|UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C.  20549
|----------------------------------------------------------------------
|                                                                      
|FORM 10-K                                                             
|                                                                      
|[X]                                                                   
|                                                                      
|OR                                                                    
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|[   ]                                                                 
|                                                                      
|Commission FileNumber                                                 
|                                                                      
|1-11459                                                               
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|333-74794                                                             
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|1-905                                                                 
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|333-50350                                                             
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|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 Electric Utilities Corporation
|-----------------------------------------------------------------------------------------
|                                                                                         
|                                                                                         
|PPL Capital Funding                                                                      
|                                                                                         
|                                                                                         
|(a)                                                                                      
|(b)                                                                                      
|(c)                                                                                      

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                    | [ X ]
|---------------------------------- | -----
|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   | No X
|PPL Electric Utilities Corporation | Yes X | No  
|PPL Montana, LLC                   | Yes X | No  

| | PPL Energy Supply, LLC has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 since its initial Registration Statement on Form S-4 became effective on January 7, 2002.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



As of January 31, 2002, PPL Corporation had 146,581,220 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 average of the high and low price of these shares on the New York Stock Exchange on that date) held by non-affiliates was $4,838,646,000.



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 January 31, 2002 was $67,402,000.



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 2002 Notice of Annual Meeting and Proxy Statement, and PPL Electric Utilities Corporation's 2002 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, 2001.  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, 2001

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                                                                                 | 10                                                                      
|3.                                 |  | Legal Proceedings                                                                          | 12                                                                      
|4.                                 |  | Submission of Matters
      to a Vote of Security Holders                                  | 14                                                                      
|                                   |  | Executive Officers
      of the Registrants                                                | 15                                                                      
|                                   |  |                                                                                            |                                                                         
|PPL CORPORATION                   
|PART II                           
|                                  
|5.                                 |  | Market for the Registrant's
      Common Equity and Related Stockholder Matters            | 18                                                                      
|6.                                 |  | Selected Financial
      and Operating Data                                                | 19                                                                      
|7.                                 |  | Review of the Financial
      Condition and Results of Operations                          | 20                                                                      
|7A.                                |  | Quantitative and
      Qualitative Disclosures About Market Risk                           | 34                                                                      
|                                   |  | Report
      of Independent Accountants                                                    | 36                                                                      
|                                   |  | Management's
      Report on Responsibility for Financial Statements                       | 37                                                                      
|8.                                 |  | Financial
      Statements and Supplementary Data                                          |                                                                         
|                                   |  | Financial Statements:                                                                      |                                                                         
|                                   |  | Consolidated
      Statement of Income for each of the Three Years Ended                   |                                                                         
|                                   |  |                                                                                            | December 31, 2001, 2000 and 1999                                        
|                                   |  | Consolidated
      Statement of Cash Flows for each of the Three Years Ended               |                                                                         
|                                   |  |                                                                                            | December 31, 2001, 2000 and 1999                                        
|                                   |  | Consolidated
      Balance Sheet at December 31, 2001 and 2000                             | 40                                                                      
|                                   |  | Consolidated
      Statement of Shareowners' Common Equity and Comprehensive Income        |                                                                         
|                                   |  |                                                                                            | for each of the Three Years Ended
      December 31, 2001, 2000 and 1999
|                                   |  | Consolidated
      Statement of Preferred Stockat December 31, 2001 and 2000               | 43                                                                      
|                                   |  | Consolidated
      Statement of Company-Obligated Mandatorily Redeemable Securities at     |                                                                         
|                                   |  |                                                                                            | December 31, 2001 and 2000                                              
|                                   |  | Consolidated
      Statement of Long-Term Debtat December 31, 2001 and 2000                | 45                                                                      
|                                   |  | Notes to Consolidated
      Financial Statements                                           | 46                                                                      
|                                   |  | Supplemental Financial Statement Schedule:                                                 |                                                                         
|                                   |  | II - Valuation
      and Qualifying Accounts and Reserves for the Three Years Ended        |                                                                         
|                                   |  |                                                                                            | December 31, 2001                                                       
|                                   |  | Quarterly
      Financial Data, Common Stock Price and Dividend Data                       | 71                                                                      
|9.                                 |  | Changes in and
      Disagreements with Accountants on Accounting and Financial Disclosure | 72                                                                      
|                                   |  |                                                                                            |                                                                         
|PART III                          
|                                  
|10.                                |  | Directors and
      Executive Officers of the Registrant                                   | 72                                                                      
|11.                                |  | Executive Compensation                                                                     | 72                                                                      
|12.                                |  | Security Ownership
      of Certain Beneficial Owners and Management                       | 72                                                                      
|13.                                |  | Certain Relationships
      and Related Transactions                                       | 72                                                                      
|                                  
|PPL ENERGY SUPPLY, LLC            
|PART II                           
|                                  
|5.                                 |  | Market for the
      Registrant's Common Equity and Related Stockholder Matters            | 75                                                                      
|6.                                 |  | Selected Financial
      and Operating Data                                                | 75                                                                      
|7.                                 |  | Review of the Financial
      Condition and Results of Operations                          | 76                                                                      
|7A.                                |  | Quantitative and
      Qualitative Disclosures About Market Risk                           | 84                                                                      
|                                   |  | Report
      of Independent Accountants                                                    | 86                                                                      
|                                   |  | Management's
      Report on Responsibility for Financial Statements                       | 87                                                                      
|8.                                 |  | Financial Statements and Supplementary
      Data                                          |                                                                         
|                                   |  | Financial Statements:                                                                      |                                                                         
|                                   |  | Consolidated
      Statement of Income for each of the Three Years Ended                   |                                                                         
|                                   |  |                                                                                            | December 31, 2001, 2000 and 1999                                        
|                                   |  | Consolidated
      Statement of Cash Flows for each of the Three Years Ended               |                                                                         
|                                   |  |                                                                                            | December 31, 2001, 2000 and 1999                                        
|                                   |  | Consolidated
      Balance Sheet at December 31, 2001 and 2000                             | 90                                                                      
|                                   |  | Consolidated
      Statement of Member's Equity and Comprehensive Income for each of the   |                                                                         
|                                   |  |                                                                                            | Three Years Ended December 31, 2001,
      2000 and 1999                
|                                   |  | Consolidated Statement
      of Long-Term Debtat December 31, 2001 and 2000                | 93                                                                      
|                                   |  | Notes to Consolidated
      Financial Statements                                           | 94                                                                      
|                                   |  | Supplemental Financial Statement Schedule:                                                 |                                                                         
|                                   |  | II - Valuation
      and Qualifying Accounts and Reserves for the Three Years Ended        |                                                                         
|                                   |  |                                                                                            | December 31, 2001                                                       
|9.                                 |  | Changes in and
      Disagreements with Accountants on Accounting and Financial Disclosure | 117                                                                     
|                                   |  |                                                                                            |                                                                         
|PART III                          
|10.                                |  | Directors and
      Executive Officers of the Registrant                                   | 117                                                                     
|11.                                |  | Executive Compensation                                                                     | 117                                                                     
|12.                                |  | Security Ownership
      of Certain Beneficial Owners and Management                       | 117                                                                     
|13.                                |  | Certain Relationships
      and Related Transactions                                       | 117                                                                     
|                                   |  |                                                                                            |                                                                         
|PPL ELECTRIC UTILITIES CORPORATION
|PART II                           
|                                  
|5.                                 |  | Market for the
      Registrant's Common Equity and Related Stockholder Matters            | 119                                                                     
|6.                                 |  | Selected Financial
      and Operating Data                                                | 120                                                                     
|7.                                 |  | Review of the Financial
      Condition and Results of Operations                          | 121                                                                     
|7A.                                |  | Quantitative and
      Qualitative Disclosures About Market Risk                           | 127                                                                     
|                                   |  | Report
      of Independent Accountants                                                    | 128                                                                     
|                                   |  | Management's
      Report on Responsibility for Financial Statements                       | 129                                                                     
|8.                                 |  | Financial Statements and Supplementary
      Data                                          |                                                                         
|                                   |  | Financial Statements:                                                                      |                                                                         
|                                   |  | Consolidated
      Statement of Income for each of the Three Years Ended                   |                                                                         
|                                   |  |                                                                                            | December 31, 2001, 2000 and 1999                                        
|                                   |  | Consolidated
      Statement of Cash Flowsfor each of the Three Years Ended                |                                                                         
|                                   |  |                                                                                            | December 31, 2001, 2000 and 1999                                        
|                                   |  | Consolidated
      Balance Sheetat December 31, 2001 and 2000                              | 132                                                                     
|                                   |  | Consolidated
      Statement of Shareowner's Common Equity and Comprehensive Income        |                                                                         
|                                   |  |                                                                                            | for each of the Three Years Ended December 31,
      2001, 2000 and 1999
|                                   |  | Consolidated
      Statement of Preferred Stockat December 31, 2001 and 2000               | 135                                                                     
|                                   |  | Consolidated
      Statement of Company-Obligated Mandatorily Redeemable Securities at     |                                                                         
|                                   |  |                                                                                            | December 31, 2001 and 2000                                              
|                                   |  | Consolidated Statement
      of Long-Term Debt at December 31, 2001 and 2000               | 137                                                                     
|                                   |  | Notes to Consolidated
      Financial Statements                                           | 138                                                                     
|                                   |  | Supplemental Financial Statement Schedule:                                                 |                                                                         
|                                   |  | II - Valuation
      and Qualifying Accounts and Reserves for the Three Years Ended        |                                                                         
|                                   |  |                                                                                            | December 31, 2001                                                       
|                                   |  | Quarterly
      Financial Data                                                             | 148                                                                     
|9.                                 |  | Changes in and
      Disagreements with Accountants on Accounting and Financial Disclosure | 149                                                                     
|                                   |  |                                                                                            |                                                                         
|PART III                          
|                                  
|10.                                |  | Directors and
      Executive Officers of the Registrant                                   | 149                                                                     
|11.                                |  | Executive Compensation                                                                     | 149                                                                     
|12.                                |  | Security Ownership
      of Certain Beneficial Owners and Management                       | 149                                                                     
|13.                                |  | Certain Relationships
      and Related Transactions                                       | 149                                                                     
|                                   |  |                                                                                            |                                                                         
|PPL MONTANA, LLC                  
|PART II                           
|                                  
|5.                                 |  | Market for
      the Registrant's Common Equity and Related Stockholder Matters            | 151                                                                     
|6.                                 |  | Selected Financial
      and Operating Data                                                | 151                                                                     
|7.                                 |  | Review of
      the Financial Condition and Results of Operations                          | 152                                                                     
|7A.                                |  | Quantitative
      and Qualitative Disclosures About Market Risk                           | 155                                                                     
|                                   |  | Report
      of Independent Accountants                                                    | 156                                                                     
|                                   |  | Management's
      Report on Responsibility for Financial Statements                       | 157                                                                     
|8.                                 |  | Financial Statements and Supplementary
      Data                                          |                                                                         
|                                   |  | Financial Statements:                                                                      |                                                                         
|                                   |  | Consolidated
      Statement of Income for each of the Three Years Ended                   |                                                                         
|                                   |  |                                                                                            | December 31, 2001, 2000 and 1999                                        
|                                   |  | Consolidated
      Statement of Cash Flows for each of the Three Years Ended               |                                                                         
|                                   |  |                                                                                            | December 31, 2001, 2000 and 1999                                        
|                                   |  | Consolidated
      Balance Sheet at December 31, 2001 and 2000                             | 160                                                                     
|                                   |  | Consolidated
      Statement of Member's Equity and Comprehensive Income                   |                                                                         
|                                   |  |                                                                                            | for each of the Three Years Ended
      December 31, 2001, 2000, 1999   
|                                   |  | Notes to Consolidated
      Financial Statements                                           | 162                                                                     
|                                   |  | Supplemental Financial Statement Schedule:                                                 |                                                                         
|                                   |  | II -
      Valuation and Qualifying Accounts and Reserves for the Three Years Ended        |                                                                         
|                                   |  |                                                                                            | December 31, 2001                                                       
|9.                                 |  | Changes in
      and Disagreements with Accountants on Accounting and Financial Disclosure | 175                                                                     
|                                   |  |                                                                                            |                                                                         
|PART III                          
|                                  
|10.                                |  | Directors
      and Executive Officers of the Registrant                                   | 175                                                                     
|11.                                |  | Executive
      Compensation                                                               | 175                                                                     
|12.                                |  | Security
      Ownership of Certain Beneficial Owners and Management                       | 175                                                                     
|13.                                |  | Certain Relationships
      and Related Transactions                                       | 175                                                                     
|                                   |  |                                                                                            |                                                                         
|PART IV                           
|                                  
|14.                                |  | Exhibits, Financial
      Statement Schedules, and Reports on Form 8-K                     | 176                                                                     
|                                   |  | Shareowner and
      Investor Information                                                  | 178                                                                     
|                                   |  | Signatures                                                                                 | 180                                                                     
|                                   |  | Exhibit Index                                                                              | 184                                                                     
|                                   |  | Computation
      of Ratio of Earnings to Fixed Charges                                    | 190                                                                     
|                                   |  | PPL
      Corporation - Corporate Organization                                             | 194                                                                     



---

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 Bankers Trust Company, 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.



APB- Accounting Principles Board.



Bangor Hydro - Bangor Hydro-Electric Company.



BG&E - Baltimore Gas & Electric Company.



BGG - Bolivian Generating Group, LLC, an energy consortium with a 50% interest in an electric generating company in Bolivia.



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



CGE-Compañia General Electricidad, SA, a distributor of energy in Chile and Argentina in which PPL Global has a 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.



CO2- carbon dioxide.



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



Customer Choice Act (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 Electricidad del Sur S.A., an electric distribution company in El Salvador, a majority of which is owned by EC.



DEP - Department of Environmental Protection.



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.



DRIP - Dividend Reinvestment Plan.



EC - Electricidad de Centroamerica, S.A. de C.V, an El Salvadoran holding company and the majority owner of Del Sur.  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.



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.



EPS - earnings 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) - federal agency that regulates interstate transmission and wholesale sales of electricity and related matters.

GAAP - Generally accepted accounting principles.



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 WPD 1953 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.



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.



JCP&L - Jersey Central Power & Light Company.



kWh - kilowatthours.



kVA- kilovoltampere.



LIBOR-London Interbank Offered Rate.



Mirant - Mirant Corporation, formerly Southern
  Energy Inc., a diversified energy company based in Atlanta. PPL Global and Mirant
  jointly own WPD 1953.



Montana Power -The Montana Power Company, a Montana-based company engaged in diversified energy and communication-related businesses.  Montana Power sold its generating assets to PPL Montana in December 1999.



MPSC- Montana Public Service Commission.



MW - megawatts.



NOx - nitrogen oxide.



NPDES - National Pollutant Discharge Elimination System.



NRC (Nuclear Regulatory Commission) - 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 - United States Office of Surface Mining.



PCB (Polychlorinated Biphenyl) - 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 and PPL, consisting of a Preferred Security and a forward contract to purchase PPL Corporation 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, refers to 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- a partnership between PPL Coal Holdings, LLC (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 sale of propane.



PPL Generation - PPL Generation, LLC, a subsidiary of PPL Energy Supply which, effective July 1, 2000, owns and operates U.S. generating facilities through various subsidiaries.



PPL Global  - PPL Global, LLC, a subsidiary of PPL Energy Supply, which invests in and develops domestic and international power projects, and owns and operates international power projects.



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 and retail sales in Montana and the Northwest.



PPL Montour - PPL Montour, LLC, a fossil generating subsidiary of PPL Generation.



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 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.



PRP - Potentially Responsible Parties under Superfund.

PUC(Pennsylvania Public Utility Commission) - 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.



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



PURTA - Public Utility Realty Tax Act.



RMC - Risk Management Committee.



RTO - regional transmission organization.



SCR - selective catalytic reduction.



SEC - Securities and Exchange Commission.



SERP- Supplemental Executive Retirement Plan.



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



SNCR - selective non-catalytic reduction.



SO2 - sulfur dioxide.



Superfund - federal and state environmental legislation that addresses remediation of contaminated sites.



SWEB - the trading name for South Western Electricity plc, a British regional electric utility company.  Following the sale of its supply business in 1999, SWEB was renamed Western Power Distribution and then WPD (South West).  See WPD (South West), below.



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 PPL, as owner of an electric generating facility, agrees to use that facility to convert ("toll") fuel provided by a third party into electric energy for delivery back to the third party.



UF- inflation-indexed peso-denominated unit.



UGI - UGI Corporation.



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



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



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



WPD 1953 - WPD 1953 Limited, a jointly-owned subsidiary of PPL Global and Mirant.  WPD 1953 owns WPD Holdings U.K. which owns WPD (South West) and WPD (South Wales).



WPDL - Western Power Distribution Limited, a wholly-owned subsidiary of WPD Investment Holdings Limited, which is a jointly-owned subsidiary of PPL Global and Mirant.  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 have been 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; operating performance of plants and other
facilities; environmental conditions and requirements; system conditions and
operating costs; development of new projects, markets and technologies; performance
of new ventures; political, regulatory or economic conditions in states or
countries where PPL or its subsidiaries conduct business; receipt of necessary
governmental approvals; capital market conditions and decisions regarding capital
structure; stock price performance; credit ratings; foreign exchange rates; state
and federal regulatory developments; new state or federal legislation; national
or regional economic conditions, including any potential effects arising from
the September 11, 2001 terrorist attacks in New York, Washington, D.C. and
Pennsylvania and consequential 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 six million customers
  in the U.S., U.K. and Latin America; and provides energy services for businesses
  in the mid-Atlantic and northeastern U.S.

PPL Energy Supply, LLC, an indirect wholly-owned subsidiary
  of PPL, is a growth-oriented energy company engaged through its subsidiaries
  in power generation and marketing primarily in the northeastern and western
  U.S. and in the delivery of electricity abroad. PPL Energy Supply was formed
  in 2000 to serve as the holding company for PPL's competitive energy businesses.
  PPL Energy Supply's major operating subsidiaries are PPL Generation, PPL EnergyPlus,
  and PPL Global. PPL Energy Supply owns or controls 10,023 MW of electric power
  generation capacity, and is constructing or has announced the development of
  new electric generation projects in Arizona, Illinois, New York and Pennsylvania,
  which would add 2,440 MW of electric generation capacity.

PPL Electric Utilities Corporation, incorporated in 1920, is
  a 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. Prior to August 1, 1998, PPL
  Electric marketed retail electricity in deregulated markets.

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

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 recently 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, the Review of the Financial
  Condition and Results of Operations of PPL Energy Supply, for the key features
  of the corporate realignment. See Exhibit 99 in Item 14
  for the current corporate organization.

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

Supply Segment

The Supply Segment primarily consists of:

- PPL Generation, which owns and operates power plants to
      generate electricity;
- PPL EnergyPlus, which markets this electricity and other
      power purchases and natural gas and oil to deregulated wholesale and retail
      markets, primarily in the northeastern and western portions of the U.S.;
      and
- PPL Global's development and acquisition of domestic generation
      projects.

PPL Generation was established in the corporate realignment
  and, through subsidiaries, owns and operates power plants in Pennsylvania, Montana,
  Maine and Connecticut. At December 31, 2001, PPL Generation had 10,023 MW of
  generating capacity.

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

The Pennsylvania generation plants, with a total capacity of
  8,545 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, is subject
  to the jurisdiction of the NRC in connection with the operation of the two nuclear-fueled
  generating units at its Susquehanna station. PPL Susquehanna owns a 90% undivided
  interest in each of the Susquehanna units and Allegheny Electric Cooperative,
  Inc. owns a 10% undivided interest in each of those units.

PPL Generation operates its Pennsylvania power plants in conjunction
  with PJM. PPL EnergyPlus markets power through the 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. Under the terms of a wholesale power transition agreement,
  PPL Montana provides Montana Power with electricity for certain of its retail
  requirements, with excess generation available for wholesale marketing by PPL
  EnergyPlus. When the current transition agreement expires in June 2002, PPL
  EnergyPlus will supply 300 MW of around-the-clock electricity and 150 MW of
  on-peak electricity to Montana Power under a new five-year agreement. PPL Montana
  also purchases 98 MW of firm capacity during the months of November through
  April.

PPL Montana is 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. In addition, PPL Montana
  is subject to the jurisdiction of the NRC in connection with the operation by
  its coal plants of certain level and density monitoring devices.

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 in Connecticut has a total capacity of 225 MW.

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, a subsidiary of PPL Energy Supply, markets
  the electricity produced by PPL Generation subsidiaries, along with purchased
  power, natural gas and oil in deregulated wholesale and 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 a contract to provide electricity
  to PPL Electric sufficient for it to meet its PLR obligation from 2002 through
  2009, at the pre-determined capped rates PPL Electric is entitled to charge
  its customers during this period. See Notes to Financial Statements of PPL (Note
  23) and PPL Energy Supply (Note 15) for more information concerning this contract.

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 2001, PPL EnergyPlus was licensed,
  and supplied energy to industrial and commercial customers in Pennsylvania,
  New Jersey, Delaware, Maine and Montana. PPL EnergyPlus is also licensed to
  provide energy in Maryland 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 energy-related products and services
  to commercial and industrial customers, through its mechanical contracting and
  engineering subsidiaries based in Pennsylvania, Massachusetts, Connecticut and
  New York.

PPL Synfuel Investments, LLC, a subsidiary of PPL EnergyPlus,
  indirectly owns 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 acquires and develops domestic generation projects
  for PPL Generation. It also acquires and develops, owns and operates international
  energy projects that are primarily focused on the distribution of electricity.

At December 31, 2001, PPL Global was in the process of developing
  approximately 2,440 MW of electric generating capacity in Pennsylvania, New
  York, Illinois and Arizona. The Griffith project in Kingman, Arizona, began
  commercial operations in January 2002. The University Park project in Illinois,
  the Shoreham and Edgewood projects in New York and the Sundance project in Arizona
  are also expected to be operational in 2002. The other projects are expected
  to be operational at various times between 2003 and 2004. See Item 2, Properties,
  for additional information on these projects.

Delivery Segment

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, with a population of approximately 2.6 million people.
  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 EnergyPlus has executed a contract to provide electricity
  to PPL Electric sufficient for it to meet its PLR obligation from 2002 through
  2009, at the pre-determined capped rates PPL Electric is entitled to charge
  its customers during this period. See PPL Electric's Note 15 to the Financial
  Statements.

During 2001, about 89% of PPL Electric's operating revenue
  was derived from regulated electricity deliveries and supply as a PLR. About
  8% of 2001 operating revenues was from wholesale sales, including the sale of
  power purchased from NUGs to PPL EnergyPlus. The remaining 3% of operating revenues
  in 2001 was from energy related products and services and miscellaneous revenues.
  During 2001, about 43% of electricity delivery and PLR revenues were from residential
  customers, 35% 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 the 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 the 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.

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.
  PPL believes that a single northeastern RTO is a significant step forward in
  establishing a reliable and properly functioning wholesale electricity market
  in the region. PPL 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.

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

International Segment

PPL Global's major international project is its equity investment
  in two U.K. electricity transmission and distribution companies: WPD (South
  West) which serves customers in England; and WPD (South Wales) which serves
  customers in Wales. PPL Global jointly owns these investments with Mirant.

PPL Global also has consolidated investments in electricity
  transmission and distribution companies serving customers in Chile, El Salvador,
  Bolivia and Brazil.

See Note 11 to PPL's Financial Statements for additional information
  on PPL Global's international activities in 2001.

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.

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 and PPL Electric's Review of the Financial Condition and Results of
  Operations for information concerning estimated capital expenditure requirements
  for the years 2002-2006. See the Notes to Financial Statements of PPL (Note
  16), PPL Energy Supply (Note 14), PPL Electric (Note 10) and PPL Montana (Note
  9) 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, weather and other factors. PPL
  cannot predict the impact of these and other competitive factors on its future
  results of operations or financial position.

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 position and access to credit sources.

PPL Global also faces intense competition from a number of
  participants in the non-utility power generation industry for the acquisition
  and development of additional facilities. Opportunities for new projects are
  increasingly subject to competitive bidding as opposed to negotiated transactions.

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.

POWER SUPPLY

PPL Generation's system capacity (winter rating) at December
  31, 2001 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                          | 152                   
|                                       |                       
|                                       |                       
|                                       |                       
|Firm purchases                         |                       
|                                       | Hydroelectric         
|                                       | Qualifying facilities 
|                                       |                       
|                                       |                       
|                                       |                       
|Total system capacity - Pennsylvania   | 8,545                 
|                                       |                       
|Connecticut                            |                       
|Natural gas powered station            |                       
|                                       | Wallingford           
|                                       |                       
|Montana                                |                       
|Coal-fired stations                    |                       
|                                       | Colstrip Units 1 & 2  
|                                       | Colstrip Unit 3       
|                                       | Corette               
|                                       |                       
|                                       |                       
|                                       |                       
|Hydroelectric                          | 474                   
|                                       |                       
|Total system capacity - Montana        | 1,157                 
|                                       |                       
|Maine                                  |                       
|Oil-fired generating station           |                       
|                                       | Wyman Unit 4          
|Hydroelectric                          | 44                    
|                                       |                       
|Total system capacity - Maine          | 96                    
|                                       |                       
|                                       |                       
|Total system capacity - PPL Generation | 10,023                
|                                       |                       

|(a) | PPL's 90% undivided interest.                                                                                                                                                                                
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(b) | PPL's 12.34% undivided interest.                                                                                                                                                                             
|(c) | PPL's 16.25% undivided interest.                                                                                                                                                                             
|(d) | From Safe Harbor Water Power Corporation.                                                                                                                                                                    
|(e) | Began commercial operations in December 2001.                                                                                                                                                                
|(f) | PPL's 50% undivided leasehold interest.                                                                                                                                                                      
|(g) | PPL's 30% undivided leasehold interest.                                                                                                                                                                      
|(h) | PPL's 8.33% undivided interest.                                                                                                                                                                              
|(i) | Includes PPL's 50% interest in the West Enfield Station.                                                                                                                                                     
|(j) | In addition, the gas-fired steam Griffith station, of which
      PPL's 50% ownership totals 300 MW, began commercial operations in January
      2002. This table does not include the capacity of Griffith.

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 from time to time to reflect changed circumstances.

The system capacity shown in the preceding table does not reflect
  installed capacity credit sales and purchases with other utilities. The net
  effect of these transactions is to reduce Pennsylvania system capacity by 1,168
  MW at the end of December 2001, to 7,377 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 through 2004.

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
  covers Montana Power's remaining native load commitments and lasts until the
  remaining load is zero, but in no event later than June 2002. PPL Montana now
  has an agreement to supply Montana Power with 450 MW of energy for five years
  beginning July 2002.

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 (FLIP). 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 2001, PPL Generation produced about 39 billion kWh in
  its Pennsylvania plants, with 53% of the energy generated by coal-fired stations,
  41% from nuclear operations at the Susquehanna station, 5% from the Martins
  Creek gas and oil-fired station and 1% from hydroelectric stations. PPL EnergyPlus
  also purchased 18.1 billion kWh and had 19.1 billion kWh in non-system energy
  sales.

During 2001, PPL Montana generated 7.5 billion kWh. Of this
  total, 5.0 billion kWh was from fossil generation, with the balance from PPL
  Montana's hydroelectric plants.

During 2001, PPL Maine generated about 267 million kWh. Of
  this total, about 216 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 the PJM control area. As of December 31, 2001,
  160 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 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 2001, PPL Coal Supply
  provided 23% of the coal used by PPL Generation's Pennsylvania stations and
  Iris Energy provided 34% of the synthetic fuel used by such stations.

During 2001, about 65% of the coal delivered to PPL Generation's
  Pennsylvania stations was purchased under long-term contracts and 35% was obtained
  through open market purchases. These contracts provided PPL Generation with
  about 4.7 million tons of coal in 2001 and are expected to provide 5.4 million
  tons in 2002. At December 31, 2001, Pennsylvania plants had sufficient supply
  for about 50 days of 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 SO2 emission regulations established by the
  Pennsylvania DEP.

At December 31, 2001, a PPL Generation subsidiary owned a 12.34%
  undivided interest in the Keystone station and a 16.25% undivided interest in
  the Conemaugh station. The owners of the Keystone station have a long-term contract
  with a coal supplier that provides 2.8 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 3 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 coal supply requirements for the Conemaugh station are being
  met from several sources through a blend of long-term and short-term contracts
  and spot market purchases.

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 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 in December 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 2001, 100% of the oil requirements for the Martins Creek units
  were purchased on the spot market. At December 31, 2001, PPL EnergyPlus had
  no long-term agreements for these requirements. During 2001, all of the natural
  gas consumed at Martins Creek was purchased under short-term agreements. At
  December 31, 2001, PPL EnergyPlus had no long-term agreements to purchase natural
  gas for Martins Creek.

Two new natural gas-fired units recently began commercial operations:
  Wallingford, Connecticut in December 2001 and Kingman, Arizona (Griffith) in
  January 2002. PPL EnergyPlus has entered into a long-term contract for 40% of
  the expected pipeline transportation requirements of the Wallingford facility,
  but has no long-term agreement to purchase natural gas. Certain PPL Generation
  subsidiaries have long-term pipeline transportation contracts in place for the
  Griffith facility equaling 75% of the expected requirements. A PPL Generation
  subsidiary also has approximately 25% of gas supply under a long-term supply
  agreement for Griffith. 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 75% of the uranium requirements for the Susquehanna
  units in 2002 and 2003, and, including options, an additional 25% of the 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 2004 and Unit 2 to operate into the first quarter of 2003.

PPL Susquehanna has executed an agreement that satisfies all
  of its enrichment requirements through 2004. 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 2006 and Unit 2 to operate into the first quarter of 2007.

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 are expected to 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. Progress on a proposed disposal facility has been
  slow, and the repository is not expected to be operational before 2010. Thus,
  expansion of Susquehanna's on-site spent fuel storage capacity was necessary.
  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 modular on-site dry spent fuel storage facility at
  Susquehanna to accommodate discharged fuel through the life of the plant, if
  necessary.

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. DOE did not, in fact, begin to dispose
  of spent nuclear fuel on January 31, 1998 and has acknowledged that it violated
  its contractual obligations. DOE continues, however, to vigorously contest claims
  by certain utilities, including PPL, that its failures resulted in recoverable
  damages. PPL cannot predict the outcome of this litigation.

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 "Financial Condition - Capital
  Expenditure Requirements" in the Review of the Financial Condition and Results
  of Operations for information concerning environmental expenditures during 2001
  and PPL's estimate of those expenditures during the years 2002-2006. PPL believes
  that its subsidiaries are in substantial compliance with applicable environmental
  laws and regulations.

See "Environmental Matters" in Note 16 to PPL's, Note 14 to
  PPL Energy Supply's, Note 10 to PPL Electric's and Note 9 to PPL Montana's 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., 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 Superfund statute 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.

Certain federal and state statutes, including Superfund and
  the Pennsylvania Hazardous Sites Cleanup Act, 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 to resume the siting process should it be necessary.
  Low-level radioactive waste resulting from the operation of Susquehanna 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.

General

Concerns have been expressed by some members of the scientific
  community and others 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. Federal, state and local officials
  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
  low cost or no cost 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 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. 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 two hydroelectric projects pursuant to
  licenses renewed by the FERC in 1980: Wallenpaupack (44 MW capacity) and Holtwood
  (102 MW capacity). The Wallenpaupack license expires in 2004 and the Holtwood
  license expires in 2014. PPL Holtwood 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 (139 MW).

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.

EMPLOYEE RELATIONS

See "Source of Labor Supply" in Note 16 to PPL's, Note 14 to
  PPL Energy Supply's, Note 10 to PPL Electric's and Note 9 to PPL Montana's Financial
  Statements for information on employees, including those covered by labor contracts.



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 Global and PPL Susquehanna had the following domestic generation
  development projects in progress at December 31, 2001:

|Plant        |                                                                                                                                                                                                                                    | Type |                 | Total MWCapacity(1) |     | OwnershipInterest in MW |     |  | ExpectedIn-Service Date(2) |    
|------------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---- | --------------- | ------------------- | --- | ----------------------- | --- |  | -------------------------- | ---
|             |                                                                                                                                                                                                                                    |      |                 |                     |     |                         |     |  |                            |    
|Pennsylvania |                                                                                                                                                                                                                                    |      |                 |                     |     |                         |     |  |                            |    
|             | Lower Mt. Bethel                                                                                                                                                                                                                   |      | Gas-fired       |                     | 600 |                         | 600 |  | (100%)                     |    
|             | Susquehanna (3)                                                                                                                                                                                                                    |      | Nuclear         |                     | 100 |                         | 90  |  | (90%)                      |    
|Arizona      |                                                                                                                                                                                                                                    |      |                 |                     |     |                         |     |  |                            |    
|             | Griffith                                                                                                                                                                                                                           |      | Gas-fired steam |                     | 600 |                         | 300 |  | (50%)                      | (4)
|             | Sundance                                                                                                                                                                                                                           |      | Gas-fired       |                     | 450 |                         | 450 |  | (100%)                     |    
|Illinois     |                                                                                                                                                                                                                                    |      |                 |                     |     |                         |     |  |                            |    
|             | University Park                                                                                                                                                                                                                    |      | Gas-fired       |                     | 540 |                         | 540 |  | (100%)                     |    
|New York     |                                                                                                                                                                                                                                    |      |                 |                     |     |                         |     |  |                            |    
|             | Kings Park                                                                                                                                                                                                                         |      | Gas-fired       |                     | 300 |                         | 300 |  | (100%)                     |    
|             | Shoreham and 
         Edgewood                                                                                                                                                                                                    |      | Gas-fired       |                     | 160 |                         | 160 |  | (100%)                     |    
|             |                                                                                                                                                                                                                                    |      |                 |                     |     |                         |     |  |                            |    
|Total        |                                                                                                                                                                                                                                    |      |                 | 2,750               |     | 2,440                   |     |  |                            |    
|             |                                                                                                                                                                                                                                    |      |                 |                     |     |                         |     |  |                            |    
|(1)          | 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 from time to time to
      reflect changed circumstances.
|(2)          | The expected in-service dates
      are subject to receipt of required approvals and permits and to other contingencies.                                                                                                          
|(3)          | The Susquehanna project involves
      the installation of more efficient steam turbines to increase capacity.                                                                                                                    
|(4)          | The Griffith project, which was
      co-developed with Duke Energy, began commercial operations in January 2002.                                                                                                                 
|(5)          | Construction is expected to commence
      in 2002.                                                                                                                                                                               
|(6)          | Construction is expected to commence
      in 2003.                                                                                                                                                                               

All projects under development, other than the Susquehanna
  upgrade, are gas-fired simple-cycle or combined-cycle combustion turbine facilities.

PPL Global 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, 2001, 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 375 substations with a total capacity of 24.7 million kVA, 32,735
  circuit miles of overhead lines and 6,002 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, 2001, PFG Gas had
  39,492 customers and 1,140 miles of pipeline mains, with approximately 14 miles
  in Maryland and the remainder in Pennsylvania. North Penn Gas had 35,493 customers
  and 2,695 miles of pipeline mains in Pennsylvania.

International Electric Delivery

PPL Global has consolidated investments in electricity transmission
  and distribution companies, primarily serving approximately 2 million customers
  in Chile, El Salvador, Bolivia and Brazil, as follows:

International Projects

|Company                                              |                           | Location                     |              | PrimaryBusiness |              | OwnershipInterest |       | 2001
        Electricity
        SalesGWh (1)
|---------------------------------------------------- | ------------------------- | ---------------------------- | ------------ | --------------- | ------------ | ----------------- | ----- | ---------------------------------------------
|LATIN AMERICA                                        |                           |                              |              |                 |              |                   |       |                                              
|Empresas EMEL S.A. (EMEL):                           |                           |                              |              | 95.4%           | ||}|         | 1,989            
|                                                     | Emelari                   |                              | Chile        |                 | Distribution |                   | 85.0%
|                                                     | Eliqsa                    |                              | Chile        |                 | Distribution |                   | 85.6%
|                                                     | Elecda                    |                              | Chile        |                 | Distribution |                   | 85.1%
|                                                     | Emelat                    |                              | Chile        |                 | Distribution |                   | 93.4%
|                                                     | Emelectric                |                              | Chile        |                 | Distribution |                   | 99.9%
|                                                     |                           | Emetal (owned by Emelectric) | Chile        |                 | Distribution |                   | 75%  
|                                                     | Transemel                 |                              | Chile        |                 | Transmission |                   | 60%  
|                                                     |                           |                              |              |                 |              |                   |       |                                              
|                                                     |                           |                              |              |                 |              |                   |       |                                              
|Empresa de Luz y Fuerza Electrica
      Cochabamba   |                           |                              |              |                
|                                                     | (ELFEC)                   |                              | Bolivia      |                 | Distribution |                   | 91.9% | }                                            
|Empresa de Ingenieria y Servicios
      Integrales   |                          
|                                                     | Cochabamba S.A. (Integra) |                              | Bolivia      |                 | Distribution |                   | 91.9%
|Distribuidora de Electricidad del
      Sur (DelSur) |                           |                              |              |                
|                                                     | El Salvador               |                              | Distribution |                 | 80.5%        |                   | 812  
|Compañhia Energetica do
      Maranhao (CEMAR)       |                           |                              |              |                
|                                                     | Brazil                    |                              | Distribution |                 | 89.6%        |                   | 2,586
|                                                     |                           |                              |              |                 |              |                   |       |                                              
|                                                     |                           | Total                        |              |                 |              |                   |       |                                              
|                                                     |                           |                              |              |                 |              |                   |       |                                              

PPL Global's major international operations include equity
  investments in two U.K. electricity transmission and distribution companies:
  WPD (South West), which serves approximately 1.4 million customers in England,
  and WPD (South Wales), which serves approximately 1 million customers in Wales.

---

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 16 to PPL's, Note 14 to PPL
  Energy Supply's, Note 10 to PPL Electric's and Note 9 to PPL Montana's Financial
  Statements for information concerning certain environmental matters.

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,
  as well as prospective appeals for 2000, as permitted under normal assessment
  procedures. Additional prospective appeals were filed in 2000 for the 2001 tax
  year and in 2001 for the 2002 tax year. It is anticipated that assessment appeals
  will 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 most
  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 all the pending proceedings, the most significant appeal
  concerns the assessed value of the Susquehanna nuclear station. 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 2001.
  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 is still pending in the Luzerne County Court of Common Pleas. A decision
  from the court is expected in the first-half of 2002. As a result of these proceedings
  and potential appeals, a final determination of market value and the associated
  tax liability for 1998 and 1999 may not occur for several years.

In the other assessment appeals pending in county courts, the
  local authorities have assessed PPL's generating plants at an aggregate market
  value amount of about $311 million for tax year 2000, for a total tax liability
  of about $5.2 million. PPL has estimated the aggregate market value of
  these plants at about $26 million for tax year 2000, for a total tax liability
  of about $460,000. As at the Susquehanna station, the school districts involved
  in these proceedings have issued tax bills at levels which are disputed by PPL.
  Final determinations of market value and associated tax liability in these proceedings
  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.

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. 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.

At this time, PPL, PPL Energy Supply and PPL Montana cannot
  predict the outcome of the proceedings related to the MPSC Order, what actions
  the MPSC, the Montana Legislature or any other governmental authority may take
  on these or related matters, or the ultimate impact on PPL, PPL Energy Supply
  and PPL Montana of any of these matters.

In an unrelated matter, 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 supplies energy
  to Energy West and should pay damages of at least $7.5 million. All litigation
  in this matter has been consolidated in the U.S. District Court for the District
  of Montana, Great Falls Division, and is proceeding in that forum. PPL, PPL
  Energy Supply and PPL Montana cannot predict the ultimate outcome of these proceedings.

In April 2000, three employees at PPL Montana's Colstrip facility
  were severely burned when an equipment fault in Colstrip Unit 1 caused electrical
  arcing. In May 2000, the injured employees and their spouses filed litigation
  for their injuries in Montana district court against Montana Power. PPL Montana
  was subsequently named as a party defendant to the pending litigation, and a
  trial has been scheduled for June 2002. At this time, PPL Montana cannot predict
  the ultimate outcome of this matter.

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 attorney's fees. Certain of PPL's subsidiaries
  have intervened in the FERC proceedings in order to protect their interests,
  but have not been named as defendants in any of the court actions alleging abuses
  of market power, manipulation of market prices, unfair trade practices and violations
  of state antitrust laws. 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
  in the California markets, 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 sales made in the Pacific Northwest,
  including sales made by PPL's subsidiaries. The FERC Administrative Law Judge
  assigned to this proceeding has recommended that no refunds be ordered for sales
  into the Pacific Northwest. The FERC presently is considering this recommendation.
  PPL cannot predict whether or the extent to which any of its subsidiaries will
  be the target of any governmental investigation or named in these lawsuits,
  refund proceedings or other lawsuits, the outcome of any such proceedings or
  whether the ultimate impact on PPL or its subsidiaries of the electricity supply
  situation in California and other western states will be material.

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 unnamed 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. PPL Montana is unable to predict the outcome of this matter.

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 January 2002, PPL filed comments as requested by the Investigation Order.
  The Order does not suggest what, if any, action the PUC may take as a result
  of the investigation, other than considering possible changes to its competitive
  safeguards. While PPL EnergyPlus and PPL Electric have filed comments with the
  PUC as part of the investigation, they have both taken the position that the
  PUC does not have jurisdiction to regulate the PJM capacity markets as those
  markets are for wholesale electricity transactions and accordingly are within
  the exclusive jurisdiction of the FERC. In addition, PPL EnergyPlus and PPL
  Electric believe that PPL EnergyPlus' actions under review were at all times
  lawful and consistent with the rules of the market. At this time, neither PPL
  EnergyPlus nor PPL Electric can predict the outcome of the PUC investigation
  or what action the PUC may take in connection with the investigation.

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 to those
  protests and interventions. PPL EnergyPlus has taken the position 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. The matter
  is currently pending before the FERC.

In January 2002, the Montana Secretary of State certified,
  in accordance with applicable statutes, that it had approved the form of a proposed
  Montana "Hydroelectric Security Act" initiative. The proposed initiative may
  be placed on the November 2002 statewide ballot if sufficient signatures are
  obtained prior to June 21, 2002. Among the stated purposes of the proposed initiative
  is to create an elected Montana public power commission to determine whether
  purchasing hydroelectric dams in Montana is in the public interest. Such a commission
  could decide to acquire PPL Montana's hydroelectric dams either pursuant to
  a negotiated purchase or an acquisition at fair market value through the power
  of condemnation. At this time, PPL, PPL Energy Supply and PPL Montana cannot
  predict whether the proposed initiative will garner enough signatures for placement
  on the November 2002 statewide ballot, whether there will be a successful legal
  challenge to the initiative, whether it would pass if on the ballot or what
  impact, if any, the measure might ultimately have upon PPL Montana or its hydroelectric
  operations. PPL Montana has declared its opposition to, and intends to vigorously
  oppose, the initiative.

---

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 2001.

---

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, or 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,
  2001:

|                      |                                                                                                                                                                      |  |                                                                     |                                                       | 
|--------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------- | ----------------------------------------------------- | 
|PPL Corporation:     
|Name                  | Age                                                                                                                                                                  |  | Position                                                            | Effective Date of
        Election toPresent Position
|                      |                                                                                                                                                                      |  |                                                                     |                                                       | 
|William F. Hecht      | 58                                                                                                                                                                   |  | Chairman, President and Chief Executive
      Officer               | February 24, 1995                                    
|                      |                                                                                                                                                                      |  |                                                                     |                                                       | 
|John R. Biggar        | 57                                                                                                                                                                   |  | Executive Vice President and Chief
      Financial Officer          | January 1, 2001                                      
|                      |                                                                                                                                                                      |  |                                                                     |                                                       | 
|Lawrence E. De Simone | 54                                                                                                                                                                   |  | Executive Vice President - Supply                                   | October 1, 2001                                      
|                      |                                                                                                                                                                      |  |                                                                     |                                                      
|Robert J. Grey        | 51                                                                                                                                                                   |  | Senior Vice President, General
      Counsel and Secretary          | March 1, 1996                                        
|                      |                                                                                                                                                                      |  |                                                                     |                                                       | 
|Michael E. Bray*      | 54                                                                                                                                                                   |  | Vice Chair and President - PPL
      Electric Utilities Corporation | July 1, 2000                                         
|                      |                                                                                                                                                                      |  |                                                                     |                                                       | 
|Paul T. Champagne*    | 43                                                                                                                                                                   |  | President - PPL EnergyPlus, LLC                                     | October 1, 2001                                      
|                      |                                                                                                                                                                      |  |                                                                     |                                                       | 
|James H. Miller*      | 53                                                                                                                                                                   |  | President - PPL Generation, LLC                                     | February 5, 2001                                     
|                      |                                                                                                                                                                      |  |                                                                     |                                                      
|Roger L. Petersen*    | 50                                                                                                                                                                   |  | President - PPL Global, LLC                                         | October 1, 2001                                      
|                      |                                                                                                                                                                      |  |                                                                     |                                                       | 
|Joseph J. McCabe      | 51                                                                                                                                                                   |  | Vice President and Controller                                       | August 1, 1995                                       
|                      |                                                                                                                                                                      |  |                                                                     |                                                       | 
|James E. Abel         | 50                                                                                                                                                                   |  | Vice President - Finance and Treasurer                              | June 1, 1999                                         
|                      |                                                                                                                                                                      |  |                                                                     |                                                       | 
|*                     | Messrs. Bray, Champagne,
      Miller and Petersen have been designated executive officers of PPL by virtue
      of their respective positions at PPL subsidiaries.

|                                    |     |  |                               |                                                       | 
|----------------------------------- | --- |  | ----------------------------- | ----------------------------------------------------- | 
|PPL Electric Utilities Corporation:
|Name                                | Age |  | Position                      | Effective Date of
        Election toPresent Position
|                                    |     |  |                               |                                                       | 
|Michael E. Bray                     | 54  |  | Vice Chair and President      | July 1, 2000                                         
|                                    |     |  |                               |                                                       | 
|Joseph J. McCabe                    | 51  |  | Vice President and Controller | August 1, 1995                                       
|                                    |     |  |                               |                                                       | 
|James E. Abel                       | 50  |  | Treasurer                     | July 1, 2000                                         

Each of the above officers, with the exception of Messrs. Bray,
  Champagne, De Simone, Miller and Petersen, had been employed by PPL Electric
  for more than five years as of July 1, 2000. In connection with the July 1,
  2000 corporate realignment, Messrs. Hecht, Biggar, Grey, McCabe and Abel became
  employees of PPL Services, another PPL subsidiary; at that time, Messrs. Hecht,
  Biggar and Grey ceased being officers of PPL Electric. Mr. De Simone became
  an employee of PPL Services upon his election as PPL's Executive Vice President
  - Supply on October 1, 2001.

Mr. Bray joined PPL Electric in April 2000. Prior to that time,
  he was President and Chief Executive Officer of Consolidated Edison Development,
  Inc. Mr. De Simone became Executive Vice President - Supply of both PPL and
  PPL Services in October 2001. Prior to that time, he was President - PPL EnergyPlus
  and Senior Vice President - Energy Services at Virginia Power Company. Mr. Champagne
  became President - PPL EnergyPlus in October 2001. Prior to that time, he was
  President - PPL Global and Vice President and Senior Development Officer of
  PPL Global. Mr. Miller joined PPL Generation in February 2001. Prior to that
  time, he was Executive Vice President of USEC, Inc. Mr. Petersen became President
  - PPL Global in October 2001. Prior to that time, he was President - PPL Montana,
  Vice President and Chief Operating Officer - PPL Global and Vice President -
  PPL Global.

Prior to their election to the positions shown above, the following
  executive officers held other positions within PPL and PPL Electric since January
  1, 1997. Mr. Biggar was Vice President - Finance, Vice President - Finance and
  Treasurer, Senior Vice President - Financial, and Senior Vice President and
  Chief Financial Officer; and Mr. Abel was Treasurer (of PPL) and Vice President
  and Treasurer (of PPL Electric).

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.

---

PPL CORPORATION AND SUBSIDIARIES

PART II



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

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.





---

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

---

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 in Item 14 for the current corporate organization
  structure. Other subsidiaries may be formed by PPL to take advantage of new
  business opportunities.



Results of Operations



The following discussion explains significant changes in principal
  items on the Statement of Income, comparing 2001 to 2000, and 2000 to 1999.



Certain items on the Statement of Income have been impacted
  by PPL Global's investment in CEMAR. The results of CEMAR are included for the
  entire year in 2001, but were included for only the last three months of 2000.



Certain items on the Statement of Income have also been impacted
  by the acquisition of the Montana generating assets by PPL Montana in December
  1999. As such, the results of PPL Montana are included for all of 2000 and 2001,
  but only for the last two weeks of 1999.



Earnings



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



|                                 |  |   | 2001 |  | 2000 |      | 1999 |  
|-------------------------------- |  | - | ---- |  | ---- | ---- | ---- | -
|Net income (millions of dollars) |  | $ | 179  |  | $    | 498  |      | $
|EPS - basic                      |  | $ | 1.23 |  | $    | 3.45 |      | $



The changes in net income from year to year are, in part, attributable
  to several unusual items with significant earnings impacts that are shown below.
  Refer to specific Notes to the Financial Statements for discussion of certain
  of these items. The items without note references are discussed in "Other Charges,"
  "Other Operation Expenses" and "Other Income and (Deductions)."

|                                |                                                                | (Millions of dollars)
|------------------------------- | -------------------------------------------------------------- | ---------------------
|                                |                                                                |                      
|Net income - actual             |                                                                | $                    
|Unusual items (net of tax):     |                                                                |                      
|                                | Write-down of WPD 1953 investment in 
      Teesside (Note 22) |                      
|                                | Write-down investment in WPD 1953 and WPDL
      (Note 22)     |                      
|                                | Write-down investment in CEMAR
      (Note 22)                 |                      
|                                | Accounting method change - pensions
      (Note 14)            |                      
|                                | Enron impact on trading (Note 21)                              |                      
|                                | Cancellation of generation projects
      (Note 11)            |                      
|                                | Environmental insurance recoveries                             |                      
|                                | Sale of Sunbury plant and related assets                       |                      
|                                | Sale of SWEB supply business                                   |                      
|                                | Securitization (Note 5)                                        |                      
|                                | Write-down of carrying value of
      investments              |                      
|                                |                                                                |                      
|Net income from core operations |                                                                | $                    
|                                |                                                                |                      

Excluding the effects of unusual items, net income from core
  operations increased from $474 million in 2000 to $620 million in 2001, or 31%.
  The earnings improvement was primarily due to:



- higher margins on eastern and western U.S. wholesale energy
      transactions;
- lower operating costs, partially due to lower pension expense;
- favorable tax credits from synfuel operations; and
- higher earnings from mechanical contracting subsidiaries.

