31, 2020) of notes that may be put by the holders to the issuer for redemption if the long-term credit ratings assigned to the notes are withdrawn by any of the rating agencies (Moody's or S&P) or reduced to a non-investment grade rating of Ba1 or BB+ or lower in connection with a restructuring event, which includes the loss of, or a material adverse change to, the distribution licenses under which the issuer operates.

(g)The table reflects principal maturities only, based on stated maturities or earlier put dates, and the weighted-average rates as of December 31, 2020.

None of the outstanding debt securities noted above have sinking fund requirements. The aggregate maturities of long-term debt, based on stated maturities or earlier put dates, for the periods 2021 through 2025 and thereafter are as follows:

			PPL						PPL Electric						LKE						LG&E						KU
2021			$	1,574					$	400					$	674					$	292					$	132
2022			1,374						474						—						—						—
2023			2,552						340						13						—						13
2024			950						—						—						—						—
2025			883						—						550						300						250
Thereafter			15,916						3,075						4,879						1,432						2,247
Total			$	23,249					$	4,289					$	6,116					$	2,024					$	2,642

(PPL)

In April 2020, PPL Capital Funding entered into a $100 million term loan credit facility expiring in March 2022 and borrowed the full principal amount under the facility at an initial interest rate of 1.72%. The applicable interest rate on borrowings fluctuates periodically and is based on LIBOR plus a spread. The proceeds were used to repay short-term debt and for general corporate purposes.

In April 2020, PPL Capital Funding issued $1 billion of 4.125% Senior Notes due 2030. PPL Capital Funding received proceeds of $993 million, net of a discount and underwriting fees, which were used to repay short-term debt and for general corporate purposes.

PPL has guaranteed PPL Capital Funding's obligations under the credit agreement and notes.

In October 2020, WPD (South Wales) issued £250 million of 1.625% Senior Notes due 2035. WPD (South Wales) received proceeds of £247 million which equated to $319 million at the time of issuance, net of fees and a discount. The proceeds were used to repay the £150 million of 9.25% Notes due in November 2020 and for general corporate purposes.

In January 2021, WPD issued a notice to redeem its $500 million of 5.375% Notes due May 2021 on March 1, 2021.

(PPL and PPL Electric)

In October 2020, PPL Electric issued $250 million of First Mortgage Bonds, Floating Rate Series due 2023. PPL Electric received proceeds of $249 million, net of discounts and underwriting fees, which were used to repay short-term debt and for general corporate purposes.

In October 2020, the Pennsylvania Economic Development Financing Authority (PEDFA) remarketed $90 million of Pollution Control Revenue Refunding Bonds, Series 2008 (PPL Electric Utilities Corporation Project) due 2023, previously issued on behalf of PPL Electric. The bonds were remarketed at a long-term rate and will bear interest at 0.40% through their maturity date of October 1, 2023.

(PPL and LKE)

In August 2020, LKE redeemed $475 million of 3.75% senior notes due November 2020.

(PPL, LKE and LG&E)

In September 2020, the County of Trimble, Kentucky remarketed $125 million of Pollution Control Revenue Refunding Bonds, 2016 Series A due 2044 previously issued on behalf of LG&E. The bonds were remarketed at a long-term rate and will bear interest at 1.30% through their mandatory purchase date of September 1, 2027.

In September 2020, the Louisville/Jefferson County Metro Government of Kentucky remarketed $23 million of Pollution Control Revenue Bonds, 2001 Series A due 2026 on behalf of LG&E. The bonds were remarketed at a long-term rate and will bear interest at 0.90% through their maturity date of September 1, 2026.

(PPL, LKE and KU)

In June 2020, KU issued $500 million of 3.30% First Mortgage Bonds due 2050. KU received proceeds of $493 million, net of discounts and underwriting fees, which were initially used to repay short-term debt and for other general corporate purpose, pending application to the redemption of KU's 3.25% First Mortgage Bonds in August 2020.

In August 2020, KU redeemed $500 million of 3.25% First Mortgage Bonds due November 2020.

See Note 15 for additional information related to intercompany borrowings.

Legal Separateness (All Registrants)

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

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

(PPL)

Equity Securities

ATM Program

In February 2018, PPL entered into an equity distribution agreement, pursuant to which PPL may sell, from time to time, up to an aggregate of $1.0 billion of its common stock through an at-the-market offering program, including a forward sales component. The compensation paid to the selling agents by PPL may be up to 2% of the gross offering proceeds of the shares. There were no issuances under the ATM program for the twelve months ended December 31, 2020 and 2019. The ATM program expires in February 2021.

Distributions and Related Restrictions

In November 2020, PPL declared its quarterly common stock dividend, payable January 4, 2021, at 41.50 cents per share (equivalent to $1.66 per annum). Future dividends, declared at the discretion of the Board of Directors, will depend upon future earnings, cash flows, financial and legal requirements and other factors.

Neither PPL Capital Funding nor PPL may declare or pay any cash dividend or distribution on its capital stock during any period in which PPL Capital Funding defers interest payments on its 2007 Series A Junior Subordinated Notes due 2067 or 2013 Series B Junior Subordinated Notes due 2073. At December 31, 2020, no interest payments were deferred.

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

(All Registrants)

PPL relies on dividends or loans from its subsidiaries to fund PPL's dividends to its common shareholders. The net assets of certain PPL subsidiaries are subject to legal restrictions. LKE primarily relies on dividends from its subsidiaries to fund its distributions to PPL. LG&E, KU and PPL Electric are subject to Section 305(a) of the Federal Power Act, which makes it unlawful for a public utility to make or pay a dividend from any funds "properly included in capital account." The meaning of this limitation has never been clarified under the Federal Power Act. LG&E, KU and PPL Electric believe, however, that this statutory restriction, as applied to their circumstances, would not be construed or applied by the FERC to prohibit the payment from retained earnings of dividends that are not excessive and are for lawful and legitimate business purposes. In February 2012, LG&E and KU petitioned the FERC requesting authorization to pay dividends in the future based on retained earnings balances calculated without giving effect to the impact of purchase accounting adjustments for PPL's 2010 acquisition of LKE. In May 2012, the FERC approved the petitions with the further condition that each utility may not pay dividends if such payment would cause its adjusted equity ratio to fall below 30% of total capitalization. Accordingly, at December 31, 2020, net assets of $3 billion ($1.3 billion for LG&E and $1.7 billion for KU) were restricted for purposes of paying dividends to LKE, and net assets of $3.7 billion ($1.7 billion for LG&E and $2.0 billion for KU) were available for payment of dividends to LKE. LG&E and KU believe they will not be required to change their current dividend practices as a result of the foregoing requirement. In addition, under Virginia law, KU is prohibited from making loans to affiliates without the prior approval of the VSCC. There are no comparable statutes under Kentucky law applicable to LG&E and KU, or under Pennsylvania law applicable to PPL Electric. However, orders from the KPSC require LG&E and KU to obtain prior consent or approval before lending amounts to PPL.

9. Acquisitions, Development and Divestitures

(PPL)

On August 10, 2020, PPL announced that it initiated a formal process to sell its U.K. utility business. PPL noted that there can be no assurance of any specific outcome, including whether the sale process will result in the completion of any potential transaction, the timing or terms thereof, the value or benefits that may be realized or the effect that any potential transaction will have on future financial results.

As a result of the potential sale, PPL assessed the recoverability of the assets of its U.K. utility business. PPL prepared probability-weighted undiscounted cash flow estimates as of December 31, 2020 and September 30, 2020 that considered the likelihood of the possible outcomes of the sale process, including the possibility of not selling the U.K. utility business. The resulting cash flow analyses exceeded the carrying value of the assets of the U.K. utility business. A change in the possible outcomes of the sale process could result in the carrying value of the assets of the U.K. utility business not being recoverable, which could result in an impairment in future periods. The U.K. utility business will continue to be classified as held and used until it meets the criteria to be classified as held for sale, which includes management obtaining a commitment to a plan to sell from its Board of Directors.

Should the U.K. utility business meet the criteria to be classified as held for sale in a future period, PPL will be required at that time to compare the estimated fair value of its investment in the U.K. utility business, less costs to sell, to its carrying value, including accumulated other comprehensive losses related to the U.K. utility business, for impairment purposes. The resulting measurement may result in a loss. In addition, PPL will reassess its assertion of the indefinite reinvestment of the unremitted earnings of the U.K. utility business. See Note 21 for additional information on accumulated other comprehensive income and losses. See Note 6 for additional information on income taxes.

10. Leases

(All Registrants)

The Registrants determine whether contractual arrangements contain a lease by evaluating whether those arrangements either implicitly or explicitly identify an asset, whether the Registrants have the right to obtain substantially all of the economic benefits from use of the asset throughout the term of the arrangement, and whether the Registrants have the right to direct the use of the asset. Renewal options are included in the lease term if it is reasonably certain the Registrants will exercise those options. Periods for which the Registrants are reasonably certain not to exercise termination options are also included in the

lease term. The Registrants have certain agreements with lease and non-lease components, such as office space leases, which are generally accounted for separately.

LKE, LG&E and KU have entered into various operating leases primarily for office space, vehicles and railcars. The leases generally have fixed payments with expiration dates ranging from 2021 to 2025, some of which have options to extend the leases from one year to ten years and some have options to terminate at LKE's, LG&E's and KU's discretion.

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

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

Short-term Leases

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

Discount Rate

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

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

(PPL, LKE, LG&E and KU)

Lessee Transactions

The following table provides the components of lease cost for the Registrants' operating leases for the years ended December 31:

			2020
			PPL						LKE						LG&E						KU
Lease cost:
Operating lease cost			$	30					$	22					$	8					$	13
Short-term lease cost			9						2						1						1
Total lease cost			$	39					$	24					$	9					$	14

			2019
			PPL						LKE						LG&E						KU
Lease cost:
Operating lease cost			$	33					$	25					$	12					$	13
Short-term lease cost			7						2						1						1
Total lease cost			$	40					$	27					$	13					$	14

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

			2020
			PPL						LKE						LG&E						KU
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases			$	26					$	18					$	7					$	11
Right-of-use asset obtained in exchange for new operating lease liabilities			17						16						6						9

			2019
			PPL						LKE						LG&E						KU
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases			$	29					$	21					$	9					$	11
Right-of-use asset obtained in exchange for new operating lease liabilities			46						16						5						11

The following table provides the total future minimum rental payments for operating leases, as well as a reconciliation of these undiscounted cash flows to the lease liabilities recognized on the Balance Sheets as of December 31, 2020.

			PPL						LKE						LG&E						KU
2021			$	27					$	17					$	6					$	10
2022			22						13						5						8
2023			18						10						4						6
2024			15						8						3						4
2025			8						6						3						3
Thereafter			20						3						1						2
Total			$	110					$	57					$	22					$	33
Weighted-average discount rate			3.35%						3.66%						3.53%						3.68%
Weighted-average remaining lease term (in years)			8						4						4						4
Current lease liabilities (a)			$	24					$	16					$	6					$	9
Non-current lease liabilities (a)			70						37						15						21
Right-of-use assets (b)			87						46						17						27

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

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

Lessor Transactions

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

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

The following table shows the fixed lease payments that PPL, LKE, LG&E and KU expect to receive over the remaining term of their operating lease agreements for the years ended December 31:

			2020
			PPL						LKE						LG&E						KU
2021			$	11					$	5					$	—					$	5
2022			6						—						—						—
2023			6						1						—						—
2024			5						—						—						—
2025			4						—						—						—
Thereafter			12						—						—						—
Total			$	44					$	6					$	—					$	5
Lease income recognized for the twelve months ended December 31, 2020			$	21					$	15					$	6					$	9
Lease income recognized for the twelve months ended December 31, 2019			21						13						5						8

11. Stock-Based Compensation

(PPL, PPL Electric and LKE)

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

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

						Total Plan						Annual Grant Limit Total As % of Outstanding						Annual Grant						Annual Grant Limit For Individual Participants - Performance Based Awards
						Award Limit						PPL Common Stock On First Day of						Limit Options						For awards denominated in						For awards denominated in
Plan						(Shares)						Each Calendar Year						(Shares)						shares (Shares)						cash (in dollars)
SIP						15,000,000												2,000,000						750,000						$	15,000,000
ICPKE						14,199,796						2		%				3,000,000

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

Restricted Stock Units

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

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

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

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

			2020						2019						2018
PPL			$	35.30					$	31.95					$	30.58
PPL Electric			35.37						32.33						30.00
LKE			35.31						30.65						30.98

Restricted stock unit activity for 2020 was:

			Restricted Shares/Units						Weighted- Average Grant Date Fair Value Per Share
PPL
Nonvested, beginning of period			1,137,685						$	32.76
Granted			331,160						35.30
Vested			(562,848)						34.57
Forfeited			(9,661)						32.97
Nonvested, end of period			896,336						32.56
PPL Electric
Nonvested, beginning of period			229,860						$	32.61
Transfer between registrants			(1,197)						32.23
Granted			65,356						35.37
Vested			(79,313)						34.55
Forfeited			(3,986)						32.65
Nonvested, end of period			210,720						32.73
LKE
Nonvested, beginning of period			166,445						$	32.09
Transfer between registrants			(1,598)						30.57
Granted			50,402						35.31
Vested			(60,571)						34.88
Forfeited			(1,550)						30.36
Nonvested, end of period			153,128						32.08

Substantially all restricted stock unit awards are expected to vest.

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

			2020						2019						2018
PPL			$	19					$	13					$	16
PPL Electric			3						2						2
LKE			2						1						5

Performance Units - Total Shareowner Return

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

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

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

The weighted-average assumptions used in the model were:

			2020						2019						2018
Expected stock volatility			15.64%						17.57%						17.60%
Expected life			3 years						3 years						3 years

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

			2020						2019						2018
PPL			$	37.63					$	35.83					$	38.26
PPL Electric			38.64						35.68						38.37
LKE			37.73						35.93						38.32

TSR performance unit activity for 2020 was:

			TSR Performance Units						Weighted- Average Grant Date Fair Value Per Share
PPL
Nonvested, beginning of period			739,392						$	37.50
Granted			261,891						37.63
Forfeited (a)			(375,029)						38.46
Nonvested, end of period			626,254						36.98
PPL Electric
Nonvested, beginning of period			66,799						$	37.43
Granted			21,416						38.64
Forfeited (a)			(26,408)						38.37
Nonvested, end of period			61,807						37.44
LKE
Nonvested, beginning of period			130,533						$	37.60
Granted			35,538						37.73
Forfeited (a)			(66,459)						38.23
Nonvested, end of period			99,612						37.23

(a)Primarily related to the forfeiture of 2017 performance units as performance during the period was below the minimum established performance threshold, which resulted in no payout.

There were no TSR performance units vesting for the years ended December 31, 2020 and 2019. The total fair value of TSR performance units vesting for the year ended December 31, 2018 was $3 million for PPL. Amounts for PPL Electric and LKE are insignificant.

Performance Units - Return on Equity

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

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

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

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

			2020						2019						2018
PPL			$	34.95					$	30.89					$	32.21
PPL Electric			35.59						30.76						32.32
LKE			34.81						30.99						32.28

ROE performance unit activity for 2020 was:

			ROE Performance Unit						Weighted- Average Grant Date Fair Value Per Share
PPL
Nonvested, beginning of period			570,765						$	32.02
Granted			374,878						34.95
Vested			(216,979)						34.42
Nonvested, end of period			728,664						32.81
PPL Electric
Nonvested, beginning of period			49,194						$	31.92
Granted			30,426						35.59
Vested			(17,813)						34.41
Nonvested, end of period			61,807						33.01
LKE
Nonvested, beginning of period			107,805						$	32.20
Granted			60,286						34.81
Vested			(46,384)						34.29
Nonvested, end of period			121,707						32.70

The total fair value of ROE performance units vesting for the years ended December 31 was:

			2020
PPL			$	8
PPL Electric			1
LKE			2

Stock Options

PPL's Compensation, Governance and Nominating Committee, now known as the Compensation Committee, eliminated the use of stock options due to changes in its long-term incentive mix beginning in January 2014.

