**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      DC  20549**





**Form
      10-Q**








[X]
            QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934 for the quarterly period ended June 30, 2007OR[
                 ]
            TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934 for the transition period from _________ to
                ___________





Commission
                File
              Number
            Registrant;
                State of Incorporation;
              Address
                and Telephone Number
            IRS
                Employer
              Identification
                No.1-11459
            **PPL
                Corporation**
              (Exact
                name of Registrant as specified in its charter)
              (Pennsylvania)
              Two
                North Ninth Street
              Allentown,
                PA  18101-1179
              (610)
                774-5151
            23-2758192333-74794
            **PPL
                Energy Supply, LLC**
              (Exact
                name of Registrant as specified in its charter)
              (Delaware)
              Two
                North Ninth Street
              Allentown,
                PA  18101-1179
              (610)
                774-5151
            23-30749201-905
            **PPL
                Electric Utilities Corporation**
              (Exact
                name of Registrant as specified in its charter)
              (Pennsylvania)
              Two
                North Ninth Street
              Allentown,
                PA  18101-1179
              (610)
                774-5151
            23-0959590











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
            YesX
            NoPPL
                Energy Supply, LLC
            YesX
            NoPPL
                Electric Utilities Corporation
            YesX
            No





Indicate
      by check mark whether the Registrants are large accelerated filers, accelerated
      filers, or non-accelerated filers.  See definition of "accelerated
      filer and large accelerated filer" in Rule 12b-2 of the Exchange
      Act.  (Check one):





Large
                accelerated filer
            Accelerated
                filer
            Non-accelerated
                filerPPL
                Corporation
            [
                X
                ]
            [     ]
            [     ]PPL
                Energy Supply, LLC
            [     ]
            [     ]
            [
                X
                ]PPL
                Electric Utilities Corporation
            [     ]
            [     ]
            [
                X
                ]





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





PPL
                Corporation
            Yes
            NoXPPL
                Energy Supply, LLC
            Yes
            NoXPPL
                Electric Utilities Corporation
            Yes
            NoX





Indicate
      the number of shares outstanding of each of the issuer's classes of common
      stock, as of the latest practicable date:





PPL
                Corporation
            Common
                stock, $.01 par value, 383,099,760 shares outstanding at July 31,
                2007.PPL
                Energy Supply, LLC
            PPL
                Corporation indirectly holds all of the membership interests in PPL
                Energy
                Supply, LLC.PPL
                Electric Utilities Corporation
            Common
                stock, no par value, 66,368,056 shares outstanding and all held by
                PPL
                Corporation at July 31, 2007.





**This
      document is available free of charge at the Investor Center on PPL's Web site
      at
      www.pplweb.com.  However, information on this Web site does not
      constitute a part of this Form 10-Q.**





**PPL
      CORPORATION**


**PPL
      ENERGY SUPPLY, LLC**


**PPL
      ELECTRIC UTILITIES CORPORATION**





FORM
      10-Q


FOR
      THE
      QUARTER ENDED JUNE 30, 2007





Table
      of Contents


PageGLOSSARY
                  OF TERMS AND ABBREVIATIONS
              iFORWARD-LOOKING
                  INFORMATION
              1PART
                  I.  FINANCIAL INFORMATIONItem
                  1.  Financial Statements**PPL
                  Corporation and Subsidiaries**Condensed
                  Consolidated Statements of
                  Income
              2Condensed
                  Consolidated Statements of Cash
                  Flows
              3Condensed
                  Consolidated Balance
                  Sheets
              4**PPL
                  Energy Supply, LLC and Subsidiaries**Condensed
                  Consolidated Statements of
                  Income
              6Condensed
                  Consolidated Statements of Cash
                  Flows
              7Condensed
                  Consolidated Balance
                  Sheets
              8**PPL
                  Electric Utilities Corporation and Subsidiaries**Condensed
                  Consolidated Statements of
                  Income
              10Condensed
                  Consolidated Statements of Cash
                  Flows
              11Condensed
                  Consolidated Balance
                  Sheets
              12Combined
                  Notes to Condensed Consolidated Financial
                  Statements
              14Item
                  2.  Management's Discussion and Analysis of Financial Condition
                  and Results of OperationsPPL
                  Corporation and Subsidiaries
              47PPL
                  Energy Supply, LLC and
                  Subsidiaries
              61PPL
                  Electric Utilities Corporation and
                  Subsidiaries
              73Item
                  3.  Quantitative and Qualitative
                  Disclosures About Market Risk
              77Item
                  4.  Controls and
                  Procedures
              77PART
                  II.  OTHER INFORMATIONItem
                  1.  Legal
                  Proceedings
              77Item
                  1A.  Risk Factors
              77Item
                  2.  Unregistered Sales of Equity
                  Securities and Use of Proceeds
              77Item
                  4.  Submission of Matters to a Vote of Security
                  Holders
              78Item
                  6.  Exhibits
              78SIGNATURES
              79COMPUTATION
                  OF RATIO OF EARNINGS TO FIXED CHARGESPPL
                  Corporation and Subsidiaries
              80PPL
                  Energy Supply, LLC and
                  Subsidiaries
              81PPL
                  Electric Utilities Corporation and
                  Subsidiaries
              82CERTIFICATES
                  OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL
                  OFFICER
                PURSUANT
                  TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002PPL
                  Corporation
              83PPL
                  Energy Supply, LLC
              85PPL
                  Electric Utilities Corporation
              87CERTIFICATES
                  OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL
                  OFFICER
                PURSUANT
                  TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002PPL
                  Corporation
              89PPL
                  Energy Supply, LLC
              91PPL
                  Electric Utilities Corporation
              93







**GLOSSARY
      OF TERMS AND ABBREVIATIONS**





***PPL
      Corporation and its current and former
      subsidiaries***





***Elfec***- Empresa de Luz y Fuerza Electrica Cochabamba S.A., a
      Bolivian electric distribution company in which PPL Global had a majority
      ownership interest until its sale in July 2007.





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





***Griffith***- a 600 MW gas-fired station in Kingman, Arizona, that
      was
      jointly owned by an indirect subsidiary of PPL Generation and LS Power Group
      until the sale of PPL Generation's interest in June 2006.





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





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





***PPL
      Capital
      Funding*** - PPL Capital Funding, Inc., a wholly owned
      financing subsidiary of PPL.





***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, a subsidiary of
      PPL and the parent company of PPL Energy Supply.





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





***PPL
      Energy
      Supply*** - PPL Energy Supply, LLC, a subsidiary of PPL Energy
      Funding and the parent company of PPL Generation, PPL EnergyPlus, PPL Global
      and
      other subsidiaries.





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





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





***PPL
      Global*** - PPL Global, LLC, a subsidiary of PPL Energy Supply
      that owns and operates international energy businesses that are focused on
      the
      regulated distribution of electricity.





***PPL
      Martins
      Creek*** - PPL Martins Creek, LLC, a subsidiary of PPL
      Generation that owns generating operations in Pennsylvania.





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





***PPL
      Services*** - PPL Services Corporation, a subsidiary of PPL
      that 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 subsidiary of PPL Electric that was formed to issue transition bonds under
      the
      Customer Choice Act.





***SIUK
      Capital
      Trust I***- a business trust created to issue preferred
      securities and whose common securities were held by WPD LLP.  The
      securities were redeemed in February 2007.





***WPD***
      - refers collectively to WPDH Limited and WPDL.





***WPD
      LLP*** - Western Power Distribution LLP, a wholly owned
      subsidiary of WPDH Limited, which owns WPD (South West) and WPD (South
      Wales).





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





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





***WPDH
      Limited*** - Western Power Distribution Holdings Limited, an
      indirect, wholly owned subsidiary of PPL Global.  WPDH Limited owns
      WPD LLP.





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





***Other
      terms and abbreviations***





**£**
      - British
      pounds sterling.





***2006
      Form
      10-K*** - Annual Report to the SEC on Form 10-K for the year
      ended December 31, 2006.





***APB***- Accounting Principles Board.





***ARO***
      - asset retirement obligation.





***Bcf***
      - billion cubic feet.





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





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





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





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





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





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





***EMF***
      - electric and magnetic fields.





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





***EPS***
      - earnings per share.





***EWG***
      - exempt wholesale generator.





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





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





***FIN***- FASB Interpretation.





***Fitch***- Fitch, Inc.





***FSP***- FASB Staff Position.





***FTR***-financial
      transmission rights, which are financial instruments established to manage
      price
      risk related to electricity transmission congestion.  They entitle the
      holder to receive compensation or require the holder to remit payment for
      certain congestion-related transmission charges that arise when the transmission
      grid is congested.





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





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





***ISO***
      - Independent System Operator.





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





***LIBOR*******-****London
      Interbank Offered Rate.





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





***Moody's***
      - Moody's Investors Service, Inc.





***MW***
      - megawatt, one thousand kilowatts.


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


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





***NRC***
      - Nuclear Regulatory Commission, the federal agency that regulates the 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.





***NYMEX***-
      New York
      Mercantile Exchange.





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





***PJM*********(PJM
      Interconnection, L.L.C.) - operator of the electric transmission network and
      electric energy market in all or parts of Delaware, Illinois, Indiana, Kentucky,
      Maryland, Michigan, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee,
      Virginia, West Virginia and the District of Columbia.





***PLR***
      (Provider of Last Resort) - the role of PPL Electric in providing electricity
      to
      retail customers within its delivery territory who have not chosen to select
      an
      alternative electricity supplier under the Customer Choice Act.





***PP&E*********-
      property, plant and equipment.





***Preferred
      Securities*** - company-obligated mandatorily redeemable
      preferred securities issued by SIUK Capital Trust I, which solely held
      debentures of WPD LLP.  The securities of SIUK Capital Trust I were
      redeemed in February 2007.





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





***PUHCA***
      - Public Utility Holding Company Act of 1935, legislation passed by the U.S.
      Congress.  Repealed effective February 2006 by the Energy Policy Act
      of 2005.





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





***Regulation
      S-X*** - SEC regulation governing the form and content of and
      requirements for financial statements required to be filed pursuant to the
      federal securities laws.





***SCR***
      - selective catalytic reduction, a pollution control process.





***Scrubber***
      - an air pollution control device that can remove particulates and/or gases
      (such as sulfur dioxide) from exhaust gases.





***SEC***
      - Securities and Exchange Commission, a U.S. government agency whose primary
      mission is to protect investors and maintain the integrity of the securities
      markets.





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





***S&P***
      - Standard & Poor's Ratings Services.





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





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





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





***VaR*********-
      value-at-risk.





**FORWARD-LOOKING
      INFORMATION**





Statements
      contained in this Form 10-Q 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 and PPL Electric believe that
      the expectations and assumptions reflected in these statements are reasonable,
      there can be no assurance that these expectations will prove to be
      correct.  These forward-looking statements involve a number of risks
      and uncertainties, and actual results may differ materially from the results
      discussed in the forward-looking statements.  In addition to the
      specific factors discussed in "Item 1A. Risk Factors" in the companies' 2006
      Form 10-K and in "Item 2. Management's Discussion and Analysis of Financial
      Condition and Results of Operations" in this Form 10-Q report, 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;·
            market
                prices for crude oil and the potential impact on synthetic fuel
                operations, synthetic fuel purchases from third parties and the phase-out
                of synthetic fuel tax credits;·
            weather
                conditions affecting generation production, customer energy usage
                and
                operating costs;·
            competition
                in retail and wholesale power markets;·
            liquidity
                of wholesale power markets;·
            defaults
                by our counterparties under our energy or fuel
                contracts;·
            the
                effect of any business or industry restructuring;·
            the
                profitability and liquidity, including access to capital markets
                and
                credit facilities, of PPL and its subsidiaries;·
            new
                accounting requirements or new interpretations or applications of
                existing
                requirements;·
            operation
                and availability of existing generation facilities and operating
                costs;·
            transmission
                and distribution system conditions and operating costs;·
            current
                and future environmental conditions and requirements and the related
                costs
                of compliance, including environmental capital expenditures and emission
                allowances and other expenses;·
            significant
                delays in the planned installation of pollution control equipment
                at
                certain coal-fired generating units in Pennsylvania due to weather
                conditions, contractor performance or other reasons;·
            market
                prices of commodity inputs for ongoing capital
                expenditures;


·
            collective
                labor bargaining negotiations;·
            development
                of new projects, markets and technologies;·
            performance
                of new ventures;·
            asset
                acquisitions and dispositions;·
            political,
                regulatory or economic conditions in states, regions or countries
                where
                PPL or its subsidiaries conduct business;·
            any
                impact of hurricanes or other severe weather on PPL and its subsidiaries,
                including any impact on fuel prices;·
            receipt
                of necessary governmental permits, approvals and rate
                relief;·
            new
                state, federal or foreign legislation, including new tax
                legislation;·
            state,
                federal and foreign regulatory developments;·
            the
                impact of any state, federal or foreign investigations applicable
                to PPL
                and its subsidiaries and the energy industry;·
            capital
                market conditions, including changes in interest rates, and decisions
                regarding capital structure;·
            stock
                price performance of PPL;·
            the
                market prices of equity securities and the impact on pension costs
                and
                resultant cash funding requirements for defined benefit pension
                plans;·
            securities
                and credit ratings;·
            foreign
                currency exchange rates;·
            the
                outcome of litigation against PPL and its subsidiaries;·
            potential
                effects of threatened or actual terrorism or war or other hostilities;
                and·
            the
                commitments and liabilities of PPL and its
                subsidiaries.





Any
      such
      forward-looking statements should be considered in light of such important
      factors and in conjunction with other documents of PPL, PPL Energy Supply and
      PPL Electric 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 or PPL Electric 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 and PPL Electric
      undertake no obligations to update the information contained in such statement
      to reflect subsequent developments or information.





**PartI.FINANCIAL
                INFORMATION****Item
                1. Financial Statements****CONDENSED
                CONSOLIDATED STATEMENTS OF INCOME****PPL
                Corporation and Subsidiaries**(Unaudited)*(Millions
                of Dollars, except per share data)***Three
                Months Ended**
              **June
                30,**
            
            **Six
                Months Ended**
              **June
                30,****2007**
            
            **2006**
            
            **2007**
            
            **2006****Operating
                Revenues**Utility
            
            **$**
            **1,021**
            
            
            $
            946
            
            
            **$**
            **2,196**
            
            
            $
            2,058Unregulated
                retail electric
            
            
            **23**
            
            
            
            20
            
            
            
            **45**
            
            
            
            45Wholesale
                energy marketing
            
            
            **379**
            
            
            
            383
            
            
            
            **628**
            
            
            
            718Net
                energy trading margins
            
            
            **6**
            
            
            
            1
            
            
            
            **13**
            
            
            
            11Energy-related
                businesses
            
            
            **184**
            
            
            
            154
            
            
            
            **369**
            
            
            
            322Total
            
            
            **1,613**
            
            
            
            1,504
            
            
            
            **3,251**
            
            
            
            3,154**Operating
                Expenses**OperationFuel
            
            
            **230**
            
            
            
            212
            
            
            
            **529**
            
            
            
            453Energy
                purchases
            
            
            **190**
            
            
            
            231
            
            
            
            **310**
            
            
            
            454Other
                operation and maintenance
            
            
            **359**
            
            
            
            326
            
            
            
            **695**
            
            
            
            637Amortization
                of recoverable transition costs
            
            
            **70**
            
            
            
            63
            
            
            
            **151**
            
            
            
            135Depreciation
            
            
            **112**
            
            
            
            104
            
            
            
            **230**
            
            
            
            206Taxes,
                other than income
            
            
            **71**
            
            
            
            69
            
            
            
            **150**
            
            
            
            139Energy-related
                businesses (Note 8)
            
            
            **201**
            
            
            
            140
            
            
            
            **403**
            
            
            
            298Total
            
            
            **1,233**
            
            
            
            1,145
            
            
            
            **2,468**
            
            
            
            2,322**Operating
                Income**
            
            
            **380**
            
            
            
            359
            
            
            
            **783**
            
            
            
            832Other
                Income - net
            
            
            **22**
            
            
            
            30
            
            
            
            **48**
            
            
            
            38Interest
                Expense
            
            
            **121**
            
            
            
            114
            
            
            
            **242**
            
            
            
            228**Income
                from Continuing Operations Before Income Taxes, Minority Interest
                and
                Dividends on Preferred Securities of a Subsidiary**
            
            
            **281**
            
            
            
            275
            
            
            
            **589**
            
            
            
            642Income
                Taxes
            
            
            **33**
            
            
            
            80
            
            
            
            **107**
            
            
            
            175Minority
                Interest
            
            
            
            
            
            
            1
            
            
            
            **1**
            
            
            
            1Dividends
                on Preferred Securities of a Subsidiary
            
            
            **4**
            
            
            
            4
            
            
            
            **9**
            
            
            
            5**Income
                from Continuing Operations**
            
            
            **244**
            
            
            
            190
            
            
            
            **472**
            
            
            
            461Income
                (Loss) from Discontinued Operations (net of income taxes) (Note
                8)
            
            
            **101**
            
            
            
            (9
            )
            
            
            **76****Net
                Income**
            
            **$**
            **345**
            
            
            $
            181
            
            
            **$**
            **548**
            
            
            $
            461**Earnings
                Per Share of Common Stock:**Income
                from Continuing Operations:Basic
            
            **$**
            **0.63**
            
            
            $
            0.50
            
            
            **$**
            **1.22**
            
            
            $
            1.21Diluted
            
            
            **0.62**
            
            
            
            0.49
            
            
            
            **1.21**
            
            
            
            1.19Net
                income:Basic
            
            **$**
            **0.89**
            
            
            $
            0.48
            
            
            **$**
            **1.42**
            
            
            $
            1.21Diluted
            
            
            **0.88**
            
            
            
            0.47
            
            
            
            **1.41**
            
            
            