These earnings improvements in 2001 were partially offset by
  higher levels of interest expense, and increased dividends resulting from the
  issuance of the PEPS Units.



PPL expects that lower wholesale prices will adversely impact
  core earnings in 2002. Additionally, PPL anticipates writing off the remaining
  balance of its investment in CEMAR, approximately $100 million, in 2002. See
  Note 22 for additional information.



Excluding the effects of unusual items, net income from core
  operations increased from $358 million in 1999 to $474 million in 2000, or 32%.
  The earnings improvement was primarily due to:



- higher margins on wholesale energy transactions, including
      PPL Montana;
- the end of a one-year 4% rate reduction for delivery customers
      in Pennsylvania;
- gains on sales of emission allowances;
- lower depreciation on certain fossil generating assets; and
- fewer common shares outstanding.



These earnings improvements in 2000 were partially offset by
  higher levels of interest expense, higher costs of wages and employee benefits,
  and the write-off of a regulatory asset related to the loss incurred in the
  Pennsylvania Retail Access Pilot Program.



Operating Revenues



Retail Electric and Gas



The increase (decrease) in retail revenues from electric and
  gas operations was attributable to the following (millions of dollars):



|                        | 2001 vs. 2000     |                                | 2000 vs. 1999
|----------------------- | ----------------- | ------------------------------ | -------------
|Retail Electric Revenue |                   |                                |              
|                        | PPL Electric      |                                |              
|                        |                   | Electric delivery              | $            
|                        |                   | PLR electric generation supply |              
|                        | PPL EnergyPlus    |                                |              
|                        |                   | Electric generation supply     |              
|                        | PPL Global        |                                |              
|                        |                   | Electric delivery              |              
|                        | Other             |                                | (8           
|                        |                   |                                |              
|                        |                   | 147                            |              
|                        |                   |                                |              
|Retail Gas Revenue      |                   |                                |              
|                        | PPL Gas Utilities |                                | 21           
|                        | PPL EnergyPlus    |                                | 22           
|                        |                   |                                |              
|                        |                   |                                | 43           
|                        |                   |                                |              
|Retail Revenues - total | $                 | 190                            |              
|                        |                   |                                |              



Operating revenues from retail electric operations increased
  in 2001 compared to 2000 primarily due to:



- higher net supply revenues (increases in PPL Electric revenues
      as a PLR, offset by decreased emphasis of PPL EnergyPlus as a retail supplier);
- increase in PPL Global international electric delivery
      revenues, primarily due to the acquisition of CEMAR; and
- higher delivery revenues, reflecting a 2% increase in deliveries
      of electricity.



Operating revenues from retail electric operations increased
  in 2000 compared to 1999 primarily due to:



- higher supply revenues (increases in PPL EnergyPlus revenues
      as a retail supplier and PPL Electric revenues as a PLR);
- increased PPL Global international electric delivery revenues,
      primarily due to the acquisition of CEMAR; and
- higher delivery revenues, reflecting an end of a one-year
      4% rate reduction for delivery customers.



Pursuant to the Customer Choice Act and a restructuring settlement
  with the PUC, PPL Electric is required, through 2009, to provide electricity
  at pre-determined prices to its delivery customers who do not select an alternate
  supplier. While these supply rates vary by customer class, the settlement provides
  for average rates ranging from 4.16 cents per kWh in 2001, increasing to 5.02
  per kWh in 2009. As part of this settlement agreement, PPL Electric also agreed
  to a cap on its average transmission and distribution rates of 1.74 cents per
  kWh through 2004.



Both PPL Gas Utilities and PPL EnergyPlus experienced higher
  retail gas revenues in both periods. PPL Gas Utilities' increase in 2001 compared
  to 2000 was primarily due to a base rate increase effective January 1, 2001,
  and higher gas commodity prices. PPL Gas Utilities' increase in 2000 compared
  to 1999 was primarily due to greater demand and higher gas commodity prices.
  PPL EnergyPlus' increase in both periods was primarily due to intensified gas
  marketing efforts, and increased retail pricing attributed to higher wholesale
  gas commodity costs.



Wholesale Energy Marketing and Trading



The increase (decrease) in revenues from wholesale energy marketing
  and trading activities was attributable to the following (millions of dollars):



|                          | 2001 vs. 2000         |      | 2000 vs. 1999
|------------------------- | --------------------- | ---- | -------------
|Eastern U.S. markets      |                       |      |              
|                          | Bilateral/Spot market | $    | (203         
|                          | Cost-based            |      | (58          
|                          | Gas & oil             |      | (140         
|                          | Other                 |      | 11           
|                          |                       |      |              
|                          |                       | (390 | )            
|                          |                       |      |              
|Western U.S. markets      |                       | 71   |              
|                          |                       |      |              
|Intercompany eliminations |                       | (49  | )            
|                          |                       |      |              
|                          | $                     | (368 | )            
|                          |                       |      |              



The decrease in revenues in eastern U.S. markets in 2001 compared
  to 2000 was primarily due to lower bilateral/spot market sales, caused by unplanned
  outages, which created fewer opportunities to sell forward and less trading
  activity, as well as lower spot market prices. The decrease in revenues also
  reflected the expiration of capacity and energy agreements with JCP&L and
  BG&E, and lower gas and oil trading activity. (Energy purchases also decreased
  in 2001 compared with 2000. Refer to "Energy Purchases" for more information.)
  The increase in western U.S. markets was due to higher wholesale energy prices
  related to the energy supply shortage in the western U.S. in the first quarter
  of 2001.



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 U.S.



The increase in revenues in eastern U.S. markets in 2000 compared
  to 1999 was primarily due to higher bilateral market pricing and increased sales
  volumes to other counterparties. The increase in revenues in western U.S. markets
  was due to the acquisition of the Montana generating assets by PPL Montana in
  December 1999.



Energy Related Businesses



Energy related businesses (see Note 1 to the Financial Statements)
  contributed $84 million to the 2001 operating income of PPL, an increase of
  $38 million from 2000. The increase primarily reflects PPL Global's higher equity
  earnings from its U.K. investments and higher operating income from the mechanical
  contracting and engineering subsidiaries. These gains were partially offset
  by an increase in PPL Global's project development expenses and 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 for 2001.)



Energy related businesses contributed $46 million to the 2000
  operating income of PPL, which was a decrease of $14 million from 1999. This
  decrease was primarily due to operating losses incurred by PPL's synfuel projects.
  These and other losses were partially offset by increased operating income of
  the mechanical contracting and engineering subsidiaries, and higher equity earnings
  from PPL Global's international investments.



Fuel



Fuel costs increased by $63 million in 2001 compared with 2000,
  and by $47 million in 2000 compared with 1999.



Electric fuel costs increased by $32 million in 2001 compared
  with 2000. The increase was primarily attributable to increased generation output
  of PPL Generation's oil/gas-fired units, and higher per-unit costs for this
  generation, to support an unplanned outage. The increase also reflects higher
  interchange transmission requirements and higher coal costs. The increase was
  partially offset by a decrease in coal-fired generation due to the unplanned
  outage.



Electric fuel costs increased by $23 million in 2000 compared
  with 1999. Excluding PPL Montana, electric fuel costs decreased by $8 million
  during 2000 compared with 1999. The decrease was attributable to lower unit
  costs for nuclear generation, in part due to a $5 million accrual in 1999 for
  dry cask canisters for on-site spent fuel storage. The decrease from lower unit
  costs was partially offset by higher generation at the Susquehanna station.



The cost of natural gas and propane increased by $31 million
  in 2001 compared with 2000. The increase reflects higher gas prices as well
  as greater off-system sales volume by PPL Gas Utilities.



The cost of natural gas and propane increased by $24 million
  in 2000 compared with 1999. This increase was primarily due to higher sales
  by PPL Gas Utilities and intensified gas marketing efforts by PPL EnergyPlus.



Energy Purchases



The increase (decrease) in energy purchases was attributed
  to the following (millions of dollars):





|              |                 | 2001 vs. 2000 |      |   | 2000 vs. 1999
|------------- | --------------- | ------------- | ---- | - | -------------
|Domestic      |                 |               |      |   |              
|              | Eastern markets | $             | (506 | ) |              
|              | Western markets |               | 63   |   |              
|International |                 | 47            |      |   |              
|              |                 |               |      |   |              
|              | $               | (396          | )    |   |              
|              |                 |               |      |   |              



Excluding energy purchases of CEMAR, energy purchases decreased
  by $443 million in 2001 compared with 2000. This decrease was primarily due
  to lower purchases of electricity and gas in the eastern U.S. markets, attributable
  to a reduction in volumes due to fewer wholesale load obligations and less trading.
  Partially offsetting these reductions
  in volumes were higher average purchased power costs in the first half of 2001,
  and recognized losses on certain long-term transactions by PPL Montana.



Excluding the impact of PPL Montana, energy purchases increased
  by $262 million during 2000, compared with 1999. This increase was primarily
  due to higher wholesale prices for energy purchases needed to supply retail
  load obligations.



Other Operation Expenses



Other operation expenses increased by $54 million in 2001 compared
  to 2000. This increase was primarily due to a gain on the sale of emission allowances
  and an insurance settlement for environmental liability coverage in 2000 (both
  recorded as reductions of expense). The increase also reflects additional operating
  expenses of CEMAR in 2001. These increases were partially offset by lower pension
  costs in 2001 primarily due to pension investment performance.



Other operation expenses increased by $40 million in 2000 compared
  to 1999. Excluding the expenses of PPL Montana, other operation expenses decreased
  by $37 million in 2000 when compared with 1999. This decrease was primarily
  the result of environmental insurance recoveries, gains on the sale of emission
  allowances and reduced pension costs. These reductions were partially offset
  by increased expenses due to the CEMAR acquisition, an environmental loss accrual
  and increased costs of wages and other benefits.



Amortization of Recoverable Transition Costs



Amortization of recoverable transition costs increased by $24
  million in 2001 compared to 2000. This increase was primarily due to the collection
  of CTC revenues related to prior year CTC deferrals of amounts in excess of
  the Pennsylvania rate cap. The increase also reflects higher amortization of
  intangible transition property due to lower interest expense on the transition
  bonds issued under the Customer Choice Act.



Amortization of recoverable transition costs increased by $33
  million in 2000 compared to 1999. This increase was the result of recording
  twelve months of amortization in 2000 as compared to five months of amortization
  in 1999. This increase was partially offset by a decrease in CTC revenues related
  to a deferral of CTC amounts in excess of the rate cap.



Maintenance Expenses



Maintenance expenses increased by $44 million in 2000 compared
  with 1999. Excluding the expenses of PPL Montana, maintenance expenses increased
  by $31 million in 2000 compared with 1999. This increase was primarily due to
  higher maintenance costs at the Susquehanna generating station, higher transmission
  and distribution line maintenance expenses and higher costs of wages.



Other Charges



Other charges of $486 million in 2001 consisted of the write-down
  of international energy projects (see Note 22) and the cancellation of generation
  development projects (see Note 11).



Other charges of $51 million in 1999 consisted of the write-downs
  of PPL Global's investments in WPD and two smaller projects.



Other Income and (Deductions)



Other income increased by $27 million in 2001 compared with
  2000. This increase was due to charges in 2000 resulting from a PUC ruling requiring
  the write-off of the regulatory asset for the loss incurred in Pennsylvania's
  Retail Access Pilot Program, an adverse FERC decision regarding investments
  in PJM, and an environmental loss contingency.



Other income decreased by $163 million in 2000 compared with
  1999. This decrease was due to the charges recorded in 2000, as described above,
  and to gains in 1999 on the sale of SWEB's electric supply business ($78 million
  pre-U.S. tax) and the Sunbury plant and related assets ($66 million pre-tax).



Taxes, Other Than Income



Taxes, other than income, decreased by $21 million in 2001
  compared with 2000. This decrease was primarily the result of lower gross receipts
  tax accruals due to a reduction in the Pennsylvania gross receipts tax rate.
  Changes in gross receipts tax do not significantly affect earnings as they are
  substantially recovered in rate-based revenues.



Taxes, other than income, increased by $39 million in 2000
  compared with 1999. This increase was primarily due to a higher Pennsylvania
  gross receipts tax rate, and increased PURTA, real estate and capital stock
  taxes.



Financing Costs



Interest expense increased by $11 million in 2001 compared
  with 2000. This increase was the net effect of higher interest on long-term
  debt, offset by lower interest on short-term debt. The increase in interest
  on long-term debt reflects the issuance of $800 million of senior secured bonds
  by PPL Electric, $500 million of senior unsecured notes by PPL Energy Supply
  and debt issued by PPL Global's consolidated affiliates. A portion of these
  proceeds were used to pay down commercial paper balances, which decreased such
  interest expense.



Interest expense increased by $99 million in 2000 compared
  with 1999. This increase was primarily due to the issuance of transition bonds
  in August 1999, and interest on PPL Montana's bridge financing.



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 $33 million in 2001 compared
  with 2000. This decrease was primarily due to a change in pre-tax domestic book
  income and additional federal synfuel tax credits recognized. These decreases
  were offset by deferred income tax valuation allowances recorded on the company's
  investments in Brazil and the U.K. (see Note 22).



Income tax expense increased by $120 million in 2000 compared
  with 1999. This increase was primarily due to an increase in pre-tax book income
  and a release of deferred income taxes no longer required due to securitization,
  recognized in the third quarter of 1999.



Financial Condition



Liquidity



At December 31, 2001, PPL's net cash position was $832 million,
  which reflects $950 million in cash and cash equivalents less $118 million of
  short-term debt. PPL expects this cash and anticipated cash flows from operations
  to be sufficient to meet PPL's cash requirements for 2002. If PPL's cash requirements
  exceed its available cash, PPL would attempt to obtain the necessary funds from
  the issuance of commercial paper, drawing on credit lines, or capital market
  financings subject to market conditions. 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. Cash from
  operations in 2001 was $908 million, compared to $871 million in 2000. 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. In 2001,
  PPL EnergyPlus signed a full requirements, eight-year contract to supply PPL
  Electric with estimated peak demand between 6,700 and 7,000 MW for PPL Electric's
  PLR load. PPL EnergyPlus also signed a five-year contract with Montana Power
  for 300 MW of around-the-clock electricity supply and 150 MW of on-peak supply.
  Commitments under these contracts represent between 75%-85% of total anticipated
  margins from wholesale and retail activity over the next five years (2002-2006).
  Also, PPL has contracted for over 90% of its anticipated fuel requirements for
  2002 and for a lesser amount in future years. PPL will continue to evaluate
  long-term contracts as market conditions warrant.



In 2002, PPL also finalized multi-year tolling agreements with
  the Long Island Power Authority for about 160 MW of generation that the company
  is building 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 is also providing up to 135 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 all of the 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 100%, PPL
  estimates that, based on its December 31, 2001 position, it would have to post
  collateral of approximately $150 million. 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 provided by financing activities was $267 million
  in 2001, compared to $233 million in 2000. 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 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 $700 million
  and $200 million, respectively, in letters of credit that may be needed for
  general corporate purposes, including margin requirements resulting from energy
  contracts. There was no commercial paper outstanding or borrowings under its
  credit line by PPL Electric at December 31, 2001 or 2000. There was no commercial
  paper outstanding or borrowings under its credit line by PPL Energy Supply at
  December 31, 2001, and PPL Energy Supply did not have a commercial paper program
  or credit line in 2000. In addition, the lenders in the credit line had issued
  $26 million of letters of credit on PPL Energy Supply's behalf at December 31,
  2001. PPL Montana also maintains a $250 million unsecured credit line that is
  available for borrowings and letters of credit. PPL Montana can directly borrow
  up to $100 million or request that lenders issue up to $225 million in letters
  of credit provided that combined borrowings and outstanding letters of credit
  do not exceed $250 million. PPL Montana had borrowed $44 million under its credit
  line at December 31, 2001, as compared to no borrowings at December 31, 2000.
  The lenders in the credit line had issued $25 million of letters of credit on
  PPL Montana's behalf at December 31, 2001, as compared to $70 million at December
  31, 2000. These credit lines contain borrowing conditions, including the absence
  of certain material adverse changes, financial and other covenants, that if
  not met, would limit or restrict the ability to borrow or issue letters of credit
  or cause early payment of outstanding borrowings. In addition, the interest
  rates applicable to borrowings under the credit lines are based on a scale indexed
  to the respective companies' credit ratings.



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, 2001, PPL Energy Supply's consolidated debt
  to capitalization percentage, as developed in accordance with its credit lines,
  was 29%. At December 31, 2001, PPL Energy Supply's interest coverage ratio,
  as developed in accordance with its credit line, was 12.6. PPL Energy Supply
  did not have credit lines in 2000. Under its credit line, PPL Electric must
  maintain a consolidated debt to capitalization percentage not greater than 70%.
  At December 31, 2001 and December 31, 2000, PPL Electric's consolidated debt
  to capitalization percentage, as developed in accordance with its credit line,
  was 57% and 43%, respectively. Under its credit lines, PPL Montana must maintain
  a consolidated debt to capitalization percentage not greater than 60%. At December
  31, 2001 and December 31, 2000, PPL Montana's consolidated debt to capitalization
  percentage, as developed in accordance with its credit lines, was 51% and 44%,
  respectively. At this time, PPL believes that these covenants and other borrowing
  conditions will not limit access to these funding sources.



PPL 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 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 a construction agent for the lessor to manufacture
  the equipment and for construction of the facility. 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 November 2005, under the terms of the $555 million operating
  lease for the turbine generators, which terminates in November 2007, one of
  PPL Global's subsidiaries is required to deposit in a cash collateral account
  an amount equal in cash to approximately 82% of all funded equipment costs.
  Also, PPL guarantees the payment obligations under this lease financing. Accordingly,
  as guarantor, PPL must maintain a consolidated debt to capitalization percentage
  not greater than 70%. At December 31, 2001 and December 31, 2000, PPL's consolidated
  debt to capitalization percentage, as developed in accordance with the guarantee,
  was 62% and 63%, respectively. At December 31, 2001, the outstanding lease balance
  was $271 million.



In May 2006, under the terms of the $1.06 billion operating
  lease which terminates in April 2008, one of PPL Global'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 the same covenant tests as applied to its credit lines. At
  December 31, 2001, the outstanding lease balance was $454 million. In February
  2002, the PPL Global subsidiary reduced the available commitment under the lease
  to approximately $700 million.



Under the terms of the $455 million Lower Mt. Bethel combined-cycle
  operating lease which terminates no later than September 30, 2014, the PPL Global
  subsidiary is not required to make any cash payments to the lessor until the
  facility is completed. However, the PPL Global subsidiary could be called upon
  to repay approximately 90% of the then-outstanding facility costs.
  In addition, during the lease term, the PPL Global subsidiary
  could, subject to certain conditions, purchase the facility from the lessor,
  offer to assume 100% of the outstanding debt, and pay a reduced make-whole premium
  to any debt holder that does not accept such offer. Also, PPL Energy Supply
  guarantees the payment obligations under this operating lease. Accordingly,
  as guarantor, PPL Energy Supply must meet the same covenant tests as applied
  to its credit lines. At December 31, 2001 the outstanding lease balance was
  $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, 2001 the outstanding debt balance within
  the lease was $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 12
  to the Financial Statements for a further discussion of the operating leases.



At December 31, 2001, the estimated contractual cash obligations
  of PPL were as follows (in millions):





|Contractual Cash Obligations                 |  | Total |        | Lessthan1 year |   | 1-3years |  | 4-5years |       | After 5years
|-------------------------------------------- |  | ----- | ------ | -------------- | - | -------- |  | -------- | ----- | ------------
|                                             |  |       |        |                |   |          |  |          |       |             
|Long-term Debt (a)                           |  | $     | 5,591  |                | $ | 498      |  | $        | 1,668 |             
|Capital Lease Obligations                    |  |       |        |                |   |          |  |          |       |             
|Operating Leases (b)                         |  |       | 2,616  |                |   | 368      |  |          | 255   |             
|Unconditional Purchase 
         Obligations |  |       | 447    |                |   | 65       |  |          | 219   |             
|Other Long-term Obligations                  |  |       | 1,380  |                |   | 171      |  |          | 522   |             
|                                             |  |       |        |                |   |          |  |          |       |             
|Total Contractual Cash 
      Obligations    |  | $     | 10,034 |                | $ | 1,102    |  | $        | 2,664 |             
|                                             |  |       |        |                |   |          |  |          |       |             





PPL, PPL Energy Supply and PPL Electric provide guarantees
  for certain affiliate financing arrangements and 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, 2001,
  the estimated commercial commitments of PPL were as follows (in millions):



|                                        |                                      |                                         |       |                                  | Amount of Commitment Expiration per period |                  
|--------------------------------------- | ------------------------------------ | --------------------------------------- | ----- | -------------------------------- | ------------------------------------------ | -----------------
|Other Commercial
        Commitments    |                                      | Total
        Amounts
        Committed |       | Less
        than
        1 year |                                            | 1-3
        years
|                                        |                                      |                                         |       |                                  |                                            |                  
|Lines of Credit (a)                     |                                      |                                         |       |                                  |                                            |                  
|                                        | Standby Letters of 
         Credit  |                                         | $     | 52                               |                                            | $                
|                                        | Draws Under Lines
         of Credit |                                         |       | 44                               |                                            |                  
|Guarantees                              |                                      |                                         |       |                                  |                                            |                  
|                                        | Debt (b)                             |                                         |       | 776                              |                                            |                  
|                                        | Performance                          |                                         |       | 117                              |                                            |                  
|Standby Repurchase
         Obligations |                                      |                                         |       |                                  |                                            |                  
|Other Commercial
         Commitments   |                                      |                                         | 114   |                                  |                                            | 109              
|                                        |                                      |                                         |       |                                  |                                            |                  
|Total Commercial
         Commitments   |                                      | $                                       | 1,103 |                                  | $                                          | 180              
|                                        |                                      |                                         |       |                                  |                                            |                  





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 2001 was $702 million,
  compared to $757 million in 2000. 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
  expected to increase in 2002. A significant portion of PPL's 2002 capital requirements
  will be funded through the lessor trusts established in 2001 with the remainder
  funded from cash and cash equivalents on hand at December 31, 2001 and cash
  from operations in 2002. (See "Capital Expenditure Requirements" for additional
  information.)



Energy Marketing and Trading Activities



PPL, through PPL EnergyPlus, sells and purchases physical energy
  at the wholesale level under FERC market-based tariffs throughout the U.S. Because
  of the generating assets PPL owns or controls, the majority of PPL's energy
  transactions qualify for accrual or hedge accounting. In addition, PPL enters
  into financial contracts to hedge the price risk associated with its electricity,
  gas and oil positions. At December 31, 2001, PPL had net assets of $50 million
  related to its energy hedging activities.



Certain transactions, however, meet the definition of trading
  activities as defined by EITF 98-10, "Accounting for Contracts Involved
  in Energy Trading and Risk Management Activities." These trading activities
  include physical and financial energy contracts, such as forwards, futures,
  options, and swaps that do not qualify for hedge accounting or were entered
  into to profit from market fluctuations. Trading activities also include certain
  transactions for capacity and ancillary products, such as transmission congestion
  credits (TCCs) and fixed transmission rights (FTRs).



TCC and FTR contracts are financial instruments that enable
  the holder to receive compensation for certain congestion-related transmission
  charges incurred to relieve that congestion. PJM grants FTRs to PPL based upon
  load being served and owned generation and these FTRs are utilized during the
  normal course of business. These transactions are accounted for under accrual
  accounting. In addition to FTRs granted, PPL can purchase and sell TCCs and
  FTRs at auctions. Only these auction-related TCCs and FTRs, as well as capacity
  transactions that are not related to PPL's generating assets, are included in
  trading activities. Net unrealized gains from trading transactions made up approximately
  1% of PPL's gross margins from the sale of energy for the year ending December
  31, 2001.



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, 2001.



|                                                                       |  | Gains/(Losses)(millions of dollars)
|---------------------------------------------------------------------- |  | -----------------------------------
|Fair value of contracts outstanding
      at the beginning of the year |  | $                                  
|Contracts realized or otherwise
      settled  during the year         |  |                                    
|Fair value of new contracts when
      entered into during the year    |  |                                    
|Other changes in fair values                                           |  |                                    
|                                                                       |  |                                    
|Fair value of contracts outstanding
      at the end of the year       |  | $                                  
|                                                                       |  |                                    



During 2001, PPL reversed net gains of approximately $16 million
  related to contracts entered into prior to January 1, 2001. This amount does
  not reflect intra-year contracts that were entered into and settled during the
  period.

The fair value of new contracts when entered into during the
  year is usually zero, because they are entered into at current market prices.
  However, PPL sometimes enters into certain contracts at a value other than zero.
  These contracts consist of options, TCCs and FTRs. When PPL enters into an option
  contract, a premium is paid or received. TCCs and FTRs purchased or sold at
  public auctions are entered into at an agreed-upon auction price. PPL paid $4
  million net-of-tax during 2001 to enter into these contracts.



Other changes in fair value, a loss of approximately $2 million,
  represent changes in the market value of contracts outstanding at the end of
  2001.



PPL's short-term trading contracts, other than exchange-traded
  futures contracts, are recorded as "Price risk management assets"
  and "Price risk management liabilities" on the Balance Sheet. Long-term
  trading contracts are included in "Regulatory and Other Noncurrent Assets -
  Other" and "Deferred Credits and Other Noncurrent Liabilities - Other." Exchange-traded
  futures contracts are recorded as "Other investments" and "Other
  current liabilities" on the Balance Sheet. All unrealized gains and losses
  on trading activities are recognized currently in earnings as "Wholesale
  energy marketing and trading" revenues and "Energy purchases"
  on the Statement of Income.



As of December 31, 2001, the net loss on PPL's trading activities
  expected to be recognized in earnings during the next three months is approximately
  $1 million.



Modeling Methodologies



PPL uses various methodologies to simulate forward price curves
  in the energy markets to estimate the size and probability of changes in market
  value resulting from commodity price movements. The methodologies require several
  key assumptions, including selection of confidence levels, the holding period
  of the commodity positions, and the depth and applicability to future periods
  of historical commodity price information.



The following chart segregates estimated fair values of PPL's
  trading portfolio at December 31, 2001 based on whether the fair values are
  determined by quoted market prices or other more subjective means.



|                                                                                 | Fair Value of Contracts at Period-EndGains/(Losses)(millions of dollars)
|-------------------------------------------------------------------------------- | ------------------------------------------------------------------------
|                                                                                 |                                                                         
|Source of Fair Value                                                             |                                                                         
|Prices actively quoted                                                           |                                                                         
|Prices provided by other
         external sources                               |                                                                         
|Prices based on models
         and other valuation   methods                    |                                                                         
|                                                                                 |                                                                         
|Fair value of contracts 
         outstanding at the end of 
         the period |                                                                         
|                                                                                 |                                                                         



The fair value of contracts using prices actively quoted represents
  the fair value of exchange-traded futures contracts quoted on the New York Mercantile
  Exchange. The fair value of contracts provided by other external sources represents
  the midpoint of the bid/ask spreads obtained through third-party brokers. To
  be conservative, the open position is then adjusted so that it is marked at
  the ask price (for open purchase positions) or the bid price (for open sales
  positions). PPL utilizes internal valuation models to determine the fair value
  of certain non-exchange traded contracts, including TCCs, FTRs and capacity
  contracts, because they cannot be quoted through an organized exchange or brokers.
  The fair value of these contracts on PPL's financial statements reflects a valuation
  adjustment for the change in market value as determined by the internal model.



Commodity Price Risk



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. PPL attempts to mitigate
  risks associated with open contract positions by reserving generation capacity
  to deliver electricity to satisfy its net firm sales contracts and, when necessary,
  by purchasing firm transmission service. PPL adheres to a comprehensive risk
  management policy and programs, including established credit policies to evaluate
  counterparty credit risk.



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. 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 financial statements. 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." See Notes 20
  and 21 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
  or other entities doing business with PPL.



For additional information on related party transactions, see
  Note 17 to the Financial Statements.



Capital Expenditure Requirements



The schedule below shows PPL's current capital expenditure
  projections for the years 2002-2006 and actual spending for the year 2001 (millions
  of dollars):



|                                            |                                          |                                 |       |     |        |      
|------------------------------------------- | ---------------------------------------- | ------------------------------- | ----- | --- | ------ | -----
|                                            |                                          |                                 |       |     | Actual |      
|                                            |                                          |                                 |       |     | 2001   |      
|                                            |                                          |                                 |       |     |        |      
|Construction expenditures (1) (3)
      (4) |                                          |                                 |       |     |        |      
|                                            | Generating facilities (2) (5)            |                                 | $     | 672 |        | $    
|                                            | Transmission and distribution facilities |                                 |       | 292 |        |      
|                                            | Environmental                            |                                 |       | 58  |        |      
|                                            | Other                                    |                                 |       | 86  |        |      
|                                            |                                          |                                 |       |     |        |      
|                                            |                                          | Total Construction Expenditures |       |     | 1,108  |      
|Nuclear fuel                                |                                          |                                 | 60    |     |        | 54   
|                                            |                                          |                                 |       |     |        |      
|Total Capital Expenditures (4)              |                                          | $                               | 1,168 |     | $      | 1,610
|                                            |                                          |                                 |       |     |        |      



PPL's capital expenditure projections for the years 2002-2006
  total about $4.8 billion. Capital expenditure plans are revised from time-to-time
  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
  11 to the Financial Statements for information regarding recent acquisitions
  and development activities.



At December 31, 2001, PPL Global had investments in foreign
  facilities, including consolidated investments in Emel, EC, CEMAR and others.
  See Note 3 to the Financial Statements for information on PPL's unconsolidated
  investments accounted for under the equity method.



At December 31, 2001, PPL Global had domestic generation projects,
  either announced or under development, which would provide 2,440 MW of additional
  generation. See Item 2. "Properties" for additional information. In January
  2002, construction activities were completed on the Griffith project, located
  near Kingman, Arizona, and the facility began commercial operations. Griffith
  is currently in the process of applying for membership in the Southwest Reserve
  Sharing Group. Acceptance into the Southwest Reserve Sharing Group would allow
  Griffith to sell significantly more of the plant's generation at firm prices
  and require fewer reserves for the firm sales.



PPL Global 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.



Cash Flow



Cash and cash equivalents increased by $123 million more during
  2001 compared with 2000. The reasons for this change were:



- A $37 million increase in cash provided by operating activities,
      primarily due to an increase in operating income when adjusted for non-cash
      charges, partially offset by changes in current assets and liabilities.



- A $55 million decrease in cash used in investing activities,
      primarily due to lower investments in generating assets and electric energy
      projects.



- A $34 million increase in cash provided by financing activities,
      primarily due to higher net issuances of securities offset by a decrease
      in short-term debt.



Environmental Matters



See Note 16 to the Financial Statements for a discussion of
  environmental matters.



Competition



The electric 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 and its subsidiaries believe that,
  assuming deregulation of the energy industry continues and markets are opened
  to new participants and new services, competition will continue to be intense.
  Additionally, competitive pressures have resulted from technological advances
  in power generation and electronic communications, and the energy markets have
  become more efficient. See Item 1 "Competition" for additional information.



Critical Accounting Policies

PPL's financial condition and results of operations are necessarily
  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.)



1)  Price Risk Management



PPL follows the provisions of SFAS 133, "Accounting for Derivative
  Instrument and Hedging Activities," as amended by SFAS 138, "Accounting for
  Certain Derivative Instrument and Certain Hedging Activities," and interpreted
  by DIG issues (together, "SFAS 133") and EITF 98-10, "Accounting for Contracts
  Involved in Energy Trading and Risk Management Activities" for its activities
  in the area of price risk management. PPL utilizes forward contracts, futures
  contracts, options and swaps as part of its risk management strategy to minimize
  unanticipated fluctuations in earnings caused by price, interest rate and foreign
  currency volatility. 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. EITF 98-10 requires that derivative and non-derivative contracts that
  are designated as trading activities be marked to market through earnings.



PPL markets and/or purchases electricity, gas, oil, capacity,
  and ancillary products such as transmission congestion contracts. PPL uses exchange
  prices and external broker quotes to value electricity, gas, and oil contracts.
  Since there are no market quotes available for capacity and ancillary products,
  PPL values these products using internal models to forecast future cash flows.
  PPL then recognizes a modeling reserve for values calculated using internal
  models to recognize the lack of independence in the valuation of the contracts.
  Therefore, the net value of the capacity and ancillary products on the financial
  statements is their amortized cost.



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 trading controls 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:



- Any wholesale and retail contracts to sell electricity
      that are expected to be delivered from PPL 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 generation is based on a calculation approved by the RMC. This
      calculation uses market prices compared to dispatch rates as well as planned
      and forced outage rates by plant by month.



- "Trading around the assets" means that PPL EnergyPlus matches
      a contract to sell electricity, previously to be delivered from PPL 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.



- 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 need not result in physical
      delivery. These transactions receive cash flow hedge treatment if they lock
      in the price PPL will receive or pay for energy in the spot market. Any
      unrealized gains or losses on transactions receiving 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, as well
  as to hedge the fair value of firm commitments. As with energy transactions,
  the circumstances and intent existing at the time of the transaction determine
  its accounting designation, which is subsequently verified by PPL's trading
  controls 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 entered into 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.



To record derivative assets at fair value, PPL reduces the
  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.



At December 31, 2001, PPL had assets of $210 million and liabilities
  of $168 million that were accounted for under SFAS 133 and EITF 98-10. Shareowners'
  Common Equity included $23 million of net unrealized derivative gains, after-tax,
  in "Accumulated other comprehensive income." During the year ended December
  31, 2001, PPL recorded $7 million in pre-tax income for net unrealized mark-to-market
  gains, primarily on derivative instruments used for speculative (non-hedge)
  purposes. During this period, PPL also reclassified into earnings an after-tax
  loss of $7 million for derivatives that no longer qualified as hedges.



See Item 7A, "Quantitative and Qualitative Disclosures about
  Market Risk," for further discussion regarding price risk management, and sensitivities
  of hedged portfolios to changes in prices and interest rates.



2)  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" 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 those
  assumed is a guiding principle of these standards. This approach 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 to record the
      value of benefits, which are based on future projections, in terms of today's
      dollars.



- Expected Return on Plan Assets - Management projects the
      future return on plan assets based principally on prior performance. The
      projected future value of assets reduces the benefit obligation a company
      will record.



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



- Health Care Cost Trend - Management projects the expected
      increases in the cost of health care.
- Amortization of Gains/(Losses) - Management can select
      the method by which gains or losses are recognized in financial results.
      These gains or losses are created when actual results differ from estimated
      results based on the above assumptions.



At December 31, 2001, PPL had recognized accrued pension and
  postretirement liabilities of $181 million, included in "Deferred Credits and
  Other Noncurrent Liabilities - Other" on the Balance Sheet. PPL's total obligations
  for these benefits was approximately $1.6 billion, but was offset by $1.8 billion
  of assets held in various trusts. PPL has not yet recognized this over-funding
  due to the delayed recognition provisions of SFAS 87 and SFAS 106.



During 2001, PPL made changes to its assumptions related to
  the discount rate, the rate of compensation increase and the method of amortization
  of gains/(losses).



A variance in the discount rate, expected return on plan assets,
  rate of compensation increase or amortization method could have a significant
  impact on the pension costs recorded under SFAS 87.



A variance in the health care cost trend assumption could have
  a significant impact on costs recorded under SFAS 106 for postretirement medical
  expense. The impact of a one-percentage point variance in that assumption is
  calculated by PPL's actuaries and is detailed in Note 14 to the Financial Statements.



3)  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, and for which impairments have been recorded
  in 2001 or prior years, include international equity investments, generation
  plant and consolidated international energy projects.



Reviews were performed for equity investments 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.



Through December 31, 2001, such reviews were also performed
  for generation plant and consolidated international energy projects in accordance
  with SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
  Assets to be Disposed Of." On January 1, 2002, PPL adopted SFAS 144, "Accounting
  for the Impairment or Disposal of Long-Lived Assets," which replaces SFAS 121.
  For long-lived assets to be held and used, SFAS 144 retains the requirements
  of SFAS 121 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 18 for additional information on SFAS 144.



At December 31, 2001, PPL Global evaluated its international
  investments for impairment, as events and circumstances indicated that the carrying
  value of its investments in Brazil (CEMAR) and the U.K. (WPD 1953 and WPDL)
  may not be recoverable. The events that led to these impairment reviews were:



- CEMAR: A prolonged drought that caused electricity rationing,
      an unfavorable regulatory environment and disruption of Brazil's electricity
      markets, all of which indicated that the future cash flow stream would be
      adversely impacted.



- WPD 1953 and WPDL: The Enron bankruptcy led to an impairment
      review of WPD 1953's equity investment in the Teesside generating station, in which
      Enron was a part owner, operator and purchaser of the station's output.
      PPL Global's investments in WPD 1953 and WPDL were then tested for impairment,
      based on the loss of cash flow from the Teesside impairment and the forecasted
      reduction in operating cash flows at WPD 1953 and WPDL.



In 2001, PPL Global recorded pre-tax impairment charges of
  $336 million. Impairments included $179 million for its investment in CEMAR,
  $134 million for its investment in WPD 1953 and WPDL, $21 million for its share
  of the Teesside impairment recorded by WPD 1953, and approximately $2 million
  for another international investment.



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 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
  above and recorded in the Financial Statements.

In June 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. Refer to Note
  18 for additional information on SFAS 142.



4)  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 that provide specific guidance
      and additional requirements related to accounting for leases. 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 significant
      assumptions, including the discount rate, the fair market value of the leased
      assets and the estimated useful life. Changes in these assumptions could
      result in a significant change to the amounts recognized in the financial
      statements.



In addition to uncertainty inherent in management's assumptions,
      leasing transactions 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), or unconsolidated special purpose entities (SPEs) (entities that
      retain ownership of the property, plant and equipment and the related financing).
      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.



At December 31, 2001, PPL participated in four major leasing
      transactions involving unconsolidated SPEs. In accordance with GAAP, these
      SPEs were not consolidated because the equity owners (entities unrelated
      to PPL) were required to contribute and maintain a minimum of 3% equity
      interest throughout the life of the SPE.



See Note 12 for additional information related to operating
      lease payments.



5)  Contingencies



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."



SFAS 5 does not permit the accrual of gain contingencies under
  any circumstances. 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) that the amount
  of the loss can be reasonably estimated.



The accrual of a contingency involves considerable judgment
  on the part of management. 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. The largest contingency 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 the energy. This loss accrual of
  $854 million was recorded 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 forward pricing information. This loss accrual
  was transferred to PPL EnergyPlus in the July 1, 2000 corporate realignment.
  PPL EnergyPlus periodically reviews the reasonableness of the remaining accrual,
  which was $580 million at December 31, 2001.



PPL has also recorded contingencies for uncollectible accounts,
  environmental remediation, taxes and litigation in situations where management
  determined that it was probable a loss had been incurred and it could be reasonably
  estimated.

---

ITEM 7A. QUANTITATIVE AND QUALITATIVE
  DISCLOSURES ABOUT MARKET RISK



Market Risk-Sensitive Instruments

PPL actively manages the market risk inherent in its commodity,
  debt, and foreign currency and equity positions, as detailed in Notes 9 and
  19 to the Financial Statements. PPL has a comprehensive risk management policy
  to manage the risk exposures related to counterparty credit, energy prices,
  interest rates and foreign currency exchange rates. A RMC comprised of senior
  officers oversees the risk management function. Nonetheless, adverse changes
  in commodity prices, interest rates, foreign currency exchange rates and equity
  prices may result in losses in earnings, cash flows and/or fair values. 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.



Commodity Price Risk



PPL uses various methodologies to simulate forward price curves
  in the energy markets to estimate the size and probability of changes in market
  value resulting from commodity price movements. The methodologies require several
  key assumptions, including selection of confidence levels, the holding period
  of the commodity positions and the depth and applicability to future periods
  of historical commodity price information.



As of December 31, 2001, PPL estimated that a 10% adverse movement
  in market prices across all geographic areas and time periods would have decreased
  the value of its non-hedge portfolio by an insignificant amount, as compared
  to a $6 million decrease at December 31, 2000. A similar adverse movement in
  market prices would have decreased the value of its hedge portfolio by approximately
  $8 million at December 31, 2001, as compared to a $292 million decrease at December
  31, 2000. However, the change in the value of the hedge portfolio would have
  been offset by an increase in the value of the underlying commodity, the electricity
  generated. The decline in forward prices from 2000 to 2001 is the primary reason
  for the differences between 2001 and 2000's sensitivity analyses. In addition
  to commodity price risk, PPL's commodity positions are also subject to operational
  and event risks including, among others, increases in load demand and forced
  outages at power plants.

PPL's risk management program is designed to manage the risks
  associated with market fluctuations in the price of electricity, natural gas,
  oil and emission allowances. PPL's risk management policy and programs include
  risk identification and risk limits management, with measurement and controls
  for real-time monitoring. PPL has entered into forward, option and tolling contracts
  that require physical delivery of the commodity, as well as futures, exchange-for-physical
  transactions and other financial contracts (such as swap agreements where settlement
  is generally based on the difference between a fixed-price and an index-based
  price for the underlying commodity). PPL expects to continue to use these contracts.



PPL enters into contracts to hedge the impact of market fluctuations
  on PPL's energy-related assets, liabilities and other contractual arrangements.
  PPL also executes these 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.



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, 2001, PPL's potential annual exposure to increased
  interest expense, based on a 10% increase in interest rates, was estimated at
  $6 million, as compared to a $7 million increase at December 31, 2000.



PPL is also exposed to changes in the fair value of its debt
  portfolio. At December 31, 2001, 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 $111 million, as compared to $66 million at December
  31, 2000.

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, 2001, 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 $13 million, as compared to an $18 million exposure
  at December 31, 2000. See Notes 9 and 19 to the Financial Statements for a discussion
  of financial derivative instruments outstanding 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, 2001, being the amount PPL would have to pay to terminate them, was $3 million.
  At December 31, 2000, PPL had a forward purchase contract for 37 million euros.
  The estimated amount that PPL would have had to pay to terminate the forward
  purchases was insignificant.



Nuclear Decommissioning Fund - Securities Price Risk



In order to meet NRC requirements, PPL Susquehanna maintains
  trust funds to fund certain costs of decommissioning the Susquehanna station.
  As of December 31, 2001, 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, 2001, a hypothetical 10% increase in interest
  rates and a 10% decrease in equity prices would have resulted in an estimated
  $17 million reduction in the fair value of the trust assets, as compared to
  an $18 million reduction at December 31, 2000.



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 any increases in these costs. Under the power supply agreement 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. Therefore, PPL's securities
  price risk is expected to remain insignificant.



---

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 14(a)(1) on page 176 present fairly, in all
  material respects, the financial position of PPL Corporation and its subsidiaries
  ("PPL") at December 31, 2001 and 2000, and the results of their operations and
  their cash flows for each of the three years in the period ended December 31,
  2001 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 14(a)(2) present 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 19 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). 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 14 to the consolidated
  financial statements.





PricewaterhouseCoopers LLP
  Philadelphia, PA 
  February 4, 2002



---

PPL Corporation
Management's Report on Responsibility for
Financial Statements





The management of PPL is responsible for the preparation, integrity
  and objectivity of the consolidated financial statements and all other sections
  of this annual report. The financial statements were prepared in accordance
  with accounting principles generally accepted in the United States of America,
  and the Uniform System of Accounts prescribed by the Federal Energy Regulatory
  Commission for regulated domestic businesses. In preparing the financial statements,
  management makes informed estimates and judgments of the expected effects of
  events and transactions based upon currently available facts and circumstances.
  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's consolidated financial statements have been audited by
  PricewaterhouseCoopers LLP (PWC), independent certified public accountants.
  PWC's appointment as auditors was previously ratified by the shareowners. Management
  has made available to PWC all PPL's financial records and related data, as well
  as the minutes of shareowners' and directors' meetings. Management believes
  that all representations made to PWC during its audit were valid and appropriate.



PPL maintains a system of internal control designed to provide
  reasonable, but not absolute, assurance as to the integrity and reliability
  of the financial statements, the protection of assets from unauthorized use
  or disposition and the prevention and detection of fraudulent financial reporting.
  The concept of reasonable assurance recognizes that the cost of a system of
  internal control should not exceed the benefits derived and that there are inherent
  limitations in the effectiveness of any system of internal control.



Fundamental to the control system is the selection and training
  of qualified personnel, an organizational structure that provides appropriate
  segregation of duties, the utilization of written policies and procedures and
  the continual monitoring of the system for compliance. In addition, PPL maintains
  an internal auditing program to evaluate PPL's system of internal control for
  adequacy, application and compliance. Management considers the internal auditors'
  and PWC's recommendations concerning its system of internal control and has
  taken actions which are believed to be cost-effective in the circumstances to
  respond appropriately to these recommendations. Management believes that PPL's
  system of internal control is adequate to accomplish the objectives discussed
  in this report.



The Board of Directors, acting through its Audit Committee,
  oversees management's responsibilities in the preparation of the financial statements.
  In performing this function, the Audit Committee, which is composed of four
  independent directors, meets periodically with management, the internal auditors
  and PWC to review the work of each. PWC and the internal auditors have free
  access to the Audit Committee and to the Board of Directors, without management
  present, to discuss internal accounting control, auditing and financial reporting
  matters.



Management also recognizes its responsibility for fostering
  a strong ethical climate so that PPL's affairs are conducted according to the
  highest standards of personal and corporate conduct. This responsibility is
  characterized and reflected in the business policies and guidelines of PPL's
  operating subsidiaries. These policies and guidelines address: the necessity
  of ensuring open communication within PPL; potential conflicts of interest;
  proper procurement activities; compliance with all applicable laws, including
  those relating to financial disclosure; and the confidentiality of proprietary
  information.



William F. HechtChairman, President and Chief Executive Officer



John R. BiggarExecutive Vice President and Chief Financial Officer



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|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                                                                                                   
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|Operating Expenses                                                                                                   
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|Operating Income                                                                                                     
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|Other Income and (Deductions)                                                                                        
|                                                                                                                     
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|Income Before Interest
      Expense                                                                                 
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|Interest Expense                                                                                                     
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|Income Before Income
      Taxes and Minority Interest                                                               
|                                                                                                                     
|Income Taxes (Note 7)                                                                                                
|                                                                                                                     
|Minority Interest (Note
      1)                                                                                     
|                                                                                                                     
|                                                                                                                     
|Income Before Extraordinary
      Items                                                                              
|                                                                                                                     
|Extraordinary Items (net
      of income taxes) (Note 5)                                                             
|                                                                                                                     
|                                                                                                                     
|Income Before Cumulative Effect
      of a Change in AccountingPrinciple                                             
|                                                                                                                     
|Cumulative Effect of a Change in
      Accounting Principle (net of income taxes) (Note 14)                          
|                                                                                                                     
|                                                                                                                     
|Income Before Dividends
      on Preferred Securities                                                                
|                                                                                                                     
|Dividends - Preferred
      Securities                                                                               
|                                                                                                                     
|                                                                                                                     
|Net Income                                                                                                           
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|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                                                                           
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|Cash Flows From Investing
      Activities                                                                           
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|Cash Flows From Financing
      Activities                                                                           
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|                                                                                                                     
|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                                                                                                       
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
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|Investments                                                                                                          
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|Property, Plant and Equipment -
      net                                                                            
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
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|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|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                                                                                                             
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
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|                                                                                                                                
|Long-term Debt                                                                                                                  
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|Deferred Credits and
      Other Noncurrent Liabilities                                                                         
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|Commitments and Contingent
      Liabilities (Note 16)                                                                          
|                                                                                                                                
|                                                                                                                                
|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)                                                                                                                                                         
|                                                                                                                                                                              
|                                                                                                                                                                              
|                                                                                                                                                                              
|                                                                                                                                                                              
|                                                                                                                                                                              
|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) In thousands. $.01 par value, 390 million
      shares authorized. Each share entitles the holder to one vote on any question
      presented to any shareowners' meeting.
|(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 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                                                                                                                                                                                                                                                        
|                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                         
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|                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                         
|Decreases in Preferred Stock                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                         
|Decreases in Preferred Stock 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 2000 or 1999 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-OBLIGATEDMANDATORILY 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
      - $25 per security
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|(a)                                                                                                                                                
|                                                                                                                                                   
|(b)                                                                                                                                                
|                                                                                                                                                   
|(c)                                                                                                                                                
|                                                                                                                                                   
|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                                                                                                    
|                                                                                                                     
|6.40% Senior Unsecured
      Notes                                                                                   
|1.54% Pollution Control
      Revenue Bonds                                                                          
|8.70% to 9.64% - Unsecured
      Promissory Notes                                                                    
|Other Long-Term Debt                                                                                                 
|                                                                                                                     
|                                                                                                                     
|Fair Value Swaps                                                                                                     
|Unamortized discount                                                                                                 
|                                                                                                                     
|                                                                                                                     
|Less amount due within
      one year                                                                                
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|(a)                                                                                                                  
|(b)                                                                                                                  
|(c)                                                                                                                  
|(d)                                                                                                                  
|(e)                                                                                                                  
|(f)                                                                                                                  
|(g)                                                                                                                  
|(h)                                                                                                                  
|(i)                                                                                                                  
|(j)                                                                                                                  
|(k)                                                                                                                  
|(l)                                                                                                                  
|                                                                                                                     
|The accompanying Notes to Consolidated
        Financial Statements are an integral part of the financial statements.
|                                                                                                                     

---

PPL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

Business and Consolidation

PPL is an energy and utility holding company based in Allentown,
  Pennsylvania. PPL is the parent of PPL Energy Funding, PPL Electric, PPL Gas
  Utilities, PPL Services and PPL Capital Funding.