Under the Plans, stock options had been granted with an option exercise price per share not less than the fair value of PPL's common stock on the date of grant. Options outstanding at December 31, 2020, are fully vested. All options expire no later than 10 years from the grant date. The options become exercisable immediately in certain situations, as defined by each of the Plans.

Stock option activity for 2020 was:

			Number of Options						Weighted Average Exercise Price Per Share						Weighted- Average Remaining Contractual Term (years)						Aggregate Total Intrinsic Value
PPL
Outstanding at beginning of period			1,330,943						$	26.20
Exercised			(227,927)						26.10
Outstanding and exercisable at end of period			1,103,016						26.22						1.7						$	2

For 2020, 2019 and 2018, PPL received $8 million, $53 million and $5 million in cash from stock options exercised. The total intrinsic value of stock options exercised was insignificant in 2020 and 2018 and $11 million in 2019. The related income tax benefits realized were not significant.

Compensation Expense

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

			2020						2019						2018
PPL			$	28					$	35					$	25
PPL Electric			10						12						10
LKE			11						9						8

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

			2020						2019						2018
PPL			$	8					$	10					$	10
PPL Electric			3						3						3
LKE			3						2						2

At December 31, 2020, unrecognized compensation expense related to nonvested stock awards was:

			Unrecognized Compensation Expense						Weighted- Average Period for Recognition
PPL			$	16					1.7
PPL Electric			3						1.8
LKE			1						1.4

12. Retirement and Postemployment Benefits

(All Registrants)

Defined Benefits

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

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

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

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

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

(PPL)

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

			Pension Benefits
			U.S.																		U.K.																		Other Postretirement Benefits
			2020						2019						2018						2020						2019						2018						2020						2019						2018
Net periodic defined benefit costs (credits):
Service cost			$	56					$	50					$	62					$	89					$	68					$	82					$	6					$	6					$	7
Interest cost			146						164						156						143						187						185						19						22						21
Expected return on plan assets			(246)						(245)						(249)						(622)						(588)						(587)						(21)						(18)						(23)
Amortization of:
Prior service cost (credit)			9						8						10						1						1						—						1						(1)						(1)
Actuarial (gain) loss			89						56						84						213						92						151						—						1						—
Net periodic defined benefit costs (credits) prior to settlements and termination benefits			54						33						63						(176)						(240)						(169)						5						10						4
Settlements (a)			23						1						—						—						—						—						—						—						—
Net periodic defined benefit costs (credits)			$	77					$	34					$	63					$	(176)					$	(240)					$	(169)					$	5					$	10					$	4
Other Changes in Plan Assets and Benefit Obligations Recognized in OCI and Regulatory Assets/Liabilities - Gross:
Settlement			(23)						(1)						—						—						—						—						—						—						—
Net (gain) loss			(221)						(121)						157						459						723						201						(6)						(18)						8
Prior service cost (credit)			1						2						1						—						—						13						5						—						—
Amortization of:
Prior service (cost) credit			(9)						(8)						(10)						(1)						(1)						—						(1)						1						1
Actuarial gain (loss)			(89)						(56)						(84)						(213)						(92)						(151)						—						(1)						—
Total recognized in OCI and regulatory assets/liabilities (b)			(341)						(184)						64						245						630						63						(2)						(18)						9
Total recognized in net periodic defined benefit costs, OCI and regulatory assets/liabilities (b)			$	(264)					$	(150)					$	127					$	69					$	390					$	(106)					$	3					$	(8)					$	13

(a)Includes a settlement charge for a retired PPL executive as well as a settlement charge incurred as a result of the amount of lump sum payment distributions from the LKE qualified pension plan. In accordance with existing regulatory accounting treatment, LG&E and KU have primarily maintained the settlement charge in regulatory assets to be amortized in accordance with existing regulatory practice. The portion of the settlement attributed to LKE's operations outside of the jurisdiction of the KPSC has been charged to expense.

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

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

			U.S. Pension Benefits																		Other Postretirement Benefits
			2020						2019						2018						2020						2019						2018
OCI			$	(428)					$	(194)					$	90					$	(12)					$	(13)					$	20
Regulatory assets/liabilities			87						10						(26)						10						(5)						(11)
Total recognized in OCI and regulatory assets/liabilities			$	(341)					$	(184)					$	64					$	(2)					$	(18)					$	9

(LKE)

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

			Pension Benefits																		Other Postretirement Benefits
			2020						2019						2018						2020						2019						2018
Net periodic defined benefit costs (credits):
Service cost			$	24					$	22					$	25					$	4					$	4					$	4
Interest cost			57						66						63						7						8						8
Expected return on plan assets			(101)						(101)						(102)						(9)						(8)						(9)
Amortization of:
Prior service cost			8						8						9						1						1						1
Actuarial (gain) loss (a)			41						22						35						(1)						(1)						—
Net periodic defined benefit costs (credits) before settlements			$	29					$	17					$	30					$	2					$	4					$	4
Settlements (b)			15						—						—						—						—						—
Net periodic defined benefit costs (credits) (c)			$	44					$	17					$	30					$	2					$	4					$	4
Other Changes in Plan Assets and Benefit Obligations Recognized in OCI and Regulatory Assets/Liabilities - Gross:
Settlements			$	(15)					$	—					$	—					$	—					$	—					$	—
Net (gain) loss			(29)						(37)						40						(1)						(14)						1
Prior service cost			2						2						—						5						—						—
Amortization of:
Prior service credit			(8)						(8)						(9)						(1)						(1)						(1)
Actuarial gain (loss)			(41)						(22)						(35)						1						1						—
Total recognized in OCI and regulatory assets/liabilities			(91)						(65)						(4)						4						(14)						—
Total recognized in net periodic defined benefit costs, OCI and regulatory assets/liabilities			$	(47)					$	(48)					$	26					$	6					$	(10)					$	4

(a)As a result of the 2014 Kentucky rate case settlement that became effective July 1, 2015, the difference between actuarial (gain)/loss calculated in accordance with LKE's pension accounting policy and actuarial (gain)/loss calculated using a 15 year amortization period was $11 million in 2020, $5 million in 2019 and $11 million in 2018.

(b)Due to the amount of lump sum payment distributions from the LKE qualified pension plan, a settlement charge of $15 million for the year ended December 31, 2020 was incurred. In accordance with existing regulatory accounting treatment, LG&E and KU have primarily maintained the settlement charge in regulatory assets to be amortized in accordance with existing regulatory practice. The portion of the settlement attributable to LKE’s operations outside of the jurisdiction of the KPSC has been charged to expense.

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

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

			Pension Benefits																		Other Postretirement Benefits
			2020						2019						2018						2020						2019						2018
OCI			$	(5)					$	13					$	(25)					$	(2)					$	(7)					$	4
Regulatory assets/liabilities			(86)						(78)						21						6						(7)						(4)
Total recognized in OCI and regulatory assets/liabilities			$	(91)					$	(65)					$	(4)					$	4					$	(14)					$	—

(LG&E)

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

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

(a)The pension plans sponsored by LKE and LG&E were merged effective January 1, 2020 into the LG&E and KU Pension Plan, sponsored by LKE.

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

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

(All Registrants)

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

			Pension Benefits
			U.S.																		U.K.																		Other Postretirement Benefits
			2020						2019						2018						2020						2019						2018						2020						2019						2018
PPL			$	40					$	18					$	40					$	(237)					$	(287)					$	(226)					$	4					$	8					$	2
PPL Electric (a)			(2)						(4)						4																								2						4						(1)
LKE (b)			20						12						21																								1						2						3
LG&E (a) (b)			4						3						4																								2						2						2
KU (a) (b)			1						(1)						2																								—						—						1

(a)PPL Electric and KU do not directly sponsor any defined benefit plans. PPL Electric and KU were allocated these costs of defined benefit plans sponsored by PPL Services (for PPL Electric) and by LKE (for KU), based on their participation in those plans, which management believes are reasonable. KU is also allocated costs of defined benefit plans from LKS for defined benefit plans sponsored by LKE. Effective January 1, 2020, the LKE and LG&E defined benefit pension plans were merged into a combined defined benefit pension plan, sponsored by LKE, therefore LG&E and KU do not directly sponsor any defined benefit plans. LG&E and KU were allocated these costs of defined benefit plans sponsored by LKE, based on their participation in those plans, which management believes are reasonable. LG&E and KU are also allocated costs of defined benefit plans from LKS for defined benefit plans sponsored by LKE. See Note 15 for additional information on costs allocated to LG&E and KU from LKS.

(b)As a result of the 2014 Kentucky rate case settlement that became effective July 1, 2015, the difference between net periodic defined benefit costs calculated in accordance with LKE's, LG&E's and KU's pension accounting policy and the net periodic defined benefit costs calculated using a 15 year amortization period for gains and losses is recorded as a regulatory asset. Of the costs charged to Other operation and maintenance, Other Income (Expense) - net or regulatory assets, excluding amounts charged to construction and other non-expense accounts, $3 million for LG&E and $1 million for KU were recorded as regulatory assets in 2020, $2 million for LG&E and $1 million for KU were recorded as regulatory assets in 2019 and $3 million for LG&E and $2 million for KU were recorded as regulatory assets in 2018.

In the table above, LG&E amounts include costs for the specific plans it sponsors and the following allocated costs of defined benefit plans sponsored by LKE. LG&E is also allocated costs of defined benefit plans from LKS for defined benefit plans sponsored by LKE. See Note 15 for additional information on costs allocated to LG&E from LKS. These allocations are based on LG&E's participation in those plans, which management believes are reasonable:

			Pension Benefits												Other Postretirement Benefits
			2019 (a)						2018						2019 (a)						2018
LG&E Non-Union Only			$	—					$	2					$	2					$	2

(a)The pension plans sponsored by LKE and LG&E were merged effective January 1, 2020 into the LG&E and KU Pension Plan, sponsored by LKE.

(PPL, LKE and LG&E)

PPL, LKE, and LG&E use base mortality tables issued by the Society of Actuaries for all U.S. defined benefit pension and other postretirement benefit plans. In 2019, PPL, LKE and LGE used RP-2014 base tables with collar and factor adjustments, where applicable, and the MP-2017 mortality improvement scale from 2006 on a generational basis. In 2020, PPL and LKE updated to the Pri-2012 base table and the MP-2020 projection scale with varying adjustment factors based on the underlying demographic and geographic differences and experience of the plan participants.

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

			Pension Benefits
			U.S.												U.K.												Other Postretirement Benefits
			2020						2019						2020						2019						2020						2019
PPL
Discount rate			2.92		%				3.64		%				1.53		%				1.94		%				2.84		%				3.60		%
Rate of compensation increase			3.76		%				3.79		%				3.25		%				3.25		%				3.75		%				3.76		%
LKE
Discount rate			2.91		%				3.62		%																2.85		%				3.59		%
Rate of compensation increase			3.50		%				3.50		%																3.50		%				3.50		%
LG&E
Discount rate			—		%				3.60		%

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

			Pension Benefits
			U.S.																		U.K.																		Other Postretirement Benefits
			2020						2019						2018						2020						2019						2018						2020						2019						2018
PPL
Discount rate service cost			3.64		%				4.35		%				3.70		%				2.03		%				3.12		%				2.73		%				3.60		%				4.31		%				3.64		%
Discount rate interest cost			3.64		%				4.35		%				3.70		%				1.73		%				2.62		%				2.31		%				3.60		%				4.31		%				3.64		%
Rate of compensation increase			3.79		%				3.79		%				3.78		%				3.25		%				3.50		%				3.50		%				3.76		%				3.76		%				3.75		%
Expected return on plan assets			7.25		%				7.25		%				7.25		%				7.13		%				7.21		%				7.23		%				6.44		%				6.46		%				6.40		%
LKE
Discount rate			3.62		%				4.35		%				3.69		%																						3.59		%				4.32		%				3.65		%
Rate of compensation increase			3.50		%				3.50		%				3.50		%																						3.50		%				3.50		%				3.50		%
Expected return on plan assets (a)			7.25		%				7.25		%				7.25		%																						7.02		%				7.00		%				7.15		%
LG&E
Discount rate			—		%				4.33		%				3.65		%
Expected return on plan assets (a)			—		%				7.25		%				7.25		%

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

(PPL and LKE)

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

			2020						2019						2018
PPL and LKE
Health care cost trend rate assumed for next year
– obligations			6.5		%				6.6		%				6.6		%
– cost			6.6		%				6.6		%				6.6		%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)
– obligations			5.0		%				5.0		%				5.0		%
– cost			5.0		%				5.0		%				5.0		%
Year that the rate reaches the ultimate trend rate
– obligations			2027						2024						2023
– cost			2024						2023						2022

(PPL)

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

			Pension Benefits
			U.S.												U.K.												Other Postretirement Benefits
			2020						2019						2020						2019						2020						2019
Change in Benefit Obligation
Benefit Obligation, beginning of period			$	4,146					$	3,883					$	8,515					$	7,275					$	557					$	538
Service cost			56						50						89						68						6						6
Interest cost			146						164						143						187						19						22
Participant contributions			—						—						12						12						15						14
Plan amendments			2						2						—						—						5						—
Actuarial (gain) loss			256						368						624						1,220						29						34
Settlements			(114)						(21)						—						—						—						—
Gross benefits paid			(241)						(300)						(366)						(363)						(58)						(58)
Federal subsidy			—						—						—						—						—						1
Currency conversion			—						—						281						116						—						—
Benefit Obligation, end of period			4,251						4,146						9,298						8,515						573						557
Change in Plan Assets
Plan assets at fair value, beginning of period			3,585						3,109						8,945						7,801						340						301
Actual return on plan assets			723						735						805						1,095						56						71
Employer contributions			115						63						272						278						18						10
Participant contributions			—						—						12						12						11						10
Settlements			(114)						(22)						—						—						—						—
Gross benefits paid			(241)						(300)						(366)						(363)						(58)						(52)
Currency conversion			—						—						302						122						—						—
Plan assets at fair value, end of period			4,068						3,585						9,970						8,945						367						340
Funded Status, end of period			$	(183)					$	(561)					$	672					$	430					$	(206)					$	(217)
Amounts recognized in the Balance Sheets consist of:
Noncurrent asset			$	24					$	24					$	682					$	440					$	—					$	11
Current liability			(18)						(8)						—						(1)						(22)						(2)
Noncurrent liability			(189)						(577)						(10)						(9)						(184)						(226)
Net amount recognized, end of period			$	(183)					$	(561)					$	672					$	430					$	(206)					$	(217)

			Pension Benefits
			U.S.												U.K.												Other Postretirement Benefits
			2020						2019						2020						2019						2020						2019
Amounts recognized in AOCI and regulatory assets/liabilities (pre-tax) consist of:
Prior service cost (credit)			$	27					$	34					$	11					$	11					$	14					$	10
Net actuarial (gain) loss			695						1,029						3,682						3,435						—						6
Total (a)			$	722					$	1,063					$	3,693					$	3,446					$	14					$	16
Total accumulated benefit obligation for defined benefit pension plans			$	4,024					$	3,910					$	8,516					$	7,821

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

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

			U.S. Pension Benefits												Other Postretirement Benefits
			2020						2019						2020						2019
AOCI			$	270					$	352					$	10					$	13
Regulatory assets/liabilities			452						711						4						3
Total			$	722					$	1,063					$	14					$	16

The actuarial loss for U.S. pension plans in 2020 was related to a change in the discount rate used to measure the benefit obligations of those plans offset by gains resulting from the updated mortality assumptions noted above and other demographic assumption changes resulting from the completion of a tri-annual demographic experience study. The actuarial loss for U.S. pension plans in 2019 was primarily related to a change in the discount rate used to measure the benefit obligations of those plans.