            1.19**Dividends
                Declared Per Share of Common Stock**
            
            **$**
            **0.305**
            
            
            $
            0.275
            
            
            **$**
            **0.61**
            
            
            $
            0.55





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





**CONDENSED
                CONSOLIDATED STATEMENTS OF CASH
                FLOWS****PPL
                Corporation and Subsidiaries**(Unaudited)*(Millions
                of Dollars)***Six
                Months Ended**
              **June
                30,****2007**
            
            **2006****Cash
                Flows from Operating Activities**Net
                income
            
            **$**
            **548**
            
            
            $
            461Adjustments
                to reconcile net income to net cash provided by operating
                activitiesDepreciation
            
            
            **236**
            
            
            
            219Amortizations -
                recoverable transition costs and other
            
            
            **209**
            
            
            
            151Pre-tax
                gain from the sale of a Latin American business
            
            
            **(94**
            **)**Pre-tax
                loss from the sale of interest in the Griffith plant
            
            
            
            
            
            
            40Pension
                and other postretirement benefits
            
            
            **38**
            
            
            
            (1
            )Deferred
                income taxes and investment tax credits
            
            
            **(38**
            **)**
            
            
            (51
            )Impairment
                of assets held for sale
            
            
            **70**Unrealized
                gains on derivatives and other hedging activities
            
            
            **(35**
            **)**
            
            
            (53
            )Other
            
            
            **(26**
            **)**
            
            
            25Change
                in current assets and current liabilitiesAccounts
                receivable
            
            
            **(54**
            **)**
            
            
            (22
            )Accounts
                payable
            
            
            **(78**
            **)**
            
            
            (44
            )Fuel,
                materials and supplies
            
            
            **18**
            
            
            
            (27
            )Prepayments
            
            
            **(76**
            **)**
            
            
            (62
            )Other
            
            
            **(45**
            **)**
            
            
            57Other
                operating activitiesOther
                assets
            
            
            **(23**
            **)**
            
            
            (13
            )Other
                liabilities
            
            
            **(31**
            **)**
            
            
            15Net
                cash provided by operating activities
            
            
            **619**
            
            
            
            695**Cash
                Flows from Investing Activities**Expenditures
                for property, plant and equipment
            
            
            **(692**
            **)**
            
            
            (478
            )Proceeds
                from the sale of a Latin American business
            
            
            **180**Proceeds
                from the sale of interest in the Griffith plant
            
            
            
            
            
            
            115Purchases
                of emission allowances
            
            
            **(20**
            **)**
            
            
            (60
            )Proceeds
                from the sale of emission allowances
            
            
            **51**
            
            
            
            35Purchases
                of nuclear decommissioning trust investments
            
            
            **(118**
            **)**
            
            
            (133
            )Proceeds
                from the sale of nuclear decommissioning trust investments
            
            
            **110**
            
            
            
            125Purchases
                of short-term investments
            
            
            **(504**
            **)**
            
            
            (167
            )Proceeds
                from the sale of short-term investments
            
            
            **513**
            
            
            
            158Net
                increase in restricted cash
            
            
            **(72**
            **)**
            
            
            (5
            )Other
                investing activities
            
            
            **10**
            
            
            
            13Net
                cash used in investing activities
            
            
            **(542**
            **)**
            
            
            (397
            )**Cash
                Flows from Financing Activities**Issuance
                of long-term debt
            
            
            **505**
            
            
            
            300Retirement
                of long-term debt
            
            
            **(568**
            **)**
            
            
            (563
            )Issuance
                of common stock
            
            
            **22**
            
            
            
            7Repurchase
                of common stock
            
            
            **(77**
            **)**Issuance
                of preference stock, net of issuance costs
            
            
            
            
            
            
            245Payment
                of common stock dividends
            
            
            **(225**
            **)**
            
            
            (200
            )Net
                increase (decrease) in short-term debt
            
            
            **61**
            
            
            
            (171
            )Other
                financing activities
            
            
            **(9**
            **)**
            
            
            (4
            )Net
                cash used in financing activities
            
            
            **(291**
            **)**
            
            
            (386
            )**Effect
                of Exchange Rates on Cash and Cash Equivalents**
            
            
            **1**
            
            
            
            1**Net
                Decrease in Cash and Cash Equivalents**
            
            
            **(213**
            **)**
            
            
            (87
            )Cash
                and Cash Equivalents at Beginning of Period
            
            
            **794**
            
            
            
            555Cash
                and Cash Equivalents included in Assets Held for Sale
            
            
            **(14**
            )Cash
                and Cash Equivalents at End of Period
            
            **$**
            **567**
            
            
            $
            468*The
                accompanying Notes to Condensed Consolidated Financial Statements
                are an
                integral part of the financial
                statements.*





**CONDENSED
                CONSOLIDATED BALANCE
                SHEETS****PPL
                Corporation and Subsidiaries**(Unaudited)*(Millions
                of Dollars)***June
                30,**
              **2007**
            
            **December
                31,**
              **2006****Assets****Current
                Assets**Cash
                and cash equivalents
            
            **$**
            **567**
            
            
            $
            794Short-term
                investments
            
            
            **351**
            
            
            
            359Restricted
                cash
            
            
            **175**
            
            
            
            102Accounts
                receivable (less reserve:  2007, $42; 2006, $50)
            
            
            **541**
            
            
            
            591Unbilled
                revenues
            
            
            **453**
            
            
            
            469Fuel,
                materials and supplies
            
            
            **350**
            
            
            
            378Prepayments
            
            
            **183**
            
            
            
            79Deferred
                income taxes
            
            
            **147**
            
            
            
            162Price
                risk management assets
            
            
            **434**
            
            
            
            551Other
                acquired intangibles
            
            
            **128**
            
            
            
            124Assets
                held for sale (Note 8)
            
            
            **730**Other
            
            
            **20**
            
            
            
            21Total
                Current Assets
            
            
            **4,079**
            
            
            
            3,630**Investments**Investment
                in unconsolidated affiliates - at equity
            
            
            **46**
            
            
            
            47Nuclear
                plant decommissioning trust funds
            
            
            **543**
            
            
            
            510Other
            
            
            **6**
            
            
            
            7Total
                Investments
            
            
            **595**
            
            
            
            564**Property,
                Plant and Equipment**Electric
                plant in serviceTransmission
                and distribution
            
            
            **8,371**
            
            
            
            8,836Generation
            
            
            **8,884**
            
            
            
            8,744General
            
            
            **790**
            
            
            
            779**18,045**
            
            
            
            18,359Construction
                work in progress
            
            
            **895**
            
            
            
            682Nuclear
                fuel
            
            
            **328**
            
            
            
            354Electric
                plant
            
            
            **19,268**
            
            
            
            19,395Gas
                and oil plant
            
            
            **379**
            
            
            
            373Other
                property
            
            
            **192**
            
            
            
            311**19,839**
            
            
            
            20,079Less:  accumulated
                depreciation
            
            
            **7,857**
            
            
            
            8,010Total
                Property, Plant and Equipment
            
            
            **11,982**
            
            
            
            12,069**Regulatory
                and Other Noncurrent Assets**Recoverable
                transition costs
            
            
            **732**
            
            
            
            884Goodwill
            
            
            **1,012**
            
            
            
            1,154Other
                acquired intangibles
            
            
            **315**
            
            
            
            367Price
                risk management assets
            
            
            **372**
            
            
            
            144Other
            
            
            **919**
            
            
            
            935Total
                Regulatory and Other Noncurrent Assets
            
            
            **3,350**
            
            
            
            3,484**Total
                Assets**
            
            **$**
            **20,006**
            
            
            $
            19,747*The
                accompanying Notes to Condensed Consolidated Financial Statements
                are an
                integral part of the financial
                statements.*





**CONDENSED
                CONSOLIDATED BALANCE SHEETS****PPL
                Corporation and Subsidiaries**(Unaudited)*(Millions
                of Dollars)***June
                30,**
              **2007**
            
            **December
                31,**
              **2006****Liabilities
                and Equity****Current
                Liabilities**Short-term
                debt
            
            **$**
            **96**
            
            
            $
            42Long-term
                debt
            
            
            **743**
            
            
            
            1,018Long-term
                debt with affiliate trust
            
            
            
            
            
            
            89Accounts
                payable
            
            
            **533**
            
            
            
            667Above
                market NUG contracts
            
            
            **53**
            
            
            
            65Taxes
            
            
            **50**
            
            
            
            194Interest
            
            
            **141**
            
            
            
            109Dividends
            
            
            **123**
            
            
            
            111Price
                risk management liabilities
            
            
            **480**
            
            
            
            550Liabilities
                held for sale and related minority interest (Note 8)
            
            
            **377**Other
            
            
            **444**
            
            
            
            503Total
                Current Liabilities
            
            
            **3,040**
            
            
            
            3,348**Long-term
                Debt**
            
            
            **6,841**
            
            
            
            6,728**Deferred
                Credits and Other Noncurrent Liabilities**Deferred
                income taxes and investment tax credits
            
            
            **2,137**
            
            
            
            2,331Price
                risk management liabilities
            
            
            **728**
            
            
            
            459Accrued
                pension obligations
            
            
            **357**
            
            
            
            364Asset
                retirement obligations
            
            
            **351**
            
            
            
            336Above
                market NUG contracts
            
            
            **50**
            
            
            
            71Other
            
            
            **806**
            
            
            
            627Total
                Deferred Credits and Other Noncurrent Liabilities
            
            
            **4,429**
            
            
            
            4,188**Commitments
                and Contingent Liabilities (Note 10)****Minority
                Interest**
            
            
            **26**
            
            
            
            60**Preferred
                Securities of a Subsidiary**
            
            
            **301**
            
            
            
            301**Shareowners'
                Common Equity**Common
                stock - $0.01 par value (a)
            
            
            **4**
            
            
            
            4Capital
                in excess of par value
            
            
            **2,783**
            
            
            
            2,810Earnings
                reinvested
            
            
            **2,937**
            
            
            
            2,626Accumulated
                other comprehensive loss
            
            
            **(355**
            **)**
            
            
            (318
            )Total
                Shareowners' Common Equity
            
            
            **5,369**
            
            
            
            5,122**Total
                Liabilities and Equity**
            
            **$**
            **20,006**
            
            
            $
            19,747(a)
            
            780
                million shares authorized; 385 million shares outstanding at June 30,
                2007 and December 31, 2006.*The
                accompanying Notes to Condensed Consolidated Financial Statements
                are an
                integral part of the financial
                statements.*





**CONDENSED
                CONSOLIDATED STATEMENTS OF
                INCOME****PPL
                Energy Supply, LLC and Subsidiaries**(Unaudited)*(Millions
                of Dollars)***Three
                Months Ended**
              **June
                30,**
            
            **Six
                Months Ended**
              **June
                30,****2007**
            
            **2006**
            
            **2007**
            
            **2006****Operating
                Revenues**Wholesale
                energy marketing
            
            **$**
            **379**
            
            
            $
            383
            
            
            **$**
            **628**
            
            
            $
            718Wholesale
                energy marketing to affiliate
            
            
            **422**
            
            
            
            395
            
            
            
            **903**
            
            
            
            841Utility
            
            
            **218**
            
            
            
            185
            
            
            
            **434**
            
            
            
            388Unregulated
                retail electric
            
            
            **23**
            
            
            
            20
            
            
            
            **45**
            
            
            
            45Net
                energy trading margins
            
            
            **6**
            
            
            
            1
            
            
            
            **13**
            
            
            
            11Energy-related
                businesses
            
            
            **183**
            
            
            
            145
            
            
            
            **366**
            
            
            
            305Total
            
            
            **1,231**
            
            
            
            1,129
            
            
            
            **2,389**
            
            
            
            2,308**Operating
                Expenses**OperationFuel
            
            
            **202**
            
            
            
            184
            
            
            
            **435**
            
            
            
            352Energy
                purchases
            
            
            **141**
            
            
            
            184
            
            
            
            **210**
            
            
            
            353Energy
                purchases from affiliate
            
            
            **37**
            
            
            
            39
            
            
            
            **74**
            
            
            
            78Other
                operation and maintenance
            
            
            **261**
            
            
            
            230
            
            
            
            **505**
            
            
            
            452Depreciation
            
            
            **74**
            
            
            
            70
            
            
            
            **155**
            
            
            
            138Taxes,
                other than income
            
            
            **26**
            
            
            
            24
            
            
            
            **50**
            
            
            
            45Energy-related
                businesses (Note 8)
            
            
            **200**
            
            
            
            132
            
            
            
            **401**
            
            
            
            283Total
            
            
            **941**
            
            
            
            863
            
            
            
            **1,830**
            
            
            
            1,701**Operating
                Income**
            
            
            **290**
            
            
            
            266
            
            
            
            **559**
            
            
            
            607Other
                Income - net
            
            
            **24**
            
            
            
            33
            
            
            
            **48**
            
            
            
            41Interest
                Expense
            
            
            **72**
            
            
            
            59
            
            
            
            **144**
            
            
            
            115Interest
                Expense with Affiliates
            
            
            
            
            
            
            3
            
            
            
            **4**
            
            
            
            6**Income
                from Continuing Operations Before Income Taxes and Minority
                Interest**
            
            
            **242**
            
            
            
            237
            
            
            
            **459**
            
            
            
            527Income
                Taxes
            
            
            **23**
            
            
            
            69
            
            
            
            **67**
            
            
            
            138Minority
                Interest
            
            
            
            
            
            
            1
            
            
            
            **1**
            
            
            
            1**Income
                from Continuing Operations**
            
            
            **219**
            
            
            
            167
            
            
            
            **391**
            
            
            
            388Income
                (Loss) from Discontinued Operations (net of income taxes) (Note
                8)
            
            
            **101**
            
            
            
            (9
            )
            
            
            **76****Net
                Income**
            
            **$**
            **320**
            
            
            $
            158
            
            
            **$**
            **467**
            
            
            $
            388*The
                accompanying Notes to Condensed Consolidated Financial Statements
                are an
                integral part of the financial
                statements.*





**CONDENSED
                CONSOLIDATED STATEMENTS OF CASH
                FLOWS****PPL
                Energy Supply, LLC and Subsidiaries**(Unaudited)*(Millions
                of Dollars)***Six
                Months Ended**
              **June
                30,****2007**
            
            **2006****Cash
                Flows from Operating Activities**Net
                income
            
            **$**
            **467**
            
            
            $
            388Adjustments
                to reconcile net income to net cash provided by operating
                activitiesDepreciation
            
            
            **161**
            
            
            
            151Pre-tax
                gain from the sale of a Latin American business
            
            
            **(94**
            **)**Pre-tax
                loss from the sale of interest in the Griffith plant
            
            
            
            
            
            
            40Pension
                and other postretirement benefits
            
            
            **24**
            
            
            
            (20
            )Deferred
                income taxes and investment tax credits
            
            
            **26**
            
            
            
            27Impairment
                of assets held for sale
            
            
            **70**Unrealized
                gains on derivatives and other hedging activities
            
            
            **(38**
            **)**
            
            
            (58
            )Other
            
            
            **13**
            
            
            
            18Change
                in current assets and current liabilitiesAccounts
                receivable
            
            
            **(60**
            **)**
            
            
            (26
            )Accounts
                payable
            
            
            **(67**
            **)**
            
            
            (24
            )Fuel,
                materials and supplies
            
            
            **11**
            
            
            
            (35
            )Other
            
            
            **38**
            
            
            
            56Other
                operating activitiesOther
                assets
            
            
            **(12**
            **)**
            
            
            (15
            )Other
                liabilities
            
            
            **(49**
            **)**
            
            
            (4
            )Net
                cash provided by operating activities
            
            
            **490**
            
            
            
            498**Cash
                Flows from Investing Activities**Expenditures
                for property, plant and equipment
            
            
            **(539**
            **)**
            
            
            (360
            )Proceeds
                from the sale of a Latin American business
            
            
            **180**Proceeds
                from the sale of interest in the Griffith plant
            
            
            
            
            
            
            115Purchases
                of emission allowances
            
            
            **(20**
            **)**
            
            
            (60
            )Proceeds
                from the sale of emission allowances
            
            
            **51**
            
            
            
            35Purchases
                of nuclear decommissioning trust investments
            
            
            **(118**
            **)**
            
            
            (133
            )Proceeds
                from the sale of nuclear decommissioning trust investments
            
            
            **110**
            
            
            
            125Purchases
                of short-term investments
            
            
            **(465**
            **)**
            
            
            (66
            )Proceeds
                from the sale of short-term investments
            
            
            **448**
            
            
            
            57Net
                increase in restricted cash
            
            
            **(74**
            **)**
            
            
            (13
            )Other
                investing activities
            
            
            **5**
            
            
            
            10Net
                cash used in investing activities
            
            
            **(422**
            **)**
            
            
            (290
            )**Cash
                Flows from Financing Activities**Issuance
                of long-term debt
            
            
            **6**
            
            
            
            300Retirement
                of long-term debt
            
            
            **(130**
            **)**
            
            
            (19
            )Distributions
                to Member
            
            
            **(463**
            **)**
            
            
            (366
            )Contributions
                from Member
            
            
            **500**
            
            
            
            116Net
                increase (decrease) in short-term debt
            
            
            **7**
            
            
            
            (171
            )Other
                financing activities
            
            
            **(7**
            **)**
            
            
            (14
            )Net
                cash used in financing activities
            
            
            **(87**
            **)**
            
            
            (154
            )**Effect
                of Exchange Rates on Cash and Cash Equivalents**
            
            
            **1**
            
            
            
            1**Net
                (Decrease) Increase in Cash and Cash Equivalents**
            
            
            **(18**
            **)**
            
            
            55Cash
                and Cash Equivalents at Beginning of Period
            
            
            **524**
            
            
            
            227Cash
                and Cash Equivalents included in Assets Held for Sale
            
            
            **(14**
            **)**Cash
                and Cash Equivalents at End of Period
            
            **$**
            **492**
            
            
            $
            282*The
                accompanying Notes to Condensed Consolidated Financial Statements
                are an
                integral part of the financial
                statements.*





**CONDENSED
                CONSOLIDATED BALANCE
                SHEETS****PPL
                Energy Supply, LLC and Subsidiaries**(Unaudited)*(Millions
                of Dollars)***June
                30,**
              **2007**
            