PPL Energy Funding is the parent of PPL Energy Supply, which
  serves as the holding company for PPL's principal unregulated subsidiaries:
  PPL Generation, PPL EnergyPlus and PPL Global. The principal business of PPL
  Generation is owning and operating U.S. generating facilities through various
  subsidiaries. The principal business of PPL EnergyPlus is unregulated wholesale
  and retail energy marketing. 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 energy projects.

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.

PPL consolidates the financial statements of its affiliates
  when it has 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 foreign affiliates on a lag, based
  on the availability of financial data on a U.S. GAAP basis:

- Equity earnings from WPD 1953, the parent of WPD (South
      West) and WPD (South Wales), and WPDL are recorded on a one-month lag. PPL
      Global has 51% equity ownership interests in these entities but has joint
      control of these investments with Mirant. Earnings from all other foreign
      equity method investments are recorded on a three-month lag.

- PPL Global consolidates the results of controlled subsidiaries,
      Emel, EC, the Bolivian subsidiaries and other investments, on a one-month
      lag. The results of CEMAR are consolidated on a three-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 8.5% investment in CGE is accounted for using
  the cost method. Dividends from CGE are recorded as income when received.

Use of Estimates/Contingencies

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

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.

Regulation

Historically, PPL Electric accounted for its regulated operations
  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, PPL Gas Utilities
  and certain PPL Global affiliates continue to be subject to SFAS 71.

Property, Plant and Equipment

Following are the classes of Electric plant in service, with
  the associated accumulated depreciation, at December 31 (millions of dollars):
2001
    
    
    2000Generation
    
    $
    7,208
    
    
    $
    6,801Transmission and distribution
    
    
    4,170
    
    
    
    3,521General
    
    
    491
    
    
    
    45911,869
    
    
    
    10,781Less: Accumulated depreciation
    
    
    6,342
    
    
    
    5,470$
    5,527
    
    
    $
    5,311Property, plant and equipment is recorded at original cost,
  unless impaired under the provisions of 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. 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.

AFUDC is capitalized as part of the construction costs for
  regulated projects. Interest is capitalized as part of construction costs for
  non-regulated projects.

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, 5-80 years. PPL periodically
  reviews and adjusts the depreciable lives of its fixed assets.

Asset Impairment

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 are performed
  in accordance with SFAS 121. Impairment losses on such long-lived assets are
  recognized when book values exceed expected undiscounted future cash flow with
  the impairment measured on a discounted future cash flows basis. 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. See Note 18 for the
  impact of SFAS 144 on accounting for asset impairments.

Amortization of Goodwill

Goodwill, which is included in "Regulatory and Other Noncurrent
  Assets - Other" on the Balance Sheet, is amortized on a straight-line basis
  over a period not to exceed 40 years. The excess cost over fair value of PPL
  Global's investments in unconsolidated affiliates is amortized on a straight-line
  basis over a period not in excess of 40 years. See Note 18 for the impact of
  SFAS 142 on accounting for goodwill.

Recoverable Transition Costs

Based 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 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.

Accounting for Price Risk Management

PPL enters into commodity contracts for the physical purchase
  and sale of energy as well as energy contracts that can be settled financially.
  PPL enters into interest rate derivative contracts to hedge its exposure to
  changes in the fair value of its debt instruments, as well as its exposure to
  variability in expected cash flows associated with existing debt instruments
  or forecasted transactions. PPL also enters 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 were 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 19 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 non-hedge 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 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.

In addition, PPL has entered into non-derivative contracts
  that meet the definition of energy trading activities as defined by EITF 98-10,
  "Accounting for Contracts Involved in Energy Trading and Risk Management Activities."
  In accordance with EITF 98-10, energy trading contract gains and losses from
  changes in market prices are marked to market through earnings.

For 1999 and 2000, PPL used EITF 98-10 to account for its commodity
  forward and financial contracts. As such, contracts that did not meet the definition
  of energy trading contracts, as defined by EITF 98-10, were reflected in the
  financial statements using the accrual method of accounting. The 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" on the Balance Sheet.

Gains and losses from changes in market prices of energy sales
  contracts are accounted for in "Wholesale energy marketing and trading" revenues;
  gains and losses from changes in market prices of energy purchase contracts
  are accounted for in "Energy purchases" on the Statement of Income. The amortized
  gains and losses from interest rate derivative contracts are accounted for in
  "Interest Expense."

Revenue Recognition

"Retail electric and gas" and "Wholesale energy marketing and
  trading" revenues 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 contacts,
  if any, are made in the period in which such losses are determined.

Income Taxes

The income tax provision for PPL is calculated in accordance
  with SFAS 109, "Accounting for Income Taxes."

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 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 7 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 and its subsidiaries file a consolidated federal income
  tax return.


Leases


See Note 12 for a discussion on accounting for leases.

Pension and Other Postretirement Benefits

See Note 14 for a discussion on accounting for pension and
  other postretirement benefits.

Cash Equivalents

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

Comprehensive Income

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 income" is presented on the Balance Sheet.

The accumulated other comprehensive income of PPL consisted
  of (in millions):

December 31,2001
    
    
    
    2000Foreign currency translation adjustments
    
    $
    (268
    )
    
    
    $
    (34
    )Unrealized gains on qualifying
      derivatives
    
    
    23Minimum pension liability
    
    
    (5
    )
    
    
    
    (5
    )Unrealized gains (losses) on available-for-sale
          securities
    
    
    (1
    )
    
    
    
    3$
    (251
    )
    
    
    $
    (36
    )
Treasury Stock

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

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." The effect of translation
  adjustments on other comprehensive income, net of income taxes, is disclosed
  in the Statement of Shareowners' Common Equity and Comprehensive Income. Gains
  or losses relating to foreign currency transactions are recognized in income
  currently. The aggregate transaction gain was $8 million in 2001, and was not
  significant in 2000.

Project Development Costs

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.

Reclassification

Certain amounts in the 2000 and 1999 financial statements have
  been reclassified to conform to the current presentation.

1. Segment and Related Information
    
    PPL's reportable segments are Supply, Delivery and International.
      The Supply group primarily consists of the domestic energy marketing, generation
      and domestic development operations of PPL Energy Supply. The Delivery group
      includes the regulated electric and gas delivery operations of PPL Electric
      and PPL Gas Utilities. The International group includes PPL Global's responsibility
      for the acquisition, development, ownership and operation of international
      energy projects. The majority of PPL Global's international investments
      are located in the U.K., Chile, El Salvador and Brazil. 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 23 for a discussion of the contract between PPL
      Electric and PPL EnergyPlus.
    
    Previously, there was a "Development" group that included
      the activities now reflected in the "International" group and the domestic
      development operations, currently part of the "Supply" group. Previously
      reported information has been restated to conform to the current presentation.
      Financial data for PPL's business segments are as follows (millions of dollars):

    2001
        
        
        2000
        
        
        1999Income Statement DataRevenues from external customersSupply
        $
        2,283
        
        
        $
        2,815
        
        
        $
        1,731Delivery
        
        2,867
        
        
        
        2,413
        
        
        
        2,441International
        
        575
        
        
        
        455
        
        
        
        4185,725
        
        
        
        5,683
        
        
        
        4,590Equity in earnings of unconsolidated
             affiliatesSupply
        
        12
        
        
        
        2
        
        
        
        2International
        
        113
        
        
        
        78
        
        
        
        57125
        
        
        
        80
        
        
        
        59DepreciationSupply
        
        126
        
        
        
        136
        
        
        
        138Delivery
        
        97
        
        
        
        104
        
        
        
        102International
        
        31
        
        
        
        21
        
        
        
        17254
        
        
        
        261
        
        
        
        257Amortizations - recoverable
          transition
             costs, nuclear fuel and otherSupply
        
        (35
        )
        
        
        (48
        )
        
        
        14Delivery
        
        259
        
        
        
        236
        
        
        
        201224
        
        
        
        188
        
        
        
        215Interest and dividend incomeSupply
        
        3
        
        
        
        (28
        )
        
        
        3Delivery
        
        10
        
        
        
        27
        
        
        
        6International
        
        2
        
        
        
        1415
        
        
        
        13
        
        
        
        9Interest expenseSupply
        
        58
        
        
        
        109
        
        
        
        90Delivery
        
        234
        
        
        
        230
        
        
        
        168International
        
        95
        
        
        
        37
        
        
        
        19387
        
        
        
        376
        
        
        
        277Income taxesSupply
        
        153
        
        
        
        221
        
        
        
        103Delivery
        
        71
        
        
        
        59
        
        
        
        28International
        
        37
        
        
        
        14
        
        
        
        43261
        
        
        
        294
        
        
        
        174Extraordinary itemsDelivery
        
        
        
        
        
        11
        
        
        
        (46
        )11
        
        
        
        (46
        )Net IncomeSupply
        
        368
        
        
        
        325
        
        
        
        199Delivery
        
        126
        
        
        
        113
        
        
        
        177International
        
        (315
        )
        
        
        60
        
        
        
        56$
        179
        
        
        $
        498
        
        
        $
        432Cash Flow DataExpenditures for property,
          plant and equipmentSupply
        $
        290
        
        
        $
        278
        
        
        $
        173Delivery
        
        149
        
        
        
        148
        
        
        
        141International
        
        126
        
        
        
        34
        
        
        
        4565
        
        
        
        460
        
        
        
        318Investment in generating assets
          and electric energy projectsSupply
        
        176
        
        
        
        97
        
        
        
        870International
        
        136
        
        
        
        473
        
        
        
        225$
        312
        
        
        $
        570
        
        
        $
        1,095
    As of December 31,2001
        
        
        
        2000Balance Sheet DataNet investment in unconsolidated
          
          affiliates-at equitySupply
        
        $
        211
        
        
        
        $
        165International
        
        
        375
        
        
        
        
        635586
        
        
        
        
        800Total assetsSupply
        
        
        5,038
        
        
        
        
        4,420Delivery
        
        
        6,097
        
        
        
        
        6,062International
        
        
        1,439
        
        
        
        
        1,878$
        12,574
        
        
        
        $
        12,360
    2001
        
        
        2000
        
        
        1999Geographic DataRevenues from external customersDomestic
        $
        5,150
        
        
        $
        5,228
        
        
        $
        4,172Foreign
        
        575
        
        
        
        455
        
        
        
        418$
        5,725
        
        
        $
        5,683
        
        
        $
        4,590
    As of December 31,2001
        
        
        
        2000Property, plant and equipmentDomestic
        
        $
        5,548
        
        
        
        $
        5,210Foreign
        
        
        587
        
        
        
        
        738$
        6,135
        
        
        
        $
        5,948
2. Investment in Unconsolidated Affiliates - at Equity

    
    PPL's investment in unconsolidated affiliates accounted
      for under the equity method was $586 million and $800 million at December
      31, 2001 and 2000. The most significant investment was PPL Global's investment
      in WPD 1953, which was $328 million at December 31, 2001 and $479 million
      at December 31, 2000. WPD 1953 owns WPD (South West) and WPD (South Wales).
      See Note 22 for a discussion on the write-down of international energy projects.
      At December 31, 2001, PPL Global had a 51% equity ownership interest in
      WPD 1953, but shared joint control with Mirant. Accordingly, PPL Global
      accounts for its investment in WPD 1953 (and other investments where it
      has majority ownership but lacks control) under the equity method of accounting.
    
    Investment in unconsolidated affiliates accounted for under
      the equity method at December 31, 2001, and the effective equity ownership
      percentages, were as follows:
    
    PPL Global:
       Aguaytia Energy, LLC - 11.4%
       Bolivian Generating Group, LLC - 29.3%
       Hidrocentrais Reunidas, LDA - 50.0%
       Hidro Iberica, B. V. - 50.0%
       Latin American Energy & Electricity Fund I, LP - 16.6%
       WPD 1953- 51.0%
       WPDL - 51.0%
    PPL Generation:
       Safe Harbor Water Power Corporation - 33.3%
       Bangor Pacific Hydro Associates - 50.0%
       Southwest Power Partners, LLC - 50.0%
    Summarized below is financial information from the financial
      statements of these affiliates, accounted for by the equity method (millions
      of dollars):
    
    Balance Sheet DataAs of December 31,2001
        
        
        
        2000Current Assets
        
        $
        612
        
        
        $
        396Noncurrent Assets
        
        
        5,517
        
        
        
        4,904Current Liabilities
        
        
        502
        
        
        
        409Noncurrent Liabilities
        
        
        3,955
        
        
        
        3,365Income Statement Data
    2001
        
        
        2000
        
        
        1999Revenues (a)
        $
        647
        
        
        $
        505
        
        
        $
        1,130Operating Income
        
        328
        
        
        
        254
        
        
        
        212Net Income (a)
        
        248
        
        
        
        131
        
        
        
        427
    (a)The decrease in revenues and net income in 2001 and
      2000 from 1999 were in part due to the sale of the supply business of WPD
      (South West), formerly SWEB, in the fourth quarter of 1999.
3. Earnings Per Share
    
    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 (See Note 13), stock units
      representing common stock granted under directors compensation programs
      and PEPS Units.
    
    Preferred dividends 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 used in the calculations, are shown below:
    
    
    2001
        
        
        
        2000
        
        
        
        1999(Millions of Dollars or Thousands
          of Shares)Income (Numerator)Net Income - before extraordinary
          items and cumulative effect of
             change in accounting principle
        
        $
        169
        
        
        $
        487
        
        
        $
        478- Extraordinary items (net of tax)
        
        
        
        
        
        
        11
        
        
        
        (46
        )- Cumulative effect of change in 
             accounting principle (net of tax)
        
        
        10Net Income
        
        $
        179
        
        
        $
        498
        
        
        $
        432
    Shares (Denominator)Shares for Basic EPS
        
        
        145,974
        
        
        
        144,350
        
        
        
        152,287Add: Incremental SharesStock options
        
        
        569
        
        
        
        364
        
        
        
        10Stock units
        
        
        71
        
        
        
        67
        
        
        
        59Shares for Diluted EPS
        
        
        146,614
        
        
        
        144,781
        
        
        
        152,356Basic Earnings Per ShareNet Income - before extraordinary
          items and cumulative effect of
             change in accounting principle
        
        $
        1.16
        
        
        $
        3.38
        
        
        $
        3.14- Extraordinary items (net of tax)
        
        
        
        
        
        
        0.07
        
        
        
        (0.30
        )- Cumulative effect of
             change in accounting principle
        
        
        0.07Net Income
        
        $
        1.23
        
        
        $
        3.45
        
        
        $
        2.84Diluted Earnings Per
          ShareNet Income - before extraordinary
          
             items and cumulative effect of
             change in accounting principle
        
        $
        1.15
        
        
        $
        3.37
        
        
        $
        3.14- Extraordinary items (net of tax)
        
        
        
        
        
        
        0.07
        
        
        
        (0.30
        )- Cumulative effect of change in 
             accounting principle (net of tax)
        
        
        0.07Net Income
        
        $
        1.22
        
        
        $
        3.44
        
        
        $
        2.84
    See Note 14 for a description of the cumulative effect
      of a change in accounting for pension gains and losses. The pro-forma effect
      of retroactive application of this change in accounting, from reported results,
      is as follows:
    
    2001
        
        
        2000
        
        
        1999
        
        
        1998 andprior yearsIncrease (decrease)Net income ($ millions)
        $
        (10
        )
        
        $
        7
        
        
        
        
        
        
        $
        3EPS
        $
        (.07
        )
        
        $
        .05
        
        
        
        
        
        
        $
        .02
    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. Therefore, they were excluded from
      the diluted EPS calculations.
    
    Stock options to purchase approximately 896,000 PPL common
      shares for 2001 were not included in that 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.
4. Extraordinary Items

    
    In August 1999, PPL Transition Bond Company issued $2.4
      billion of transition bonds to securitize a portion of PPL Electric's stranded
      costs. PPL Electric used a portion of the securitization proceeds to repurchase
      $1.5 billion of its first mortgage bonds. The premiums and related expenses
      to reacquire these bonds were $59 million, net of tax. In August 1999, PPL
      Electric released approximately $78 million of deferred income taxes associated
      with the CTC that was no longer required because of securitization. The
      net securitization impact of the bond repurchase and the deferred tax change
      was a gain of $19 million.
    
    SFAS 4, "Reporting Gains and Losses from Extinguishment
      of Debt," requires that a material aggregate gain or loss from the extinguishment
      of debt be classified as an extraordinary item, net of the related income
      tax effect. The $59 million loss associated with the bond repurchase was
      treated as an extraordinary item. Details were as follows (millions of dollars):
    
    Reacquisition cost of debt
        
        $
        1,554Net carrying amount of debt
        
        
        (1,454
        )Extraordinary charge pre-tax
        
        
        100Tax effects
        
        
        (41
        )Extraordinary charge
        
        $
        59This extraordinary charge was partially offset in December
      1999 with a credit relating to wholesale power activity. In December 2000,
      there was an additional extraordinary credit relating to wholesale power
      activity.
5. Sales to Other Electric Utilities
    
    Under FERC-approved interconnection and power supply agreements,
      PPL EnergyPlus supplied capacity and energy to UGI. These agreements were
      terminated in February 2001.
    
    PPL EnergyPlus had a contract to provide BG&E with
      129,000 kilowatts, or 6.6%, of PPL Susquehanna's share of capacity and related
      energy from the Susquehanna station. PPL EnergyPlus provided 407 million
      kWh to BG&E through May 2001, at which point the contract ended.
    
    PPL Montana provided power to Montana Power under two wholesale
      transition sales agreements. One agreement expired in December 2001 and
      the second agreement expires in June 2002. See Note 16 for more information
      regarding a new power supply agreement beginning in July 2002.
6. Income and Other Taxes
    For 2001, 2000 and 1999, 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%.
    
    The tax effects of significant temporary differences comprising
      PPL's net deferred income tax liability were as follows (millions of dollars):
    
    2001
        
        
        2000Deferred Tax AssetsDeferred investment tax credits
        $
        60
        
        $
        66NUG contracts & buybacks
        
        272
        
        
        326Accrued pension costs
        
        74
        
        
        106Deferred foreign income taxes
        
        109
        
        
        86Cancellation of generation projects
        
        60Impairment write-down
        
        61Contribution in aid of construction
        
        42
        
        
        33Other
        
        200
        
        
        162Valuation allowance
        
        (172
        )
        
        (8
        )706
        
        
        771
    Deferred Tax LiabilitiesElectric plant - net
        
        852
        
        
        845Restructuring - CTC
        
        861
        
        
        949Taxes recoverable through future rates
        
        104
        
        
        102Reacquired debt costs
        
        12
        
        
        13Foreign investments
        
        14
        
        
        15Deferred foreign income taxes
        
        42
        
        
        52Other
        
        49
        
        
        (27)1,934
        
        
        1,949Net deferred tax liability
        $
        1,228
        
        $
        1,178
    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 (millions of dollars):
    
    2001
        
        
        2000
        
        
        1999Income Tax ExpenseCurrent-Federal
        $
        270
        
        $
        285
        
        $
        178Current-State
        
        36
        
        
        57
        
        
        36Current-Foreign
        
        8
        
        
        11
        
        
        10314
        
        
        353
        
        
        224Deferred-Federal
        
        (86
        )
        
        (52
        )
        
        76Deferred-State
        
        4
        
        
        12
        
        
        (109
        )Deferred-Foreign
        
        44
        
        
        (4
        )(38
        )
        
        (44
        )
        
        (33
        )Investment tax credit, net-federal
        
        (15
        )
        
        (15
        )
        
        (17
        )Total
        $
        261
        
        $
        294
        
        $
        174Total income tax expense-Federal
        $
        169
        
        $
        218
        
        $
        237Total income tax expense-State
        
        40
        
        
        69
        
        
        (73
        )Total income tax expense-Foreign
        
        52
        
        
        7
        
        
        10Total
        $
        261
        
        $
        294
        
        $
        1742001
        
        
        2000
        
        
        1999  (a)Reconciliation 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 - 35%
        $
        168
        
        $
        284
        
        $
        242Increase/(decrease) due to:State income taxes
        
        25
        
        
        45
        
        
        (50
        )Flow through of depreciation differences
               not previously normalized
        
        
        
        
        2
        
        
        3Amortization of investment tax credit
        
        (11
        )
        
        (11
        )
        
        (12
        )Write-down of international energy
          projects
        
        100
        
        
        
        
        
        18Difference related to income recognition of
              foreign affiliates
        
        (17
        )
        
        (14
        )
        
        (22
        )Foreign income taxes
        
        52
        
        
        7
        
        
        10Federal income tax credits
        
        (40
        )
        
        (6
        )Other
        
        (16
        )
        
        (13
        )
        
        (15
        )93
        
        
        10
        
        
        (68
        )Total income tax expense
        $
        261
        
        $
        294
        
        $
        174Effective income tax rate
        
        54.4%
        
        
        36.3%
        
        
        25.1%(a) In August 1999, PPL Electric released approximately
      $78 million of deferred income taxes associated with the CTC that were no
      longer required because of securitization.
    2001
        
        
        2000
        
        
        1999Taxes, Other than IncomeState gross receipts
        $
        112
        
        $
        128
        
        $
        108State utility realty
        
        4
        
        
        6
        
        
        13State capital stock
        
        20
        
        
        23
        
        
        13Property and other
        
        19
        
        
        19
        
        
        3$
        155
        
        $
        176
        
        $
        137PPL Global does not pay or record U.S. income taxes on
      the undistributed earnings of its foreign subsidiaries and its 20% to 50%
      owned corporate joint ventures where management has determined that the
      earnings are permanently reinvested in the companies that produced them.
      The cumulative undistributed earnings are included in "Earnings reinvested"
      on the Balance Sheet. The amounts considered permanently reinvested at December
      31, 2001 and 2000 were $38 million and $27 million. It is not practical
      to estimate the amount of taxes that might be payable on these foreign earnings
      if they were remitted to PPL Global.
7. Nuclear Decommissioning Costs
    
    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 $724 million
      in 1993 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 $24 million in 2001, $26 million in
      2000 and $27 million in 1999.
    
    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 $294 million and $280 million at December 31, 2001 and 2000,
      and are included in "Deferred Credits and Other Noncurrent Liabilities -
      Other" on the Balance Sheet.
    
    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 18 for additional information on SFAS 143, which
      could have a material impact on the accounting for the decommissioning of
      the Susquehanna station.
8. Financial Instruments
    
    The carrying amount on the Balance Sheet and the estimated
      fair value of PPL's financial instruments were as follows (millions of dollars):
    
    December 31, 2001
        
        December 31, 2000CarryingAmount
        
        
        FairValue
        
        
        CarryingAmount
        
        
        FairValueAssetsCash and cash equivalents (a)
        $
        950
        
        $
        950
        
        $
        480
        
        $
        480Nuclear plant decommissioning
             trust fund (a)
        
        276
        
        
        276
        
        
        268
        
        
        268Price risk management assets
          -
             current: (c)Energy
        
        22
        
        
        22
        
        
        7
        
        
        7Price risk management assets
          -
             noncurrent: (c)Energy
        
        44
        
        
        44
        
        
        1
        
        
        1Interest
        
        6
        
        
        6Other investments (a)
        
        61
        
        
        61
        
        
        47
        
        
        47Other financial instruments
          
             included in other current   assets (a)
        
        3
        
        
        3
        
        
        13
        
        
        13LiabilitiesLong-term debt (b)
        
        5,579
        
        
        5,724
        
        
        4,784
        
        
        4,804Company-obligated
             mandatorily redeemable 
             preferred securities of 
             subsidiary trusts holding
             solely company debentures   (b)
        
        825
        
        
        705
        
        
        250
        
        
        250Short-term debt (a)
        
        118
        
        
        118
        
        
        902
        
        
        902Price risk management 
             liabilities - current: (c)Energy
        
        12
        
        
        12
        
        
        
        
        
        201
        (d)Interest
        
        4
        
        
        4Foreign exchange
        
        2
        
        
        2Price risk management 
             liabilities - noncurrent: (c)Energy
        
        7
        
        
        7
        
        
        
        
        
        61
        (d)Interest
        
        3
        
        
        3Foreign exchange
        
        1
        
        
        1Preferred stock with sinking
          
             requirements (b)
        
        31
        
        
        31
        
        
        46
        
        
        46Other financial instruments
          
             included in other current 
             liabilities (a)
        
        12
        
        
        12

   (a) The carrying value of these financial instruments generally
      is based on established market prices and approximates fair value.
   (b) 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.
    (c) Valued using either exchange-traded market quotes or
      prices obtained through third-party brokers. See Note 19 about the various
      uses of derivative financial instruments at PPL.
    (d) These contracts were classified as non-trading under
      EITF 98-10 and were not required to be marked to fair value on the Balance
      Sheet in 2000.
    This table excludes derivative and non-derivative energy
      contracts that do not meet the definition of a financial instrument because
      physical delivery is expected.
9. Credit Arrangements and Financing Activities



Credit Arrangements

In December 2000 and in January 2001, PPL Capital Funding entered
  into two short-term credit facilities. At March 31, 2001, PPL Capital Funding
  had borrowed $200 million under each facility at floating rates tied to either
  one, two or three-month LIBOR. These funds were used for general corporate purposes,
  including making loans to PPL subsidiaries to reduce their debt balances. In
  May 2001, PPL Capital Funding repaid its borrowings under both facilities and
  the credit facilities were terminated.

In order to enhance liquidity, and as a credit back-stop to
  their respective commercial paper programs, PPL Electric, PPL Capital Funding
  and PPL (as guarantor for PPL Capital Funding) shared a 364-day $750 million
  credit facility and a five-year $300 million credit facility, each with a group
  of banks. In June 2001, these credit facilities were terminated, PPL Electric
  entered into a new $400 million 364-day credit facility and PPL Energy Supply
  entered into two new credit facilities: a $600 million 364-day facility and
  a $500 million three-year facility. At December 31, 2001, no borrowings were
  outstanding under any of these facilities and $26 million of letters of credit
  were issued under the $500 million three-year facility. In addition, in June
  2001, PPL Capital Funding entered into a 364-day credit facility with PPL Energy
  Supply. PPL had guaranteed PPL Capital Funding's obligations under this agreement.
  The credit facility and related guaranty were terminated in December 2001 when
  PPL Capital Funding terminated its commercial paper program and at that time
  no borrowings were outstanding under this credit facility.

PPL Montana has a $100 million 3-year credit facility with
  certain lenders which matures in November 2002. The maturity date may be extended
  with the consent of the lenders. The credit facility provides that up to $75
  million of the commitment may be used to cause lenders to issue letters of credit.
  In the event that PPL Montana were to draw upon this facility or cause lenders
  to issue letters of credit on its behalf, PPL Montana would be required to reimburse
  the issuing lenders. At December 31, 2001, $44 million of loans were outstanding
  under this facility and $25 million of letters of credit were issued.

In April 2001, PPL Montana executed a new credit facility to
  allow for incremental letter of credit capacity of $150 million. There were
  no letters of credit outstanding under this facility at December 31, 2001. PPL
  has executed a commitment to the lenders under PPL Montana's $150 million credit
  facility that PPL will provide (or cause PPL Energy Supply to provide) letters
  of credit at such times and in such amounts as are necessary to permit PPL Montana
  to remain in compliance with its fixed-price forward energy contracts or its
  derivative financial instruments entered into to manage energy price risks,
  to the extent that PPL Montana cannot provide such letters of credit under its
  existing credit agreements. No such letters of credit had been issued as of
  December 31, 2001.

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, 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.

Financing Activities

During December 2001:

- PPL Electric terminated its existing commercial paper program
      and established a new $400 million program.
- PPL Capital Funding terminated its commercial paper program.
- PPL Energy Supply initiated a $1.1 billion commercial paper
      program.

1. Acquisitions, Development and Divestitures

    
    Domestic Generation Projects
    
    In January 2001, PPL Montour acquired an additional interest
      in the coal-fired Conemaugh Power Plant from Potomac Electric Power Company.
      Under the terms of the acquisition agreement, PPL Montour and a subsidiary
      of Allegheny Energy, Inc. jointly acquired a 9.72% interest in the 1,711
      MW plant. PPL Montour paid $78 million for this additional 83 MW interest.
      The purchase increased PPL Montour's ownership interest to 16.25% in the
      two-unit plant.
    
    In August 2001, construction began on the University Park
      Energy project, a 540 MW natural gas-fired facility located in University
      Park, Illinois and on the Sundance Energy project, a 450 MW natural gas-fired
      facility in Pinal County, Arizona. The projects are expected to be in service
      during the summer of 2002, at an estimated total project cost of approximately
      $675 million. PPL Susquehanna also announced plans to increase the capacity
      of its Susquehanna nuclear plant by 100 MW, with the installation of more
      efficient steam turbines on each of the two units. These improvements will
      be made in 2003 and 2004 and are expected to cost approximately $120 million.
    
    In December 2001, PPL Global and the Long Island Power
      Authority entered into agreements to build two 80 MW combustion turbine
      power facilities at sites in Shoreham and Edgewood on Long Island, New York.
      Both facilities are expected to be in service during the summer of 2002
      at an estimated total project cost of approximately $180 million.
    
    In December 2001, a PPL Global subsidiary entered into
      a synthetic lease financing transaction for the development, construction
      and operation of its Lower Mt. Bethel combined cycle generating facility.
      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.
      PPL Energy Supply and the PPL Global subsidiary intend to work with the
      Pennsylvania DEP in opposing this appeal. In addition, the local township
      zoning hearing board granted zoning approval for the facility, but the approval
      has been appealed by a township resident as to the decibel levels allowed.
      An additional appeal was filed by the same resident to the township's issuance
      of a building permit pending the outcome of the zoning appeal. PPL Energy
      Supply and the PPL Global subsidiary are aggressively opposing the zoning
      and building permit appeals. As a result of these three appeals, substantial
      additional requirements could be imposed on the construction and operation
      of the facility. If, as a result of these appeals, the construction of the
      facility could not be completed by September 30, 2004, the PPL Global subsidiary,
      or PPL Energy Supply as guarantor, could be called upon to repay approximately
      90% of the then-outstanding facility costs, plus a make-whole premium on
      the total amount of debt commitments. Alternatively, PPL Energy Supply could,
      subject to certain conditions, purchase the facility from the lessor, offer
      to assume 100% of the outstanding debt, and pay a reduced make-whole premium
      to any debtholder that does not accept such offer.
    
    In light of continuing declines in wholesale energy prices
      in the eastern and western U.S. markets, PPL Global is scaling back its
      generation development program. As a result, 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, and is reported on the Statement
      of Income as "Cancellation of generation projects," a component of "Other
      Charges."
    
    International Distribution Projects
    
    In January 2001, PPL Global purchased an additional 5.6%
      direct and indirect equity interest in CGE from the Claro group, bringing
      its total investment to $141 million, or about 8.5%. CGE provides electricity
      delivery service to 1.4 million customers throughout Chile and natural gas
      delivery service to 200,000 customers in Santiago.
    
    In May 2001, WPDL successfully completed the sale of Hyder's
      water business, Welsh Water, to the Welsh firm Glas Cymru Cyfyngedig for
      one British pound sterling and the assumption of all of Welsh Water's debt.
    
    In September 2001, PPL Global increased its capital investment
      by 4.9% in CEMAR, by purchasing the 25.7 billion shares of CEMAR that were
      held by CEMAR's employees at a price of $13 million. The increase resulted
      in a total 89.6% ownership in CEMAR.
    
    In December 2001, PPL Global purchased an 80% interest
      in El Salvador Telecom, a small telecommunications company in El Salvador,
      for an initial investment of $8 million.
    
    In December 2001, PPL Global recorded impairment charges
      for its investments in CEMAR, WPD 1953, and WPDL. See Note 22 for additional
      information.
2. Leases

    
    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 that provide specific guidance
      and additional requirements related to accounting for leases.
    
    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.
    
    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 used the proceeds to reduce outstanding
      debt and make distributions to its parent, 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. The leases provide two renewal options
      based on the economic useful life of the generation assets.
    
    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). Certain obligations
      of the PPL Global subsidiary under this lease financing, including payment
      obligations, have been guaranteed by PPL. The units are expected to go into
      service as they are completed, beginning in 2002.
    
    In May 2001, a PPL Global subsidiary entered into an operating
      lease arrangement, initially for $900 million and increased in July 2001
      to $1.06 billion upon syndication, for the development, construction and
      operation of several commercial power generation facilities. Certain obligations
      of the PPL Global subsidiary under this lease financing, including payment
      obligations, have been guaranteed by PPL Energy Supply. In February 2002,
      the PPL Global subsidiary reduced the available commitment under the lease
      to approximately $700 million. There is a residual value guarantee that is
      expected to be up to $545 million at the end of the lease.
    
    In December 2001, a PPL Global subsidiary entered into
      an operating lease arrangement for $455 million 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 facility
      is expected to be operational in 2004. Certain obligations of the PPL Global
      subsidiary under this lease financing, including payment obligations, have
      been guaranteed by PPL Energy Supply. There is a residual value guarantee that is
      expected to be up to $321 million at the end of the lease.
    
    In addition to the leasing arrangements discussed above,
      PPL also has leases for vehicles, office space, land, buildings, personal
      computers and other equipment. Total future minimum lease payments for all
      operating leases are estimated as follows (millions of dollars): 2002, $368;
      2003, $108; 2004, $147; 2005, $140; 2006, $106; and thereafter, $881.
3. Stock-Based Compensation

    
    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 may be granted
      to officers and other key employees of PPL, PPL Electric and other affiliated
      companies. Awards under the Plans are made in the common stock of PPL 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
      which 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 or is forfeited or the rights to the participant terminate,
      any shares of common stock 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.
    
    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. Restricted shares vest fully if control
      of PPL changes, as defined by the Plans.
    
    Restricted stock awards of 202,590; 440,549; and 108,800
      shares, with per share weighted-average fair values of $43.09, $21.30, and
      $26.74, were granted in 2001, 2000 and 1999. Compensation expense for 2001
      was $6 million and less than $3 million in 2000 and 1999. At December 31,
      2001, there were 660,572 restricted shares outstanding. These awards currently
      vest from three to twenty-three years from the date of grant.
    
    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. 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.
    
    PPL applies APB Opinion No. 25, "Accounting for Stock Issued
      to Employees," and related interpretations in accounting for stock options.
      Since stock options are granted at the then current market price, no compensation
      cost has been recognized. Compensation calculated in accordance with the
      disclosure requirements of SFAS 123, "Accounting for Stock-Based Compensation,"
      for 2001, 2000 and 1999 would have been $5 million, $2 million and less
      than $1 million. The impact on basic and diluted EPS would have been approximately
      2 cents per share in 2001, and approximately 1 cent per share in 2000.
    
    A summary of stock option activity follows:
    Stock Option Activity
        
        Number of Options
        
        Weighted Average Exercise PriceBalance at December 31, 1998Options granted
        
        704,800
        
        $
        26.85Options forfeited
        
        (78,780
        )
        $
        26.84Balance at December 31, 1999
        
        626,020
        
        $
        26.85(13,570 options exercisable)Options granted
        
        1,501,110
        
        $
        22.45Options exercised
        
        (56,590
        )
        $
        26.84Options forfeited
        
        (101,239
        )
        $
        24.02Balance at December 31, 2000
        
        1,969,301
        
        $
        23.64(215,158 options exercisable)Options granted
        
        922,860
        
        $
        43.16Options exercised
        
        (548,424
        )
        $
        23.49Options forfeited
        
        (88,686
        )
        $
        31.31Balance at December 31, 2001
        
        2,255,051
        
        $
        31.36(306,544 options exercisable)
    The weighted average fair values of options at their grant
      date during 2001, 2000 and 1999 were $10.42, $3.35 and $2.37. 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:
    
    2001
        2000
        1999Risk-free interest rate
        5.46%
        6.74%
        5.61%Expected option term
        10 yrs
        10 yrs
        10 yrsExpected stock volatility
        30.24%
        19.79%
        16.19%Dividend yield
        4.28%
        5.70%
        6.60%
    Options Outstanding
        Options ExercisableRange of ExercisePrices
        Number Outstanding at 12/31/01
        Weighted-Avg. Remaining ContractualLife
        Weighted-Avg. Exercise Prices
        Number Exercisableat 12/31/01
        Weighted-Avg. Exercise Price$19.00-$24.00
        962,249
        8.1
        $22.42
        71,770
        $21.99$25.00-$30.00
        407,812
        7.2
        $26.85
        234,774
        $26.85$40.00-$45.00
        884,990
        9.1
        $43.16
    Outstanding options had a weighted-average remaining life
      of 8.3 years at December 31, 2001.
4. Retirement and Postemployment Benefits

    
    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" for these benefits.
    
    PPL and its subsidiaries also provide supplemental retirement
      benefits to directors, executives and other key management employees through
      unfunded nonqualified retirement plans.
    
    Substantially all 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, 2001, PPL Electric had a regulatory asset of $6 million related to postretirement
      benefits that is being amortized and recovered in rates with a remaining
      life of 11 years.
    
    Net pension and postretirement medical benefit costs (credits)
      were (millions of dollars):
    
    Pension Benefits
        
        
        Postretirement
            Medical Benefits2001
        
        
        2000
        
        
        1999
        
        
        2001
        
        
        2000
        
        
        1999Service cost
        $
        38
        
        
        $
        40
        
        
        $
        42
        
        
        $
        5
        
        
        $
        5
        
        
        $
        5Interest cost
        
        94
        
        
        
        86
        
        
        
        78
        
        
        
        22
        
        
        
        22
        
        
        
        19Expected return on plan assets
        
        (142
        )
        
        
        (113
        )
        
        
        (99
        )
        
        
        (11
        )
        
        
        (8
        )
        
        
        (7
        )Net amortization and deferral
        
        (50
        )
        
        
        (21
        )
        
        
        (9
        )
        
        
        12
        
        
        
        12
        
        
        
        12Special termination benefits
        
        3
        
        
        
        
        
        
        
        3Net periodic pension and
             postretirement benefit cost 
             (credit)
        $
        (57
        )
        
        $
        (8
        )
        
        $
        15
        
        
        $
        28
        
        
        $
        31
        
        
        $
        29
    The net periodic pension cost charged or (credited) to
      operating expense was $(47) million in 2001, $(6) million in 2000 and $9
      million in 1999, excluding amounts charged or (credited) to construction
      and other non-expense accounts.
    
    In 2001 PPL changed its method of amortizing unrecognized
      gains or losses in the annual pension expense/income determined under SFAS
      87, "Employers' Accounting for Pensions." This change resulted in a cumulative-effect
      credit of $10 million after-tax or $.07 per basic share, which is reflected
      as a "Cumulative Effect of a Change in Accounting Principle" on the Statement
      of Income. Under the old method, unrecognized gains and losses in excess
      of ten percent 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 will be utilized for unrecognized
      gains and losses in excess of thirty percent of the plan's projected benefit
      obligation. Unrecognized gains and losses outside the second corridor will
      be 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.
    
    Retiree health and welfare benefits costs charged to operating
      expense were approximately $21 million in 2001, $25 million in 2000 and
      $20 million in 1999, excluding amounts charged to construction and other
      non-expense accounts.
    
    Postretirement medical costs at December 31, 2001 were
      based on the assumption that costs would increase 7.0% in 2001, then the
      rate of increase would decline gradually to 6% in 2006 and thereafter. A
      one-percentage point change in the assumed health care cost trend assumption
      would have the following effects (in millions):
    OnePercentage PointIncrease
        DecreaseEffect on service cost and
          interest cost
          components
        $
        1
        
        
        $
        (1
        )Effect on postretirement benefit
          obligation
        $
        11
        
        
        $
        (10
        )
    The following assumptions were used in the valuation of
      the benefit obligations:
    
    Pension Benefits
    2001
        2000
        1999Discount rate
        7.25%
        7.5%
        7.0%Expected return on plan assets
        9.2%
        9.2%
        8.0%Rate of compensation increase
        4.25%
        4.75%
        5.0%
    Postretirement Medical Benefits
    2001
        2000
        1999Discount rate
        7.25%
        7.5%
        7.0%Expected return on plan assets
        7.60%
        7.6%
        6.35%Rate of compensation increase
        4.25%
        4.75%
        5.0%
    The funded status of the combined plans was as follows
      (millions of dollars):
    Pension Benefits
        
        PostretirementMedical Benefits2001
        
        
        2000
        
        
        2001
        
        
        2000Change in Benefit ObligationBenefit Obligation, January
          1
        $
        1,192
        
        $
        1,206
        
        $
        311
        
        $
        317Service cost
        
        38
        
        
        40
        
        
        5
        
        
        5Interest cost
        
        94
        
        
        86
        
        
        22
        
        
        22Plan amendments
        
        4
        
        
        13Actuarial (gain)/loss
        
        15
        
        
        (98
        )
        
        12
        
        
        (17
        )Acquisition/divestitures
        
        30Participant contributions
        
        1Actual expense paid
        
        (4
        )
        
        (4
        )Net benefits paid
        
        (54
        )
        
        (51
        )
        
        (20
        )
        
        (16
        )Benefit Obligation, December
          31
        
        1,316
        
        
        1,192
        
        
        330
        
        
        311Change in Plan AssetsPlan assets at fair value,
          January 1
        
        1,794
        
        
        1,799
        
        
        149
        
        
        130Actual return on plan assets
        
        (108
        )
        
        44
        
        
        (6
        )
        
        2Employer contributions
        
        2
        
        
        3
        
        
        32
        
        
        33Acquisition/divestitures
        
        23
        
        
        3Participant contributions
        
        1Actual expense paid
        
        (4
        )
        
        (4
        )Net benefits paid
        
        (54
        )
        
        (51
        )
        
        (20
        )
        
        (16
        )Plan assets at fair value,
          December 31
        
        1,654
        
        
        1,794
        
        
        155
        
        
        149Funded StatusFunded Status of Plan
        
        338
        
        
        601
        
        
        (175
        )
        
        (162
        )Unrecognized transition assets
        
        (36
        )
        
        (40
        )
        
        96
        
        
        104Unrecognized prior service
          cost
        
        110
        
        
        114
        
        
        23
        
        
        27Unrecognized net (gain)/loss
        
        (579
        )
        
        (911
        )
        
        42
        
        
        14Liability recognized
        $
        (167
        )
        $
        (236
        )
        $
        (14
        )
        $
        (17
        )Pension Benefits
        
        PostretirementMedical Benefits2001
        
        
        2000
        
        
        2001
        
        
        2000Amounts recognized in the
          BalanceSheet consist of:Prepaid benefit cost
        $
        1
        
        $
        1Accrued benefit liability
        
        (168
        )
        
        (237
        )
        $
        (14
        )
        $
        (17
        )Intangible asset
        
        5Additional minimum liability
        
        (14
        )
        
        (9
        )Accumulated other comprehensive 
             income
        
        9
        
        
        9Net Amount Recognized
        $
        (167
        )
        $
        (236
        )
        $
        (14
        )
        $
        (17
        )
    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, were $116 million, $96 million and
      $46 million, as of December 31, 2001 and $33 million, $29 million and $0
      as of December 31, 2000.
    
    PPL Electric and its subsidiaries formerly engaged in coal
      mining accrued an additional liability for the cost of health care of their
      retired miners. At December 31, 2001, this liability was $22 million. The
      liability is the net of $52 million of estimated future benefit payments
      offset by $30 million of available assets in a PPL Electric-funded VEBA
      trust.
    
    PPL subsidiaries engaged in the mechanical contracting
      business make contributions to various union-sponsored multiemployer pension
      and health and welfare plans. Contributions of $14 million, $10 million
      and $8 million were made in 2001, 2000 and 1999.
    
    Savings Plans
    
    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 $10 million in 2001, $9
      million in 2000 and $6 million in 1999.
    
    Employee Stock Ownership Plan
    
    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 $4 million in each of 2001, 2000 and 1999. 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, 2001 totaled 5,140,869,
      or 4% of total common shares outstanding, and are included in all EPS calculations.
    
    Postemployment Benefits
    
    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 2001, 2000 or 1999.
    
    Certain of PPL Global subsidiaries, including Emel, EC,
      Elfec and Integra, 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 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 was payable at each balance sheet date. The combined
      liabilities for these plans at December 31, 2001 and 2000 were $6 million,
      and are recorded in "Deferred Credits and Noncurrent Liabilities -
      Other" on the Balance Sheet.
5. Jointly-Owned Facilities

    
    At December 31, 2001, subsidiaries of PPL owned undivided
      interests in the following facilities (millions of dollars):
    
    OwnershipInterest
        
        
        ElectricPlant inService
        
        OtherProperty
        
        AccumulatedDepreciation
        
        ConstructionWork inProgressPPL GenerationGenerating StationsSusquehanna
        90.00%
        
        $
        4,196
        
        
        
        
        $
        3,525
        
        $
        24Keystone
        12.34%
        
        
        71
        
        
        
        
        
        46
        
        
        6Wyman
        8.33%
        
        
        15
        
        
        
        
        
        2Conemaugh
        16.25%
        
        
        185
        
        
        
        
        
        58
        
        
        4Merrill Creek 
          Reservoir
        8.37%
        
        
        
        
        $
        22
        
        
        12
    PPL Montana also has 50% and 30% undivided leasehold interests
      in Colstrip Units 1 and 2, and Colstrip Unit 3, respectively.
    
    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.
6. Commitments and Contingent Liabilities

    
    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.
    
    Wholesale Energy Commitments
    
    As part of the purchase of generation assets from Montana
      Power, PPL Montana agreed to supply electricity under two wholesale transition
      service agreements. In addition, PPL Montana assumed a power purchase agreement
      and another power sales agreement. In accordance with purchase accounting
      guidelines, PPL Montana recorded a liability of $118 million as the estimated
      fair value of these agreements at the acquisition date. The liability is
      being amortized over the agreement terms as adjustments to "Wholesale energy
      marketing and trading" revenues and "Energy purchases" on the Statement
      of Income. The unamortized balance at December 31, 2001 was $78 million
      and is included in "Other" in the "Deferred Credits and Other Noncurrent
      Liabilities" section of the Balance Sheet.
    
    In October 2001, PPL announced that PPL EnergyPlus had
      reached an agreement to supply Montana Power with an aggregate of 450 MW
      of energy to be supplied by PPL Montana. The delivery term of this new contract
      is for five years beginning July 1, 2002, which is the day after the termination
      date of the last of the two existing contracts, pursuant to which PPL Montana
      presently supplies energy to Montana Power for its default supply.
    
    Under the agreement, PPL EnergyPlus will supply 300 MW
      of around-the-clock electricity and 150 MW of on-peak electricity. In December
      2001, the agreement was accepted for filing by the FERC. No further regulatory
      approvals are required under this agreement.
    
    Liability for Above Market NUG Contracts
    
    In 1998, PPL Electric recorded a loss accrual for above
      market contracts with NUGs of $854 million, when its generation business
      was 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. The liabilities associated with these above market NUG
      contracts were $580 million at December 31, 2001.
    


    Commitments - Acquisitions and Development Activities

    
    PPL Global and its subsidiaries have committed additional
      capital and extended loans to certain affiliates, joint ventures and partnerships
      in which they have an interest. At December 31, 2001, PPL Global and its
      subsidiaries had approximately $561 million of such commitments. The majority
      of these commitments were for the purchase of LM-6000 turbine generators
      from General Electric. The General Electric commitments have been reduced
      due to the decision to cancel generation projects as described in Note 11.
    
    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.
    
    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.
    
    At this time, PPL Montana cannot predict the outcome of
      the proceedings related to the MPSC Order, what actions the MPSC, the Montana
      Legislature or any other governmental authority may take on these or related
      matters, or the ultimate impact on PPL, PPL Energy Supply and PPL Montana
      of any of these matters.
    
    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 unnamed 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. PPL Montana
      is unable to predict the outcome of this matter.
    
    PUC Investigation Order
    
    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 January 2002, PPL
      filed comments as requested by the Investigation Order. The Order does not
      suggest what, if any, action the PUC may take as a result of the investigation,
      other than considering possible changes to its competitive safeguards. While
      PPL EnergyPlus and PPL Electric have filed comments with the PUC as part
      of the investigation, they have taken the position that the PUC does not
      have jurisdiction to regulate the PJM capacity markets as those markets
      are for wholesale electricity transactions and accordingly are within the
      exclusive jurisdiction of the FERC. In addition, PPL EnergyPlus and PPL
      Electric believe that PPL EnergyPlus' actions under review were at all times
      lawful and consistent with the rules of the market. At this time, neither
      PPL EnergyPlus nor PPL Electric can predict the outcome of the PUC investigation
      or what action the PUC may take in connection with the investigation.
    
    FERC Market-based Rates
    
    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 to those protests and interventions. PPL EnergyPlus has taken
      the position 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. The matter is currently pending before the FERC.
    
    Proposed Montana Hydroelectric Initiative
    
    In January 2002, the Montana Secretary of State certified,
      in accordance with applicable statutes, that it had approved the form of
      a proposed Montana "Hydroelectric Security Act" initiative. The
      proposed initiative may be placed on the November 2002 statewide ballot
      if sufficient signatures are obtained prior to June 21, 2002. Among the
      stated purposes of the proposed initiative is to create an elected Montana
      public power commission to determine whether purchasing hydroelectric dams
      in Montana is in the public interest. Such a commission could decide to
      acquire PPL Montana's hydroelectric dams either pursuant to a negotiated
      purchase or an acquisition at fair market value through the power of condemnation.
      At this time, PPL, PPL Energy Supply and PPL Montana cannot predict whether
      the proposed initiative will garner enough signatures for placement on the
      November 2002 statewide ballot, whether there will be a successful legal
      challenge to the initiative, whether it would pass if on the ballot or what
      impact, if any, the measure might ultimately have upon PPL Montana or its
      hydroelectric operations. PPL Montana has declared its opposition to, and
      intends to vigorously oppose, the initiative.
    
    Nuclear Insurance
    
    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. At December
      31, 2001, this maximum assessment was about $20 million.
    