The actuarial loss for U.K. pension plans in 2020 and 2019 was primarily related to a change in the discount rate used to measure the benefit obligations of those plans.

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

			U.S.												U.K.
			PBO in excess of plan assets												PBO in excess of plan assets
			2020						2019						2020						2019
Projected benefit obligation			$	1,875					$	3,861					$	11					$	10
Fair value of plan assets			1,668						3,275						—						—
			U.S.												U.K.
			ABO in excess of plan assets												ABO in excess of plan assets
			2020						2019						2020						2019
Accumulated benefit obligation			$	184					$	3,624					$	11					$	10
Fair value of plan assets			—						3,275						—						—

(LKE)

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

			Pension Benefits												Other Postretirement Benefits
			2020						2019						2020						2019
Change in Benefit Obligation
Benefit Obligation, beginning of period			$	1,684					$	1,580					$	208					$	205
Service cost			24						22						4						4
Interest cost			57						66						7						8
Participant contributions			—						—						9						7
Plan amendments			2						2						5						—
Actuarial (gain) loss (a)			164						166						18						5
Settlements			(83)						(16)						—						—
Gross benefits paid			(63)						(136)						(22)						(21)
Benefit Obligation, end of period			1,785						1,684						229						208
Change in Plan Assets
Plan assets at fair value, beginning of period			1,470						1,294						141						117
Actual return on plan assets			294						304						28						27
Employer contributions			50						24						4						11
Participant contributions			—						—						9						7
Settlements			(83)						(16)						—						—
Gross benefits paid			(63)						(136)						(22)						(21)
Plan assets at fair value, end of period			1,668						1,470						160						141
Funded Status, end of period			$	(117)					$	(214)					$	(69)					$	(67)
Amounts recognized in the Balance Sheets consist of:
Noncurrent asset			$	—					$	24					$	—					$	11
Current liability			(5)						(5)						(2)						(2)
Noncurrent liability			(112)						(233)						(67)						(76)
Net amount recognized, end of period			$	(117)					$	(214)					$	(69)					$	(67)
Amounts recognized in AOCI and regulatory assets/liabilities (pre-tax) consist of:
Prior service cost			$	23					$	30					$	14					$	10
Net actuarial (gain) loss			296						380						(37)						(37)
Total			$	319					$	410					$	(23)					$	(27)
Total accumulated benefit obligation for defined benefit pension plans			$	1,657					$	1,561

(a)The actuarial (gain) loss for all pension plans in 2020 and 2019 was primarily related to changes in the discount rate used to measure the benefit obligations of those plans.

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

			Pension Benefits												Other Postretirement Benefits
			2020						2019						2020						2019
AOCI			$	127					$	132					$	2					$	4
Regulatory assets/liabilities			192						278						(25)						(31)
Total			$	319					$	410					$	(23)					$	(27)

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

			PBO in excess of plan assets
			2020						2019
Projected benefit obligation			$	1,785					$	1,398
Fair value of plan assets			1,668						1,160
			ABO in excess of plan assets
			2020						2019
Accumulated benefit obligation			$	104					$	1,276
Fair value of plan assets			—						1,160

(LG&E)

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

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

(a)The pension plans sponsored by LKE and LG&E were merged effective January 1, 2020 into the LG&E and KU Pension Plan, sponsored by LKE.

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

In addition to the plan it sponsored, LG&E is allocated a portion of the funded status and costs of certain defined benefit plans sponsored by LKE. LG&E is also allocated costs of defined benefit plans from LKS for defined benefit plans sponsored by LKE. See Note 15 for additional information on costs allocated to LG&E from LKS. These allocations are based on LG&E's participation in those plans, which management believes are reasonable. The actuarially determined obligations of current active employees and retired employees are used as a basis to allocate total plan activity, including active and retiree costs and obligations. Allocations to LG&E resulted in (assets)/liabilities at December 31 as follows:

			2020						2019
Pension			$	(78)					$	(7)
Other postretirement benefits			68						63

(PPL Electric)

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

			2020						2019
Pension			$	(4)					$	179
Other postretirement benefits			99						122

(KU)

Although KU does not directly sponsor any defined benefit plans, it is allocated a portion of the funded status and costs of plans sponsored by LKE. KU is also allocated costs of defined benefit plans from LKS for defined benefit plans sponsored by LKE. See Note 15 for additional information on costs allocated to KU from LKS. These allocations are based on KU's participation in those plans, which management believes are reasonable. The actuarially determined obligations of current active employees and retired employees of KU are used as a basis to allocate total plan activity, including active and retiree costs and obligations. Allocations to KU resulted in (assets)/liabilities at December 31 as follows.

			2020						2019
Pension			$	(62)					$	(31)
Other postretirement benefits			16						16

Plan Assets - U.S. Pension Plans

(PPL, LKE and LG&E)

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

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

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

Target allocation ranges have been developed for each portfolio based on input from external consultants with a goal of limiting funded status volatility. The EBPB monitors the investments in each portfolio, and seeks to obtain a target portfolio that emphasizes reduction of risk of loss from market volatility. In pursuing that goal, the EBPB establishes revised guidelines from time to time. EBPB investment guidelines as of the end of 2020 are presented below.

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

			Percentage of trust assets												2020
			2020						2019 (a)						Target Asset Allocation (a)
Growth Portfolio			56		%				57		%				55		%
Equity securities			34		%				34		%
Debt securities (b)			13		%				14		%
Alternative investments			9		%				9		%
Immunizing Portfolio			43		%				42		%				43		%
Debt securities (b)			33		%				35		%
Derivatives			10		%				7		%
Liquidity Portfolio			1		%				1		%				2		%
Total			100		%				100		%				100		%

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

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

(LKE)

LKE has pension plans whose assets are invested solely in the Master Trust, which is fully disclosed below. The fair value of these plans' assets of $1.7 billion and $1.5 billion at December 31, 2020 and 2019 represents an interest of approximately 41% in the Master Trust.

(LG&E)

LG&E had a pension plan whose assets were invested solely in the Master Trust, which is fully disclosed below. The fair value of this plan's assets of $310 million at December 31, 2019 represented an interest of approximately 9% in the Master Trust. The pension plans sponsored by LKE and LG&E were merged effective January 1, 2020 into the LG&E and KU Pension Plan, sponsored by LKE.

The fair value of LKE's plan assets allocated to LG&E was $618 million and $251 million at December 31, 2020 and 2019.

(KU)

The fair value of LKE's plan assets allocated to KU was $505 million and $445 million at December 31, 2020 and 2019*.*

(PPL, LKE and LG&E)

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

			December 31, 2020																								December 31, 2019
									Fair Value Measurements Using																								Fair Value Measurements Using
			Total						Level 1						Level 2						Level 3						Total						Level 1						Level 2						Level 3
PPL Services Corporation Master Trust
Cash and cash equivalents			$	300					$	300					$	—					$	—					$	182					$	182					$	—					$	—
Equity securities:
U.S. Equity			60						60						—						—						194						194						—						—
U.S. Equity fund measured at NAV (a)			742						—						—						—						451						—						—						—
International equity fund at NAV (a)			566						—						—						—						554						—						—						—
Commingled debt measured at NAV (a)			712						—						—						—						621						—						—						—
Debt securities:
U.S. Treasury and U.S. government sponsored agency			336						335						1						—						310						309						1						—
Corporate			1,045						—						1,030						15						951						—						931						20
Other			13						—						13						—						14						—						14						—

			December 31, 2020																								December 31, 2019
									Fair Value Measurements Using																								Fair Value Measurements Using
			Total						Level 1						Level 2						Level 3						Total						Level 1						Level 2						Level 3
Alternative investments:
Real estate measured at NAV (a)			76						—						—						—						88						—						—						—
Private equity measured at NAV (a)			68						—						—						—						62						—						—						—
Hedge funds measured at NAV (a)			223						—						—						—						194						—						—						—
Limited Partnerships at NAV (a)			6						—						—						—						—						—						—						—
Derivatives			(37)						—						(37)						—						3						—						3						—
Insurance contracts			—						—						—						—						4						—						—						4
PPL Services Corporation Master Trust assets, at fair value			4,110						$	695					$	1,007					$	15					3,628						$	685					$	949					$	24
Receivables and payables, net (b)			116																								99
401(h) accounts restricted for other postretirement benefit obligations			(158)																								(142)
Total PPL Services Corporation Master Trust pension assets			$	4,068																							$	3,585

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

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

A reconciliation of the Master Trust assets classified as Level 3 at December 31, 2020 is as follows:

			Corporate debt						Insurance contracts												Total
Balance at beginning of period			$	20					$	4											$	24
Purchases, sales and settlements			(5)						(4)												(9)
Balance at end of period			$	15					$	—											$	15

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

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

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

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

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

The fair value measurements of debt securities are generally based on evaluations that reflect observable market information, such as actual trade information for identical securities or for similar securities, adjusted for observable differences. The fair value of debt securities is generally measured using a market approach, including the use of pricing models, which incorporate observable inputs. Common inputs include benchmark yields, relevant trade data, broker/dealer bid/ask prices, benchmark securities and credit valuation adjustments. When necessary, the fair value of debt securities is measured using the income approach, which incorporates similar observable inputs as well as payment data, future predicted cash flows, collateral performance and new issue data. For the Master Trust, these securities represent investments in securities issued by U.S.

Treasury and U.S. government sponsored agencies; investments securitized by residential mortgages, auto loans, credit cards and other pooled loans; investments in investment grade and non-investment grade bonds issued by U.S. companies across several industries; investments in debt securities issued by foreign governments and corporations.

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

Investments in private equity represent interests in partnerships in multiple early-stage venture capital funds and private equity fund of funds that use a number of diverse investment strategies. The partnerships have limited lives of at least 10 years, after which liquidating distributions will be received. Prior to the end of each partnership's life, the investment cannot be redeemed with the partnership; however, the interest may be sold to other parties, subject to the general partner's approval. At December 31, 2020, the Master Trust has unfunded commitments of $45 million that may be required during the lives of the partnerships. Fair value is based on an ownership interest in partners' capital to which a proportionate share of net assets is attributed.

Investments in limited partnerships include Term Asset-Backed Securities Loan Facility (TALF) funds. The Master Trust received notice that the TALF funds are liquidating in an orderly manner and distributing capital back to the partners. Therefore, the Master Trust has no unfunded commitment related to the TALF funds. Fair value of the funds is based on an ownership interest in partners' capital to which a proportionate share of net assets is attributed.

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

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

In 2019, obligations underlying an investment in an immediate participation guaranteed group annuity contract, classified as Level 3, were assumed by the insurance company, with a residual amount remaining in the general account of the insurer that was paid into the master trust or distributed to participants in 2020.

Plan Assets - U.S. Other Postretirement Benefit Plans

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

			Percentage of plan assets												Target Asset Allocation
			2020						2019						2020
Asset Class
U.S. Equity securities			42		%				45		%				45		%
Debt securities (a)			55		%				52		%				50		%
Cash and cash equivalents (b)			3		%				3		%				5		%
Total			100		%				100		%				100		%

(a)Includes commingled debt funds and debt securities.

(b)Includes money market funds.

LKE's other postretirement benefit plan is invested primarily in a 401(h) account, as disclosed in the PPL Services Corporation Master Trust, with insignificant amounts invested in money market funds within VEBA trusts for liquidity.

The fair value of assets in the U.S. other postretirement benefit plans by asset class and level within the fair value hierarchy was:

			December 31, 2020																								December 31, 2019
									Fair Value Measurement Using																								Fair Value Measurement Using
			Total						Level 1						Level 2						Level 3						Total						Level 1						Level 2						Level 3
Money market funds			$	5					$	5					$	—					$	—					$	6					$	6					$	—					$	—
U.S. Equity securities:
Large-cap equity fund measure at NAV (a)			89						—						—						—						89						—						—						—
Commingled debt fund measured at NAV (a)			77						—						—						—						68						—						—						—
Debt securities:
Corporate bonds			37						—						37						—						35						—						35						—
U.S. Treasury and U.S. government sponsored agency			2						—						2						—						—						—						—						—
Total VEBA trust assets, at fair value			210						$	5					$	39					$	—					198						$	6					$	35					$	—
Receivables and payables, net (b)			(1)																								—
401(h) account assets			158																								142
Total other postretirement benefit plan assets			$	367																							$	340

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

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

Investments in money market funds represent investments in funds that invest primarily in a diversified portfolio of investment grade money market instruments, including, but not limited to, commercial paper, notes, repurchase agreements and other evidences of indebtedness with a maturity not exceeding 13 months from the date of purchase. The primary objective of the fund is a level of current income consistent with stability of principal and liquidity. Redemptions can be made daily on this fund.

Investments in large-cap equity securities represent investments in a passively managed equity index fund that invests in securities and a combination of other collective funds. Fair value measurements are not obtained from a quoted price in an active market but are based on firm quotes of net asset values per share as provided by the trustee of the fund. Redemptions can be made daily on this fund.

Investments in commingled debt securities represent investments in a fund that invests in a diversified portfolio of investment grade long-duration fixed income securities. Redemptions can be made daily on these funds.

Investments in corporate bonds represent investment in a diversified portfolio of investment grade long-duration fixed income securities. The fair value of debt securities are generally based on evaluations that reflect observable market information, such as actual trade information for identical securities or for similar securities, adjusted for observable differences.

Investments in U.S. Treasury and U.S. government sponsored agencies represent securities included in a portfolio of investment-grade long-duration fixed income. The fair value of debt securities are generally based on evaluations that reflect

observable market information, such as actual trade information for identical securities or for similar securities, adjusted for observable differences.

Plan Assets - U.K. Pension Plans (PPL)

The overall investment strategy of WPD's pension plans is developed by each plan's independent trustees in its Statement of Investment Principles in compliance with the U.K. Pensions Act of 1995 and other U.K. legislation. The trustees' primary focus is to ensure that assets are sufficient to meet members' benefits as they fall due with a longer term objective to reduce investment risk. The investment strategy is intended to maximize investment returns while not incurring excessive volatility in the funding position. WPD's plans are invested in a wide diversification of asset types, fund strategies and fund managers; and therefore, have no significant concentration of risk. Commingled funds that consist entirely of debt securities are traded as equity units, but treated by WPD as debt securities for asset allocation and target allocation purposes. These include investments in U.K. corporate bonds and U.K. gilts.

The asset allocation and target allocation at December 31 of WPD's pension plans are detailed below.

															Target Asset
			Percentage of plan assets												Allocation
			2020						2019						2020
Asset Class
Cash and cash equivalents			4		%				2		%				—		%
Equity securities
U.K.			—		%				—		%				2		%
European (excluding the U.K.)			—		%				—		%				1		%
Asian-Pacific			—		%				—		%				1		%
North American			—		%				1		%				1		%
Emerging markets			—		%				—		%				1		%
Global equities			23		%				19		%				9		%
Global Tactical Asset Allocation			20		%				29		%				41		%
Debt securities (a)			48		%				43		%				38		%
Alternative investments			5		%				6		%				6		%
Total			100		%				100		%				100		%

(a)Includes commingled debt funds.

