|UNITED STATES
        SECURITIES AND EXCHANGE COMMISSION
        Washington, D.C. 20549   
|------------------------------------------------------------------------------------------
|                                                                                          
|FORM 10-K                                                                                 
|                                                                                          
|[X]                                                                                       
|                                                                                          
|OR                                                                                        
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|[   ]                                                                                     
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|Commission FileNumber                                                                     
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|1-11459                                                                                   
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|333-74794                                                                                 
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|1-905                                                                                     
|                                                                                          
|333-50350                                                                                 
|                                                                                          
|Securities registered pursuant to Section 12(b)
      of the Act:                         
|                                                                                          
|Title of each class                                                                       
|                                                                                          
|Common Stock of PPL Corporation                                                           
|                                                                                          
|Preferred Stock of PPL Electric
      Utilities Corporation                               
|                                                                                          
|                                                                                          
|Company-Obligated Mandatorily Redeemable Securities
        of PPL Capital Funding Trust I
|                                                                                          
|                                                                                          
|                                                                                          



Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if disclosure of delinquent filers pursuant to Item
  405 of Regulation S-K is not contained herein, and will not be contained, to
  the best of Registrants' knowledge, in definitive proxy or information statements
  incorporated by reference in Part III of this Form 10-K or any amendment to
  this Form 10-K.



|PPL Corporation                    | [     ]
|---------------------------------- | -------
|PPL Energy Supply, LLC             | [ X ]  
|PPL Electric Utilities Corporation | [ X ]  
|PPL Montana, LLC                   | [ X ]  



Indicate by check mark whether the Registrants (1) have filed all reports required
  to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
  the preceding 12 months (or for such shorter period that the Registrants were
  required to file such reports), and (2) have been subject to such filing requirements
  for the past 90 days.



|PPL Corporation                    | Yes X | No
|---------------------------------- | ----- | --
|PPL Energy Supply, LLC             | Yes X | No
|PPL Electric Utilities Corporation | Yes X | No
|PPL Montana, LLC                   | Yes X | No



Indicate by check mark whether the Registrants are accelerated filers (as defined
  in Rule 12b-2 of the Act).



|PPL Corporation                    | Yes X | No  
|---------------------------------- | ----- | ----
|PPL Energy Supply, LLC             | Yes   | No X
|PPL Electric Utilities Corporation | Yes   | No X
|PPL Montana, LLC                   | Yes   | No X



As of June 28, 2002, PPL Corporation had 147,165,439 shares of its $.01 par
  value Common Stock outstanding, excluding 30,993,637 shares held as treasury
  stock. The aggregate market value of these common shares (based upon the closing
  price of these shares on the New York Stock Exchange on that date) held by non-affiliates
  was $4,868,232,722. As of January 31, 2003, PPL Corporation had 167,451,692
  shares of its $.01 par value Common Stock outstanding, excluding 30,993,637
  shares held as treasury stock.

As of June 28, 2002, PPL Corporation held all 78,029,863 outstanding common
  shares, no par value, of PPL Electric Utilities Corporation, excluding 79,270,519
  shares held as treasury stock. The aggregate market value of the voting preferred
  stock held by non-affiliates of PPL Electric Utilities Corporation at June 28,
  2002 was $67,464,666.

PPL Corporation indirectly holds all of the member interests in PPL Energy
  Supply, LLC and PPL Montana, LLC.

PPL Energy Supply, LLC and PPL Montana, LLC meet the conditions set forth
  in General Instructions (I)(1)(a) and (b) of Form 10-K and are therefore filing
  this form with the reduced disclosure format.

Documents incorporated by reference:

PPL Corporation and PPL Electric Utilities Corporation have incorporated herein
  by reference certain sections of PPL Corporation's 2003 Notice of Annual Meeting
  and Proxy Statement, and PPL Electric Utilities Corporation's 2003 Notice of
  Annual Meeting and Information Statement, which will be filed with the Securities
  and Exchange Commission not later than 120 days after December 31, 2002. Such
  Statements will provide the information required by Part III of this Report.

---

PPL CORPORATION
  PPL ENERGY SUPPLY, LLC
PPL ELECTRIC UTILITIES CORPORATION
  PPL MONTANA, LLC

FORM 10-K ANNUAL REPORT TO
  THE SECURITIES AND EXCHANGE COMMISSIONFOR THE YEAR ENDED DECEMBER 31, 2002

TABLE OF CONTENTS



This combined Form 10-K is separately filed by PPL Corporation, PPL Energy
  Supply, LLC, PPL Electric Utilities Corporation and PPL Montana, LLC. Information
  contained herein relating to PPL Energy Supply, LLC, PPL Electric Utilities
  Corporation and PPL Montana, LLC is filed by PPL Corporation and separately
  by PPL Energy Supply, LLC, PPL Electric Utilities Corporation and PPL Montana,
  LLC on their own behalf. No registrant makes any representation as to information
  relating to any other registrant, except that information relating to the three
  PPL Corporation subsidiaries is also attributed to PPL Corporation.

|Item     |  |                                                                                                                                                         | Page
|-------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------- | ----
|PART I  
|1.       |  | Business                                                                                                                                                | 1   
|2.       |  | Properties                                                                                                                                              | 11  
|3.       |  | Legal Proceedings                                                                                                                                       | 13  
|4.       |  | Submission of Matters to a
      Vote of Security Holders                                                                                               | 16  
|         |  | Executive Officers of the
      Registrants                                                                                                             | 17  
|         |  |                                                                                                                                                         |     
|PART II 
|        
|5.       |  | Market for the Registrant's
      Common Equity and Related Stockholder Matters                                                                         | 19  
|6.       |  | Selected Financial and Operating
      Data                                                                                                             | 20  
|7.       |  | Review of the Financial Condition
      and Results of Operations                                                                                       | 22  
|7A.      |  | Quantitative and Qualitative
      Disclosures About Market Risk                                                                                        | 74  
|         |  | Report of
      Independent Accountants                                                                                                                 | 75  
|         |  | Management's Report
      on Responsibility for Financial Statements                                                                                    | 76  
|8.       |  | Financial Statements and Supplementary
      Data                                                                                                       | 83  
|9.       |  | Changes in and Disagreements
      with Accountants on Accounting and Financial Disclosure                                                              | 169 
|         |  |                                                                                                                                                         |     
|PART III
|        
|10.      |  | Directors and Executive Officers
      of the Registrant                                                                                                | 169 
|11.      |  | Executive Compensation                                                                                                                                  | 169 
|12.      |  | Security Ownership of Certain
      Beneficial Owners and Management                                                                                    | 170 
|13.      |  | Certain Relationships and
      Related Transactions                                                                                                    | 170 
|14.      |  | Controls and Procedures                                                                                                                                 | 171 
|        
|PART IV 
|        
|15.      |  | Exhibits, Financial Statement
      Schedules, and Reports on Form 8-K                                                                                  | 171 
|         |  | Shareowner and Investor
      Information                                                                                                               | 173 
|         |  | Signatures                                                                                                                                              | 175 
|         |  | Certifications                                                                                                                                          | 179 
|         |  | Exhibit Index                                                                                                                                           | 187 
|         |  | Computation of Ratio of
      Earnings to Fixed Charges                                                                                                 | 193 
|         |  | Certificates of Principal
      Executive Officer and Principal Financial Officer Pursuant to 
          Section 906 of  the Sarbanes-Oxley Act of 2002 | 197 
|         |  | PPL Corporation - Corporate
      Organization                                                                                                          | 205 

---

GLOSSARY OF TERMS AND ABBREVIATIONS



1945 First Mortgage Bond Indenture - PPL Electric's Mortgage
  and Deed of Trust, dated as of October 1, 1945, to Deutsche Bank Trust Company
  Americas, as trustee, as supplemented.

2001 Senior Secured Bond Indenture - PPL Electric's Indenture,
  dated as of August 1, 2001, to JPMorgan Chase Bank, as trustee, as supplemented.

AFUDC (Allowance for Funds Used During Construction) - the cost
  of equity and debt funds used to finance construction projects of regulated
  businesses that is capitalized as part of construction cost.

ANEEL - National Electric Energy Agency, Brazil's agency that
  regulates the transmission and distribution of electricity.

APA - Asset Purchase Agreement.

APB- Accounting Principles Board.

ARB- Accounting Research Bulletin.

Bangor Hydro - Bangor Hydro-Electric Company.

Bcf - billion cubic feet.

CEMAR-Companhia Energética do Maranhão,
  a Brazilian electric distribution company in which PPL Global has a majority
  ownership interest.

CGE-Compañia General Electricidad, S.A., a distributor
  of electricity and natural gas with other industrial segments in Chile and Argentina
  in which PPL Global has an 8.5 percent direct and indirect minority ownership
  interest.

Clean Air Act - federal legislation enacted to address certain
  environmental issues related to air emissions including acid rain, ozone and
  toxic air emissions.

CTC - competitive transition charge on customer bills to recover
  allowable transition costs under the Customer Choice Act.

Customer Choice Act- the Pennsylvania Electricity Generation
  Customer Choice and Competition Act, legislation enacted to restructure the
  state's electric utility industry to create retail access to a competitive market
  for generation of electricity.

DelSur-Distribuidora de Electricidad Del-Sur,
  S.A. de C.V., an electric distribution company in El Salvador, a majority of
  which is owned by EC.

DEP - Department of Environmental Protection, a state government
  agency.

Derivative - a financial instrument or other contract with all
  three of the following characteristics:

1. It has (1) one or more underlyings and (2) one or more notional amounts
    or payment provisions or both. Those terms determine the amount of the settlement
    or settlements, and, in some cases, whether or not a settlement is required.
2. It requires no initial net investment or an initial net investment that
    is smaller than would be required for other types of contracts that would
    be expected to have a similar response to changes in market factors.
3. Its terms require or permit net settlement, it can readily be settled net
    by a means outside the contract, or it provides for delivery of an asset that
    puts the recipient in a position not substantially different from net settlement.

DIG- Derivatives Implementation Group.

DOE - Department of Energy, a U.S. government agency.

DRIP - Dividend Reinvestment Plan.

EC - Electricidad de Centroamerica, S.A. de C.V., an El Salvadoran
  holding company and the majority owner of DelSur and El Salvador Telecom, S.A.
  de C.V. PPL Global has 100% ownership of EC.

EGS - electric generation supplier.

EITF - Emerging Issues Task Force, an organization that assists
  the FASB in improving financial reporting through the identification, discussion
  and resolution of financial issues within the framework of existing authoritative
  literature.

Elfec- Empresa de Luz y Fuerza Electrica Cochabamba Sociedad
  Anonima, a Bolivian electric distribution company in which PPL Global has a
  majority ownership interest.

Emel - Empresas Emel S.A., a Chilean electric distribution holding
  company of which PPL Global has majority ownership.

EMF - electric and magnetic fields.

Enrichment - the concentration of fissionable isotopes to produce
  a fuel suitable for use in a nuclear reactor.

EPA - Environmental Protection Agency, a U.S. government agency.

EPS - earnings (loss) per share.

ESOP - Employee Stock Ownership Plan.

EWG - exempt wholesale generator.

Fabrication - the process which manufactures nuclear fuel assemblies
  for insertion into the reactor.

FASB- Financial Accounting Standards Board, a rulemaking organization
  that establishes financial accounting and reporting standards.

FERC - Federal Energy Regulatory Commission, the federal agency
  that regulates interstate transmission and wholesale sales of electricity and
  related matters.

FIN- FASB Interpretation Number, intended to clarify accounting
  pronouncements previously issued by the FASB.

GAAP - generally accepted accounting principles.

Griffith Energy - Griffith Energy LLC, which owns and operates
  a 600 MW gas-fired station in Kingman, Arizona, and which is jointly owned by
  subsidiaries of PPL Generation and Duke Energy Corporation.

GWh - gigawatt-hour, one million kilowatt-hours.

Hyder - Hyder Limited, a subsidiary of WPDL and previous owner
  of South Wales Electricity plc. In March 2001, South Wales Electricity plc was
  acquired by WPDH Limited and renamed WPD (South Wales).

IBEW - International Brotherhood of Electrical Workers.

ICP - Incentive Compensation Plan.

ICPKE - Incentive Compensation Plan for Key Employees.

IRS- Internal Revenue Service, a U.S. government agency.

ISO - Independent System Operator.

ITC - intangible transition charge on customer bills to recover
  intangible transition costs associated with securitizing stranded costs under
  the Customer Choice Act.

kWh - kilowatt-hour, basic unit of electrical energy.

kVA- kilovolt-ampere.

LIBOR-London Interbank Offered Rate.

Mirant - Mirant Corporation, a diversified energy company based
  in Atlanta. PPL Global and Mirant jointly owned WPD until September 6, 2002.

Montana Power - The Montana Power Company, a Montana-based company
  that sold its generating assets to PPL Montana in December 1999. Through a series
  of transactions consummated during the first quarter of 2002, Montana Power
  sold its electricity delivery business to NorthWestern.

MPSC- Montana Public Service Commission.

MW - megawatt, one thousand kilowatts.

MWh - megawatt-hour, one thousand kilowatt-hours.

NorthWestern- NorthWestern Corporation, a Delaware corporation
  and successor in interest to Montana Power's electricity delivery business,
  including Montana Power's rights and obligations under contracts with PPL Montana.

NPDES - National Pollutant Discharge Elimination System.

NRC - Nuclear Regulatory Commission, the federal agency that
  regulates operation of nuclear power facilities.

NUGs (Non-Utility Generators) - generating plants not owned by
  public utilities, whose electrical output must be purchased by utilities under
  the PURPA if the plant meets certain criteria.

OSM - Office of Surface Mining, a U.S. government agency.

PCB - polychlorinated biphenyl, an additive to oil used in certain
  electrical equipment up to the late 1970s. Now classified as a hazardous chemical.

PEPS Units (Premium Equity Participating Security Units) - securities
  issued by PPL Capital Funding Trust I, consisting of a Preferred Security and
  a forward contract to purchase PPL common stock.

PJM(PJM Interconnection, LLC) - operates the electric transmission
  network and electric energy market in the mid-Atlantic region of the U.S.

PLR (Provider of Last Resort) - PPL Electric providing electricity
  to retail customers within its delivery territory who have chosen not to shop
  for electricity under the Customer Choice Act.

PPL- PPL Corporation, the parent holding company of PPL Electric,
  PPL Energy Funding and other subsidiaries.

PPL Capital Funding - PPL Capital Funding, Inc., a PPL financing
  subsidiary.

PPL Capital Funding Trust I - a Delaware statutory business trust
  created to issue PEPS Units, whose common securities are held by PPL.

PPL Capital Trust - a Delaware statutorybusiness trust
  created to issue Preferred Securities, whose common securities are held by PPL
  Electric.

PPL Capital Trust II - a Delaware statutory business trust created
  to issue Preferred Securities, whose common securities are held by PPL Electric.

PPL Coal Supply- PPL Coal Supply, LLC, a limited liability company
  owned by PPL Coal Holdings Corporation (a subsidiary of PPL Generation) and
  Iris Energy, LLC. PPL Coal Supply procures coal, which it sells to PPL Generation
  power plants, and to Iris Energy for purposes of producing synfuel.

PPL Electric- PPL Electric Utilities Corporation, a regulated
  utility subsidiary of PPL that transmits and distributes electricity in its
  service territory, and provides electric supply to retail customers in this
  territory as a PLR.

PPL Energy Funding - PPL Energy Funding Corporation, which is
  a subsidiary of PPL and the parent company of PPL Energy Supply.

PPL EnergyPlus - PPL EnergyPlus, LLC, a subsidiary of PPL Energy
  Supply, which markets wholesale and retail electricity, and supplies energy
  and energy services in newly deregulated markets.

PPL Energy Supply - PPL Energy Supply, LLC, the parent company
  of PPL Generation, PPL EnergyPlus, PPL Global and other subsidiaries. Formed
  in November 2000, PPL Energy Supply is a subsidiary of PPL Energy Funding.

PPL Gas Utilities - PPL Gas Utilities Corporation, a regulated
  utility subsidiary of PPL specializing in natural gas distribution, transmission
  and storage services, and the competitive sale of propane.

PPL Generation - PPL Generation, LLC, a subsidiary of PPL Energy
  Supply, which owns and operates U.S. generating facilities through various subsidiaries.

PPL Global - PPL Global, LLC, a subsidiary of PPL Energy Supply,
  which acquires and develops domestic generation projects, and acquires and holds
  international energy projects that are primarily focused on the distribution
  of electricity.

PPL Holtwood - PPL Holtwood, LLC, a subsidiary of PPL Generation,
  which owns PPL's hydroelectric generating operations in Pennsylvania.

PPL Maine - PPL Maine, LLC, a subsidiary of PPL Generation, which
  owns generating operations in Maine.

PPL Martins Creek - PPL Martins Creek, LLC, a fossil generating
  subsidiary of PPL Generation.

PPL Montana - PPL Montana, LLC, an indirect subsidiary of PPL
  Generation, which generates electricity for wholesale sales in Montana and the
  Pacific Northwest.

PPL Services - PPL Services Corporation, a subsidiary of PPL,
  which provides shared services for PPL and its subsidiaries.

PPL Susquehanna - PPL Susquehanna, LLC, the nuclear generating
  subsidiary of PPL Generation.

PPL Telcom - PPL Telcom, LLC, an indirect subsidiary of PPL Energy
  Funding, which provides telecommunication services to eastern and central Pennsylvania.

PPL Transition Bond Company - PPL Transition Bond Company, LLC,
  a wholly-owned subsidiary of PPL Electric, formed to issue transition bonds
  under the Customer Choice Act.

Preferred Securities - company-obligated mandatorily redeemable
  preferred securities issued by PPL Capital Trust, PPL Capital Trust II and PPL
  Capital Funding Trust I, holding solely debentures of PPL Electric, in the case
  of PPL Capital Trust and PPL Capital Trust II, and solely debentures of PPL
  Capital Funding in the case of PPL Capital Funding Trust I.

PUC- Pennsylvania Public Utility Commission, the state agency
  that regulates certain ratemaking, services, accounting and operations of Pennsylvania
  utilities.

PUC Final Order - final order issued by the PUC on August 27,
  1998, approving the settlement of PPL Electric Utilities' restructuring proceeding.

PUHCA - Public Utility Holding Company Act of 1935, legislation
  passed by the U.S. Congress.

PURPA-Public Utility Regulatory Policies Act
  of 1978, legislation passed by the U.S. Congress to encourage energy conservation,
  efficient use of resources and equitable rates.

PURTA - the Pennsylvania Public Utility Realty Tax Act.

RMC - Risk Management Committee.

RTO - regional transmission organization.

SCR - selective catalytic reduction, a pollution control process.

SEC - Securities and Exchange Commission, a U.S. government agency.

SFAS - Statement of Financial Accounting Standards, the accounting
  and financial reporting rules issued by the FASB.

SIUK Capital Trust I- a business trust created to issue preferred
  securities, whose common securities are held by SIUK Limited.

SIUK Limited-an intermediate holding company
  within the WPDH Limited group. It owns WPD (South West).

Superfund - federal environmental legislation that addresses
  remediation of contaminated sites; states also have similar statutes.

Synfuel projects - production facilities that manufacture synthetic
  fuel from coal or coal byproducts. Favorable federal tax credits are available
  on qualified synfuel products.

Tolling agreement- agreement whereby the owner of an electric
  generating facility agrees to use that facility to convert fuel provided by
  a third party into electric energy for delivery back to the third party.

UF- inflation-indexed peso-denominated unit.

VEBA - Voluntary Employee Benefit Association Trust, trust accounts
  for health and welfare plans for future benefit payments for employees, retirees
  or their beneficiaries.

Vidivision- Vidivision S.A., a Bolivian company providing construction
  and engineering services, as well as cable television and internet services,
  in which PPL Global has a majority ownership interest. Integra S.A., a Bolivian
  contracting company, merged into Vidivision in 2001.

WPD - refers collectively to Western Power Distribution Holdings
  Limited and WPD Investment Holdings Limited. PPL Global purchased Mirant's 49
  percent ownership interest in these entities on September 6, 2002, thereby achieving
  100% ownership and operational control.

WPD (South Wales) - Western Power Distribution (South
  Wales) plc, a British regional electric utility company.

WPD (South West) - Western Power Distribution (South
  West) plc, a British regional electric utility company.

WPDH Limited - Western Power Distribution Holdings Limited, formerly
  WPD 1953 Limited, a wholly-owned subsidiary of PPL Global. WPDH Limited owns
  WPD Holdings U.K., which owns WPD (South West) and WPD (South Wales).

WPDL - WPD Investment Holdings Limited, an indirect wholly-owned
  subsidiary of PPL Global. WPDL owns 100% of the common shares of Hyder.

---

FORWARD-LOOKING INFORMATION



Certain statements contained in this Form 10-K concerning expectations, beliefs,
  plans, objectives, goals, strategies, future events or performance and underlying
  assumptions and other statements which are other than statements of historical
  facts are "forward-looking statements" within the meaning of the federal securities
  laws. Although PPL, PPL Energy Supply, PPL Electric and PPL Montana believe
  that the expectations and assumptions reflected in these statements are reasonable,
  there can be no assurance that these expectations will prove to be correct.
  These forward-looking statements involve a number of risks and uncertainties,
  and actual results may differ materially from the results discussed in the forward-looking
  statements. In addition to the specific factors discussed in the Review of the
  Financial Condition and Results of Operations sections herein, the following
  are among the important factors that could cause actual results to differ materially
  from the forward-looking statements:

- market demand and prices for energy, capacity and fuel;
- weather variations affecting customer energy usage;
- competition in retail and wholesale power markets;
- the effect of any business or industry restructuring;
- the profitability and liquidity of PPL and its subsidiaries;
- new accounting requirements or new interpretations or applications of existing
    requirements;
- operation of existing facilities and operating costs;
- environmental conditions and requirements;
- transmission and distribution system conditions and operating costs;
- development of new projects, markets and technologies;
- performance of new ventures;
- political, regulatory or economic conditions in states, regions or countries
    where PPL or its subsidiaries conduct business;
- receipt and renewals of necessary governmental permits and approvals;
- impact of state or federal investigations applicable to PPL and its subsidiaries
    and the energy industry;
- the outcome of litigation against PPL and its subsidiaries;
- capital market conditions and decisions regarding capital structure;
- stock price performance;
- securities and credit ratings;
- foreign exchange rates;
- new state or federal legislation;
- national or regional economic conditions, including any potential effects
    arising from the September 11, 2001 terrorist attacks in the U.S. and any
    consequential hostilities or other hostilities; and
- the commitments and liabilities of PPL and its subsidiaries.

Any such forward-looking statements should be considered in light of such important
  factors and in conjunction with other documents of PPL, PPL Energy Supply, PPL
  Electric and PPL Montana on file with the SEC.

New factors that could cause actual results to differ materially from those
  described in forward-looking statements emerge from time to time, and it is
  not possible for PPL, PPL Energy Supply, PPL Electric or PPL Montana to predict
  all of such factors, or the extent to which any such factor or combination of
  factors may cause actual results to differ from those contained in any forward-looking
  statement. Any forward-looking statement speaks only as of the date on which
  such statement is made, and PPL, PPL Energy Supply, PPL Electric and PPL Montana
  undertake no obligations to update the information contained in such statement
  to reflect subsequent developments or information.

---

PART I

ITEM 1. BUSINESS



BACKGROUND

PPL Corporation is an energy and utility holding company that was incorporated
  in 1994. Through its subsidiaries, PPL generates electricity in power plants
  in the northeastern and western U.S.; markets wholesale or retail energy primarily
  in the northeastern and western portions of the U.S. and in Canada; delivers
  electricity to nearly five million customers in the U.S., the U.K. and Latin
  America; and provides energy services for businesses in the mid-Atlantic and
  northeastern U.S. PPL's significant operating subsidiaries are shown below:





In addition to PPL Corporation, the other SEC registrants included
  in this filing are:



- PPL Energy Supply, LLC, an indirect wholly-owned subsidiary of PPL,
    is an energy company engaged through its subsidiaries in the generation and
    marketing of power primarily in the northeastern and western U.S. and in the
    delivery of electricity in the U.K. and Latin America. PPL Energy Supply was
    formed in 2000, as a subsidiary of PPL Energy Funding, to engage in competitive
    energy businesses. PPL Energy Supply's major operating subsidiaries are PPL
    Generation, PPL EnergyPlus and PPL Global. PPL Energy Supply owns or controls
    11,488 MW of electric power generation capacity, and is constructing new electric
    generation projects in Pennsylvania, which would add 690 MW of electric generation
    capacity.



- PPL Electric Utilities Corporation, incorporated in 1920, is a direct
    subsidiary of PPL and a regulated public utility. PPL Electric provides electricity
    delivery service in its service territory in Pennsylvania, and provides electricity
    supply to retail customers in that territory as a PLR under the Customer Choice
    Act. Prior to July 1, 2000, PPL Electric also generated electricity at its
    power plants in Pennsylvania, and marketed wholesale electricity (through
    PPL EnergyPlus) in deregulated markets.



- PPL Montana, LLC, an indirect wholly-owned subsidiary of PPL Energy
    Supply formed in 1998, acquired the Montana generating assets in 1999. PPL
    Montana operates interests in 13 electric generating facilities, which it
    owns or leases, with an aggregate capacity of 1,157 MW. PPL Montana's primary
    regional market for wholesale customers is the northwest U.S. (Montana, Oregon,
    Washington and Idaho).



Corporate Realignment and Segment Information



In 1996, the Customer Choice Act was enacted to deregulate the generation supply
  market in Pennsylvania. On July 1, 2000, PPL and PPL Electric completed a corporate
  realignment in order to effectively separate PPL Electric's regulated transmission
  and distribution operations from its deregulated generation operations, to better
  position the companies and their affiliates in the new competitive marketplace.
  As part of the realignment, PPL Electric's generation assets were transferred
  to PPL Generation and its wholesale power marketing assets were transferred
  to PPL EnergyPlus. Also as part of the realignment, PPL Global transferred its
  domestic generation assets to subsidiaries of PPL Generation. See "Corporate
  Realignment" in Item 7, "Review of the Financial Condition and Results of Operations"
  of PPL Energy Supply, for the key features of the corporate realignment. See
  Exhibit 99(i) in Item 15 for the current corporate organization.



As a result of the corporate realignment, PPL is organized in segments consisting
  of Supply, Delivery and International. PPL Energy Supply's segments consist
  of Supply and International. In addition, certain corporate service functions
  reside in PPL Services. See Note 2 to the Financial Statements for financial
  information about the segments and geographic financial data.



- Supply Segment -



| | Owns and operates power plants to generate
      electricity; markets this electricity and other power purchases to deregulated
      wholesale and retail markets; and develops and acquires domestic generation
      projects.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                  
| | Consists of the activities of PPL Generation,
      PPL EnergyPlus and the domestic operations of PPL Global.                                                                                                                    

PPL participates across the U.S., and within selected regions in multiple markets.
  The eastern generation assets are focused on the Northeast/Mid-Atlantic energy
  markets - including the PJM, the New York ISO, the New England Power Pool and
  the Mid-American Interconnection Network. PPL's western generating capacity
  is focused on the markets within the Western Systems Coordinating Council.

| | PPL Generation
| | --------------

PPL Generation, with a total generating capacity of 11,488 MW at December 31,
  2002, was established in the corporate realignment. Through subsidiaries, PPL
  Generation owns and operates power plants in Pennsylvania, Montana, Maine, Connecticut,
  Arizona, Illinois and New York.

The Pennsylvania generation plants, with a total capacity of 8,534 MW, were
  transferred by PPL Electric to PPL Generation in the corporate realignment.
  These plants are fueled by nuclear reaction, coal, gas, oil and hydro power.
  The electricity from these plants is sold to PPL EnergyPlus under FERC-jurisdictional
  power purchase agreements.

PPL's U.S. generation subsidiaries are EWGs, which sell electricity into the
  wholesale market. Generally, PPL's EWGs are subject to regulation by the FERC
  but not subject to regulation under PUHCA. The FERC has authorized these EWGs
  to sell generation from their facilities at market-based prices.

PPL Susquehanna, a subsidiary of PPL Generation, owns a 90% undivided interest
  in each of the two nuclear-fueled generating units at its Susquehanna station
  and Allegheny Electric Cooperative, Inc. owns the remaining 10% undivided interest
  in each of those units. PPL's 90% share of Susquehanna's capacity was 2,024
  MW at December 31, 2002. PPL Susquehanna is currently installing more efficient
  steam turbines to increase capacity. PPL Susquehanna's share of this new capacity
  will be 90 MW. These turbines are expected to be in service in 2003 and 2004.

PPL Generation operates its Pennsylvania power plants in conjunction with PJM.
  PPL Generation's Pennsylvania power plants and PPL EnergyPlus are parties to
  the Mid-Atlantic Area Coordination Agreement. Refer to "Delivery Segment" for
  information regarding PJM's operations and functions and the Mid-Atlantic Area
  Coordination Agreement.

The Montana generating assets were acquired by PPL Montana in December 1999.
  (PPL Montana was transferred to PPL Generation in the corporate realignment.)
  These stations are fueled by coal and hydro power, and have a net capacity of
  1,157 MW. PPL EnergyPlus, as agent for PPL Montana, supplies 300 MW of around-the-clock
  electricity and 150 MW of on-peak electricity to NorthWestern under a new five-year
  agreement that began in July 2002. This contract accounted for 31% of PPL Montana's
  operating revenue in 2002. PPL Montana also purchases 98 MW of firm capacity
  during the months of November through April.

The Maine generating assets were acquired from Bangor Hydro in 1998. The oil
  and hydro powered stations have a total capacity of 96 MW.

The Wallingford, Connecticut generating station was constructed by PPL Generation
  and began commercial operations in December 2001. This natural gas powered station
  has a total capacity of 252 MW.

During 2002, PPL began commercial operations in Arizona with two natural gas
  powered stations. The Griffith project in Kingman began commercial operations
  in January 2002, with PPL's ownership interest representing 300 MW. The Sundance
  project near Coolidge began commercial operations in July 2002 and has a total
  capacity of 450 MW.

In July 2002, PPL began commercial operations in Illinois with a 540 MW natural
  gas powered station located in University Park.

In July and August, PPL began commercial operations in New York with a natural
  gas powered station in Edgewood and an oil powered station in Shoreham, both
  on Long Island. These plants have a combined capacity of 159 MW.

PPL Generation subsidiaries are subject to the jurisdiction of certain federal,
  regional, state and local regulatory agencies with respect to air and water
  quality, land use and other environmental matters. PPL Susquehanna is subject
  to the jurisdiction of the NRC in connection with the operation of the Susquehanna
  units. Certain of PPL Generation's other subsidiaries, including PPL Montana,
  are subject to the jurisdiction of the NRC in connection with the operation
  of their fossil plants with respect to certain level and density monitoring
  devices.

Certain operations of PPL Generation's subsidiaries are subject to the Occupational
  Safety and Health Act of 1970 and comparable state statutes.

Refer to the "Power Supply" section for additional information regarding the
  various power plants operated by PPL Generation. Also refer to "Fuel Supply"
  for a discussion of fuel requirements and contractual arrangements.

| | PPL EnergyPlus
| | --------------

PPL EnergyPlus markets or brokers the electricity produced by PPL Generation
  subsidiaries, along with purchased power, natural gas and oil in competitive
  wholesale and deregulated retail markets in order to take advantage of opportunities
  in the competitive energy marketplace. Prior to the corporate realignment, PPL
  EnergyPlus was a subsidiary of PPL Electric.

PPL EnergyPlus buys and sells energy at competitive prices. PPL EnergyPlus
  purchases electric capacity and energy at the wholesale level, and also sells
  electric capacity and energy at the wholesale level under FERC market-based
  tariffs. PPL EnergyPlus enters into these agreements to market available energy
  and capacity from PPL Generation's assets and to profit from market price fluctuations.
  PPL EnergyPlus is actively managing its portfolios to maximize the value of
  PPL's generating assets and to limit exposure to price fluctuations. PPL EnergyPlus
  also purchases and sells energy forward and futures contracts as well as other
  commodity-based financial instruments in accordance with PPL's risk management
  policies, objectives and strategies.

PPL EnergyPlus has executed contracts to provide electricity to PPL Electric
  sufficient for it to meet its PLR obligation from 2002 through 2009, at the
  predetermined capped rates PPL Electric is entitled to charge its customers
  during this period. This arrangement with PPL Electric accounted for 34% of
  PPL Energy Supply's consolidated revenues in 2002. See Note 15 to the Financial
  Statements for more information concerning these contracts.

PPL EnergyPlus has a PUC license to act as an EGS in Pennsylvania. This license
  permits PPL EnergyPlus to offer retail electric and gas supply to customers
  throughout Pennsylvania. In 2002, PPL EnergyPlus was licensed, and supplied
  energy to industrial and commercial customers in Pennsylvania, New Jersey, Maryland,
  Maine and Montana. PPL EnergyPlus is also licensed to provide energy in Delaware
  and Massachusetts. At this time, PPL EnergyPlus has decided not to pursue residential
  customers in the competitive marketplace based on economic considerations.

PPL EnergyPlus also provides distributed generation and energy-related products
  and services to commercial and industrial customers, through its mechanical
  contracting and engineering subsidiaries operating primarily in Pennsylvania,
  Massachusetts, Connecticut, New York and New Jersey. The distributed generation
  business is involved with bringing customers closer to energy generating technologies,
  such as fuel cells, small turbines, microturbines and reciprocating engines.

PPL Synfuel Investments, LLC, a subsidiary of PPL EnergyPlus, indirectly owns,
  through its subsidiaries, two production facilities in Pennsylvania. These facilities
  manufacture synthetic fuel from coal or coal byproducts. PPL receives federal
  tax credits from these qualified manufactured synfuel products.

| | PPL Global(domestic operations)
| | -------------------------------



PPL Global acquires and develops domestic generation projects for PPL Generation.
  At December 31, 2002, PPL Generation was in the process of developing approximately
  690 MW of electric generating capacity in Pennsylvania, including the Lower
  Mt. Bethel gas-fired facility. This facility is expected to be operational in
  late 2003. This project had been initiated by PPL Global. See Item 2, "Properties,"
  for additional information.

| | PPL Telcom
| | ----------

PPL Telcom, an unregulated subsidiary of PPL Energy Funding, has launched a
  fiber optic network and markets available capacity on PPL Electric's fiber optic
  cables in eastern and central Pennsylvania. The fiber optic services include
  point-to-point data transport, high-speed connections among multiple sites and
  access to national and global fiber networks. PPL Telcom markets its services
  to customers such as other telecommunications companies, internet service providers
  and large enterprises that need high-speed data connections between multiple
  locations.

- Delivery Segment -



| | Includes the regulated electric and gas delivery
      operations of PPL Electric and PPL Gas Utilities.
| | --------------------------------------------------------------------------------------------------------



PPL Electric provides electricity delivery service to approximately 1.3 million
  customers in a 10,000-square mile territory in 29 counties of eastern and central
  Pennsylvania. The largest cities in this territory are Allentown, Bethlehem,
  Harrisburg, Hazleton, Lancaster, Scranton, Wilkes-Barre and Williamsport. In
  addition to delivery of purchased power as a PLR, PPL Electric is delivering
  power supplied by PUC-licensed EGSs pursuant to the Customer Choice Act.



PPL Electric has executed two contracts to purchase electricity from PPL EnergyPlus
  sufficient for it to meet its PLR obligation from 2002 through 2009, at the
  pre-determined capped rates it is entitled to charge its customers during this
  period. PPL Electric's PLR obligation after 2009 will be determined by the PUC
  pursuant to rules that have not yet been promulgated.



During 2002, about 91% of PPL Electric's operating revenues were derived from
  regulated electricity deliveries and supply as a PLR. About 7% of 2002 operating
  revenues was from wholesale sales, including the sale of power purchased from
  NUGs to PPL EnergyPlus. The remaining 2% of operating revenues in 2002 was derived
  from energy related products and services and miscellaneous revenues. During
  2002, about 42% of electricity delivery and PLR revenues were from residential
  customers, 36% from commercial customers, 21% from industrial customers and
  1% from other customer classes.



PPL Electric is subject to regulation as a public utility by the PUC, and certain
  of its activities are subject to the jurisdiction of the FERC under the Federal
  Power Act. PPL Electric is not a holding company under PUHCA, and PPL has been
  exempted by the SEC from the provisions of PUHCA applicable to it as a holding
  company.



PPL Electric is also subject to the jurisdiction of certain federal, regional,
  state and local regulatory agencies with respect to land use and other environmental
  matters. Certain operations of PPL Electric are subject to the Occupational
  Safety and Health Act of 1970 and comparable state statutes.



PPL Electric operates its transmission facilities as part of PJM. PJM operates
  the electric transmission network and electric energy market in the mid-Atlantic
  region of the U.S. Bulk electricity is transmitted to wholesale users throughout
  a geographic area including all or part of Pennsylvania, New Jersey, Maryland,
  Delaware, Virginia and the District of Columbia. PPL Electric is also a party
  to the Mid-Atlantic Area Coordination Agreement, which provides for the coordinated
  planning of generation and transmission facilities by the companies included
  in PJM.



PJM serves as an ISO in order to accommodate greater competition and broader
  participation in the power pool. The purpose of the ISO is to separate operation
  of, and access to, the transmission grid from PJM electric utilities' generation
  interests. The electric utilities continue to own the transmission assets, but
  the ISO directs the control and operation of the transmission facilities.



PPL Gas Utilities provides natural gas and propane delivery to approximately
  103,000 customers in Pennsylvania and Maryland.



- International Segment -



| | Includes the acquiring and holding of international
      energy projects, through PPL Global, that are primarily focused on the distribution
      of energy.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------



In September 2002, PPL Global acquired the remaining 49% equity interest in
  WPDH Limited and WPDL from Mirant, for approximately $236 million. The acquisition
  of Mirant's 49% interest provides PPL Global with a controlling interest in
  WPD. WPD, through indirect wholly-owned subsidiaries, operates two electric
  distribution companies in the U.K., which together serve approximately 2.5 million
  end-users and have about 2,500 employees. WPD delivered 28,074 million kWh of
  electricity in 2002. See Note 9 to the Financial Statements for additional information
  on this acquisition.

PPL Global also has controlling interests in electricity transmission and distribution
  companies serving customers in Chile, El Salvador and Bolivia. Emel, of which
  PPL Global owns 95.4%, serves approximately 508,000 customers with its distribution
  companies in northern Chile and just south of its headquarters in Santiago,
  Chile. DelSur, of which PPL Global owns 80.5%, is an electric distribution company
  headquartered in San Salvador, which serves approximately 250,000 customers
  in the central and southern regions of El Salvador, including a portion of the
  city of San Salvador. Elfec, of which PPL Global owns 92.1%, is the second largest
  electric distribution company in Bolivia, and serves approximately 240,000 customers
  in Cochabamba.



PPL Global also has minority investments in generating facilities in Peru and
  Spain and has a majority ownership interest in a telecommunications company
  in El Salvador with approximately 5,000 customers.



During 2002, PPL Global deconsolidated its 90% equity interest in its Brazilian
  investment in CEMAR when ANEEL authorized an administrative intervention and
  fully assumed operational and financial control of the company. See Note 9 to
  the Financial Statements for additional information on the deconsolidation of
  CEMAR.

PPL Services

Various corporate service functions reside in PPL Services, an unregulated
  subsidiary of PPL. PPL Services provides shared services for PPL and its subsidiaries.
  These services include financial, legal, human resources and information services.
  These services are directly charged or allocated, as appropriate, to the Supply,
  Delivery and International segments.



Seasonality



Electrical power supply may be seasonal. For example, in some parts of the
  country, demand for, and market prices of, electricity are higher during the
  hot summer months, while in other parts of the country such peaks may occur
  in the cold winter months. As a result, PPL's overall operating results in the
  future may fluctuate substantially on a seasonal basis. The pattern of this
  fluctuation may change depending on the nature and location of the facilities
  PPL acquires and the terms of the contracts to sell electricity.

FINANCIAL CONDITION



See PPL's and PPL Electric's Review of the Financial Condition
  and Results of Operations for this information.



CAPITAL EXPENDITURE REQUIREMENTS



See "Financial Condition - Capital Expenditure Requirements" in PPL's, PPL
  Energy Supply's and PPL Electric's Review of the Financial Condition and Results
  of Operations for information concerning estimated capital expenditure requirements
  for the years 2003-2007. See Note 14 to the Financial Statements for information
  concerning estimates of the costs to comply with various environmental regulations.

COMPETITION

The unregulated businesses of PPL and its subsidiaries are highly competitive.
  The electric industry has experienced a significant increase in the level of
  competition in the energy markets in response to federal and state deregulation
  initiatives.

In 1992, the Energy Act amended the PUHCA to create a new class of independent
  power producers, and amended the Federal Power Act to provide open access to
  electric transmission systems for wholesale transactions. In 1996, the Customer
  Choice Act was enacted in Pennsylvania to restructure the state's electric utility
  industry in order to create retail access to a competitive market for the generation
  of electricity. Certain other states in which PPL's subsidiaries operate have
  also adopted a "customer choice" plan to allow customers to choose their electricity
  supplier. Competitive factors affecting PPL's results of operations include
  new market entrants, construction by others of generating assets, the actions
  of regulatory authorities and other factors. PPL cannot predict the impact of
  these and other competitive factors on its future results of operations or financial
  condition.

PPL and its subsidiaries believe that, assuming deregulation of the energy
  industry continues on both the federal and state levels and retail energy markets
  are opened to new participants and new services, competition will continue to
  be intense. In addition to deregulation, competitive pressures have resulted
  from technological advances in power generation and electronic communications,
  and the greater efficiency of energy markets.

The wholesale power markets in which PPL Generation subsidiaries and PPL EnergyPlus
  operate are highly competitive. Competitors include regulated utilities, industrial
  companies, non-utility generators and unregulated subsidiaries of regulated
  utilities. Although PPL EnergyPlus has long-term supply agreements, (see "Background
  - Supply Segment") a substantial portion of PPL's future sales will be made
  into the competitive wholesale markets. Competition will occur principally on
  the basis of the price of products, and to a lesser extent on the basis of reliability
  and availability.

PPL EnergyPlus also faces competition in the wholesale markets for energy capacity
  and ancillary services. As pricing information becomes increasingly available
  in the energy trading and marketing business and assuming deregulation in the
  electricity markets continues, PPL EnergyPlus anticipates that trading, marketing
  and risk management operations will experience greater competition. PPL EnergyPlus
  primarily competes with other energy merchants based on the ability to aggregate
  supplies at competitive prices from different sources and locations and to efficiently
  utilize transportation from third-party pipelines and transmission from electric
  utilities. Competitors may employ widely differing strategies in their fuel
  supply and power sales contracts with respect to pricing, terms and conditions.
  PPL EnergyPlus also competes against other energy marketers on the basis of
  relative financial condition and access to credit sources.

Some restructured markets have recently experienced supply problems and price
  volatility. In a number of these markets, government agencies and other interested
  parties have made proposals to delay market restructuring or even re-regulate
  certain areas of these markets that have previously been deregulated. In California,
  legislation has been passed placing a moratorium on the sale of generation plants
  by public utilities regulated by the California Public Utilities Commission.
  In June 2001, the FERC instituted a series of price controls designed to mitigate
  (or cap) prices in the entire western U.S. as a result of the California energy
  crisis. These price controls have contributed to the lowering of spot and forward
  energy prices in the western market. Other proposals to institute price controls
  or to re-regulate the energy industry may be made, and legislative or other
  actions may cause the electric power restructuring process to be delayed, discontinued
  or reversed in the states in which PPL currently, or may in the future, operate.
  If the competitive restructuring of the wholesale and retail power markets is
  delayed, discontinued or reversed, PPL's business prospects and financial condition
  could be materially adversely affected.

In July 2001, the FERC issued orders calling for the formation of one RTO throughout
  the Mid-Atlantic region (PJM), New York and New England. In response, PPL Electric
  and PPL EnergyPlus are taking the position that a single northeastern RTO is
  a significant step forward in establishing a reliable and properly functioning
  wholesale electricity market in the region. PPL Electric and PPL EnergyPlus
  strongly support the most comprehensive amalgamation of the existing and proposed
  northeast power pools, including the establishment of a single RTO as well as
  the elimination of marketplace distinctions and control area boundaries. The
  FERC's northeastern RTO proceeding is continuing. PPL Electric and PPL EnergyPlus
  cannot predict when or whether a northeastern RTO will be formed.

See Note 14 to the Financial Statements for information on the FERC Notice
  of Proposed Rulemaking entitled "Remedying Undue Discrimination through Open
  Access Transmission Service and Standard Electricity Market Design."

POWER SUPPLY

PPL Generation's system capacity (winter rating) at December 31, 2002 was as
  follows:

|Plant                                | Net MWCapacity       
|------------------------------------ | ---------------------
|Pennsylvania                         |                      
|Nuclear-fueled steam station         |                      
|                                     | Susquehanna          
|                                     |                      
|Coal-fired steam stations            |                      
|                                     | Montour              
|                                     |                      
|                                     | Brunner Island       
|                                     |                      
|                                     | Martins Creek        
|                                     |                      
|                                     | Keystone             
|                                     |                      
|                                     | Conemaugh            
|                                     |                      
|                                     |                      
|                                     |                      
|Gas and oil-fired steam station      |                      
|                                     | Martins Creek        
|                                     |                      
|Combustion turbines and diesels      | 451                  
|                                     |                      
|Hydroelectric                        | 153                  
|                                     |                      
|                                     |                      
|                                     |                      
|Firm purchases                       |                      
|                                     | Hydroelectric        
|                                     |                      
|                                     | Qualifying facilities
|                                     |                      
|                                     |                      
|                                     |                      
|Total system capacity - Pennsylvania | 8,534                
|                                     |                      
|Arizona                              |                      
|                                     |                      
|Natural gas powered stations         |                      
|                                     |                      
|                                     | Griffith             
|                                     |                      
|                                     | Sundance             
|                                     |                      
|Total system capacity - Arizona      | 750                  
|                                     |                      
|                                     |                      
|Connecticut                          |                      
|                                     |                      
|Natural gas powered station          |                      
|                                     | Wallingford          
|                                     |                      
|Illinois                             |                      
|Natural gas powered station          |                      
|                                     |                      
|                                     | University Park      
|                                     |                      
|New York                             |                      
|Natural gas and oil powered stations |                      
|                                     |                      
|                                     | Edgewood and Shoreham
|                                     |                      
|Montana                              |                      
|Coal-fired stations                  |                      
|                                     |                      
|                                     | Colstrip Units 1 & 2 
|                                     |                      
|                                     | Colstrip Unit 3      
|                                     |                      
|                                     | Corette              
|                                     |                      
|                                     |                      
|                                     |                      
|                                     |                      
|Hydroelectric                        | 474                  
|                                     |                      
|Total system capacity - Montana      | 1,157                
|                                     |                      
|                                     |                      

|Plant                                  | Net MWCapacity
|-------------------------------------- | --------------
|Maine                                  |               
|                                       |               
|Oil-fired generating station           |               
|                                       | Wyman Unit 4  
|                                       |               
|Hydroelectric                          | 44            
|                                       |               
|Total system capacity - Maine          | 96            
|                                       |               
|                                       |               
|Total system capacity - PPL Generation | 11,488        
|                                       |               



|(a) | PPL's 90% undivided interest.                                                                                                  
|--- | -------------------------------------------------------------------------------------------------------------------------------
|(b) | Includes 15 MW auxiliary turbine generator.                                                                                    
|(c) | PPL's 12.34% undivided interest.                                                                                               
|(d) | PPL's 16.25% undivided interest, 4.86% of which
      represents half of the 9.72% interest jointly held with Allegheny Energy.
|(e) | From Safe Harbor Water Power Corporation.                                                                                      
|(f) | Began commercial operations in January 2002.
      PPL's 50% undivided interest.                                               
|(g) | Began commercial operations in July 2002.                                                                                      
|(h) | Shoreham began commercial operations in August
      2002.                                                                     
|(i) | PPL's 50% undivided leasehold interest.                                                                                        
|(j) | PPL's 30% undivided leasehold interest.                                                                                        
|(k) | PPL's 8.33% undivided interest.                                                                                                
|(l) | Includes PPL's 50% interest in the West Enfield
      Station.                                                                 

The capacity of generating units is based upon a number of factors, including
  the operating experience and physical condition of the units, and may be revised
  periodically to reflect changed circumstances.

The system capacity shown in the preceding table does not reflect installed
  capacity credit sales and purchases with other utilities. During 2002, the net
  aggregate of the installed capacity credit sales and purchases totaled 945 MW.

The net effect of Maine sales committed to Bangor Hydro is to reduce Maine's
  system capacity by 31 MW, to 65 MW. The West Enfield facility's output will
  be sold to Bangor Hydro through the year 2024. The Wyman Unit 4 output will
  be sold to Constellation Energy Group through 2004.

In 2002, PPL also entered into multi-year tolling agreements with the Long
  Island Power Authority for about 159 MW of generation PPL constructed at two
  New York sites. Under these tolling agreements, PPL will convert fuel supplied
  by the Long Island Power Authority to electricity and will receive payments
  for use of its facilities.

PPL Montana had two transition agreements to supply wholesale electricity to
  Montana Power. One agreement to provide 200 MW from PPL Montana's leasehold
  interest in Colstrip Unit 3 expired in December 2001. The other agreement covered
  Montana Power's remaining native load commitments, which ended June 2002. PPL
  Montana currently has agreements effective since July 2002, to supply NorthWestern
  with 450 MW of energy for five years.

As part of the purchase of generation assets from Montana Power, PPL Montana
  agreed to supply electricity to the U.S. government on behalf of the Flathead
  Irrigation Project. Under the agreement, which expires in December 2010, PPL
  Montana is required to supply approximately 7.5 MW of capacity year round, with
  an additional 3.7 MW from April through October during the term of the agreement.

During 2002, PPL Generation produced about 42 billion kWh in its Pennsylvania
  plants, with 58% of the energy generated by coal-fired stations, 37% from nuclear
  operations at the Susquehanna station, 3% from the Martins Creek gas and oil-fired
  station and 2% from hydroelectric stations.

During 2002, PPL Montana generated 7.8 billion kWh. Of this total, 4.7 billion
  kWh was from fossil generation, with the balance from PPL Montana's hydroelectric
  plants.

During 2002, PPL Maine generated about 301 million kWh. Of this total, about
  272 million kWh was from hydroelectric generation, with the balance from PPL
  Maine's interest in the oil-fired Wyman Unit 4.

PPL EnergyPlus purchases energy from, and sells energy to, other utilities
  and FERC-certified power marketers at market-based rates under power purchase
  and sales agreements. PPL EnergyPlus enters into these transactions on an hourly,
  daily, weekly, monthly or longer-term basis.

PPL EnergyPlus has FERC authorization to sell electric energy, capacity and
  ancillary services at market-based rates to wholesale customers located both
  inside and outside of the PJM control area. As of December 31, 2002, 136 utilities
  and power marketers had signed power sales agreements under this tariff. Under
  the market-based tariff, PPL EnergyPlus may also sell power purchased from third
  parties.

PPL Energy Supply depends on transmission and distribution facilities owned
  and operated by utilities and other energy companies to deliver the electricity
  and natural gas it sells to the wholesale and retail markets, as well as the
  natural gas it purchases for use in its electric generation facilities. If transmission
  is disrupted, or if capacity is inadequate, PPL Energy Supply's ability to sell
  and deliver products and satisfy contractual obligations may be hindered.

During 2002, PPL EnergyPlus purchased 19.2 billion kWh and had 22.4 billion
  kWh in non-system energy sales.

PPL EnergyPlus also has an export license to sell capacity and/or energy to
  electric utilities in Canada. This export license allows PPL EnergyPlus to sell
  either its own capacity and energy not required to serve domestic obligations
  or power purchased from other utilities.

FUEL SUPPLY



Coal - Pennsylvania

In February 2001, a subsidiary of PPL Generation entered into a partnership,
  PPL Coal Supply, with Iris Energy, LLC, an unrelated third party, to procure
  coal and facilitate the production of synthetic fuel. PPL Coal Supply began
  operations in June 2001 and provides coal to PPL Generation power plants and
  to Iris Energy for the production of synthetic fuel. In 2002, synthetic fuel
  from Iris Energy provided 61% of the fuel requirements of PPL Generation's Pennsylvania
  stations. The balance of the coal was provided by PPL Coal Supply. PPL Coal
  Supply actively manages its supply base in three principal areas; central Appalachia
  and western and central Pennsylvania.

During 2002, about 81% of the coal delivered to PPL Generation's Pennsylvania
  stations was purchased under long-term contracts and 19% was obtained through
  open market purchases. These contracts provided PPL Generation with about 6.1
  million tons of coal in 2002 and are expected to provide approximately 6 million
  tons in 2003. At December 31, 2002, Pennsylvania plants had sufficient supply
  for about 44 days of operations. The amount of coal in inventory varies from
  time-to-time depending on market conditions and plant operations.

The coal burned at the Pennsylvania power plants contains sulfur. Mechanical
  cleaning processes are utilized to reduce the sulfur content of the coal. The
  reduction of the sulfur content by either mechanical cleaning or blending has
  lowered the total sulfur content of the coal burned to levels which permit compliance
  with current sulfur dioxide emission regulations established by the Pennsylvania
  DEP.

At December 31, 2002, a PPL Generation subsidiary owned a 12.34% undivided
  interest in the Keystone station and a 16.25% undivided interest in the Keystone
  Conemaugh station. The owners of the Keystone station have a long-term contract
  with a coal supplier that provides approximately 2.6 million tons per year until
  the contract expires at the end of 2004, and a long-term contract with a synthetic
  fuel supplier that provides approximately 4 million tons per year until the
  contract expires at the end of 2007. The balance of the Keystone station requirements
  are purchased in the open market. The owners of the Conemaugh station have a
  long-term contract with a synthetic fuel supplier that provides approximately
  2 million tons per year until the contract expires at the end of 2007. The balance
  of the Conemaugh station requirements are purchased in the open market.

Coal - Montana



PPL Montana has a 50% leasehold interest in Colstrip Units 1 and 2, and a 30%
  leasehold interest in Unit 3. PPL Montana is party to contracts to purchase
  coal from a neighboring mine with defined quality characteristics and specifications.
  The coal purchase contract for Units 1 and 2 is in effect through December 31,
  2009. The coal purchase contract for Unit 3 is in effect through December 31,
  2019.

PPL Montana owns the Corette power plant. The plant has a coal purchase contract
  to purchase low sulfur coal with defined quality characteristics and specifications.
  The contract expires at the end of 2003.

Oil and Natural Gas

PPL Generation's Martins Creek Units 3 and 4 burn both oil and natural gas.
  PPL EnergyPlus, the marketing and trading subsidiary of PPL, is responsible
  for procuring the oil and natural gas supply for all PPL Generation assets.
  During 2002, 100% of the oil requirements for the Martins Creek units were purchased
  on the spot market. As of December 31, 2002, PPL EnergyPlus had no long-term
  agreements for these requirements.

In 2002, PPL EnergyPlus began supplying fuel to the Sundance and University
  Park natural gas-fired stations that began commercial operation in July 2002.
  PPL EnergyPlus has a long-term pipeline capacity contract representing approximately
  10% of the maximum requirements of the Sundance facility, but has no long-term
  agreement to purchase natural gas. As of December 31, 2002, there were no agreements
  to purchase natural gas for University Park.

PPL EnergyPlus has a long-term contract for approximately 40% of the expected
  pipeline transportation requirements of the Wallingford facility, but has no
  long-term agreement to purchase natural gas. Likewise, PPL EnergyPlus has long-term
  pipeline transportation contracts in place for the Griffith Energy facility
  equaling 70% of the expected requirements.

PPL EnergyPlus generally employs a strategy of procuring natural gas in conjunction
  with electricity sales commitments.

Nuclear

PPL Susquehanna has executed uranium supply and conversion agreements that
  satisfy 100% of its uranium requirements in 2003 and, including options, an
  additional 25% of its requirements for the period 2004-2007. Deliveries under
  these agreements are expected to provide sufficient uranium to permit Unit 1
  to operate into the first quarter of 2006 and Unit 2 to operate into the first
  quarter of 2005.

PPL Susquehanna has executed an agreement that satisfies all of its enrichment
  requirements through 2008. Assuming that the other uranium components of the
  nuclear fuel cycle are satisfied, deliveries under this agreement are expected
  to provide sufficient enrichment to permit Unit 1 to operate into the first
  quarter of 2010 and Unit 2 to operate into the first quarter of 2011.

PPL Susquehanna has entered into an agreement that, including options, satisfies
  all of its fabrication requirements through 2006. Assuming that the uranium
  and other components of the nuclear fuel cycle are satisfied, deliveries under
  this agreement can provide sufficient fabrication to permit Unit 1 to operate
  into the first quarter of 2008 and Unit 2 to operate into the first quarter
  of 2007.

Federal law requires the federal government to provide for the permanent disposal
  of commercial spent nuclear fuel. Under the Nuclear Waste Policy Act, the DOE
  initiated an analysis of a site in Nevada for a permanent nuclear waste repository.
  The repository is not expected to be operational before 2010. As a result, it
  was necessary to expand Susquehanna's on-site spent fuel storage capacity. To
  support this expansion, PPL Susquehanna contracted for the design and construction
  of a spent fuel storage facility employing dry cask fuel storage technology.
  The facility is modular, so that additional storage capacity can be added as
  needed. The facility began receiving spent nuclear fuel in October 1999. PPL
  Susquehanna estimates that there is sufficient storage capacity in the spent
  nuclear fuel pools and the on-site spent fuel storage facility at Susquehanna
  to accommodate spent fuel discharged through approximately 2017, under current
  operating conditions. If necessary, the on-site spent fuel storage facility
  can be expanded, assuming appropriate regulatory approvals are obtained, such
  that, together, the spent fuel pools and the expanded dry fuel storage facility
  will accommodate all of the spent fuel expected to be discharged through the
  current life of the plant.

In July 2002, President Bush approved the Congressional override of a
  veto by the State of Nevada, designating Yucca Mountain, Nevada as the site
  for development of a long-term repository for high-level radioactive waste.
  The next step is for the DOE to submit a license application to the NRC to build
  and then operate the Yucca Mountain repository.

Federal law also provides that generators of spent fuel are responsible for
  certain costs of disposal. In January 1997, PPL Electric joined over 30 other
  utilities in a lawsuit in the U.S. Court of Appeals for the District of Columbia
  Circuit seeking assurance of the DOE's performance of its contractual obligation
  to accept spent nuclear fuel and suspension of payment to that agency pending
  such performance. In November 1997, the Court denied the utilities' requested
  relief and held that the contracts between the utilities and the DOE provide
  a potentially adequate remedy if the DOE failed to begin disposal of spent nuclear
  fuel by January 31, 1998. The DOE did not, in fact, begin to dispose of spent
  nuclear fuel on that date and has acknowledged that it violated its contractual
  obligations. The DOE continues, however, to vigorously contest claims that its
  failures resulted in recoverable damages. PPL cannot predict the outcome of
  this dispute.

ENVIRONMENTAL MATTERS

Certain PPL subsidiaries, including PPL Electric and PPL Generation subsidiaries,
  are subject to certain present and developing federal, regional, state and local
  laws and regulations with respect to air and water quality, land use and other
  environmental matters. See PPL's and PPL Energy Supply's "Financial Condition
  - Capital Expenditure Requirements" in the Review of the Financial Condition
  and Results of Operations for information concerning environmental expenditures
  during 2002 and their estimate of those expenditures during the years 2003-2007.
  PPL believes that its subsidiaries are in substantial compliance with applicable
  environmental laws and regulations.

See "Environmental Matters" in Note 14 to the Financial Statements for information
  concerning federal clean air legislation, groundwater degradation and waste
  water control at facilities owned by PPL's subsidiaries and PPL Electric's and
  PPL Gas Utilities' agreements with the Pennsylvania DEP concerning remediation
  at certain sites. Other environmental laws, regulations and developments that
  may have a substantial impact on PPL's subsidiaries are discussed below.

Air

The Clean Air Act includes, among other things, provisions that: (a) restrict
  the construction of, and revise the performance standards for, new and substantially
  modified coal-fired and oil-fired generating stations; and (b) authorize the
  EPA to impose substantial noncompliance penalties of up to $27,500 per day of
  violation for each facility found to be in violation of the requirements of
  an applicable state implementation plan. The state agencies administer the EPA's
  air quality regulations through the state implementation plans and have concurrent
  authority to impose penalties for non-compliance. In December 1997, international
  negotiators reached agreement in Kyoto, Japan to strengthen the 1992 United
  Nations Global Climate Change Treaty by adding legally-binding greenhouse gas
  emission limits. This agreement - the Kyoto Protocol - would require the U.S.
  to reduce its greenhouse gas emissions to 7% below 1990 levels by 2008 - 2012.
  Although the Kyoto Protocol is unlikely to be ratified by the U.S., the electricity
  generating industry has committed to certain voluntary reductions in carbon
  dioxide. Some form of carbon dioxide reductions will likely be required in the
  future. Such requirements could result in increased capital and operating expenses
  which are not now determinable, but which could be significant.

Water

To implement the requirements of the Federal Water Pollution Control Act of
  1972, as amended by the Clean Water Act of 1977 and the Water Quality Act of
  1987, the EPA has adopted regulations on effluent standards for steam electric
  stations. The states administer the EPA's effluent standards through state laws
  and regulations relating to, among other things, effluent discharges and water
  quality. The standards adopted by the EPA pursuant to the Clean Water Act may
  have a significant impact on existing facilities of certain PPL subsidiaries
  depending on the states' interpretation and future amendments to regulations.

Pursuant to the Surface Mining and Reclamation Act of 1977, the OSM has adopted
  effluent guidelines which are applicable to PPL subsidiaries as a result of
  their past coal mining and coal processing activities. The EPA and the OSM limitations,
  guidelines and standards also are enforced through the issuance of NPDES permits.
  In accordance with the provisions of the Clean Water Act and the Reclamation
  Act of 1977, the EPA and the OSM have authorized the states to implement the
  NPDES program. Compliance with applicable water quality standards is assured
  by state review of NPDES permit conditions.

Solid and Hazardous Waste

The provisions of Superfund authorize the EPA to require past and present owners
  of contaminated sites and generators of any hazardous substance found at a site
  to clean-up the site or pay the EPA or the state for the costs of clean-up.
  The generators and past owners can be liable even if the generator contributed
  only a minute portion of the hazardous substances at the site. Present owners
  can be liable even if they contributed no hazardous substances to the site.

State laws such as the Pennsylvania and Montana Superfund statutes also give
  state agencies broad authority to identify hazardous or contaminated sites and
  to order owners or responsible parties to clean-up the sites. If responsible
  parties cannot or will not perform the clean-up, the agency can hire contractors
  to clean-up the sites and then require reimbursement from the responsible parties
  after the clean-up is completed. Another Pennsylvania statute, the Industrial
  Sites Recycling Act, encourages voluntary clean-ups by allowing responsible
  parties to choose from a menu of clean-up standards and providing liability
  protection commensurate with the clean-up standard chosen.

Certain federal and state statutes, including federal and state Superfund statutes,
  also impose liability on the responsible parties for the lost value of damaged
  natural resources.

Low-Level Radioactive Waste

Under federal law, each state is responsible for the disposal of low-level
  radioactive waste generated in that state. States may join in regional compacts
  to jointly fulfill their responsibilities. The states of Pennsylvania, Maryland,
  Delaware and West Virginia are members of the Appalachian States Low-Level Radioactive
  Waste Compact. Efforts to develop a regional disposal facility in Pennsylvania
  were suspended by the Pennsylvania DEP in 1998. The Commonwealth retains the
  legal authority and may be required to resume the siting process should it be
  necessary. Low-level radioactive waste resulting from the operation of the Susquehanna
  facility is currently being sent to Barnwell, South Carolina and Clive, Utah
  for disposal. In the event this or other emergent disposal options become unavailable
  or no longer cost-effective, the low-level radioactive waste will be stored
  on-site at Susquehanna. PPL Susquehanna cannot predict the future availability
  of low-level waste disposal facilities or the cost of such disposal.

Asbestos

There have been increasing litigation claims throughout the U.S. based on exposure
  to asbestos against companies that manufacture or distribute asbestos products
  or that have these products on their premises. Certain of PPL's generation subsidiaries
  and certain of its energy services subsidiaries, such as those that have supplied,
  may have supplied or installed asbestos material in connection with the repair
  or installation of heating, ventilating and air conditioning systems, have been
  named as defendants in asbestos-related lawsuits. PPL cannot predict the outcome
  of these lawsuits or whether additional claims may be asserted against its subsidiaries
  in the future. PPL does not expect that the ultimate resolution of the current
  lawsuits will have a material adverse effect on its financial condition.

Electric and Magnetic Fields

Concerns have been expressed by some members of the public regarding the potential
  health effects of EMFs. These fields are emitted by all devices carrying electricity,
  including electric transmission and distribution lines and substation equipment.
  Government officials in the U.S. and the U.K. have focused attention on this
  issue. PPL and its subsidiaries support the current efforts to determine whether
  EMFs cause any human health problems and are taking steps to reduce EMFs, where
  practical, in the design of new transmission and distribution facilities. PPL
  is unable to predict what effect, if any, the EMF issue might have on its operations
  and facilities either in the U.S. or abroad, and the associated cost, or what,
  if any, liabilities it might incur related to the EMF issue.

PPL and its subsidiaries are unable to predict the ultimate effect of evolving
  environmental laws and regulations upon its existing and proposed facilities
  and operations. In complying with statutes, regulations and actions by regulatory
  bodies involving environmental matters, including the areas of water and air
  quality, hazardous and solid waste handling and disposal and toxic substances,
  PPL's subsidiaries may be required to modify, replace or cease operating certain
  of their facilities. PPL's subsidiaries may also incur significant capital expenditures
  and operating expenses in amounts which are not now determinable, but which
  could be significant.

FRANCHISES AND LICENSES

PPL Electric is authorized to provide electric public utility service throughout
  its service area as a result of grants by the Commonwealth of Pennsylvania in
  corporate charters to PPL Electric and companies to which it has succeeded and
  as a result of certification by the PUC. PPL Electric is granted the right to
  enter the streets and highways by the Commonwealth subject to certain conditions.
  In general, such conditions have been met by ordinance, resolution, permit,
  acquiescence or other action by an appropriate local political subdivision or
  agency of the Commonwealth.

See "Background - Supply Segment" for a discussion of PPL EnergyPlus' licenses
  in various states. PPL EnergyPlus also has an export license from the DOE to
  sell capacity and/or energy to electric utilities in Canada.

PPL Susquehanna operates Units 1 and 2 pursuant to NRC operating licenses which
  expire in 2022 and 2024, respectively. In November 2001, PPL Susquehanna notified
  the NRC that it intends to seek renewal of its operating licenses. The application
  for this extension will most likely be made in 2006 or 2007, in accordance with
  NRC guidelines. If the NRC approves PPL Susquehanna's application, the operating
  licenses for Units 1 and 2 would each be extended for an additional 20 years,
  to 2042 and 2044, respectively.

PPL Holtwood operates the Wallenpaupack and Holtwood hydroelectric projects
  pursuant to licenses renewed by the FERC in 1980. The Wallenpaupack license
  expires in 2004 and the Holtwood license expires in 2014. PPL Holtwood also
  owns one-third of the capital stock of Safe Harbor Water Power Corporation (Safe
  Harbor), which holds a project license which extends the operation of its hydroelectric
  plant until 2030. The total capacity of the Safe Harbor plant is 418 MW, and
  PPL Holtwood is entitled by contract to one-third of the total capacity.

The 11 hydroelectric facilities and one storage reservoir purchased from Montana
  Power in 1999 are licensed by the FERC. These licenses expire periodically,
  and the generating facilities must be relicensed at such times. The FERC license
  for the Mystic facility expires in 2009; the Thompson Falls and Kerr licenses
  expire in 2025 and 2035, respectively, and the license for the nine Missouri-Madison
  facilities expire in 2040.

PPL Holtwood is working to have the Wallenpaupack facility relicensed, and
  PPL Montana is working to have the Mystic facility relicensed. Under applicable
  law, FERC may relicense the original licensee or may license a new licensee,
  or the U.S government may take over the project. If the original licensee is
  not relicensed, it is compensated for its net investment in the project, not
  to exceed the fair value of the property taken, plus reasonable damages to other
  property affected by the lack of relicensing.

PPL Global's international electricity transmission and distribution companies
  are authorized by the governments of their respective countries to provide electric
  distribution services within their concession areas, subject to certain conditions
  and obligations.

EMPLOYEE RELATIONS

As of December 31, 2002, PPL and its subsidiaries had the following full-time
  employees:

|PPL Energy Supply    |                         |                                                                                             
|-------------------- | ----------------------- | --------------------------------------------------------------------------------------------
|                     | PPL Generation          | 2,241                                                                                       
|                     | PPL EnergyPlus          | 2,029                                                                                       
|                     | PPL Global              |                                                                                             
|                     |                         | Domestic                                                                                    
|                     |                         | International                                                                               
|                     |                         |                                                                                             
|                     | Total PPL Energy Supply | 8,162                                                                                       
|PPL Electric         | 2,966                   |                                                                                             
|PPL Gas Utilities    | 376                     |                                                                                             
|PPL Services & Other | 1,151                   |                                                                                             
|                     |                         |                                                                                             
|Total PPL            | 12,655                  |                                                                                             
|                     |                         |                                                                                             
|                    
|(a)                  |                         | Includes 470 PPL Montana employees.                                                         
|(b)                  |                         | Includes employees of WPD and PPL Global's consolidated
      subsidiaries in Latin America.

Approximately 62%, or 5,463, of PPL's domestic workforce are members of labor
  unions, with four IBEW locals representing nearly 3,600 employees. The other
  unions primarily represent employees of the mechanical contractors and small locals of gas utility employees in Pennsylvania. The bargaining
  agreement with the largest union was negotiated in May 2002 and expires in May
  2006. Eight three-year contracts with smaller gas utility locals in Pennsylvania
  were negotiated in 2000, and five additional agreements with two-year terms
  were negotiated in 2001. Also in 2001, contracts were concluded with two IBEW
  locals in Montana. PPL Montana negotiated a new five-year agreement with the
  Teamsters Union in 2002.

Approximately 81%, or 3,130, of PPL's international workforce are members of
  labor unions, with WPD representing the majority. WPD has two employment agreements
  which are negotiated with the unions. The Electricity Business Agreement covers
  2,350 employees; it may be amended by agreement between WPD and the unions and
  is terminable with 12 months notice by either side. The other employment agreement,
  called the Meter Reading Services Handbook of Agreements, covers 49 employees;
  it may be amended by agreement between WPD and the unions and is terminable
  by written notice by either side. WPD recognizes five unions, the largest of
  which represents 38% of union members.

AVAILABLE INFORMATION

PPL's Internet website is www.pplweb.com. On the Investor Center page of that
  website, PPL provides access to all SEC filings of PPL registrants free of charge,
  as soon as reasonably practicable after filing with the SEC. Additionally, PPL
  registrants' filings are available at the SEC's website (www.sec.gov) and at
  the SEC's Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549,
  or by calling 1-800-SEC-0330.

---

ITEM 2. PROPERTIES

Domestic Generation

For a description of PPL's domestic generation portfolio, see Item 1, "Business
  - Power Supply."



Domestic Generation Under Development



PPL Generation had the following domestic generation development
  projects in progress at December 31, 2002:



|Plant        |                      | Type |           | Total MWCapacity(a) |     | PPL Ownership or LeaseInterest in MW |     | ExpectedIn-Service Date(b)
|------------ | -------------------- | ---- | --------- | ------------------- | --- | ------------------------------------ | --- | --------------------------
|             |                      |      |           |                     |     |                                      |     |                           
|Pennsylvania |                      |      |           |                     |     |                                      |     |                           
|             | Lower Mt. Bethel (c) |      | Gas-fired |                     | 600 |                                      | 600 |                           
|             | Susquehanna (d)      |      | Nuclear   |                     | 100 |                                      | 90  |                           
|             |                      |      |           |                     |     |                                      |     |                           
|Total        |                      |      |           | 700                 |     | 690                                  |     |                           
|             |                      |      |           |                     |     |                                      |     |                           



|(a)                                                                                                                     |  | The capacity of generation units is based
      on a number of factors, including the operating experience and physical
      condition of the units, and may be revised periodically to reflect changed
      circumstances.
|----------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(b)                                                                                                                     |  | The expected in-service dates are subject
      to receipt of required approvals and permits and to other contingencies.                                                                                                     
|(c)                                                                                                                     |  | The Lower Mt. Bethel project is a gas-fired
      combined cycle combustion turbine facility.                                                                                                                                
|(d)                                                                                                                     |  | The Susquehanna project involves the installation
      of more efficient steam turbines to increase capacity.                                                                                                               
|                                                                                                                        |  |                                                                                                                                                                                                                              
|See Note 9 to the Financial Statements for a discussion
      of the termination of the Kings Park project in New York.



PPL continually reexamines development projects based on market conditions
  and other factors to determine whether to proceed with these projects, sell
  them, expand them, execute tolling agreements or pursue other opportunities.

Domestic Electricity Delivery

For a description of PPL's Electric's service territory, see Item 1, "Business
  - Background." At December 31, 2002, PPL Electric had electric transmission
  and distribution lines in public streets and highways pursuant to franchises
  and rights-of-way secured from property owners. PPL Electric's system included
  377 substations with a total capacity of 25.5 million kVA, 32,709 circuit miles
  of overhead lines and 6,157 cable miles of underground conductors. All of PPL
  Electric's facilities are located in Pennsylvania. Substantially all of PPL
  Electric's transmission and distribution properties are subject to the lien
  of PPL Electric's 1945 First Mortgage Bond Indenture and its 2001 Senior Secured
  Bond Indenture.

Domestic Gas Delivery

PPL Gas Utilities has two natural gas distribution subsidiaries - PFG Gas,
  Inc., which distributes gas to customers in southeastern and central Pennsylvania
  and parts of Maryland, and North Penn Gas Company, which serves customers in
  the northern part of Pennsylvania. North Penn Gas also has natural gas storage
  facilities in Pennsylvania. As of December 31, 2002, PFG Gas had approximately
  39,900 customers and 1,181 miles of pipeline mains, with 14 miles in Maryland
  and the remainder in Pennsylvania. North Penn Gas had approximately 35,500 customers
  and 2,706 miles of pipeline mains in Pennsylvania.



International Electric Delivery

PPL Global has consolidated investments in electricity distribution companies,
  serving approximately 3.5 million customers in Chile, El Salvador, Bolivia and
  the U.K., as follows:

International Investments(a)

|Company                                                          |         | Location                  |                     | PrimaryBusiness |              | PPL OwnershipInterest |       |  |  | 2002
        Electricity
        SalesGWh(b) |    
|---------------------------------------------------------------- | ------- | ------------------------- | ------------------- | --------------- | ------------ | --------------------- | ----- |  |  | -------------------------------------------- | ---
|LATIN AMERICA                                                    |         |                           |                     |                 |              |                       |       |  |  |                                              |    
|Empresas Emel S.A. (Emel)                                        |         | Santiago, Chile           |                     | Distribution    |              | 95.4%                 |       |  |  | 2,101                                        |    
|                                                                 |         |                           |                     |                 |              |                       |       |  |  |                                              |    
|Empresa de Luz y Fuerza Electrica Cochabamba                     |         |                           |                     |                 |              |                       |       |  | 
|                                                                 | (Elfec) |                           | Cochabamba, Bolivia |                 | Distribution |                       | 92.1% |  |  |                                              | 574
|                                                                 |         |                           |                     |                 |              |                       |       |  |  |                                              |    
|Distribuidora de Electricidad Del-Sur
      S.A.de C.V. (DelSur) |         | San Salvador, El Salvador |                     | Distribution    |              | 80.5%                 |       |  |  | 874                                          |    
|                                                                 |         |                           |                     |                 |              |                       |       |  |  |                                              |    
|UNITED KINGDOM                                                   |         |                           |                     |                 |              |                       |       |  |  |                                              |    
|Western Power Distribution Holdings
      Limited (WPDH Limited) |         | Bristol, England          |                     | Distribution    |              | 100%                  |       |  |  | 28,074                                       |    
|                                                                 |         |                           |                     |                 |              |                       |       |  |  |                                              |    
|                                                                 |         |                           |                     |                 |              |                       |       |  |  |                                              |    
|                                                                 |         | Total                     |                     |                 |              |                       |       |  |  |                                              |    
|                                                                 |         |                           |                     |                 |              |                       |       |  |  |                                              |    



|(a) |  | PPL Global no longer controls CEMAR and has
      deconsolidated this investment in its financial statements. PPL Global stopped
      recording operating results of CEMAR after August 21, 2002, the day ANEEL
      assumed control. CEMAR's one million customers have not been included in
      the year-end customer count above. See Note 9 to the Financial Statements
      for additional information.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                  
|(b) |  | Sales corresponding to revenues recorded by
      PPL Global in 2002.                                                                                                                                                                                                                                                                                                                                            

---

ITEM 3. LEGAL PROCEEDINGS



See Item 1, "Business - Fuel Supply," for information concerning a lawsuit
  against the DOE for failure of that agency to perform certain contractual obligations.
  See "Environmental Matters" in Note 14 to the Financial Statements for information
  concerning certain environmental matters.



Tax Assessment Appeals

Pursuant to changes in PURTA enacted in 1999, PPL subsidiaries have filed a
  number of tax assessment appeals in various Pennsylvania counties where PPL
  facilities are located. These appeals challenge existing local tax assessments,
  which now comprise the basis for payment of the PURTA tax on PPL's properties.
  Also, as of January 1, 2000, generation facilities are no longer taxed
  under PURTA, and these local assessments will be used directly to determine
  local real estate tax liability for PPL's power plants. In July 1999, PPL filed
  retroactive appeals for tax years 1998 and 1999, as permitted by the new law.
  In addition, PPL has filed appeals for 2000 and beyond, as permitted under normal
  assessment procedures. It is anticipated that assessment appeals may now be
  an annual occurrence.

Hearings on the pending appeals were held by the boards of assessment appeals
  in each county, and decisions have now been rendered by all counties. To the
  extent the appeals were denied or PPL was not otherwise satisfied with the results,
  PPL filed further appeals from the board decisions with the appropriate county
  Courts of Common Pleas.

Of the three pending proceedings in Pennsylvania, only the appeal concerning
  the assessed value of the Susquehanna nuclear station will result in annual
  local taxes exceeding $1 million. The county assessment of the Susquehanna station
  indicated a market value of $3.9 billion. Based on this value, the annual
  local taxes for the Susquehanna station would have been about $70 million.
  However, PPL was able to reach a settlement with the local taxing authorities
  in December 2000, for tax years 2000 and beyond. This settlement will result
  in the payment of annual local taxes of about $3 million. PPL and the local
  taxing authorities also reached a settlement concerning the 1998 and 1999 tax
  years which, if effectuated, would not result in any additional PURTA tax liability
  for PPL. This portion of the settlement with the local tax authorities is subject,
  however, to the outcome of claims asserted by certain intervenors which are
  described below.

In August 2000, over PPL's objections, the court permitted Philadelphia City
  and County, the Philadelphia School District and the Southeastern Pennsylvania
  Transportation Authority (SEPTA) (collectively, the "Philadelphia parties")
  to intervene in the case. The Philadelphia parties have intervened because they
  believe a change in the assessment of the plant will affect the amount they
  would collect under PURTA for the tax years 1998 and 1999. As part of the change
  in the law, the local real estate assessment determines what the 1998 and 1999
  PURTA payments by PPL will be. In November 2000, the Philadelphia parties submitted
  their own appraisal report, which indicates that the taxable fair market value
  of the Susquehanna station under PURTA for 1998 and 1999 is approximately $2.3
  billion. Based on this appraisal, PPL would have to pay up to an extra $213
  million in PURTA taxes for tax years 1998 and 1999.

PPL's appeal of the Susquehanna station assessment for 1998 and 1999 was decided
  in its favor by the Luzerne County Court of Common Pleas. The Philadelphia parties
  appealed this decision to the Commonwealth Court, and PPL cross-appealed on
  the issue of the right of the Philadelphia parties to intervene. As a result
  of these proceedings and appeals, it is possible that a final determination
  of market value and the associated tax liability for 1998 and 1999 may not occur
  for several years.

See "Review of the Financial Condition and Results of Operation" for a description
  of the July 1, 2000 corporate realignment in which PPL Electric's generating
  plants in Pennsylvania were transferred to various PPL affiliates.

PPL Montana is currently protesting certain property tax assessments by the
  Montana Department of Revenue (MDOR) on its generation facilities. The tax liabilities
  in dispute are approximately $1.7 million for 2000, $1.8 million for 2001 and
  $8.6 million for 2002. PPL Montana's dispute with respect to most of the 2002
  tax liability is based on the assessed value used by the MDOR for PPL Montana's
  hydroelectric facilities versus the assessed value used for the facilities of
  another hydroelectric generator in the state. The state tax appeals board is
  scheduled to hear the 2000 and 2001 disputes in early 2004, while the hearing
  for the 2002 dispute is expected to be later in 2004. In response to these tax
  disputes, the 2003 Montana legislature has either introduced or proposed several
  bills to further tax PPL Montana, including, but not limited to, bills that
  would increase the portion of the current wholesale electrical transaction tax
  paid by the company and increase PPL Montana's annual property taxes from approximately
  $15 million per year to an amount approaching $30 million per year. PPL Montana
  cannot predict the outcome of the tax assessment disputes or the likelihood
  that any such proposed legislation would ultimately become law.

MPSC Order

In June 2001, the MPSC issued an order (MPSC Order) in which it found that
  Montana Power must continue to provide electric service to its customers at
  tariffed rates until its transition plan under the Montana Electricity Utility
  Industry Restructuring and Customer Choice Act is finally approved, and that
  purchasers of generating assets from Montana Power must provide electricity
  to meet Montana Power's full load requirements at prices to Montana Power that
  reflect costs calculated as if the generating assets had not been sold. PPL
  Montana purchased Montana Power's interests in two coal-fired plants and 11
  hydroelectric units in 1999, and NorthWestern purchased Montana Power's electricity
  delivery business in the first quarter of 2002.

In July 2001, PPL Montana filed a complaint against the MPSC with the U.S.
  District Court in Helena, Montana, challenging the MPSC Order. In its complaint,
  PPL Montana asserted, among other things, that the Federal Power Act preempts
  states from exercising regulatory authority over the sale of electricity in
  wholesale markets, and requested the court to declare the MPSC action preempted,
  unconstitutional and void. In addition, the complaint requested that the MPSC
  be enjoined from seeking to exercise any authority, control or regulation of
  wholesale sales from PPL Montana's generating assets. In March 2002, the District
  Court dismissed PPL Montana's lawsuit on procedural grounds, ruling that the
  Eleventh Amendment to the U.S. Constitution prevented PPL Montana from bringing
  the action in federal court. The District Court noted that the action could
  be filed in a state court in Montana. PPL Montana appealed the District Court's
  ruling to the United States Court of Appeals for the Ninth Circuit. In July
  2002, the MPSC filed an unopposed motion for summary disposition of the appeal,
  requesting the Ninth Circuit to reverse the District Court's ruling and send
  the case back to the District Court in light of a recent Eleventh Amendment
  decision by the U.S. Supreme Court. In October 2002, the Ninth Circuit granted
  the MPSC's unopposed motion, vacated the District Court's ruling and sent the
  case back to the District Court.

In January 2003, the MPSC voted 5-0 to rescind the MPSC Order in its entirety,
  without prejudice to future MPSC actions. At such time as the MPSC Order is
  no longer subject to appellate review, PPL Montana and the MPSC will file a
  stipulation providing for withdrawal of PPL's complaint, without prejudice to
  refile such complaint in the future.



Energy West Litigation

In July 2001, PPL Montana filed an action in state court and a responsive pleading
  in federal court, both related to a breach of contract by Energy West Resources,
  Inc. (Energy West), a Great Falls, Montana-based energy aggregator. PPL Montana
  is seeking a judgment that Energy West violated the terms of the contract under
  which it supplied energy to Energy West during the period July 1, 2000 through
  June 30, 2002. PPL Montana is claiming damages of approximately $18 million.
  All litigation in this matter has been consolidated in the U.S. District Court
  for the District of Montana, Great Falls Division, and the liability phase of
  the trial concluded in December 2002. In the event that the federal court rules
  in PPL Montana's favor, the trial will then move into a damages phase. PPL,
  PPL Energy Supply and PPL Montana cannot predict the ultimate outcome of these
  proceedings.

NorthWestern Corporation Litigation

In connection with the acquisition of the Montana generation assets, the Montana
  Power APA, which was previously assigned to PPL Montana by PPL Global, includes
  a provision concerning the proposed purchase by PPL Montana of a portion of
  NorthWestern's interest in the 500-kilovolt Colstrip Transmission System (CTS)
  for $97 million. During 2002, PPL Montana had been in discussions with NorthWestern
  regarding the proposed purchase of the CTS and the claims that PPL Montana believes
  it has against NorthWestern arising from the Montana Power APA and related agreements.
  Notwithstanding such discussions, in September 2002, NorthWestern filed a lawsuit
  against PPL Montana in Montana state court seeking specific performance of PPL
  Montana's purchase of the CTS or, alternatively, damages for breach of contract.
  Pursuant to PPL Montana's application, the matter was removed to the U.S. District
  Court for the District of Montana, Butte Division. Following the removal of
  the matter to the federal court, PPL Montana moved to dismiss NorthWestern's
  claim for specific performance of PPL Montana's purchase of the CTS. NorthWestern
  subsequently asserted additional claims against PPL Montana arising under the
  Montana Power APA. In December 2002, NorthWestern filed a motion seeking summary
  judgment as to certain of its claims against PPL Montana. PPL Montana has opposed
  this summary judgment motion. The U.S. District Court has not yet ruled on either
  PPL Montana's motion to dismiss or NorthWestern's motion for summary judgment.
  PPL, PPL Energy Supply and PPL Montana cannot predict the outcome of this litigation.



Montana Hydroelectric Initiative

On November 5, 2002, a proposed Montana Hydroelectric Security Act initiative
  was defeated on a statewide ballot by a better than 2 to 1 margin. Among the
  stated purposes of the initiative was to create an elected Montana public power
  commission to determine whether purchasing hydroelectric dams in Montana would
  be in the public interest. Such a commission could have decided to acquire any
  or all of the hydroelectric dams owned by PPL Montana, either pursuant to a
  negotiated purchase or an acquisition at fair market value through the power
  of condemnation. PPL Montana had vigorously opposed the initiative along with
  several other Montana groups and individuals.



California ISO and Pacific Northwest

Litigation arising out of the California electricity supply situation has been
  filed at the FERC and in California courts against sellers of energy to the
  California ISO. The plaintiffs and intervenors in these proceedings allege abuses
  of market power, manipulation of market prices, unfair trade practices and violations
  of state antitrust laws, among other things, and seek price caps on wholesale
  sales in California and other western power markets, refunds of excess profits
  allegedly earned on these sales of energy, and other relief, including treble
  damages and attorneys' fees. Certain of PPL's subsidiaries have intervened in
  the FERC proceedings in order to protect their interests, but have not been
  named by any plaintiffs in any of the court actions alleging abuses of market
  power, manipulation of market prices, unfair trade practices and violations
  of state antitrust laws. However, in April 2002, PPL Montana was named by a
  defendant in a consolidated court proceeding, which combined into one master
  proceeding several of the lawsuits alleging antitrust violations and unfair
  trade practices. Specifically, one of the original generators being sued by
  the various plaintiffs in the consolidated court proceeding filed a cross-complaint
  against 30 other generators and power marketers, including PPL Montana. This
  generator denies that any unlawful, unfair or fraudulent conduct occurred or
  caused any harm to the plaintiffs, and explains that the plaintiffs' claims
  are completely barred by federal law. Nonetheless, this generator alleges that
  it filed its complaint against the other generators and power marketers in order
  to assist the court in resolving the proceeding and asserts that if it is found
  liable, the other generators and power marketers, including PPL Montana, caused,
  contributed to and/or participated in the plaintiffs' alleged losses. This litigation,
  originally brought in state court in California, has been removed to federal
  court in California.

In addition, PPL Montana has been named as a defendant in a declaratory judgment
  action initiated by the State of California to prevent certain members of the
  California Power Exchange from seeking compensation for the state's seizure
  of certain energy contracts. PPL Montana is a member of the California Power
  Exchange, but it has no energy contracts with or through the California Power
  Exchange and has not sought compensation in connection with the state's seizure.

Attorneys general in several western states, including California, have begun
  investigations related to the electricity supply situation in California and
  other western states. The FERC has determined that all sellers of energy into
  markets operated by the California ISO and the California Power Exchange, including
  PPL Montana, should be subject to refund liability for the period beginning
  October 2, 2000 through June 20, 2001 and has initiated an evidentiary hearing
  concerning refund amounts. The FERC also is considering whether to order refunds
  for spot market bilateral sales made in the Pacific Northwest, including sales
  made by PPL Montana during the period December 2000 through June 2001. The FERC
  Administrative Law Judge assigned to the Pacific Northwest proceeding has recommended
  that no refunds be ordered for such sales into the Pacific Northwest. The FERC
  presently is considering this recommendation. The FERC has been conducting an
  additional investigation of alleged price manipulation in power markets in California
  and the western U.S. In connection with this investigation, the FERC has served
  several sets of data requests on sellers of energy in those markets, including
  PPL Montana. PPL Montana sold only a small amount of electricity into the California
  market during 2000 and 2001, and it did not sell any electricity into the California
  market during 2002. In its response to a FERC data request concerning PPL Montana's
  California trading strategies, PPL Montana explained that it did not engage
  in the type of California trading strategies that have been attributed to Enron.
  In responses to FERC data requests concerning whether PPL Montana and PPL EnergyPlus
  engaged in so-called "wash trades" in the western U.S., PPL Montana and PPL
  EnergyPlus explained that they have not, and do not, engage in such trades.

While PPL believes that it has not engaged in any improper trading practices,
  PPL cannot predict whether, or the extent to which, any of its subsidiaries
  will be the target of any additional governmental investigations or named in
  other lawsuits or refund proceedings, the outcome of any such lawsuits or proceedings
  or whether the ultimate impact on PPL of the electricity supply situation in
  California and other western states will be material.

Montana Power Shareholders' Litigation

In August 2001, a purported class-action lawsuit was filed by a group of shareholders
  of Montana Power against Montana Power, the directors of Montana Power, certain
  advisors and consultants of Montana Power and PPL Montana. The plaintiffs allege,
  among other things, that Montana Power was required to, and did not, obtain
  shareholder approval of the sale of Montana Power's generation assets to PPL
  Montana in 1999. Although most of the claims in the complaint are against Montana
  Power, its board of directors, and its consultants and advisors, two claims
  are asserted against PPL Montana. In the first claim, plaintiffs seek a declaration
  that because Montana Power shareholders did not vote on the 1999 sale of generating
  assets to PPL Montana, that sale "was null and void ab initio." The second claim
  alleges that PPL Montana was privy to and participated in a strategy whereby
  Montana Power would sell its generation assets to PPL Montana without first
  obtaining Montana Power shareholder approval, and that PPL Montana has made
  net profits in excess of $100 million as the result of this alleged illegal
  sale. In the second claim, plaintiffs request that the court impose a "resulting
  and/or constructive trust" on both the generation assets themselves and all
  profits, plus interest on the amounts subject to the trust. In November 2001,
  PPL Montana and the other defendants filed a motion to dismiss the plaintiffs'
  complaint on the basis that it fails to state a claim upon which relief may
  be granted, and the plaintiffs filed a motion for the lawsuit to be certified
  by the court as a class-action. In August 2002, the court denied this motion
  to dismiss, except as to certain matters not relating to PPL Montana, and granted
  the plaintiffs' motion for the certification of the lawsuit. In January 2003,
  the case was removed to the U.S. District Court in Montana. PPL, PPL Energy
  Supply and PPL Montana cannot predict the outcome of this matter.