    PPL Susquehanna's public liability for claims resulting
      from a nuclear incident at the Susquehanna station is limited to about $9.5
      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.
    
    Environmental Matters
    
    Air
    
    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
      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 NOx,
      SO2 and mercury and could possibly require measures to limit
      CO2.
    
    The Pennsylvania DEP has finalized regulations requiring
      further seasonal (May-June) NOx 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 in an appeals
      proceeding. 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 NOx reductions with the recent installation
      of SCR technology on the Montour units and the possible use of SCR or SNCR
      technology on a Brunner Island unit.
    
    The EPA has also developed new standards for ambient levels
      of ozone and fine particulates in the U.S. These standards were challenged
      and remanded to the EPA by the D.C. Circuit Court of Appeals in 1999. However,
      on appeal to the United States Supreme Court, the D. C. Circuit Court's
      decision was reversed in part and remanded to the D.C. Circuit. The new
      particulates standard, if finalized, may require further reductions in
      SO2
      for certain PPL subsidiaries and year-round NOx reductions commencing
      in 2010-2012 at SIP-call levels in Pennsylvania, and at slightly less stringent
      levels in Montana. The revised ozone standard, if finalized, 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 emissions must be regulated. In this regard, EPA is expected
      to develop 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, and the Region VIII office has issued such a request
      to PPL Montana's Corette plant. PPL has responded to the information request.
      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, 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 is also proposing to 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 SO2 emissions. PPL Martins Creek is discussing
      these concerns with the New Jersey DEP. In addition, the plant experienced
      several opacity violations in the first and second quarters of 2001, for
      which it paid a civil penalty of $30,300 and funded an environmental project
      for $90,000. The cost of addressing New Jersey's SO2 concerns
      and the opacity issued is not now determinable but could be significant.
      See Note 11 for information on the Lower Mt. Bethel appeal by the New Jersey
      DEP.
    
    Water/Waste
    
    The final NPDES permit for the Montour plant contains stringent
      limits for iron discharges. The results of a toxic reduction study show
      that additional water treatment facilities or operational changes are needed
      at this station. A plan for these changes has been developed and was submitted
      to the Pennsylvania DEP in August 2001.
    
    A final NPDES permit has been issued to the Brunner Island
      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 could be significant.
    
    The EPA has significantly tightened the water quality standard
      for arsenic. The lowered standard may require PPL Generation to further
      treat wastewater and/or take abatement action at several of its subsidiaries'
      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 2003, will address existing
      structures. Each of these rules could impose significant costs on PPL Generation,
      which are not now determinable but which could be significant.
    
    Capital expenditures through the year 2003 to correct groundwater
      degradation at fossil-fueled generating stations and to address wastewater
      control at PPL Generation's facilities, are included in the table of construction
      expenditures in the section entitled "Financial Condition - Capital Expenditure
      Requirements" in the Review of the Financial Condition and Results of Operations.
      Additional capital expenditures could be required beyond the year 2006 in
      amounts which are not now determinable but which could be significant. Actions
      taken to correct groundwater degradation, to comply with the environmental
      regulations and to address wastewater control, are also expected to result
      in increased operating costs in amounts which are not now determinable but
      which could be significant.
    
    Superfund and Other Remediation
    
    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. In connection with the July 1, 2000 corporate
      realignment, PPL Electric's generation facilities were transferred to subsidiaries
      of PPL Generation. As of December 31, 2001, work has been completed on approximately
      80% 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.
    
    At December 31, 2001, PPL Electric and PPL Gas Utilities
      had accrued approximately $5 million and $12 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.
    
    In October 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 Asset Purchase Agreement, PPL Montana
      is indemnified by Montana Power for any pre-acquisition environmental liabilities.
      However, this indemnification is conditioned on certain circumstances that
      can result in PPL Montana and Montana Power sharing in certain costs within
      limits set forth in the agreement.
    
    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.
    
    General
    
    Certain of PPL's affiliates have electric distribution
      operations in the U.K. and Latin America. PPL believes that these operations
      are in compliance 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.
    
    Due to the environmental issues discussed above 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, operating expenses and other costs
      in amounts which are not now determinable but which could be significant.
    
    Credit Support
    
    PPL and PPL Energy Supply provide certain guarantees for
      their subsidiaries. PPL has guaranteed all of the debt of PPL Capital Funding.
      As of December 31, 2001, PPL had guaranteed $1.3 billion of PPL Capital
      Funding medium-term notes. PPL had also guaranteed certain obligations under
      power purchase and sales agreements of PPL EnergyPlus for up to $1 billion
      and of PPL Montana for up to $138 million. As of December 31, 2001, there
      were $31 million of guarantees outstanding under the power purchase agreement
      and none under the sales agreement. In addition, PPL had guaranteed certain
      obligations of other subsidiaries, totaling $272 million at December 31,
      2001. As of December 31, 2001, PPL Energy Supply has also guaranteed certain
      obligations under power purchase and sales agreements of PPL EnergyPlus
      for up to $121 million and certain obligations of other subsidiaries totaling
      $600 million.
    
    Source of Labor Supply
    
    As of December 31, 2001, PPL and its subsidiaries had 12,496
      full-time employees. This included 3,594 in PPL Electric and 425 in PPL
      Gas Utilities, 2,550 in PPL Generation, 1,943 in PPL EnergyPlus, 44 in PPL
      Global, 2,765 in several Central and South American electric companies controlled
      by PPL Global and 1,175 in PPL Services.
    
    Approximately 54%, or 5,243, of PPL's domestic workforce
      are members of labor unions, with four IBEW locals representing nearly 4,200
      employees. The other unions primarily represent small locals of gas utility
      employees in Pennsylvania. The bargaining agreement with the largest union
      was negotiated in 1998 and expires in May 2002. Eight new 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.
      New contracts were also concluded with two IBEW locals in Montana. PPL Montana
      is currently negotiating with the Teamsters Union for a new agreement.
7. Related Party Transactions
    
    PPL Global provided temporary financing to WPDL and WPD
      1953 in connection with the acquisition of Hyder. The outstanding loan receivables
      and accrued interest, 154.5 million British pounds sterling (approximately
      $220 million), were repaid in May 2001.
    
    At December 31, 2000, PPL Global had a $135 million note
      payable to an affiliate of WPD 1953. The note was denominated in U.S. dollars,
      and provided for interest at market rates. PPL Global repaid this note in
      January 2001.
8. New Accounting Standards
    
    SFAS 141
    
    In June 2001, the FASB issued SFAS 141, "Business Combinations,"
      which eliminates the pooling-of-interest method of accounting for business
      combinations and requires the use of the purchase method. In addition, SFAS
      141 requires the reassessment of intangible assets to determine if they
      are appropriately classified either separately or within goodwill. SFAS
      141 is effective for business combinations initiated after June 30, 2001.
      PPL adopted SFAS 141 on July 1, 2001, with no material impact on the financial
      statements.
    
    SFAS 142
    
    In June 2001, the FASB issued SFAS 142, "Goodwilland
      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.
    
    In accordance with the provisions of SFAS 142, PPL ceased
      amortization of goodwill and all intangible assets with indefinite useful
      lives. The elimination of amortization will result in $18 million less expense
      (pre-tax) in 2002. In addition, PPL is in the process of conducting the
      transition impairment analysis and may record a goodwill impairment of up
      to $100 million (pre-tax) as a change in accounting principle in the first
      quarter of 2002. The potential impairment relates to reporting units within
      the International segment.
    
    SFAS 143
    In June 2001, the FASB issued SFAS 143, "Accounting for
      Asset Retirement Obligations," on the accounting for obligations associated
      with the retirement of long-lived assets. SFAS 143 requires a liability
      to be recognized in the financial statements for retirement obligations
      meeting specific criteria. Measurement of the initial obligation is to approximate
      fair value, with an equivalent amount recorded as an increase in the value
      of the capitalized asset. The asset will be depreciated in accordance with
      normal depreciation policy and the liability will be increased, with a charge
      to the income statement, until the obligation is settled. SFAS 143 is effective
      for fiscal years beginning after June 15, 2002. The potential impact of
      adopting SFAS 143 is not yet determinable, but may be material.
    SFAS 144
    
    In August 2001, the FASB issued SFAS 144, "Accounting for
      the Impairment or Disposal of Long-Lived Assets," that 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 (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. For long-lived assets to be disposed
      of, 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 adopted
      SFAS 144 on January 1, 2002, with no material impact on the financial statements.
9. Derivative Instruments and Hedging Activities
    
    PPL 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 recorded a cumulative-effect
      credit of $11 million in earnings, included as an increase to "Wholesale
      energy market and trading" revenues and a decrease to "Energy purchases"
      on the Statement of Income. PPL also recorded a cumulative-effect charge
      of $182 million in "Accumulated other comprehensive income," a component
      of Shareowners' Common Equity. As of December 31, 2001, the balance in "Accumulated
      other comprehensive income" related to unrealized gains and losses on qualifying
      derivatives was a net gain of $23 million, 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
    
    PPL's market risk exposure is the adverse effect on the
      value of a transaction that results from a change in commodity prices, interest
      rates or currency exchange rates. The market risk associated with commodity
      price, interest rate and foreign exchange contracts is managed by the establishment
      and monitoring of parameters that limit the types and degree of market risk
      that may be undertaken. PPL actively manages the market risk inherent in
      its commodity, debt and foreign currency positions. The PPL Board of Directors
      has adopted risk management policies to manage the risk exposures related
      to energy prices, interest rates and foreign currency exchange rates. These
      policies monitor and assist in controlling these market risks and use derivative
      instruments to manage some associated commodity, debt, and foreign currency
      activities.
    
    PPL's derivative activities are subject to the management,
      direction and control of the RMC. The RMC is composed of the chief financial
      officer and other officers of PPL. The RMC reports to the Finance Committee
      of the PPL Board of Directors on the scope of its derivative activities.
      The RMC sets forth risk-management philosophy and objectives through a corporate
      policy, provides guidelines for derivative-instrument usage, and establishes
      procedures for control and valuation, counterparty credit approval and the
      monitoring and reporting of derivative activity.
    
    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 enters into financial contracts to hedge a portion
      of the fair value of firm commitments of forward electricity sales and to
      hedge fluctuations in market value of existing debt issuances. These contracts
      range in maturity through 2006. For the twelve months ended December 31,
      2001, PPL recognized a net gain of $7 million, after-tax, resulting from
      firm commitments that no longer qualified as fair value hedges (reported
      in "Wholesale energy marketing and trading" revenues and "Energy purchases"
      on the Statement of Income). PPL did not recognize any gains or losses from
      the ineffective portion of fair value hedges.
    
    Cash Flow Hedges
    
    PPL enters into physical and financial contracts, including
      forwards, futures and swaps, to hedge the price risk associated with electric,
      gas and oil commodities. Additionally, PPL enters 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 2004. PPL also enters 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 2003, excluding those contracts
      forecasted to relate to the payment of variable interest on existing financial
      instruments. For the twelve months ended December 31, 2001, PPL recorded
      a net gain of $23 million in "Accumulated other comprehensive income" relating
      to these contracts.
    
    As a result of an unplanned outage, Enron's bankruptcy
      and changes in other economic conditions, PPL discontinued certain cash
      flow hedges which resulted in a net loss of $14 million, after-tax, for
      the twelve months ended December 31, 2001 (reported in "Wholesale energy
      marketing and trading" revenues and "Energy purchases" on the Statement
      of Income). The impact on the financial statements resulting from cash flow
      hedge ineffectiveness for the twelve months ended December 31, 2001 was
      immaterial.
    
    As of December 31, 2001, the deferred net gain on derivative
      instruments in "Accumulated other comprehensive income" expected to be reclassified
      into earnings during the next twelve months was $6 million.
    
    Implementation Issues
    
    On June 29, 2001, the FASB issued definitive guidance on
      DIG Issue C15: "Scope Exceptions: Normal Purchases and Normal Sales Exception
      for 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 is effective as of 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, 2001, "Accumulated
      other comprehensive income" included a net gain of $11 million 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.
    
    Unrealized Gains/(Losses) on Qualifying Derivatives
    (Millions of Dollars)
    (After-tax)
    December 31, 2001Cumulative unrealized gain
          on qualifying derivatives, beginning of period:
        
        $
        0Unrealized gains (losses) arising during
          period:Cumulative effect of change in accounting
            principle at January 1, 2001
        
        
        (182
        )Net reclassification into earnings
        
        
        (16
        )Net change associated with current period hedging transactions
        
        
        221Unrealized gain on qualifying
          derivatives
        
        
        23Cumulative unrealized gain
          on qualifying derivatives, end of period
        
        $
        23
    Credit Concentration
    
    PPL enters 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 new business from
      a credit perspective. At year-end, PPL had a credit exposure of $412 million
      to energy trading partners. The majority of this amount was the mark-to-market
      value of multi-year contracts for energy sales. Therefore, if the counterparties
      fail to perform their obligations, PPL 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 the
      defaulted contracts. Of the $412 million, four counterparties account for
      81% of the exposure. No other individual counterparty accounted for more
      than 3% of the exposure. Each of the four primary counterparties has an
      "investment grade" credit rating with Standard & Poor's, with the exception
      of one counterparty that is a governmental agency and, as such, is not rated.
      With the exception of the government agency, PPL has the right to request
      collateral from each of these counterparties in the event their credit rating
      falls below investment grade. It is also PPL's policy to enter into netting
      agreements with all of its counterparties to minimize credit exposure.
10. Sales to California Independent System Operator and
      to Other Pacific Northwest Purchasers
    
    Through subsidiaries, PPL has made approximately $18 million
      of sales to the California ISO, for which PPL has not yet been paid in full.
      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, 2001, 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 as defendants
      in any of the court actions alleging abuses of market power, manipulation
      of market prices, unfair trade practices and violations of state antitrust
      laws. A PPL subsidiary 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 in the California markets, 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
      sales made in the Pacific Northwest, including sales made by PPL Montana.
      The FERC Administrative Law Judge assigned to this proceeding has recommended
      that no refunds be ordered for sales into the Pacific Northwest. The FERC
      presently is considering this recommendation. PPL cannot predict whether
      or the extent to which any of its subsidiaries will be the target of any
      governmental investigation or named in these lawsuits, refund proceedings
      or other lawsuits, the outcome of any such proceedings or whether the ultimate
      impact on PPL of the electricity supply situation in California and other
      western states will be material.
11. Enron Bankruptcy
    
    In connection with the December 2, 2001 bankruptcy filings
      by Enron Corporation and its affiliates ("Enron"), certain PPL subsidiaries
      have terminated certain electricity and gas agreements with Enron. PPL and
      its subsidiaries' 2001 earnings reflect a loss associated with termination
      of these contracts of $8 million after-tax, which is recorded in "Wholesale
      energy marketing and trading" 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 than current market prices.
      However, there is no further accounting charge to be recorded. PPL expects
      to make a claim in Enron's bankruptcy proceeding with respect to all amounts
      payable by Enron resulting from the termination of these contracts.
12. Write-down of International Energy Projects
    
    PPL Global has a 51% economic interest in WPD 1953, a 15.4%
      equity investor 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, WPD 1953 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 the investment in WPD 1953 and WPDL. 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 1953 and WPDL. 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."
    
    PPL Global owns 89.6% of CEMAR, which distributes and sells
      electricity in Brazil, under a 30-year concession agreement with the government.
      The combined effects of growth in demand, decreased rainfall on the country's
      heavily hydroelectric-dependent generating capacity and delays in the development
      of new non-hydroelectric generation have led to shortages of electricity
      in certain regions. As a result, the Brazilian government implemented countrywide
      electricity rationing in mid-2001. In addition, the wholesale energy markets
      in Brazil have been substantially disrupted. CEMAR's results of operations,
      its cash flows, and its continued ability to meet its financial obligations
      have deteriorated due to the continuing impact of the electricity rationing,
      the disruption in the energy markets, the failure of the electricity regulator
      to adequately address these problems, the resulting effects on the Brazilian
      capital markets and related factors.
    
    In December 2001 and January 2002, the Brazilian electricity
      regulator issued tariff rulings that CEMAR believes are inadequate to compensate
      for CEMAR's rationing-related losses and to meet its ongoing operational
      and financial requirements. Moreover, CEMAR believes that these tariff rulings
      demonstrate that the regulator may not take the necessary steps to resolve
      the current problems in a satisfactory manner. In addition, the Brazilian
      wholesale energy markets continue to be disrupted and recent actions by
      the electricity regulator indicate that adequate compensation to CEMAR for
      its transactions in that market may not be made. Finally, the continued
      problems in the Brazilian energy market and the lack of appropriate regulatory
      actions have significantly decreased the availability of local financing
      for CEMAR.
    
    As a result of the above events, PPL Global estimates that
      the long-term viability of the CEMAR operation is jeopardized and that there
      is minimal probability of positive future cash flows. Consequently, at December
      31, 2001, PPL Global recorded an impairment loss in the carrying value of
      its net assets in CEMAR of $179 million, reflected in "Write-down of international
      energy projects." In addition, CEMAR increased its valuation allowance in
      deferred tax assets, thereby recording $44 million in additional foreign
      deferred income taxes. A related $6 million credit to "Minority Interest"
      was also reflected on the Statement of Income. The net result of these transactions
      was a $217 million charge to earnings. PPL Global currently anticipates
      writing off the remaining portion of its CEMAR investment, approximately
      $100 million, in 2002.
    
      As a result of the financial difficulties discussed above, CEMAR has failed to
      pay certain of its creditors for obligations when due.  CEMAR is currently in
      discussions with credits, governmental officials, regulators and other parties
      to address these problems.
 
 In addition, CEMAR expects that it will not be in compliance
      with the financial covenants in its $150 million debenture indenture when
      it closes its books for the quarter ended December 31, 2001. In that case,
      CEMAR will be required to notify the indenture agent. In accordance with
      the indenture, the agent will call a meeting of the holders of the debentures
      within three business days of the notice to hold a vote regarding the acceleration
      of the debentures. Unless three-fourths of the holders vote against acceleration,
      the agent will be obligated under the indenture to accelerate the debentures.
      CEMAR expects the required notice to the indenture agent to occur in the
      first quarter of 2002.
13. Strategic Initiative


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 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 will be
  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.

---

|SCHEDULE II -
      VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
|------------------------------------------------------------------
|PPL Corporation                                                   
|(Millions of Dollars)                                             
|                                                                  
|Column A                                                          
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Description                                                       
|                                                                  
|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          
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Year Ended December 31, 1999                                      
|Reserves deducted from assets in the
      Balance Sheet          
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|(a)                                                               
|(b)                                                               



---

|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: (b)                                                    
|                                                                                              
|                                                                                              
|Diluted earnings per
      common share: (b)                                                  
|                                                                                              
|                                                                                              
|Dividends declared per
      common share-basic (c)                                           
|Price per common share                                                                        
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Operating revenues                                                                            
|Operating income                                                                              
|Net income before extraordinary
      items                                                   
|Net income                                                                                    
|Basic earnings per common
      share: (b)                                                    
|                                                                                              
|                                                                                              
|Diluted earnings per
      common share: (b)                                                  
|                                                                                              
|                                                                                              
|Dividends declared per
      common share-basic (c)                                           
|Price per common share                                                                        
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|(a)                                                                                           
|(b)                                                                                           
|(c)                                                                                           



---

ITEM 9. CHANGES IN AND DISAGREEMENTS
  WITH ACCOUNTANTSON ACCOUNTING AND FINANCIAL DISCLOSURE

None.



PART III

ITEM 10. DIRECTORS AND EXECUTIVE
  OFFICERS OF THE REGISTRANT



Information for this item concerning directors of PPL will
  be set forth in the sections entitled "Nominees for Directors," and "Directors
  Continuing in Office" in PPL's 2002 Notice of Annual Meeting and Proxy Statement,
  which will be filed with the SEC not later than 120 days after December 31,
  2001, 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.



ITEM 11. EXECUTIVE COMPENSATION



Information for this item for PPL 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 2002 Notice of Annual Meeting and Proxy Statement, which will be filed
  with the SEC not later than 120 days after December 31, 2001, and which
  information is incorporated herein by reference.



ITEM 12. SECURITY OWNERSHIP OF
  CERTAIN BENEFICIAL OWNERS AND MANAGEMENT



Information for this item for PPL will be set forth in the
  section entitled "Stock Ownership" in PPL's 2002 Notice of Annual Meeting and
  Proxy Statement, which will be filed with the SEC not later than 120 days after
  December 31, 2001, and which information is incorporated herein by reference.



ITEM 13. CERTAIN RELATIONSHIPS AND
  RELATED TRANSACTIONS



Information for this item for PPL will be set forth in the
  section entitled "Certain Transactions Involving Directors or Executive Officers"
  in PPL's 2002 Notice of Annual Meeting and Proxy Statement, which will be filed
  with the SEC not later than 120 days after December 31, 2001, and which
  information is incorporated herein by reference.

---

PPL ENERGY SUPPLY, LLC AND SUBSIDIARIES



PART II





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



(a) 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. On
  March 20, 2001, PPL Energy Funding transferred $100 to PPL Energy Supply as
  an initial capital contribution and $1,873 million in 2001 as additional capital
  contributions. Such transactions were exempt from registration under the Securities
  Act of 1933, as amended, pursuant to Section 4(2) thereof. PPL Energy Supply
  has made no other sales of unregistered membership interests.



(b) Distributions on the membership interests will be paid
  as determined by PPL Energy Supply's Board of Managers. PPL Energy Supply made
  cash distributions of $463 million to PPL Energy Funding in 2001.



---

ITEM 6. SELECTED FINANCIAL DATA



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 ENERGY SUPPLY, LLC
ITEM 7. REVIEW OF THE FINANCIAL CONDITION
  AND RESULTS OF OPERATIONS



The following analysis of the results of operations and financial
  condition of PPL Energy Supply is abbreviated as PPL Energy Supply 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.



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 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



PPL Energy Supply's net income was $174 million in 2001, compared
  to net income (on a predecessor basis) of $242 million in 2000 and a net loss
  of $35 million in 1999.



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, but were adversely impacted by write-downs of
  international energy projects and the cancellation of generation projects.



PPL Energy Supply expects that lower wholesale prices will
  adversely impact earnings in 2002. Additionally, PPL Global anticipates writing
  off the remaining balance of its investment in CEMAR, approximately $100 million,
  in 2002. See Note 21 for additional information.



The following discussion explains significant changes in principal
  items on the Statement of Income, comparing 2001 to 2000, and 2000 to 1999.

In many cases the reasons for significant changes are due to
  the acquisition of the generation and marketing assets from PPL Electric in
  July 2000, as described in the "Corporate Realignment" discussion above.



Certain items on the Statement of Income have also been impacted
  by PPL Global's investment in CEMAR in 2000. The results of CEMAR are included
  for the entire year in 2001, but were included for just the last three months
  of 2000.



Certain items on the Statement of Income have also been impacted
  by the acquisition of Montana generating assets. PPL acquired the generating
  assets from Montana Power in December 1999. As such, the results of PPL Montana
  are included for all of 2000 and 2001, but only for the last two weeks of 1999.



Operating Revenues



Wholesale Energy Marketing and Trading



The increase in revenues from wholesale energy marketing and
  trading activities was attributable to the following (millions of dollars):



|         | 2001 vs. 2000   |  | 2000 vs. 1999
|-------- | --------------- |  | -------------
|Domestic |                 |  |              
|         | Eastern markets |  | $            
|         | Western markets |  |              
|         |                 |  |              
|         |                 |  | $            
|         |                 |  |              



The increase in wholesale energy marketing revenues in 2001
  and 2000 were primarily due to the corporate realignment in July 2000. As part
  of the realignment, PPL Electric entered into power sales agreements with PPL
  EnergyPlus for the purchase of electricity to meet its obligations as a PLR
  for customers who have not selected an alternative supplier under the Customer
  Choice Act. These purchases, which are part of the eastern market revenues,
  totaled $1,302 million in 2001 and $540 million for the six months ended December
  31, 2000.



Wholesale marketing revenues in eastern markets also increased
  by $375 million and $576 million in 2001 and 2000 due to wholesale contracts
  that were transferred from PPL Electric to PPL EnergyPlus effective with the
  July 1, 2000 realignment.



The increase in western markets revenues in 2001 was primarily
  due to higher wholesale energy prices in the first half of 2001, related to
  an energy supply shortage in the western U.S. Revenues in the western markets
  increased in 2000 reflecting a full year of PPL Montana operation in 2000, as
  opposed to approximately two weeks in 1999.



Retail Electric and Gas



The increase (decrease) in retail revenues from electric and
  gas operations was attributable to the following changes (millions of dollars):



|                        | 2001 vs. 2000                   |   | 2000 vs. 1999
|----------------------- | ------------------------------- | - | -------------
|Retail Electric Revenue |                                 |   |              
|                        | Domestic electric supply        |   | $            
|                        | International electric delivery |   |              
|                        |                                 |   |              
|                        |                                 |   |              
|Retail Gas Revenue      |                                 |   | 22           
|                        |                                 |   |              
|                        |                                 |   |              
|Retail Revenues - total |                                 | $ | (115         
|                        |                                 |   |              
|                        |                                 |   |              



Operating revenues from retail electric operations decreased
  by $137 million in 2001 compared with 2000 primarily due to the expiration of
  contracts with existing customers, as PPL EnergyPlus reduced its emphasis on
  the retail energy supply business. Partially offsetting this decrease were higher
  PPL Global revenues from the acquisition of CEMAR.



Operating revenues from retail electric operations increased
  by $169 million in 2000 compared with 1999. PPL EnergyPlus provided 15.5% more
  electricity to domestic retail customers in 2000 as compared to 1999. Revenues
  from international electric delivery were $75 million greater in 2000 as compared
  to 1999, due to the acquisition of CEMAR and higher sales volumes in Chile,
  El Salvador and Bolivia.



PPL EnergyPlus' increase in retail gas revenue in both periods
  was related to intensified gas marketing efforts and increased retail pricing
  attributable to higher wholesale gas commodity costs.



Energy Related Businesses



Energy related businesses (see Note 1 to Financial Statements)
  contributed $33 million and $24 million to operating income in 2001 and 2000.
  Positive contributions from PPL Global and from PPL EnergyPlus' mechanical contracting
  and engineering subsidiaries were partially offset by pre-tax operating losses
  from PPL EnergyPlus' synfuel projects. (However, after recording tax credits
  associated with synfuel operations, the synfuel projects contributed approximately
  $19 million to net income for 2001.)



Equity in Earnings of Unconsolidated Affiliates



Equity in earnings of unconsolidated affiliates increased by
  $59 million in 2001 compared with 2000. This was primarily due to PPL Global's
  higher equity earnings from its investment in WPD (South West) and other international
  investments, and the recording of earnings from its investment in WPD (South
  Wales), which was acquired in September 2000.

Fuel



Fuel costs increased by $231 million in 2001 compared with
  2000 due to the inclusion of PPL Generation subsidiaries as predecessors of
  PPL Energy Supply beginning in July 2000.



Fuel costs increased by $267 million in 2000 compared with
  1999 due to the inclusion of PPL Generation subsidiaries as predecessors of
  PPL Energy Supply in July 2000, and fuel costs related to PPL Montana's full
  year of operation in 2000.



Energy Purchases



The increase in energy purchases was attributable to the following
  changes (millions of dollars):



|              | 2001 vs. 2000   |   | 2000 vs. 1999
|------------- | --------------- | - | -------------
|Domestic      |                 |   |              
|              | Eastern markets |   | $            
|              | Western markets |   |              
|              |                 |   |              
|International |                 |   | 47           
|              |                 |   |              
|              |                 | $ | 113          
|              |                 |   |              



The increase in energy purchases in 2001 from 2000 for the
  eastern markets was due to the transfer of the wholesale energy marketing business
  from PPL Electric to PPL EnergyPlus as part of the corporate realignment. Western
  market purchases increased because of higher power costs in 2001 in the western
  U.S. The increase in international energy purchases was due to the purchases
  of CEMAR.



The increase in energy purchases in 2000 from 1999 was primarily
  in the eastern markets due to the transfer of the wholesale energy marketing
  functions from PPL Electric to PPL EnergyPlus as part of the corporate realignment.
  The increase in western market energy purchases reflects a full year of operation
  by PPL Montana in 2000, as opposed to approximately two weeks in 1999.



Other Operation and Maintenance



Other operation and maintenance expenses increased by $283
  million in 2001 when compared to 2000. The transfer of PPL Electric generation
  assets in the corporate realignment was the primary reason for the increase,
  as well as additional operating expenses associated with PPL Global's acquisition
  of CEMAR. Also contributing to the increase was a gain on the sale of emission
  allowances in 2000.



Other operation and maintenance expenses increased by $425
  million in 2000 when compared with 1999. The transfer of PPL Electric generation
  assets to PPL Generation in the corporate realignment was the primary reason
  for the increase. Also contributing to the increase were PPL Montana's full
  year of operation in 2000 compared to two weeks in 1999, and PPL Global's acquisition
  of CEMAR. These increases were partially offset by the gain on the sale of emission
  allowances in 2000.



Transmission



Since PPL Energy Supply owns no domestic transmission or distribution
  facilities, other than facilities to interconnect its generation with the electric
  transmission system, its PPL EnergyPlus, PPL Montana and other PPL Generation
  subsidiaries must pay the owners of transmission systems to deliver the energy
  these subsidiaries supply to retail and wholesale customers. Transmission expenses
  in 2000 were associated with a full year of PPL Montana's operation, in which
  $12 million of transmission expenses were incurred, and the operation of the
  assets of the other PPL Generation assets subsequent to July 1, 2000, which
  amounted to $42 million.



Depreciation



Depreciation increased by $68 million in 2001 compared with
  2000. This increase was primarily due to the inclusion of generation assets
  transferred from PPL Electric in the July 1, 2000 corporate realignment. Also
  contributing to the increase were the inclusion of CEMAR's transmission, distribution
  and other assets recorded subsequent to its acquisition by PPL Global, and to
  SCR technology installed at the Montour plant during the third quarter 2000
  outage.



Depreciation increased by $69 million in 2000 compared with
  1999. About $53 million of the increase was due to the inclusion of the generation
  assets transferred from PPL Electric to PPL Generation. Also, expenses in 2000
  included a full year of depreciation related to PPL Montana, as compared to
  approximately two weeks of such expenses in 1999. Finally, depreciation of CEMAR's
  transmission, distribution and other assets was recorded subsequent to its acquisition
  by PPL Global in June 2000.



Taxes, Other Than Income



Taxes, other than income taxes, decreased by $15 million in
  2001 compared to 2000. The decrease was primarily in the gross receipts tax
  corresponding to lower retail electric revenues and a reduction in Pennsylvania's
  gross receipts tax rate. Changes in the gross receipts tax do not significantly
  affect earnings as they are substantially recovered in revenues.



Taxes, other than income taxes, increased by $34 million in
  2000 compared to 1999. This was due to PPL EnergyPlus' gross receipts tax increase
  (that corresponds to its increased revenues), real estate taxes associated with
  the generation assets acquired in the corporate realignment, increased capital
  stock tax, and the inclusion of a full year of PPL Montana's taxes.

Project Development



Project development costs increased $14 million in both 2001
  and 2000 over prior years, as PPL Global increased the number of domestic projects
  it was developing.



Other Charges



Other charges of $486 million in 2001 consisted of the write-down
  of international energy projects (see Note 21) and the cancellation of generation
  development projects (see Note 9).



Other charges of $51 million in 1999 consisted of the write-downs
  of PPL Global's investments in WPD and two smaller projects.



Other Income - net



Other income increased by $34 million in 2001 compared with
  2000. This increase was due to a loss contingency recorded by PPL Generation
  in 2000 for an unasserted claim under the Clean Air Act.



Other income decreased by $100 million in 2000 compared with
  1999. This decrease was due to a loss contingency recorded by PPL Generation
  in 2000 for an unasserted claim under the Clean Air Act and a gain in 1999 on
  the sale of SWEB's electric supply business ($78 million pre-U.S. tax).



Interest Expense



Interest expense decreased by $80 million in 2001 compared
  with 2000. This decrease reflects 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 the interest expense associated with the $500 million senior unsecured
  notes issued by PPL Energy Supply in October 2001.



Interest expense increased by $75 million in 2000 compared
  with 1999, primarily due to increased borrowings by PPL Global and the interest
  expense of PPL Montana.



Income Taxes



Income tax expense increased by $149 million in 2001 compared
  with 2000. This was primarily due to higher pre-tax domestic book income and
  deferred income tax valuation allowances recorded on the company's investments
  in Brazil and the U.K. (see Note 21). These increases were reduced by the recognition
  of federal synfuel tax credits.



Income tax expense increased by $154 million in 2000 compared
  with 1999. This was primarily due to higher pre-tax book income.



Acquisitions and Development



From time to time, PPL Energy Supply and its affiliates 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, 2001, PPL Global had investments in foreign
  facilities, including consolidated investments in Emel, EC, CEMAR and others.
  See Note 3 to the Financial Statements for information on PPL Global's unconsolidated
  investments accounted for under the equity method.



At December 31, 2001, PPL Global had domestic generation projects,
  either announced or under development, which would provide 2,440 MW of additional
  generation. See Item 2. "Properties" for additional information. In January
  2002, construction activities were completed on the Griffith project, located
  near Kingman, Arizona, and the facility began commercial operations. Griffith
  is currently in the process of applying for membership in the Southwest Reserve
  Sharing Group. Acceptance into the Southwest Reserve Sharing Group would allow
  Griffith to sell significantly more of the plant's generation at firm prices
  and require fewer reserves for the firm sales.



PPL Global 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.



Critical Accounting Policies



PPL Energy Supply's financial condition and results of operations
  are necessarily 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.)



1) Price Risk Management



PPL Energy Supply follows the guidance of SFAS 133, "Accounting
  for Derivative Instrument and Hedging Activities," as amended by SFAS 138, "Accounting
  for Certain Derivative Instrument and Certain Hedging Activities," and interpreted
  by DIG issues (together, "SFAS 133") and EITF 98-10, "Accounting for Contracts
  Involved in Energy Trading and Risk Management Activities" for its activities
  in the area of price risk management. PPL Energy Supply utilizes forward contracts,
  futures contracts, options and swaps as part of its risk management strategy
  to minimize unanticipated fluctuations in earnings caused by price and foreign
  currency volatility. 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. EITF 98-10 requires that derivative and non-derivative contracts that
  are designated as trading activities be marked to market through earnings.



PPL Energy Supply markets and/or purchases electricity, gas,
  oil, capacity, and ancillary products such as transmission congestion contracts.
  PPL Energy Supply uses exchange prices and external broker quotes to value electricity,
  gas, and oil contracts. Since there are no market quotes available for capacity
  and ancillary products, PPL Energy Supply values these products using internal
  models to forecast future cash flows. PPL Energy Supply then recognizes a modeling
  reserve for values calculated using internal models to recognize the lack of
  independence in the valuation of the contracts. Therefore, the net value of
  the capacity and ancillary products on the financial statements is their amortized
  cost.



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 trading controls group on a daily basis.
  The following is a brief summary of certain guidelines that have been provided
  to the traders who are responsible for contract designation:



- Any wholesale and retail contracts to sell electricity
      that are expected to be delivered from PPL Energy Supply 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 generation is based on a calculation
      approved by the RMC. This calculation uses market prices compared to dispatch
      rates as well as planned and forced outage rates by plant by month.



- "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.



- 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 need not result in physical
      delivery. These transactions receive cash flow hedge treatment if they lock
      in the price PPL Energy Supply will receive or pay for energy in the spot
      market. Any unrealized gains or losses on transactions receiving 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
  may enter into foreign currency contracts to hedge risk associated with foreign
  currency exchange rates. As with energy transactions, the circumstances and
  intent existing at the time of the transaction determine its accounting designation,
  which is subsequently verified by PPL's trading controls group on a daily basis.
  The following is a summary of the guidelines that have been provided to the
  treasury department which is responsible for contract designation:



- Transactions entered into 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.



To record derivative assets at their net realizable value,
  PPL Energy Supply reduces the 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 who 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 it wanted
      to close an open sales position or PPL Energy Supply might have to accept
      the "ask" price if it wanted to close an open purchase position.



At December 31, 2001, PPL Energy Supply had assets of $204
  million and liabilities of $152 million that were accounted for under SFAS 133
  and EITF 98-10. Member's Equity included $46 million of net unrealized derivative
  gains, after-tax, in "Accumulated other comprehensive income." During the year
  ended December 31, 2001, PPL Energy Supply recorded $7 million in pre-tax income
  for net unrealized mark-to-market gains, primarily on derivative instruments
  used for speculative (non-hedge) purposes. During this period, PPL Energy Supply
  also reclassified into earnings an after-tax loss of $7 million for derivatives
  that no longer qualified as hedges.



See Item 7A, "Quantitative and Qualitative Disclosures about
  Market Risk," for further discussion regarding price risk management, and sensitivities
  of hedged portfolios to changes in prices and interest rates.



2) Pension and Other Postretirement Benefits



As described in Note 12, PPL Energy Supply subsidiaries sponsor
  various pension and 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 Energy Supply
  follows the guidance of SFAS 87, "Employers' Accounting for Pensions" and SFAS
  106, "Employers' Accounting for Postretirement Benefits Other Than Pensions"
  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 those assumed is a guiding
  principle of these standards. This 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 to record the
      value of benefits, which are based on future projections, in terms of today's
      dollars.



- Expected Return on Plan Assets - Management projects the
      future return on plan assets based principally on prior performance. The
      projected future value of assets reduces the benefit obligation a company
      will record.



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



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



- Amortization of Gains/(Losses) - Management can select
      the method by which gains or losses are recognized in financial results.
      These gains or losses are created when actual results differ from estimated
      results based on the above assumptions.



At December 31, 2001, PPL Energy Supply had been allocated
  accrued pension and postretirement liabilities of $124 million. These liabilities
  are included in "Deferred Credits and Other Noncurrent Liabilities - Other"
  on the Balance Sheet.



During 2001, PPL made changes to its pension plan assumptions
  related to the discount rate, the rate of compensation increase and the method
  of amortization of gains/(losses).



A variance in the discount rate, expected return on plan assets,
  rate of compensation increase or amortization method could have a significant
  impact on the pension costs recorded under SFAS 87.



A variance in the health care cost trend assumption could have
  a significant impact on costs recorded under SFAS 106 for postretirement medical
  expense. The impact of a one-percentage point variance in that assumption is
  calculated by actuaries and is detailed in Note 12 to the Financial Statements.



3) 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, and for which impairments have
  been recorded in 2001 or prior years, include international equity investments
  and consolidated international energy projects.



Reviews were performed for equity investments 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 Energy Supply
  identifies and measures loss in value of equity investments based upon a comparison
  of fair value to carrying value.



Through December 31, 2001, such reviews were also performed
  for generation plant and consolidated international energy projects in accordance
  with SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
  Assets to be Disposed Of." On January 1, 2002, PPL Energy Supply adopted SFAS
  144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which
  replaces SFAS 121. For long-lived assets to be held and used, SFAS 144 retains
  the requirements of SFAS 121 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 17 for additional information on SFAS 144.



At December 31, 2001, PPL Global evaluated its international
  investments for impairment, as events and circumstances indicated that the carrying
  value of its investments in Brazil (CEMAR) and the U.K. (WPD 1953 and WPDL)
  may not be recoverable. The events that led to these impairment reviews were:



- CEMAR: a prolonged drought that caused electricity rationing,
      an unfavorable regulatory environment and disruption of Brazil's electricity
      markets, all of which indicated that the future cash flow stream would be
      adversely impacted.



- WPD 1953 and WPDL: the Enron bankruptcy led to an impairment
      review of WPD 1953's equity investment in the Teesside generating station, in which
      Enron was a part owner, operator and purchaser of the station's output.
      PPL Global's investments in WPD 1953 and WPDL were then tested for impairment,
      based on the loss of cash flow from the Teesside impairment and the forecasted
      reduction in operating cash flows at WPD 1953 and WPDL.



In 2001, PPL Global recorded pre-tax impairment charges of
  $336 million. Impairments included: $179 million for its investment in CEMAR,
  $134 million for its investment in WPD 1953 and WPDL, $21 million for its share
  of the Teesside impairment recorded by WPD 1953 and approximately $2 million
  for another international investment.



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 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 assigning probabilities to 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
  above and recorded in the Financial Statements.



In June 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.
  Refer to Note 17 for additional information on SFAS 142.



4) 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 that
      provide specific guidance and additional requirements related to accounting
      for leases. 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 significant
      assumptions, including the discount rate, the fair market value of the leased
      assets and the estimated useful life. Changes in these assumptions could
      result in a significant change to the amounts recognized in the financial
      statements.



In addition to uncertainty inherent in management assumptions,
      leasing transactions 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), or unconsolidated special purpose entities (SPEs) (entities that
      retain ownership of the property, plant and equipment and the related financing).
      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.



At December 31, 2001, PPL Energy Supply participated in
      four major leasing transactions involving unconsolidated SPEs. In accordance
      with GAAP, these SPEs were not consolidated because the equity owners (entities
      unrelated to PPL Energy Supply) were required to contribute and maintain
      a minimum of 3% equity interest throughout the life of the SPEs.



See Note 10 for additional information related to operating
      lease payments.



5) Contingencies



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."



SFAS 5 does not permit the accrual of gain contingencies under
  any circumstances. 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) that the amount
  of the loss can be reasonably estimated.



The accrual of a contingency involves considerable judgment
  on the part of management. 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. The largest contingency 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 the
  energy. This loss accrual of $854 million was recorded in 1998 by PPL Electric,
  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 the loss had been
  incurred and the estimate of future energy prices could be reasonably determined,
  using forward pricing information. This loss accrual was transferred to PPL
  EnergyPlus in the July 1, 2000 corporate realignment. PPL EnergyPlus periodically
  reviews the reasonableness of the remaining accrual, which was $580 million
  at December 31, 2001.



PPL Energy Supply has also recorded contingencies for uncollectible
  accounts, environmental remediation, taxes and litigation in situations where
  management determined it was probable a loss had been incurred and it could
  be reasonably estimated.





---

ITEM 7A. QUANTITATIVE AND QUALITATIVE
  DISCLOSURES ABOUT MARKET RISK



Market Risk Sensitive Instruments



PPL Energy Supply actively manages the market risk inherent
  in its commodity, debt, and foreign currency and equity positions as detailed
  in Note 18 to the Financial Statements. PPL Energy Supply has a comprehensive
  risk management policy to manage the risk exposures related to counterparty
  credit, energy prices, interest rates and foreign currency exchange rates. An
  RMC comprised of senior officers of PPL oversees the risk management function.
  Nonetheless, adverse changes in commodity prices, interest rates, foreign currency
  exchange rates and equity prices may result in losses in earnings, cash flows
  and/or fair values. 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.



Commodity Price Risk



PPL Energy Supply uses various methodologies to simulate forward
  price curves in the energy markets to estimate the size and probability of changes
  in market value resulting from commodity price movements. The methodologies
  require several key assumptions, including selection of confidence levels, the
  holding period of the commodity positions, and the depth and applicability to
  future periods of historical commodity price information.



As of December 31, 2001, 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 its non-hedge portfolio by an insignificant
  amount, as compared to $6 million at December 31, 2000. A similar adverse movement
  in market prices would have decreased the value of its hedge portfolio by approximately
  $8 million, as compared to $292 million at December 31, 2000. However, the change
  in the value of the hedge portfolio would have been offset by an increase in
  the value of the underlying commodity, the electricity generated. The decline
  in forward prices from 2000 is the primary reason for the differences between
  the 2001 and the 2000 sensitivity analyses. In addition to commodity price risk,
  PPL Energy Supply's commodity positions are also subject to operational and
  event risks including, among others, increases in load demand and forced outages
  at power plants.



PPL Energy Supply's risk management program is designed to
  manage the risks associated with market fluctuations in the price of electricity,
  natural gas, oil and emission allowances. PPL Energy Supply's risk management
  policy and programs include risk identification and risk limits management,
  with measurement and controls for real-time monitoring. PPL Energy Supply has
  entered into forward, option, and tolling contracts that require physical delivery
  of the commodity, as well as futures, exchange-for-physical transactions and
  other financial contracts (such as swap agreements where settlement is generally
  based on the difference between a fixed price and an index-based price for the
  underlying commodity). PPL Energy Supply expects the use of these contracts
  to be ongoing.



PPL Energy Supply enters into contracts to hedge the impact
  of market fluctuations on PPL Energy Supply's energy-related assets, liabilities
  and other contractual obligations. PPL Energy Supply also executes these 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.



Commodity Price Risk - PLR Contract



Currently, PPL Electric and PPL EnergyPlus have a power supply
  agreement under which PPL EnergyPlus sells to PPL Electric (under a predetermined
  pricing arrangement) energy, capacity, and ancillary services to fulfill PPL
  Electric's PLR obligation through 2001. PPL EnergyPlus also has contracted to
  supply PPL Electric with long-term power for the period 2002 through 2009. See
  Note 15 to the Financial Statements for additional information. As a result,
  PPL Electric has shifted any electric price risk relating to its PLR obligation
  to PPL EnergyPlus for 2001 through 2009.



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



PPL Energy Supply is also exposed to changes in the fair value
  of its debt portfolio. At December 31, 2001, 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 $2 million, as compared
  to $1 million at December 31, 2000.



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, 2001, and December 31, 2000,
  PPL Energy Supply had not entered into any such instruments.



See Notes 7 and 18 to the Financial Statements for a discussion
  of financial derivative instruments outstanding 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, 2001, being the amount PPL would have to pay to terminate them, was $3 million.
  At December 31, 2000, PPL had a forward purchase contract for 37 million euros.
  The estimated amount that PPL would have had to pay to terminate the forward
  purchases was insignificant.



Nuclear Decommissioning Fund - Securities Price Risk



In order to meet NRC requirements, PPL Susquehanna maintains
  trust funds to fund certain costs of decommissioning the Susquehanna station.
  As of December 31, 2001, 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, 2001, a hypothetical 10% increase in
  interest rates and a 10% decrease in equity prices would have resulted in an
  estimated $17 million reduction in the fair value of the assets, as compared
  to an $18 million reduction at December 31, 2000.



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 any increases in these costs. Under the power supply agreement 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. Therefore, PPL Energy
  Supply's securities price risk is expected to remain insignificant.



---



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 14(a)(1) on page 176 present fairly, in all
  material respects, the financial position of PPL Energy Supply, LLC and its
  subsidiaries ("PPL Energy Supply") at December 31, 2001 and 2000, and the results
  of their operations and their cash flows for each of the three years in the
  period ended December 31, 2001 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 14(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 18 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). 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.





PricewaterhouseCoopers LLP
Philadelphia, PA
February 4, 2002



---

PPL Energy Supply, LLCManagement's Report on Responsibility
  for Financial Statements



The management of PPL Energy Supply is responsible for the
  preparation, integrity and objectivity of the consolidated financial statements
  and all other sections of this annual report. The financial statements were
  prepared in accordance with accounting principles generally accepted in the
  United States of America. In preparing the financial statements, management
  makes informed estimates and judgments of the expected effects of events and
  transactions based upon currently available facts and circumstances. Management
  believes that the financial statements are free of material misstatement and
  present fairly the financial position, results of operations and cash flows
  of PPL Energy Supply.



PPL Energy Supply's consolidated financial statements have
  been audited by PricewaterhouseCoopers LLP (PWC), independent certified public
  accountants. PWC's appointment as auditors was previously ratified by the shareowners
  of PPL. Management has made available to PWC all PPL Energy Supply's financial
  records and related data, as well as the minutes of board of managers' meetings.
  Management believes that all representations made to PWC during its audit were
  valid and appropriate.



PPL Energy Supply maintains a system of internal control designed
  to provide reasonable, but not absolute, assurance as to the integrity and reliability
  of the financial statements, the protection of assets from unauthorized use
  or disposition and the prevention and detection of fraudulent financial reporting.
  The concept of reasonable assurance recognizes that the cost of a system of
  internal control should not exceed the benefits derived and that there are inherent
  limitations in the effectiveness of any system of internal control.



Fundamental to the control system is the selection and training
  of qualified personnel, an organizational structure that provides appropriate
  segregation of duties, the utilization of written policies and procedures and
  the continual monitoring of the system for compliance. In addition, PPL maintains
  an internal auditing program to evaluate PPL Energy Supply's system of internal
  control for adequacy, application and compliance. Management considers the internal
  auditors' and PWC's recommendations concerning its system of internal control
  and has taken actions which are believed to be cost-effective in the circumstances
  to respond appropriately to these recommendations. Management believes that
  PPL Energy Supply's system of internal control is adequate to accomplish the
  objectives discussed in this report.



The Board of Managers, acting through PPL's Audit Committee,
  oversees management's responsibilities in the preparation of the financial statements.
  In performing this function, the Audit Committee, which is composed of four
  independent directors, meets periodically with management, the internal auditors
  and PWC to review the work of each. PWC and the internal auditors have free
  access to PPL's Audit Committee and to the Board of Managers, without management
  present, to discuss internal accounting control, auditing and financial reporting
  matters.



Management also recognizes its responsibility for fostering
  a strong ethical climate so that PPL Energy Supply's affairs are conducted according
  to the highest standards of personal and corporate conduct. This responsibility
  is characterized and reflected in the business policies and guidelines of PPL
  Energy Supply's operating subsidiaries. These policies and guidelines address:
  the necessity of ensuring open communication within PPL Energy Supply; potential
  conflicts of interest; proper procurement activities; compliance with all applicable
  laws, including those relating to financial disclosure; and the confidentiality
  of proprietary information.