The fair value of assets in the U.K. pension plans by asset class and level within the fair value hierarchy was:

			December 31, 2020																								December 31, 2019
									Fair Value Measurement Using																								Fair Value Measurement Using
			Total						Level 1						Level 2						Level 3						Total						Level 1						Level 2						Level 3
Cash and cash equivalents			$	412					$	412					$	—					$	—					$	154					$	154					$	—					$	—
Equity securities measured at NAV (a) :
U.K. companies			1						—						—						—						22						—						—						—
European companies (excluding the U.K.)			3						—						—						—						54						—						—						—
Asian-Pacific companies			3						—						—						—						35						—						—						—
North American companies			3						—						—						—						74						—						—						—
Emerging markets companies			1						—						—						—						32						—						—						—
Global Equities			2,253						—						—						—						1,684						—						—						—
Other			1,950						—						—						—						2,584						—						—						—
Debt Securities:
U.K. corporate bonds			—						—						—						—						5						—						5						—
U.K. corporate bonds measured at NAV (a)			574						—						—						—						—						—						$	—					—
U.K. gilts			4,209						—						4,209						—						3,819						—						3,819						—
Alternative investments:
Real estate measured at NAV (a)			557						—						—						—						519						—						—						—
Fair value - U.K. pension plans			9,966						$	412					$	4,209					$	—					8,982						$	154					$	3,824					$	—
Receivables and payables, net (b)			4																								(37)
Total U.K. pension assets			$	9,970																							$	8,945

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

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

Except for investments in real estate, the fair value measurements of WPD's pension plan assets are based on the same inputs and measurement techniques used to measure the U.S. pension plan assets described above.

Investments in equity securities represent actively and passively managed funds that are measured against various equity indices.

Other comprises a range of investment strategies, which invest in a variety of assets including equities, bonds, currencies, real estate and forestry held in unitized funds, which are considered in the Global Tactical Asset Allocation target.

U.K. corporate bonds include investment grade corporate bonds of companies from diversified U.K. industries.

U.K. gilts include gilts, index-linked gilts and swaps intended to track a portion of the plans' liabilities.

Investments in real estate represent holdings in a U.K. unitized fund that owns and manages U.K. industrial and commercial real estate with a strategy of earning current rental income and achieving capital growth. The fair value measurement of the fund is based upon a net asset value per share, which is based on the value of underlying properties that are independently appraised in accordance with Royal Institution of Chartered Surveyors valuation standards at least annually with quarterly valuation updates based on recent sales of similar properties, leasing levels, property operations and/or market conditions. The fund may be subject to redemption restrictions in the unlikely event of a large forced sale in order to ensure other unit holders are not disadvantaged.

Expected Cash Flows - U.S. Defined Benefit Plans (PPL)

While PPL's U.S. defined benefit pension plans have the option to utilize available prior year credit balances to meet current and future contribution requirements, PPL contributed $30 million in January 2021 to its U.S. pension plans. No additional contributions are expected in 2021.

PPL sponsors various non-qualified supplemental pension plans for which no assets are segregated from corporate assets. PPL expects to make approximately $18 million of benefit payments under these plans in 2021.

PPL is not required to make contributions to its other postretirement benefit plans but has historically funded these plans in amounts equal to the postretirement benefit costs recognized. Continuation of this past practice would cause PPL to contribute $35 million to its other postretirement benefit plans in 2021.

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid by the plans and the following federal subsidy payments are expected to be received by PPL.

									Other Postretirement
			Pension						Benefit Payment						Expected Federal Subsidy
2021			$	296					$	49					$	1
2022			284						47						—
2023			279						46						—
2024			275						44						—
2025			273						43						—
2026-2030			1,273						194						1

(LKE)

Effective January 1, 2020, the LKE and LG&E defined benefit pension plans were merged into a combined defined benefit pension plan.

While LKE's defined benefit pension plan has the option to utilize available prior year credit balances to meet current and future contribution requirements, LKE accelerated its planned January 2021 contribution of $23 million to December 2020. No contributions are expected in 2021.

LKE sponsors various non-qualified supplemental pension plans for which no assets are segregated from corporate assets. LKE expects to make $6 million of benefit payments under these plans in 2021.

LKE is not required to make contributions to its other postretirement benefit plan but has historically funded this plan in amounts equal to the postretirement benefit costs recognized. Continuation of this past practice would cause LKE to contribute a projected $15 million to its other postretirement benefit plan in 2021.

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid by the plans and the following federal subsidy payments are expected to be received by LKE.

									Other Postretirement
			Pension						Benefit Payment						Expected Federal Subsidy
2021			$	121					$	15					$	1
2022			119						16						—
2023			118						16						—
2024			117						16						—
2025			115						16						—
2026-2030			533						75						1

Expected Cash Flows - U.K. Pension Plans (PPL)

The pension plans of WPD are subject to formal actuarial valuations every three years, which are used to determine funding requirements. Contribution requirements were evaluated in accordance with the valuation performed as of March 31, 2019. WPD expects to make contributions of approximately $183 million in 2021. WPD is currently permitted to recover in current revenues approximately 78% of its pension funding requirements for its primary pension plans.

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid by the plans.

			Pension
2021			$	362
2022			367
2023			370
2024			375
2025			377
2026-2030			1,884

Savings Plans (All Registrants)

Substantially all employees of PPL's subsidiaries are eligible to participate in deferred savings plans (401(k)s). Employer contributions to the plans were:

			2020						2019						2018
PPL			$	42					$	42					$	40
PPL Electric			6						6						6
LKE			19						21						20
LG&E			6						6						6
KU			5						5						5

13. Jointly Owned Facilities

(PPL, LKE, LG&E and KU)

At December 31, 2020 and 2019, the Balance Sheets reflect the owned interests in the generating plants listed below.

						Ownership Interest						Electric Plant						Accumulated Depreciation						Construction Work in Progress
PPL and LKE
			December 31, 2020
			Trimble County Unit 1			75.00		%				$	440					$	64					$	2
			Trimble County Unit 2			75.00		%				1,340						227						106
			December 31, 2019
			Trimble County Unit 1			75.00		%				$	440					$	54					$	2
			Trimble County Unit 2			75.00		%				1,278						203						134
LG&E
			December 31, 2020
			E.W. Brown Units 6-7			38.00		%				$	46					$	22					$	—
			Paddy's Run Unit 13 & E.W. Brown Unit 5			53.00		%				51						22						—
			Trimble County Unit 1			75.00		%				440						64						2
			Trimble County Unit 2			14.25		%				370						51						54
			Trimble County Units 5-6			29.00		%				33						14						1
			Trimble County Units 7-10			37.00		%				77						31						1
			Cane Run Unit 7			22.00		%				123						15						—
			E.W. Brown Solar Unit			39.00		%				10						2						—
			Solar Share			44.00		%				2						—						—
			December 31, 2019
			E.W. Brown Units 6-7			38.00		%				$	45					$	20					$	—
			Paddy's Run Unit 13 & E.W. Brown Unit 5			53.00		%				52						20						—
			Trimble County Unit 1			75.00		%				440						54						2
			Trimble County Unit 2			14.25		%				340						43						69
			Trimble County Units 5-6			29.00		%				32						12						—
			Trimble County Units 7-10			37.00		%				78						27						—
			Cane Run Unit 7			22.00		%				119						13						—
			E.W. Brown Solar Unit			39.00		%				10						2						—
			Solar Share			44.00		%				1						—						—
KU
			December 31, 2020
			E.W. Brown Units 6-7			62.00		%				$	76					$	37					$	—
			Paddy's Run Unit 13 & E.W. Brown Unit 5			47.00		%				45						20						—
			Trimble County Unit 2			60.75		%				970						176						52
			Trimble County Units 5-6			71.00		%				77						33						4
			Trimble County Units 7-10			63.00		%				129						53						2
			Cane Run Unit 7			78.00		%				443						57						2
			E.W. Brown Solar Unit			61.00		%				16						3						—
			Solar Share			56.00		%				2						—						—
			December 31, 2019
			E.W. Brown Units 6-7			62.00		%				$	75					$	32					$	—
			Paddy's Run Unit 13 & E.W. Brown Unit 5			47.00		%				46						14						—
			Trimble County Unit 2			60.75		%				938						160						65
			Trimble County Units 5-6			71.00		%				76						29						—
			Trimble County Units 7-10			63.00		%				128						46						—
			Cane Run Unit 7			78.00		%				429						49						1
			E.W. Brown Solar Unit			61.00		%				16						2						—
			Solar Share			56.00		%				2						—						—

Each subsidiary owning these interests provides its own funding for its share of the facility. Each receives a portion of the total output of the generating plants equal to its percentage ownership. The share of fuel and other operating costs associated with the plants is included in the corresponding operating expenses on the Statements of Income.

14. Commitments and Contingencies

Energy Purchase Commitments (PPL, LKE, LG&E and KU)

LG&E and KU enter into purchase contracts to supply the coal and natural gas requirements for generation facilities and LG&E's retail natural gas supply operations. These contracts include the following commitments:

Contract Type			Maximum Maturity Date
Natural Gas Fuel			2023
Natural Gas Retail Supply			2022
Coal			2024
Coal Transportation and Fleeting Services			2027
Natural Gas Transportation			2026

LG&E and KU have a power purchase agreement with OVEC expiring in June 2040. See footnote (f) to the table in "Guarantees and Other Assurances" below for information on the OVEC power purchase contract, including recent developments in credit or debt conditions relating to OVEC. Future obligations for power purchases from OVEC are demand payments, comprised of debt-service payments and contractually-required reimbursements of plant operating, maintenance and other expenses, and are projected as follows:

			LG&E						KU						Total
2021			$	23					$	11					$	34
2022			23						11						34
2023			24						10						34
2024			22						10						32
2025			22						10						32
Thereafter			250						109						359
Total			$	364					$	161					$	525

LG&E and KU had total energy purchases under the OVEC power purchase agreement for the years ended December 31 as follows:

			2020						2019						2018
LG&E			$	12					$	15					$	14
KU			6						7						6
Total			$	18					$	22					$	20

Legal Matters

(All Registrants)

PPL and its subsidiaries are involved in legal proceedings, claims and litigation in the ordinary course of business. PPL and its subsidiaries cannot predict the outcome of such matters, or whether such matters may result in material liabilities, unless otherwise noted.

Talen Litigation (PPL)

Background

In September 2013, one of PPL's former subsidiaries, PPL Montana entered into an agreement to sell its hydroelectric generating facilities. In June 2014, PPL and PPL Energy Supply, the parent company of PPL Montana, entered into various definitive agreements with affiliates of Riverstone to spin off PPL Energy Supply and ultimately combine it with Riverstone's competitive power generation businesses to form a stand-alone company named Talen Energy. In November 2014, after executing the spinoff agreements but prior to the closing of the spinoff transaction, PPL Montana closed the sale of its hydroelectric generating facilities. Subsequently, on June 1, 2015, the spinoff of PPL Energy Supply was completed. Following the spinoff transaction, PPL had no continuing ownership interest in or control of PPL Energy Supply. In connection with the spinoff transaction, PPL Montana became Talen Montana, LLC (Talen Montana), a subsidiary of Talen Energy. Talen Energy

Marketing also became a subsidiary of Talen Energy as a result of the June 2015 spinoff of PPL Energy Supply. Talen Energy has owned and operated both Talen Montana and Talen Energy Marketing since the spinoff. At the time of the spinoff, affiliates of Riverstone acquired a 35% ownership interest in Talen Energy. Riverstone subsequently acquired the remaining interests in Talen Energy in a take private transaction in December 2016.

Talen Montana Retirement Plan and Talen Energy Marketing, LLC, Individually and on Behalf of All Others Similarly Situated v. PPL Corporation et al.

On October 29, 2018, Talen Montana Retirement Plan and Talen Energy Marketing filed a putative class action complaint on behalf of current and contingent creditors of Talen Montana who allegedly suffered harm or allegedly will suffer reasonably foreseeable harm as a result of the November 2014 distribution of proceeds from the sale of then-PPL Montana's hydroelectric generating facilities. The action was filed in the Sixteenth Judicial District of the State of Montana, Rosebud County, against PPL and certain of its affiliates and current and former officers and directors (Talen Putative Class Action). Plaintiff asserts claims for, among other things, fraudulent transfer, both actual and constructive; recovery against subsequent transferees; civil conspiracy; aiding and abetting tortious conduct; and unjust enrichment. Plaintiff is seeking avoidance of the purportedly fraudulent transfer, unspecified damages, including punitive damages, the imposition of a constructive trust, and other relief. In December 2018, PPL removed the Talen Putative Class Action from the Sixteenth Judicial District of the State of Montana to the United States District Court for the District of Montana, Billings Division (MT Federal Court). In January 2019, the plaintiff moved to remand the Talen Putative Class Action back to state court, and dismissed without prejudice all current and former PPL Corporation directors from the case. In September 2019, the MT Federal Court granted plaintiff's motion to remand the case back to state court. Although, the PPL defendants petitioned the Ninth Circuit Court of Appeals to grant an appeal of the remand decision, in November 2019, the Ninth Circuit Court of Appeals denied that request and in December 2019, Talen Montana Retirement Plan filed a Second Amended Complaint in the Sixteenth Judicial District of the State of Montana, Rosebud County, which removed Talen Energy Marketing as a plaintiff. In January 2020, PPL defendants filed a motion to dismiss the Second Amended Complaint or, in the alternative, to stay the proceedings pending the resolution of the below mentioned Delaware Action. The Court held a hearing on June 24, 2020 regarding the motion to dismiss. On September 11, 2020, the Court granted PPL defendants' alternative Motion for a Stay of the proceedings.

PPL Corporation et al. vs. Riverstone Holdings LLC, Talen Energy Corporation et al.

On November 30, 2018, PPL, certain PPL affiliates, and certain current and former officers and directors (PPL plaintiffs) filed a complaint in the Court of Chancery of the State of Delaware seeking various forms of relief against Riverstone, Talen Energy and certain of their affiliates (Delaware Action), in response to and as part of the defense strategy for an action filed by Talen Montana, LLC (the Talen Direct Action, since dismissed) and the Talen Putative Class Action described above (together, the Montana Actions) originally filed in Montana state court in October 2018. In the complaint, the PPL plaintiffs ask the Delaware Court of Chancery for declaratory and injunctive relief. This includes a declaratory judgment that, under the separation agreement governing the spinoff of PPL Energy Supply, all related claims that arise must be heard in Delaware; that the statute of limitations in Delaware and the spinoff agreement bar these claims at this time; that PPL is not liable for the claims in either the Talen Direct Action or the Talen Putative Class Action as PPL Montana was solvent at all relevant times; and that the separation agreement requires that Talen Energy indemnify PPL for all losses arising from the debts of Talen Montana, among other things. PPL's complaint also seeks damages against Riverstone for interfering with the separation agreement and against Riverstone affiliates for breach of the implied covenant of good faith and fair dealing. The complaint was subsequently amended on January 11, 2019 and March 20, 2019, to include, among other things, claims related to indemnification with respect to the Montana Actions, request a declaration that the Montana Actions are time-barred under the spinoff agreements, and allege additional facts to support the tortious interference claim. In April 2019, the defendants filed motions to dismiss the amended complaint. In July 2019, the Court heard oral arguments from the parties regarding the motions to dismiss, and in October 2019, the Delaware Court of Chancery issued an opinion sustaining all of the PPL plaintiffs' claims except for the claim for breach of implied covenant of good faith and fair dealing. As a result of the dismissal of the Talen Direct Action in December 2019, in January 2020, Talen Energy filed a new motion to dismiss five of the remaining eight claims in the amended complaint. The Court heard oral argument on the motion to dismiss on May 28, 2020, and on June 22, 2020, issued an opinion denying the motion in its entirety. Discovery is proceeding, and a trial has been scheduled for February 2022.