PJM Capacity Transactions

In November 2001, the PJM Market Monitor publicly released a report prepared
  for the PUC entitled "Capacity Market Questions" relating to the pricing of
  installed capacity in the PJM daily market during the first quarter of 2001.
  The report concludes that PPL EnergyPlus (identified in the report as "Entity
  1") was able to exercise market power to raise the market-clearing price above
  the competitive level during that period. PPL EnergyPlus does not agree with
  the Market Monitor's conclusions that it exercised market power; in addition,
  the Market Monitor acknowledged in his report that PJM's standards and rules
  did not prohibit PPL EnergyPlus' conduct. In November 2001, the PUC issued an
  Investigation Order directing its Law Bureau to conduct an investigation into
  the PJM capacity market and the allegations in the Market Monitor's report.
  In June 2002, the PUC issued an investigation report alleging, among other things,
  that PPL had "unfairly manipulated electricity markets in early 2001," and that
  "there was an unlawful exercise of market power and market rules gaming by PPL"
  that was damaging to wholesale and retail electricity markets in Pennsylvania.
  The PUC stated that it was not authorized to, and was not attempting to, adjudicate
  the merits of PPL's defenses to these charges, but has referred the matter to
  the U.S. Department of Justice -- Antitrust Division, or DOJ, the FERC and the
  Pennsylvania Attorney General. PPL had previously responded to certain information
  requests of the DOJ in connection with a civil investigative demand regarding
  capacity transactions in the PJM, and PPL has agreed to provide the Office of
  the Pennsylvania Attorney General with any information that it provided to the
  DOJ. In addition, in July 2002, PPL appealed the PUC order to the Commonwealth
  Court of Pennsylvania. Since the PUC clarified that its report has no precedential
  value and should be given no weight in any future proceedings, PPL consented
  to having its appeal dismissed by the Commonwealth Court. Accordingly, the Commonwealth
  Court dismissed the appeal in September 2002. Although PPL believes that the
  PUC's report is inaccurate, that its conclusions are groundless, and that PPL
  acted ethically and legally, in compliance with all applicable laws and regulations,
  PPL cannot predict the outcome or extent of any investigations, litigation or
  other proceedings related to this matter.

In September 2002, PPL was served with a complaint filed by Utilimax.com, Inc.,
  which was a member of PJM, in the U.S. District Court for the Eastern District
  of Pennsylvania against PPL and PPL EnergyPlus alleging, among other things,
  violations of the federal antitrust laws in connection with the capacity transactions
  described in the PJM Market Monitor report. In addition, in December 2002, PPL
  was served with a complaint against PPL, PPL EnergyPlus and PPL Electric filed
  in the same court by a group of 14 Pennsylvania boroughs that apparently alleges,
  in broad terms, similar violations of the federal antitrust laws. These boroughs
  are wholesale customers of PPL Electric. Although PPL, PPL EnergyPlus and PPL
  Electric believe the claims under both complaints are without merit and intend
  to defend the actions vigorously, they cannot predict the outcome of these matters.



FERC Market-Based Rate Authority

In December 1998, the FERC issued an order authorizing PPL EnergyPlus to make
  wholesale sales of electric power and related products at market-based rates.
  In that order, the FERC directed PPL EnergyPlus to file an updated market analysis
  within three years of the date of the order, and every three years thereafter.
  PPL EnergyPlus filed its initial updated market analysis in December 2001. Several
  parties thereafter filed interventions and protests requesting that, in light
  of the PJM Market Monitor's report described above, PPL EnergyPlus be required
  to provide additional information demonstrating that it has met the FERC's market
  power tests necessary for PPL EnergyPlus to continue its market-based rate authority.
  PPL EnergyPlus has responded that the FERC does not require the economic test
  suggested by the intervenors and that, in any event, it would meet such economic
  test if required by the FERC. PPL EnergyPlus cannot predict the outcome of this
  matter.



Lower Mt. Bethel



In December 2001, a PPL Global subsidiary entered into a $455 million operating
  lease arrangement, as lessee, for the development, construction and operation
  of a 600 MW gas-fired combined-cycle generation facility located in Lower Mt.
  Bethel Township, Northampton County, Pennsylvania. See Note 10 to the Financial
  Statements for further discussion of the Lower Mt. Bethel project. The Air Quality
  Plan Approval issued by the Pennsylvania DEP for construction of the Lower Mt.
  Bethel facility has been appealed by the New Jersey DEP to the Pennsylvania
  DEP Environmental Hearing Board. The PPL Global subsidiary involved in the Lower
  Mt. Bethel lease financing has joined with the Pennsylvania DEP in opposing
  this appeal. In addition, in August 2002, the Northampton County Court of Common
  Pleas issued a decision concerning the permissible noise levels from the Lower
  Mt. Bethel facility when it becomes operational. Specifically, the court's decision
  addressed the noise measurement criteria and the point at which the noise levels
  are to be measured. PPL has appealed the court's decision to the Commonwealth
  Court and an intervenor in the lawsuit has cross-appealed the court's decision.
  The Lower Mt. Bethel facility is expected to be operational in late 2003. PPL
  cannot predict the outcome of these matters or their ultimate impact on the
  Lower Mt. Bethel facility or on PPL Energy Supply, but such impact may be material.

---

ITEM 4. SUBMISSION OF MATTERS TO A
  VOTE OF SECURITY HOLDERS



There were no matters submitted to a vote of security holders, through the
  solicitation of proxies or otherwise, during the fourth quarter of 2002.

---

EXECUTIVE OFFICERS OF THE REGISTRANTS



Officers of PPL, PPL Energy Supply, PPL Electric and PPL Montana are elected
  annually by their Boards of Directors (or Boards of Managers, as applicable)
  to serve at the pleasure of the respective Boards. There are no family relationships
  among any of the executive officers, nor is there any arrangement or understanding
  between any executive officer and any other person pursuant to which the officer
  was selected.

There have been no events under any bankruptcy act, no criminal proceedings
  and no judgments or injunctions material to the evaluation of the ability and
  integrity of any executive officer during the past five years.

Listed below are the executive officers as of December 31, 2002:

|PPL Corporation      
|---------------------
|                     
|Name                 
|                     
|William F. Hecht     
|                     
|John R. Biggar       
|                     
|                     
|                     
|                     
|                     
|                     
|Lawrence E. De Simone
|                     
|                     
|                     
|                     
|Robert J. Grey       
|                     
|                     
|Michael E. Bray*     
|                     
|                     
|                     
|                     
|                     
|                     
|Paul T. Champagne*   
|                     
|                     
|                     
|                     
|                     
|James H. Miller*     
|                     
|                     
|                     
|Roger L. Petersen*   
|                     
|                     
|                     
|                     
|                     
|                     
|                     
|Joseph J. McCabe     
|                     
|James E. Abel        
|                     
|                     
|*                    

|PPL Electric Utilities Corporation
|----------------------------------
|                                  
|Name                              
|                                  
|Michael E. Bray                   
|                                  
|                                  
|                                  
|                                  
|                                  
|                                  
|Joseph J. McCabe                  
|                                  
|James E. Abel                     
|                                  
|                                  



PPL Energy Supply, LLC

Item 4 is omitted as PPL Energy Supply meets the conditions set forth in General
  Instruction (I)(1)(a) and (b) of Form 10-K.

PPL Montana, LLC

Item 4 is omitted as PPL Montana meets the conditions set forth in General
  Instruction (I)(1)(a) and (b) of Form 10-K.

---

PART II



ITEM 5. MARKET FOR THE REGISTRANT'S
  COMMON EQUITY AND RELATEDSTOCKHOLDER MATTERS

PPL Corporation

Additional information for this item is set forth in the sections entitled
  "Quarterly Financial, Common Stock Price and Dividend Data" and "Shareowner
  and Investor Information" of this report. The number of common shareowners is
  set forth in the section entitled "Selected Financial and Operating Data" in
  Item 6.

PPL Energy Supply, LLC



There is no established public trading market for PPL Energy Supply's membership
  interests. PPL Energy Funding, a direct wholly-owned subsidiary of PPL, owns
  all of PPL Energy Supply's outstanding membership interests. Distributions on
  the membership interests will be paid as determined by PPL Energy Supply's Board
  of Managers. PPL Energy Supply made cash distributions to PPL Energy Funding
  of $710 million in 2002 and $463 million in 2001.



PPL Electric Utilities Corporation

Additional information for this item is set forth in the sections entitled
  "Quarterly Financial Data" and "Shareowner and Investor Information" of this
  report.

PPL Montana, LLC

There is no established public trading market for PPL Montana's membership
  interests. PPL indirectly owns all of PPL Montana's outstanding membership interests.
  Distributions on the membership interests will be paid as determined by PPL
  Montana's Board of Managers. PPL Montana made cash distributions indirectly
  to PPL of $167 million in 2001. There were no such distributions in 2002.

---

ITEM 6. SELECTED FINANCIAL AND OPERATING DATA

PPL Energy Supply, LLC



Item 6 is omitted as PPL Energy Supply meets the conditions
  set forth in General Instruction (I)(1)(a) and (b) of Form 10-K.



PPL Montana, LLC



Item 6 is omitted as PPL Montana meets the conditions set forth
  in General Instructions (I)(1)(a) and (b) of Form 10-K.

---

|ITEM 6. SELECTED FINANCIAL
          AND OPERATING DATA
|-------------------------------------------------------
|                                                       
|PPL Corporation (a)                                    
|                                                       
|Income Items-- millions                                
|                                                       
|                                                       
|                                                       
|Balance Sheet Items-- millions
      (d)               
|                                                       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                       
|Financial Ratios                                       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                       
|Common Stock Data                                      
|                                                       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                       
|Sales Data - millions of kWh                           
|                                                       
|                                                       
|                                                       
|                                                       
|(a)                                                    
|(b)                                                    
|(c)                                                    
|(d)                                                    
|(e)                                                    
|(f)                                                    
|(g)                                                    
|(h)                                                    
|(i)                                                    

---

|ITEM 6. SELECTED FINANCIAL
          AND OPERATING DATA
|-------------------------------------------------------
|                                                       
|PPL Electric Utilities Corporation
      (a)           
|                                                       
|Income Items-- millions                                
|                                                       
|                                                       
|                                                       
|Balance Sheet Items-- millions
      (b)               
|                                                       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                       
|Financial Ratios                                       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                       
|Sales Data                                             
|                                                       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                       
|                                                       
|(a)                                                    
|(b)                                                    
|(c)                                                    
|(d)                                                    
|(e)                                                    
|(f)                                                    

---

PPL CORPORATIONITEM 7. REVIEW OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS



PPL is an energy and utility holding company with headquarters in Allentown,
  PA. See Item 1, "Business - Background," for descriptions of PPL's major segments.
  See Exhibit 99(i) in Item 15 for the current corporate organization structure.

Terms and abbreviations appearing here are explained in the glossary. Dollars
  are in millions, except per share data, unless otherwise noted.

Results of Operations

Earnings in 2002 were impacted by the acquisition of a controlling interest
  in WPD on September 6, 2002, and the resulting consolidation, as described in
  Note 9 to the Financial Statements. Therefore, the comparison of reported income
  statement line items is not meaningful without eliminating the impact of the
  WPD consolidation. The following table shows the 2002 Statement of Income as
  reported, the adjustments to eliminate the impact of the WPD consolidation (by
  reflecting WPD on the equity method), and as adjusted to exclude the WPD consolidation.
  The following discussion, that explains significant annual changes in principal
  items on the Statement of Income, compares 2002, as adjusted, to 2001.

|PPL Corporation and Subsidiaries
      Consolidated Statement of Income 
      Adjusted to Eliminate WPD Consolidation |                                             
|---------------------------------------------------------------------------------------------------------------------- | --------------------------------------------
|                                                                                                                       |                                             
|                                                                                                                       |                                             
|Operating Revenues                                                                                                     |                                             
|                                                                                                                       |                                             
|Utility                                                                                                                |                                             
|                                                                                                                       |                                             
|Unregulated retail electric and
      gas                                                                              |                                             
|                                                                                                                       |                                             
|Wholesale energy marketing                                                                                             |                                             
|                                                                                                                       |                                             
|Net energy trading margins                                                                                             |                                             
|                                                                                                                       |                                             
|Energy related businesses                                                                                              |                                             
|                                                                                                                       |                                             
|                                                                                                                       |                                             
|Total                                                                                                                  |                                             
|                                                                                                                       |                                             
|                                                                                                                       |                                             
|Operating Expenses                                                                                                     |                                             
|                                                                                                                       |                                             
|Operation                                                                                                              |                                             
|                                                                                                                       |                                             
|                                                                                                                       | Fuel                                        
|                                                                                                                       |                                             
|                                                                                                                       | Energy purchases                            
|                                                                                                                       |                                             
|                                                                                                                       | Other                                       
|                                                                                                                       |                                             
|                                                                                                                       | Amortization of recoverable transition costs
|                                                                                                                       |                                             
|Maintenance                                                                                                            |                                             
|                                                                                                                       |                                             
|Depreciation                                                                                                           |                                             
|                                                                                                                       |                                             
|Taxes, other than income                                                                                               |                                             
|                                                                                                                       |                                             
|Energy related businesses                                                                                              |                                             
|                                                                                                                       |                                             
|Other charges                                                                                                          |                                             
|                                                                                                                       |                                             
|                                                                                                                       | Write-down of international energy projects 
|                                                                                                                       |                                             
|                                                                                                                       | Workforce reduction                         
|                                                                                                                       |                                             
|                                                                                                                       | Write-down of generation assets             
|                                                                                                                       |                                             
|                                                                                                                       |                                             
|Total                                                                                                                  |                                             
|                                                                                                                       |                                             
|                                                                                                                       |                                             

|                                                            |  | As Reported |       |   | Adjustment |   | As Adjusted | 
|----------------------------------------------------------- |  | ----------- | ----- | - | ---------- | - | ----------- | 
|                                                            |  |             |       |   |            |   |             | 
|                                                            |  |             |       |   |            |   |             | 
|Operating Income                                            |  |             | 1,240 |   |            |   | 294         | 
|                                                            |  |             |       |   |            |   |             | 
|Other Income - net                                          |  |             | 33    |   |            |   | 20          | 
|                                                            |  |             |       |   |            |   |             | 
|Interest Expense                                            |  |             | 560   |   |            |   | 127         | 
|                                                            |  |             |       |   |            |   |             | 
|Income Taxes                                                |  |             | 210   |   |            |   | 105         | 
|                                                            |  |             |       |   |            |   |             | 
|Minority Interest                                           |  |             | 78    |   |            |   | 73          | 
|                                                            |  |             |       |   |            |   |             | 
|Cumulative Effect of a Change in Accounting
      Principle |  |             | (150  | ) |            |   |             | 
|                                                            |  |             |       |   |            |   |             | 
|Dividends and Distributions - Preferred Securities          |  |             | 67    |   |            |   | 9           | 
|                                                            |  |             |       |   |            |   |             | 
|Net Income                                                  |  | $           | 208   |   |            | $ |             | 
|                                                            |  |             |       |   |            |   |             | 

The comparability of certain items on the Statement of Income has also been
  impacted by PPL Global's investment in CEMAR in 2000. The consolidated results
  of CEMAR are included for periods during which PPL had a controlling interest,
  from June 2000 to August 2002. See Note 9 to the Financial Statements for more
  information.

Earnings

Net income, and the related EPS, were as follows:

|              |  | 2002 |      |  | 2001 |   |      | 2000 | 
|------------- |  | ---- | ---- |  | ---- | - | ---- | ---- | 
|              |  |      |      |  |      |   |      |      | 
|              |  |      |      |  |      |   |      |      | 
|Net income    |  | $    | 208  |  |      | $ | 179  |      | 
|              |  |      |      |  |      |   |      |      | 
|EPS - basic   |  | $    | 1.37 |  |      | $ | 1.23 |      | 
|              |  |      |      |  |      |   |      |      | 
|EPS - diluted |  | $    | 1.36 |  |      | $ | 1.22 |      | 

Income from core operations, and the related EPS, were as follows:

|                            |  | 2002 |      |  | 2001 |   |      | 2000 | 
|--------------------------- |  | ---- | ---- |  | ---- | - | ---- | ---- | 
|                            |  |      |      |  |      |   |      |      | 
|                            |  |      |      |  |      |   |      |      | 
|Income from core operations |  | $    | 541  |  |      | $ | 620  |      | 
|                            |  |      |      |  |      |   |      |      | 
|EPS - basic                 |  | $    | 3.55 |  |      | $ | 4.24 |      | 
|                            |  |      |      |  |      |   |      |      | 
|EPS - diluted               |  | $    | 3.54 |  |      | $ | 4.22 |      | 

The changes in net income from year to year were, in part, attributable to
  several unusual items with significant earnings impacts as shown below. The
  table below reconciles net income to income from core operations in dollars
  and EPS, after eliminating the impact of unusual items. Income from core operations
  should not be considered as an alternative to net income, which is an indicator
  of operating performance determined in accordance with GAAP. PPL believes that
  income from core operations, although a non-GAAP measure, is also useful and
  meaningful to investors because it provides them with PPL's underlying earnings
  performance as another criterion in making their investment decisions. PPL's
  management also uses income from core operations in measuring certain corporate
  performance goals. Other companies may use different measures to present financial
  performance.

|                                                                |  | Net Income |      | EPS- Diluted |  
|--------------------------------------------------------------- |  | ---------- | ---- | ------------ | -
|                                                                |  | 2002       |      | 2001         |  
|                                                                |  |            |      |              |  
|Net income - actual                                             |  | $          | 208  |              | $
|                                                                |  |            |      |              |  
|Unusual items (net of tax):                                     |  |            |      |              |  
|                                                                |  |            |      |              |  
|Goodwill impairment (Note 18)                                   |  |            | (150 | )            |  
|                                                                |  |            |      |              |  
|CEMAR impairment (Note 9)                                       |  |            | (98  | )            |  
|                                                                |  |            |      |              |  
|CEMAR operating losses (Note 9)                                 |  |            | (23  | )            |  
|                                                                |  |            |      |              |  
|Write-down of generation assets (Note 9)                        |  |            | (26  | )            |  
|                                                                |  |            |      |              |  
|Workforce reduction (Note 21)                                   |  |            | (44  | )            |  
|                                                                |  |            |      |              |  
|Tax benefit - Teesside (Note 9)                                 |  |            | 8    |              |  
|                                                                |  |            |      |              |  
|Cancellation of generation 
      projects (Note 9)             |  |            |      |              |  
|                                                                |  |            |      |              |  
|WPD impairment (Note 9)                                         |  |            |      |              |  
|                                                                |  |            |      |              |  
|Enron impact on trading 
      (Note 17)                        |  |            |      |              |  
|                                                                |  |            |      |              |  
|Enron impact - write-down investment in Teesside
      (Note 9) |  |            |      |              |  
|                                                                |  |            |      |              |  
|Accounting method change - pensions (Note
      12)             |  |            |      |              |  
|                                                                |  |            |      |              |  
|Environmental insurance recoveries                              |  |            |      |              |  
|                                                                |  |            |      |              |  
|Income from core operations                                     |  | $          | 541  |              | $
|                                                                |  |            |      |              |  

The after-tax changes in core earnings were primarily due to:



|                                                                                               |  | 2002 vs. 2001 |     |   | 2001 vs. 2000 |  
|---------------------------------------------------------------------------------------------- |  | ------------- | --- | - | ------------- | -
|Wholesale energy margins                                                                       |  | $             | (81 | ) |               | $
|                                                                                               |  |               |     |   |               |  
|Lower net energy trading margins                                                               |  |               | (11 | ) |               |  
|                                                                                               |  |               |     |   |               |  
|Lower unregulated retail energy margins                                                        |  |               | (33 | ) |               |  
|                                                                                               |  |               |     |   |               |  
|Higher regulated retail energy margins                                                         |  |               | 59  |   |               |  
|                                                                                               |  |               |     |   |               |  
|Delivery revenues (net of CTC/ITC amortization
      and interest expense on transition bonds) |  |               | (10 | ) |               |  
|                                                                                               |  |               |     |   |               |  
|PPL Global earnings (a)                                                                        |  |               | 50  |   |               |  
|                                                                                               |  |               |     |   |               |  
|Higher synfuel tax credits                                                                     |  |               | 10  |   |               |  
|                                                                                               |  |               |     |   |               |  
|Operating and maintenance costs                                                                |  |               | (34 | ) |               |  
|                                                                                               |  |               |     |   |               |  
|Higher financing costs                                                                         |  |               | (29 | ) |               |  
|                                                                                               |  |               |     |   |               |  
|Mechanical contractors earnings                                                                |  |               | (4  | ) |               |  
|                                                                                               |  |               |     |   |               |  
|Lower taxes other than income (excluding
      gross receipts tax)                             |  |               | 5   |   |               |  
|                                                                                               |  |               |     |   |               |  
|Lower depreciation                                                                             |  |               | 4   |   |               |  
|                                                                                               |  |               |     |   |               |  
|Other - net                                                                                    |  |               | (5  | ) |               |  
|                                                                                               |  |               |     |   |               |  
|                                                                                               |  |               |     |   |               |  
|                                                                                               |  | $             | (79 | ) |               | $
|                                                                                               |  |               |     |   |               |  



|(a) |  | The increase in 2002 compared with 2001 was
      primarily due to higher earnings of WPD and also from PPL's complete ownership
      of WPD, lower spending on development projects and the discontinuance of
      goodwill amortization, offset by lower earnings from Latin America.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The year-to-year changes in earnings components are discussed in the balance
  of the discussion in "Results of Operations."



PPL expects that the low level of wholesale energy prices will adversely impact
  margins in 2003 and beyond. Based upon current energy price levels, there is
  a risk that PPL may be unable to recover its investment in new gas-fired generation
  facilities. Under GAAP, PPL does not believe that there is an impairment charge
  to be recorded at this time. PPL is unable to predict the ultimate earnings
  impact of this issue, based upon energy price levels, applicable accounting
  rules and other factors, but such impact may be material. See "Asset Impairment"
  in Application of Critical Accounting Policies for additional information.



Future earnings will also be impacted by the consolidation of variable interest
  entities and the implementation of accounting for asset retirement obligations
  (as discussed in Note 22 to the Financial Statements).



Domestic Energy Margins



The following tables provide summary data regarding changes in the components
  of domestic gross margins of wholesale and retail energy for 2002 compared to
  2001 and 2001 compared to 2000:



|                                                   |                     | 2002 vs. 2001                 |      |     | 2001 vs. 2000 |  
|-------------------------------------------------- | ------------------- | ----------------------------- | ---- | --- | ------------- | -
|                                                   |                     |                               |      |     |               |  
|                                                   |                     |                               |      |     |               |  
|Utility revenues                                   |                     | $                             | 63   |     |               | $
|                                                   |                     |                               |      |     |               |  
|Unregulated retail electric and
      gas revenues |                     |                               | (174 | )   |               |  
|                                                   |                     |                               |      |     |               |  
|Wholesale energy marketing revenues                |                     |                               | 4    |     |               |  
|                                                   |                     |                               |      |     |               |  
|Net energy trading margins                         |                     |                               | (18  | )   |               |  
|                                                   |                     |                               |      |     |               |  
|Other revenue adjustments (a)                      |                     |                               | 42   |     |               |  
|                                                   |                     |                               |      |     |               |  
|                                                   |                     |                               |      |     |               |  
|                                                   | Total revenues      |                               |      | (83 | )             |  
|                                                   |                     |                               |      |     |               |  
|                                                   |                     |                               |      |     |               |  
|Fuel                                               |                     |                               | (18  | )   |               |  
|                                                   |                     |                               |      |     |               |  
|Purchased power                                    |                     |                               |      |     |               |  
|                                                   |                     |                               |      |     |               |  
|Other cost adjustments (a)                         |                     |                               | 32   |     |               |  
|                                                   |                     |                               |      |     |               |  
|                                                   |                     |                               |      |     |               |  
|                                                   | Total cost of sales |                               |      | 14  |               |  
|                                                   |                     |                               |      |     |               |  
|                                                   |                     |                               |      |     |               |  
|                                                   |                     | Domestic gross energy margins |      | $   | (97           | )
|                                                   |                     |                               |      |     |               |  



|(a) |  | Adjusted to exclude the impact of any revenues
      and costs not associated with domestic energy margins, in particular, revenues
      and energy costs related to the international operations of PPL Global and
      the domestic delivery operations of PPL Electric and PPL Gas Utilities.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Changes in Gross Domestic Energy Margins By Activity



Gross margin calculations are dependent on the allocation of fuel and purchased
  power costs to the activities. That allocation is based on monthly MWh consumption
  levels compared to monthly MWh supply costs. Any costs specific to an activity
  are charged to that activity.



|                         |                               | 2002 vs. 2001 |     |     | 2001 vs. 2000 |  
|------------------------ | ----------------------------- | ------------- | --- | --- | ------------- | -
|                         |                               |               |     |     |               |  
|Wholesale - Eastern U.S. |                               | $             | (53 | )   |               | $
|                         |                               |               |     |     |               |  
|Wholesale - Western U.S. |                               |               | (71 | )   |               |  
|                         |                               |               |     |     |               |  
|Net energy trading       |                               |               | (18 | )   |               |  
|                         |                               |               |     |     |               |  
|Unregulated retail       |                               |               | (56 | )   |               |  
|                         |                               |               |     |     |               |  
|Regulated retail         |                               |               | 101 |     |               |  
|                         |                               |               |     |     |               |  
|                         |                               |               |     |     |               |  
|                         | Domestic gross energy margins |               | $   | (97 | )             |  
|                         |                               |               |     |     |               |  



Wholesale - Eastern U.S.

Generally, Eastern wholesale margins were lower in 2002 compared to 2001, despite
  a buyout of a NUG contract in February 2002 that reduced purchased power costs
  by $25 million. The decline in margins was primarily attributable to the decline
  in wholesale prices for energy and capacity. In PJM, where the majority of PPL's
  Eastern wholesale activity occurs, on-peak prices averaged $6/MWh less, a decline
  of 14%, for 2002 compared to 2001. Additionally, because new generating capability
  has come on-line within PJM in 2002, the prices for the PJM monthly auctions
  for unforced capacity credits have also fallen from an average of $100/MW-month
  in 2001 to an average of $38/MW-month in 2002. However, higher volumes of energy
  sales partially offset the decline in prices, as wholesale transactions in 2002
  increased by about 33% over 2001 due to better generation availability.

Eastern wholesale margins were higher in 2001 compared to 2000 primarily due
  to an increase in wholesale prices for energy and capacity. In PJM, on-peak
  prices averaged $6/MWh more in 2001, an increase of 13% from 2000. Additionally,
  prices for the PJM monthly auctions for unforced capacity credits increased
  from an average of $53/MW-month in 2000 to an average of $100/MW-month in 2001.

Wholesale - Western U.S.

Western wholesale margins consist of margins in the Northwest and in the Southwest.

In the Northwest, margins were $74 million lower in 2002 compared to 2001,
  primarily due to a decrease in average realized wholesale prices by $45/MWh,
  partially offset by a 9% increase in volumes. Margins were $19 million lower
  in 2001 compared to 2000, primarily due to a 16% decline in volumes caused by
  the energy supply shortage in the western U.S. primarily due to the impact of
  a drought on hydro availability. Partially offsetting this decrease were higher
  average prices in 2001 compared to 2000.

In the Southwest region, margins were $9 million lower in 2002 compared to
  2001, primarily due to a decrease in average wholesale prices by $40/MWh. These
  lower prices were offset by increased sales, which were three times higher than
  the prior period, as a result of the Griffith Energy and Sundance facilities
  coming on-line in 2002. Margins were $27 million higher in 2001 compared to
  2000, primarily due to purchasing power in late 2001 to satisfy the sales commitments
  entered into earlier in the year at higher prices. These sales were originally
  expected to be supplied by the generation output from Griffith.

The above explanation is exclusive of the 2001 charge for the Enron bankruptcy
  which is discussed in further detail in Note 17 to the Financial Statements.

Net Energy Trading

PPL enters into certain contractual arrangements that meet the criteria of
  energy trading derivatives as defined by EITF 02-3. These physical and financial
  contracts cover trading activity associated with electricity, gas and oil. The
  $18 million decrease in 2002 compared to 2001 was primarily due to unrealized,
  mark-to-market gains in 2001 and lower energy margins in 2002. The $10 million
  decrease in 2001 compared to 2000 was primarily due to lower energy margins
  partially offset by unrealized, mark-to-market losses in 2000. The physical
  volumes associated with energy trading were 10,500 GWh and 12.4 Bcf in 2002;
  7,700 GWh and 22.4 Bcf in 2001; and 19,900 GWh and 2.9 Bcf in 2000.

Unregulated Retail

Unregulated retail margins declined in 2002 compared to 2001 primarily due
  to lower revenues resulting from the expiration of contracts which were not
  renewed in the East and due to significantly lower retail prices in the West,
  somewhat offset by an increase in the number of customers in the West. The decline
  in 2001 from 2000 was also primarily due to the expiration of contracts which
  were not renewed in the East, somewhat offset by higher sales in the West.

Regulated Retail

Regulated retail margins in the East for 2002 were 15% higher than in 2001.
  Higher sales volumes and higher average prices, caused by changes in usage among
  customer classes, provided the improved margins. In addition, lower supply costs
  in 2002, due to lower fuel costs and increased generating unit availability,
  further improved margins. Regulated retail margins in the East for 2001 were
  13% higher than 2000. Sales volumes increased 21% primarily due to the return
  of customers who previously had an alternative electric power supplier.



Utility Revenues



The increase (decrease) in utility revenues was attributable to the following:

|                           |                   | 2002 vs. 2001                      |    |     | 2001 vs. 2000 |  
|-------------------------- | ----------------- | ---------------------------------- | -- | --- | ------------- | -
|                           |                   |                                    |    |     |               |  
|Retail electric revenue    |                   |                                    |    |     |               |  
|                           | PPL Electric:     |                                    |    |     |               |  
|                           |                   | Electric delivery                  |    | $   | (3            | )
|                           |                   |                                    |    |     |               |  
|                           |                   | PLR electric generation supply (a) |    |     | 102           |  
|                           |                   |                                    |    |     |               |  
|                           |                   | Other                              |    |     | (9            | )
|                           |                   |                                    |    |     |               |  
|                           | PPL EnergyPlus:   |                                    |    |     |               |  
|                           |                   | Electric generation supply         |    |     |               |  
|                           |                   |                                    |    |     |               |  
|                           | PPL Global:       |                                    |    |     |               |  
|                           |                   | Electric delivery                  |    |     | (7            | )
|                           |                   |                                    |    |     |               |  
|                           |                   |                                    |    |     |               |  
|                           |                   |                                    | 83 |     |               |  
|Wholesale electric revenue |                   |                                    |    |     |               |  
|                           | PPL Electric      |                                    |    | (5  | )             |  
|                           |                   |                                    |    |     |               |  
|Gas revenue                |                   |                                    |    |     |               |  
|                           | PPL Gas Utilities |                                    |    | (15 | )             |  
|                           |                   |                                    |    |     |               |  
|                           |                   |                                    |    |     |               |  
|                           |                   | $                                  | 63 |     |               | $
|                           |                   |                                    |    |     |               |  

|(a) |  | See the "Regulated Retail" section in "Domestic
      Energy Margins" for a discussion of PPL Electric generation supply revenues
      as a PLR.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------

The increase in utility revenues in 2002 compared with 2001 was primarily due
  to:

- higher revenues of $102 million from providing electric generation supply
    as a PLR, see "Regulated Retail" for additional information; partially offset
    by
- lower PPL Global international electric delivery revenues, primarily due
    to the deconsolidation of CEMAR. PPL Global stopped recording operating results
    of CEMAR upon relinquishing control to ANEEL. As a result, revenues from electricity
    deliveries in Brazil were $17 million lower in 2002 compared with 2001. This
    decrease was partially offset by higher sales volumes in Chile and El Salvador,
    which resulted in increased revenues of $9 million compared with 2001; and
- lower PPL Gas Utilities' revenues of $15 million, primarily due to lower
    sales volumes, due in part to milder winter weather experienced in the first
    quarter of 2002, and a decrease in the fuel cost component of customer rates.

Prior to the July 2000 corporate realignment, wholesale revenues were recorded
  by PPL Electric. Subsequent to the realignment, these revenues were recorded
  by PPL EnergyPlus. As such, wholesale revenues were included in utility revenues
  for the first half of 2000. Also, prior to the July 2000 corporate realignment,
  PPL EnergyPlus was a subsidiary of PPL Electric and recorded unregulated retail
  electric revenues on PPL Electric's books that are included in utility revenues
  for the first half of 2000. After eliminating these revenues transferred in
  the corporate realignment from the results for the first half of 2000, utility
  revenues increased by $395 million in 2001 compared with 2000. The increase
  in utility revenues was primarily due to:

- higher PLR revenues of $284 million from providing electric generation supply,
    primarily due to fewer retail customers shopping for electricity under Pennsylvania's
    Customer Choice Act;
- higher PPL Global international electric delivery revenues of $88 million,
    primarily due to a full year of CEMAR revenues in 2001, compared with three
    months of revenues in 2000;
- higher PPL Gas Utilities revenues of $22 million due to a base rate increase
    effective January 1, 2001, and higher gas commodity prices; and
- higher PPL Electric delivery revenues of $12 million, reflecting a 2% increase
    in deliveries of electricity.

Energy Related Businesses



Energy related businesses (when adjusted to include WPD on an equity basis)
  contributed $21 million less to operating income in 2002 compared with 2001.
  This was primarily due to:

- a $28 million increase in PPL Southwest Generation Holdings, LLC's expenses
    of Griffith Energy due to a full year of operations in 2002. Also, 2001 benefited
    from margins on forward electricity contracts executed prior to commercial
    operation;
- a $9 million decline from the mechanical contracting and engineering subsidiaries,
    primarily due to cost overruns experienced at two major projects;
- an $8 million operating loss on start-up telecommunications operations;
    and
- $4 million of pre-tax operating losses from synfuel projects; partially
    offset by
- a $23 million decrease in PPL Global's expenses due to lower spending on
    development projects, including a favorable settlement on the cancellation
    of a generation project in Washington state.

Although operating income from synfuel operations declined in 2002 compared
  to 2001, the synfuel projects contributed $7 million more to net income after
  recording tax credits.

Energy related businesses contributed $126 million to the 2001 operating income
  of PPL, an increase of $62 million from 2000. The increase reflects PPL Global's
  higher equity earnings of $83 million from its U.K. investments, and higher
  pre-tax operating income of $8 million from the mechanical contracting and engineering
  subsidiaries (as a result of additional acquisitions in the northeastern U.S.)
  These gains were partially offset by a $13 million increase in PPL Global's
  domestic project development expenses and by $19 million of pre-tax operating
  losses from synfuel projects. However, after the recording of tax credits associated
  with synfuel operations, the synfuel projects contributed approximately $19
  million to net income in 2001.

Other Operation Expenses

Other operation expenses increased by $15 million in 2002 compared to 2001.
  In conjunction with the workforce reduction (see Note 21 to the Financial Statements),
  PPL increased its estimated vacation liability by $15 million. The increase
  in operating expense also includes a $17 million decrease in pension income.
  Additionally, there were $9 million of expenses relating to the operating lease
  on the University Park and Sundance facilities, which began commercial operation
  in July 2002. These increases were offset by a decrease of $19 million in PPL
  Global's operating costs due to $10 million of lower administrative and general
  expenses, and a $9 million decrease in CEMAR operating expenses. CEMAR is no
  longer consolidated as of August 21, 2002.

The $17 million decrease in pension income was attributable to PPL's primary
  domestic pension plan. During the second quarter of 2002, the workforce reduction
  and union-negotiated benefit enhancements had a significant impact on PPL's
  primary domestic pension plan requiring remeasurement of the benefit obligation
  and decreasing the net pension income recorded for that plan. In addition, pension
  income was also decreased due to the recognition of significant asset losses
  caused by weakened financial markets. Through December 31, 2002, PPL recorded
  approximately $31 million of pension income. As a result of the events and remeasurements
  previously discussed, PPL expects to continue to record pension income in 2003,
  but at lower levels due to the above events and continued weakness in the financial
  markets. See Note 12 for details of the funded status of PPL's domestic pension
  plans.



Other operation expenses increased by $80 million in 2001 compared to 2000.
  This increase was primarily due to a $45 million gain on the sale of emission
  allowances and a $40 million insurance settlement for environmental liability
  coverage (both recorded in 2000 as reductions of expense). The increase also
  reflects $29 million of additional operating expenses due to the CEMAR acquisition.
  These increases were offset by $41 million of additional net pension income
  credited to expense in 2001. The increase in pension income was primarily due
  to pension investment performance, a higher discount rate and a change in accounting
  principle that accelerates recognition of gains and losses.

Amortization of Recoverable Transition Costs

Amortization of recoverable transition costs decreased by $25 million in 2002
  compared to 2001. This decrease was primarily due to $19 million of lower ITC
  amortization in 2002 as a result of lower billed ITC revenues. Billed ITC revenues
  were lower as a result of lower ITC rates, reflecting the decrease in interest
  expense on the transition bonds.

Amortization of recoverable transition costs increased by $24 million in 2001
  compared to 2000. This increase was primarily due to the collection of $33 million
  of CTC revenues related to prior year CTC deferrals of amounts in excess of
  the Pennsylvania rate cap.

Maintenance Expenses



Maintenance expenses increased by $15 million in 2002 compared to 2001. This
  was primarily due to a $5 million increase in maintenance costs for customers'
  lighting and power service problems and $4 million in additional costs to restore
  service to customers during a winter storm.

Taxes, Other Than Income

Taxes, other than income, increased by $35 million in 2002 compared with 2001,
  primarily due to a $42 million increase in gross receipts tax, partially offset
  by a $12 million decrease in capital stock tax.

The gross receipts tax increase in 2002 was due to an increase in the revenue-neutral
  reconciliation (RNR) tax component of the effective Pennsylvania gross receipts
  tax rate in January 2002. The RNR, which adjusts the base gross receipts tax
  rate of 4.4%, was enacted as part of the Customer Choice Act as a tax revenue
  replacement component to recoup losses to the Commonwealth of Pennsylvania or
  return benefits to customers that may result from the restructuring of the electric
  industry. This increase was partially offset by the settlement of prior years'
  capital stock tax refund claims and a lower capital stock tax rate in 2002.

Taxes, other than income, decreased by $21 million in 2001 compared with 2000
  primarly due to lower gross receipts tax. The gross receipts tax change was
  primarily the result of the decrease in the RNR tax component effective in January
  2001.

Changes in taxes, other than income taxes, do not significantly affect earnings
  as they are substantially recovered or returned through customer rate revenues.

Other Charges

Other charges of $232 million in 2002 consisted of the write-down of PPL Global's
  investment in CEMAR and several smaller impairment charges on other international
  investments (see Note 9 to the Financial Statements), the write-down of generation
  assets (see Note 9) and a charge for a workforce reduction program (see Note
  21).

Other charges of $486 million in 2001 consisted of the write-down of international
  energy projects and the cancellation of generation development projects (see
  Note 9).

Other Income - net

See Note 16 to the Financial Statements for details of other income and deductions.

Financing Costs

Interest expense increased by $47 million in 2002 compared with 2001 primarily
  due to:

- a $24 million charge to cancel the remarketing agreement on the 7.7% Reset
    Put Securities (see Note 8 to the Financial Statements);
- a $19 million net increase in long-term debt interest related to a full
    year of interest in 2002 from the issuances in 2001 of $800 million of senior
    secured bonds by PPL Electric, $500 million of senior unsecured notes by PPL
    Energy Supply and debt by PPL Global's consolidated subsidiaries, partially
    offset by bond retirements;
- a $23 million charge due to interest rate hedge contract termination associated
    with changes in debt issuance plans; and
- a $7 million decrease in capitalized interest; offset by
- a $24 million decrease in short-term debt interest as a portion of the proceeds
    from the issuance of long-term debt was used to pay down commercial paper.

Interest expense increased by $10 million in 2001 compared with 2000. This
  increase was the net effect of a $28 million increase in interest on long-term
  debt, offset by a $19 million decrease in interest on short-term debt. The increase
  in interest on long-term debt reflects the issuance in 2001 of $800 million
  of senior secured bonds by PPL Electric, $500 million of senior unsecured notes
  by PPL Energy Supply and debt by PPL Global's consolidated affiliates. A portion
  of these proceeds was used to pay down commercial paper balances, which decreased
  short-term debt interest expense.

Dividends and distributions on preferred securities increased by $6 million
  in 2002 compared with 2001. This increase was due to:

- a $15 million increase related to a full year of distributions in 2002 on
    the PEPS Units, which were issued in the second quarter of 2001; offset by
- a $10 million decrease in dividends and distributions due to retirements
    and redemptions of other preferred securities and preferred stock.

Dividends on preferred securities increased by $26 million in 2001 compared
  with 2000 due to the issuance of the PEPS Units in the second quarter of 2001.

Income Taxes

Income tax expense decreased by $156 million in 2002 compared with 2001. This
  decrease was due to:

- lower pre-tax domestic book income, resulting in a $75 million reduction
    in income taxes;
- lower impairment charges on PPL's investment in Brazil resulting in a $30
    million decrease in the amount of deferred income tax valuation allowances
    recorded;
- a $27 million reduction in income taxes due to losses recognized on foreign
    investments; and
- a $10 million decrease related to additional federal synfuel tax credits
    recognized.

Income tax expense decreased by $33 million in 2001 compared with 2000. This
  decrease was primarily due to decreases related to a change in pre-tax domestic
  book income, resulting in a $63 million reduction in income taxes, and $34 million
  of additional federal synfuel tax credits recognized. These decreases were offset
  by $61 million of deferred income tax valuation allowances recorded on PPL's
  investment in Brazil and the U.K. (see Note 9 to the Financial Statements).

Change in Accounting Principle



PPL adopted SFAS 142, "Goodwill and Other Intangible Assets," on January 1,
  2002. SFAS 142 requires an annual impairment test of goodwill and other intangible
  assets that are not subject to amortization. PPL conducted a transition impairment
  analysis in the first quarter of 2002 and recorded a transition goodwill impairment
  charge of $150 million. See Note 18 to the Financial Statements for additional
  information.



In 2001, PPL changed its method of amortizing unrecognized gains or losses
  in the annual pension expense or income determined under SFAS 87, "Employers'
  Accounting for Pensions." This change resulted in a cumulative-effect credit
  of $10 million. Under the old method, the net unrecognized gain or loss in excess
  of 10% of the greater of the plan's projected benefit obligation or market-related
  value of plan assets was amortized on a straight-line basis over the estimated
  average future service period of plan participants. Under the new method, a
  second corridor is utilized for the net unrecognized gain or loss in excess
  of 30% of the plan's projected benefit obligation. The net unrecognized gain
  or loss outside the second corridor is amortized on a straight-line basis over
  a period equal to one-half of the average future service period of the plan
  participants. See Note 12 to the Financial Statements for additional information.



These items are reported as "Cumulative Effect of a Change in Accounting Principle"
  on the Statement of Income.



During 2002, PPL also adopted SFAS 144, "Accounting for the Impairment
  or Disposal of Long-Lived Assets," SFAS 145, "Rescission of FASB Statements
  No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections,"
  and EITF 02-3, "Issues Involved in Accounting for Derivative Contracts Held
  for Trading Purposes and Contracts Involved in Energy Trading and Risk Management
  Activities." See Note 22 to the Financial Statements for a discussion of the
  adoption of SFAS 144 and SFAS 145 and see Note 17 for a discussion of the adoption
  of EITF 02-3.



New Accounting Standards



See Note 22 to the Financial Statements for information on
  new accounting standards.



Financial Condition



Liquidity



At December 31, 2002, PPL had $245 million in cash and cash equivalents and
  $943 million of short-term debt. The $825 million increase in short-term debt
  from December 31, 2001 to December 31, 2002 resulted primarily from the consolidation
  of WPD's short-term debt as a result of the acquisition of the controlling interest
  in WPD and the issuance of PPL Energy Supply commercial paper in the fourth
  quarter (see Note 8 to the Financial Statements for additional information).
  PPL plans to refinance $389 million of short-term debt at a WPD entity during
  the first half of 2003 with a debt offering in the U.K.

PPL believes that its cash and cash equivalents, operating cash flows, access
  to debt and equity capital markets and borrowing capacity, taken as a whole,
  provide sufficient resources to fund ongoing operating requirements and estimated
  future capital expenditures. PPL's operating cash flow and access to the capital
  markets can be impacted by economic factors outside of its control. In addition,
  PPL's borrowing costs can be impacted by short-term and long-term debt ratings
  assigned by independent rating agencies, which are based, in significant part,
  on PPL's performance as measured by certain credit measures such as interest
  coverage and leverage ratios. In May 2002, Standard & Poor's (S&P) lowered
  its corporate credit rating on PPL from BBB+ to BBB, lowered the senior unsecured
  debt rating on PPL Capital Funding from BBB+ to BBB and lowered the rating on
  the trust preferred securities issued by PPL Capital Funding Trust I as part
  of the PEPS Units from BBB- to BB+. The BBB corporate credit rating of PPL Energy
  Supply and the BBB senior secured debt rating of PPL Montana were affirmed.
  The A-2 short-term credit ratings on PPL Energy Supply and PPL Electric remained
  unchanged. The outlook on all ratings was stable.

S&P indicated that the rating action was based on the consolidated credit
  profile of PPL after PPL's strategic initiative designed to confirm the legal
  separation of PPL Electric from PPL and reflected a weakening in PPL's credit
  profile due to setbacks faced in international operations. S&P noted that
  PPL Electric, which has a senior secured debt rating at A-, is structurally
  insulated from the rest of PPL (see Note 20 for additional information) and
  that PPL ratings reflect only the amount of dividend distributions expected
  to be made by PPL Electric to PPL.

In September 2002, S&P revised its outlook on PPL and all of its rated
  subsidiaries, except PPL Electric, from a stable outlook to a negative outlook.
  PPL Electric's outlook remains at stable. S&P stated that this action reflects
  its view of a weakened credit profile that has resulted primarily from declining
  wholesale electricity prices and also from setbacks in PPL's international operations,
  particularly in Brazil. As part of its September 2002 review, S&P affirmed
  its ratings on PPL and PPL Energy Supply following the acquisition of a controlling
  interest in WPD.

In February 2003, Moody's confirmed the ratings of WPDH Limited and WPD (South Wales)
at Baa2 and Baa1, and downgraded WPD LLP from Baa1 to Baa2 and SIUK Capital Trust I from Baa2 to Baa3.
The outlook on all ratings was stable.  Also in January, S&P completed a review of WPD and affirmed
its BBB+ long-term and A-2 short-term corporate credit ratings on WPD Holdings U.K. and related
entities, SIUK Limited, WPD (South West) and WPD (South Wales).  The outlook remains negative.

PPL expects to access both the capital and commercial paper markets during
  2003. PPL cannot provide assurances that any of these funding sources will be
  available to PPL on acceptable terms.

Cash and cash equivalents are derived from cash from operations, cash from
  financing activities and cash from investing activities. Net cash from operations
  in 2002 was $796 million, compared to $891 million in 2001. The $95 million
  decrease in cash provided by operating activities was primarily due to $152
  million of turbine cancellation payments, and an $89 million decrease in dividends
  from unconsolidated affiliates, partially offset by increases in net income
  adjusted to a cash basis. As an asset-backed provider of electricity, the stability
  of PPL's cash from operations as it relates to the supply of electricity is
  influenced by the market prices of electricity, the cost of fuel used in the
  production of electricity and the operational availability of generating units,
  among other factors.

An important element supporting the stability of PPL's cash from operations
  is its continuing effort to secure long-term commitments from wholesale and
  retail customers and long-term fuel supply contracts. Two significant long-term
  wholesale contracts maintained by PPL EnergyPlus are: a full requirements, eight-year
  agreement to supply PPL Electric with estimated peak demand between 6,700 and
  7,000 MW for PPL Electric's PLR load and a five-year contract with NorthWestern
  for 300 MW of around-the-clock electricity supply and 150 MW of on-peak supply.
  Over 85% of PPL's projected energy margins in 2003 and about 70% of margins
  through 2007 are expected to come from these long-term contracts.

In 2002, PPL also entered into multi-year tolling agreements with the Long
  Island Power Authority for about 159 MW of generation PPL constructed at two
  Long Island sites. Under these tolling agreements, PPL will convert fuel supplied
  by the Long Island Power Authority to electricity and will receive payments
  for use of its facilities. PPL also continues to provide up to 200 MW of supply,
  for various terms, to large industrial customers in Montana.

PPL EnergyPlus enters into contracts under which it agrees to sell and purchase
  electricity, natural gas, oil and coal. PPL also enters into contracts designed
  to lock-in interest rates for future financings or effect changes in PPL's exposure
  to fixed or floating interest rates. These contracts often provide for cash
  collateral or other credit enhancement, or reductions or terminations of a portion
  or the entire contract through cash settlement in the event of a downgrade of
  PPL or the respective subsidiary's credit ratings or adverse changes in market
  prices. For example, in addition to limiting its trading ability, if PPL or
  its respective subsidiary's ratings were lowered to below "investment grade"
  and energy prices increased by more than 10%, PPL estimates that, based on its
  December 31, 2002 position, it would have to post collateral of approximately
  $121 million as compared to $150 million at December 31, 2001. PPL has in place
  risk management programs that, among other things, are designed to monitor and
  manage its exposure to volatility of cash flows related to changes in energy
  prices, interest rates, foreign currency exchange rates, counterparty credit
  quality and the operational performance of its generating units.

Net cash used in financing activities was $357 million in 2002, compared to
  net cash provided by financing activities of $267 million in 2001. In 2001,
  PPL had net issuances of $563 million of debt, preferred securities and equity,
  compared to net retirements of $70 million in 2002. PPL has $352 million of
  securities registered for issuance under a "universal" shelf registration statement
  with the SEC as of January 31, 2003. Additionally, commercial paper programs
  at PPL Energy Supply and PPL Electric, providing for the issuance of up to $1.1
  billion and $400 million, respectively, are maintained to meet short-term cash
  needs. If the existing credit ratings on these commercial paper programs of
  each company were lowered, it is unlikely that there would be sufficient investor
  demand for the commercial paper. In addition, the amount of commercial paper
  that could be outstanding under either PPL Energy Supply's or PPL Electric's
  program is generally limited to the amount of their respective unused credit
  lines.

PPL Energy Supply and PPL Electric maintain unsecured credit lines of $1.1
  billion and $400 million that are available as backstops for their respective
  commercial paper programs or for direct borrowings. PPL Energy Supply's and
  PPL Electric's credit lines are also available to issue up to $800 million and
  $300 million, respectively, in letters of credit that may be needed for general
  corporate purposes, including margin requirements resulting from energy contracts.
  PPL Electric had $15 million of commercial paper outstanding and no borrowings
  under its credit line at December 31, 2002, as compared to no commercial paper
  outstanding or borrowings under its credit line at December 31, 2001. PPL Energy
  Supply had $374 million of commercial paper outstanding and no borrowings outstanding
  under its credit line at December 31, 2002, as compared to no commercial paper
  outstanding or borrowings under its credit line at December 31, 2001. At December
  31, 2002, the lenders under the credit lines had issued $40 million of letters
  of credit on behalf of PPL Electric and $47 million of letters of credit on
  behalf of PPL Energy Supply or its subsidiaries and affiliates.

Under its credit lines, PPL Energy Supply must maintain a consolidated debt
  to capitalization percentage not greater than 65%, and an interest coverage
  ratio of not less than 2.0 times consolidated earnings before income taxes,
  depreciation and amortization, in each case as calculated in accordance with
  the credit lines. At December 31, 2002 and December 31, 2001, PPL Energy Supply's
  consolidated debt to capitalization percentages, as calculated in accordance
  with its credit lines, were 35% and 28%. At December 31, 2002 and December 31,
  2001, PPL Energy Supply's interest coverage ratios, as calculated in accordance
  with its credit lines, were 7.4 and 13.9. Under its credit line, PPL Electric
  must maintain a consolidated debt to capitalization percentage not greater than
  70%. At December 31, 2002 and December 31, 2001, PPL Electric's consolidated
  debt to capitalization percentages, as calculated in accordance with its credit
  line, were 58% and 57%. At this time, PPL believes that these covenants and
  other borrowing conditions will not limit access to these funding sources.

In October 2002, WPD (South West)'s 416 million British pounds sterling short-term
  facilities were replaced by a 250 million British pounds sterling bridge facility
  and two revolving credit facilities: a one-year 100 million British pounds sterling
  credit facility and a five-year 150 million British pounds sterling credit facility.
  At December 31, 2002, WPD (South West) had outstanding borrowings of $389 million
  under its bridge facility and $55 million under its credit facilities based
  on year-end currency exchange rates. The bridge facility is expected to be refinanced
  with long-term bonds in the first half of 2003.



Under its credit lines, WPD (South West) must maintain an interest coverage
  ratio of not less than 3.0 times consolidated earnings before income taxes,
  depreciation and amortization, and the regulatory asset base must be 150 million
  British pounds sterling greater than total gross debt, in each case as calculated
  in accordance with the credit lines. At December 31, 2002, WPD (South West)'s
  interest coverage ratio, as calculated in accordance with its credit lines,
  was 10.3 and its regulatory asset base exceeded its total gross debt by 491
  million British pounds sterling. At this time, PPL believes that these covenants
  and other borrowing conditions will not limit access to these funding sources.

PPL, PPL Energy Supply and their subsidiaries also have available funding sources
  that are provided through operating leases that are not recorded on the balance
  sheet. These operating leases provide funds for developing, constructing and
  operating generation facilities and equipment. Failure to meet the financial
  and other covenants contained in these operating leases could limit or restrict
  access to these funds or require early payment of obligations. At this time,
  PPL and PPL Energy Supply believe that these covenants will not limit access
  to these funding sources.

Under the operating leases entered into to manufacture and construct the natural
  gas-fired simple-cycle generation facilities, PPL Energy Supply's subsidiaries
  act as construction agents for the lessor to manufacture the equipment and for
  construction of the facilities. Upon commercial operation, PPL Energy Supply
  subsidiaries will operate the facilities, be responsible for all of the costs
  associated with the operation and maintenance of the facilities and will make
  rental payments to the lessor trusts.

In May 2006, under the terms of the $660 million operating lease for University
  Park and Sundance which terminates in April 2008, one of PPL Energy Supply's
  subsidiaries is required to deposit in a cash collateral account an amount equal
  in cash to approximately 83% of all funded asset costs. Also, PPL Energy Supply
  guarantees the payment obligations under this operating lease. Accordingly,
  as guarantor, PPL Energy Supply must meet similar covenant tests as those applied
  to its credit lines. At December 31, 2002 and December 31, 2001, the outstanding
  lease balance was $657 million and $454 million.

Under the terms of the $455 million Lower Mt. Bethel operating lease, which
  terminates no later than September 30, 2014, the PPL Energy Supply subsidiary
  lessee could be obligated to make payments equal to up to 100% of the lessor's
  investment and other obligations associated with the facility if the financing
  is terminated early as a result of a loss, destruction or condemnation of the
  project, or upon an event of default. In addition, during the lease term, the
  PPL Energy Supply subsidiary could, subject to certain conditions, purchase
  the facility from the lessor, offer to assume the outstanding lessor debt associated
  with the lease or purchase such debt at a premium. Also, PPL Energy Supply guarantees
  the payment obligations under this operating lease. Accordingly, as guarantor,
  PPL Energy Supply must meet similar covenant tests as those applied to its credit
  lines. At December 31, 2002 and December 31, 2001, the outstanding lease balance
  was $345 million and $116 million.

The PPL Montana Colstrip leases provide two renewal options based on the economic
  useful life of the generation assets at the end of the 36-year lease term that
  terminates in 2036. In addition, the lease places certain restriction on PPL
  Montana's ability to incur additional debt, sell assets and declare dividends.
  At December 31, 2002 and December 31, 2001, the outstanding debt balance within
  the lease was $314 million and $334 million.

In addition to the leasing arrangements discussed above, PPL and its subsidiaries
  lease vehicles, office space, land, buildings, personal computers and other
  equipment under separate lease arrangements. See Note 10 to the Financial Statements
  for a further discussion of the operating leases.



At December 31, 2002, the estimated contractual cash obligations of PPL were
  as follows:

|Contractual Cash Obligations       |  | Total |        |  | Less
        Than
        1 Year |   |     | 1-3
        Years |  |   | 4-5
        Years |  |  | After 5
        Years |      
|---------------------------------- |  | ----- | ------ |  | -------------------------------- | - | --- | ----------------- |  | - | ----------------- |  |  | --------------------- | -----
|                                   |  |       |        |  |                                  |   |     |                   |  |   |                   |  |  |                       |      
|                                   |  |       |        |  |                                  |   |     |                   |  |   |                   |  |  |                       |      
|Long-term Debt (a)                 |  | $     | 6,252  |  |                                  | $ | 366 |                   |  | $ | 1,306             |  |  | $                     | 1,921
|                                   |  |       |        |  |                                  |   |     |                   |  |   |                   |  |  |                       |      
|Capital Lease Obligations          |  |       |        |  |                                  |   |     |                   |  |   |                   |  |  |                       |      
|                                   |  |       |        |  |                                  |   |     |                   |  |   |                   |  |  |                       |      
|Operating Leases (b)               |  |       | 1,420  |  |                                  |   | 99  |                   |  |   | 266               |  |  |                       | 260  
|                                   |  |       |        |  |                                  |   |     |                   |  |   |                   |  |  |                       |      
|Purchase Obligations (c)           |  |       | 2,797  |  |                                  |   | 448 |                   |  |   | 877               |  |  |                       | 567  
|                                   |  |       |        |  |                                  |   |     |                   |  |   |                   |  |  |                       |      
|Other Long-term Obligations (d)    |  |       | 694    |  |                                  |   | 21  |                   |  |   | 12                |  |  |                       | 575  
|                                   |  |       |        |  |                                  |   |     |                   |  |   |                   |  |  |                       |      
|                                   |  |       |        |  |                                  |   |     |                   |  |   |                   |  |  |                       |      
|Total Contractual Cash Obligations |  | $     | 11,163 |  |                                  | $ | 934 |                   |  | $ | 2,461             |  |  | $                     | 3,323
|                                   |  |       |        |  |                                  |   |     |                   |  |   |                   |  |  |                       |      



|(a) |  | Includes principal maturities only.                                                                                                                                                                         
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(b) |  | Includes current amounts for operating leases
      in effect and projected amounts for projects under construction.                                                                                        
|(c) |  | The payments reflected herein are subject to
      change as certain purchase obligations included are estimates based on projected
      obligated quantities and/or projected pricing under the contracts.
|(d) |  | Includes redemptions of preferred securities.                                                                                                                                                               

PPL, PPL Energy Supply and PPL Electric provide guarantees for certain affiliate
  financing arrangements that enable certain transactions. Some of the guarantees
  contain financial and other covenants that, if not met, would limit or restrict
  the affiliates' access to funds under these financing arrangements, require
  early maturity of such arrangements or limit PPL's ability to enter into certain
  transactions. At this time, PPL believes that these covenants will not limit
  access to the relevant funding sources. At December 31, 2002, the estimated
  commercial commitments of PPL were as follows:

|                                   |                             |                                 |       | Amount of Commitment Expiration 
        Per Period |  
|---------------------------------- | --------------------------- | ------------------------------- | ----- | --------------------------------------------------- | -
|Other Commercial
      Commitments |                             | Total
        Amounts Committed |       | Less
        than
        1 Year                    |  
|                                   |                             |                                 |       |                                                     |  
|                                   |                             |                                 |       |                                                     |  
|Lines of Credit                    |                             |                                 |       |                                                     |  
|                                   |                             |                                 |       |                                                     |  
|                                   | Standby Letters of Credit   |                                 | $     | 89                                                  |  
|                                   |                             |                                 |       |                                                     |  
|                                   | Draws Under Lines of Credit |                                 |       | 55                                                  |  
|                                   |                             |                                 |       |                                                     |  
|Guarantees                         |                             |                                 |       |                                                     |  
|                                   |                             |                                 |       |                                                     |  
|                                   | Debt (a)                    |                                 |       | 1,028                                               |  
|                                   |                             |                                 |       |                                                     |  
|                                   | Performance                 |                                 |       |                                                     |  
|                                   |                             |                                 |       |                                                     |  
|Standby Repurchase Obligations     |                             |                                 |       |                                                     |  
|                                   |                             |                                 |       |                                                     |  
|Other Commercial Commitments       |                             |                                 |       |                                                     |  
|                                   |                             |                                 |       |                                                     |  
|                                   |                             |                                 |       |                                                     |  
|Total Commercial Commitments       |                             | $                               | 1,172 |                                                     | $
|                                   |                             |                                 |       |                                                     |  



|(a) |  | Includes guarantees on certain operating lease
      obligations.
|--- |  | -----------------------------------------------------------------

The terms governing the securities, guarantees, lease obligations and other
  commitments issued by PPL and its subsidiaries contain financial and other covenants
  that require compliance in order to avoid defaults and accelerations of payments.
  Further, a change in control under certain of these arrangements would constitute
  a default and could result in early maturity of such arrangements. In addition,
  certain of these arrangements restrict the ability of PPL's subsidiaries to
  pay or declare dividends, issue additional debt, sell assets, or take other
  actions if certain conditions are not met. At this time, PPL believes that it
  and its subsidiaries will be able to meet these covenant requirements. In order
  to meet its maturing obligations in future years, PPL expects that it and its
  subsidiaries will have to continue to access both the bank and capital markets.
  The long-term debt and similar securities of PPL and its subsidiaries and their
  maturities are set forth in the table of Contractual Cash Obligations above.

Net cash used in investing activities in 2002 was $1.1 billion, compared to
  $702 million in 2001. The primary reasons for the $427 million increase in cash
  used in investing activities was due to the acquisition of the controlling interest
  in WPD for $211 million, net of cash acquired, and no repayments of loans by
  non-consolidated affiliated companies in 2002. Capital expenditures have historically
  been for acquisitions and to support both existing and construction of new generation,
  transmission and distribution facilities. PPL's capital investment needs are
  currently expected to decrease significantly in 2003 due to the substantial
  completion of its generation construction program. The majority of PPL's 2003
  capital requirements will be funded from cash and cash equivalents on hand at
  December 31, 2002, cash from operations in 2003 and lease commitments previously
  funded. Any additional capital requirements will be obtained either in the capital
  or commercial paper markets. (See "Capital Expenditure Requirements" for additional
  information.)

Subsequent Matters

In February 2003, on behalf of PPL Electric, the Lehigh County Industrial Development
  Authority (LCIDA) issued $90 million aggregate principal amount of 3.125% Pollution
  Control Revenue Refunding Bonds due 2008. These tax-exempt bonds were issued
  to refund the outstanding $90 million aggregate principal amount of the 6.40%
  Pollution Control Revenue Refunding Bonds issued by the LCIDA on PPL Electric's
  behalf in 1992. The bonds are insured by a financial guaranty insurance policy
  issued by Ambac Assurance Corporation and have the highest investment grade
  ratings, Aaa by Moody's and AAA by Standard & Poor's. In connection with
  the issuance of the bonds, PPL Electric issued to the LCIDA a promissory note
  with principal, interest and prepayment provisions corresponding to the bonds.
  In addition, PPL Electric issued a like amount of Senior Secured Bonds under
  the 2001 Senior Secured Bond Indenture to secure its obligations under the promissory
  note.

In February 2003, PPL announced an increase to its quarterly common stock dividend,
  payable April 1, 2003, from 36 cents per share to 38.5 cents per share (equivalent
  to $1.54 per annum). Future dividends, declared at the discretion of the Board
  of Directors, will be dependent upon future earnings, financial requirements
  and other factors.

Risk Management - Energy Marketing & Trading and Other

Market Risk



Background



Market risk is the potential loss PPL may incur as a result of price changes
  associated with a particular financial or commodity instrument. PPL is exposed
  to market risk from:

- commodity price risk for energy and energy-related products associated with
    the sale of electricity from generating assets, the purchase of fuel for the
    generating assets, and energy trading activities;
- interest rate risk associated with variable-rate debt and the fair value
    of fixed-rate debt used to finance operations, as well as the fair value of
    debt securities invested in by PPL's nuclear decommissioning fund;
- foreign currency exchange rate risk associated with investments in affiliates
    in Latin America and Europe, as well as purchases of equipment in currencies
    other than U.S. dollars; and
- equity securities price risk associated with the fair value of equity securities
    invested in by PPL's nuclear decommissioning fund.

PPL has a comprehensive risk management policy approved by the Board of Directors
  to manage the market risk described above and counterparty credit risk. (Credit
  risk is discussed below.) The RMC, comprised of senior management and chaired
  by the Vice President-Risk Management, oversees the risk management function.
  Key risk control activities designed to monitor compliance with risk policies
  and detailed programs include, but are not limited to, credit review and approval,
  validation of transactions and market prices, verification of risk and transaction
  limits, sensitivity analyses, and daily portfolio reporting, including open
  positions, mark-to-market valuations and other risk measurement metrics. In
  addition, efforts are on-going to develop systems to improve the timeliness,
  quality and breadth of market and credit risk information.

The forward-looking information presented below provides estimates of what
  may occur in the future, assuming certain adverse market conditions, due to
  reliance on model assumptions. Actual future results may differ materially from
  those presented. These disclosures are not precise indicators of expected future
  losses, but only indicators of reasonably possible losses.

Contract Valuation

PPL utilizes forwards contracts, futures contracts, options, swaps and tolling
  agreements as part of its risk management strategy to minimize unanticipated
  fluctuations in earnings caused by price, interest rate and foreign currency
  volatility.When available, quoted market prices are used to determine
  the fair value of a commodity or financial instrument. This may include exchange
  prices, the average mid-point bid/ask spreads obtained from brokers, or an independent
  valuation by an external source, such as a bank. However, market prices for
  energy or energy-related contracts may not be readily determinable because of
  market illiquidity. If no active trading market exists, contracts are valued
  using internally developed models. If the contracts are not accounted for under
  the accrual method of accounting, the valuations are reviewed by an independent,
  internal group. Although PPL believes that its valuation methods are reasonable,
  changes in the underlying assumptions could result in significantly different
  values and realization in future periods.

To record derivatives at their fair value, PPL discounts the forward values
  using LIBOR. Additionally, PPL reduces derivative assets' carrying value to
  recognize differences in counterparty credit quality and potential illiquidity
  in the market:

- The credit adjustment takes into account the bond ratings (and the implied
    default rates) of the counterparties that have an out-of-the-money position
    with PPL. The more counterparties that have, for example, a BBB rating instead
    of an A rating, the larger the adjustment.

- The liquidity adjustment takes into account the fact that it may not be
    appropriate to value contracts at the midpoint of the bid/ask spread. PPL
    might have to accept the "bid" price if PPL wanted to close an open sales
    position or PPL might have to accept the "ask" price if PPL wanted to close
    an open purchase position.

Accounting and Reporting

PPL follows the provisions of SFAS 133, "Accounting for Derivative Instruments
  and Hedging Activities," as amended by SFAS 138, "Accounting for Certain Derivative
  Instruments and Certain Hedging Activities," and interpreted by DIG issues (together,
  "SFAS 133") and EITF 02-3, "Issues Involved in Accounting for Derivative Contracts
  Held for Trading Purposes and Contracts Involved in Energy Trading and Risk
  Management Activities," to account for contracts entered into to manage market
  risk. SFAS 133 requires that all derivative instruments be recorded at fair
  value on the balance sheet as an asset or liability (unless they meet SFAS 133's
  criteria for exclusion) and that changes in the derivative's fair value be recognized
  currently in earnings unless specific hedge accounting criteria are met.

PPL's short-term derivative contracts are recorded as "Price risk management
  assets" and "Price risk management liabilities" on the Balance Sheet. Long-term
  derivative contracts are included in "Regulatory and Other Noncurrent Assets
  - Other" and "Deferred Credits and Other Noncurrent Liabilities - Other."

PPL adopted the final provisions of EITF 02-3 during the fourth quarter of
  2002. As such, PPL now reflects its net realized and unrealized gains and losses
  associated with all derivatives that are held for trading purposes in the "Net
  energy trading margins" line on the Statement of Income. Non-derivative
  contracts that met the definition of energy trading activities as defined by
  EITF 98-10, "Accounting for Energy Trading and Risk Management Activities"
  are reflected in the financial statements using the accrual method of accounting.
  Under the accrual method of accounting, unrealized gains and losses are not
  reflected in the financial statements. Prior periods have been reclassified.
  PPL did not need to record a cumulative effect of this change in accounting
  principle, because all non-derivative energy-related trading contracts had been
  shown in the financial statements at their amortized cost. This reflected modeling
  reserves that incorporated the lack of independence in valuing contracts for
  which there were no external market prices.

Accounting Designation

Energy contracts that do not qualify as derivatives receive accrual accounting.
  For energy contracts that meet the definition of a derivative, the circumstances
  and intent existing at the time that energy transactions are entered into determine
  their accounting designation. These designations are verified by PPL's risk
  control group on a daily basis. The following is a summary of the guidelines
  that have been provided to the traders who are responsible for contract designation
  for derivative energy contracts:

- Any wholesale and retail contracts to sell electricity that are expected
    to be delivered from PPL's generation are considered "normal." These transactions
    are not recorded in the financial statements and have no earnings impact until
    delivery. Most wholesale electricity sales contracts in the eastern and western
    U.S. markets receive "normal" treatment. The methodology utilized in determining
    the amount of sales that can be delivered from PPL's generation has been reviewed
    by the RMC. This calculation predicts the probability that generating units
    will run based on current market prices, expected price volatilities and dispatch
    rates, as well as planned and forced outage rates by plant by month. See discussion
    below about the assumptions used to calculate how much energy is expected
    from, or required for, generation assets.

- "Trading around the assets" means that PPL EnergyPlus matches a contract
    to sell electricity, previously to be delivered from PPL's generation, with
    a physical or financial contract to purchase electricity. These contracts
    can qualify for fair value hedge treatment. When the contracts' terms are
    identical, there is no earnings impact until delivery. The realized revenues
    and expenses associated with these contracts are currently recorded gross
    on the Statement of Income. EITF 02-L, "Reporting Gains and Losses on Derivative
    Instruments That are Subject to FASB Statement No. 133 and Not Held for Trading
    Purposes," may, in the future, require that hedges that result in physical
    delivery be recorded on a net basis.

- Physical electricity purchases needed to meet obligations due to a change
    in the physical load or generation forecasts are considered "normal."

- Physical electricity purchases that increase PPL's long position and any
    energy sale or purchase considered a "market call" are speculative, with unrealized
    gains or losses recorded immediately through earnings.

- Financial electricity transactions, which can be settled in cash, cannot
    be considered "normal" because they do not require physical delivery. These
    transactions receive cash flow hedge treatment if they lock in the price PPL
    will receive or pay for energy expected to be generated or purchased in the
    spot market. Any unrealized gains or losses on transactions that receive cash
    flow hedge treatment are recorded in other comprehensive income.

- Physical and financial transactions for gas and oil to meet fuel and retail
    requirements can receive cash flow hedge treatment if they lock in the price
    PPL will pay in the spot market. Any unrealized gains or losses on transactions
    receiving cash flow hedge treatment are recorded in other comprehensive income.

- Option contracts that do not meet the requirements of DIG Issue C15, "Scope
    Exceptions: Interpreting the Normal Purchases and Normal Sales Exception as
    an Election," do not receive hedge accounting treatment and are marked to
    market through earnings.

In addition to energy-related transactions, PPL enters into financial interest
  rate and foreign currency swap contracts to hedge interest expense associated
  with both existing and anticipated debt issuances. PPL also enters into foreign
  currency swap contracts to hedge the fair value of firm commitments denominated
  in foreign currency and net investments in foreign operations. As with energy
  transactions, the circumstances and intent existing at the time of the transaction
  determine a contract's accounting designation, which is subsequently verified
  by PPL's risk control group on a daily basis. The following is a summary of
  certain guidelines that have been provided to the treasury department, which
  is responsible for contract designation:

- Transactions to lock in an interest rate prior to a debt issuance are considered
    cash flow hedges. Any unrealized gains or losses on transactions receiving
    cash flow hedge treatment are recorded in other comprehensive income and are
    amortized as a component of interest expense over the life of the debt.

- Transactions entered into to hedge fluctuations in the value of existing
    debt are considered fair value hedges with no earnings impact until the debt
    is terminated because the hedged debt is also marked to market.

- Transactions which do not qualify for hedge accounting treatment are marked
    to market through earnings.

Commodity Price Risk

Commodity price risk is one of PPL's most significant risks due to the level
  of investment that PPL maintains in its generation assets, coupled with the
  volatility of prices for energy and energy-related products. Several factors
  influence price levels and volatilities. These factors include, but are not
  limited to, seasonal changes in demand, weather conditions, available generating
  assets within regions, transportation availability and reliability within and
  between regions, market liquidity, and the nature and extent of current and
  potential federal and state regulations. To hedge the impact of market price
  fluctuations on PPL's energy-related assets, liabilities and other contractual
  arrangements, PPL EnergyPlus sells and purchases physical energy at the wholesale
  level under FERC market-based tariffs throughout the U.S. and enters into financial
  exchange-traded and over-the-counter contracts. Because of the generating assets
  PPL owns or controls, the majority of PPL's energy transactions qualify for
  accrual or hedge accounting.

Within PPL's hedge portfolio, the decision to enter into energy contracts hinges
  on the expected value of PPL's generation. To address this risk, PPL takes a
  conservative approach in determining the number of MWhs that are available to
  be sold forward. In this regard, PPL reduces the maximum potential output that
  a plant may produce by three factors - planned maintenance, forced outage and
  economic conditions. The potential output of a plant is first reduced by the
  amount of unavailable generation due to planned maintenance on a particular
  unit. Another reduction, representing the unforced outage rate, is the amount
  of MWhs that historically is not produced by a plant due to such factors as
  equipment breakage. Finally, the potential output of certain plants (like peaking
  units) are reduced because their higher cost of production will not allow them
  to economically run during all hours.

PPL's non-trading portfolio also includes full requirements energy contracts.
  The obligation to serve these contracts changes minute by minute. PPL analyzes
  historical on-peak and off-peak usage patterns, as well as spot prices and weather
  patterns, to determine a monthly level of block electricity that best fits the
  usage patterns in order to minimize earnings volatility. On a forward basis,
  PPL reserves a block amount of generation for full requirements energy contracts
  that is expected to be the best match with their anticipated usage patterns
  and energy peaks. Anticipated usage patterns and peaks are affected by expected
  load growth, regional economic drivers and seasonality.

Because of PPL's efforts to hedge the value of the energy from its generation
  assets, PPL has open contractual positions. If PPL were unable to deliver firm
  capacity and energy under its agreements, under certain circumstances it would
  be required to pay damages. These damages would be based on the difference between
  the market price to acquire replacement capacity or energy and the contract
  price of the undelivered capacity or energy. Depending on price volatility in
  the wholesale energy markets, such damages could be significant. Extreme weather
  conditions, unplanned power plant outages, transmission disruptions, non-performance
  by counterparties (or their counterparties) with which it has power contracts
  and other factors could affect PPL's ability to meet its firm capacity or energy
  obligations, or cause significant increases in the market price of replacement
  capacity and energy. Although PPL attempts to mitigate these risks, there can
  be no assurance that it will be able to fully meet its firm obligations, that
  it will not be required to pay damages for failure to perform, or that it will
  not experience counterparty non-performance in the future.

As of December 31, 2002, PPL estimated that a 10% adverse movement in market
  prices across all geographic areas and time periods would have decreased the
  value of the commodity contracts in its non-trading portfolio by approximately
  $146 million, as compared to an $84 million decrease at December 31, 2001. However,
  the change in the value of the non-trading portfolio would have been substantially
  offset by an increase in the value of the underlying commodity, the electricity
  generated, because these contracts serve to reduce the market risk inherent
  in the generation of electricity. Additionally, the value of PPL's unsold generation
  would be improved. Because PPL's electricity portfolio is generally in a net
  sales position, the adverse movement in prices is usually an increase in prices.
  Conversely, because PPL's commodity fuels portfolio is generally in a net purchase
  position, the adverse movement in prices is usually a decrease in prices. If
  both of these scenarios happened, the implied margins for the unsold generation
  would increase.

PPL also executes energy contracts to take advantage of market opportunities.
  As a result, PPL may at times create a net open position in its portfolio that
  could result in significant losses if prices do not move in the manner or direction
  anticipated. The margins from these trading activities are shown in the Statement
  of Income as "Net energy trading margins."



PPL's trading contracts mature at various times through 2006. The following
  chart sets forth PPL's net fair market value of trading contracts as of December
  31, 2002.



|                                                                       |  | Gains/(Losses) |    
|---------------------------------------------------------------------- |  | -------------- | ---
|                                                                       |  |                |    
|Fair value of contracts outstanding
      at the beginning of the year |  | $              | (5 
|                                                                       |  |                |    
|Contracts realized or otherwise
      settled during the year          |  |                | 5  
|                                                                       |  |                |    
|Fair value of new contracts at
      inception                         |  |                | (13
|                                                                       |  |                |    
|Other changes in fair values                                           |  |                | 7  
|                                                                       |  |                |    
|Fair value of contracts outstanding
      at the end of the year       |  | $              | (6 
|                                                                       |  |                |    



During 2002, PPL reversed net losses of approximately $5 million related to
  contracts entered into prior to January 1, 2002. This amount does not reflect
  intra-year contracts that were entered into and settled during the period.



The fair value of new contracts at inception is usually zero, because they
  are entered into at current market prices. However, when PPL enters into an
  option contract, a premium is paid or received. PPL paid $13 million during
  2002 for these option contracts.



"Other changes in fair values," a gain of approximately $7 million, represent
  changes in the market value of contracts outstanding at the end of 2002.



As of December 31, 2002, the net loss on PPL's trading activities expected
  to be recognized in earnings during the next three months is approximately $2
  million.



The following chart segregates estimated fair values of PPL's trading portfolio
  at December 31, 2002 based on whether the fair values are determined by quoted
  market prices or other more subjective means.



|                                                                   |  | Fair Value of Contracts at Period-End
        Gains/(Losses) |    
|------------------------------------------------------------------ |  | ------------------------------------------------------------ | ---
|                                                                   |  | Maturity
        Less Than
        1 Year                    |    
|                                                                   |  |                                                              |    
|Source of Fair Value                                               |  |                                                              |    
|                                                                   |  |                                                              |    
|Prices actively quoted                                             |  | $                                                            | 1  
|                                                                   |  |                                                              |    
|Prices provided by other external sources                          |  |                                                              | 3  
|                                                                   |  |                                                              |    
|Prices based on models and other valuation
      methods           |  |                                                              | (10
|                                                                   |  |                                                              |    
|                                                                   |  |                                                              |    
|Fair value of contracts outstanding at the
      end of the period |  | $                                                            | (6 
|                                                                   |  |                                                              |    

The "Prices actively quoted" category includes the fair value
  of exchange-traded natural gas futures contracts quoted on the New York Mercantile
  Exchange (NYMEX). The NYMEX has currently quoted prices through February 2009.

The "Prices provided by other external sources" category includes PPL's forward
  positions and options in natural gas and power and natural gas basis swaps at
  points for which over-the-counter (OTC) broker quotes are available. The fair
  value of electricity positions recorded above use the midpoint of the bid/ask
  spreads obtained through OTC brokers. On average, OTC quotes for forwards and
  swaps of natural gas and power extend one and two years into the future.

The "Prices based on models and other valuation methods" category includes
  the value of transactions for which an internally developed price curve was
  constructed as a result of the long-dated nature of the transaction or the illiquidity
  of the market point, or the value of options not quoted by an exchange or OTC
  broker. Additionally, this category includes "strip" transactions whose prices
  are obtained from external sources and then modeled to monthly prices as appropriate.



As of December 31, 2002, PPL estimated that a 10% adverse movement in market
  prices across all geographic areas and time periods would have decreased the
  value of the commodity contracts in its trading portfolio by $7 million, compared
  to an insignificant amount at December 31, 2001.

Interest Rate Risk

PPL and its subsidiaries have issued debt to finance their operations. PPL
  utilizes various financial derivative products to adjust the mix of fixed and
  floating-rate interest rates in its debt portfolios, adjusting the duration
  of its debt portfolios and locking in U.S. Treasury rates (and interest rate
  spreads over treasuries) in anticipation of future financing, when appropriate.
  Risk limits under the risk management program are designed to balance risk exposure
  to volatility in interest expense and losses in the fair value of PPL's debt
  portfolio due to changes in the absolute level of interest rates.



At December 31, 2002, PPL's potential annual exposure to increased interest
  expense, based on a 10% increase in interest rates, was estimated at $3 million,
  compared to a $6 million increase at December 31, 2001.



PPL is also exposed to changes in the fair value of its debt portfolio. At
  December 31, 2002, PPL estimated that its potential exposure to a change in
  the fair value of its debt portfolio, through a 10% adverse movement in interest
  rates, was $219 million, compared to $111 million at December 31, 2001.



PPL utilizes various risk management instruments to reduce its exposure to
  adverse interest rate movements for future anticipated financings. While PPL
  is exposed to changes in the fair value of these instruments, they are designed
  such that an economic loss in value should generally be offset by interest rate
  savings at the time the future anticipated financing is completed. At December
  31, 2002, PPL estimated that its potential exposure to a change in the fair
  value of these instruments, through a 10% adverse movement in interest rates,
  was approximately $18 million, compared to a $13 million exposure at December
  31, 2001.

Foreign Currency Risk



PPL is exposed to foreign currency risk, primarily through investments in affiliates
  in Latin America and Europe. In addition, PPL may make purchases of equipment
  in currencies other than U.S. dollars.



PPL has adopted a foreign currency risk management program designed to hedge
  certain foreign currency exposures, including firm commitments, recognized assets
  or liabilities and net investments.



During the first quarter of 2001, PPL entered into contracts for the forward
  purchase of 51 million euros to pay for certain equipment in 2002 and 2003.
  The estimated value of these forward purchases as of December 31, 2002, being
  the amount PPL would receive to terminate them, was $4 million.

During the second and third quarters of 2002, PPL executed forward sale transactions,
  maturing in March 2003, for 50 million British pounds sterling to hedge a portion
  of its net investment in WPDH Limited. The estimated value of these agreements
  as of December 31, 2002, being the amount PPL would have to pay to terminate
  them, was $1 million.

Nuclear Decommissioning Fund - Securities Price Risk



In connection with certain Nuclear Regulatory Commission requirements, PPL
  Susquehanna maintains trust funds to fund certain costs of decommissioning the
  Susquehanna station. As of December 31, 2002, these funds were invested primarily
  in domestic equity securities and fixed-rate, fixed-income securities and are
  reflected at fair value on PPL's Balance Sheet. The mix of securities is designed
  to provide returns to be used to fund Susquehanna's decommissioning and to compensate
  for inflationary increases in decommissioning costs. However, the equity securities
  included in the trusts are exposed to price fluctuation in equity markets, and
  the values of fixed-rate, fixed-income securities are exposed to changes in
  interest rates. PPL Susquehanna actively monitors the investment performance
  and periodically reviews asset allocation in accordance with its nuclear decommissioning
  trust policy statement. At December 31, 2002, a hypothetical 10% increase in
  interest rates and a 10% decrease in equity prices would have resulted in an
  estimated $16 million reduction in the fair value of the trust assets, as compared
  to a $17 million reduction at December 31, 2001.



PPL Electric's 1998 restructuring settlement agreement provides for the collection
  of authorized nuclear decommissioning costs through the CTC. Additionally, PPL
  Electric is permitted to seek recovery from customers of up to 96% of certain
  increases in these costs. Under the power supply agreements between PPL Electric
  and PPL EnergyPlus, these revenues are passed on to PPL EnergyPlus. Similarly,
  these revenues are passed on to PPL Susquehanna under a power supply agreement
  between PPL EnergyPlus and PPL Susquehanna. These revenues are used to fund
  the trusts.



Credit Risk



Credit risk relates to the risk of loss that PPL would incur as a result of
  non-performance by counterparties of their contractual obligations. PPL maintains
  credit policies and procedures with respect to counterparties (including requirements
  that counterparties maintain certain credit ratings criteria) and requires other
  assurances in the form of credit support or collateral in certain circumstances
  in order to limit counterparty credit risk. However, PPL has concentrations
  of suppliers and customers among electric utilities, natural gas distribution
  companies and other energy marketing and trading companies. These concentrations
  of counterparties may impact PPL's overall exposure to credit risk, either positively
  or negatively, in that counterparties may be similarly affected by changes in
  economic, regulatory or other conditions. As discussed above under "Accounting
  and Reporting," PPL records certain non-performance reserves to reflect the
  probability that a counterparty with contracts that are out of the money (from
  the counterparty's standpoint) will default in its performance, in which case
  PPL would have to sell into a lower-priced market or purchase from a higher-priced
  market. These reserves are reflected in the fair value of assets recorded in
  "Price risk management assets" on the Balance Sheet. PPL has also established
  a reserve with respect to certain sales to the California ISO for which PPL
  has not yet been paid, as well as a reserve related to PPL's exposure as a result
  of the Enron bankruptcy, which is reflected in "Accounts receivable" on the
  Balance Sheet. See Notes 14 and 17 to the Financial Statements.

Related Party Transactions

PPL is not aware of any material ownership interests or operating responsibility
  by senior management of PPL or its subsidiaries in outside partnerships, including
  leasing transactions with variable interest entities, or other entities doing
  business with PPL.

Capital Expenditure Requirements

The schedule below shows PPL's current capital expenditure projections for
  the years 2003-2007 and actual spending for the year 2002:



|                                        |                                          | Actual                          | ----------------------Projected------------------------
|--------------------------------------- | ---------------------------------------- | ------------------------------- | -------------------------------------------------------
|                                        |                                          | 2002                            |                                                        
|                                        |                                          |                                 |                                                        
|Construction expenditures (a)
      (b) |                                          |                                 |                                                        
|                                        |                                          |                                 |                                                        
|                                        | Generating facilities (c)                |                                 | $                                                      
|                                        |                                          |                                 |                                                        
|                                        | Transmission and distribution facilities |                                 |                                                        
|                                        |                                          |                                 |                                                        
|                                        | Environmental                            |                                 |                                                        
|                                        |                                          |                                 |                                                        
|                                        | Other                                    |                                 |                                                        
|                                        |                                          |                                 |                                                        
|                                        |                                          |                                 |                                                        
|                                        |                                          | Total Construction Expenditures |                                                        
|                                        |                                          |                                 |                                                        
|Nuclear fuel                            |                                          |                                 | 52                                                     
|                                        |                                          |                                 |                                                        
|                                        |                                          |                                 |                                                        
|                                        |                                          |                                 | Total Capital Expenditures                             
|                                        |                                          |                                 |                                                        



|(a) |  | Construction expenditures include AFUDC and
      capitalized interest, which are expected to be less than $10 million in
      each of the years 2003-2007.                                                                           
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(b) |  | This information excludes any equity investments
      by PPL Global for new projects.                                                                                                                                                 
|(c) |  | Generating facilities include assets financed
      through off-balance sheet synthetic leases as follows: 2002, $494 million;
      2003, $109 million; and 2004, $7 million. Financing for these facilities
      is already secured.

PPL's capital expenditure projections for the years 2003-2007 total about $3.7
  billion. Capital expenditure plans are revised periodically to reflect changes
  in conditions.

Acquisitions and Development

From time-to-time, PPL and its subsidiaries are involved in negotiations with
  third parties regarding acquisitions, joint ventures and other arrangements
  which may or may not result in definitive agreements. See Note 9 to the Financial
  Statements for information regarding recent acquisitions and development activities.

At December 31, 2002, PPL Global had investments in foreign facilities, including
  consolidated investments in WPD, Emel, EC and others. See Note 3 to the Financial
  Statements for information on unconsolidated investments accounted for under
  the equity method.

At December 31, 2002, PPL had domestic generation projects under development
  which would provide 690 MW of additional generation.

PPL is continuously reexamining development projects based on market conditions
  and other factors to determine whether to proceed with these projects, sell
  them, cancel them, expand them, execute tolling agreements or pursue other opportunities.

Environmental Matters

See Note 14 to the Financial Statements for a discussion of environmental matters.

Competition

The electric utility industry has experienced, and may continue to experience,
  an increase in the level of competition in the energy supply market at both
  the state and federal levels. PPL Electric's PLR supply business will be affected
  by customers who select alternate suppliers under the Customer Choice Act.

In July 2001, the FERC issued orders calling for the formation of one RTO throughout
  the Mid-Atlantic region (PJM), New York and New England. In response, PPL Electric
  is taking the position that a single northeastern RTO is a significant step
  forward in establishing a reliable and properly functioning wholesale electricity
  market in the region. PPL Electric strongly supports the most comprehensive
  amalgamation of the existing and proposed northeast power pools, including the
  establishment of a single RTO as well as the elimination of marketplace distinctions
  and control area boundaries. The FERC's northeastern RTO proceeding is continuing.

See Note 14 to the Financial Statements for information on the FERC Notice
  of Proposed Rulemaking entitled "Remedying Undue Discrimination through Open
  Access Transmission Service and Standard Electricity Market Design."

Application of Critical Accounting Policies

PPL's financial condition and results of operations are impacted by the methods,
  assumptions and estimates used in the application of critical accounting policies.
  The following accounting policies are particularly important to the financial
  condition or results of operations of PPL, and require estimates or other judgments
  of matters inherently uncertain. Changes in the estimates or other judgments
  included within these accounting policies could result in a significant change
  to the information presented in the financial statements. (These accounting
  policies are also discussed in Note 1 to the Financial Statements.) PPL's senior
  management has reviewed these critical accounting policies, and the estimates
  and assumptions regarding them, with its Audit Committee. In addition, PPL's
  senior management has reviewed the following disclosures regarding the application
  of these critical accounting policies with the Audit Committee.

1. Price Risk Management

See "Risk Management - Energy Marketing & Trading and Other" in Financial
      Condition.

1. Pension and Other Postretirement Benefits

PPL follows the guidance of SFAS 87, "Employers' Accounting for Pensions,"
  and SFAS 106, "Employers' Accounting for Postretirement Benefits Other Than
  Pensions," when accounting for these benefits. Under these accounting standards,
  assumptions are made regarding the valuation of benefit obligations and the
  performance of plan assets. Delayed recognition of differences between actual
  results and expected or estimated results is a guiding principle of these standards.
  This delayed recognition of actual results allows for a smoothed recognition
  of changes in benefit obligations and plan performance over the working lives
  of the employees who benefit under the plans. The primary assumptions are as
  follows:

- Discount Rate - The discount rate is used in calculating the present value
    of benefits, which are based on projections of benefit payments to be made
    in the future.

- Expected Return on Plan Assets - Management projects the future return on
    plan assets based principally on prior performance. These projected returns
    reduce the net benefit costs the company will record currently.

- Rate of Compensation Increase - Management projects employees' annual pay
    increases, which are used to project employees' pension benefits at retirement.

- Health Care Cost Trend Rate - Management projects the expected increases
    in the cost of health care.

During 2002, PPL made changes to its assumptions related to the discount rate,
  the expected return on plan assets, the rate of compensation increase and the
  health care cost trend rate. Management consults with its actuaries when selecting
  each of these assumptions.

In selecting discount rates, PPL considers fixed-income security yield rates.
  At December 31, 2002, PPL decreased the discount rate for its domestic plans
  from 7.25% to 6.75% as a result of decreased fixed-income security returns.
  For its international plans, PPL used a discount rate of 5.75% at December 31,
  2002.

In selecting an expected return on plan assets, PPL considers past performance
  and economic forecasts for the types of investments held by the plan. At December
  31, 2002, PPL decreased the expected return on plan assets for its domestic
  pension plans from 9.2% to 9.0% as a result of continued declines in equity
  and fixed-income security returns. For its international plans, PPL used a weighted
  average of 8.31% as the expected return on plan assets at December 31, 2002.

In selecting a rate of compensation increase, PPL considers past experience
  in light of movements in inflation rates. At December 31, 2002, PPL decreased
  the rate of compensation increase from 4.25% to 4.0% for its domestic plans.
  For its international plans, PPL used 3.75% as the rate of compensation increase
  at December 31, 2002.