William F. Hecht

President





John R. Biggar

Vice President

---

|ITEM
      8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                            
|---------------------------------------------------------------------------------------------------------------------
|                                                                                                                     
|CONSOLIDATED STATEMENT OF INCOME
      FOR THE YEARS ENDED DECEMBER 31,                                              
|PPL Energy Supply, LLC and Subsidiaries                                                                              
|(Millions of Dollars)                                                                                                
|                                                                                                                     
|                                                                                                                     
|Operating Revenues                                                                                                   
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|Operating Expenses                                                                                                   
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|Total                                                                                                                
|                                                                                                                     
|Operating Income (Loss)                                                                                              
|                                                                                                                     
|Other Income - net                                                                                                   
|                                                                                                                     
|Income Before Interest
      Expense                                                                                 
|                                                                                                                     
|Interest Expense                                                                                                     
|                                                                                                                     
|Income Before Income
      Taxes and Minority Interest                                                               
|                                                                                                                     
|Income Taxes (Note 5)                                                                                                
|                                                                                                                     
|Minority Interest (Note
      1)                                                                                     
|                                                                                                                     
|Income (Loss) Before
      Cumulative Effect of a                                                                    
|Change in Accounting Principle                                                                                       
|                                                                                                                     
|Cumulative Effect of
      a Change in Accounting Principle                                                          
|(net of income taxes)
      (Note 12)                                                                                
|                                                                                                                     
|Net Income (Loss)                                                                                                    
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|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
      and Cash Equivalents                                                               
|                                                                                                                     
|Net Increase 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                                                                                                    
|                                                                                                                     
|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                                                                                 
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|Total Member's Equity                                                                                                
|                                                                                                                     
|(a) Statement of Comprehensive
      Income (Note 1):                                                                
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|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                                                                                         
|18% Banco Rural S.A. - Brazilian
      real denominated                                                              
|5% - 10% Electrobras - Brazilian
      real denominated                                                              
|13% Electronorte S.A. - U.S. dollar
      denominated                                                                
|6% - 8% Brazilian Govt. - 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.                                                                                                    
|2.96% - 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)                                                                                                                  
|(d)                                                                                                                  
|                                                                                                                     
|                                                                                                                     
|The accompanying Notes to Consolidated
        Financial Statements are an integral part of the financial statements.

---

PPL ENERGY SUPPLY, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



1. Summary of Significant Accounting Policies and Basis of
      Presentation

Business

PPL Energy Supply is an indirect wholly-owned subsidiary of
  PPL. PPL Energy Supply was formed as a subsidiary of PPL Energy Funding 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, PPL Global
  and PPL Investment Corporation. PPL Energy Funding is the sole Member of PPL
  Energy Supply.

The principal business of PPL Generation is owning and operating
  U.S. generating facilities through various subsidiaries. The principal business
  of PPL EnergyPlus is unregulated wholesale and retail energy marketing. 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
  energy projects. PPL Investment Corporation makes loans to subsidiaries of PPL
  Energy Supply and affiliates of PPL.

Predecessor Businesses and Basis of Presentation
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 in the July 1, 2000 corporate realignment (formed
      as subsidiaries of PPL Generation, LLC. See Note 16).
    


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, 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.

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.

Consolidation

PPL Energy Supply consolidates the financial statements of
  its affiliates when it has 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:

- Equity earnings from WPD 1953, the parent of WPD (South
      West) and WPD (South Wales), and WPDL are recorded on a one-month lag. PPL
      Global has 51% equity ownership interests in these entities but has joint
      control of these investments with Mirant. Earnings from all other foreign
      equity method investments are recorded on a three-month lag.
- PPL Global consolidates the results of controlled subsidiaries,
      Emel, EC, the Bolivian subsidiaries and other investments, on a one-month
      lag. The results of CEMAR are consolidated on a three-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 8.5% investment in CGE is accounted for using
  the cost method. Dividends from CGE are recorded as income when received.

Use of Estimates/Contingencies

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
  assets and 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 Energy Supply records loss contingencies in accordance
  with SFAS 5, "Accounting for Contingencies."

Property, Plant and Equipment

Following are the classes of Property, Plant and Equipment,
  with the associated accumulated depreciation at December 31 (millions of dollars):

2001
    
    
    2000Electric plantGeneration
    
    $
    7,208
    
    
    $
    6,801Transmission and distribution
    
    
    561
    
    
    
    769Nuclear fuel
    
    
    127
    
    
    
    320Construction work in progress
    
    
    146
    
    
    
    226General
    
    
    174
    
    
    
    149Gas and oil
    
    
    67
    
    
    
    67Other property
    
    
    96
    
    
    
    948,379
    
    
    
    8,426Less: Accumulated depreciation
    
    
    4,899
    
    
    
    5,037$
    3,480
    
    
    $
    3,389
Property, plant and equipment is recorded at original costs,
  unless impaired under the provisions of 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
  capitalized interest. The cost of repairs and minor replacements are charged
  to expense as incurred. 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 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.

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, 5-58 years. PPL Energy
  Supply periodically reviews and adjusts the depreciable lives of its fixed assets.

Asset Impairment

Long-lived assets and identifiable intangibles held and used
  by PPL Energy Supply and its subsidiaries are reviewed for impairment when events
  or circumstances indicate carrying amounts may not be recoverable. Such reviews
  are performed in accordance with SFAS 121. Impairment losses on such long-lived
  assets are recognized when book values exceed expected undiscounted future cash
  flow with the impairment measured on a discounted future cash flows basis. 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 Energy Supply identifies and measures
  loss in value of equity investments based upon a comparison of fair value to
  carrying value. See Note 17 for the impact of SFAS 144 on accounting for asset
  impairments.

Amortization of Goodwill

Goodwill is amortized on a straight-line basis over a period
  not to exceed 40 years. The excess cost over the fair value of investments accounted
  for under the equity method is amortized on a straight-line basis over a period
  not in excess of 40 years. The unamortized excess cost (goodwill element) is
  reported in "Investment in unconsolidated affiliates - at equity" on the Balance
  Sheet. See Note 3 for more information. See Note 17 for the impact of SFAS 142
  on accounting for goodwill.

Accounting for Price Risk Management

PPL Energy Supply enters into commodity contracts for the physical
  purchase and sale of energy as well as energy contracts that can be settled
  financially. Through PPL, PPL Energy Supply enters into interest rate derivative
  contracts to hedge its exposure to changes in the fair value of its debt instruments,
  as well as its exposure to variability in expected cash flows associated with
  existing debt instruments or forecasted transactions. Through PPL, PPL Energy
  Supply also enters 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 were accounted for under SFAS 133, "Accounting for Derivative Instrument
  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 18 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 Energy Supply 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 non-hedge
  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 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.

In addition, PPL Energy Supply has entered into non-derivative
  contracts that meet the definition of energy trading activities as defined by
  EITF 98-10, "Accounting for Contracts Involved in Energy Trading and Risk Management
  Activities." In accordance with EITF 98-10, energy trading contract gains and
  losses from changes in market prices are marked to market through earnings.

For 1999 and 2000, PPL EnergyPlus used EITF 98-10 to account
  for its commodity forward and financial contracts. As such, contracts that did
  not meet the definition of energy trading contracts, as defined by EITF 98-10,
  were reflected in the financial statements using the accrual method of accounting.
  The 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 Member's Equity on the Balance Sheet.

Gains and losses from changes in market prices of energy sales
  contracts are accounted for in "Wholesale energy marketing and trading" revenues;
  gains and losses from changes in market prices of energy purchase contracts
  are accounted for in "Energy purchases" on the Statement of Income. The amortized
  gains and losses from interest rate derivative contracts are accounted for in
  "Interest Expense."

Revenue Recognition

"Retail electric and gas" and "Wholesale energy marketing and
  trading" revenues 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 "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 contacts,
  if any, are made in the period in which such losses are determined.

Income Taxes

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 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 filed a separate return.

Leases

See Note 10 for a discussion on accounting for leases.

Pension and Other Postretirement Benefits

See Note 12 for a discussion on accounting for pension and
  other postretirement benefits.

Cash Equivalents

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

Comprehensive Income

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, 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
  income" is included in Member's Equity on the Balance Sheet. The accumulated
  other comprehensive income of PPL Energy Supply at December 31, 2001 and 2000
  was $(226) million and $(37) million, respectively.

Foreign Currency Translation

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 other comprehensive income. The effect of translation adjustments
  on other comprehensive income, net of income taxes, is disclosed in the Statement
  of Member's Equity and Comprehensive Income. Gains or losses relating to foreign
  currency transactions are recognized in income currently. The aggregate transaction
  gain was $8 million in 2001, and was not significant in 2000.

Project Development

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 is 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.

Reclassification

Certain amounts in the 2000 and 1999 financial statements have
  been reclassified to conform to the current presentation.

1. Segment and Related Information

    
    PPL Energy Supply's reportable segments are Supply and
      International. The Supply group consists of the domestic energy marketing,
      generation and domestic development operations of PPL Energy Supply. The
      International group includes PPL Global's responsibility for the acquisition,
      development, ownership and operation of international energy projects. The
      majority of PPL Global's international investments are located in the U.K.,
      Chile, El Salvador and Brazil. 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 discussion of the contract between PPL
      Electric and PPL EnergyPlus.
    
    Previously reported information has been restated to conform
      to the current presentation. Financial data for PPL Energy Supply's business
      segments are as follows (millions of dollars):
    
    2001
        
        
        2000
        
        
        1999Income Statement DataRevenues from external customersSupply
        $
        3,827
        
        
        $
        2,666
        
        
        $
        556International
        
        575
        
        
        
        455
        
        
        
        4184,402
        
        
        
        3,121
        
        
        
        974Equity in earnings of 
          unconsolidated affiliatesSupply
        
        14
        
        
        
        (10
        )
        
        
        1International
        
        113
        
        
        
        78
        
        
        
        57127
        
        
        
        68
        
        
        
        58DepreciationSupply
        
        126
        
        
        
        68
        
        
        
        3International
        
        31
        
        
        
        21
        
        
        
        17157
        
        
        
        89
        
        
        
        20Amortizations - nuclear fuel
          and 
          energy commitmentsSupply
        
        61
        
        
        
        3861
        
        
        
        38Interest and dividend incomeSupply
        
        61
        
        
        
        29
        
        
        
        5International
        
        2
        
        
        
        1463
        
        
        
        43
        
        
        
        5Interest expenseSupply
        
        (48
        )
        
        
        90
        
        
        
        33International
        
        95
        
        
        
        37
        
        
        
        1947
        
        
        
        127
        
        
        
        52
       
    Income taxesSupply
        
        237
        
        
        
        111
        
        
        
        (72
        )International
        
        37
        
        
        
        14
        
        
        
        43274
        
        
        
        125
        
        
        
        (29
        )Net Income (loss)Supply
        
        489
        
        
        
        182
        
        
        
        (91
        )International
        
        (315
        )
        
        
        60
        
        
        
        56$
        174
        
        
        $
        242
        
        
        $
        (35
        )2001
        
        
        2000
        
        
        1999Cash Flow DataExpenditures for property,
          plant
          and equipmentSupply
        $
        254
        
        
        $
        246
        
        
        $
        33International
        
        126
        
        
        
        34
        
        
        
        4380
        
        
        
        280
        
        
        
        37Investment in generating assets
          and electric energy projectsSupply
        
        176
        
        
        
        102
        
        
        
        841International
        
        136
        
        
        
        473
        
        
        
        225$
        312
        
        
        $
        575
        
        
        $
        1,066As of December 31,2001
        
        
        
        2000Balance Sheet DataNet investment in unconsolidated
          affiliates - at equitySupply
        
        $
        211
        
        
        
        $
        165International
        
        
        375
        
        
        
        
        635586
        
        
        
        
        800Total assetsSupply
        
        
        5,730
        
        
        
        
        5,585International
        
        
        1,439
        
        
        
        
        1,878$
        7,169
        
        
        
        $
        7,4632001
        
        
        2000
        
        
        1999Geographic DataRevenues from external
          customersDomestic
        $
        3,827
        
        
        $
        2,666
        
        
        $
        556Foreign
        
        575
        
        
        
        455
        
        
        
        418$
        4,402
        
        
        $
        3,121
        
        
        $
        974As of December 31,2001
        
        
        
        2000Property, plant and equipmentDomestic
        
        $
        2,893
        
        
        
        $
        2,651Foreign
        
        
        587
        
        
        
        
        738$
        3,480
        
        
        
        $
        3,389
    The Supply segment information reported at the PPL Energy
      Supply level will not be consistent with the Supply segment information
      reported at the PPL level. Additional Supply segment functions exist at
      PPL that are outside of PPL Energy Supply. Further, certain income items
      exist at the PPL Energy Supply level, but are eliminated at the PPL level.
      Lastly, certain expense items are fully allocated to the segments at the
      PPL level only.
2. Investment in Unconsolidated Affiliates - at Equity

PPL Energy Supply's investment in unconsolidated affiliates
  accounted for under the equity method was $586 million and $800 million at December
  31, 2001 and 2000. The most significant investment was PPL Global's investment
  in WPD 1953, which was $328 million at December 31, 2001 and $479 million at
  December 31, 2000. WPD 1953 owns WPD (South West) and WPD (South Wales). See
  Note 21 for a discussion on the write-down of international energy projects.
  At December 31, 2001, PPL Global had a 51% equity ownership interest in WPD
  1953, but shared joint control with Mirant. Accordingly, PPL Global accounts
  for its investment in WPD 1953 (and other investments where it has majority
  ownership but lacks control) under the equity method of accounting.

Investment in unconsolidated affiliates accounted for under
  the equity method at December 31, 2001, and the effective equity ownership percentages,
  were as follows:

PPL Global:
Bolivian Generating Group, LLC - 29.3%
Latin American Energy & Electricity Fund I, LP - 16.6%
Aguaytia Energy, LLC - 11.4%
Hidrocentrais Reunidas, LDA - 50.0%
Hidro Iberica, B. V. - 50.0%
WPD 1953 - 51.0%
WPDL - 51.0%

PPL Generation:
Safe Harbor Water Power Corporation - 33.3%
Bangor Pacific Hydro Associates - 50.0%
Southwest Power Partners, LLC - 50.0%

Summarized below is financial information from the financial
  statements of these affiliates accounted for by the equity method (millions
  of dollars):

Balance Sheet DataAs of December 31,2001
    
    
    
    2000Current Assets
    
    $
    612
    
    
    $
    
    396Noncurrent Assets
    
    
    5,517
    
    
    
    
    4,904Current Liabilities
    
    
    502
    
    
    
    
    409Noncurrent Liabilities
    
    
    3,955
    
    
    
    
    3,365
Income Statement Data
2001
    
    
    2000
    
    
    1999Revenues (a)
    $
    647
    
    
    $
    491
    
    
    $
    1,101Operating Income
    
    328
    
    
    
    251
    
    
    
    203Net Income (a)
    
    248
    
    
    
    127
    
    
    
    419
The decrease in revenues and net income in 2001 and 2000
      from 1999 were in part due to the sale of the supply business of WPD (South
      West), formerly SWEB, in the fourth quarter of 1999.
3. The decrease in revenues and net income in 2001 and 2000
      from 1999 were in part due to the sale of the supply business of WPD (South
      West), formerly SWEB, in the fourth quarter of 1999.
4. Sales to Other Electric Utilities

    
    Under FERC-approved interconnection and power supply agreements,
      PPL EnergyPlus supplied capacity and energy to UGI. These agreements were
      terminated in February 2001.
    
    PPL EnergyPlus had a contract to provide BG&E with
      129,000 kilowatts, or 6.6%, of PPL Susquehanna's share of capacity and related
      energy from the Susquehanna station. PPL EnergyPlus provided 407 million
      kWh to BG&E through May 2001, at which point the contract ended.
    
    PPL Montana provided power to Montana Power under two wholesale
      transition sales agreements. One agreement expired in December 2001 and
      the second agreement expires in June 2002. See Note 14 for more information
      regarding a new power supply agreement beginning in July 2002.
5. Income and Other Taxes
        
    For 2001, 2000 and 1999 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%.
    
    The tax effects of significant temporary differences comprising
      PPL Energy Supply's net deferred income tax asset were as follows (millions
      of dollars):
    
    2001
        
        
        
        2000Deferred Tax AssetsDeferred investment tax credits
        $
        47
        
        
        $
        52NUG contracts & buybacks
        
        272
        
        
        
        318Accrued pension costs
        
        25
        
        
        
        34Deferred foreign income taxes
        
        109
        
        
        
        59Cancellation of generation projects
        
        60Impairment write-down
        
        61Valuation allowance
        
        (172
        )
        
        
        (8
        )Other
        
        98
        
        
        
        83500
        
        
        
        538Deferred Tax LiabilitiesElectric plant - net
        
        358
        
        
        
        333Foreign investments
        
        14
        
        
        
        15Deferred foreign income taxes
        
        42
        
        
        
        52Other
        
        10
        
        
        
        4424
        
        
        
        404Net deferred tax asset
        $
        76
        
        
        $
        134
    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 (millions of dollars):
    
    
    2001
    
    
    2000
    
    
    1999Income Tax ExpenseProvision-Federal
    
    $
    210
    
    
    $
    109
    
    
    $
    (46
    )Provision-State
    
    
    44
    
    
    
    24
    
    
    
    (19
    )Provision-Foreign
    
    
    8
    
    
    
    11
    
    
    
    10262
    
    
    
    144
    
    
    
    (55
    )Deferred-Federal
    
    
    (22
    )
    
    
    (10
    )
    
    
    25Deferred-State
    
    
    2
    
    
    
    1
    
    
    
    1Deferred-Foreign
    
    
    44
    
    
    
    (4
    )24
    
    
    
    (13
    )
    
    
    26Investment tax credit, net-federal
    
    
    (12
    )
    
    
    (6
    )Total
    
    $
    274
    
    
    $
    125
    
    
    $
    (29
    )Total income tax expense-Federal
    
    $
    176
    
    
    $
    93
    
    
    $
    (21
    )Total income tax expense-State
    
    
    46
    
    
    
    25
    
    
    
    (18
    )Total income tax expense-Foreign
    
    
    52
    
    
    
    7
    
    
    
    10Total
    
    $
    274
    
    
    $
    125
    
    
    $
    (29
    )
2001
    
    
    2000
    
    
    1999Reconciliation of Income Tax ExpenseIndicated federal income tax
         on pre-tax income before 
         cumulative effect of a change 
         in accounting principle at 
         statutory tax rate - 35%
    $
    155
    
    
    $
    130
    
    
    $
    (17
    )Increase/(decrease) due to:State income taxes
    
    31
    
    
    
    16
    
    
    
    (12
    )Amortization of investment tax
        credit
    
    (8
    )
    
    
    (4
    )Write-down of international
      energy projects
    
    100
    
    
    
    
    
    
    
    18Difference related to income 
        recognition of foreign
        affiliates
    
    (17)
    
    
    
    (14
    )
    
    
    (22
    )Foreign income taxes
    
    52
    
    
    
    7
    
    
    
    10Foreign income tax credits
    
    (40
    )
    
    
    (6
    )Other
    
    1
    
    
    
    (4
    )
    
    
    (6
    )119
    
    
    
    (5
    )
    
    
    (12
    )Total income tax expense
    $
    274
    
    
    $
    125
    
    
    $
    (29
    )Effective income tax rate
    
    61.9%
    
    
    
    33.6%
    
    
    
    58.8%
2001
    
    
    2000
    
    
    1999Taxes, Other Than IncomeState gross receipts
    $
    7
    
    
    $
    24
    
    
    $
    18State capital stock
    
    11
    
    
    
    10Property and other
    
    20
    
    
    
    19
    
    
    
    1$
    38
    
    
    $
    53
    
    
    $
    19

    
    PPL Global does not pay or record U.S. income taxes on
      the undistributed earnings of its foreign subsidiaries and its 20% to 50%
      owned corporate joint ventures where management has determined that the
      earnings are permanently reinvested in the companies that produced them.
      The cumulative undistributed earnings are included in Member's Equity on
      the Balance Sheet. The amounts considered permanently reinvested at December
      31, 2001 and 2000 were $38 million and $27 million. It is not practical
      to estimate the amount of taxes that might be payable on these foreign earnings
      if they were remitted to PPL Global.
6. Nuclear Decommissioning Costs

    
    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 $724 million
      in 1993 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 $24 million in 2001, and $13 million
      for the six months ended December 31, 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 $294 million and $280 million at December 31, 2001 and 2000,
      and are included in "Deferred Credits and Other Noncurrent Liabilities -
      Other" on the Balance Sheet.
    
    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 17 for additional information on SFAS 143, which
      could have a material impact on the accounting for the decommissioning of
      the Susquehanna station.
7. Financial Instruments
      
    The carrying amount on the Balance Sheet and the estimated
      fair value of PPL Energy Supply's financial instruments were as follows
      (millions of dollars):
    
    December 31, 2001
        
        December 31, 2000CarryingAmount
        
        
        FairValue
        
        
        CarryingAmount
        
        
        FairValueAssetsCash and cash equivalents (a)
        $
        832
        
        $
        832
        
        $
        130
        
        $
        130Nuclear plant decommissioning
          trust fund (a)
        
        276
        
        
        276
        
        
        268
        
        
        268Price risk management assets-current:
          (c)Energy
        
        22
        
        
        22
        
        
        7
        
        
        7Price risk management assets
          -noncurrent: (c)Energy
        
        44
        
        
        44
        
        
        1
        
        
        1Other investments (a)
        
        13
        
        
        13
        
        
        4
        
        
        4Other financial instruments
          included in other current assets (a)
        
        1
        
        
        1
        
        
        12
        
        
        12LiabilitiesLong-term debt (b)
        
        761
        
        
        725
        
        
        192
        
        
        192Short-term debt (a)
        
        118
        
        
        118
        
        
        170
        
        
        170Price risk management liabilities
          - current: (c)Energy
        
        12
        
        
        12
        
        
        
        
        
        201
        (d)Price risk management liabilities-
          noncurrent: (c)Energy
        
        7
        
        
        7
        
        
        
        
        
        61
        (d)Other financial instruments
          included in other current liabilities (a)
        
        12
        
        
        12
  (a) The carrying value of these financial instruments generally
      is based on established market prices and approximates fair value.
    b) 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.
    (c) Valued using either exchange-traded market quotes or
      prices obtained through third-party brokers. See Note 18 about the various
      uses of derivative financial instruments at PPL Energy Supply.
    (d) These contracts were classified as non-trading under
      EITF 98-10 and were not required to be marked to fair value on the Balance
      Sheet in 2000.
    This table excludes derivative and non-derivative energy
      contracts that do not meet the definition of a financial instrument because
      physical delivery is expected.
8. Credit Arrangements and Financing Activities

    
    Credit Arrangements
    
    In June 2001, PPL Energy Supply entered into two credit
      facilities: a $600 million 364-day facility and a $500 million three-year
      facility. Obligations of PPL Energy Supply under these credit facilities
      were guaranteed by PPL. The PPL guarantee fell away in connection with PPL
      Energy Supply's issuance of senior notes described in "Financing Activities"
      below. At December 31, 2001, no borrowings were outstanding under any of
      these facilities, and there were $26 million of letters of credit issued
      under the $500 million three-year facility.
    In addition, in June 2001, PPL Energy Supply entered into
      a 364-day revolving-credit facility with PPL Capital Funding. PPL guaranteed
      PPL Capital Funding's obligations under this agreement. The credit facility
      and related guarantee were terminated as of December 20, 2001, and at that
      time no borrowings were outstanding under this credit facility.
    
    PPL Montana has a $100 million working capital credit facility
      which matures in November 2002. The maturity date may be extended with the
      consent of the lenders. This facility provides that up to $75 million of
      the commitment may be used to cause lenders to issue letters of credit.
      In the event that PPL Montana were to draw upon this facility or cause lenders
      to issue letters of credit on its behalf, PPL Montana would be required
      to reimburse the issuing lenders. At December 31, 2001, $44 million of loans
      were outstanding under this facility and $25 million of letters of credit
      were issued.
    
    In April 2001, PPL Montana executed a new credit facility
      to allow for incremental letter of credit capacity of $150 million. There
      were no amounts outstanding under this facility at December 31, 2001. PPL
      executed a commitment to the lenders under PPL Montana's $150 million credit
      facility that PPL will provide (or cause PPL Energy Supply to provide) letters
      of credit at such times and in such amounts as are necessary to permit PPL
      Montana to remain in compliance with its fixed price forward energy contracts
      or its derivative financial instruments entered into to manage energy price
      risks, to the extent that PPL Montana cannot provide such letters of credit
      under its existing credit agreements. No such letters of credit had been
      issued as of December 31, 2001.
    
    Financing Activities
    
    PPL Energy Supply established a $1.1 billion commercial
      paper program during December 2001. At December 31, 2001, there was no commercial
      paper outstanding.
    
    In October 2001, PPL Energy Supply sold $500 million aggregate
      principal amount of its 6.40% senior unsecured notes due 2011 in a private
      placement, and agreed to make an exchange offer to exchange the privately-placed
      senior notes for publicly-registered senior notes. The exchange offer was
      completed in February 2002. The new registered senior notes have the same
      material financial terms as the old senior notes. Proceeds of the senior
      note offering will be used to fund generation development and for general
      corporate purposes.
    
    In 2001, PPL Global subsidiaries Emel and CEMAR issued
      $127 million and $99 million of long-term debt. A portion of CEMAR's debt
      was reclassified to short-term debt in conjunction with CEMAR's impairment.
      (See Note 21.)
    
    In 2001, PPL Energy Supply's Member's Equity increased
      from approximately $2.6 billion to $4.0 billion, primarily due to contributions
      from PPL Energy Funding. PPL Energy Funding contributed $920 million of
      notes and accounts receivable (primarily due from PPL Global) to PPL Investment
      Corporation, PPL Energy Supply's financing subsidiary. This contribution
      was recorded as additional member's equity, and reduced PPL Energy Supply's
      consolidated short-term debt payable to affiliates. PPL Energy Funding also
      contributed $490 million in cash, net of $463 million of distributions it
      received from PPL Energy Supply.
    
    See Note 10 for a description of PPL Energy Supply's lease
      financings.
9. Acquisitions, Development and Divestitures
      
    Domestic Generation Projects
    
    In January 2001, PPL Montour acquired an additional interest
      in the coal-fired Conemaugh Power Plant from Potomac Electric Power Company.
      Under the terms of the acquisition agreement, PPL Montour and a subsidiary
      of Allegheny Energy, Inc. jointly acquired a 9.72% interest in the 1,711
      MW plant. PPL Montour paid $78 million for this additional 83 MW interest.
      The purchase increased PPL Montour's ownership interest to 16.25% in the
      two-unit plant.
    
    In August 2001, construction began on the University Park
      Energy project, a 540 MW natural gas-fired facility located in University
      Park, Illinois and on the Sundance Energy project, a 450 MW natural gas-fired
      facility in Pinal County, Arizona. The projects are expected to be in service
      during the summer of 2002 at an estimated total project cost of approximately
      $675 million. PPL Susquehanna also announced plans to increase the capacity
      of its Susquehanna nuclear plant by 100 MW with the installation of more
      efficient steam turbines on each of the two units. These improvements will
      be made in 2003 and 2004 and are expected to cost approximately $120 million.
    
    In December 2001, PPL Global and the Long Island Power
      Authority entered into agreements to build two 80 MW combustion turbine
      power facilities at sites in Shoreham and Edgewood on Long Island, New York.
      Both facilities are expected to be in service during the summer of 2002
      at an estimated total project cost of approximately $180 million.
    
    In December 2001, a PPL Global subsidiary entered into
      a synthetic lease financing transaction for the development, construction
      and operation of its Lower Mt. Bethel combined-cycle generating facility.
      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.
      PPL Energy Supply and the PPL Global subsidiary intend to work with the
      Pennsylvania DEP in opposing this appeal. In addition, the local township
      zoning hearing board granted zoning approval for the facility, but the approval
      has been appealed by a township resident as to the decibel levels allowed.
      An additional appeal was filed by the same resident to the township's issuance
      of a building permit pending the outcome of the zoning appeal. PPL Energy
      Supply and the PPL Global subsidiary are aggressively opposing the zoning
      and building permit appeals. As a result of these three appeals, substantial
      additional requirements could be imposed on the construction and operation
      of the facility. If, as a result of these appeals, the construction of the
      facility could not be completed by September 30, 2004, the PPL Global subsidiary,
      or PPL Energy Supply as guarantor, could be called upon to repay approximately
      90% of the then-outstanding facility costs, plus a make-whole premium on
      the total amount of debt commitments. Alternatively, PPL Energy Supply could,
      subject to certain conditions, purchase the facility from the lessor, offer
      to assume 100% of the outstanding debt, and pay a reduced make-whole premium
      to any debtholder that does not accept such offer.
    
    In light of continuing declines in wholesale energy prices
      in the eastern and western U.S. markets, PPL Global is scaling back its
      generation development program. As a result, 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 $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, and is reported on the Statement of Income
      as "Cancellation of generation projects," a component of "Other Charges."
    
    International Distribution Projects
    
    In January 2001, PPL Global purchased an additional 5.6%
      direct and indirect equity interest in CGE from the Claro group, bringing
      its total investment to $141 million, or about 8.5%. CGE provides electricity
      delivery service to 1.4 million customers throughout Chile and natural gas
      delivery service to 200,000 customers in Santiago.
    
    In May 2001, WPDL successfully completed the sale of Hyder's
      water business, Welsh Water, to the Welsh firm Glas Cymru Cyfyngedig for
      one British pound sterling and the assumption of all of Welsh Water's debt.
    
    In September 2001, PPL Global increased its capital investment
      by 4.9% in CEMAR by purchasing the 25.7 billion shares of CEMAR that were
      held by CEMAR's employees at a price of $13 million. The increase resulted
      in a total 89.6% ownership in CEMAR.
    
    In December, 2001, PPL Global purchased an 80% interest
      in El Salvador Telecom, a small telecommunications company in El Salvador,
      for an initial investment of $8 million.
    
    In December 2001, PPL Global recorded impairment charges
      for its investments in CEMAR, WPD 1953 and WPDL. See Note 21 for additional
      information.
10. Leases
      
    PPL Energy Supply applies 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.
    
    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 used the proceeds to reduce outstanding
      debt and make distributions to its parent, 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. The leases provide two renewal options
      based on the economic useful life of the generation assets.
    
    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). Certain obligations
      of the PPL Global subsidiary under this lease financing, including payment
      obligations, have been guaranteed by PPL. The units are expected to go into
      service as they are completed, beginning in 2002.
    
    In May 2001, a PPL Global subsidiary entered into an operating
      lease arrangement, initially for $900 million and increased in July 2001
      to $1.06 billion upon syndication, for the development, construction and
      operation of several commercial power generation facilities. Certain obligations
      of the PPL Global subsidiary under this lease financing, including payment
      obligations, have been guaranteed by PPL Energy Supply. In February 2002,
      the PPL Global subsidiary reduced the available commitment under the lease
      to approximately $700 million. There is a residual value guarantee that is
      expected to be up to $545 million at the end of the lease.
    
    In December 2001, a PPL Global subsidiary entered into
      an operating lease arrangement for $455 million 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 facility
      is expected to be operational in 2004. Certain obligations of the PPL Global
      subsidiary under this lease financing, including payment obligations, have
      been guaranteed by PPL Energy Supply. There is a residual value guarantee that is
      expected to be up to $321 million at the end of the lease.
    
    In addition to the leasing arrangements discussed above,
      PPL Energy Supply also has leases for vehicles, office space, land, personal
      computers and other equipment. Total future minimum lease payments for all
      operating leases are estimated as follows (millions of dollars): 2002, $343;
      2003, $92; 2004, $136; 2005, $131; 2006, $99; and thereafter, $865.
11. Stock-Based Compensation
        
    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 may be granted
      to officers and other key employees of PPL and other affiliated companies,
      including PPL Energy Supply. Awards under the Plans are made in the common
      stock of PPL 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 which 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 or is forfeited or the rights to the participant
      terminate, any shares of common stock 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.
    
    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. Restricted shares vest fully if control
      of PPL changes, as defined by the Plans.
    
    Restricted stock awards of 141,289; 227,858; and 25,100
      shares, with per share weighted-average fair values of $42.68, $21.52, and
      $26.77, were granted in 2001, 2000 and 1999 to employees of PPL Energy Supply
      subsidiaries. Compensation expense for 2001 was $3 million and was not significant
      in 2000 and 1999. At December 31, 2001, there were 442,836 restricted shares
      outstanding. These awards currently vest from three to twenty-three years
      from the date of grant.
    
    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. The CLC and CCGC
      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.
    
    PPL applies APB Opinion No. 25 "Accounting for Stock Issued
      to Employees," and related interpretations in accounting for stock options.
      Since stock options are granted at the then current market price, no compensation
      cost has been recognized. Compensation calculated in accordance with the
      disclosure requirements of SFAS 123, "Accounting for Stock-Based Compensation,"
      for 2001, 2000 and 1999 would not have been significant.
    
    A summary of stock option activity follows:
    Stock Option Activity
        
        Number ofOptions
        
        WeightedAverageExercise PriceBalance at December 31,
          1998Options granted
        
        226,680
        
        
        $
        26.85Options forfeited
        
        (78,780
        )
        
        $
        26.84Balance at December 31,
          1999
        
        147,900
        
        
        $
        26.85(0 options exercisable)Options granted
        
        583,330
        
        
        $
        22.67Options exercised
        
        (28,495
        )
        
        $
        26.84Options forfeited
        
        (46,980
        )
        
        $
        25.05Balance at December 31,
          2000
        
        655,755
        
        
        $
        23.27(69,463 options exercisable)Options granted
        
        306,130
        
        
        $
        43.16Options exercised
        
        (167,446
        )
        
        $
        23.92Options forfeited
        
        (53,100
        )
        
        $
        29.91Options transferred
        
        (66,160
        )
        
        $
        22.88Balance at December 31,
          2001
        
        675,179
        
        
        $
        31.64(88,436 options exercisable)
    The weighted average fair values of options at their grant
      date during 2001, 2000 and 1999 were $10.42, $3.35 and $2.37. 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:
    
    2001
        2000
        1999Risk-free interest rate
        5.46%
        6.74%
        5.61%Expected option term
        10 yrs
        10 yrs
        10 yrsExpected stock volatility
        30.24%
        19.79%
        16.19%Dividend yield
        4.28%
        5.70%
        6.60%
    
    Outstanding options had a weighted-average remaining life
      of 8.3 years at December 31, 2001.
12. Retirement and Postemployment Benefits
      
    Pension and Other Postretirement Benefits
    
    Various subsidiaries of PPL Energy Supply sponsor pension
      and other postretirement and postemployment benefit plans. PPL Energy Supply
      follows the guidance of SFAS 87, "Employers' Accounting for Pensions" and
      SFAS 106, "Employers' Accounting for Postretirement Benefits Other Than
      Pensions" for these benefits.
    
    PPL Montana sponsors a funded, noncontributory defined
      benefit plan covering substantially all employees. CEMAR sponsors a funded,
      contributory defined benefit plan covering substantially all employees.
      PPL Montana and PPL Global also sponsor supplemental retirement plans that
      provide benefits to key management employees through unfunded nonqualified
      plans.
    
    PPL Montana also sponsors a postretirement plan to provide
      for certain health care and life insurance benefits for its employees upon
      retirement.
    
    Employees of other PPL Generation subsidiaries and PPL
      EnergyPlus are provided with pension and postretirement benefits under plans
      sponsored by PPL Services Corporation.
    
    Net pension and postretirement medical benefit costs for
      the domestic plans sponsored by PPL Montana and PPL Global were (millions
      of dollars):
    
    Pension Benefits
        PostretirementMedical Benefits2001
        
        
        2000
        
        
        1999
        
        
        2001
        
        
        2000Service cost
        $
        2
        
        
        $
        2
        
        
        $
        0.2
        
        
        $
        0.2
        
        
        $
        0.2Interest cost
        
        4
        
        
        
        2
        
        
        
        0.2
        
        
        
        0.3
        
        
        
        0.3Expected return
          on plan assets
        
        (3
        )
        
        
        (2
        )Prior service cost
        
        
        
        
        
        
        
        
        
        0.2Net periodic pension
          and postretirement
          benefit cost
        $
        3
        
        
        $
        2
        
        
        $
        0.6
        
        
        $
        0.5
        
        
        $
        0.5
      Net pension costs for the international plan sponsored by CEMAR were
    (millions of dollars):Pension Benefit2001Service cost
        
        $
        1Interest cost
        
        
        3Expected return on plan assets
        
        
        (3
        )Net periodic pension and postretirement
          benefit cost
        
        $
        1
    PPL Generation subsidiaries and PPL EnergyPlus are allocated
      a portion of the liabilities and costs of the pension plans sponsored by
      PPL Services based on their participation in those plans. The liabilities
      assumed by PPL Energy Supply for these plans total $49 million at December
      31, 2001. PPL Energy Supply was allocated net periodic pension credits of
      $(23) million in 2001. Amounts allocated in 2000 and 1999 were not significant.
    
    In 2001, PPL changed its method of amortizing unrecognized
      gains or losses in the annual pension expense/income determined under SFAS
      87, "Employers' Accounting for Pensions." This change resulted in a cumulative-effect
      credit of $3 million after-tax, which is reflected as a "Cumulative Effect
      of a Change in Accounting Principle" on the Statement of Income. Under the
      old method, unrecognized gains and losses in excess of ten percent 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 will be utilized for unrecognized gains and losses in
      excess of thirty percent of the plan's projected benefit obligation. Unrecognized
      gains and losses outside the second corridor will be 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 reduced net income by $3 million
      in 2001 and increased net income by $2 million in 2000 and by $1 million
      in prior periods.
    
    PPL Generation subsidiaries and PPL EnergyPlus are also
      allocated a portion of the liabilities and costs of the postretirement medical
      plans sponsored by PPL Services based on their participation in those plans.
      Postretirement medical costs allocated to PPL Energy Supply were approximately
      $9 million in 2001 and were not significant in 2000 and 1999. At December
      31, 2001, the balance in PPL Energy Supply's allocated share of the total
      postretirement medical liability was $3 million.
    
    Postretirement medical costs at December 31, 2001 for the
      PPL Montana sponsored plan were based on the assumption that costs would
      increase 7% in 2001, then the rate of increase would decline gradually to
      6% in 2006 and thereafter. A one percentage point change in the assumed
      health care cost trend assumption would increase the service cost and interest
      cost by $27,000 and increase the postretirement benefit obligation by $234,000.
      A one percent decrease in the assumed health care cost trend assumption
      would decrease the service cost and interest cost by $24,000 and decrease
      the postretirement benefit obligation by $203,000.
    
    The following assumptions were used in the valuation of
      PPL Montana and PPL Global domestic benefit obligations:
    
    Pension Benefits
    2001
        2000
        1999Discount rate
        7.25%
        7.5%
        7.0%Expected return on plan assets
        9.2%
        9.2%
        8.5%Rate of compensation increase
        4.25%
        4.75%Postretirement Medical Benefits 2001
        2000
        1999Discount rate
        7.25%
        7.5%
        7.0%Rate of compensation increase
        4.25%
        4.75%
        5.0%
    The funded status of the domestic PPL Montana and PPL Global plans was as
    follows (millions of dollars): Pension Benefits
        
        PostretirementMedical Benefits2001
        
        
        2000
        
        
        2001
        
        
        2000Change in Benefit ObligationBenefit Obligation, January
          1
        $
        42
        
        $
        35
        
        $
        4
        
        $
        4Service cost
        
        2
        
        
        2Interest cost
        
        4
        
        
        2
        
        
        1Plan amendments
        
        4Actuarial (gain)/loss
        
        1
        
        
        (2
        )Net transfer out
        
        (1
        )Net benefits paid
        
        (1
        )Benefit Obligation, December
          31
        
        51
        
        
        37
        
        
        5
        
        
        4Change in Plan AssetsPlan assets at fair value,
          
          January 1
        
        35
        
        
        24Actual return on plan assets
        
        (1
        )
        
        1Acquisition/divestitures
        
        
        
        
        3Net benefits paid
        
        (1
        )Plan assets at fair value,
          December 31
        
        33
        
        
        28Funded StatusFunded Status of Plan
        
        (18
        )
        
        (9
        )
        
        (5
        )
        
        (4
        )Unrecognized actuarial loss
        
        6Unrecognized prior service
          cost
        
        5
        
        
        2Asset(liability) recognized
        $
        (7
        )
        $
        (7
        )
        $
        (5
        )
        $
        (4
        )Amounts recognized in theBalance Sheet consist of:Prepaid benefit cost
        $
        1Accrued benefit liability
        
        (8
        )
        $
        (7
        )
        $
        (5
        )
        $
        (4
        )Additional minimum liability
        
        (5
        )
        
        (1
        )Intangible asset
        
        3
        
        
        1Accumulated other 
          comprehensive income
        
        2Net Amount Recognized
        $
        (7
        )
        $
        (7
        )
        $
        (5
        )
        $
        (4
        )
    The following assumptions were used in the international CEMAR benefit obligations: Pension Benefits 2001Discount rate
        10.24%Expected return on plan assets
        10.24%Rate of compensation increase
        7.12%
    The funded status of the international CEMAR plan was as
      follows (millions of dollars):Pension Benefits2001Change in Benefit ObligationBenefit Obligation, January
          1Service cost
        
        $
        1Interest cost
        
        
        3Plan amendments
        
        
        1Actuarial (gain)/loss
        
        
        4Acquisition/divestitures
        
        
        30Net benefits paid
        
        
        (2
        )Benefit Obligation, December
          31
        
        
        37Change in Plan AssetsPlan assets at fair value,
          January 1Actual return on plan assets
        
        
        (2
        )Employer contributions
        
        
        1Participant contributions
        
        
        1Acquisition/divestitures
        
        
        23Net benefits paid
        
        
        (2
        )Plan assets at fair value,
          December 31
        
        
        21Funded StatusFunded Status of Plan
        
        
        (16
        )Unrecognized transition assets
        
        
        8Asset/(liability) recognized
        
        $
        (8
        )
    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 were (in millions) $81, $65 and $47,
      as of December 31, 2001 and $4, $2 and $0 as of December 31, 2000.
    
    Subsidiaries engaged in the mechanical contracting business
      make contributions to various union-sponsored multiemployer pension and
      health and welfare plans. Contributions of $14 million, $10 million and
      $8 million were made in 2001, 2000 and 1999.
    
    Savings Plans
    
    Substantially all U.S. employees of PPL Energy Supply are
      eligible to participate in deferred savings plans (401(k)s). Company contributions
      to the plans charged to operating expense were $5 million in 2001, $4 million
      in 2000 and $1 million in 1999.
    
    Substantially all employees of PPL Generation and PPL EnergyPlus
      are eligible to participate in the PPL ESOP. These companies receive a small
      allocation of their share of the cost.
    
    Postemployment Benefits
    
    PPL Generation and PPL EnergyPlus 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 2001, 2000 or 1999.
    
    Certain of PPL Global subsidiaries, including Emel, EC,
      Elfec and Integra, 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 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 was payable at each balance sheet date. The combined
      liabilities for these plans at December 31, 2001 and 2000 were $6 million,
      and are recorded in "Deferred Credits and Noncurrent Liabilities -
      Other" on the Balance Sheet.
13. Jointly-Owned Facilities
      
    At December 31, 2001, subsidiaries of PPL Energy Supply
      owned undivided interests in the following facilities (millions of dollars):
    
    OwnershipInterest
        
        ElectricPlant inService
        
        
        OtherProperty
        
        AccumulatedDepreciation
        
        
        ConstructionWork inProgressPPL GenerationGenerating
          StationsSusquehanna
        
        90.00%
        
        $
        4,196
        
        
        
        
        $
        3,525
        
        
        $
        24Keystone
        
        12.34%
        
        
        71
        
        
        
        
        
        46
        
        
        
        6Wyman
        
        8.33%
        
        
        15
        
        
        
        
        
        2Conemaugh
        
        16.25%
        
        
        185
        
        
        
        
        
        58
        
        
        
        4Merrill Creek
          Reservoir
        
        8.37%
        
        
        
        
        $
        22
        
        
        12
    PPL Montana also has 50% and 30% undivided leasehold interests
      in Colstrip Units 1 and 2 and Colstrip Unit 3, respectively.
    
    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.
14. Commitments and Contingent Liabilities

    
    PPL Energy Supply and its subsidiaries are involved in
      numerous legal proceedings, claims and litigation in the ordinary course
      of business. PPL Energy Supply and its subsidiaries cannot predict the ultimate
      outcome of such matters, or whether such matters may result in material
      liabilities.
    
    Wholesale Energy Commitments
    
    As part of the purchase of generation assets from Montana
      Power, PPL Montana agreed to supply electricity under two wholesale transition
      service agreements. In addition, PPL Montana assumed a power purchase agreement
      and another power sales agreement. In accordance with purchase accounting
      guidelines, PPL Montana recorded a liability of $118 million as the estimated
      fair value of these agreements at the acquisition date. This liability is
      being amortized over the agreement terms as adjustments to "Wholesale energy
      marketing and trading" revenues and "Energy purchases" on the Statement
      of Income. The unamortized balance at December 31, 2001 was $78 million
      and is included in "Other" in the "Deferred Credits and Other Noncurrent
      Liabilities" section of the Balance Sheet.
    
    In October 2001, PPL announced that PPL EnergyPlus reached
      an agreement to supply Montana Power with an aggregate of 450 MW of energy
      to be supplied by PPL Montana. The delivery term of this new contract is
      for five years beginning July 1, 2002, which is the day after the termination
      date of the last of the two existing contracts, pursuant to which PPL Montana
      presently supplies energy to Montana Power for its default supply.
    
    Under the agreement, PPL EnergyPlus will supply 300 MW
      of around-the-clock electricity and 150 MW of on-peak electricity. In December
      2001, the agreement was accepted for filing by the FERC. No further regulatory
      approvals are required under this agreement.
    
    Liability for Above Market NUG Contracts
    
    In 1998 when its generation business was deregulated, PPL
      Electric recorded a loss accrual for above market contracts with NUGs of
      $854 million. 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.
      The liabilities associated with these above market NUG contracts were $580
      million at December 31, 2001.
    
    Commitments - Acquisitions and Development Activities
    
    PPL Global and its subsidiaries have committed additional
      capital and extended loans to certain affiliates, joint ventures and partnerships
      in which they have an interest. At December 31, 2001, PPL Global and its
      subsidiaries had approximately $561 million of such commitments. The majority
      of these commitments were for the purchase of LM-6000 turbine generators
      from General Electric. The General Electric commitments have been reduced
      due to the decision to cancel generation projects as described in Note 9.
    
    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.
    
    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.
    
    At this time, PPL Energy Supply cannot predict the outcome
      of the proceedings related to the MPSC Order, what actions the MPSC, the
      Montana Legislature or any other governmental authority may take on these
      or related matters, or the ultimate impact on PPL Energy Supply and PPL
      Montana of any of these matters.
    
    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 unnamed 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. PPL Energy
      Supply and PPL Montana are unable to predict the outcome of this matter.
    
    Employee Litigation
    
    In April 2000, three employees at PPL Montana's Colstrip
      facility were severely burned when an equipment fault in Colstrip unit 1
      caused electrical arcing. In May 2000, the injured employees and their spouses
      filed litigation for their injuries in Montana district court against Montana
      Power. PPL Montana was subsequently named as a party defendant to the pending
      litigation, and a trial has been scheduled for June 2002. At this time,
      PPL Energy Supply and PPL Montana cannot predict the ultimate outcome of
      this matter.
    
    PUC Investigation Order
    
    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 January 2002, PPL
      filed comments as requested by the Investigation Order. The Order does not
      suggest what, if any, action the PUC may take as a result of the investigation,
      other than considering possible changes to its competitive safeguards. While
      PPL EnergyPlus and PPL Electric have filed comments with the PUC as part
      of the investigation, they have both taken the position that the PUC does
      not have jurisdiction to regulate the PJM capacity markets as those markets
      are for wholesale electricity transactions and accordingly are within the
      exclusive jurisdiction of the FERC. In addition, PPL EnergyPlus and PPL
      Electric believe that PPL EnergyPlus' actions under review were at all times
      lawful and consistent with the rules of the market. At this time, neither
      PPL EnergyPlus nor PPL Electric can predict the outcome of the PUC investigation
      or what action the PUC may take in connection with the investigation.
    
    FERC Market-based Rates
    
    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 to those protests and interventions. PPL EnergyPlus has taken
      the position 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. The matter is currently pending before the FERC.
    
    Energy Supply to Energy West Resources, Inc.
    
    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 supplies energy to Energy West
      and should pay damages of at least $7.5 million. All litigation in this
      matter has been consolidated in the U.S. district court for the District
      of Montana, Great Falls Division, and is proceeding in that forum. PPL Energy
      Supply and PPL Montana cannot predict the ultimate outcome of these proceedings.
    
    Proposed Montana Hydroelectric Initiative
    
    In January 2002, the Montana Secretary of State certified,
      in accordance with applicable statutes, that it had approved the form of
      a proposed Montana "Hydroelectric Security Act" initiative. The
      proposed initiative may be placed on the November 2002 statewide ballot
      if sufficient signatures are obtained prior to June 21, 2002. Among the
      stated purposes of the proposed initiative is to create an elected Montana
      public power commission to determine whether purchasing hydroelectric dams
      in Montana is in the public interest. Such a commission could decide to
      acquire PPL Montana's hydroelectric dams either pursuant to a negotiated
      purchase or an acquisition at fair market value through the power of condemnation.
      At this time, PPL, PPL Energy Supply and PPL Montana cannot predict whether
      the proposed initiative will garner enough signatures for placement on the
      November 2002 statewide ballot, whether there will be a successful legal
      challenge to the initiative, whether it would pass if on the ballot or what
      impact, if any, the measure might ultimately have upon PPL Montana or its
      hydroelectric operations. PPL Montana has declared its opposition to, and
      intends to vigorously oppose, the initiative.
    
    Nuclear Insurance
    
    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. At December
      31, 2001, this maximum assessment was about $20 million.
    
    PPL Susquehanna's public liability for claims resulting
      from a nuclear incident at the Susquehanna station is limited to about $9.5
      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.
    
    Environmental Matters
    
    In connection with the corporate realignment, effective
      July 1, 2000, PPL Generation assumed air, water and residual waste contingent
      liabilities associated with the generation assets of PPL Electric.
    
    Air
    
    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
      Energy Supply 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 NOx,
      SO2 and mercury and could possibly require measures to limit
      CO2.
    