            **December
                31,**
              **2006****Assets****Current
                Assets**Cash
                and cash equivalents
            
            **$**
            **492**
            
            
            $
            524Short-term
                investments
            
            
            **346**
            
            
            
            328Restricted
                cash
            
            
            **126**
            
            
            
            51Accounts
                receivable (less reserve:  2007, $21; 2006, $29)
            
            
            **285**
            
            
            
            354Unbilled
                revenues
            
            
            **292**
            
            
            
            301Accounts
                receivable from affiliates
            
            
            **161**
            
            
            
            136Collateral
                on PLR energy supply to affiliate
            
            
            **300**
            
            
            
            300Fuel,
                materials and supplies
            
            
            **307**
            
            
            
            330Prepayments
            
            
            **76**
            
            
            
            66Deferred
                income taxes
            
            
            **128**
            
            
            
            117Price
                risk management assets
            
            
            **434**
            
            
            
            551Other
                acquired intangibles
            
            
            **128**
            
            
            
            124Assets
                held for sale (Note 8)
            
            
            **730**Other
            
            
            **7**
            
            
            
            10Total
                Current Assets
            
            
            **3,812**
            
            
            
            3,192**Investments**Investment
                in unconsolidated affiliates - at equity
            
            
            **46**
            
            
            
            47Nuclear
                plant decommissioning trust funds
            
            
            **543**
            
            
            
            510Other
            
            
            **3**
            
            
            
            4Total
                Investments
            
            
            **592**
            
            
            
            561**Property,
                Plant and Equipment**Electric
                plant in serviceTransmission
                and distribution
            
            
            **4,143**
            
            
            
            4,673Generation
            
            
            **8,884**
            
            
            
            8,744General
            
            
            **300**
            
            
            
            318**13,327**
            
            
            
            13,735Construction
                work in progress
            
            
            **774**
            
            
            
            578Nuclear
                fuel
            
            
            **328**
            
            
            
            354Electric
                plant
            
            
            **14,429**
            
            
            
            14,667Gas
                and oil plant
            
            
            **65**
            
            
            
            64Other
                property
            
            
            **191**
            
            
            
            309**14,685**
            
            
            
            15,040Less:  accumulated
                depreciation
            
            
            **5,917**
            
            
            
            6,115Total
                Property, Plant and Equipment
            
            
            **8,768**
            
            
            
            8,925**Other
                Noncurrent Assets**Goodwill
            
            
            **957**
            
            
            
            1,099Other
                acquired intangibles
            
            
            **192**
            
            
            
            245Price
                risk management assets
            
            
            **363**
            
            
            
            135Other
            
            
            **484**
            
            
            
            498Total
                Other Noncurrent Assets
            
            
            **1,996**
            
            
            
            1,977**Total
                Assets**
            
            **$**
            **15,168**
            
            
            $
            14,655*The
                accompanying Notes to Condensed Consolidated Financial Statements
                are an
                integral part of the financial
                statements.*





**CONDENSED
                CONSOLIDATED BALANCE SHEETS****PPL
                Energy Supply, LLC and Subsidiaries**(Unaudited)*(Millions
                of Dollars)***June
                30,**
              **2007**
            
            **December
                31,**
              **2006****Liabilities
                and Equity****Current
                Liabilities**Long-term
                debt
            
            **$**
            **184**
            
            
            $
            181Long-term
                debt with affiliate trust
            
            
            
            
            
            
            89Accounts
                payable
            
            
            **451**
            
            
            
            571Accounts
                payable to affiliates
            
            
            **49**
            
            
            
            36Above
                market NUG contracts
            
            
            **53**
            
            
            
            65Taxes
            
            
            **76**
            
            
            
            151Interest
            
            
            **105**
            
            
            
            82Deferred
                revenue on PLR energy supply to affiliate
            
            
            **12**
            
            
            
            12Price
                risk management liabilities
            
            
            **468**
            
            
            
            541Liabilities
                held for sale and related minority interest (Note 8)
            
            
            **377**Other
            
            
            **321**
            
            
            
            325Total
                Current Liabilities
            
            
            **2,096**
            
            
            
            2,053**Long-term
                Debt**
            
            
            **4,890**
            
            
            
            5,106**Deferred
                Credits and Other Noncurrent Liabilities**Deferred
                income taxes and investment tax credits
            
            
            **1,281**
            
            
            
            1,363Price
                risk management liabilities
            
            
            **707**
            
            
            
            437Accrued
                pension obligations
            
            
            **267**
            
            
            
            279Asset
                retirement obligations
            
            
            **351**
            
            
            
            336Above
                market NUG contracts
            
            
            **50**
            
            
            
            71Deferred
                revenue on PLR energy supply to affiliate
            
            
            **17**
            
            
            
            23Other
            
            
            **492**
            
            
            
            393Total
                Deferred Credits and Other Noncurrent Liabilities
            
            
            **3,165**
            
            
            
            2,902**Commitments
                and Contingent Liabilities (Note 10)****Minority
                Interest**
            
            
            **26**
            
            
            
            60**Member's
                Equity**
            
            
            **4,991**
            
            
            
            4,534**Total
                Liabilities and Equity**
            
            **$**
            **15,168**
            
            
            $
            14,655*The
                accompanying Notes to Condensed Consolidated Financial Statements
                are an
                integral part of the financial
                statements.*





**CONDENSED
                CONSOLIDATED STATEMENTS OF
                INCOME****PPL
                Electric Utilities Corporation and
                Subsidiaries**(Unaudited)*(Millions
                of Dollars)***Three
                Months Ended**
              **June
                30,**
            
            **Six
                Months Ended**
              **June
                30,****2007**
            
            **2006**
            
            **2007**
            
            **2006****Operating
                Revenues**Retail
                electric
            
            **$**
            **761**
            
            
            $
            719
            
            
            **$**
            **1,625**
            
            
            $
            1,531Wholesale
                electric
            
            
            
            
            
            
            1
            
            
            
            **1**
            
            
            
            2Wholesale
                electric to affiliate
            
            
            **37**
            
            
            
            39
            
            
            
            **74**
            
            
            
            78Total
            
            
            **798**
            
            
            
            759
            
            
            
            **1,700**
            
            
            
            1,611**Operating
                Expenses**OperationEnergy
                purchases
            
            
            **50**
            
            
            
            49
            
            
            
            **101**
            
            
            
            102Energy
                purchases from affiliate
            
            
            **422**
            
            
            
            395
            
            
            
            **903**
            
            
            
            841Other
                operation and maintenance
            
            
            **99**
            
            
            
            96
            
            
            
            **191**
            
            
            
            185Amortization
                of recoverable transition costs
            
            
            **70**
            
            
            
            63
            
            
            
            **151**
            
            
            
            135Depreciation
            
            
            **33**
            
            
            
            28
            
            
            
            **65**
            
            
            
            57Taxes,
                other than income
            
            
            **46**
            
            
            
            45
            
            
            
            **100**
            
            
            
            94Total
            
            
            **720**
            
            
            
            676
            
            
            
            **1,511**
            
            
            
            1,414**Operating
                Income**
            
            
            **78**
            
            
            
            83
            
            
            
            **189**
            
            
            
            197Other
                Income - net
            
            
            **7**
            
            
            
            7
            
            
            
            **19**
            
            
            
            16Interest
                Expense
            
            
            **30**
            
            
            
            36
            
            
            
            **62**
            
            
            
            74Interest
                Expense with Affiliate
            
            
            **5**
            
            
            
            4
            
            
            
            **9**
            
            
            
            8**Income
                Before Income Taxes**
            
            
            **50**
            
            
            
            50
            
            
            
            **137**
            
            
            
            131Income
                Taxes
            
            
            **16**
            
            
            
            16
            
            
            
            **46**
            
            
            
            45**Net
                Income**
            
            
            **34**
            
            
            
            34
            
            
            
            **91**
            
            
            
            86Dividends
                on Preferred Securities
            
            
            **4**
            
            
            
            4
            
            
            
            **9**
            
            
            
            5**Income
                Available to PPL**
            
            **$**
            **30**
            
            
            $
            30
            
            
            **$**
            **82**
            
            
            $
            81*The
                accompanying Notes to Condensed Consolidated Financial Statements
                are an
                integral part of the financial
                statements.*





**CONDENSED
                CONSOLIDATED STATEMENTS OF CASH
                FLOWS****PPL
                Electric Utilities Corporation and
                Subsidiaries**(Unaudited)*(Millions
                of Dollars)***Six
                Months Ended**
              **June
                30,****2007**
            
            **2006****Cash
                Flows from Operating Activities**Net
                income
            
            **$**
            **91**
            
            
            $
            86Adjustments
                to reconcile net income to net cash provided by operating
                activitiesDepreciation
            
            
            **65**
            
            
            
            57Amortization
                - recoverable transition costs and other
            
            
            **161**
            
            
            
            146Other
            
            
            **4**
            
            
            
            (2
            )Change
                in current assets and current liabilitiesAccounts
                receivable
            
            
            **(14**
            **)**
            
            
            7Accounts
                payable
            
            
            **(11**
            **)**
            
            
            (36
            )Prepayments
            
            
            **(109**
            **)**
            
            
            (66
            )Other
            
            
            **(42**
            **)**
            
            
            (5
            )Other
                operating activitiesOther
                assets
            
            
            **8**Other
                liabilities
            
            
            **6**
            
            
            
            13Net
                cash provided by operating activities
            
            
            **159**
            
            
            
            200**Cash
                Flows from Investing Activities**Expenditures
                for property, plant and equipment
            
            
            **(138**
            **)**
            
            
            (97
            )Purchases
                of short-term investments
            
            
            **(32**
            **)**
            
            
            (96
            )Proceeds
                from the sale of short-term investments
            
            
            **57**
            
            
            
            96Net
                decrease in restricted cash
            
            
            **2**
            
            
            
            5Other
                investing activities
            
            
            **5**
            
            
            
            3Net
                cash used in investing activities
            
            
            **(106**
            **)**
            
            
            (89
            )**Cash
                Flows from Financing Activities**Issuance
                of preference stock, net of issuance costs
            
            
            
            
            
            
            245Retirement
                of long-term debt
            
            
            **(157**
            **)**
            
            
            (297
            )Repurchase
                of common stock from PPL
            
            
            
            
            
            
            (200
            )Payment
                of common stock dividends to PPL
            
            
            **(74**
            **)**
            
            
            (69
            )Net
                increase in short-term debt
            
            
            **54**Other
                financing activities
            
            
            **(9**
            **)**
            
            
            (1
            )Net
                cash used in financing activities
            
            
            **(186**
            **)**
            
            
            (322
            )**Net
                Decrease in Cash and Cash Equivalents**
            
            
            **(133**
            **)**
            
            
            (211
            )Cash
                and Cash Equivalents at Beginning of Period
            
            
            **150**
            
            
            
            298Cash
                and Cash Equivalents at End of Period
            
            **$**
            **17**
            
            
            $
            87*The
                accompanying Notes to Condensed Consolidated Financial Statements
                are an
                integral part of the financial
                statements.*





**CONDENSED
                CONSOLIDATED BALANCE
                SHEETS****PPL
                Electric Utilities Corporation and
                Subsidiaries**(Unaudited)*(Millions
                of Dollars)***June
                30,**
              **2007**
            
            **December
                31,**
              **2006****Assets****Current
                Assets**Cash
                and cash equivalents
            
            **$**
            **17**
            
            
            $
            150Restricted
                cash
            
            
            **42**
            
            
            
            43Accounts
                receivable (less reserve:  2007, $18; 2006, $19)
            
            
            **236**
            
            
            
            219Unbilled
                revenues
            
            
            **158**
            
            
            
            163Accounts
                receivable from affiliates
            
            
            **3**
            
            
            
            6Note
                receivable from affiliate
            
            
            **300**
            
            
            
            300Prepayments
            
            
            **112**
            
            
            
            3Prepayment
                on PLR energy supply from affiliate
            
            
            **12**
            
            
            
            12Other
            
            
            **45**
            
            
            
            101Total
                Current Assets
            
            
            **925**
            
            
            
            997**Property,
                Plant and Equipment**Electric
                plant in serviceTransmission
                and distribution
            
            
            **4,229**
            
            
            
            4,163General
            
            
            **438**
            
            
            
            412**4,667**
            
            
            
            4,575Construction
                work in progress
            
            
            **108**
            
            
            
            95Electric
                plant
            
            
            **4,775**
            
            
            
            4,670Other
                property
            
            
            **2**
            
            
            
            3**4,777**
            
            
            
            4,673Less:  accumulated
                depreciation
            
            
            **1,830**
            
            
            
            1,793Total
                Property, Plant and Equipment
            
            
            **2,947**
            
            
            
            2,880**Regulatory
                and Other Noncurrent Assets**Recoverable
                transition costs
            
            
            **732**
            
            
            
            884Acquired
                intangibles
            
            
            **119**
            
            
            
            118Prepayment
                on PLR energy supply from affiliate
            
            
            **17**
            
            
            
            23Other
            
            
            **399**
            
            
            
            413Total
                Regulatory and Other Noncurrent Assets
            
            
            **1,267**
            
            
            
            1,438**Total
                Assets**
            
            **$**
            **5,139**
            
            
            $
            5,315*The
                accompanying Notes to Condensed Consolidated Financial Statements
                are an
                integral part of the financial
                statements.*





**CONDENSED
                CONSOLIDATED BALANCE SHEETS****PPL
                Electric Utilities Corporation and
                Subsidiaries**(Unaudited)*(Millions
                of Dollars)***June
                30,**
              **2007**
            
            **December
                31,**
              **2006****Liabilities
                and Equity****Current
                Liabilities**Short-term
                debt
            
            **$**
            **96**
            
            
            $
            42Long-term
                debt
            
            
            **557**
            
            
            
            555Accounts
                payable
            
            
            **50**
            
            
            
            53Accounts
                payable to affiliates
            
            
            **160**
            
            
            
            164Taxes
            
            
            **28**
            
            
            
            58Collateral
                on PLR energy supply from affiliate
            
            
            **300**
            
            
            
            300Other
            
            
            **87**
            
            
            
            141Total
                Current Liabilities
            
            
            **1,278**
            
            
            
            1,313**Long-term
                Debt**
            
            
            **1,264**
            
            
            
            1,423**Deferred
                Credits and Other Noncurrent Liabilities**Deferred
                income taxes and investment tax credits
            
            
            **758**
            
            
            
            814Other
            
            
            **270**
            
            
            
            206Total
                Deferred Credits and Other Noncurrent Liabilities
            
            
            **1,028**
            
            
            
            1,020**Commitments
                and Contingent Liabilities (Note 10)****Shareowners'
                Equity**Preferred
                securities
            
            
            **301**
            
            
            
            301Common
                stock - no par value (a)
            
            
            **364**
            
            
            
            364Additional
                paid-in capital
            
            
            **424**
            
            
            
            424Earnings
                reinvested
            
            
            **480**
            
            
            
            470Total
                Shareowners' Equity
            
            
            **1,569**
            
            
            
            1,559**Total
                Liabilities and Equity**
            
            **$**
            **5,139**
            
            
            $
            5,315





(a)
            
            170
                million shares authorized; 66 million shares outstanding at June
                30, 2007
                and December 31, 2006.*The
                accompanying Notes to Condensed Consolidated Financial Statements
                are an
                integral part of the financial
                statements.*





**Combined
        Notes to Condensed Consolidated Financial Statements
        (Unaudited)**
 
 Terms
        and
        abbreviations appearing in Combined Notes to Condensed Consolidated Financial
        Statements are explained in the glossary.  Dollars are in millions,
        except per share data, unless otherwise noted.
 
 **1.**
              **Interim
                  Financial Statements**
 
 *(PPL,
        PPL Energy Supply and PPL Electric)*
 
 The
        accompanying unaudited condensed consolidated financial statements have been
        prepared in accordance with accounting principles generally accepted in the
        U.S.
        for interim financial information and with the instructions to Form 10-Q
        and
        Article 10 of Regulation S-X and, therefore, do not include all of the
        information and footnotes required by accounting principles generally accepted
        in the U.S. for complete financial statements.  In the opinion of
        management, all adjustments considered necessary for a fair presentation
        in
        accordance with accounting principles generally accepted in the U.S. are
        reflected in the condensed consolidated financial statements.  All
        adjustments are of a normal recurring nature, except as otherwise
        disclosed.  The Balance Sheets as of December 31, 2006, are derived
        from each Registrant's 2006 audited Balance Sheet.  The financial
        statements and notes thereto should be read in conjunction with the financial
        statements and notes contained in each Registrant's 2006 Form 10-K and Form
        8-K
        dated June 21, 2007 for PPL and PPL Energy Supply.  The results
        of operations for the six months ended June 30, 2007, are not necessarily
        indicative of the results to be expected for the full year ending
        December 31, 2007, or other future periods, because results for interim
        periods can be disproportionately influenced by various factors and developments
        and seasonal variations.
 
 *(PPL
        and PPL Energy Supply)*
 
 The
        classification of certain amounts in the June 30, 2006 financial statements
        has
        been changed to conform to the presentation in the June 30, 2007 financial
        statements.  PPL has announced plans to sell its Latin American
        businesses and the transport operations of its domestic telecommunications
        subsidiary.  On the Statements of Income, the operating results of the
        Latin American businesses for the six months ended June 30, 2007 and 2006,
        are
        classified as "Income (Loss) from Discontinued Operations."  At June
        30, 2007, the assets, liabilities and minority interest related to the yet
        to be
        completed divestitures are reflected in the Balance Sheet as "Assets held
        for
        sale" and "Liabilities held for sale and related minority
        interest."  See Note 8 for additional information.
 
 **2.**
              **Summary
                  of Significant Accounting
                  Policies**
 
 The
        following accounting policy disclosures represent updates to the "Summary
        of
        Significant Accounting Policies" Note in each Registrant's 2006 Form
        10-K.
 