In selecting health care cost trend rates, PPL considers past performance and
  forecasts of health care costs. At December 31, 2002, PPL increased its previous
  health care cost trend rates. The previous rates were 7.0% for 2002, gradually
  declining to 6% in 2006. The new rates are 12% for 2003, gradually declining
  to 5.0% for 2010. These changes are based upon continued increases in health
  care costs.

A variance in the assumptions listed above could have a significant impact
  on projected benefit obligations, accrued pension and other postretirement benefit
  liabilities, reported annual net periodic pension and other postretirement benefit
  cost and other comprehensive income (OCI). The following chart reflects the
  sensitivities associated with a change in certain assumptions. While the chart
  below reflects either an increase or decrease in each assumption, PPL and its
  actuaries expect that the inverse of this change would impact the projected
  benefit obligation, accrued pension and other postretirement benefit liabilities,
  reported annual net periodic pension and other postretirement benefit cost and
  OCI by a similar amount in the opposite direction. Each sensitivity below reflects
  an evaluation of the change based solely on a change in that assumption.

|                                |  | Increase/(Decrease)                                       |        
|------------------------------- |  | --------------------------------------------------------- | -------
|Actuarial Assumption            |  | Change in Assumption                                      |        
|                                |  |                                                           |        
|                                |  |                                                           |        
|Discount Rate                   |  |                                                           | (0.25)%
|                                |  |                                                           |        
|Expected Return on Plan Assets  |  |                                                           | (0.25)%
|                                |  |                                                           |        
|Rate of Compensation Increase   |  |                                                           | 0.25%  
|                                |  |                                                           |        
|Health Care Cost Trend Rate (b) |  |                                                           | 1.0%   
|                                |  |                                                           |        
|(a)                             |  | Excludes the impact of additional
      minimum liability
|(b)                             |  | Only impacts other postretirement
      benefits         

At December 31, 2002, PPL had recognized accrued pension and other postretirement
  benefit liabilities totaling $484 million, included in "Deferred Credits and
  Other Noncurrent Liabilities - Other" on the Balance Sheet. The $484 million
  liability represented a $289 million increase over the $195 million liability
  that was recorded at December 31, 2001. The increased liability was primarily
  due to the liabilities recorded for the WPD pension plans acquired in 2002.
  PPL's total projected obligation for these benefits was approximately $4.1 billion,
  which was offset by $3.3 billion of assets held in various trusts. However,
  these amounts are not fully reflected in the current financial statements due
  to the deferred recognition criteria.

In 2002, PPL recognized net periodic pension and other postretirement income
  credited to operating expenses of $61 million. This amount represents a $36
  million increase over the credit recognized during 2001. This increase was primarily
  due to pension income recognized from the WPD pension plans, partially offset
  by the reduction of pension earnings associated with the remeasurement of the
  projected benefit obligation and recognition of a decline in asset value for
  PPL's primary domestic pension plan during 2002.

As a result of the plans' asset return experience and decreases in the assumed
  discount rate at December 31, 2002, PPL was required to recognize additional
  minimum pension liabilities totaling $482 million, as prescribed by SFAS 87.
  Recording these liabilities resulted in a reduction in common equity through
  charges to OCI, net of taxes and unrecognized prior service costs, of $306 million,
  with no effect on net income. The charges to OCI will reverse in future periods
  if the fair value of trust assets exceeds the accumulated benefit obligation.

Refer to Note 12 to the Financial Statements for additional information regarding
  pension and other postretirement benefits.

1. Asset Impairment

PPL and its subsidiaries review long-lived assets for impairment when events
  or circumstances indicate carrying amounts may not be recoverable. Assets subject
  to this review, for which impairments have been recorded in 2002 or prior years,
  include international equity investments, new generation assets, consolidated
  international energy projects and goodwill.

PPL performs impairment analyses for tangible long-lived assets in accordance
  with SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets."
  For long-lived assets to be held and used, SFAS 144 requires companies to (a)
  recognize an impairment loss only if the carrying amount is not recoverable
  from undiscounted cash flows and (b) measure an impairment loss as the difference
  between the carrying amount and fair value of the asset. Refer to Note 22 to
  the Financial Statements for additional information on SFAS 144.

In determining asset impairments, management must make significant judgments
  and estimates to calculate the fair value of an investment. Fair value is developed
  through consideration of several valuation methods including comparison to market
  multiples, comparison of similar recent sales transactions, comparison to replacement
  cost and discounted cash flow. Discounted cash flow is calculated by estimating
  future cash flow streams, applying appropriate discount rates to determine the
  present value of the cash flow streams, and then assessing the probability of
  the various cash flow scenarios. The impairment is then recorded based on the
  excess of the carrying value of the investment over fair value. Changes in assumptions
  and estimates included within the impairment reviews could result in significantly
  different results than those identified and recorded in the financial statements.

During 2002, PPL and its subsidiaries evaluated certain international investments
  and gas-fired generation assets for impairment, as events and circumstances
  indicated that the carrying value of these investments may not be recoverable.
  The events that led to these impairment reviews were as follows:

- CEMAR: A prolonged drought that caused electricity rationing, an unfavorable
    regulatory environment and disruption of Brazil's electricity markets all
    indicated that the future cash flow stream would be adversely impacted. In
    addition, CEMAR failed to pay certain of its creditors for obligations when
    due, and ANEEL denied CEMAR's request for a rate-increase review and denied
    the request for transfer of PPL's equity interest in CEMAR to Franklin Park
    Energy.

- New gas-fired generation assets: Current wholesale energy prices have adversely
    impacted margins for 2002 and could continue to do so beyond 2002. Based upon
    current energy price levels, there is a risk that PPL may be unable to recover
    its investment in new gas-fired generation facilities.

PPL recorded an impairment charge of $100 million in 2002, for the remaining
  value of its investment in CEMAR. PPL had already recorded an impairment charge
  of $179 million for its investment in CEMAR in 2001. The most significant assumption
  used in assessing the CEMAR impairment was the estimated future cash flow. Due
  to the significant financial and political difficulties facing CEMAR and PPL's
  commitment to exit the business, the determination was made that there was no
  value remaining in the investment. Based on the circumstances surrounding this
  investment, PPL does not believe there is any variability in this assumption.

PPL did not record an impairment of its new gas-fired generation assets that
  were in-service in 2002. For these impairment analyses, the most significant
  assumption was the estimate of future cash flows. For the impairment analyses
  of its in-service gas-fired generation assets, PPL estimates future cash flow
  using information from its corporate business plan adjusted for any recent sales
  or purchase commitments. Key factors that impact cash flows include projected
  prices for electricity and gas as well as firm sales and purchase commitments.
  A 10% change in estimated future cash flow for any of PPL's in-service gas-fired
  generation assets would not result in an impairment charge.

In November 2002, due to low energy price curves, the absence of a tolling
  agreement for the site, and delays in obtaining permits, the completion of the
  Kings Park project became uncertain. Due to this uncertainty and the absence
  of other viable projects, the costs of the turbines and SCRs that were planned
  for deployment at Kings Park were determined to not be recoverable from expected
  undiscounted cash flows. To determine the amount of the impairment, PPL estimated
  the fair value of the turbines and SCRs based upon replacement costs of similar
  assets. This resulted in the recognition of a $26 million, after-tax, impairment
  charge. The most significant assumption related to the asset impairment was
  the estimate of replacement costs. A 10% change in the estimate of replacement
  costs would have increased or decreased the impairment charge by $3 million
  after-tax.

In January 2003, PPL decided to seek a buyer and not proceed with the development
  of the Kings Park project.

In 2001, the FASB issued SFAS 142, "Goodwill and Other Intangible Assets,"
  which eliminates the amortization of goodwill and other acquired intangible
  assets with indefinite economic useful lives. SFAS 142 requires an annual impairment
  test of goodwill and other intangible assets that are not subject to amortization.
  PPL adopted SFAS 142 on January 1, 2002.

A transition impairment test was completed in the first quarter of 2002. As
  a result of this impairment test, PPL recognized a goodwill impairment charge
  of $150 million related to the Latin American reporting unit, which is reported
  as a "Cumulative Effect of a Change in Accounting Principle" on the Statement
  of Income. PPL completed its annual goodwill impairment test in the fourth quarter
  of 2002. This test did not result in an additional impairment. PPL's most significant
  assumptions surrounding the goodwill impairment relate to the determination
  of fair value. PPL determined fair value based upon discounted cash flow. A
  variance in the forecasted cash flow or discount rate could have a significant
  impact on the amount of the impairment charge recorded. The following chart
  reflects the sensitivities associated with a change in these assumptions. Each
  sensitivity below reflects an evaluation of the change based solely on a change
  in that assumption.

|                     |  | Increase / (Decrease)
|-------------------- |  | ---------------------
|                     |  | Change in Assumption 
|                     |  |                      
|Forecasted Cash Flow |  |                      
|                     |  |                      
|Discount Rate        |  |                      
|                     |  |                      



1. Leasing

PPL applies the provisions of SFAS 13, "Accounting for Leases," to all
      leasing transactions. In addition, PPL applies the provisions of numerous
      other accounting pronouncements issued by the FASB and the EITF that provide
      specific guidance and additional requirements related to accounting for
      various leasing arrangements. In general, there are two types of leases
      from a lessee's perspective: operating leases - leases accounted for off-balance
      sheet and capital leases - leases capitalized on the balance sheet.

In accounting for leases, management makes various assumptions, including
      the discount rate, the fair market value of the leased assets and the estimated
      useful life, in determining whether a lease should be classified as operating
      or capital. Changes in these assumptions could result in the difference
      between whether a lease is determined to be an operating lease or a capital
      lease, thus significantly impacting the amounts to be recognized in the
      financial statements.

In addition to uncertainty inherent in management's assumptions, leasing
      transactions and the related accounting rules become increasingly complex
      when they involve: sale/leaseback accounting (leasing transactions where
      the lessee previously owned the leased assets), synthetic leases (leases
      that qualify for operating lease treatment for book accounting purposes
      and financing treatment for tax accounting purposes), lessee involvement
      in the construction of leased assets and/or special purpose entities (SPEs)
      (entities created for the specific purpose of owning the property, plant
      and equipment and incurring the related financing obligation). Current GAAP
      requires that SPEs be consolidated if several conditions exist, including
      if the owners of the SPEs have not made an initial substantive residual
      equity capital investment that is at risk during the entire lease term.
      The consolidation of an SPE lessor by the lessee has a very similar financial
      result as a lease that is accounted for as a capital lease, that is, the
      leased assets and the related financing obligations are recorded on the
      lessee's balance sheet.

At December 31, 2002, PPL subsidiaries participated in one significant
      sale/leaseback transaction involving unconsolidated SPEs and two significant
      synthetic lease transactions involving unconsolidated SPEs. Each of these
      transactions has been accounted for as an operating lease. In accordance
      with current GAAP, these SPEs were not consolidated by PPL because the equity
      owners (entities unrelated to PPL and its subsidiaries) contributed and
      maintain a minimum of 3% equity interest throughout the life of the SPEs.



Sale/Leaseback



In July 2000, PPL Montana sold its interest in the Colstrip generating
      plant to owner lessors who are leasing the assets back to PPL Montana under
      four 36-year operating leases. This transaction is accounted for as an operating
      lease in accordance with current rules related to sale/leaseback arrangements.
      If for any reason this transaction did not meet the requirements for off-balance
      sheet operating lease treatment as a sale/leaseback, PPL would have approximately
      $343 million of additional assets and liabilities recorded on its balance
      sheet at December 31, 2002 and would have recorded additional expenses currently
      estimated at $10 million, after-tax, in 2002.

Synthetic Leases

In May 2001, a PPL Global subsidiary entered into a lease arrangement,
      as lessee, for the development, construction and operation of commercial
      power generation facilities. This arrangement covers the 540 MW gas-powered
      University Park project near University Park, Illinois, and the 450 MW gas-powered
      Sundance project near Coolidge, Arizona. In July 2002, these facilities
      were substantially complete and the initial lease term commenced.

In December 2001, a PPL Global subsidiary entered into a lease arrangement,
      as lessee, for the development, construction and operation of a 600 MW gas-fired
      combined-cycle generation facility located in Lower Mt. Bethel Township,
      Northampton County, Pennsylvania. The initial lease term is approximately
      10 years, beginning on the date of commercial operation, which is expected
      to occur in late 2003.



Both of these leases are accounted for as operating leases in accordance
      with current accounting requirements. If for any reason these transactions
      did not meet the requirements for off-balance sheet operating lease treatment,
      PPL would have approximately $1.1 billion of additional assets and liabilities
      recorded on its balance sheet at December 31, 2002 and would have recorded
      additional expenses currently estimated at $5 million, after-tax, in 2002.



In January 2003, the FASB issued FIN 46, "Consolidation of Variable Interest
      Entities, an interpretation of ARB No. 51." FIN 46 clarifies that variable
      interest entities (VIEs), as defined therein, that do not disperse risks
      among the parties involved should be consolidated by the entity that is
      determined to be the primary beneficiary. PPL currently believes that the
      lessors involved in its leases for the Sundance, University Park and Lower
      Mt. Bethel generating facilities, discussed above, will be considered VIEs
      under FIN 46 and that PPL would be the primary beneficiary. PPL is currently
      evaluating whether these leasing arrangements can be restructured such that
      they would still qualify as off-balance sheet operating leases under the
      new rules. If PPL does not restructure these leases, PPL believes that it
      will be required to consolidate the financial statements of the lessors.
      The principal impact from such consolidation would be the inclusion of the
      generating facilities as assets and the lease financing as liabilities in
      the consolidated balance sheet of PPL. PPL does not currently believe that
      the lessors in the PPL Montana sale/leaseback will be determined to be VIEs
      in which PPL will be the primary beneficiary. Therefore, PPL does not expect
      to consolidate the financial statements of these lessors. PPL must adopt
      FIN 46 for all of these leases no later than the first interim period beginning
      after June 15, 2003.



See Note 10 to the Financial Statements for additional information related
      to operating leases and Note 22 for additional information related to FIN
      46.

1. Loss Accruals



PPL periodically records the estimated impacts of various conditions, situations
      or circumstances involving uncertain outcomes. These events are called "contingencies,"
      and PPL's accounting for such events is prescribed by SFAS 5, "Accounting
      for Contingencies." SFAS 5 defines a contingency as "an existing condition,
      situation, or set of circumstances involving uncertainty as to possible
      gain or loss to an enterprise that will ultimately be resolved when one
      or more future events occur or fail to occur."

For loss contingencies, the loss must be accrued if (1) information is
      available that indicates it is "probable" that the loss has been incurred,
      given the likelihood of the uncertain future events and (2) the amount of
      the loss can be reasonably estimated. FASB defines "probable" as cases in
      which "the future event or events are likely to occur." SFAS 5 does not
      permit the accrual of gain contingencies under any circumstances.

The accrual of a loss contingency involves considerable judgment on the
      part of management. The accounting aspects of loss accruals include: (1)
      the initial identification and recording of the loss accrual and (2) the
      determination of a triggering event for reducing a recorded loss accrual
      and the on-going assessment as to whether a recorded loss accrual is reasonable.

Initial Identification and Recording of the Loss Accrual

PPL uses its internal expertise and outside experts (such as lawyers, tax
      specialists and engineers), as necessary, to help estimate the probability
      that a loss has been incurred and the amount (or range) of the loss.

Throughout 2002, PPL assessed potential loss accruals for environmental
      remediation, litigation claims, regulatory penalties and other events. There
      were no material events identified for which a loss was probable and for
      which the loss could be reasonably estimated. Therefore, there were no material
      loss accruals recorded in 2002 using the SFAS 5 criteria.

However, PPL has identified certain events which could give rise to a loss,
      but which do not meet the conditions for accrual under SFAS 5. SFAS 5 requires
      disclosure, but not a recording, of potential losses when it is "reasonably
      possible" that a loss has been incurred. FASB defines "reasonably possible"
      as cases in which "the chance of the future event or events occurring is
      more than remote but less than likely."

See Note 14 to the Financial Statements for disclosure of potential loss
      accruals, most of which have not met the criteria for accrual under SFAS
      5. Such disclosures include, among others, the Montana Power shareholders'
      litigation, a lawsuit regarding the Colstrip transmission system and any
      potential adverse outcome related to the PJM Market Monitor report.

Reducing Recorded Loss Accruals and On-Going Assessment

When a loss accrual is recorded, PPL identifies the triggering event for
      subsequently reducing the loss accrual. Also, PPL periodically reviews the
      loss accrual to assure that the recorded potential loss exposure is reasonable.

The largest contingency currently on PPL's balance sheet is the loss accrual
      for above-market NUG purchase commitments, being the difference between
      the above-market contract terms and the fair value of electricity. This
      loss accrual was originally recorded at $854 million in 1998, when PPL Electric's
      generation business was deregulated. Under regulatory accounting, PPL Electric
      recorded the above-market cost of the purchases from NUGs as part of its
      purchased power costs on an as-incurred basis, since these costs were recovered
      in regulated rates. When the generation business was deregulated, the loss
      contingency associated with the commitment to make above-market NUG purchases
      was recorded. This loss accrual for the above-market portion of NUG purchase
      commitments was recorded because it was probable that the loss had been
      incurred and the estimate of future energy prices could be reasonably determined,
      using the then forward prices of electricity and capacity. This loss accrual
      was transferred to PPL EnergyPlus in the July 1, 2000 corporate realignment.
      The above-market loss accrual was $427 million at December 31, 2002.

When the loss accrual related to NUG purchases was recorded in 1998, PPL
      Electric established the triggering events for when the loss accrual would
      be reduced. A schedule was established to reduce the liability based on
      projected purchases over the lives of the NUG contracts. All but one of
      the NUG contracts expire by 2009, with the last one ending in 2014. PPL
      EnergyPlus reduces the above-market NUG liability based on the aforementioned
      schedule. As PPL EnergyPlus reduces the liability for the above-market NUG
      purchases, it offsets the actual cost of NUG purchases, thereby bringing
      the net power purchase expense more in line with market prices.

PPL EnergyPlus assessed the remaining $427 million above-market liability
      at December 31, 2002, comparing the projected electricity purchases under
      the terms of the NUG contracts, with the purchases assuming projected market
      prices for the energy. This assessment was based on projected PJM market
      prices, including capacity, through 2014, as comprehended in the current
      business plan of PPL EnergyPlus. The assessment also used sensitivities
      around the market prices, adjusting such prices upwards and downwards by
      10%.

The assessment is dependent on the market prices of energy and the estimated
  output levels of the NUGs. Market prices of energy are dependent on many variables,
  including growth in electricity demand in PJM, available generation, and changes
  in regulatory and economic conditions. Accordingly, market price sensitivities
  were used in the assessment. If estimated market prices were adjusted upwards
  by 10% in each of the years from 2003 through 2014, the accrual for the above-market
  NUG purchase commitments would be approximately $401 million. Conversely, if
  estimated market prices were adjusted downwards by 10% during the remaining
  term of the NUG contracts, the accrual for the above-market NUG purchase commitments
  would be approximately $501 million. The recorded above-market liability of
  $427 million at December 31, 2002 falls within the range calculated in the year-end
  assessment. As noted above, it is very difficult to estimate future electricity
  prices, which are dependent on many variables and subject to significant volatility.
  PPL's management believes that the current recorded NUG above-market liability
  was fairly stated at December 31, 2002.



Other Information



PPL's Audit Committee has approved the independent auditor to provide the
      following services:

- Audit and audit-related services (including services in connection with
        statutory and regulatory filings, reviews of offering documents and registration
        statements, employee benefit plan audits and internal control reviews);
- Certain tax consulting and advisory services for projects commenced
        prior to December 31, 2002; and,
- Other services permitted by the Sarbanes-Oxley Act of 2002 and SEC rules.

---

PPL ENERGY SUPPLY, LLC

ITEM 7. REVIEW OF THE FINANCIAL CONDITION AND RESULTS OF
  OPERATIONS



Terms and abbreviations appearing here are explained in the glossary. Dollars
  are in millions, unless otherwise noted.

Corporate Realignment

On July 1, 2000, PPL and PPL Electric completed a corporate realignment in
  order to effectively separate PPL Electric's regulated transmission and distribution
  operations from its generation operations and to better position the companies
  and their affiliates in the new competitive marketplace. The corporate realignment
  included the following key features:

- PPL Electric contributed its generation and certain other related assets,
    along with associated liabilities, to new competitive generation subsidiaries
    of PPL Generation. In connection with the contribution, PPL Energy Funding,
    the parent company of PPL Generation, assumed $670 million aggregate principal
    amount of PPL Electric's debt issued to affiliated companies.

- PPL Electric also contributed assets associated with its wholesale energy
    marketing activities, along with associated liabilities, to its wholly-owned
    subsidiary, PPL EnergyPlus, and contributed its interest in PPL EnergyPlus
    to PPL Energy Funding.

- PPL Electric distributed in a tax-free spin-off all of the outstanding shares
    of stock of PPL Energy Funding to PPL, which resulted in PPL Energy Funding
    becoming a wholly-owned subsidiary of PPL.

- PPL's unregulated power subsidiary, PPL Global, also transferred its U.S.
    electric generation subsidiaries to PPL Generation.

- PPL Electric entered into agreements with PPL EnergyPlus for the purchase
    of electricity to meet all of PPL Electric's requirements through 2001 as
    a PLR for customers who have not selected an alternative supplier under the
    Customer Choice Act and its wholesale contractual obligations to certain municipalities.

As a result of the corporate realignment:

- PPL Generation's principal business is owning and operating U.S. generation
    facilities through various subsidiaries;
- PPL EnergyPlus' principal business is competitive wholesale and retail energy
    marketing;
- PPL Global's principal businesses are the acquisition and development of
    both U.S. and international energy projects, and ownership and operation of
    international energy projects; and
- PPL Electric's principal businesses are the regulated transmission and distribution
    of electricity to serve retail customers in its franchised territory in eastern
    and central Pennsylvania, and the supply of electricity to retail customers
    in that territory as a PLR.

PPL Energy Supply was formed in November 2000. In May 2001, PPL Energy Funding
  contributed its interests in PPL Generation, PPL EnergyPlus and PPL Global to
  PPL Energy Supply. PPL Energy Supply serves as the parent company for substantially
  all of PPL's competitive businesses.

Basis of Presentation

PPL Energy Supply's financial statements for 2000 include financial information
  from predecessor businesses. The financial information for such entities has
  been combined together as one collective predecessor for purposes of satisfying
  the SEC's financial statement requirements, based on formation or acquisition
  dates of the respective businesses. Certain of PPL Energy Supply's assets were
  not operated as discrete businesses, and as a result, performance for prior
  years and historical predecessor financial information may not be indicative
  of PPL Energy Supply's present or future performance. See Note 1 to the Financial
  Statements for a discussion of the predecessor entities that comprise PPL Energy
  Supply.

Results of Operations

Earnings in 2002 were impacted by the acquisition of a controlling interest
  in WPD on September 6, 2002, and the resulting consolidation, as described in
  Note 9 to the Financial Statements. Therefore, the comparison of reported income
  statement line items is not meaningful without eliminating the impact of the
  WPD consolidation. The following table shows the 2002 Statement of Income as
  reported, the adjustments to eliminate the impact of the WPD consolidation (by
  reflecting WPD on the equity method), and as adjusted to exclude the WPD consolidation.
  The following discussion, that explains significant annual changes in principal
  items on the Statement of Income, compares 2002, as adjusted, to 2001.



|PPL Energy Supply, LLC and Subsidiaries
      Consolidated Statement of Income 
      Adjusted to Eliminate WPD Consolidation |                                             |             |       |     |            |   |    
|----------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------- | ----------- | ----- | --- | ---------- | - | ---
|                                                                                                                              |                                             | 2002        |      
|                                                                                                                              |                                             | As Reported |       |     | Adjustment |   |    
|                                                                                                                              |                                             |             |       |     |            |   |    
|Operating Revenues                                                                                                            |                                             |             |       |     |            |   |    
|                                                                                                                              |                                             |             |       |     |            |   |    
|Wholesale energy marketing                                                                                                    |                                             | $           | 993   |     |            |   |    
|                                                                                                                              |                                             |             |       |     |            |   |    
|Wholesale energy marketing to affiliates                                                                                      |                                             |             | 1,434 |     |            |   |    
|                                                                                                                              |                                             |             |       |     |            |   |    
|Utility                                                                                                                       |                                             |             | 980   |     |            | $ | 579
|                                                                                                                              |                                             |             |       |     |            |   |    
|Unregulated retail electric and
      gas                                                                                     |                                             |             | 182   |     |            |   |    
|                                                                                                                              |                                             |             |       |     |            |   |    
|Net energy trading margins                                                                                                    |                                             |             | 19    |     |            |   |    
|                                                                                                                              |                                             |             |       |     |            |   |    
|Energy related businesses                                                                                                     |                                             |             | 546   |     |            |   | (60
|                                                                                                                              |                                             |             |       |     |            |   |    
|                                                                                                                              |                                             |             |       |     |            |   |    
|Total                                                                                                                         |                                             |             | 4,154 |     |            |   | 519
|                                                                                                                              |                                             |             |       |     |            |   |    
|                                                                                                                              |                                             |             |       |     |            |   |    
|Operating Expenses                                                                                                            |                                             |             |       |     |            |   |    
|                                                                                                                              |                                             |             |       |     |            |   |    
|Operation                                                                                                                     |                                             |             |       |     |            |   |    
|                                                                                                                              |                                             |             |       |     |            |   |    
|                                                                                                                              | Fuel                                        |             |       | 503 |            |   |    
|                                                                                                                              |                                             |             |       |     |            |   |    
|                                                                                                                              | Energy purchases                            |             |       | 665 |            |   |    
|                                                                                                                              |                                             |             |       |     |            |   |    
|                                                                                                                              | Energy purchases from affiliates            |             |       | 171 |            |   |    
|                                                                                                                              |                                             |             |       |     |            |   |    
|                                                                                                                              | Other operation and maintenance             |             |       | 808 |            |   |    
|                                                                                                                              |                                             |             |       |     |            |   |    
|Depreciation                                                                                                                  |                                             |             | 265   |     |            |   | 112
|                                                                                                                              |                                             |             |       |     |            |   |    
|Taxes, other than income                                                                                                      |                                             |             | 78    |     |            |   | 42 
|                                                                                                                              |                                             |             |       |     |            |   |    
|Energy related businesses                                                                                                     |                                             |             | 521   |     |            |   | 29 
|                                                                                                                              |                                             |             |       |     |            |   |    
|Other charges                                                                                                                 |                                             |             |       |     |            |   |    
|                                                                                                                              |                                             |             |       |     |            |   |    
|                                                                                                                              | Write-down of international energy projects |             |       | 113 |            |   |    
|                                                                                                                              |                                             |             |       |     |            |   |    
|                                                                                                                              | Workforce reduction                         |             |       | 41  |            |   |    
|                                                                                                                              |                                             |             |       |     |            |   |    
|                                                                                                                              | Write-down of generation assets             |             |       | 44  |            |   |    
|                                                                                                                              |                                             |             |       |     |            |   |    
|                                                                                                                              |                                             |             |       |     |            |   |    
|Total                                                                                                                         |                                             |             | 3,209 |     |            |   | 225
|                                                                                                                              |                                             |             |       |     |            |   |    
|                                                                                                                              |                                             |             |       |     |            |   |    
|Operating Income                                                                                                              |                                             |             | 945   |     |            |   | 294
|                                                                                                                              |                                             |             |       |     |            |   |    
|Other Income - net                                                                                                            |                                             |             | 48    |     |            |   | 20 
|                                                                                                                              |                                             |             |       |     |            |   |    
|Interest Expense                                                                                                              |                                             |             | 208   |     |            |   | 127
|                                                                                                                              |                                             |             |       |     |            |   |    
|Interest Expense with Affiliate                                                                                               |                                             |             | 3     |     |            |   |    
|                                                                                                                              |                                             |             |       |     |            |   |    
|Income Taxes                                                                                                                  |                                             |             | 266   |     |            |   | 105
|                                                                                                                              |                                             |             |       |     |            |   |    
|Minority Interest                                                                                                             |                                             |             | 78    |     |            |   | 73 
|                                                                                                                              |                                             |             |       |     |            |   |    
|Cumulative Effect of a Change in
      Accounting Principle                                                                   |                                             |             | (150  | )   |            |   |    
|                                                                                                                              |                                             |             |       |     |            |   |    
|Distributions - Preferred Securities                                                                                          |                                             |             | 9     |     |            |   | 9  
|                                                                                                                              |                                             |             |       |     |            |   |    
|                                                                                                                              |                                             |             |       |     |            |   |    
|Net Income                                                                                                                    |                                             | $           | 279   |     |            | $ |    
|                                                                                                                              |                                             |             |       |     |            |   |    



Earnings in 2001 were positively impacted by a full year of operating results
  of the Pennsylvania generating assets contributed in the July 1, 2000 corporate
  realignment. In many cases, the reasons for significant changes in 2001 compared
  with 2000 were due to the acquisition of the generation and marketing assets
  from PPL Electric in July 2000, as described in the "Corporate Realignment"
  discussion above.

The comparability of certain items on the Statement of Income has also been
  impacted by PPL Global's investment in CEMAR in 2000. The consolidated results
  of CEMAR are included for periods during which PPL had a controlling interest,
  from June 2000 to August 2002. See Note 9 to the Financial Statements for more
  information.

Earnings

The changes in net income from year to year were, in part, attributable to
  several unusual items with significant earnings impacts as shown below. The
  table below reconciles net income to income from core operations, after eliminating
  the impact of unusual items. Income from core operations should not be considered
  as an alternative to net income, which is an indicator of operating performance
  determined in accordance with GAAP. PPL Energy Supply believes that income from
  core operations, although a non-GAAP measure, is also useful and meaningful
  to investors because it provides them with PPL Energy Supply's underlying earnings
  performance as another criterion in making their investment decisions. PPL Energy
  Supply's management also uses income from core operations in measuring certain
  corporate performance goals. Other companies may use different measures to present
  financial performance.

|                                                                |  | 2002 |      |   | 2001 |   |      | 2000 | 
|--------------------------------------------------------------- |  | ---- | ---- | - | ---- | - | ---- | ---- | 
|                                                                |  |      |      |   |      |   |      |      | 
|                                                                |  |      |      |   |      |   |      |      | 
|Net income - actual                                             |  | $    | 279  |   |      | $ | 174  |      | 
|                                                                |  |      |      |   |      |   |      |      | 
|Unusual items (net of tax):                                     |  |      |      |   |      |   |      |      | 
|                                                                |  |      |      |   |      |   |      |      | 
|Goodwill impairment (Note 18)                                   |  |      | (150 | ) |      |   |      |      | 
|                                                                |  |      |      |   |      |   |      |      | 
|CEMAR impairment (Note 9)                                       |  |      | (98  | ) |      |   | (217 | )    | 
|                                                                |  |      |      |   |      |   |      |      | 
|CEMAR operating losses (Note 9)                                 |  |      | (23  | ) |      |   |      |      | 
|                                                                |  |      |      |   |      |   |      |      | 
|Write-down of generation assets (Note 9)                        |  |      | (26  | ) |      |   |      |      | 
|                                                                |  |      |      |   |      |   |      |      | 
|Workforce reduction (Note 21)                                   |  |      | (24  | ) |      |   |      |      | 
|                                                                |  |      |      |   |      |   |      |      | 
|Tax benefit - Teesside (Note 9)                                 |  |      | 8    |   |      |   |      |      | 
|                                                                |  |      |      |   |      |   |      |      | 
|Cancellation of generation projects (Note
      9)              |  |      |      |   |      |   | (88  | )    | 
|                                                                |  |      |      |   |      |   |      |      | 
|WPD impairment (Note 9)                                         |  |      |      |   |      |   | (117 | )    | 
|                                                                |  |      |      |   |      |   |      |      | 
|Enron impact on trading (Note 17)                               |  |      |      |   |      |   | (8   | )    | 
|                                                                |  |      |      |   |      |   |      |      | 
|Enron impact - write-down investment in Teesside
      (Note 9) |  |      |      |   |      |   | (21  | )    | 
|                                                                |  |      |      |   |      |   |      |      | 
|Accounting method change - pensions (Note
      12)             |  |      |      |   |      |   | 3    |      | 
|                                                                |  |      |      |   |      |   |      |      | 
|                                                                |  |      |      |   |      |   |      |      | 
|Income from core operations                                     |  | $    | 592  |   |      | $ | 622  |      | 
|                                                                |  |      |      |   |      |   |      |      | 

The $30 million decrease in core earnings in 2002 compared with 2001 was primarily
  due to (with after-tax changes noted):



- lower wholesale margins of $81 million;
- lower unregulated retail energy margins of $33 million;
- higher operating and maintenance costs of $20 million due to the impact
    of new generation facilities, lower pension income and expenses related to
    property royalties; and
- lower net energy trading margins of $11 million.



These decreases were offset by:



- higher regulated retail energy margins of $59 million;
- higher PPL Global earnings of $50 million, due to operating performance
    and complete ownership of WPD, lower spending on development projects and
    the discontinuance of goodwill amortization, offset by lower earnings from
    Latin America; and
- higher earnings from synfuel tax credits of $10 million due to increased
    sales volumes.



The $380 million increase in core earnings in 2001 compared with 2000 was primarily
  due to (with after-tax changes noted):

- a full year of operating results of the Pennsylvania generating and marketing
    assets contributed in the July 1, 2000 corporate realignment, $307 million;
- lower after-tax interest expense of $47 million due to significantly lower
    intercompany debt; and
- additional PPL Montana earnings of $17 million.

The year-to-year changes in earnings components are discussed in the balance
  of the discussion in "Results of Operations."



PPL Energy Supply expects that the low level of wholesale energy prices will
  adversely impact margins in 2003 and beyond. Based upon current energy price
  levels, there is a risk that PPL Energy Supply may be unable to recover its
  investment in new gas-fired generation facilities. Under GAAP, PPL Energy Supply
  does not believe that there is an impairment charge to be recorded at this time.
  PPL Energy Supply is unable to predict the ultimate earnings impact of this
  issue, based upon energy price levels, applicable accounting rules and other
  factors, but such impact may be material. See "Asset Impairment" in Application
  of Critical Accounting Policies for additional information.



Future earnings will also be impacted by the consolidation of variable interest
  entities and the implementation of accounting for asset retirement obligations
  (as discussed in Note 22 to the Financial Statements).

Domestic Energy Margins



The following tables provide summary data regarding changes in the components
  of domestic gross margins of wholesale and retail energy for 2002 compared to
  2001 and 2001 compared to 2000:



|                                                   |                     | 2002 vs. 2001                 |      |     | 2001 vs. 2000 (b) |  
|-------------------------------------------------- | ------------------- | ----------------------------- | ---- | --- | ----------------- | -
|                                                   |                     |                               |      |     |                   |  
|                                                   |                     |                               |      |     |                   |  
|Wholesale energy marketing revenues                |                     | $                             | 4    |     |                   | $
|                                                   |                     |                               |      |     |                   |  
|Wholesale energy marketing to affiliates           |                     |                               | 103  |     |                   |  
|                                                   |                     |                               |      |     |                   |  
|Unregulated retail electric and
      gas revenues |                     |                               | (174 | )   |                   |  
|                                                   |                     |                               |      |     |                   |  
|Net energy trading margins                         |                     |                               | (18  | )   |                   |  
|                                                   |                     |                               |      |     |                   |  
|Other revenue adjustments (a)                      |                     |                               |      |     |                   |  
|                                                   |                     |                               |      |     |                   |  
|                                                   |                     |                               |      |     |                   |  
|                                                   | Total revenues      |                               |      | (85 | )                 |  
|                                                   |                     |                               |      |     |                   |  
|                                                   |                     |                               |      |     |                   |  
|Fuel                                               |                     |                               | 3    |     |                   |  
|                                                   |                     |                               |      |     |                   |  
|Purchased power                                    |                     |                               | (31  | )   |                   |  
|                                                   |                     |                               |      |     |                   |  
|Purchased power from affiliates                    |                     |                               | (23  | )   |                   |  
|                                                   |                     |                               |      |     |                   |  
|Other cost adjustments (a)                         |                     |                               | 63   |     |                   |  
|                                                   |                     |                               |      |     |                   |  
|                                                   |                     |                               |      |     |                   |  
|                                                   | Total cost of sales |                               |      | 12  |                   |  
|                                                   |                     |                               |      |     |                   |  
|                                                   |                     |                               |      |     |                   |  
|                                                   |                     | Domestic gross energy margins |      | $   | (97               | )
|                                                   |                     |                               |      |     |                   |  

|(a) |  | Adjusted to exclude the impact of any revenues
      and costs not associated with domestic energy margins, in particular, revenues
      and energy costs related to the international operations of PPL Global.                                                                                                                                                                                                                                                                                    
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(b) |  | On July 1, 2000, PPL and PPL Electric completed
      a corporate realignment in order to effectively separate PPL Electric's
      regulated transmission and distribution businesses from its deregulated
      generation businesses. Prior to July 1, 2000, data pertaining to Eastern
      domestic energy margins was recorded by PPL Electric. Therefore, the data
      presented in this table for the first half of 2000 includes information
      from PPL Electric's income statements.

Changes in Gross Domestic Energy Margins By Activity

Gross margin calculations are dependent on the allocation of fuel and purchased
  power costs to the activities. That allocation is based on monthly MWh consumption
  levels compared to monthly MWh supply costs. Any costs specific to an activity
  are charged to that activity.

|                         |                               | 2002 vs. 2001 |     |     | 2001 vs. 2000 |  
|------------------------ | ----------------------------- | ------------- | --- | --- | ------------- | -
|                         |                               |               |     |     |               |  
|                         |                               |               |     |     |               |  
|Wholesale - Eastern U.S. |                               | $             | (53 | )   |               | $
|                         |                               |               |     |     |               |  
|Wholesale - Western U.S. |                               |               | (71 | )   |               |  
|                         |                               |               |     |     |               |  
|Net energy trading       |                               |               | (18 | )   |               |  
|                         |                               |               |     |     |               |  
|Unregulated retail       |                               |               | (56 | )   |               |  
|                         |                               |               |     |     |               |  
|Regulated retail         |                               |               | 101 |     |               |  
|                         |                               |               |     |     |               |  
|                         |                               |               |     |     |               |  
|                         | Domestic gross energy margins |               | $   | (97 | )             |  
|                         |                               |               |     |     |               |  

Wholesale - Eastern U.S.

Generally, Eastern wholesale margins were lower in 2002 compared to 2001, despite
  a buyout of a NUG contract in February 2002 that reduced purchased power costs
  by $25 million. The decline in margins was primarily attributable to the decline
  in wholesale prices for energy and capacity. In PJM, where the majority of PPL's
  Eastern wholesale activity occurs, on-peak prices averaged $6/MWh less, a decline
  of 14%, for 2002 compared to 2001. Additionally, because new generating capability
  has come on-line within PJM in 2002, the prices for the PJM monthly auctions
  for unforced capacity credits have also fallen from an average of $100/MW-month
  in 2001 to an average of $38/MW-month in 2002. However, higher volumes of energy
  sales partially offset the decline in prices, as wholesale transactions in 2002
  increased by about 33% over 2001 due to better generation availability.

Eastern wholesale margins were higher in 2001 compared to 2000 primarily due
  to an increase in wholesale prices for energy and capacity. In PJM, on-peak
  prices averaged $6/MWh more in 2001, an increase of 13% from 2000. Additionally,
  prices for the PJM monthly auctions for unforced capacity credits increased
  from an average of $53/MW-month in 2000 to an average of $100/MW-month in 2001.

Wholesale - Western U.S.

Western wholesale margins consist of margins in the Northwest and in the Southwest.

In the Northwest, margins were $74 million lower in 2002 compared to 2001,
  primarily due to a decrease in average realized wholesale prices by $45/MWh,
  partially offset by a 9% increase in volumes. Margins were $19 million lower
  in 2001 compared to 2000, primarily due to a 16% decline in volumes caused by
  the energy supply shortage in the western U.S. primarily due to the impact of
  a drought on hydro availability. Partially offsetting this decrease were higher
  average prices in 2001 compared to 2000.

In the Southwest region, margins were $9 million lower in 2002 compared to
  2001, primarily due to a decrease in average wholesale prices by $40/MWh. These
  lower prices were offset by increased sales, which were three times higher than
  the prior period, as a result of the Griffith Energy and Sundance facilities
  coming on-line in 2002. Margins were $27 million higher in 2001 compared to
  2000, primarily due to purchasing power in late 2001 to satisfy the sales commitments
  entered into earlier in the year at higher prices. These sales were originally
  expected to be supplied by the generation output from Griffith.

The above explanation is exclusive of the 2001 charge for the Enron bankruptcy
  which is discussed in further detail in Note 17 to the Financial Statements.

Net Energy Trading

PPL enters into certain contractual arrangements that meet the criteria of
  energy trading derivatives as defined by EITF 02-3. These physical and financial
  contracts cover trading activity associated with electricity, gas and oil. The
  $18 million decrease in 2002 compared to 2001 was primarily due to unrealized,
  mark-to-market gains in 2001 and lower energy margins in 2002. The $10 million
  decrease in 2001 compared to 2000 was primarily due to lower energy margins
  partially offset by unrealized, mark-to-market losses in 2000. The physical
  volumes associated with energy trading were 10,500 GWh and 12.4 Bcf in 2002;
  7,700 GWh and 22.4 Bcf in 2001; and 19,900 GWh and 2.9 Bcf in 2000.

Unregulated Retail

Unregulated retail margins declined in 2002 compared to 2001 primarily due
  to lower revenues resulting from the expiration of contracts which were not
  renewed in the East and due to significantly lower retail prices in the West,
  somewhat offset by an increase in the number of customers in the West. The decline
  in 2001 from 2000 was also primarily due to the expiration of contracts which
  were not renewed in the East, somewhat offset by higher sales in the West.

Regulated Retail

Regulated retail margins in the East for 2002 were 15% higher than in 2001.
  Higher sales volumes and higher average prices, caused by changes in usage among
  customer classes, provided the improved margins. In addition, lower supply costs
  in 2002, due to lower fuel costs and increased generating unit availability,
  further improved margins. Regulated retail margins in the East for 2001 were
  13% higher than 2000. Sales volumes increased 21% primarily due to the return
  of customers who previously had an alternative electric power supplier.



Utility Revenues



PPL Energy Supply's utility revenues consist of the delivery of electricity
  by PPL Global international subsidiaries. Utility revenues decreased by $7 million
  in 2002 compared with 2001. This decrease was primarily attributable to the
  deconsolidation of CEMAR. PPL Global stopped recording operating results of
  CEMAR upon relinquishing control to ANEEL. As a result, revenues from electricity
  deliveries in Brazil were $17 million lower in 2002 compared with 2001. This
  decrease was partially offset by increased volumes of deliveries in Chile and
  El Salvador, which resulted in increased revenues of $9 million compared with
  2001.

Utility revenues increased by $88 million in 2001 compared with 2000, due to
  a full year of CEMAR revenues in 2001, compared with three months of revenues
  in 2000.



Energy Related Businesses

Energy related businesses (when adjusted to include WPD on an equity basis)
  contributed $11 million less to operating income in 2002 compared with 2001.
  This was primarily due to:

- a $28 million increase in PPL Southwest Generation Holdings, LLC's expenses
    of Griffith Energy due to a full year of operations in 2002. Also, 2001 benefited
    from margins on forward electricity contracts, executed prior to commercial
    operation;
- a $9 million decline from the mechanical contracting and engineering subsidiaries,
    primarily due to cost overruns experienced at two major projects; and
- $4 million of pre-tax operating losses from synfuel projects; partially
    offset by
- a $23 million decrease in PPL Global's expenses due to lower spending on
    development projects, including a favorable settlement on the cancellation
    of a generation project in Washington state.

Although operating income from synfuel operations declined in 2002 compared
  to 2001, the synfuel projects contributed $7 million more to net income after
  the recording of tax credits.

Energy related businesses contributed $125 million to the 2001 operating income
  of PPL Energy Supply, an increase of $58 million from 2000. The increase reflects
  PPL Global's higher equity earnings of $83 million from its U.K. investments,
  and higher pre-tax operating income of $8 million from the mechanical contracting
  and engineering subsidiaries (as a result of additional acquisitions in the
  northeastern U.S.) These gains were partially offset by a $13 million increase
  in PPL Global's domestic project development expenses and by $19 million of
  pre-tax operating losses from synfuel projects. However, after the recording
  of tax credits associated with synfuel operations, the synfuel projects contributed
  approximately $19 million to net income in 2001.

Other Operation and Maintenance

Other operation and maintenance expenses increased by $20 million in 2002 compared
  to 2001. The increase was partially due to an increase of $6 million in PPL
  Energy Supply's estimated vacation liability, in conjunction with the workforce
  reduction (see Note 21 to the Financial Statements). The increase in operation
  and maintenance expense also reflects a $7 million decrease in pension income.
  Additionally, there were $9 million of expenses relating to the operating lease
  on the University Park and Sundance facilities, which began commercial operation
  in July 2002, and $4 million of increased generation expenses due to several
  new facilities becoming operational in 2002.



The $7 million decrease in pension income was attributable to PPL Energy Supply's
  participation in PPL's primary domestic pension plan. During the second quarter
  of 2002, the workforce reduction and union-negotiated benefit enhancements had
  a significant impact on PPL's primary domestic pension plan requiring remeasurement
  of the benefit obligation and decreasing the net pension income recorded for
  that plan. In addition, pension income was also decreased due to the recognition
  of significant asset losses caused by weakened financial markets. Certain subsidiaries
  of PPL Energy Supply participate in PPL's primary domestic pension plan and
  are allocated approximately 34% of the obligations and costs of that plan. Through
  December 31, 2002, PPL Energy Supply was allocated approximately $9 million
  of pension income. As a result of the events and remeasurements previously discussed,
  PPL expects to continue to allocate pension income to PPL Energy Supply in 2003,
  but at lower levels due to the above events and continued weakness in the financial
  markets. See Note 12 for details of the funded status of PPL's domestic pension
  plans.

Other operation and maintenance expenses increased by $281 million in 2001
  compared to 2000. The transfer of approximately $210 million of expenses associated
  with PPL Electric generation assets transferred in the corporate realignment
  was the primary reason for the increase, as well as $29 million of additional
  operating expenses associated with PPL Global's acquisition of CEMAR. Also contributing
  to the increase was a $45 million gain on the sale of emission allowances in
  2000, recorded as a reduction of expense.

Depreciation

Depreciation decreased by $17 million in 2002 compared with
  2001. This decrease was primarily the result of:

- $14 million due to extension of the Susquehanna station's depreciable life,
    in conjunction with the announced plan to seek an extension of its NRC operating
    licenses;
- $10 million due to no longer recording goodwill amortization; and
- $7 million due to PPL Global's write-down of CEMAR assets in 2001, resulting
    in no depreciation on these assets in 2002.

These decreases were partially offset by an increase of $14 million due to
  depreciation of the Wallingford and Edgewood facilities, and plant upgrades
  and installation of SCR technology at the Montour plant.



Depreciation increased by $71 million in 2001 compared with 2000. This increase
  was primarily due to the inclusion of $44 million of depreciation on the generation
  assets transferred from PPL Electric in the July 1, 2000 corporate realignment.
  Also contributing to the increase were $10 million of depreciation expense from
  the inclusion of CEMAR's transmission, distribution and other assets recorded
  subsequent to its acquisition by PPL Global, and to $14 million associated with
  SCR technology installed at the Montour plant during the third quarter 2000
  outage.



Taxes, Other Than Income

Taxes, other than income, decreased by $15 million in 2001 compared with 2000.
  The decrease was primarily in the gross receipts tax corresponding to lower
  retail electric revenues and a decrease in the revenue-neutral reconciliation
  (RNR) tax component of the effective Pennsylvania gross receipts tax rate in
  January 2001. The RNR, which adjusts the base gross receipts tax rate of 4.4%,
  was enacted as part of the Customer Choice Act as a tax revenue replacement
  component to recoup losses to the Commonwealth of Pennsylvania or return benefits
  to customers that may result from the restructuring of the electric industry.

Changes in gross receipts tax do not significantly affect earnings as they
  are substantially recovered or returned through customer rate revenues.

Other Charges

Other charges of $198 million in 2002 consisted of the write-down of PPL Global's
  investment in CEMAR and several smaller impairment charges on other international
  investments (see Note 9 to the Financial Statements), the write-down of generation
  assets (see Note 9) and a charge for a workforce reduction program (see Note
  21).

Other charges of $486 million in 2001 consisted of the write-down of international
  energy projects and the cancellation of generation development projects (see
  Note 9).

Other Income - net

See Note 16 to the Financial Statements for details of other income and deductions.

Interest Expense

Interest expense increased by $37 million in 2002 compared with 2001 primarily
  due to:



- a $32 million increase in long-term debt interest due to a full year of
    interest in 2002 from the issuance of $500 million of senior unsecured notes
    in 2001;
- a $20 million increase in long-term debt interest from debt issued by PPL
    Global's consolidated subsidiaries; and
- a $7 million decrease in capitalized interest; offset by
- a $24 million decrease in short-term debt interest from a decrease in short-term
    borrowings from affiliates.



Interest expense decreased by $79 million in 2001 compared with 2000. This
  decrease reflects lower intercompany interest expense of $90 million, in part
  due to the contribution to PPL Energy Supply of PPL Energy Funding's notes receivable
  from PPL Global, thereby eliminating the associated intercompany interest expense.
  This decrease in interest expense was partially offset by $6 million of interest
  expense associated with $500 million of senior unsecured notes issued by PPL
  Energy Supply in October 2001.

Income Taxes

Income tax expense decreased by $113 million in 2002 compared with 2001. This
  decrease was due to:

- lower pre-tax domestic book income, resulting in a $35 million reduction
    in income taxes;
- lower impairment charges on PPL Energy Supply's investment in Brazil resulting
    in a $30 million decrease in the amount of deferred income tax valuation allowances
    recorded;
- a $27 million reduction in income taxes due to losses recognized on foreign
    investments; and
- a $10 million decrease related to additional federal synfuel tax credits
    recognized.

Income tax expense increased by $149 million in 2001 compared with 2000. This
  was primarily due to higher pre-tax domestic book income, resulting in $105
  million of additional income taxes, and $61 million of deferred income tax valuation
  allowances recorded on PPL Energy Supply's investment in Brazil and the U.K.
  (see Note 9 to the Financial Statements). These increases were offset by the
  recognition of $34 million of federal synfuel tax credits.

Change in Accounting Principle



PPL Energy Supply adopted SFAS 142, "Goodwill and Other Intangible Assets,"
  on January 1, 2002. SFAS 142 requires an annual impairment test of goodwill
  and other intangible assets that are not subject to amortization. PPL Energy
  Supply conducted a transition impairment analysis in the first quarter of 2002
  and recorded a transition goodwill impairment charge of $150 million. See Note
  18 to the Financial Statements for additional information.



In 2001, PPL changed its method of amortizing unrecognized gains or losses
  in the annual pension expense or income determined under SFAS 87, "Employers'
  Accounting for Pensions." This change resulted in an allocation to PPL Energy
  Supply of a cumulative-effect credit of $3 million. Under the old method, the
  net unrecognized gain or loss in excess of 10% of the greater of the plan's
  projected benefit obligation or market-related value of plan assets was amortized
  on a straight-line basis over the estimated average future service period of
  plan participants. Under the new method, a second corridor is utilized for the
  net unrecognized gain or loss in excess of 30% of the plan's projected benefit
  obligation. The net unrecognized gain or loss outside the second corridor is
  amortized on a straight-line basis over a period equal to one-half of the average
  future service period of the plan participants. See Note 12 to the Financial
  Statements for additional information.



These items are reported as "Cumulative Effect of a Change in Accounting Principle"
  on the Statement of Income.

During 2002, PPL Energy Supply also adopted SFAS 144, "Accounting for
  the Impairment or Disposal of Long-Lived Assets," SFAS 145, "Rescission
  of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
  Technical Corrections," and EITF 02-3, "Issues Involved in Accounting
  for Derivative Contracts Held for Trading Purposes and Contracts Involved in
  Energy Trading and Risk Management Activities." See Note 22 to the Financial
  Statements for a discussion of the adoption of SFAS 144 and SFAS 145 and see
  Note 17 for a discussion of the adoption of EITF 02-3.



New Accounting Standards



See Note 22 to the Financial Statements for information on
  new accounting standards.

Financial Condition



Liquidity



At December 31, 2002, PPL Energy Supply had $149 million in cash and cash equivalents
  and $928 million of short-term debt. The $810 million increase in short-term
  debt from December 31, 2001 to December 31, 2002 resulted primarily from the
  consolidation of WPD's short-term debt as a result of the acquisition of the
  controlling interest in WPD and the issuance of PPL Energy Supply commercial
  paper in the fourth quarter (see Note 8 to the Financial Statements for additional
  information). PPL Energy Supply plans to refinance $389 million of short-term
  debt at a WPD entity during the first half of 2003 with a debt offering in the
  U.K.

PPL Energy Supply believes that its cash and cash equivalents, operating cash
  flows, access to the capital markets and borrowing capacity, taken as a whole,
  provide sufficient resources to fund ongoing operating requirements and future
  capital expenditures. PPL Energy Supply's operating cash flow and access to
  the capital markets can be impacted by economic factors outside of its control.
  In addition, PPL Energy Supply's borrowing costs can be impacted by short-term
  and long-term debt ratings assigned by independent rating agencies, which are
  based, in significant part, on PPL's performance as measured by certain credit
  measures such as interest coverage and leverage ratios. In May 2002, Standard
  & Poor's (S&P) affirmed the BBB corporate credit rating of PPL Energy
  Supply and the BBB senior secured debt rating of PPL Montana. The A-2 short-term
  credit ratings on PPL Energy Supply remained unchanged. The outlook on all ratings
  was stable.

In September 2002, S&P revised its outlook on PPL Energy Supply and PPL
  Montana from a stable outlook to a negative outlook. S&P's rating action
  reflects its view of a weakened credit profile that has resulted primarily from
  declining wholesale electricity prices and also from setbacks in PPL Energy
  Supply's international operations, particularly in Brazil. As part of its September
  2002 review, S&P affirmed its ratings on PPL Energy Supply following the
  acquisition of a controlling interest in WPD.

In February 2003, Moody's confirmed the ratings of WPDH Limited and WPD (South Wales)
at Baa2 and Baa1, and downgraded WPD LLP from Baa1 to Baa2 and SIUK Capital Trust I from Baa2 to Baa3.
The outlook on all ratings was stable.  Also in January, S&P completed a review of WPD and
affirmed its BBB+ long-term and A-2 short-term corporate credit ratings on WPD Holdings U.K.
and related entities, SIUK Limited, WPD (South West) and WPD (South Wales).  The outlook remains negative.

PPL Energy Supply expects to access both the capital and commercial paper markets
  during 2003. PPL Energy Supply cannot provide assurances that any of these funding
  sources will be available to PPL Energy Supply on acceptable terms.

Cash and cash equivalents are derived from cash from operations, cash from
  financing activities and cash from investing activities. Net cash from operations
  in 2002 was $650 million, compared to $605 million in 2001. The $45 million
  increase in cash provided by operating activities was due to the net effect
  of increases in net income adjusted to a cash basis (i.e., adding back non-cash
  items such as depreciation, write-downs of projects and assets, change in accounting
  principle, etc.), and partially offset by $152 million of turbine cancellation
  payments, an $89 million decrease in dividends from unconsolidated affiliates
  and a $50 million payment to terminate a NUG contract. As an asset-backed provider
  of electricity, the stability of PPL Energy Supply's cash from operations as
  it relates to the supply of electricity is influenced by the market prices of
  electricity, the cost of fuel used in the production of electricity and the
  operational availability of generating units, among other factors.

An important element supporting the stability of PPL Energy Supply's cash from
  operations is its continuing effort to secure long-term commitments from wholesale
  and retail customers and long-term fuel supply contracts. Two significant long-term
  wholesale contracts maintained by PPL EnergyPlus are: a full-requirements, eight-year
  agreement to supply PPL Electric with estimated peak demand between 6,700 and
  7,000 MW for PPL Electric's PLR load and a five-year contract with NorthWestern
  for 300 MW of around-the-clock electricity supply and 150 MW of on-peak supply.
  Over 85% of PPL Energy Supply's projected energy margins in 2003 and about 70%
  of margins through 2007 are expected to come from these long-term contracts.

In 2002, a PPL Energy Supply subsidiary also entered into multi-year tolling
  agreements with the Long Island Power Authority for about 159 MW of generation
  that a PPL Energy Supply subsidiary constructed at two Long Island sites. Under
  these tolling agreements, the PPL Energy Supply subsidiary will convert fuel
  supplied by the Long Island Power Authority to electricity and will receive
  payments for use of its facilities. PPL EnergyPlus continues to provide up to
  200 MW of supply, for various terms, to large industrial customers in Montana.

PPL EnergyPlus enters into contracts under which it agrees to sell and purchase
  electricity, natural gas, oil and coal. PPL Energy Supply also enters into contracts
  designed to lock-in interest rates for future financings or effect changes in
  its exposure to fixed or floating interest rates. These contracts often provide
  for cash collateral or other credit enhancement, or reductions or terminations
  of a portion or the entire contract through cash settlement in the event of
  a downgrade of PPL Energy Supply or adverse changes in market prices. For example,
  in addition to limiting its trading ability, if PPL Energy Supply's ratings
  were lowered to below "investment grade" and energy prices increased by more
  than 10%, PPL Energy Supply estimates that, based on its December 31, 2002 position,
  it would have to post collateral of approximately $421 million as compared to
  $450 million at December 31, 2001. PPL Energy Supply has in place risk management
  programs that, among other things, are designed to monitor and manage its exposure
  to volatility of cash flows related to changes in energy prices, interest rates,
  foreign currency exchange rates, counterparty credit quality and the operational
  performance of its generating units.

Net cash used in financing activities was $174 million in 2002, compared to
  $195 million in 2001. Additionally, a commercial paper program at PPL Energy
  Supply provides for the issuance of up to $1.1 billion of commercial paper and
  is maintained to meet short-term cash needs. If the existing credit ratings
  on the commercial paper program were lowered, it is unlikely that there would
  be sufficient investor demand for the commercial paper. In addition, the amount
  of commercial paper that could be outstanding under PPL Energy Supply's program
  is generally limited to the amount of the unused credit lines.

PPL Energy Supply maintains unsecured credit lines of $1.1 billion that are
  available as a backstop for its commercial paper program or for direct borrowings.
  PPL Energy Supply's credit lines are also available to issue up to $800 million
  in letters of credit that may be used for general corporate purposes, including
  margin requirements resulting from energy contracts. PPL Energy Supply had $374
  million of commercial paper outstanding and no borrowings outstanding under
  its credit line at December 31, 2002, as compared to no commercial paper outstanding
  or borrowings under its credit line at December 31, 2001. In addition, the lenders
  in the credit line had issued $47 million of letters of credit on behalf of
  PPL Energy Supply or its subsidiaries and affiliates at December 31, 2002.

Under its credit lines, PPL Energy Supply must maintain a consolidated debt
  to capitalization percentage not greater than 65%, and an interest coverage
  ratio of not less than 2.0 times consolidated earnings before income taxes,
  depreciation and amortization, in each case as calculated in accordance with
  the credit lines. At December 31, 2002 and December 31, 2001, PPL Energy Supply's
  consolidated debt to capitalization percentages, as calculated in accordance
  with its credit lines, were 35% and 28%. At December 31, 2002 and December 31,
  2001, PPL Energy Supply's interest coverage ratios, as calculated in accordance
  with its credit line, were 7.4 and 13.9. At this time, PPL Energy Supply believes
  that these covenants and other borrowing conditions will not limit access to
  these funding sources.

In October 2002, WPD (South West)'s 416 million British pounds sterling short-term
  facilities were replaced by a 250 million British pounds sterling bridge facility
  and two revolving credit facilities: a one-year 100 million British pounds sterling
  credit facility and a five-year 150 million British pounds sterling credit facility.
  At December 31, 2002, WPD (South West) had outstanding borrowings of $389 million
  under its bridge facility and $55 million under its credit facilities based
  on year-end currency exchange rates. The bridge facility is expected to be refinanced
  with long-term bonds in the first half of 2003.



Under its credit lines, WPD (South West) must maintain an interest coverage
  ratio of not less than 3.0 times consolidated earnings before income taxes,
  depreciation and amortization, and the regulatory asset base must be 150 million
  British pounds sterling greater than total gross debt, in each case as calculated
  in accordance with the credit lines. At December 31, 2002, WPD (South West)'s
  interest coverage ratio, as calculated in accordance with its credit lines,
  was 10.3 and its regulatory asset base exceeded its total gross debt by 491
  million British pounds sterling. At this time, PPL believes that these covenants
  and other borrowing conditions will not limit access to these funding sources.

PPL Energy Supply and its subsidiaries also have available funding sources
  that are provided through operating leases that are not recorded on the balance
  sheet. These operating leases provide funds for developing, constructing and
  operating generation facilities and equipment. Failure to meet the financial
  and other covenants contained in these operating leases could limit or restrict
  access to these funds or require early payment of obligations. At this time,
  PPL Energy Supply believes that these covenants will not limit access to these
  funding sources.

Under the operating leases entered into to manufacture and construct the natural
  gas-fired simple-cycle generation facilities, PPL Energy Supply's subsidiaries
  act as construction agents for the lessor to manufacture the equipment and for
  construction of the facilities. Upon commercial operation, PPL Energy Supply
  subsidiaries will operate the facilities, be responsible for all of the costs
  associated with the operation and maintenance of the facilities and make rental
  payments to the lessor trusts.

In May 2006, under the terms of the $660 million operating lease for University
  Park and Sundance which terminates in April 2008, one of PPL Energy Supply's
  subsidiaries is required to deposit in a cash collateral account an amount equal
  in cash to approximately 83% of all funded asset costs. Also, PPL Energy Supply
  guarantees the payment obligations under this operating lease. Accordingly,
  as guarantor, PPL Energy Supply must meet similar covenant tests as those applied
  to its credit lines. At December 31, 2002 and December 31, 2001, the outstanding
  lease balance was $657 million and $454 million.

Under the terms of the $455 million Lower Mt. Bethel operating lease, which
  terminates no later than September 30, 2014, the PPL Energy Supply subsidiary
  lessee could be obligated to make payments equal to up to 100% of the lessor's
  investment and other obligations associated with the facility if the financing
  is terminated early as a result of a loss, destruction or condemnation of the
  project, or upon an event of default. In addition, during the lease term, the
  PPL Energy Supply subsidiary could, subject to certain conditions, purchase
  the facility from the lessor, offer to assume the outstanding lessor debt associated
  with the lease or purchase such debt at a premium. Also, PPL Energy Supply guarantees
  the payment obligations under this operating lease. Accordingly, as guarantor,
  PPL Energy Supply must meet similar covenant tests as those applied to its credit
  lines. At December 31, 2002 and December 31, 2001, the outstanding lease balance
  was $345 million and $116 million.

The PPL Montana Colstrip leases provide two renewal options based on the economic
  useful life of the generation assets at the end of the 36-year lease term that
  terminates in 2036. In addition, the lease places certain restriction on PPL
  Montana's ability to incur additional debt, sell assets and declare dividends.
  At December 31, 2002 and December 31, 2001, the outstanding debt balance within
  the lease was $314 million and $334 million.

In addition to the leasing arrangements discussed above, PPL Energy Supply's
  subsidiaries lease vehicles, office space, land, buildings, personal computers
  and other equipment under separate lease arrangements. See Note 10 to the Financial
  Statements for a further discussion of the operating leases.

At December 31, 2002, the estimated contractual cash obligations of PPL Energy
  Supply were as follows:



|Contractual Cash Obligations       |  | Total |       |  | Less
        Than
        1 Year |   |     | 1-3
        Years |  |   | 4-5
        Years |  |  | After 5
        Years |      
|---------------------------------- |  | ----- | ----- |  | -------------------------------- | - | --- | ----------------- |  | - | ----------------- |  |  | --------------------- | -----
|                                   |  |       |       |  |                                  |   |     |                   |  |   |                   |  |  |                       |      
|                                   |  |       |       |  |                                  |   |     |                   |  |   |                   |  |  |                       |      
|Long-term Debt (a)                 |  | $     | 2,235 |  |                                  | $ | 6   |                   |  | $ | 191               |  |  | $                     | 600  
|                                   |  |       |       |  |                                  |   |     |                   |  |   |                   |  |  |                       |      
|Capital Lease Obligations          |  |       |       |  |                                  |   |     |                   |  |   |                   |  |  |                       |      
|                                   |  |       |       |  |                                  |   |     |                   |  |   |                   |  |  |                       |      
|Operating Leases (b)               |  |       | 1,325 |  |                                  |   | 76  |                   |  |   | 232               |  |  |                       | 240  
|                                   |  |       |       |  |                                  |   |     |                   |  |   |                   |  |  |                       |      
|Purchase 
      Obligations (c)    |  |       | 2,720 |  |                                  |   | 435 |                   |  |   | 855               |  |  |                       | 550  
|                                   |  |       |       |  |                                  |   |     |                   |  |   |                   |  |  |                       |      
|Other Long-term Obligations (d)    |  |       | 88    |  |                                  |   | 1   |                   |  |   | 1                 |  |  |                       |      
|                                   |  |       |       |  |                                  |   |     |                   |  |   |                   |  |  |                       |      
|                                   |  |       |       |  |                                  |   |     |                   |  |   |                   |  |  |                       |      
|Total Contractual Cash Obligations |  | $     | 6,368 |  |                                  | $ | 518 |                   |  | $ | 1,279             |  |  | $                     | 1,390
|                                   |  |       |       |  |                                  |   |     |                   |  |   |                   |  |  |                       |      



|(a) |  | Includes principal maturities only.                                                                                                                                                                         
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(b) |  | Includes current amounts for operating leases
      in effect and projected amounts for projects under construction.                                                                                        
|(c) |  | The payments reflected herein are subject to
      change as certain purchase obligations included are estimates based on projected
      obligated quantities and/or projected pricing under the contracts.
|(d) |  | Includes redemptions of preferred securities.                                                                                                                                                               

PPL Energy Supply provides guarantees for certain affiliate financing arrangements
  that enable certain transactions. Some of the guarantees contain financial and
  other covenants that, if not met, would limit or restrict the affiliates' access
  to funds under these financing arrangements, require early maturity of such
  arrangements or limit PPL Energy Supply's ability to enter into certain transactions.
  At this time, PPL Energy Supply believes that these covenants will not limit
  access to the relevant funding sources. At December 31, 2002, the estimated
  commercial commitments of PPL Energy Supply were as follows:

|                                   |                             |                                 |       | Amount of Commitment Expiration 
        Per Period |  
|---------------------------------- | --------------------------- | ------------------------------- | ----- | --------------------------------------------------- | -
|Other Commercial
      Commitments |                             | Total
        Amounts Committed |       | Less
        than
        1 Year                    |  
|                                   |                             |                                 |       |                                                     |  
|                                   |                             |                                 |       |                                                     |  
|Lines of Credit                    |                             |                                 |       |                                                     |  
|                                   |                             |                                 |       |                                                     |  
|                                   | Standby Letters of Credit   |                                 | $     | 47                                                  |  
|                                   |                             |                                 |       |                                                     |  
|                                   | Draws Under Lines of Credit |                                 |       | 55                                                  |  
|                                   |                             |                                 |       |                                                     |  
|Guarantees                         |                             |                                 |       |                                                     |  
|                                   |                             |                                 |       |                                                     |  
|                                   | Debt (a)                    |                                 |       | 925                                                 |  
|                                   |                             |                                 |       |                                                     |  
|                                   | Performance                 |                                 |       |                                                     |  
|                                   |                             |                                 |       |                                                     |  
|Standby Repurchase Obligations     |                             |                                 |       |                                                     |  
|                                   |                             |                                 |       |                                                     |  
|Other Commercial Commitments       |                             |                                 |       |                                                     |  
|                                   |                             |                                 |       |                                                     |  
|                                   |                             |                                 |       |                                                     |  
|Total Commercial Commitments       |                             | $                               | 1,027 |                                                     | $
|                                   |                             |                                 |       |                                                     |  



|(a) |  | Includes guarantees on certain operating lease
      obligations.
|--- |  | -----------------------------------------------------------------

The terms governing the securities, guarantees, lease obligations and other
  commitments issued by PPL Energy Supply and its subsidiaries contain financial
  and other covenants that require compliance in order to avoid defaults and accelerations
  of payments. Further, a change in control under certain of these arrangements
  would constitute a default and could result in early maturity of such arrangements.
  In addition, certain of these arrangements restrict the ability of PPL Energy
  Supply's subsidiaries to pay or declare dividends, issue additional debt, sell
  assets, or take other actions if certain conditions are not met. At this time,
  PPL Energy Supply believes that it and its subsidiaries will be able to meet
  these covenant requirements. In order to meet its maturing obligations in future
  years, PPL Energy Supply expects that it and its subsidiaries will have to continue
  to access both the bank and capital markets. The long-term debt and similar
  securities of PPL Energy Supply and its subsidiaries and their maturities are
  set forth in the table of Contractual Cash Obligations above.

Net cash used in investing activities in 2002 was $1.1 billion, compared to
  net cash provided by investing activities of $278 million in 2001. The primary
  reasons for the $1.4 billion increase in cash used in investing activities were
  the acquisition of the controlling interest in WPD for $211 million, net of
  cash acquired, a $260 million increase in loans to affiliates and no repayments
  of loans by non-consolidated affiliated companies in 2002. Capital expenditures
  have historically been for acquisitions and to support both existing and construction
  of new generation, transmission and distribution facilities. PPL Energy Supply's
  capital investment needs are currently expected to decrease significantly in
  2003 due to the substantial completion of its generation construction program.
  The majority of PPL Energy Supply's 2003 capital requirements will be funded
  from cash and cash equivalents on hand at December 31, 2002, cash from operations
  in 2003 and lease commitments previously funded. Any additional capital requirements
  will be obtained either in the capital or commercial paper markets. (See "Capital
  Expenditure Requirements" for additional information.)

Risk Management - Energy Marketing & Trading and Other



Market Risk



Background

Market risk is the potential loss PPL Energy Supply may incur as a result of
  price changes associated with a particular financial or commodity instrument.
  PPL Energy Supply is exposed to market risk from:

- commodity price risk for energy and energy-related products associated with
    the sale of electricity from generating assets, the purchase of fuel for the
    generating assets, and energy trading activities;
- interest rate risk associated with variable-rate debt and the fair value
    of debt securities invested in by PPL Energy Supply's nuclear decommissioning
    fund;
- foreign currency exchange rate risk associated with investments in affiliates
    in Latin America and Europe, as well as purchases of equipment in currencies
    other than U.S. dollars; and
- equity securities price risk associated with the fair value of equity securities
    invested in by PPL Energy Supply's nuclear decommissioning fund.

PPL Energy Supply has a comprehensive risk management policy approved by
PPL's Board of Directors to manage the market risk described above and counterparty
  credit risk. (Credit risk is discussed below.) The RMC, comprised of senior
  management and chaired by the Vice President-Risk Management, oversees the risk
  management function. Key risk control activities designed to monitor compliance
  with risk policies and detailed programs include, but are not limited to, credit
  review and approval, validation of transactions and market prices, verification
  of risk and transaction limits, sensitivity analyses, and daily portfolio reporting,
  including open positions, mark-to-market valuations and other risk measurement
  metrics. In addition, efforts are on-going to develop systems to improve the
  timeliness, quality and breadth of market and credit risk information.

The forward-looking information presented below provides estimates of what
  may occur in the future, assuming certain adverse market conditions, due to
  reliance on model assumptions. Actual future results may differ materially from
  those presented. These disclosures are not precise indicators of expected future
  losses, but only indicators of reasonably possible losses.

Contract Valuation



PPL Energy Supply utilizes forwards contracts, futures contracts, options,
  swaps and tolling agreements as part of its risk management strategy to minimize
  unanticipated fluctuations in earnings caused by price, interest rate and foreign
  currency volatility.When available, quoted market prices are used to
  determine the fair value of a commodity or financial instrument. This may include
  exchange prices, the average mid-point bid/ask spreads obtained from brokers,
  or an independent valuation by an external source, such as a bank. However,
  market prices for energy or energy-related contracts may not be readily determinable
  because of market illiquidity. If no active trading market exists, contracts
  are valued using internally developed models. If the contracts are not accounted
  for under the accrual method of accounting, the valuations are reviewed by an
  independent, internal group. Although PPL Energy Supply believes that its valuation
  methods are reasonable, changes in the underlying assumptions could result in
  significantly different values and realization in future periods.



To record derivatives at their fair value, PPL Energy Supply discounts the
  forward values using LIBOR. Additionally, PPL Energy Supply reduces derivative
  assets' carrying value to recognize differences in counterparty credit quality
  and potential illiquidity in the market:



- The credit adjustment takes into account the bond ratings (and the implied
    default rates) of the counterparties that have an out-of-the-money position
    with PPL Energy Supply. The more counterparties that have, for example, a
    BBB rating instead of an A rating, the larger the adjustment.



- The liquidity adjustment takes into account the fact that it may not be
    appropriate to value contracts at the midpoint of the bid/ask spread. PPL
    Energy Supply might have to accept the "bid" price if PPL Energy Supply wanted
    to close an open sales position or PPL Energy Supply might have to accept
    the "ask" price if PPL Energy Supply wanted to close an open purchase position.



Accounting and Reporting



PPL Energy Supply follows the provisions of SFAS 133, "Accounting for Derivative
  Instruments and Hedging Activities," as amended by SFAS 138, "Accounting for
  Certain Derivative Instruments and Certain Hedging Activities," and interpreted
  by DIG issues (together, "SFAS 133") and EITF 02-3, "Issues Involved in Accounting
  for Derivative Contracts Held for Trading Purposes and Contracts Involved in
  Energy Trading and Risk Management Activities," to account for contracts entered
  into to manage market risk. SFAS 133 requires that all derivative instruments
  be recorded at fair value on the balance sheet as an asset or liability (unless
  they meet SFAS 133's criteria for exclusion) and that changes in the derivative's
  fair value be recognized currently in earnings unless specific hedge accounting
  criteria are met.

PPL Energy Supply's short-term derivative contracts are recorded as "Price
  risk management assets" and "Price risk management liabilities" on the Balance
  Sheet. Long-term derivative contracts are included in "Other Noncurrent Assets
  - Other" and "Deferred Credits and Other Noncurrent Liabilities - Other."

PPL Energy Supply adopted the final provisions of EITF 02-3
  during the fourth quarter of 2002. As such, PPL Energy Supply now reflects its
  net realized and unrealized gains and losses associated with all derivatives
  that are held for trading purposes in the "Net energy trading margins"
  line on the Statement of Income. Non-derivative contracts that met the definition
  of energy trading activities as defined by EITF 98-10, "Accounting for
  Energy Trading and Risk Management Activities" are reflected in the financial
  statements using the accrual method of accounting. Under the accrual method
  of accounting, unrealized gains and losses are not reflected in the financial
  statements. Prior periods have been reclassified. PPL Energy Supply did not
  need to record a cumulative effect of this change in accounting principle, because
  all non-derivative energy-related trading contracts had been shown in the financial
  statements at their amortized cost. This reflected modeling reserves that incorporated
  the lack of independence in valuing contracts for which there were no external
  market prices.



Accounting Designation



Energy contracts that do not qualify as derivatives receive accrual accounting.
  For energy contracts that meet the definition of a derivative, the circumstances
  and intent existing at the time that energy transactions are entered into determine
  their accounting designation. These designations are verified by PPL Energy
  Supply's risk control group on a daily basis. The following is a summary of
  the guidelines that have been provided to the traders who are responsible for
  contract designation for derivative energy contracts:



- Any wholesale and retail contracts to sell electricity that are expected
    to be delivered from PPL Energy Supply's generation are considered "normal."
    These transactions are not recorded in the financial statements and have no
    earnings impact until delivery. Most wholesale electricity sales contracts
    in the eastern and western U.S. markets receive "normal" treatment. The methodology
    utilized in determining the amount of sales that can be delivered from PPL
    Energy Supply's generation has been reviewed by the RMC. This calculation
    predicts the probability that generating units will run based on the current
    market prices, expected price volatility and dispatch rates, as well as planned
    and forced outage rates by plant by month. See discussion below about the
    assumptions used to calculate how much energy is expected from, or required
    for, generation assets.



- "Trading around the assets" means that PPL EnergyPlus matches a contract
    to sell electricity, previously to be delivered from PPL Energy Supply generation,
    with a physical or financial contract to purchase electricity. These contracts
    can qualify for fair value hedge treatment. When the contracts' terms are
    identical, there is no earnings impact until delivery. The realized revenues
    and expenses associated with these contracts are currently recorded gross
    on the Statement of Income. EITF 02-L, "Reporting Gains and Losses on Derivative
    Instruments That are Subject to FASB Statement No. 133 and Not Held for Trading
    Purposes," may, in the future, require that hedges that result in physical
    delivery be recorded on a net basis.



- Physical electricity purchases needed to meet obligations due to a change
    in the physical load or generation forecasts are considered "normal."



- Physical electricity purchases that increase PPL Energy Supply's long position
    and any energy sale or purchase considered a "market call" are speculative,
    with unrealized gains or losses recorded immediately through earnings.



- Financial electricity transactions, which can be settled in cash, cannot
    be considered "normal" because they do not require physical delivery. These
    transactions receive cash flow hedge treatment if they lock in the price PPL
    Energy Supply will receive or pay for energy expected to be generated or purchased
    in the spot market. Any unrealized gains or losses on transactions that receive
    cash flow hedge treatment are recorded in other comprehensive income.



- Physical and financial transactions for gas and oil to meet fuel and retail
    requirements can receive cash flow hedge treatment if they lock in the price
    PPL Energy Supply will pay in the spot market. Any unrealized gains or losses
    on transactions receiving cash flow hedge treatment are recorded in other
    comprehensive income.



- Option contracts that do not meet the requirements of DIG Issue C15, "Scope
    Exceptions: Interpreting the Normal Purchases and Normal Sales Exception as
    an Election," do not receive hedge accounting treatment and are marked to
    market through earnings.



In addition to energy-related transactions, PPL Energy Supply enters into foreign
  currency swap contracts to hedge the fair value of firm commitments denominated
  in foreign currency and net investments in foreign operations. As with energy
  transactions, the circumstances and intent existing at the time of the transaction
  determine a contract's accounting designation, which is subsequently verified
  by PPL Energy Supply's risk control group on a daily basis. The following is
  a summary of certain guidelines that have been provided to the treasury department,
  which is responsible for contract designation:



- Transactions to lock in an interest rate prior to a debt issuance are considered
    cash flow hedges. Any unrealized gains or losses on transactions receiving
    cash flow hedge treatment are recorded in other comprehensive income and are
    amortized as a component of interest expense over the life of the debt.

- Transactions entered into to hedge fluctuations in the value of existing
    debt are considered fair value hedges with no earnings impact until the debt
    is terminated because the hedged debt is also marked to market.

- Transactions which do not qualify for hedge accounting treatment are marked
    to market through earnings.

Commodity Price Risk

Commodity price risk is one of PPL Energy Supply's most significant risks due
  to the level of investment that PPL Energy Supply maintains in its generation
  assets, coupled with the volatility of prices for energy and energy-related
  products. Several factors influence price levels and volatilities. These factors
  include, but are not limited to, seasonal changes in demand, weather conditions,
  available generating assets within regions, transportation availability and
  reliability within and between regions, market liquidity, and the nature and
  extent of current and potential federal and state regulations. To hedge the
  impact of market price fluctuations on PPL Energy Supply's energy-related assets,
  liabilities and other contractual arrangements, PPL EnergyPlus sells and purchases
  physical energy at the wholesale level under FERC market-based tariffs throughout
  the U.S. and enters into financial exchange-traded and over-the-counter contracts.
  Because of the generating assets PPL Energy Supply owns or controls, the majority
  of PPL Energy Supply's energy transactions qualify for accrual or hedge accounting.



Within PPL Energy Supply's hedge portfolio, the decision to enter into energy
  contracts hinges on the expected value of PPL Energy Supply's generation. To
  address this risk, PPL Energy Supply takes a conservative approach in determining
  the number of MWhs that are available to be sold forward. In this regard, PPL
  Energy Supply reduces the maximum potential output that a plant may produce
  by three factors - planned maintenance, forced outage and economic conditions.
  The potential output of a plant is first reduced by the amount of unavailable
  generation due to planned maintenance on a particular unit. Another reduction,
  representing the unforced outage rate, is the amount of MWhs that historically
  are not produced by a plant due to such factors as equipment breakage. Finally,
  the potential output of certain plants (like peaking units) are reduced because
  their higher cost of production will not allow them to economically run during
  all hours.

PPL Energy Supply's non-trading portfolio also includes full requirements energy
  contracts. The obligation to serve these contracts changes minute by minute.
  PPL Energy Supply analyzes historical on-peak and off-peak usage patterns, as
  well as spot prices and weather patterns, to determine a monthly level of block
  electricity that best fits the usage patterns in order to minimize earnings
  volatility. On a forward basis, PPL Energy Supply reserves a block amount of
  generation for full requirements energy contracts that is expected to be the
  best match with their anticipated usage patterns and energy peaks. Anticipated
  usage patterns and peaks are affected by expected load growth, regional economic
  drivers and seasonality.

Because of PPL Energy Supply's efforts to hedge the value of the energy from
  its generation assets, PPL Energy Supply has open contractual positions. If
  PPL Energy Supply were unable to deliver firm capacity and energy under its
  agreements, under certain circumstances it would be required to pay damages.
  These damages would be based on the difference between the market price to acquire
  replacement capacity or energy and the contract price of the undelivered capacity
  or energy. Depending on price volatility in the wholesale energy markets, such
  damages could be significant. Extreme weather conditions, unplanned power plant
  outages, transmission disruptions, non-performance by counterparties (or their
  counterparties) with which it has power contracts and other factors could affect
  PPL Energy Supply's ability to meet its firm capacity or energy obligations,
  or cause significant increases in the market price of replacement capacity and
  energy. Although PPL Energy Supply attempts to mitigate these risks, there can
  be no assurance that it will be able to fully meet its firm obligations, that
  it will not be required to pay damages for failure to perform, or that it will
  not experience counterparty non-performance in the future.



As of December 31, 2002, PPL Energy Supply estimated that a 10% adverse movement
  in market prices across all geographic areas and time periods would have decreased
  the value of the commodity contracts in its non-trading portfolio by approximately
  $146 million, as compared to a decrease of $84 million at December 31, 2001.
  However, the change in the value of the non-trading portfolio would have been
  substantially offset by an increase in the value of the underlying commodity,
  the electricity generated, because these contracts serve to reduce the market
  risk inherent in the generation of electricity. Additionally, the value of PPL
  Energy Supply's unsold generation would be improved. Because PPL Energy Supply's
  electricity portfolio is generally in a net sales position, the adverse movement
  in prices is usually an increase in prices. Conversely, because PPL Energy Supply's
  commodity fuels portfolio is generally in a net purchase position, the adverse
  movement in prices is usually a decrease in prices. If both of these scenarios
  happened, the implied margins for the unsold generation would increase.



PPL Energy Supply also executes energy contracts to take advantage of market
  opportunities. As a result, PPL Energy Supply may at times create a net open
  position in its portfolio that could result in significant losses if prices
  do not move in the manner or direction anticipated. The margins from these trading
  activities are shown in the Statement of Income as "Net energy trading margins."



PPL Energy Supply's trading contracts mature at various times through 2006.
  The following chart sets forth PPL Energy Supply's net fair market value of
  trading contracts as of December 31, 2002.



|                                                                       |  | Gains/(Losses) |    
|---------------------------------------------------------------------- |  | -------------- | ---
|                                                                       |  |                |    
|Fair value of contracts outstanding
      at the beginning of the year |  | $              | (5 
|                                                                       |  |                |    
|Contracts realized or otherwise
      settled during the year          |  |                | 5  
|                                                                       |  |                |    
|Fair value of new contracts at
      inception                         |  |                | (13
|                                                                       |  |                |    
|Other changes in fair values                                           |  |                | 7  
|                                                                       |  |                |    
|                                                                       |  |                |    
|Fair value of contracts outstanding
      at the end of the year       |  | $              | (6 
|                                                                       |  |                |    



During 2002, PPL Energy Supply reversed net losses of approximately $5 million
  related to contracts entered into prior to January 1, 2002. This amount does
  not reflect intra-year contracts that were entered into and settled during the
  period.

The fair value of new contracts at inception is usually zero, because they
  are entered into at current market prices. However, when PPL Energy Supply enters
  into an option contract, a premium is paid or received. PPL Energy Supply paid
  $13 million during 2002 for these option contracts.

"Other changes in fair values," a gain of approximately $7 million, represent
  changes in the market value of contracts outstanding at the end of 2002.

As of December 31, 2002, the net loss on PPL Energy Supply's trading activities
  expected to be recognized in earnings during the next three months is approximately
  $2 million.

The following chart segregates estimated fair values of PPL Energy Supply's
  trading portfolio at December 31, 2002, based on whether the fair values are
  determined by quoted market prices or other more subjective means.

|                                                                   |  | Fair Value of Contracts at Period-End
        Gains/(Losses) |    
|------------------------------------------------------------------ |  | ------------------------------------------------------------ | ---
|                                                                   |  | Maturity
        Less Than
        1 year                    |    
|                                                                   |  |                                                              |    
|Source of Fair Value                                               |  |                                                              |    
|                                                                   |  |                                                              |    
|Prices actively quoted                                             |  | $                                                            | 1  
|                                                                   |  |                                                              |    
|Prices provided by other external sources                          |  |                                                              | 3  
|                                                                   |  |                                                              |    
|Prices based on models and other valuation
      methods           |  |                                                              | (10
|                                                                   |  |                                                              |    
|                                                                   |  |                                                              |    
|Fair value of contracts outstanding at the
      end of the period |  | $                                                            | (6 
|                                                                   |  |                                                              |    



The "Prices actively quoted" category includes the fair value of exchange-traded
  natural gas futures contracts quoted on the New York Mercantile Exchange (NYMEX).
  The NYMEX has currently quoted prices through February 2009.

The "Prices provided by other external sources" category includes PPL Energy
  Supply's forward positions and options in natural gas and power and natural
  gas basis swaps at points for which over-the-counter (OTC) broker quotes are
  available. The fair value of electricity positions recorded above use the midpoint
  of the bid/ask spreads obtained through OTC brokers. On average, OTC quotes
  for forwards and swaps of natural gas and power extend one and two years into
  the future.

The "Prices based on models and other valuation methods" category includes
  the value of transactions for which an internally developed price curve was
  constructed as a result of the long-dated nature of the transaction or the illiquidity
  of the market point, or the value of options not quoted by an exchange or OTC
  broker. Additionally, this category includes "strip" transactions whose prices
  are obtained from external sources and then modeled to monthly prices as appropriate.

As of December 31, 2002, PPL Energy Supply estimated that a 10% adverse movement
  in market prices across all geographic areas and time periods would have decreased
  the value of the commodity contracts in its trading portfolio by $7 million,
  compared to an insignificant amount at December 31, 2001.

Interest Rate Risk

PPL Energy Supply and its subsidiaries have issued debt to finance their operations.
  PPL manages interest rate risk for PPL Energy Supply by using financial derivative
  products to adjust the mix of fixed and floating-rate interest rates in its
  debt portfolios, adjusting the duration of its debt portfolios and locking in
  U.S. Treasury rates (and interest rate spreads over treasuries) in anticipation
  of future financing, when appropriate. Risk limits under the risk management
  program are designed to balance risk exposure to volatility in interest expense
  and losses in the fair value of PPL Energy Supply's debt portfolio due to changes
  in the absolute level of interest rates.



At December 31, 2002, PPL Energy Supply's potential annual exposure to increased
  interest expense, based on a 10% increase in interest rates, was estimated at
  $1 million, compared to $4 million at December 31, 2001.



PPL Energy Supply is also exposed to changes in the fair value of its debt
  portfolio. At December 31, 2002, PPL Energy Supply estimated that its potential
  exposure to a change in the fair value of its debt portfolio, through a 10%
  adverse movement in interest rates, was $79 million, compared to $2 million
  at December 31, 2001.



PPL utilizes various risk management instruments to reduce PPL Energy Supply's
  exposure to adverse interest rate movements for future anticipated financings.
  While PPL Energy Supply is exposed to changes in the fair value of these instruments,
  they are designed such that any economic loss in value should be offset by interest
  rate savings at the time the future anticipated financing is completed. At December
  31, 2002 and 2001, PPL Energy Supply had not entered into any such instruments.



Foreign Currency Risk



PPL Energy Supply is exposed to foreign currency risk, primarily through investments
  in affiliates in Latin America and Europe. In addition, PPL Energy Supply may
  make purchases of equipment in currencies other than U.S. dollars.

PPL has adopted a foreign currency risk management program designed to hedge
  certain foreign currency exposures, including firm commitments, recognized assets
  or liabilities and net investments.

During the first quarter of 2001, PPL entered into contracts for the forward
  purchase of 51 million euros to pay for certain equipment in 2002 and 2003.
  The estimated value of these forward purchases as of December 31, 2002, being
  the amount PPL would receive to terminate them, was $4 million.

During the second and third quarters of 2002, PPL executed forward sale transactions,
  maturing in March 2003, for 50 million British pounds sterling to hedge a portion
  of its net investment in WPDH Limited. The estimated value of these agreements
  as of December 31, 2002, being the amount PPL would have to pay to terminate
  them, was $1 million.

Nuclear Decommissioning Fund - Securities Price Risk



In connection with certain Nuclear Regulatory Commission requirements, PPL
  Susquehanna maintains trust funds to fund certain costs of decommissioning the
  Susquehanna station. As of December 31, 2002, these funds were invested primarily
  in domestic equity securities and fixed-rate, fixed-income securities and are
  reflected at fair value on PPL Energy Supply's Balance Sheet. The mix of securities
  is designed to provide returns to be used to fund Susquehanna's decommissioning
  and to compensate for inflationary increases in decommissioning costs. However,
  the equity securities included in the trusts are exposed to price fluctuation
  in equity markets, and the values of fixed-rate, fixed-income securities are
  exposed to changes in interest rates. PPL Susquehanna actively monitors the
  investment performance and periodically reviews asset allocation in accordance
  with its nuclear decommissioning trust policy statement. At December 31, 2002,
  a hypothetical 10% increase in interest rates and a 10% decrease in equity prices
  would have resulted in an estimated $16 million reduction in the fair value
  of the trust assets, as compared to a $17 million reduction at December 31,
  2001.



PPL Electric's 1998 restructuring settlement agreement provides for the collection
  of authorized nuclear decommissioning costs through the CTC. Additionally, PPL
  Electric is permitted to seek recovery from customers of up to 96% of certain
  increases in these costs. Under the power supply agreements between PPL Electric
  and PPL EnergyPlus, these revenues are passed on to PPL EnergyPlus. Similarly,
  these revenues are passed on to PPL Susquehanna under a power supply agreement
  between PPL EnergyPlus and PPL Susquehanna. These revenues are used to fund
  the trusts.



Credit Risk



Credit risk relates to the risk of loss that PPL Energy Supply would incur
  as a result of non-performance by counterparties of their contractual obligations.
  PPL Energy Supply maintains credit policies and procedures with respect to counterparties
  (including requirements that counterparties maintain certain credit ratings
  criteria) and requires other assurances in the form of credit support or collateral
  in certain circumstances in order to limit counterparty credit risk. However,
  PPL Energy Supply has concentrations of suppliers and customers among electric
  utilities, natural gas distribution companies and other energy marketing and
  trading companies. These concentrations of counterparties may impact PPL Energy
  Supply's overall exposure to credit risk, either positively or negatively, in
  that counterparties may be similarly affected by changes in economic, regulatory
  or other conditions. As discussed above under "Accounting and Reporting," PPL
  Energy Supply records certain non-performance reserves to reflect the probability
  that a counterparty with contracts that are out of the money (from the counterparty's
  standpoint) will default in its performance, in which case PPL Energy Supply
  would have to sell into a lower-priced market or purchase from a higher-priced
  market. These reserves are reflected in the fair value of assets recorded in
  "Price risk management assets" on the Balance Sheet. PPL Energy Supply has also
  established a reserve with respect to certain sales to the California ISO for
  which PPL Energy Supply has not yet been paid, as well as a reserve related
  to PPL Energy Supply's exposure as a result of the Enron bankruptcy, which is
  reflected in "Accounts receivable" on the Balance Sheet. See Notes 14 and 17
  to the Financial Statements.