With respect to each of the Talen-related matters described above, PPL believes that the 2014 distribution of proceeds was made in compliance with all applicable laws and that PPL Montana was solvent at all relevant times. Additionally, the agreements entered into in connection with the spinoff, which PPL and affiliates of Talen Energy and Riverstone negotiated and executed prior to the 2014 distribution, directly address the treatment of the proceeds from the sale of PPL Montana's hydroelectric generating facilities; in those agreements, Talen Energy and Riverstone definitively agreed that PPL was entitled to retain the proceeds.

PPL believes that it has meritorious defenses to the claims made in the Talen Putative Class Action and intends to continue to vigorously defend against this action. The Talen Putative Class Action and the Delaware Action are both in early stages of litigation; at this time, PPL cannot predict the outcome of these matters or estimate the range of possible losses, if any, that PPL might incur as a result of the claims, although they could be material.

(PPL, LKE and LG&E)

Cane Run Environmental Claims

In December 2013, six residents, on behalf of themselves and others similarly situated, filed a class action complaint against LG&E and PPL in the U.S. District Court for the Western District of Kentucky (U.S. District Court) alleging violations of the Clean Air Act, RCRA, and common law claims of nuisance, trespass and negligence. In July 2014, the U.S. District Court dismissed the RCRA claims and all but one Clean Air Act claim, but declined to dismiss the common law tort claims. In February 2017, the U.S. District Court dismissed PPL as a defendant and dismissed the final federal claim against LG&E, and in April 2017, issued an Order declining to exercise supplemental jurisdiction on the state law claims dismissing the case in its entirety. In June 2017, the plaintiffs filed a class action complaint in Jefferson County, Kentucky Circuit Court, against LG&E alleging state law nuisance, negligence and trespass tort claims. The plaintiffs seek compensatory and punitive damages for alleged property damage due to purported plant emissions on behalf of a class of residents within one to three miles of the plant. On January 8, 2020, the Jefferson Circuit Court issued an order denying the plaintiffs’ request for class certification. On January 14, 2020, the plaintiffs filed a notice of appeal in the Kentucky Court of Appeals. On December 11, 2020, the Court of Appeals issued an order affirming the lower court’s denial of class certification. In December 2020, plaintiffs filed a petition for discretionary review with the Kentucky Supreme Court. PPL, LKE and LG&E cannot predict the outcome of this matter and an estimate or range of possible losses cannot be determined.

(PPL, LKE and KU)

E.W. Brown Environmental Claims

In July 2017, the Kentucky Waterways Alliance and the Sierra Club filed a citizen suit complaint against KU in the U.S. District Court for the Eastern District of Kentucky (U.S. District Court) alleging discharges at the E.W. Brown plant in violation of the Clean Water Act and the plant's water discharge permit and alleging contamination that may present an imminent and substantial endangerment in violation of the RCRA. The plaintiffs' suit relates to prior notices of intent to file a citizen suit submitted in October and November 2015 and October 2016. These plaintiffs sought injunctive relief ordering KU to take all actions necessary to comply with the Clean Water Act and RCRA, including ceasing the discharges in question, abating effects associated with prior discharges and eliminating the alleged imminent and substantial endangerment. These plaintiffs also sought assessment of civil penalties and an award of litigation costs and attorney fees. In December 2017, the U.S. District Court issued an Order dismissing the Clean Water Act and RCRA complaints against KU in their entirety. In January 2018, the plaintiffs appealed the dismissal Order to the U.S. Court of Appeals for the Sixth Circuit. In September 2018, the U.S. Court of Appeals for the Sixth Circuit issued its ruling affirming the lower court's decision to dismiss the Clean Water Act claims but reversing its dismissal of the RCRA claims against KU and remanding the latter to the U.S. District Court. In October 2018, KU filed a petition for rehearing to the U.S. Court of Appeals for the Sixth Circuit regarding the RCRA claims. In November 2018, the U.S. Court of Appeals for the Sixth Circuit denied KU's petition for rehearing regarding the RCRA claims. In January 2019, KU filed an answer to plaintiffs’ complaint in the U.S. District Court. Discovery is complete and the parties' motions for partial summary judgment are pending. In December 2020, the U.S. District Court delayed the trial scheduled for February 2, 2021 indefinitely due to pandemic considerations. PPL, LKE and KU cannot predict the outcome of these matters and an estimate or range of possible losses cannot be determined.

KU is undertaking extensive remedial measures at the E.W. Brown plant including work preparing for 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. However, until the KEEC assesses the study and issues any regulatory determinations, PPL, LKE and KU are unable to determine whether additional remedial measures will be required at the E.W. Brown plant.

Air

Sulfuric Acid Mist Emissions (PPL, LKE and LG&E)

In June 2016, the EPA issued a notice of violation under the Clean Air Act alleging that LG&E violated applicable rules relating to sulfuric acid mist emissions at its Mill Creek plant. The notice alleges failure to install proper controls, failure to operate the facility consistent with good air pollution control practice, and causing emissions exceeding applicable requirements or constituting a nuisance or endangerment. LG&E believes it has complied with applicable regulations during the relevant time period. On July 31, 2020, the U.S. Department of Justice and Louisville Metro Air Pollution Control District filed a complaint in the U.S. District Court for the Western District of Kentucky alleging violations specified in the EPA notice of violation and seeking civil penalties and injunctive relief. In October 2020, LG&E filed a motion to dismiss the complaint. In December 2020, the U.S. Department of Justice and the Louisville Metro Air Pollution Control District filed an amended complaint. In February 2021, LG&E filed a renewed motion to dismiss regarding the amended complaint. PPL, LKE and LG&E are unable to predict the outcome of this matter or the potential impact on operations of the Mill Creek plant, including increased capital or operating costs, and potential civil penalties or remedial measures, if any. An estimate or range of possible losses cannot be determined.

Water/Waste

(PPL, LKE, LG&E and KU)

ELGs

In 2015, the EPA finalized ELGs for wastewater discharge permits for new and existing steam electricity generating facilities. These guidelines require deployment of additional control technologies providing physical, chemical and biological treatment and mandate operational changes including "no discharge" requirements for certain wastewaters. The implementation date for individual generating stations was to be determined by the states on a case-by-case basis according to criteria provided by the EPA. Legal challenges to the final rule were consolidated before the U.S. Court of Appeals for the Fifth Circuit. In April 2017, the EPA announced that it would grant petitions for reconsideration of the rule. In September 2017, the EPA issued a rule to postpone the compliance date for certain requirements. On October 13, 2020, the EPA published final revisions to its best available technology standards for certain wastewaters and potential extensions to compliance dates. The rule will be implemented by the states or applicable permitting authorities in the course of their normal permitting activities. LG&E and KU have developed 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. See Note 7 for additional information regarding LG&E's and KU's applications for ECR rate treatment of construction costs relating to regulations addressing ELGs.

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 the 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 to adopt various other amendments to the rule. PPL, LKE, LG&E and KU are unable to predict the outcome of the ongoing litigation and rulemaking or potential impacts on current LG&E and KU compliance plans. The Registrants are currently finalizing closure plans and schedules.

In January 2017, Kentucky issued a new state rule relating to CCR management, effective May 2017, aimed at reflecting the requirements of the federal CCR rule. As a result of a subsequent legal challenge, in January 2018, the Franklin County, Kentucky Circuit Court issued an opinion invalidating certain procedural elements of the rule. LG&E and KU presently operate their facilities under continuing permits authorized under the former program and do not currently anticipate material impacts as a result of the judicial ruling. The Kentucky Energy and Environmental Cabinet has announced it intends to propose new state

rules aimed at addressing procedural deficiencies identified by the court and providing the regulatory framework necessary for operation of the state program in lieu of the federal CCR Rule. Associated costs are expected to be subject to rate recovery.

LG&E and KU received KPSC approval for a compliance plan providing for the closure of impoundments at the Mill Creek, Trimble County, E.W. Brown, and Ghent stations, and construction of process water management facilities at those plants. In addition to the foregoing measures required for compliance with the federal CCR rule, KU also received KPSC approval for its plans to close impoundments at the retired Green River, Pineville and Tyrone plants to comply with applicable state law. Since 2017, LG&E and KU have commenced closure of many of the subject impoundments and have completed closure of some of their smaller impoundments. LG&E and KU expect to commence closure of the remaining impoundments no later than April 2021. LG&E and KU generally expect to complete impoundment closures within five years of commencement, although a longer period may be required to complete closure of some facilities. Associated costs are expected to be subject to rate recovery.

In connection with the final CCR rule, LG&E and KU recorded adjustments to existing AROs beginning in 2015 and continue to record adjustments as required. See Note 19 for additional information. Further changes to AROs, current capital plans or operating costs may be required as estimates are refined based on closure developments, groundwater monitoring results, and regulatory or legal proceedings. Costs relating to this rule are subject to rate recovery.

(All Registrants)

Superfund and Other Remediation

PPL Electric, LG&E and KU are potentially responsible for investigating and remediating contamination under the federal Superfund program and similar state programs. Actions are under way at certain sites including former coal gas manufacturing plants in Pennsylvania and Kentucky previously owned or operated by, or currently owned by predecessors or affiliates of, PPL Electric, LG&E and KU. PPL Electric is potentially responsible for a share of clean-up costs at certain sites including the Columbia Gas Plant site and the Brodhead site. Cleanup actions have been or are being undertaken at all of these sites, the costs of which have not been and are not expected to be significant to PPL Electric.

At December 31, 2020 and December 31, 2019, PPL Electric had a recorded liability of $10 million representing its best estimate of the probable loss incurred to remediate the sites identified above. Depending on the outcome of investigations at identified sites where investigations have not begun or been completed, or developments at sites for which information is incomplete, additional costs of remediation could be incurred. PPL Electric, LG&E and KU lack sufficient information about such additional sites to estimate any potential liability or range of reasonably possible losses, if any, related to these sites. Such costs, however, are not 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. PPL, PPL Electric, LKE, LG&E and KU cannot estimate a range of possible losses, if any, related to these matters.

Regulatory Issues

See Note 7 for information on regulatory matters related to utility rate regulation.

Electricity - Reliability Standards

The NERC is responsible for establishing and enforcing mandatory reliability standards (Reliability Standards) regarding the bulk electric system in North America. The FERC oversees this process and independently enforces the Reliability Standards.

The Reliability Standards have the force and effect of law and apply to certain users of the bulk electric system, including electric utility companies, generators and marketers. Under the Federal Power Act, the FERC may assess civil penalties for certain violations.

PPL Electric, LG&E and KU monitor their compliance with the Reliability Standards and self-report or self-log potential violations of applicable reliability requirements whenever identified, and submit accompanying mitigation plans, as required. 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.

Other

Labor Union Agreements

(LKE and KU)

In August 2020, KU and the United Steelworkers of America ratified a three-year labor agreement through August 2023. The agreement covers approximately 48 employees. The terms of the new labor agreement are not expected to have a significant impact on the financial results of LKE or KU.

(LKE and LG&E)

In November 2020, LG&E and the IBEW ratified a three-year collective bargaining agreement through November 2023. The agreement covers approximately 640 employees. The terms of the labor agreement are not expected to have a significant impact on the financial results of LKE or LG&E.

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 obligations of PPL Capital Funding.

(All Registrants)

The table below details guarantees provided as of December 31, 2020. "Exposure" represents the estimated maximum potential amount of future payments that could be required to be made under the guarantee. The probability of expected payment/performance under each of these guarantees is remote except for "WPD guarantee of pension and other obligations of unconsolidated entities," for which PPL has a total recorded liability of $5 million at December 31, 2020 and December 31, 2019. For reporting purposes, on a consolidated basis, all guarantees of PPL Electric, LKE, LG&E and KU also apply to PPL, and all guarantees of LG&E and KU also apply to LKE.

			Exposure at December 31, 2020						Expiration Date
PPL
WPD indemnifications for entities in liquidation and sales of assets			$	11		(a)			2022
WPD guarantee of pension and other obligations of unconsolidated entities			95			(b)
LKE
Indemnification of lease termination and other divestitures			200			(c)			2021
LG&E and KU
LG&E and KU obligation of shortfall related to OVEC						(d)

(a)Indemnification to the liquidators and certain others for existing liabilities or expenses or liabilities arising during the liquidation process. The indemnifications are limited to distributions made from the subsidiary to its parent either prior or subsequent to liquidation or are not explicitly stated in the agreements. The indemnifications generally expire two to seven years subsequent to the date of dissolution of the entities. The exposure noted only includes those cases where the agreements provide for specific limits.

In connection with their sales of various businesses, WPD and its affiliates have provided the purchasers with indemnifications that are standard for such transactions, including indemnifications for certain pre-existing liabilities and environmental and tax matters or have agreed to continue their obligations under existing third-party guarantees, either for a set period of time following the transactions or upon the condition that the purchasers make reasonable efforts to terminate the guarantees. Additionally, WPD and its affiliates remain secondarily responsible for lease payments under certain leases that they have assigned to third parties.

(b)Relates to certain obligations of discontinued or modified electric associations that were guaranteed at the time of privatization by the participating members. Costs are allocated to the members and can be reallocated if an existing member becomes insolvent. At December 31, 2020, WPD has recorded an estimated discounted liability for which the expected payment/performance is probable. Neither the expiration date nor the maximum amount of potential payments for certain obligations is explicitly stated in the related agreements, and as a result, the exposure has been estimated.

(c)LKE provides certain indemnifications covering the due and punctual payment, performance and discharge by each party of its respective obligations. The most comprehensive of these guarantees is the LKE guarantee covering operational, regulatory and environmental commitments and indemnifications made by WKE under a 2009 Transaction Termination Agreement. This guarantee has a term of 12 years ending July 2021, and a maximum exposure of $200 million, exclusive of certain items such as government fines and penalties that may exceed the maximum. Additionally, LKE has indemnified various third parties related to historical obligations for other divested subsidiaries and affiliates. The indemnifications vary by entity and the maximum exposures range from being capped at the sale price to no specified maximum. LKE could be required to perform on these indemnifications in the event of covered losses or liabilities being claimed by an indemnified party. LKE cannot predict the ultimate outcomes of the various indemnification scenarios, but does not expect such outcomes to result in significant losses above the amounts recorded.

(d)Pursuant to the OVEC power purchase contract, LG&E and KU are obligated to pay for their share of OVEC's excess debt service, post-retirement and decommissioning costs, as well as any shortfall from amounts included within a demand charge designed and expected to cover these costs over the term of the contract. LKE's proportionate share of OVEC's outstanding debt was $104 million at December 31, 2020, consisting of LG&E's share of $72 million and KU's share of $32 million. The maximum exposure and the expiration date of these potential obligations are not presently determinable. See "Energy Purchase Commitments" above for additional information on the OVEC power purchase contract.

In March 2018, a sponsor with a 4.85% pro-rata share of OVEC obligations filed for bankruptcy under Chapter 11 and, in August 2018, received a rejection order for the OVEC power purchase contract in the bankruptcy proceeding. OVEC and other entities challenged the contract rejection, the bankruptcy plan confirmation and regulatory aspects of the plan in various forums. In May 2020, OVEC and the relevant sponsor announced a settlement resolving all disputed matters in the bankruptcy and other proceedings, including providing that the sponsor will withdraw its request to reject the power purchase agreement. The settlement was implemented in July 2020. Periodically, OVEC and certain of its sponsors, including LG&E and KU, may consider certain potential additional credit support actions to preserve OVEC's access to credit markets, including establishing or continuing debt reserve accounts or other changes involving OVEC's existing short and long-term debt.

The Registrants provide other miscellaneous guarantees through contracts entered into in the normal course of business. These guarantees are primarily in the form of indemnification or warranties related to services or equipment and vary in duration. The amounts of these guarantees often are not explicitly stated, and the overall maximum amount of the obligation under such guarantees cannot be reasonably estimated. Historically, no significant payments have been made with respect to these types of guarantees and the probability of payment/performance under these guarantees is remote.