    The Pennsylvania DEP has finalized regulations requiring
      further seasonal (May-June) NOx 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 Energy Supply sources. The EPA's
      SIP-call was substantially upheld by the D.C. Circuit Court of Appeals in
      an appeals proceeding. Although the Court extended the implementation deadline
      to May 2004, the Pennsylvania DEP has not changed its rules accordingly.
      PPL Energy Supply expects to achieve the 2003 NOxreductions
      with the recent installation of SCR technology on the Montour units and
      the possible use of SCR or SNCR technology on a Brunner Island unit.
    
    The EPA has also developed new standards for ambient levels
      of ozone and particulates in the U.S. These standards were challenged and
      remanded to the EPA by the D.C. Circuit Court of Appeals in 1999. However,
      on appeal to the United States Supreme Court, the D.C. Circuit Court's decision
      was reversed in part and remanded to the D.C. Circuit Court. The new particulates
      standard, if finalized, may require further reductions in SO2
      for certain PPL Energy Supply subsidiaries and year-round NOx
      reductions commencing in 2010-2012 at SIP-call levels in Pennsylvania, and
      at slightly less stringent levels in Montana. The revised ozone standard,
      if finalized, is not expected to have a material effect on facilities of
      PPL Energy Supply 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 emissions must be regulated. In this regard, the EPA is expected
      to develop 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 Energy Supply
      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, and the Region VIII Office has issued such a request
      to PPL Montana's Corette plant. PPL Energy Supply has responded to the information
      request. PPL Energy Supply cannot presently predict what, if any, action
      the EPA might take following PPL Energy Supply's responses to such information
      requests. Should the EPA or any state initiate one or more enforcement actions
      against any PPL Energy Supply subsidiary, 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 is also proposing to 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 SO2emissions. PPL Martins Creek is discussing
      these concerns with the New Jersey DEP. In addition, the plant experienced
      several opacity violations in the first and second quarters of 2001 for
      which it paid a civil penalty of $30,300 and funded an environmental project
      for $90,000. The cost of addressing New Jersey's SO2 concerns
      and the opacity issues is not now determinable but could be significant.
      See Note 9 for information on the Lower Mt. Bethel appeal by the New Jersey
      DEP.
    

    Water/Waste

    
    The final NPDES permit for the Montour plant contains stringent
      limits for iron discharges. The results of a toxic reduction study show
      that additional water treatment facilities or operational changes are needed
      at this station. A plan for these changes has been developed and was submitted
      to the Pennsylvania DEP in August 2001.
    
    A final NPDES permit has been issued to the Brunner Island
      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 could be significant.
    
    The EPA has significantly tightened the water quality standard
      for arsenic. The lower standard may require PPL Energy Supply subsidiaries
      to further treat wastewater and/or take abatement action at several of 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 2003, will address existing
      structures. Each of these rules are also expected to result in increased
      operating costs in amounts which are not now determinable, but which could
      be significant.
    
    Montana Issues
    In October 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 effects on PPL Energy Supply and 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 Asset Purchase Agreement, PPL Montana
      is indemnified by Montana Power for any pre-acquisition environmental liabilities.
      However, this indemnification is conditioned on certain circumstances that
      could result in PPL Montana and Montana Power sharing in certain costs within
      limits set forth in the agreement.
    
    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.
    
    General
    Certain of PPL Energy Supply's subsidiaries have electric
      distribution operations in the U.K. and Latin America. PPL Energy Supply
      believes that these operations are in compliance with applicable laws and
      government regulations to protect the environment. PPL Energy Supply is
      not aware of any material or administrative proceeding against these companies
      with respect to any environmental matter.
    Due to the environmental issues discussed above or other
      environmental matters, PPL Energy Supply 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 Energy Supply subsidiaries also may incur capital expenditures, operating
      expenses and other costs in amounts which are not now determinable, but
      which could be significant.
    
    Credit Support
    
    PPL provides certain guarantees for PPL Energy Supply and
      its subsidiaries. As of December 31, 2001, PPL had guaranteed certain obligations
      under power purchase and sales agreements of PPL EnergyPlus for up to $1
      billion and of PPL Montana for up to $138 million. PPL has also guaranteed
      certain obligations of other PPL Energy Supply subsidiaries, totaling $256
      million at December 31, 2001. PPL Energy Supply also guarantees certain
      obligations under power purchase and sales agreements for PPL EnergyPlus
      totaling $121 million and certain obligations of other subsidiaries totaling
      $600 million.
    
    See Note 8 for discussion of credit support for PPL Montana
      and guarantees under PPL Energy Supply's credit facilities.
    
    Source of Labor Supply
    
    At December 31, 2001, PPL Energy Supply and its subsidiaries
      had 7,302 full-time employees. This included 2,550 in PPL Generation, 1,943
      in PPL EnergyPlus, 44 in PPL Global, and 2,765 in several Central and South
      American electric companies controlled by PPL Global.
    
    Approximately 55%, or 2,500 employees, of PPL Energy Supply's
      domestic workforce are members of labor unions, with three IBEW locals representing
      the majority of them. The bargaining agreement with the largest union was
      negotiated in 1998 and expires in May of 2002. New contracts were also concluded
      with two IBEW locals in Montana. PPL Montana is currently negotiating with
      the Teamsters Union for a new agreement.
15. Related Party Transactions
      
    PPL, through PPL Capital Funding and other subsidiaries,
      provides certain funding and credit support for PPL Energy Supply and its
      subsidiaries. Such funding includes loans that are due on demand with interest
      charged at a rate based on PPL Capital Funding's short-term borrowing rate.
      In addition, PPL Energy Supply has notes receivable from other affiliates
      of PPL. Interest earned on loans to affiliated companies and interest incurred
      on borrowings from affiliated companies are included in "Other Income -
      net" and "Interest Expense," respectively, in the Statement of Income. Intercompany
      interest income (in millions) was $57 and $13 for 2001 and 2000, respectively.
      Intercompany interest expense (in millions) was $26, $86 and $37 in 2001,
      2000, and 1999, respectively. Notes receivable from affiliated companies
      at December 31, 2001 were $395 million. There were no notes payable to affiliated
      companies at December 31, 2001.
    
    PPL Global provided temporary financing to WPDL and WPD
      1953 in connection with the acquisition of Hyder. The outstanding loan receivables
      and accrued interest, 154.5 million British pounds sterling (approximately
      $220 million), were repaid in May 2001.
    
    At December 31, 2000, PPL Global had a $135 million note
      payable to an affiliate of WPD 1953. The note was denominated in U.S. dollars,
      and provided for interest at market rates. PPL Global repaid this note in
      January 2001.
    
    As part of the corporate realignment, PPL Electric entered
      into power sales agreements with PPL EnergyPlus for the purchase of electricity
      to meet its obligations as a PLR for customers who have not selected an
      alternative supplier under the Customer Choice Act. Under the terms of these
      agreements, this electricity was purchased by PPL Electric at the applicable
      shopping credits authorized by the PUC, plus nuclear decommissioning costs,
      less state taxes. These sales totaled $1.3 billion in 2001 and $540 million
      in the last half of 2000, and are included in "Wholesale energy marketing
      and trading" on the Statement of Income. These agreements expired on December
      31, 2001.
    
    In June 2001, PPL EnergyPlus executed a new contract, effective
      January 1, 2002, to supply all of PPL Electric's PLR load from 2002 through
      2009. Under this contract, PPL EnergyPlus will provide electricity at the
      pre-determined capped prices that PPL Electric is authorized to charge its
      PLR customers. In addition, PPL Electric paid PPL EnergyPlus $90 million
      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 contract offer). 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 contract was approved by the PUC and accepted
      for filing by the FERC.
    
    Also as part of the corporate realignment, PPL Electric
      executed 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 expenses totaled $176 million in 2001 and $85 million
      in the last half of 2000, and are included in "Energy purchases" on the
      Statement of Income.
    
    Since PPL Energy Supply owns no domestic transmission or
      distribution facilities, other than facilities to interconnect its generation
      with the electric transmission system, PPL EnergyPlus, PPL Montana 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.
    
    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 are not directly charged to PPL subsidiaries is allocated
      to certain of the subsidiaries based on the relative capital invested by
      PPL in these subsidiaries. For 2001 and the six months ended December 31,
      2000, PPL Services charged PPL Energy Supply subsidiaries approximately
      $80 million and $19 million for direct expenses, and allocated these entities
      approximately $39 million and $14 million of overhead costs.
16. 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 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. 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. The following increases (in millions) resulted
      from these non-cash contributions:
    
    
    AssetsNotes receivable from affiliated
          companies
        
        $
        427Unrealized energy trading gains
        
        
        105Nuclear plant decommissioning
          trust fund
        
        
        269Property, plant and equipment
        
        
        1,932Fuel, materials and supplies
        
        
        144Other assets
        
        
        30$
        2,907Liabilities and EquityUnrealized energy trading losses
        
        $
        105Above market NUG contracts
        
        
        723Deferred income taxes
        
        
        52Other noncurrent liabilities
        
        
        394Other liabilities
        
        
        45Member's equity
        
        
        1,588$
        2,907
    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 unregulated
      wholesale and 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.
17. New Accounting Standards
    
    SFAS 141
    
    In June 2001, the FASB issued SFAS 141, "Business Combinations,"
      which eliminates the pooling-of-interest method of accounting for business
      combinations and requires the use of the purchase method. In addition, SFAS
      141 requires the reassessment of intangible assets to determine if they
      are appropriately classified either separately or within goodwill. SFAS
      141 is effective for business combinations initiated after June 30, 2001.
      PPL Energy Supply adopted SFAS 141 on July 1, 2001, with no material impact
      on the financial statements.
    
    SFAS 142
    
    In June 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.
    
    In accordance with the provisions of SFAS 142, PPL Energy
      Supply ceased amortization of goodwill and all intangible assets with indefinite
      useful lives. The elimination of amortization will result in $16 million
      less expense (pre-tax) in 2002. In addition, PPL Energy Supply is in the
      process of conducting the transition impairment analysis and may record
      a goodwill impairment of up to $100 million (pre-tax) as a change in accounting
      principle in the first quarter of 2002. The potential impairment relates
      to reporting units within the International segment.
    
    SFAS 143
    
    In June 2001, the FASB issued SFAS 143, "Accounting for
      Asset Retirement Obligations," on the accounting for obligations associated
      with the retirement of long-lived assets. SFAS 143 requires a liability
      to be recognized in the financial statements for retirement obligations
      meeting specific criteria. Measurement of the initial obligation is to approximate
      fair value, with an equivalent amount recorded as an increase in the value
      of the capitalized asset. The asset will be depreciated in accordance with
      normal depreciation policy and the liability will be increased, with a charge
      to the income statement, until the obligation is settled. SFAS 143 is effective
      for fiscal years beginning after June 15, 2002. The potential impact of
      adopting SFAS 143 is not yet determinable, but may be material.
    
    SFAS 144
    
    In August 2001, the FASB issued SFAS 144, "Accounting for
      the Impairment or Disposal of Long-Lived Assets," that 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 (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. For long-lived assets to be disposed
      of, 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 Energy Supply
      adopted SFAS 144 on January 1, 2002, with no material impact on the financial
      statements.
18. Derivative Instruments and Hedging Activities

    
    PPL Energy Supply 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 and trading" revenues and
      a decrease to "Energy purchases" on the Statement of Income. PPL Energy
      Supply also recorded a cumulative-effect charge of $182 million in "Accumulated
      other comprehensive income", a component of Member's Equity. As of December
      31, 2001, the balance in "Accumulated other comprehensive income" related
      to unrealized gains and losses on qualifying derivatives was a net gain
      of $46 million, 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
    
    PPL Energy Supply's market risk exposure is the adverse
      effect on the value of a transaction that results from a change in commodity
      prices. The market risk associated with commodity prices is managed by the
      establishment and monitoring of parameters that limit the types and degree
      of market risk that may be undertaken. PPL Energy Supply actively manages
      the market risk inherent in its positions. The PPL Board of Directors has
      adopted risk management policies to manage the risk exposures related to
      energy prices. These policies monitor and assist in controlling these market
      risks and use derivative instruments to manage some associated commodity
      activities.
    
    PPL Energy Supply's derivative activities are subject to
      the management, direction and control of the RMC. The RMC is composed of
      the chief financial officer and other officers of PPL. The RMC reports to
      the Finance Committee of the PPL Board of Directors on the scope of its
      derivative activities. The RMC sets forth risk-management philosophy and
      objectives through a corporate policy, provides guidelines for derivative-instrument
      usage, and establishes procedures for control and valuation, counterparty
      credit approval and the monitoring and reporting of derivative activity.
    
    PPL Energy Supply utilizes forward contracts, futures contracts,
      options and swaps as part of its risk management strategy to minimize unanticipated
      fluctuations in earnings caused by commodity prices. All derivatives are
      recognized on the balance sheet at their fair value, unless they meet SFAS
      133's criteria for exclusion (see discussion in "Implementation Issues"
      below).
    
    Fair Value Hedges
    
    PPL Energy Supply enters into financial contracts to hedge
      a portion of the fair values of firm commitments of forward electricity
      sales. These contracts range in maturity through 2004. For the twelve months
      ended December 31, 2001, PPL Energy Supply recognized a net gain of $7 million
      resulting from firm commitments that no longer qualified as fair value hedges
      (reported in "Wholesale energy marketing and trading" revenues and "Energy
      purchases" on the Statement of Income). PPL Energy Supply did not recognize
      any gains or losses from the ineffective portion of fair value hedges.
    
    Cash Flow Hedges
    
    PPL Energy Supply enters into physical and financial contracts
      including, forwards, futures and swaps, to hedge the price risk associated
      with electric, gas and oil commodities. These contracts range in maturity
      through 2008. For the twelve months ended December 31, 2001, PPL Energy
      Supply recorded a net gain of $28 million in "Accumulated other comprehensive
      income" relating to these contracts.
    
    As a result of an unplanned outage and changes in other
      economic conditions, PPL Energy Supply discontinued certain cash flow hedges
      which resulted in a net loss of $14 million for the twelve months ended
      December 31, 2001 (reported in "Wholesale energy marketing and trading"
      revenues on the Statement of Income). The impact on the financial statements
      resulting from cash flow hedge ineffectiveness for the twelve months ended
      December 31, 2001 was immaterial.
    
    As of December 31, 2001, the deferred net gain on derivative
      instruments in "Accumulated other comprehensive income" expected to be reclassified
      into earnings during the next twelve months was $11 million.
    
    Implementation Issues
    
    On June 29, 2001, the FASB issued definitive guidance on
      DIG Issue C15: "Scope Exceptions: Normal Purchases and Normal Sales Exception
      for 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 is effective as of 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, 2001, "Accumulated
      other comprehensive income" included a net gain of $11 million related to
      forward transactions classified as cash flow hedges prior to the adoption
      of DIG Issue C15 guidance. This gain will be reversed from "Accumulated
      other comprehensive income" and recognized in earnings as the contracts
      deliver through 2008.
    
    Unrealized Gains/(Losses) on Qualifying Derivatives
    (Millions of Dollars)
    (After-tax)
    

   December 31, 2001Cumulative unrealized gains on
         derivatives, beginning of period:
    
    $
    0Unrealized gains (losses) arising
         during period:Cumulative effect of change in accounting
      
         principle at January 1, 2001
    
    
    (182
    )Net reclassification into earnings
    
    
    2Net change associated with current 
         period hedging transactions
    
    
    226Unrealized gain on qualifying derivatives
    
    
    46Cumulative unrealized gains on
      qualifying 
         derivatives, end of period
    
    $
    46
    Credit Concentration
    
    PPL Energy Supply enters 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
      new business from a credit perspective. At year-end, PPL Energy Supply had
      a credit exposure of $678 million to energy trading partners. The majority
      of this amount was the mark-to-market value of multi-year contracts for
      energy sales. Therefore, if the counterparties fail to perform their obligations,
      PPL Energy Supply 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 the defaulted contracts. Of
      the $678 million, five counterparties account for 80% of the exposure. No
      other individual counterparty accounted for more than 2% of the exposure.
      The largest exposure, $206 million, was to PPL Electric, under the long-term
      contract to provide PPL Electric's PLR load. PPL Electric has posted collateral
      in an amount of $56 million related to this exposure in accordance with
      its contract with PPL Energy Supply. The other four counterparties have
      an "investment grade" credit rating from Standard & Poors with the exception
      of one counterparty that is a governmental agency and as such is not rated.
      With the exception of the governmental agency, PPL Energy Supply has the
      right to request collateral from each of these counterparties in the event
      their credit rating falls below investment grade. It is also PPL Energy
      Supply's policy to enter into netting agreements with each of its counterparties
      to minimize credit exposure.
19. Sales to California Independent System Operator and to
      Other Pacific Northwest Purchasers

    
    PPL Energy Supply, through PPL Montana, has made approximately
      $18 million of sales to the California ISO, for which PPL Energy Supply
      has not yet been paid in full. Given the myriad of electricity supply problems
      presently faced by the California electric utilities and the California
      ISO, PPL Energy Supply cannot predict whether or when it will receive payment.
      As of December 31, 2001, PPL Energy Supply has fully reserved for possible
      underrecoveries of payments for these sales.
    
    Litigation arising out of the California electric 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 Energy Supply's subsidiaries have intervened in the FERC
      proceedings in order to protect their interests, but have not been named
      as defendants in any of the court actions alleging abuses of market power,
      manipulation of market prices, unfair trade practices and violations of
      state antitrust laws. 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 in the California markets, 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
      sales made in the Pacific Northwest, including sales made by PPL Montana.
      The FERC Administrative Law Judge assigned to this proceeding has recommended
      that no refunds be ordered for sales into the Pacific Northwest. The FERC
      presently is considering this recommendation. PPL Energy Supply and PPL
      Montana cannot predict whether or the extent to which any of its subsidiaries
      will be the target of any governmental investigation or named in these lawsuits,
      refund proceedings or other lawsuits, the outcome of any such proceedings
      or whether the ultimate impact on PPL Montana of the electricity supply
      situation in California and other western states will be material.
20. Enron Bankruptcy

    
    In connection with the December 2, 2001 bankruptcy filings
      by Enron Corporation and its affiliates ("Enron"), certain PPL Energy Supply
      subsidiaries have terminated certain electricity and gas 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 trading" 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 is no further accounting
      charge to be recorded. PPL expects to make a claim in Enron's bankruptcy
      proceeding with respect to all amounts payable by Enron resulting from the
      termination of these contracts.
21. Write-down of International Energy Projects
  
PPL Global has a 51% economic interest in WPD 1953, a 15.4%
  equity investor in Teeside Power Limited, the owner of the 1,875 MW Teesside
  Power Station, located in northeast England. Through its European affiliates,
  Enron was an owner, the 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, WPD 1953 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 the investment in WPD 1953 and WPDL. 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 1953 and WPDL. 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."

PPL Global owns 89.6% of CEMAR, which distributes and sells
  electricity in Brazil, under a 30-year concession agreement with the government.
  The combined effects of growth in demand, decreased rainfall on the country's
  heavily hydroelectric-dependent generating capacity and delays in the development
  of new non-hydroelectric generation have led to shortages of electricity in
  certain regions. As a result, the Brazilian government implemented countrywide
  electricity rationing in mid-2001. In addition, the wholesale energy markets
  in Brazil have been substantially disrupted. CEMAR's results of operations,
  its cash flows, and its continued ability to meet its financial obligations
  have deteriorated due to the continuing impact of the electricity rationing,
  the disruption in the energy markets, the failure of the electricity regulator
  to adequately address these problems, the resulting effects on the Brazilian
  capital markets and related factors.

In December 2001 and January 2002, the Brazilian electricity
  regulator issued tariff rulings that CEMAR believes are inadequate to compensate
  for CEMAR's rationing-related losses and to meet its ongoing operational and
  financial requirements. Moreover, CEMAR believes that these tariff rulings demonstrate
  that the regulator may not take the necessary steps to resolve the current problems
  in a satisfactory manner. In addition, the Brazilian wholesale energy markets
  continue to be disrupted and recent actions by the electricity regulator indicate
  that adequate compensation to CEMAR for its transactions in that market may
  not be made. Finally, the continued problems in the Brazilian energy market
  and the lack of appropriate regulatory actions have significantly decreased
  the availability of local financing for CEMAR.

As a result of the above events, PPL Global estimates that
  the long-term viability of the CEMAR operation is jeopardized and that there
  is minimal probability of positive future cash flows. Consequently, at December
  31, 2001, PPL Global recorded an impairment loss in the carrying value of its
  net assets in CEMAR of $179 million, reflected in "Write-down of international
  energy projects." In addition, CEMAR increased its valuation allowance in deferred
  tax assets, thereby recording $44 million in additional foreign deferred income
  taxes. A related $6 million credit to "Minority Interest" was also reflected
  on the Statement of Income. The net result of these transactions was a $217
  million charge to earnings. PPL Global currently anticipates writing off the
  remaining portion of its CEMAR investment, approximately $100 million, in 2002.

As a result of the financial difficulties discussed above, CEMAR has failed to pay
  certain of its creditors for obligations when due. CEMAR is currently in discussions
  with creditors, governmental officials, regulators and other parties to address
  these problems.

In addition, CEMAR expects that it will not be in compliance
  with the financial covenants in its $150 million debenture indenture when it
  closes its books for the quarter ended December 31, 2001. In that case, CEMAR
  will be required to notify the indenture agent. In accordance with the indenture,
  the agent will call a meeting of the holders of the debentures within three
  business days of the notice to hold a vote regarding the acceleration of the
  debentures. Unless three-fourths of the holders vote against acceleration, the
  agent will be obligated under the indenture to accelerate the debentures. CEMAR
  expects the required notice to the indenture agent to occur in the first quarter
  of 2002.

---

|SCHEDULE II - VALUATION
      AND QUALIFYING ACCOUNTS AND RESERVES
|------------------------------------------------------------------
|PPL Energy Supply, LLC                                            
|(Millions of Dollars)                                             
|                                                                  
|Column A                                                          
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Description                                                       
|                                                                  
|                                                                  
|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                
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Year Ended December 31, 1999                                      
|Reserves deducted from assets in the Balance Sheet                
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|(a)                                                               
|(b)                                                               

---



ITEM 9. CHANGES IN AND DISAGREEMENTS
  WITH ACCOUNTANTSON ACCOUNTING AND FINANCIAL DISCLOSURE

None.



PART III



ITEM 10. DIRECTORS
  AND EXECUTIVE OFFICERS OF THE REGISTRANT



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.

ITEM 11. EXECUTIVE
  COMPENSATION



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.

ITEM 12. SECURITY
  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

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.

ITEM 13. CERTAIN
  RELATIONSHIPS AND RELATED TRANSACTIONS

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 AND SUBSIDIARIES

PART II



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





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

---

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

---

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



Results of Operations



The following discussion explains significant changes in principal
  items on the Statement of Income comparing 2001 to 2000, and 2000 to 1999. 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 12 to the
  Financial Statements for information regarding the corporate realignment.



The Statement of Income of PPL Electric for 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 and the entire year
  1999 also include PPL Electric's former electric generation and unregulated
  wholesale and retail marketing functions. The following adjustments are made
  when comparing results of operations, to make the periods more comparable:



- When comparing 2001 with 2000, 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.



- When comparing 2000 with 1999, the estimated results of
      operations of the electric generation and unregulated marketing assets during
      the second half of 1999 are eliminated for purposes of comparability.



Earnings



The earnings of PPL Electric were impacted by several unusual
  items. Refer to specific Notes to the Financial Statements for discussion of
  certain of these unusual items. The unusual items without note references are
  discussed in "Other Income - net" and "Other Operation Expenses."



|                                | (Millions of dollars)                                
|------------------------------- | -----------------------------------------------------
|                                |                                                      
|Net income                      |                                                      
|Unusual items (net of tax):     |                                                      
|                                | Accounting method change - pensions
         (Note 9)
|                                | Environmental insurance recoveries                   
|                                | Sale of Sunbury plant and related assets             
|                                | Securitization (Note 2)                              
|                                |                                                      
|Net income from core operations |                                                      
|                                |                                                      



The decrease in net income from core operations 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 comparable earnings for 2000.



This increase was primarily the effect of:



- higher delivery revenues due to a 2.1% increase in sales;
- lower interest expense due to lower short-term debt levels; and
- lower operating costs, including lower pension expense; partially offset
    by
- higher taxes other than income, due to credits for PURTA and local property
    tax accruals, recorded in 2000.



The decrease in net income from core operations in 2000 compared
  with 1999 was primarily due to the corporate realignment. After eliminating
  the estimated results of the electric generation and marketing assets from the
  earnings in the second half of 1999, comparable earnings for 1999 would have
  been an estimated $228 million. The $237 million adjusted earnings for 2000
  were $9 million higher than the comparable earnings for 1999. This increase
  was primarily the effect of:



- higher margins on wholesale energy transactions;
- the end of the one-year 4% rate reduction for delivery customers;
- a 2.6% increase in electric delivery sales; and
- gains on sales of emission allowances and lower pension expenses; partially
    offset by
- higher interest expense and income taxes, and the write-off of a regulatory
    asset for the loss incurred in the Retail Access Pilot Program.



Operating Revenues



Retail Electric



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



|               |                                |  |             
|-------------- | ------------------------------ |  | ------------
|               | 2001 vs. 2000                  |  | 2000 vs.1999
|PPL Electric   |                                |  |             
|               | Electric delivery              |  | $           
|               | PLR electric generation supply |  |             
|PPL EnergyPlus |                                |  |             
|               | Electric generation supply     |  |             
|               | Other                          |  |             
|               |                                |  |             
|               |                                |  | $           
|               |                                |  |             



After eliminating the revenues of assets transferred in the
  corporate realignment from the results for the first half of 2000, retail electric
  revenues increased by $292 million in 2001 compared to 2000. This increase in
  revenues was primarily due to:



- higher PPL Electric revenues as a PLR resulting from the return of shoppers
    due to fewer alternate suppliers under the Customer Choice Act, and a decreased
    emphasis on the retail supply business by PPL EnergyPlus; and
- increased deliveries of electricity, primarily in commercial and residential
    markets.



After eliminating the revenues of assets transferred in the
  corporate realignment from the results for the second half of 1999, operating
  revenues from retail electric operations increased by $150 million during 2000
  compared with 1999. This was primarily due to an increase in PPL EnergyPlus'
  supply volumes in the first half of 2000 compared with the same period in 1999.
  Also contributing to the increase were higher PPL Electric retail delivery and
  PLR supply sales in 2000. This was due to increased usage by commercial and
  residential customers and fewer service territory customers selecting a supplier
  other than PPL Electric.



Pursuant to the Customer Choice Act and a restructuring settlement
  with the PUC, PPL Electric is required, through 2009, to provide electricity
  at pre-determined prices to its delivery customers who do not select an alternate
  supplier. While these supply rates vary by customer class, the settlement provides
  for average rates ranging from 4.16 cents per kWh in 2001, increasing to 5.02
  per kWh in 2009. As part of this settlement agreement, PPL Electric also agreed
  to a cap on its average transmission and distribution rates of 1.74 cents per
  kWh through 2004.





Wholesale Energy Marketing and Trading



The increase (decrease) in revenues from wholesale energy marketing
  and trading activities was attributable to the following (millions of dollars):



| |                                      |  |  
| | ------------------------------------ |  | -
| | 2001 vs. 2000                        |  |  
| |                                      |  |  
| | Bilateral sales                      |  | $
| | PJM                                  |  |  
| | Cost-based contracts                 |  |  
| | Gas & oil sales                      |  |  
| | NUG purchases sold to PPL EnergyPlus |  |  
| | Other                                |  |  
| |                                      |  |  
| |                                      |  | $
| |                                      |  |  



After eliminating the revenues of assets transferred in the
  corporate realignment from the results for the first half of 2000, and making
  other pro-forma adjustments, wholesale revenues increased by $17 million during
  2001 compared with 2000. This increase was primarily due to the sale of power
  (purchased from NUGs) to PPL EnergyPlus.



After eliminating the revenues of assets transferred in the
  corporate realignment from the results for the second half of 1999, wholesale
  energy marketing and trading revenues increased by $153 million in 2000 compared
  with 1999. This increase was primarily due to increased bilateral sales revenues
  due to higher market pricing and increased sales volumes to other counterparties.
  In 2001 and going forward, PPL Electric wholesale sales are and will be derived
  solely from NUG purchases that PPL Electric resells to PPL EnergyPlus and sales
  to municipalities.



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 Generation.



Electric fuel costs decreased by $245 million in 2000 compared
  with 1999. After eliminating the expenses associated with assets transferred
  in the corporate realignment from the results for the second half of 1999, electric
  fuel costs decreased by $20 million in 2000 compared with 1999. This decrease
  was attributed to lower generation because of the Holtwood plant closing and
  the sale of the Sunbury plant in 1999, plant outages and reduced operation of
  less economical units. Lower nuclear fuel expense also contributed to the decrease
  in electric fuel costs. During the first quarter of 1999, there was a charge
  of $5 million to accrue for the increase in estimated costs for dry cask canisters
  for on-site spent fuel storage at the Susquehanna plant.



Energy Purchases



Energy purchases increased by $93 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 $290 million during 2001 compared with 2000. The increase
  reflects higher purchases of electricity from PPL EnergyPlus to meet PPL Electric's
  higher PLR obligation.



Energy purchases increased by $22 million in 2000 compared
  with 1999. After eliminating the expenses of assets transferred in the corporate
  realignment from the results for the second half of 1999, energy purchases increased
  by $301 million during 2000 compared with 1999. During the first half of 2000,
  energy purchases increased by $166 million over the same period in 1999. This
  was primarily due to higher purchases to support PPL EnergyPlus' increased unregulated
  retail electric and gas sales. Also, higher per-unit prices for these purchases
  contributed to the increase in energy purchases, coupled with recognized losses
  on certain long-term forward transactions. The remainder of the increase during
  2000, $135 million, represents the estimated increase in PPL Electric's purchases
  to support its PLR load in the second half of 2000, as noted above.



Amortization of Recoverable Transition Costs



Amortization of recoverable transition costs increased by $24
  million in 2001 compared with 2000. This increase was primarily due to the collection
  of CTC revenues related to prior year CTC deferrals of amounts in excess of
  the rate cap. The increase also reflects higher amortization of intangible transition
  property due to lower interest expense on the transition bonds.



Amortization of recoverable transition costs increased by $33
  million in 2000 compared with 1999. This increase was the result of recording
  twelve months of amortization in 2000 as compared to five months of amortization
  recorded in 1999. This increase was partially offset by a decrease in CTC revenues
  related to a deferral of CTC amounts in excess of the rate cap.



Other Operation Expenses



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 an insurance settlement for environmental liability
  coverage recorded in 2000 (as a reduction of expenses), partially offset by
  lower pension expense and lower corporate expenses from PPL Services.



Other operation expenses decreased by $237 million from 1999
  to 2000. After eliminating the expenses of assets transferred in the corporate
  realignment from the results for the second half of 1999, other operation expenses
  decreased by $86 million during 2000 compared with 1999. This decrease was primarily
  the result of environmental insurance recoveries, gains on the sale of emission
  allowances and a decrease in pension costs, offset by increased costs of wages
  and benefits.



Maintenance Expenses



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 more rents for office space to the user business
  lines in 2001 compared to 2000, as well as lower overhead line maintenance.



Maintenance expenses decreased by $54 million in 2000 compared
  with 1999. After eliminating the expenses associated with assets transferred
  in the corporate realignment from the results for the second half of 1999, maintenance
  expenses were unchanged during 2000 compared with 1999.



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.



Depreciation decreased by $66 million in 2000 compared with
  1999. After eliminating the expenses of assets transferred in the corporate
  realignment from the results for the second half of 1999, depreciation decreased
  by $3 million from 1999 to 2000.



Taxes, Other Than Income



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.



Other Income - net



Other income decreased by $80 million in 2000 compared with
  1999. After eliminating the other income of assets transferred in the corporate
  realignment from the results for the second half of 1999 (including a $66 million
  pre-tax gain on the sale of the Sunbury plant and related assets), other income
  decreased by $28 million during 2000 compared with 1999. This decrease was primarily
  due to a charge of $12 million resulting from a PUC ruling requiring the write-off
  of the regulatory asset for the loss incurred in Pennsylvania's Retail Access
  Pilot Program, and an adverse FERC decision regarding investments in PJM.



Financing Costs



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.



Interest expense increased by $25 million in 2000 compared
  with 1999. Interest on long-term debt increased by $17 million. This increase
  was primarily associated with the issuance of transition bonds by PPL Transition
  Bond Company in August 1999, offset by retirements of mortgage bonds. Interest
  on short-term debt increased by $8 million. This change was primarily due to
  an increase in intercompany loans outstanding and a reduction in AFUDC in 2000.



Dividends on preferred securities decreased by $11 million
  from 1999 to 2000. This decrease was the result of PPL Electric's repurchase
  of preferred stock held by PPL.



Income Taxes



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.



Income tax expense increased by $20 million in 2000 compared
  with 1999. After eliminating the estimated income associated with assets transferred
  in the corporate realignment from the results for the second half of 1999, income
  taxes increased by $68 million during 2000 compared with 1999. This increase
  was primarily due to a release of deferred taxes no longer required due to securitization,
  recognized in the third quarter of 1999.





Financial Condition



Liquidity

At December 31, 2001, PPL Electric's net cash position was
  $79 million, consisting entirely of cash and cash equivalents and no short-term
  debt. 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 a
  full requirements contract 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. Cash from operations
  in 2001 was $392 million compared to $803 million in 2000. The decrease was
  primarily due to the corporate realignment completed in July 2000 which transferred
  certain generation and related assets and associated liabilities to PPL and
  its unregulated subsidiaries.



Net cash used in financing activities was $148 million in 2001
  and $519 million in 2000. The primary uses of cash in financing activities in
  2001 were the retirement of PPL Electric's long-term debt, the repurchase of
  its common stock from PPL and the payment of dividends. A commercial paper program
  at PPL Electric totaling $400 million is maintained to meet short-term cash
  needs. The amount of commercial paper that could be outstanding under PPL Electric's
  program is limited to the amount of its unused credit line. If the existing
  credit ratings of these commercial paper program ratings were lowered, it is
  unlikely that there would be sufficient investor demand for the commercial paper
  and PPL Electric would have to borrow against its unsecured credit line if internal
  cash flows were insufficient to meet short-term cash needs.



PPL Electric maintains an unsecured credit line of $402 million
  that is available as a backstop for its commercial paper program or for direct
  borrowings. The credit line is also available to issue up to $200 million in
  letters of credit that may be needed for credit enhancements and margin requirements
  resulting from PPL Electric's PLR energy contract with PPL EnergyPlus or other
  contracting activities. PPL Electric's maximum collateral requirement associated
  with the PLR contract is $300 million. In January 2002, PPL Electric provided
  PPL EnergyPlus with cash collateral of $56 million. This credit line contains
  financial and other covenants that if not met, would limit or restrict the ability
  to borrow or issue letters of credit 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, 2001 and December
  31, 2000, PPL Electric's debt to total capitalization percentage, as developed
  in accordance with its credit line, was 57% and 43%, respectively.



PPL Electric also has available funding sources that are provided
  through off-balance sheet leasing arrangements. These financing arrangements
  provide funds for equipment such as computers, vehicles and tools. As of December
  31, 2001, PPL Electric had approximately $90 million of funding capacity available
  to it through those leasing arrangements. These financing arrangements contain
  covenants that, if not met, could limit or restrict access to these funds or
  require early payment of obligations. At this time, PPL Electric believes that
  these covenants will not limit access to these funding sources.



At December 31, 2001, the estimated contractual cash obligations
  of PPL Electric were as follows (in millions):





|Contractual Cash Obligations                 |  | Total |       | Lessthan1 year |   | 1-3years |  | 4-5years |       | After 5years |  
|-------------------------------------------- |  | ----- | ----- | -------------- | - | -------- |  | -------- | ----- | ------------ | -
|                                             |  |       |       |                |   |          |  |          |       |              |  
|Long-term Debt (a)                           |  | $     | 3,467 |                | $ | 274      |  | $        | 939   |              | $
|Capital Lease Obligations                    |  |       |       |                |   |          |  |          |       |              |  
|Operating Leases                             |  |       | 98    |                |   | 29       |  |          | 31    |              |  
|Unconditional Purchase 
         Obligations |  |       |       |                |   |          |  |          |       |              |  
|Other Long-term Obligations                  |  |       | 1,206 |                |   | 165      |  |          | 497   |              |  
|                                             |  |       |       |                |   |          |  |          |       |              |  
|Total Contractual Cash 
         Obligations |  | $     | 4,771 |                | $ | 468      |  | $        | 1,467 |              | $
|                                             |  |       |       |                |   |          |  |          |       |              |  

(a) Includes $1.9 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.



At December 31, 2001, PPL Electric provided a guarantee in
  the amount of $7 million in support of Safe Harbor Water Power Corporation,
  in which PPL Electric had an ownership interest prior to the corporate realignment.



At December 31, 2001, the estimated commercial commitments
  of PPL Electric were as follows (in millions):



|                                        |                                      |                                         |   |                                  | Amount of Commitment Expiration per period |                  
|--------------------------------------- | ------------------------------------ | --------------------------------------- | - | -------------------------------- | ------------------------------------------ | -----------------
|Other Commercial
        Commitments    |                                      | Total
        Amounts
        Committed |   | Less
        than
        1 year |                                            | 1-3
        years
|                                        |                                      |                                         |   |                                  |                                            |                  
|Lines of Credit (a)                     |                                      |                                         |   |                                  |                                            |                  
|                                        | Standby Letters of 
         Credit  |                                         |   |                                  |                                            |                  
|                                        | Draws Under Lines
         of Credit |                                         |   |                                  |                                            |                  
|Guarantees                              |                                      |                                         |   |                                  |                                            |                  
|                                        | Debt                                 |                                         | $ | 7                                |                                            |                  
|                                        | Performance                          |                                         |   |                                  |                                            |                  
|Standby Repurchase
         Obligations |                                      |                                         |   |                                  |                                            |                  
|Other Commercial
         Commitments   |                                      |                                         |   |                                  |                                            |                  
|                                        |                                      |                                         |   |                                  |                                            |                  
|Total Commercial
         Commitments   |                                      | $                                       | 7 |                                  |                                            |                  
|                                        |                                      |                                         |   |                                  |                                            |                  



(a) Available credit facilities of $402 million.



Terms governing the various securities 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 used in investing activities in 2001 was $432 million,
  compared to $69 million in 2000. The increase in 2001 was primarily the result
  of a loan to PPL and affiliates. In 2002, PPL Electric's expenditures for property,
  plant and equipment are expected to increase primarily 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 2002.



Energy Marketing and Trading Activities



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 or other entities doing business with PPL Electric.



For additional information on related party transactions, see
  Note 11 to the Financial Statements.



Capital Expenditure Requirements



The schedule below shows PPL Electric's current capital expenditure
  projections for the years 2002-2006 and actual spending for the year 2001 (millions
  of dollars):



|                          |                                                   |                                      |   |     | Actual | Projected
|------------------------- | ------------------------------------------------- | ------------------------------------ | - | --- | ------ | ---------
|                          |                                                   |                                      |   |     | 2001   |          
|                          |                                                   |                                      |   |     |        |          
|Construction expenditures |                                                   |                                      |   |     |        |          
|                          | Transmission and
         distribution facilities |                                      | $ | 124 |        | $        
|                          | Environmental                                     |                                      |   |     |        |          
|                          | Other                                             |                                      |   | 29  |        |          
|                          |                                                   |                                      |   |     |        |          
|                          |                                                   | Total Capital 
         Expenditures |   | $   | 153    |          
|                          |                                                   |                                      |   |     |        |          



Construction expenditures include AFUDC which is expected to
  be less than $4 million in each of the years 2002-2006.



PPL Electric's capital expenditure projections for the years
  2002-2006 total about $1.1 billion. Capital expenditure plans are revised from
  time-to-time to reflect changes in conditions.



Cash Flow



Cash and cash equivalents decreased by $403 million more during
  2001 compared with 2000. The reasons for this change were:



- A $411 million decrease in cash provided by operating activities,
      primarily due to the operating income of assets transferred in the corporate
      realignment. This decrease also reflects the $90 million up-front payment
      made to PPL EnergyPlus under the long-term energy supply contract.



- A $363 million increase in cash used in investing activities,
      primarily due to an increase in net loans to parent and affiliates, offset
      by lower expenditures for property, plant and equipment due to the transfer
      of generating assets in the corporate realignment.



- A $371 million decrease in cash used in financing activities.
      This reflects the issuance of the senior secured bonds in 2001, net of cash
      used to repurchase common stock from PPL.



Environmental Matters



See Note 10 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.



Critical Accounting Policies



PPL Electric's financial condition and results of operations
  are necessarily 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.)



1)  Pension and Other Postretirement Benefits



As described in Note 9, PPL Electric participates in, and is
  allocated a share 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 Pension" and SFAS 106, "Employers' Accounting
  for Postretirement Benefits Other Than Pensions" 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 those assumed is a guiding principle of these standards.
  This 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 to record the
      value of benefits, which are based on future projections, in terms of today's
      dollars.



- Expected Return on Plan Assets - Management projects the
      future return on plan assets based principally on prior performance. The
      projected future value of assets reduces the benefit obligation a company
      will record.



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



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



- Amortization of Gains/(Losses) - Management can select
      the method by which gains or losses are recognized in financial results.
      These gains or losses are created when actual results differ from estimated
      results based on the above assumptions.



At December 31, 2001, PPL Electric had been allocated accrued
  pension and postretirement liabilities of $71 million. These liabilities are
  included in "Deferred Credits and Other Noncurrent Liabilities - Other"
  on the Balance Sheet.



During 2001, PPL made changes to its assumptions related to
  the discount rate, the rate of compensation increase and the method of amortization
  of gains/(losses).



A variance in the discount rate, expected return on plan assets,
  rate of compensation increase or amortization method could have a significant
  impact on the pension costs recorded under SFAS 87.



A variance in the health care cost trend assumption could have
  a significant impact on costs recorded under SFAS 106 for postretirement medical
  expense.



2)  Contingencies



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."



SFAS 5 does not permit the accrual of gain contingencies under
  any circumstances. For loss contingencies, the loss must be accrued if (1) information
  is available that it is probable that the loss has been incurred, given the
  likelihood of the uncertain future events; and (2) that the amount of the loss
  can be reasonably estimated.



The accrual of a contingency involves considerable judgment
  on the part of management. 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. The largest contingency on PPL Electric's balance sheet had been
  the loss accrual for above market NUG purchase commitments, being the difference
  between the above market contract terms and the fair value of the energy. This
  loss accrual of $854 million was recorded 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 the loss had been incurred and the estimate of future
  energy prices could be reasonably determined, using forward pricing information.
  This loss accrual was transferred to PPL EnergyPlus in the July 1, 2000 corporate
  realignment.



PPL Electric has also recorded contingencies for uncollectible
  accounts, environmental remediation, taxes and litigation in situations where
  management determined it was probable a loss had been incurred and it could
  be reasonably estimated.

---

ITEM 7A. QUANTITATIVE AND QUALITATIVE
  DISCLOSURES ABOUT MARKET RISK



Market Risk Sensitive Instruments



Commodity Price Risk



PPL Electric and PPL EnergyPlus had a long-term power supply
  agreement under which PPL EnergyPlus sold to PPL Electric, at a predetermined
  pricing arrangement, energy, capacity and ancillary services to fulfill PPL
  Electric's PLR obligation through 2001. PPL EnergyPlus has contracted to supply
  PPL Electric with long-term power for the period 2002 through 2009. As a result,
  PPL Electric has shifted any electric price risk relating to its PLR obligation
  to PPL EnergyPlus for 2001 through 2009.



Interest Rate Risk



PPL Electric has issued debt to finance its operations, which
  increases interest rate risk. PPL Electric's potential annual exposure to increased
  interest expense, based on a 10% increase in interest rates, was not significant
  at December 31, 2001, compared to $2 million at December 31, 2000.



PPL Electric is also exposed to changes in the fair value of
  its debt portfolio. At December 31, 2001, 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 $56 million, compared
  to $20 million at December 31, 2000.



Market events that are inconsistent with historical trends
  could cause actual results to differ from estimated levels.



Nuclear Decommissioning Fund - Securities Price Risk



In connection with the corporate realignment, effective July 1,
  2000, the nuclear decommissioning fund was transferred to, and will be maintained
  by, PPL Susquehanna.

---

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 14(a)(1) on page 176 present fairly, in all
  material respects, the financial position of PPL Electric Utilities Corporation
  and its subsidiaries ("PPL Electric") at December 31, 2001 and 2000,
  and the results of their operations and their cash flows for each of the three
  years in the period ended December 31, 2001 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 14(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 9 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.





PricewaterhouseCoopers LLP
  Philadelphia, PA
  February 4, 2002



---

PPL Electric Utilities CorporationManagement's Report on Responsibility for
  Financial Statements



The management of PPL Electric is responsible for the preparation,
  integrity and objectivity of the consolidated financial statements and all other
  sections of this annual report. The financial statements were prepared in accordance
  with accounting principles generally accepted in the United States of America,
  and the Uniform System of Accounts prescribed by the Federal Energy Regulatory
  Commission for regulated businesses. In preparing the financial statements,
  management makes informed estimates and judgments of the expected effects of
  events and transactions based upon currently available facts and circumstances.
  Management believes that the financial statements are free of material misstatement
  and present fairly the financial position, results of operations and cash flows
  of PPL Electric.



PPL Electric's consolidated financial statements have been
  audited by PricewaterhouseCoopers, LLP (PWC) independent certified public accountants.
  PWC's appointment as auditors was previously ratified by the shareowners of
  PPL. Management has made available to PWC all PPL Electric's financial records
  and related data, as well as the minutes of shareowner's and directors' meetings.
  Management believes that all representations made to PWC during its audit were
  valid and appropriate.



PPL Electric maintains a system of internal control designed
  to provide reasonable, but not absolute, assurance as to the integrity and reliability
  of the financial statements, the protection of assets from unauthorized use
  or disposition and the prevention and detection of fraudulent financial reporting.
  The concept of reasonable assurance recognizes that the cost of a system of
  internal control should not exceed the benefits derived and that there are inherent
  limitations in the effectiveness of any system of internal control.



Fundamental to the control system is the selection and training
  of qualified personnel, an organizational structure that provides appropriate
  segregation of duties, the utilization of written policies and procedures and
  the continual monitoring of the system for compliance. In addition, PPL maintains
  an internal auditing program to evaluate PPL Electric's system of internal control
  for adequacy, application and compliance. Management considers the internal
  auditors' and PWC's recommendations concerning its system of internal control
  and has taken actions which are believed to be cost-effective in the circumstances
  to respond appropriately to these recommendations. Management believes that
  PPL Electric's system of internal control is adequate to accomplish the objectives
  discussed in this report.



The Board of Directors, acting through PPL's Audit Committee,
  oversees management's responsibilities in the preparation of the financial statements.
  In performing this function, the Audit Committee, which is composed of four
  independent directors, meets periodically with management, the internal auditors
  and PWC to review the work of each. PWC and the internal auditors have free
  access to PPL's Audit Committee and to the Board of Directors, without management
  present, to discuss internal accounting control, auditing and financial reporting
  matters.



Management also recognizes its responsibility for fostering
  a strong ethical climate so that PPL Electric's affairs are conducted according
  to the highest standards of personal and corporate conduct. This responsibility
  is characterized and reflected in PPL Electric's business policies and guidelines.
  These policies and guidelines address: the necessity of ensuring open communication
  within PPL Electric; potential conflicts of interest; proper procurement activities;
  compliance with all applicable laws, including those relating to financial disclosure;
  and the confidentiality of proprietary information.



Michael E. BrayVice Chair and President



Joseph J. McCabeVice President and Controller



---

|ITEM
      8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                            
|---------------------------------------------------------------------------------------------------------------------
|                                                                                                                     
|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                                                                                                   
|                                                                                                                     
|Income Before Interest
      Expense                                                                                 
|                                                                                                                     
|Interest Expense                                                                                                     
|                                                                                                                     
|Income Before Income
      Taxes                                                                                     
|                                                                                                                     
|Income Taxes (Note 4)                                                                                                
|                                                                                                                     
|Income Before Extraordinary
      Items                                                                              
|                                                                                                                     
|Extraordinary Items (net
      of income taxes) (Note 2)                                                             
|                                                                                                                     
|Income Before Cumulative
      Effect of a Change in Accounting                                                      
|                                                                                                                     
|                                                                                                                     
|Cumulative Effect of
      a Change in Accounting Principle (net of
      income taxes) (Note 9)                     
|                                                                                                                     
|Income Before Dividends
      on Preferred Securities                                                                
|                                                                                                                     
|Dividends - 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                                                                                                       
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|Investments                                                                                                          
|                                                                                                                     
|Property, Plant and Equipment -
      net                                                                            
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|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 10)                                                                      
|                                                                                                                            
|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)                                                                                                
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|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 (a)                                                                   
|                                                                                                                     
|                                                                                                                     
|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 2000 through these provisions. The
      decreases in 1999 indicated above represent PPL Electric's purchase and
      cancellation of its preferred stock which had been held by PPL. PPL Electric
      used $380 million of securitization proceeds to effect this repurchase.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(c)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(d)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|The accompanying Notes to Consolidated Financial
        Statements are an integral part of the financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                        

---

|CONSOLIDATED STATEMENT
      OF COMPANY-OBLIGATEDMANDATORILY 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                                                                                       
|                                                                                                                     
|                                                                                                                     
|1.54% Pollution Control Revenue Bonds                                                                                
|                                                                                                                     
|                                                                                                                     
|Unamortized discount                                                                                                 
|                                                                                                                     
|                                                                                                                     
|Less amount due within one year                                                                                      
|                                                                                                                     
|                                                                                                                     
|                                                                                                                     
|(a)                                                                                                                  
|(b)                                                                                                                  
|(c)                                                                                                                  
|(d)                                                                                                                  
|(e)                                                                                                                  
|(f)                                                                                                                  
|(g)                                                                                                                  
|(h)                                                                                                                  
|                                                                                                                     
|The accompanying Notes to Consolidated
        Financial Statements are an integral part of the financial statements.