Related Party Transactions

PPL Energy Supply is not aware of any material ownership interests or operating
  responsibility by senior management of PPL Energy Supply or its subsidiaries
  in outside partnerships, including leasing transactions with variable interest
  entities, or other entities doing business with PPL Energy Supply.

Capital Expenditure Requirements

The schedule below shows PPL Energy Supply's current capital expenditure projections
  for the years 2003-2007 and actual spending for the year 2002:



|                                        |                                          | Actual                          | ----------------------Projected------------------------
|--------------------------------------- | ---------------------------------------- | ------------------------------- | -------------------------------------------------------
|                                        |                                          | 2002                            |                                                        
|                                        |                                          |                                 |                                                        
|Construction expenditures (a)
      (b) |                                          |                                 |                                                        
|                                        |                                          |                                 |                                                        
|                                        | Generating facilities (c)                |                                 | $                                                      
|                                        |                                          |                                 |                                                        
|                                        | Transmission and distribution facilities |                                 |                                                        
|                                        |                                          |                                 |                                                        
|                                        | Environmental                            |                                 |                                                        
|                                        |                                          |                                 |                                                        
|                                        | Other                                    |                                 |                                                        
|                                        |                                          |                                 |                                                        
|                                        |                                          |                                 |                                                        
|                                        |                                          | Total Construction Expenditures |                                                        
|                                        |                                          |                                 |                                                        
|Nuclear fuel                            |                                          |                                 | 52                                                     
|                                        |                                          |                                 |                                                        
|                                        |                                          |                                 |                                                        
|                                        |                                          |                                 | Total Capital Expenditures                             
|                                        |                                          |                                 |                                                        



|(a) |  | Construction expenditures include capitalized
      interest, which is expected to be less than $6 million in each of the years
      2003-2007.                                                                                       
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(b) |  | This information excludes any equity investments
      by PPL Global for new projects.                                                                                                                                                 
|(c) |  | Generating facilities include assets financed
      through off-balance sheet synthetic leases as follows: 2002, $494 million;
      2003, $109 million; and 2004, $7 million. Financing for these facilities
      is already secured.

PPL Energy Supply's capital expenditure projections for the years 2003-2007
  total about $2.4 billion. Capital expenditure plans are revised periodically
  to reflect changes in conditions.



Acquisitions and Development

From time-to-time, PPL Energy Supply and its subsidiaries are involved in negotiations
  with third parties regarding acquisitions, joint ventures and other arrangements
  which may or may not result in definitive agreements. See Note 9 to the Financial
  Statements for information regarding recent acquisitions and development activities.

At December 31, 2002, PPL Global had investments in foreign facilities, including
  consolidated investments in WPD, Emel, EC and others. See Note 3 to the Financial
  Statements for information on unconsolidated investments accounted for under
  the equity method.

At December 31, 2002, PPL Energy Supply had domestic generation projects under
  development which would provide 690 MW of additional generation.

PPL Energy Supply is continuously reexamining development projects based on
  market conditions and other factors to determine whether to proceed with these
  projects, sell them, cancel them, expand them, execute tolling agreements or
  pursue other opportunities.

Environmental Matters

See Note 14 to the Financial Statements for a discussion of environmental matters.

Competition

See Note 14 to the Financial Statements for information on the FERC Notice
  of Proposed Rulemaking entitled "Remedying Undue Discrimination through Open
  Access Transmission Service and Standard Electricity Market Design."

Application of Critical Accounting Policies

PPL Energy Supply's financial condition and results of operations are impacted
  by the methods, assumptions and estimates used in the application of critical
  accounting policies. The following accounting policies are particularly important
  to the financial condition or results of operations of PPL Energy Supply, and
  require estimates or other judgments of matters inherently uncertain. Changes
  in the estimates or other judgments included within these accounting policies
  could result in a significant change to the information presented in the financial
  statements. (These accounting policies are also discussed in Note 1 to the Financial
  Statements.) PPL's senior management has reviewed these critical accounting
  policies, and the estimates and assumptions regarding them, with its Audit Committee.
  In addition, PPL's senior management has reviewed the following disclosures
  regarding the application of these critical accounting policies with the Audit
  Committee.

1. Price Risk Management
    See "Risk Management - Energy Marketing & Trading and Other" in Financial
      Condition.
2. Pension and Other Postretirement Benefits

As described in Note 12 to the Financial Statements, PPL Energy Supply subsidiaries
  sponsor various pension and other postretirement plans and participate in, and
  are allocated a significant portion of the liability and net periodic pension
  cost of the PPL Retirement Plan and the PPL Postretirement Benefit Plan. PPL
  and PPL Energy Supply follow the guidance of SFAS 87, "Employers' Accounting
  for Pensions," and SFAS 106, "Employers' Accounting for Postretirement Benefits
  Other Than Pensions," when accounting for these benefits. Under these accounting
  standards, assumptions are made regarding the valuation of benefit obligations
  and the performance of plan assets. Delayed recognition of differences between
  actual results and expected or estimated results is a guiding principle of these
  standards. This delayed recognition of actual results allows for a smoothed
  recognition of changes in benefit obligations and plan performance over the
  working lives of the employees who benefit under the plans. The primary assumptions
  are as follows:

- Discount Rate - The discount rate is used in calculating the present value
    of benefits, which are based on projections of benefit payments to be made
    in the future.

- Expected Return on Plan Assets - Management projects the future return on
    plan assets based principally on prior performance. These projected returns
    reduce the net benefit costs the company will record currently.

- Rate of Compensation Increase - Management projects employees' annual pay
    increases, which are used to project employees' pension benefits at retirement.

- Health Care Cost Trend Rate - Management projects the expected increases
    in the cost of health care.

During 2002, PPL and PPL Energy Supply made changes to their assumptions related
  to the discount rate, the expected return on plan assets, the rate of compensation
  increase and the health care cost trend rate. Management consults with its actuaries
  when selecting each of these assumptions.

In selecting discount rates, PPL and PPL Energy Supply consider fixed-income
  security yield rates. At December 31, 2002, PPL and PPL Energy Supply decreased
  the discount rate for their domestic plans from 7.25% to 6.75% as a result of
  decreased fixed-income security returns. For its international plans, PPL Energy
  Supply used a discount rate of 5.75% at December 31, 2002.

In selecting an expected return on plan assets, PPL and PPL Energy Supply consider
  past performance and economic forecasts for the types of investments held by
  the plan. At December 31, 2002, PPL and PPL Energy Supply decreased the expected
  return on plan assets for their domestic pension plans from 9.2% to 9.0% as
  a result of continued declines in equity and fixed-income security returns.
  For its international plans, PPL Energy Supply used a weighted average of 8.31%
  as the expected return on plan assets at December 31, 2002.

In selecting a rate of compensation increase, PPL and PPL Energy Supply consider
  past experience in light of movements in inflation rates. At December 31, 2002,
  PPL and PPL Energy Supply decreased the rate of compensation increase from 4.25%
  to 4.0% for their domestic plans. For its international plans, PPL Energy Supply
  used 3.75% as the rate of compensation increase at December 31, 2002.

In selecting health care cost trend rates, PPL and PPL Energy Supply consider
  past performance and forecasts of health care costs. At December 31, 2002, PPL
  and PPL Energy Supply increased their previous health care cost trend rates.
  The previous rates were 7.0% for 2002, gradually declining to 6% in 2006. The
  new rates are 12% for 2003, gradually declining to 5.0% for 2010. These changes
  are based upon continued increases in health care costs.

A variance in the assumptions listed above could have a significant impact
  on projected benefit obligations, accrued pension and other postretirement benefit
  liabilities, reported annual net periodic pension and other postretirement benefit
  cost and other comprehensive income (OCI). The following chart reflects the
  sensitivities associated with a change in certain assumptions. While the chart
  below reflects either an increase or decrease in each assumption, PPL, PPL Energy
  Supply and their actuaries expect that the inverse of this change would impact
  the projected benefit obligation, accrued pension and other postretirement benefit
  liabilities, reported annual net periodic pension and other postretirement benefit
  cost and OCI by a similar amount in the opposite direction. Each sensitivity
  below reflects an evaluation of the change based solely on a change in that
  assumption.



|                                       |  | Increase/(Decrease)                                       |        
|-------------------------------------- |  | --------------------------------------------------------- | -------
|Actuarial Assumption                   |  | Change in Assumption                                      |        
|                                       |  |                                                           |        
|                                       |  |                                                           |        
|Discount Rate                          |  |                                                           | (0.25)%
|                                       |  |                                                           |        
|Expected Return on Plan Assets         |  |                                                           | (0.25)%
|                                       |  |                                                           |        
|Rate of Compensation Increase          |  |                                                           | 0.25%  
|                                       |  |                                                           |        
|Health Care Cost Trend 
      Rate (b) |  |                                                           | 1.0%   
|                                       |  |                                                           |        
|(a)                                    |  | Excludes the impact of additional
      minimum liability
|(b)                                    |  | Only impacts other postretirement
      benefits         

At December 31, 2002, PPL Energy Supply had been allocated and recognized accrued
  pension and other postretirement benefit liabilities totaling $355 million,
  included in "Deferred Credits and Other Noncurrent Liabilities - Other" on the
  Balance Sheet. The $355 million liability represented a $278 million increase
  over the $77 million liability that was recorded at December 31, 2001. The increased
  liability was primarily due to the liabilities recorded for the WPD pension
  plans acquired in 2002.

In 2002, PPL Energy Supply was allocated and recognized net periodic pension
  and other postretirement income credited to operating expenses of $58 million.
  This amount represents a $50 million increase over the credit recognized during
  2001. This increase was primarily due to pension income recognized from the
  WPD pension plans, partially offset by the reduction of pension earnings associated
  with the remeasurement of the projected benefit obligation and recognition of
  a decline in asset value for PPL's primary domestic pension plan during 2002.

As a result of the plans' asset return experience and decreases in the assumed
  discount rate at December 31, 2002, PPL Energy Supply was required to recognize
  additional minimum pension liabilities totaling $466 million, as prescribed
  by SFAS 87. Recording these liabilities resulted in a reduction in equity through
  charges to OCI, net of taxes and unrecognized prior service costs, of $297 million,
  with no effect on net income. The charges to OCI will reverse in future periods
  if the fair value of trust assets exceeds the accumulated benefit obligation.

Refer to Note 12 to the Financial Statements for additional information regarding
  pension and other postretirement benefits.

1. Asset Impairment

PPL Energy Supply and its subsidiaries review long-lived assets for impairment
  when events or circumstances indicate carrying amounts may not be recoverable.
  Assets subject to this review, for which impairments have been recorded in 2002
  or prior years, include international equity investments, new generation assets,
  consolidated international energy projects and goodwill.

PPL Energy Supply performs impairment analyses for tangible long-lived assets
  in accordance with SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived
  Assets." For long-lived assets to be held and used, SFAS 144 requires companies
  to (a) recognize an impairment loss only if the carrying amount is not recoverable
  from undiscounted cash flows and (b) measure an impairment loss as the difference
  between the carrying amount and fair value of the asset. Refer to Note 22 to
  the Financial Statements for additional information on SFAS 144.

In determining asset impairments, management must make significant judgments
  and estimates to calculate the fair value of an investment. Fair value is developed
  through consideration of several valuation methods including comparison to market
  multiples, comparison of similar recent sales transactions, comparison to replacement
  cost and discounted cash flow. Discounted cash flow is calculated by estimating
  future cash flow streams, applying appropriate discount rates to determine the
  present values of the cash flow streams, and then assessing the probability
  of the various cash flow scenarios. The impairment is then recorded based on
  the excess of the carrying value of the investment over fair value. Changes
  in assumptions and estimates included within the impairment reviews could result
  in significantly different results than those identified and recorded in the
  financial statements.

During 2002, PPL Energy Supply and its subsidiaries evaluated certain international
  investments and gas-fired generation assets for impairment, as events and circumstances
  indicated that the carrying value of these investments may not be recoverable.
  The events that led to these impairment reviews were as follows:

- CEMAR: A prolonged drought that caused electricity rationing, an unfavorable
    regulatory environment and disruption of Brazil's electricity markets all
    indicated that the future cash flow stream would be adversely impacted. In
    addition, CEMAR failed to pay certain of its creditors for obligations when
    due, and ANEEL denied CEMAR's request for a rate-increase review and denied
    the request for transfer of PPL Energy Supply's equity interest in CEMAR to
    Franklin Park Energy.

- New gas-fired generation assets: Current wholesale energy prices have adversely
    impacted margins for 2002 and could continue to do so beyond 2002. Based upon
    current energy price levels, there is a risk that PPL Energy Supply may be
    unable to recover its investment in new gas-fired generation facilities.

PPL Energy Supply recorded an impairment charge of $100 million in 2002, for
  the remaining value of its investment in CEMAR. PPL Energy Supply had already
  recorded an impairment charge of $179 million for its investment in CEMAR in
  2001. The most significant assumption used in assessing the CEMAR impairment
  was the estimated future cash flow. Due to the significant financial and political
  difficulties facing CEMAR and PPL Energy Supply's commitment to exit the business,
  the determination was made that there was no value remaining in the investment.
  Based on the circumstances surrounding this investment, PPL Energy Supply does
  not believe there is any variability in this assumption.

PPL Energy Supply did not record an impairment of its new gas-fired generation
  assets that were in-service in 2002. For these impairment analyses, the most
  significant assumption was the estimate of future cash flows. For the impairment
  analyses of its in-service gas-fired generation assets, PPL Energy Supply estimates
  future cash flow using information from its corporate business plan adjusted
  for any recent sales or purchase commitments. Key factors that impact cash flows
  include projected prices for electricity and gas as well as firm sales and purchase
  commitments. A 10% change in estimated future cash flow for any of PPL Energy
  Supply's in-service gas-fired generation assets would not result in an impairment
  charge.

In November 2002, due to low energy price curves, the absence of a tolling
  agreement for the site, and delays in obtaining permits, the completion of the
  Kings Park project became uncertain. Due to this uncertainty and the absence
  of other viable projects, the costs of the turbines and SCRs that were planned
  for deployment at Kings Park were determined to not be recoverable from expected
  undiscounted cash flows. To determine the amount of the impairment, PPL Energy
  Supply estimated the fair value of the turbines and SCRs based upon replacement
  costs of similar assets. This resulted in the recognition of a $26 million,
  after-tax, impairment charge. The most significant assumption related to the
  asset impairment was the estimate of replacement cost. A 10% change in the estimate
  of replacement costs would have increased or decreased the impairment charge
  by $3 million after-tax.

In January 2003, PPL Energy Supply decided to seek a buyer and not proceed
  with the development of the Kings Park project.

In 2001, the FASB issued SFAS 142, "Goodwill and Other Intangible Assets,"
  which eliminates the amortization of goodwill and other acquired intangible
  assets with indefinite economic useful lives. SFAS 142 requires an annual impairment
  test of goodwill and other intangible assets that are not subject to amortization.
  PPL Energy Supply adopted SFAS 142 on January 1, 2002.

A transition impairment test was completed in the first quarter of 2002. As
  a result of this impairment test, PPL Energy Supply recognized a goodwill impairment
  charge of $150 million related to the Latin American reporting unit, which is
  reported as a "Cumulative Effect of a Change in Accounting Principle" on the
  Statement of Income. PPL Energy Supply completed its annual goodwill impairment
  test in the fourth quarter of 2002. This test did not result in an additional
  impairment. PPL Energy Supply's most significant assumptions surrounding the
  goodwill impairment relate to the determination of fair value. PPL Energy Supply
  determined fair value based upon discounted cash flow. A variance in the forecasted
  cash flow or discount rate could have a significant impact on the amount of
  the impairment charge recorded. The following chart reflects the sensitivities
  associated with a change in these assumptions. Each sensitivity below reflects
  an evaluation of the change based solely on a change in that assumption.

|                     |  |  |  | Increase / (Decrease)
|-------------------- |  |  |  | ---------------------
|                     |  |  |  | Change in Assumption 
|                     |  |  |  |                      
|                     |  |  |  |                      
|Forecasted Cash Flow |  |  |  |                      
|                     |  |  |  |                      
|Discount Rate        |  |  |  |                      

1. Leasing

PPL Energy Supply applies the provisions of SFAS 13, "Accounting for Leases,"
      to all leasing transactions. In addition, PPL Energy Supply applies the
      provisions of numerous other accounting pronouncements issued by the FASB
      and the EITF that provide specific guidance and additional requirements
      related to accounting for various leasing arrangements. In general, there
      are two types of leases from a lessee's perspective: operating leases -
      leases accounted for off-balance sheet and capital leases - leases capitalized
      on the balance sheet.

In accounting for leases, management makes various assumptions, including
      the discount rate, the fair market value of the leased assets and the estimated
      useful life, in determining whether a lease should be classified as operating
      or capital. Changes in these assumptions could result in the difference
      between whether a lease is determined to be an operating lease or a capital
      lease, thus significantly impacting the amounts to be recognized in the
      financial statements.

In addition to uncertainty inherent in management's assumptions, leasing
      transactions and the related accounting rules become increasingly complex
      when they involve: sale/leaseback accounting (leasing transactions where
      the lessee previously owned the leased assets), synthetic leases (leases
      that qualify for operating lease treatment for book accounting purposes
      and financing treatment for tax accounting purposes), lessee involvement
      in the construction of leased assets and/or special purpose entities (SPEs)
      (entities created for the specific purpose of owning the property, plant
      and equipment and incurring the related financing obligation). Current GAAP
      requires that SPEs be consolidated if several conditions exist, including
      if the owners of the SPEs have not made an initial substantive residual
      equity capital investment that is at risk during the entire lease term.
      The consolidation of an SPE lessor by the lessee has a very similar financial
      result as a lease that is accounted for as a capital lease, that is, the
      leased assets and the related financing obligations are recorded on the
      lessee's balance sheet.

At December 31, 2002, PPL Energy Supply subsidiaries participated in one
      significant sale/leaseback transaction involving unconsolidated SPEs and
      two significant synthetic lease transactions involving unconsolidated SPEs.
      Each of these transactions has been accounted for as an operating lease.
      In accordance with current GAAP, these SPEs were not consolidated by PPL
      Energy Supply because the equity owners (entities unrelated to PPL Energy
      Supply and its subsidiaries) contributed and maintain a minimum of 3% equity
      interest throughout the life of the SPEs.

Sale/Leaseback



In July 2000, PPL Montana sold its interest in the Colstrip generating
      plant to owner lessors who are leasing the assets back to PPL Montana under
      four 36-year operating leases. This transaction is accounted for as an operating
      lease in accordance with current rules related to sale/leaseback arrangements.
      If for any reason this transaction did not meet the requirements for off-balance
      sheet operating lease treatment as a sale/leaseback, PPL Energy Supply would
      have approximately $343 million of additional assets and liabilities recorded
      on its balance sheet at December 31, 2002 and would have recorded additional
      expenses currently estimated at $10 million, after-tax, in 2002.

Synthetic Leases

In May 2001, a PPL Global subsidiary entered into a lease arrangement,
      as lessee, for the development, construction and operation of commercial
      power generation facilities. This arrangement covers the 540 MW gas-powered
      University Park project near University Park, Illinois, and the 450 MW gas-powered
      Sundance project near Coolidge, Arizona. In July 2002, these facilities
      were substantially complete and the initial lease term commenced.

In December 2001, a PPL Global subsidiary entered into a lease arrangement,
      as lessee, for the development, construction and operation of a 600 MW gas-fired
      combined-cycle generation facility located in Lower Mt. Bethel Township,
      Northampton County, Pennsylvania. The initial lease term is approximately
      10 years, beginning on the date of commercial operation, which is expected
      to occur in late 2003.

Both of these leases are accounted for as operating leases in accordance
      with current accounting requirements. If for any reason these transactions
      did not meet the requirements for off-balance sheet operating lease treatment,
      PPL Energy Supply would have approximately $1.1 billion of additional assets
      and liabilities recorded on its balance sheet at December 31, 2002 and would
      have recorded additional expenses currently estimated at $5 million, after-tax,
      in 2002.

In January 2003, the FASB issued FIN 46, "Consolidation of Variable Interest
      Entities, an interpretation of ARB No. 51." FIN 46 clarifies that variable
      interest entities (VIEs), as defined therein, that do not disperse risks
      among the parties involved should be consolidated by the entity that is
      determined to be the primary beneficiary. PPL Energy Supply currently believes
      that the lessors involved in its leases for the Sundance, University Park
      and Lower Mt. Bethel generating facilities, discussed above, will be considered
      VIEs under FIN 46 and that PPL Energy Supply would be the primary beneficiary.
      PPL Energy Supply is currently evaluating whether these leasing arrangements
      can be restructured such that they would still qualify as off-balance sheet
      operating leases under the new rules. If PPL Energy Supply does not restructure
      these leases, PPL Energy Supply believes that it will be required to consolidate
      the financial statements of the lessors. The principal impact from such
      consolidation would be the inclusion of the generating facilities as assets
      and the lease financing as liabilities in the consolidated balance sheet
      of PPL Energy Supply. PPL Energy Supply does not currently believe that
      the lessors in the PPL Montana sale/leaseback will be determined to be VIEs
      in which PPL Energy Supply will be the primary beneficiary. Therefore, PPL
      Energy Supply does not expect to consolidate the financial statements of
      these lessors. PPL Energy Supply must adopt FIN 46 for all of these leases
      no later than the first interim period beginning after June 15, 2003.

See Note 10 to the Financial Statements for additional information related
      to operating leases and Note 22 for additional information related to FIN
      46.

1. Loss Accruals

PPL Energy Supply periodically records the estimated impacts of various conditions,
  situations or circumstances involving uncertain outcomes. These events are called
  "contingencies," and PPL Energy Supply's accounting for such events is prescribed
  by SFAS 5, "Accounting for Contingencies." SFAS 5 defines a contingency as "an
  existing condition, situation, or set of circumstances involving uncertainty
  as to possible gain or loss to an enterprise that will ultimately be resolved
  when one or more future events occur or fail to occur."

For loss contingencies, the loss must be accrued if (1) information is available
  that indicates it is "probable" that the loss has been incurred, given the likelihood
  of the uncertain future events and (2) the amount of the loss can be reasonably
  estimated. FASB defines "probable" as cases in which "the future event or events
  are likely to occur." SFAS 5 does not permit the accrual of gain contingencies
  under any circumstances.

The accrual of a loss contingency involves considerable judgment on the part
  of management. The accounting aspects of loss accruals include: (1) the initial
  identification and recording of the loss accrual and (2) the determination of
  a triggering event for reducing a recorded loss accrual and the on-going assessment
  as to whether a recorded loss accrual is reasonable.

Initial Identification and Recording of the Loss Accrual

PPL Energy Supply uses its internal expertise and outside experts (such as
  lawyers, tax specialists and engineers), as necessary, to help estimate the
  probability that a loss has been incurred and the amount (or range) of the loss.

Throughout 2002, PPL Energy Supply assessed potential loss accruals for environmental
  remediation, litigation claims, regulatory penalties and other events. There
  were no material events identified for which a loss was probable and for which
  the loss could be reasonably estimated. Therefore, there were no material loss
  accruals recorded in 2002 using the SFAS 5 criteria.

However, PPL Energy Supply has identified certain events which could give rise
  to a loss, but which do not meet the conditions for accrual under SFAS 5. SFAS
  5 requires disclosure, but not a recording, of potential losses when it is "reasonably
  possible" that a loss has been incurred. FASB defines "reasonably possible"
  as cases in which "the chance of the future event or events occurring is more
  than remote but less than likely."

See Note 14 to the Financial Statements for disclosure of potential loss accruals,
  most of which have not met the criteria for accrual under SFAS 5. Such disclosures
  include, among others, the Montana Power shareholders' litigation, a lawsuit
  regarding the Colstrip transmission system and any potential adverse outcome
  related to the PJM Market Monitor report.

Reducing Recorded Loss Accruals and On-Going Assessment

When a loss accrual is recorded, PPL Energy Supply identifies the triggering
  event for subsequently reducing the loss accrual. Also, PPL Energy Supply periodically
  reviews the loss accrual to assure that the recorded potential loss exposure
  is reasonable.

The largest contingency currently on PPL Energy Supply's balance sheet is the
  loss accrual for above-market NUG purchase commitments, being the difference
  between the above-market contract terms and the fair value of electricity. This
  loss accrual was originally recorded at $854 million in 1998, when PPL Electric's
  generation business was deregulated. Under regulatory accounting, PPL Electric
  recorded the above-market cost of the purchases from NUGs as part of its purchased
  power costs on an as-incurred basis, since these costs were recovered in regulated
  rates. When the generation business was deregulated, the loss contingency associated
  with the commitment to make above-market NUG purchases was recorded. This loss
  accrual for the above-market portion of NUG purchase commitments was recorded
  because it was probable that the loss had been incurred and the estimate of
  future energy prices could be reasonably determined, using the then forward
  prices of electricity and capacity. This loss accrual was transferred to PPL
  EnergyPlus in the July 1, 2000 corporate realignment. The above-market loss
  accrual was $427 million at December 31, 2002.

When the loss accrual related to NUG purchases was recorded in 1998, PPL Electric
  established the triggering events for when the loss accrual would be reduced.
  A schedule was established to reduce the liability based on projected purchases
  over the lives of the NUG contracts. All but one of the NUG contracts expire
  by 2009, with the last one ending in 2014. PPL EnergyPlus reduces the above-market
  NUG liability based on the aforementioned schedule. As PPL EnergyPlus reduces
  the liability for the above-market NUG purchases, it offsets the actual cost
  of NUG purchases, thereby bringing the net power purchase expense more in line
  with market prices.

PPL EnergyPlus assessed the remaining $427 million above-market liability at
  December 31, 2002, comparing the projected electricity purchases under the terms
  of the NUG contracts, with the purchases assuming projected market prices for
  the energy. This assessment was based on projected PJM market prices, including
  capacity, through 2014, as comprehended in the current business plan of PPL
  EnergyPlus. The assessment also used sensitivities around the market prices,
  adjusting such prices upwards and downwards by 10%.

The assessment is dependent on the market prices of energy and the estimated
  output levels of the NUGs. Market prices of energy are dependent on many variables,
  including growth in electricity demand in PJM, available generation, and changes
  in regulatory and economic conditions. Accordingly, market price sensitivities
  were used in the assessment. If estimated market prices were adjusted upwards
  by 10% in each of the years from 2003 through 2014, the accrual for the above-market
  NUG purchase commitments would be approximately $401 million. Conversely, if
  estimated market prices were adjusted downwards by 10% during the remaining
  term of the NUG contracts, the accrual for the above-market NUG purchase commitments
  would be purchased at approximately $501 million. The recorded above-market
  liability of $427 million at December 31, 2002 falls within the range calculated
  in the year-end assessment. As noted above, it is very difficult to estimate
  future electricity prices, which are dependent on many variables and subject
  to significant volatility. PPL Energy Supply's management believes that the
  current recorded NUG above-market liability was fairly stated at December 31,
  2002.

Other Information



PPL's Audit Committee has approved the independent auditor to provide the following
  services:

- Audit and audit-related services (including services in connection with
    statutory and regulatory filings, reviews of offering documents and registration
    statements, employee benefit plan audits and internal control reviews);
- Certain tax consulting and advisory services for projects commenced prior
    to December 31, 2002; and,
- Other services permitted by the Sarbanes-Oxley Act of 2002 and SEC rules.

---

PPL ELECTRIC UTILITIES CORPORATIONITEM 7. REVIEW OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS



Terms and abbreviations appearing here are explained in the glossary. Dollars
  are in millions, unless otherwise noted.



Results of Operations



The following discussion explains significant changes in principal items on
  the Statement of Income comparing 2002 to 2001, and 2001 to 2000. Certain items
  on the Statement of Income have been impacted by the corporate realignment undertaken
  by PPL and PPL Electric effective July 1, 2000. See Note 19 to the Financial
  Statements for information regarding the corporate realignment.

The Statement of Income of PPL Electric for 2002, 2001 and the last six months
  of 2000 include the results of its post-realignment activities (the transmission
  and distribution of electricity in its service territory and the supply of electricity
  as a PLR in this territory under Pennsylvania's Customer Choice Act). The results
  for the first six months of 2000 also include PPL Electric's former electric
  generation and unregulated wholesale and retail marketing functions. When discussing
  significant changes from 2000 to 2001, the estimated results of operations of
  the electric generation and unregulated marketing assets for the first six months
  of 2000 are eliminated for purposes of comparability.

Earnings

The changes in net income from year to year were, in part, attributable to
  several unusual items with significant earnings impacts as shown below. The
  table below reconciles net income to income from core operations, after eliminating
  the impact of unusual items. Income from core operations should not be considered
  as an alternative to net income, which is an indicator of operating performance
  determined in accordance with GAAP. PPL Electric believes that income from core
  operations, although a non-GAAP measure, is also useful and meaningful to investors
  because it provides them with PPL Electric's underlying earnings performance
  as another criterion in making their investment decisions. PPL Electric's management
  also uses income from core operations in measuring certain corporate performance
  goals. Other companies may use different measures to present financial performance.



|                            |                                                     | 2002 |    |     | 2001 |   |     | 2000 | 
|--------------------------- | --------------------------------------------------- | ---- | -- | --- | ---- | - | --- | ---- | 
|                            |                                                     |      |    |     |      |   |     |      | 
|                            |                                                     |      |    |     |      |   |     |      | 
|Net income                  |                                                     | $    | 39 |     |      | $ | 119 |      | 
|                            |                                                     |      |    |     |      |   |     |      | 
|Unusual items (net of tax): |                                                     |      |    |     |      |   |     |      | 
|                            |                                                     |      |    |     |      |   |     |      | 
|                            | Workforce reduction (Note 21)                       |      |    | (19 | )    |   |     |      | 
|                            |                                                     |      |    |     |      |   |     |      | 
|                            | Accounting method change - pensions (Note
      12) |      |    |     |      |   |     | 5    | 
|                            |                                                     |      |    |     |      |   |     |      | 
|                            | Environmental insurance recoveries                  |      |    |     |      |   |     |      | 
|                            |                                                     |      |    |     |      |   |     |      | 
|                            |                                                     |      |    |     |      |   |     |      | 
|Income from core operations |                                                     | $    | 58 |     |      | $ | 114 |      | 
|                            |                                                     |      |    |     |      |   |     |      | 



The decrease in core earnings in 2001 compared with 2000 was primarily due
  to the corporate realignment completed on July 1, 2000. After eliminating the
  estimated results of the electric generation and marketing assets transferred
  in the corporate realignment from the results of the first half of 2000, comparable
  earnings for 2000 would have been an estimated $68 million. The $114 million
  earnings from core operations for 2001 were $46 million higher than the estimated
  comparable earnings for 2000.

The after tax changes in core earnings were primarily due to:

|                                                                                                     |  | 2002 vs. 2001 |     |   | 2001 vs. 2000 |  
|---------------------------------------------------------------------------------------------------- |  | ------------- | --- | - | ------------- | -
|                                                                                                     |  |               |     |   |               |  
|Lower delivery revenues (net of CTC/ITC amortization
      and interest expense on transition bonds) |  | $             | (10 | ) |               | $
|                                                                                                     |  |               |     |   |               |  
|Operating and maintenance costs                                                                      |  |               | (18 | ) |               |  
|                                                                                                     |  |               |     |   |               |  
|PJM ancillary expenses                                                                               |  |               | (29 | ) |               |  
|                                                                                                     |  |               |     |   |               |  
|NUG purchases                                                                                        |  |               | 9   |   |               |  
|                                                                                                     |  |               |     |   |               |  
|Depreciation expense                                                                                 |  |               | (2  | ) |               |  
|                                                                                                     |  |               |     |   |               |  
|Other income                                                                                         |  |               |     |   |               |  
|                                                                                                     |  |               |     |   |               |  
|Interest expense (excluding transition bond
      interest expense)                                  |  |               | (2  | ) |               |  
|                                                                                                     |  |               |     |   |               |  
|Other - net                                                                                          |  |               | (4  | ) |               |  
|                                                                                                     |  |               |     |   |               |  
|                                                                                                     |  |               |     |   |               |  
|                                                                                                     |  | $             | (56 | ) |               | $
|                                                                                                     |  |               |     |   |               |  



The year-to-year changes in earnings components are discussed
  in the balance of the discussion in "Results of Operations."



Pursuant to the Customer Choice Act and a restructuring settlement with the
  PUC in 1998, PPL Electric agreed to a cap on its average transmission and distribution
  rates of 1.74 cents per kWh through 2004.

Operating Revenues

Retail Electric

The increase (decrease) in revenues from retail electric operations was attributable
  to the following:



|                |                                | 2002 vs. 2001 |     |   | 2001 vs. 2000 |  
|--------------- | ------------------------------ | ------------- | --- | - | ------------- | -
|                |                                |               |     |   |               |  
|PPL Electric:   |                                |               |     |   |               |  
|                | Electric delivery              | $             | (3  | ) |               | $
|                |                                |               |     |   |               |  
|                | PLR electric generation supply |               | 102 |   |               |  
|                |                                |               |     |   |               |  
|                | Other                          |               | (9  | ) |               |  
|                |                                |               |     |   |               |  
|PPL EnergyPlus: |                                |               |     |   |               |  
|                | Electric generation supply     |               |     |   |               |  
|                |                                |               |     |   |               |  
|                |                                |               |     |   |               |  
|                |                                |               |     | $ | 90            |  
|                |                                |               |     |   |               |  

The increase in operating revenues from retail electric operations from 2002
  compared with 2001 was primarily due to higher revenues from providing electric
  generation supply as a PLR. Since December 2001, about 50% to 60% of kWh load
  in PPL Electric's service territory that had been served by alternate suppliers
  under the Customer Choice Act have returned to PPL Electric as the supplier.

After eliminating the estimated revenues of assets transferred in the corporate
  realignment from the results for the first half of 2000, retail electric revenues
  increased by $285 million in 2001 compared with 2000. The increase in revenues
  was primarily due to higher revenues from providing electric generation supply
  as a PLR, resulting from the return of shoppers due to fewer alternate suppliers
  under the Customer Choice Act. The increase in retail revenues also reflects
  higher deliveries of electricity in 2001, primarily in commercial and residential
  markets.



Retail Electric to Affiliate



Retail electric to affiliate revenues represents an intercompany billing to
  PPL Generation for power plant energy usage since the July 2000 corporate realignment.



Wholesale Electric



PPL Electric wholesale revenues are derived from sales to municipalities. The
  $5 million decrease in wholesale electric revenues in 2002 compared with 2001
  was due to the expiration of certain municipal contracts in February 2002.

After eliminating the revenues of assets transferred in the corporate realignment
  from the results for the first half of 2000, wholesale revenues were essentially
  unchanged in 2001.



Wholesale Electric to Affiliate

PPL Electric has a contract to sell to PPL EnergyPlus the electricity that
  PPL Electric purchases under contracts with NUGs. With the termination in February
  2002 of its NUG contract with Foster Wheeler, PPL Electric purchased less NUG
  energy in 2002 and therefore had less electricity to sell to PPL EnergyPlus.

After eliminating the revenues of assets transferred in the corporate realignment
  from the results for the first half of 2000, wholesale revenues increased by
  $99 million during 2001 compared with 2000. This increase was due to the sale
  of power (purchased from NUGs) to PPL EnergyPlus.

Fuel

Effective with the July 1, 2000 corporate realignment, the generation of electricity,
  and the acquisition of fuel for that generation, was transferred to PPL Energy
  Supply.

Energy Purchases

Effective January 1, 2002, PPL Electric began incurring the costs of certain
  ancillary services, such as area regulation and operating reserves, in connection
  with its power supply contract with PPL EnergyPlus. Energy purchases increased
  by $31 million in 2002 compared with 2001, including $48 million in ancillary
  service costs. These costs were primarily offset by a $16 million decrease in
  NUG purchases due to the termination of an energy purchase contract with a NUG
  in February 2002.

Energy purchases decreased by $680 million in 2001 compared with 2000. After
  eliminating the expenses associated with assets transferred in the corporate
  realignment from the results for the first half of 2000, energy purchases increased
  by $7 million during 2001 compared with 2000. The increase reflects higher energy
  purchases from NUGs.

Energy Purchases from Affiliate



Energy purchases from affiliate increased by $106 million in 2002 compared
  with 2001. This increase reflects higher purchases under power supply contracts
  with PPL EnergyPlus needed to support a higher PLR load, due to the return of
  customers to PPL Electric as their PLR. See Note 15 to the Financial Statements
  for a discussion of the power supply contracts.

Energy purchases increased by $773 million in 2001 compared with the same period
  in 2000. The increase reflects a full year of energy purchases from PPL EnergyPlus
  in 2001 compared to six months in 2000 due to the corporate realignment. See
  Note 19 to the Financial Statements for a discussion of the 2000 corporate realignment.

Other Operation Expenses

Other operation expenses increased by $15 million in 2002 compared with 2001.
  The increase reflects a $7 million decrease in pension income, as well as a
  $2 million increase in costs to restore service to customers during a winter
  storm. Additionally, in conjunction with the workforce reduction (see Note 21
  to the Financial Statements), PPL Electric increased its estimated vacation
  liability by $7 million.



The $7 million decrease in pension income was attributable to PPL Electric's
  participation in PPL's primary domestic pension plan. During the second quarter
  of 2002, the workforce reduction and union-negotiated benefit enhancements had
  a significant impact on PPL's primary domestic pension plan requiring remeasurement
  of the benefit obligation and decreasing the net pension income recorded for
  that plan. In addition, pension income was also decreased due to the recognition
  of significant asset losses caused by weakened financial markets. PPL Electric
  participates in PPL's primary domestic pension plan and is allocated approximately
  46% of the obligations and costs of that plan. Through December 31, 2002, PPL
  Electric was allocated approximately $17 million of pension income. As a result
  of the events and remeasurements previously discussed, PPL expects to continue
  to allocate pension income to PPL Electric in 2003, but at lower levels due
  to the above events and continued weakness in the financial markets. See Note
  12 to the Financial Statements for details of the funded status of PPL's domestic
  pension plans.

Other operation expenses decreased by $123 million in 2001 compared with 2000.
  After eliminating the expenses of assets transferred in the corporate realignment
  from the results for the first half of 2000, other operation expenses increased
  by $3 million in 2001 compared with 2000. This increase was primarily due to
  a $40 million insurance settlement for environmental liability coverage recorded
  in 2000 (as a reduction of expenses), partially offset by lower pension expense
  of $20 million due to pension investment performance and lower corporate expenses
  of $19 million from PPL Services.

Amortization of Recoverable Transition Costs

Amortization of recoverable transition costs decreased by $25 million in 2002
  compared to 2001. This decrease was primarily due to $19 million of lower ITC
  amortization in 2002 as a result of lower billed ITC revenues. Billed ITC revenues
  were lower as a result of lower ITC rates, reflecting the decrease in interest
  expense on the transition bonds.

Amortization of recoverable transition costs increased by $24 million in 2001
  compared to 2000. This increase was primarily due to the collection of $33 million
  of CTC revenues related to prior year CTC deferrals of amounts in excess of
  the Pennsylvania rate cap.

Maintenance Expenses

Maintenance expenses increased by $16 million in 2002 compared with 2001. This
  was partially due to a $5 million increase in maintenance costs for customers'
  lighting and power service problems and $4 million of additional costs to restore
  service to customers during a winter storm.

Maintenance expenses decreased by $96 million in 2001 compared with 2000. After
  eliminating the expenses of assets transferred in the corporate realignment
  from the results for the first half of 2000, maintenance expenses decreased
  by $15 million in 2001 when compared with 2000. This decrease was primarily
  the result of allocating $12 million more of rents for office space to the user
  business lines in 2001 compared to 2000, as well as lower overhead line maintenance
  of $5 million. The lower line maintenance expenses were, in part, due to less
  storm damage in 2001 compared with 2000.

Depreciation

Depreciation decreased by $76 million in 2001 compared with 2000. After eliminating
  the expenses of assets transferred in the corporate realignment from the results
  for the first half of 2000, depreciation decreased by $8 million during 2001
  compared with 2000. This decrease reflects a change in life characteristics
  for transmission and distribution property.

Taxes, Other Than Income

Taxes, other than income, increased by $37 million in 2002 compared with 2001,
  primarily due to a $45 million increase in gross receipts tax, partially offset
  by a $10 million decrease in capital stock tax.



The gross receipts tax increase in 2002 was due to an increase in the revenue-neutral
  reconciliation (RNR) tax component of the effective Pennsylvania gross receipts
  tax rate in January 2002. The RNR, which adjusts the base gross receipts tax
  rate of 4.4%, was enacted as part of the Customer Choice Act as a tax revenue
  replacement component to recoup losses to the Commonwealth of Pennsylvania or
  return benefits to customers that may result from the restructuring of the electric
  industry. This increase was partially offset by the settlement of prior years'
  capital stock tax refund claims and a lower capital stock tax rate in 2002.

Taxes, other than income, decreased by $18 million in 2001 compared with 2000.
  After eliminating the expenses of assets transferred in the corporate realignment
  from results for the first half of 2000, taxes, other than income increased
  by $12 million. This increase was primarily due to credits to PURTA and local
  property tax accruals recorded in the third quarter of 2000.

Changes in taxes, other than income taxes, do not significantly affect earnings
  as they are substantially recovered or returned through customer rate revenues.

Other Income - net

See Note 16 to the Financial Statements for details of other income and deductions.

Workforce Reduction

See Note 21 to the Financial Statements for information regarding the $33 million
  charge recorded in 2002.

Financing Costs

Lower interest on long-term debt accounted for the $12 million decrease in
  interest expense in 2002 compared with 2001. This decrease was the net impact
  of retirements of mortgage bonds and transition bonds, partially offset by the
  issuance of $800 million of senior secured bonds in August 2001.

Interest expense decreased by $9 million in 2001 compared with 2000. This decrease
  was primarily the result of lower outstanding commercial paper and intercompany
  borrowings.

Dividends on preferred securities decreased by $10 million from 2001 to 2002
  due to retirements and redemptions of preferred securities and preferred stock.

Income Taxes

Income tax expense decreased by $47 million in 2002 compared with 2001. This
  was primarily due to a decrease in pre-tax book income.

Income tax expense decreased by $106 million in 2001 compared with 2000. After
  eliminating the estimated income associated with assets transferred in the corporate
  realignment from the results for the first half of 2000, income taxes increased
  by $2 million during 2001 compared with 2000. This reflects an increase in pro
  forma pre-tax book income.

Change in Accounting Principle



In 2001, PPL changed its method of amortizing unrecognized gains or losses
  in the annual pension expense or income determined under SFAS 87, "Employers'
  Accounting for Pensions." This change resulted in an allocation to PPL Electric
  of a cumulative-effect credit of $5 million. Under the old method, the net unrecognized
  gain or loss in excess of 10% of the greater of the plan's projected benefit
  obligation or market-related value of plan assets was amortized on a straight-line
  basis over the estimated average future service period of plan participants.
  Under the new method, a second corridor is utilized for the net unrecognized
  gain or loss in excess of 30% of the plan's projected benefit obligation. The
  net unrecognized gain or loss outside the second corridor is amortized on a
  straight-line basis over a period equal to one-half of the average future service
  period of the plan participants. See Note 12 to the Financial Statements for
  additional information.



This item is reported as "Cumulative Effect of a Change in Accounting Principle"
  on the Statement of Income.

New Accounting Standards



See Note 22 to the Financial Statements for information on
  new accounting standards adopted in 2002 or pending adoption.



Financial Condition



Liquidity

At December 31, 2002, PPL Electric had $29 million in cash and cash equivalents
  and $15 million of short-term debt. PPL Electric believes that its cash and
  cash equivalents, operating cash flows, access to the capital markets and borrowing
  capacity, taken as a whole, provide sufficient resources to fund ongoing operating
  requirements and future capital expenditures. PPL Electric's operating cash
  flow and access to the capital markets can be impacted by economic factors outside
  of its control. In addition, PPL Electric's borrowing costs can be impacted
  by short-term and long-term debt ratings assigned by independent rating agencies,
  which are based, in significant part, on PPL's performance as measured by certain
  credit measures such as interest coverage and leverage ratios. Cash and cash
  equivalents are derived from cash from operations, cash from financing activities
  and cash from investing activities. PPL Electric derives steady cash flows from
  operations through the delivery of electricity to customers over transmission
  and distribution networks. In 2001, PPL Electric signed full requirements contracts
  with PPL EnergyPlus to meet its PLR requirements through 2009, in order to eliminate
  the energy price exposure associated with purchasing energy in the open market
  to meet PLR load.

PPL Electric expects to access both the capital and commercial paper markets
  during 2003. PPL Electric cannot provide assurances that any of these funding
  sources will be available to it on acceptable terms.

Net cash provided by operations in 2002 was $274 million compared to $392 million
  in 2001. The $118 million decrease was primarily the result of an increase in
  accounts receivable, including receivables from affiliates.

Net cash used in financing activities was $365 million in 2002, compared to
  $148 million in 2001. The $217 million increase in cash used in financing activities
  was the result of lower financings in 2002. Additionally, a commercial paper
  program at PPL Electric provides for the issuance of up to $400 million of commercial
  paper and is maintained to meet short-term cash needs. If the existing credit
  ratings on the commercial paper program were lowered, it is unlikely that there
  would be sufficient investor demand for the commercial paper. In addition, the
  amount of commercial paper that could be outstanding under PPL Electric's program
  is generally limited to the amount of the unused credit lines.

PPL Electric maintains an unsecured credit line of $400 million that is available
  as a backstop for its commercial paper program or for direct borrowings. The
  credit line is also available for the issuance of up to $300 million in letters
  of credit that may be needed for credit enhancements and margin requirements
  resulting from PPL Electric's PLR energy contracts with PPL EnergyPlus or other
  contracting activities. PPL Electric's maximum collateral requirement associated
  with the PLR contracts is $300 million. PPL Electric had $15 million of commercial
  paper outstanding and no borrowings outstanding under its credit line at December
  31, 2002, as compared to no commercial paper outstanding or borrowings under
  its credit line at December 31, 2001. In addition, the lenders in the credit
  line had issued $40 million of letters of credit on PPL Electric's behalf at
  December 31, 2002. This credit line contains financial and other covenants that,
  if not met, would limit or restrict PPL Electric's ability to borrow or have
  letters of credit issued on its behalf or cause early payment of outstanding
  borrowings. At this time, PPL Electric believes that these covenants will not
  limit access to these funding sources.

Under its credit line, PPL Electric must maintain a debt to capitalization
  percentage not greater than 70%. At December 31, 2002 and December 31, 2001,
  PPL Electric's consolidated debt to total capitalization percentage, as calculated
  in accordance with its credit line, was 58% and 57%.

PPL Electric leases vehicles, office space, land, buildings, personal computers
  and other equipment under separate lease arrangements. See Note 10 to the Financial
  Statements for a further discussion of the operating leases.

At December 31, 2002, the estimated contractual cash obligations of PPL Electric
  were as follows:

|Contractual Cash Obligations       |  | Total |        | Less
        Than
        1 Year |   | 1-3
        Years |  | 4-5
        Years |       | After 5
        Years
|---------------------------------- |  | ----- | ------ | -------------------------------- | - | ----------------- |  | ----------------- | ----- | ---------------------
|                                   |  |       |        |                                  |   |                   |  |                   |       |                      
|                                   |  |       |        |                                  |   |                   |  |                   |       |                      
|Long-term Debt (a)                 |  | $     | 3,183  |                                  | $ | 274               |  | $                 | 665   |                      
|                                   |  |       |        |                                  |   |                   |  |                   |       |                      
|Capital Lease Obligations          |  |       |        |                                  |   |                   |  |                   |       |                      
|                                   |  |       |        |                                  |   |                   |  |                   |       |                      
|Operating Leases                   |  |       | 46     |                                  |   | 11                |  |                   | 16    |                      
|                                   |  |       |        |                                  |   |                   |  |                   |       |                      
|Purchase Obligations (b)           |  |       | 9,944  |                                  |   | 1,342             |  |                   | 2,739 |                      
|                                   |  |       |        |                                  |   |                   |  |                   |       |                      
|Other Long-term Obligations (c)    |  |       | 31     |                                  |   | 20                |  |                   | 11    |                      
|                                   |  |       |        |                                  |   |                   |  |                   |       |                      
|                                   |  |       |        |                                  |   |                   |  |                   |       |                      
|Total Contractual Cash Obligations |  | $     | 13,204 |                                  | $ | 1,647             |  | $                 | 3,431 |                      
|                                   |  |       |        |                                  |   |                   |  |                   |       |                      



|(a) |  | Includes $1.7 billion of transition bonds issued
      by PPL Transition Bond Company in 1999 to securitize a portion of PPL Electric's
      stranded costs. This debt is non-recourse to PPL Electric.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(b) |  | The payments reflected herein are subject to
      change as the purchase obligation reflected is an estimate based on projected
      obligated quantities and projected pricing under the contract.   
|(c) |  | Includes redemptions of preferred securities.                                                                                                                                                           

At December 31, 2002, PPL Electric provided a guarantee in the amount of $7
  million in support of Safe Harbor, in which PPL Electric had an ownership interest
  prior to the corporate realignment.

At December 31, 2002, the estimated commercial commitments of PPL Electric
  were as follows:

|                                   |                             |                                 |     | Amount of Commitment Expiration 
        Per Period |  
|---------------------------------- | --------------------------- | ------------------------------- | --- | --------------------------------------------------- | -
|Other Commercial
      Commitments |                             | Total
        Amounts Committed |     | Less
        Than
        1 Year                    |  
|                                   |                             |                                 |     |                                                     |  
|                                   |                             |                                 |     |                                                     |  
|Lines of Credit                    |                             |                                 |     |                                                     |  
|                                   |                             |                                 |     |                                                     |  
|                                   | Standby Letters of Credit   |                                 | $   | 41                                                  |  
|                                   |                             |                                 |     |                                                     |  
|                                   | Draws Under Lines of Credit |                                 |     |                                                     |  
|                                   |                             |                                 |     |                                                     |  
|Guarantees                         |                             |                                 |     |                                                     |  
|                                   |                             |                                 |     |                                                     |  
|                                   | Debt (a)                    |                                 |     | 100                                                 |  
|                                   |                             |                                 |     |                                                     |  
|                                   | Performance                 |                                 |     |                                                     |  
|                                   |                             |                                 |     |                                                     |  
|Standby Repurchase Obligations     |                             |                                 |     |                                                     |  
|                                   |                             |                                 |     |                                                     |  
|Other Commercial Commitments       |                             |                                 |     |                                                     |  
|                                   |                             |                                 |     |                                                     |  
|                                   |                             |                                 |     |                                                     |  
|Total Commercial Commitments       |                             | $                               | 141 |                                                     | $
|                                   |                             |                                 |     |                                                     |  





|(a) |  | Includes guarantees on certain operating lease
      obligations. If incurred, a portion of the costs would be billed to affiliates.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------

Terms governing the securities, guarantees, leases and other obligations issued
  by PPL Electric contain financial and other covenants that require compliance
  in order to avoid defaults and accelerations of payments. At this time, PPL
  Electric believes that it will be able to meet these covenant requirements.
  In order to meet its maturing obligations in future years, PPL Electric expects
  that it will have to continue to access both the bank and capital securities
  markets. The long-term debt and similar securities and their maturities are
  included in the table of Contractual Cash Obligations above.

Net cash provided by investing activities in 2002 was $41 million, as compared
  to net cash used in investing activities of $432 million in 2001. The $473 million
  difference was primarily the result of a loan repayment by an affiliate. In
  2003, PPL Electric's expenditures for property, plant and equipment are expected
  to increase modestly to accommodate an automated meter reading project initiated
  in late 2001. PPL Electric anticipates that its capital requirements will be
  funded from cash on hand, loan repayments from affiliates and cash from operations
  in 2003. (See "Capital Expenditure Requirements" for additional information.)

Subsequent Financing

In February 2003, on behalf of PPL Electric, the Lehigh County Industrial Development
  Authority (LCIDA) issued $90 million aggregate principal amount of 3.125% Pollution
  Control Revenue Refunding Bonds due 2008. These tax-exempt bonds were issued
  to refund the outstanding $90 million aggregate principal amount of the 6.40%
  Pollution Control Revenue Refunding Bonds issued by the LCIDA on PPL Electric's
  behalf in 1992. The bonds are insured by a financial guaranty insurance policy
  issued by Ambac Assurance Corporation and have the highest investment grade
  ratings, Aaa by Moody's and AAA by Standard & Poor's. In connection with
  the issuance of the bonds, PPL Electric issued to the LCIDA a promissory note
  with principal, interest and prepayment provisions corresponding to the bonds.
  In addition, PPL Electric issued a like amount of Senior Secured Bonds under
  the 2001 Senior Secured Bond Indenture to secure its obligations under the promissory
  note.

Risk Management

Market Risk



Commodity Price Risk - PLR Contracts

PPL Electric and PPL EnergyPlus have power supply agreements under which PPL
  EnergyPlus sells to PPL Electric (under a predetermined pricing arrangement)
  energy and capacity to fulfill PPL Electric's PLR obligation through 2009. As
  a result, PPL Electric has shifted any electric price risk relating to its PLR
  obligation to PPL EnergyPlus for 2002 through 2009. See Note 15 to the Financial
  Statements for information on the PLR contracts.

Interest Rate Risk



PPL Electric has issued debt to finance its operations, which increases its
  interest rate risk. At December 31, 2002 and 2001, PPL Electric's potential
  annual exposure to increased interest expense, based on a 10% increase in interest
  rates, was not significant.



PPL Electric is also exposed to changes in the fair value of its debt portfolio.
  At December 31, 2002, PPL Electric estimated that its potential exposure to
  a change in the fair value of its debt portfolio, through a 10% adverse movement
  in interest rates, was approximately $45 million, compared to $56 million at
  December 31, 2001.

In connection with the corporate realignment, effective July 1, 2000, PPL Electric's
  unregulated energy marketing and trading activities were transferred to PPL
  EnergyPlus.

Related Party Transactions

PPL Electric is not aware of any material ownership interests or operating
  responsibility by senior management of PPL Electric or its subsidiaries in outside
  partnerships, including leasing transactions with variable interest entities,
  or other entities doing business with PPL Electric.

For additional information on related party accounting transactions, see Note
  15 to the Financial Statements.

Capital Expenditure Requirements

The schedule below shows PPL Electric's current capital expenditure projections
  for the years 2003-2007 and actual spending for the year 2002:

|                          |                                                      | Actual                     |   | ----------------------Projected----------------------- |    
|------------------------- | ---------------------------------------------------- | -------------------------- | - | ------------------------------------------------------ | ---
|                          |                                                      | 2002                       |   | 2003                                                   |    
|                          |                                                      |                            |   |                                                        |    
|Construction expenditures |                                                      |                            |   |                                                        |    
|                          |                                                      |                            |   |                                                        |    
|                          | Expenditures for property, plant
      and equipment |                            | $ | 223                                                    |    
|                          |                                                      |                            |   |                                                        |    
|                          | Other                                                |                            |   | 33                                                     |    
|                          |                                                      |                            |   |                                                        |    
|                          |                                                      |                            |   |                                                        |    
|                          |                                                      | Total Capital Expenditures |   | $                                                      | 256
|                          |                                                      |                            |   |                                                        |    

Construction expenditures include AFUDC which is expected to be less than $4
  million in each of the years 2003-2007.

PPL Electric's capital expenditure projections for the years 2003-2007 total
  $1.0 billion. Capital expenditure plans are revised periodically to reflect changes
  in conditions.

Environmental Matters

See Note 14 to the Financial Statements for a discussion of environmental matters.

Competition

The electric utility industry has experienced, and may continue to experience,
  an increase in the level of competition in the energy supply market at both
  the state and federal levels. PPL Electric's PLR supply business will be affected
  by customers who select alternate suppliers under the Customer Choice Act.

In July 2001, the FERC issued orders calling for the formation of one RTO throughout
  the Mid-Atlantic region (PJM), New York and New England. In response, PPL Electric
  is taking the position that a single northeastern RTO is a significant step
  forward in establishing a reliable and properly functioning wholesale electricity
  market in the region. PPL Electric strongly supports the most comprehensive
  amalgamation of the existing and proposed northeast power pools, including the
  establishment of a single RTO as well as the elimination of marketplace distinctions
  and control area boundaries. The FERC's northeastern RTO proceeding is continuing.

See Note 14 to the Financial Statements for information on the FERC Notice
  of Proposed Rulemaking entitled "Remedying Undue Discrimination through Open
  Access Transmission Service and Standard Electricity Market Design."

Application of Critical Accounting Policies

PPL Electric's financial condition and results of operations are impacted by
  the methods, assumptions and estimates used in the application of critical accounting
  policies. The following accounting policies are particularly important to the
  financial condition or results of operations of PPL Electric, and require estimates
  or other judgments of matters inherently uncertain. Changes in the estimates
  or other judgments included within these accounting policies could result in
  a significant change to the information presented in the financial statements.
  (These accounting policies are also discussed in Note 1 to the Financial Statements.)
  PPL's senior management has reviewed these critical accounting policies, and
  the estimates and assumptions regarding them, with its Audit Committee. In addition,
  PPL's senior management has reviewed the following disclosures regarding the
  application of these critical accounting policies with the Audit Committee.

1. Pension and Other Postretirement Benefits

As described in Note 12 to the Financial Statements, PPL Electric participates
  in, and is allocated a significant portion of the liability and net periodic
  pension cost of the PPL Retirement Plan and the PPL Postretirement Benefit Plan.
  PPL follows the guidance of SFAS 87, "Employers' Accounting for Pensions," and
  SFAS 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions,"
  when accounting for these benefits. Under these accounting standards, assumptions
  are made regarding the valuation of benefit obligations and performance of plan
  assets. Delayed recognition of differences between actual results and expected
  or estimated results is a guiding principle of these standards. This delayed
  recognition of actual results allows for a smoothed recognition of changes in
  benefit obligations and plan performance over the working lives of the employees
  who benefit under the plans. The primary assumptions are as follows:

- Discount Rate - The discount rate is used in calculating the present value
    of benefits, which are based on projections of benefit payments to be made
    in the future.

- Expected Return on Plan Assets - Management projects the future return on
    plan assets based principally on prior performance. These projected returns
    reduce the net benefit costs the company will record currently.

- Rate of Compensation Increase - Management projects employees' annual pay
    increases, which are used to project employees' pension benefits at retirement.

- Health Care Cost Trend Rate - Management projects the expected increases
    in the cost of health care.

During 2002, PPL made changes to its assumptions related to the discount rate,
  the expected return on plan assets, the rate of compensation increase and the
  health care cost trend rate. Management consults with its actuaries when selecting
  each of these assumptions.

In selecting discount rates, PPL considers fixed-income security yield rates.
  At December 31, 2002, PPL decreased the discount rate for its domestic plans
  from 7.25% to 6.75% as a result of decreased fixed-income security returns.

In selecting an expected return on plan assets, PPL considers past performance
  and economic forecasts for the types of investments held by the plan. At December
  31, 2002, PPL decreased the expected return on plan assets for its domestic
  pension plans from 9.2% to 9.0% as a result of continued declines in equity
  and fixed-income security returns.

In selecting a rate of compensation increase, PPL considered past experience
  in light of movements in inflation rates. At December 31, 2002, PPL decreased
  the rate of compensation increase from 4.25% to 4.0% for its domestic plans.

In selecting health care cost trend rates, PPL considers past performance and
  forecasts of health care costs. At December 31, 2002, PPL increased its previous
  health care cost trend rates. The previous rates were 7.0% for 2002, gradually
  declining to 6% in 2006. The new rates are 12% for 2003, gradually declining
  to 5.0% for 2010. These changes are based upon continued increases in health
  care costs.

A variance in the assumptions listed above could have a significant impact
  on the accrued pension and other postretirement benefit liabilities and reported
  annual net periodic pension and other postretirement benefit cost allocated
  to PPL Electric. The following chart reflects the sensitivities associated with
  a change in certain assumptions. While the chart below reflects either an increase
  or decrease in each assumption, PPL and its actuaries expect that the inverse
  of this change would impact the accrued pension and other postretirement benefit
  liabilities and reported annual net periodic pension and other postretirement
  benefit cost by a similar amount in the opposite direction. Each sensitivity
  below reflects an evaluation of the change based solely on a change in that
  assumption.





|                                |  | Increase/(Decrease)                              |        
|------------------------------- |  | ------------------------------------------------ | -------
|Actuarial Assumption            |  | Change in Assumption                             |        
|                                |  |                                                  |        
|Discount Rate                   |  |                                                  | (0.25)%
|                                |  |                                                  |        
|Expected Return on Plan Assets  |  |                                                  | (0.25)%
|                                |  |                                                  |        
|Rate of Compensation Increase   |  |                                                  | 0.25%  
|                                |  |                                                  |        
|Health Care Cost Trend Rate (a) |  |                                                  | 1.0%   
|                                |  |                                                  |        
|(a)                             |  | Only impacts other postretirement
      benefits





At December 31, 2002, PPL Electric had been allocated accrued pension and other
  postretirement benefit liabilities totaling $72 million, included in "Deferred
  Credits and Other Noncurrent Liabilities - Other" on the Balance Sheet. The
  $72 million liability represented a $1 million increase over the liability that
  was recorded at December 31, 2001.

In 2002, PPL Electric was allocated net periodic pension and other postretirement
  income, credited to operating expense of $4 million. This amount represents
  a $10 million reduction in the credit recognized during 2001. This reduction
  was primarily due to the remeasurement of the projected benefit obligation and
  the recognition of a decline in asset value for PPL's primary pension plan during
  2002.

Refer to Note 12 to the Financial Statements for additional information regarding
  pension and other postretirement benefits.

1. Loss Accruals

PPL Electric periodically records the estimated impacts of various conditions,
  situations or circumstances involving uncertain outcomes. These events are called
  "contingencies," and PPL Electric's accounting for such events is prescribed
  by SFAS 5, "Accounting for Contingencies." SFAS 5 defines a contingency as "an
  existing condition, situation, or set of circumstances involving uncertainty
  as to possible gain or loss to an enterprise that will ultimately be resolved
  when one or more future events occur or fail to occur."

For loss contingencies, the loss must be accrued if (1) information is available
  that indicates it is "probable" that the loss has been incurred, given the likelihood
  of the uncertain future events and (2) the amount of the loss can be reasonably
  estimated. FASB defines "probable" as cases in which "the future event or events
  are likely to occur." SFAS 5 does not permit the accrual of gain contingencies
  under any circumstances.

The accrual of a loss contingency involves considerable judgment on the part
  of management. The accounting aspects of loss accruals include: (1) the initial
  identification and recording of the loss accrual and (2) the determination of
  a triggering event for reducing a recorded loss accrual and the on-going assessment
  as to whether a recorded loss accrual is reasonable.

Initial Identification and Recording of the Loss Accrual

PPL Electric uses its internal expertise and outside experts (such as lawyers,
  tax specialists and engineers), as necessary, to help estimate the probability
  that a loss has been incurred and the amount (or range) of the loss.

Throughout 2002, PPL Electric assessed potential loss accruals for environmental
  remediation, litigation claims, regulatory penalties and other events. There
  were no material events identified for which a loss was probable and for which
  the loss could be reasonably estimated. Therefore, there were no material loss
  accruals recorded in 2002 using the SFAS 5 criteria.

However, PPL Electric has identified certain events which could give rise to
  a loss, but which do not meet the conditions for accrual under SFAS 5. SFAS
  5 requires disclosure, but not a recording, of potential losses when it is "reasonably
  possible" that a loss has been incurred. FASB defines "reasonably possible"
  as cases in which "the chance of the future event or events occurring is more
  than remote but less than likely."

See Note 14 to the Financial Statements for disclosure of potential loss accruals,
  most of which have not met the criteria for accrual under SFAS 5. Such disclosures
  include any potential adverse outcome related to the PJM Market Monitor report
  and studies regarding the impact of electric and magnetic fields.

Reducing Recorded Loss Accruals and On-Going Assessment

When a loss accrual is recorded, PPL Electric identifies the triggering event
  for subsequently reducing the loss accrual. Also, PPL Electric periodically
  reviews the loss accrual to assure that the recorded potential loss exposure
  is reasonable.

The largest contingency currently on PPL's balance sheet is the loss accrual
  for above-market NUG purchase commitments, being the difference between the
  above-market contract terms and the fair value of electricity. This loss accrual
  was originally recorded at $854 million in 1998, when PPL Electric's generation
  business was deregulated. Under regulatory accounting, PPL Electric recorded
  the above-market cost of the purchases from NUGs as part of its purchased power
  costs on an as-incurred basis, since these costs were recovered in regulated
  rates. When the generation business was deregulated, the loss contingency associated
  with the commitment to make above-market NUG purchases was recorded. This loss
  accrual for the above-market portion of NUG purchase commitments was recorded
  because it was probable that the loss had been incurred and the estimate of
  future energy prices could be reasonably determined, using the then forward
  prices of electricity and capacity information. This loss accrual was transferred
  to PPL EnergyPlus in the July 1, 2000 corporate realignment.

When the loss accrual related to NUG purchases was recorded in 1998, PPL Electric
  established the triggering events for when the loss accrual would be reduced.
  A schedule was established to reduce the liability based on projected purchases
  over the lives of the NUG contracts. All but one of the NUG contracts expire
  by 2009, with the last one ending in 2014.

Prior to the July 1, 2000 transfer, PPL Electric reduced the above-market NUG
  liability based on the aforementioned schedule. Prior to the transfer, as PPL
  Electric reduced the liability for the above-market NUG purchases, it offset
  the actual cost of NUG purchases, thereby bringing the net power purchase expense
  more in line with market prices.

PPL Electric periodically reviews its loss accruals, to assure that the recorded
  potential loss exposures are fairly stated.



Other Information



PPL's Audit Committee has approved the independent auditor to provide the following
  services:

- Audit and audit-related services (including services in connection with
    statutory and regulatory filings, reviews of offering documents and registration
    statements, employee benefit plan audits and internal control reviews);
- Certain tax consulting and advisory services for projects commenced prior
    to December 31, 2002; and,
- Other services permitted by the Sarbanes-Oxley Act of 2002 and SEC rules.

PPL MONTANA, LLC AND SUBSIDIARIESItem 7. Review of the Financial Condition and Results of Operations



The following analysis of the results of operations and financial condition
  of PPL Montana is abbreviated as PPL Montana meets the conditions set forth
  in General Instruction (I)(1)(a) and (b) of Form 10-K. Such analysis should
  be read in conjunction with the financial statements in Item 8. Terms and abbreviations
  appearing here are explained in the glossary.

In July 2000, PPL Montana completed a sale and leaseback of its interests in
  the Colstrip generating station. The owner lessors paid an aggregate amount
  of approximately $410 million for the leased assets. This amount was funded
  by equity contributions from the owner investor to the owner lessors in the
  amount of $72 million, and $338 million of the proceeds from the sale of pass-through
  trust certificates secured by lessor notes.



Results of Operations

The following discussion explains significant changes in principal items on
  the Statement of Income, comparing the twelve months ended December 31, 2002,
  to the comparable period in 2001.

The Statement of Income reflects the results of past operations and is not
  intended as any indication of future operating results. Future operating results
  will necessarily be affected by various and diverse factors and developments.
  Furthermore, because results for interim periods can be disproportionately influenced
  by various factors and developments and by seasonal variations, the results
  of operations for interim periods do not necessarily indicate results or trends
  for the year.

Earnings

Net income decreased by $56 million for the twelve months ended December 31,
  2002, compared with the same period in 2001. The decrease was primarily due
  to lower wholesale prices in the western U.S.

Operating Revenues

Operating revenues decreased by $118 million for the twelve months ended December
  31, 2002, compared with the same period in 2001. The decrease was primarily
  due to a decline in wholesale energy prices from the high prices experienced
  in the first half of 2001, resulting from an energy supply shortage in the western
  U.S. The decrease in power prices resulted in a decrease in revenues of $171
  million, while an increase in volume sold resulted in an increase in revenues
  of $53 million.

In June 2001, the FERC instituted a series of price controls designed to mitigate
  (or cap) prices in the entire western U.S. as a result of the California energy
  crisis. These price controls have had the effect of significantly lowering spot
  and forward energy prices in the western U.S. See Note 14 to the Financial Statements
  for further discussion on the California situation.

Operating Expenses

Operating expenses decreased by $29 million during the twelve months ended
  December 31, 2002, compared with the same period in 2001. Operating expenses
  consist mainly of expenses for fuel, energy purchases, transmission tariffs,
  plant operations and maintenance, lease rental payments, and general and administrative
  expenses. The decrease was due to lower energy purchases, related to the decreased
  power costs in the western U.S. during the first half of 2002. The decrease
  in power prices resulted in a $53 million decrease in energy purchases, while
  an increase in volumes purchased resulted in an increase in energy purchases
  of $24 million.

Generation increased by 350 million kWh during the twelve months ended December
  31, 2002, compared with the same period in 2001. This increase was primarily
  the result of higher hydroelectric generation caused by improved water flows
  in the first half of 2002.





New Accounting Standards



See Note 22 to the Financial Statements for information on
  new accounting standards adopted in 2002 or pending adoption.



Risk Management - Energy Marketing & Trading and Other



Market Risk

Background



Market risk is the potential loss PPL Montana may incur as a result of price
  changes associated with a particular financial or commodity instrument. PPL
  Montana is exposed to market risk from commodity price risk for energy and energy-related
  products associated with the sale of electricity from its generating assets,
  the purchase of fuel for the generating assets, and energy trading activities.

PPL Montana has a comprehensive risk management policy approved by the PPL's
  Board of Directors to manage the market risk and counterparty credit risk. (Credit
  risk is discussed below.) The RMC, comprised of senior management and chaired
  by the Vice President-Risk Management, oversees the risk management function.
  Key risk control activities designed to monitor compliance with risk policies
  and detailed programs include, but are not limited to, credit review and approval,
  validation of transactions and market prices, verification of risk and transaction
  limits, sensitivity analyses, and daily portfolio reporting, including open
  positions, mark-to-market valuations, and other risk measurement metrics. In
  addition, efforts are on-going to develop systems to improve the timeliness,
  quality and breadth of market and credit risk information.

The forward-looking information presented below provides estimates of what
  may occur in the future, assuming certain adverse market conditions, due to
  reliance on model assumptions. Actual future results may differ materially from
  those presented. These disclosures are not precise indicators of expected future
  losses, but only indicators of reasonably possible losses.

Contract Valuation



PPL Montana utilizes forward contracts, options and swaps as part of its risk
  management strategy to minimize unanticipated fluctuations in earnings caused
  by price volatility.When available, quoted market prices are used to
  determine the fair value of a commodity or financial instrument. This may include
  exchange prices, the average mid-point bid/ask spreads obtained from brokers,
  or an independent valuation by an external source, such as a bank. However,
  market prices for energy or energy-related contracts may not be readily determinable
  because of market illiquidity. If no active trading market exists, contracts
  are valued using internally developed models. If the contracts are not accounted
  for under the accrual method of accounting, the valuations are reviewed by an
  independent, internal group. Although PPL Montana believes that its valuation
  methods are reasonable, changes in the underlying assumptions could result in
  significantly different values and realization in future periods.



To record derivatives at their fair value, PPL Montana discounts the forward
  values using LIBOR. Additionally, PPL Montana reduces derivative assets' carrying
  value to recognize differences in counterparty credit quality and potential
  illiquidity in the market.

- The credit adjustment takes into account the bond ratings (and the implied
    default rates) of the counterparties that have an out-of-the-money position
    with PPL. The more counterparties that have, for example, a BBB rating instead
    of an A rating, the larger the adjustment.

- The liquidity adjustment takes into account the fact that it may not be
    appropriate to value contracts at the midpoint of the bid/ask spread. PPL
    might have to accept the "bid" price if PPL wanted to close an open sales
    position or PPL might have to accept the "ask" price if PPL wanted to close
    an open purchase position.



Accounting and Reporting



PPL Montana follows the provisions of SFAS 133, "Accounting for Derivative
  Instruments and Hedging Activities," as amended by SFAS 138, "Accounting for
  Certain Derivative Instruments and Certain Hedging Activities," and interpreted
  by DIG issues (together, "SFAS 133") and EITF 02-3, "Issues Involved in Accounting
  for Derivative Contracts Held for Trading Purposes and Contracts Involved in
  Energy Trading and Risk Management Activities," to account for contracts entered
  into to manage market risk. SFAS 133 requires that all derivative instruments
  be recorded at fair value on the balance sheet as an asset or liability (unless
  they meet SFAS 133's criteria for exclusion) and that changes in the derivative's
  fair value be recognized currently in earnings unless specific hedge accounting
  criteria are met.



PPL Montana's short-term trading contracts are recorded as "Price risk management
  assets" and "Price risk management liabilities" on the Balance Sheet. Long-term
  derivative contracts are included in "Noncurrent Assets - Other" and "Noncurrent
  Liabilities - Other."



PPL Montana adopted the final provisions of EITF 02-3 during the fourth quarter
  of 2002. As such, PPL Montana now reflects its net realized and unrealized gains
  and losses associated with all derivatives that are held for trading purposes
  in the "Net energy trading margins" line on the Statement of Income.
  Non-derivative contracts that met the definition of energy trading activities
  as defined by EITF 98-10, "Accounting for Energy Trading and Risk Management
  Activities" are reflected in the financial statements using the accrual
  method of accounting. Under the accrual method of accounting, unrealized gains
  and losses are not reflected in the financial statements. Prior periods have
  been reclassified. PPL Montana did not need to record a cumulative effect of
  this change in accounting principle, because all non-derivative energy-related
  trading contracts had been shown in the financial statements at their amortized
  cost. This reflected modeling reserves that incorporated the lack of independence
  in valuing contracts for which there were no external market prices.



Accounting Designation



Energy contracts that do not qualify as derivatives receive accrual accounting.
  For energy contracts that meet the definition of a derivative, the circumstances
  and intent existing at the time that energy transactions are entered into determine
  their accounting designation. These designations are verified by PPL Montana's
  risk control group on a daily basis. The following is a summary of the guidelines
  that have been provided to the traders who are responsible for contract designation
  for derivative energy contracts:



- Any wholesale and retail contracts to sell electricity that are expected
    to be delivered from PPL Montana's generation are considered "normal." These
    transactions are not recorded in the financial statements and have no earnings
    impact until delivery. Most wholesale electricity sales contracts in the eastern
    and western U.S. markets receive "normal" treatment. The methodology utilized
    in determining the amount of sales that can be delivered from PPL Montana's
    generation has been reviewed by the RMC. This calculation predicts the probability
    that generating units will run based on current market prices, expected price
    volatilities and dispatch rates, as well as planned and forced outage rates
    by plant by month. See discussion below about the assumptions used to calculate
    how much energy is expected from, or required for, generation assets.



- "Trading around the assets" means that PPL EnergyPlus matches a contract
    to sell electricity, previously to be delivered from PPL Montana's generation,
    with a physical or financial contract to purchase electricity. These contracts
    can qualify for fair value hedge treatment. When the contracts' terms are
    identical, there is no earnings impact until delivery. The realized revenues
    and expenses associated with these contracts are currently recorded gross
    on the Statement of Income. EITF 02-L, "Reporting Gains and Losses on Derivative
    Instruments That are Subject to FASB Statement No. 133 and Not Held for Trading
    Purposes," may, in the future, require that hedges that result in physical
    delivery be recorded on a net basis.



- Physical electricity purchases needed to meet obligations due to a change
    in the physical load or generation forecasts are considered "normal."



- Physical electricity purchases that increase PPL Montana's long position
    and any energy sale or purchase considered a "market call" are speculative,
    with unrealized gains or losses recorded immediately through earnings.



- Financial electricity transactions, which can be settled in cash, cannot
    be considered "normal" because they do not require physical delivery. These
    transactions receive cash flow hedge treatment if they lock in the price PPL
    Montana will receive or pay for energy expected to be generated or purchased
    in the spot market. Any unrealized gains or losses on transactions that receive
    cash flow hedge treatment are recorded in other comprehensive income.



- Option contracts that do not meet the requirements of DIG Issue C15, "Scope
    Exceptions: Interpreting the Normal Purchases and Normal Sales Exception as
    an Election," do not receive hedge accounting treatment and are marked to
    market through earnings.



Commodity Price Risk

Commodity price risk is one of PPL Montana's most significant risks due to
  the level of investment that PPL Montana maintains in its generation assets,
  coupled with the volatility of prices for energy and energy-related products.
  Several factors influence price levels and volatilities. These factors include,
  but are not limited to, seasonal changes in demand, weather conditions, available
  generating assets within regions, transportation availability and reliability
  within and between regions, market liquidity, and the nature and extent of current
  and potential federal and state regulations. To hedge the impact of market price
  fluctuations on PPL Montana's energy-related assets, liabilities and other contractual
  arrangements, PPL EnergyPlus sells and purchases physical energy at the wholesale
  level under FERC market-based tariffs throughout the U.S. and enters into financial
  exchange-traded and OTC contracts. Because of the generating assets PPL Montana
  owns or controls, the majority of PPL Montana's energy transactions qualify
  for accrual or hedge accounting.

Within PPL Montana's hedge portfolio, the decision to enter into energy contracts
  hinges on the expected value of PPL Montana's generation. To address this risk,
  PPL Montana takes a conservative approach in determining the number of MWhs
  that are available to be sold forward. In this regard, PPL Montana reduces the
  maximum potential output that a plant may produce by three factors - planned
  maintenance, forced outage and economic conditions. The potential output of
  a plant is first reduced by the amount of unavailable generation due to planned
  maintenance on a particular unit. Another reduction, representing the forced
  outage rate, is the amount of MWhs that historically are not produced by a plant
  due to such factors as equipment breakage. Finally, the potential output of
  certain plants (like peaking units) are reduced because their higher cost of
  production will not allow them to economically run during all hours.

PPL Montana's non-trading portfolio also includes full requirements energy
  contracts. The obligation to serve these contracts changes minute by minute.
  PPL Montana analyzes historical on-peak and off-peak usage patterns, as well
  as spot prices and weather patterns, to determine a monthly level of block electricity
  that best fits the usage patterns in order to minimize earnings volatility.
  On a forward basis, PPL Montana reserves a block amount of generation for full
  requirements energy contracts that is expected to be the best match with their
  anticipated usage patterns and energy peaks. Anticipated usage patterns and
  peaks are affected by expected load growth, regional economic drivers and seasonality.

Because of PPL Montana's efforts to hedge the value of the energy from its
  generation assets, PPL Montana has open contractual positions. If PPL Montana
  were unable to deliver firm capacity and energy under its agreements, under
  certain circumstances it would be required to pay damages. These damages would
  be based on the difference between the market price to acquire replacement capacity
  or energy and the contract price of the undelivered capacity or energy. Depending
  on price volatility in the wholesale energy markets, such damages could be significant.
  Extreme weather conditions, unplanned power plant outages, transmission disruptions,
  non-performance by counterparties (or their counterparties) with which it has
  power contracts and other factors could affect PPL Montana's ability to meet
  its firm capacity or energy obligations, or cause significant increases in the
  market price of replacement capacity and energy. Although PPL Montana attempts
  to mitigate these risks, there can be no assurance that it will be able to fully
  meet its firm obligations, that it will not be required to pay damages for failure
  to perform, or that it will not experience counterparty non-performance in the
  future.

As of December 31, 2002, PPL Montana estimated that a 10% adverse movement
  in market prices across all geographic areas and time periods would have decreased
  the value of the commodity contracts in its non-trading portfolio by approximately
  $76 million, as compared to a decrease of $49 million at December 31, 2001.
  However, the change in the value of the non-trading portfolio would have been
  substantially offset by an increase in the value of the underlying commodity,
  the electricity generated, because these contracts serve to reduce the market
  risk inherent in the generation of electricity. Additionally, the value of PPL
  Montana's unsold generation would be improved. Because PPL Montana's electricity
  portfolio is generally in a net sales position, the adverse movement in prices
  is usually an increase in prices.

PPL Montana also executes energy contracts to take advantage of market opportunities.
  As a result, PPL Montana may at times create a net open position in its portfolio
  that could result in significant losses if prices do not move in the manner
  or direction anticipated. The margins from these trading activities are shown
  in the Statement of Income as "Net energy trading margins." The physical volumes
  associated with energy trading were 548 MWh in 2002, 282 MWh in 2001 and 73
  MWh in 2000.

PPL Montana's trading contracts mature at various times through 2003. PPL Montana's
  net fair market value of trading contracts as of December 31, 2002 and 2001
  was insignificant.

As of December 31, 2002, the net loss on PPL Montana's trading activities expected
  to be recognized in earnings during the next three months is insignificant.

PPL Montana estimated that a 10% adverse movement in market prices across all
  geographic areas and time periods would have decreased the value of the commodity
  contracts in its trading portfolio by an insignificant amount at December 31,
  2002 and 2001.

Interest Rate Risk

PPL Montana may use borrowings to provide funds for its operations. PPL Montana
  may utilize various financial derivative products and risk management techniques
  to adjust the mix of fixed and floating-rate interest rates in its debt portfolio
  and thereby reduce its exposure to adverse interest rate movements. PPL Montana
  had $26 million in borrowings outstanding as of December 31, 2002, and its interest
  rate risk was not significant.



Credit Risk



Credit risk relates to the risk of loss that PPL Montana would incur as a result
  of non-performance by counterparties of their contractual obligations. PPL Montana
  maintains credit policies and procedures with respect to counterparties (including
  requirements that counterparties maintain certain credit ratings criteria) and
  requires other assurances in the form of credit support or collateral in certain
  circumstances in order to limit counterparty credit risk. However, PPL Montana
  has concentrations of suppliers and customers among electric utilities and other
  energy marketing and trading companies. These concentrations of counterparties
  may impact PPL Montana's overall exposure to credit risk, either positively
  or negatively, in that counterparties may be similarly affected by changes in
  economic, regulatory or other conditions. As discussed above under "Accounting
  and Reporting" PPL Montana records certain non-performance reserves to reflect
  the probability that a counterparty with contracts that are out of the money
  (from the counterparty's standpoint) will default in its performance, in which
  case PPL Montana would have to sell into a lower-priced market or purchase from
  a higher-priced market. These reserves are reflected in the fair value of assets
  recorded in "Price risk management assets" on the Balance Sheet. PPL Montana
  has also established a reserve with respect to certain sales to the California
  ISO for which PPL Montana has not yet been paid. See Note 14 to the Financial
  Statements.

Competition

See Note 14 to the Financial Statements for information on the FERC Notice
  of Proposed Rulemaking entitled "Remedying Undue Discrimination through Open
  Access Transmission Service and Standard Electricity Market Design."

Application of Critical Accounting Policies

PPL Montana's financial condition and results of operations are impacted by
  the methods, assumptions and estimates used in the application of critical accounting
  policies. The following accounting policies are particularly important to the
  financial condition or results of operations of PPL Montana, and require estimates
  or other judgments of matters inherently uncertain. Changes in the estimates
  or other judgments included within these accounting policies could result in
  a significant change to the information presented in the financial statements.
  (These accounting policies are also discussed in Note 1 to the Financial Statements.)PPL's senior management has reviewed these critical accounting policies,
  and the estimates and assumptions regarding them, with its Audit Committee.
  In addition, PPL's senior management has reviewed the following disclosures
  regarding the application of these critical accounting policies with the Audit
  Committee.

1. Price Risk Management

See "Risk Management - Energy Marketing & Trading and Other" above.

1. Pension and Other Postretirement Benefits

PPL Montana follows the guidance of SFAS 87, "Employers' Accounting for Pensions,"
  and SFAS 106, "Employers' Accounting for Postretirement Benefits Other Than
  Pensions," when accounting for these benefits. Under these accounting standards,
  assumptions are made regarding the valuation of benefit obligations and performance
  of plan assets. Delayed recognition of differences between actual results and
  expected or estimated results is a guiding principle of these standards. This
  delayed recognition of actual results allows for a smoothed recognition of changes
  in benefit obligations and plan performance over the working lives of the employees
  who benefit under the plans. The primary assumptions are as follows:

- Discount Rate - The discount rate is used in calculating the present value
    of benefits, which are based on projections of benefit payments to be made
    in the future.

- Expected Return on Plan Assets - Management projects the future return on
    plan assets based principally on prior performance. These projected returns
    reduce the net benefit costs the company will record currently.

- Rate of Compensation Increase - Management projects employees' annual pay
    increases, which are used to project employees' pension benefits at retirement.

- Health Care Cost Trend Rate - Management projects the expected increases
    in the cost of health care.

During 2002, PPL Montana made changes to its assumptions related to the discount
  rate, the expected return on plan assets, the rate of compensation increase
  and the health care cost trend rate. Management consults with its actuaries
  when selecting each of these assumptions.

In selecting discount rates, PPL Montana considers fixed-income security yield
  rates. At December 31, 2002, PPL Montana decreased the discount rate from 7.25%
  to 6.75% as a result of decreased fixed-income security returns.

In selecting an expected return on plan assets, PPL Montana considers past
  performance and economic forecasts for the types of investments held by the
  plan. At December 31, 2002, PPL Montana decreased the expected return on plan
  assets from 9.2% to 9.0% as a result of continued declines in equity and fixed-income
  security returns.

In selecting a rate of compensation increase, PPL Montana considers past experience
  in light of movements in inflation rates. At December 31, 2002, PPL Montana
  decreased the rate of compensation increase from 4.25% to 4.0%.

In selecting health care cost trend rates, PPL Montana considers past performance
  and forecasts of health care costs. At December 31, 2002, PPL Montana increased
  its previous health care cost trend rates. The previous rates were 7.0% for
  2002, gradually declining to 6% in 2006. The new rates are 12% for 2003, gradually
  declining to 5.0% for 2010. These changes are based upon continued increases
  in health care costs.

A variance in the assumption listed above could have a significant impact on
  the projected benefit obligations, accrued pension and other postretirement
  benefit liabilities, reported annual net periodic pension and other postretirement
  benefit cost and other comprehensive income (OCI).

A 25 basis point reduction in the discount rate would increase the projected
  benefit obligations and OCI charge by $2 million and would have an immaterial
  impact on the accrued pension and other postretirement benefit liabilities (excluding
  additional minimum liability) and reported annual net periodic pension and other
  postretirement benefit cost. A 100 basis point increase in the health care cost
  trend rate would increase the projected benefit obligations by $1 million and
  would have an immaterial impact on the accrued pension and other postretirement
  benefit liabilities and the annual net periodic pension and other postretirement
  benefit cost. A 25 basis point change in the expected return on plan assets
  or rate of compensation increase would have an immaterial impact on the projected
  benefit obligations, accrued pension and other postretirement benefit liabilities,
  reported annual net periodic pension and other postretirement benefit cost and
  OCI. While the information above reflects either an increase or decrease in
  each assumption, PPL Montana and its actuaries expect that the inverse of this
  change would have a similar impact in the opposite direction. Each sensitivity
  above reflects an evaluation of the change based solely on a change in that
  assumption.

At December 31, 2002, PPL Montana had recognized accrued pension and other
  postretirement benefit liabilities of $27 million, included in "Noncurrent Liabilities
  - Other" on the Balance Sheet. PPL Montana's total projected obligation for
  these benefits was approximately $59 million, but was offset by $23 million
  of assets held in various trusts. The $27 million liability represented a $11
  million increase over the $16 million liability that was recorded at December
  31, 2001. The increased liability is due to an increase in the projected obligation
  associated with the reduction of the discount rate and the reduction of the
  fair value of plan assets due to recent performance.

In 2002, PPL Montana recognized net periodic pension and other postretirement
  costs charged to operating expenses of $4 million, excluding amounts credited
  to construction and other non-expense accounts. This amount represents a $1
  million increase in the expense recognize during 2001.

As a result of the plan's asset return experience and decreases in the assumed
  discount rate at December 31, 2002, PPL Montana was required to recognize additional
  minimum pension liabilities totaling $13 million, as prescribed by SFAS 87.
  Recording these liabilities resulted in a reduction in equity through charges
  to OCI, net of taxes and unrecognized prior service costs, of $6 million, with
  no affect on net income. The charges to OCI will reverse in future periods if
  the fair value of trust assets exceeds the accumulated benefit obligation.

Refer to Note 12 to the Financial Statements for additional information regarding
  pension and other postretirement benefits.

1. Leasing

PPL Montana applies the provisions of SFAS 13, "Accounting for Leases,"
      to all leasing transactions. In addition, PPL Montana applies the provisions
      of numerous other accounting pronouncements issued by the FASB and the EITF
      that provide specific guidance and additional requirements related to accounting
      for various leasing arrangements. In general, there are two types of leases
      from a lessee's perspective: operating leases - leases accounted for off-balance
      sheet and capital leases - leases capitalized on the balance sheet.

In accounting for leases, management makes various assumptions, including
      the discount rate, the fair market value of the leased assets and the estimated
      useful life, in determining whether a lease should be classified as operating
      or capital. Changes in these assumptions could result in the difference
      between whether a lease is determined to be an operating lease or a capital
      lease, thus significantly impacting the amounts to be recognized in the
      financial statements.

In addition to uncertainty inherent in management's assumptions, leasing
      transactions and the related accounting rules become increasingly complex
      when they involve: sale/leaseback accounting (leasing transactions where
      the lessee previously owned the leased assets), synthetic leases (leases
      that qualify for operating lease treatment for book accounting purposes
      and financing treatment for tax accounting purposes), lessee involvement
      in the construction of leased assets and/or special purpose entities (SPEs)
      (entities created for the specific purpose of owning the property, plant
      and equipment and incurring the related financing obligation). Current GAAP
      requires that SPEs be consolidated if several conditions exist, including
      if the owners of the SPEs have not made an initial substantive residual
      equity capital investment that is at risk during the entire lease term.
      The consolidation of an SPE lessor by the lessee has a very similar financial
      result as a lease that is accounted for as a capital lease, that is, the
      leased assets and the related financing obligations are recorded on the
      lessee's balance sheet.

At December 31, 2002, PPL Montana subsidiaries participated in one significant
      sale/leaseback transaction involving unconsolidated SPEs. This transaction
      has been accounted for as an operating lease. In accordance with current
      GAAP, these SPEs were not consolidated by PPL Montana because the equity
      owners (entities unrelated to PPL Montana and its subsidiaries) contributed
      and maintain a minimum of 3% equity interest throughout the life of the
      SPEs.



Sale/Leaseback



In July 2000, PPL Montana sold its interest in the Colstrip generating
      plant to owner lessors who are leasing the assets back to PPL Montana under
      four 36-year operating leases. This transaction is accounted for as an operating
      lease in accordance with current rules related to sale/leaseback arrangements.
      If for any reason this transaction did not meet the requirements for off-balance
      sheet operating lease treatment as a sale/leaseback, PPL Montana would have
      approximately $343 million of additional assets and liabilities recorded
      on its balance sheet at December 31, 2002 and would have recorded additional
      expenses currently estimated at $10 million, after-tax, in 2002.

In January 2003, the FASB issued FIN 46, "Consolidation of Variable Interest
      Entities, an interpretation of ARB No. 51." FIN 46 clarifies that variable
      interest entities (VIEs), as defined therein, that do not disperse risks
      among the parties involved should be consolidated by the entity that is
      determined to be the primary beneficiary. The principal impact from such
      consolidation would be the inclusion of the generating facilities as assets
      and the lease financing as liabilities in the consolidated balance sheet
      of PPL Montana. PPL Montana does not currently believe that the lessors
      in the PPL Montana sale/leaseback will be determined to be VIEs in which
      PPL Montana will be the primary beneficiary. Therefore, PPL Montana does
      not expect to consolidate the financial statements of these lessors. PPL
      Montana must adopt FIN 46 for all of these leases no later than the first
      interim period beginning after June 15, 2003.