PPL, on behalf of itself and certain of its subsidiaries, maintains insurance that covers liability assumed under contract for bodily injury and property damage. The coverage provides maximum aggregate coverage of $225 million. This insurance may be applicable to obligations under certain of these contractual arrangements.

Risks and Uncertainties (All Registrants)

The COVID-19 pandemic has disrupted the U.S. and global economies and continues to present extraordinary challenges to businesses, communities, workforces and markets. In the U.S. and throughout the world, governmental authorities have taken urgent and extensive actions to contain the spread of the virus and mitigate known or foreseeable impacts. In the Registrants’ service territories, mitigation measures have included quarantines, stay-at-home orders, travel restrictions, reduced operations or closures of businesses, schools and governmental agencies, and legislative or regulatory actions to address health or other pandemic-related concerns, all of which have the potential to adversely impact the Registrants' business and operations, especially if these measures remain in effect for a prolonged period of time.

To date, there has been no material impact on the Registrants’ operations, financial condition, liquidity or on their supply chain as a result of COVID-19; however, the duration and severity of the outbreak and its ultimate effects on the global economy, the financial markets, or the Registrants’ workforce, customers and suppliers are uncertain. A protracted slowdown of broad sectors of the economy, prolonged or pervasive restrictions on businesses and their workforces, or significant changes in legislation or regulatory policy to address the COVID-19 pandemic all present significant risks to the Registrants. These or other unpredictable events resulting from the pandemic could further reduce customer demand for electricity and gas, impact the Registrants’ employees and supply chains, result in an increase in certain costs, delay payments or increase bad debts, or result in changes in the fair value of their assets and liabilities, which could materially and adversely affect the Registrants’ business, results of operations, financial condition or liquidity.

15. Related Party Transactions

Wholesale Sales and Purchases (LG&E and KU)

LG&E and KU jointly dispatch their generation units with the lowest cost generation used to serve their retail customers. When LG&E has excess generation capacity after serving its own retail customers and its generation cost is lower than that of KU, KU purchases electricity from LG&E and vice versa. These transactions are reflected in the Statements of Income as "Electric revenue from affiliate" and "Energy purchases from affiliate" and are recorded at a price equal to the seller's fuel cost plus any split savings. Savings realized from such intercompany transactions are shared equally between both companies. The volume of energy each company has to sell to the other is dependent on its retail customers' needs and its available generation.

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

PPL Services, PPL EU Services and LKS provide PPL, PPL Electric and LKE, their respective subsidiaries, including LG&E and KU, and each other with administrative, management and support services. For all services companies, the costs of directly assignable and attributable services are charged to the respective recipients as direct support costs. General costs that cannot be directly attributed to a specific entity are allocated and charged to the respective recipients as indirect support costs. PPL Services and PPL EU Services use a three-factor methodology that includes the applicable recipients' invested capital, operation and maintenance expenses and number of employees to allocate indirect costs. PPL Services may also use a ratio of overall direct and indirect costs or a weighted average cost ratio. LKS bases its indirect allocations on the subsidiaries' number of employees, total assets, revenues, number of customers and/or other statistical information. PPL Services, PPL EU Services and LKS charged the following amounts for the years ended December 31, including amounts applied to accounts that are further distributed between capital and expense on the books of the recipients, based on methods that are believed to be reasonable.

			2020						2019						2018
PPL Electric from PPL Services			$	50					$	59					$	59
LKE from PPL Services			27						28						26
PPL Electric from PPL EU Services			176						152						148
LG&E from LKS			170						160						151
KU from LKS			180						178						169

In addition to the charges for services noted above, LKS makes payments on behalf of LG&E and KU for fuel purchases and other costs for products or services provided by third parties. LG&E and KU also provide services to each other and to LKS. Billings between LG&E and KU relate to labor and overheads associated with union and hourly employees performing work for the other company, charges related to jointly-owned generating units and other miscellaneous charges. Tax settlements between LKE and LG&E and KU are reimbursed through LKS.

Intercompany Borrowings

(PPL Electric)

PPL Energy Funding maintains a $650 million revolving line of credit with a PPL Electric subsidiary. No balance was outstanding at December 31, 2020 and 2019. The interest rates on borrowings are equal to one-month LIBOR plus a spread. Interest income is reflected in "Interest Income from Affiliate" on the Income Statements.

(LKE)

LKE maintains a $375 million revolving line of credit with a PPL Energy Funding subsidiary whereby LKE can borrow funds on a short-term basis at market-based rates. The interest rates on borrowings are equal to one-month LIBOR plus a spread. At December 31, 2020 and 2019, $251 million and $150 million were outstanding and reflected in "Notes payable with affiliates" on the Balance Sheets. The interest rate on the outstanding borrowings at December 31, 2020 and 2019 were 1.65% and 3.20%. Interest expense on the revolving line of credit was not significant for 2020, 2019 or 2018.

LKE maintains an agreement with a PPL affiliate that has a $300 million borrowing limit whereby LKE can loan funds on a short-term basis at market-based rates. No balance was outstanding at December 31, 2020 and 2019. The interest rate on the

loan based on the PPL affiliates credit rating is currently equal to one-month LIBOR plus a spread.

LKE maintains 10-year notes with a combined value of $1.2 billion with a PPL affiliate with a weighted-average interest rate of 3.9% and maturities ranging from 2026 to 2030. This is inclusive of a 10-year note of $550 million that was entered into in

August 2020. At December 31, 2020 and 2019, the notes were reflected in "Long-term debt to affiliate" on the Balance Sheets. Interest expense on the notes was $33 million for 2020, $24 million for 2019, and $21 million for 2018.

In May 2020, LKE entered into a $450 million term loan credit agreement with a PPL affiliate whereby LKE could borrow funds on a short-term basis at market-based rates. Interest on borrowings was determined as the lower of the daily rate for 30-day non-financial commercial paper programs plus a spread or one-month LIBOR plus a spread. The agreement expired on August 31, 2020. Interest expense on borrowings was not significant for 2020.

(LG&E)

LG&E participates in an intercompany money pool agreement whereby LKE and/or KU make available to LG&E funds up to $750 million at an interest rate based on a market index of commercial paper issues. No balances were outstanding at December 31, 2020 and 2019.

(KU)

KU participates in an intercompany money pool agreement whereby LKE and/or LG&E make available to KU funds up to $650 million at an interest rate based on a market index of commercial paper issues. No balances were outstanding at December 31, 2020 and 2019.

VEBA Funds Receivable (PPL Electric)

In May 2018, PPL received a favorable private letter ruling from the IRS permitting a transfer of excess funds from the PPL Bargaining Unit Retiree Health Plan VEBA to a new subaccount within the VEBA, to be used to pay medical claims of active bargaining unit employees. Based on PPL Electric's participation in PPL’s Other Postretirement Benefit plan, PPL Electric was allocated a portion of the excess funds from PPL Services. These funds have been recorded as an intercompany receivable on the Balance Sheets. The receivable balance decreases as PPL Electric pays incurred medical claims and is reimbursed by PPL Services. The intercompany receivable balance associated with these funds was $22 million as of December 31, 2020, of which $10 million was reflected in "Accounts receivable from affiliates" and $12 million was reflected in "Other noncurrent assets" on the Balance Sheets. The intercompany receivable balance associated with these funds was $32 million as of December 31, 2019, of which $10 million was reflected in "Accounts receivable from affiliates" and $22 million was reflected in "Other noncurrent assets" on the Balance Sheets.

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

See Note 1 for discussions regarding the intercompany tax sharing agreement (for PPL Electric, LKE, LG&E and KU) and intercompany allocations of stock-based compensation expense (for PPL Electric and LKE). For PPL Electric, LG&E and KU, see Note 12 for discussions regarding intercompany allocations associated with defined benefits.

16. Other Income (Expense) - net

(PPL)

The components of "Other Income (Expense) - net" for the years ended December 31, were:

			2020						2019						2018
Other Income
Economic foreign currency exchange contracts (Note 18)			$	(98)					$	(14)					$	150
Defined benefit plans - non-service credits (Note 12)			262						316						257
Interest income			10						16						6
AFUDC - equity component			20						23						21
Miscellaneous			7						7						6
Total Other Income			201						348						440
Other Expense
Charitable contributions			3						17						24
Miscellaneous			29						22						20
Total Other Expense			32						39						44
Other Income (Expense) - net			$	169					$	309					$	396

(PPL Electric)

The components of "Other Income (Expense) - net" for the years ended December 31, were:

			2020						2019						2018
Other Income
Defined benefit plans - non-service credits (Note 12)			$	4					$	4					$	5
Interest income			2						2						2
AFUDC - equity component			19						23						20
Total Other Income			25						29						27
Other Expense
Charitable contributions			3						3						3
Miscellaneous			4						1						1
Total Other Expense			7						4						4
Other Income (Expense) - net			$	18					$	25					$	23

17. 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 for information on the levels in the fair value hierarchy.

Recurring Fair Value Measurements

The assets and liabilities measured at fair value were:

			December 31, 2020																								December 31, 2019
			Total						Level 1						Level 2						Level 3						Total						Level 1						Level 2						Level 3
PPL
Assets
Cash and cash equivalents			$	708					$	708					$	—					$	—					$	815					$	815					$	—					$	—
Restricted cash and cash equivalents (a)			19						19						—						—						21						21						—						—
Special use funds (a):
Commingled debt fund measured at NAV (b)			26						—						—						—						29						—						—						—
Commingled equity fund measured at NAV (b)			25						—						—						—						27						—						—						—
Total special use funds			51						—						—						—						56						—						—						—
Price risk management assets (c):
Foreign currency contracts			—						—						—						—						142						—						142						—
Cross-currency swaps			146						—						146						—						154						—						154						—
Total price risk management assets			146						—						146						—						296						—						296						—
Total assets			$	924					$	727					$	146					$	—					$	1,188					$	836					$	296					$	—
Liabilities
Price risk management liabilities (c):
Interest rate swaps			$	23					$	—					$	23					$	—					$	21					$	—					$	21					$	—
Foreign currency contracts			137						—						137						—						5						—						5						—
Total price risk management liabilities			$	160					$	—					$	160					$	—					$	26					$	—					$	26					$	—

			December 31, 2020																								December 31, 2019
			Total						Level 1						Level 2						Level 3						Total						Level 1						Level 2						Level 3
PPL Electric
Assets
Cash and cash equivalents			$	40					$	40					$	—					$	—					$	262					$	262					$	—					$	—
Restricted cash and cash equivalents (a)			—						—						—						—						2						2						—						—
Total assets			$	40					$	40					$	—					$	—					$	264					$	264					$	—					$	—
LKE
Assets
Cash and cash equivalents			$	29					$	29					$	—					$	—					$	27					$	27					$	—					$	—
Total assets			$	29					$	29					$	—					$	—					$	27					$	27					$	—					$	—
Liabilities
Price risk management liabilities:
Interest rate swaps			$	23					$	—					$	23					$	—					$	21					$	—					$	21					$	—
Total price risk management liabilities			$	23					$	—					$	23					$	—					$	21					$	—					$	21					$	—
LG&E
Assets
Cash and cash equivalents			$	7					$	7					$	—					$	—					$	15					$	15					$	—					$	—
Total assets			$	7					$	7					$	—					$	—					$	15					$	15					$	—					$	—
Liabilities
Price risk management liabilities:
Interest rate swaps			$	23					$	—					$	23					$	—					$	21					$	—					$	21					$	—
Total price risk management liabilities			$	23					$	—					$	23					$	—					$	21					$	—					$	21					$	—
KU
Assets
Cash and cash equivalents			$	22					$	22					$	—					$	—					$	12					$	12					$	—					$	—
Total assets			$	22					$	22					$	—					$	—					$	12					$	12					$	—					$	—

(a)Current portion is included in "Other current assets" and long-term portion is included in "Other noncurrent assets" on the Balance Sheets.

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

(c)Current portion is included in "Price risk management assets" and "Other current liabilities" and noncurrent portion is included in "Price risk management assets" and "Other deferred credits and noncurrent liabilities" on the Balance Sheets.

Special Use Funds

(PPL)

The special use funds are investments restricted for paying active union employee medical costs. In 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 Statement of Income.

Price Risk Management Assets/Liabilities - Interest Rate Swaps/Foreign Currency Contracts/Cross-Currency Swaps (PPL, LKE, LG&E and KU)

To manage interest rate risk, PPL, LKE, LG&E and KU use interest rate contracts such as forward-starting swaps, floating-to-fixed swaps and fixed-to-floating swaps. To manage foreign currency exchange risk, PPL uses foreign currency contracts such as forwards, options, and cross-currency swaps that contain characteristics of both interest rate and foreign currency contracts. An income approach is used to measure the fair value of these contracts, utilizing readily observable inputs, such as forward interest rates (e.g., LIBOR and government security rates) and forward foreign currency exchange rates (e.g., GBP), as well as inputs that may not be observable, such as credit valuation adjustments. In certain cases, market information cannot practicably

be obtained to value credit risk and therefore internal models are relied upon. These models use projected probabilities of default and estimated recovery rates based on historical observances. When the credit valuation adjustment is significant to the overall valuation, the contracts are classified as Level 3.

Financial Instruments Not Recorded at Fair Value (All Registrants)

The carrying amounts of long-term debt on the Balance Sheets and their estimated fair values are set forth below. Long-term debt is classified as Level 2. The effect of third-party credit enhancements is not included in the fair value measurement.

			December 31, 2020												December 31, 2019
			Carrying Amount (a)						Fair Value						Carrying Amount (a)						Fair Value
PPL			$	23,127					$	28,765					$	21,893					$	25,481
PPL Electric			4,236						5,338						3,985						4,589
LKE			6,074						7,589						6,002						6,766
LG&E			2,007						2,499						2,005						2,278
KU			2,618						3,334						2,623						3,003

(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.

18. Derivative Instruments and Hedging Activities

Risk Management Objectives

(All Registrants)

PPL has a risk management policy approved by the Board of Directors to manage market risk associated with commodities, interest rates on debt issuances and foreign exchange (including price, liquidity and volumetric risk) and credit risk (including non-performance risk and payment default risk). The Risk Management Committee, comprised of senior management and chaired by the Senior Director-Risk Management, oversees the risk management function. Key risk control activities designed to ensure compliance with the risk policy and detailed programs include, but are not limited to, credit review and approval, validation of transactions, verification of risk and transaction limits, value-at-risk analyses (VaR, a statistical model that attempts to estimate the value of potential loss over a given holding period under normal market conditions at a given confidence level) and the coordination and reporting of the Enterprise Risk Management program.

Market Risk

Market risk includes the potential loss that may be incurred as a result of price changes associated with a particular financial or commodity instrument as well as market liquidity and volumetric risks. Forward contracts, futures contracts, options, swaps and structured transactions are utilized as part of risk management strategies to minimize unanticipated fluctuations in earnings caused by changes in commodity prices, interest rates and foreign currency exchange rates. Many of these contracts meet the definition of a derivative. All derivatives are recognized on the Balance Sheets at their fair value, unless NPNS is elected.

The following summarizes the market risks that affect PPL and its subsidiaries.

Interest Rate Risk

• PPL and its subsidiaries are exposed to interest rate risk associated with forecasted fixed-rate and existing floating-rate debt issuances. PPL and WPD hold over-the-counter cross currency swaps to limit exposure to market fluctuations on interest and principal payments from changes in foreign currency exchange rates and interest rates. PPL, LKE and LG&E utilize over-the-counter interest rate swaps to limit exposure to market fluctuations on floating-rate debt. PPL, LKE, LG&E and KU utilize forward starting interest rate swaps to hedge changes in benchmark interest rates, when appropriate, in connection with future debt issuances.