---

PPL ELECTRIC UTILITIES CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS



1. Summary of Significant Accounting Policies
    
    Business and Consolidation
    
    PPL is the parent holding company of PPL Energy Funding,
      PPL Electric, PPL Gas Utilities, PPL Services and PPL Capital Funding. PPL
      Electric is the principal utility 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. See Note 12 for information on the corporate
      realignment.
    
    Use of Estimates/Contingencies
    
    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
      assets and 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 Electric records loss contingencies in accordance with
      SFAS 5, "Accounting for Contingencies."
    
    Accounting Records
    
    The accounting records for PPL Electric are maintained
      in accordance with the Uniform System of Accounts prescribed by the FERC
      and adopted by the PUC.
    
    Regulation
    
    Historically, PPL Electric accounted for its regulated
      operations 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, the generating and
      certain other related assets, along with associated liabilities, were contributed
      to new unregulated subsidiaries of PPL Generation. PPL Electric's remaining
      regulated business continues to be subject to SFAS 71.
    
    Property, Plant and Equipment
    
    Following are the classes of electric utility plant in
      service with the associated accumulated depreciation at December 31 (millions
      of dollars):
    
    2001
        
        
        2000Transmission and distribution
        
        $
        3,609
        
        
        $
        3,521General
        
        
        312
        
        
        
        3093,921
        
        
        
        3,830Less: Accumulated depreciation
        
        
        1,512
        
        
        
        1,467$
        2,409
        
        
        $
        2,363
    Property, plant and equipment at December 31, 2001 is recorded
      at original cost. Original cost includes material, labor, contractor costs,
      construction overheads and AFUDC.
    
    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.
    
    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.
    
    Recoverable Transition Costs
    
    Based on the PUC Final Order, PPL Electric was amortizing
      its competitive transition (or stranded) costs over an eleven-year transition
      period effective January 1, 1999. In August 1999, competitive transition
      costs of $2.4 billion were converted to intangible transition costs when
      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.
    
    Revenue Recognition
    
    "Retail electric" and "Wholesale energy marketing and trading"
      revenues 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.
    
    Income Taxes
    
    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 4 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.
    
    Leases
    
    PPL Electric applies the provisions of SFAS 13, "Accounting
      for Leases," to all leasing transactions. In addition, PPL Electric applies
      the provisions of numerous other accounting pronouncements that provide
      specific guidance and additional requirements related to accounting for
      leases.
    
    Payments on leased property, classified as operating leases,
      are estimated as follows (millions of dollars): 2002, $29; 2003, $18; 2004,
      $13; 2005, $11; and 2006, $9; and thereafter, $18. These leases include
      vehicles, personal computers and other equipment.
    
    Pension and Postretirement Benefits
    
    See Note 9 for discussion on accounting for pension and
      other postretirement benefits.
    
    Cash Equivalents
    
    All highly liquid debt instruments purchased with original
      maturities of three months or less are considered to be cash equivalents.
    
    Treasury Stock
    
    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.
    
    Reclassification
    
    Certain amounts in the 2000 and 1999 financial statements
      have been reclassified to conform to the current presentation.
2. Extraordinary Items
    
    In August 1999, PPL Transition Bond Company issued $2.4
      billion of transition bonds to securitize a portion of PPL Electric's stranded
      costs. PPL Electric used a portion of the securitization proceeds to repurchase
      $1.5 billion of its first mortgage bonds. The premiums and related expenses
      to reacquire these bonds were $59 million, net of tax. PPL Electric's customers
      will benefit from securitization through an expected average rate reduction
      of approximately one percent for the period the transition bonds are outstanding.
      With securitization, a substantial portion of the CTC has been replaced
      with an ITC, which passes 75% of the net financing savings back to customers.
      In August 1999, PPL Electric released approximately $78 million of deferred
      income taxes associated with the CTC that was no longer required because
      of securitization. The net securitization impact of the bond repurchase
      and the deferred tax change was a gain of $19 million.
    
    SFAS 4, "Reporting Gains and Losses from Extinguishment
      of Debt,'' requires that a material aggregate gain or loss from the extinguishment
      of debt be classified as an extraordinary item, net of the related income
      tax effect. The $59 million loss associated with the bond repurchase was
      treated as an extraordinary item. Details were as follows (millions of dollars):
    
    Reacquisition cost of debt
        
        $
        1,554Net carrying amount of debt
        
        
        (1,454
        )Extraordinary charge pre-tax
        
        
        100Tax effects
        
        
        (41
        )Extraordinary charge
        
        $
        59
    This extraordinary charge was partially offset in December
      1999 with a credit relating to wholesale power activity. In December 2000,
      there was an additional extraordinary credit relating to wholesale power
      activity.
3. Sales to Other Electric Utilities
    
    As part of the corporate realignment on July 1, 2000, PPL
      Electric's contracts for sales to other electric utilities were assigned
      to PPL EnergyPlus, which was transferred to an unregulated subsidiary of
      PPL. See Note 12 for information on the corporate realignment.
4. Income and Other Taxes
    
    For 2001, 2000 and 1999 the corporate federal income tax
      rate was 35%, and the Pennsylvania corporate net income tax rate was 9.99%.
    
    The tax effects of significant temporary differences comprising
      PPL Electric's net deferred income tax liability were as follows (millions
      of dollars):
    
    2001
        
        
        2000Deferred Tax AssetsDeferred investment tax credits
        
        $
        12
        
        
        $
        13NUG contracts & buybacks
        
        
        
        
        
        
        8Accrued pension costs
        
        
        31
        
        
        
        47Contribution in aid of construction
        
        
        41
        
        
        
        32Other
        
        
        63
        
        
        
        64147
        
        
        
        164Deferred Tax LiabilitiesElectric utility plant - net
        
        
        494
        
        
        
        479Restructuring - CTC
        
        
        220
        
        
        
        223Taxes recoverable through future rates
        
        
        99
        
        
        
        100Reacquired debt costs
        
        
        12
        
        
        
        12Other
        
        
        11
        
        
        
        8836
        
        
        
        822Net deferred tax liability
        
        $
        689
        
        
        $
        658
    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 (millions of dollars):
    
    2001
        
        
        2000
        
        
        1999Income Tax ExpenseCurrent-Federal
        $
        31
        
        
        $
        144
        
        
        $
        190Current -State
        
        6
        
        
        
        35
        
        
        
        3537
        
        
        
        179
        
        
        
        225Deferred-Federal
        
        27
        
        
        
        (10
        )
        
        
        53Deferred-State
        
        4
        
        
        
        10
        
        
        
        (110
        )31
        
        
        
        
        
        
        
        (57
        )Investment tax credit, net-federal
        
        (3
        )
        
        
        (8
        )
        
        
        (17
        )Total
        $
        65
        
        
        $
        171
        
        
        $
        151Total income tax expense-Federal
        $
        55
        
        
        $
        126
        
        
        $
        226Total income tax expense-State
        
        10
        
        
        
        45
        
        
        
        (75
        )Total
        $
        65
        
        
        $
        171
        
        
        $
        151
    


    2001
        
        
        
        2000
        
        
        
        1999 (a)Reconciliation of Income
          Tax ExpenseIndicated federal income tax
          on 
             pre-tax income before extraordinary
             items and cumulative effect of a
             change in accounting principle at
             statutory tax rate - 35%
        $
        72
        
        
        $
        156
        
        
        $
        221Increase/(decrease) due to:State income taxes
        
        4
        
        
        
        29
        
        
        
        (51
        )Flow through of depreciation
          
             differences not previously 
             normalized
        
        
        
        
        
        2
        
        
        
        3Amortization of investment
          tax credit
        
        (3
        )
        
        
        (7
        )
        
        
        (12
        )Other
        
        (8
        )
        
        
        (9
        )
        
        
        (10
        )(7
        )
        
        
        15
        
        
        
        (70
        )Total income tax expense
        $
        65
        
        
        $
        171
        
        
        $
        151Effective income tax rate
        
        31.7%
        
        
        
        38.3%
        
        
        
        23.9%
    (a) In August 1999, PPL Electric released approximately
      $78 million of deferred income taxes associated with the CTC that were no
      longer required because of securitization.
    
    2001
        
        
        
        2000
        
        
        
        1999Taxes, Other than IncomeState gross receipts
        $
        105
        
        
        $
        117
        
        
        $
        105State utility realty
        
        4
        
        
        
        6
        
        
        
        12State capital stock
        
        8
        
        
        
        12
        
        
        
        11Property and other
        
        (1
        )
        
        
        (1
        )
        
        
        1$
        116
        
        
        $
        134
        
        
        $
        129
5. Nuclear Decommissioning Costs
    
    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.
6. Financial Instruments
    
    The carrying amount on the Balance Sheet and the estimated
      fair value of PPL Electric's financial instruments are as follows (millions
      of dollars):
    
    December 31, 2001
        
        December 31, 2000CarryingAmount
        
        FairValue
        
        CarryingAmount
        
        FairValueAssetsCash and cash equivalents (a)
        $
        79
        
        $
        79
        
        $
        267
        
        $
        267Other investments (a)
        
        35
        
        
        35
        
        
        18
        
        
        18Other financial instruments 
             included in other current 
             assets (a)
        
        
        
        
        
        
        
        1
        
        
        1LiabilitiesLong-term debt (b)
        
        3,459
        
        
        3,575
        
        
        3,126
        
        
        3,147Company-obligated 
             mandatorily redeemable 
             preferred securities of 
             subsidiary trusts holding 
             solely company debentures (b)
        
        250
        
        
        253
        
        
        250
        
        
        250Preferred stock with sinking 
             fund requirements (b)
        
        31
        
        
        31
        
        
        46
        
        
        46Short-term debt (a)
        
        
        
        
        
        
        
        59
        
        
        59
    (a) The carrying value of these financial instruments generally
      is based on established market prices and approximates fair value.
    (b) The fair value generally is based on quoted market
      prices for the securities where available and estimates based on current
      rates offered to PPL Electric where quoted market prices are not available.
7. Credit Arrangements and Financing Activities
    
    In order to enhance liquidity, and as a credit back-stop
      to the commercial paper programs, PPL Electric, PPL Capital Funding and
      PPL (as guarantor for PPL Capital Funding) shared a 364-day $750 million
      credit facility and a five-year $300 million credit facility, each with
      a group of banks. In June 2001, these credit facilities were terminated
      and PPL Electric obtained a new $400 million 364-day revolving-credit facility.
      No borrowings were outstanding under this facility at December 31, 2001.
    
    During December 2001, PPL Electric terminated its existing
      commercial paper program and established a new program. At December 31,
      2001, PPL Electric had no commercial paper outstanding.
    
    In March 2001, PPL Electric bought back an option related
      to its 6-1/8% Reset Put Securities due 2006. The option would have permitted
      a third party to remarket these securities at higher interest rates in May
      2001. PPL Electric retired the $200 million, 6-1/8% Reset Put Securities
      in May 2001.
    
    In July 2001, PPL Electric retired all of its outstanding
      First Mortgage Bonds, 9-3/8% Series due 2021, at $5 million aggregate par
      value through the maintenance and replacement fund provisions of the 1945
      First Mortgage Bond Indenture.
    
    In August 2001, PPL Electric issued $800 million of senior
      secured bonds as part of a strategic initiative. See Note 15 for additional
      information. PPL Electric used a portion of these proceeds to repurchase
      $280 million of its common stock from PPL.
    
    In September 2001, PPL Electric repurchased $15 million
      aggregate par value of its First Mortgage Bonds, 6-1/2% Series due 2005,
      at a market value that approximated par value.
    
    During December 2001, PPL Electric repurchased $4 million
      par value of its First Mortgage Bonds, 6.55% Series due 2006, at a market
      value that approximated par value. PPL Electric also repurchased 148,000
      shares of its 6-1/8% Series Preferred Stock, also at a market value that
      approximated par value.
    
    During the year 2001, PPL Transition Bond Company made
      principal payments on bonds totaling $241 million.
8. Stock-Based Compensation
    
    Under the PPL Incentive Compensation Plan ("ICP") and the
      Incentive Compensation Plan for Key Employees ("ICPKE") (together, the "Plans"),
      restricted shares of common stock as well as stock options may be granted
      to officers and other key employees of PPL, PPL Electric and other affiliated
      companies. Awards under the Plans are made in the common stock of PPL 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
      which 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 or is forfeited or the rights to the participant terminate,
      any shares of common stock 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.
    
    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. Restricted shares vest fully if control
      of PPL changes, as defined by the Plans.
    
    Restricted stock awards of 19,410; 25,790; and 13,380 shares,
      with per share weighted-average fair values of $44.79, $20.46 and $26.65,
      were granted to employees of PPL Electric in 2001, 2000 and 1999. Compensation
      expense for these three years was not significant. At December 31, 2001,
      there were 58,030 restricted shares outstanding. These awards currently
      vest three years from the date of grant.
    
    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 (including PPL Electric), in installments as determined
      by the CCGC in the case of the ICP, and the CLC in the case of the ICPKE.
      The CLC and CCGC 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.
    
    PPL applies APB Opinion No. 25, "Accounting for Stock Issued
      to Employees," and related interpretations in accounting for stock options.
      Since stock options are granted at market price, no compensation cost has
      been recognized. Compensation calculated in accordance with the disclosure
      requirements of SFAS 123, "Accounting for Stock-Based Compensation,"
      was not significant.
    
    A summary of stock option activity follows:
    Stock Option Activity
        
        Number of Options
        
        Weighted Average Exercise PriceBalance at December 31, 1998Options granted
        
        47,090
        
        $
        26.84Balance at December 31, 1999
        
        47,090
        
        $
        26.84Options granted
        
        58,310
        
        $
        22.65Balance at December 31, 2000
        
        105,400
        
        $
        24.53(15,699 options exercisable)Options granted
        
        92,450
        
        $
        43.16Options exercised
        
        (33,908
        )
        $
        25.04Balance at December 31, 2001
        
        163,942
        
        $
        34.92(16,924 options exercisable)
    The weighted average fair values of options at their grant
      date during 2001, 2000 and 1999 were $10.42, $3.37 and $2.37. 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:
    
    2001
        2000
        1999Risk-free interest rate
        5.46%
        6.75%
        5.61%Expected option term
        10 yrs
        10 yrs
        10 yrsExpected stock volatility
        30.24%
        19.66%
        16.19%Dividend yield
        4.28%
        5.70%
        6.60%
    Outstanding options had a weighted-average remaining life
      of 8.5 years at December 31, 2001.
9. Retirement and Postemployment Benefits
    
    Pension and Other Postretirement Benefits
    
    In connection with the corporate realignment on July 1,
      2000, sponsorship of the various pension and postretirement benefit plans
      was transferred from PPL Electric to PPL Services to provide for participation
      by any of the newly realigned companies. Substantially all employees of
      PPL Electric are covered by a defined benefit plan and will become eligible
      for certain health care and life insurance benefits upon retirement through
      plans sponsored by PPL Services.
    
    The net periodic pension costs (or credits) allocated to
      PPL Electric were approximately $(30) million in 2001, $(8) million in 2000
      and $10 million in 1999. Periodic pension cost charged or (credited) to
      operating expense was approximately $(24) million in 2001, $(6) million
      in 2000 and $8 million in 1999. The cost or credit in excess of amounts
      recorded to expense were allocated to construction and other non-expense
      accounts. At December 31, 2001, the recorded balance of PPL Electric's allocated
      share of the total pension liability was $68 million.
    
    In 2001, PPL changed its method of amortizing unrecognized
      gains or losses in the annual pension expense/income determined under SFAS
      87. This change resulted in a cumulative-effect credit of $5 million after-tax,
      which is reflected as a "Cumulative Effect of a Change in Accounting Principle"
      on the Statement of Income. Under the old method, unrecognized gains and
      losses in excess of ten percent 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 will be utilized for unrecognized
      gains and losses in excess of thirty percent of the plan's projected benefit
      obligation. Unrecognized gains and losses outside the second corridor will
      be 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 reduced net income by $5 million
      in 2001 and would have increased net income by $4 million in 2000, and by
      $1 million in prior periods.
    
    Postretirement medical costs recorded by PPL Electric were
      approximately $15 million in 2001, $24 million in 2000 and $25 million in
      1999. The decrease in postretirement medical costs is the result of the
      corporate realignment. This resulted in postretirement medical costs being
      allocated between the regulated and unregulated businesses. Postretirement
      medical costs charged to operating expense were approximately $11 million
      in 2001, $19 million in 2000 and $20 million in 1999. Costs in excess of
      amounts charged to expense were charged to construction and other non-expense
      accounts. At December 31, 2001, the balance in PPL Electric's allocated
      share of the total postretirement medical liability was $3 million.
    
    At December 31, 2001, PPL Electric had a regulatory asset
      of $6 million relating to postretirement benefits that is being amortized
      and recovered in rates, with a remaining life of 11 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, 2001, the liability was $22
      million. The liability is the net of $52 million of estimated future benefit
      payments offset by $30 million of available assets in a PPL Electric-funded
      VEBA trust.
    
    Savings Plans
    
    Substantially all employees of PPL Electric are eligible
      to participate in deferred savings plans (401(k)s). Contributions to the
      plans charged to operating expense approximated $2 million in 2001, $4 million
      in 2000 and $4 million in 1999.
    
    Substantially all employees of PPL Electric are also eligible
      to participate in PPL's ESOP.
    
    Postemployment Benefits
    
    PPL Electric provides 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 2001, 2000 or 1999.
10. Commitments and Contingent Liabilities
    
    PPL Electric is involved in numerous legal proceedings,
      claims and litigation in the ordinary course of business. PPL Electric cannot
      predict the ultimate outcome of such matters, or whether such matters may
      result in material liabilities.
    
    Environmental Matters
    
    In connection with the corporate realignment, effective
      July 1, 2000, any air, water and residual waste contingent liabilities associated
      with the generation assets of PPL Electric were assumed by PPL Generation.
    
    Superfund and Other Remediation
    
    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. In conjunction with the July 1, 2000 corporate
      realignment, PPL Electric's generating facilities were transferred to subsidiaries
      of PPL Generation. As of December 31, 2001, work has been completed on approximately
      80% of the sites included in the consent order.
    
    At December 31, 2001, PPL Electric had accrued approximately
      $5 million, representing the estimated amount it will have to spend for
      site remediation, including those sites covered by its consent order mentioned
      above.
    
    Guarantees of Affiliated Companies
    
    At December 31, 2001, PPL Electric provided a guarantee
      in the amount of $7 million in support of Safe Harbor Water Power Corporation,
      in which PPL Electric had an ownership interest prior to the corporate realignment.
      PPL Holtwood now has this ownership interest.
    
    Source of Labor Supply
    
    As of December 31, 2001, PPL Electric had a total of 3,594
      full-time employees with approximately 76%, or 2,735, being members of the
      IBEW Local Union 1600. The agreement with the IBEW Local Union 1600 was
      negotiated in 1998 and expires in May 2002.
11. Related Party Transactions
    
    As part of the corporate realignment, PPL Electric entered
      into power sales agreements with PPL EnergyPlus for the purchase of electricity
      to meet its obligations as a PLR for customers who have not selected an
      alternative supplier under the Customer Choice Act. Under the terms of these
      agreements, this electricity was purchased by PPL Electric at the applicable
      shopping credits authorized by the PUC, plus nuclear decommissioning costs,
      less state taxes. These purchases total $1.3 billion in 2001 and $540 million
      in the last half of 2000, and are included in "Energy purchases" on the
      Statement of Income. These agreements expired on December 31, 2001. See
      Note 15 for information regarding the new agreement whereby PPL EnergyPlus
      began providing electricity for PPL Electric's PLR load obligation on January
      1, 2002.
    
    Also as part of the corporate realignment, PPL Electric
      executed 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 revenues totaled $176 million in 2001 and $85 million
      in the last half of 2000, and are included in Operating Revenues as "Wholesale
      energy marketing and trading" on the Statement of Income.
    
    In August 2001, PPL Electric made a $90 million payment
      to PPL EnergyPlus in connection with the generation supply agreements between
      the companies. See Note 15 for additional information.
    
    In December 2001, PPL Electric made two loans from excess
      cash to PPL Energy Funding in the aggregate principal amount of $350 million.
      In connection with these loans, PPL Energy Funding issued to PPL Electric
      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%,
      and 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%.
    
    PPL Electric has notes receivable from other affiliates
      of PPL that are due on demand. These notes were issued as a result of PPL's
      process for efficiently managing its overall cash position whereby PPL Electric,
      from time to time, may loan excess cash to affiliates at market rates. Interest
      earned on loans to affiliated companies and interest incurred on borrowings
      from affiliated companies are included in "Other Income - net" and "Interest
      Expense," respectively, in the Statement of Income. Intercompany interest
      income was $5 million and $22 million for the twelve months ended December
      31, 2001 and 2000. Intercompany interest expense was $8 million for the
      twelve months ended December 31, 2000 and was not significant in 2001.
    
    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 are 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 charged PPL Electric approximately
      $68 million in 2001 and $22 million in the last half of 2000 for direct
      expenses. PPL Services also allocated PPL Electric overhead costs of approximately
      $28 million in 2001 and $41 million in the last half of 2000. While the
      allocation of overhead costs decreased in 2001 from 2000, direct expense
      allocations increased. This was primarily due to an intensified effort to
      identify more products and services as direct support in 2001, resulting
      in lower overhead costs.
12. 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 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 its
      unregulated subsidiaries 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. The following major reductions
      in consolidated assets and liabilities resulted from the non-cash dividend
      (millions of dollars):
    
    AssetsCash and cash equivalents
        
        $
        73Other current assets
        
        
        331Investments
        
        
        578Property, plant and equipment
        
        
        1,969Other noncurrent assets
        
        
        162,967Liabilities and EquityCurrent liabilities
        
        
        767Deferred credits and othernoncurrent liabilities
        
        
        1,935Minimum pension liabilitycomponent of accumulated other comprehensive
          income
        
        
        (6
        )2,696Net Dividend
        
        $
        271
    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.
    
    The corporate realignment followed receipt of various regulatory
      approvals, including approvals from the PUC, the FERC, the NRC and the IRS.
13. New Accounting Standards
    
    SFAS 141
    
    In June 2001, the FASB issued SFAS 141, "Business Combinations,"
      which eliminates the pooling-of-interest method of accounting for business
      combinations and requires the use of the purchase method. In addition, SFAS
      141 requires the reassessment of intangible assets to determine if they
      are appropriately classified either separately or within goodwill. SFAS
      141 is effective for business combinations initiated after June 30, 2001.
      PPL Electric adopted SFAS 141 on July 1, 2001, with no material impact on
      the financial statements.
    
    SFAS 142
    
    In June 2001, the FASB issued SFAS 142, "Goodwilland
      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 Electric
      adopted SFAS 142 on January 1, 2002, with no material impact on the financial
      statements.
    
    SFAS 143
    
    In June 2001, the FASB issued SFAS 143, "Accounting for
      Asset Retirement Obligations," on the accounting for obligations associated
      with the retirement of long-lived assets. SFAS 143 requires a liability
      to be recognized in the financial statements for retirement obligations
      meeting specific criteria. Measurement of the initial obligation is to approximate
      fair value, with an equivalent amount recorded as an increase in the value
      of the capitalized asset. The asset will be depreciated in accordance with
      normal depreciation policy and the liability will be increased, with a charge
      to the income statement, until the obligation is settled. SFAS 143 is effective
      for fiscal years beginning after June 15, 2002. The potential impact of
      adopting SFAS 143 is not yet determinable, but may be material.
    
    SFAS 144
    
    In August 2001, the FASB issued SFAS 144, "Accounting for
      the Impairment or Disposal of Long-Lived Assets," that 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 (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. For long-lived assets to be disposed
      of, 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 Electric
      adopted SFAS 144 on January 1, 2002, with no material impact on the financial
      statements.
14. Derivative Instruments and Hedging Activities
    
    PPL Electric adopted SFAS 133, "Accounting for Derivative
      Instruments and Hedging Activities," on January 1, 2001. SFAS 133 requires
      that every derivative instrument be recorded on the balance sheet as an
      asset or liability measured at its fair value and that changes in the derivative's
      fair value be recognized currently in earnings unless specific hedge accounting
      criteria are met. SFAS 133 requires that as of the date of adoption, the
      difference between the fair market value of derivative instruments recorded
      on the balance sheet and the previous carrying amount of those derivatives
      be reported in net income or other comprehensive income, as appropriate.
      At December 31, 2001, PPL Electric had no derivative instruments.
15. Strategic Initiative
    
    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
      and enabled PPL Electric to lower its capital costs.
    
    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 will be 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.

---

|SCHEDULE II
      - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
|------------------------------------------------------------------
|PPL Electric Utilities Corporation                                
|(Millions of Dollars)                                             
|                                                                  
|Column A                                                          
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Description                                                       
|                                                                  
|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          
|                                                                  
|                                                                  
|                                                                  
|Year Ended December 31, 1999                                      
|Reserves deducted from assets in
      the Balance Sheet          
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                  

---





|QUARTERLY
      FINANCIAL DATA (Unaudited)                                   
|-----------------------------------------------------------------------------
|PPL Electric Utilities Corporation
      and Subsidiaries                    
|(Millions of Dollars)                                                        
|                                                                             
|                                                                             
|                                                                             
|Operating revenues                                                           
|Operating income                                                             
|Net income before cumulative
      effect of a change in accounting principle
|Net income                                                                   
|                                                                             
|                                                                             
|Operating revenues                                                           
|Operating income                                                             
|Net income (loss) before
      extraordinary items                           
|Net income                                                                   
|                                                                             
|                                                                             
|(a)                                                                          

---



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTSON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
  OF THE REGISTRANT



Information for this item concerning directors of PPL Electric
  will be set forth in the sections entitled "Nominees for Directors," and "Directors
  Continuing in Office" in PPL Electric's 2002 Notice of Annual Meeting and Information
  Statement, which will be filed with the SEC not later than 120 days after December 31,
  2001, 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.

ITEM 11. EXECUTIVE COMPENSATION



Information for this item for PPL Electric 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 2002 Notice of Annual Meeting and Information Statement,
  which will be filed with the SEC not later than 120 days after December 31,
  2001, and which information is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN
  BENEFICIAL OWNERS AND MANAGEMENT



Information for this item for PPL Electric will be set forth
  in the section entitled "Stock Ownership" in PPL Electric's 2002 Notice of Annual
  Meeting and Information Statement, which will be filed with the SEC not later
  than 120 days after December 31, 2001, and which information is incorporated
  herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
  TRANSACTIONS



None.

---

PPL MONTANA, LLC AND SUBSIDIARIES

PART II

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

(a)  There is no established public trading market for PPL Montana's
      membership interests. PPL indirectly owns all of PPL Montana's outstanding
      membership interests. In 1999, PPL indirectly transferred $417 million to
      PPL Montana as a capital contribution. Such transaction was exempt from
      registration under the Securities Act of 1933, as amended, pursuant to Section
      4(2) thereof. PPL Montana has made no other sales of unregistered membership
      interests.

(b)  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 and $50 million
      in 2000.

---

ITEM 6. Selected Financial
  Data





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





---

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.





PPL Montana was formed in 1998 to acquire, own, lease and operate
  the Montana generation assets. The aggregate purchase price for the Montana
  generation assets, which PPL Montana acquired on December 17, 1999, was
  $767 million, which included a $760 million payment to Montana Power and $7
  million for transaction expenses. PPL Montana funded the acquisition with a
  $402 million indirect equity contribution from PPL and a $365 million draw under
  its credit facility. After the acquisition closed, PPL made additional indirect
  equity contributions of approximately $15 million. PPL is also required to provide
  an additional indirect equity contribution of a maximum of $97 million in the
  event that PPL Montana purchases a portion of Montana Power's interest in the
  Colstrip Transmission System.





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 2001 to 2000.





Operating Revenues





Wholesale energy marketing and trading revenues increased by
  $71 million in 2001 compared with 2000. The increase was primarily due to higher
  wholesale energy prices in the first half of 2001, resulting from an energy
  supply shortage in the western U.S.





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
  lowering spot and forward energy prices in the western U.S. where PPL Montana
  sells power.





PPL Montana had two transition agreements to supply wholesale
  electricity to Montana Power to serve its retail load not served by other providers
  or provided by Montana Power's remaining generation. One agreement provided
  for the sale of 200 MW from PPL Montana's leasehold interest in Colstrip Unit
  3 until December 17, 2001. The second agreement requires PPL Montana to supply
  Montana Power's actual remaining customer load. This second agreement will expire
  on the earlier of June 30, 2002 or when Montana Power's remaining customer load
  is zero.



In October 2001, PPL announced that PPL EnergyPlus had reached
  an agreement to supply Montana Power with an aggregate of 450 MW of energy to
  be supplied by PPL Montana. The delivery term of this new contract would be
  for five years beginning July 1, 2002, which is the day after the termination
  date of the last of the two existing contracts, pursuant to which PPL Montana
  presently supplies energy to Montana Power for its default supply. Under the
  new agreement, PPL EnergyPlus will supply 300 MW of around-the-clock electricity
  and 150 MW of on-peak electricity. In December 2001, the agreement was accepted
  for filing by the FERC. No further regulatory approvals are required under this
  agreement. See Note 9 for additional information on the MPSC Order.





Operating Expense





Operating expenses increased by $64 million in 2001 compared
  with 2000. Operation expenses consist mainly of expenses for fuel, energy purchases,
  transmission tariffs, plant operations and maintenance, lease rental payments,
  and general and administrative expenses. The increase was primarily due to increased
  power costs in the western U.S. during the first half of 2001.





Generation decreased by 740 million kWh in 2001 compared with
  2000. This decrease was primarily the result of lower hydroelectric generation
  caused by the lower than normal water flow in the northwestern U.S.

Critical Accounting Policies

PPL Montana's financial condition and results of operations
  are necessarily 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 judgements of matters inherently
  uncertain. Changes in the estimates or other judgements 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.)





1) Price Risk Management





PPL Montana follows the guidance of SFAS 133, "Accounting for
  Derivative Instrument and Hedging Activities," as amended by SFAS 138, "Accounting
  for Certain Derivative Instrument and Certain Hedging Activities," and interpreted
  by DIG issues (together, "SFAS 133") and EITF 98-10, "Accounting for Contracts
  Involved in Energy Trading and Risk Management Activities" for its activities
  in the area of price risk management. PPL Montana utilizes forward contracts
  and swaps as part of its risk management strategy to minimize unanticipated
  fluctuations in earnings caused by price volatility. 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. EITF 98-10 requires that
  derivative and non-derivative contracts that are designated as trading activities
  be marked to market through earnings.





PPL Montana markets and/or purchases electricity using contracts
  that are considered derivatives. PPL Montana uses external broker quotes to
  value electricity contracts.





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 trading controls 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:





- Any wholesale and retail contracts to sell energy that
      are expected to be delivered from PPL Montana 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 receive "normal" treatment. The methodology utilized in determining
      the amount of sales that can be delivered from PPL Montana generation is
      based on a calculation approved by the RMC. This calculation uses market
      prices compared to dispatch rates as well as planned and forced outage rates
      by plant by month.





- "Trading around the assets" means that PPL Montana matches
      a contract to sell electricity, previously to be delivered from PPL Montana
      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.





- Physical 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 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 need not result in physical
      delivery. These transactions receive cash flow hedge treatment if they lock
      in the price PPL Montana will receive or pay for energy 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.





To record derivative assets at their net realizable value,
  PPL Montana reduces the 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 Montana. The more companies who 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 Montana might have to accept the "bid" price if it wanted to
      close an open sales position or PPL Montana might have to accept the "ask"
      price if it wanted to close an open purchase position.





At December 31, 2001, PPL Montana had assets of $68 million
  and liabilities of $15 million that were accounted for under SFAS 133 and EITF
  98-10. Member's Equity included $33 million of net unrealized derivative gains,
  after-tax. During the year ended December 31, 2001, PPL Montana recorded $1
  million in pre-tax income for net unrealized mark-to-market gains, primarily
  on derivative instruments used for speculative (non-hedge) purposes. During
  this period, PPL Montana also reclassified into earnings an after-tax gain of
  $7 million for derivatives that no longer qualified as hedges.





See Item 7A, "Quantitative and Qualitative Disclosures about
  Market Risk," for further discussion regarding price risk management, and sensitivities
  of hedged portfolios to changes in prices and interest rates.





2) 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 that provide
      specific guidance and additional requirements related to accounting for
      leases. 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 significant
      assumptions, including the discount rate, the fair market value of the leased
      assets and the estimated useful life. Changes in these assumptions could
      result in a significant change to the amounts recognized in the financial
      statements.





In addition to uncertainty inherent in management assumptions,
      leasing transactions 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), or special purpose entities (SPEs) (entities that retain ownership
      of the property, plant and equipment and the related financing). 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.





At December 31, 2001, PPL Montana has a leasing transaction
      involving unconsolidated SPEs. These SPEs were appropriately not consolidated
      in accordance with GAAP because the equity owners (entities unrelated to
      PPL Montana) were required to contribute and maintain a minimum of 3% equity
      interest throughout the life of the SPEs.





See Note 5 for additional information related to operating
      lease payments.





3) Contingencies





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."





SFAS 5 does not permit the accrual of gain contingencies under
  any circumstances. 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) that the amount
  of the loss can be reasonably estimated.





The accrual of a contingency involves considerable judgement
  on the part of management. PPL Montana uses its internal expertise, the resources
  of other PPL affiliates, 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. The largest contingency
  on PPL Montana's balance sheet is the loss accrual related to wholesale power
  commitments. These wholesale power commitments were assumed when PPL Montana
  acquired its generating assets in December 1999. At December 31, 2001, the unamortized
  liability on the Balance Sheet was $78 million. PPL Montana periodically reviews
  the reasonableness of the remaining accrual.





PPL Montana has also recorded contingencies for uncollectible
  accounts, environmental issues, taxes and litigation in situations where management
  determined it was probable a loss had been incurred and it could be reasonably
  estimated.



---

Item 7A. Quantitative and
  Qualitative Disclosures About Market Risk

Market Risk Sensitive Instruments

PPL Montana actively manages the market risks inherent in its
  business. PPL Montana has adopted a comprehensive risk management policy to
  manage risk exposures related to energy prices, interest rates and counterparty
  credit. An RMC comprised of senior officers of PPL oversees the risk management
  function. Nonetheless, adverse changes in commodity prices and interest rates
  may result in losses in earnings, cash flows and/or fair values. The forward-looking
  information presented below only provides estimates of what may occur in the
  future, assuming certain adverse market conditions, due to reliance on model
  assumptions. As a result, 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.





Commodity Price Risk





PPL Montana uses various methodologies to simulate forward
  price curves in the energy markets to estimate the size and probability of changes
  in market value resulting from commodity price movements. The methodologies
  require several key assumptions, including selection of confidence levels, the
  holding period of the commodity positions and the depth and applicability to
  future periods of historical commodity price information.





PPL Montana estimated that a 10% adverse movement in market
  prices across the markets PPL Montana operates in, and across all time periods,
  would have decreased the value of the non-trading portfolio by approximately
  $49 million at December 31, 2001, as compared to $43 million at December 31,
  2000. A similar adverse movement in market prices would decrease the value of
  the trading portfolio by an insignificant amount at December 31, 2001, as compared
  to $300,000 at December 31, 2000. However, the change in the value of the non-trading
  portfolio would have been offset by an increase in the value of the underlying
  commodity, the electricity generated. The decline in forward prices from 2000
  to 2001 is the primary reason for the differences between 2001 and 2000 sensitivity
  analyses. In addition to commodity price risk, PPL Montana's commodity positions
  are also subject to operational and event risks including, among others, increases
  in load demand and forced outages at generating plants.





PPL Montana's risk management program is designed to manage
  the risks associated with market fluctuations in the price of electricity. PPL
  Montana's risk management policy and programs include risk identification and
  risk limits management, with measurement and controls for real time risk monitoring.
  PPL Montana has entered into forward contracts that require physical delivery
  of electricity and derivative financial instruments consisting mainly of financial
  swaps where settlement is generally based on the difference between a fixed-price
  and an index-based price for the underlying commodity.





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 reduces its exposure to adverse interest rate movements.
  PPL Montana had $44 million in borrowings outstanding as of December 31, 2001.

---

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 14(a)(1) on page 176 present fairly, in all
  material respects, the financial position of PPL Montana, LLC and its subsidiaries
  at December 31, 2001 and 2000 and the results of their operations
  and their cash flows for the years ending December 31, 2001 and 2000 and the
  period from inception (December 17, 1999) to December 31, 1999 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 14(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 12 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).









PricewaterhouseCoopers LLP
Minneapolis, MN
February 4, 2002





---

PPL Montana, LLCManagement's Report on Responsibility
  for Financial Statements





The management of PPL Montana is responsible for the preparation,
  integrity and objectivity of the consolidated financial statements and all other
  sections of this annual report. The financial statements were prepared in accordance
  with accounting principles generally accepted in the United States of America.
  In preparing the financial statements, management makes informed estimates and
  judgments of the expected effects of events and transactions based upon currently
  available facts and circumstances. 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's consolidated financial statements have been audited
  by PricewaterhouseCoopers LLP (PWC), independent certified public accountants.
  PWC's appointment as auditors was previously ratified by the shareowners of
  PPL. Management has made available to PWC all PPL Montana's financial records
  and related data, as well as the minutes of board of manager's meetings. Management
  believes that all representations made to PWC during its audit were valid and
  appropriate.

PPL Montana maintains a system of internal control designed
  to provide reasonable, but not absolute, assurance as to the integrity and reliability
  of the financial statements, the protection of assets from unauthorized use
  or disposition and the prevention and detection of fraudulent financial reporting.
  The concept of reasonable assurance recognizes that the cost of a system of
  internal control should not exceed the benefits derived and that there are inherent
  limitations in the effectiveness of any system of internal control.

Fundamental to the control system is the selection and training
  of qualified personnel, an organizational structure that provides appropriate
  segregation of duties, the utilization of written policies and procedures and
  the continual monitoring of the system for compliance. In addition, PPL maintains
  an internal auditing program to evaluate PPL Montana's system of internal control
  for adequacy, application and compliance. Management considers the internal
  auditors' and PWC's recommendations concerning its system of internal control
  and has taken actions which are believed to be cost-effective in the circumstances
  to respond appropriately to these recommendations. Management believes that
  PPL Montana's system of internal control is adequate to accomplish the objectives
  discussed in this report.

The Board of Managers, acting through PPL's Audit Committee,
  oversees management's responsibilities in the preparation of the financial statements.
  In performing this function, the Audit Committee, which is composed of four
  independent directors, meets periodically with management, the internal auditors
  and PWC to review the work of each. PWC and the internal auditors have free
  access to PPL's Audit Committee and to the Board of Managers, without management
  present, to discuss internal accounting control, auditing and financial reporting
  matters.

Management also recognizes its responsibility for fostering
  a strong ethical climate so that PPL Montana's affairs are conducted according
  to the highest standards of personal and corporate conduct. This responsibility
  is characterized and reflected in the business policies and guidelines of PPL
  Montana. These policies and guidelines address: the necessity of ensuring open
  communication within PPL Montana; potential conflicts of interest; proper procurement
  activities; compliance with all applicable laws, including those relating to
  financial disclosure; and the confidentiality of proprietary information.



Bradley E. SpencerChief Operating Officer and Vice President



Craig D. BartholomewController

---

|ITEM
      8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                                                                         
|------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                  
|CONSOLIDATED STATEMENT OF INCOME
      FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000 AND THE PERIOD FROM INCEPTION
      (DECEMBER 17, 1999) TO DECEMBER 31, 1999
|PPL Montana, LLC and Subsidiaries                                                                                                                                 
|(Millions of Dollars)                                                                                                                                             
|                                                                                                                                                                  
|                                                                                                                                                                  
|Operating Revenues                                                                                                                                                
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|Operating Expenses                                                                                                                                                
|                                                                                                                                                                  
|                                                                                                                                                                  
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|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|Operating Income                                                                                                                                                  
|                                                                                                                                                                  
|Other Income - net                                                                                                                                                
|                                                                                                                                                                  
|Income Before Interest
      Expense                                                                                                                              
|                                                                                                                                                                  
|Interest Expense                                                                                                                                                  
|                                                                                                                                                                  
|Income (Loss) Before
      Income Taxes                                                                                                                           
|                                                                                                                                                                  
|Income Taxes (Note 3)                                                                                                                                             
|                                                                                                                                                                  
|Income (Loss) Before
      Extraordinary Item                                                                                                                     
|                                                                                                                                                                  
|Extraordinary Item (net
      of income taxes) (Note 2)                                                                                                           
|                                                                                                                                                                  
|Net Income (Loss)                                                                                                                                                 
|                                                                                                                                                                  
|The accompanying Notes to the Consolidated
        Financial Statements are an integral part of the financial statements.                                         

---

|CONSOLIDATED
      STATEMENT OF CASH FLOWS FOR THE YEARS ENDEDDECEMBER 31, 2001 AND 2000 AND THE PERIOD FROM INCEPTION(DECEMBER 17, 1999) to DECEMBER 31, 1999
|--------------------------------------------------------------------------------------------------------------------------------------------------------------
|PPL Montana, LLC and Subsidiaries                                                                                                                             
|(Millions of Dollars)                                                                                                                                         
|                                                                                                                                                              
|                                                                                                                                                              
|                                                                                                                                                              
|Cash Flows From Operating
      Activities                                                                                                                    
|                                                                                                                                                              
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|Cash Flows From Investing
      Activities                                                                                                                    
|                                                                                                                                                              
|                                                                                                                                                              
|                                                                                                                                                              
|                                                                                                                                                              
|                                                                                                                                                              
|                                                                                                                                                              
|                                                                                                                                                              
|Cash Flows From Financing
      Activities                                                                                                                    
|                                                                                                                                                              
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|                                                                                                                                                              
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|                                                                                                                                                              
|                                                                                                                                                              
|                                                                                                                                                              
|                                                                                                                                                              
|                                                                                                                                                              
|                                                                                                                                                              
|Net Increase (Decrease)
      in Cash and Cash Equivalents                                                                                                    
|Cash and Cash Equivalents
      at Beginning of Period                                                                                                        
|                                                                                                                                                              
|Cash and Cash Equivalents
      at End of Period                                                                                                              
|                                                                                                                                                              
|                                                                                                                                                              
|Supplemental Disclosures
      of Cash Flow Information                                                                                                       
|                                                                                                                                                              
|                                                                                                                                                              
|                                                                                                                                                              
|                                                                                                                                                              
|                                                                                                                                                              
|                                                                                                                                                              
|                                                                                                                                                              
|The accompanying Notes to the Consolidated
        Financial Statements are an integral part of the financial statements.                                     

---

|CONSOLIDATED
      BALANCE SHEET AT DECEMBER 31,                                                                     
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|PPL Montana, LLC and Subsidiaries                                                                                    
|(Millions of Dollars)                                                                                                
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|Assets                                                                                                               
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|Liabilities and Equity                                                                                               
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|Commitments and Contingent
      Liabilities(Note 9)                                                                 
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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 OTHER COMPREHENSIVE INCOME FOR THE YEARS
      ENDED DECEMBER 31, 2001 AND 2000 AND THE PERIOD FROM INCEPTION (DECEMBER
      17, 1999) TO DECEMBER 31, 1999
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|PPL Montana, LLC and Subsidiaries                                                                                                                                                                               
|(Millions of Dollars)                                                                                                                                                                                           
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|Member's equity at beginning
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|Accumulated other comprehensive
      income at beginning of year                                                                                                                                               
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|Accumulated other comprehensive
      income at end of year                                                                                                                                                     
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|Total Member's Equity
      and Accumulated Other Comprehensive Income                                                                                                                                          
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|(a) Statement of Comprehensive
      Income:                                                                                                                                                                    
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|The accompanying Notes to Consolidated
        Financial Statements are an integral part of the financial statements.                                                                                           

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PPL MONTANA, LLC AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS



1. Summary of Significant Accounting Policies
    
    Business and Consolidation
    
    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.
    
    Nature of Operations
    
    PPL Montana commenced operations December 17, 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.
    
    Use of Estimates/Contingencies
    
    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
      assets and 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 Montana records loss contingencies in accordance with
      SFAS 5, "Accounting for Contingencies."
    
    Property, Plant and Equipment
    
    Following are the classes of property, plant and equipment,
      with the associated accumulated depreciation at December 31 (millions of
      dollars):
    
    2001
        
        
        
        2000Electric generation plant (including
          jointly-
          owned plant)
        $
        386
        
        
        $
        383Non-generation property
        
        42
        
        
        
        27Land
        
        15
        
        
        
        15Construction work in progress
        
        14
        
        
        
        13457
        
        
        
        438Less: Accumulated depreciation
        
        17
        
        
        
        10$
          440
        
        
        $
        428
    Property, plant and equipment is recorded at original cost,
      unless impaired under the provisions of 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 capitalized interest. The cost of repairs and minor replacements are
      charged to expense as incurred. Maintenance and repair costs include costs
      associated with major planned overhauls that do not improve or replace an
      existing asset or extend its useful life. 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.
    
    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 in plans service, 5-50 years and non-generation property, 5-40
      years. PPL Montana periodically reviews and adjusts the depreciable lives
      of its fixed assets.
    
    Allowance for Doubtful Accounts
    
    PPL Montana maintains its allowance for doubtful accounts
      based on management's evaluation of the ultimate collectibility of all receivables.
      In 2001, PPL Montana recorded a receivable related to the termination of
      forward contracts with Enron. The receivable has been fully reserved.
    
    Inventories
    
    Inventories consist mainly of fuel and materials and supplies.
      Inventories are stated at the lower of cost or market. Cost is determined
      under the average cost method and includes the purchase price and transportation
      costs of the coal.
    
    Accounting for Price Risk Management
    
    PPL Montana enters into commodity contracts for the physical
      purchase and sale of energy as well as energy contracts that can be settled
      financially.
    
    As of January 1, 2001, contracts that meet the definition
      of a derivative were accounted for under SFAS 133, "Accounting for Derivative
      Instrument 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 12 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 Montana 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), or a non-hedge 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 accumulated other comprehensive income, until earnings are affected by
      the variability of cash flows being hedged. Changes in the fair value of
      derivatives that are not designated as hedging instruments are reported
      in current- period earnings.
    
    In addition, PPL Montana may enter into non-derivative
      contracts that meet the definition of energy trading activities as defined
      by EITF 98-10, "Accounting for Contracts Involved in Energy Trading and
      Risk Management Activities." In accordance with EITF 98-10, energy trading
      contract gains and losses from changes in market prices are marked to market
      through earnings.
    
    For 1999 and 2000, PPL Montana used EITF 98-10 to account
      for its commodity forward and financial contracts. As such, contracts that
      did not meet the definition of energy trading contracts, as defined by EITF
      98-10, were reflected in the financial statements using the accrual method
      of accounting.
    
    Gains and losses from changes in market prices of energy
      sales contracts are accounted for in "Wholesale energy marketing and trading"
      revenues, and gains and losses from changes in market prices of energy purchase
      contracts are accounted for in "Energy purchases" on the Statement of Income.
      The amortized gains and losses from interest rate derivative contracts would
      be accounted for in "Interest expense."
    
    Financial Instruments
    
    At December 31, 2001, the carrying value of cash and cash
      equivalents, price risk management assets and liabilities, and the revolving
      line of the credit approximated fair value due to either the short-term
      nature of the instruments or variable interest rates associated with the
      financial instruments. At December 31, 2000, except for price risk management
      liabilities, the carrying amount on the balance sheet approximated the estimated
      fair value of the financial instruments. The carrying value of the price
      risk management liabilities was $0 and the fair value was $257 million at
      December 31, 2000, due to the fact that these contracts were classified
      as non-trading under EITF 98-10 and were not required to be marked to fair
      value on the balance sheet in 2000.
    
    Revenue Recognition
    
    "Wholesale energy marketing and trading" revenues on the
      Statement of Income are recorded based on the amount of electricity delivered
      to wholesale customers through the last day of each reporting period.
    
    Income Taxes
    
    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, "Accounting for Income
      Taxes." 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
    
    See Note 5 for a discussion on accounting for leases.
    
    Cash Equivalents
    
    All highly liquid debt instruments purchased with original
      maturities of three months or less are considered to be cash equivalents.
    
    Comprehensive Income
    
    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 Other Comprehensive Income.
      The "Accumulated other comprehensive income" of PPL Montana at December
      31, 2001 was $32 million.
    
    Reclassifications
    
    Certain amounts in the 2000 and 1999 financial statement
      have been reclassified to conform to the current presentation.
2. Extraordinary Item
    
    During 2000, PPL Montana repaid certain financing debt
      and reduced the commitments under the revolving credit facility. In accordance
      with SFAS 4, "Reporting Gains and Losses from Extinguishment of Debt," an
      extraordinary loss of approximately $1 million (net of $700,000 of income
      tax benefit) was recorded to write-off deferred loan fees.
3. Income and Other Taxes
    
    For 2001, 2000 and 1999, the corporate federal income tax
      rate was 35% and the Montana corporate income tax rate was 6.75%.
    