 **Depreciation***(PPL and PPL Energy Supply)*
 
 PPL
        and
        its subsidiaries periodically review the useful lives of their long-lived
        assets.  In 2007, WPD reviewed the useful lives of its distribution
        network assets.  Based on this review, effective April 1, 2007,
        the weighted average useful lives were extended to 54 years from 40
        years.  The effect of this change in useful lives for both the three
        and six months ended June 30, 2007, was to decrease depreciation expense
        by $4
        million, or $3 million after tax ($0.01 per share for PPL).
 
 **Income
        Taxes***(PPL, PPL Energy Supply and PPL Electric)*
 
 Prior
        to
        January 1, 2007, and in accordance with SFAS 5 "Accounting for Contingencies,"
        PPL and its subsidiaries evaluated uncertain tax positions and accrued charges
        for probable exposures based on management's best estimate of the amount
        of
        benefit that should be recognized in the financial statements.
 
 In
        June
        2006, the FASB issued FIN 48, "Accounting for Uncertainty in Income Taxes,
        an
        interpretation of FASB Statement No. 109."  In May 2007, the FASB
        amended this guidance by issuing FSP FIN 48-1, "Definition of Settlement
        in FASB
        Interpretation No. 48."  PPL and its subsidiaries adopted FIN 48, as
        amended, effective January 1, 2007.  The adoption resulted in the
        recognition of a cumulative effect adjustment to the opening balance of retained
        earnings for that fiscal year.  Effective with the adoption, uncertain
        tax positions are no longer considered to be contingencies assessed in
        accordance with SFAS 5.  FIN 48 requires an entity to evaluate its tax
        positions following a two-step process.  The first step requires an
        entity to determine whether, based on the technical merits supporting a
        particular tax position, it is more likely than not (greater than a 50 percent
        chance) that the tax position will be sustained.  This determination
        assumes that the relevant taxing authority will examine the tax position
        and is
        aware of all the relevant facts surrounding the tax position.  The
        second step requires an entity to recognize in the financial statements the
        benefit of a tax position that meets the more-likely-than-not recognition
        criterion.  The measurement of the benefit equals the largest amount
        of benefit that has a likelihood of realization, upon settlement, that exceeds
        50 percent.  If the more-likely-than-not threshold is not met, it is
        inappropriate to recognize any tax benefits associated with the tax
        position.  See Note 5 for the impact of adopting FIN 48 as well as the
        required disclosures.
 
 **New
        Accounting Standards***(PPL, PPL Energy Supply and PPL
        Electric)*
 
 See
        Note
        17 for a discussion of new accounting standards recently adopted or pending
        adoption.
 
 **3.**
              **Segment
                  and Related Information**
 
 *(PPL
        and PPL Energy Supply)*
 
 See
        the
        "Segment and Related Information" Note in each Registrant's 2006 Form 10-K
        for a
        discussion of reportable segments.
 
 Financial
        data for the segments are:
 
 **Three
                  Months Ended**
                **June
                  30,**
              
              **Six
                  Months Ended**
                **June
                  30,****PPL**
              
              **2007**
              
              **2006**
              
              **2007**
              
              **2006****Income
                  Statement Data**Revenues
                  from external customersSupply
              
              $
              582
              
              
              $
              549
              
              
              $
              1,035
              
              
              $
              1,077International
                  Delivery
              
              
              227
              
              
              
              195
              
              
              
              453
              
              
              
              408Pennsylvania
                  Delivery
              
              
              804
              
              
              
              760
              
              
              
              1,763
              
              
              
              1,6691,613
              
              
              
              1,504
              
              
              
              3,251
              
              
              
              3,154Intersegment
                  revenuesSupply
              
              
              422
              
              
              
              395
              
              
              
              903
              
              
              
              841Pennsylvania
                  Delivery
              
              
              38
              
              
              
              39
              
              
              
              75
              
              
              
              80Net
                  IncomeSupply
                  (a)
              
              
              132
              
              
              
              74
              
              
              
              249
              
              
              
              217International
                  Delivery (b)
              
              
              183
              
              
              
              79
              
              
              
              211
              
              
              
              160Pennsylvania
                  Delivery
              
              
              30
              
              
              
              28
              
              
              
              88
              
              
              
              84$
              345
              
              
              $
              181
              
              
              $
              548
              
              
              $
              461
 
 **June
                  30,**
                **2007**
              
              **December
                  31,**
                **2006****Balance
                  Sheet Data**Total
                  assetsSupply
              
              $
              8,617
              
              
              $
              8,039International
                  Delivery
              
              
              6,059
              
              
              
              6,208Pennsylvania
                  Delivery
              
              
              5,330
              
              
              
              5,500$
              20,006
              
              
              $
              19,747
 
 **Three
                  Months Ended**
                **June
                  30,**
              
              **Six
                  Months Ended**
                **June
                  30,****PPL
                  Energy Supply**
              
              **2007**
              
              **2006**
              
              **2007**
              
              **2006****Income
                  Statement Data**Revenues
                  from external customersSupply
              
              $
              1,004
              
              
              $
              934
              
              
              $
              1,936
              
              
              $
              1,900International
                  Delivery
              
              
              227
              
              
              
              195
              
              
              
              453
              
              
              
              4081,231
              
              
              
              1,129
              
              
              
              2,389
              
              
              
              2,308Net
                  IncomeSupply
                  (a)
              
              
              137
              
              
              
              79
              
              
              
              256
              
              
              
              228International
                  Delivery (b)
              
              
              183
              
              
              
              79
              
              
              
              211
              
              
              
              160$
              320
              
              
              $
              158
              
              
              $
              467
              
              
              $
              388
 
 **June
                  30,**
                **2007**
              
              **December
                  31,**
                **2006****Balance
                  Sheet Data**Total
                  assetsSupply
              
              $
              9,109
              
              
              $
              8,447International
                  Delivery
              
              
              6,059
              
              
              
              6,208$
              15,168
              
              
              $
              14,655
 
 (a)
              
              2006
                  includes the results of discontinued operations of the Griffith
                  plant.  See Note 8 for additional
                  information.(b)
              
              2007
                  and 2006 include the results of discontinued operations of the
                  Latin
                  American businesses.  See Note 8 for additional
                  information.
 
 **4.**
              **Earnings
                  Per Share**
 
 *(PPL)*
 
 Basic
        EPS
        is calculated using the weighted-average number of common shares outstanding
        during the period.  Diluted EPS is calculated using the
        weighted-average shares of common stock outstanding that 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, restricted stock and restricted stock units granted under
                  the
                  incentive compensation plans;·
              stock
                  units representing common stock granted under the directors compensation
                  programs; and·
              convertible
                  senior notes.
 
 The
        basic
        and diluted EPS calculations, and the reconciliation of the shares (in
        thousands) used in the calculations, are:
 
 **Three
                  Months Ended**
                **June
                  30,**
              
              **Six
                  Months Ended**
                **June
                  30,****2007**
              
              **2006**
              
              **2007**
              
              **2006****Income
                  (Numerator)**Income
                  from continuing operations
              
              $
              244
              
              
              $
              190
              
              
              $
              472
              
              
              $
              461Income
                  (Loss) from discontinued operations (net of income taxes)
              
              
              101
              
              
              
              (9
              )
              
              
              76Net
                  Income
              
              $
              345
              
              
              $
              181
              
              
              $
              548
              
              
              $
              461**Shares
                  (Denominator)**Shares
                  for Basic EPS
              
              
              385,300
              
              
              
              380,141
              
              
              
              385,053
              
              
              
              379,981Add
                  incremental shares:Convertible
                  Senior Notes
              
              
              1,796
              
              
              
              2,735
              
              
              
              1,575
              
              
              
              2,857Stock
                  options and other share-based awards
              
              
              3,013
              
              
              
              2,714
              
              
              
              3,017
              
              
              
              2,751Shares
                  for Diluted EPS
              
              
              390,109
              
              
              
              385,590
              
              
              
              389,645
              
              
              
              385,589**Basic
                  EPS**Income
                  from continuing operations
              
              $
              0.63
              
              
              $
              0.50
              
              
              $
              1.22
              
              
              $
              1.21Income
                  (Loss) from discontinued operations (net of income taxes)
              
              
              0.26
              
              
              
              (0.02
              )
              
              
              0.20Net
                  Income
              
              $
              0.89
              
              
              $
              0.48
              
              
              $
              1.42
              
              
              $
              1.21**Diluted
                  EPS**Income
                  from continuing operations
              
              $
              0.62
              
              
              $
              0.49
              
              
              $
              1.21
              
              
              $
              1.19Income
                  (Loss) from discontinued operations (net of income taxes)
              
              
              0.26
              
              
              
              (0.02
              )
              
              
              0.20Net
                  Income
              
              $
              0.88
              
              
              $
              0.47
              
              
              $
              1.41
              
              
              $
              1.19
 
 During
        the six months ended June 30, 2006, 668,000 stock options to purchase PPL
        common
        shares were excluded from the computation of diluted EPS because the effect
        would have been antidilutive.
 
 If
        converted, PPL Energy Supply's 2.625% Convertible Senior Notes due 2023 require
        cash settlement of the principal amount and permit settlement of any conversion
        premium in cash or PPL common stock.  Based upon the current
        conversion rate of 40.2212 shares per $1,000 principal amount of notes (or
        $24.8625 per share), the Convertible Senior Notes have a dilutive impact
        when
        the average market price of PPL common stock equals or exceeds
        $24.87.
 
 See
        Note
        7 for discussion of attainment of the market price trigger related to the
        Convertible Senior Notes in 2007.
 
 As
        of
        June 30, 2007, $93 million of Convertible Senior Notes remain
        outstanding.  The maximum number of shares of PPL common stock that
        could potentially be issued to settle the conversion premium, based upon
        the
        current conversion rate, is 3,768,002 shares.  Based on PPL's common
        stock price at June 30, 2007, the conversion premium equated to 1,765,823
        shares, or $83 million.
 
 See
        Note
        7 for discussion of a common stock repurchase program initiated during the
        second quarter of 2007.
 
 During
        the six months ended June 30, 2007, PPL issued 1,418,683 shares of common
        stock
        related to the exercise of stock options and vesting of restricted stock
        units
        under its stock-based compensation plans.
 
 **5.**
              **Income
                  Taxes**
 
 *(PPL
        and PPL Energy Supply)*
 
 Reconciliations
        of effective income tax rates are:
 
 **Three
                  Months Ended**
                **June
                  30,**
              
              **Six
                  Months Ended**
                **June
                  30,****PPL**
              
              **2007**
              
              **2006**
              
              **2007**
              
              **2006****Reconciliation
                  of**
                **Income
                  Tax Expense**Federal
                  income tax on Income from Continuing Operations Before Income Taxes,
                  Minority Interest and Dividends on Preferred Securities of a Subsidiary
                  at
                  statutory tax rate - 35%
              
              $
              98
              
              
              $
              97
              
              
              $
              206
              
              
              $
              225Increase
                  (decrease) due to:State
                  income taxes (b)
              
              
              6
              
              
              
              3
              
              
              
              12
              
              
              
              12Amortization
                  of investment tax credit
              
              
              (2
              )
              
              
              (2
              )
              
              
              (5
              )
              
              
              (5
              )Difference
                  related to income recognition of foreign affiliates (net of foreign
                  income
                  taxes)
              
              
              (8
              )
              
              
              (16
              )
              
              
              (17
              )
              
              
              (15
              )Transfer
                  of WPD tax items (a)
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (20
              )Stranded
                  cost securitization (b)
              
              
              (2
              )
              
              
              (2
              )
              
              
              (3
              )
              
              
              (3
              )Federal
                  income tax credits
              
              
              (26
              )
              
              
              2
              
              
              
              (52
              )
              
              
              (14
              )
 Change
                  in federal tax reserves (b)
              
              
              (32
              )
              
              
              1
              
              
              
              (30
              )
              
              
              (3
              )Other
              
              
              (1
              )
              
              
              (3
              )
              
              
              (4
              )
              
              
              (2
              )(65
              )
              
              
              (17
              )
              
              
              (99
              )
              
              
              (50
              )**Total
                  income tax expense**
              
              $
              33
              
              
              $
              80
              
              
              $
              107
              
              
              $
              175**Effective
                  income tax rate**
              
              
              11.7%
              
              
              
              29.1%
              
              
              
              18.2%
              
              
              
              27.3%
 
 (a)
              
              In
                  January 2006, WPD, Hyder's liquidator and a former Hyder affiliate
                  signed
                  an agreement to transfer to the affiliate a future tax liability
                  from WPD
                  and certain surplus tax losses from Hyder.  Inland Revenue, the
                  U.K. taxing authority, subsequently confirmed this
                  agreement.  This transfer resulted in a net reduction of income
                  tax expense of $20 million for the six months ended June 30, 2006,
                  and a
                  decrease to goodwill of $12 million from the resolution of a
                  pre-acquisition tax contingency pursuant to EITF Issue 93-7,
                  "Uncertainties Related to Income Taxes in a Purchase Business
                  Combination."(b)
              
              For
                  the three months ended June 30, 2007, changes in PPL's state and
                  federal
                  income tax reserves consisted of a $32 million benefit reflected
                  in
                  "Change in federal tax reserves" and a $2 million net state and
                  federal
                  benefit reflected in "Stranded cost securitization."
                
                For
                  the three months ended June 30, 2006, changes in PPL's state and
                  federal
                  income tax reserves consisted of a $1 million expense reflected
                  in "Change
                  in federal tax reserves" and a $1 million state expense reflected
                  in
                  "State income taxes," offset by a $2 million net state and federal
                  benefit
                  reflected in "Stranded cost securitization."
                
                For
                  the six months ended June 30, 2007, changes in PPL's state and
                  federal
                  income tax reserves consisted of a $30 million benefit reflected
                  in
                  "Change in federal tax reserves" and a $3 million net state and
                  federal
                  benefit reflected in "Stranded cost securitization."
                
                For
                  the six months ended June 30, 2006, changes in PPL's state and
                  federal
                  income tax reserves consisted of a $3 million benefit reflected
                  in "Change
                  in federal tax reserves" and a $3 million net state and federal
                  benefit
                  reflected in "Stranded cost securitization," offset by a $6 million
                  state
                  expense reflected in "State income
                  taxes."
 **Three
                        Months Ended**
                      **June
                        30,**
                    
                    **Six
                        Months Ended**
                      **June
                        30,****PPL
                        Energy Supply**
                    
                    **2007**
                    
                    **2006**
                    
                    **2007**
                    
                    **2006****Reconciliation
                        of**
                      **Income
                        Tax Expense**Federal
                        income tax on Income from Continuing Operations Before Income
                        Taxes and
                        Minority Interest at statutory tax rate - 35%
                    
                    $
                    85
                    
                    
                    $
                    82
                    
                    
                    $
                    161
                    
                    
                    $
                    184Increase
                        (decrease) due to:State
                        income taxes (b)
                    
                    
                    7
                    
                    
                    
                    4
                    
                    
                    
                    11
                    
                    
                    
                    12Amortization
                        of investment tax credit
                    
                    
                    (2
                    )
                    
                    
                    (2
                    )
                    
                    
                    (4
                    )
                    
                    
                    (4
                    )Difference
                        related to income recognition of foreign affiliates (net
                        of foreign income
                        taxes)
                    
                    
                    (8
                    )
                    
                    
                    (16
                    )
                    
                    
                    (17
                    )
                    
                    
                    (15
                    )Transfer
                        of WPD tax items (a)
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (20
                    )Federal
                        income tax credits
                    
                    
                    (25
                    )
                    
                    
                    2
                    
                    
                    
                    (51
                    )
                    
                    
                    (14
                    )Change
                        in federal tax reserves (b)
                    
                    
                    (31
                    )
                    
                    
                    1
                    
                    
                    
                    (29
                    )
                    
                    
                    (3
                    )Other
                    
                    
                    (3
                    )
                    
                    
                    (2
                    )
                    
                    
                    (4
                    )
                    
                    
                    (2
                    )(62
                    )
                    
                    
                    (13
                    )
                    
                    
                    (94
                    )
                    
                    
                    (46
                    )**Total
                        income tax expense**
                    
                    $
                    23
                    
                    
                    $
                    69
                    
                    
                    $
                    67
                    
                    
                    $
                    138**Effective
                        income tax rate**
                    
                    
                    9.5%
                    
                    
                    
                    29.1%
                    
                    
                    
                    14.6%
                    
                    
                    
                    26.2%
 
 (a)
              
              In
                  January 2006, WPD, Hyder's liquidator and a former Hyder affiliate
                  signed
                  an agreement to transfer to the affiliate a future tax liability
                  from WPD
                  and certain surplus tax losses from Hyder.  Inland Revenue, the
                  U.K. taxing authority, subsequently confirmed this
                  agreement.  This transfer resulted in a net reduction of income
                  tax expense of $20 million for the six months ended June 30, 2006,
                  and a
                  decrease to goodwill of $12 million from the resolution of a
                  pre-acquisition tax contingency pursuant to EITF Issue 93-7,
                  "Uncertainties Related to Income Taxes in a Purchase Business
                  Combination."(b)
              
              For
                  the three months ended June 30, 2007, changes in PPL Energy Supply's
                  federal and state income tax reserves consisted of a $31 million
                  benefit
                  in "Change in federal tax reserves," offset by an insignificant
                  state
                  amount in "State income taxes."
                
                For
                  the three months ended June 30, 2006, changes in PPL Energy Supply's
                  federal and state income tax reserves consisted of a $1 million
                  expense in
                  "Change in federal tax reserves" and an insignificant state amount
                  in
                  "State income taxes."
                
                For
                  the six months ended June 30, 2007, changes in PPL Energy Supply's
                  federal
                  and state income tax reserves consisted of a $29 million benefit
                  in
                  "Change in federal tax reserves," offset by an insignificant state
                  amount
                  in "State income taxes."
                