• PPL and its subsidiaries are exposed to interest rate risk associated with debt securities and derivatives held by defined benefit plans. This risk is significantly mitigated to the extent that the plans are sponsored at, or sponsored on behalf of, the regulated domestic utilities and for certain plans at WPD due to the recovery methods in place.

Foreign Currency Risk (PPL)

• PPL is exposed to foreign currency exchange risk primarily associated with its investments in and earnings of U.K. affiliates.

(All Registrants)

Commodity Price Risk

PPL is exposed to commodity price risk through its domestic subsidiaries as described below.

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

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

Volumetric Risk

Volumetric risk is the risk related to the changes in volume of retail sales due to weather, economic conditions or other factors. PPL is exposed to volumetric risk through its subsidiaries as described below.

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

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

Equity Securities Price Risk

• PPL and its subsidiaries are exposed to equity securities price risk associated with the fair value of the defined benefit plans' assets. This risk is significantly mitigated at the regulated domestic utilities and for certain plans at WPD due to the recovery methods in place.

• PPL is exposed to equity securities price risk from future stock sales and/or purchases.

Credit Risk

Credit risk is the potential loss that may be incurred due to a counterparty's non-performance.

PPL is exposed to credit risk from "in-the-money" transactions with counterparties, as well as additional credit risk through certain of its subsidiaries, as discussed below.

In the event a supplier of PPL Electric, LG&E or KU defaults on its obligation, those Registrants would be required to seek replacement power or replacement fuel in the market. In general, subject to regulatory review or other processes, appropriate incremental costs incurred by these entities would be recoverable from customers through applicable rate mechanisms, thereby mitigating the financial risk for these entities.

PPL and its subsidiaries have credit policies in place to manage credit risk, including the use of an established credit approval process, daily monitoring of counterparty positions and the use of master netting agreements or provisions. These agreements generally include credit mitigation provisions, such as margin, prepayment or collateral requirements. PPL and its subsidiaries may request additional credit assurance, in certain circumstances, in the event that the counterparties' credit ratings fall below investment grade, their tangible net worth falls below specified percentages or their exposures exceed an established credit limit.

Master Netting Arrangements (PPL, LKE, LG&E and KU)

Net derivative positions on the balance sheets are not offset against the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) under master netting arrangements.

PPL had an immaterial amount and $14 million obligation to return cash collateral under master netting arrangements at December 31, 2020 and 2019.

PPL had no obligation to post cash collateral under master netting arrangements at December 31, 2020 and 2019.

LKE, LG&E and KU had no obligation to return cash collateral under master netting arrangements at December 31, 2020 and 2019.

LKE, LG&E and KU had no cash collateral posted under master netting arrangements at December 31, 2020 and 2019.

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 December 31, 2020.

At December 31, 2020, PPL held an aggregate notional value in cross-currency interest rate swap contracts of $702 million that range in maturity from 2021 through 2028 to hedge the interest payments and principal of WPD's U.S. dollar-denominated senior notes.

Cash flow hedges are discontinued if it is no longer probable that the original forecasted transaction will occur by the end of the originally specified time period and any amounts previously recorded in AOCI are reclassified into earnings once it is determined that the hedged transaction is not probable of occurring.

For 2020, 2019 and 2018, PPL had no cash flow hedges reclassified into earnings associated with discontinued cash flow hedges.

At December 31, 2020, the amount of accumulated net unrecognized after-tax gains (losses) on qualifying derivatives expected to be reclassified into earnings during the next 12 months is insignificant. Amounts are reclassified as the hedged interest expense is recorded.

Economic Activity (PPL, LKE and LG&E)

LG&E enters into interest rate swap contracts that economically hedge interest payments. Because realized gains and losses from the swaps, including terminated swap contracts, are recoverable through regulated rates, any subsequent changes in fair value of these derivatives are included in regulatory assets or liabilities until they are realized as interest expense. Realized gains and losses are recognized in "Interest Expense" on the Statements of Income at the time the underlying hedged interest expense is recorded. At December 31, 2020, LG&E held contracts with a notional amount of $64 million that mature in 2033.

Foreign Currency Risk

(PPL)

PPL is exposed to foreign currency risk, primarily through investments in and earnings of U.K. affiliates. PPL has adopted a foreign currency risk management program designed to hedge certain foreign currency exposures, including firm commitments, recognized assets or liabilities, anticipated transactions, including the previously announced potential sale of its U.K utility business and net investments. In addition, PPL enters into financial instruments to protect against foreign currency translation risk of expected GBP earnings.

Net Investment Hedges

PPL enters into foreign currency contracts on behalf of a subsidiary to protect the value of a portion of its net investment in WPD. There were no contracts outstanding at December 31, 2020.

At December 31, 2020 and 2019, PPL had $33 million and $32 million of accumulated net investment hedge after tax gains (losses) that were included in the foreign currency translation adjustment component of AOCI.

Economic Activity

PPL enters into foreign currency contracts on behalf of a subsidiary to economically hedge GBP-denominated anticipated earnings and anticipated transactions, including the previously announced potential sale of its U.K. utility business. At December 31, 2020, the total exposure hedged by PPL was approximately £4 billion.

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 that are recognized as regulatory assets or regulatory liabilities. See Note 7 for amounts recorded in regulatory assets and regulatory liabilities at December 31, 2020 and 2019.

See Note 1 for additional information on accounting policies related to derivative instruments.

(PPL)

The following table presents the fair value and location of derivative instruments recorded on the Balance Sheets:

			December 31, 2020																								December 31, 2019
			Derivatives designated as hedging instruments												Derivatives not designated as hedging instruments												Derivatives designated as hedging instruments												Derivatives not designated as hedging instruments
			Assets						Liabilities						Assets						Liabilities						Assets						Liabilities						Assets						Liabilities
Current:
Price Risk Management
Assets/Liabilities (a):
Interest rate swaps (b)			$	—					$	—					$	—					$	2					$	—					$	—					$	—					$	4
Cross-currency swaps (b)			94						—						—						—						5						—						—						—
Foreign currency contracts			—						—						—						137						—						—						142						5
Total current			94						—						—						139						5						—						142						9
Noncurrent:
Price Risk Management
Assets/Liabilities (a):
Interest rate swaps (b)			—						—						—						21						—						—						—						17
Cross-currency swaps (b)			52						—						—						—						149						—						—						—
Total noncurrent			52						—						—						21						149						—						—						17
Total derivatives			$	146					$	—					$	—					$	160					$	154					$	—					$	142					$	26

(a)Current portion is included in "Price risk management assets" and "Other current liabilities" and noncurrent portion is included in "Price risk management assets" and "Other deferred credits and noncurrent liabilities" on the Balance Sheets.

(b)Excludes accrued interest, if applicable.

The following tables present the pre-tax effect of derivative instruments recognized in income, OCI or regulatory assets and regulatory liabilities:

Derivative Relationships						Derivative Gain (Loss) Recognized in OCI						Location of Gain (Loss) Recognized in Income on Derivative						Gain (Loss) Reclassified from AOCI into Income
2020
Cash Flow Hedges:
Interest rate swaps						$	(9)					Interest Expense						$	(10)
Cross-currency swaps						(15)						Other Income (Expense) - net						(22)
Total						$	(24)											$	(32)
Net Investment Hedges:
Foreign currency contracts						$	1
2019
Cash Flow Hedges:
Interest rate swaps						$	(30)					Interest Expense						$	(9)
Cross-currency swaps						17						Other Income (Expense) - net						(9)
Total						$	(13)											$	(18)
Net Investment Hedges:
Foreign currency contracts						$	2
2018
Cash Flow Hedges:
Interest rate swaps						$	4					Interest Expense						$	(8)
Cross-currency swaps						41						Other Income (Expense) - net						42
												Interest Expense						1
Total						$	45											$	35
Net Investment Hedges:
Foreign currency contracts						$	11

Derivatives Not Designated as Hedging Instruments						Location of Gain (Loss) Recognized in Income on Derivative						2020						2019						2018
Foreign currency contracts						Other Income (Expense) - net						$	(98)					$	(14)					$	150
Interest rate swaps						Interest Expense						(5)						(5)						(5)
						Total						$	(103)					$	(19)					$	145

Derivatives Not Designated as Hedging Instruments						Location of Gain (Loss) Recognized as Regulatory Liabilities/Assets						2020						2019						2018
Interest rate swaps						Regulatory assets - noncurrent						$	(2)					$	(1)					$	6

The following table presents the effect of cash flow hedge activity on the Statement of Income for the year ended December 31, 2020:

			Location and Amount of Gain (Loss) Recognized in Income on Hedging Relationships
			Interest Expense						Other Income (Expense) - net
Total income and expense line items presented in the income statement in which the effect of cash flow hedges are recorded			$	1,001					$	169
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			(10)						—
Cross-currency swaps:
Hedged items			—						22
Amount of gain (loss) reclassified from AOCI to income			—						(22)

The following table presents the effect of cash flow hedge activity on the Statement of Income for the year ended December 31, 2019:

			Location and Amount of Gain (Loss) Recognized in Income on Hedging Relationships
			Interest Expense						Other Income (Expense) - net
Total income and expense line items presented in the income statement in which the effect of cash flow hedges are recorded			$	994					$	309
The effects of cash flow hedges:
Gain (Loss) on cash flow hedging relationships:
Interest rate swaps:
Amount of gain (loss) reclassified from AOCI to income			(9)						—
Cross-currency swaps:
Hedged items			—						9
Amount of gain (loss) reclassified from AOCI to income			—						(9)

(LKE and LG&E)

The following table presents the fair value and the location on the Balance Sheets of derivatives not designated as hedging instruments:

						December 31, 2020												December 31, 2019
						Assets						Liabilities						Assets						Liabilities
Current:
Price Risk Management
Assets/Liabilities:
Interest rate swaps						$	—					$	2					$	—					$	4
Total current						—						2						—						4
Noncurrent:
Price Risk Management
Assets/Liabilities:
Interest rate swaps						—						21						—						17
Total noncurrent						—						21						—						17
Total derivatives						$	—					$	23					$	—					$	21

The following tables present the pre-tax effect of derivatives not designated as cash flow hedges that are recognized in income or regulatory assets:

Derivative Instruments						Location of Gain (Loss)						2020						2019						2018
Interest rate swaps						Interest Expense						$	(5)					$	(5)					$	(5)

Derivative Instruments						Location of Gain (Loss)						2020						2019						2018
Interest rate swaps						Regulatory assets - noncurrent						$	(2)					$	(1)					$	6

(PPL, LKE, LG&E and KU)

Offsetting Derivative Instruments

PPL, LKE, LG&E and KU or certain of their subsidiaries have master netting arrangements in place and also enter into agreements pursuant to which they purchase or sell certain energy and other products. Under the agreements, upon termination of the agreement as a result of a default or other termination event, the non-defaulting party typically would have a right to set off amounts owed under the agreement against any other obligations arising between the two parties (whether under the agreement or not), whether matured or contingent and irrespective of the currency, place of payment or place of booking of the obligation.

PPL, LKE, LG&E and KU have elected not to offset derivative assets and liabilities and not to offset net derivative positions against the right to reclaim cash collateral pledged (an asset) or the obligation to return cash collateral received (a liability) under derivatives agreements. The table below summarizes the derivative positions presented in the balance sheets where a right of setoff exists under these arrangements and related cash collateral received or pledged.

						Assets																								Liabilities
												Eligible for Offset																								Eligible for Offset
						Gross						Derivative Instruments						Cash Collateral Received						Net						Gross						Derivative Instruments						Cash Collateral Pledged						Net
December 31, 2020
Treasury Derivatives
PPL						$	146					$	34					$	—					$	112					$	160					$	34					$	—					$	126
LKE						—						—						—						—						23						—						—						23
LG&E						—						—						—						—						23						—						—						23
December 31, 2019
Treasury Derivatives
PPL						$	296					$	5					$	14					$	277					$	26					$	5					$	—					$	21
LKE						—						—						—						—						21						—						—						21
LG&E						—						—						—						—						21						—						—						21

Credit Risk-Related Contingent Features

Certain derivative contracts contain credit risk-related contingent features which, when in a net liability position, would permit the counterparties to require the transfer of additional collateral upon a decrease in the credit ratings of PPL, LKE, LG&E and KU or certain of their subsidiaries. Most of these features would require the transfer of additional collateral or permit the counterparty to terminate the contract if the applicable credit rating were to fall below investment grade. Some of these features also would allow the counterparty to require additional collateral upon each downgrade in credit rating at levels that remain above investment grade. In either case, if the applicable credit rating were to fall below investment grade, and assuming no assignment to an investment grade affiliate were allowed, most of these credit contingent features require either immediate payment of the net liability as a termination payment or immediate and ongoing full collateralization on derivative instruments in net liability positions.

Additionally, certain derivative contracts contain credit risk-related contingent features that require adequate assurance of performance be provided if the other party has reasonable concerns regarding the performance of PPL's, LKE's, LG&E's and KU's obligations under the contracts. A counterparty demanding adequate assurance could require a transfer of additional collateral or other security, including letters of credit, cash and guarantees from a creditworthy entity. This would typically involve negotiations among the parties. However, amounts disclosed below represent assumed immediate payment or immediate and ongoing full collateralization for derivative instruments in net liability positions with "adequate assurance" features.

(PPL)

At December 31, 2020, derivative contracts in a net liability position that contain credit risk-related contingent features, collateral posted on those positions and the related effect of a decrease in credit ratings below investment grade are summarized as follows:

						PPL
Aggregate fair value of derivative instruments in a net liability position with credit risk-related contingent features						$	102
Aggregate fair value of collateral posted on these derivative instruments						—
Aggregate fair value of additional collateral requirements in the event of a credit downgrade below investment grade (a)						102

(a)Includes the effect of net receivables and payables already recorded on the Balance Sheet.

19. Goodwill and Other Intangible Assets

Goodwill

(PPL)

The changes in the carrying amount of goodwill by segment were:

			U.K. Regulated												Kentucky Regulated												Corporate and Other												Total
			2020						2019						2020						2019						2020						2019						2020						2019
Balance at beginning of period (a)			$	2,483					$	2,447					$	662					$	662					$	53					$	53					$	3,198					$	3,162
Effect of foreign currency exchange rates			76						34						—						—						—						—						76						34
Other			—						2						—						—						—						—						—						2
Balance at end of period (a)			$	2,559					$	2,483					$	662					$	662					$	53					$	53					$	3,274					$	3,198

(a) There were no accumulated impairment losses related to goodwill.

Other Intangible Assets

(PPL)

The gross carrying amount and the accumulated amortization of other intangible assets were:

			December 31, 2020												December 31, 2019
			Gross Carrying Amount						Accumulated Amortization						Gross Carrying Amount						Accumulated Amortization
Subject to amortization:
Contracts (a)			$	136					$	93					$	136					$	84
Land rights and easements			460						142						440						135
Licenses and other			21						4						22						3
Total subject to amortization			617						239						598						222
Not subject to amortization due to indefinite life:
Land rights and easements			380						—						361						—
Other			6						—						6						—
Total not subject to amortization due to indefinite life			386						—						367						—
Total			$	1,003					$	239					$	965					$	222

(a)Gross carrying amount in 2020 and 2019 includes the fair value at the acquisition date of the OVEC power purchase contract with terms favorable to market recognized as a result of the 2010 acquisition of LKE by PPL.

Current intangible assets are included in "Other current assets" and long-term intangible assets are included in "Other intangibles" on the Balance Sheets.