    The tax effects of significant temporary differences comprising
      PPL Montana's net deferred income tax asset were as follows (millions of
      dollars):
    
    2001
        
        
        2000Deferred Tax AssetsAccrued retirement costs
        $
        5
        
        $
        3Wholesale energy commitments
        
        30
        
        
        39Allowance for doubtful accounts
        
        19
        
        
        7Other
        
        
        
        
        254
        
        
        51Deferred Tax LiabilitiesProperty, plant and equipment
        
        9Mark to market
        
        20Other
        
        130Net deferred tax asset
        $
        24
        
        $
        51
    Details of the components of income tax expense (benefit),
      a reconciliation of federal income taxes derived from statutory tax rates
      applied to income (loss) from continuing operations for accounting purposes
      and details of taxes other than income are as follows (millions of dollars):
    2001
        
        
        2000Income Tax Expense (Benefit)Current - Federal
        $
        50
        
        $
        57Current - State
        
        11
        
        
        1261
        
        
        69Deferred - Federal
        
        5
        
        
        (9
        )Deferred - State
        
        2
        
        
        (2
        )7
        
        
        (11
        )$
        68
        
        $
        58
       
    2001
        
        
        2000Reconciliation of effective
          incometax rate:Income tax expense (benefit)
          on 
          pre-tax income at statutory tax 
          rate - 35%
        $
        60
        
        $
        51State income taxes
        
        9
        
        
        6Other
        
        (1
        )
        
        1Total income tax expense
        $
        68
        
        $
        58Effective income tax rate
        
        39.8
        %
        
        39.8
        %Taxes, Other Than Income:Property taxes
        $
        14
        
        $
        13Generation taxes
        
        2
        
        
        2$
        16
        
        $
        15
    Income tax expense and taxes, other than income were not
      significant in 1999.
4. Credit Arrangements and Financing Activities
    
    PPL Montana has a $100 million working capital credit facility
      which matures in November 2002. The maturity date may be extended with the
      consent of the lenders. This facility provides that up to $75 million of
      the commitment may be used to cause lenders to issue letters of credit.
      In the event that PPL Montana were to draw upon this facility and cause
      lenders to issue letters of credit on its behalf, PPL Montana would be required
      to reimburse the issuing lenders. At December 31, 2001, $44 million of loans
      were outstanding under this facility and $25 million of letters of credit
      were issued.
    
    The working capital facility provides that the interest
      rate, at the option of PPL Montana, may be based on either the LIBOR plus
      an Applicable Rate, or the adjusted base rate as defined in the agreement.
      The interest rate, as defined above, is separately fixed for the term of
      each advance. The weighted average interest rate on the working capital
      facility was 4.40% for the year ended December 31, 2001.
    
    In April 2001, PPL Montana executed a new credit facility
      to allow for incremental letter of credit capacity of $150 million. There
      were no amounts outstanding under this facility at December 31, 2001. PPL
      has executed a commitment to the lenders under PPL Montana's $150 million
      credit facility that PPL will provide (or cause PPL Energy Supply to provide)
      letters of credit at such times and in such amounts as are necessary to
      permit PPL Montana to remain in compliance with its fixed-price forward
      energy contracts or its derivative financial instruments entered into to
      manage energy price risks, to the extent that PPL Montana cannot provide
      such letters of credit under its existing credit agreements. No such letters
      of credit had been issued as of December 31, 2001.
    
    The credit facilities restrict the sale of assets and require
      that PPL Montana maintain certain financial ratios, related to, among other
      things, cash flow, additional indebtedness and net worth and restrict the
      sale of assets. PPL Montana was in compliance with these requirements as
      of December 31, 2001 and 2000 and for the years then ended.
5. Leases
    
    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 that provide
      specific guidance and additional requirements related to accounting for
      leases.
    
    In July 2000, PPL Montana sold its interest in the Colstrip
      electric plant to owner lessors who are leasing the assets back to PPL Montana
      under four thirty-six year operating leases. The proceeds from this sale
      approximated $410 million. PPL Montana recorded a deferred gain on 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 its parent, 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.
      The 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. Rent expense charged to operations and
      maintenance expense has been recognized on a straight-line basis and was
      $21 million and $9 million for the years ended December 31, 2001 and 2000.
    
    PPL Montana leases a portion of a building under a non-cancelable
      operating lease, which expires in 2002. PPL Montana also leases operating
      equipment under various short-term leases.
    
    The future minimum lease payments under operating leases
      are as follows (millions of dollars):
    
    Year EndedDecember 31,2002
        
        $
        492003
        
        
        472004
        
        
        442005
        
        
        382006
        
        
        38Thereafter
        
        
        493$
        709
6. Stock-Based Compensation
    
    Certain officers and employees of PPL Montana participate
      in the Incentive Compensation Plan ("ICP") and Incentive Compensation Plan
      for Key Employees ("ICPKE") (together, the "Plans") of PPL. Under the Plans,
      restricted shares of common stock as well as stock options may be granted
      to officers and other key employees. Awards under the Plans are made in
      the common stock of PPL 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 common outstanding stock of PPL on the first day of each calendar year.
      The maximum number of options which can be awarded under each Plan to any
      single employee in any calendar year is 1.5 million shares. Any portion
      of these shares that has not been granted may be carried over and used in
      any subsequent year. If any award lapses or is forfeited or the rights to
      the participant terminate, any shares of common stock 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.
    
    Restricted Stock
    
    Restricted shares of PPL's 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. Restricted shares vest fully if control
      of PPL changes, as defined by the Plans.
    
    Restricted stock awards of 1,630 and 25,308 shares, with
      per share weighted-average fair values of $45.09 and $24.45, were granted
      in 2001 and 2000. No awards were made at December 31, 1999. Compensation
      expense for 2001 and 2000 was not significant. At December 31, 2001, there
      were 2,580 restricted shares outstanding. These awards currently vest three
      years from the date of grant.
    
    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. The CLC and CCGC
      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 in the Plan.
    
    PPL Montana applies APB Opinion No. 25, "Accounting for
      Stock Issued to Employees," and related interpretations in accounting for
      stock options. Since stock options are granted at the then current market
      price, no compensation cost has been recognized. Compensation calculated
      in accordance with the disclosure requirements of SFAS 123, "Accounting
      for Stock-Based Compensation," was not significant.
    
    A summary of the stock option activity follows:

     
    2001
        
        2000Shares
        
        Weighted Average ExercisePrice
        
        Shares
        
        Weighted Average ExercisePriceOutstanding at beginning 
          of year
        
        100,420
        
        $
        21.79
        
        
        30,240
        
        $
        26.85Granted
        
        5,860
        
        $
        43.16
        
        
        73,180
        
        $
        19.91Exercised
        
        
        
        
        
        
        
        (3,000
        )
        $
        26.85Forfeited
        
        (16,390
        )
        $
        19.91Transferred*
        
        (68,170
        )
        $
        22.68Outstanding Dec. 31
        
        21,720
        
        $
        26.18
        
        
        100,420
        
        $
        21.79
*Represents employees transferred to other PPL affiliates.

The weighted-average fair values of options at their grant
  date during 2001 and 2000 were $10.42 and $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:
2001
    2000Risk free interest rate
    
    5.46%
    6.74 %Expected option term
    
    10 years
    10 yearsExpected stock volatility
    
    30.24%
    19.79 %Dividend yield
    
    4.28%
    5.70 %
Outstanding options had a weighted-average remaining life of
  7.3 years at December 31, 2001.
7. Retirement and Postemployment Benefits
  
  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" for these benefits.
  
  PPL Montana has a funded, noncontributory defined benefit
    pension plan covering substantially all employees. Funding is based upon actuarially
    determined computations that consider the amount deductible for income tax
    purposes and the minimum contribution required under the Employee Retirement
    Income Security Act of 1974.
  
  PPL Montana also provides supplemental retirement benefits
    to officers through unfunded nonqualified retirement plans. Substantially
    all employees will become eligible for certain health care and life insurance
    benefits upon retirement.
  
  In conjunction with the purchase of generation assets from
    Montana Power, PPL Montana recorded a liability for assumed pension and postretirement
    medical benefit obligations. No net periodic pension and postretirement benefit
    costs, actuarial gains, return on plan assets or contributions were recorded
    for the period from inception to December 31, 1999.
  
  Net pension and postretirement benefit costs were (millions
    of dollars):
  
  PensionBenefits
      
      PostretirementMedical Benefits2001
      
      
      2000
      
      
      2001
      
      
      2000Service cost
      $
      2
      
      $
      2
      
      $
      0.2
      
      $
      0.2Interest cost
      
      3
      
      
      2
      
      
      0.3
      
      
      0.2Expected return on plan assets
      
      (2
      )
      
      (2
      )Net periodic pension and 
        postretirement benefit cost
      $
      3
      
      $
      2
      
      $
      0.5
      
      $
      0.4
  The net periodic pension cost charged to operating expenses
    was $3 million in 2001 and $700,000 in 2000. Retiree health and benefit cost
    charged to operating expenses was $400,000 in 2001 and $300,000 in 2000.
  
  Postretirement medical costs at December 31, 2001 were based
    on the assumption that costs would decrease gradually from 7% in 2001 to 6%
    in 2006 and thereafter. A one percent increase in the assumed health care
    cost trend assumption would increase the service cost and interest cost by
    $27,000 and increase the postretirement benefit obligation by $234,000. A
    one percent decrease in the assumed health care cost trend assumption would
    decrease the service cost and interest cost by $24,000 and decrease the postretirement
    benefit obligation by $203,000.
  
  The following assumptions were used in the valuation of the
    benefit obligations:
  
  Pension Benefits2001
      2000
      1999Discount rate
      7.25%
      7.5%
      7.0%Expected return on plan assets
      9.2%
      9.2%
      8.0%Rate of compensation increase
      4.25%
      4.75%
      5.0%Postretirement Medical Benefits2001
      2000
      1999Discount rate
      7.25%
      7.5%
      7.0%Rate of compensation increase
      4.25%
      4.75%
      5.0%
  The funded status of the combined plans was as follows (millions
    of dollars):
  
  PensionBenefits
      
      PostretirementMedical Benefits2001
      
      
      2000
      
      
      2001
      
      
      2000Change in Benefit ObligationBenefit Obligation, January 1
      $
      33
      
      $
      30
      
      $
      4
      
      $
      3Service cost
      
      2
      
      
      1
      
      
      1
      
      
      1Interest cost
      
      3
      
      
      2Plan amendments
      
      3
      
      
      1Actuarial gain
      
      1
      
      
      (1
      )Net transfer (out)
      
      (1
      )Benefit Obligation, Dec. 31
      $
      41
      
      $
      33
      
      $
      5
      
      $
      4
  Change in Plan AssetsPlan assets at fair value, 
        January 1
      $
      28
      
      $
      24Actual return on plan assets
      
      (2
      )
      
      1Contribution
      
      
      
      
      3Plan assets at fair value,
        Dec. 31
      $
      26
      
      $
      28
      
      $
      
      
      $Funded StatusFunded status of plan
      $
      (15
      )
      $
      (6
      )
      $
      (5
      )
      $
      (4
      )Unrecognized net gain (loss)
      
      6
      
      
      1Unrecognized prior service cost
      
      3
      
      
      1Liability recognized
      $
      (6
      )
      $
      (4
      )
      $
      (5
      )
      $
      (4
      )
  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 were $41 million, $37 million, and $260,000 at December
    31, 2001 and $1 million, $200,000 and $0, at December 31, 2000.
  
  Savings Plan
  
  Substantially all employees are eligible to participate in
    a 401(k) savings plan. PPL Montana contributed approximately $1 million to
    the 401(k) plan in both 2001 and 2000. The 1999 contribution was not significant.
8. Jointly-Owned Facilities
  
  PPL Montana is the operator of the jointly-owned coal-fired
    generating units comprising the Colstrip steam generation facility. At December
    31, 2001 and 2000, PPL Montana has a 50% leasehold interest in Colstrip Units
    1 and 2 and a 30% leasehold interest in Colstrip Unit 3 under an operating
    lease (see Note 5 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 in the Statements 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 $6 million
    and $7 million at December 31, 2001 and 2000.
  
  At December 31, 2001, 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 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.
9. Commitments and Contingent Liabilities
  
  PPL Montana is involved in numerous legal proceedings, claims
    and litigation in the ordinary course of business. PPL Montana cannot predict
    the ultimate outcome of such matters, or whether such matters may result in
    material liabilities.
  
  Wholesale Energy Commitments
  
  As part of the purchase of generation assets from Montana
    Power, PPL Montana agreed to supply electricity under two wholesale transition
    service agreements. In addition, PPL Montana assumed a power purchase agreement
    and another power sales agreement. In accordance with purchase accounting
    guidelines, PPL Montana recorded a liability of $118 million as the estimated
    fair value of the agreements at the acquisition date. This liability is being
    amortized over the agreement terms as an adjustment to "Wholesale energy marketing
    and trading" revenues and "Energy purchases," on the Statement of Income.
    The unamortized balance at December 31, 2001 was $78 million.
  
  PPL Montana had two transition agreements to supply wholesale
    electricity to Montana Power to serve its retail load not served by other
    providers or provided by Montana Power's remaining generation. One agreement
    provided for the sale of 200 MW from PPL Montana's leasehold interest in Colstrip
    Unit 3 until it expired in December 2001. The second agreement requires PPL
    Montana to supply Montana Power's actual remaining customer load. This second
    agreement will expire on the earlier of June 30, 2002 or when Montana Power's
    remaining customer load is zero.
  
  In October 2001, PPL announced that PPL EnergyPlus reached
    an agreement to supply Montana Power with an aggregate of 450 MW of energy
    to be supplied by PPL Montana. The delivery term of this new contract would
    be for five years beginning July 1, 2002, which is the day after the termination
    date of the last of the two existing transition agreements.
  
  Under the agreement, PPL EnergyPlus will supply 300 MW of
    around-the-clock electricity and 150 MW of on-peak electricity. In December
    2001, the agreement was accepted for filing by the FERC. No further regulatory
    approvals are required under this agreement.
  
  
  Environmental Matters
  
  Air
  
  The Clean Air Act deals, in part, with acid rain, attainment
    of federal ambient ozone standards and toxic air emissions. PPL Montana is
    substantially compliant 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 NOx,
      SO2, and mercury and could possibly require measures to limit
      CO2.
  
  The EPA has also developed new standards for ambient levels
    of ozone and fine particulates in the U.S. These standards were challenged
    and remanded to the EPA by the D.C. Circuit Court of Appeals in 1999. However,
    on appeal to the United States Supreme Court, the D. C. Circuit Court's decision
    was reversed in part and remanded to the D. C. Circuit Court. The new particulates
    standard, if finalized, may require further reductions in SO2for
    certain PPL Energy Supply subsidiaries and year-round NOxreductions
    commencing in 2010-2012 at SIP-call levels in Pennsylvania, and at slightly
    less stringent levels in Montana. The revised ozone standard, if finalized,
    is not expected to have a material effect on facilities of PPL Montana.
  
  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 emissions must be regulated. In this regard, the EPA is expected to
    develop 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. The EPA's regional offices
      that regulate PPL Montana's generation plants have indicated an intention
      to issue information requests to all utilities in its jurisdiction and have
      issued such a request to PPL Montana related to the J.E. Corette Steam Electric
      Station. PPL Montana has responded to the information request. PPL Montana
      cannot presently predict what, if any, action the EPA might take following
      PPL Montana's responses to such information requests. Should the EPA or
      any state initiate one or more enforcement actions against PPL Montana,
      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 is also proposing to 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.
  
  Water/Waste
  
  The EPA has significantly lowered the water quality standard
    for arsenic. The lowered standard may require PPL Montana to further treat
    wastewater and/or take abatement action at its power plants, the cost of which
    is not now determinable but 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 2003, will address existing structures. Each of these rules
    could impose costs on PPL Montana which are not now determinable but which
    could be significant.
  
  Remediation
  
  In conjunction with its divestiture, 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 material.
  
  Under the Montana Asset Purchase Agreement, PPL Montana is
    indemnified by Montana Power for any preacquisition environmental liabilities.
    However, this indemnification is conditioned on certain circumstances that
    could result in PPL Montana and Montana Power sharing in certain costs within
    limits set forth in the agreement. 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 Montana that cannot be estimated
    at this time.
  
  General
  
  In October 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
    regulation 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 citizen suits is not currently determinable but could
    be significant.
  
  Due to the environmental issues discussed above or other
    environmental matters, PPL Montana may be required to modify, replace or cease
    operating certain plants to comply with statutes, regulations and actions
    by regulatory bodies or courts. In this regard, PPL Montana also may incur
    capital expenditures, operating expenses and other costs in amounts which
    are not now determinable but which could be significant.
  
  Credit Support
  
  PPL guaranteed certain obligations under power purchases
    and sales agreements of PPL Montana for up to $138 million. As of December
    31, 2001, there were no guarantees outstanding under the power purchase and
    sales agreements.
  
  Source of Labor Supply
  
  As of December 31, 2001, PPL Montana had 485 full-time employees.
    Approximately 65% of the PPL Montana employees are represented by IBEW locals,
    and 2% are represented by the Teamsters. In 2001, PPL Montana reached a new
    three-year contract with the employees represented by IBEW Local 1638 and
    reached a new four-year contract with IBEW Local 44. PPL Montana is currently
    negotiating with the Teamsters for a new employment agreement.
  
  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 generation assets had not been sold.
    PPL Montana purchased Montana Power's interests in two coal-fired plants and
    eleven hydroelectric units in 1999.
  
  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.
  
  At this time, PPL Montana cannot predict the outcome of the
    proceedings related to the MPSC Order, what actions the MPSC, the Montana
    Legislature or any other governmental authority may take on these or related
    matters, or the ultimate impact on PPL Montana of any of these matters.
  
  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 unnamed 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. PPL Montana
      is unable to predict the outcome of this matter.
  
  Employee Litigation
  
    In April 2000, three employees at PPL Montana's Colstrip
      facility were severely burned when an equipment fault in Colstrip Unit 1
      caused electrical arcing. In May 2000, the injured employees and their spouses
      filed litigation for their injuries in Montana district court against Montana
      Power. PPL Montana was subsequently named as a party defendant to the pending
      litigation and a mediation conference has been scheduled for May 2002. A
      trial has been scheduled for June 2002. At this time, PPL Montana cannot
      predict the ultimate outcome of these proceedings.
  
  Energy Supply to Energy West Resources, Inc.
  
  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 supplies energy to Energy West and
    should pay damages of at least $7.5 million. All litigation in this matter
    has been consolidated in the U. S. District Court for the District of Montana,
    Great Falls Division, and is proceeding in that forum. PPL Montana cannot
    predict the ultimate outcome of these proceedings.
10. Related Party Transactions
  
  PPL has interests in other entities with which PPL Montana
    has transactions. Although transactions with these entities cannot be presumed
    to be at arms length, it is the intention of the parties and PPL Montana that
    these transactions be conducted at terms comparable to those available with
    third parties.
  
  PPL Montana has executed a brokering and contract management
    agreement with PPL EnergyPlus. The agreement authorizes PPL EnergyPlus to
    act as exclusive agent in managing PPL Montana's wholesale energy supply and
    energy and capacity purchase contracts. The agreement also grants PPL EnergyPlus
    express authority and responsibility for managing the sale of energy in excess
    of wholesale contract commitments. PPL Montana retains title to all energy
    that is sold into the wholesale market. PPL Montana must pay PPL EnergyPlus
    a fee to cover its annual operating expenses related to its responsibilities
    under the brokering and contract management agreement. The total amount paid
    to PPL EnergyPlus was $5 million for both years ended December 31, 2001 and
    2000 and is included in "Other operations and maintenance" on the Statement
    of Income. The amounts due to PPL EnergyPlus at December 31, 2001 and 2000
    were $500,000 and $400,000, and are included in "Accounts receivable from
    affiliated companies" on the Balance Sheet.
  
  PPL Montana has a memorandum of understanding ("MOU") with
    PPL EnergyPlus regarding the supply of energy to satisfy PPL EnergyPlus' obligations
    under its retail contracts. The MOU was effective through December 31, 2001.
    PPL Montana has renewed the MOU with substantially the same terms. The MOU
    provides that PPL Montana will provide the energy necessary for PPL EnergyPlus
    to supply energy services to its customers, taking into account PPL Montana's
    energy commitments to third parties under wholesale supply agreements. PPL
    EnergyPlus will take title to the energy and has the sole authority to sell
    the energy and assumes all customer credit risks.
  
  The MOU provides for two different pricing mechanisms, dependent
    upon the underlying PPL EnergyPlus retail contract structure. If PPL EnergyPlus
    sells power at a fixed price during the contract term, PPL Montana will supply
    energy to PPL EnergyPlus for the term of the contact at the Mid-Columbia forward
    price agreed upon by PPL Montana and PPL EnergyPlus at the date the contract
    is executed. If PPL EnergyPlus enters into a floating price agreement, PPL
    Montana will supply energy to PPL EnergyPlus for the term of the contract
    at a floating price. The floating price PPL EnergyPlus will pay will be the
    Mid-Columbia forward price plus $1.00 per MWh. If PPL EnergyPlus enters into
    a retail contract to sell energy at a price that is structured with both fixed
    and floating components, the pricing will use a combination of the above mechanisms.
    Total energy sales to PPL EnergyPlus were $80 million and $33 million for
    the years ended December 31, 2001 and 2000 and are included in "Wholesale
    energy marketing and trading" revenues on the Statement of Income. The amount
    due from PPL EnergyPlus was $4 million and $13 million at December 31, 2001
    and 2000, and is included on the balance sheet. There were no sales to PPL
    EnergyPlus under the MOU for the period from inception to December 31, 1999.
  
  PPL has guaranteed certain obligations of PPL Montana for
    up to $20 million under power purchase and sales agreements at December 31,
    2000. There were no guarantees at December 31, 2001.
  
  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 are 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 charged PPL Montana approximately $7 million
    for direct expenses and $3 million for overhead costs in 2001. Similar charges
    totaled approximately $4 million in 2000.
11. New Accounting Standards
  
  SFAS 141
  
  In June 2001, the FASB issued SFAS 141, "Business Combinations,"
    which eliminates the pooling-of-interest method of accounting for business
    combinations and requires the use of the purchase method. In addition, SFAS
    141 requires the reassessment of intangible assets to determine if they are
    appropriately classified either separately or within goodwill. SFAS 141 is
    effective for business combinations initiated after June 30, 2001. PPL Montana
    adopted SFAS 141 on July 1, 2001, with no material impact on the financial
    statements.
  
  SFAS 142
  
  In June 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 Montana adopted SFAS 142 on January
    1, 2002, with no material impact on the financial statements.
  
  SFAS 143
  
  In June 2001, the FASB issued SFAS 143, "Accounting for Asset
    Retirement Obligations," on the accounting for obligations associated with
    the retirement of long-lived assets. SFAS 143 requires a liability to be recognized
    in the financial statements for retirement obligations meeting specific criteria.
    Measurement of the initial obligation is to approximate fair value, with an
    equivalent amount recorded as an increase in the value of the capitalized
    asset. The asset will be depreciated in accordance with normal depreciation
    policy and the liability will be increased, with a charge to the income statement,
    until the obligation is settled. SFAS 143 is effective for fiscal years beginning
    after June 15, 2002. The potential impact of adopting SFAS 143 is not yet
    determinable, but may be material.
  SFAS 144
  
  In August 2001, the FASB issued SFAS 144, "Accounting for
    the Impairment or Disposal of Long-Lived Assets," that 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 (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. For long-lived assets to be disposed of, 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 Montana adopted SFAS 144 on January 1, 2002,
    with no material impact on the financial statements.
12. Derivative Instruments and Hedging Activities
  
  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 Montana had
    no recorded cumulative-effect adjustment in earnings. PPL Montana recorded
    a cumulative-effect charge of $156 million in "Accumulated other comprehensive
    income," a component of Member's Equity. As of December 31, 2001, the balance
    in Member's Equity related to unrealized gains and losses on qualifying derivatives
    was a net gain of $33 million, as a result of the reclassifying part of the
    transition adjustment into earnings and changes in market prices.
  Management of Market Risk Exposures
  
  PPL Montana's primary market risk exposures are associated
    with commodity prices. PPL Montana actively manages the market risk inherent
    in its commodity positions. The Board of Managers of PPL Montana has adopted
    a risk management policy to manage the risk exposures related to energy prices.
    This policy monitors and assists in controlling market risk and use of derivative
    instruments to manage some associated commodity activities.
  
  PPL Montana's derivative activities are subject to the management,
    direction and control of RMC. The RMC is composed of the chief financial officer
    and other officers of PPL. The RMC reports to the Finance Committee of the
    PPL Board of Directors on the scope of its derivative activities. The RMC
    sets forth risk-management philosophy and objectives through a corporate policy,
    provides guidelines for derivative-instrument usage, and establishes procedures
    for control and valuation, counterparty credit approval, and the monitoring
    and reporting of derivative activity.
  
  PPL Montana utilizes financial and physical contracts as
    part of its risk management strategy to minimize unanticipated fluctuations
    in earnings caused by commodity price volatility. All derivatives are recognized
    on the balance sheet at their fair value, unless they meet SFAS 133's criteria
    for exclusion.
  
  Fair Value Hedges
  
  PPL Montana enters into financial contracts to hedge a portion
    of the fair value of firm commitments of forward electricity sales. These
    contracts range in maturity through 2003. For the twelve months ended December
    31, 2001, PPL Montana did not recognize any gains or losses resulting from
    the ineffective portion of fair value hedges or from firm commitments that
    no longer qualified as fair value hedge items.
  
  Cash Flow Hedges
  
  PPL Montana enters into financial swap contracts to hedge
    the price risk associated with electric commodities. These contracts range
    in maturity through 2006.
  
  As a result of changes in economic conditions, PPL Montana
    discontinued hedge accounting for certain cash flow hedges which resulted
    in a net gain of $7 million for the twelve months ended December 31, 2001
    (reported in "Wholesale energy marketing and trading" revenues on the Statement
    of Income). The impact on the financial statements resulting from cash flow
    hedge ineffectiveness for the twelve months ended December 31, 2001 was immaterial.
  
  As of December 31, 2001, the net unrealized gain on derivative
    instruments in "Accumulated other comprehensive income" expected to be reclassified
    into earnings during the next twelve months was $11 million.
  
  Unrealized Gains/Losses on Qualifying Derivatives
 (Millions of Dollars)
(After-tax)

  December 31, 2001Cumulative unrealized gain on qualifying
        derivatives, beginning of period:
      
      $
      0Unrealized gains (losses) arising
        during period:Cumulative effect of change in accounting
        
        principle at January 1, 2001
      
      
      (156
      )Net reclassification into earnings
      
      
      7Net change associated with current 
        period hedging transactions
      
      
      182Unrealized gain on qualifying derivatives
      
      
      33Cumulative unrealized gain on qualifying
        
        derivatives, end of period
      
      $
      33
  Credit Concentration
  
  PPL Montana enters 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 new business from
    a credit perspective. At year-end, PPL Montana had a credit exposure of $271
    million to energy trading partners. The majority of this amount was the mark-to-market
    value of multi-year contracts for energy sales. Therefore, if the counterparties
    fail to perform their obligations, PPL Montana 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 the
    defaulted contracts. Of the $271 million, three counterparties account for
    95% of the exposure. No other individual counterparty accounted for more than
    2% of the exposure. Each of the three primary counterparties has at least
    a BBB+ credit rating. PPL Montana has the right to request collateral from
    each of these counterparties in the event their credit rating falls below
    investment grade. It is also PPL Montana's policy to enter into netting agreements
    with each of its counterparties to minimize credit exposure.
13. Sales to California Independent System Operator and to
    Other Pacific Northwest Purchasers
  
  PPL Montana has made approximately $18 million of sales to
    the California ISO for which PPL Montana has not yet been paid in full. Given
    the myriad of electricity supply problems presently faced by the California
    electric utilities and the California ISO, PPL Montana cannot predict whether
    or when it will receive payment. As of December 31, 2001, PPL Montana 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, 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. PPL Montana has
      intervened in the FERC proceedings in order to protect its interests, but
      has not been named as a defendant in any of the court actions alleging abuses
      of market power, manipulation of market prices, unfair trade practices and
      violations of state antitrust laws among other things. 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
    in the California markets, 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 sales made in the Pacific Northwest,
    including sales made by PPL Montana. The FERC Administrative Law Judge assigned
    to this proceeding has recommended that no refunds be ordered for sales into
    the Pacific Northwest. The FERC presently is considering this recommendation.
    PPL Montana cannot predict whether or the extent to which it will be the target
    of any governmental investigation or named in these lawsuits, refund proceedings
    or other lawsuits, the outcome of any such proceedings or whether the ultimate
    impact on PPL Montana of the electricity supply situation in California and
    other western states will be material.
14. Regulatory Issues
  
  PPL Montana has eleven 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 of all pertinent licenses and any amendments thereto, for the
    ownership and operation of these facilities purchased by PPL Montana.
  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 habitat. The implementation will require payments totaling approximately
    $6 million between 2002 to 2020. Additionally, PPL Montana is required to
    make annual payments to the Confederated Salish and Kootenai Tribes for the
    use of the property the Kerr Dam occupies. PPL Montana expensed approximately
    $15 million and $14 million for the years ended December 31, 2001 and 2000
    and $534,000 for the period from inception through December 31, 1999.
  
  PPL Montana is 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. The operations of its generating
    facilities are subject to the Occupational Safety and Health Act of 1970 and
    comparable state statutes. In addition, PPL Montana is subject to the jurisdiction
    of the NRC in connection with the operation by its coal plants of certain
    level and density monitoring devices. Management believes at this time that
    it is operating in accordance with the laws and regulations of the various
    agencies and there are no current actions which will have a material effect
    on its business, financial condition or results of operations.
15. Pending Transactions
  
  PPL Global, an indirect wholly-owned subsidiary of PPL and
    an affiliate of PPL Montana, was party to separate Asset Purchase Agreements
    (each an "APA") with Portland General Electric Company ("PGE") and Puget Sound
    Energy, Inc. ("PSE") to purchase their respective interests in the Colstrip
    Units and certain related transmission assets and rights. The interested parties
    mutually agreed to terminate the APA's.
  The Montana Power APA, previously assigned to PPL Montana
    by PPL Global, provided if neither the PSE or PGE acquisitions are consummated,
    PPL Montana is required to purchase a portion of Montana Power's interest
    in the 500-kilovolt Colstrip Transmission System ("CTS") for $97 million,
    for which regulatory approval has been received. PPL Montana is currently
    in discussions with Montana Power to pursue alternatives to acquiring this
    entire interest in the CTS as contemplated by the APA. These discussions are
    ongoing; therefore, PPL Montana cannot predict whether it will buy all or
    less than all of Montana Power's entire interest in the CTS, or what the purchase
    price will be if a purchase occurs.
16. Proposed Montana Hydroelectric Initiative
  
    In January 2002, the Montana Secretary of State certified,
      in accordance with applicable statutes, that it had approved the form of
      a proposed Montana "Hydroelectric Security Act" initiative. The proposed
      initiative may be placed on the November 2002 statewide ballot if sufficient
      signatures are obtained prior to June 21, 2002. Among the stated purposes
      of the proposed initiative is to create an elected Montana public power
      commission to determine whether purchasing hydroelectric dams in Montana
      is in the public interest. Such commission could decide whether to acquire
      PPL Montana's hydroelectric dams either pursuant to a negotiated purchase
      or an acquisition at fair market value through the power of condemnation.
      At this time, PPL Montana cannot predict whether the proposed initiative,
      will garner enough signatures for placement on the November 2002 statewide
      ballot, whether there will be a successful legal challenge to the initiative
      whether it would pass if on the ballot or what impact, if any, the measure
      might ultimately have upon PPL Montana or its hydroelectric operations.
      PPL Montana has declared its opposition to, and intends to vigorously oppose,
      the initiative.

---

|SCHEDULE II
      - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES                                          
|------------------------------------------------------------------------------------------------------------
|PPL Montana, LLC                                                                                            
|(Millions of Dollars)                                                                                       
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|                                                                                                            
|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) Includes reserves for customer
      accounts receivable, California ISO, the Enron bankruptcy and other.
|                                                                                                            
|                                                                                                            



---

ITEM 9. CHANGES IN AND DISAGREEMENTSWITH ACCOUNTANTS ON ACCOUNTINGAND FINANCIAL DISCLOSURE

None



PART III

ITEM 10. DIRECTORS
  AND EXECUTIVE OFFICERS OF THE REGISTRANT

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



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



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



Item 13 is omitted as PPL Montana meets the conditions set
  forth in General Instruction (I)(1)(a) and (b) of Form 10-K.

---

PART IV



ITEM 14. EXHIBITS, FINANCIAL STATEMENTSCHEDULES, AND REPORTS ON FORM 8-K



|(a) The following documents are filed
      as part of this report:
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|                         |                                                                                                                   |                                                                                                                                                                                                                        |                                                                          |                                                                         
|------------------------ | ----------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------ | ------------------------------------------------------------------------
|                         |                                                                                                                   | PPL Montana, LLC                                                                                                                                                                                                      
|                         |                                                                                                                   |                                                                                                                                                                                                                        | Report of Independent Accountants                                       
|                         |                                                                                                                   |                                                                                                                                                                                                                        | Consolidated Statement of
      Income for each of the                  
|                         |                                                                                                                   |                                                                                                                                                                                                                        |                                                                          | Three Years Ended December 31, 2001,
      2000 and 1999                
|                         |                                                                                                                   |                                                                                                                                                                                                                        | Consolidated Statement of
      Cash Flows for each of the              
|                         |                                                                                                                   |                                                                                                                                                                                                                        |                                                                          | Three Years Ended December 31, 2001,
      2000 and 1999                
|                         |                                                                                                                   |                                                                                                                                                                                                                        | Consolidated Balance Sheet
      at December 31, 2001 and 2000          
|                         |                                                                                                                   |                                                                                                                                                                                                                        | Consolidated Statement of
      Member's Equity and Comprehensive Income
|                         |                                                                                                                   |                                                                                                                                                                                                                        |                                                                          | for each of the Three Years Ended
      December 31, 2001, 2000 and 1999
|                         |                                                                                                                   |                                                                                                                                                                                                                        | Notes to Consolidated Financial
      Statements                        
|                         |                                                                                                                   |                                                                                                                                                                                                                        |                                                                          |                                                                         
|                         | 2. Supplementary Data and
      Supplemental Financial Statement Schedule - included in response to Item
      8.
|                         |                                                                                                                   |                                                                                                                                                                                                                        |                                                                          |                                                                         
|                         |                                                                                                                   | Schedule II - Valuation
      and Qualifying Accounts and Reserves for the Three Years Ended                                                                                                                          
|                         |                                                                                                                   |                                                                                                                                                                                                                        | December 31, 2001                                                       
|                         |                                                                                                                   |                                                                                                                                                                                                                        |                                                                          |                                                                         
|                         |                                                                                                                   | All other schedules are
      omitted because of the absence of the conditions under which they are required
      or because the required information is included in the financial statements
      or notes thereto.
|                         |                                                                                                                   |                                                                                                                                                                                                                        |                                                                          |                                                                         
|                         | 3. Exhibits                                                                                                       |                                                                                                                                                                                                                       
|                         |                                                                                                                   |                                                                                                                                                                                                                        |                                                                          |                                                                         
|                         |                                                                                                                   | Exhibit Index on page 184.                                                                                                                                                                                            
|                         |                                                                                                                   |                                                                                                                                                                                                                        |                                                                          |                                                                         
|(b) Reports on Form 8-K:
|                         |                                                                                                                   |                                                                                                                                                                                                                        |                                                                          |                                                                         
|                         | The following Reports on
      Form 8-K were filed during the three months ended December 31, 2001:              
|                         |                                                                                                                   |                                                                                                                                                                                                                        |                                                                          |                                                                         
|                         | Report dated October
      1, 2001 - PPL Montana                                                                 
|                         |                                                                                                                   |                                                                                                                                                                                                                        |                                                                          |                                                                         
|                         | Item 5. Other Events                                                                                             
|                         |                                                                                                                   | Announced the appointments
      of Roger Petersen to President of PPL Global and James H. Miller to President
      of PPL Montana.                                                                                  
|                         |                                                                                                                   |                                                                                                                                                                                                                        |                                                                          |                                                                         
|                         | Report dated October
      15, 2001 - PPL and PPL Montana                                                        
|                         |                                                                                                                   |                                                                                                                                                                                                                        |                                                                          |                                                                         
|                         | Item 5. Other Events                                                                                             
|                         |                                                                                                                   | Press release dated October
      16, 2001 regarding an agreement to supply 450 MW of electricity to Montana
      Power over a five-year period beginning July 1, 2002.                                              
|                         |                                                                                                                   |                                                                                                                                                                                                                        |                                                                          |                                                                         
|                         | Item 7. Exhibits                                                                                                 
|                         |                                                                                                                   | Press release dated October
      16, 2001 regarding an agreement to supply 450 MW of electricity to Montana
      Power over a five-year period beginning July 1, 2002.                                              
|                         |                                                                                                                   |                                                                                                                                                                                                                        |                                                                          |                                                                         
|                         | Report dated October
      24, 2001 - PPL                                                                        
|                         |                                                                                                                   |                                                                                                                                                                                                                        |                                                                          |                                                                         
|                         | Item 5. Other Events                                                                                             
|                         |                                                                                                                   | Press release dated October
      24, 2001 regarding PPL's third quarter earnings and forecasted earnings
      for 2001 and 2002.                                                                                    
|                         |                                                                                                                   |                                                                                                                                                                                                                        |                                                                          |                                                                         
|                         | Item 7. Exhibits                                                                                                 
|                         |                                                                                                                   | Press release dated October
      24, 2001 regarding PPL's third quarter earnings and forecasted earnings
      for 2001 and 2002.                                                                                    





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 2002 meeting
  for PPL Corporation will be held on Friday, April 26, 2002, at Lehigh University's
  Stabler Arena, at the Goodman Campus Complex located in Lower Saucon Township,
  outside Bethlehem, Pennsylvania. The 2002 meeting for PPL Electric will be held
  Monday, April 22, 2002 at the Clarion Hotel, 9th & Hamilton Streets, 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, 2002.



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 2002 record dates for dividends
  are expected to be March 8, 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 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 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:                    |  | Wells Fargo Bank Minnesota, N.A.  
|Common Stock (Code: PPL)            |  | Shareowner Services               
|                                    |  | 161 North Concord Exchange        
|PPL Electric Utilities Corporation: |  | South St. Paul, MN 55075-1139     
|4-1/2% Preferred Stock              |  |                                   
|(Code: PPLPRB)                      |  | PPL Services Corporation          
|4.40% Series Preferred Stock        |  | Investor Services Department      
|(Code: PPLPRA)                      |  |                                   
|                                    |  | Dividend Disbursing Office and    
|PPL Capital Trust:                  |  | Dividend Reinvestment Plan Agent  
|8.20% Preferred Securities          |  | PPL Services Corporation          
|(Code: PPLPRC)                      |  | Investor Services Department      
|                                    |  |                                   
|PPL Capital Trust II:               |  | Mortgage Bond Trustee             
|8.10% Preferred Securities          |  | Bankers Trust Co.                 
|(Code: PPLPRD)                      |  | Attn: Security Transfer Unit      
|                                    |  | P.O. Box 291569                   
|PPL Capital Funding Trust I:        |  | Nashville, TN 37229               
|7.75% PEPSSM Units                  |  |                                   
|(Code: PPLPRE)                      |  | Indenture Trustee                 
|                                    |  | JPMorgan Chase Bank               
|Philadelphia Stock Exchange         |  | 450 West 33rd Street              
|                                    |  | New York, NY 10001                
|PPL Corporation:                    |  |                                   
|Common Stock                        |  | Bond Interest Paying Agent        
|                                    |  | PPL Electric Utilities Corporation
|PPL Electric Utilities Corporation  |  | Investor Services Department      
|4-1/2% Preferred Stock              |  |                                   
|3.35% Series Preferred Stock        |  |                                   
|4.40% Series Preferred Stock        |  |                                   
|4.60% Series Preferred Stock        |  |                                   

---

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
|William F. Hecht -                                                                                                                                                                                                             |                     | Director                       
|                                                                                                                                                                                                                               |                     |                                
|Chairman, President                                                                                                                                                                                                            |                     |                                
|and Chief Executive                                                                                                                                                                                                            |                     |                                
|Officer                                                                                                                                                                                                                        |                     |                                
|                                                                                                                                                                                                                               |                     |                                
|                                                                                                                                                                                                                               |                     |                                
|By /s/ John R. Biggar                                                                                                                                                                                                          |                     | Principal Financial Officer and
|John R. Biggar -                                                                                                                                                                                                               |                     | Director                       
|                                                                                                                                                                                                                               |                     |                                
|Executive Vice President                                                                                                                                                                                                       |                     |                                
|and Chief Financial Officer                                                                                                                                                                                                    |                     |                                
|                                                                                                                                                                                                                               |                     |                                
|                                                                                                                                                                                                                               |                     |                                
|By /s/ Joseph J. McCabe                                                                                                                                                                                                        |                     | Principal Accounting Officer   
|Joseph J. McCabe -                                                                                                                                                                                                             |                     |                                
|                                                                                                                                                                                                                               |                     |                                
|Vice President and                                                                                                                                                                                                             |                     |                                
|Controller                                                                                                                                                                                                                     |                     |                                
|                                                                                                                                                                                                                               |                     |                                
|                                                                                                                                                                                                                               |                     |                                
|Frederick M. Bernthal                                                                                                                                                                                                          | Stuart Heydt        | Directors                      
|John W. Conway                                                                                                                                                                                                                 | W. Keith Smith      |                                
|E. Allen Deaver                                                                                                                                                                                                                | Susan M. Stalnecker |                                
|William J. Flood                                                                                                                                                                                                               |                     |                                
|                                                                                                                                                                                                                               |                     |                                
|                                                                                                                                                                                                                               |                     |                                
|By /s/ John R. Biggar                                                                                                                                                                                                          |                     |                                
|John R. Biggar, Attorney-in-fact
           Date: March 1, 2002                                                                                                                                                               



---

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 |  |                           |  |                                        
|William F. Hecht -      |  |                           |  | Principal Executive Officer and Manager
|President               |  |                           |  |                                        
|                        |  |                           |  |                                        
|By /s/ James E. Abel    |  |                           |  | Principal Financial Officer and        
|James E. Abel -         |  |                           |  | Manager                                
|                        |  |                           |  |                                        
|Treasurer               |  |                           |  |                                        
|                        |  |                           |  |                                        
|By /s/ Joseph J. McCabe |  |                           |  | Principal Accounting Officer           
|Joseph J. McCabe -      |  |                           |  | and Manager                            
|                        |  |                           |  |                                        
|Controller              |  |                           |  |                                        
|                        |  |                           |  |                                        
|Managers:               |  |                           |  |                                        
|                        |  |                           |  |                                        
|/s/ William F. Hecht    |  | /s/ James E. Abel         |  | /s/ Robert J. Grey                     
|William F. Hecht        |  | James E. Abel             |  | Robert J. Grey                         
|                        |  |                           |  |                                        
|/s/ John R. Biggar      |  | /s/ Lawrence E. De Simone |  | /s/ Joseph J. McCabe                   
|John R. Biggar          |  | Lawrence E. De Simone     |  | Joseph J. McCabe                       
|                        |  |                           |  |                                        
|                        |  |                           |  |                                        
|                        |  |                           |  |                                        
|                        |  |                           |  |                                        
|                        |  |                           |  |                                        
|Date: March 1, 2002     |  |                           |  |                                        

---

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        |  |                           |  |                                         
|Michael E. Bray -             |  |                           |  | Principal Executive Officer and Director
|Vice Chairman and President   |  |                           |  |                                         
|                              |  |                           |  |                                         
|By /s/ James E. Abel          |  |                           |  | Principal Financial                     
|James E. Abel -               |  |                           |  | Officer                                 
|                              |  |                           |  |                                         
|Treasurer                     |  |                           |  |                                         
|                              |  |                           |  |                                         
|By /s/Joseph J. McCabe        |  |                           |  | Principal Accounting                    
|Joseph J. McCabe -            |  |                           |  | Officer                                 
|                              |  |                           |  |                                         
|Vice President and Controller |  |                           |  |                                         
|                              |  |                           |  |                                         
|Directors:                    |  |                           |  |                                         
|                              |  |                           |  |                                         
|/s/ William F. Hecht          |  | /s/ Paul T. Champagne     |  | /s/ Robert J. Grey                      
|William F. Hecht              |  | Paul T. Champagne         |  | Robert J. Grey                          
|                              |  |                           |  |                                         
|/s/ John R. Biggar            |  | /s/ Dean A. Christiansen  |  | /s/ James H. Miller                     
|John R. Biggar                |  | Dean A. Christiansen      |  | James H. Miller                         
|                              |  |                           |  |                                         
|/s/ Michael E. Bray           |  | /s/ Lawrence E. De Simone |  | /s/ Roger L. Petersen                   
|Michael E. Bray               |  | Lawrence E. De Simone     |  | Roger L. Petersen                       
|                              |  |                           |  |                                         
|                              |  |                           |  |                                         
|                              |  |                           |  |                                         
|                              |  |                           |  |                                         
|                              |  |                           |  |                                         
|Date: March 1, 2002           |  |                           |  |                                         

---

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      |  |                          |  |                                        
|James H. Miller -           |  |                          |  | Principal Executive Officer and Manager
|President                   |  |                          |  |                                        
|                            |  |                          |  |                                        
|By /s/ James E. Abel        |  |                          |  | Principal Financial Officer and        
|James E. Abel -             |  |                          |  | Manager                                
|                            |  |                          |  |                                        
|Treasurer                   |  |                          |  |                                        
|                            |  |                          |  |                                        
|By /s/ Craig D. Bartholomew |  |                          |  | Principal Accounting Officer           
|Craig D. Bartholomew -      |  |                          |  |                                        
|                            |  |                          |  |                                        
|Controller                  |  |                          |  |                                        
|                            |  |                          |  |                                        
|Managers:                   |  |                          |  |                                        
|                            |  |                          |  |                                        
|/s/ James H. Miller         |  | /s/ Albert J. Fioravanti |  |                                        
|James H. Miller             |  | Albert J. Fioravanti     |  |                                        
|                            |  |                          |  |                                        
|/s/ James E. Abel           |  | /s/ Bradley E. Spencer   |  |                                        
|James E. Abel               |  | Bradley E. Spencer       |  |                                        
|                            |  |                          |  |                                        
|                            |  |                          |  |                                        
|                            |  |                          |  |                                        
|                            |  |                          |  |                                        
|                            |  |                          |  |                                        
|Date: March 1, 2002         |  |                          |  |                                        

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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                                                                                                                                                                                                                                                                                                                                                                                                                
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|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                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|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, 2001                                                                                                                                                                                                                                                                                                                                                                                                                    
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|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                                                                                                                                                                                                                                                                                                                                                                                                                         
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|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(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)       | - | $600 million 364-Day Credit Agreement,
      dated as of June 26, 2001, among PPL Energy Supply, LLC, PPL Corporation
      and the banks named therein (Exhibit 10(a) to PPL Corporation Form 10-Q
      Report (File No. 1-11459) for the quarter ended June 30, 2001)                                                                                                                                                                                                                                  
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10(b)       | - | $500 million Three-Year Credit Agreement,
      dated of as June 26, 2001, among PPL Energy Supply, LLC, PPL Corporation
      and the banks named therein (Exhibit 10(b) to PPL Corporation Form 10-Q
      Report (File No. 1-11459) for the quarter ended June 30, 2001)                                                                                                                                                                                                                               
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10(c)       | - | $400 million 364-Day Credit Agreement,
      dated as of June 26, 2001, 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, 2001)                                                                                                                                                                                                                      
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10(d)       | - | Credit Agreement dated as of November
      16, 1999, among PPL Montana, LLC and the banks named therein (Exhibit 10.8
      to PPL Montana, LLC Form S-4 (Registration Statement No. 333-50350))                                                                                                                                                                                                                                                                                                         
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|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                                                                                                                                                                                                                                                                                                                                                                
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|*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                                                                                                                                                                                                                                                                                                                                        
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|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                                                                                                                                                                                                                                                                                                                                                                                   
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|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.                                                                                                                                                                                                                                                                                                                                                                                                
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|[_]10(m)    | - | Amended and Restated Directors Deferred
      Compensation Plan, effective February 14, 2000 (Exhibit 10(h) to PPL Corporation
      Form 10-K Report (File No. 1-11459) for year ended December 31, 2000)                                                                                                                                                                                                                                                                                                
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|[_]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                                                                                                                                                                                                                                                                                                                                                                                                              
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|*[_]10(n)-5 | - | Amendment No. 4 to said Officers Deferred
      Compensation Plan, effective August 17, 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                                                                                                                                                                                                                                                                                                                                                                                                           
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|*[_]10(o)-4 | - | Amendment No. 3 to said Supplemental
      Executive Retirement Plan, effective August 17, 2001                                                                                                                                                                                                                                                                                                                                                                                                           
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|[_]10(p)-1  | - | Amended and Restated Incentive Compensation
      Plan, effective February 14, 2000 (Exhibit 10(k) to PPL Corporation Form
      10-K Report (File No. 1-11459) for year ended December 31, 2000)                                                                                                                                                                                                                                                                                                         
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|*[_]10(p)-2 | - | Amendment No. 1 to said Incentive
      Compensation Plan, effective January 1, 2001                                                                                                                                                                                                                                                                                                                                                                                                                      
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|[_]10(q)    | - | Short-Term Incentive Plan (Schedule
      B to Proxy Statement of PPL Corporation, dated March 12, 1999)                                                                                                                                                                                                                                                                                                                                                                                                  
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|*[_]10(r)   | - | Form of Severance Agreement entered
      into between PPL Corporation and the Executive Officers listed in this Form
      10-K Report                                                                                                                                                                                                                                                                                                                                                                   
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|*[_]10(s)   | - | Form for Retention Agreement entered
      into between PPL Corporation and Messrs. Champagne, De Simone, Miller and
      Petersen                                                                                                                                                                                                                                                                                                                                                                       
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10(t)       | - | 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(u)       | - | 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(v)       | - | 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(w)       | - | 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))                                                                                                           
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|*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                                                                                                                                                                                                                                                                                                                                                                                                                 
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|*18a        | - | Letter of PricewaterhouseCoopers LLP - PPL Corporation                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|*18b        | - | Letter of PricewaterhouseCoopers LLP - PPL Energy Supply, LLC                                                                                                                                                                                                                                                                                                                                                                                                                                             
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|*18c        | - | Letter of PricewaterhouseCoopers LLP - PPL Electric Utilities Corporation                                                                                                                                                                                                                                                                                                                                                                                                                                 
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|*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 Energy Supply, LLC                                                                                                                                                                                                                                                                                                                                                                                                                                      
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|*23(c)      | - | Consent of PricewaterhouseCoopers
      LLP - PPL Electric Utilities Corporation                                                                                                                                                                                                                                                                                                                                                                                                                          
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|*24         | - | Power of Attorney                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|*99         | - | PPL Corporate Organization (Selected
      Subsidiaries)