See Note 10 to the Financial Statements for additional information related
      to operating leases and Note 22 for additional information related to FIN
      46.

1. Loss Accruals

PPL Montana periodically records the estimated impacts of various conditions,
  situations or circumstances involving uncertain outcomes. These events are called
  "contingencies," and PPL Montana's accounting for such events is prescribed
  by SFAS 5, "Accounting for Contingencies." SFAS 5 defines a contingency as "an
  existing condition, situation, or set of circumstances involving uncertainty
  as to possible gain or loss to an enterprise that will ultimately be resolved
  when one or more future events occur or fail to occur."

For loss contingencies, the loss must be accrued if (1) information is available
  that indicates it is "probable" that the loss has been incurred, given the likelihood
  of the uncertain future events; and (2) the amount of the loss can be reasonably
  estimated. FASB defines "probable" as cases in which "the future event or events
  are likely to occur." SFAS 5 does not permit the accrual of gain contingencies
  under any circumstances.

The accrual of a loss contingency involves considerable judgment on the part
  of management. There are two major accounting aspects of loss accruals: (1)
  the initial identification and recording of the loss accrual and (2) the determination
  of a triggering event for reducing a recorded loss accrual, and the on-going
  assessment as to whether a recorded loss accrual is reasonable.

Initial Identification and Recording of the Loss Accrual

PPL Montana uses its internal expertise, and outside experts (such as lawyers,
  tax specialists and engineers), as necessary, to help estimate the probability
  that a loss has been incurred and the amount (or range) of the loss.

Throughout 2002, PPL Montana assessed potential loss accruals for environmental
  remediation, litigation claims, regulatory penalties, and other possible loss
  events. There were no material events identified for which a loss was probable
  and for which the loss could be reasonably estimated. Therefore, there was no
  material loss accruals recorded in 2002 using the SFAS 5 criteria.

However, PPL Montana has identified certain events which could give rise to
  a loss, but which do not meet the conditions for accrual under SFAS 5. SFAS
  5 requires disclosure, but not a recording, of potential losses when it is "reasonably
  possible" that a loss has been incurred. FASB defines "reasonably possible"
  as cases in which "the chance of the future event or events occurring is more
  than remote but less than likely."

See Note 14 to the Financial Statements for disclosure of potential loss accruals,
  most of which have not met the criteria for accrual under SFAS 5. Such disclosures
  include, among others, the Montana Power shareholders' litigation and a lawsuit
  regarding the Colstrip transmission system.

Reducing Recorded Loss Accruals and On-Going Assessment

When a loss accrual is recorded, PPL Montana identifies the triggering event
  for subsequently reducing the loss accrual. Also, PPL Montana periodically reviews
  the adequacy of the loss accrual to assure that the recorded potential loss
  exposure is reasonable.

The largest contingency currently on PPL Montana's balance sheet is the loss
  accrual for the above-market purchase contract and below-market sale contracts,
  being the difference between the out-of-market contract terms and the fair value
  of the energy. This loss accrual was originally recorded at $118 million was
  recorded in 1999, when PPL Montana purchased the assets of Montana Power and
  assumed the two contracts. Under purchase accounting, PPL Montana recorded the
  out-of-market cost of the purchase and sale contracts. This loss accrual for
  the out-of-market contracts was recorded because it was probable that the loss
  had been incurred and the loss could be reasonably estimated, using forward
  pricing information. The out-of-market loss accrual was $64 million at December
  31, 2002.

When the loss accrual related to the two contracts was recorded in 1999, PPL
  Montana established the triggering events for when the loss accrual would be
  reduced. A schedule was established to reduce the liability based on projected
  purchases and sales over the lives of the two contracts. Both contracts expire
  in 2010. The liability is being reduced over the agreement terms as an adjustment
  to "Wholesale energy marketing" revenues and "Energy purchases" on the Statement
  of Income.

PPL Montana assessed the remaining $64 million out-of-market liability at December
  31, 2002, comparing the energy purchases and sales under the terms of the two
  contracts, with the purchases and sales assuming market prices for the energy.

Market prices for the contracts were derived by using internal forward energy
  price curves. The forward energy price curves in this scenario were based on
  the revenue and sales information for 2003 through 2010, as comprehended in
  the current business plan of PPL Montana. The assessment also used sensitivities
  around the forward energy prices, adjusting such prices upwards and downwards
  by 10%.

The assessment was dependent on forward energy prices and the projected purchase
  and sales levels of the two contracts. The forward prices of energy are dependent
  on many variables, including growth in electricity demand, available generation,
  and general economic conditions. Changes in these and other factors can have
  a dramatic impact on future electricity prices. Accordingly, forward energy
  price sensitivities were used in the assessment. If estimated forward market
  prices were adjusted upwards of 10% in each of the years from 2003 through 2010,
  the two contracts would have an estimated liability of $59 million. Conversely,
  if estimated forward market prices were adjusted downwards by 10% during the
  remaining term of the two contracts, the contracts would have an estimated liability
  of $69 million. The recorded liability of $64 million falls within the range
  calculated in the year-end assessment. As noted above, it is very difficult
  to estimate future electricity prices, which are dependent on many variables
  and subject to significant volatility. PPL Montana's management believes that
  the current recorded liability was fairly stated at December 31, 2002.

Other Information



PPL's Audit Committee has approved the independent auditor to provide the following
  services:

- Audit and audit-related services (including services in connection with
    statutory and regulatory filings, reviews of offering documents and registration
    statements, employee benefit plan audits and internal control reviews);
- Certain tax consulting and advisory services for projects commenced prior
    to December 31, 2002; and,
- Other services permitted by the Sarbanes-Oxley Act of 2002 and SEC rules.

---

ITEM 7A. QUANTITATIVE AND QUALITATIVE
  DISCLOSURES ABOUT MARKET RISK

PPL Corporation, PPL Energy Supply, LLC, PPL Electric Utilities Corporation
  and PPL Montana, LLC

Reference is made to "Risk Management - Energy Marketing & Trading and
  Other" in Review of Financial Condition and Results of Operations.

---

Report of Independent
  Accountants

To the Board of Directors and Shareowners of
  PPL Corporation:



In our opinion, the consolidated financial statements listed in the index appearing
  under Item 15(a)(1) on page 171 present fairly, in all material respects, the
  financial position of PPL Corporation and its subsidiaries ("PPL") at December
  31, 2002 and 2001, and the results of their operations and their cash flows
  for each of the three years in the period ended December 31, 2002 in conformity
  with accounting principles generally accepted in the United States of America.
  In addition, in our opinion, the financial statement schedule listed in the
  index appearing under Item 15(a)(2) presents
  fairly, in all material respects, the information set forth therein when read
  in conjunction with the related consolidated financial statements. These financial
  statements and financial statement schedule are the responsibility of PPL's
  management; our responsibility is to express an opinion on these financial statements
  and financial statement schedule based on our audits. We conducted our audits
  of these statements in accordance with auditing standards generally accepted
  in the United States of America, which require that we plan and perform the
  audit to obtain reasonable assurance about whether the financial statements
  are free of material misstatement. An audit includes examining, on a test basis,
  evidence supporting the amounts and disclosures in the financial statements,
  assessing the accounting principles used and significant estimates made by management,
  and evaluating the overall financial statement presentation. We believe that
  our audits provide a reasonable basis for our opinion.

As discussed in Note 17 to the consolidated financial statements, PPL changed
  its method of accounting for derivative and hedging activities pursuant to Statement
  of Financial Accounting Standards No. 133, Accounting for Derivative Instruments
  and Hedging Activities, as amended by Statement of Financial Accounting Standards
  No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities
  (an amendment of FASB Statement 133), in 2001. PPL also changed its method of
  accounting for amortizing unrecognized gains or losses in the annual pension
  expense/income determined under Statement of Financial Accounting Standards
  No. 87, Employers' Accounting for Pensions, as discussed in Note 12 to the consolidated
  financial statements in 2001. In addition, as discussed in Note 18 to the consolidated
  financial statements, PPL adopted Statement of Financial Accounting Standards
  No. 142, Goodwill and Other Intangible Assets, in 2002.





PricewaterhouseCoopers LLP
  Philadelphia, PA
  February 3, 2003

---

PPL CorporationManagement's Report on Responsibility for Financial Statements

PPL management is responsible for the preparation, integrity and objectivity
  of the consolidated financial statements and all other information in this annual
  report. The financial statements were prepared in accordance with accounting
  principles generally accepted in the United States of America and include amounts
  based on management's best estimates and judgments where necessary. Management
  believes that the financial statements are free of material misstatements and
  present fairly the financial position, results of operations and cash flows
  of PPL.

PPL management is responsible for establishing and maintaining an effective
  internal control structure and effective disclosure controls and procedures
  for financial reporting. PPL maintains a system of internal control that is
  designed to provide reasonable assurance that PPL assets are safeguarded from
  loss or unauthorized use or disposition and that transactions are executed in
  accordance with management's authorization and are properly recorded to permit
  the preparation of financial statements in accordance with generally accepted
  accounting principles. This system is augmented by a careful selection and training
  of qualified personnel, specific delegations of authority, a proper division
  of responsibilities, and utilization of written policies and procedures. An
  internal audit program monitors the effectiveness of this control system. Management
  believes that its internal control structure and its disclosure controls and
  procedures for financial reporting are adequate and effective.

The Audit Committee of the Board of Directors consists entirely of independent
  directors who are not employees of PPL. The Audit Committee reviews audit plans,
  internal controls, financial reports and related matters and meets regularly
  with management as well as the independent accountants and internal auditors.
  The independent accountants and the internal auditors have free access to the
  Audit Committee, without management present, to discuss internal accounting
  control, auditing and financial reporting matters.

PricewaterhouseCoopers LLP, the independent certified public accountants, audited
  PPL's consolidated financial statements and issued their opinion above.

PPL management also recognizes its responsibility for fostering a strong ethical
  climate so that it conducts its business affairs according to the highest standards
  of personal and corporate conduct.









William F. HechtChairman, President and Chief Executive Officer









John R. BiggarExecutive Vice President and Chief Financial Officer

---

Report of Independent Accountants



To the Board of Managers and Sole Member
  of PPL Energy Supply, LLC:



In our opinion, the consolidated financial statements listed in the index appearing
  under Item 15(a)(1) on page 171 present fairly, in all material respects, the
  financial position of PPL Energy Supply, LLC and its subsidiaries ("PPL Energy
  Supply") at December 31, 2002 and 2001, and the results of their operations
  and their cash flows for each of the three years in the period ended December
  31, 2002 in conformity with accounting principles generally accepted in the
  United States of America. In addition, in our opinion, the financial statement
  schedule listed in the index appearing under Item 15(a)(2) presents fairly,
  in all material respects, the information set forth therein when read in conjunction
  with the related consolidated financial statements. These financial statements
  and financial statement schedule are the responsibility of PPL Energy Supply's
  management; our responsibility is to express an opinion on these financial statements
  and financial statement schedule based on our audits. We conducted our audits
  of these statements in accordance with auditing standards generally accepted
  in the United States of America, which require that we plan and perform the
  audit to obtain reasonable assurance about whether the financial statements
  are free of material misstatement. An audit includes examining, on a test basis,
  evidence supporting the amounts and disclosures in the financial statements,
  assessing the accounting principles used and significant estimates made by management,
  and evaluating the overall financial statement presentation. We believe that
  our audits provide a reasonable basis for our opinion.

As discussed in Note 17 to the consolidated financial statements, PPL Energy
  Supply changed its method of accounting for derivative and hedging activities
  pursuant to Statement of Financial Accounting Standards No. 133, Accounting
  for Derivative Instruments and Hedging Activities, as amended by Statement of
  Financial Accounting Standards No. 138, Accounting for Certain Derivative Instruments
  and Certain Hedging Activities (an amendment of FASB Statement 133), in 2001.
  PPL Energy Supply also changed its method of accounting for amortizing unrecognized
  gains or losses in the annual pension expense/income determined under Statement
  of Financial Accounting Standards No. 87, Employers' Accounting for Pensions,
  as discussed in Note 12 to the consolidated financial statements in 2001. In
  addition, as discussed in Note 18 to the consolidated financial statements,
  PPL Energy Supply adopted Statement of Financial Accounting Standards No. 142,
  Goodwill and Other Intangible Assets, in 2002.





PricewaterhouseCoopers LLP
  Philadelphia, PA
  February 3, 2003

---

PPL Energy Supply, LLCManagement's Report on Responsibility for Financial Statements



PPL Energy Supply management is responsible for the preparation, integrity
  and objectivity of the consolidated financial statements and all other information
  in this annual report. The financial statements were prepared in accordance
  with accounting principles generally accepted in the United States of America
  and include amounts based on management's best estimates and judgments where
  necessary. Management believes that the financial statements are free of material
  misstatements and present fairly the financial position, results of operations
  and cash flows of PPL Energy Supply.

PPL Energy Supply management is responsible for establishing and maintaining
  an effective internal control structure and effective disclosure controls and
  procedures for financial reporting. PPL Energy Supply maintains a system of
  internal control that is designed to provide reasonable assurance that PPL Energy
  Supply assets are safeguarded from loss or unauthorized use or disposition and
  that transactions are executed in accordance with management's authorization
  and are properly recorded to permit the preparation of financial statements
  in accordance with generally accepted accounting principles. This system is
  augmented by a careful selection and training of qualified personnel, specific
  delegations of authority, a proper division of responsibilities, and utilization
  of written policies and procedures. An internal audit program monitors the effectiveness
  of this control system. Management believes that its internal control structure
  and its disclosure controls and procedures for financial reporting are adequate
  and effective.

The Board of Managers conducts activities through PPL's Audit Committee, which
  consists entirely of independent directors who are not employees of PPL. PPL's
  Audit Committee reviews audit plans, internal controls, financial reports and
  related matters and meets regularly with management as well as the independent
  accountants and internal auditors. The independent accountants and the internal
  auditors have free access to PPL's Audit Committee, without management present,
  to discuss internal accounting control, auditing and financial reporting matters.

PricewaterhouseCoopers LLP, the independent certified public accountants, audited
  PPL Energy Supply's consolidated financial statements and issued their opinion
  above.

PPL Energy Supply management also recognizes its responsibility for fostering
  a strong ethical climate so that it conducts its business affairs according
  to the highest standards of personal and corporate conduct.











William F. HechtPresident









John R. BiggarVice President

---

Report of Independent Accountants



To the Board of Directors and Shareowner of
  PPL Electric Utilities Corporation:



In our opinion, the consolidated financial statements listed in the index appearing
  under Item 15(a)(1) on page 171 present fairly, in all material respects, the
  financial position of PPL Electric Utilities Corporation and its subsidiaries
  ("PPL Electric") at December 31, 2002 and 2001, and the results of their operations
  and their cash flows for each of the three years in the period ended December
  31, 2002 in conformity with accounting principles generally accepted in the
  United States of America. In addition, in our opinion, the financial statement
  schedule listed in the index appearing under
  Item 15(a)(2) presents fairly, in all material respects, the information set
  forth therein when read in conjunction with the related consolidated financial
  statements. These financial statements and financial statement schedule are
  the responsibility of PPL Electric's management; our responsibility is to express
  an opinion on these financial statements and financial statement schedule based
  on our audits. We conducted our audits of these statements in accordance with
  auditing standards generally accepted in the United States of America, which
  require that we plan and perform the audit to obtain reasonable assurance about
  whether the financial statements are free of material misstatement. An audit
  includes examining, on a test basis, evidence supporting the amounts and disclosures
  in the financial statements, assessing the accounting principles used and significant
  estimates made by management, and evaluating the overall financial statement
  presentation. We believe that our audits provide a reasonable basis for our
  opinion.

As discussed in Note 12 to the consolidated financial statements, PPL Electric
  changed its method of accounting for amortizing unrecognized gains or losses
  in the annual pension expense/income determined under Statement of Financial
  Accounting Standards No. 87, Employers' Accounting for Pensions in 2001.





PricewaterhouseCoopers LLP
  Philadelphia, PA
  February 3, 2003

---

PPL Electric Utilities CorporationManagement's Report on Responsibility for Financial Statements



PPL Electric management is responsible for the preparation, integrity and objectivity
  of the consolidated financial statements and all other information in this annual
  report. The financial statements were prepared in accordance with accounting
  principles generally accepted in the United States of America and include amounts
  based on management's best estimates and judgments where necessary. Management
  believes that the financial statements are free of material misstatements and
  present fairly the financial position, results of operations and cash flows
  of PPL Electric.

PPL Electric management is responsible for establishing and maintaining an
  effective internal control structure and effective disclosure controls and procedures
  for financial reporting. PPL Electric maintains a system of internal control
  that is designed to provide reasonable assurance that PPL Electric assets are
  safeguarded from loss or unauthorized use or disposition and that transactions
  are executed in accordance with management's authorization and are properly
  recorded to permit the preparation of financial statements in accordance with
  generally accepted accounting principles. This system is augmented by a careful
  selection and training of qualified personnel, specific delegations of authority,
  a proper division of responsibilities, and utilization of written policies and
  procedures. An internal audit program monitors the effectiveness of this control
  system. Management believes that its internal control structure and its disclosure
  controls and procedures for financial reporting are adequate and effective.

The Board of Directors conducts activities through PPL's Audit Committee, which
  consists entirely of independent directors who are not employees of PPL. PPL's
  Audit Committee reviews audit plans, internal controls, financial reports and
  related matters and meets regularly with management as well as the independent
  accountants and internal auditors. The independent accountants and the internal
  auditors have free access to PPL's Audit Committee, without management present,
  to discuss internal accounting control, auditing and financial reporting matters.

PricewaterhouseCoopers LLP, the independent certified public accountants, audited
  PPL Electric's consolidated financial statements and issued their opinion above.

PPL Electric management also recognizes its responsibility for fostering a
  strong ethical climate so that it conducts its business affairs according to
  the highest standards of personal and corporate conduct.









Michael E. BrayVice Chairman and President









Joseph J. McCabeVice President and Controller

---

Report of Independent Accountants



To the Board of Managers and Member of
  PPL Montana, LLC



In our opinion, the consolidated financial statements listed in the index appearing
  under Item 15(a)(1) on page 171 present fairly, in all material respects, the
  financial position of PPL Montana, LLC and its subsidiaries ("PPL Montana")
  at December 31, 2002 and 2001, and the results of their operations and their
  cash flows for each of the three years in the period ended December 31, 2002
  in conformity with accounting principles generally accepted in the United States
  of America. In addition, in our opinion, the financial statement schedule listed
  in the index appearing under Item 15(a)(2)
  presents fairly, in all material respects, the information set forth therein
  when read in conjunction with the related consolidated financial statements.
  These financial statements and financial statement schedule are the responsibility
  of PPL Montana's management; our responsibility is to express an opinion on
  these financial statements and financial statement schedule based on our audits.
  We conducted our audits of these statements in accordance with auditing standards
  generally accepted in the United States of America, which require that we plan
  and perform the audit to obtain reasonable assurance about whether the financial
  statements are free of material misstatement. An audit includes examining, on
  a test basis, evidence supporting the amounts and disclosures in the financial
  statements, assessing the accounting principles used and significant estimates
  made by management, and evaluating the overall financial statement presentation.
  We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 17 to the consolidated financial statements, PPL Montana
  changed its method of accounting for derivative and hedging activities pursuant
  to Statement of Financial Accounting Standards No. 133, Accounting for Derivative
  Instruments and Hedging Activities, as amended by Statement of Financial Accounting
  Standards No. 138, Accounting for Certain Derivative Instruments and Certain
  Hedging Activities (an amendment of FASB Statement 133) in 2001. PPL Montana
  also changed its method of accounting for amortizing unrecognized gains or losses
  in the annual pension expense/income determined under Statement of Financial
  Accounting Standards No. 87, Employers' Accounting for Pensions, as discussed
  in Note 12 to the consolidated financial statements in 2001. In addition, as
  discussed in Note 18 to the consolidated financial statements, PPL Montana adopted
  Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible
  Assets, in 2002.





PricewaterhouseCoopers LLP

  February 3, 2003

---

PPL Montana, LLCManagement's Report on Responsibility for Financial Statements

PPL Montana management is responsible for the preparation, integrity and objectivity
  of the consolidated financial statements and all other information in this annual
  report. The financial statements were prepared in accordance with accounting
  principles generally accepted in the United States of America and include amounts
  based on management's best estimates and judgments where necessary. Management
  believes that the financial statements are free of material misstatements and
  present fairly the financial position, results of operations and cash flows
  of PPL Montana.

PPL Montana management is responsible for establishing and maintaining an effective
  internal control structure and effective disclosure controls and procedures
  for financial reporting. PPL Montana maintains a system of internal control
  that is designed to provide reasonable assurance that PPL Montana assets are
  safeguarded from loss or unauthorized use or disposition and that transactions
  are executed in accordance with management's authorization and are properly
  recorded to permit the preparation of financial statements in accordance with
  generally accepted accounting principles. This system is augmented by a careful
  selection and training of qualified personnel, specific delegations of authority,
  a proper division of responsibilities, and utilization of written policies and
  procedures. An internal audit program monitors the effectiveness of this control
  system. Management believes that its internal control structure and its disclosure
  controls and procedures for financial reporting are adequate and effective.

The Board of Managers conducts activities through PPL's Audit Committee, which
  consists entirely of independent directors who are not employees of PPL. PPL's
  Audit Committee reviews audit plans, internal controls, financial reports and
  related matters and meets regularly with management as well as the independent
  accountants and internal auditors. The independent accountants and the internal
  auditors have free access to PPL's Audit Committee, without management present,
  to discuss internal accounting control, auditing and financial reporting matters.

PricewaterhouseCoopers LLP, the independent certified public accountants, audited
  PPL Montana's consolidated financial statements and issued their opinion above.

PPL Montana management also recognizes its responsibility for fostering a strong
  ethical climate so that it conducts its business affairs according to the highest
  standards of personal and corporate conduct.





Bradley E. SpencerChief Operating Officer and Vice President







Charles S. BakerController

---

|INDEX TO ITEM 8. FINANCIAL
        STATEMENTS AND FINANCIAL STATEMENT SCHEDULES |                                                                                  
|------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------
|                                                                                | Page                                                                             
|FINANCIAL STATEMENTS                                                            |                                                                                  
|                                                                                | PPL Corporation                                                                  
|                                                                                |                                                                                  
|                                                                                |                                                                                  
|                                                                                |                                                                                  
|                                                                                |                                                                                  
|                                                                                |                                                                                  
|                                                                                |                                                                                  
|                                                                                |                                                                                  
|                                                                                |                                                                                  
|                                                                                | PPL Energy Supply, LLC                                                           
|                                                                                |                                                                                  
|                                                                                |                                                                                  
|                                                                                |                                                                                  
|                                                                                |                                                                                  
|                                                                                |                                                                                  
|                                                                                |                                                                                  
|                                                                                |                                                                                  
|                                                                                | PPL Electric Utilities
      Corporation                                         
|                                                                                |                                                                                  
|                                                                                |                                                                                  
|                                                                                |                                                                                  
|                                                                                |                                                                                  
|                                                                                |                                                                                  
|                                                                                |                                                                                  
|                                                                                |                                                                                  
|                                                                                |                                                                                  
|                                                                                | PPL Montana, LLC                                                                 
|                                                                                |                                                                                  
|                                                                                |                                                                                  
|                                                                                |                                                                                  
|                                                                                |                                                                                  
|                                                                                |                                                                                  
|COMBINED
      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                       | 112                                                                              
|                                                                                |                                                                                  
|FINANCIAL STATEMENT SCHEDULES                                                   |                                                                                  
|                                                                                | Schedule II - Valuation
      and Qualifying Accounts and Reserves               
|                                                                                |                                                                                  
|                                                                                |                                                                                  
|                                                                                |                                                                                  
|                                                                                |                                                                                  
|                                                                                | Quarterly
      Financial, Common Stock Price and Dividend Data - PPL Corporation
|                                                                                | Quarterly
      Financial Data - PPL Electric Utilities                          

---

|ITEM
      8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                            
|---------------------------------------------------------------------------------------------------------------------
|                                                                                                                     
|CONSOLIDATED STATEMENT OF INCOME
      FOR THE YEARS ENDED DECEMBER 31,                                              
|PPL Corporation and Subsidiaries                                                                                     
|(Millions of Dollars, except
      per share data)                                                                   
|                                                                                                                     
|                                                                                                                     
|Operating Revenues                                                                                                   
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|Operating Expenses                                                                                                   
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|Operating Income                                                                                                     
|                                                                                                                     
|Other Income - net (Note
      16)                                                                                   
|                                                                                                                     
|Interest Expense                                                                                                     
|                                                                                                                     
|                                                                                                                     
|Income Before Income
      Taxes and Minority Interest                                                               
|                                                                                                                     
|Income Taxes (Note 5)                                                                                                
|                                                                                                                     
|Minority Interest (Note
      1)                                                                                     
|                                                                                                                     
|                                                                                                                     
|Income Before Extraordinary
      Item                                                                               
|                                                                                                                     
|Extraordinary Item (net
      of income taxes) (Note 1)                                                              
|                                                                                                                     
|                                                                                                                     
|Income Before Cumulative Effect
      of a Change in Accounting
        Principle                                    
|                                                                                                                     
|Cumulative Effect of a Change in
      Accounting Principle (net of income taxes)
    (Notes 12 and 18)              
|                                                                                                                     
|                                                                                                                     
|Income Before Dividends
      and Distributions on Preferred Securities                                              
|                                                                                                                     
|Dividends and Distributions
      - Preferred Securities                                                             
|                                                                                                                     
|                                                                                                                     
|Net Income                                                                                                           
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|Basic Earnings Per
      Share of Common Stock (Note 4)                                                              
|                                                                                                                     
|Diluted Earnings Per
      Share of Common Stock (Note 4)                                                            
|                                                                                                                     
|Dividends Declared
      Per Share of Common Stock                                                                   
|                                                                                                                     
|The accompanying Notes to Consolidated
        Financial Statements are an integral part of the financial statements.

---

|CONSOLIDATED STATEMENT
      OF CASH FLOWS FOR THE YEARS ENDED
      DECEMBER 31,                                    
|---------------------------------------------------------------------------------------------------------------------
|PPL Corporation and Subsidiaries                                                                                     
|(Millions of Dollars)                                                                                                
|                                                                                                                     
|                                                                                                                     
|Cash Flows From Operating Activities                                                                                 
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|Cash Flows From Investing Activities                                                                                 
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|Cash Flows From Financing Activities                                                                                 
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|Effect of Exchange Rates on Cash
      and Cash Equivalents                                                          
|                                                                                                                     
|Net Increase (Decrease) in Cash and Cash Equivalents                                                                 
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|Supplemental Disclosures of Cash Flow Information                                                                    
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|The accompanying Notes to Consolidated
        Financial Statements are an integral part of the financial statements.

---

|CONSOLIDATED
      BALANCE SHEET AT DECEMBER 31,                                                                     
|---------------------------------------------------------------------------------------------------------------------
|PPL Corporation and Subsidiaries                                                                                     
|(Millions of Dollars)                                                                                                
|                                                                                                                     
|                                                                                                                     
|Assets                                                                                                               
|                                                                                                                     
|Current Assets                                                                                                       
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|Investments                                                                                                          
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|Property, Plant and Equipment -
      net (Note 1)                                                                   
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|Regulatory and Other Noncurrent
      Assets (Note 1)                                                                
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|The accompanying Notes to Consolidated
        Financial Statements are an integral part of the financial statements.

---

|CONSOLIDATED BALANCE SHEET AT DECEMBER 31,                                                                                  
|----------------------------------------------------------------------------------------------------------------------------
|PPL Corporation and Subsidiaries                                                                                            
|(Millions of Dollars)                                                                                                       
|                                                                                                                            
|                                                                                                                            
|Liabilities and Equity                                                                                                      
|                                                                                                                            
|Current Liabilities                                                                                                         
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|Long-term Debt                                                                                                              
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|Deferred Credits and Other Noncurrent
      Liabilities                                                                     
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|Commitments and Contingent Liabilities
      (Note 14)                                                                      
|                                                                                                                            
|                                                                                                                            
|Minority Interest (Note 1)                                                                                                  
|                                                                                                                            
|                                                                                                                            
|Company-obligated Mandatorily Redeemable Preferred Securities of
        Subsidiary Trusts Holding Solely Company Debentures
|                                                                                                                            
|                                                                                                                            
|Preferred Stock                                                                                                             
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|Shareowners' Common Equity                                                                                                  
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|The accompanying Notes to Consolidated
        Financial Statements are an integral part of the financial statements.       

---

|CONSOLIDATED
      STATEMENT OF SHAREOWNERS' COMMON EQUITY                                                           
|---------------------------------------------------------------------------------------------------------------------
|AND COMPREHENSIVE INCOME                                                                                             
|PPL Corporation and Subsidiaries                                                                                     
|(Millions of Dollars, except share amounts)                                                                          
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|Common stock at beginning of year                                                                                    
|                                                                                                                     
|Common stock at end of year                                                                                          
|                                                                                                                     
|                                                                                                                     
|Capital in excess of par value
      at beginning of year                                                            
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|Capital in excess of par value
      at end of year                                                                  
|                                                                                                                     
|                                                                                                                     
|Treasury stock at beginning of
      year                                                                            
|                                                                                                                     
|Treasury stock at end of year                                                                                        
|                                                                                                                     
|                                                                                                                     
|Earnings reinvested at beginning
      of year                                                                       
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|Earnings reinvested at end of year                                                                                   
|                                                                                                                     
|                                                                                                                     
|Accumulated other comprehensive
      loss at beginning of year (c)                                                  
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|Accumulated other comprehensive
      loss at end of year                                                            
|                                                                                                                     
|                                                                                                                     
|Capital stock expense and other
      at beginning of year                                                           
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|Capital stock expense and other
      at end of year                                                                 
|                                                                                                                     
|                                                                                                                     
|Total Shareowners' Common Equity                                                                                     
|                                                                                                                     
|                                                                                                                     
|Common stock shares at beginning
      of year (a)                                                                   
|                                                                                                                     
|                                                                                                                     
|Common stock shares at end of year                                                                                   
|                                                                                                                     
|                                                                                                                     
|(a)                                                                                                                  
|(b)                                                                                                                  
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|(c)                                                                                                                  
|(d)                                                                                                                  
|                                                                                                                     
|The accompanying Notes to Consolidated
        Financial Statements are an integral part of the financial statements.

---

|CONSOLIDATED
      STATEMENT OF PREFERRED STOCK AT DECEMBER 31,                                                                                                                                                                                                                                   
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|PPL Corporation and Subsidiaries (a)                                                                                                                                                                                                                                                              
|(Millions of Dollars)                                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                  
|PPL Electric                                                                                                                                                                                                                                                                                      
|Preferred Stock - $100 par, cumulative                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                  
|Details of Preferred Stock (b)                                                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                  
|With Sinking Fund Requirements                                                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                  
|Without Sinking Fund Requirements                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                  
|Decreases in Preferred Stock                                                                                                                                                                                                                                                                      
|                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                  
|Decreases in Preferred Stock normally represent:
      (i) the redemption of stock pursuant to sinking fund requirements; or (ii)
      shares redeemed pursuant to optional provisions. There were no issuances
      or redemptions of preferred stock in 2002 or 2000 through these provisions.
|                                                                                                                                                                                                                                                                                                  
|(a)                                                                                                                                                                                                                                                                                               
|(b)                                                                                                                                                                                                                                                                                               
|(c)                                                                                                                                                                                                                                                                                               
|(d)                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                  
|The accompanying Notes to Consolidated
        Financial Statements are an integral part of the financial statements.                                                                                                                                                                             

---

|CONSOLIDATED
      STATEMENT OF COMPANY-OBLIGATED 
      MANDATORILY REDEEMABLE SECURITIES AT DECEMBER 31,                
|--------------------------------------------------------------------------------------------------------------------------
|PPL Corporation and Subsidiaries                                                                                          
|(Millions of Dollars)                                                                                                     
|                                                                                                                          
|                                                                                                                          
|Company-obligated Mandatorily Redeemable
      Preferred Securities of Subsidiary Trusts Holding Solely Company Debentures
|                                                                                                                          
|                                                                                                                          
|                                                                                                                          
|                                                                                                                          
|                                                                                                                          
|                                                                                                                          
|                                                                                                                          
|                                                                                                                          
|                                                                                                                          
|                                                                                                                          
|(a)                                                                                                                       
|                                                                                                                          
|(b)                                                                                                                       
|                                                                                                                          
|(c)                                                                                                                       
|                                                                                                                          
|(d)                                                                                                                       
|                                                                                                                          
|The accompanying Notes to Consolidated
        Financial Statements are an integral part of the financial statements.     

---

|CONSOLIDATED STATEMENT
      OF LONG-TERM DEBT AT DECEMBER 31,                                                       
|---------------------------------------------------------------------------------------------------------------------
|PPL Corporation and Subsidiaries                                                                                     
|(Millions of Dollars)                                                                                                
|                                                                                                                     
|                                                                                                                     
|First Mortgage Bonds(b)                                                                                              
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|First Mortgage Pollution Control
      Bonds(b)                                                                      
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|Senior Secured Bonds(b)                                                                                              
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|Series 1999-1 Transition Bonds                                                                                       
|                                                                                                                     
|                                                                                                                     
|Medium-Term Notes - 5.75% to 8.375%
      (c)                                                                        
|Senior Unsecured Notes - 6.40%                                                                                       
|Pollution Control Revenue Bonds
      - 1.54%                                                                        
|Unsecured Promissory Notes - 8.70%
      to 9.64%                                                                    
|Unsecured Bonds - 6.50% to 9.25%                                                                                     
|Inflation Linked Bonds - 6.20%
      to 6.40%                                                                        
|Other Long Term Debt                                                                                                 
|                                                                                                                     
|                                                                                                                     
|Fair Value Swaps                                                                                                     
|Unamortized discount                                                                                                 
|                                                                                                                     
|                                                                                                                     
|Less amount due within one year                                                                                      
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|(a)                                                                                                                  
|(b)                                                                                                                  
|(c)                                                                                                                  
|(d)                                                                                                                  
|(e)                                                                                                                  
|(f)                                                                                                                  
|(g)                                                                                                                  
|(h)                                                                                                                  
|(i)                                                                                                                  
|                                                                                                                     
|The accompanying Notes to Consolidated
        Financial Statements are an integral part of the financial statements.

---

|CONSOLIDATED
      STATEMENT OF INCOME FOR THE YEARS ENDED DECEMBER 31,                                              
|---------------------------------------------------------------------------------------------------------------------
|PPL Energy Supply, LLC and Subsidiaries                                                                              
|(Millions of Dollars)                                                                                                
|                                                                                                                     
|                                                                                                                     
|Operating Revenues                                                                                                   
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|Operating Expenses                                                                                                   
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|Operating Income                                                                                                     
|                                                                                                                     
|Other Income - net (Note 16)                                                                                         
|                                                                                                                     
|Interest Expense                                                                                                     
|                                                                                                                     
|Interest Expense with Affiliate                                                                                      
|                                                                                                                     
|                                                                                                                     
|Income Before Income Taxes and
      Minority Interest                                                               
|                                                                                                                     
|Income Taxes (Note 5)                                                                                                
|                                                                                                                     
|Minority Interest (Note 1)                                                                                           
|                                                                                                                     
|                                                                                                                     
|Income Before Cumulative Effect
      of a Change in Accounting Principle                                            
|                                                                                                                     
|Cumulative Effect of a Change in
      Accounting Principle
        (net of income taxes) (Notes 12 and 18)          
|                                                                                                                     
|                                                                                                                     
|Income Before Distributions
      on Preferred Securities                                                            
|                                                                                                                     
|Distributions - Preferred Securities                                                                                 
|                                                                                                                     
|                                                                                                                     
|Net Income                                                                                                           
|                                                                                                                     
|                                                                                                                     
|The accompanying Notes to Consolidated
        Financial Statements are an integral part of the financial statements.

---

|CONSOLIDATED STATEMENT
      OF CASH FLOWS FOR THE YEARS ENDED 
      DECEMBER 31,                                   
|---------------------------------------------------------------------------------------------------------------------
|PPL Energy Supply, LLC and Subsidiaries                                                                              
|(Millions of Dollars)                                                                                                
|                                                                                                                     
|                                                                                                                     
|Cash Flows From Operating Activities                                                                                 
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|Cash Flows From Investing Activities                                                                                 
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|Cash Flows From Financing Activities                                                                                 
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|Effect of Exchange Rates on
      Cash and Cash Equivalents                                                          
|                                                                                                                     
|Net Increase (Decrease) in Cash
      and Cash Equivalents                                                           
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|Supplemental Disclosures of
      Cash Flow Information                                                              
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|Non-cash Contributions from
      Member                                                                             
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|The accompanying Notes to Consolidated
        Financial Statements are an integral part of the financial statements.

---

|CONSOLIDATED
      BALANCE SHEET AT DECEMBER 31,                                                                     
|---------------------------------------------------------------------------------------------------------------------
|PPL Energy Supply, LLC and Subsidiaries                                                                              
|(Millions of Dollars)                                                                                                
|                                                                                                                     
|                                                                                                                     
|Assets                                                                                                               
|                                                                                                                     
|Current Assets                                                                                                       
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|Investments                                                                                                          
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|Property, Plant and Equipment -
      net (Note 1)                                                                   
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|Other Noncurrent Assets                                                                                              
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|The accompanying Notes to Consolidated
        Financial Statements are an integral part of the financial statements.

---

|CONSOLIDATED BALANCE SHEET AT DECEMBER
      31,                                                                                   
|-----------------------------------------------------------------------------------------------------------------------------------
|PPL Energy Supply, LLC and Subsidiaries                                                                                            
|(Millions of Dollars)                                                                                                              
|                                                                                                                                   
|                                                                                                                                   
|Liabilities and Equity                                                                                                             
|                                                                                                                                   
|Current Liabilities                                                                                                                
|                                                                                                                                   
|                                                                                                                                   
|                                                                                                                                   
|                                                                                                                                   
|                                                                                                                                   
|                                                                                                                                   
|                                                                                                                                   
|                                                                                                                                   
|                                                                                                                                   
|                                                                                                                                   
|                                                                                                                                   
|                                                                                                                                   
|                                                                                                                                   
|                                                                                                                                   
|Long-term Debt                                                                                                                     
|                                                                                                                                   
|                                                                                                                                   
|Deferred Credits and
      Other Noncurrent Liabilities                                                                            
|                                                                                                                                   
|                                                                                                                                   
|                                                                                                                                   
|                                                                                                                                   
|                                                                                                                                   
|                                                                                                                                   
|                                                                                                                                   
|                                                                                                                                   
|                                                                                                                                   
|Commitments and Contingent
      Liabilities (Note 14)                                                                             
|                                                                                                                                   
|                                                                                                                                   
|Minority Interest
      (Note 1)                                                                                                   
|                                                                                                                                   
|                                                                                                                                   
|Company-obligated
      Mandatorily Redeemable Preferred Securities
         of Subsidiary Trusts Holding Solely Company Debentures
|                                                                                                                                   
|                                                                                                                                   
|Member's Equity                                                                                                                    
|                                                                                                                                   
|                                                                                                                                   
|                                                                                                                                   
|                                                                                                                                   
|The accompanying Notes to Consolidated
        Financial Statements are an integral part of the financial statements.              

---

|CONSOLIDATED STATEMENT
      OF MEMBER'S EQUITY AND COMPREHENSIVE INCOME                                             
|---------------------------------------------------------------------------------------------------------------------
|PPL Energy Supply, LLC and Subsidiaries                                                                              
|(Millions of Dollars)                                                                                                
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|Member's Equity at beginning of
      year                                                                           
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|Member's Equity at end of period                                                                                     
|                                                                                                                     
|                                                                                                                     
|(a)                                                                                                                  
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|(b)                                                                                                                  
|(c)                                                                                                                  
|(d)                                                                                                                  
|                                                                                                                     
|The accompanying Notes to Consolidated
        Financial Statements are an integral part of the financial statements.

---

|CONSOLIDATED STATEMENT
      OF COMPANY-OBLIGATED 
      MANDATORILY REDEEMABLE SECURITIES AT DECEMBER 31,                                            
|------------------------------------------------------------------------------------------------------------------------------------------------------
|PPL Energy Supply, LLC and Subsidiaries                                                                                                               
|(Millions of Dollars)                                                                                                                                 
|                                                                                                                                                      
|                                                                                                                                                      
|Company-obligated Mandatorily Redeemable
      Preferred Securities of Subsidiary Trusts Holding Solely Company Debentures
      - $1,000 per security
|                                                                                                                                                      
|                                                                                                                                                      
|                                                                                                                                                      
|(a)                                                                                                                                                   
|                                                                                                                                                      
|The accompanying Notes to Consolidated
        Financial Statements are an integral part of the financial statements.                                 

---

|CONSOLIDATED STATEMENT
      OF LONG-TERM DEBT AT DECEMBER 31,                                                       
|---------------------------------------------------------------------------------------------------------------------
|PPL Energy Supply, LLC and Subsidiaries                                                                              
|(Millions of Dollars)                                                                                                
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|6.40% Senior Unsecured Notes                                                                                         
|6.50% to 9.25% Unsecured Bonds                                                                                       
|18% Banco Rural S.A. - Brazilian
      real denominated                                                              
|5% - 10% Electrobras - Brazilian
      real denominated                                                              
|13% Electronorte S.A. - U.S. dollar
      denominated                                                                
|LIBOR Brazilian Govt. - U.S. dollar
      denominated                                                                
|6.20% Bonds - UF denominated debt                                                                                    
|6.40% Bonds - UF denominated debt                                                                                    
|6% Bolivian Govt.                                                                                                    
|2.57% - 18% UF denominated debt
      with various
          banks                                                   
|9% Note payable                                                                                                      
|Other Long-Term Debt                                                                                                 
|                                                                                                                     
|                                                                                                                     
|Unamortized discount                                                                                                 
|                                                                                                                     
|                                                                                                                     
|Less amount due within one year                                                                                      
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|(a)                                                                                                                  
|(b)                                                                                                                  
|(c)                                                                                                                  
|                                                                                                                     
|                                                                                                                     
|The accompanying Notes to Consolidated
        Financial Statements are an integral part of the financial statements.

---

Page Left Blank Intentionally

---

|CONSOLIDATED
      STATEMENT OF INCOME FOR THE YEARS ENDED DECEMBER 31,                                              
|---------------------------------------------------------------------------------------------------------------------
|PPL Electric Utilities Corporation and
      Subsidiaries                                                            
|(Millions of Dollars)                                                                                                
|                                                                                                                     
|                                                                                                                     
|Operating Revenues                                                                                                   
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|Operating Expenses                                                                                                   
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|Operating Income                                                                                                     
|                                                                                                                     
|Other Income - net (Note
      16)                                                                                   
|                                                                                                                     
|Interest Expense                                                                                                     
|                                                                                                                     
|Interest Expense with
      affiliate                                                                                
|                                                                                                                     
|                                                                                                                     
|Income Before
      Income Taxes                                                                                     
|                                                                                                                     
|Income Taxes (Note 5)                                                                                                
|                                                                                                                     
|                                                                                                                     
|Income Before
      Extraordinary Item                                                                               
|                                                                                                                     
|Extraordinary Item (net
      of income taxes) (Note 1)                                                              
|                                                                                                                     
|                                                                                                                     
|Income Before
      Cumulative Effect of a Change in Accounting
         Principle                                   
|                                                                                                                     
|Cumulative Effect of
      a Change in Accounting Principle (net of
        income taxes) (Note 12)                  
|                                                                                                                     
|                                                                                                                     
|Income Before
      Dividends and Distributions on Preferred
          Securities                                    
|                                                                                                                     
|Dividends and Distributions
      - Preferred Securities                                                             
|                                                                                                                     
|                                                                                                                     
|Net Income                                                                                                           
|                                                                                                                     
|                                                                                                                     
|The accompanying Notes to Consolidated Financial
        Statements are an integral part of the financial statements.

---

|CONSOLIDATED
      STATEMENT OF CASH FLOWS FOR THE YEARS ENDED 
      DECEMBER 31,                                   
|---------------------------------------------------------------------------------------------------------------------
|PPL Electric Utilities Corporation
      and Subsidiaries                                                            
|(Millions of Dollars)                                                                                                
|                                                                                                                     
|                                                                                                                     
|Cash Flows From Operating
      Activities                                                                           
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|Cash Flows From Investing
      Activities                                                                           
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|Cash Flows From Financing
      Activities                                                                           
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|Net Increase
      (Decrease) in Cash and Cash Equivalents                                                           
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|Supplemental Disclosures of
      Cash Flow Information                                                              
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|The accompanying Notes to Consolidated Financial
        Statements are an integral part of the financial statements.

---

|CONSOLIDATED
      BALANCE SHEET AT DECEMBER 31,                                                                     
|---------------------------------------------------------------------------------------------------------------------
|PPL Electric Utilities Corporation and Subsidiaries                                                                  
|(Millions of Dollars)                                                                                                
|                                                                                                                     
|                                                                                                                     
|Assets                                                                                                               
|                                                                                                                     
|Current Assets                                                                                                       
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|Property, Plant and Equipment -
      net (Note 1)                                                                   
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|Regulatory and Other Noncurrent
      Assets (Note 1)                                                                
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|The accompanying Notes to Consolidated Financial
        Statements are an integral part of the financial statements.

---

|CONSOLIDATED BALANCE SHEET AT DECEMBER 31,                                                                                      
|--------------------------------------------------------------------------------------------------------------------------------
|PPL Electric Utilities Corporation and Subsidiaries                                                                             
|(Millions of Dollars)                                                                                                           
|                                                                                                                                
|                                                                                                                                
|Liabilities and Equity                                                                                                          
|                                                                                                                                
|Current Liabilities                                                                                                             
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|Long-term Debt                                                                                                                  
|                                                                                                                                
|                                                                                                                                
|Deferred Credits and
      Other Noncurrent Liabilities                                                                         
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|Commitments and
      Contingent Liabilities (Note 14)                                                                          
|                                                                                                                                
|                                                                                                                                
|Company-obligated
      Mandatorily Redeemable Preferred Securities of Subsidiary Trusts Holding
      Solely Company Debentures
|                                                                                                                                
|                                                                                                                                
|Preferred Stock                                                                                                                 
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|Shareowner's Common Equity                                                                                                      
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|The accompanying Notes to Consolidated Financial
        Statements are an integral part of the financial statements.           

---

|CONSOLIDATED
      STATEMENT OF SHAREOWNER'S COMMON EQUITY                                                           
|---------------------------------------------------------------------------------------------------------------------
|AND COMPREHENSIVE INCOME                                                                                             
|PPL Electric Utilities Corporation and
      Subsidiaries                                                            
|(Millions of Dollars, except share amounts)                                                                          
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|Common stock at beginning of year                                                                                    
|                                                                                                                     
|Common stock at end of year                                                                                          
|                                                                                                                     
|                                                                                                                     
|Additional paid-in capital at beginning
      of year                                                                
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|Additional paid-in capital at end
      of year                                                                      
|                                                                                                                     
|                                                                                                                     
|Treasury stock at beginning of
      year                                                                            
|                                                                                                                     
|                                                                                                                     
|Treasury stock at end of year                                                                                        
|                                                                                                                     
|                                                                                                                     
|Earnings reinvested at beginning
      of year                                                                       
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|Earnings reinvested at end of year                                                                                   
|                                                                                                                     
|                                                                                                                     
|Accumulated other comprehensive income (loss) at
      beginning 
         of year                                   
|                                                                                                                     
|                                                                                                                     
|Accumulated other comprehensive
      income (loss) at end of year                                                   
|                                                                                                                     
|                                                                                                                     
|Capital stock expense and other
      at beginning of year                                                           
|                                                                                                                     
|                                                                                                                     
|Capital stock expense and other
      at end of year                                                                 
|                                                                                                                     
|                                                                                                                     
|Total Shareowner's Common Equity                                                                                     
|                                                                                                                     
|                                                                                                                     
|Common stock shares at beginning
      of year (c)                                                                   
|                                                                                                                     
|                                                                                                                     
|Common stock shares at end of year                                                                                   
|                                                                                                                     
|                                                                                                                     
|(a)                                                                                                                  
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|(b)                                                                                                                  
|(c)                                                                                                                  
|                                                                                                                     
|The accompanying Notes to Consolidated Financial
        Statements are an integral part of the financial statements.

---

|CONSOLIDATED
      STATEMENT OF PREFERRED STOCK AT DECEMBER 31,                                                                                                                                                                                                                                   
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|PPL Electric Utilities Corporation
      and Subsidiaries (a)                                                                                                                                                                                                                                     
|(Millions of Dollars)                                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                  
|Preferred Stock - $100 par, cumulative                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                  
|Details of Preferred
         Stock (b)                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                  
|With Sinking Fund Requirements                                                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                  
|Without Sinking Fund Requirements                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                  
|Decreases in Preferred
      Stock                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                  
|Decreases in Preferred Stock normally represent:
      (i) the redemption of stock pursuant to sinking fund requirements; or (ii)
      shares redeemed pursuant to optional provisions. There were no issuances
      or redemptions of preferred stock in 2002 or 2000 through these provisions.
|                                                                                                                                                                                                                                                                                                  
|(a)                                                                                                                                                                                                                                                                                               
|(b)                                                                                                                                                                                                                                                                                               
|(c)                                                                                                                                                                                                                                                                                               
|(d)                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                  
|The accompanying Notes to Consolidated Financial
        Statements are an integral part of the financial statements.                                                                                                                                                                             

---

|CONSOLIDATED STATEMENT
      OF COMPANY-OBLIGATED
      MANDATORILY REDEEMABLE SECURITIES AT DECEMBER 31,                                          
|---------------------------------------------------------------------------------------------------------------------------------------------------
|PPL Electric Utilities Corporation and Subsidiaries
      (a)                                                                                      
|(Millions of Dollars)                                                                                                                              
|                                                                                                                                                   
|                                                                                                                                                   
|Company-obligated Mandatorily
      Redeemable Preferred Securities of Subsidiary Trusts Holding Solely Company
      Debentures - $25 per security
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|(a)                                                                                                                                                
|                                                                                                                                                   
|(b)                                                                                                                                                
|                                                                                                                                                   
|The accompanying Notes to Consolidated
        Financial Statements are an integral part of the financial statements.                              

---

|CONSOLIDATED STATEMENT
      OF LONG-TERM DEBT AT DECEMBER 31,                                                       
|---------------------------------------------------------------------------------------------------------------------
|PPL Electric Utilities Corporation and Subsidiaries                                                                  
|(Millions of Dollars)                                                                                                
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|First Mortgage
      Bonds(b)                                                                                        
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|First Mortgage
      Pollution Control Bonds(b)                                                                      
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|Senior Secured
      Bonds(b)                                                                                        
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|Series 1999-1 Transition
      Bonds                                                                                 
|                                                                                                                     
|                                                                                                                     
|Pollution Control Revenue
      Bonds - 1.54%                                                                        
|                                                                                                                     
|                                                                                                                     
|Unamortized discount                                                                                                 
|                                                                                                                     
|                                                                                                                     
|Less amount due within
      one year                                                                                
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|(a)                                                                                                                  
|(b)                                                                                                                  
|(c)                                                                                                                  
|(d)                                                                                                                  
|                                                                                                                     
|The accompanying Notes to Consolidated Financial
        Statements are an integral part of the financial statements.

---

|CONSOLIDATED
        STATEMENT OF INCOME FOR THE YEARS ENDED DECEMBER 31,                                                
|-------------------------------------------------------------------------------------------------------------------------
|PPL Montana, LLC and Subsidiaries                                                                                        
|(Millions of Dollars)                                                                                                    
|                                                                                                                         
|                                                                                                                         
|Operating Revenues                                                                                                       
|                                                                                                                         
|                                                                                                                         
|                                                                                                                         
|                                                                                                                         
|                                                                                                                         
|                                                                                                                         
|                                                                                                                         
|                                                                                                                         
|Operating Expenses                                                                                                       
|                                                                                                                         
|                                                                                                                         
|                                                                                                                         
|                                                                                                                         
|                                                                                                                         
|                                                                                                                         
|                                                                                                                         
|                                                                                                                         
|                                                                                                                         
|                                                                                                                         
|                                                                                                                         
|Operating Income                                                                                                         
|                                                                                                                         
|Other Income - net                                                                                                       
|                                                                                                                         
|Interest Expense                                                                                                         
|                                                                                                                         
|                                                                                                                         
|Income Before Income Taxes                                                                                               
|                                                                                                                         
|Income Taxes (Note 5)                                                                                                    
|                                                                                                                         
|                                                                                                                         
|Net Income                                                                                                               
|                                                                                                                         
|                                                                                                                         
|The accompanying Notes to the Consolidated
        Financial Statements are an integral part of the financial statements.

---

|CONSOLIDATED STATEMENT OF CASH FLOWS
        FOR THE YEARS ENDED 
        DECEMBER 31,                                           
|---------------------------------------------------------------------------------------------------------------------------------
|PPL Montana, LLC and Subsidiaries                                                                                                
|(Millions of Dollars)                                                                                                            
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|Cash Flows From Operating Activities                                                                                             
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|Cash Flows From Investing Activities                                                                                             
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|Cash Flows From Financing Activities                                                                                             
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|Net Increase (Decrease) in Cash and Cash
        Equivalents                                                                     
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|Supplemental Disclosures of Cash Flow
        Information                                                                        
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|The accompanying Notes
        to the Consolidated Financial Statements are an integral part of the financial
        statements.







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|CONSOLIDATED
        BALANCE SHEET AT DECEMBER 31,                                                                   
|---------------------------------------------------------------------------------------------------------------------
|PPL Montana, LLC and Subsidiaries                                                                                    
|(Millions of Dollars)                                                                                                
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|Assets                                                                                                               
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|Noncurrent Assets                                                                                                    
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|Liabilities and Equity                                                                                               
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|Current Liabilities                                                                                                  
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|Noncurrent Liabilities                                                                                               
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|Commitments and Contingent Liabilities(Note 14)                                                                      
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|Member's Equity                                                                                                      
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|The accompanying Notes to Consolidated
        Financial Statements are an integral part of the financial statements.

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|CONSOLIDATED STATEMENT
        OF MEMBER'S EQUITY AND COMPREHENSIVE INCOME                                           
|---------------------------------------------------------------------------------------------------------------------
|PPL Montana, LLC and Subsidiaries                                                                                    
|(Millions of Dollars)                                                                                                
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|Member's Equity at beginning of year                                                                                 
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|Member's Equity at end of year                                                                                       
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|(b)                                                                                                                  
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|The accompanying Notes to Consolidated
        Financial Statements are an integral part of the financial statements.

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COMBINED NOTES TO CONSOLIDATED FINANCIAL
  STATEMENTS

Terms and abbreviations appearing in Combined Notes to Consolidated Financial
  Statements are explained in the glossary. Dollars are in millions, except per
  share data, unless otherwise noted.



1. Summary of Significant Accounting Policies
    
    Business and Consolidation
    
    (PPL, PPL Energy Supply and PPL Electric)
    
    PPL is an energy and utility holding company that, through its subsidiaries,
      is primarily engaged in the generation and marketing of electricity in the
      northeastern and western U.S. and in the delivery of electricity in Pennsylvania,
      the U.K. and Latin America. Based in Allentown, Pennsylvania, PPL is the
      parent of PPL Energy Funding, PPL Electric, PPL Gas Utilities, PPL Services
      and PPL Capital Funding.
    (PPL and PPL Energy Supply)
    PPL Energy Funding is the parent of PPL Energy Supply, which serves as
      the holding company for PPL's principal unregulated subsidiaries. PPL Energy
      Supply was formed in November 2000 to engage in competitive energy businesses.
      In May 2001, PPL Energy Funding contributed its interests in PPL Generation,
      PPL EnergyPlus and PPL Global to PPL Energy Supply, after receipt of required
      regulatory approvals. As a result, PPL Energy Supply is now the parent of
      PPL Generation, PPL EnergyPlus and PPL Global. PPL Energy Funding is the
      sole Member of PPL Energy Supply.
    PPL Generation owns and operates a portfolio of domestic power generating
      assets. These power plants are located in Pennsylvania, Montana, Arizona,
      Illinois, Connecticut, New York and Maine and use well-diversified fuel
      sources including coal, nuclear, natural gas, oil and hydro. PPL EnergyPlus
      markets or brokers electricity produced by PPL Generation, along with purchased
      power, natural gas and oil in competitive wholesale and deregulated retail
      markets, primarily in the northeastern and western portions of the U.S.
      PPL Global acquires and develops domestic generation projects that are,
      in turn, operated by PPL Generation as part of its portfolio of generation
      assets. PPL Global also acquires and holds international energy projects
      that are primarily focused on the distribution of electricity.
    (PPL and PPL Electric)
    PPL Electric is the principal regulated subsidiary of PPL. PPL Electric's
      principal businesses are the transmission and distribution of electricity
      to serve retail customers in its franchised territory in eastern and central
      Pennsylvania, and the supply of electricity to retail customers in that
      territory as a PLR.
    The consolidated financial statements include the accounts of PPL Electric
      and its wholly-owned subsidiaries. All significant intercompany transactions
      have been eliminated.
    (PPL Montana)
    PPL Montana commenced operations in December 1999, after the purchase of
      substantially all the generation assets and certain contracts of the utility
      division of Montana Power. PPL Montana operates steam generation and hydroelectric
      facilities throughout Montana. PPL Montana has been designated as an EWG
      under the Federal Power Act and sells wholesale power throughout the western
      U.S.
    The consolidated financial statements include the accounts of PPL Montana,
      a Delaware limited-liability company, and its direct wholly-owned subsidiaries
      PPL Colstrip I, LLC and PPL Colstrip II, LLC. The subsidiaries have no assets
      or operations and bear no relationship to Colstrip Units 1 and 2. All significant
      intercompany accounts and transactions have been eliminated. PPL Montana
      Holdings, LLC is the sole Member of PPL Montana and is an indirect wholly-owned
      subsidiary of PPL.
    (PPL and PPL Energy Supply)
    
    PPL and PPL Energy Supply consolidate the financial statements of their
      affiliates when they have control. All significant intercompany transactions
      have been eliminated. Minority interests in operating results and equity
      ownership are reflected in the consolidated financial statements.
    The consolidated financial statements reflect the accounts of all controlled
      affiliates on a current basis, with the exception of certain PPL Global
      investments. It is the policy of PPL Global to consolidate foreign affiliates
      and record equity in earnings of affiliates on a lag, based on the availability
      of financial data on a U.S. GAAP basis:
    ·
        Earnings from foreign equity method investments
          are recorded on a three-month lag.·
        PPL Global consolidates the results of controlled
          subsidiaries, WPD, Emel, EC, the Bolivian subsidiaries and other investments,
          on a one-month lag. The portion of the subsidiaries' earnings owned
          by outside shareowners is included in "Minority Interest" in the consolidated
          financial statements.
    PPL Global's investments in CGE and CEMAR (effective August 21, 2002) are
      accounted for using the cost method. Dividends from these investments are
      recorded as income when received.
    Predecessor Businesses and Basis of Presentation(PPL Energy
      Supply)
    The SEC requires financial information of a registrant's predecessors for
      all periods prior to a registrant's existence. The following business and
      asset acquisitions were identified as predecessors to PPL Energy Supply:
    1950 - Realty Company of Pennsylvania
      1960 - Lady Jane Collieries, Inc.
      1968 - Pennsylvania Mines, LLC
      1975 - Greene Manor Coal Company 
      1976 - PPL Interstate Energy Company
      1977 - BDW Corporation 
      1995 - PPL Global, LLC; PPL Spectrum, Inc. 
      1998 - PPL EnergyPlus, LLC; H. T. Lyons, Inc.; McClure Company
      1999 - generation assets acquired from Montana Power (forming PPL Montana,
      LLC); PPL Rights, Inc.; Burns Mechanical, Inc.; McCarl's Inc.; PPL Energy
      Services Northeast, Inc. (formerly Western Mass. Holdings, Inc.); PPL Synfuel
      Investments, LLC; PPL Somerset, LLC; PPL Maine, LLC
      2000 - Clymer Fuel, LLC; generation assets transferred by PPL Electric Utilities
      Corporation in the July 1, 2000 corporate realignment (formed as subsidiaries
      of PPL Generation, LLC. See Note 19).
    Since acquisition or formation, each entity identified above remained a
      wholly-owned subsidiary of PPL or its subsidiaries. Therefore, the entities
      listed above have been combined as one collective predecessor for purposes
      of satisfying SEC financial statement requirements for 2000, based on their
      respective acquisition or formation dates. In the balance of these notes,
      "PPL Energy Supply" refers to the predecessors of PPL Energy Supply as presented
      above for 2000.
    Certain line items in these PPL Energy Supply financial statements may
      not be consistent with the financial statements previously issued in connection
      with the Securities Act of 1934 filing requirements of PPL, due to reclassifications,
      as well as eliminations at different levels of consolidation.
    Use of Estimates/Contingencies(PPL, PPL Energy Supply, PPL Electric
      and PPL Montana)
    The preparation of financial statements in conformity with U.S. 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.
    PPL records loss contingencies in accordance with SFAS 5, "Accounting for
      Contingencies."
    Accounting Records(PPL and PPL Electric)
    The accounting records for PPL Electric and PPL Gas Utilities are maintained
      in accordance with the Uniform System of Accounts prescribed by the FERC
      and adopted by the PUC.
    Cash Equivalents(PPL, PPL Energy Supply, PPL Electric and PPL
      Montana)
    All highly liquid debt instruments purchased with original maturities of
      three months or less are considered to be cash equivalents.
    Property, Plant and Equipment
    
    (PPL, PPL Energy Supply, PPL Electric and PPL Montana)
    Property, plant and equipment is recorded at original cost, unless impaired
      under the provisions of SFAS 144, "Accounting for the Impairment or Disposal
      of Long-Lived Assets," or SFAS 121, "Accounting for the Impairment of Long-Lived
      Assets and for Long-Lived Assets to be Disposed of." Original cost includes
      material, labor, contractor costs, construction overheads and financing
      costs, where applicable. The cost of repairs and minor replacements are
      charged to expense as incurred. PPL records costs associated with planned
      major maintenance projects in the period in which the costs are incurred.
      No costs are accrued in advance of the period in which the work is performed.
    When a component of property, plant or equipment is retired that was depreciated
      under the composite or group method, the original cost is charged to accumulated
      depreciation. When all or a significant portion of an operating unit is
      retired or sold that was depreciated under the composite or group method,
      the property and the related accumulated depreciation account is reduced
      and any gain or loss is included in income, unless otherwise required by
      regulators. See discussion of depreciation methods below.
    
    AFUDC is capitalized as part of the construction costs for regulated projects.
      Interest is capitalized as part of construction costs for non-regulated
      projects.
    
    (PPL)
    
    Depreciation is computed over the estimated useful lives of property using
      various methods including the straight-line, composite and group methods.
      The annual provisions for depreciation have been computed principally in
      accordance with the following ranges of asset lives: generation, 5-50 years;
      transmission and distribution, 15-80 years; and general, 3-80 years. PPL
      periodically reviews and adjusts the depreciable lives of its fixed assets.
    
    Following are the classes of PPL property, plant and equipment, with the
      associated accumulated depreciation, at December 31:
    
    2002
        
        
        2001Electric plantTransmission and distribution
        
        $
        7,279
        
        
        $
        3,973Generation
        
        
        7,407
        
        
        
        7,144General
        
        
        744
        
        
        
        481Construction work in progress
        
        
        223
        
        
        
        180Nuclear fuel
        
        
        129
        
        
        
        127Gas and oil
        
        
        323
        
        
        
        304Other property
        
        
        301
        
        
        
        13116,406
        
        
        
        12,340Less: Accumulated depreciation
        
        
        6,840
        
        
        
        6,393$
        9,566
        
        
        $
        5,947(PPL Energy Supply)
    
    Depreciation is computed over the estimated useful lives of property using
      various methods including the straight-line, composite and group methods.
      The annual provisions for depreciation have been computed principally in
      accordance with the following ranges of asset lives: generation, 5-50 years;
      transmission and distribution, 30-40 years; and general, 3-60 years. PPL
      Energy Supply periodically reviews and adjusts the depreciable lives of
      its fixed assets.
    
    Following are the classes of PPL Energy Supply property, plant and equipment,
      with the associated accumulated depreciation, at December 31:
    2002
        
        
        2001Electric plantGeneration
        
        $
        7,407
        
        
        $
        7,144Transmission and distribution
        
        
        3,695
        
        
        
        556Nuclear fuel
        
        
        129
        
        
        
        127Construction work in progress
        
        
        176
        
        
        
        146General
        
        
        409
        
        
        
        164Gas and oil
        
        
        64
        
        
        
        67Other property
        
        
        262
        
        
        
        9612,142
        
        
        
        8,300Less: Accumulated depreciation
        
        
        5,255
        
        
        
        4,882$
        6,887
        
        
        $
        3,418
    
    (PPL Electric)
    Depreciation is computed over the estimated useful lives of property using
      various methods including the straight-line, composite and group methods.
      The annual provisions for depreciation have been computed principally in
      accordance with the following ranges of asset lives: transmission and distribution,
      15-80 years, and general, 10-80 years. PPL Electric periodically reviews
      and adjusts the depreciable lives of its fixed assets if approved by regulators.
    When a component of regulated property, plant or equipment is retired,
      the original cost plus the cost of retirement, less salvage, is charged
      to accumulated depreciation.
    Following are the classes of PPL Electric property, plant and equipment,
      with the associated accumulated depreciation, at December 31:
    2002
        
        
        2001Electric plantTransmission and distribution
        
        $
        3,584
        
        
        $
        3,412General
        
        
        324
        
        
        
        312Construction work in progress
        
        
        46
        
        
        
        32Other property
        
        
        5
        
        
        
        53,959
        
        
        
        3,761Less: Accumulated depreciation
        
        
        1,503
        
        
        
        1,442$
        2,456
        
        
        $
        2,319(PPL Montana)
    Depreciation is computed over the estimated useful lives of property using
      various methods including the straight-line, composite and group methods.
      The annual provisions for depreciation have been computed principally in
      accordance with the following ranges of asset lives: electric generation
      plant in-service, 30-45 years and non-generation property, 5-55 years. PPL
      Montana periodically reviews and adjusts the depreciable lives of its fixed
      assets.
    Following are the classes of PPL Montana property, plant and equipment,
      with the associated accumulated depreciation, at December 31:
    2002
        
        
        2001Electric generation plant
        
        $
        388
        
        
        $
        371Non-generation property
        
        
        41
        
        
        
        42Land
        
        
        15
        
        
        
        15Construction work in progress
        
        
        14
        
        
        
        14458
        
        
        
        442Less: Accumulated depreciation
        
        
        25
        
        
        
        17$
        433
        
        
        $
        425Asset Impairment(PPL, PPL Energy Supply, PPL Electric and PPL
      Montana)
    Long-lived assets and identifiable intangibles held and used by PPL and
      its subsidiaries are reviewed for impairment when events or circumstances
      indicate carrying amounts may not be recoverable. Such reviews were performed
      in accordance with SFAS 144 in 2002 and SFAS 121 in prior years. SFAS 144
      and SFAS 121 required impairment losses to be recognized if the asset's
      carrying amount was not recoverable from undiscounted future cash flow.
      The impairment charge is measured by the difference between the asset's
      carrying amount and fair value. Equity investments are reviewed for impairment
      in accordance with APB Opinion No. 18, "The Equity Method of Accounting
      for Investments in Common Stock." APB Opinion No. 18 provides that "a loss
      in value of an investment which is other than a temporary decline should
      be recognized." PPL identifies and measures loss in value of equity investments
      based upon a comparison of fair value to carrying value.
    Project Development Costs(PPL and PPL Energy Supply)
    PPL Global expenses the costs of evaluating potential acquisition and development
      opportunities as incurred. Acquisition and development costs are capitalized
      upon approval of the investment by the PPL Global Board of Managers and
      the Finance Committee of PPL's Board of Directors or, if later, the achievement
      of sufficient project milestones such that the economic viability of the
      project is reasonably assured. The level of assurance needed for capitalization
      of such costs requires that all major uncertainties be resolved and that
      there be a high probability that the project will proceed as planned, or
      that such costs will be recoverable through long-term operations, a financing
      or a sale.
    The continued capitalization of project development and acquisition costs
      is subject to on-going risks related to successful completion. In the event
      that PPL Global determines that a particular project is no longer viable,
      previously capitalized costs are charged to expense in the period that such
      determination is made.
    Regulation
    (PPL and PPL Electric)
    Historically, PPL Electric accounted for its regulated operations, which
      included transmission, distribution and generation, in accordance with the
      provisions of SFAS 71, "Accounting for the Effects of Certain Types of Regulation,"
      which requires rate-regulated entities to reflect the effects of regulatory
      decisions in their financial statements. PPL Electric discontinued application
      of SFAS 71 for the generation portion of its business, effective June 30,
      1998. In connection with the corporate realignment, effective July 1, 2000,
      PPL Electric's generating and certain other related assets, along with associated
      liabilities, were transferred to new unregulated subsidiaries of PPL Generation.
      PPL Electric's remaining regulated business and PPL Gas Utilities continue
      to be subject to SFAS 71.
    The following regulatory assets were included in the "Regulatory and Other
      Noncurrent Assets" section of the Balance Sheet at December 31:
    
    PPL
        
        
        PPL Electric2002
        
        
        2001
        
        
        2002
        
        
        2001Recoverable transition costs
        
        $
        1,946
        
        
        $
        2,172
        
        
        $
        1,946
        
        
        $
        2,172Taxes recoverable through future rates
        
        
        260
        
        
        
        253
        
        
        
        235
        
        
        
        239Other
        
        
        13
        
        
        
        11
        
        
        
        8
        
        
        
        6$
        2,219
        
        
        $
        2,436
        
        
        $
        2,189
        
        
        $
        2,417Based on the PUC Final Order, PPL Electric was amortizing its competitive
      transition (or stranded) costs over an 11-year transition period effective
      January 1, 1999. In August 1999, competitive transition costs of $2.4 billion
      were converted to intangible transition costs when they were securitized
      by the issuance of transition bonds. The intangible transition costs are
      being amortized over the life of the transition bonds, August 1999 through
      December 2008, in accordance with an amortization schedule filed with the
      PUC. The assets of PPL Transition Bond Company, including the intangible
      transition property, are not available to creditors of PPL or PPL Electric.
      The transition bonds are obligations of PPL Transition Bond Company and
      are non-recourse to PPL and PPL Electric. The remaining competitive transition
      costs are also being amortized based on an amortization schedule previously
      filed with the PUC, adjusted for those competitive transition costs that
      were converted to intangible transition costs. As a result of the conversion
      of a significant portion of the competitive transition costs into intangible
      transition costs, amortization of substantially all of the remaining competitive
      transition costs will occur in 2009.
    (PPL and PPL Energy Supply)
    Certain PPL Global affiliates continue to be subject to SFAS 71. Although
      subject to price-cap regulation (as described in Note 14), WPD is not subject
      to SFAS 71.
    Accounting for Derivatives and Other Contracts Held for Trading Purposes(PPL, PPL Energy Supply and PPL Montana)
    PPL Energy Supply and PPL Montana enter into energy and energy-related
      contracts. PPL and PPL Energy Supply enter into interest rate derivative
      contracts to hedge their exposure to changes in the fair value of their
      debt instruments and to hedge their exposure to variability in expected
      cash flows associated with existing debt instruments or forecasted transactions.
      PPL and PPL Energy Supply also enter into foreign currency derivative contracts
      to hedge foreign currency exposures, including firm commitments, recognized
      assets or liabilities, forecasted transactions or net investments.
    As of January 1, 2001, contracts that meet the definition of a derivative
      are accounted for under SFAS 133, "Accounting for Derivative Instruments
      and Hedging Activities." Certain energy contracts have been excluded from
      SFAS 133's requirements because they meet the definition of a "normal sale
      or purchase" under DIG Issue C15, "Scope Exceptions: Normal Purchases and
      Normal Sales Exception for Certain Option-Type Contracts and Forward Contracts
      in Electricity." These contracts are reflected in the financial statements
      using the accrual method of accounting. See Note 17 for additional information
      on SFAS 133.
    Under SFAS 133, all derivatives are recognized on the balance sheet at
      their fair value. On the date the derivative contract is executed, PPL designates
      the derivative as a hedge of the fair value of a recognized asset or liability
      or of an unrecognized firm commitment ("fair value" hedge), a hedge of a
      forecasted transaction or of the variability of cash flows to be received
      or paid related to a recognized asset or liability ("cash flow" hedge),
      a foreign currency fair value or cash flow hedge ("foreign currency" hedge),
      a hedge of a net investment in a foreign operation or a trading derivative.
      Changes in the fair value of a derivative that is highly effective as, and
      is designated and qualifies as, a fair value hedge, along with the loss
      or gain on the hedged asset or liability that is attributable to the hedged
      risk, are recorded in current-period earnings. Changes in the fair value
      of a derivative that is highly effective as, and is designated as and qualifies
      as, a cash flow hedge are recorded in other comprehensive income, until
      earnings are affected by the variability of cash flows being hedged. Changes
      in the fair value of derivatives that are designated as and qualify as foreign
      currency hedges are recorded in either current-period earnings or other
      comprehensive income, depending on whether the hedge transaction is a fair
      value hedge or a cash flow hedge. If, however, a derivative is used as a
      hedge of a net investment in a foreign operation, its changes in fair value,
      to the extent effective as a hedge, are recorded in the cumulative foreign
      currency translation adjustments account within equity. Changes in the fair
      value of derivatives that are not designated as hedging instruments are
      reported in current-period earnings.
    Unrealized gains and losses from changes in market prices of energy contracts
      accounted for as fair value hedges are reflected in "Energy purchases" on
      the Statement of Income, as are changes in the underlying positions. Gains
      and losses from changes in market prices of energy contracts accounted for
      as cash flow hedges, when recognized on the Statement of Income, are reflected
      in "Wholesale energy marketing" revenues or "Energy purchases," consistent
      with the hedged item. Gains and losses from changes in the market price
      of interest rate derivative contracts, when recognized on the Statement
      of Income, are accounted for in "Interest Expense."
    PPL has adopted the accounting requirements under EITF 02-3, "Issues Involved
      in Accounting for Derivative Contracts Held for Trading Purposes and Contracts
      Involved in Energy Trading and Risk Management Activities." As such, PPL
      now reflects its net realized and unrealized gains and losses associated
      with all derivatives that are held for trading purposes in the "Net energy
      trading margins" line on the Statement of Income. Non-derivative contracts
      that met the definition of energy trading activities as defined by EITF
      98-10, "Accounting for Energy Trading and Risk Management Activities" are
      reflected in the financial statements using the accrual method of accounting.
      Prior periods have been restated.
    Gains or losses on interest rate derivative contracts that settled prior
      to the adoption of SFAS 133 were deferred and are being recognized over
      the life of the debt. Market gains and losses on foreign currency derivative
      contracts that settled prior to the adoption of SFAS 133 were recognized
      in accordance with SFAS 52, "Foreign Currency Translation," and are included
      in "Foreign currency translation adjustments," a component of accumulated
      other comprehensive income (loss).
    Revenue Recognition
    (PPL, PPL Energy Supply, PPL Electric and PPL Montana)
    Operating revenues, except for energy related businesses, are recorded
      based on deliveries through the end of the calendar month. Unbilled retail
      revenues result because customers' meters are read and bills are rendered
      throughout the month, rather than all being read at the end of the month.
      Unbilled revenues for a month are calculated by multiplying an estimate
      of unbilled kWh by the estimated average cents per kWh.
    "Energy related businesses" revenue includes revenues from PPL Global and
      the mechanical contracting and engineering subsidiaries. PPL Global's revenue
      reflects its proportionate share of affiliate earnings under the equity
      method of accounting, as described in the "Business and Consolidation" section
      of Note 1, and dividends received from its investments are accounted for
      using the cost method. The mechanical contracting and engineering subsidiaries
      record profits from construction contracts on the percentage-of-completion
      method of accounting. Income from time and material contracts is recognized
      currently as the work is performed. Costs include all direct material and
      labor costs and job-related overhead. Provisions for estimated loss on uncompleted
      contracts, if any, are made in the period in which such losses are determined.
    (PPL and PPL Energy Supply)
    
    WPD revenues are stated net of value added tax.
    
    Utility Revenue
    (PPL and PPL Energy Supply)
    The Statement of Income "Utility" line item contains revenues from domestic
      and international rate-regulated delivery operations, including WPD. These
      revenues were previously reported as "Retail electric and gas" and "Wholesale
      energy marketing and trading" by PPL and as "Retail electric and gas" by
      PPL Energy Supply.
    (PPL Electric)
    Since most of PPL Electric's operations are regulated, it is not meaningful
      to use a "Utility" caption. Therefore, the revenues of PPL Electric are
      presented according to specific types of revenue.
    Income Taxes
    (PPL)
    The income tax provision for PPL is calculated in accordance with SFAS
      109, "Accounting for Income Taxes."
    PPL and its domestic subsidiaries file a consolidated U.S. federal income
      tax return.
    (PPL Energy Supply)
    The income tax provision for PPL Energy Supply is calculated in accordance
      with SFAS 109, "Accounting for Income Taxes." The taxable income or loss
      is included in the consolidated U.S. federal income tax return of PPL. The
      income tax provision for PPL Energy Supply is calculated in accordance with
      an intercompany tax sharing policy which provides that the taxable income
      be calculated as if PPL Energy Supply and its domestic subsidiaries filed
      a separate consolidated return.
    (PPL and PPL Electric)
    The provision for PPL Electric's deferred income taxes for regulated assets
      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 the amount that otherwise would be recorded
      under U.S. GAAP is deferred and included in taxes recoverable through future
      rates in "Regulatory and Other Noncurrent Assets - Other" on the Balance
      Sheet. See Note 5 for additional information.
    PPL Electric deferred investment tax credits when they were utilized and
      is amortizing the deferrals over the average lives of the related assets.
    PPL Electric and its subsidiaries are included in the consolidated federal
      income tax return of PPL. The income tax provision for PPL Electric is calculated
      in accordance with an intercompany tax sharing policy which provides that
      the taxable income be calculated as if PPL Electric and its subsidiaries
      filed a separate consolidated return.
    (PPL Montana)
    PPL Montana is a limited liability company and has elected to be disregarded
      as a separate entity for federal and state income tax purposes. PPL Montana's
      taxable income or loss is included in the consolidated federal and state
      income tax returns of PPL. The Member is a party to a tax sharing policy
      that provides that the Member is responsible for taxes associated with PPL
      Montana's operations. The income tax provision for PPL Montana is calculated
      in accordance with SFAS 109. Income taxes are presented in the accompanying
      financial statements as if PPL Montana files separate returns. The current
      tax benefit or provision recognized for each period is reported in "Accounts
      receivable from" or "Accounts payable to" Member on the Balance Sheet, as
      applicable.
    Leases
    (PPL, PPL Energy Supply, PPL Electric and PPL Montana)
    PPL and its subsidiaries apply the provisions of SFAS 13, "Accounting for
      Leases," to all leasing transactions. In addition, PPL applies the provisions
      of numerous other accounting pronouncements that provide specific guidance
      and additional requirements related to accounting for leases.
    See Note 10 for a discussion of accounting for leases under which PPL,
      PPL Energy Supply, PPL Electric and PPL Montana are lessees.
    
    (PPL and PPL Energy Supply)
    In August 2002, PPL began commercial operation of its 79.9 MW oil powered
      station in Shoreham, New York. The Long Island Power Authority has contracted
      to purchase all of the plant's capacity and ancillary services as part of
      a 15-year power purchase agreement with PPL EnergyPlus. The capacity payments
      in the power purchase agreement result in the plant being classified as
      a direct-financing lease, under which PPL EnergyPlus is the lessor. SFAS
      13, "Accounting for Leases," required PPL Energy Supply to remove the plant
      assets from the balance sheet, and replace them with a receivable for the
      gross capacity payments and unearned income for the expected lease revenues.
      As of December 31, 2002, PPL and PPL Energy Supply had a receivable balance
      of $260 million (included in "Current Assets - Other" and "Regulatory and
      Other Noncurrent Assets - Other" for PPL and "Current Assets - Other" and
      "Other Noncurrent Assets - Other" for PPL Energy Supply) and an unearned
      revenue balance of $152 million (included in "Deferred Credits and Other
      Noncurrent Liabilities - Other"). Rental income received through this direct-financing
      lease during 2002 was $5 million, and total future minimum lease payments
      expected to be received are estimated at $12 million for each of the years
      from 2003 through 2007.
    Stock-Based Compensation
    
    (PPL, PPL Energy Supply, PPL Electric and PPL Montana)
    
    PPL grants stock options, restricted stock and stock units to employees
      and directors under several stock-based compensation plans, as detailed
      in Note 11. SFAS 123, "Accounting for Stock-Based Compensation," encourages
      entities to record compensation expense for stock-based employee compensation
      plans at fair value but provides the option of measuring compensation expense
      using the intrinsic value method prescribed by APB Opinion No. 25, "Accounting
      for Stock Issued to Employees." As of December 31, 2002, PPL and its subsidiaries
      accounted for stock-based compensation in accordance with APB Opinion No.
      25.
    PPL and its subsidiaries adopted the fair value method of accounting for
      stock-based compensation effective January 1, 2003 using the prospective
      method of transition permitted by SFAS 148, "Accounting for Stock-Based
      Compensation - Transition and Disclosure, an Amendment of FASB Statement
      No. 123." See Note 22 for further discussion of SFAS 148 and this adoption.
      Use of the fair value method under SFAS 123 requires the recognition of
      compensation expense for stock options issued by PPL which APB Opinion No.
      25 did not require. As currently structured, awards of restricted stock
      and stock units will result in the same amount of compensation expense under
      the fair value method of SFAS 123 as they did under the intrinsic value
      method of APB Opinion No. 25.
    
    The following table illustrates the effect on net income
      and EPS if the fair value method had been used to account for stock-based
      compensation in the years shown:
    
    (PPL)
    2002
        
        
        2001
        
        
        2000IncomeNet Income - as reported
        
        $
        208
        
        
        $
        179
        
        
        $
        498Add: Stock-based employee compensation
          expense included in reported net income, net of tax
        
        
        3
        
        
        
        3
        
        
        
        3Deduct: Total stock-based compensation
          expense determined under the fair value based method for all awards,
          net of tax
        
        
        8
        
        
        
        6
        
        
        
        4Pro forma net income
        
        $
        203
        
        
        $
        176
        
        
        $
        497
    2002
        
        
        2001
        
        
        2000EPSBasic - as reported
        
        $
        1.37
        
        
        $
        1.23
        
        
        $
        3.45Basic - pro forma
        
        $
        1.34
        
        
        $
        1.21
        
        
        $
        3.44Diluted - as reported
        
        $
        1.36
        
        
        $
        1.22
        
        
        $
        3.44Diluted - pro forma
        
        $
        1.33
        
        
        $
        1.20
        
        
        $
        3.43(PPL Energy Supply)
    Recognition of stock-based compensation expense determined under the fair
      value method would have decreased PPL Energy Supply's reported earnings
      by $2 million, $1 million and an immaterial amount in 2002, 2001 and 2000.
    
    (PPL Electric and PPL Montana)
    
    Stock-based compensation expense for PPL Electric and PPL Montana was immaterial
      under both the intrinsic value and fair value methods.
    Pension and Other Postretirement Benefits(PPL, PPL Energy Supply,
      PPL Electric and PPL Montana)
    See Note 12 for a discussion of accounting for pension and other postretirement
      benefits.
    Comprehensive Income
    (PPL)
    Comprehensive income consists of net income and other comprehensive income,
      defined as changes in common equity from transactions not related to shareowners.
      Other comprehensive income consists of unrealized gains or losses on available-for-sale
      securities and qualifying derivatives, the excess of additional pension
      liability over unamortized prior service costs, and foreign currency translation
      adjustments recorded by PPL Global. Comprehensive income is reflected on
      the Statement of Shareowners' Common Equity and Comprehensive Income, and
      "Accumulated other comprehensive loss" is presented on the Balance Sheet.
    The accumulated other comprehensive loss of PPL consisted of the following
      at December 31:
    2002
        
        
        2001Foreign currency translation adjustments
        
        $
        (143
        )
        
        $
        (268
        )Unrealized losses on available-for-sale
          securities
        
        
        (4
        )
        
        
        (1
        )Minimum pension liability
        
        
        (306
        )
        
        
        (5
        )Unrealized gains on qualifying derivatives
        
        
        7
        
        
        
        23$
        (446
        )
        
        $
        (251
        )(PPL Energy Supply)
    Comprehensive income consists of net income and other comprehensive income,
      defined as changes in Member's equity from transactions other than with
      the Member. Other comprehensive income consists of foreign currency translation
      adjustments recorded by PPL Global, unrealized gains or losses on available-for-sale
      securities and qualifying derivatives, and the excess of additional pension
      liability over unamortized prior service costs. Comprehensive income is
      reflected on the Statement of Member's Equity and Comprehensive Income,
      and accumulated other comprehensive loss is included in Member's Equity
      on the Balance Sheet.
    The accumulated other comprehensive loss of PPL Energy Supply consisted
      of the following at December 31:
    2002
        
        
        2001Foreign currency translation adjustments
        
        $
        (143
        )
        
        $
        (268
        )Unrealized losses on available-for-sale
          securities
        
        
        (2
        )
        
        
        (2
        )Minimum pension liability
        
        
        (297
        )
        
        
        (1
        )Unrealized gains on qualifying derivatives
        
        
        23
        
        
        
        46$
        (419
        )
        
        $
        (225
        )(PPL Montana)
    Comprehensive income consists of net income and other comprehensive income,
      defined as changes in Member's equity from transactions other than with
      the Member. Other comprehensive income consists of unrealized gains or losses
      on qualifying derivatives and the excess of additional pension liability
      over unamortized prior service costs. Comprehensive income is reflected
      on the Statement of Member's Equity and Comprehensive Income. The accumulated
      other comprehensive income (loss) of PPL Montana at December 31, 2002 and
      2001 was $(2) million and $32 million. The 2002 balance consisted of the
      following: minimum pension liability adjustment of $(6) million, and unrealized
      gains on qualifying derivatives of $4 million.
    Treasury Stock(PPL and PPL Electric)
    Treasury shares are reflected on the balance sheet as an offset to common
      equity under the cost method of accounting. Management has no definitive
      plans for the future use of these shares. Treasury shares are not considered
      outstanding in calculating EPS.
    Foreign Currency Translation and Transactions(PPL and PPL Energy
      Supply)
    Assets and liabilities of international operations, where the local currency
      is the functional currency, are translated at year-end exchange rates, and
      related revenues and expenses are translated at average exchange rates prevailing
      during the year. Adjustments resulting from translation are recorded in
      accumulated other comprehensive income.
    Gains or losses relating to foreign currency transactions are recognized
      currently in income. The aggregate transaction gain (loss) was $(9) million
      and $8 million in 2002 and 2001, and was not significant in 2000.
    Independent System Operator(PPL, PPL Energy Supply and PPL Electric)
    
    Certain PPL subsidiaries participate in PJM in several roles. Certain PPL
      subsidiaries also participate in the New England Power Pool (NEPOOL) and
      the New York ISO (NYISO) in a less significant way. In PJM, PPL EnergyPlus
      is a marketer, a load-serving entity to its customer-choice customers and
      a seller for PPL's Pennsylvania generation subsidiaries. PPL Electric is
      a transmission owner and provider of last resort load in PJM. In NEPOOL,
      PPL EnergyPlus is a marketer and a seller for PPL's New England generating
      assets. In the NYISO, PPL EnergyPlus acts as a marketer. PPL Electric does
      not participate in NEPOOL or NYISO.
    
    A function of interchange accounting is to match participants' MWh entitlements
      (generation plus scheduled bilateral purchases) against their MWh obligations
      (load plus scheduled bilateral sales) during every hour of every day. If
      the net result during any given hour is an entitlement, the participant
      is credited with a spot market sale to the ISO at the respective market
      price for that hour; if the net result is an obligation, the participant
      is charged with a spot market purchase from the ISO at the respective market
      price for that hour. ISO purchases and sales are not allocated to individual
      customers.
    
    PPL records the hourly net sales and purchases in its financial statements
      as sales to and purchases from the respective ISOs, in accordance with the
      FERC and industry accounting.
    Extraordinary Item(PPL and PPL Electric)
    In December 2000, PPL Electric recorded an $11 million extraordinary credit
      relating to wholesale power activity.
    Reclassifications(PPL, PPL Energy Supply, PPL Electric and PPL
      Montana)
    Certain amounts in the 2001 and 2000 financial statements have been reclassified
      to conform to the current presentation.
    New Accounting Standards(PPL, PPL Energy Supply, PPL Electric
      and PPL Montana)
    See Note 22 for a discussion of new accounting standards.
2. Segment and Related Information
    (PPL and PPL Energy Supply)
    
    PPL's reportable segments are Supply, Delivery and International. The Supply
      segment primarily consists of the domestic energy marketing, domestic generation
      and domestic development operations of PPL Energy Supply. The Delivery segment
      includes the regulated electric and gas delivery operations of PPL Electric
      and PPL Gas Utilities. The International segment includes PPL Global's responsibility
      for the acquisition and holding of international energy projects. The majority
      of PPL Global's international investments are located in the U.K., Chile,
      El Salvador and Bolivia.
    
    PPL Energy Supply's reportable segments are Supply and International. The
      International segment at the PPL Energy Supply level is consistent with
      the International segment at the PPL level. The Supply segment information
      reported at the PPL Energy Supply level will not agree with the Supply segment
      information reported at the PPL level. Additional Supply segment functions,
      including telecommunications, exist at PPL that are outside of PPL Energy
      Supply. Furthermore, certain income items, including PLR revenue and certain
      interest income, exist at the PPL Energy Supply level, but are eliminated
      in consolidation at the PPL level. Finally, certain expense items are fully
      allocated to the segments at the PPL level only.
    
    Segments include direct charges, as well as an allocation of indirect corporate
      costs, for services provided by PPL Services. These service costs include
      functions such as financial, legal, human resources and information services.
    