Amortization expense was as follows:
			2020						2019						2018
Intangible assets with no regulatory offset			$	11					$	9					$	7
Intangible assets with regulatory offset			8						9						8
Total			$	19					$	18					$	15

Amortization expense for each of the next five years is estimated to be:

			2021						2022						2023						2024						2025
Intangible assets with no regulatory offset			$	11					$	11					$	11					$	11					$	11
Intangible assets with regulatory offset			8						8						8						8						8
Total			$	19					$	19					$	19					$	19					$	19

(PPL Electric)

The gross carrying amount and the accumulated amortization of other intangible assets were:

			December 31, 2020												December 31, 2019
			Gross Carrying Amount						Accumulated Amortization						Gross Carrying Amount						Accumulated Amortization
Subject to amortization:
Land rights and easements			$	379					$	129					$	370					$	125
Licenses and other			2						1						3						1
Total subject to amortization			381						130						373						126
Not subject to amortization due to indefinite life:
Land rights and easements			17						—						17						—
Total			$	398					$	130					$	390					$	126

Intangible assets are shown as "Intangibles" on the Balance Sheets.

Amortization expense was as follows:

			2020						2019						2018
Intangible assets with no regulatory offset			$	4					$	4					$	4

Amortization expense for each of the next five years is estimated to be:

			2021						2022						2023						2024						2025
Intangible assets with no regulatory offset			$	4					$	4					$	4					$	4					$	4

(LKE)

The gross carrying amount and the accumulated amortization of other intangible assets were:

			December 31, 2020												December 31, 2019
			Gross Carrying Amount						Accumulated Amortization						Gross Carrying Amount						Accumulated Amortization
Subject to amortization:
Land rights and easements			$	22					$	4					$	22					$	4
OVEC power purchase agreement (a)			125						82						125						74
Total subject to amortization			$	147					$	86					$	147					$	78

(a) Gross carrying amount represents the fair value at the acquisition date of the OVEC power purchase contract recognized as a result of the 2010 acquisition by PPL. An offsetting regulatory liability was recorded related to this contract, which is being amortized over the same period as the intangible asset, eliminating any income statement impact. See Note 7 for additional information.

Long-term intangible assets are presented as "Other intangibles" on the Balance Sheets.

Amortization expense was as follows:

			2020						2019						2018
Intangible assets with regulatory offset			$	8					$	9					$	8

Amortization expense for each of the next five years is estimated to be:

			2021						2022						2023						2024						2025
Intangible assets with regulatory offset			$	8					$	8					$	8					$	8					$	8

(LG&E)

The gross carrying amount and the accumulated amortization of other intangible assets were:

			December 31, 2020												December 31, 2019
			Gross Carrying Amount						Accumulated Amortization						Gross Carrying Amount						Accumulated Amortization
Subject to amortization:
Land rights and easements			$	7					$	1					$	7					$	1
OVEC power purchase agreement (a)			86						57						86						51
Total subject to amortization			$	93					$	58					$	93					$	52

(a) Gross carrying amount represents the fair value at the acquisition date of the OVEC power purchase contract recognized as a result of the 2010 acquisition by PPL. An offsetting regulatory liability was recorded related to this contract, which is being amortized over the same period as the intangible asset, eliminating any income statement impact. See Note 7 for additional information.

Long-term intangible assets are presented as "Other intangibles" on the Balance Sheets.

Amortization expense was as follows:

			2020						2019						2018
Intangible assets with regulatory offset			$	6					$	6					$	6

Amortization expense for each of the next five years is estimated to be:

			2021						2022						2023						2024						2025
Intangible assets with regulatory offset			$	6					$	6					$	6					$	6					$	6

(KU)

The gross carrying amount and the accumulated amortization of other intangible assets were:

			December 31, 2020												December 31, 2019
			Gross Carrying Amount						Accumulated Amortization						Gross Carrying Amount						Accumulated Amortization
Subject to amortization:
Land rights and easements			$	15					$	3					$	15					$	3
OVEC power purchase agreement (a)			39						25						39						23
Total subject to amortization			$	54					$	28					$	54					$	26

(a) Gross carrying amount represents the fair value at the acquisition date of the OVEC power purchase contract recognized as a result of the 2010 acquisition by PPL. An offsetting regulatory liability was recorded related to this contract, which is being amortized over the same period as the intangible asset, eliminating any income statement impact. See Note 7 for additional information.

Long-term intangible assets are presented as "Other intangibles" on the Balance Sheets.

Amortization expense was as follows:

			2020						2019						2018
Intangible assets with regulatory offset			$	2					$	3					$	2

Amortization expense for each of the next five years is estimated to be:

			2021						2022						2023						2024						2025
Intangible assets with regulatory offset			$	2					$	2					$	2					$	2					$	2

20. Asset Retirement Obligations

(PPL)

WPD has recorded conditional AROs required by U.K. law related to treated wood poles, gas-filled switchgear and fluid-filled cables.

(PPL and PPL Electric)

PPL Electric has identified legal retirement obligations for the retirement of certain transmission assets that could not be reasonably estimated due to indeterminable settlement dates. These assets are located on rights-of-way that allow the grantor to require PPL Electric to relocate or remove the assets. Since this option is at the discretion of the grantor of the right-of-way, PPL Electric is unable to determine when these events may occur.

(PPL, LKE, LG&E and KU)

PPL's LKE's, LG&E's and KU's ARO liabilities are primarily related to CCR closure costs. See Note 14 for information on the CCR rule. LG&E also has AROs related to natural gas mains and wells. LG&E's and KU's transmission and distribution lines largely operate under perpetual property easement agreements, which do not generally require restoration upon removal of the property. Therefore, no material AROs are recorded for transmission and distribution assets. For LKE, LG&E and KU, all ARO accretion and depreciation expenses are reclassified as a regulatory asset. ARO regulatory assets associated with certain CCR projects are amortized to expense in accordance with regulatory approvals. For other AROs, at the time of retirement, the related ARO regulatory asset is offset against the associated cost of removal regulatory liability, PP&E and ARO liability.

The changes in the carrying amounts of AROs were as follows:

			PPL												LKE												LG&E												KU
			2020						2019						2020						2019						2020						2019						2020						2019
ARO at beginning of period			$	282					$	347					$	215					$	296					$	73					$	103					$	142					$	193
Accretion			17						19						15						17						5						6						10						11
Obligations incurred			—						—						—						—						—						—						—						—
Changes in estimated timing or cost			38						12						40						(2)						13						(2)						27						—
Effect of foreign currency exchange rates			1						—						—						—						—						—						—						—
Obligations settled			(88)						(96)						(88)						(96)						(24)						(34)						(64)						(62)
ARO at end of period			$	250					$	282					$	182					$	215					$	67					$	73					$	115					$	142

21. Accumulated Other Comprehensive Income (Loss)

(PPL and LKE)

The after-tax changes in AOCI by component for the years ended December 31 were as follows:

																											Defined benefit plans (b)
			Foreign currency translation adjustments (a)												Unrealized gains (losses) on qualifying derivatives												Prior service costs						Actuarial gain (loss)						Total
PPL
December 31, 2017			$	(1,089)											$	(13)											$	(7)					$	(2,313)					$	(3,422)
Amounts arising during the year			(444)												36												(11)						(187)						(606)
Reclassifications from AOCI			—												(29)												2						142						115
Net OCI during the year			(444)												7												(9)						(45)						(491)
Adoption of reclassification of certain tax effects from AOCI guidance cumulative effect adjustment			$	—											$	(1)											$	(3)					$	(47)					(51)

																											Defined benefit plans (b)
			Foreign currency translation adjustments (a)												Unrealized gains (losses) on qualifying derivatives												Prior service costs						Actuarial gain (loss)						Total
December 31, 2018			$	(1,533)											$	(7)											$	(19)					$	(2,405)					$	(3,964)
Amounts arising during the year			108												(11)												(1)						(592)						(496)
Reclassifications from AOCI			—												13												2						87						102
Net OCI during the year			108												2												1						(505)						(394)
December 31, 2019			$	(1,425)											$	(5)											$	(18)					$	(2,910)					$	(4,358)
Amounts arising during the year			267												(19)												(1)						(341)						(94)
Reclassifications from AOCI			—												24												3						205						232
Net OCI during the year			267												5												2						(136)						138
December 31, 2020			$	(1,158)											$	—											$	(16)					$	(3,046)					$	(4,220)
LKE
December 31, 2017																											$	(9)					$	(79)					$	(88)
Amounts arising during the year																											—						7						7
Reclassifications from AOCI																											2						8						10
Net OCI during the year																											2						15						17
Adoption of reclassification of certain tax effects from AOCI guidance cumulative effect adjustment (Note 1)																											(2)						(16)						(18)
December 31, 2018																											$	(9)					$	(80)					$	(89)
Amounts arising during the year																											(1)						(6)						(7)
Reclassifications from AOCI																											1						2						3
Net OCI during the year																											—						(4)						(4)
December 31, 2019																											$	(9)					$	(84)					$	(93)
Amounts arising during the year																											(1)						(7)						(8)
Reclassifications from AOCI																											2						13						15
Net OCI during the year																											1						6						7
December 31, 2020																											$	(8)					$	(78)					$	(86)

(a) Amounts relate to the operations of WPD.

(b) For PPL, substantially all of the amounts relate to WPD's pension plans. At December 31, 2020, the combined accumulated other comprehensive loss related to these plans was $2.9 billion.

The following table presents PPL's gains (losses) and related income taxes for reclassifications from AOCI for the years ended December 31, 2020, 2019 and 2018. LKE amounts are insignificant for the years ended December 31, 2020, 2019 and 2018. The defined benefit plan components of AOCI are not reflected in their entirety in the statement of income; rather, they are included in the computation of net periodic defined benefit costs (credits) and subject to capitalization. See Note 12 for additional information.

						PPL
Details about AOCI						2020						2019						2018						Affected Line Item on the Statements of Income
Qualifying derivatives
Interest rate swaps						$	(10)					$	(9)					$	(8)					Interest Expense
Cross-currency swaps						(22)						(9)						42						Other Income (Expense) - net
						—						—						1						Interest Expense
Total Pre-tax						(32)						(18)						35
Income Taxes						8						5						(6)
Total After-tax						(24)						(13)						29
Defined benefit plans
Prior service costs						(4)						(3)						(2)
Net actuarial loss						(256)						(109)						(178)
Total Pre-tax						(260)						(112)						(180)
Income Taxes						52						23						36
Total After-tax						(208)						(89)						(144)
Total reclassifications during the year						$	(232)					$	(102)					$	(115)

SCHEDULE I - LG&E and KU Energy LLC

CONDENSED UNCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31,

(Millions of Dollars)

			2020						2019						2018
Other Income (Expense) - net
Equity in Earnings of Subsidiaries			$	490					$	477					$	470
Interest Income with Affiliate			12						28						25
Total			502						505						495
Interest Expense			23						30						29
Interest Expense with Affiliate			37						32						28
Income Before Income Taxes			442						443						438
Income Tax Expense (Benefit)			(8)						(25)						(7)
Net Income			$	450					$	468					$	445
Total other comprehensive income (loss)			7						(4)						17
Comprehensive Income Attributable to Member			$	457					$	464					$	462

The accompanying Notes to Condensed Unconsolidated Financial Statements are an integral part of the financial statements.

SCHEDULE I - LG&E and KU Energy LLC

CONDENSED UNCONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31,

(Millions of Dollars)

			2020						2019						2018
Cash Flows from Operating Activities
Net cash provided by (used in) operating activities			$	371					$	368					$	346
Cash Flows from Investing Activities
Capital contributions to affiliated subsidiaries			(231)						(93)						(128)
Net decrease (increase) in notes receivable from affiliates			5						(44)						(26)
Net cash provided by (used in) investing activities			(226)						(137)						(154)
Cash Flows from Financing Activities
Net increase (decrease) in notes payable with affiliates			613						14						110
Retirement of long-term debt			(475)						—						—
Contribution from member			—						63						—
Distribution to member			(283)						(308)						(302)
Net cash provided by (used in) financing activities			(145)						(231)						(192)
Net Increase (Decrease) in Cash and Cash Equivalents			—						—						—
Cash and Cash Equivalents at Beginning of Period			—						—						—
Cash and Cash Equivalents at End of Period			$	—					$	—					$	—
Supplemental disclosures of cash flow information:
Cash Dividends Received from Subsidiaries			$	361					$	411					$	402

The accompanying Notes to Condensed Unconsolidated Financial Statements are an integral part of the financial statements.

SCHEDULE I - LG&E and KU Energy LLC

CONDENSED UNCONSOLIDATED BALANCE SHEETS AT DECEMBER 31,

(Millions of Dollars)

			2020						2019
Assets
Current Assets
Accounts receivable from affiliates			$	4					$	3
Income taxes receivable			2						3
Notes receivable from affiliates			1,100						1,105
Total Current Assets			1,106						1,111
Investments
Affiliated companies at equity			5,944						5,577
Other Noncurrent Assets
Deferred income taxes			276						314
Total Assets			$	7,326					$	7,002
Liabilities and Equity
Current Liabilities
Notes payable to affiliates			$	251					$	150
Long-term debt due within one year			250						475
Accounts payable to affiliates			499						489
Taxes			5						—
Other current liabilities			2						6
Total Current Liabilities			1,007						1,120
Long-term Debt
Long-term debt			—						249
Notes payable to affiliates			1,203						691
Total Long-term Debt			1,203						940
Deferred Credits and Other Noncurrent Liabilities			—						—
Equity			5,116						4,942
Total Liabilities and Equity			$	7,326					$	7,002

The accompanying Notes to Condensed Unconsolidated Financial Statements are an integral part of the financial statements.

Schedule I - LG&E and KU Energy LLC

Notes to Condensed Unconsolidated Financial Statements

1. Basis of Presentation

LG&E and KU Energy LLC (LKE) is a holding company and conducts substantially all of its business operations through its subsidiaries. Substantially all of its consolidated assets are held by such subsidiaries. LKE uses the equity method to account for its investments in entities in which it has a controlling financial interest. LKE's cash flow and its ability to meet its obligations are largely dependent upon the earnings of these subsidiaries and the distribution or other payment of such earnings to it in the form of dividends or repayment of loans and advances from the subsidiaries. These condensed financial statements and related footnotes have been prepared in accordance with Reg. §210.12-04 of Regulation S-X. These statements should be read in conjunction with the consolidated financial statements and notes thereto of LKE.

LKE indirectly or directly owns all of the ownership interests of its significant subsidiaries. LKE relies primarily on dividends from its subsidiaries to fund LKE's distributions to its member and to meet its other cash requirements. See Note 8 to LKE's consolidated financial statements for discussions related to restricted net assets of its subsidiaries for the purposes of transferring funds to LKE in the form of distributions, loans or advances.

2. Commitments and Contingencies

See Note 14 to LKE's consolidated financial statements for commitments and contingencies of its subsidiaries.

Guarantees

LKE provides certain indemnifications covering the due and punctual payment, performance and discharge by each party of its respective obligations. The most comprehensive of these guarantees is the LKE guarantee covering operational, regulatory and environmental commitments and indemnifications made by WKE under a 2009 Transaction Termination Agreement. This guarantee has a term of 12 years ending July 2021, and a maximum exposure of $200 million, exclusive of certain items such as government fines and penalties that may exceed the maximum.

Additionally, LKE has indemnified various third parties related to historical obligations for other divested subsidiaries and affiliates. The indemnifications vary by entity and the maximum exposures range from being capped at the sale price to no specified maximum. LKE could be required to perform on these indemnifications in the event of covered losses or liabilities being claimed by an indemnified party. LKE cannot predict the ultimate outcomes of the various indemnification scenarios, but does not expect such outcomes to result in significant losses above the amounts recorded.

3. Long-Term Debt

See Note 8 to LKE's consolidated financial statements for the terms of LKE's outstanding long-term debt and maturities.