                For
                  the six months ended June 30, 2006, changes in PPL Energy Supply's
                  federal
                  and state income tax reserves consisted of a $3 million benefit
                  reflected
                  in "Change in federal tax reserves," and is more than offset by
                  a $5
                  million state tax expense reflected in "State income
                  taxes."
 
 In
        July
        2007, the U.K.'s Finance Act 2007, which includes amendments to existing
        tax
        law, was enacted.  The most significant change to the tax law was a
        reduction in the U.K.'s statutory income tax rate.  Effective April 1,
        2008, the statutory income tax rate will be reduced from 30% to
        28%.  As a result, PPL Energy Supply anticipates recognizing a
        one-time deferred tax benefit during the third quarter of 2007 in the range
        of
        $50 to $60 million.
 
 *(PPL
        Electric)*
 
 Reconciliations
        of effective income tax rates are:
 
 **Three
                  Months Ended**
                **June
                  30,**
              
              **Six
                  Months Ended**
                **June
                  30,****PPL
                  Electric**
              
              **2007**
              
              **2006**
              
              **2007**
              
              **2006****Reconciliation
                  of**
                **Income
                  Tax Expense**Federal
                  income tax on Income Before Income Taxes at statutory tax rate
                  -
                  35%
              
              $
              18
              
              
              $
              18
              
              
              $
              48
              
              
              $
              46Increase
                  (decrease) due to:State
                  income taxes
              
              
              1
              
              
              
              (1
              )
              
              
              4
              
              
              
              1Amortization
                  of investment tax credit
              
              
              
              
              
              
              
              
              
              
              (1
              )
              
              
              (1
              )Stranded
                  cost securitization
              
              
              (2
              )
              
              
              (2
              )
              
              
              (3
              )
              
              
              (3
              )Change
                  in federal tax reserves
              
              
              (1
              )
              
              
              1
              
              
              
              (1
              )
              
              
              1Other
              
              
              
              
              
              
              
              
              
              
              (1
              )
              
              
              1(2
              )
              
              
              (2
              )
              
              
              (2
              )
              
              
              (1
              )**Total
                  income tax expense**
              
              $
              16
              
              
              $
              16
              
              
              $
              46
              
              
              $
              45**Effective
                  income tax rate**
              
              
              32.0%
              
              
              
              32.0%
              
              
              
              33.6%
              
              
              
              34.4%
 
 **Unrecognized
        Tax Benefits**
 
 *(PPL,
        PPL Energy Supply and PPL Electric)*
 
 In
        June
        2006, the FASB issued FIN 48, "Accounting for Uncertainty in Income Taxes,
        an
        interpretation of FASB Statement No. 109."  In May 2007, the FASB
        amended this guidance by issuing FSP FIN 48-1, "Definition of Settlement
        in FASB
        Interpretation No. 48."  PPL and its subsidiaries adopted FIN 48, as
        amended, effective January 1, 2007.  The adoption resulted in the
        following increases (decreases) to the Balance Sheet at January 1,
        2007.
 
 **PPL**
              
              **PPL
                  Energy Supply**
              
              **PPL
                  Electric**Current
                  Assets - Prepayments
              
              $
              20
              
              
              $
              20Current
                  Liabilities - Taxes
              
              
              (134
              )
              
              
              (107
              )
              
              $
              (21
              )Deferred
                  Credits and Other Noncurrent Liabilities - Deferred income taxes
                  and
                  investment tax credits
              
              
              10
              
              
              
              9
              
              
              
              2Regulatory
                  and Other Noncurrent Assets - Other
              
              
              (5
              )
              
              
              
              
              
              
              (5
              )Deferred
                  Credits and Other Noncurrent Liabilities - Other
              
              
              139
              
              
              
              119
              
              
              
              13Equity
                  - Earnings reinvested (cumulative effect) (a)
              
              
              
              
              
              
              (1
              )
              
              
              1
 
 (a)
              
              Recorded
                  as an adjustment to the opening
                  balances.
 
 At
        January 1, 2007, the total unrecognized tax benefits and related indirect
        effects that if recognized would decrease the effective tax rate
        were:
 
 **PPL**
              
              **PPL
                  Energy Supply**
              
              **PPL
                  Electric**Total
                  unrecognized tax benefits
              
              $
              226
              
              
              $
              143
              
              
              $
              78Unrecognized
                  tax benefits associated with taxable or deductible temporary
                  differences
              
              
              (1
              )
              
              
              9
              
              
              
              (10
              )Unrecognized
                  tax benefits associated with business combinations
              
              
              (19
              )
              
              
              (19
              )Total
                  indirect effect of unrecognized tax benefits on other tax
                  jurisdictions
              
              
              (43
              )
              
              
              (12
              )
              
              
              (31
              )Total
                  unrecognized tax benefits and related indirect effects that if
                  recognized
                  would decrease the effective tax rate
              
              $
              163
              
              
              $
              121
              
              
              $
              37
 
 At
        June
        30, 2007, the "Total unrecognized tax benefits" for PPL, PPL Energy Supply,
        and
        PPL Electric were $192 million, $114 million and $73 million.  The
        "Total unrecognized tax benefits and related indirect effects that if recognized
        would decrease the effective tax rate" for PPL, PPL Energy Supply, and PPL
        Electric were $133 million, $95 million and $33 million.  The
        decreases were primarily the result of recognizing, in the second quarter
        of
        2007, previously unrecognized tax benefits of $29 million, $26 million and
        $2
        million due to the lapse of applicable statutes of limitations, with respect
        to
        certain issues.
  At
        January 1, 2007, it was reasonably possible that during the next twelve months
        the total amount of unrecognized tax benefits, recorded at January 1, 2007,
        could decrease between $25 million and $106 million for PPL, decrease between
        $30 million and $91 million for PPL Energy Supply and decrease by up to $9
        million for PPL Electric, as a result of subsequent recognition, derecognition
        and/or changes in measurement of uncertain tax positions related to the
        creditability of foreign taxes, the timing and utilization of foreign tax
        credits and the related impact on alternative minimum tax and other credits,
        the
        timing and/or valuation of certain deductions, intercompany transactions
        and
        unitary filing groups.  The events that could cause these changes are
        direct settlements with taxing authorities, litigation, legal or administrative
        guidance by relevant taxing authorities and the lapse of an applicable statute
        of limitation.
 
 At
        June
        30, 2007, PPL, PPL Energy Supply and PPL Electric determined that it was
        reasonably possible that during the next twelve months the total amount of
        unrecognized tax benefits could decrease between $1 million and $80 million
        for
        PPL, decrease between $6 million and $65 million for PPL Energy Supply and
        decrease by up to $9 million for PPL Electric, primarily due to the lapse
        of
        applicable statutes of limitations, with respect to certain issues.
 
 It
        is PPL
        and its subsidiaries' policy to record interest and penalties in "Income
        Taxes"
        on their Statements of Income.
 
 At
        January 1, 2007, interest and penalties accrued on the Balance Sheet
        were:
 
 **PPL**
              
              **PPL
                  Energy Supply**
              
              **PPL
                  Electric**Accrued
                  interest
              
              $
              37
              
              
              $
              29
              
              
              $
              8Accrued
                  penalties
              
              
              1
              
              
              
              1Total
                  accrued interest and penalties
              
              $
              38
              
              
              $
              30
              
              
              $
              8
 
 At
        June
        30, 2007, PPL, PPL Energy Supply and PPL Electric had accrued interest and
        penalties of $32 million, $24 million and $8 million.  The decrease in
        accrued interest and penalties was primarily the result of PPL and PPL Energy
        Supply recognizing in "Income Taxes" on the Statements of Income, in the
        second
        quarter 2007, the reversal of $8 million of previously accrued interest and
        penalties on previously unrecognized tax benefits related to the lapse of
        applicable statutes of limitations, with respect to certain issues.
 
 PPL
        or
        its subsidiaries file tax returns in five major tax
        jurisdictions.  PPL Energy Supply's and PPL Electric's U.S. federal
        and state tax provision are calculated in accordance with an intercompany
        tax
        sharing policy with PPL which provides that their taxable income be calculated
        as if PPL Energy Supply and its domestic subsidiaries and PPL Electric and
        its
        subsidiaries each filed a separate consolidated tax return.  Based on
        this tax sharing policy, PPL Energy Supply or its subsidiaries indirectly
        or
        directly file tax returns in five major tax jurisdictions and PPL Electric
        or
        its subsidiaries indirectly or directly file tax returns in two major tax
        jurisdictions.  These jurisdictions, as well as the tax years that are
        no longer subject to examination, are as follows:
 
 **PPL
                  and**
                **PPL
                  Energy Supply**
              
              **PPL
                  Electric**U.S.
                  (federal)
              
              1995
                  and prior
              
              1995
                  and priorPennsylvania
                  (state)
              
              2000
                  and prior
              
              2000
                  and priorMontana
                  (state)
              
              2002
                  and priorU.K.
                  (foreign)
              
              1999
                  and priorChile
                  (foreign)
              
              2002
                  and prior
 
 *(PPL
        and PPL Energy Supply)*
 
 At
        June
        30, 2007, as a result of PPL's plan to dispose of its Latin American businesses,
        PPL and PPL Energy Supply classified $4 million of unrecognized tax benefits
        in
        "Liabilities held for sale and related minority interest."  (See Note
        8 for additional information.)  If these unrecognized tax benefits
        were subsequently recognized, they would not impact PPL's and PPL Energy
        Supply's effective tax rate.
 
 **6.**
              **Comprehensive
                  Income**
 
 *(PPL
        and PPL Energy Supply)*
 
 The
        after-tax components of comprehensive income are:
 
 **Three
                  Months Ended**
                **June
                  30,**
              
              **Six
                  Months Ended**
                **June
                  30,****PPL**
              
              **2007**
              
              **2006**
              
              **2007**
              
              **2006**Net
                  Income
              
              $
              345
              
              
              $
              181
              
              
              $
              548
              
              
              $
              461Other
                  comprehensive (loss) income:Foreign
                  currency translation adjustments
              
              
              14
              
              
              
              70
              
              
              
              14
              
              
              
              82Defined
                  benefit plans amortization:Prior
                  service costs
              
              
              3
              
              
              
              
              
              
              
              7Actuarial
                  loss
              
              
              10
              
              
              
              
              
              
              
              20Net
                  unrealized gain (loss) on available-for-sale securities
                  (a)
              
              
              7
              
              
              
              (4
              )
              
              
              8
              
              
              
              (9
              )Net
                  unrealized (loss) gain on qualifying derivatives
              
              
              (118
              )
              
              
              24
              
              
              
              (86
              )
              
              
              126Other
              
              
              (1
              )
              
              
              
              
              
              
              (1
              )Total
                  other comprehensive (loss) income
              
              
              (85
              )
              
              
              90
              
              
              
              (38
              )
              
              
              199Comprehensive
                  Income
              
              $
              260
              
              
              $
              271
              
              
              $
              510
              
              
              $
              660
 **PPL
                  Energy Supply**Net
                  Income
              
              $
              320
              
              
              $
              158
              
              
              $
              467
              
              
              $
              388Other
                  comprehensive (loss) income:Foreign
                  currency translation adjustments
              
              
              14
              
              
              
              70
              
              
              
              14
              
              
              
              82Defined
                  benefit plans amortization:Prior
                  service costs
              
              
              3
              
              
              
              
              
              
              
              6Actuarial
                  loss
              
              
              10
              
              
              
              
              
              
              
              20Net
                  unrealized gain (loss) on available-for-sale securities
                  (a)
              
              
              7
              
              
              
              (4
              )
              
              
              8
              
              
              
              (9
              )Net
                  unrealized (loss) gain on qualifying derivatives
              
              
              (124
              )
              
              
              14
              
              
              
              (91
              )
              
              
              108Total
                  other comprehensive (loss) income
              
              
              (90
              )
              
              
              80
              
              
              
              (43
              )
              
              
              181Comprehensive
                  Income
              
              $
              230
              
              
              $
              238
              
              
              $
              424
              
              
              $
              569
 
 (a)
              
              The
                  2007 amounts exclude unrealized losses on investments in the nuclear
                  decommissioning trust funds.
 
 *(PPL
        Electric)*
 
 PPL
        Electric's comprehensive income approximates net income.
 
 **7.**
              **Credit
                  Arrangements and Financing
                  Activities**
 
 **Credit
        Arrangements**
 
 *(PPL
        and PPL Energy Supply)*
 
 PPL
        Energy Supply maintains credit facilities in order to enhance liquidity and
        provide credit support, and as a backstop to its commercial paper
        program.
 
 In
        March
        2007, PPL Energy Supply extended the expiration date of its 364-day
        reimbursement agreement to March 2008.  Under the agreement, PPL
        Energy Supply can cause the bank to issue up to $200 million of letters of
        credit but cannot make cash borrowings.  At June 30, 2007, there was
        $141 million of letters of credit outstanding under this agreement.
 
 In
        May
        2007, PPL Energy Supply entered into a $3.4 billion Second Amended and Restated
        Five-Year Credit Agreement, which amended its previously existing $1.9 billion
        credit facility and extended the term of the previously existing facility
        to
        June 2012.  Under certain conditions, PPL Energy Supply may elect to
        have the principal balance of the loans outstanding on the final maturity
        date
        of the facility continue as non-revolving term loans for a period of one
        year
        from that final maturity date.  Also, under certain conditions, PPL
        Energy Supply may request that the facility's principal amount be increased
        by
        up to $500 million.  PPL Energy Supply has the ability to cause the
        lenders under this facility to issue letters of credit.  At June 30,
        2007, PPL Energy Supply had $158 million of letters of credit and no cash
        borrowings outstanding under this facility.
 
 PPL
        Energy Supply also maintains a $300 million five-year letter of credit and
        revolving credit facility expiring in March 2011.  At June 30, 2007,
        there were no cash borrowings and $242 million of letters of credit outstanding
        under this facility.  PPL Energy Supply's obligations under this
        facility are supported by a $300 million letter of credit issued on PPL Energy
        Supply's behalf under a separate $300 million five-year letter of credit
        and
        reimbursement agreement, also expiring in March 2011.
 
 PPL
        Energy Supply maintains a commercial paper program for up to $500 million
        to
        provide an additional financing source to fund its short-term liquidity needs,
        if and when necessary.  Commercial paper issuances are supported by
        PPL Energy Supply's $3.4 billion five-year credit facility.  PPL
        Energy Supply had no commercial paper outstanding at June 30, 2007.
 
 In
        January 2007, WPD (South West) terminated its £150 million three-year committed
        credit facility, which was to expire in October 2008.  This facility
        was replaced by a new £150 million five-year committed credit facility at WPDH
        Limited that expires in January 2012, with the option to extend the expiration
        date by a maximum of two years.  WPD (South West) currently maintains
        two committed credit facilities: a £100 million 364-day facility expiring in
        November 2007 and a £150 million five-year facility expiring in October
        2009.  WPD's total committed facilities at June 30, 2007, were £400
        million (approximately $792 million).  At June 30, 2007, WPD (South
        West) also had uncommitted credit facilities of £65 million (approximately $129
        million).  At June 30, 2007, there were no cash borrowings outstanding
        under any of these facilities.
 
 In
        May
        2007, Emel arranged uncommitted credit lines in the amount of 32.4 billion
        Chilean pesos (approximately $62 million), with authorization to borrow up
        to
        $20 million as required for working capital needs.  As of June 30,
        2007, there were 2.7 billion Chilean pesos (approximately $5 million) of
        cash
        borrowings outstanding under these facilities at an interest rate of
        5.86%.
 
 *(PPL
        and PPL Electric)*
 
 PPL
        Electric maintains credit facilities in order to enhance liquidity and provide
        credit support, and as a backstop to its commercial paper program.
 
 In
        May
        2007, PPL Electric entered into a $200 million Third Amended and Restated
        Five-Year Credit Agreement, which extended the term of its existing credit
        facility to May 2012.  Under certain conditions, PPL Electric may
        elect to have the principal balance of the loans outstanding on the final
        maturity date of the facility continue as non-revolving term loans for a
        period
        of one year from that final maturity date.  Also, under certain
        conditions, PPL Electric may request that the facility's principal amount
        be
        increased by up to $100 million.  PPL Electric has the ability to
        cause the lenders under this facility to issue letters of credit.  At
        June 30, 2007, PPL Electric had no cash borrowings and an insignificant amount
        of letters of credit outstanding under this facility.
 
 PPL
        Electric maintains a commercial paper program for up to $200 million to provide
        an additional financing source to fund its short-term liquidity needs, if
        and
        when necessary.  Commercial paper issuances are supported by PPL
        Electric's $200 million five-year credit facility.  PPL Electric had
        $55 million of commercial paper outstanding at June 30, 2007, with a weighted
        average interest rate of 5.38%.
 
 At
        June
        30, 2007, $143 million of accounts receivable and $141 million of unbilled
        revenues were pledged by a PPL Electric subsidiary under the credit agreement
        related to PPL Electric's and the subsidiary's participation in an asset-backed
        commercial paper program.  Also at this date, there was $41 million of
        short-term debt outstanding under the credit agreement at an interest rate
        of
        5.3601%, all of which was being used to cash collateralize letters of credit
        issued on PPL Electric's behalf.  The funds used to cash collateralize
        the letters of credit are reported in "Restricted Cash" on the Balance
        Sheet.  At June 30, 2007, based on the accounts receivable and
        unbilled revenues pledged, an additional $109 million was available for
        borrowing.  PPL Electric's sale to its subsidiary of the accounts
        receivable and unbilled revenues is an absolute sale of the assets, and PPL
        Electric does not retain an interest in these assets.  However, for
        financial reporting purposes, the subsidiary's financial results are
        consolidated in PPL Electric's financial statements.  In July 2007,
        PPL Electric and the subsidiary extended the expiration date of the credit
        agreement to July 2008.  PPL Electric currently expects that it and
        the subsidiary will continue to renew the credit agreement on an annual
        basis.
 