    See Note 15 for a discussion of the PLR contracts between PPL Electric
      and PPL EnergyPlus. PPL EnergyPlus' sales to PPL Electric, to meet PPL Electric's
      PLR load, are included in the Supply segment of PPL Energy Supply. PPL Electric's
      sales of this electricity to its PLR customers are included in the Delivery
      segment of PPL. There are no intersegment revenues for PPL or PPL Energy
      Supply.
    Previously reported information has been reclassified to conform to the
      current presentation. Financial data for the segments are as follows:
    
    (PPL)
    2002
        
        
        2001
        
        
        2000Income Statement DataRevenues from external customersSupply
        
        $
        1,640
        
        
        $
        1,630
        
        
        $
        1,677Delivery
        
        
        2,706
        
        
        
        2,867
        
        
        
        2,413International (a)
        
        
        1,083
        
        
        
        580
        
        
        
        4555,429
        
        
        
        5,077
        
        
        
        4,545Equity in earnings of unconsolidated
          affiliatesSupply
        
        
        (12
        )
        
        
        12
        
        
        
        2International (a)
        
        
        3
        
        
        
        113
        
        
        
        78(9
        )
        
        
        125
        
        
        
        80DepreciationSupply
        
        
        129
        
        
        
        126
        
        
        
        137Delivery
        
        
        100
        
        
        
        96
        
        
        
        104International (a)
        
        
        138
        
        
        
        44
        
        
        
        30367
        
        
        
        266
        
        
        
        271
       
    Amortizations - recoverable
          transition costs, nuclear fuel and otherSupply
        
        
        (38
        )
        
        
        (35
        )
        
        
        (48
        )Delivery
        
        
        236
        
        
        
        259
        
        
        
        236198
        
        
        
        224
        
        
        
        188Interest incomeSupply
        
        
        (5
        )
        
        
        3
        
        
        
        (28
        )Delivery
        
        
        20
        
        
        
        10
        
        
        
        27International (a)
        
        
        13
        
        
        
        2
        
        
        
        1428
        
        
        
        15
        
        
        
        13Interest expenseSupply
        
        
        106
        
        
        
        58
        
        
        
        109Delivery
        
        
        214
        
        
        
        233
        
        
        
        230International (a)
        
        
        240
        
        
        
        95
        
        
        
        37560
        
        
        
        386
        
        
        
        376Income taxesSupply
        
        
        119
        
        
        
        153
        
        
        
        221Delivery
        
        
        24
        
        
        
        71
        
        
        
        59International (a)
        
        
        67
        
        
        
        37
        
        
        
        14210
        
        
        
        261
        
        
        
        294Extraordinary itemDelivery
        
        
        
        
        
        
        
        
        
        
        1111Net IncomeSupply
        
        
        356
        
        
        
        368
        
        
        
        325Delivery
        
        
        48
        
        
        
        126
        
        
        
        113International (b)
        
        
        (196
        )
        
        
        (315
        )
        
        
        60$
        208
        
        
        $
        179
        
        
        $
        498Cash Flow DataExpenditures for property,
          plant and equipmentSupply
        
        $
        299
        
        
        $
        290
        
        
        $
        278Delivery
        
        
        236
        
        
        
        149
        
        
        
        148International
        
        
        113
        
        
        
        126
        
        
        
        34648
        
        
        
        565
        
        
        
        460Investment in generating assets
          and 
          electric energy projectsSupply
        
        
        261
        
        
        
        176
        
        
        
        97International (c)
        
        
        211
        
        
        
        136
        
        
        
        473$
        472
        
        
        $
        312
        
        
        $
        570
    As of December 31,2002
        
        
        
        2001Balance Sheet DataNet investment in unconsolidated
          affiliates - at equitySupply
        
        $
        198
        
        
        
        $
        211International (d)
        
        
        36
        
        
        
        
        375234
        
        
        
        
        586Total assetsSupply
        
        
        4,930
        
        
        
        
        4,716Delivery
        
        
        5,867
        
        
        
        
        6,097International (d)
        
        
        4,772
        
        
        
        
        1,749$
        15,569
        
        
        
        $
        12,562
    2002
        
        
        2001
        
        
        2000Geographic DataRevenues from external customersDomestic
        
        $
        4,346
        
        
        $
        4,497
        
        
        $
        4,090Foreign (a)
        
        
        1,083
        
        
        
        580
        
        
        
        455$
        5,429
        
        
        $
        5,077
        
        
        $
        4,545
    As of December 31,2002
        
        
        
        2001Property, plant and equipmentDomestic
        
        $
        5,797
        
        
        
        $
        5,367Foreign (d)
        
        
        3,769
        
        
        
        
        580$
        9,566
        
        
        
        $
        5,947(PPL Energy Supply)
    2002
        
        
        2001
        
        
        2000Income Statement DataRevenues from external customersSupply
        
        $
        3,071
        
        
        $
        3,174
        
        
        $
        1,527International (a)
        
        
        1,083
        
        
        
        580
        
        
        
        4554,154
        
        
        
        3,754
        
        
        
        1,982Equity in earnings of unconsolidated
          affiliatesSupply
        
        
        (11
        )
        
        
        14
        
        
        
        (10
        )International (a)
        
        
        3
        
        
        
        113
        
        
        
        78(8
        )
        
        
        127
        
        
        
        68DepreciationSupply
        
        
        127
        
        
        
        126
        
        
        
        69International (a)
        
        
        138
        
        
        
        44
        
        
        
        30265
        
        
        
        170
        
        
        
        99Amortizations - nuclear fuel
          and energy commitmentsSupply
        
        
        (50
        )
        
        
        (61
        )
        
        
        (38
        )(50
        )
        
        
        (61
        )
        
        
        (38
        )Interest incomeSupply
        
        
        26
        
        
        
        61
        
        
        
        28International (a)
        
        
        13
        
        
        
        2
        
        
        
        1439
        
        
        
        63
        
        
        
        42Interest expenseSupply
        
        
        (29
        )
        
        
        (48
        )
        
        
        89International (a)
        
        
        240
        
        
        
        95
        
        
        
        37211
        
        
        
        47
        
        
        
        126Income taxesSupply
        
        
        199
        
        
        
        237
        
        
        
        111International (a)
        
        
        67
        
        
        
        37
        
        
        
        14266
        
        
        
        274
        
        
        
        1252002
        
        
        2001
        
        
        2000Net Income (loss)Supply
        
        
        475
        
        
        
        489
        
        
        
        182International (b)
        
        
        (196
        )
        
        
        (315
        )
        
        
        60$
        279
        
        
        $
        174
        
        
        $
        242Cash Flow DataExpenditures for property,
          plant and equipmentSupply
        
        $
        291
        
        
        $
        254
        
        
        $
        246International
        
        
        113
        
        
        
        126
        
        
        
        34404
        
        
        
        380
        
        
        
        280Investment in generating assets
          and electric energy projectsSupply
        
        
        261
        
        
        
        176
        
        
        
        102International (c)
        
        
        211
        
        
        
        136
        
        
        
        473$
        472
        
        
        $
        312
        
        
        $
        575As of December 31,2002
        
        
        
        2001Balance Sheet DataNet investment in unconsolidated
          affiliates - at equitySupply
        
        $
        198
        
        
        
        $
        211International (d)
        
        
        36
        
        
        
        
        375234
        
        
        
        
        586Total assetsSupply
        
        
        5,563
        
        
        
        
        5,408International (d)
        
        
        4,772
        
        
        
        
        1,749$
        10,335
        
        
        
        $
        7,157
    2002
        
        
        2001
        
        
        2000Geographic DataRevenues from external customersDomestic
        
        $
        3,071
        
        
        $
        3,174
        
        
        $
        1,527Foreign (a)
        
        
        1,083
        
        
        
        580
        
        
        
        455$
        4,154
        
        
        $
        3,754
        
        
        $
        1,982
    As of December 31,2002
        
        
        
        2001Property, plant and equipmentDomestic
        
        $
        3,118
        
        
        
        $
        2,838Foreign (d)
        
        
        3,769
        
        
        
        
        580$
        6,887
        
        
        
        $
        3,418
    (a)
        
        The period ended December 31, 2002 contains
          the results of WPD. See Note 9 for additional information on the acquisition
          of a controlling interest in WPD.(b)
        
        The International segment includes the "Cumulative
          Effect of a Change in Accounting Principle" recorded in March 2002.
          See Note 18 for additional information. The International segment also
          includes the write-downs of the CEMAR investment described in Note 9.(c)
        
        The 2002 amount represents the acquisition
          of the controlling interest in WPD.(d)
        
        The December 31, 2002 balance sheet includes
          the consolidation of the accounts of WPD. See Note 9 for additional
          information on the acquisition of WPD.

1. Investment in Unconsolidated Affiliates - at Equity
    

    (PPL and PPL Energy Supply)
    
    Investments in unconsolidated affiliates accounted for under the equity
      method by both PPL and PPL Energy Supply were $234 million and $586 million
      at December 31, 2002 and 2001. The balance at December 31, 2001 included
      PPL Global's investment in WPDH Limited, which was $328 million. In the
      third quarter of 2002, PPL Global acquired a controlling interest in WPD.
      As a result, PPL Global fully consolidated the financial results of WPD
      at September 30, 2002. See Note 9 for additional information.
    
    Investment in unconsolidated affiliates accounted for under the equity
      method at December 31, 2002, and the effective equity ownership percentages,
      were as follows:
    
    PPL Global:
        Aguaytia Energy, LLC - 11.4%
        Hidro Iberica, B.V. - 50.0%
        Latin American Energy & Electricity Fund I, LP - 16.6%
        Transemel - 60.0%
        Wind Resources Limited - 45.0%
    
    PPL Generation:
        Safe Harbor Water Power Corporation - 33.3%
        Bangor Pacific Hydro Associates - 50.0%
        Southwest Power Partners, LLC - 50.0%
    
    Summarized below is information from the financial statements of unconsolidated
      affiliates accounted for under the equity method, underlying the amounts
      included in PPL's and PPL Energy Supply's consolidated financial statements:
    
    2002
        
        
        2001
        
        
        2000Income Statement Data (a)Revenues
        $
        
        118
        
        
        $
        111
        
        
        $
        99Operating Income
        
        
        13
        
        
        
        42
        
        
        
        40Net Income (Loss)
        
        
        (9
        )
        
        
        52
        
        
        
        15
    December 31,
            2002
        
        
        December 31,
            2001Balance Sheet Data (a)Current Assets
        
        $
        139
        
        
        $
        144Noncurrent Assets
        
        
        807
        
        
        
        865Current Liabilities
        
        
        31
        
        
        
        37Noncurrent Liabilities
        
        
        298
        
        
        
        310
    (a)
        
        For purpose of comparability, the summarized
          information of WPD is excluded from all periods.
2. Earnings Per Share
    

    (PPL)
    Basic EPS is calculated by dividing "Net Income" on the Statement of Income
      by the weighted average number of common shares outstanding during the period.
      In the calculation of diluted EPS, weighted average shares outstanding are
      increased for additional shares that would be outstanding if potentially
      dilutive securities were converted to common stock.
    Potentially dilutive securities consist of stock options granted under
      the incentive compensation plans, stock units representing common stock
      granted under directors compensation programs and PEPS Units.
    
    Dividends and distributions on preferred securities are
      included in net income in the computation of basic and diluted EPS.
    
    The basic and diluted EPS calculations, and the reconciliation
      of the shares (in thousands) used in the calculations, are shown below:
    
    2002
        
        
        2001
        
        
        2000Income (Numerator)Net Income - before extraordinary
          item and cumulative effect of a change in accounting principle
        
        $
        358
        
        
        $
        169
        
        
        $
        487Extraordinary item (net of tax)
        
        
        
        
        
        
        
        
        
        
        11Cumulative effect of a change in accounting
          principle (net of tax)
        
        
        (150
        )
        
        
        10Net Income
        
        $
        208
        
        
        $
        179
        
        
        $
        498
    Shares (Denominator)Shares for Basic EPS
        
        
        152,492
        
        
        
        145,974
        
        
        
        144,350Add: Incremental sharesStock options
        
        
        244
        
        
        
        569
        
        
        
        364Stock units
        
        
        73
        
        
        
        71
        
        
        
        67Shares for Diluted EPS
        
        
        152,809
        
        
        
        146,614
        
        
        
        144,781Basic EPSNet Income - before extraordinary
          item and cumulative effect of a change in accounting principle
        
        $
        2.35
        
        
        $
        1.16
        
        
        $
        3.38Extraordinary item (net of tax)
        
        
        
        
        
        
        
        
        
        
        0.07Cumulative effect of a change in accounting
          principle (net of tax)
        
        
        (0.98
        )
        
        
        0.07Net Income
        
        $
        1.37
        
        
        $
        1.23
        
        
        $
        3.45Diluted EPSNet Income - before extraordinary
          item and cumulative effect of a change in accounting principle
        
        $
        2.35
        
        
        $
        1.15
        
        
        $
        3.37Extraordinary item (net of tax)
        
        
        
        
        
        
        
        
        
        
        0.07Cumulative effect of a change in accounting
          principle (net of tax)
        
        
        (0.99
        )
        
        
        0.07Net Income
        
        $
        1.36
        
        
        $
        1.22
        
        
        $
        3.44
    See Note 12 for a description of the cumulative effect of a change in accounting
      for pension gains and losses and the pro forma effect of retroactive application
      of the change in accounting.
    See Note 18 for a description of the cumulative effect of a change in accounting
      related to the adoption of SFAS 142 and the elimination of goodwill amortization,
      as well as the pro forma effect of retroactive application of the elimination
      of goodwill amortization.
    In May 2001, PPL issued 23 million PEPS Units that contain a purchase contract
      component for PPL's common stock. The purchase contract would settle between
      8.8 million and 10.8 million of PPL's common shares, depending on a conversion
      ratio tied to the price of PPL's common stock. The PEPS Units will only
      be dilutive if the average price of PPL's common stock exceeds $65.03 for
      any period. Since the weighted average price has not exceeded $65.03 since
      issuance, they were excluded from the diluted EPS calculations.
    Stock options to purchase approximately 1,294,000 and 896,000 PPL common
      shares for 2002 and 2001 were not included in those period's computation
      of diluted EPS because the exercise price of the options was greater than
      the average market price of the common shares. Therefore, the effect would
      have been antidilutive.
3. Income and Other Taxes
    For 2002, 2001 and 2000, the corporate federal income tax rate was 35%.
      The statutory corporate net income tax rates for Pennsylvania and Montana
      were 9.99% and 6.75%.

    (PPL)
    The tax effects of significant temporary differences comprising PPL's net
      deferred income tax liability were as follows:
    
    2002
        
        
        2001Deferred Tax AssetsDeferred investment tax credits
        
        $
        54
        
        
        $
        60NUG contracts & buybacks
        
        
        203
        
        
        
        272Accrued pension costs
        
        
        214
        
        
        
        74Deferred foreign income taxes
        
        
        233
        
        
        
        69Cancellation of generation projects
        
        
        
        
        
        
        60Write-down of generating assets
        
        
        18Impairment write-down
        
        
        91
        
        
        
        61Contribution in aid of construction
        
        
        56
        
        
        
        42Other
        
        
        209
        
        
        
        200Valuation allowance
        
        
        (327
        )
        
        
        (132
        )751
        
        
        
        706Deferred Tax LiabilitiesElectric plant - net
        
        
        922
        
        
        
        852Restructuring - CTC
        
        
        778
        
        
        
        861Taxes recoverable through future rates
        
        
        104
        
        
        
        104Reacquired debt costs
        
        
        11
        
        
        
        12Foreign-plant
        
        
        792Foreign-pensions
        
        
        167Foreign-other
        
        
        35
        
        
        
        42Other domestic
        
        
        83
        
        
        
        632,892
        
        
        
        1,934Net deferred tax liability
        
        $
        2,141
        
        
        $
        1,228
    Details of the components of income tax expense, a reconciliation of federal
      income taxes derived from statutory tax rates applied to income from continuing
      operations for accounting purposes, and details of taxes other than income
      are as follows:
    
    2002
        
        
        2001
        
        
        2000Income Tax ExpenseCurrent-Federal
        
        $
        41
        
        
        $
        270
        
        
        $
        285Current-State
        
        
        (9
        )
        
        
        36
        
        
        
        57Current-Foreign
        
        
        52
        
        
        
        8
        
        
        
        1184
        
        
        
        314
        
        
        
        353Deferred-Federal
        
        
        70
        
        
        
        (86
        )
        
        
        (52
        )Deferred-State
        
        
        27
        
        
        
        4
        
        
        
        12Deferred-Foreign
        
        
        44
        
        
        
        44
        
        
        
        (4
        )141
        
        
        
        (38
        )
        
        
        (44
        )Investment tax credit, net-federal
        
        
        (15
        )
        
        
        (15
        )
        
        
        (15
        )Total
        
        $
        210
        
        
        $
        261
        
        
        $
        294Total income tax expense-Federal
        
        $
        96
        
        
        $
        169
        
        
        $
        218Total income tax expense-State
        
        
        18
        
        
        
        40
        
        
        
        69Total income tax expense-Foreign
        
        
        96
        
        
        
        52
        
        
        
        7Total
        
        $
        210
        
        
        $
        261
        
        
        $
        2942002
        
        
        2001
        
        
        2000Reconciliation of Income Tax
          ExpenseIndicated federal income tax on pre-tax
          income before extraordinary item and a cumulative effect of a change
          in accounting principle at statutory tax rate - 35%
        
        $
        250
        
        
        $
        168
        
        
        $
        284Increase/(decrease) due to:State income taxes
        
        
        11
        
        
        
        25
        
        
        
        45Flow through of depreciation differences
          not previously normalized
        
        
        
        
        
        
        
        
        
        
        2Amortization of investment tax credit
        
        
        (11
        )
        
        
        (11
        )
        
        
        (11
        )Write-down of international energy projects
        
        
        14
        
        
        
        144Difference related to income recognition
          of foreign affiliates (net of foreign income taxes)
        
        
        18
        
        
        
        (9
        )
        
        
        (7
        )Federal income tax credits
        
        
        (50
        )
        
        
        (40
        )
        
        
        (6
        )Other
        
        
        (22
        )
        
        
        (16
        )
        
        
        (13
        )(40
        )
        
        
        93
        
        
        
        10Total income tax expense
        
        $
        210
        
        
        $
        261
        
        
        $
        294Effective income tax rate
        
        
        29.5%
        
        
        
        54.4%
        
        
        
        36.3%Taxes, Other than IncomeState gross receipts
        
        $
        154
        
        
        $
        112
        
        
        $
        128State utility realty
        
        
        3
        
        
        
        4
        
        
        
        6State capital stock
        
        
        7
        
        
        
        20
        
        
        
        23Property-international
        
        
        42Domestic property and other
        
        
        26
        
        
        
        19
        
        
        
        19$
        232
        
        
        $
        155
        
        
        $
        176 PPL Global had foreign net operating loss carryforwards of approximately
      $28 million and $34 million at December 31, 2002 and 2001. PPL Global also
      had foreign capital loss carryforwards of $760 million at December 31, 2002
      and none at December 31, 2001. All of these losses have an unlimited carryforward
      period. However, it is more likely than not that these losses will not be
      utilized and as such, a full valuation allowance has been provided.
    PPL Global does not pay or record U.S. income taxes on the undistributed
      earnings of its foreign subsidiaries where management has determined that
      the earnings are permanently reinvested. The cumulative undistributed earnings
      are included in "Earnings reinvested" on the Balance Sheet. The amounts
      considered permanently reinvested at December 31, 2002 and 2001 were $295
      million and $38 million. If the earnings were remitted as dividends, PPL
      Global may be subject to additional U.S. taxes, net of allowable foreign
      tax credits. It is not practical to estimate the amount of additional taxes
      that might be payable on these foreign earnings.

    (PPL Energy Supply)
    The tax effects of significant temporary differences comprising PPL Energy
      Supply's net deferred income tax asset (liability) were as follows:
    2002
        
        
        2001Deferred Tax AssetsDeferred investment tax credits
        
        $
        42
        
        
        $
        47NUG contracts & buybacks
        
        
        203
        
        
        
        272Accrued pension costs
        
        
        159
        
        
        
        25Deferred foreign income taxes
        
        
        233
        
        
        
        69Cancellation of generation projects
        
        
        
        
        
        
        60Write-down of generating assets
        
        
        18Impairment write-down
        
        
        91
        
        
        
        61Other
        
        
        107
        
        
        
        98Valuation allowance
        
        
        (327
        )
        
        
        (132
        )526
        
        
        
        500Deferred Tax LiabilitiesElectric plant - net
        
        
        393
        
        
        
        358Foreign investments
        
        
        21
        
        
        
        14Foreign-plant
        
        
        792Foreign-pensions
        
        
        167Foreign-other
        
        
        35
        
        
        
        42`Other domestic
        
        
        16
        
        
        
        101,424
        
        
        
        424Net deferred tax asset (liability)
        
        $
        (898
        )
        
        $
        76Details of the components of income tax expense, a reconciliation of federal
      income taxes derived from statutory tax rates applied to income from continuing
      operations for accounting purposes, and details of taxes, other than income
      are as follows:
    2002
        
        
        2001
        
        
        2000Income Tax ExpenseCurrent-Federal
        
        $
        22
        
        
        $
        210
        
        
        $
        109Current-State
        
        
        (6
        )
        
        
        44
        
        
        
        24Current-Foreign
        
        
        52
        
        
        
        8
        
        
        
        1168
        
        
        
        262
        
        
        
        144Deferred-Federal
        
        
        134
        
        
        
        (22
        )
        
        
        (10
        )Deferred-State
        
        
        32
        
        
        
        2
        
        
        
        1Deferred-Foreign
        
        
        44
        
        
        
        44
        
        
        
        (4
        )210
        
        
        
        24
        
        
        
        (13
        )Investment tax credit, net-federal
        
        
        (12
        )
        
        
        (12
        )
        
        
        (6
        )Total
        
        $
        266
        
        
        $
        274
        
        
        $
        125Total income tax expense-Federal
        
        $
        144
        
        
        $
        176
        
        
        $
        93Total income tax expense-State
        
        
        26
        
        
        
        46
        
        
        
        25Total income tax expense-Foreign
        
        
        96
        
        
        
        52
        
        
        
        7Total
        
        $
        266
        
        
        $
        274
        
        
        $
        1252002
        
        
        2001
        
        
        2000Reconciliation of Income Tax
          ExpenseIndicated federal income tax on pre-tax
          income before extraordinary item and a cumulative effect of a change
          in accounting principle at statutory tax rate - 35%
        
        $
        274
        
        
        $
        155
        
        
        $
        130Increase/(decrease) due to:State income taxes
        
        
        17
        
        
        
        31
        
        
        
        16Amortization of investment tax credit
        
        
        (8
        )
        
        
        (8
        )
        
        
        (4
        )Write-down of international energy projects
        
        
        14
        
        
        
        144Difference related to income recognition
          of foreign affiliates (net of foreign income taxes)
        
        
        18
        
        
        
        (9
        )
        
        
        (7
        )Federal income tax credits
        
        
        (50
        )
        
        
        (40
        )
        
        
        (6
        )Other
        
        
        1
        
        
        
        1
        
        
        
        (4
        )(8
        )
        
        
        119
        
        
        
        (5
        )Total income tax expense
        
        $
        266
        
        
        $
        274
        
        
        $
        125Effective income tax rate
        
        
        34.0%
        
        
        
        61.9%
        
        
        
        33.6%Taxes, Other than IncomeState gross receipts
        
        $
        4
        
        
        $
        7
        
        
        $
        24State capital stock
        
        
        9
        
        
        
        11
        
        
        
        10Property-international
        
        
        42Domestic property and other
        
        
        23
        
        
        
        20
        
        
        
        19$
        78
        
        
        $
        38
        
        
        $
        53PPL Global had foreign net operating loss carryforwards of approximately
      $28 million and $34 million at December 31, 2002 and 2001. PPL Global also
      had foreign capital loss carryforwards of $760 million at December 31, 2002
      and none at December 31, 2001. All of these losses have an unlimited carryforward
      period. However, it is more likely than not that these losses will not be
      utilized and as such, a full valuation allowance has been provided.
    PPL Global does not pay or record U.S. income taxes on the undistributed
      earnings of its foreign subsidiaries where management has determined that
      the earnings are permanently reinvested. The cumulative undistributed earnings
      are included in Member's Equity on the Balance Sheet. The amounts considered
      permanently reinvested at December 31, 2002 and 2001 were $295 million and
      $38 million. If the earnings were remitted as dividends, PPL Global may
      be subject to additional U.S. taxes, net of allowable foreign tax credits.
      It is not practical to estimate the amount of additional taxes that might
      be payable on these undistributed foreign earnings.

    (PPL Electric)
    The tax effects of significant temporary differences comprising PPL Electric's
      net deferred income tax liability were as follows:
    2002
        
        
        2001Deferred Tax AssetsDeferred investment tax credits
        
        $
        11
        
        
        $
        12Accrued pension costs
        
        
        33
        
        
        
        31Contribution in aid of construction
        
        
        55
        
        
        
        41Other
        
        
        61
        
        
        
        63160
        
        
        
        147Deferred Tax LiabilitiesElectric utility plant - net
        
        
        529
        
        
        
        494Restructuring - CTC
        
        
        223
        
        
        
        220Taxes recoverable through future rates
        
        
        99
        
        
        
        99Reacquired debt costs
        
        
        10
        
        
        
        12Other
        
        
        11
        
        
        
        11872
        
        
        
        836Net deferred tax liability
        
        $
        712
        
        
        $
        689Details of the components of income tax expense, a reconciliation of federal
      income taxes derived from statutory tax rates applied to income from continuing
      operations for accounting purposes, and details of taxes other than income
      are as follows:
    2002
        
        
        2001
        
        
        2000Income Tax ExpenseCurrent-Federal
        
        $
        (8
        )
        
        $
        31
        
        
        $
        144Current-State
        
        
        5
        
        
        
        6
        
        
        
        35(3
        )
        
        
        37
        
        
        
        179Deferred-Federal
        
        
        27
        
        
        
        27
        
        
        
        (10
        )Deferred-State
        
        
        (3
        )
        
        
        4
        
        
        
        1024
        
        
        
        31Investment tax credit, net-federal
        
        
        (3
        )
        
        
        (3
        )
        
        
        (8
        )Total
        
        $
        18
        
        
        $
        65
        
        
        $
        171Total income tax expense-Federal
        
        $
        16
        
        
        $
        55
        
        
        $
        126Total income tax expense-State
        
        
        2
        
        
        
        10
        
        
        
        45Total
        
        $
        18
        
        
        $
        65
        
        
        $
        1712002
        
        
        2001
        
        
        2000Reconciliation of Income Tax
          ExpenseIndicated federal income tax on pre-tax
          income before extraordinary item and cumulative effect of a change in
          accounting principle at statutory tax rate - 35%
        
        $
        26
        
        
        $
        72
        
        
        $
        156Increase/(decrease) due to:State income taxes
        
        
        1
        
        
        
        4
        
        
        
        29Flow through of depreciation differences
          not previously normalized
        
        
        
        
        
        
        
        
        
        
        2Amortization of investment tax credit
        
        
        (3
        )
        
        
        (3
        )
        
        
        (7
        )Other
        
        
        (6
        )
        
        
        (8
        )
        
        
        (9
        )(8
        )
        
        
        (7
        )
        
        
        15Total income tax expense
        
        $
        18
        
        
        $
        65
        
        
        $
        171Effective income tax rate
        
        
        24.7%
        
        
        
        31.7%
        
        
        
        38.3%Taxes, Other than IncomeState gross receipts
        
        $
        151
        
        
        $
        105
        
        
        $
        117State utility realty
        
        
        3
        
        
        
        4
        
        
        
        6State capital stock
        
        
        (2
        )
        
        
        8
        
        
        
        12Property and other
        
        
        1
        
        
        
        (1
        )
        
        
        (1
        )$
        153
        
        
        $
        116
        
        
        $
        134(PPL Montana)
    The tax effects of significant temporary differences comprising PPL Montana's
      net deferred income tax asset were as follows:
    2002
        
        
        2001Deferred Tax AssetsAccrued retirement costs
        
        $
        9
        
        
        $
        5Wholesale energy commitments
        
        
        25
        
        
        
        30Allowance for doubtful accounts
        
        
        18
        
        
        
        19Other
        
        
        254
        
        
        
        54Deferred Tax LiabilitiesProperty, plant and equipment
        
        
        17
        
        
        
        9Mark-to-market
        
        
        2
        
        
        
        20Other
        
        
        6
        
        
        
        125
        
        
        
        30Net deferred tax asset
        
        $
        29
        
        
        $
        24Details of the components of income tax expense, a reconciliation of federal
      income taxes derived from statutory tax rates applied to income from continuing
      operations for accounting purposes and details of taxes other than income
      are as follows:
    2002
        
        
        2001
        
        
        2000Income Tax ExpenseCurrent-Federal
        
        $
        12
        
        
        $
        50
        
        
        $
        56Current-State
        
        
        6
        
        
        
        11
        
        
        
        1218
        
        
        
        61
        
        
        
        68Deferred-Federal
        
        
        14
        
        
        
        5
        
        
        
        (9
        )Deferred-State
        
        
        3
        
        
        
        2
        
        
        
        (2
        )17
        
        
        
        7
        
        
        
        (11
        )$
        35
        
        
        $
        68
        
        
        $
        57Total income tax expense-Federal
        
        $
        26
        
        
        $
        55
        
        
        $
        47Total income tax expense-State
        
        
        9
        
        
        
        13
        
        
        
        10$
        35
        
        
        $
        68
        
        
        $
        57Reconciliation of Income Tax
          Expense:Indicated federal income tax on pre-tax
          income at statutory tax rate - 35%
        
        $
        29
        
        
        $
        60
        
        
        $
        50Increase/(decrease) due to:State income taxes
        
        
        7
        
        
        
        9
        
        
        
        6Other
        
        
        (1
        )
        
        
        (1
        )
        
        
        16
        
        
        
        8
        
        
        
        7Total income tax expense
        
        $
        35
        
        
        $
        68
        
        
        $
        57Effective income tax rate
        
        
        42.7%
        
        
        
        39.8%
        
        
        
        39.9%
    Taxes, Other than IncomeProperty taxes
        
        $
        15
        
        
        $
        14
        
        
        $
        13Generation taxes
        
        
        2
        
        
        
        2
        
        
        
        2$
        17
        
        
        $
        16
        
        
        $
        15
4. Nuclear Decommissioning Costs
    (PPL and PPL Energy Supply)
    The cost to decommission the Susquehanna station is based on a site-specific
      study to dismantle and decommission each unit immediately following final
      shutdown. PPL Susquehanna's 90% share of the total estimated cost of decommissioning
      the Susquehanna station was approximately $936 million measured in 2002
      dollars. This estimate includes decommissioning the radiological portions
      of the station and the cost of removal of non-radiological structures and
      materials.
    Decommissioning costs are recorded as a component of depreciation expense.
      Beginning in January 1999, in accordance with the PUC Final Order, $130
      million of decommissioning costs are being recovered from customers through
      the CTC over the 11-year life of the CTC rather than the remaining life
      of Susquehanna. The recovery will include a return on unamortized decommissioning
      costs. Decommissioning charges were $22 million in 2002, $24 million in
      2001 and $26 million in 2000 (for PPL Energy Supply, the charge was only
      $13 million for the six months ended December 31, 2000 due to the corporate
      realignment in 2000.)
    Amounts collected from PPL Electric's customers for decommissioning, less
      applicable taxes, are deposited in external trust funds for investment and
      can be used only for future decommissioning costs. Accrued nuclear decommissioning
      costs were $296 million and $294 million at December 31, 2002 and 2001,
      and are included in "Deferred Credits and Other Noncurrent Liabilities -
      Other" by PPL and in "Nuclear plant decommissioning" by PPL Energy Supply.
    In November 2001, PPL Susquehanna notified the NRC that it intends to file
      for 20-year license renewals for each of the Susquehanna units. If approved,
      the operating licenses would be extended from 2022 to 2042 for Unit 1 and
      from 2024 to 2044 for Unit 2.
    See Note 22 for additional information on SFAS 143, "Accounting for Asset
      Retirement Obligations," which changed the accounting for the decommissioning
      of the Susquehanna station effective January 1, 2003.

    (PPL Electric)
    Prior to July 1, 2000, an annual provision for PPL Electric's share of
      the future cost to decommission the Susquehanna station, equal to the amount
      allowed in utility rates, was charged to depreciation expense. Such amounts
      were invested in external trust funds which could only be used for future
      decommissioning costs. In connection with the corporate realignment, effective
      July 1, 2000, the generating and certain other related assets, along with
      associated liabilities related to the operation and decommissioning of the
      Susquehanna nuclear station, were transferred to PPL Susquehanna.

1. Financial Instruments
    The carrying amount on the Balance Sheet and the estimated fair value of
      financial instruments are set forth below. These tables exclude derivative
      and non-derivative energy contracts that do not meet the definition of a
      financial instrument because physical delivery is expected.
    (PPL)
    
    December 31, 2002
        
        
        December 31, 2001Carrying
            Amount
        
        
        Fair
            Value
        
        
        Carrying
            Amount
        
        
        Fair
            ValueAssetsCash and cash 
          equivalents (a)
        
        $
        245
        
        
        $
        245
        
        
        $
        933
        
        
        $
        933Nuclear plant decommissioning
          trust fund (a)
        
        
        287
        
        
        
        287
        
        
        
        276
        
        
        
        276Price risk management assets
          - current: (b)Energy
        
        
        30
        
        
        
        30
        
        
        
        22
        
        
        
        22Foreign exchange
        
        
        6
        
        
        
        6Price risk management assets
          - noncurrent: (b)Energy
        
        
        12
        
        
        
        12
        
        
        
        44
        
        
        
        44Interest
        
        
        12
        
        
        
        12
        
        
        
        6
        
        
        
        6Foreign exchange
        
        
        63
        
        
        
        63Other investments (a)
        
        
        51
        
        
        
        51
        
        
        
        61
        
        
        
        61Other financial instruments
          included in other current
          assets (a)
        
        
        5
        
        
        
        5
        
        
        
        3
        
        
        
        3December 31, 2002
        
        
        December 31, 2001Carrying
            Amount
        
        
        Fair
            Value
        
        
        Carrying
            Amount
        
        
        Fair
            ValueLiabilitiesLong-term debt (c)
        
        
        6,267
        
        
        
        6,657
        
        
        
        5,579
        
        
        
        5,724Company-obligated mandatorily
          redeemable preferred securities of subsidiary trusts holding solely
          company 
          debentures (c)
        
        
        661
        
        
        
        507
        
        
        
        825
        
        
        
        705Short-term debt (a)
        
        
        943
        
        
        
        943
        
        
        
        118
        
        
        
        118Price risk management liabilities
          - current: (b)Energy
        
        
        32
        
        
        
        32
        
        
        
        12
        
        
        
        12Interest
        
        
        14
        
        
        
        14
        
        
        
        4
        
        
        
        4Foreign exchange
        
        
        6
        
        
        
        6
        
        
        
        2
        
        
        
        2Price risk managementliabilities - noncurrent: (b)Energy
        
        
        7
        
        
        
        7
        
        
        
        7
        
        
        
        7Interest
        
        
        33
        
        
        
        33
        
        
        
        3
        
        
        
        3Foreign exchange
        
        
        9
        
        
        
        9
        
        
        
        1
        
        
        
        1Preferred stock with sinking
          fund 
          requirements (c)
        
        
        31
        
        
        
        30
        
        
        
        31
        
        
        
        31Other financial instruments
          included in other current liabilities (a)
        
        
        
        
        
        
        
        
        
        
        12
        
        
        
        12
    (PPL Energy Supply)
    
    December 31, 2002
        
        
        December 31, 2001Carrying
            Amount
        
        
        Fair
            Value
        
        
        Carrying
            Amount
        
        
        Fair
            ValueAssetsCash and cash 
          equivalents (a)
        
        $
        149
        
        
        $
        149
        
        
        $
        815
        
        
        $
        815Nuclear plant decommissioning
          trust fund (a)
        
        
        287
        
        
        
        287
        
        
        
        276
        
        
        
        276Price risk management assets
          - current: (b)Energy
        
        
        30
        
        
        
        30
        
        
        
        22
        
        
        
        22Foreign exchange
        
        
        1
        
        
        
        1Price risk management assets
          - noncurrent: (b)Energy
        
        
        12
        
        
        
        12
        
        
        
        44
        
        
        
        44Foreign exchange
        
        
        63
        
        
        
        63Other investments (a)
        
        
        9
        
        
        
        9
        
        
        
        13
        
        
        
        13Other financial instruments
          included in other current assets (a)
        
        
        4
        
        
        
        4
        
        
        
        1
        
        
        
        1
    December 31, 2002
        
        
        December 31, 2001Carrying
            Amount
        
        
        Fair
            Value
        
        
        Carrying
            Amount
        
        
        Fair
            ValueLiabilitiesLong-term debt (c)
        
        
        2,231
        
        
        
        2,252
        
        
        
        761
        
        
        
        725Company-obligated mandatorily
          redeemable preferred securities of subsidiary trusts holding solely
          company 
          debentures (c)
        
        
        86
        
        
        
        90Short-term debt (a)
        
        
        928
        
        
        
        928
        
        
        
        118
        
        
        
        118Price risk management liabilities
          - current: (b)Energy
        
        
        32
        
        
        
        32
        
        
        
        12
        
        
        
        12Foreign exchange
        
        
        6
        
        
        
        6Price risk managementliabilities - noncurrent: (b)Energy
        
        
        7
        
        
        
        7
        
        
        
        7
        
        
        
        7Foreign exchange
        
        
        9
        
        
        
        9Other financial instruments
          included in other current liabilities (a)
        
        
        
        
        
        
        
        
        
        
        12
        
        
        
        12
    (PPL Electric)
    
    December 31, 2002
        
        
        December 31, 2001Carrying
            Amount
        
        
        Fair
            Value
        
        
        Carrying
            Amount
        
        
        Fair
            ValueAssetsCash and cash 
          equivalents (a)
        
        $
        29
        
        
        $
        29
        
        
        $
        79
        
        
        $
        79Other investments (a)
        
        
        27
        
        
        
        27
        
        
        
        35
        
        
        
        35
    LiabilitiesLong-term debt (c)
        
        
        3,175
        
        
        
        3,476
        
        
        
        3,459
        
        
        
        3,575Company-obligated mandatorily redeemable
          preferred securities of subsidiary trusts holding solely company 
          debentures (c)
        
        
        
        
        
        
        
        
        
        
        250
        
        
        
        253Short-term debt (a)
        
        
        15
        
        
        
        15Preferred stock with sinking fund requirements
          (c)
        
        
        31
        
        
        
        30
        
        
        
        31
        
        
        
        31
    (a)
        
        The carrying value of these financial instruments
          generally is based on established market prices and approximates fair
          value.(b)
        
        Valued using either exchange-traded market
          quotes or prices obtained through third-party brokers. See Note 17 about
          the various uses of derivative financial instruments.(c)
        
        The fair value generally is based on quoted
          market prices for the securities where available and estimates based
          on current rates offered to PPL where quoted market prices are not available.(PPL Montana)
    
    At December 31, 2002 and 2001, the carrying value of cash and cash equivalents,
      price risk management assets and liabilities, and the revolving line of
      credit approximated fair value due to either the short-term nature of the
      instruments or variable interest rates associated with the financial instruments.
2. Credit Arrangements and Financing Activities
    Credit Arrangements
    
    (PPL, PPL Energy Supply, PPL Electric and PPL Montana)
    
    In order to enhance liquidity, and as a credit back-stop to their respective
      commercial paper programs, PPL Electric maintains a $400 million 364-day
      credit facility maturing in June 2003 (replacing a similar facility that
      had expired in June 2002), and PPL Energy Supply maintains three credit
      facilities: a $300 million 364-day credit facility maturing in June 2003,
      a $500 million three-year credit facility maturing in June 2004 and a $300
      million three-year credit facility maturing in June 2005 (the two $300 million
      credit facilities replaced a $600 million 364-day credit facility which
      expired in June 2002). At December 31, 2002, no borrowings were outstanding
      under any of these facilities. Both PPL Electric and PPL Energy Supply have
      the ability to cause the lenders to issue letters of credit under their
      respective facilities. At December 31, 2002, PPL Electric had $40 million
      of letters of credit outstanding under its facility, and PPL Energy Supply
      had $47 million of letters of credit outstanding under its $500 million
      facility, of which $25 million was for the benefit of PPL Montana.
    
    (PPL, PPL Energy Supply and PPL Montana)
    
    PPL Montana maintained a $100 million three-year credit facility, which
      matured in November 2002, to meet its liquidity needs and to provide for
      the issuance of up to $75 million in letters of credit. Additionally, PPL
      Montana maintained a $150 million credit facility, which matured in April
      2002, for the sole purpose of issuing letters of credit. These facilities
      were not renewed.
    In the fourth quarter of 2002, PPL Montana entered into a $100 million
      three-year credit facility with another PPL Energy Supply subsidiary on
      market terms to meet its liquidity needs. At December 31, 2002, PPL Montana
      had outstanding borrowings of $26 million under this facility.
    (PPL and PPL Energy Supply)
    In October 2002, WPD (South West)'s 416 million British pounds sterling
      short-term facilities were replaced by a 250 million British pounds sterling
      bridge facility and two revolving credit facilities: a one-year 100 million
      British pounds sterling credit facility and a five-year 150 million British
      pounds sterling credit facility. At December 31, 2002, WPD (South West)
      had outstanding borrowings of $389 million under its bridge facility and
      $55 million under its credit facilities based on year-end currency exchange
      rates. The bridge facility is expected to be refinanced with long-term bonds
      in the first half of 2003.
    (PPL, PPL Energy Supply, PPL Electric and PPL Montana)
    
    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 the subsidiaries absent a specific
      contractual undertaking by a subsidiary to pay PPL's creditors or as required
      by applicable law or regulation. Similarly, absent a specific contractual
      undertaking or as required by applicable law or regulation, PPL is not liable
      for the debts of its subsidiaries. Accordingly, creditors of PPL's subsidiaries
      may not satisfy their debts from the assets of PPL absent a specific contractual
      undertaking by PPL to pay the creditors of its subsidiaries or as required
      by applicable law or regulation.
    
    Similarly, the subsidiaries of PPL Energy Supply, PPL Electric and PPL
      Montana are separate legal entities. These subsidiaries are not liable for
      the debts of PPL Energy Supply, PPL Electric and PPL Montana. Accordingly,
      creditors of PPL Energy Supply, PPL Electric and PPL Montana 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. In addition, absent a specific contractual undertaking
      or as required by applicable law or regulation, PPL Energy Supply, PPL Electric
      and PPL Montana are not liable for the debts of their subsidiaries. Accordingly,
      creditors of these subsidiaries may not satisfy their debts from the assets
      of PPL Energy Supply, PPL Electric or PPL Montana absent a specific contractual
      undertaking by that parent to pay the creditors of its subsidiaries or as
      required by applicable law or regulation.
    
    Financing Activities
    
    (PPL)
    
    In February 2002, PPL Capital Funding repurchased $10 million, par value,
      of its medium-term notes, 7.75% Series due 2005, at a market value of $11
      million. In October 2002, it repurchased an additional $100 million, par
      value, of these notes at a market value of $104 million.
    
    In September 2002, PPL Capital Funding retired $175 million of its medium-term
      notes, floating-rate Series B due 2002, and $25 million of its medium-term
      notes, 7.75% Series due 2002, both at par value.
    
    In September 2002, PPL Capital Funding cancelled the remarketing agreement
      on its 7.7% Reset Put Securities due 2007. This agreement would have permitted
      a third party to remarket the securities at an above-market coupon in November
      2002. This action required PPL Capital Funding to pay a $30 million termination
      fee to the third party in September, and PPL Capital Funding repurchased
      the principal amount ($200 million) of these securities in November 2002.
      A $24 million charge (the payment to the third party net of hedge income
      and the unamortized balance of the original option premium) was included
      in "Interest Expense" on the Statement of Income.
    
    In October 2002, PPL Capital Funding repurchased $15 million, par value,
      of its medium-term notes, 8-3/8% Series due 2007, at a market value of $16
      million.
    
    In September 2002, PPL issued 16.7 million shares of common stock for $30.50
      per share, resulting in gross proceeds of approximately $509 million. PPL
      received net proceeds of $493 million, which were used to redeem all of
      the $150 million outstanding 8.10% Preferred Securities issued by PPL Capital
      Trust II and to repay short-term debt.
    
    During the first quarter of 2002, PPL issued $13 million of common stock
      in small amounts on a periodic basis under its Structured Equity Shelf Program.
      This program was terminated in November 2002 and replaced with another program
      with a different sales agent. Under this new program, PPL issued $41 million
      of common stock in the fourth quarter of 2002 and $50 million in January
      2003.
    
    (PPL and PPL Energy Supply)
    
    At December 31, 2002, PPL Energy Supply had $374 million of commercial
      paper outstanding.
    
    (PPL and PPL Electric)
    
    In May 2002, PPL Electric:
    
    ·
        retired $11 million of its outstanding First
          Mortgage Bonds, 8-1/2% Series due 2022, at par value, through the maintenance
          and replacement fund provisions of the 1945 First Mortgage Bond Indenture;·
        retired $28 million of its outstanding First
          Mortgage Bonds, 7-3/4% Series due May 2002, at par value; and·
        instructed the property trustee of PPL Capital
          Trust to redeem, at par value, all of the $100 million of outstanding
          8.20% Preferred Securities due 2027 that were previously issued by PPL
          Capital Trust.
    In the third quarter of 2002, PPL Electric instructed the property trustee
      for the 8.10% Preferred Securities due 2027 to redeem, at par value, all
      of the $150 million of outstanding preferred securities issued by PPL Capital
      Trust II. This redemption occurred in September 2002.
    During 2002, PPL Transition Bond Company made principal payments on bonds
      totaling $245 million.
    In September 2002, PPL Electric received a capital contribution of $240
      million from PPL.
    
    At December 31, 2002, PPL Electric had $15 million of commercial paper
      outstanding.
    (PPL Energy Supply)
    
    During 2002, PPL Energy Supply distributed $710 million to its parent company,
      PPL Energy Funding. Also during this time, PPL Energy Supply received $160
      million in capital contributions from PPL Energy Funding.
    
    Dividend Restrictions
    
    (PPL, PPL Energy Supply and PPL Montana)
    
    The PPL Montana Colstrip lease places certain restrictions on PPL Montana's
      ability to declare dividends. At this time, PPL believes that these covenants
      will not limit PPL Montana's ability to operate as desired and will not
      affect PPL's ability to meet any of its cash obligations. Certain of PPL
      Global's international subsidiaries also have financing arrangements which
      limit their ability to pay dividends. However, PPL does not, at this time,
      expect that any of such limitations would significantly impact its ability
      to meet its cash obligations.
    (PPL and PPL Electric)
    
    PPL Electric's 2001 Senior Secured Bond Indenture restricts dividend payments
      in the event that PPL Electric fails to meet interest coverage ratios or
      fails to comply with certain separateness formalities undertaken in connection
      with its strategic initiative (see Note 20 for additional information).
      PPL Electric does not, at this time, expect that any of such limitations
      would significantly impact its ability to declare dividends.
3. Acquisitions, Development and Divestitures
    (PPL and PPL Energy Supply)
    Domestic Generation Projects
    In December 2001, PPL Global made a decision to cancel approximately 2,100
      MW of previously planned generation development in Pennsylvania and Washington
      state. These projects were in the early stage of development and would have
      had an estimated capital cost of approximately $1.3 billion. The charge
      for cancellation of these generation projects, which was primarily due to
      cancellation fees under turbine purchase contracts, was approximately $150
      million, or $88 million after-tax, and was reported on the 2001 Statement
      of Income as "Cancellation of generation projects," a component of "Other
      charges." At June 30, 2002, PPL Global had completed payment of the cancellation
      fees.
    In November 2002, PPL Global canceled the development of a 44 MW electricity-generating
      facility at Freeport, Long Island due to scheduling delays in the development
      process and increased project costs. As a result of this cancellation, PPL's
      capital expenditure program was reduced by approximately $65 million over
      2003 and 2004.
    
    Also in November, PPL Global evaluated its options with respect to six
      unassigned turbines and SCRs that are complete or substantially complete.
      These units were intended to be used at the Kings Park site on Long Island,
      New York. At that time, given low energy prices and the unavailability of
      a power contract, PPL Global was reevaluating its options with respect to
      the Kings Park project.
    
    Due to the uncertainty of the project and absence of other viable projects,
      a valuation based upon replacement costs of the turbines and the SCRs was
      completed. This resulted in the recognition of a $44 million impairment
      charge, which is reported on the Statement of Income as "Write-down of generation
      assets," a component of "Other charges." A deferred income tax benefit of
      $18 million was recognized on the write-down.
    In January 2003, PPL announced that it decided to seek a buyer and not
      proceed with development of the 300 MW Kings Park project. PPL is exploring
      the sale of both the generation equipment and the development rights at
      Kings Park. The decision reduced PPL's planned capital expenditures for
      generation by a total of approximately $165 million in 2003 and 2004.
    
    See Note 10 for a discussion of the Lower Mt. Bethel project.
    
    International Energy Projects
    Acquisition of Controlling Interest in WPD
    On September 6, 2002, PPL Global acquired the remaining 49% equity interest
      in WPDH Limited and WPDL from Mirant for approximately $236 million, including
      acquisition costs. Mirant announced its decision to exit the investment
      earlier in the year. The acquisition of Mirant's 49% interest provides PPL
      Global with complete control of WPD. WPD operates two electric distribution
      companies in the U.K., which together serve approximately 2.5 million end-users
      and have about 2,500 employees. The acquisition was initially funded by
      the issuance of commercial paper by PPL Energy Supply. The commercial paper
      was paid off with proceeds of the September 2002 common stock sale by PPL.
    Prior to the acquisition, PPL Global held 51% of the equity interest in
      WPD but shared control with Mirant pursuant to a shareholders' agreement.
      The shareholders' agreement was terminated in connection with the closing
      of the acquisition. No regulatory approvals were required for this transaction.
    The purchase of Mirant's interest in WPD was accounted for as a step-acquisition
      and resulted in the consolidation of WPD's results of operation into PPL's
      and PPL Energy Supply's Statement of Income as of January 1, 2002, on a
      one-month lag, consistent with PPL Global's current consolidation policy.
      The PPL income statement for the period ended December 31, 2002 reflects
      the results of WPD for the twelve months ended November 30, 2002. The acquisition
      also resulted in the addition of $3.4 billion of assets and $2.1 billion
      of WPD's debt to the balance sheet. However, the non-recourse nature of
      WPD's debt to PPL and PPL Energy Supply will not change.
    The assets acquired and liabilities assumed were recorded at estimated
      fair values as determined by management based on information currently available.
      PPL Global is in the process of obtaining an independent appraisal of the
      fair value of acquired property, plant and equipment and any intangible
      assets. Management is also completing its review and determination of fair
      value of other assets acquired and liabilities assumed, including pre-acquisition
      contingencies. Accordingly, the preliminary allocation of purchase price
      is subject to revision based on the final determination of appraised and
      other fair values. The following table summarizes the preliminary allocation
      of purchase price based on estimated fair values of the assets acquired
      and liabilities assumed at the date of acquisition, plus the book value
      of assets and liabilities underlying PPL Global's previous 51% equity ownership:
    Current assets
        
        $
        228Investments (a)
        
        
        (451
        )Property, plant and equipment
        
        
        3,429Goodwill
        
        
        225Other
        
        
        239Total assets acquired
        
        
        3,670Current liabilities
        
        
        787Long-term debt
        
        
        1,574Other
        
        
        1,073Total liabilities assumed
        
        
        3,434Net assets acquired
        
        $
        236(a)
        
        Includes the reversal of PPL
          Global's equity investment.
    The goodwill reflected above includes the remaining value of PPL Global's
      51% share of the goodwill recognized by WPD on its acquisition of Hyder.
    
    The unaudited pro forma information that follows is presented to give effect
      to the acquisition on the statements of income of PPL and PPL Energy Supply.
      The pro forma adjustments assume that the transaction was consummated at
      the beginning of the income statement period.
    
    (PPL)
    
    As
            Reported
        
        
        Pro Forma
            Adjustments
        
        
        As
            Adjusted2002Operating revenue
        
        $
        5,429
        
        
        
        
        
        
        $
        5,429Income from continuing operations
          (before cumulative effect of a change in accounting principle)
        
        
        358
        
        
        $
        71
        
        
        
        429Net income
        
        
        208
        
        
        
        71
        
        
        
        279Basic EPS
        
        
        1.37
        
        
        
        0.46
        
        
        
        1.832001Operating revenue
        
        $
        5,077
        
        
        $
        499
        
        
        $
        5,576Income from continuing operations
          (before cumulative effect of a change in accounting principle)
        
        
        169
        
        
        
        67
        
        
        
        236Net income
        
        
        179
        
        
        
        67
        
        
        
        246Basic EPS
        
        
        1.23
        
        
        
        0.46
        
        
        
        1.69
    (PPL Energy Supply)
    
    As
            Reported
        
        
        Pro Forma
            Adjustments
        
        
        As
            Adjusted2002Operating revenue
        
        $
        4,154
        
        
        
        
        
        
        $
        4,154Income from continuing operations (before
          cumulative effect of a change in accounting principle)
        
        
        429
        
        
        $
        71
        
        
        
        500Net income
        
        
        279
        
        
        
        71
        
        
        
        350
    2001Operating revenue
        
        $
        3,754
        
        
        $
        499
        
        
        $
        4,253Income from continuing operations (before
          cumulative effect of a change in accounting principle)
        
        
        171
        
        
        
        67
        
        
        
        238Net income
        
        
        174
        
        
        
        67
        
        
        
        241
    Write-down of International Energy Projects
    
    CEMAR
    At December 31, 2001, PPL Global estimated that the long-term viability
      of its CEMAR investment was jeopardized and that there was minimal probability
      of positive future cash flows. At that time, PPL Global recorded an impairment
      loss in the carrying value of its net assets in CEMAR, an increase in its
      valuation allowance in deferred tax assets, and a credit to "Minority Interest"
      on the Statement of Income. The net result of these transactions was a $217
      million charge to earnings, with $179 million included in "Write-down of
      international energy projects," a component of "Other charges," $44 million
      in deferred income taxes and a $6 million credit to "Minority Interest."
    At March 31, 2002, PPL Global recorded a further impairment loss in the
      carrying value of its net assets in CEMAR of approximately $4 million, after-tax.
      The pre-tax charge was $6 million, and was recorded as a charge to "Write-down
      of international energy projects" on the Statement of Income.
    Throughout the first half of 2002, PPL was working with governmental authorities
      in Brazil and CEMAR's creditors on a plan to return the company to financial
      stability. That plan included two requests by CEMAR for rate-increase reviews,
      which Brazilian regulators denied in January and June 2002. PPL viewed the
      rate-increase reviews as critical in restoring CEMAR to financial stability.
      Given the regulator's denial of the rate-increase reviews and the financial
      condition of CEMAR, PPL made a decision in June 2002 to exit the investment.
      PPL Global's remaining portion of its CEMAR investment, primarily related
      to its foreign currency translation adjustment balance, was written-off
      as of June 30, 2002. The $94 million charge was recorded in "Write-down
      of international energy projects" on the Statement of Income.
    As a result of its financial difficulties, CEMAR failed to pay certain
      of its creditors for obligations when due. In addition, CEMAR was not in
      compliance with the financial covenants in its 150 million Brazilian reais
      (approximately $56 million) debenture indenture for the year ended December
      31, 2001, and for the quarter ended March 31, 2002. CEMAR reached agreement
      with the required majority of debenture holders on a postponement until
      February 1, 2003 of the annual rollover terms pursuant to the debenture
      agreement and a waiver for the failure to meet certain financial covenants
      through measurement periods ending September 30, 2002. As far as PPL can
      ascertain, CEMAR subsequently violated a cross default covenant of the debenture
      indenture through nonpayment of certain short-term credit lines and the
      full 150 million Brazilian reais are due and owing. In addition, the rollover
      term postponement and covenant waiver agreement for the debentures expired
      as of February 1, allowing these creditors to demand payment in full. CEMAR
      was required to propose credit extension terms 25 days prior to the February
      1 deadline, but failed to do so. The intervention management (discussed
      below) of CEMAR has represented that CEMAR has received an extension until
      February 14 to pay certain unsecured credit lines that had previously matured
      and had been extended several times during late 2002. PPL does not know
      whether these creditors have granted a further extension beyond February
      14.
    In July 2002, PPL announced a proposal to sell all of its 90% equity interest
      in CEMAR to Franklin Park Energy, LLC. The sale was subject to approval
      by ANEEL and other customary conditions. On August 21, ANEEL denied the
      request for transfer of PPL's equity interest in CEMAR to Franklin Park
      Energy. The purchase and sale agreement was terminated by Franklin Park
      Energy on August 26 as a result of ANEEL's denial of the transfer request.
    On August 20, 2002, the trustee for CEMAR's debenture holders and three
      bank lenders to CEMAR filed an injunction with a state court in Brazil,
      enjoining CEMAR's officers and the board of directors of Brisk Participacoes
      Ltda. (Brisk), a wholly-owned subsidiary of PPL Global and CEMAR's controlling
      shareholder, from taking actions that would result in the equivalent of
      a U.S. Chapter 7 liquidation proceeding or liquidating event for CEMAR.
      Brisk filed objections to the injunction with the state court on September
      4. On August 21,CEMAR filed a concordata preventiva, the Brazilian
      equivalent of a U.S. Chapter 11 bankruptcy work-out proceeding. On September
      18, certain creditors and bondholders of CEMAR filed a complaint with the
      Brazilian courts against Brisk, requesting that Brisk's voting rights in
      CEMAR be suspended for a 90-day period and that the shares representing
      the controlling interest in CEMAR be transferred to a third party recommended
      by the creditors representing two-thirds of CEMAR's debt.
    On August 21, 2002, ANEEL authorized an administrative intervention in
      CEMAR and fully assumed operational and financial control of the company.
      In its public announcement relating to the intervention, ANEEL said that
      its intervention and control of CEMAR would last for an initial term of
      180 days and that it could be extended. On August 29, at the request of
      the intervenor appointed by ANEEL, the bankruptcy judge dismissed the concordata
      preventiva filing without prejudice.
    
    The intervenor appointed by ANEEL issued a public statement and schedule
      for the transfer of the ownership interest in CEMAR to a new owner. Pursuant
      to that schedule, ANEEL announced its approval in November 2002 of three
      Brazilian bidders that submitted pre-qualification documents. Also in November,
      a federal court in Brazil granted a preliminary injunction requested by
      a citizen connected to a Maranhão labor union suspending the process
      to transfer the ownership interest in CEMAR. Although the schedule announced
      by the intervenor reflected a closing for the transfer of control of CEMAR
      to a third party on December 20, 2002, the closing did not occur due to
      the failure of the potential buyer and certain creditors to reach agreement
      on the restructuring of CEMAR's debts. The deadline for the sale process
      was extended to February 17, 2003, the same day the initial term of the
      intervention was scheduled to end. Currently, three injunctions applicable
      to the sale process are pending, all of which ANEEL has appealed. No conforming
      bids were submitted to ANEEL by the February 17 deadline due to the outstanding
      injunctions preventing the sale process from continuing. ANEEL publicly
      announced a 180 day extension to the initial intervention on February 14,
      citing the continuing unresolved financial crisis of CEMAR as the primary
      reason for the extension. PPL has not yet been notified by ANEEL of a revised
      schedule for the sale process. As a result of this action, PPL Global will
      continue its current policy of not consolidating CEMAR (as described below).
    As of February 11, 2003, due to the inability to discharge their obligations
      under the continuing intervention, PPL-related officers and directors of
      CEMAR resigned from their respective positions.
    Based on this series of events, PPL Global no longer controls or manages
      CEMAR and PPL Global has deconsolidated the financial assets and liabilities
      of CEMAR from its financial statements. The CEMAR investment is now accounted
      for using the cost method. As a result, in the third quarter of 2002, PPL
      Global recorded approximately $23 million of operating losses of CEMAR through
      August 21, 2002, the day ANEEL assumed control. Consistent with the cost
      method of accounting, PPL Global is no longer recording CEMAR's operating
      results. Although return of control to PPL Global is considered highly unlikely,
      PPL Global is evaluating the accounting treatment if control is returned
      in the future. At December 31, 2002, the negative investment was included
      in "Deferred Credits and Other Noncurrent Liabilities - Other." Any negative
      carrying value of the investment in CEMAR will be reversed upon the final
      sale or other disposition of the company.
    
    The following major reductions in consolidated assets and liabilities resulted
      from the deconsolidation and recording of the cost investment of CEMAR:
    
    AssetsCurrent Assets
        
        $
        71Property, Plant and Equipment
          - net
        
        
        255Regulatory and Other Noncurrent
          Assets
        
        
        12338Liabilities and EquityCurrent Liabilities
        
        
        194Long-term Debt
        
        
        84Deferred Credits and Other
          Noncurrent Liabilities
        
        
        65Shareowners' Common Equity
        
        
        7350Accumulated Loss in Excess
          of Investment
        
        $
        (12
        )WPD/Teesside
    WPD has a 15.4% equity interest in Teesside Power Limited, the owner of
      the 1,875 MW Teesside Power Station, located in northeast England. Through
      its European affiliates, Enron was an owner, operator and power purchaser
      of the station's output. As a result of Enron being placed into receivership
      in the U.K. and its default on obligations under the power purchase agreements,
      in the fourth quarter of 2001, WPD wrote off its entire equity investment
      in Teesside Power Limited. PPL Global's share of the impairment loss was
      $21 million and is included in "Write-down of international energy projects,"
      a component of "Other Charges" on the Statement of Income.
    
    In connection with the Enron bankruptcy and the probable resulting loss
      of Teesside cash flows, PPL and its subsidiaries evaluated the carrying
      value of WPD. Fair value, measured using discounted cash flows, was compared
      to the carrying value to determine whether impairment existed at December
      31, 2001. Fair value was determined considering the loss of the value of
      the future cash flows from the Teesside Power Station and a forecasted reduction
      in future operating cash flows at WPD. The probability-weighted impairment
      loss was $117 million, after-tax. The pre-tax charge was $134 million, and
      was recorded as a charge to "Write-down of international energy projects."
    
    In 2002, PPL Global recognized an $8 million tax benefit
      on the worthlessness of WPD's investment in Teesside.
    
    Other
    Late in 2002, PPL Global evaluated certain investments for impairment and
      recorded a $5 million impairment charge in connection with its investment
      in CGE, a $4 million impairment of a corporate joint venture's investment
      in Brazil, and a $4 million write-down of certain non-electrical assets
      in Bolivia.
    Sales
    
    Late in 2002, PPL Global sold its minority interests in small hydroelectric
      generating facilities in Bolivia and in Portugal to concentrate on its majority-owned
      electricity distribution companies in Chile, Bolivia, El Salvador and the
      U.K. PPL Global received approximately $15 million in total from the sales.

1. Leases
    (PPL, PPL Energy Supply and PPL Montana)
    
    Colstrip Generating Plant
    In July 2000, PPL Montana sold its interest in the Colstrip generating
      plant to owner lessors who are leasing the assets back to PPL Montana under
      four 36-year operating leases. The proceeds from this sale approximated
      $410 million. PPL Montana recorded a deferred gain on the sale of approximately
      $8 million, which is being amortized into "Other operation and maintenance"
      in the Statement of Income over the term of the operating lease on a straight-line
      basis. PPL Montana used the sale proceeds to reduce outstanding debt and
      make distributions to PPL Generation.
    PPL Montana leases a 50% interest in Colstrip Units 1 and 2 and a 30% interest
      in Unit 3, through four non-cancelable operating leases. These leases provide
      two renewal options based on the economic useful life of the generation
      assets. PPL Montana is required to pay all expenses associated with the
      operations of the generation units. The leases place certain restrictions
      on PPL Montana's ability to incur additional debt, sell assets and declare
      dividends and requires PPL Montana to maintain certain financial ratios
      related to cash flow and net worth. The amount outstanding under these leases
      at December 31, 2002 was $314 million. There are no residual value guarantees
      in these leases. However, upon an event of default or an event of loss,
      the lessee could be required to pay a termination value of amounts sufficient
      to allow the lessor to repay amounts owing on the lessor notes and make
      the lessor whole for its equity investment and anticipated return on investment.
      The events of default include payment defaults, breaches of representations
      or covenants, acceleration of other indebtedness of PPL Montana, change
      in control of PPL Montana and certain bankruptcy events. The termination
      value is estimated to be $551 million at December 31, 2002.
    (PPL and PPL Energy Supply)
    University Park and Sundance
    In May 2001, a PPL Global subsidiary entered into a $1.06 billion operating
      lease arrangement, as lessee, for the development, construction and operation
      of several commercial power generation facilities. The lessor is a variable
      interest entity that was created for the sole purpose of owning the facilities
      and incurring the related financing costs. In February 2002, in connection
      with the December 2001 decision to cancel several development projects,
      the available commitment under this lease was reduced to $700 million to
      cover only the 540 MW gas-powered University Park project near University
      Park, Illinois, and the 450 MW gas-powered Sundance project near Coolidge,
      Arizona. In July 2002, these facilities were substantially completed and
      the initial lease term commenced. The first lease payment was made in August
      2002. The commitment under this lease was further reduced to $660 million
      in September 2002. The lease terminates in June 2008. At the end of the
      lease term, the lessee has the option to extend the lease or purchase the
      facilities. If the lessee does not choose either of these options, then
      it must sell the assets on behalf of the lessor and guarantee a residual
      value of up to $545 million based on an estimated total lessor's investment
      of $657 million for both projects combined. If the financing is terminated
      early as a result of significant environmental damage, or an event of default,
      the lessee could be obligated to pay up to 100% of the lessor's investment
      in the facilities. These events of default include, subject to certain exceptions,
      payment or judgment defaults, breach of representations or covenants, defaults
      in other indebtedness, termination of the financing documents or loss of
      a required approval. The obligations of the lessee under this lease, including
      payment obligations, have been guaranteed by PPL Energy Supply.
    Lower Mt. Bethel
    In December 2001, a PPL Global subsidiary entered into a $455 million operating
      lease arrangement, as lessee, for the development, construction and operation
      of a 600 MW gas-fired combined-cycle generation facility located in Lower
      Mt. Bethel Township, Northampton County, Pennsylvania. The lessor is a variable
      interest entity that was created for the sole purpose of owning the facility
      and incurring the related financing costs. The initial lease term is approximately
      10 years, beginning on the date of commercial operation, which is expected
      to occur in late 2003. At the end of the lease term, the lessee has the
      option to extend the lease or purchase the facility. If the lessee does
      not choose either of these options, then it must sell the assets on behalf
      of the lessor and guarantee a residual value estimated to be up to $321
      million based on an estimated total lessor's investment of $455 million.
      The lessee could be obligated to pay up to 100% of the lessor's investment
      and other obligations in the facilities if the financing is terminated early
      as a result of a loss, destruction or condemnation of the project, or upon
      an event of default. These events of default during the construction period
      include a violation of environmental law, material environmental damage,
      revocation or failure to obtain environmental approval, defaults arising
      out of any fraudulent act, illegal act, misapplication of funds or willful
      misconduct, or if a bankruptcy event occurs. These events of default during
      the lease term include, subject to certain exceptions, payment or judgment
      defaults, breach of representations or covenants, defaults in other indebtedness,
      termination of the financing documents, or violations of environmental law,
      material environmental damage or loss of a required environmental approval.
      The total exposure as a result of any of these events of default occurring
      is estimated to be up to $512 million as of December 31, 2002. The maximum
      exposure is estimated to be up to $575 million as of the commencement of
      the lease based on current market conditions. The obligations of the lessee
      under this lease, including payment obligations, have been guaranteed by
      PPL Energy Supply.
    The Air Quality Plan Approval issued by the Pennsylvania DEP for construction
      of the Lower Mt. Bethel facility has been appealed by the New Jersey DEP
      to the Pennsylvania DEP Environmental Hearing Board. The PPL Global subsidiary
      involved in the Lower Mt. Bethel lease financing has joined with the Pennsylvania
      DEP in opposing this appeal. In addition, in August 2002, the Northampton
      County Court of Common Pleas issued a decision concerning the permissible
      noise levels from the Lower Mt. Bethel facility when it becomes operational.
      Specifically, the court's decision addressed the noise measurement criteria
      and the point at which the noise levels are to be measured. PPL has appealed
      the court's decision to the Commonwealth Court, and an intervenor in the
      lawsuit has cross-appealed the court's decision. The Lower Mt. Bethel facility
      is expected to be operational in late 2003. PPL cannot predict the outcome
      of these matters or their ultimate impact on the Lower Mt. Bethel facility
      or on PPL Energy Supply, but such impact may be material.
    Cancellation of Lease for Turbine Generator Units and Related Equipment
    In November 2000, a PPL Global subsidiary entered into a $555 million operating
      lease arrangement for turbine generator units and related equipment (SCRs,
      transformers and spare engines). In June 2002, this operating lease was
      cancelled in connection with the December 2001 decision to cancel several
      development projects. Prior to terminating the lease, certain equipment
      under this lease was either purchased by a PPL Global subsidiary or sold
      to another lessor.
    Other Leases
    (PPL and PPL Electric)
    In March 2000, PPL Electric terminated its nuclear fuel lease and repurchased
      $154 million of nuclear fuel from the lessor energy trust. In July 2000,
      all nuclear fuel was transferred to PPL Susquehanna in connection with the
      corporate realignment.
    (PPL, PPL Energy Supply, PPL Electric and PPL Montana)
    In addition to the leasing arrangements discussed above, PPL and its subsidiaries
      also have leases for vehicles, office space, land, buildings, personal computers
      and other equipment. Rental expense for operating leases was as follows:
    PPL
        
        PPL
            Energy Supply
        
        PPL
            Electric
        
        PPL
            Montana2002
        
        $
        62
        
        $
        35
        
        $
        14
        
        $
        212001
        
        
        52
        
        
        26
        
        
        14
        
        
        212000
        
        
        45
        
        
        12
        
        
        16
        
        
        9
    Total future minimum rental payments for all operating
      leases are estimated as follows:
    
    PPL
        
        PPL
            Energy Supply
        
        PPL
            Electric
        
        PPL
            Montana2003
        
        $
        99
        
        $
        76
        
        $
        11
        
        $
        472004
        
        
        135
        
        
        116
        
        
        9
        
        
        442005
        
        
        131
        
        
        116
        
        
        7
        
        
        392006
        
        
        130
        
        
        119
        
        
        5
        
        
        382007
        
        
        130
        
        
        121
        
        
        4
        
        
        36Thereafter
        
        
        795
        
        
        777
        
        
        10
        
        
        458$
        1,420
        
        $
        1,325
        
        $
        46
        
        $
        662
2. Stock-Based Compensation
    (PPL, PPL Energy Supply, PPL Electric and PPL Montana)
    
    Under the PPL Incentive Compensation Plan (ICP) and the Incentive Compensation
      Plan for Key Employees (ICPKE) (together, the "Plans"), restricted shares
      of PPL common stock as well as stock options to purchase shares and stock
      units may be granted to officers and other key employees of PPL, PPL Electric
      and other affiliated companies. Awards under the Plans are made by the Compensation
      and Corporate Governance Committee (CCGC) of the PPL Board of Directors,
      in the case of the ICP, and by the PPL Corporate Leadership Council (CLC),
      in the case of the ICPKE. Each Plan limits the number of shares available
      for awards to two percent of the outstanding common stock of PPL on the
      first day of each calendar year. The maximum number of options that can
      be awarded under each Plan to any single eligible employee in any calendar
      year is 1.5 million shares. Any portion of these options that has not been
      granted may be carried over and used in any subsequent year. If any award
      lapses, is forfeited or the rights to the participant terminate, the shares
      of 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
      common stock, common stock held in treasury by PPL or common stock purchased
      on the open market (including private purchases) in accordance with applicable
      securities laws. At December 31, 2002, no stock units had been issued under
      the ICP or the ICPKE.
    
    Restricted Stock
    Restricted shares of PPL common stock are outstanding shares with full
      voting and dividend rights. However, the shares are subject to forfeiture
      or accelerated payout under Plan provisions for termination, retirement,
      disability and death of employees. Restricted shares vest fully if control
      of PPL changes, as defined by the Plans.
    A summary of restricted stock grants follows:
    Restricted Stock Grants
        
        Shares Granted
        
        
        Weighted Average Fair Value2002PPL
        
        147,735
        
        
        $
        34.12PPL Energy Supply
        
        82,211
        
        
        
        34.45PPL Electric
        
        18,860
        
        
        
        33.71PPL Montana
        
        2,830
        
        
        
        33.742001PPL
        
        202,590
        
        
        
        43.09PPL Energy Supply
        
        141,289
        
        
        
        42.68PPL Electric
        
        19,410
        
        
        
        44.79PPL Montana
        
        1,630
        
        
        
        45.092000PPL
        
        440,549
        
        
        
        21.30PPL Energy Supply
        
        227,858
        
        
        
        21.52PPL Electric
        
        25,790
        
        
        
        20.46PPL Montana
        
        25,308
        
        
        
        24.45Compensation expense related to restricted stock awards was $5 million,
      $6 million and less than $3 million for PPL for 2002, 2001 and 2000. At
      December 31, 2002, there were 624,711 restricted shares outstanding. These
      awards currently vest from three to twenty-five years from the date of grant.
    Compensation expense related to restricted stock awards for PPL Energy
      Supply was approximately $3 million for both 2002 and 2001, and was not
      material in 2000. Such compensation expense for PPL Electric and PPL Montana
      was not material for these same years.
    Stock Options
    Under the Plans, stock options may also be granted with an option exercise
      price per share not less than the fair market value of PPL's common stock
      on the date of grant. The options are exercisable beginning one year after
      the date of grant, assuming the individual is still employed by PPL or a
      subsidiary, in installments as determined by the CCGC in the case of the
      ICP, and the CLC in the case of the ICPKE. Options outstanding at December
      31, 2002 vest over a three-year period from the date of grant in equal installments.
      The CCGC and CLC have discretion to accelerate the exercisability of the
      options. All options expire no later than ten years from the grant date.
      The options become exercisable if control of PPL changes, as defined by
      the Plans.
    A summary of stock option activity follows:
    
    2002
        
        
        2001
        
        
        2000Number of Options
        
        
        Weighted Average Exercise Price
        
        
        Number of Options
        
        
        Weighted Average Exercise Price
        
        
        Number of Options
        
        
        Weighted Average Exercise PricePPLOutstanding at beginning of
          year
        
        
        2,255,051
        
        
        $
        31.36
        
        
        
        1,969,301
        
        
        $
        23.64
        
        
        
        626,020
        
        
        $
        26.85Granted
        
        
        840,430
        
        
        $
        33.49
        
        
        
        922,860
        
        
        $
        43.16
        
        
        
        1,501,110
        
        
        $
        22.45Exercised
        
        
        (62,710
        )
        
        $
        22.82
        
        
        
        (548,424
        )
        
        $
        23.49
        
        
        
        (56,590
        )
        
        $
        26.84Forfeited
        
        
        (24,086
        )
        
        $
        36.18
        
        
        
        (88,686
        )
        
        $
        31.31
        
        
        
        (101,239
        )
        
        $
        24.02Outstanding at end of year
        
        
        3,008,685
        
        
        $
        32.09
        
        
        
        2,255,051
        
        
        $
        31.36
        
        
        
        1,969,301
        
        
        $
        23.64Options exercisable at end
          of year
        
        
        1,400,701
        
        
        
        
        
        
        
        306,544
        
        
        
        
        
        
        
        215,158Weighted-average fair value
          of options granted
        
        $
        11.68
        
        
        
        
        
        
        $
        10.42
        
        
        
        
        
        
        $
        3.35PPL Energy SupplyOutstanding at beginning of
          year
        
        
        675,179
        
        
        $
        31.64
        
        
        
        655,755
        
        
        $
        23.27
        
        
        
        147,900
        
        
        $
        26.85Granted
        
        
        304,480
        
        
        $
        33.49
        
        
        
        306,130
        
        
        $
        43.16
        
        
        
        583,330
        
        
        $
        22.67Exercised
        
        
        (61,160
        )
        
        $
        22.72
        
        
        
        (167,446
        )
        
        $
        23.92
        
        
        
        (28,495
        )
        
        $
        26.84Forfeited
        
        
        (14,950
        )
        
        $
        37.07
        
        
        
        (53,100
        )
        
        $
        29.91
        
        
        
        (46,980
        )
        
        $
        25.05Transferred
        
        
        
        
        
        
        
        
        
        
        (66,160
        )
        
        $
        22.88Outstanding at end of year
        
        
        903,549
        
        
        $
        32.78
        
        
        
        675,179
        
        
        $
        31.64
        
        
        
        655,755
        
        
        $
        23.27Options exercisable at end
          of year
        
        
        381,657
        
        
        
        
        
        
        
        88,436
        
        
        
        
        
        
        
        69,463Weighted-average fair value
          of options granted
        
        $
        11.68
        
        
        
        
        
        
        $
        10.42
        
        
        
        
        
        
        $
        3.35PPL ElectricOutstanding at beginning of
          year
        
        
        163,942
        
        
        $
        34.92
        
        
        
        105,400
        
        
        $
        24.53
        
        
        
        47,090
        
        
        $
        26.84Granted
        
        
        77,570
        
        
        $
        33.49
        
        
        
        92,450
        
        
        $
        43.16
        
        
        
        58,310
        
        
        $
        22.65Exercised
        
        
        
        
        
        
        
        
        
        
        (33,908
        )
        
        $
        25.04Forfeited
        
        
        (9,136
        )
        
        $
        36.20Outstanding at end of year
        
        
        232,376
        
        
        $
        34.40
        
        
        
        163,942
        
        
        $
        34.92
        
        
        
        105,400
        
        
        $
        24.53Options exercisable at end
          of year
        
        
        95,561
        
        
        
        
        
        
        
        16,924
        
        
        
        
        
        
        
        15,699Weighted-average fair value
          of options granted
        
        $
        11.68
        
        
        
        
        
        
        $
        10.42
        
        
        
        
        
        
        $
        3.37PPL MontanaOutstanding at beginning of
          year
        
        
        21,720
        
        
        $
        26.18
        
        
        
        100,420
        
        
        $
        21.79
        
        
        
        30,240
        
        
        $
        26.85Granted
        
        
        9,390
        
        
        $
        33.49
        
        
        
        5,860
        
        
        $
        43.16
        
        
        
        73,180
        
        
        $
        19.91Exercised
        
        
        (6,000
        )
        
        $
        19.91
        
        
        
        
        
        
        
        
        
        
        
        (3,000
        )
        
        $
        26.85Forfeited
        
        
        
        
        
        
        
        
        
        
        (16,390
        )
        
        $
        19.91Transferred
        
        
        
        
        
        
        
        
        
        
        (68,170
        )
        
        $
        22.68Outstanding at end of year
        
        
        25,110
        
        
        $
        30.41
        
        
        
        21,720
        
        
        $
        26.18
        
        
        
        100,420
        
        
        $
        21.79Options exercisable at end
          of year
        
        
        6,527
        
        
        
        
        
        
        
        6,287
        
        
        
        
        
        
        
        10,080Weighted-average fair value
          of options granted
        
        $
        11.68
        
        
        
        
        
        
        $
        10.42
        
        
        
        
        
        
        $
        3.35
    The estimated fair value of each option granted was calculated using a
      modified Black-Scholes option-pricing model. The weighted average assumptions
      used in the model were as follows:
    2002
        
        2001
        
        2000Risk-free interest rate
        
        5.35%
        
        5.46%
        
        6.74%Expected option life
        
        10 yrs.
        
        10 yrs.
        
        10 yrs.Expected stock volatility
        
        39.11%
        
        30.24%
        
        19.79%Dividend yield
        
        3.34%
        
        4.28%
        
        5.70%
    The following table summarizes information about stock
      options at December 31, 2002:
    
    PPL
    Options
            Outstanding
        
        Options
            ExercisableRange
            of 
            Exercise Prices
        
        Number
            Outstanding at 12/31/02
        
        Weighted-Avg.
            Remaining Contractual Life
        
        Weighted-Avg.
            Exercise Prices
        
        Number
            Exercisable at 12/31/02
        
        Weighted-Avg.
            Exercise Price$19.00-$24.00
        
        912,176
        
        7.1
        
        $22.45
        
        571,196
        
        $22.49$25.00-$29.00
        
        395,175
        
        6.2
        
        $26.85
        
        395,175
        
        $26.85$30.00-$35.00
        
        824,440
        
        9.1
        
        $33.49
        
        36,030
        
        $33.49$40.00-$45.00
        
        876,894
        
        8.1
        
        $43.16
        
        398,300
        
        $43.16
    Total options outstanding had a weighted-average remaining
      life of 7.8 years at December 31, 2002.
    
    PPL Energy Supply
    Options
            Outstanding
        
        Options
            ExercisableRange
            of 
            Exercise Prices
        
        Number
            Outstanding at 12/31/02
        
        Weighted-Avg.
            Remaining Contractual Life
        
        Weighted-Avg.
            Exercise Prices
        
        Number
            Exercisable at 12/31/02
        
        Weighted-Avg.
            Exercise Price$19.00-$24.00
        
        237,160
        
        7.1
        
        $21.89
        
        139,258
        
        $22.08$25.00-$29.00
        
        91,059
        
        6.3
        
        $26.85
        
        91,059
        
        $26.85$30.00-$35.00
        
        295,070
        
        9.1
        
        $33.49
        
        32,740
        
        $33.49$40.00-$45.00
        
        280,260
        
        8.1
        
        $43.16
        
        118,600
        
        $43.16
    Total options outstanding had a weighted-average remaining
      life of 8.0 years at December 31, 2002.
    
    PPL Electric
    Options
            Outstanding
        
        Options
            ExercisableRange
            of 
            Exercise Prices
        
        Number
            Outstanding at 12/31/02
        
        Weighted-Avg.
            Remaining Contractual Life
        
        Weighted-Avg.
            Exercise Prices
        
        Number
            Exercisable at 12/31/02
        
        Weighted-Avg.
            Exercise Price$19.00-$24.00
        
        43,726
        
        7.1
        
        $22.65
        
        28,496
        
        $22.65$25.00-$29.00
        
        27,766
        
        6.3
        
        $26.84
        
        27,766
        
        $26.84$30.00-$35.00
        
        70,990
        
        9.1
        
        $33.49
        
        3,290
        
        $33.49$40.00-$45.00
        
        89,894
        
        8.1
        
        $43.16
        
        36,009
        
        $43.16
    Total options outstanding had a weighted-average remaining
      life of 8.0 years at December 31, 2002.
    