 *(PPL,
        PPL Energy Supply and PPL Electric)*
 
 The
        subsidiaries of PPL are separate legal entities.  PPL's subsidiaries
        are not liable for the debts of PPL.  Accordingly, creditors of PPL
        may not satisfy their debts from the assets of the subsidiaries absent a
        specific contractual undertaking by a subsidiary to pay PPL's creditors or
        as
        required by applicable law or regulation.  Similarly, absent a
        specific contractual undertaking or as required by applicable law or regulation,
        PPL is not liable for the debts of its subsidiaries.  Accordingly,
        creditors of PPL's subsidiaries may not satisfy their debts from the assets
        of
        PPL absent a specific contractual undertaking by PPL to pay the creditors
        of its
        subsidiaries or as required by applicable law or regulation.
 
 Similarly,
        the subsidiaries of PPL Energy Supply and PPL Electric are separate legal
        entities.  These subsidiaries are not liable for the debts of PPL
        Energy Supply and PPL Electric.  Accordingly, creditors of PPL Energy
        Supply and PPL Electric may not satisfy their debts from the assets of their
        subsidiaries absent a specific contractual undertaking by a subsidiary to
        pay
        the creditors or as required by applicable law or regulation.  In
        addition, absent a specific contractual undertaking or as required by applicable
        law or regulation, PPL Energy Supply and PPL Electric are not liable for
        the
        debts of their subsidiaries.  Accordingly, creditors of these
        subsidiaries may not satisfy their debts from the assets of PPL Energy Supply
        or
        PPL Electric absent a specific contractual undertaking by that parent to
        pay the
        creditors of its subsidiaries or as required by applicable law or
        regulation.
 
 **Financing
        Activities**
 
 *(PPL)*
 
 In
        March
        2007, PPL Capital Funding issued $500 million of 2007 Series A Junior
        Subordinated Notes due 2067 (Notes).  The Notes are fully and
        unconditionally guaranteed by PPL as to payment of principal, interest and
        premium, if any.  The Notes mature in March 2067, and are callable at
        par value beginning in March 2017.  Prior to such time, the Notes
        may be redeemed at PPL Capital Funding's option at make-whole redemption
        prices.  The Notes bear interest at 6.70% from the date of issuance
        through March 2017.  After March 2017, and continuing up to
        the maturity date, the Notes bear interest at three-month LIBOR plus 2.665%,
        reset quarterly.  PPL Capital Funding may defer interest payments on
        the Notes, from time to time, on one or more occasions for up to ten consecutive
        years.  Deferred interest payments will accumulate additional interest
        at a rate equal to the interest rate then applicable to the
        Notes.  During any period in which PPL Capital Funding defers interest
        payments on the Notes, subject to certain exceptions, neither PPL Capital
        Funding nor PPL may (i) declare or pay any cash dividend or distribution
        on its
        capital stock, (ii) redeem, purchase, acquire or make a liquidation payment
        with
        respect to any of its capital stock, or (iii) make any payments on any debt
        or
        any guarantee of debt by PPL that is equal or junior in right of payment
        to the
        Notes or the related guarantee by PPL.
 
 PPL
        Capital Funding received $493 million of proceeds, net of a discount and
        underwriting fees, from the issuance of the Notes.  Of the proceeds,
        $281 million were used to pay at maturity PPL Capital Funding's 8.375%
        Medium-Term Notes due June 2007.  The remainder of the net proceeds
        was used for general corporate purposes, including capital expenditures relating
        to the installation of pollution control equipment by PPL Energy Supply
        subsidiaries.
 
 In
        connection with the issuance of the Notes, PPL and PPL Capital Funding entered
        into a Replacement Capital Covenant, in which PPL and PPL Capital Funding
        agreed
        for the benefit of holders of a designated series of unsecured long-term
        indebtedness of PPL or PPL Capital Funding ranking senior to the Notes that
        (i)
        PPL Capital Funding will not redeem or purchase the Notes, or otherwise satisfy,
        discharge or defease the principal amount of the Notes and (ii) neither PPL
        nor
        any of its other subsidiaries will purchase the Notes on or before March
        2037,
        except, subject to certain limitations, to the extent that the applicable
        redemption or repurchase price or principal amount defeased does not exceed
        a
        specified amount of proceeds from the sale of qualifying replacement capital
        securities during the 180-day period prior to the date of that redemption,
        repurchase or defeasance.  The designated series of covered debt
        currently benefiting from the Replacement Capital Covenant is PPL Capital
        Funding's 4.33% Notes Exchange Series A Due March 2009.
 
 In
        July
        2007, PPL Capital Funding issued $100 million of 6.85% Senior Notes due 2047
        (6.85% Notes).  The 6.85% Notes are not subject to redemption prior to
        July 2012.  On or after July 2012, PPL Capital Funding may,
        at its option, redeem the 6.85% Notes, in whole or in part, at
        par.  PPL Capital Funding received $97 million of proceeds, net of
        underwriting fees, from the issuance of the 6.85% Notes.  The proceeds
        will be used for general corporate purposes, including capital expenditures
        relating to the installation of pollution control equipment by PPL Energy
        Supply
        subsidiaries.
 
 *(PPL
        and PPL Energy Supply)*
 
 The
        terms
        of PPL Energy Supply's 2.625% Convertible Senior Notes due 2023 include a
        market
        price trigger that permits holders to convert the notes during any fiscal
        quarter if the closing sale price of PPL's common stock exceeds $29.83 for
        at
        least 20 trading days in the 30 consecutive trading days ending on the last
        trading day of the preceding fiscal quarter.  Holders of the
        Convertible Senior Notes were entitled to convert their notes at any time
        during
        the first and second quarters of 2007 and are also entitled to convert their
        notes at any time during the third quarter of 2007, as a result of the market
        price trigger being met.  When holders elect to convert the
        Convertible Senior Notes, PPL Energy Supply is required to settle the principal
        amount in cash and any conversion premium in cash or PPL common
        stock.  During the six months ended June 30, 2007, Convertible Senior
        Notes in an aggregate principal amount of $10 million were presented for
        conversion.  The total conversion premium related to these conversions
        was $8 million, which was settled with 181,574 shares of PPL common stock,
        along
        with an insignificant amount of cash in lieu of fractional shares.  At
        June 30, 2007, $93 million of Convertible Senior Notes remain
        outstanding.
 
 In
        December 2006, Elfec issued $11 million of 6.05% UFV (inflation-adjusted
        bolivianos) denominated bonds with serial maturities from 2012 through
        2014.  Of these bonds, $5 million were issued in exchange for existing
        bonds with maturities in 2007 and 2008.  Cash proceeds of $6 million
        were used in January 2007 to refinance bonds with maturities in
        2007.  These transactions were reflected in PPL's January 2007
        financial statements due to the one-month lag in foreign subsidiary
        reporting.
 
 In
        February 2007, WPD LLP redeemed all of the 8.23% Subordinated Debentures
        due
        2027 that were held by SIUK Capital Trust I.  Upon redemption, WPD LLP
        paid a premium of 4.115%, or approximately $3 million, on the principal amount
        of $85 million of subordinated debentures.  In connection with this
        redemption, SIUK Capital Trust I was required to use all of the proceeds
        received from the repayment of the subordinated debentures to redeem all
        of its
        common and preferred securities.  WPD LLP received $3 million when its
        investment in SIUK Capital Trust I was liquidated.  See Note 22 of
        each Registrant's 2006 Form 10-K for a discussion of the trust.  The
        redemption of the subordinated debentures and the trust's common and preferred
        securities resulted in a loss of $2 million, after tax, for the six months
        ended
        June 30, 2007, which is included in "Interest Expense" for PPL and "Interest
        Expense with Affiliates" for PPL Energy Supply on the Statement of
        Income.  Payment of $29 million was also made to settle related
        cross-currency swaps and is included on the Statement of Cash Flows as a
        component of "Retirement of long-term debt."
 
 *(PPL
        Energy Supply)*
 
 During
        the six months ended June 30, 2007, PPL Energy Supply distributed $463 million
        to its parent company, PPL Energy Funding, and received cash capital
        contributions of $500 million.
 
 *(PPL
        and PPL Electric)*
 
 During
        the six months ended June 30, 2007, PPL Transition Bond Company made principal
        payments on transition bonds of $157 million.
 
 **Common
        Stock Repurchase Program***(PPL)*
 
 In
        June
        2007, PPL's Board of Directors authorized the repurchase by PPL of up to
        $750
        million of its common stock from time to time, in open market purchases,
        pre-arranged trading plans or privately negotiated transactions.  The
        specific amount and timing of repurchases will be based on a variety of factors,
        including potential share repurchase price, strategic investment considerations
        and other market and economic factors.  During the second quarter
        of 2007, PPL repurchased 1,675,000 shares of its common stock for $77
        million which was primarily recorded as a reduction to "Capital in excess
        of par
        value" on the Balance Sheet.  Through July 31, 2007, a total of
        3,559,100 shares were repurchased for $166 million.
 
 **Dividends**
 
 *(PPL)*
 
 In
        February 2007, PPL announced an increase to its quarterly common stock dividend,
        effective April 1, 2007, to 30.5 cents per share (equivalent to $1.22 per
        annum).  Future dividends, declared at the discretion of the Board of
        Directors, will be dependent upon future earnings, cash flows, financial
        requirements and other factors.
 
 *(PPL
        Electric)*
 
 During
        the six months ended June 30, 2007, PPL Electric paid common stock dividends
        of
        $74 million to PPL.
 
 **8.**
              **Acquisitions,
                  Development and
                  Divestitures**
 
 *(PPL,
        PPL Energy Supply and PPL Electric)*
 
 PPL
        continuously evaluates strategic options for its business segments and from
        time
        to time, PPL and its subsidiaries are involved in negotiations with third
        parties regarding acquisitions and dispositions of businesses and assets,
        joint
        ventures and development projects, which may or may not result in definitive
        agreements.  Any such transactions may impact future financial
        results.
 
 **Domestic**
 
 Development
 
 *(PPL
        and PPL Energy Supply)*
 
 In
        January 2007, the NRC accepted for review the PPL Susquehanna request to
        increase the amount of electricity the plant can generate.  The total
        expected capacity increase is 159 MW, of which PPL Susquehanna's share
        would be 143 MW.  PPL Susquehanna's share of the expected capital
        cost of this project is $274 million.  PPL cannot predict whether or
        when NRC approval will be obtained.
  In
          the
          second quarter of 2007, PPL sent a letter to the NRC indicating its intent
          to
          submit a combined construction and operating license application (COLA)
          for a
          third nuclear generating unit adjacent to the Susquehanna plant.  NRC
          acceptance of the COLA by December 2008 would meet the first requirement
          to
          qualify for federal production tax credits and loan guarantees as provided
          for
          under the Energy Policy Act of 2005.  Requests have also been filed
          with PJM for transmission feasibility and system impact studies.  PPL
          estimates that if it proceeds with the licensing phase it would cost
          approximately $90 million, most of which would be incurred by the end of
          2008.  The costs do not reflect any construction expenditures, nor do
          they represent a commitment to build.  Although PPL currently expects
          to capitalize these costs and would likely only proceed into construction
          in a
          joint-venture arrangement, PPL has made no decision to proceed with development
          and construction of another nuclear unit and expects that such decision
          could
          take as long as four years given the lengthy approval process.
 *(PPL
        and PPL Electric)*
 
 In
        June
        2007, PJM approved the construction of a new 130 mile, 500-kilovolt transmission
        line between the Susquehanna substation in Pennsylvania and the Roseland
        substation in New Jersey that has been identified as essential to long-term
        reliability of the mid-Atlantic electricity grid.  PJM determined that
        the line is needed to prevent potential overloads that could occur in the
        next
        decade on several existing transmission lines in the interconnected PJM system.
        It was announced by PJM that the line would be jointly built by PPL Electric,
        FirstEnergy Corporation of Akron, Ohio and Public Service Enterprise Group
        of
        Newark, New Jersey.  PJM also announced that construction of the line
        is estimated to cost $930 million, of which PPL Electric's share is estimated
        at
        approximately $326 million.  The portion of the line to be built in
        Pennsylvania requires PUC approval.
 
 Anticipated
        Sale of Transport Operations*****(PPL and PPL Energy
        Supply)*
 
 In
        the
        first quarter of 2007, PPL completed a review of strategic options for the
        transport operations of its domestic telecommunications subsidiary, which
        offers
        fiber optic capacity to other telecommunications companies and enterprise
        customers.  The operating results of this subsidiary are included in
        the Supply segment.  Due to a combination of significant capital
        requirements for the transport operations and competing capital needs in
        PPL's
        core electricity supply and delivery businesses, PPL decided to actively
        market
        these transport operations.
 
 In
        the
        first quarter of 2007, PPL and PPL Energy Supply recorded a $31 million pre-tax
        ($18 million after tax) write-down in the carrying value of the transport
        assets
        to their estimated fair value.  In May 2007, PPL reached a definitive
        agreement to sell its transport operations.  In the second quarter of
        2007, PPL and PPL Energy Supply recorded an additional write-down of $3 million
        pre-tax ($2 million after tax.)  The write-downs are included in
        "Energy-related businesses" expenses on the Statements of Income.  PPL
        expects to realize $50 million in net proceeds from the sale, which is expected
        to close by the end of the third quarter of 2007 following regulatory
        approvals.  Proceeds of the sale are expected to be used to invest in
        growth opportunities in PPL's core electricity supply and delivery businesses
        and/or for the repurchase of securities, including PPL common
        stock.
 
 In
        accordance with SFAS 144, "Accounting for the Impairment or Disposal of
        Long-Lived Assets," the assets and liabilities of these transport operations
        have been classified as "held for sale" on the Balance Sheet at June 30,
        2007.  The transport operations did not meet the criteria for
        discontinued operations presentation on the Statement of Income because there
        are not separate and distinguishable cash flows.  The major classes of
        "Assets held for sale" and "Liabilities held for sale and related minority
        interest" on the Balance Sheet at June 30, 2007, were as follows
        (corresponding amounts at December 31, 2006, are also noted for comparative
        purposes but, have not been reclassified on the balance sheet as of that
        period):
 
 **June
                  30,**
                **2007**
              
              **December
                  31,**
                **2006**Current
                  assets
              
              $
              2
              
              
              $
              3PP&E
                  and other acquired intangibles
              
              
              59
              
              
              
              89Total
                  assets held for sale
              
              $
              61
              
              
              $
              92Current
                  liabilities
              
              $
              5
              
              
              $
              6Long-term
                  debt
              
              
              1
              
              
              
              1Deferred
                  credits and other noncurrent
                liabilities
              
              
              11
              
              
              
              13Total
                  liabilities held for sale
              
              $
              17
              
              
              $
              20
 
 Anticipated
        Sale of Gas Operations*****(PPL)*
 
 In
          late
          July 2007, PPL completed a review of strategic options for its natural
          gas
          distribution and propane businesses and announced its intention to sell
          these
          businesses, which are included in the Pennsylvania Delivery
          segment.
 PPL
        is
        currently analyzing the accounting impact of its decision to sell these
        businesses and has not yet determined whether an impairment charge would
        be
        required in the third quarter of 2007.
 
 Proceeds
        of the sale are expected to be used to invest in growth opportunities in
        PPL's
        core electricity supply and delivery businesses and/or for the repurchase
        of
        securities, including PPL common stock.  PPL expects the sale to be
        completed during the second half of 2008, following the execution of a sales
        agreement and the receipt of all necessary regulatory approvals.
 
 Other 
        *(PPL and PPL Energy Supply)*
 
 See
        Note
        10 for a discussion of the impairment of PPL Energy Supply's synthetic fuel
        production facilities recorded in June 2006.
 
 **International***(PPL and PPL Energy Supply)*
 
 Sales
 
 In
        2005,
        WPD sold an equity investment by transferring substantially all risks and
        rewards of ownership of the two subsidiaries that held the investment, receiving
        $9 million (at then-current exchange rates).  The gain was deferred
        until WPD's continuing involvement in the subsidiaries ceased.  In
        July 2006, WPD ceased involvement with one subsidiary.  At that time,
        PPL Global recognized a pre-tax gain of $5 million.  In December 2006,
        WPD ceased involvement in the other subsidiary.  In the first quarter
        of 2007, due to the one-month lag in foreign subsidiary reporting, PPL Global
        recognized the remaining pre-tax gain of $5 million.  These gains are
        included in "Other Income - net" on the Statements of Income.
 
 In
        March
        2006, PPL Global completed the sale of its minority interest in Aguaytia
        Energy,
        LLC, a combined generating and natural gas facility in Peru.  PPL
        Global received $15 million from the sale, and recorded a pre-tax gain of
        $3
        million, which is included in "Other Income - net" on the Statement of
        Income.
 
 Other
 
 In
        February 2006, WPD received legal notification citing one of its real estate
        investments as an environmentally protected area, thus restricting planned
        development.  An impairment assessment was performed based on a
        third-party appraisal.  As a result, in the first quarter of 2006, PPL
        Global recorded an impairment charge of $8 million ($6 million after tax),
        which
        is included in "Other Income - net" on the Statement of Income.
 
 In
        2000,
        WPD acquired Hyder.  Subsequently, WPD sold the majority of Hyder's
        non-electricity delivery businesses and placed the remaining companies in
        liquidation.  In March 2006, WPD received $24 million in proceeds as
        an initial distribution related to the planned ongoing liquidation of the
        remaining non-electricity delivery businesses.  These proceeds were
        included in the second quarter 2006 financial results due to the one-month
        lag
        in foreign subsidiary reporting.  In December 2006, WPD received a
        further distribution of $4 million, which was included in the first quarter
        2007
        financial results.  In March 2007, WPD received a further distribution
        of $2 million, which was included in the second quarter 2007 financial
        results.  These distributions are included in "Other Income - net" on
        the Statements of Income.  The
        Hyder
        non-electricity delivery businesses are substantially liquidated.  WPD
        expects to receive liquidation distributions of up to approximately $3 million,
        the majority of which is expected to be received by the end of
        2007.  WPD continues to operate the Hyder electricity delivery
        business.
 