    PPL Montana
    Options
            Outstanding
        
        Options
            ExercisableRange
            of 
            Exercise Prices
        
        Number
            Outstanding at 12/31/02
        
        Weighted-Avg.
            Remaining Contractual Life
        
        Weighted-Avg.
            Exercise Prices
        
        Number
            Exercisable at 12/31/02
        
        Weighted-Avg.
            Exercise Price$19.00-$24.00
        
        9,860
        
        7.2
        
        $19.91
        
        4,573
        
        $19.91$30.00-$35.00
        
        9,390
        
        9.1
        
        $33.49$40.00-$45.00
        
        5,860
        
        8.1
        
        $43.16
        
        1,954
        
        $43.16
    Total options outstanding had a weighted-average remaining
      life of 8.1 years at December 31, 2002.
    (PPL, PPL Energy Supply, PPL Electric and PPL Montana)
    PPL and its subsidiaries adopted the fair value method of accounting for
      stock-based compensation, as defined in SFAS 123, "Accounting for Stock-Based
      Compensation," under the prospective method as defined by SFAS 148, "Accounting
      for Stock-Based Compensation-Transition and Disclosure" effective January
      1, 2003. At December 31, 2002, PPL applied the intrinsic value method, permitted
      under SFAS 123 and defined in APB Opinion No. 25, "Accounting for Stock
      Issued to Employees" and related interpretations. See Note 1 for additional
      information related to the adoption of the fair value method.
3. Retirement and Postemployment Benefits
    
    (PPL, PPL Energy Supply, PPL Electric and PPL Montana)
    Pension and Other Postretirement Benefits
    PPL and its subsidiaries sponsor various pension and other postretirement
      and postemployment benefit plans. PPL follows the guidance of SFAS 87, "Employers'
      Accounting for Pensions," and SFAS 106, "Employers' Accounting for Postretirement
      Benefits Other Than Pensions," when accounting for these benefits.
    PPL and certain of its subsidiaries also provide supplemental retirement
      benefits to directors, executives and other key management employees through
      unfunded nonqualified retirement plans.
    The majority of employees of PPL's subsidiaries will become eligible for
      certain health care and life insurance benefits upon retirement through
      contributory plans. Postretirement benefits under the PPL Retiree Health
      Plans (covering retirees of PPL Electric and various other affiliated PPL
      companies) and for the North Penn Gas Plans are paid from funded VEBA trusts
      sponsored by the respective companies.
    At December 31, 2002, PPL Electric had a regulatory asset of $5 million
      relating to postretirement benefits that is being amortized and recovered
      in rates, with a remaining life of 10 years. PPL Electric also maintains
      an additional liability for the cost of health care of retired miners of
      former subsidiaries that had been engaged in coal mining. At December 31,
      2002, the liability was $23 million. The liability is the net of $54 million
      of estimated future benefit payments offset by $31 million of available
      assets in a PPL Electric-funded VEBA trust.
    PPL Energy Supply subsidiaries engaged in the mechanical contracting business
      make contributions to various union-sponsored multiemployer pension and
      health and welfare plans, depending on an employee's status. Contributions
      of $30 million, $21 million and $10 million were made in 2002, 2001 and
      2000. The increase in contributions is primarily the result of the growing
      workforce at the mechanical contracting companies. The contribution rates
      have also increased from year to year.
    In the third quarter 2002, PPL Global acquired a controlling interest in
      WPDH Limited and WPDL. Included in the fully consolidated financial results
      of PPL for 2002 is the impact of the various pension plans WPD sponsors
      in the U.K. The following disclosures distinguish between PPL's domestic
      and international pension plans for those items impacted:
    Net pension and postretirement benefit costs (credits) were as follows:
    
    Pension Benefits
        
        
        Postretirement
            Benefits2002
        
        
        2001
        
        
        2000
        
        
        2002
        
        
        2001
        
        
        2000Domestic
        
        
        International
        
        
        Domestic
        
        
        International
        
        
        DomesticPPLService cost
        
        $
        40
        
        
        $
        13
        
        
        $
        38
        
        
        $
        1
        
        $
        
        40
        
        
        $
        5
        
        
        $
        5
        
        
        $
        5Interest cost
        
        
        99
        
        
        
        98
        
        
        
        91
        
        
        
        3
        
        
        
        86
        
        
        
        26
        
        
        
        22
        
        
        
        22Expected return on plan assets
        
        
        (147
        )
        
        
        (179
        )
        
        
        (140
        )
        
        
        (3
        )
        
        
        (113
        )
        
        
        (12
        )
        
        
        (11
        )
        
        
        (8
        )Net amortization and deferral
        
        
        (31
        )
        
        
        3
        
        
        
        (50
        )
        
        
        
        
        
        
        (21
        )
        
        
        15
        
        
        
        12
        
        
        
        12Net periodic pension and 
          postretirement costs prior to special 
          termination benefits
        
        
        (39
        )
        
        
        (65
        )
        
        
        (61
        )
        
        
        1
        
        
        
        (8)
        
        
        
        34
        
        
        
        28
        
        
        
        31Special termination benefits
        
        
        62
        
        
        
        
        
        
        
        3
        
        
        
        
        
        
        
        
        
        
        
        4Net periodic pension and 
          postretirement benefit cost/(credit)
        
        $
        23
        
        
        $
        (65
        )
        
        $
        (58
        )
        
        $
        1
        
        
        $
        (8
        )
        
        $
        38
        
        
        $
        28
        
        
        $
        31PPL Energy SupplyService cost
        
        $
        2
        
        
        $
        13
        
        
        $
        2
        
        
        $
        1
        
        $
        
        2Interest cost
        
        
        4
        
        
        
        98
        
        
        
        4
        
        
        
        3
        
        
        
        2
        
        
        $
        1
        
        
        $
        1Expected return on plan assets
        
        
        (3
        )
        
        
        (179
        )
        
        
        (3
        )
        
        
        (3
        )
        
        
        (2
        )Net amortization and deferral
        
        
        
        
        
        
        3Net periodic pension and 
          postretirement benefit cost/(credit)
        
        $
        3
        
        
        $
        (65
        )
        
        $
        3
        
        
        $
        1
        
        
        $
        2
        
        
        $
        1
        
        
        $
        1PPL MontanaService cost
        
        $
        2
        
        
        
        
        
        
        $
        2
        
        
        
        
        
        $
        
        2Interest cost
        
        
        3
        
        
        
        
        
        
        
        3
        
        
        
        
        
        
        
        2
        
        
        $
        1
        
        
        $
        1Expected return on plan assets
        
        
        (2
        )
        
        
        
        
        
        
        (2
        )
        
        
        
        
        
        
        (2
        )Net periodic pension and 
          postretirement benefit cost
        
        $
        3
        
        
        
        
        
        
        $
        3
        
        
        
        
        
        
        $
        2
        
        
        $
        1
        
        
        $
        1
    Net periodic pension cost charged (credited) to operating expense, excluding
      amounts charged to construction and other non-expense accounts, were:
    2002
        
        2001
        
        
        2000Domestic
        
        Int'l
        Domestic
        Int'lOperating expensePPL (a)
        
        $
        (31
        )
        
        $
        (58
        )
        
        $
        (48
        )
        
        $
        1
        
        
        $
        (6
        )PPL Energy Supply (b)
        
        
        (9
        )
        
        
        (58
        )
        
        
        (16
        )
        
        
        1
        
        
        
        (1
        )PPL Electric (c)
        
        
        (17
        )
        
        
        
        
        
        
        (24
        )
        
        
        
        
        
        
        (4
        )PPL Montana
        
        
        3
        
        
        
        
        
        
        
        3
        
        
        
        
        
        
        
        2(a)
        Excludes the $62 million cost
          of special termination benefits, which are included separately on the
          Statement of Income as a component of the $75 million "Workforce reduction"
          charge.(b)
        In addition to the specific
          plans sponsored by PPL Energy Supply, PPL Generation subsidiaries and
          PPL EnergyPlus are also allocated a portion of the costs of pension
          plans sponsored by PPL Services, included in the PPL total cost above,
          based on their participation in those plans.(c)
        PPL Electric is also allocated
          a portion of the costs of pension plans sponsored by PPL Services, included
          in the PPL total cost above, based on participation in those plans.In 2001, PPL changed its method of amortizing unrecognized gains or losses
      in the annual pension expense or income determined under SFAS 87, "Employers'
      Accounting for Pensions." Under the old method, the net unrecognized gains
      or losses in excess of 10% of the greater of the plan's projected benefit
      obligation or market-related value of plan assets were amortized on a straight-line
      basis over the estimated average future service period of plan participants.
      Under the new method, a second corridor is utilized for the net unrecognized
      gains or losses in excess of 30% of the plan's projected benefit obligation.
      The net unrecognized gains or losses outside the second corridor are now
      amortized on a straight-line method over a period equal to one-half of the
      average future service period of the plan participants. The new method is
      preferable under SFAS 87 because it provides more current recognition of
      gains and losses, thereby lessening the accumulation of unrecognized gains
      and losses.
    The pro forma effect of retroactive application of this
      change in accounting principle would have had the following effect:
    
    Net Income
        
        
        EPS2001
        
        
        
        2000
        
        
        2001
        
        
        2000PPL
        $
        (10
        )
        
        $
        7
        
        $
        (.07
        )
        $
        .05PPL Energy Supply
        
        (3
        )
        
        
        3
        
        
        N/A
        
        
        N/APPL Electric
        
        (5
        )
        
        
        4
        
        
        N/A
        
        
        N/A
    Retiree health and welfare benefits costs charged to operating expense,
      excluding amounts charged to construction and other non-expense accounts,
      were:
    2002
        
        
        2001
        
        
        2000Operating ExpensePPL
        
        $
        27
        
        
        $
        21
        
        
        $
        25PPL Energy Supply (a)
        
        
        9
        
        
        
        8
        
        
        
        5PPL Electric (b)
        
        
        13
        
        
        
        10
        
        
        
        19PPL Montana
        
        
        1(a)
        In addition to the specific
          plans sponsored by PPL Energy Supply, PPL Generation subsidiaries and
          PPL EnergyPlus are also allocated a portion of the costs of postretirement
          medical plans sponsored by PPL Services, included in the PPL total cost
          above, based on the their participation in those plans.(b)
        PPL Electric is also allocated
          a portion of the costs of postretirement medical plans sponsored by
          PPL Services, included in the PPL total cost above, based on participation
          in those plans.Postretirement medical costs at December 31, 2002 were based on the assumption
      that health care costs would increase 12% in 2003, then the rate of increase
      would decline gradually to 5% in 2010 and thereafter. A one-percentage point
      change in the assumed health care cost trend assumption would have the following
      effects:
    OnePercentage PointIncrease
        DecreasePPLEffect on service cost and
          interest cost components
        $
        1
        
        
        $
        (1
        )Effect on postretirement benefit
          obligation
        $
        22
        
        
        $
        (18
        )PPL Energy SupplyEffect on postretirement benefit
          obligation
        $
        1
        
        
        $
        (1
        )PPL MontanaEffect on postretirement benefit
          obligation
        $
        1
        
        
        $
        (1
        )The following assumptions were used in the valuation of the benefit obligations
      for PPL's plans:
    
    PPL
    Pension Benefits
        2002
        2001
        2000Domestic
        Int'l
        Domestic
        Int'l
        DomesticDiscount rate
        6.75%
        5.75%
        7.25%
        10.24%
        7.5%Expected return on plan assets
        9.0%
        8.31%
        9.2%
        10.24%
        9.2%Rate of compensation increase
        4.0%
        3.75%
        4.25%
        7.12%
        4.75%Postretirement Medical
          Benefits2002
        2001
        2000Discount rate
        6.75%
        7.25%
        7.5%Expected return on plan assets
        7.80%
        7.60%
        7.6%Rate of compensation increase
        4.0%
        4.25%
        4.75%PPL Energy Supply
    Pension Benefits
        2002
        2001
        2000Domestic
        Int'l
        Domestic
        Int'l
        DomesticDiscount rate
        6.75%
        5.75%
        7.25%
        10.24%
        7.5%Expected return on plan assets
        8.71%
        8.31%
        8.89%
        10.24%
        9.2%Rate of compensation increase
        4.0%
        3.75%
        4.25%
        7.12%
        4.75%Postretirement Medical
          Benefits2002
        2001
        2000Discount rate
        6.75%
        7.25%
        7.5%Expected return on plan assets
        N/A
        N/A
        N/ARate of compensation increase
        4.0%
        4.25%
        4.75%PPL Montana
    Pension Benefits
        2002
        2001
        2000Discount rate
        6.75%
        7.25%
        7.5%Expected return on plan assets
        9.0%
        9.2%
        9.2%Rate of compensation increase
        4.0%
        4.25%
        4.75%Postretirement Medical
          Benefits2002
        2001
        2000Discount rate
        6.75%
        7.25%
        7.5%Expected return on plan assets
        N/A
        N/A
        N/ARate of compensation increase
        4.0%
        4.25%
        4.75%(PPL)
    The funded status of the PPL plans was as follows:
    Pension Benefits
        
        
        Postretirement
            Medical Benefits2002
        
        
        2001
        
        
        2002
        
        
        2001Domestic
        
        
        International
        
        
        Domestic
        
        
        InternationalChange in Benefit ObligationBenefit Obligation, January
          1
        
        $
        1,279
        
        
        $
        37
        
        
        $
        1,192
        
        
        
        
        
        
        $
        330
        
        
        $
        311Service cost
        
        
        40
        
        
        
        13
        
        
        
        38
        
        
        $
        1
        
        
        
        5
        
        
        
        5Interest cost
        
        
        99
        
        
        
        98
        
        
        
        91
        
        
        
        3
        
        
        
        26
        
        
        
        22Participant contributions
        
        
        
        
        
        
        4
        
        
        
        
        
        
        
        1
        
        
        
        1
        
        
        
        1Plan amendments
        
        
        80
        
        
        
        39
        
        
        
        4
        
        
        
        
        
        
        
        21Actuarial (gain)/loss
        
        
        76
        
        
        
        (53
        )
        
        
        10
        
        
        
        4
        
        
        
        59
        
        
        
        12Special termination benefits
        
        
        62
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        4Acquisition/divestitures
        
        
        
        
        
        
        1,970
        
        
        
        
        
        
        
        30Settlements/curtailments
        
        
        
        
        
        
        (30
        )Actual expense paid
        
        
        (1
        )
        
        
        
        
        
        
        (4
        )Net benefits paid
        
        
        (77
        )
        
        
        (128
        )
        
        
        (52
        )
        
        
        (2
        )
        
        
        (23
        )
        
        
        (21
        )Currency conversion
        
        
        
        
        
        
        176Benefit Obligation, December
          31
        
        
        1,558
        
        
        
        2,126
        
        
        
        1,279
        
        
        
        37
        
        
        
        423
        
        
        
        330Change in Plan AssetsPlan assets at fair value,
          January 1
        
        
        1,633
        
        
        
        21
        
        
        
        1,794
        
        
        
        
        
        
        
        155
        
        
        
        149Actual return on plan assets
        
        
        (182
        )
        
        
        (335
        )
        
        
        (107
        )
        
        
        (2
        )
        
        
        (11
        )
        
        
        (6
        )Employer contributions
        
        
        3
        
        
        
        1
        
        
        
        2
        
        
        
        1
        
        
        
        41
        
        
        
        32Participant contributions
        
        
        
        
        
        
        4
        
        
        
        
        
        
        
        1
        
        
        
        1
        
        
        
        1Acquisition/divestitures
        
        
        
        
        
        
        2,050
        
        
        
        
        
        
        
        23Settlements/curtailments
        
        
        
        
        
        
        (21
        )Actual expense paid
        
        
        (1
        )
        
        
        
        
        
        
        (4
        )Net benefits paid
        
        
        (77
        )
        
        
        (128
        )
        
        
        (52
        )
        
        
        (2
        )
        
        
        (23
        )
        
        
        (21
        )Currency conversion
        
        
        
        
        
        
        165Plan assets at fair value,
          December 31
        
        
        1,376
        
        
        
        1,757
        
        
        
        1,633
        
        
        
        21
        
        
        
        163
        
        
        
        155Funded StatusFunded Status of Plan
        
        
        (182
        )
        
        
        (369
        )
        
        
        354
        
        
        
        (16
        )
        
        
        (260
        )
        
        
        (175
        )Unrecognized actuarial (gain)/loss
        
        
        (144
        )
        
        
        497
        
        
        
        (587
        )
        
        
        8
        
        
        
        123
        
        
        
        42Unrecognized prior service
          cost
        
        
        178
        
        
        
        34
        
        
        
        110
        
        
        
        
        
        
        
        39
        
        
        
        23Unrecognized transition assets
        
        
        (31
        )
        
        
        
        
        
        
        (36
        )
        
        
        
        
        
        
        87
        
        
        
        96Currency conversion
        
        
        
        
        
        
        26Net amount recognized at end
          of year
        
        $
        (179
        )
        
        $
        188
        
        
        $
        (159)
        
        
        $
        (8
        )
        
        $
        (11
        )
        
        $
        (14
        )Amounts recognized in the
          Balance Sheet consist of:Prepaid benefit cost
        
        $
        1
        
        
        $
        219
        
        
        $
        1Accrued benefit liability
        
        
        (180
        )
        
        
        (31
        )
        
        
        (160
        )
        
        $
        (8
        )
        
        $
        (11
        )
        
        $
        (14
        )Additional minimum liability
        
        
        (29
        )
        
        
        (453
        )
        
        
        (14
        )Intangible asset
        
        
        5
        
        
        
        37
        
        
        
        5Accumulated other comprehensive income
        
        
        24
        
        
        
        416
        
        
        
        9Net amount recognized at end
          of year
        
        $
        (179
        )
        
        $
        188
        
        
        $
        (159
        )
        
        $
        (8
        )
        
        $
        (11
        )
        
        $
        (14
        )The projected benefit obligation, accumulated benefit obligation and fair
      value of plan assets for pension plans with accumulated benefit obligations
      in excess of plan assets for PPL's domestic plans were $122 million, $110
      million and $46 million as of December 31, 2002 and $79 million, $69 million
      and $26 million as of December 31, 2001.
    The projected benefit obligation, accumulated benefit obligation and fair
      value of plan assets for pension plans with accumulated benefit obligations
      in excess of plan assets for PPL's international plans were $2.1 billion,
      $2.0 billion and $1.8 billion, as of December 31, 2002 and $37 million,
      $27 million, and $21 million, as of December 31, 2001.
    (PPL Energy Supply)
    The funded status of the PPL Energy Supply plans was as follows:
    Pension Benefits
        
        
        Postretirement
            Medical Benefits2002
        
        
        2001
        
        
        2002
        
        
        2001Domestic
        
        
        International
        
        
        Domestic
        
        
        InternationalChange in Benefit ObligationBenefit Obligation, January
          1
        
        $
        51
        
        
        $
        37
        
        
        $
        42
        
        
        
        
        
        
        $
        5
        
        
        $
        4Service cost
        
        
        2
        
        
        
        13
        
        
        
        2
        
        
        $
        1Interest cost
        
        
        4
        
        
        
        98
        
        
        
        4
        
        
        
        3
        
        
        
        1
        
        
        
        1Participant contributions
        
        
        
        
        
        
        4
        
        
        
        
        
        
        
        1Plan amendments
        
        
        
        
        
        
        39
        
        
        
        4Actuarial (gain)/loss
        
        
        2
        
        
        
        (53
        )
        
        
        1
        
        
        
        4
        
        
        
        3Acquisitions/divestitures
        
        
        
        
        
        
        1,970
        
        
        
        
        
        
        
        30Settlements/curtailments
        
        
        
        
        
        
        (30
        )Net benefits paid
        
        
        (1
        )
        
        
        (128
        )
        
        
        (1
        )
        
        
        (2
        )Net transfer out
        
        
        
        
        
        
        
        
        
        
        (1
        )Currency conversion
        
        
        
        
        
        
        176Benefit Obligation, December
          31
        
        
        58
        
        
        
        2,126
        
        
        
        51
        
        
        
        37
        
        
        
        9
        
        
        
        5Change in Plan AssetsPlan assets at fair value,
          January 1
        
        
        33
        
        
        
        21
        
        
        
        35Actual return on plan assets
        
        
        (3
        )
        
        
        (335
        )
        
        
        (1
        )
        
        
        (2
        )Employer contributions
        
        
        1
        
        
        
        1
        
        
        
        
        
        
        
        1Participant contributions
        
        
        
        
        
        
        4
        
        
        
        
        
        
        
        1Acquisition/divestitures
        
        
        
        
        
        
        2,050
        
        
        
        
        
        
        
        23Settlements/curtailments
        
        
        
        
        
        
        (21
        )Net benefits paid
        
        
        (1
        )
        
        
        (128
        )
        
        
        (1
        )
        
        
        (2
        )Currency conversion
        
        
        
        
        
        
        165Plan assets at fair value,
          December 31
        
        
        30
        
        
        
        1,757
        
        
        
        33
        
        
        
        21Funded StatusFunded Status of Plan
        
        
        (28
        )
        
        
        (369
        )
        
        
        (18
        )
        
        
        (16
        )
        
        
        (9
        )
        
        
        (5
        )Unrecognized actuarial loss
        
        
        14
        
        
        
        497
        
        
        
        6
        
        
        
        8
        
        
        
        3Unrecognized prior service
          cost
        
        
        4
        
        
        
        34
        
        
        
        5Currency conversion
        
        
        
        
        
        
        26Net amount recognized at end
          of year
        
        $
        (10
        )
        
        $
        188
        
        
        $
        (7
        )
        
        $
        (8
        )
        
        $
        (6
        )
        
        $
        (5
        )Amounts recognized in the
          Balance Sheet consist of:Prepaid benefit cost
        
        $
        1
        
        
        $
        219
        
        
        $
        1Accrued benefit liability
        
        
        (11
        )
        
        
        (31
        )
        
        
        (8
        )
        
        $
        (8
        )
        $
        
        (6
        )
        
        $
        (5
        )Additional minimum liability
        
        
        (13
        )
        
        
        (453
        )
        
        
        (5
        )Intangible asset
        
        
        3
        
        
        
        37
        
        
        
        3Accumulated other comprehensive income
        
        
        10
        
        
        
        416
        
        
        
        2Net amount recognized at end of year
        
        $
        (10
        )
        
        $
        188
        
        
        $
        (7
        )
        
        $
        (8
        )
        
        $
        (6
        )
        
        $
        (5
        )The projected benefit obligation, accumulated benefit obligation and fair
      value of plan assets for pension plans with accumulated benefit obligations
      in excess of plan assets for PPL Energy Supply's domestic plans were $51
      million, $46 million and $23 million as of December 31, 2002 and $44 million,
      $38 million and $26 million as of December 31, 2001.
    The projected benefit obligation, accumulated benefit obligation, and fair
      value of plan assets for pension plans with accumulated benefit obligations
      in excess of plan assets for PPL Energy Supply's international plans were
      $2.1 billion, $2.0 billion and $1.8 billion as of December 31, 2002, and
      $37 million, $27 million and $21 million as of December 31, 2001.
    In addition to the plans sponsored by PPL Energy Supply, PPL Generation
      subsidiaries and PPL EnergyPlus are allocated a portion of the liabilities
      and costs of the pension and postretirement medical plans sponsored by PPL
      Services based on their participation in those plans. The pension liabilities
      assumed by PPL Energy Supply for these plans total $58 million at December
      31, 2002. The postretirement medical liabilities assumed by PPL Energy Supply
      for these plans total $3 million at December 31, 2002.
    (PPL Montana)
    The funded status of the PPL Montana plans was as follows:
    Pension
            Benefits
        
        
        Postretirement
            Medical Benefits2002
        
        
        2001
        
        
        2002
        
        
        2001Change in Benefit ObligationBenefit Obligation, January
          1
        
        $
        41
        
        
        $
        33
        
        
        $
        5
        
        
        $
        4Service cost
        
        
        2
        
        
        
        2Interest cost
        
        
        3
        
        
        
        3
        
        
        
        1
        
        
        
        1Plan amendments
        
        
        
        
        
        
        3Actuarial gain
        
        
        4
        
        
        
        1
        
        
        
        3Net transfer out
        
        
        
        
        
        
        (1
        )Benefits paid
        
        
        (1
        )Benefit Obligation, December
          31
        
        
        49
        
        
        
        41
        
        
        
        9
        
        
        
        5Change in Plan AssetsPlan assets at fair value,
          January 1
        
        
        26
        
        
        
        28Actual return on plan assets
        
        
        (3
        )
        
        
        (2
        )Employer contributions
        
        
        1Benefits paid
        
        
        (1
        )Plan assets at fair value, December 31
        
        
        23
        
        
        
        26Funded StatusFunded status of plan
        
        
        (26
        )
        
        
        (15
        )
        
        
        (9
        )
        
        
        (5
        )Unrecognized actuarial gain
        
        
        15
        
        
        
        6
        
        
        
        3Unrecognized prior service
          cots
        
        
        3
        
        
        
        3Net amount recognized at end
          of year
        
        $
        (8
        )
        
        $
        (6
        )
        
        $
        (6
        )
        
        $
        (5
        )Amounts recognized in the
          Balance Sheet consist of:Accrued benefit liability
        
        $
        (8
        )
        
        $
        (6
        )
        
        $
        (6
        )
        
        $
        (5
        )Additional minimum liability
        
        
        (13
        )
        
        
        (5
        )Intangible asset
        
        
        3
        
        
        
        3Accumulated other comprehensive income
        
        
        10
        
        
        
        2Net amount recognized at end
          of year
        
        $
        (8
        )
        
        $
        (6
        )
        
        $
        (6
        )
        
        $
        (5
        )
    The projected benefit obligation, accumulated benefit obligation, and fair
      value of plan assets for pension plans with accumulated benefit obligations
      in excess of plan assets for PPL Montana were $49 million, $44 million and
      $23 million, as of December 31, 2002 and $41 million, $37 million and $26
      million as of December 31, 2001.
    (PPL Electric)
    Although PPL Electric does not directly sponsor any pension or postretirement
      plans, PPL Electric is allocated a portion of the liabilities and costs
      of plans sponsored by PPL Services based on participation in those plans.
      At December 31, 2002, the recorded balance of PPL Electric's allocated share
      of the total pension liability was $71 million. At December 31, 2002, the
      balance in PPL Electric's allocated share of the total postretirement medical
      liability was $1 million.
    Savings Plans(PPL, PPL Energy Supply, PPL Electric and PPL Montana)
    Substantially all employees of PPL's subsidiaries are eligible to participate
      in deferred savings plans (401(k)s). Contributions to the plans charged
      to operating expense approximated the following:
    2002
        
        
        2001
        
        
        2000PPL
        $
        11
        
        $
        10
        
        $
        9PPL Energy Supply
        
        6
        
        
        5
        
        
        4PPL Electric
        
        2
        
        
        2
        
        
        4PPL Montana
        
        1
        
        
        1
        
        
        1Employee Stock Ownership Plan(PPL, PPL Energy Supply and PPL
      Electric)
    PPL sponsors a non-leveraged ESOP, in which substantially all employees,
      excluding those of PPL Global, PPL Montana, PPL Gas Utilities and the mechanical
      contractors, are enrolled after one year of credited service. Dividends
      paid on ESOP shares are treated as ordinary dividends by PPL. Under existing
      income tax laws, PPL is permitted to deduct the amount of those dividends
      for income tax purposes and to contribute the resulting tax savings (dividend-based
      contribution) to the ESOP.
    The dividend-based contribution is used to buy shares of PPL's common stock
      and is expressly conditioned upon the deductibility of the contribution
      for federal income tax purposes. Contributions to the ESOP are allocated
      to eligible participants' accounts as of the end of each year, based 75%
      on shares held in existing participants' accounts and 25% on the eligible
      participants' compensation.
    Amounts charged as compensation expense for ESOP contributions approximated
      $5 million in 2002 and $4 million in each of 2001 and 2000. These amounts
      were offset by the dividend-based contribution tax savings and had no impact
      on PPL's earnings.
    ESOP shares outstanding at December 31, 2002 totaled 5,021,544, or 3% of
      total common shares outstanding, and are included in all EPS calculations.
    Postemployment Benefits(PPL, PPL Energy Supply and PPL Electric)
    Certain PPL subsidiaries provide health and life insurance benefits to
      disabled employees and income benefits to eligible spouses of deceased employees.
      Postemployment benefits charged to operating expenses were not significant
      in 2002, 2001 or 2000.
    Certain of PPL Global subsidiaries, including Emel, EC, Elfec and Vidivision,
      provide limited non-pension benefits to all current employees. All active
      employees are entitled to benefits in the event of termination or retirement
      in accordance with government sponsored programs. These plans generally
      obligate a company to pay one month's salary per year of service to employees
      in the event of involuntary termination. Under certain plans, employees
      with five or more years of service are entitled to this payment in the event
      of voluntary or involuntary termination. There is no limit on the number
      of years of service in the calculation of the benefit obligation.
    The liabilities for these plans are accounted for under the guidance of
      EITF 88-1 "Determination of Vested Benefit Obligation for a Defined Benefit
      Pension Plan" using what is commonly referred to as the "shut down" method,
      where a company records the undiscounted obligation as if it were payable
      at each balance sheet date. The combined liabilities for these plans at
      December 31, 2002 and 2001 were $6 million, and are recorded in "Deferred
      Credits and Noncurrent Liabilities - Other" on the Balance Sheet.
4. Jointly-Owned Facilities
    (PPL and PPL Energy Supply)
    At December 31, 2002, subsidiaries of PPL and PPL Energy Supply owned undivided
      interests in the following facilities:
    

    Ownership
            Interest
        
        Electric
            Plant in Service
        
        Other
            Property
        
        Accumulated
            Depreciation
        
        Construction
            Work 
            in ProgressPPL GenerationGenerating StationsSusquehanna
        
        90.00%
        
        $
        4,213
        
        
        
        
        $
        3,530
        
        $
        59Keystone
        
        12.34%
        
        
        74
        
        
        
        
        
        47
        
        
        18Wyman
        
        8.33%
        
        
        15
        
        
        
        
        
        3Conemaugh
        
        16.25%
        
        
        187
        
        
        
        
        
        64
        
        
        4Merrill Creek Reservoir
        
        8.37%
        
        
        
        
        $
        22
        
        
        13
    Additionally, PPL Montana has a 50% undivided leasehold interest in Colstrip
      Units 1 and 2, as well as a 30% undivided leasehold interest in Colstrip
      Unit 3.
    Each PPL Generation subsidiary provided its own funding for its share of
      the facility. Each receives a portion of the total output of the generating
      stations equal to its percentage ownership. The share of fuel and other
      operating costs associated with the stations is reflected on the Statement
      of Income.
    (PPL Montana)
    PPL Montana is the operator of the jointly-owned coal-fired generating
      units comprising the Colstrip steam generation facility. At December 31,
      2002 and 2001, PPL Montana has a 50% leasehold interest in Colstrip Units
      1 and 2 and a 30% leasehold interest in Colstrip Unit 3 under operating
      leases (see Note 10 for additional information).
    PPL Montana's share of direct expenses associated with the operation and
      maintenance of these facilities is included in the corresponding operating
      expenses on the Statement of Income. Each joint-owner in these facilities
      provides its own financing. As operator of all Colstrip Units, PPL Montana
      invoices each joint-owner for their respective portion of the direct expenses.
      The amount due from joint-owners was approximately $8 million and $6 million
      at December 31, 2002 and 2001.
    At December 31, 2002, Montana Power continues to own a 30% leasehold interest
      in Colstrip Unit 4. As part of the purchase of generation assets from Montana
      Power, PPL Montana and Montana Power entered into a reciprocal sharing agreement
      to govern each party's responsibilities regarding the operation of Colstrip
      Units 3 and 4, and each party is responsible for 15% of the respective operating
      and construction costs, regardless of whether a particular cost is specified
      to Colstrip Unit 3 or 4. However, each party is responsible for its own
      fuel-related costs.
5. Commitments and Contingent Liabilities
    
    Energy Purchases and Sales Commitments
    
    Liability for Above Market NUG Contracts(PPL, PPL Energy
      Supply and PPL Electric)
    In 1998, PPL Electric recorded a loss accrual for above market contracts
      with NUGs of $854 million, due to its generation business being deregulated.
      Effective January 1999, PPL Electric began reducing this liability as an
      offset to "Energy purchases" on the Statement of Income. This reduction
      is based on the estimated timing of the purchases from the NUGs and projected
      market prices for this generation. The final existing NUG contract expires
      in 2014. In connection with the corporate realignment, effective July 1,
      2000, the remaining balance of this liability was transferred to PPL EnergyPlus.
      At December 31, 2002, the remaining liability associated with the above
      market NUG contracts was $427 million.
    In the first quarter of 2002, PPL Energy Supply paid approximately $50
      million to terminate the purchase commitment under an energy contract with
      one of the NUGs. The recorded liability associated with this NUG contract
      was $75 million. The excess of the liability over the termination payment
      resulted in a $25 million credit to "Energy purchases" on the Statement
      of Income.
    Wholesale Energy Commitments(PPL, PPL Energy Supply and
      PPL Montana)
    As part of the purchase of generation assets from Montana Power, PPL Montana
      agreed to supply electricity under two wholesale transition service agreements
      with Montana Power to serve its retail load not served by other providers
      or provided by Montana Power's remaining generation. The first agreement
      expired in December 2001, and the second agreement expired in June 2002.
      In addition, as part of its purchase of the generation assets from Montana
      Power, PPL Montana assumed a power purchase agreement and another power
      sales agreement. In accordance with purchase accounting guidelines, PPL
      Montana recorded liabilities of $118 million as the estimated fair value
      of these agreements at the acquisition date. These liabilities are being
      reduced over the terms of the agreements as adjustments to "Wholesale energy
      marketing" revenues and "Energy purchases" on the Statement of Income. The
      unamortized balance of these liabilities at December 31, 2002 was $64 million
      and is included on the Balance Sheet in "Deferred Credits and Other Noncurrent
      Liabilities - Other" for PPL, in "Current Liabilities - Other" and "Deferred
      Credits and Other Noncurrent Liabilities - Other" for PPL Energy Supply
      and in "Wholesale energy commitments" for PPL Montana.
    On July 1, 2002, PPL EnergyPlus began to sell to NorthWestern an aggregate
      of 450 MW of energy to be supplied by PPL Montana. Under two five-year agreements,
      PPL EnergyPlus will supply 300 MW of around-the-clock electricity and 150
      MW of unit-contingent on-peak electricity.
    Legal Matters
    (PPL, PPL Energy Supply, PPL Electric and PPL Montana)
    PPL and its subsidiaries are involved in numerous legal proceedings, claims
      and litigation in the ordinary course of business. PPL and its subsidiaries
      cannot predict the ultimate outcome of such matters, or whether such matters
      may result in material liabilities.
    Tax Assessment Appeals(PPL, PPL Energy Supply and PPL Montana)
    Pursuant to changes in PURTA enacted in 1999, PPL subsidiaries have filed
      a number of tax assessment appeals in various Pennsylvania counties where
      PPL facilities are located. These appeals challenge existing local tax assessments,
      which now comprise the basis for payment of the PURTA tax on PPL's properties.
      Also, as of January 1, 2000, generation facilities are no longer taxed
      under PURTA, and these local assessments will be used directly to determine
      local real estate tax liability for PPL's power plants. In July 1999, PPL
      filed retroactive appeals for tax years 1998 and 1999, as permitted by the
      new law. In addition, PPL has filed appeals for 2000 and beyond, as permitted
      under normal assessment procedures. It is anticipated that assessment appeals
      may now be an annual occurrence.
    Hearings on the pending appeals were held by the boards of assessment appeals
      in each county, and decisions have now been rendered by all counties. To
      the extent the appeals were denied or PPL was not otherwise satisfied with
      the results, PPL filed further appeals from the board decisions with the
      appropriate county Courts of Common Pleas.
    Of the three pending proceedings in Pennsylvania, only the appeal concerning
      the assessed value of the Susquehanna nuclear station will result in annual
      local taxes exceeding $1 million. The county assessment of the Susquehanna
      station indicated a market value of $3.9 billion. Based on this value,
      the annual local taxes for the Susquehanna station would have been about
      $70 million. However, PPL was able to reach a settlement with the local
      taxing authorities in December 2000, for tax years 2000 and beyond. This
      settlement will result in the payment of annual local taxes of about $3
      million. PPL and the local taxing authorities also reached a settlement
      concerning the 1998 and 1999 tax years which, if effectuated, would not
      result in any additional PURTA tax liability for PPL. This portion of the
      settlement with the local tax authorities is subject, however, to the outcome
      of claims asserted by certain intervenors which are described below.
    In August 2000, over PPL's objections, the court permitted Philadelphia
      City and County, the Philadelphia School District and the Southeastern Pennsylvania
      Transportation Authority (SEPTA) (collectively, the "Philadelphia parties")
      to intervene in the case. The Philadelphia parties have intervened because
      they believe a change in the assessment of the plant will affect the amount
      they would collect under PURTA for the tax years 1998 and 1999. As part
      of the change in the law, the local real estate assessment determines what
      the 1998 and 1999 PURTA payments by PPL will be. In November 2000, the Philadelphia
      parties submitted their own appraisal report, which indicates that the taxable
      fair market value of the Susquehanna station under PURTA for 1998 and 1999
      is approximately $2.3 billion. Based on this appraisal, PPL would have to
      pay up to an extra $213 million in PURTA taxes for tax years 1998 and 1999.
    PPL's appeal of the Susquehanna station assessment for 1998 and 1999 was
      decided in its favor by the Luzerne County Court of Common Pleas. The Philadelphia
      parties appealed this decision to the Commonwealth Court, and PPL cross-appealed
      on the issue of the right of the Philadelphia parties to intervene. As a
      result of these proceedings and appeals, it is possible that a final determination
      of market value and the associated tax liability for 1998 and 1999 may not
      occur for several years.
    See "Review of the Financial Condition and Results of Operation" for a
      description of the July 1, 2000 corporate realignment in which PPL Electric's
      generating plants in Pennsylvania were transferred to various PPL affiliates.
    PPL Montana is currently protesting certain property tax assessments by
      the Montana Department of Revenue (MDOR) on its generation facilities. The
      tax liabilities in dispute are approximately $1.7 million for 2000, $1.8
      million for 2001 and $8.6 million for 2002. PPL Montana's dispute with respect
      to most of the 2002 tax liability is based on the assessed value used by
      the MDOR for PPL Montana's hydroelectric facilities versus the assessed
      value used for the facilities of another hydroelectric generator in the
      state. The state tax appeals board is scheduled to hear the 2000 and 2001
      disputes in early 2004, while the hearing for the 2002 dispute is expected
      to be later in 2004. In response to these tax disputes, the 2003 Montana
      legislature has either introduced or proposed several bills to further tax
      PPL Montana, including, but not limited to, bills that would increase the
      portion of the current wholesale electrical transaction tax paid by the
      company and increase PPL Montana's annual property taxes from approximately
      $15 million per year to an amount approaching $30 million per year. PPL
      Montana cannot predict the outcome of the tax assessment disputes or the
      likelihood that any such proposed legislation would ultimately become law.
    
    Montana Power Shareholders' Litigation(PPL, PPL Energy Supply
      and PPL Montana)
    In August 2001, a purported class-action lawsuit was filed by a group of
      shareholders of Montana Power against Montana Power, the directors of Montana
      Power, certain advisors and consultants of Montana Power and PPL Montana.
      The plaintiffs allege, among other things, that Montana Power was required
      to, and did not, obtain shareholder approval of the sale of Montana Power's
      generation assets to PPL Montana in 1999. Although most of the claims in
      the complaint are against Montana Power, its board of directors, and its
      consultants and advisors, two claims are asserted against PPL Montana. In
      the first claim, plaintiffs seek a declaration that because Montana Power
      shareholders did not vote on the 1999 sale of generating assets to PPL Montana,
      that sale "was null and void ab initio." The second claim alleges that PPL
      Montana was privy to and participated in a strategy whereby Montana Power
      would sell its generation assets to PPL Montana without first obtaining
      Montana Power shareholder approval, and that PPL Montana has made net profits
      in excess of $100 million as the result of this alleged illegal sale. In
      the second claim, plaintiffs request that the court impose a "resulting
      and/or constructive trust" on both the generation assets themselves and
      all profits, plus interest on the amounts subject to the trust. In November
      2001, PPL Montana and the other defendants filed a motion to dismiss the
      plaintiffs' complaint on the basis that it fails to state a claim upon which
      relief may be granted, and the plaintiffs filed a motion for the lawsuit
      to be certified by the court as a class-action. In August 2002, the court
      denied this motion to dismiss, except as to certain matters not relating
      to PPL Montana, and granted the plaintiffs' motion for the certification
      of the lawsuit. In January 2003, the case was removed to the U.S. District
      Court in Montana. PPL, PPL Energy Supply and PPL Montana cannot predict
      the outcome of this matter.
    Montana Hydroelectric Initiative(PPL, PPL Energy Supply
      and PPL Montana)
    On November 5, 2002, a proposed Montana Hydroelectric Security Act initiative
      was defeated on a statewide ballot by a better than 2 to 1 margin. Among
      the stated purposes of the initiative was to create an elected Montana public
      power commission to determine whether purchasing hydroelectric dams in Montana
      would be in the public interest. Such a commission could have decided to
      acquire any or all of the hydroelectric dams owned by PPL Montana either
      pursuant to a negotiated purchase or an acquisition at fair market value
      through the power of condemnation. PPL Montana had vigorously opposed the
      initiative along with several other Montana groups and individuals.
    Energy West Litigation (PPL Montana)
    In July 2001, PPL Montana filed an action in state court and a responsive
      pleading in federal court, both related to a breach of contract by Energy
      West Resources, Inc. (Energy West), a Great Falls, Montana-based energy
      aggregator. PPL Montana is seeking a judgment that Energy West violated
      the terms of the contract under which it supplied energy to Energy West
      during the period July 1, 2000 through June 30, 2002. PPL Montana is claiming
      damages of approximately $18 million. All litigation in this matter has
      been consolidated in the U.S. District Court for the District of Montana,
      Great Falls Division, and the liability phase of the trial concluded in
      December 2002. In the event that the federal court rules in PPL Montana's
      favor, the trial will then move into a damages phase. PPL, PPL Energy Supply
      and PPL Montana cannot predict the ultimate outcome of these proceedings.
    NorthWestern Corporation Litigation(PPL, PPL Energy Supply
      and PPL Montana)
    In connection with the acquisition of the Montana generation assets, the
      Montana Power APA, which was previously assigned to PPL Montana by PPL Global,
      includes a provision concerning the proposed purchase by PPL Montana of
      a portion of NorthWestern's interest in the 500-kilovolt Colstrip Transmission
      System (CTS) for $97 million. During 2002, PPL Montana had been in discussions
      with NorthWestern regarding the proposed purchase of the CTS and the claims
      that PPL Montana believes it has against NorthWestern arising from the Montana
      Power APA and related agreements. Notwithstanding such discussions, in September
      2002, NorthWestern filed a lawsuit against PPL Montana in Montana state
      court seeking specific performance of PPL Montana's purchase of the CTS
      or, alternatively, damages for breach of contract. Pursuant to PPL Montana's
      application, the matter was removed to the U.S. District Court for the District
      of Montana, Butte Division. Following the removal of the matter to the federal
      court, PPL Montana moved to dismiss NorthWestern's claim for specific performance
      of PPL Montana's purchase of the CTS. NorthWestern subsequently asserted
      additional claims against PPL Montana arising under the Montana Power APA.
      In December 2002, NorthWestern filed a motion seeking summary judgment as
      to certain of its claims against PPL Montana. PPL Montana has opposed this
      summary judgment motion. The U.S. District Court has not yet ruled on either
      PPL Montana's motion to dismiss or NorthWestern's motion for summary judgment.
      PPL, PPL Energy Supply and PPL Montana cannot predict the outcome of this
      litigation.
    Regulatory Issues
    California ISO and Pacific Northwest (PPL, PPL Energy Supply
      and PPL Montana)
    Through its subsidiaries, PPL has made approximately $18 million of sales
      to the California ISO, of which $17 million has not been paid to PPL subsidiaries.
      Given the myriad of electricity supply problems presently faced by the California
      electric utilities and the California ISO, PPL cannot predict whether or
      when it will receive payment. As of December 31, 2002, PPL has fully reserved
      for possible underrecoveries of payments for these sales.
    Litigation arising out of the California electricity supply situation has
      been filed at the FERC and in California courts against sellers of energy
      to the California ISO. The plaintiffs and intervenors in these proceedings
      allege abuses of market power, manipulation of market prices, unfair trade
      practices and violations of state antitrust laws, among other things, and
      seek price caps on wholesale sales in California and other western power
      markets, refunds of excess profits allegedly earned on these sales of energy,
      and other relief, including treble damages and attorneys' fees. Certain
      of PPL's subsidiaries have intervened in the FERC proceedings in order to
      protect their interests, but have not been named by any plaintiffs in any
      of the court actions alleging abuses of market power, manipulation of market
      prices, unfair trade practices and violations of state antitrust laws. However,
      in April 2002, PPL Montana was named by a defendant in a consolidated court
      proceeding, which combined into one master proceeding several of the lawsuits
      alleging antitrust violations and unfair trade practices. Specifically,
      one of the original generators being sued by the various plaintiffs in the
      consolidated court proceeding filed a cross-complaint against 30 other generators
      and power marketers, including PPL Montana. This generator denies that any
      unlawful, unfair or fraudulent conduct occurred or caused any harm to the
      plaintiffs, and explains that the plaintiffs' claims are completely barred
      by federal law. Nonetheless, this generator alleges that it filed its complaint
      against the other generators and power marketers in order to assist the
      court in resolving the proceeding and asserts that if it is found liable,
      the other generators and power marketers, including PPL Montana, caused,
      contributed to and/or participated in the plaintiffs' alleged losses. This
      litigation, originally brought in state court in California, had been removed
      to federal court in California.
    In addition, PPL Montana has been named as a defendant in a declaratory
      judgment action initiated by the State of California to prevent certain
      members of the California Power Exchange from seeking compensation for the
      state's seizure of certain energy contracts. PPL Montana is a member of
      the California Power Exchange, but it has no energy contracts with or through
      the California Power Exchange and has not sought compensation in connection
      with the state's seizure.
    Attorneys general in several western states, including California, have
      begun investigations related to the electricity supply situation in California
      and other western states. The FERC has determined that all sellers of energy
      into markets operated by the California ISO and the California Power Exchange,
      including PPL Montana, should be subject to refund liability for the period
      beginning October 2, 2000 through June 20, 2001 and has initiated an evidentiary
      hearing concerning refund amounts. The FERC also is considering whether
      to order refunds for spot market bilateral sales made in the Pacific Northwest,
      including sales made by PPL Montana during the period December 2000 through
      June 2001. The FERC Administrative Law Judge assigned to the Pacific Northwest
      proceeding has recommended that no refunds be ordered for such sales into
      the Pacific Northwest. The FERC presently is considering this recommendation.
      The FERC has been conducting an additional investigation of alleged price
      manipulation in power markets in California and the western U.S. In connection
      with this investigation, the FERC has served several sets of data requests
      on sellers of energy in those markets, including PPL Montana. PPL Montana
      sold only a small amount of electricity into the California market during
      2000 and 2001, and it did not sell any electricity into the California market
      during 2002. In its response to a FERC data request concerning PPL Montana's
      California trading strategies, PPL Montana explained that it did not engage
      in the type of California trading strategies that have been attributed to
      Enron. In responses to FERC data requests concerning whether PPL Montana
      and PPL EnergyPlus engaged in so-called "wash trades" in the western U.S.,
      PPL Montana and PPL EnergyPlus explained that they have not, and do not,
      engage in such trades.
    While PPL believes that it has not engaged in any improper trading practices,
      PPL cannot predict whether, or the extent to which, any of its subsidiaries
      will be the target of any additional governmental investigations or named
      in other lawsuits or refund proceedings, the outcome of any such lawsuits
      or proceedings or whether the ultimate impact on PPL of the electricity
      supply situation in California and other western states will be material.
    MPSC Order(PPL, PPL Energy Supply and PPL Montana)
    In June 2001, the MPSC issued an order (MPSC Order) in which it found that
      Montana Power must continue to provide electric service to its customers
      at tariffed rates until its transition plan under the Montana Electricity
      Utility Industry Restructuring and Customer Choice Act is finally approved,
      and that purchasers of generating assets from Montana Power must provide
      electricity to meet Montana Power's full load requirements at prices to
      Montana Power that reflect costs calculated as if the generating assets
      had not been sold. PPL Montana purchased Montana Power's interests in two
      coal-fired plants and 11 hydroelectric units in 1999, and NorthWestern purchased
      Montana Power's electricity delivery business in the first quarter of 2002.
    In July 2001, PPL Montana filed a complaint against the MPSC with the U.S.
      District Court in Helena, Montana, challenging the MPSC Order. In its complaint,
      PPL Montana asserted, among other things, that the Federal Power Act preempts
      states from exercising regulatory authority over the sale of electricity
      in wholesale markets, and requested the court to declare the MPSC action
      preempted, unconstitutional and void. In addition, the complaint requested
      that the MPSC be enjoined from seeking to exercise any authority, control
      or regulation of wholesale sales from PPL Montana's generating assets. In
      March 2002, the District Court dismissed PPL Montana's lawsuit on procedural
      grounds, ruling that the Eleventh Amendment to the U.S. Constitution prevented
      PPL Montana from bringing the action in federal court. The District Court
      noted that the action could be filed in a state court in Montana. PPL Montana
      appealed the District Court's ruling to the United States Court of Appeals
      for the Ninth Circuit. In July 2002, the MPSC filed an unopposed motion
      for summary disposition of the appeal, requesting the Ninth Circuit to reverse
      the District Court's ruling and send the case back to the District Court
      in light of a recent Eleventh Amendment decision by the U.S. Supreme Court.
      In October 2002, the Ninth Circuit granted the MPSC's unopposed motion,
      vacated the District Court's ruling and sent the case back to the District
      Court.
    In January 2003, the MPSC voted 5-0 to rescind the MPSC Order in its entirety,
      without prejudice to future MPSC actions. At such time as the MPSC Order
      is no longer subject to appellate review, PPL Montana and the MPSC will
      file a stipulation providing for withdrawal of PPL's complaint, without
      prejudice to refile such complaint in the future.
    PJM Capacity Transactions(PPL, PPL Energy Supply and
      PPL Electric)
    In November 2001, the PJM Market Monitor publicly released a report prepared
      for the PUC entitled "Capacity Market Questions" relating to the pricing
      of installed capacity in the PJM daily market during the first quarter of
      2001. The report concludes that PPL EnergyPlus (identified in the report
      as "Entity 1") was able to exercise market power to raise the market-clearing
      price above the competitive level during that period. PPL EnergyPlus does
      not agree with the Market Monitor's conclusions that it exercised market
      power; in addition, the Market Monitor acknowledged in his report that PJM's
      standards and rules did not prohibit PPL EnergyPlus' conduct. In November
      2001, the PUC issued an Investigation Order directing its Law Bureau to
      conduct an investigation into PJM capacity market and the allegations in
      the Market Monitor's report. In June 2002, the PUC issued an investigation
      report alleging, among other things, that PPL had "unfairly manipulated
      electricity markets in early 2001," and that "there was an unlawful exercise
      of market power and market rules gaming by PPL" that was damaging to wholesale
      and retail electricity markets in Pennsylvania. The PUC stated that it was
      not authorized to, and was not attempting to, adjudicate the merits of PPL's
      defenses to these charges, but has referred the matter to the U.S. Department
      of Justice -- Antitrust Division, or DOJ, the FERC and the Pennsylvania
      Attorney General. PPL had previously responded to certain information requests
      of the DOJ in connection with a civil investigative demand regarding capacity
      transactions in PJM, and PPL has agreed to provide the Office of the Pennsylvania
      Attorney General with any information that it provided to the DOJ. In addition,
      in July 2002, PPL appealed the PUC order to the Commonwealth Court of Pennsylvania.
      Since the PUC clarified that its report has no precedential value and should
      be given no weight in any future proceedings, PPL consented to having its
      appeal dismissed by the Commonwealth Court. Accordingly, the Commonwealth
      Court dismissed the appeal in September 2002. Although PPL believes that
      the PUC's report is inaccurate, that its conclusions are groundless, and
      that PPL acted ethically and legally, in compliance with all applicable
      laws and regulations, PPL cannot predict the outcome or extent of any investigations,
      litigation or other proceedings related to this matter.
    In September 2002, PPL was served with a complaint filed by Utilimax.com,
      Inc., which was a member of PJM, in the U.S. District Court for the Eastern
      District of Pennsylvania against PPL and PPL EnergyPlus alleging, among
      other things, violations of the federal antitrust laws in connection with
      the capacity transactions described in the PJM Market Monitor report. In
      addition, in December 2002, PPL was served with a complaint against PPL,
      PPL EnergyPlus and PPL Electric filed in the same court by a group of 14
      Pennsylvania boroughs that apparently alleges, in broad terms, similar violations
      of the federal antitrust laws. These boroughs are wholesale customers of
      PPL Electric. Although PPL, PPL EnergyPlus and PPL Electric believe the
      claims under both complaints are without merit and intend to defend the
      actions vigorously, they cannot predict the outcome of these matters.
    FERC Market-Based Rate Authority (PPL and PPL Energy Supply)
    In December 1998, the FERC issued an order authorizing PPL EnergyPlus to
      make wholesale sales of electric power and related products at market-based
      rates. In that order, the FERC directed PPL EnergyPlus to file an updated
      market analysis within three years of the date of the order, and every three
      years thereafter. PPL EnergyPlus filed its initial updated market analysis
      in December 2001. Several parties thereafter filed interventions and protests
      requesting that, in light of the PJM Market Monitor's report described above,
      PPL EnergyPlus be required to provide additional information demonstrating
      that it has met the FERC's market power tests necessary for PPL EnergyPlus
      to continue its market-based rate authority. PPL EnergyPlus has responded
      that the FERC does not require the economic test suggested by the intervenors
      and that, in any event, it would meet such economic test if required by
      the FERC. PPL EnergyPlus cannot predict the outcome of this matter.
    FERC Notice of Proposed Rulemaking (PPL, PPL Energy Supply, PPL
      Electric and PPL Montana)
    In July 2002, the FERC issued a Notice of Proposed Rulemaking entitled
      "Remedying Undue Discrimination through Open Access Transmission Service
      and Standard Electricity Market Design." The proposed rule is currently
      available for public comment, with a final rule expected in late 2003. The
      proposed rule contains a proposed implementation date of July 31, 2003.
      However, since the issuance of the proposed rule, the FERC has announced
      several delays in the comment deadlines. Thus, any implementation dates
      are likely to be later than originally projected. This far-reaching proposed
      rule, in its current form, purports to establish uniform transmission rules
      and establish a standard market design by, among other things:
    ·
        enacting standard transmission tariffs and
          uniform market mechanisms,·
        monitoring and mitigating "market power,"·
        managing transmission congestion through
          pricing and tradable financial rights,·
        requiring independent operational control
          over transmission facilities,·
        forming state advisory committees on regional
          transmission organizations and resource adequacy, and·
        exercising FERC jurisdiction over all transmission
          service.If adopted, this proposed rule may have a significant impact on PPL and
      its subsidiaries, which cannot be predicted at this time.
    Montana Hydroelectric License Contingencies(PPL Montana)
    PPL Montana has 11 hydroelectric facilities and one storage reservoir licensed
      by the FERC pursuant to the Federal Power Act under long-term licenses which
      expire on varying dates from 2009 through 2040. Pursuant to Section 8(e)
      of the Federal Power Act, the FERC approved the transfer from Montana Power
      to PPL Montana of all pertinent licenses and any amendments in connection
      with the Montana APA.
    The Kerr Dam Project license was jointly issued by the FERC to Montana
      Power and the Confederated Salish and Kootenai Tribes of the Flathead Reservation
      in 1985, and required Montana Power to hold and operate the project for
      30 years. The license required Montana Power, and subsequently PPL Montana
      as a result of the purchase of the Kerr Dam from Montana Power, to continue
      to implement a plan to mitigate the impact of the Kerr Dam on fish, wildlife
      and the habitat. Such implementation will require payments totaling approximately
      $6 million between 2003 and 2020.
    PPL Montana entered into a Memorandum of Understanding (MOU) with state,
      federal and private entities related to the issuance in 2000 of the FERC
      renewal license for the nine dams for the Missouri-Madison project. The
      MOU requires PPL Montana to implement plans to mitigate the impact of its
      projects on fish, wildlife, habitat and to increase recreational opportunities.
      The MOU was created to maximize collaboration between the parties and possibilities
      for matching funds. Such implementation will require payments by PPL Montana
      totaling $20 million between 2002 and 2010.
    U.K. Electricity Regulation(PPL and PPL Energy Supply)
    The principal legislation governing the structure of the electricity industry
      in Great Britain is the Electricity Act 1989 (the "Electricity Act"), as
      amended by the Utilities Act 2000 (the "Utilities Act").
    The provisions in the Utilities Act include the replacement of individual
      gas and electricity regulators with the Gas and Electricity Markets Authority
      (the "Regulator"). The principal objective of the Regulator is to protect
      the interests of consumers, wherever appropriate, by promoting effective
      competition in electricity generation and supply. There currently is no
      competition in electricity distribution.
    Each distribution business constitutes a natural regional monopoly and
      is subject to control on the prices it can charge and the quality of supply
      it must provide. The operations of WPD are regulated under its distribution
      licenses, pursuant to which income generated is subject to an allowed revenue
      regulatory framework that provides economic incentives to minimize operating,
      capital and financing costs. Under the Electricity Act, WPD is under a statutory
      duty to connect any customer requiring electricity within their area and
      to maintain that connection. The allowed revenue that is recovered from
      electricity supply businesses through charges by the Distribution Network
      Operator (DNO) made for the use of the distribution network is regulated
      on the basis of the Retail Price Index (RPI) minus X formula. The allowed
      revenue is increased by RPI minus X during the tenure of each price control
      period. (RPI is a measure of inflation and equals the percentage change
      in the U.K. RPI between the six-month period of July to December in the
      previous year. The X factor is established by the Regulator following review
      and represents an annual efficiency factor.) The Regulator currently sets
      the Distribution Price Control Formula for five-year periods.
    The current Distribution Price Control Formula permits DNOs, within a review
      period, to partially retain additional revenues due to increased distribution
      of units and to retain all increases in operating profit due to efficient
      operations and the reduction of expenses (including financing costs). The
      Regulator may reduce this increase in operating profit through a one-off
      price reduction in the first year of the new pricing regime, if the Regulator
      determines that it is not a function of efficiency savings, or, if genuine
      efficiency savings have been made, and the Regulator determines that customers
      should benefit through lower prices.
    In December 1999, the Regulator published final price proposals for distribution
      price control for the 12 DNOs in England and Wales. These proposals represented
      a reduction to distribution prices of 20% for WPD (South West) and 26% for
      WPD (South Wales) effective April 2000, followed by a reduction in real
      terms (i.e., before inflation is taken into account) of 3% each year from
      April 2001. This price control is scheduled to operate until March 2005.
    
    Improvements in quality of supply form an important part of the final proposals.
      Revised targets for system performance, in terms of the security and availability
      of supply, were proposed with new targets for reductions in minutes lost
      and interruptions.
    The Regulator has introduced a quality of service incentive plan for the
      period from April 2002 to March 2005. Companies will be penalized annually
      up to 2% of revenue for failing to meet their quality of supply targets
      for the incentive plan. The plan includes a mechanism for rewarding companies
      which exceed their targets based on their rate of improvement of performance
      during the period and a process for rewarding exceptional performance by
      specifying how the targets will be reset.
    Distribution businesses must also meet the Guaranteed and Overall Standards
      of Performance, which are set by the Regulator to ensure an appropriate
      level of quality of supply. If a company fails to provide the level of service
      specified, it must make a fixed payment to the retail customer affected.
    Environmental Matters - Domestic
    (PPL, PPL Energy Supply, PPL Electric and PPL Montana)
    Due to the environmental issues discussed below or other environmental
      matters, PPL subsidiaries may be required to modify, replace or cease operating
      certain facilities to comply with statutes, regulations and actions by regulatory
      bodies or courts. In this regard, PPL subsidiaries also may incur capital
      expenditures or operating expenses in amounts which are not now determinable,
      but which could be significant.
    Air(PPL, PPL Energy Supply and PPL Montana)
    The Clean Air Act deals, in part, with acid rain, attainment of federal
      ambient ozone standards and toxic air emissions in the U.S. PPL's subsidiaries
      are in substantial compliance with the Clean Air Act.
    The Bush administration and certain members of Congress have made proposals
      regarding possible amendments to the Clean Air Act. These amendments could
      require significant further reductions in nitrogen oxide, sulfur dioxide
      and mercury and could possibly require measures to limit carbon dioxide.
    The Pennsylvania DEP has finalized regulations requiring further seasonal
      (May-June) nitrogen oxide reductions to 80% from 1990 levels starting in
      2003. These further reductions are based on the requirements of the Northeast
      Ozone Transport Region Memorandum of Understanding and two EPA ambient ozone
      initiatives: the September 1998 EPA State Implementation Plan (SIP) call
      (i.e., EPA's requirement for states to revise their SIPs) issued under Section
      110 of the Clean Air Act, requiring reductions from 22 eastern states, including
      Pennsylvania; and the EPA's approval of petitions filed by Northeastern
      states, requiring reductions from sources in 12 Northeastern states and
      Washington, D.C., including PPL sources. The EPA's SIP-call was substantially
      upheld by the D.C. Circuit Court of Appeals on challenge. Although the Court
      extended the implementation deadline to May 2004, the Pennsylvania DEP has
      not changed its rules accordingly. PPL expects to achieve the 2003 nitrogen
      oxide reductions with the recent installation of SCR technology on the Montour
      units, and may install SCR technology on one or more Brunner Island units
      at a later date.
    The EPA has also developed new standards for ambient levels of ozone and
      fine particulates in the U.S. These standards have been upheld following
      court challenges. The new particulates standard may require further reductions
      in sulfur dioxide and year-round nitrogen oxide reductions commencing in
      2010-2012 at SIP-call levels in Pennsylvania for certain PPL subsidiaries,
      and at slightly less stringent levels in Montana. The revised ozone standard
      is not expected to have a material effect on facilities of PPL subsidiaries.
    Under the Clean Air Act, the EPA has been studying the health effects of
      hazardous air emissions from power plants and other sources in order to
      determine what emissions should be regulated, and has determined that mercury
      and nickel emissions must be regulated. The EPA may determine that other
      hazardous air emissions from power plants should be regulated. In this regard,
      the EPA is expected to develop mercury and nickel regulations by 2004.
    In 1999, the EPA initiated enforcement actions against several utilities,
      asserting that older, coal-fired power plants operated by those utilities
      have, over the years, been modified in ways that subject them to more stringent
      "New Source" requirements under the Clean Air Act. The EPA has since issued
      notices of violation and commenced enforcement activities against other
      utilities. Although the EPA has threatened to continue expanding its enforcement
      actions, the future direction of the "New Source" requirements is presently
      unclear. Therefore, at this time, PPL is unable to predict whether such
      EPA enforcement actions will be brought with respect to any of its affiliates'
      plants. However, the EPA regional offices that regulate plants in Pennsylvania
      (Region III) and Montana (Region VIII) have indicated an intention to issue
      information requests to all utilities in their jurisdiction. The Region
      VIII office issued such a request to PPL Montana's Corette plant in 2000,
      and the Region III office issued such a request to PPL Generation's Martins
      Creek plant in 2002. PPL and its subsidiaries have responded to both of
      these information requests. PPL cannot presently predict what, if any, action
      the EPA might take in this regard. Should the EPA or any state initiate
      one or more enforcement actions against PPL or its subsidiaries, compliance
      with any such enforcement actions could result in additional capital and
      operating expenses in amounts which are not now determinable, but which
      could be significant.
    The EPA has finalized some changes to its "New Source" regulations, which
      do not significantly affect PPL's plants. However, the EPA is also proposing
      to further revise its regulations in a way that will require power plants
      to meet "New Source" performance standards and/or undergo "New Source" review
      for many maintenance and repair activities that are currently exempt.
    
    The New Jersey DEP and some New Jersey residents have raised environmental
      concerns with respect to the Martins Creek plant, particularly with respect
      to sulfur dioxide emissions and the opacity of the plume. PPL Martins Creek
      is discussing these concerns with the New Jersey DEP. The cost of addressing
      New Jersey's sulfur dioxide concerns and opacity issues is not now determinable
      but could be significant.
    Water/Waste(PPL, PPL Energy Supply and PPL Montana)
    A final NPDES permit has been issued to the Brunner Island generating plant.
      The permit contains a provision requiring further studies on the thermal
      impact of the cooling water discharge from the plant. Depending on the outcome
      of these studies, the plant could be subject to capital and operating costs
      that are not now determinable, but which could be significant.
    The EPA has significantly tightened the water quality standard for arsenic.
      The revised standard may require several PPL subsidiaries to further treat
      wastewater and/or take abatement action at their power plants, the cost
      of which is not now determinable, but which could be significant.
    The EPA recently finalized requirements for new or modified water intake
      structures. These requirements will affect where generating facilities are
      built, will establish intake design standards, and could lead to requirements
      for cooling towers at new and modified power plants. Another new rule, expected
      to be finalized in 2004, will address existing structures. Each of these
      rules could impose significant operating costs on PPL subsidiaries, which
      are not now determinable, but which could be significant.
    Superfund and Other Remediation
    (PPL and PPL Electric)
    In 1995, PPL Electric entered into a consent order with the Pennsylvania
      DEP to address a number of sites where it may be liable for remediation.
      This may include potential PCB contamination at certain PPL Electric substations
      and pole sites; potential contamination at a number of coal gas manufacturing
      facilities formerly owned or operated by PPL Electric; and oil or other
      contamination which may exist at some of PPL Electric's former generating
      facilities. As of December 31, 2002, work has been completed on over 90%
      of the sites included in the consent order.
    In 1996, PPL Gas Utilities entered into a similar consent order with the
      Pennsylvania DEP to address a number of sites where subsidiaries of PPL
      Gas Utilities may be liable for remediation. The sites primarily include
      former coal gas manufacturing facilities. Subsidiaries of PPL Gas Utilities
      are also investigating the potential for any mercury contamination from
      gas meters and regulators. Accordingly, PPL Gas Utilities and Pennsylvania
      DEP have agreed to add 72 meter/regulation sites to the consent order. As
      of December 31, 2002, PPL Gas Utilities had addressed 15% of the sites under
      its consent order.
    At December 31, 2002, PPL Electric and PPL Gas Utilities had accrued approximately
      $4 million and $10 million, representing the estimated amounts they will
      have to spend for site remediation, including those sites covered by each
      company's consent orders mentioned above. Depending on the outcome of investigations
      at sites where investigations have not been completed, the costs of remediation
      and other liabilities could be substantial.
    (PPL, PPL Energy Supply and PPL Montana)
    In conjunction with its 1999 sale of generating assets to PPL Montana,
      Montana Power prepared a Phase I and Phase II Environmental Site Assessment.
      The assessment identifies approximately $7 million of future capital expenditures
      through the year 2020 related to various groundwater remediation issues.
      Additional capital expenditures could be required in amounts which are not
      now determinable, but which could be significant.
    In 1999, the Montana Supreme Court held in favor of several citizens' groups
      that the right to a clean and healthful environment is a fundamental right
      guaranteed by the Montana Constitution. The court's ruling could result
      in significantly more stringent environmental laws and regulations, as well
      as an increase in citizens' suits under Montana's environmental laws. The
      effect on PPL Montana of any such changes in laws or regulations or any
      such increase in legal actions is not currently determinable, but it could
      be significant.
    Under the Montana Power APA, PPL Montana is indemnified by Montana Power
      for any pre-acquisition environmental liabilities. However, this indemnification
      is conditioned on certain circumstances and subject to certain limitations
      set forth in the Montana Power APA, including circumstances under which
      PPL Montana and Montana Power would share in certain costs. As a result
      of the acquisition by NorthWestern of Montana Power's electricity delivery
      business, PPL Montana will pursue any such indemnification claims against
      NorthWestern.
    Future cleanup or remediation work at sites currently under review, or
      at sites not currently identified, may result in material additional operating
      costs for PPL subsidiaries that cannot be estimated at this time.
    Asbestos (PPL and PPL Energy Supply)
    
    There have been increasing litigation claims throughout the U.S. based
      on exposure to asbestos against companies that manufacture or distribute
      asbestos products or that have these products on their premises. Certain
      of PPL's generation subsidiaries and certain of its energy services subsidiaries,
      such as those that have supplied, may have supplied or installed asbestos
      material in connection with the repair or installation of heating, ventilating
      and air conditioning systems, have been named as defendants in asbestos-related
      lawsuits. PPL cannot predict the outcome of these lawsuits or whether additional
      claims may be asserted against its subsidiaries in the future. PPL does
      not expect that the ultimate resolution of the current lawsuits will have
      a material adverse effect on its financial condition.
    Electric and Magnetic Fields (PPL, PPL Energy Supply and PPL
      Electric)
    Concerns have been expressed by some members of the public regarding the
      potential health effects of EMFs. These fields are emitted by all devices
      carrying electricity, including electric transmission and distribution lines
      and substation equipment. Government officials in the U.S. and the U.K.
      have focused attention on this issue. PPL and its subsidiaries support the
      current efforts to determine whether EMFs cause any human health problems
      and are taking steps to reduce EMFs, where practical, in the design of new
      transmission and distribution facilities. PPL is unable to predict what
      effect, if any, the EMF issue might have on its operations and facilities
      either in the U.S. or abroad, and the associated cost, or what, if any,
      liabilities it might incur related to the EMF issue.
    Lower Mt. Bethel (PPL and PPL Energy Supply)
    See Note 10 for a discussion of air and noise issues associated with the
      development of the Lower Mt. Bethel project.
    Environmental Matters - International
    U.K. (PPL and PPL Energy Supply)
    
    WPD's distribution businesses are subject to numerous regulatory and statutory
      requirements with respect to environmental matters. WPD believes it has
      taken and continues to take measures to comply with the applicable laws
      and governmental regulations for the protection of the environment. There
      are no material legal or administrative proceedings pending against WPD
      with respect to any environmental matter. See "Environmental Matters-Domestic-Electric
      and Magnetic Fields" for a discussion of EMFs.
    Latin America(PPL and PPL Energy Supply)
    Certain of PPL's affiliates have electric distribution operations in Latin
      America. PPL believes that these operations are in compliance in all material
      respects with all applicable laws and government regulations to protect
      the environment. PPL is not aware of any material administrative proceeding
      against these companies with respect to any environmental matter.
    Other
    Commitments - Acquisitions, Development and Lease Activities(PPL and PPL Energy Supply)
    
    At December 31, 2002, PPL Global and its subsidiaries had approximately
      $1 million of outstanding purchase commitments related to domestic construction
      projects. In addition, a lessor had $47 million of purchase commitments
      for domestic construction projects for which a PPL subsidiary is the construction
      agent. PPL's exposure is limited to the guarantees under the operating lease.
      See Note 10 for additional information on guarantees under operating lease
      arrangements.
    
    Nuclear Insurance(PPL and PPL Energy Supply)
    PPL Susquehanna is a member of certain insurance programs which provide
      coverage for property damage to members' nuclear generating stations. Facilities
      at the Susquehanna station are insured against property damage losses up
      to $2.75 billion under these programs. PPL Susquehanna is also a member
      of an insurance program which provides insurance coverage for the cost of
      replacement power during prolonged outages of nuclear units caused by certain
      specified conditions. Under the property and replacement power insurance
      programs, PPL Susquehanna could be assessed retroactive premiums in the
      event of the insurers' adverse loss experience. Effective April 1, 2002,
      this maximum assessment increased from $20 million to $40 million, to increase
      the insurer's capacity to cover catastrophic losses.
    PPL Susquehanna's public liability for claims resulting from a nuclear
      incident at the Susquehanna station is limited to about $9.55 billion under
      provisions of The Price Anderson Amendments Act of 1988. PPL Susquehanna
      is protected against this liability by a combination of commercial insurance
      and an industry assessment program. In the event of a nuclear incident at
      any of the reactors covered by The Price Anderson Amendments Act of 1988,
      PPL Susquehanna could be assessed up to $176 million per incident, payable
      at $20 million per year.
    Guarantees and Other Assurances
    
    (PPL, PPL Energy Supply and PPL Electric)
    In the normal course of business, PPL, PPL Energy Supply and PPL Electric
      enter into agreements that provide financial performance assurance to third
      parties on behalf of certain subsidiaries. Such agreements include, for
      example, guarantees, stand-by letters of credit issued by financial institutions
      and surety bonds issued by insurance companies. These agreements are entered
      into primarily to support or enhance the creditworthiness attributed to
      a subsidiary on a stand-alone basis, thereby facilitating the extension
      of credit to accomplish the subsidiaries' intended commercial purposes.
    (PPL, PPL Energy Supply, PPL Electric and PPL Montana)
    PPL, PPL Energy Supply, PPL Electric and PPL Montana provide certain guarantees
      on behalf of third parties that are required to be disclosed in accordance
      with FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure
      Requirements for Guarantees, Including Indirect Guarantees of Indebtedness
      of Others, an Interpretation of FASB Statements No. 5, 57, and 107 and Rescission
      of FASB Interpretation No. 34." See Note 22 for a discussion of FIN 45 and
      the impact of adoption. The guarantees provided on behalf of third parties
      as of December 31, 2002 are discussed below.
    (PPL)
    PPL or its subsidiaries provide guarantees in the amount of approximately
      $20 million, as of December 31, 2002, related to debt of unconsolidated
      entities. The guarantees are reduced as the related debt balances decline,
      and they expire from June 2006 to April 2009.
    (PPL and PPL Energy Supply)
    As of December 31, 2002, PPL Energy Supply has letters of credit totaling
      $4 million issued under its $500 million credit facility on behalf of PPL
      and PPL Gas Utilities. These letters of credit expire in 2003 and 2004.
    PPL Energy Supply provides a guarantee in the amount of approximately $11
      million, as of December 31, 2002, related to debt of an unconsolidated entity.
      This guarantee is reduced as the debt balance declines, and it expires in
      April 2009.
    PPL Generation has entered into certain partnership arrangements for the
      sale of coal to third parties. PPL Generation has also executed support
      agreements for the benefit of these third party purchasers pursuant to which
      it guarantees the partnerships' obligations in an amount up to its pro rata
      ownership interest in the partnerships. PPL Generation's maximum aggregate
      exposure under these support arrangements is approximately $9 million.
    Certain PPL Generation subsidiaries provide residual value guarantees under
      the operating leases for the Sundance, University Park and Lower Mt. Bethel
      generating facilities. See Note 10 for further discussion of these residual
      value guarantees.
    PPL Susquehanna is contingently obligated to pay $40 million related to
      potential retroactive premiums that could be assessed under its nuclear
      insurance program. See "Nuclear Insurance" for additional information. PPL
      Susquehanna also has payment obligations related to decommissioning its
      nuclear generation plant. See Note 6 for further discussion.
    PPL EnergyPlus is party to a wide range of energy trading or purchase and
      sale agreements pursuant to which the parties indemnify each other for any
      damages arising from events that occur while the indemnifying party has
      title to the electricity or natural gas. For example, in the case of the
      party that is delivering the product, such party would be responsible for
      damages arising from events occurring prior to delivery. The overall maximum
      amount of the obligation under such indemnifications cannot be reasonably
      estimated.
    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. In addition, in connection with certain of these sales, WPD and its affiliates
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.  They have also guaranteed the payment
of up to $44 million under a contract assigned as part of one of these sales.  Finally, WPD
and its affiliates remain secondarily responsible for lease payments under certain leases
that they have assigned to third parties.  These various indemnifications, guarantees and
lease obligations vary in duration and in the maximum potential payment, which cannot be
estimated but which in the aggregate could be material.  To date, neither WPD nor any of
its affiliates have made any significant payments with respect to these indemnifications,
guarantees or lease obligations, and they do not expect any future payments to be significant.


    Certain acquisition agreements relating to the acquisition of mechanical
      contractors contain provisions that require a PPL Energy Supply subsidiary
      to make guaranteed payments and/or contingent payments based upon the profitability
      of the business unit or if specified minimum revenue requirements are met.
      The maximum potential amount of these contingent payments outstanding at
      December 31, 2002 is not considered material.
    (PPL and PPL Electric)
    PPL Electric provides a guarantee in the amount of approximately $7 million,
      as of December 31, 2002, related to debt of an unconsolidated entity. The
      guarantee expires in June 2008.
    PPL Electric also provides residual value guarantees to lessors under its
      operating leases for vehicles and other equipment. As of December 31, 2002,
      the maximum amount of the residual value guarantees for these leases was
      approximately $93 million.
    (PPL, PPL Energy Supply and PPL Montana)
    PPL Montana may be obligated under certain circumstances to pay a termination
      value to the lessor under the operating leases for the Colstrip generating
      plants. See Note 10 for further discussion of the termination value payment.
    PPL Montana also provides residual value guarantees to the lessor under
      its operating lease for certain equipment. As of December 31, 2002, the
      maximum amount of the residual value guarantees for this lease was approximately
      $4 million.
    (PPL, PPL Energy Supply, PPL Electric and PPL Montana)
    The operating lease arrangements described above and the companies' or
      their subsidiaries' other lease arrangements include certain indemnifications
      in favor of the lessors (e.g., indemnifications for environmental matters)
      with terms that range in duration and scope and that are not explicitly
      defined. Where appropriate, an obligation for such indemnifications is recorded
      as a liability. Because the obligated amounts of these types of indemnifications
      often are not explicitly stated, the overall maximum amount of the obligation
      under such indemnifications cannot be reasonably estimated. As of December
      31, 2002, none of PPL, PPL Energy Supply, PPL Electric or PPL Montana has
      recorded any liability on their financial statements in connection with
      these indemnification obligations, as they do not believe, based on information
      currently available, that it is probable that any amounts will be paid under
      these guarantees.
    In connection with many of their financing transactions, PPL, PPL Energy
      Supply, PPL Electric and PPL Montana engage trustees or custodial, escrow
      or other agents to act for the benefit of the investors or to provide other
      agency services. PPL, PPL Energy Supply, PPL Electric and PPL Montana typically
      provide indemnification to these agents for any liability or expenses incurred
      by them in performing their obligations. No liability is recorded for these
      indemnifications because the companies believe that it is unlikely that
      they will be required to perform or otherwise incur any losses associated
      with these indemnification provisions.
    PPL, PPL Energy Supply, PPL Electric and PPL Montana also have various
      guarantees in contracts that they enter into in the normal course of business.
      These guarantees are primarily in the form of indemnities that range in
      duration and coverage and that do not explicitly state the amount of the
      indemnification obligation. These guarantees would only result in immaterial
      increases in future costs and do not represent significant commitments or
      contingent liabilities of the indebtedness of others. To date, none of PPL,
      PPL Energy Supply, PPL Electric or PPL Montana has made any significant
      payments for these indemnification obligations.
    PPL, on behalf of itself and its subsidiaries, maintains insurance that
      covers liability assumed under contract for bodily injury and property damage.
      The coverage requires a $4 million deductible per occurrence and provides
      maximum aggregate coverage of approximately $175 million. This insurance
      may be applicable to certain obligations under the contractual arrangements
      discussed above.

1. Related Party Transactions


    Intercompany Transactions(PPL)
    
    The subsidiaries of PPL engage in intercompany transactions. These transactions
      include the sale of energy, intercompany financings and allocations of corporate
      costs. All significant intercompany transactions between PPL subsidiaries
      are eliminated in the consolidated financial statements of PPL.
    PLR Contracts(PPL Energy Supply and PPL Electric)
    
    PPL Electric has power sales agreements with PPL EnergyPlus, effective
      January 1, 2002, to supply all of PPL Electric's PLR load through 2009.
      Under these contracts, PPL EnergyPlus will provide electricity at the predetermined
      capped prices that PPL Electric is authorized to charge its PLR customers.
      In 2002, these sales totaled $1.4 billion, including nuclear decommissioning
      recovery and amortization of an up-front contract payment. These sales totaled
      $1.3 billion in 2001 and $552 million in the last half of 2000, including
      nuclear decommissioning recovery, under the first PLR contract. These sales
      are included in the Statement of Income as "Energy purchases from affiliate"
      by PPL Electric and as "Wholesale energy marketing to affiliates" revenues
      by PPL Energy Supply.
    Under the PLR contracts, PPL Electric is required to make performance assurance
      deposits with PPL EnergyPlus when the market price of electricity is less
      than the contract price by more than its contract collateral threshold.
      Conversely, PPL EnergyPlus is required to make performance assurance deposits
      with PPL Electric when the market price of electricity is greater than the
      contract price by more than its contract collateral threshold. At December
      31, 2002, neither PPL Electric nor PPL EnergyPlus was required to make performance
      assurance deposits since the market price of electricity was within contract
      collateral thresholds.
    
    In August 2001, PPL Electric made a $90 million payment to PPL EnergyPlus
      in connection with the PLR contracts. The upfront payment is being amortized
      by both parties over the term of the PLR contracts. The unamortized balance
      of this payment and other payments under the contract was $81 million at
      December 31, 2002. See Note 20 for additional information.
    
    NUG Purchases(PPL Energy Supply and PPL Electric)
    
    PPL Electric has a reciprocal contract with PPL EnergyPlus to sell electricity
      purchased under contracts with NUGs. PPL Electric purchases electricity
      from the NUGs at contractual rates and then sells the electricity at the
      same price to PPL EnergyPlus. These purchases totaled $160 million in 2002,
      $176 million in 2001 and $86 million in the last half of 2000. These amounts
      are included in the Statement of Income as "Wholesale electric to affiliate"
      revenues by PPL Electric, and as "Energy purchases from affiliates" by PPL
      Energy Supply.
    Montana Retail Supply(PPL Montana)
    PPL Montana had a Memorandum of Understanding (MOU) with PPL EnergyPlus
      regarding the supply of energy to satisfy PPL EnergyPlus' obligations under
      its retail contracts, which expired on December 31, 2002. PPL Montana expects
      to renew the MOU with substantially the same terms. Under the MOU, energy
      sales to PPL EnergyPlus were $68 million in 2002, $80 million in 2001 and
      $33 million in 2000. These amounts are included in "Wholesale energy marketing
      to affiliate" revenues on the Statement of Income.
    Brokering and Contract Management Agreement(PPL Montana)
    Under a wholesale sales brokering and contract management agreement between
      PPL Montana and PPL EnergyPlus, PPL Montana paid PPL EnergyPlus $7 million
      in 2002, $5 million in 2001 and $5 million in 2000. PPL Montana records
      this expense as "Other operation and maintenance" on the Statement of Income.
    Allocations of Corporate Service Costs(PPL Energy Supply, PPL
      Electric and PPL Montana)
    
    Corporate functions such as financial, legal, human resources and information
      services were transferred to PPL Services in the corporate realignment.
      PPL Services bills the respective PPL subsidiaries for the cost of such
      services when they can be specifically identified. The cost of these services
      that is not directly charged to PPL subsidiaries is allocated to certain
      of the subsidiaries based on the relative capital invested by PPL in these
      subsidiaries. PPL Services allocated the following charges to PPL Energy
      Supply, PPL Electric and PPL Montana (charges in 2000 are for the six months
      following realignment):
    2002
        
        
        2001
        
        
        2000Direct expensesPPL Energy Supply
        
        $
        88
        
        
        $
        80
        
        
        $
        19PPL Electric
        
        
        56
        
        
        
        68
        
        
        
        22PPL Montana
        
        
        12
        
        
        
        7
        
        
        
        4Overhead costsPPL Energy Supply
        
        
        38
        
        
        
        39
        
        
        
        14PPL Electric
        
        
        28
        
        
        
        28
        
        
        
        41PPL Montana
        
        
        4
        
        
        
        3
    Intercompany Borrowings
    
    (PPL Energy Supply)
    
    PPL Energy Supply, through its financing subsidiary, PPL Investment Corporation,
      had notes receivable from affiliates totaling $655 million at December 31,
      2002, and $395 million at December 31, 2001. The largest note receivable
      was from PPL Energy Funding with interest equal to LIBOR plus 3%, with a
      $595 million balance at December 31, 2002. Interest earned on loans to affiliates,
      included in "Other Income - net," was $22 million, $57 million and $40 million
      in 2002, 2001 and 2000.
    
    Interest expense with affiliate of $3 million in 2002 was associated with
      interest paid to PPL Electric on performance assurance deposits in connection
      with the PLR contracts. The decrease in interest expense with affiliate
      since 2000 reflects the contribution to PPL Energy Supply of PPL Energy
      Funding's notes receivable from PPL Global, thereby eliminating the associated
      intercompany interest expense.
    (PPL Electric)
    
    In December 2001, PPL Electric made two loans from excess cash to PPL Energy
      Funding in the aggregate principal amount of $350 million. One loan was
      a demand promissory note in the original principal amount of $150 million
      requiring interest to be paid monthly at an annual interest rate of 4.0%.
      The other loan was a one-year term promissory note in the original principal
      amount of $200 million requiring interest to be paid monthly at an annual
      interest rate of 6.5%. This loan was terminated during 2002. The outstanding
      balance of the $150 million loan at December 31, 2002 was $90 million. Intercompany
      interest income, included in "Other Income - net," was $9 million, $5 million
      and $22 million in 2002, 2001 and 2000.

    (PPL Montana)

    In the fourth quarter of 2002, PPL Montana entered into a $100 million
      three-year credit facility with another PPL Energy Supply subsidiary on
      market terms to meet its liquidity needs. At December 31, 2002, PPL Montana
      had outstanding borrowings of $26 million under this facility.
    Trademark Royalties(PPL Energy Supply)
    In the fourth quarter of 2002, a PPL subsidiary that owns PPL trademarks
      began billing certain affiliates who use these trademarks. PPL Energy Supply
      was allocated $8 million of this license fee in 2002.
    Other (PPL Energy Supply and PPL Electric)
    PPL Energy Supply owns no domestic transmission or distribution facilities,
      other than facilities to interconnect its generation with the electric transmission
      system. Therefore, PPL EnergyPlus and other PPL Generation subsidiaries
      must pay PPL Electric, the owner of a transmission system, to deliver the
      energy these subsidiaries supply to retail and wholesale customers in PPL
      Electric's franchised territory in eastern and central Pennsylvania.
2. Other Income - Net
    
    (PPL)
    
    The breakdown of PPL's Other Income was as follows:
    
    2002
        
        
        2001
        
        
        2000Other IncomeInterest income
        
        $
        28
        
        
        $
        15
        
        
        $
        13Equity earnings
        
        
        2
        
        
        
        (2
        )
        
        
        1Gain by WPD on the disposition of property
        
        
        6Miscellaneous
        
        
        15
        
        
        
        24
        
        
        
        11Total
        
        
        51
        
        
        
        37
        
        
        
        25
    Other DeductionsWrite-off regulatory asset - PA Pilot
          Program
        
        
        
        
        
        
        
        
        
        
        12Miscellaneous
        
        
        18
        
        
        
        20
        
        
        
        20Other Income - net
        
        $
        33
        
        
        $
        17
        
        
        $
        (7
        )


    (PPL Energy Supply)

    
    The breakdown of PPL Energy Supply's Other Income was as follows:
    2002
        
        
        2001
        
        
        2000Other IncomeAffiliated interest income
        
        $
        22
        
        
        $
        57
        
        
        $
        40Interest income
        
        
        17
        
        
        
        6
        
        
        
        2Gain by WPD on the disposition of property
        
        
        6Equity earnings
        
        
        3
        
        
        
        3
        
        
        
        1Miscellaneous
        
        
        11
        
        
        
        19
        
        
        
        13Total
        
        
        59
        
        
        
        85
        
        
        
        56Other DeductionsMiscellaneous
        
        
        11
        
        
        
        11
        
        
        
        14Other Income - net
        
        $
        48
        
        
        $
        74
        
        
        $
        42
    (PPL Electric)
    
    The breakdown of PPL Electric's Other Income was as follows:
    2002
        
        
        2001
        
        
        2000Other IncomeAffiliated interest income
        
        $
        9
        
        
        $
        5
        
        
        $
        22Equity earnings
        
        
        
        
        
        
        
        
        
        
        1Interest income
        
        
        8
        
        
        
        7
        
        
        
        6Non-operating income - affiliates
        
        
        
        
        
        
        5Miscellaneous
        
        
        
        
        
        
        1
        
        
        
        7Total
        
        
        17
        
        
        
        18
        
        
        
        36Other DeductionsWrite-off regulatory asset - PA Pilot
          Program
        
        
        
        
        
        
        
        
        
        
        12Miscellaneous
        
        
        1
        
        
        
        2
        
        
        
        7Other Income - net
        
        $
        16
        
        
        $
        16
        
        
        $
        17
3. Derivative Instruments and Hedging Activities
    (PPL, PPL Energy Supply and PPL Montana)
    PPL, PPL Energy Supply and PPL Montana adopted SFAS 133, "Accounting for
      Derivative Instruments and Hedging Activities," on January 1, 2001. Upon
      adoption and in accordance with the transition provisions of SFAS 133, PPL
      Energy Supply recorded a cumulative-effect credit of $11 million in earnings,
      included as an increase to "Wholesale energy marketing" revenues and a decrease
      to "Energy purchases" on the Statement of Income. PPL Energy Supply and
      PPL Montana also recorded cumulative-effect charges of $182 million and
      $156 million, respectively, in "Accumulated other comprehensive loss," a
      component of Member's Equity. As of December 31, 2002, the balances for
      PPL, PPL Energy Supply and PPL Montana in "Accumulated other comprehensive
      loss" related to unrealized gains and losses on qualifying derivatives were
      a net gain of $7 million, a net gain of $23 million and a net gain of $4
      million, respectively, as a result of reclassifying part of the transition
      adjustment into earnings, changes in market prices and the adoption of DIG
      Issue C15 (see discussion in "Implementation Issues" below).
    Management of Market Risk Exposures
    Market risk is the potential loss PPL may incur as a result of price changes
      associated with a particular financial or commodity instrument. PPL is exposed
      to market risk from:
    ·
        commodity price risk for energy and energy-related
          products associated with the sale of electricity from our generating
          assets, the purchase of fuel for the generating assets and energy trading
          activities;·
        interest rate risk associated with variable-rate
          debt and the fair value of fixed-rate debt used to finance operations,
          as well as the fair value of debt securities invested in by PPL's nuclear
          decommissioning fund;·
        foreign currency exchange rate risk associated
          with investments in affiliates in Latin America and Europe, as well
          as purchases of equipment in currencies other than U.S. dollars; and·
        equity securities price risk associated
          with the fair value of equity securities invested in by PPL's nuclear
          decommissioning fund.PPL has a comprehensive risk management policy approved by the Board of
      Directors to manage the market risk and counterparty credit risk. The RMC,
      comprised of senior management and chaired by the Vice President-Risk Management,
      oversees the risk management function. Key risk control activities designed
      to ensure compliance with risk policies and detailed programs include, but
      are not limited to, credit review and approval, validation of transactions
      and market prices, verification of risk and transaction limits, sensitivity
      analyses, and daily portfolio reporting, including open positions, mark-to-market
      valuations, and other risk measurement metrics. In addition, efforts are
      on-going to develop systems to improve the timeliness, quality and breadth
      of market and credit risk information.
    PPL utilizes forward contracts, futures contracts, options and swaps as
      part of its risk management strategy to minimize unanticipated fluctuations
      in earnings caused by commodity price, interest rate and foreign currency
      volatility. All derivatives are recognized on the balance sheet at their
      fair value, unless they meet SFAS 133 criteria for exclusion (see discussion
      in "Implementation Issues" below).
    Fair Value Hedges
    PPL Energy Supply and PPL Montana enter into financial or physical contracts
      to hedge a portion of the fair value of firm commitments of forward electricity
      sales. These contracts range in maturity through 2006. Additionally, PPL
      and PPL Energy Supply enter into financial contracts to hedge fluctuations
      in market value of existing debt issuances. These contracts range in maturity
      through 2029.
    PPL, PPL Energy Supply and PPL Montana recognized the following net gains/(losses),
      after-tax, resulting from firm commitments that no longer qualified as fair
      value hedges (reported in "Wholesale energy marketing" revenues and "Energy
      purchases" on the Statement of Income):
    2002
        
        
        2001PPL
        
        $
        
        
        
        $
        7PPL Energy Supply
        
        
        
        
        
        
        7PPL Montana
    PPL, PPL Energy Supply and PPL Montana did not recognize any gains/(losses)
      resulting from the ineffective portion of fair value hedges for the twelve
      months ended December 31, 2002 or 2001.
    
    Cash Flow Hedges
    
    PPL Energy Supply and PPL Montana enter into financial and physical contracts,
      including forwards, futures and swaps, to hedge the price risk associated
      with electric, gas and oil commodities. Additionally, PPL and PPL Energy
      Supply enter into financial interest rate swap contracts to hedge interest
      expense associated with both existing and anticipated debt issuances. These
      contracts and swaps range in maturity through 2006. PPL and PPL Energy Supply
      also enter into foreign currency forward contracts to hedge exchange rates
      associated with firm commitments denominated in foreign currencies and to
      hedge the net investment of foreign operations. These forward contracts
      range in maturity through 2028.
    
    Cash flow hedges may be discontinued because it is probable that the original
      forecasted transaction will not occur by the end of the originally specified
      time period. PPL, PPL Energy Supply and PPL Montana discontinued certain
      cash flow hedges which resulted in the following net gain/(loss), after
      tax, reclassifications (reported in "Wholesale energy marketing" revenues,
      "Energy purchases" and "Interest Expense" on the Statement of Income):
    
    2002
        
        
        2001PPL
        
        $
        (9
        )
        
        $
        (14
        )PPL Energy Supply
        
        
        
        
        
        
        (14
        )PPL Montana
        
        
        
        
        
        
        7
    Due to hedge ineffectiveness, PPL, PPL Energy Supply and PPL Montana reclassified
      the following net gains/(losses), after tax, (reported in "Wholesale energy
      marketing" revenues and "Energy purchases" on the Statement of Income):
    
    2002
        
        
        2001PPL
        
        $
        (2
        )
        
        $PPL Energy Supply
        
        
        (2
        )PPL Montana
    As of December 31, 2002, the deferred net loss, after tax, on derivative
      instruments in "Accumulated other comprehensive income" expected to be reclassified
      into earnings during the next twelve months (excluding derivative activities
      of equity investments) was $4 million, $5 million and $8 million for PPL,
      PPL Energy Supply and PPL Montana.
    
    The following table shows the change in accumulated unrealized gains or
      losses on derivatives in other comprehensive income for the following periods:
    
    2002
        
        
        2001PPLBeginning accumulated derivative gain
        
        $
        23Cumulative effect of a change in accounting
          principle at January 1, 2001
        
        
        
        
        
        $
        (182
        )Net change associated with current period
          hedging activities and other
        
        
        9
        
        
        
        221Net change associated with C15 accounting
          change (a)
        
        
        (11
        )Net change from reclassification into
          earnings
        
        
        (14
        )
        
        
        (16
        )Ending accumulated derivative gain
        
        $
        7
        
        
        $
        23
    PPL Energy SupplyBeginning accumulated derivative gain
        
        $
        46Cumulative effect of a change in accounting
          principle at January 1, 2001
        
        
        
        
        
        $
        (182
        )Net change associated with current period
          hedging activities and other
        
        
        (12
        )Net change associated with C15 accounting
          change (a)
        
        
        (11
        )
        
        
        226Net change from reclassification into
          earnings
        
        
        
        
        
        
        2Ending accumulated derivative gain
        
        $
        23
        
        
        $
        46
    PPL MontanaBeginning accumulated derivative
          gain
        
        $
        33Cumulative effect of a change
          in accounting principle at January 1, 2001
        
        
        
        
        
        $
        (156
        )Net change associated with
          current period hedging activities and other
        
        
        (23
        )
        
        
        182Net change from reclassification
          into earnings
        
        
        (6
        )
        
        
        7Ending accumulated derivative
          gain
        
        $
        4
        
        
        $
        33(a)
        
        In June 2001, the FASB cleared
          DIG Issue C15, "Scope Exceptions: Normal Purchases and Normal Sales
          Exception for Certain Option-Type Contracts and Forward Contracts in
          Electricity," which extends the normal purchases and normal sales exception
          to electricity purchase and sale agreements meeting certain criteria.
          The mark-to-market value recorded in accumulated other comprehensive
          income as of December 31, 2002 is being amortized through the original
          delivery term of the contracts.
    Implementation Issues
    On June 29, 2001, the FASB issued definitive guidance on DIG Issue C15:
      "Scope Exceptions: Normal Purchases and Normal Sales Exception for Certain
      Option-Type Contracts and Forward Contracts in Electricity." Issue C15 provides
      additional guidance on the classification and application of SFAS 133 relating
      to purchases and sales of electricity utilizing forward contracts and options.
      This guidance became effective as of July 1, 2001. In December 2001, the
      FASB revised the guidance in Issue C15, principally related to the eligibility
      of options for the normal purchases and normal sales exception. The revised
      guidance was effective January 1, 2002.
    Purchases and sales of forward electricity and option contracts that require
      physical delivery and which are expected to be used or sold by the reporting
      entity in the normal course of business would generally be considered "normal
      purchases and normal sales" under SFAS 133. These transactions, while within
      the scope of SFAS 133, are not required to be marked to fair value in the
      financial statements because they qualify for the normal purchases and sales
      exception. As of December 31, 2002 and December 31, 2001, "Accumulated other
      comprehensive income" included a net gain of an insignificant amount and
      $11 million, respectively, related to forward transactions classified as
      cash flow hedges prior to adoption of DIG Issue C15. This gain will be reversed
      from "Accumulated other comprehensive income" and recognized in earnings
      as the contracts deliver through 2008.
    
    In December 2001, the FASB revised guidance on DIG Issue C16, "Scope Exceptions:
      Applying the Normal Purchases and Normal Sales Exception to Contracts that
      Combine a Forward Contract and a Purchased Option Contract." Issue C16 provides
      additional guidance on the classification and application of SFAS 133, "Accounting
      for Derivative Instruments and Hedging Activities," relating to purchases
      and sales of electricity utilizing forward contracts and options, as well
      as the eligibility of fuel contracts for the normal purchases and normal
      sales exception. The revised guidance was effective April 1, 2002. PPL had
      no financial statement impact from the revised guidance on fuel contracts
      classified as normal.
    PPL adopted the final provisions of EITF 02-3 during the fourth quarter
      of 2002. As such, PPL now reflects its net realized and unrealized gains
      and losses associated with all derivatives that are held for trading purposes
      in the "Net energy trading margins" line on the Statement of Income. Non-derivative
      contracts that met the definition of energy trading activities as defined
      by EITF 98-10, "Accounting for Energy Trading and Risk Management Activities"
      are reflected in the financial statements using the accrual method of accounting.
      Under the accrual method of accounting, unrealized gains and losses are
      not reflected in the financial statements. Prior periods have been reclassified.
      PPL did not need to record a cumulative effect of this change in accounting
      principle, because all non-derivative energy-related trading contracts had
      been shown in the financial statements at their amortized cost. This reflected
      modeling reserves that incorporated the lack of independence in valuing
      contracts for which there were no external market prices.
    The financial statement impact of netting energy trading activities is
      as follows:
    2002
        
        
        2001
        
        
        2000PPL and PPL Energy SupplyPrior classificationWholesale energy marketing
        
        $
        596
        
        
        $
        690
        
        
        $
        1,186Energy purchases
        
        
        577
        
        
        
        653
        
        
        
        1,139Net energy trading margins
        
        $
        19
        
        
        $
        37
        
        
        $
        47
    2002
        
        
        2001
        
        
        2000PPL MontanaPrior classificationWholesale energy marketing
        
        $
        (3
        )
        
        $
        101
        
        
        $
        19Energy purchases
        
        
        (2
        )
        
        
        95
        
        
        
        11Net energy trading margins
        
        $
        (1
        )
        
        $
        6
        
        
        $
        8
    Credit Concentration
    PPL, PPL Energy Supply and PPL Montana enter into contracts with many entities
      for the purchase and sale of energy. Most of these contracts are considered
      a normal part of doing business and, as such, the mark-to-market value of
      these contracts is not reflected in the financial statements. However, the
      mark-to-market value of these contracts is considered when committing to
      a new business from a credit perspective.
    PPL, PPL Energy Supply and PPL Montana have credit exposures to energy
      trading partners. The majority of these exposures were the mark-to-market
      value of multi-year contracts for energy sales. Therefore, if these counterparties
      fail to perform their obligations under such contracts, the companies would
      not experience an immediate financial loss, but would experience lower revenues
      in future years to the extent that replacement sales could not be made at
      the same prices as sales under the defaulted contracts.
    At December 31, 2002, PPL had a credit exposure of $162 million to energy
      trading partners. Five counterparties accounted for 58% of this exposure.
      No other individual counterparty accounted for more than 3% of the exposure.
      With one exception, each of the five primary counterparties had an investment
      grade credit rating from Standard & Poor's. The non-investment grade
      counterparty has agreed to accelerated payment provisions under its contracts
      with PPL Montana that substantially reduces PPL Montana's exposure.
    At December 31, 2002, PPL Energy Supply had a credit exposure of $446 million
      to energy trading partners. Six counterparties accounted for 87% of this
      exposure. No other individual counterparty accounted for more than 1% of
      the exposure. The largest exposure, $351 million, was to PPL Electric, under
      the long-term contract to provide PPL Electric's PLR load. With one exception,
      the other five counterparties have an investment grade credit rating from
      Standard & Poor's. The non-investment grade counterparty has agreed
      to accelerated payment provisions under its contracts with PPL Montana that
      substantially reduces PPL Montana's exposure.
    At December 31, 2002, PPL Montana had a credit exposure of $63 million
      to energy trading partners. Three counterparties accounted for 80% of this
      exposure. No other individual counterparty accounted for more than 2% of
      the exposure. With one exception, each of the three primary counterparties
      has an investment grade credit rating from Standard & Poor's. The non-investment
      grade counterparty has agreed to accelerated payment provisions under its
      contracts with PPL Montana that substantially reduces PPL Montana's exposure.
    PPL, PPL Energy Supply and PPL Montana have the right to request collateral
      from each of these counterparties, except for one government agency, in
      the event their credit rating falls below investment grade. It is also the
      policy of PPL, PPL Energy Supply and PPL Montana to enter into netting agreements
      with all of their counterparties to minimize credit exposure.
    Enron Bankruptcy
    In connection with the December 2001 bankruptcy filings by Enron Corporation
      and its affiliates (collectively "Enron"), certain PPL subsidiaries terminated
      certain electricity, gas and other trading agreements with Enron. PPL Energy
      Supply and its subsidiaries' 2001 earnings exposure associated with termination
      of these contracts was approximately $8 million after-tax, and is recorded
      in "Wholesale energy marketing" and "Energy purchases" on the Statement
      of Income. Additionally, certain of these contracts with Enron extended
      through 2006, and were at prices more favorable to PPL Energy Supply than
      current market prices. However, there was no further accounting charge to
      be recorded.
    