 **Discontinued
        Operations***(PPL and PPL Energy Supply)*
 
 Sale
        of Latin American Businesses
 
 In
        March
        2007, PPL completed a review of strategic options for its Latin American
        businesses and announced its intention to sell its regulated electricity
        delivery businesses in Chile, El Salvador and Bolivia, which are included
        in the
        International Delivery segment.
 
 In
          April
          2007, PPL agreed to sell its Bolivian businesses to a group organized by
          local
          management and employees of the companies.  As a result of the
          decision to sell, PPL recorded a $34 million, or $22 million after tax,
          impairment of the Bolivian businesses in the first quarter of 2007 based
          on
          their estimated fair value.  In the second quarter of 2007, an
          additional pre- and after-tax impairment of $2 million was recorded primarily
          to
          offset the current period earnings.  This sale was completed in July
          2007.
 
 In
          May
          2007, PPL completed the sale of its El Salvadoran business for $180 million
          in
          cash through a stock purchase agreement.  PPL recorded a gain of $94
          million, or $89 million after tax, as a result of the sale.
 
 The
          Chilean electricity delivery business is expected to be sold through an
          auction
          process, which is anticipated to be completed in 2007.
  Proceeds
        of the sales are expected to be used to invest in growth opportunities in
        PPL's
        core electricity supply and delivery businesses and/or for the repurchase
        of
        securities, including PPL common stock.  In accordance with SFAS 144,
        the results of operations for the three and six months ended June 30, 2007
        and
        2006, have been classified as discontinued operations on the Statements of
        Income.  At June 30, 2007, the assets, liabilities and minority
        interest related to the yet to be completed divestitures of the Bolivian
        and
        Chilean businesses are reflected in the Balance Sheet as "held for
        sale."
 
 Following
        are the components of "Income (Loss) from Discontinued Operations" on the
        Statements of Income related to PPL's Latin American regulated electricity
        delivery businesses.
 
 **Three
                  Months Ended**
                **June
                  30,**
              
              **Six
                  Months Ended**
                **June
                  30,****2007**
              
              **2006**
              
              **2007**
              
              **2006**Operating
                  revenues
              
              $
              158
              
              
              $
              138
              
              
              $
              313
              
              
              $
              269Operating
                  expenses (a)
              
              
              125
              
              
              
              120
              
              
              
              294
              
              
              
              235Operating
                  income
              
              
              33
              
              
              
              18
              
              
              
              19
              
              
              
              34Other
                  income – net
              
              
              
              
              
              
              3
              
              
              
              3
              
              
              
              4Interest
                  expense (b)
              
              
              6
              
              
              
              7
              
              
              
              11
              
              
              
              12Income
                  before income taxes and minority interest
              
              
              27
              
              
              
              14
              
              
              
              11
              
              
              
              26Income
                  tax expense (c)
              
              
              13
              
              
              
              3
              
              
              
              20
              
              
              
              3Minority
                  interest
              
              
              2
              
              
              
              1
              
              
              
              4
              
              
              
              3Gain
                  on sale of El Salvadoran business (net of tax expense of $5
                  million)
              
              
              89
              
              
              
              
              
              
              
              89Income
                  from Discontinued Operations
              
              $
              101
              
              
              $
              10
              
              
              $
              76
              
              
              $
              20
 
 (a)
              
              Includes
                  the write-downs in the carrying value of the Bolivian
                  businesses.(b)
              
              The
                  three and six months ended June 30, 2007 and 2006, include $2 million
                  and
                  $4 million of interest expense allocated pursuant to EITF 87-24,
                  "Allocation of Interest to Discontinued Operations," based on the
                  discontinued operation's share of the net assets of PPL Energy
                  Supply.(c)
              
              The
                  three and six months ended June 30, 2007, include U.S. deferred
                  tax
                  charges of $4 million and $22 million.  As a result of PPL's
                  decision to sell its Latin American businesses, it no longer qualifies
                  for
                  the permanently reinvested exception to recording deferred taxes
                  pursuant
                  to APB Opinion No. 23, "Accounting for Income Taxes-Special
                  Areas."
 
 The
        major
        classes of "Assets held for sale" and "Liabilities held for sale and related
        minority interest" on the Balance Sheet at June 30, 2007, were as follows
        (corresponding amounts at December 31, 2006, are also noted for comparative
        purposes, but have not been reclassified on the balance sheet as of that
        period):
 
 **June
                  30,**
                **2007**
              
              **December
                  31,**
                **2006**Current
                  AssetsCash
                  and cash equivalents
              
              $
              14
              
              
              $
              27Accounts
                  receivable
              
              
              73
              
              
              
              92Current
                  assets - other
              
              
              42
              
              
              
              49Total
                  Current Assets
              
              
              129
              
              
              
              168PP&E
              
              
              366
              
              
              
              475
 Regulatory
                  and Other Noncurrent AssetsGoodwill
              
              
              140
              
              
              
              148Other
              
              
              34
              
              
              
              27Total
                  Regulatory and Other Noncurrent Assets
              
              
              174
              
              
              
              175Total
                  assets held for sale
              
              $
              669
              
              
              $
              818Current
                  LiabilitiesAccounts
                  payable
              
              $
              39
              
              
              $
              55Current
                  liabilities - other
              
              
              39
              
              
              
              48Total
                  Current Liabilities
              
              
              78
              
              
              
              103Long-term
                  Debt
              
              
              215
              
              
              
              215Deferred
                  Credits and Other Noncurrent Liabilities
              
              
              39
              
              
              
              46Minority
                  Interest
              
              
              28
              
              
              
              33Total
                  liabilities held for sale and related minority interest
              
              $
              360
              
              
              $
              397
 
 Sale
        of Interest in Griffith Plant
 
 In
        June
        2006, a subsidiary of PPL Energy Supply, which is included in the Supply
        segment, sold its 50% ownership interest in the 600 MW Griffith power plant
        located in Kingman, Arizona, for $110 million in cash, adjusted by the $5
        million settlement related to steam turbine indemnifications in December
        2006.  Proceeds of the sale were used to fund a portion of PPL's
        capital expenditure requirements.  The book value of PPL's interest in
        the plant was $150 million on the sale date.
 
 Following
        are the components of "Income (Loss) from Discontinued Operations" on the
        Statement of Income related to the sale of PPL's interest in the Griffith
        plant.
 
 **June
                  30, 2006****Three
                  Months Ended**
              
              **Six
                  Months Ended**Operating
                  revenues
              
              $
              3
              
              
              $
              5Operating
                  expenses
              
              
              7
              
              
              
              10Operating
                  loss before income taxes
              
              
              (4
              )
              
              
              (5
              )Income
                  tax benefit
              
              
              2
              
              
              
              2Loss
                  from operations
              
              
              (2
              )
              
              
              (3
              )Loss
                  on sale of interest (net of tax benefit of $16 million)
              
              
              (24
              )
              
              
              (24
              )Acceleration
                  of net unrealized gains on derivatives associated with the plant
                  (net of
                  tax expense of $4 million)
              
              
              7
              
              
              
              7Loss
                  from Discontinued Operations
              
              $
              (19
              )
              
              $
              (20
              )
 
 See
        "Guarantees and Other Assurances" in Note 10 for more information on PPL
        Energy
        Supply's indemnifications related to the sale.
 
 **9.**
              **Pension
                  and Other Postretirement
                  Benefits**
 
 *(PPL
        and PPL Energy Supply)*
 
 Net
        periodic pension and other postretirement benefit costs were:
 **Pension
                  Benefits****Three
                  Months Ended June 30,**
              
              **Six
                  Months Ended June 30,****Domestic**
              
              **International**
              
              **Domestic**
              
              **International****2007**
              
              **2006**
              
              **2007**
              
              **2006**
              
              **2007**
              
              **2006**
              
              **2007**
              
              **2006****PPL**Service
                  cost
              
              $
              16
              
              
              $
              16
              
              
              $
              6
              
              
              $
              5
              
              
              $
              32
              
              
              $
              31
              
              
              $
              12
              
              
              $
              10Interest
                  cost
              
              
              33
              
              
              
              30
              
              
              
              42
              
              
              
              35
              
              
              
              66
              
              
              
              62
              
              
              
              84
              
              
              
              69Expected
                  return on plan assets
              
              
              (44
              )
              
              
              (41
              )
              
              
              (56
              )
              
              
              (49
              )
              
              
              (88
              )
              
              
              (82
              )
              
              
              (112
              )
              
              
              (97
              )Amortization
                  of:Transition
                  obligation
              
              
              (1
              )
              
              
              (1
              )
              
              
              
              
              
              
              
              
              
              
              (2
              )
              
              
              (2
              )Prior
                  service cost
              
              
              4
              
              
              
              4
              
              
              
              1
              
              
              
              1
              
              
              
              9
              
              
              
              7
              
              
              
              2
              
              
              
              2Actuarial
                  loss
              
              
              1
              
              
              
              1
              
              
              
              14
              
              
              
              13
              
              
              
              1
              
              
              
              2
              
              
              
              27
              
              
              
              24Net
                  periodic pension costs prior to settlement charge
              
              
              9
              
              
              
              9
              
              
              
              7
              
              
              
              5
              
              
              
              18
              
              
              
              18
              
              
              
              13
              
              
              
              8Settlement
                  charge
              
              
              3
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              3Net
                  periodic pension costs
              
              $
              12
              
              
              $
              9
              
              
              $
              7
              
              
              $
              5
              
              
              $
              21
              
              
              $
              18
              
              
              $
              13
              
              
              $
              8**PPL
                  Energy Supply**Service
                  cost
              
              $
              1
              
              
              $
              1
              
              
              $
              5
              
              
              $
              5
              
              
              $
              2
              
              
              $
              2
              
              
              $
              11
              
              
              $
              10Interest
                  cost
              
              
              2
              
              
              
              1
              
              
              
              42
              
              
              
              35
              
              
              
              3
              
              
              
              3
              
              
              
              84
              
              
              
              69Expected
                  return on plan assets
              
              
              (2
              )
              
              
              (1
              )
              
              
              (56
              )
              
              
              (49
              )
              
              
              (4
              )
              
              
              (4
              )
              
              
              (112
              )
              
              
              (97
              )Amortization
                  of:Prior
                  service cost
              
              
              
              
              
              
              
              
              
              
              2
              
              
              
              1
              
              
              
              
              
              
              
              
              
              
              
              3
              
              
              
              2Actuarial
                  loss
              
              
              
              
              
              
              
              
              
              
              14
              
              
              
              13
              
              
              
              
              
              
              
              
              
              
              
              27
              
              
              
              24Net
                  periodic pension costs
              
              $
              1
              
              
              $
              1
              
              
              $
              7
              
              
              $
              5
              
              
              $
              1
              
              
              $
              1
              
              
              $
              13
              
              
              $
              8
 
 
 **Other
                  Postretirement Benefits****Three
                  Months Ended**
                **June
                  30,**
              
              **Six
                  Months Ended**
                **June
                  30,****2007**
              
              **2006**
              
              **2007**
              
              **2006****PPL**Service
                  cost
              
              $
              2
              
              
              $
              2
              
              
              $
              4
              
              
              $
              4Interest
                  cost
              
              
              7
              
              
              
              7
              
              
              
              15
              
              
              
              14Expected
                  return on plan assets
              
              
              (5
              )
              
              
              (5
              )
              
              
              (10
              )
              
              
              (10
              )Amortization
                  of:Transition
                  obligation
              
              
              2
              
              
              
              2
              
              
              
              4
              
              
              
              4Prior
                  service cost
              
              
              3
              
              
              
              2
              
              
              
              5
              
              
              
              3Actuarial
                  loss
              
              
              1
              
              
              
              2
              
              
              
              3
              
              
              
              5Net
                  other postretirement benefits cost
              
              $
              10
              
              
              $
              10
              
              
              $
              21
              
              
              $
              20
 
 **10.**
              **Commitments
                  and Contingent Liabilities**
 
 **Energy
        Purchases, Energy Sales and Other Commitments**
 
 Energy
          Purchase Commitments
 
 *(PPL
          and PPL Energy Supply)*
 
 PPL
          and
          PPL Energy Supply enter into long-term purchase contracts to supply the
          fuel
          requirements for generation facilities.  These contracts include
          commitments to purchase coal, emission allowances, natural gas, oil and
          nuclear
          fuel and extend for terms through 2019.  PPL and PPL Energy Supply
          also enter into long-term contracts for the storage and transportation
          of
          natural gas which extend through 2014 and 2032.  Additionally, PPL and
          PPL Energy Supply have entered into long-term contracts to purchase power
          that
          extend for terms through 2017, excluding long-term power purchase agreements
          for
          full output of two windfarms.  These windfarm contracts extend for
          terms through 2027.
 
 In
          March
          2007, PPL Montana entered into a long-term coal purchase and supply agreement,
          which commences in 2010, for Colstrip Units 1 and 2.  The contract is
          expected to extend through 2019.
 
 *(PPL
          and PPL Electric)*
 
 In
          July
          2007, PPL Electric conducted the first of six competitive solicitations
          to
          purchase electricity generation supply in 2010, after its existing PLR
          contract
          expires, for customers who do not choose a competitive
          supplier.  Competitive bids were solicited for 850 MW of generation
          supply, or one-sixth of PPL Electric's expected supply requirements for
          these
          customers in 2010.  PPL EnergyPlus was one of the successful bidders
          for 671 MW, with unrelated parties providing the remaining solicited generation
          supply.  For this solicitation, the average generation supply price
          for 2010, including Pennsylvania gross receipts tax, is $96.30 per MWh
          for
          residential customers and $99.46 per MWh for small commercial and industrial
          customers.  See Note 11 for additional information on the existing PLR
          contracts and the 2010 Supply Master Agreement with PPL
          EnergyPlus.
 
 Energy
          Sales Commitments
 
 *(PPL
          and PPL Energy Supply)*
 
 In
          connection with its marketing activities or associated with certain of
          its power
          plants, PPL Energy Supply enters into long-term power sales contracts that
          extend for terms through 2017.  All long-term contracts were executed
          at prices that approximated market, including estimated profit margins,
          at the
          time of execution.
 
 In
          2007,
          PPL Energy Supply has entered into full requirements and retail contracts
          with
          various counterparties.  These contracts commence in mid-2007,
          extending through 2012.
 
 Under
          these contracts, if PPL Energy Supply's credit rating falls below investment
          grade or PPL Energy Supply's contract exposure exceeds the established
          credit
          limit for the contract, then the counterparty has the right to request
          collateral from PPL Energy Supply.  At June 30, 2007 and December 31,
          2006, an insignificant amount of collateral was posted under these
          contracts.
 
 *(PPL
          Energy Supply)*
 
 See
          Note
          11 for information on the power supply agreements under which PPL EnergyPlus
          has
          entered into full requirements contracts with PPL Electric energy and capacity
          to fulfill PPL Electric's PLR obligation through 2010.
 PPL
        Montana Hydroelectric License Commitments*****(PPL and
        PPL Energy Supply)*
 
 PPL
        Montana has 11 hydroelectric facilities and one storage reservoir licensed
        by
        the FERC pursuant to the Federal Power Act under long-term
        licenses.  Pursuant to Section 8(e) of the Federal Power Act, the FERC
        approved the transfer from Montana Power to PPL Montana of all pertinent
        licenses and any amendments in connection with the Montana Asset Purchase
        Agreement.
 
 The
        Kerr
        Dam Project license was jointly issued by the FERC to Montana Power and the
        Confederated Salish and Kootenai Tribes of the Flathead Reservation in 1985,
        and
        required Montana Power to hold and operate the project for 30
        years.  The license required Montana Power, and subsequently PPL
        Montana as a result of the purchase of the Kerr Dam from Montana Power, to
        continue to implement a plan to mitigate the impact of the Kerr Dam on fish,
        wildlife and the habitat.  Under this arrangement, PPL Montana has a
        remaining commitment to spend $18 million between 2007 and 2015, in addition
        to
        the annual rental it pays to the tribes.  Between 2015 and 2025, the
        tribes have the option to purchase, hold and operate the project for the
        remainder of the license term of 2035.
 
 PPL
        Montana entered into two Memoranda of Understanding (MOUs) with state, federal
        and private entities related to the issuance in 2000 of the FERC renewal
        license
        for the nine dams for the Missouri-Madison project.  The MOUs require
        PPL Montana to implement plans to mitigate the impact of its projects on
        fish,
        wildlife and the habitat, and to increase recreational
        opportunities.  The MOUs were created to maximize collaboration
        between the parties and enhance the possibility for matching funds from relevant
        federal agencies.  Under this arrangement, PPL Montana has a remaining
        commitment to spend $30 million between 2007 and 2040.
 
 **Settlement
        of Enron Receivables***(PPL and PPL Energy Supply)*
 
 PPL
        and
        PPL Energy Supply had significant specific reserves related to receivables
        from
        Enron Corporation (Enron), which filed for bankruptcy in 2001.  The
        reserves related to Enron were for claims against Enron North America and
        Enron
        Power Marketing (Enron Subsidiaries), and against Enron, which had guaranteed
        the Enron Subsidiaries' performance (Enron Corporation Guarantees).
 
 In
        March
        2006, the U.S. Bankruptcy Court approved agreements between Enron and PPL
        Energy
        Supply that settled the litigation between PPL Energy Supply and Enron regarding
        the validity and enforceability of the Enron Corporation
        Guarantees.  As a result of the Bankruptcy Court's approval of the
        settlement of the Enron Corporation Guarantees litigation and an assessment
        of
        current market price quotes for the purchase of Enron claims, PPL Energy
        Supply
        reduced the associated allowance for doubtful accounts in the first quarter
        of
        2006 by $15 million, or $9 million after tax.
 
 In
        July
        2006, PPL executed an agreement to sell all of its Enron claims to an
        independent third party for $17 million and further reduced the associated
        allowance for doubtful accounts in the second quarter of 2006 by $4 million,
        or
        $2 million after tax.  PPL received the payment in July
        2006.
 