    In October 2002, certain PPL subsidiaries filed proofs of claim in Enron's
      bankruptcy proceedings, in an aggregate amount of approximately $50 million.
      PPL and its subsidiaries cannot predict the amounts, if any, that they will
      recover as a result of their claims in the Enron bankruptcy proceedings.
4. Goodwill and Other Intangible Assets
    
    On January 1, 2002, PPL and its subsidiaries adopted SFAS 142, "Goodwill
      and Other Intangible Assets," which eliminates the amortization of goodwill
      and other acquired intangible assets with indefinite economic useful lives.
      SFAS 142 requires an annual impairment test of goodwill at the reporting
      unit level. A reporting unit is a segment or one level below a segment (referred
      to as a component). Intangible assets other than goodwill that are not subject
      to amortization are also required to undergo an annual impairment test.
      PPL changed the classification of certain intangible assets on the balance
      sheet upon adopting SFAS 142. Previously reported information has been restated
      to conform to the current presentation. The following information is disclosed
      in accordance with SFAS 142.
    Acquired Intangible Assets
    
    (PPL)
    
    The carrying amount and the accumulated amortization of acquired intangible
      assets were as follows:
    
    December 31, 2002
        
        
        December 31, 2001Carrying 
            Amount
        
        
        Accumulated
            Amortization
        
        
        Carrying
            Amount
        
        
        Accumulated
            AmortizationLand and transmission rights
        
        $
        242
        
        
        $
        89
        
        
        $
        247
        
        
        $
        86Emission allowances
        
        
        41
        
        
        
        
        
        
        
        36Licenses and other
        
        
        42
        
        
        
        6
        
        
        
        33
        
        
        
        4$
        325
        
        
        $
        95
        
        
        $
        316
        
        
        $
        90Current intangible assets are included in "Current Assets - Other," and
      long-term intangible assets are included in "Goodwill and other intangibles"
      on the Balance Sheet.
    Amortization expense was approximately $5 million for 2002. Amortization
      expense is estimated at $5 million per year for 2003 through 2007.
    (PPL Energy Supply)
    
    The carrying amount and the accumulated amortization of acquired intangible
      assets were as follows:
    December 31, 2002
        
        
        December 31, 2001Carrying 
            Amount
        
        
        Accumulated
            Amortization
        
        
        Carrying
            Amount
        
        
        Accumulated
            AmortizationLand and transmission rights
        
        $
        49
        
        
        $
        14
        
        
        $
        49
        
        
        $
        13Emission allowances
        
        
        41
        
        
        
        
        
        
        
        36Licenses and other
        
        
        42
        
        
        
        6
        
        
        
        33
        
        
        
        4$
        132
        
        
        $
        20
        
        
        $
        118
        
        
        $
        17
    Current intangible assets are included in "Current Assets - Other," and
      long-term intangible assets are included in "Goodwill and other intangibles"
      on the Balance Sheet.
    
    Amortization expense was approximately $2 million for 2002. Amortization
      expense is estimated at $2 million per year for 2003 through 2007.
    
    (PPL Electric)
    The carrying amount and the accumulated amortization of acquired intangible
      assets were as follows:
    December 31, 2002
        
        
        December 31, 2001Carrying 
            Amount
        
        
        Accumulated
            Amortization
        
        
        Carrying
            Amount
        
        
        Accumulated
            AmortizationLand and transmission rights
        
        $
        192
        
        
        $
        74
        
        
        $
        197
        
        
        $
        72
  Intangible assets are shown as "Intangibles" on the Balance Sheet.
  Amortization expense was approximately $2 million for 2002. Amortization
    expense is estimated at $2 million per year for 2003 through 2007.
  

    (PPL Montana)
    
  The carrying amount and the accumulated amortization of acquired intangible
    assets were as follows:
    December 31, 2002
        
        
        December 31, 2001Carrying 
            Amount
        
        
        Accumulated
            Amortization
        
        
        Carrying
            Amount
        
        
        Accumulated
            AmortizationEmission allowances
        
        $
        18
        
        
        
        
        
        
        $
        19Licenses and other
        
        
        22
        
        
        $
        1
        
        
        
        15$
        40
        
        
        $
        1
        
        
        $
        34
  Current intangible assets are included in "Prepayments and other," and long-term
    intangible assets are included in "Noncurrent Assets - Other" on the Balance
    Sheet.
  
  Amortization expense was approximately $1 million for 2002. Amortization
    expense is estimated at $1 million per year for 2003 through 2007.
  Goodwill(PPL and PPL Energy Supply)
  
  The changes in the carrying amounts of goodwill by segment were as follows:
    PPL Energy Supply
        
        
        
        
        
        PPLSupply
        
        
        International
        
        
        Total
        
        
        Delivery(a)
        
        
        TotalBalance as of January 1, 2002
        
        $
        72
        
        
        $
        257
        
        
        $
        329
        
        
        $
        55
        
        
        $
        384Goodwill acquired
        
        
        13
        
        
        
        6
        
        
        
        19
        
        
        
        
        
        
        
        19Interest in WPD goodwill (b)
        
        
        
        
        
        
        225
        
        
        
        225
        
        
        
        
        
        
        
        225Effect of foreign exchange
          rates
        
        
        
        
        
        
        (4
        )
        
        
        (4
        )
        
        
        
        
        
        
        (4
        )Impairment losses
        
        
        
        
        
        
        (150
        )
        
        
        (150
        )
        
        
        
        
        
        
        (150
        )Balance as of December 31,
          2002
        
        $
        85
        
        
        $
        334
        
        
        $
        419
        
        
        $
        55
        
        
        $
        474(a)
        
        The Delivery segment is not
          part of PPL Energy Supply.(b)
        
        See Note 9 for additional
          information.
  Goodwill is included in "Goodwill and other intangibles" on the Balance Sheet.
  
  The reporting units of the Supply, Delivery and International segments completed
    the transition impairment test in the first quarter of 2002. A transition
    goodwill impairment loss of $150 million was recognized in the Latin American
    reporting unit within the International segment, and is reported as a "Cumulative
    Effect of a Change in Accounting Principle" on the Statement of Income. The
    fair value of the reporting unit was estimated using the expected present
    value of future cash flows.
  
  Reconciliation of Prior Periods to Exclude Amortization
  
  (PPL and PPL Energy Supply)
  The following table reconciles reported earnings for 2000 and 2001 to earnings
    adjusted to exclude amortization expense related to goodwill and equity method
    goodwill. Those expenses were no longer recorded in 2002 in accordance with
    SFAS 142. PPL and PPL Energy Supply were not affected by changes in amortization
    periods for other intangible assets.
    PPLFor the Years Ended 
            December 31,2002
        
        
        2001
        
        
        2000Reported net income before extraordinary
          item and cumulative effect of a change in accounting principle
        
        $
        358
        
        
        $
        169
        
        
        $
        487Add back: Goodwill amortization
        
        
        
        
        
        
        13
        
        
        
        11Add back: Equity method goodwill amortization
        
        
        
        
        
        
        3
        
        
        
        3Adjusted net income before extraordinary
          item and cumulative effect of a change in accounting principle
        
        $
        358
        
        
        $
        185
        
        
        $
        501Reported net income
        
        $
        208
        
        
        $
        179
        
        
        $
        498Add back: Goodwill amortization
        
        
        
        
        
        
        13
        
        
        
        11Add back: Equity method goodwill amortization
        
        
        
        
        
        
        3
        
        
        
        3Adjusted net income
        
        $
        208
        
        
        $
        195
        
        
        $
        512Basic EPS:Reported net income before extraordinary
          item and cumulative effect of a change in accounting principle
        
        $
        2.35
        
        
        $
        1.16
        
        
        $
        3.38Goodwill amortization
        
        
        
        
        
        
        0.09
        
        
        
        0.07Equity method goodwill amortization
        
        
        
        
        
        
        0.02
        
        
        
        0.02Adjusted net income before extraordinary
          item and cumulative effect of a change in accounting principle
        
        $
        2.35
        
        
        $
        1.27
        
        
        $
        3.47Reported net income
        
        $
        1.37
        
        
        $
        1.23
        
        
        $
        3.45Goodwill amortization
        
        
        
        
        
        
        0.09
        
        
        
        0.07Equity method goodwill amortization
        
        
        
        
        
        
        0.02
        
        
        
        0.02Adjusted net income
        
        $
        1.37
        
        
        $
        1.34
        
        
        $
        3.54Diluted EPS:Reported net income before extraordinary
          item and cumulative effect of a change in accounting principle
        
        $
        2.35
        
        
        $
        1.15
        
        
        $
        3.37Goodwill amortization
        
        
        
        
        
        
        0.09
        
        
        
        0.07Equity method goodwill amortization
        
        
        
        
        
        
        0.02
        
        
        
        0.02Adjusted net income before extraordinary
          item and cumulative effect of a change in accounting principle
        
        $
        2.35
        
        
        $
        1.26
        
        
        $
        3.46Reported net income
        
        $
        1.36
        
        
        $
        1.22
        
        
        $
        3.44Goodwill amortization
        
        
        
        
        
        
        0.09
        
        
        
        0.07Equity method goodwill amortization
        
        
        
        
        
        
        0.02
        
        
        
        0.02Adjusted net income
        
        $
        1.36
        
        
        $
        1.33
        
        
        $
        3.53

    PPL Energy SupplyFor the Years Ended 
            December 31,2002
        
        
        2001
        
        
        2000Reported net income before cumulative
          effect of a change in accounting principle
        
        $
        429
        
        
        $
        171
        
        
        $
        242Add back: Goodwill amortization
        
        
        
        
        
        
        12
        
        
        
        9Add back: Equity method goodwill amortization
        
        
        
        
        
        
        3
        
        
        
        3Adjusted net income before cumulative
          effect of a change in accounting principle
        
        $
        429
        
        
        $
        186
        
        
        $
        254Reported net income
        
        $
        279
        
        
        $
        174
        
        
        $
        242Add back: Goodwill amortization
        
        
        
        
        
        
        12
        
        
        
        9Add back: Equity method goodwill amortization
        
        
        
        
        
        
        3
        
        
        
        3Adjusted net income
        
        $
        279
        
        
        $
        189
        
        
        $
        254
  (PPL Electric and PPL Montana)
  
  PPL Electric and PPL Montana had no goodwill at December 31, 2002, 2001 and
    2000. The adoption of SFAS 142 would not have affected prior period earnings
    of PPL Electric and PPL Montana.
5. Corporate Realignment
    (PPL Energy Supply and PPL Electric)
    On July 1, 2000, PPL and PPL Electric completed a corporate realignment
      in order to effectively separate PPL Electric's regulated transmission and
      distribution operations from its recently deregulated generation operations
      and to better position the companies and their affiliates in the new competitive
      marketplace. The realignment included PPL Electric's transfer of certain
      generation and related assets, and associated liabilities, to PPL and PPL
      Energy Funding at book value. The net book value of this transfer, recorded
      effective July 1, 2000, was $271 million.
    This $271 million non-cash dividend to PPL had a significant
      impact on the consolidated assets and liabilities of PPL Electric. As indicated
      on the Statement of Cash Flows of PPL Electric, approximately $73 million
      of cash and cash equivalents of consolidated affiliates was divested as
      a result of the realignment distribution.
    As a result of the corporate realignment, PPL Electric's principal businesses
      are the transmission and distribution of electricity to serve retail customers
      in its franchised territory in eastern and central Pennsylvania, and the
      supply of electricity to retail customers in that territory as a PLR. Other
      subsidiaries of PPL and PPL Electric are generally aligned in the new corporate
      structure according to their principal business functions.
    PPL Energy Funding contributed certain of these generating and unregulated
      marketing assets and liabilities at a net book value of approximately $1.6
      billion to PPL Generation and PPL EnergyPlus.
    PPL Energy Supply was subsequently formed as a subsidiary of PPL Energy
      Funding, to serve as the parent company for the unregulated subsidiaries.
      As a result of the corporate realignment, PPL Generation's principal business
      is owning and operating U.S. generating facilities through various subsidiaries;
      PPL EnergyPlus' principal business is wholesale and deregulated retail energy
      marketing; and PPL Global's principal businesses are the acquisition and
      development of both U.S. and international energy projects, and the ownership
      and operation of international projects.
    The corporate realignment followed receipt of various regulatory approvals,
      including approvals from the IRS, the PUC, the FERC, and the NRC.
6. Strategic Initiative
    (PPL and PPL Electric)
    In August 2001, PPL completed a strategic initiative to confirm the structural
      separation of PPL Electric from PPL and PPL's other affiliated companies.
      This initiative enabled PPL Electric to reduce business risk by securing
      a supply contract adequate to meet its PLR obligations, enabled PPL Electric
      to lower its capital costs, enabled PPL EnergyPlus to lock in an electric
      supply agreement at current favorable prices, and enabled PPL to raise capital
      at attractive rates for its unregulated businesses, while allowing PPL to
      retain valuable advantages related to operating both energy supply and energy
      delivery businesses.
    In connection with this initiative, PPL Electric:
    ·
        obtained a long-term electric supply contract
          to meet its PLR obligations, at prices generally equal to the pre-determined
          "capped" rates it is authorized to charge its PLR customers from 2002
          through 2009 under the 1998 PUC settlement order;·
        agreed to limit its businesses to electric
          transmission and distribution and activities relating to or arising
          out of those businesses;·
        adopted amendments to its Articles of Incorporation
          and Bylaws containing corporate governance and operating provisions
          designed to reinforce its corporate separateness from affiliated companies;·
        appointed an independent director to its
          Board of Directors and required the unanimous consent of the Board of
          Directors, including the consent of the independent director, to amendments
          to these corporate governance and operating provisions or to the commencement
          of any insolvency proceeding, including any filing of a voluntary petition
          in bankruptcy or other similar actions;·
        appointed an independent compliance administrator
          to review, on a semi-annual basis, its compliance with the new corporate
          governance and operating requirements contained in its amended Articles
          of Incorporation and Bylaws; and·
        adopted a plan of division pursuant to the
          Pennsylvania Business Corporation Law. The plan of division resulted
          in two separate corporations. PPL Electric was the surviving corporation
          and a new Pennsylvania corporation was created. Under the plan of division,
          $5 million of cash and certain of PPL Electric's potential liabilities
          were allocated to the new corporation. PPL has guaranteed the obligations
          of the new corporation with respect to such liabilities.The enhancements to PPL Electric's legal separation from its affiliates
      are intended to minimize the risk that a court would order PPL Electric's
      assets and liabilities to be substantively consolidated with those of PPL
      or another affiliate of PPL in the event that PPL or another PPL affiliate
      were to become a debtor in a bankruptcy case.
    At a special meeting of PPL Electric's shareowners held on July 17, 2001,
      the plan of division and the amendments to PPL Electric's Articles of Incorporation
      and Bylaws were approved, and became effective upon filing the articles
      of division and the plan of division with the Secretary of State of the
      Commonwealth of Pennsylvania. This filing was made in August 2001.
    As part of the strategic initiative, PPL Electric solicited bids to contract
      with energy suppliers to meet its obligation to deliver energy to its customers
      from 2002 through 2009. In June 2001, PPL Electric announced that PPL EnergyPlus
      was the low bidder, among six bids examined, and was selected to provide
      the energy supply requirements of PPL Electric from 2002 through 2009. Under
      this contract, PPL EnergyPlus will provide electricity at pre-determined
      capped prices that PPL Electric is authorized to charge its PLR customers,
      and received a $90 million payment to offset differences between the revenues
      expected under the capped prices and projected market prices through the
      life of the supply agreement (as projected by PPL EnergyPlus at the time
      of its bid). The contract resulted in PPL EnergyPlus having an eight-year
      contract at current market prices. PPL has guaranteed the obligations of
      PPL EnergyPlus under the new contract.
    In July 2001, the energy supply contract was approved by the PUC and accepted
      for filing by the FERC.
    Also in July 2001,PPL Electric filed a shelf registration statement
      with the SEC to issue up to $900 million in debt. In August 2001, PPL Electric
      sold $800 million of senior secured bonds under this registration statement.
      The offering consisted of two series of bonds: $300 million of 5-7/8% Series
      due 2007 and $500 million of 6-1/4% Series due 2009. PPL Electric used a
      portion of the proceeds from these debt issuances to make the $90 million
      up-front payment to PPL EnergyPlus, and $280 million was used to repurchase
      a portion of its common stock from PPL. The remainder of the proceeds was
      used for general corporate purposes.
    Taken collectively, the steps in the strategic initiative are intended
      to protect the customers of PPL Electric from volatile energy prices and
      facilitate a significant increase in leverage at PPL Electric, while lowering
      its cost of capital. PPL's shareowners also benefited from this initiative
      because it provided low-cost capital to the higher-growth, unregulated side
      of PPL's business.
7. Workforce Reduction
    (PPL, PPL Energy Supply, PPL Electric and PPL Montana)
    In an effort to improve operational efficiency and reduce costs, PPL and
      its subsidiaries completed a workforce reduction in June 2002 that will
      eliminate up to 598 employees, or about 7% of PPL's U.S. workforce, at a
      cost of $74 million. The program was broad-based and impacted all employee
      groups except certain positions that are key to providing high-quality service
      to PPL's electricity delivery customers. Linemen, electricians and line
      foremen, for example, were not affected by the reductions. An additional
      $1 million workforce reduction charge was recorded in September 2002, when
      plans, specific to PPL Global and PPL Montana subsidiaries, were finalized
      which are expected to impact 26 employees. These additional reductions increased
      PPL's total charge for workforce reductions to $75 million for the elimination
      of up to 624 positions. Annual savings in operating expenses associated
      with the workforce reduction are estimated to be approximately $50 million.
    PPL recorded the cost of the program as a one-time charge of $75 million
      included in the Statement of Income as "Workforce reduction." This charge
      reduced net income by $44 million after-taxes. The program provides primarily
      for enhanced early retirement benefits and/or one-time special pension separation
      allowances based on an employee's age and years of service. These features
      of the program will be paid from the PPL Retirement Plan pension trust and
      increased PPL's pension and postretirement benefit liabilities by $65 million.
      The remaining $10 million of costs relate primarily to severance payments
      and outplacement costs which will be paid by PPL, and are included on the
      Balance Sheet under "Current Liabilities."
    As of December 31, 2002, 354 PPL employees were terminated and have received
      $7 million of non-pension benefits. The remaining $3 million liability for
      non-pension benefits will be paid over the next six months.
    PPL Energy Supply will eliminate up to 221 employees and recorded a one-time
      charge of $41 million, which reduced net income by $24 million. Included
      in the charge was a $10 million allocation of the costs associated with
      the elimination of employees of PPL Services.
    PPL Electric will eliminate up to 260 employees and recorded a one-time
      charge of $33 million, which reduced net income by $19 million. Included
      in the charge was a $6 million allocation of the costs associated with the
      elimination of employees of PPL Services.
    PPL Montana plans to eliminate up to nine employees and recorded an insignificant
      one-time charge in the second half of the year.
8. New Accounting Standards
    SFAS 142(PPL, PPL Energy Supply, PPL Electric and PPL Montana)
    See Note 18 for a discussion of SFAS 142, "Goodwill and Other Intangible
      Assets," and the impact of adoption.
    SFAS 143
    (PPL, PPL Energy Supply, PPL Electric and PPL Montana)
    In 2001, the FASB issued SFAS 143, "Accounting for Asset Retirement Obligations,"
      which addresses the accounting for obligations associated with the retirement
      of tangible long-lived assets. SFAS 143 requires legal obligations associated
      with the retirement of long-lived assets to be recognized as a liability
      in the financial statements. The initial obligation should be measured at
      the estimated fair value. An equivalent amount should be recorded as an
      increase in the value of the capitalized asset and allocated to expense
      over the useful life of the asset. Until the obligation is settled, the
      liability should be increased, through the recognition of accretion expense
      in the income statement, for changes in the obligation due to the passage
      of time. SFAS 143 is effective for fiscal years beginning after June 15,
      2002.
    (PPL and PPL Energy Supply)
    PPL and PPL Energy Supply adopted SFAS 143 effective January 1, 2003. Application
      of the new rules resulted in an increase in net property, plant and equipment
      of $32 million, reversal of the previously recorded decommissioning liability
      of $296 million, recognition of asset retirement obligations of $229 million,
      recognition of a deferred tax liability of $41 million and a cumulative
      effect of adoption that increased net income and equity by $58 million.
      Accretion and depreciation expenses resulting from the application of SFAS
      143 are expected to be approximately $12 million in 2003. PPL and PPL Energy
      Supply identified various legal obligations to retire long-lived assets,
      the largest of which relates to the decommissioning of the Susquehanna station.
      PPL and PPL Energy Supply identified and recorded other asset retirement
      obligations related to significant interim retirements at the Susquehanna
      station, various environmental requirements for coal piles, ash basins and
      other waste basin retirements.
    (PPL Electric)
    PPL Electric adopted SFAS 143 effective January 1, 2003. PPL Electric did
      not record any asset retirement obligations upon adoption.
    (PPL Montana)
    PPL Montana adopted SFAS 143 effective January 1, 2003. PPL Montana recorded
      asset retirement obligations associated with various environmental requirements
      for coal piles, ash basins and other waste basin retirements. The impact
      of these asset retirement obligations was not material.
    
    SFAS 144(PPL, PPL Energy Supply,
      PPL Electric and PPL Montana)
    In 2001, the FASB issued SFAS 144, "Accounting for the Impairment or Disposal
      of Long-Lived Assets," which replaces SFAS 121, "Accounting for the Impairment
      of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." For long-lived
      assets to be held and used, SFAS 144 retains the requirements of SFAS 121
      to recognize an impairment loss only if the carrying amount is not recoverable
      from undiscounted cash flows and to measure an impairment loss as the difference
      between the carrying amount and fair value of the asset. For long-lived
      assets to be disposed of by sale, SFAS 144 establishes a single accounting
      model based on the framework established in SFAS 121. The accounting model
      for long-lived assets to be disposed of by sale applies to all long-lived
      assets, including discontinued operations, and replaces the provisions of
      APB Opinion No. 30, "Reporting the Results of Operations-Reporting the Effects
      of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
      Occurring Events and Transactions," for the disposal of segments of a business.
      SFAS 144 also broadens the reporting of discontinued operations. PPL and
      its subsidiaries adopted SFAS 144 on January 1, 2002, with no material impact
      on the financial statements.
    SFAS 145(PPL, PPL Energy Supply, PPL Electric and PPL Montana)
    
    In April 2002, the FASB issued SFAS 145, "Rescission of FASB Statements
      No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections."
      The most relevant provision of SFAS 145 is the rescission of SFAS 4, "Reporting
      Gains and Losses from Extinguishment of Debt, an Amendment of APB Opinion
      No. 30," which required all gains and losses from extinguishment of debt
      to be aggregated and, if material, classified as an extraordinary item,
      net of any related income tax effect. As a result of the rescission, the
      criteria in APB Opinion No. 30 will now be used to classify those gains
      and losses. The provisions of SFAS 145 related to the rescission of SFAS
      4 shall be applied in fiscal years beginning after May 15, 2002, with early
      application encouraged. PPL and its subsidiaries adopted these provisions
      during the fourth quarter of 2002. All prior periods were restated, as necessary.
      The provisions related to the amendment of SFAS 13, "Accounting for Leases,"
      were adopted for transactions occurring after May 15, 2002. The adoption
      of SFAS 145 did not have a material impact on PPL or its subsidiaries. However,
      SFAS 145 may impact the accounting treatment of future extinguishments of
      debt and lease transactions.
    
    SFAS 146(PPL,
      PPL Energy Supply, PPL Electric and PPL Montana)
    In June 2002, the FASB issued SFAS 146, "Accounting for Costs Associated
      with Exit or Disposal Activities." SFAS 146 addresses financial accounting
      and reporting for costs associated with exit or disposal activities and
      nullifies EITF 94-3, "Liability Recognition for Certain Employee Termination
      Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred
      in a Restructuring)." SFAS 146 requires the recognition of a liability for
      costs associated with exit or disposal activities when the liability is
      incurred rather than at the date of a commitment to an exit or disposal
      plan. SFAS 146 also establishes that the initial liability should be measured
      at its estimated fair value. The provisions of SFAS 146 are effective for
      exit or disposal activities initiated after December 31, 2002, with earlier
      application encouraged. PPL and its subsidiaries adopted SFAS 146 effective
      January 1, 2003. The initial adoption did not have an impact on PPL or its
      subsidiaries. However, SFAS 146 may impact the accounting treatment of future
      disposal or exit activities.
    SFAS 148(PPL, PPL Energy Supply, PPL Electric and PPL Montana)
    
    In December 2002, the FASB issued SFAS 148, "Accounting for Stock-Based
      Compensation - Transition and Disclosure, an Amendment of FASB Statement
      No. 123." SFAS 148 provides three transition methods for adopting the fair
      value method of accounting for stock-based compensation as prescribed under
      SFAS 123 and enhances the required disclosures effective for fiscal years
      ending after December 15, 2002. SFAS 148 also requires certain disclosures
      in financial reports issued for interim periods beginning after December
      15, 2002.
    
    PPL and its subsidiaries elected to adopt the fair value method of accounting
      for stock-based compensation as of January 1, 2003, which will require PPL
      and its subsidiaries to begin recording compensation expense for stock option
      awards over the period the awards vest. PPL and its subsidiaries have chosen
      to apply the prospective method of transition permitted by SFAS 148, which
      provides that PPL and its subsidiaries will recognize expense for all stock-based
      compensation awards granted, modified or settled on or after January 1,
      2003. Consequently, the initial adoption of the fair value method of accounting
      for stock-based compensation under SFAS 123, as well as the adoption of
      SFAS 148, did not have an immediate impact on the financial results of PPL
      or its subsidiaries.
    
    See Note 1 for the annual disclosures required by SFAS 148.
    
    EITF 02-3(PPL, PPL Energy Supply and PPL Montana)
    
    See Note 17 for a discussion of EITF 02-3 and the impact of adoption.
    
    FIN 45(PPL, PPL Energy Supply, PPL Electric and PPL Montana)
    
    In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
      and Disclosure Requirements for Guarantees, Including Indirect Guarantees
      of Indebtedness of Others, an Interpretation of FASB Statements No. 5, 57,
      and 107 and Rescission of FASB Interpretation No. 34." FIN 45 clarifies
      that upon issuance of certain types of guarantees, the guarantor must recognize
      an initial liability for the fair value of the obligation it assumes under
      the guarantee. FIN 45 does not provide detailed guidance on the offsetting
      entry to be made when recognizing the liability or on measuring the obligation
      subsequent to its initial recognition. The offsetting entry will be dependent
      upon the circumstances under which the guarantee is issued, and the initial
      liability should typically be reduced as the guarantor is released from
      risk under the guarantee. FIN 45 also requires a guarantor to make significant
      new disclosures for virtually all guarantees. The provisions relating to
      the initial recognition and measurement of guarantee obligations must be
      applied on a prospective basis to guarantees issued or modified after December
      31, 2002. PPL and its subsidiaries adopted FIN 45 effective January 1, 2003.
      The initial adoption did not have an impact on PPL or its subsidiaries.
      However, FIN 45 may impact the accounting treatment of future guarantee
      obligations. The disclosure provisions are effective for financial statements
      of interim and annual periods ending after December 15, 2002. See Notes
      10 and 14 for disclosure of guarantees and other assurances existing as
      of December 31, 2002.
    
    FIN 46
    
    (PPL, PPL Energy Supply, PPL Electric and PPL Montana)

    In January 2003, the FASB issued Interpretation No. 46, "Consolidation
      of Variable Interest Entities, an Interpretation of ARB No. 51." FIN 46
      clarifies that variable interest entities, as defined therein, that do not
      disperse risks among the parties involved should be consolidated by the
      entity that is determined to be the primary beneficiary. FIN 46 also requires
      certain disclosures to be made by the primary beneficiary and by an enterprise
      that holds a significant variable interest in a variable interest entity
      but is not the primary beneficiary. FIN 46 applies immediately to variable
      interest entities created after January 31, 2003 and to variable interest
      entities in which an enterprise obtains an interest after January 31, 2003.
      For variable interest entities in which an enterprise holds a variable interest
      that was acquired before February 1, 2003, FIN 46 must be adopted no later
      than the first fiscal year or interim period beginning after June 15, 2003.
      FIN 46 may be applied by restating previously issued financial statements
      with a cumulative effect adjustment as of the beginning of the first year
      restated. Restatement is encouraged but not required.
    (PPL and PPL Energy Supply)
    
    PPL Energy Supply expects that FIN 46 will apply to the leases for its
      Sundance, University Park and Lower Mt. Bethel generating facilities. See
      Note 10 for further discussion of these leases and disclosure required by
      FIN 46. PPL Energy Supply is currently evaluating the restructuring of these
      leases. If PPL Energy Supply elects not to restructure these leases, PPL
      Energy Supply believes that it will be required to consolidate the financial
      statements of the variable interest entities that own the leased facilities.
      The principal impact from such consolidation would be the inclusion of the
      generating facilities as assets and the lease debt as liabilities in the
      consolidated balance sheets of PPL and PPL Energy Supply. Additionally,
      PPL and PPL Energy Supply would be required to recognize a cumulative effect
      of a change in accounting principle in connection with the initial consolidation
      of these variable interest entities. Such amount is currently estimated
      to be approximately $13 million, assuming FIN 46 is applied to these entities
      effective July 1, 2003 and prior year financial statements are not restated.

---

|SCHEDULE II -
      VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
|------------------------------------------------------------------
|                                                                  
|PPL Corporation                                                   
|(Millions of Dollars)                                             
|                                                                  
|Column A                                                          
|                                                                  
|                                                                  
|Description                                                       
|                                                                  
|Year Ended December 31, 2002                                      
|Reserves deducted from assets in
      
         the Balance Sheet
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Year Ended December 31, 2001                                      
|Reserves deducted from assets in
      
        the Balance Sheet 
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Year Ended December 31, 2000                                      
|Reserves deducted from assets in
      
        the Balance Sheet 
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|(a)                                                               
|(b)                                                               
|(c)                                                               
|(d)                                                               

---

|SCHEDULE II - VALUATION
      AND QUALIFYING ACCOUNTS AND RESERVES
|------------------------------------------------------------------
|                                                                  
|PPL Energy Supply, LLC                                            
|(Millions of Dollars)                                             
|                                                                  
|Column A                                                          
|                                                                  
|                                                                  
|                                                                  
|Description                                                       
|                                                                  
|Year Ended December 31, 2002                                      
|Reserves deducted from assets in
      
        the Balance Sheet 
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Year Ended December 31, 2001                                      
|Reserves deducted from assets in
      
        the Balance Sheet 
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Year Ended December 31, 2000                                      
|Reserves deducted from assets in
      
        the Balance Sheet 
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|(a)                                                               
|(b)                                                               
|(c)                                                               
|(d)                                                               

---

|SCHEDULE
      II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
|------------------------------------------------------------------
|                                                                  
|PPL Electric Utilities Corporation                                
|(Millions of Dollars)                                             
|Column A                                                          
|                                                                  
|                                                                  
|                                                                  
|Description                                                       
|                                                                  
|Year Ended December 31, 2002                                      
|Reserves deducted from assets in 
        the Balance Sheet       
|                                                                  
|                                                                  
|Year Ended December 31, 2001                                      
|Reserves deducted from assets in 
        the Balance Sheet       
|                                                                  
|                                                                  
|Year Ended December 31, 2000                                      
|Reserves deducted from assets in 
        the Balance Sheet       
|                                                                  
|                                                                  
|                                                                  

---

|SCHEDULE II
      - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
|------------------------------------------------------------------
|                                                                  
|PPL Montana, LLC                                                  
|(Millions of Dollars)                                             
|Column A                                                          
|                                                                  
|                                                                  
|                                                                  
|Description                                                       
|                                                                  
|Year Ended December 31, 2002                                      
|Reserves deducted from assets in 
        the Balance Sheet       
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Year Ended December 31, 2001                                      
|Reserves deducted from assets in 
        the Balance Sheet       
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Year Ended December 31, 2000                                      
|Reserves deducted from assets in 
        the Balance Sheet       
|                                                                  
|                                                                  
|                                                                  
|(a)                                                               

---

|QUARTERLY
      FINANCIAL, COMMON STOCK PRICE AND DIVIDEND DATA (Unaudited)                  
|---------------------------------------------------------------------------------------------
|PPL Corporation and Subsidiaries                                                             
|(Millions of Dollars, except
      per share data)                                           
|                                                                                             
|                                                                                             
|                                                                                             
|Operating revenues                                                                           
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Operating income                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Net income (loss) before cumulative
      effect of a 
        change in accounting principle
|Net income (loss)                                                                            
|Basic earnings per common share:
      (d)                                                   
|                                                                                             
|                                                                                             
|Diluted earnings per common share:
      (d)                                                 
|                                                                                             
|                                                                                             
|Dividends declared per common share
      (e)                                                
|Price per common share                                                                       
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Operating revenues                                                                           
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Operating income                                                                             
|Net income (loss) before cumulative
      effect of a 
        change in accounting principle
|Net income (loss)                                                                            
|Basic earnings per common share:
      (d)                                                   
|                                                                                             
|                                                                                             
|Diluted earnings per common share:
      (d)                                                 
|                                                                                             
|                                                                                             
|Dividends declared per common share
      (e)                                                
|Price per common share                                                                       
|                                                                                             
|                                                                                             
|                                                                                             
|(a)                                                                                          
|(b)                                                                                          
|(c)                                                                                          
|(d)                                                                                          
|(e)                                                                                          

---

|QUARTERLY
      FINANCIAL DATA (Unaudited)                                           
|-------------------------------------------------------------------------------------
|PPL Electric Utilities Corporation
      and Subsidiaries                            
|(Millions of Dollars)                                                                
|                                                                                     
|                                                                                     
|2002                                                                                 
|Operating revenues                                                                   
|Operating income                                                                     
|Net income (loss)                                                                    
|                                                                                     
|2001                                                                                 
|Operating revenues                                                                   
|Operating income                                                                     
|Net income before cumulative
      effect of a change in
        accounting principle
|Net income                                                                           
|                                                                                     
|(a)                                                                                  

---

ITEM 9. CHANGES IN AND DISAGREEMENTS
  WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE



PPL Corporation, PPL Energy Supply, LLC, PPL Electric Utilities Corporation
  and PPL Montana, LLC

None.



---

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT



PPL Corporation

Information for this item will be set forth in the sections entitled "Nominees
  for Directors," "Board Committees - audit Committee," "Directors Continuing
  in Office" and "Section 16(a) Beneficial Ownership Reporting Compliance" in
  PPL's 2003 Notice of Annual Meeting and Proxy Statement, which will be filed
  with the SEC not later than 120 days after December 31, 2002, and which
  information is incorporated herein by reference. Information required by this
  item concerning the executive officers of PPL is set forth at the end of Part
  I of this report.

PPL Energy Supply, LLC

Item 10 is omitted as PPL Energy Supply meets the conditions set forth in
    General Instruction (I)(1)(a) and (b) of Form 10-K.

PPL Electric Utilities Corporation

Information for this item will be set forth in the sections entitled "Nominees
    for Directors," and "Directors Continuing in Office" in PPL Electric's 2003
    Notice of Annual Meeting and Information Statement, which will be filed with
    the SEC not later than 120 days after December 31, 2002, and which information
    is incorporated herein by reference. Information required by this item concerning
    the executive officers of PPL Electric is set forth at the end of Part I of
    this report.

PPL Montana, LLC

Item 10 is omitted as PPL Montana meets the conditions set forth in General
    Instruction (I)(1)(a) and (b) of Form 10-K.

---

ITEM 11. EXECUTIVE COMPENSATION



PPL Corporation



Information for this item will be set forth in the sections entitled "Compensation
  of Directors," "Summary Compensation
  Table," "Option Grants in Last Fiscal Year" and "Retirement Plans for Executive
  Officers" in PPL's 2003 Notice of Annual Meeting and Proxy Statement, which
  will be filed with the SEC not later than 120 days after December 31, 2002,
  and which information is incorporated herein by reference.

PPL Energy Supply, LLC

Item 11 is omitted as PPL Energy Supply meets the conditions set forth in
    General Instruction (I)(1)(a) and (b) of Form 10-K.

PPL Electric Utilities Corporation

Information for this item will be set forth in the sections entitled "Compensation
    of Directors," "Summary Compensation Table," "Option Grants in Last Fiscal
    Year" and "Retirement Plans for Executive Officers" in PPL Electric's 2003
    Notice of Annual Meeting and Information Statement, which will be filed with
    the SEC not later than 120 days after December 31, 2002, and which information
    is incorporated herein by reference.

PPL Montana, LLC



Item 11 is omitted as PPL Montana meets the conditions set forth in General
    Instruction (I)(1)(a) and (b) of Form 10-K.



---

ITEM 12. SECURITY OWNERSHIP OF CERTAIN
    BENEFICIAL OWNERS AND MANAGEMENT



PPL Corporation

Information for this item will be set forth in the sections entitled "Stock
    Ownership" and "Proposal 2: Approval of Incentive Compensation Plan for Key
    Employees - Equity Compensation Plan Information" in PPL's 2003 Notice of
    Annual Meeting and Proxy Statement, which will be filed with the SEC not later
    than 120 days after December 31, 2002, and which information is incorporated
    herein by reference.

PPL Energy Supply, LLC

Item 12 is omitted as PPL Energy Supply meets the conditions set forth in
    General Instruction (I)(1)(a) and (b) of Form 10-K.

PPL Electric Utilities Corporation

Information for this item will be set forth in the section entitled "Stock
    Ownership" in PPL Electric's 2003 Notice of Annual Meeting and Information
    Statement, which will be filed with the SEC not later than 120 days after
    December 31, 2002, and which information is incorporated herein by reference.

PPL Montana, LLC



Item 12 is omitted as PPL Montana meets the conditions set forth in General
    Instruction (I)(1)(a) and (b) of Form 10-K.



---

ITEM 13. CERTAIN RELATIONSHIPS AND
    RELATED TRANSACTIONS



PPL Corporation

None.

PPL Energy Supply, LLC

Item 13 is omitted as PPL Energy Supply meets the conditions set forth in
    General Instruction (I)(1)(a) and (b) of Form 10-K.

PPL Electric Utilities Corporation

None.

PPL Montana, LLC



Item 13 is omitted as PPL Montana meets the conditions set forth in General
    Instruction (I)(1)(a) and (b) of Form 10-K.

---

|ITEM 14. CONTROLS AND PROCEDURES
|--------------------------------
|                                
|                                
|                                
|(a)                             
|                                
|                                
|                                
|(b)                             
|                                
|                                

---

PART IVITEM 15. EXHIBITS, FINANCIAL STATEMENTSCHEDULES, AND REPORTS ON FORM 8-K



|PPL Corporation, PPL Energy Supply,
      LLC, PPL Electric Utilities Corporation and PPL Montana, LLC
|------------------------------------------------------------------------------------------------------
|                                                                                                      
|(a) The following documents are filed
      as part of this report:                                   
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                      
|(b) Reports on Form 8-K:                                                                              
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                      



| | Amended Report dated
      September 6, 2002 - PPL and PPL Energy Supply (filed November 19, 2002)
| | --------------------------------------------------------------------------------------------------
| |                                                                                                   
| |                                                                                                   
| |                                                                                                   
| |                                                                                                   
| |                                                                                                   
| |                                                                                                   
| |                                                                                                   
| |                                                                                                   
| |                                                                                                   
| |                                                                                                   
| | Report dated November
      21, 2002 - PPL                                                        
| |                                                                                                   
| |                                                                                                   
| |                                                                                                   
| |                                                                                                   
| |                                                                                                   
| |                                                                                                   
| | Report dated December
      17, 2002 - PPL                                                        
| |                                                                                                   
| |                                                                                                   
| |                                                                                                   
| |                                                                                                   
| |                                                                                                   

---

SHAREOWNER AND INVESTOR INFORMATION



Annual Meetings: The annual meeting of shareowners of PPL Corporation
  is held each year on the fourth Friday of April. The 2003 meeting for PPL Corporation
  will be held on Friday, April 25, 2003, at Lehigh University's Stabler Arena,
  at the Goodman Campus Complex located in Lower Saucon Township, outside Bethlehem,
  Pennsylvania. The 2003 meeting for PPL Electric will be held on Tuesday, April
  22, 2003, at the offices of the company at Two North Ninth Street, Allentown,
  Pennsylvania.

Proxy and Information Statement Material:A proxy statement and information
  statement and notice of PPL's and PPL Electric's annual meetings are mailed
  to all shareowners of record as of February 28, 2003.

Dividends:Subject to the declaration of dividends on PPL common stock
  by the PPL Board of Directors or its Executive Committee and PPL Electric preferred
  stock by the PPL Electric Board of Directors, dividends are paid on the first
  day of April, July, October and January. Dividend checks are mailed in advance
  of those dates with the intention that they arrive as close as possible to the
  payment dates. The 2003 record dates for dividends are expected to be March
  10, June 10, September 10, and December 10.

Direct Deposit of Dividends:Shareowners may choose to have their dividend
  checks deposited directly into their checking or savings account. Quarterly
  dividend payments are electronically credited on the dividend date, or the first
  business day thereafter.

Dividend Reinvestment Plan:Shareowners may choose to have dividends
  on their PPL common stock or PPL Electric preferred stock reinvested in PPL
  common stock instead of receiving the dividend by check.

Certificate Safekeeping: Shareowners participating in the Dividend Reinvestment
  Plan may choose to have their common stock certificates forwarded to PPL for
  safekeeping.

Lost Dividend or Interest Checks: Dividend or interest checks lost by
  investors, or those that may be lost in the mail, will be replaced if the check
  has not been located by the 10th business day following the payment date.

Transfer of Stock or Bonds: Stock or bonds may be transferred from one
  name to another or to a new account in the name of another person. Please contact
  Investor Services regarding transfer instructions.

Bondholder Information:Much of the information and many of the procedures
  detailed here for shareowners also apply to bondholders. Questions related to
  bondholder accounts should be directed to Investor Services.

Lost Stock or Bond Certificates: Please contact Investor Services for
  an explanation of the procedure to replace lost stock or bond certificates.

PPL Annual Report:Published and mailed in mid-March to all
  shareowners of record.

Shareowner News:An easy-to-read newsletter containing current
  items of interest to shareowners -- published and mailed at the beginning of
  each quarter.

Periodic Mailings:Letters regarding new investor programs, special
  items of interest, or other pertinent information are mailed on a non-scheduled
  basis as necessary.

Duplicate Mailings:The annual report and other investor publications
  are mailed to each investor account. If you have more than one account, or if
  there is more than one investor in your household, you may contact Investor
  Services to request that only one publication be delivered to your address.
  Please provide account numbers for all duplicate mailings.

Shareowner Information Line:Shareowners can get detailed corporate
  and financial information 24 hours a day using the Shareowner Information Line.
  They can hear timely recorded messages about earnings, dividends and other company
  news releases; request information by fax; and request printed materials in
  the mail.

The toll-free Shareowner Information Line is 1-800-345-3085.

Other PPL publications, such as the annual and quarterly reports to the Securities
  and Exchange Commission (Forms 10-K and 10-Q) will be mailed upon request.

Shareowners can also obtain information free of charge from PPL's Internet
  home page (www.pplweb.com). Shareowners can access PPL Securities and Exchange
  Commission filings, stock quotes and historical performance. Visitors to our
  website can provide their E-mail address and indicate their desire to receive
  future earnings or news releases automatically.

Investor Services:For any questions you have or additional information
  you require about PPL and its subsidiaries, please call the Shareowner Information
  Line, or write to:



Manager-Investor Services
PPL Services Corporation
Two North Ninth Street
Allentown, PA 18101

Internet Access:For updated information throughout the year, check
  out our home page at http://www.pplweb.com. You may also contact Investor Services
  via E-mail at invserv@pplweb.com.

Registered shareowners can access account information by visiting shareowneronline.com.



|Listed Securities:          |                                     | Fiscal Agents:                      
|--------------------------- | ----------------------------------- | ------------------------------------
|New York Stock Exchange     |                                     | Stock Transfer Agents and           
|                            |                                     | Registrars                          
|                            | PPL Corporation:                    |                                     
|                            | Common Stock (Code: PPL)            |                                     
|                            |                                     | 161 North Concord Exchange          
|                            | PPL Electric Utilities Corporation: |                                     
|                            | 4-1/2% Preferred Stock              |                                     
|                            | (Code: PPLPRB)                      |                                     
|                            | 4.40% Series Preferred Stock        |                                     
|                            | (Code: PPLPRA)                      |                                     
|                            |                                     | Dividend Disbursing Office and      
|                            | PPL Capital Funding Trust I:        |                                     
|                            | 7.75% PEPSSM Units                  |                                     
|                            | (Code: PPLPRE)                      |                                     
|                            |                                     |                                     
|Philadelphia Stock Exchange |                                     | Mortgage Bond Trustee               
|                            |                                     | Deutsche Bank Trust Company Americas
|                            | PPL Corporation:                    |                                     
|                            | Common Stock                        |                                     
|                            |                                     | Nashville, TN 37211                 
|                            |                                     |                                     
|                            |                                     | Indenture Trustee                   
|                            |                                     | JPMorgan Chase Bank                 
|                            |                                     | 450 West 33rd Street                
|                            |                                     | New York, NY 10001                  
|                            |                                     |                                     
|                            |                                     | Bond Interest Paying Agent          
|                            |                                     | PPL Services Corporation            
|                            |                                     | Investor Services Department        
|                            |                                     |                                     
|                            |                                     |                                     
|                            |                                     |                                     
|                            |                                     |                                     

---

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
  Act of 1934, the Registrant has duly caused this report to be signed on its
  behalf by the undersigned, thereunto duly authorized.

PPL Corporation

(Registrant)

|By /s/ William F. Hecht                                                                                                                                                                                                        |  |                     |  |                                         
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------- |  | ----------------------------------------
|William F. Hecht -                                                                                                                                                                                                             |  |                     |  |                                         
|                                                                                                                                                                                                                               |  |                     |  |                                         
|Chairman, President                                                                                                                                                                                                            |  |                     |  |                                         
|and Chief Executive                                                                                                                                                                                                            |  |                     |  |                                         
|Officer                                                                                                                                                                                                                        |  |                     |  |                                         
|                                                                                                                                                                                                                               |  |                     |  |                                         
|Pursuant to the requirements of the
      Securities Exchange Act of 1934, this report has been signed below by the
      following persons on behalf of the Registrant and in the capacities and
      on the date indicated.
|                                                                                                                                                                                                                               |  |                     |  |                                         
|                                                                                                                                                                                                                               |  |                     |  |                                         
|                                                                                                                                                                                                                               |  |                     |  |                                         
|                                                                                                                                                                                                                               |  |                     |  | TITLE                                   
|                                                                                                                                                                                                                               |  |                     |  |                                         
|By /s/ William F. Hecht                                                                                                                                                                                                        |  |                     |  | Principal Executive Officer and Director
|William F. Hecht -                                                                                                                                                                                                             |  |                     |  |                                         
|Chairman, President                                                                                                                                                                                                            |  |                     |  |                                         
|and Chief Executive                                                                                                                                                                                                            |  |                     |  |                                         
|Officer                                                                                                                                                                                                                        |  |                     |  |                                         
|                                                                                                                                                                                                                               |  |                     |  |                                         
|                                                                                                                                                                                                                               |  |                     |  |                                         
|By /s/ John R. Biggar                                                                                                                                                                                                          |  |                     |  | Principal Financial Officer and Director
|John R. Biggar -                                                                                                                                                                                                               |  |                     |  |                                         
|Executive Vice President                                                                                                                                                                                                       |  |                     |  |                                         
|and Chief Financial Officer                                                                                                                                                                                                    |  |                     |  |                                         
|                                                                                                                                                                                                                               |  |                     |  |                                         
|                                                                                                                                                                                                                               |  |                     |  |                                         
|By /s/ Joseph J. McCabe                                                                                                                                                                                                        |  |                     |  | Principal Accounting Officer            
|Joseph J. McCabe -                                                                                                                                                                                                             |  |                     |  |                                         
|Vice President and Controller                                                                                                                                                                                                  |  |                     |  |                                         
|                                                                                                                                                                                                                               |  |                     |  |                                         
|                                                                                                                                                                                                                               |  |                     |  |                                         
|                                                                                                                                                                                                                               |  |                     |  |                                         
|Directors:                                                                                                                                                                                                                     |  |                     |  |                                         
|                                                                                                                                                                                                                               |  |                     |  |                                         
|Frederick M. Bernthal                                                                                                                                                                                                          |  | Stuart Heydt        |  |                                         
|John W. Conway                                                                                                                                                                                                                 |  | W. Keith Smith      |  |                                         
|E. Allen Deaver                                                                                                                                                                                                                |  | Susan M. Stalnecker |  |                                         
|                                                                                                                                                                                                                               |  |                     |  |                                         
|                                                                                                                                                                                                                               |  |                     |  |                                         
|                                                                                                                                                                                                                               |  |                     |  |                                         
|By /s/ William F. Hecht                                                                                                                                                                                                        |  |                     |  |                                         
|William F. Hecht, Attorney-in-fact                                                                                                                                                                                             |  | Date: March 3, 2003 |  |                                         

---

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
  Act of 1934, the Registrant has duly caused this report to be signed on its
  behalf by the undersigned, thereunto duly authorized.

PPL Energy Supply, LLC

(Registrant)



|By /s/ William F. Hecht                                                                                                                                                                                                        |  |  |  |                                         
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  |  |  | ----------------------------------------
|William F. Hecht -                                                                                                                                                                                                             |  |  |  |                                         
|                                                                                                                                                                                                                               |  |  |  |                                         
|President                                                                                                                                                                                                                      |  |  |  |                                         
|                                                                                                                                                                                                                               |  |  |  |                                         
|Pursuant to the requirements of the
      Securities Exchange Act of 1934, this report has been signed below by the
      following persons on behalf of the Registrant and in the capacities and
      on the date indicated.
|                                                                                                                                                                                                                               |  |  |  |                                         
|                                                                                                                                                                                                                               |  |  |  | TITLE                                   
|                                                                                                                                                                                                                               |  |  |  |                                         
|By /s/ William F. Hecht                                                                                                                                                                                                        |  |  |  | Principal Executive Officer and Manager 
|William F. Hecht -                                                                                                                                                                                                             |  |  |  |                                         
|President                                                                                                                                                                                                                      |  |  |  |                                         
|                                                                                                                                                                                                                               |  |  |  |                                         
|By /s/ James E. Abel                                                                                                                                                                                                           |  |  |  | Principal Financial Officer and Manager 
|James E. Abel -                                                                                                                                                                                                                |  |  |  |                                         
|Treasurer                                                                                                                                                                                                                      |  |  |  |                                         
|                                                                                                                                                                                                                               |  |  |  |                                         
|By /s/ Joseph J. McCabe                                                                                                                                                                                                        |  |  |  | Principal Accounting Officer and Manager
|Joseph J. McCabe -                                                                                                                                                                                                             |  |  |  |                                         
|Controller                                                                                                                                                                                                                     |  |  |  |                                         
|                                                                                                                                                                                                                               |  |  |  |                                         
|                                                                                                                                                                                                                               |  |  |  |                                         
|Managers:                                                                                                                                                                                                                      |  |  |  |                                         
|                                                                                                                                                                                                                               |  |  |  |                                         
|/s/ John R. Biggar                                                                                                                                                                                                             |  |  |  |                                         
|John R. Biggar                                                                                                                                                                                                                 |  |  |  |                                         
|                                                                                                                                                                                                                               |  |  |  |                                         
|/s/ Lawrence E. De Simone                                                                                                                                                                                                      |  |  |  |                                         
|Lawrence E. De Simone                                                                                                                                                                                                          |  |  |  |                                         
|                                                                                                                                                                                                                               |  |  |  |                                         
|/s/ Robert J. Grey                                                                                                                                                                                                             |  |  |  |                                         
|Robert J. Grey                                                                                                                                                                                                                 |  |  |  |                                         
|                                                                                                                                                                                                                               |  |  |  |                                         
|                                                                                                                                                                                                                               |  |  |  |                                         
|                                                                                                                                                                                                                               |  |  |  |                                         
|                                                                                                                                                                                                                               |  |  |  |                                         
|                                                                                                                                                                                                                               |  |  |  |                                         
|Date: March 3, 2003                                                                                                                                                                                                            |  |  |  |                                         

---

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
  Act of 1934, the Registrant has duly caused this report to be signed on its
  behalf by the undersigned, thereunto duly authorized.



PPL Electric Utilities Corporation

(Registrant)



|By /s/ Michael E. Bray                                                                                                                                                                                                         |  |                           |  |                                         
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------- |  | ----------------------------------------
|Michael E. Bray -                                                                                                                                                                                                              |  |                           |  |                                         
|                                                                                                                                                                                                                               |  |                           |  |                                         
|Vice Chairman and President                                                                                                                                                                                                    |  |                           |  |                                         
|                                                                                                                                                                                                                              
|Pursuant to the requirements of the
      Securities Exchange Act of 1934, this report has been signed below by the
      following persons on behalf of the Registrant and in the capacities and
      on the date indicated.
|                                                                                                                                                                                                                               |  |                           |  |                                         
|                                                                                                                                                                                                                               |  |                           |  | TITLE                                   
|                                                                                                                                                                                                                               |  |                           |  |                                         
|By /s/ Michael E. Bray                                                                                                                                                                                                         |  |                           |  | Principal Executive Officer and Director
|Michael E. Bray -                                                                                                                                                                                                              |  |                           |  |                                         
|Vice Chairman and President                                                                                                                                                                                                    |  |                           |  |                                         
|                                                                                                                                                                                                                               |  |                           |  |                                         
|By /s/ James E. Abel                                                                                                                                                                                                           |  |                           |  | Principal Financial Officer             
|James E. Abel -                                                                                                                                                                                                                |  |                           |  |                                         
|Treasurer                                                                                                                                                                                                                      |  |                           |  |                                         
|                                                                                                                                                                                                                               |  |                           |  |                                         
|By /s/ Joseph J. McCabe                                                                                                                                                                                                        |  |                           |  | Principal Accounting Officer            
|Joseph J. McCabe -                                                                                                                                                                                                             |  |                           |  |                                         
|Vice President and Controller                                                                                                                                                                                                  |  |                           |  |                                         
|                                                                                                                                                                                                                               |  |                           |  |                                         
|                                                                                                                                                                                                                               |  |                           |  |                                         
|Directors:                                                                                                                                                                                                                     |  |                           |  |                                         
|                                                                                                                                                                                                                               |  |                           |  |                                         
|/s/ William F. Hecht                                                                                                                                                                                                           |  | /s/ Dean A. Christiansen  |  | /s/ James H. Miller                     
|William F. Hecht                                                                                                                                                                                                               |  | Dean A. Christiansen      |  | James H. Miller                         
|                                                                                                                                                                                                                               |  |                           |  |                                         
|/s/ John R. Biggar                                                                                                                                                                                                             |  | /s/ Lawrence E. De Simone |  | /s/ Roger L. Petersen                   
|John R. Biggar                                                                                                                                                                                                                 |  | Lawrence E. De Simone     |  | Roger L. Petersen                       
|                                                                                                                                                                                                                               |  |                           |  |                                         
|/s/ Paul T. Champagne                                                                                                                                                                                                          |  | /s/ Robert J. Grey        |  |                                         
|Paul T. Champagne                                                                                                                                                                                                              |  | Robert J. Grey            |  |                                         
|                                                                                                                                                                                                                               |  |                           |  |                                         
|                                                                                                                                                                                                                               |  |                           |  |                                         
|                                                                                                                                                                                                                               |  |                           |  |                                         
|                                                                                                                                                                                                                               |  |                           |  |                                         
|                                                                                                                                                                                                                               |  |                           |  |                                         
|Date: March 3, 2003                                                                                                                                                                                                            |  |                           |  |                                         

---

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
  Act of 1934, the Registrant has duly caused this report to be signed on its
  behalf by the undersigned, thereunto duly authorized.

PPL Montana, LLC

(Registrant)



|By /s/ James H. Miller                                                                                                                                                                                                         |  |  |  |                                        
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  |  |  | ---------------------------------------
|James H. Miller -                                                                                                                                                                                                              |  |  |  |                                        
|                                                                                                                                                                                                                               |  |  |  |                                        
|President                                                                                                                                                                                                                      |  |  |  |                                        
|                                                                                                                                                                                                                              
|Pursuant to the requirements of the
      Securities Exchange Act of 1934, this report has been signed below by the
      following persons on behalf of the Registrant and in the capacities and
      on the date indicated.
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                               |  |  |  | TITLE                                  
|                                                                                                                                                                                                                               |  |  |  |                                        
|By /s/ James H. Miller                                                                                                                                                                                                         |  |  |  | Principal Executive Officer and Manager
|James H. Miller -                                                                                                                                                                                                              |  |  |  |                                        
|President                                                                                                                                                                                                                      |  |  |  |                                        
|                                                                                                                                                                                                                               |  |  |  |                                        
|By /s/ James E. Abel                                                                                                                                                                                                           |  |  |  | Principal Financial Officer and Manager
|James E. Abel -                                                                                                                                                                                                                |  |  |  |                                        
|Treasurer                                                                                                                                                                                                                      |  |  |  |                                        
|                                                                                                                                                                                                                               |  |  |  |                                        
|By /s/ Charles S. Baker                                                                                                                                                                                                        |  |  |  | Principal Accounting Officer           
|Charles S. Baker -                                                                                                                                                                                                             |  |  |  |                                        
|Controller                                                                                                                                                                                                                     |  |  |  |                                        
|                                                                                                                                                                                                                               |  |  |  |                                        
|                                                                                                                                                                                                                               |  |  |  |                                        
|Managers:                                                                                                                                                                                                                      |  |  |  |                                        
|                                                                                                                                                                                                                               |  |  |  |                                        
|/s/ Albert J. Fioravanti                                                                                                                                                                                                       |  |  |  |                                        
|Albert J. Fioravanti                                                                                                                                                                                                           |  |  |  |                                        
|                                                                                                                                                                                                                               |  |  |  |                                        
|/s/ Bradley E. Spencer                                                                                                                                                                                                         |  |  |  |                                        
|Bradley E. Spencer                                                                                                                                                                                                             |  |  |  |                                        
|                                                                                                                                                                                                                               |  |  |  |                                        
|                                                                                                                                                                                                                               |  |  |  |                                        
|                                                                                                                                                                                                                               |  |  |  |                                        
|                                                                                                                                                                                                                               |  |  |  |                                        
|                                                                                                                                                                                                                               |  |  |  |                                        
|Date: March 3, 2003                                                                                                                                                                                                            |  |  |  |                                        

---

|CERTIFICATION                                                                                                  
|---------------------------------------------------------------------------------------------------------------
|                                                                                                               
|                                                                                                               
|I, WILLIAM F. HECHT, the principal executive officer
      of PPL Corporation (the "registrant"), certify that:
|                                                                                                               
|1.                                                                                                             
|                                                                                                               
|2.                                                                                                             
|                                                                                                               
|3.                                                                                                             
|                                                                                                               
|4.                                                                                                             
|                                                                                                               
|                                                                                                               
|                                                                                                               
|                                                                                                               
|                                                                                                               
|                                                                                                               
|                                                                                                               
|5.                                                                                                             
|                                                                                                               
|                                                                                                               
|                                                                                                               
|                                                                                                               
|                                                                                                               
|6.                                                                                                             
|                                                                                                               
|                                                                                                               
|                                                                                                               
|Date: March 3, 2003                                                                                            
|                                                                                                               

---

|CERTIFICATION                                                                                                
|-------------------------------------------------------------------------------------------------------------
|                                                                                                             
|                                                                                                             
|I, JOHN R. BIGGAR, the principal financial officer
      of PPL Corporation (the "registrant"), certify that:
|                                                                                                             
|1.                                                                                                           
|                                                                                                             
|2.                                                                                                           
|                                                                                                             
|3.                                                                                                           
|                                                                                                             
|4.                                                                                                           
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|5.                                                                                                           
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|6.                                                                                                           
|                                                                                                             
|                                                                                                             
|                                                                                                             
|Date: March 3, 2003                                                                                          
|                                                                                                             

---

|CERTIFICATION                                                                                                         
|----------------------------------------------------------------------------------------------------------------------
|                                                                                                                      
|                                                                                                                      
|I, WILLIAM F. HECHT, the principal executive officer
      of PPL Energy Supply, LLC (the "registrant"), certify that:
|                                                                                                                      
|1.                                                                                                                    
|                                                                                                                      
|2.                                                                                                                    
|                                                                                                                      
|3.                                                                                                                    
|                                                                                                                      
|4.                                                                                                                    
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|5.                                                                                                                    
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|6.                                                                                                                    
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|Date: March 3, 2003                                                                                                   
|                                                                                                                      

---

|CERTIFICATION                                                                                                      
|-------------------------------------------------------------------------------------------------------------------
|                                                                                                                   
|                                                                                                                   
|I, JAMES E. ABEL, the principal financial officer
      of PPL Energy Supply, LLC (the "registrant"), certify that:
|                                                                                                                   
|1.                                                                                                                 
|                                                                                                                   
|2.                                                                                                                 
|                                                                                                                   
|3.                                                                                                                 
|                                                                                                                   
|4.                                                                                                                 
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|5.                                                                                                                 
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|6.                                                                                                                 
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|Date: March 3, 2003                                                                                                
|                                                                                                                   

---

|CERTIFICATION                                                                                                                    
|---------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                 
|                                                                                                                                 
|I, MICHAEL E. BRAY, the principal executive officer
      of PPL Electric Utilities Corporation (the "registrant"), certify that:
|                                                                                                                                 
|1.                                                                                                                               
|                                                                                                                                 
|2.                                                                                                                               
|                                                                                                                                 
|3.                                                                                                                               
|                                                                                                                                 
|4.                                                                                                                               
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                 
|5.                                                                                                                               
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                 
|6.                                                                                                                               
|                                                                                                                                 
|                                                                                                                                 
|                                                                                                                                 
|Date: March 3, 2003                                                                                                              
|                                                                                                                                 

---

|CERTIFICATION                                                                                                                  
|-------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                               
|                                                                                                                               
|I, JAMES E. ABEL, the principal financial officer
      of PPL Electric Utilities Corporation (the "registrant"), certify that:
|                                                                                                                               
|1.                                                                                                                             
|                                                                                                                               
|2.                                                                                                                             
|                                                                                                                               
|3.                                                                                                                             
|                                                                                                                               
|4.                                                                                                                             
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|5.                                                                                                                             
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|6.                                                                                                                             
|                                                                                                                               
|                                                                                                                               
|                                                                                                                               
|Date: March 3, 2003                                                                                                            
|                                                                                                                               

---

|CERTIFICATION                                                                                                  
|---------------------------------------------------------------------------------------------------------------
|                                                                                                               
|                                                                                                               
|I, JAMES H. MILLER, the principal executive officer
      of PPL Montana, LLC (the "registrant"), certify that:
|                                                                                                               
|1.                                                                                                             
|                                                                                                               
|2.                                                                                                             
|                                                                                                               
|3.                                                                                                             
|                                                                                                               
|4.                                                                                                             
|                                                                                                               
|                                                                                                               
|                                                                                                               
|                                                                                                               
|                                                                                                               
|                                                                                                               
|                                                                                                               
|5.                                                                                                             
|                                                                                                               
|                                                                                                               
|                                                                                                               
|                                                                                                               
|                                                                                                               
|6.                                                                                                             
|                                                                                                               
|                                                                                                               
|                                                                                                               
|Date: March 3, 2003                                                                                            
|                                                                                                               

---

|CERTIFICATION                                                                                                
|-------------------------------------------------------------------------------------------------------------
|                                                                                                             
|                                                                                                             
|I, JAMES E. ABEL, the principal financial officer
      of PPL Montana, LLC (the "registrant"), certify that:
|                                                                                                             
|1.                                                                                                           
|                                                                                                             
|2.                                                                                                           
|                                                                                                             
|3.                                                                                                           
|                                                                                                             
|4.                                                                                                           
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|5.                                                                                                           
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|6.                                                                                                           
|                                                                                                             
|                                                                                                             
|                                                                                                             
|Date: March 3, 2003                                                                                          
|                                                                                                             

---

EXHIBIT INDEX



The following Exhibits indicated by an asterisk preceding the Exhibit number
  are filed herewith. The balance of the Exhibits have heretofore been filed with
  the Commission and pursuant to Rule 12(b)-32 are incorporated herein by reference.
  Exhibits indicated by a [_] are filed or listed pursuant to Item 601(b)(10)(iii)
  of Regulation S-K.

|         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|-------- | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3(a)-1   | - | Articles of Incorporation of PPL Corporation
      (Exhibit B to Proxy Statement of PPL Electric Utilities Corporation and
      Prospectus of PPL Corporation, dated March 9, 1995)                                                                                                                                                                                                                                                                                                                      
|         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|3(a)-2   | - | Articles of Amendment of PPL Corporation
      (Exhibit 3.2 to PPL Corporation Form S-3 (Registration Statement Nos. 333-54504,
      333-54504-01 and 333-54504-02))                                                                                                                                                                                                                                                                                                                                     
|         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|3(a)-3   | - | Amended and Restated Articles of Incorporation
      of PPL Electric Utilities Corporation (Exhibit 3(a)-3 to PPL Electric Utilities
      Corporation Form 10-K Report (File No. 1-905) for year ended December 31,
      2001)                                                                                                                                                                                                                                                                          
|         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|3(a)-4   | - | Certificate of Formation of PPL Energy
      Supply, LLC (Exhibit 3.1 to PPL Energy Supply, LLC Form S-4 (Registration
      Statement No. 333-74794))                                                                                                                                                                                                                                                                                                                                                    
|         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|3(a)-5   | - | Certificate of Formation of PPL Montana,
      LLC (Exhibit 3.1 to PPL Montana, LLC Form S-4 (Registration Statement No.
      333-50350))                                                                                                                                                                                                                                                                                                                                                                
|         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|3(b)-1   | - | Bylaws of PPL Corporation (Exhibit
      3(ii)(a) to PPL Corporation Form 10-Q Report (File No. 1-11459) for the
      quarter ended September 30, 1998)                                                                                                                                                                                                                                                                                                                                                  
|         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|3(b)-2   | - | Bylaws of PPL Electric Utilities Corporation
      (Exhibit 3(b)-2 to PPL Electric Utilities Corporation Form 10-K Report (File
      No. 1-905) for year ended December 31, 2001)                                                                                                                                                                                                                                                                                                                        
|         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|3(b)-3   | - | Limited Liability Company Agreement
      of PPL Energy Supply, LLC, dated March 20, 2001 (Exhibit 3.2 to PPL Energy
      Supply, LLC Form S-4 (Registration Statement No. 333-74794))                                                                                                                                                                                                                                                                                                                   
|         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|3(b)-4   | - | Limited Liability Company Agreement
      and Bylaws of PPL Montana, LLC, effective as of December 17, 1999 (Exhibit
      3.2 to PPL Montana, LLC Form S-4 (Registration Statement No. 333-50350))                                                                                                                                                                                                                                                                                                       
|         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|4(a)-1   | - | Amended and Restated Employee Stock
      Ownership Plan, effective January 1, 2000 (Exhibit 4(a) to PPL Corporation
      Form 10-K Report (File No. 1-11459) for year ended December 31, 2000)                                                                                                                                                                                                                                                                                                          
|         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|4(a)-2   | - | Amendment No. 1 to said Employee Stock
      Ownership Plan, effective January 1, 2000 (Exhibit 4(a)-2 to PPL Corporation
      Form 10-K Report (File No.1-11459) for year ended December 31, 2001)                                                                                                                                                                                                                                                                                                      
|         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|*4(a)-3  | - | Amendment No. 2 to said Employee Stock
      Ownership Plan, dated October 8, 2002                                                                                                                                                                                                                                                                                                                                                                                                                        
|         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|4(b)-1   | - | Mortgage and Deed of Trust, dated
      as of October 1, 1945, between PPL Electric Utilities Corporation and Bankers
      Trust Company (as successor Trustee) (Exhibit 2(a)-4 to Registration Statement
      No. 2-60291)                                                                                                                                                                                                                                                                             
|         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|4(b)-2   | - | Supplement, dated as of July 1, 1954,
      to said Mortgage and Deed of Trust (Exhibit 2(b)-5 to Registration Statement
      No. 219255)                                                                                                                                                                                                                                                                                                                                                                
|         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|4(b)-3   | - | Supplement, dated as of July 1, 1991,
      to said Mortgage and Deed of Trust (Exhibit 4(a) to PPL Electric Utilities
      Corporation Form 8-K Report (File No. 1-905) dated July 29, 1991)                                                                                                                                                                                                                                                                                                            
|         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|4(b)-4   | - | Supplement, dated as of May 1, 1992,
      to said Mortgage and Deed of Trust (Exhibit 4(a) to PPL Electric Utilities
      Corporation Form 8-K Report (File No. 1-905) dated June 1, 1992)                                                                                                                                                                                                                                                                                                              
|         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|4(b)-5   | - | Supplement, dated as of November 1,
      1992, to said Mortgage and Deed of Trust (Exhibit 4(b)-29 to PPL Electric
      Utilities Corporation Form 10-K Report (File 1-905) for the year ended December
      31, 1992)                                                                                                                                                                                                                                                                                 
|         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|4(b)-6   | - | Supplement, dated as of February 1,
      1993, to said Mortgage and Deed of Trust (Exhibit 4(a) to PPL Electric Utilities
      Corporation Form 8-K Report (File No. 1-905) dated February 16, 1993)                                                                                                                                                                                                                                                                                                    
|         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|4(b)-7   | - | Supplement, dated as of April 1, 1993,
      to said Mortgage and Deed of Trust (Exhibit 4(a) to PPL Electric Utilities
      Corporation Form 8-K Report (File No. 1-905) dated April 30, 1993)                                                                                                                                                                                                                                                                                                          
|         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|4(b)-8   | - | Supplement, dated as of October 1,
      1993, to said Mortgage and Deed of Trust (Exhibit 4(a) to PPL Electric Utilities
      Corporation Form 8-K Report (File No. 1-905) dated October 29, 1993)                                                                                                                                                                                                                                                                                                      
|         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|4(b)-9   | - | Supplement, dated as of February 15,
      1994, to said Mortgage and Deed of Trust (Exhibit 4(a) to PPL Electric Utilities
      Corporation Form 8-K Report (File No. 1-905) dated March 11, 1994)                                                                                                                                                                                                                                                                                                      
|         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|4(b)-10  | - | Supplement, dated as of March 1, 1994,
      to said Mortgage and Deed of Trust (Exhibit 4(b) to PPL Electric Utilities
      Corporation Form 8-K Report (File No. 1-905) dated March 11, 1994)                                                                                                                                                                                                                                                                                                          
|         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|4(b)-11  | - | Supplement, dated as of March 15,
      1994, to said Mortgage and Deed of Trust (Exhibit 4(a) to PPL Electric Utilities
      Corporation Form 8-K Report (File No. 1-905) dated March 30, 1994)                                                                                                                                                                                                                                                                                                         
|         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|4(b)-12  | - | Supplement, dated as of September
      1, 1994, to said Mortgage and Deed of Trust (Exhibit 4(a) to PPL Electric
      Utilities Corporation Form 8-K (File No. 1-905) dated October 3, 1994)                                                                                                                                                                                                                                                                                                            
|         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|4(b)-13  | - | Supplement, dated as of October 1,
      1994, to said Mortgage and Deed of Trust (Exhibit 4(a) to PPL Electric Utilities
      Corporation Form 8-K Report (File No. 1-905) dated October 3, 1994)                                                                                                                                                                                                                                                                                                       
|         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|4(b)-14  | - | Supplement, dated as of August 1,
      1995, to said Mortgage and Deed of Trust (Exhibit 6(a) to PPL Electric Utilities
      Corporation Form 10-Q Report (File No. 1-905) for the quarter ended September
      30, 1995)                                                                                                                                                                                                                                                                              
|         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|4(b)-15  | - | Supplement, dated as of April 1, 1997
      to said Mortgage and Deed of Trust (Exhibit 4(b)-17 to PPL Electric Utilities
      Corporation Form 10-K Report (File No. 1-905) for the year ended December
      31, 1997)                                                                                                                                                                                                                                                                                 
|         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|4(b)-16  | - | Supplement, dated as of May 5, 1998,
      to said Mortgage and Deed of Trust (Exhibit 4.3 to PPL Electric Utilities
      Corporation Form 8-K Report (File No. I-905) dated May 1, 1998)                                                                                                                                                                                                                                                                                                                
|         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|4(b)-17  | - | Supplement, dated as of June 1, 1999,
      to said Mortgage and Deed of Trust (Exhibit 4(b)-19 to PPL Electric Utilities
      Corporation Form 10-K Report (File No. 1-905) for the year ended December
      31, 1999)                                                                                                                                                                                                                                                                                 
|         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|4(b)-18  | - | Supplement, dated as of August 1,
      2001, to said Mortgage and Deed of Trust (Exhibit 4.5 to PPL Electric Utilities
      Corporation Form 8-K Report (File No. 1-905) dated August 21, 2001)                                                                                                                                                                                                                                                                                                         
|         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|4(b)-19  | - | Supplement, dated as of January 1,
      2002, to said Mortgage and Deed of Trust (Exhibit 4(b)-19 to PPL Corporation
      Form 10-K Report (File No. 1-11459) for year ended December 31, 2001)                                                                                                                                                                                                                                                                                                         
|         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|*4(b)-20 | - | Supplement, dated as of February 1,
      2003, to said Mortgage and Deed of Trust                                                                                                                                                                                                                                                                                                                                                                                                                        
|         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|4(c)-1   | - | Indenture, dated as of November 1,
      1997, among PPL Corporation, PPL Capital Funding, Inc. and JPMorgan Chase
      Bank (formerly The Chase Manhattan Bank), as Trustee (Exhibit 4.1 to PPL
      Corporation Form 8-K Report (File No. 1-11459) dated November 12, 1997)                                                                                                                                                                                                                           
|         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|4(c)-2   | - | Supplement, dated as of November 1,
      1997, to said Indenture (Exhibit 4.2 to PPL Corporation Form 8-K Report
      (File No. 1-11459) dated November 12, 1997)                                                                                                                                                                                                                                                                                                                                       
|         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|4(c)-3   | - | Supplement, dated as of March 1, 1999,
      to said Indenture (Exhibit 4.3 to Registration Statement Nos. 333-87847,
      333-87847-01 and 333-87847-02)                                                                                                                                                                                                                                                                                                                                                
|         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|4(c)-4   | - | Supplement, dated as of October 1,
      1999, to said Indenture (Exhibit 4(c)-4 to PPL Corporation Form 10-K Report
      (File No. 1-11459) for the year ended December 31, 1999)                                                                                                                                                                                                                                                                                                                       
|         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|4(c)-5   | - | Supplement, dated as of June 1, 2000,
      to said Indenture (Exhibit 4 to PPL Corporation Form 10-Q Report (File No.
      1-11459) for the quarter ended June 30, 2000)                                                                                                                                                                                                                                                                                                                                
|         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|4(d)-1   | - | Junior Subordinated Indenture, dated
      as of April 1, 1997, between PPL Electric Utilities Corporation and JPMorgan
      Chase Bank (formerly The Chase Manhattan Bank), as Trustee (Exhibit 4.1
      to Registration Statement No. 333-20661)                                                                                                                                                                                                                                                      
|         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|4(d)-2   | - | Amended and Restated Trust Agreement,
      dated as of April 8, 1997, among PPL Electric Utilities Corporation, JPMorgan
      Chase Bank (formerly The Chase Manhattan Bank), as Property Trustee, Chase
      Manhattan Bank (Delaware), as Delaware Trustee, and John R. Biggar and James
      E. Abel, as Administrative Trustees (Exhibit 4.4 to Registration Statement
      No. 333-20661)                                                                                                       
|         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|4(d)-3   | - | Guarantee Agreement, dated as of April
      8, 1997, between PPL Electric Utilities Corporation and JPMorgan Chase Bank
      (formerly The Chase Manhattan Bank), as Trustee (Exhibit 4.6 to Registration
      Statement No. 333-20661)                                                                                                                                                                                                                                                                
|         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|4(e)-1   | - | Amended and Restated Trust Agreement,
      dated as of June 13, 1997, among PPL Electric Utilities Corporation, JPMorgan
      Chase Bank (formerly The Chase Manhattan Bank), as Property Trustee, Chase
      Manhattan Bank (Delaware), as Delaware Trustee, and John R. Biggar and James
      E. Abel, as Administrative Trustees (Exhibit 4.4 to Registration Statement
      No. 333-27773)                                                                                                       
|         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|4(e)-2   | - | Guarantee Agreement, dated as of June
      13, 1997, between PPL Electric Utilities Corporation and JPMorgan Chase
      Bank (formerly The Chase Manhattan Bank), as Trustee (Exhibit 4.6 to Registration
      Statement No. 333-27773)                                                                                                                                                                                                                                                                
|         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|4(f)-1   | - | Subordinated Indenture, dated as of
      May 9, 2001, between PPL Capital Funding, Inc., PPL Corporation and JPMorgan
      Chase Bank (formerly The Chase Manhattan Bank), as Trustee (Exhibit 4.1
      to PPL Corporation Form 8-K Report (File No. 1-11459) dated May 9, 2001)                                                                                                                                                                                                                       
|         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|4(f)-2   | - | Supplement, dated as of May 9, 2001,
      to said Subordinated Indenture (Exhibit 4.2 to PPL Corporation Form 8-K
      Report (File No. 1-11459) dated May 9, 2001)                                                                                                                                                                                                                                                                                                                                     
|         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|4(f)-3   | - | Trust Securities Guarantee Agreement,
      dated as of May 9, 2001 (Exhibit 4.10 to PPL Corporation Form 8-K Report
      (File No. 1-11459) dated May 9, 2001)                                                                                                                                                                                                                                                                                                                                          
|         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|4(f)-4   | - | Amended and Restated Trust Agreement,
      dated as of May 9, 2001, among PPL Corporation, PPL Capital Funding, Inc.,
      JPMorgan Chase Bank (formerly The Chase Manhattan Bank) as Property Trustee,
      Chase Manhattan Bank USA National Association, as Delaware Trustee, John
      R. Biggar and James E., Abel, as Administrative Trustees, and the several
      Holders of the Trust Securities (Exhibit 4.8 to PPL Corporation Form 8-K
      Report (File No. 1-11459) dated May 9, 2001)
|         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|4(g)-1   | - | Indenture, dated as of August 1, 2001,
      by PPL Electric Utilities Corporation and JPMorgan Chase Bank (formerly
      The Chase Manhattan Bank), as Trustee (Exhibit 4.1 to PPL Electric Utilities
      Corporation Form 8-K Report (File No. 1-905) dated August 21, 2001)                                                                                                                                                                                                                         
|         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|4(g)-2   | - | Supplement, dated as of August 1,
      2001, to said Indenture (Exhibit 4.2 to PPL Electric Utilities Corporation
      Form 8-K Report (File No. 1-905) dated August 21, 2001)                                                                                                                                                                                                                                                                                                                          
|         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|*4(g)-3  | - | Supplement, dated as of February 1,
      2003, to said Indenture                                                                                                                                                                                                                                                                                                                                                                                                                                         
|         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|4(h)-1   | - | Indenture, dated as of October 1,
      2001, by PPL Energy Supply, LLC and JPMorgan Chase Bank (formerly The Chase
      Manhattan Bank), as Trustee (Exhibit 4.1 to PPL Energy Supply, LLC Form
      S-4 (Registration Statement No. 333-74794))                                                                                                                                                                                                                                                       
|         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|4(h)-2   | - | Supplement, dated as of October 1,
      2001, to said Indenture (Exhibit 4.2 to PPL Energy Supply, LLC Form S-4
      (Registration Statement No. 333-74794))                                                                                                                                                                                                                                                                                                                                            
|         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|4(h)-3   | - | Registration Rights Agreement between
      PPL Energy Supply, LLC and the Initial Purchasers (Exhibit 4.5 to PPL Energy
      Supply, LLC Form S-4 (Registration Statement No. 333-74794))                                                                                                                                                                                                                                                                                                               



|10(a)       | - | $300 million 364-Day Credit Agreement,
      dated as of June 25, 2002, among PPL Energy Supply, LLC and the banks named
      therein (Exhibit 10(a) to PPL Energy Supply, LLC Form 10-Q Report (File
      No. 333-74794) for the quarter ended June 30, 2002)                                                                                                                               
|----------- | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                
|10(b)       | - | $300 million Three-Year Credit Agreement,
      dated of as June 25, 2002, among PPL Energy Supply, LLC and the banks named
      therein (Exhibit 10(b) to PPL Energy Supply, LLC Form 10-Q Report (File
      No. 333-74794) for the quarter ended June 30, 2002)                                                                                                                            
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                
|10(c)       | - | $400 million 364-Day Credit Agreement,
      dated as of June 25, 2002, among PPL Electric Utilities Corporation and
      the banks named therein (Exhibit 10(c) to PPL Electric Utilities Corporation
      Form 10-Q Report (File No. 1-905) for the quarter ended June 30, 2002)                                                                                                           
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                
|*10(d)      | - | Credit Agreement dated as of October
      31, 2002, among PPL Montana, LLC and PPL Investment Corporation                                                                                                                                                                                                                                                                                     
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                
|10(e)       | - | $150 Million Credit and Reimbursement
      Agreement, dated as of April 25, 2001, among PPL Montana, LLC and the banks
      named therein (Exhibit 10(d) to PPL Montana, LLC Form 10-Q Report (File
      No. 333-50350) for the quarter ended June 30, 2001)                                                                                                                                
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                
|10(f)       | - | Generation Supply Agreement, dated
      as of June 20, 2001, between PPL Electric Utilities Corporation and PPL
      EnergyPlus, LLC (Exhibit 10.5 to PPL Energy Supply, LLC Form S-4 (Registration
      Statement No. 333-74794))                                                                                                                                                          
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                
|10(g)       | - | Master Power Purchase and Sale Agreement,
      dated as of October 15, 2001, between The Montana Power Company and PPL
      Montana, LLC (Exhibit 10(g) to PPL Montana, LLC Form 10-K Report (File No.
      333-50350) for year ended December 31, 2002)                                                                                                                                    
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                
|10(h)       | - | Amended and Restated Parent Guaranty,
      dated as of November 30, 2000, by PPL Corporation in favor of Large Scale
      Distributed Generation Statutory Trust (Exhibit 10(h) to PPL Corporation
      Form 10-K Report (File No. 1-11495) for year ended December 31, 2001)                                                                                                               
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                
|10(i)       | - | Amended and Restated PPL Energy Supply,
      LLC Guarantee, dated as of July 17, 2001, in favor of Large Scale Distributed
      Generation II Statutory Trust (Exhibit 10.6 to PPL Energy Supply, LLC Form
      S-4 (Registration Statement No. 333-74794))                                                                                                                                 
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                
|10(j)       | - | Guaranty, dated as of December 21,
      2001, from PPL Energy Supply, LLC in favor of LMB Funding, Limited Partnership
      (Exhibit 10(j) to PPL Energy Supply, LLC Form 10-K Report (File No. 333-74794)
      for year ended December 31, 2001)                                                                                                                                           
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                
|10(k)       | - | Pollution Control Facilities Agreement,
      dated as of May 1, 1973, between PPL Electric Utilities Corporation and
      the Lehigh County Industrial Development Authority (Exhibit 5(z) to Registration
      Statement No. 2-60834)                                                                                                                                                      
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                
|10(l)       | - | Amended and Restated Operating Agreement
      of the PJM Interconnection, L.L.C., dated February 6, 2002 (Exhibit 10(l)
      to PPL Corporation Form 10-K Report (File No. 1-11495) for year ended December
      31, 2001)                                                                                                                                                                  
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                
|[_]10(m)    | - | Amended and Restated Directors Deferred
      Compensation Plan, dated February 14, 2000 (Exhibit 10(h) to PPL Corporation
      Form 10-K Report (File No. 1-11459) for year ended December 31, 2000)                                                                                                                                                                                         
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                
|*[_]10(m)-1 | - | Amendment No. 1 to Amended and Restated
      Directors Deferred Compensation Plan, dated December 18, 2002                                                                                                                                                                                                                                                                                    
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                
|[_]10(n)-1  | - | Amended and Restated Officers Deferred
      Compensation Plan, effective February 14, 2000 (Exhibit 10(i)-1 to PPL Corporation
      Form 10-K Report (File No. 1-11459) for year ended December 31, 2000)                                                                                                                                                                                    
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                
|[_]10(n)-2  | - | Amendment No. 1 to said Officers Deferred
      Compensation Plan, effective July 1, 2000 (Exhibit 10(i)-2 to PPL Corporation
      Form 10-K Report (File No. 1-11459) for year ended December 31, 2000)                                                                                                                                                                                      
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                
|[_]10(n)-3  | - | Amendment No. 2 to said Officers Deferred
      Compensation Plan, effective July 1, 2000 (Exhibit 10(i)-3 to PPL Corporation
      Form 10-K Report (File No. 1-11459) for year ended December 31, 2000)                                                                                                                                                                                      
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                
|[_]10(n)-4  | - | Amendment No. 3 to said Officers Deferred
      Compensation Plan, effective January 1, 2001 (Exhibit 10(n)-4 to PPL Corporation
      Form 10-K Report (File No. 1-11459) for year ended December 31, 2001)                                                                                                                                                                                   
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                
|[_]10(n)-5  | - | Amendment No. 4 to said Officers Deferred
      Compensation Plan, effective August 17, 2001 (Exhibit 10(n)-5 to PPL Corporation
      Form 10-K Report (File No. 1-11459) for year ended December 31, 2001)                                                                                                                                                                                   
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                
|[_]10(o)-1  | - | Amended and Restated Supplemental
      Executive Retirement Plan, effective October 1, 1999 (Exhibit 10(j)-1 to
      PPL Corporation Form 10-K Report (File No. 1-11459) for year ended December
      31, 2000)                                                                                                                                                                             
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                
|[_]10(o)-2  | - | Amendment No. 1 to said Supplemental
      Executive Retirement Plan, effective July 1, 2000 (Exhibit 10(j)-2 to PPL
      Corporation Form 10-K Report (File No. 1-11459) for year ended December
      31, 2000)                                                                                                                                                                             
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                
|[_]10(o)-3  | - | Amendment No. 2 to said Supplemental
      Executive Retirement Plan, effective January 1, 2001 (Exhibit 10(o)-3 to
      PPL Corporation Form 10-K Report (File No. 1-11459) for year ended December
      31, 2001)                                                                                                                                                                          
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                
|[_]10(o)-4  | - | Amendment No. 3 to said Supplemental
      Executive Retirement Plan, effective August 17, 2001 (Exhibit 10(o)-4 to
      PPL Corporation Form 10-K Report (File No. 1-11459) for year ended December
      31, 2001)                                                                                                                                                                          
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                
|*[_]10(p)   | - | Incentive Compensation Plan, amended
      and restated effective January 1, 2003                                                                                                                                                                                                                                                                                                              
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                
|*[_]10(q)   | - | Incentive Compensation Plan for Key
      Employees, amended and restated effective January 1, 2003 (to be submitted
      for approval at the 2003 Annual Meeting of PPL Corporation shareholders)                                                                                                                                                                                            
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                
|[_]10(r)    | - | Short-Term Incentive Plan (Schedule
      B to Proxy Statement of PPL Corporation, dated March 12, 1999)                                                                                                                                                                                                                                                                                       
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                
|[_]10(s)    | - | Form of Severance Agreement entered
      into between PPL Corporation and the Executive Officers listed in this Form
      10-K Report (Exhibit 10(r) to PPL Corporation Form 10-K Report (File No.
      1-11459) for year ended December 31, 2001)                                                                                                                                          
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                
|[_]10(t)    | - | Form for Retention Agreement entered
      into between PPL Corporation and Messrs. Champagne, De Simone, Miller and
      Petersen (Exhibit 10(s) to PPL Corporation Form 10-K Report (File No. 1-11459)
      for year ended December 31, 2001)                                                                                                                                              
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                
|*[_]10(u)   | - | Agreement dated January 15, 2003 between
      PPL Corporation and Mr. Miller regarding Supplemental Pension Benefits                                                                                                                                                                                                                                                                          
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                
|10(v)       | - | Equity Contribution Agreement, among
      PPL Corporation, PPL Montana, LLC, and The Chase Manhattan Bank, as Trustee
      (Exhibit 10.15 to PPL Montana, LLC Form S-4 (Registration Statement No.
      333-50350))                                                                                                                                                                         
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                
|10(w)       | - | Facility Lease Agreement (BA 1/2)
      between PPL Montana, LLC and Montana OL3, LLC (Exhibit 4.7a to PPL Montana,
      LLC Form S-4 (Registration Statement No. 333-50350))                                                                                                                                                                                                                 
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                
|10(x)       | - | Facility Lease Agreement (BA 3) between
      PPL Montana, LLC and Montana OL4, LLC (Exhibit 4.8a to PPL Montana, LLC
      Form S-4 (Registration Statement No. 333-50350))                                                                                                                                                                                                                   
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                
|10(y)       | - | Services Agreement, dated as of July
      1, 2000, among PPL Corporation, PPL Energy Funding Corporation and its direct
      and indirect subsidiaries in various tiers, PPL Capital Funding, Inc., PPL
      Gas Utilities Corporation, PPL Services Corporation and CEP Commerce, LLC
      (Exhibit 10.20 to PPL Energy Supply, LLC Form S-4 (Registration Statement
      No. 333-74794))
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                
|*10(z)      | - | Pollution Control Facilities Loan
      Agreement, dated as of February 1, 2003, between PPL Electric Utilities
      Corporation and the Lehigh County Industrial Development Authority                                                                                                                                                                                                       
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                
|*12(a)      | - | PPL Corporation and Subsidiaries Computation
      of Ratio of Earnings to Fixed Charges                                                                                                                                                                                                                                                                                                       
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                
|*12(b)      | - | PPL Energy Supply, LLC and Subsidiaries
      Computation of Ratio of Earnings to Fixed Charges                                                                                                                                                                                                                                                                                                
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                
|*12(c)      | - | PPL Electric Utilities Corporation
      and Subsidiaries Computation of Ratio of Earnings to Fixed Charges                                                                                                                                                                                                                                                                                    
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                
|*12(d)      | - | PPL Montana, LLC and Subsidiaries
      Computation of Ratio of Earnings to Fixed Charges                                                                                                                                                                                                                                                                                                      
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                
|*21(a)      | - | Subsidiaries of PPL Corporation                                                                                                                                                                                                                                                                                                                                                                
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                
|*21(b)      | - | Subsidiaries of PPL Electric Utilities
      Corporation                                                                                                                                                                                                                                                                                                                                       
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                
|*23(a)      | - | Consent of PricewaterhouseCoopers
      LLP - PPL Corporation                                                                                                                                                                                                                                                                                                                                  
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                
|*23(b)      | - | Consent of PricewaterhouseCoopers
      LLP - PPL Electric Utilities Corporation                                                                                                                                                                                                                                                                                                               
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                
|*24         | - | Power of Attorney                                                                                                                                                                                                                                                                                                                                                                              
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                
|*99(a)      | - | Certificate of PPL's principal executive
      officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                              
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                
|*99(b)      | - | Certificate of PPL's principal financial
      officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                              
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                
|*99(c)      | - | Certificate of PPL Energy Supply's
      principal executive officer pursuant to Section 906 of the Sarbanes-Oxley
      Act of 2002.                                                                                                                                                                                                                                                          
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                
|*99(d)      | - | Certificate of PPL Energy Supply's
      principal financial officer pursuant to Section 906 of the Sarbanes-Oxley
      Act of 2002.                                                                                                                                                                                                                                                          
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                
|*99(e)      | - | Certificate of PPL Electric's principal
      executive officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                     
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                
|*99(f)      | - | Certificate of PPL Electric's principal
      financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                     
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                
|*99(g)      | - | Certificate of PPL Montana's principal
      executive officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                      
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                
|*99(h)      | - | Certificate of PPL Montana's principal
      financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                      
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                
|*99(i)      | - | PPL Corporate Organization (Selected
      Subsidiaries)                                                                                                                                                                                                                                                                                                                                       

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