 **Legal
        Matters**
 
 *(PPL,
        PPL Energy Supply and PPL Electric)*
 
 PPL
        and
        its subsidiaries are involved in legal proceedings, claims and litigation
        in the
        ordinary course of business.  PPL and its subsidiaries cannot predict
        the outcome of such matters, or whether such matters may result in material
        liabilities.
 
 Montana
        Power Shareholders' Litigation*****(PPL and PPL
        Energy Supply)*
 
 In
        August
        2001, a purported class-action lawsuit was filed by a group of shareholders
        of
        Montana Power against Montana Power, the directors of Montana Power, certain
        advisors and consultants of Montana Power, and PPL Montana.  The
        plaintiffs allege, among other things, that Montana Power was required to,
        and
        did not, obtain shareholder approval of the sale of Montana Power's generation
        assets to PPL Montana in 1999, and thus that sale "was null and void ab
        initio."  Among the remedies that the plaintiffs are seeking is the
        establishment of a "resulting and/or constructive trust" on both the generation
        assets and all profits earned by PPL Montana from the generation assets,
        plus
        interest on the amounts subject to the trust.  This lawsuit has been
        pending in the U.S. District Court of Montana, Butte Division, and the judge
        has
        placed this proceeding on hold pending the outcome of certain motions currently
        before the U.S. Bankruptcy Court for the District of Delaware, the resolution
        of
        which may impact this proceeding.  The judge in this case has
        indicated that he plans to hold a status conference for the purpose of resuming
        proceedings.  PPL and PPL Energy Supply cannot predict the outcome of
        this matter.
 
 Montana
        Hydroelectric Litigation*****(PPL and PPL Energy
        Supply)*
 
 In
        November 2004, PPL Montana, Avista Corporation and PacifiCorp commenced an
        action for declaratory judgment in Montana First Judicial District Court
        seeking
        a determination that no lease payments or other compensation for their
        hydropower facilities' use and occupancy of streambeds in Montana can be
        collected by the State of Montana.  This request for declaratory
        judgment from the Montana state court was brought following the dismissal
        of the
        State of Montana's federal lawsuit seeking such payments or compensation
        in the
        U.S. District Court of Montana, Missoula Division, on jurisdictional
        grounds.  The State's federal lawsuit was founded on allegations that
        the bed of Montana's navigable rivers became state-owned property upon Montana's
        admission to statehood, and that the use of them for placement of dam
        structures, affiliated structures and reservoirs should, under an existing
        regulatory scheme, trigger lease payments for use of land
        underneath.  In July 2006, the Montana state court approved a
        stipulation by the State of Montana that it is not seeking any lease payments
        or
        other compensation from PPL Montana for the period prior to PPL Montana's
        acquisition of the hydropower facilities in December 1999.  The trial
        for this state court proceeding has been scheduled to commence in October
        2007.  PPL and PPL Energy Supply cannot predict the outcome of this
        matter.
 
 **Regulatory
        Issues**
 
 California
        ISO and Western Markets*****(PPL and PPL Energy
        Supply)*
 
 Through
        its subsidiaries, PPL made $18 million of sales to the California ISO during
        the
        period from October 2000 through June 2001, of which $17 million has not
        been
        paid to PPL subsidiaries.  Given the myriad of electricity supply
        problems presently faced by the California electric utilities and the California
        ISO, PPL cannot predict whether or when it will receive payment.  At
        June 30, 2007, PPL continues to be fully reserved for underrecoveries of
        payments for these sales.
 
 Regulatory
        proceedings arising out of the California electricity supply situation have
        been
        filed at the FERC.  The FERC has determined that all sellers of energy
        into markets operated by the California ISO and the California Power Exchange,
        including PPL Montana, should be subject to refund liability for the period
        beginning October 2, 2000 through June 20, 2001, but the FERC has not yet
        ruled
        on the exact amounts that the sellers, including PPL Montana, would be required
        to refund.  In decisions in September 2004 and August 2006, the U.S.
        Court of Appeals for the Ninth Circuit held that the FERC had the additional
        legal authority to order refunds for periods prior to October 2, 2000, and
        ordered the FERC to determine whether or not it would be appropriate to grant
        such additional refunds.  As part of its August 2006 decision, the
        Court stayed the time to petition for rehearing of the decision and its mandate
        to the FERC in order to allow the parties time to conduct settlement
        discussions.
 
 In
        June
        2003, the FERC took several actions as a result of a number of related
        investigations.  The FERC terminated proceedings to consider whether
        to order refunds for spot market bilateral sales made in the Pacific Northwest,
        including sales made by PPL Montana, during the period December 2000 through
        June 2001.  The FERC also commenced additional investigations relating
        to "gaming" and bidding practices during 2000 and 2001, but, to their knowledge,
        neither PPL EnergyPlus nor PPL Montana is a subject of these
        investigations.
 
 Litigation
        arising out of the California electricity supply situation has been filed
        in
        California courts against sellers of energy to the California
        ISO.  The plaintiffs and intervenors in these legal proceedings
        allege, among other things, abuse of market power, manipulation of market
        prices, unfair trade practices and violations of state antitrust laws, and
        seek
        other relief, including treble damages and attorneys' fees.  While
        PPL's subsidiaries have not been named by the plaintiffs in these legal
        proceedings, one defendant in a consolidated court proceeding named PPL Montana
        in its cross-complaint; this defendant denied any unlawful conduct but asserted
        that, if it is found liable, the other generators and power marketers, including
        PPL Montana, caused, contributed to and/or participated in the plaintiffs'
        alleged losses.  In July 2006, the Court dismissed this case as the
        result of a settlement under which PPL Montana was not required to make any
        payments or provide any compensation.
 
 In
        February 2004, the Montana Public Service Commission (PSC) initiated a limited
        investigation of the Montana retail electricity market for the years 2000
        and
        2001, focusing on how that market was affected by transactions involving
        the
        possible manipulation of the electricity grid in the western U.S.  The
        investigation includes all public utilities and licensed electricity suppliers
        in Montana, including PPL Montana, as well as other entities that may possess
        relevant information.  In June 2004, the Montana Attorney General
        served PPL Montana and more than 20 other companies with subpoenas requesting
        documents, and PPL Montana has provided responsive documents to the Montana
        Attorney General.
 
 While
        PPL
        and its subsidiaries believe that they have not engaged in any improper trading
        or marketing practices affecting the California and western markets, PPL
        cannot
        predict the outcome of the above-described investigations, lawsuits and
        proceedings or whether any PPL subsidiaries will be the target of any additional
        governmental investigations or named in other lawsuits or refund
        proceedings.
 
 PJM
        Capacity Litigation*****(PPL, PPL Energy Supply and
        PPL Electric)*
 
 In
        December 2002, PPL was served with a complaint against PPL, PPL EnergyPlus
        and
        PPL Electric filed in the U.S. District Court for the Eastern District of
        Pennsylvania by a group of 14 Pennsylvania boroughs that apparently alleged,
        among other things, violations of the federal antitrust laws in connection
        with
        the pricing of installed capacity in the PJM daily market during the first
        quarter of 2001 and certain breach of contract claims.  These boroughs
        were wholesale customers of PPL Electric.  In April 2006, the Court
        dismissed all of the federal antitrust claims and all of the breach of contract
        claims except for one breach of contract claim by one of the
        boroughs.  In May 2007, the Court withdrew its April 2006 decision as
        to one of the federal antitrust claims, but directed additional briefing
        on
        alternative grounds for dismissal of that claim.  PPL cannot predict
        the outcome of this proceeding.
 
 Each
        of
        the U.S. Department of Justice - Antitrust Division, the FERC and the
        Pennsylvania Attorney General conducted investigations regarding PPL's PJM
        capacity market transactions in early 2001 and did not find any reason to
        take
        action against PPL.
 
 New
        England Investigation  *(PPL and PPL Energy
        Supply)*
 
 In
        January 2004, PPL became aware of an investigation by the Connecticut Attorney
        General and the FERC's Office of Market Oversight and Investigation (OMOI)
        regarding allegations that natural gas-fired generators located in New England
        illegally sold natural gas instead of generating electricity during the week
        of
        January 12, 2004.  PPL has responded to a data request of OMOI that
        indicated that PPL was not under suspicion of a regulatory violation, but
        that
        OMOI was conducting an initial investigation.  PPL also has responded
        to data requests of ISO New England and data requests served by subpoena
        from
        the Connecticut Attorney General.  Both OMOI and ISO New England have
        issued preliminary reports finding no regulatory or other violations concerning
        these matters.  While PPL does not believe that it committed any
        regulatory or other violations concerning the subject matter of these
        investigations, PPL cannot predict the outcome of these
        investigations.
 
 PJM
        Billing*****(PPL, PPL Energy Supply and PPL
        Electric)*
 
 In
        December 2004, Exelon Corporation, on behalf of its subsidiary, PECO Energy,
        Inc. (PECO), filed a complaint against PJM and PPL Electric with the FERC
        alleging that PJM had overcharged PECO from April 1998 through May 2003 as
        a
        result of an error by PJM in the State Estimator Model used in connection
        with
        billing all PJM customers for certain transmission, spot market energy and
        ancillary services charges.  Specifically, the complaint alleged that
        PJM mistakenly identified PPL Electric's Elroy substation transformer as
        belonging to PECO and that, as a consequence, during times of congestion,
        PECO's
        bills for transmission congestion from PJM erroneously reflected energy that
        PPL
        Electric took from the Elroy substation and used to serve PPL Electric's
        load.  The complaint requested the FERC, among other things, to direct
        PPL Electric to refund to PJM $39 million, plus interest of $8 million, and
        for
        PJM to refund these same amounts to PECO.
 
 In
        April
        2005, the FERC determined that PECO was entitled to reimbursement for the
        transmission congestion charges that PECO asserts PJM erroneously billed
        to it
        at the Elroy substation.  The FERC set for additional proceedings
        before a judge the determination of the amount of the overcharge to PECO
        and
        which PJM market participants were undercharged and therefore are responsible
        for reimbursement to PECO.
 
 PPL
        Electric recognized an after-tax charge of $27 million in the first quarter
        of
        2005 for a loss contingency related to this matter.  The pre-tax
        accrual was $47 million, with $39 million included in "Energy purchases"
        on the
        Statement of Income, and $8 million in "Interest Expense."
 
 In
        September 2005, PPL Electric and Exelon Corporation filed a proposed settlement
        agreement regarding this matter with the FERC.  In March 2006, the
        FERC rejected the settlement agreement indicating that the agreement involves
        material issues of fact that it cannot decide without further information,
        and
        ordered the matter to be set for hearing.
 
 Subsequently,
        in March 2006, PPL Electric and Exelon filed with the FERC a new proposed
        settlement agreement under which PPL Electric would have paid approximately
        $41
        million over a five-year period to PJM through a new transmission
        charge.  Pursuant to this proposed agreement, PJM would have forwarded
        the amounts collected under this new charge to PECO.
 
 In
        November 2006, the FERC entered an order accepting the parties' March 2006
        proposed settlement agreement, upon the condition that PPL Electric agree
        to
        certain modifications.  The FERC's acceptance was conditioned upon
        reimbursement to PECO through a single credit to PECO's monthly PJM bill
        and a
        corresponding charge on PPL Electric's monthly PJM bill, rather than through
        a
        PJM Tariff transmission charge applicable only to PPL Electric.  The
        FERC ordered PPL Electric to advise the FERC within 30 days as to whether
        it
        would accept or reject the proposed modifications.
 
 In
        December 2006, PPL Electric and Exelon filed with the FERC, pursuant to the
        November 2006 order, a modified offer of settlement (Compliance
        Filing).  Under the Compliance Filing, PPL Electric would make a
        single payment through its monthly PJM bill of $38 million, plus interest
        through the date of payment, and PJM would include a single credit for this
        amount in PECO's monthly PJM bill.  Through December 31, 2006, the
        estimated interest on this payment was $4 million, for a total PPL Electric
        payment of $42 million.
 
 Based
        on
        the terms of the Compliance Filing and the effective date and provisions
        of
        power supply agreements between PPL Electric and PPL EnergyPlus, PPL determined
        that PPL Electric was responsible for the claims prior to July 1, 2000 (totaling
        $12 million), and that PPL EnergyPlus was responsible for the claims subsequent
        to that date (totaling $30 million).
 
 Based
        on
        the Compliance Filing, PPL and PPL Electric reduced the recorded loss accrual
        by
        $5 million at December 31, 2006.  PPL Electric also recorded a
        receivable from PPL EnergyPlus of $30 million at December 31, 2006, for the
        portion of the claims allocated to PPL EnergyPlus.  As a result of the
        reduction of the loss accrual and the allocation to PPL EnergyPlus, PPL Electric
        recorded credits to expense of $35 million on the Statement of Income, including
        $28 million of "Energy purchases" and $7 million of "Interest
        Expense."
 
 PPL
        Energy Supply recorded a loss accrual of $30 million at December 31, 2006,
        for
        its share of the claims, and recorded a corresponding payable to PPL
        Electric.  PPL EnergyPlus recorded $27 million of "Energy purchases"
        and $3 million of "Interest Expense" on the Statement of Income.
 
 In
        March
        2007, the FERC entered an order approving the Compliance Filing.  In
        April 2007, PPL Electric paid PJM the full settlement amount of $43 million,
        including additional interest of $1 million recorded during the three months
        ended March 31, 2007.  This proceeding is now terminated.
 
 FERC
        Market-Based Rate Authority*****(PPL and PPL Energy
        Supply)*
 
 In
        December 1998, the FERC issued an order authorizing PPL EnergyPlus to make
        wholesale sales of electric power and related products at market-based
        rates.  In that order, the FERC directed PPL EnergyPlus to file an
        updated market analysis within three years of the date of the order, and
        every
        three years thereafter.  The most recent market-based rate filings
        with the FERC were made in November 2004 by PPL EnergyPlus, PPL Electric,
        PPL
        Montana and most of PPL Generation's subsidiaries.  These filings
        consisted of a Western market-based rate filing for PPL Montana and an Eastern
        market-based rate filing for most of the other PPL subsidiaries in the PJM
        region.
 
 In
        September 2005, the FERC issued an order conditionally approving the Eastern
        market-based rate filing, subject to PPL subsidiaries making a compliance
        filing
        providing further support that they cannot erect other non-transmission barriers
        to entry into the generation market.  The PPL subsidiaries made this
        compliance filing in October 2005, which the FERC accepted.
 
 In
        May
        2006, the FERC issued an order rejecting the claims of the various parties
        in
        the proceeding regarding PPL's Western market-based rate filing and granting
        PPL
        Montana market-based rate authority in NorthWestern's control
        area.  In July 2007, the FERC denied two outstanding requests for
        rehearing of the FERC's order.  While PPL Montana continues to believe
        that it does not have market power in NorthWestern's control area and that
        it
        has no obligations to make additional sales of power to NorthWestern regardless
        of the outcome of this proceeding, it cannot predict the outcome of these
        proceedings.
 
 Currently,
        if a seller is granted market-based rate authority by the FERC, it may enter
        into power contracts during the time period for which such authority has
        been
        granted.  If the FERC determines that the market is not workably
        competitive or the seller possesses market power or is not charging just
        and
        reasonable rates, the FERC institutes prospective action.  Any
        contracts entered into pursuant to the FERC's market-based rate authority
        remain
        in effect and are generally subject to a high standard of review before the
        FERC
        can order any changes.  Recent court decisions by the U.S. Court of
        Appeals for the Ninth Circuit have raised issues that may make it more difficult
        for the FERC to continue its program of promoting wholesale electricity
        competition through market-based rate authority.  These court
        decisions permit retroactive refunds and a lower standard of review by the
        FERC
        for changing power contracts, and could have the effect of requiring the
        FERC to
        review in advance most, if not all, power contracts.  The FERC has not
        yet taken action in response to these recent court decisions, and the decisions
        have been or are expected to be appealed to the U.S. Supreme
        Court.  At this time, PPL cannot predict the impact of these court
        decisions on the FERC's future market-based rate authority program or on
        PPL's
        business.
 
 Illinois
        Auction Complaints*****(PPL and PPL Energy
        Supply)*
 
 As
        a
        result of the Electric Service Customer Choice and Rate Relief Law of 1997,
        the
        Illinois General Assembly provided the opportunity for power suppliers to
        compete to supply power to Illinois electric utilities to meet the full
        requirements of all non-shopping Illinois electricity customers.  The
        Illinois Commerce Commission (ICC) conducted an auction for supply of up
        to
        25,474 MW of peak load and hired an independent Auction Monitor for this
        purpose.  PPL EnergyPlus submitted bids in this Illinois auction
        process and, as a result, in September 2006 entered into three agreements
        with
        Commonwealth Edison Company to supply a portion of its full requirements
        service.  These agreements commenced in January 2007 and expire after
        17, 29 and 41 months.  During peak hours, PPL EnergyPlus' obligation
        to supply Commonwealth Edison may reach 700 MW.  At the conclusion of
        the auction process, the Auction Monitor and the ICC Staff both concluded
        that
        the auction process was competitive.
 
 In
        March
        2007, the Illinois Attorney General filed a complaint at the FERC against
        all of
        the successful bidders in this auction process, including PPL EnergyPlus
        and
        fifteen other suppliers, alleging market manipulation and requesting that
        the
        FERC investigate such allegations, requesting refunds for sales at prices
        above
        just and reasonable rates and seeking revocation of the FERC market-based
        rate
        authority for certain of the suppliers.  PPL EnergyPlus is not
        identified in the complaint as a supplier which allegedly engaged in market
        manipulation or which should have its market-based rate authority
        revoked.
 
 In
        June
        2007, PPL EnergyPlus filed an answer requesting dismissal of the
        complaint.  In July 2007, the Illinois Attorney General asked the FERC
        to hold this proceeding in abeyance pending a possible settlement among the
        Illinois parties, stating that such a settlement, if finalized, would result
        in
        dismissal of its FERC complaint.
 
 Subsequent
        to the Illinois Attorney General's complaint, two class actions were filed
        in
        Illinois State Court in Cook County against all successful bidders in the
        Illinois auction, including PPL EnergyPlus, alleging violations of unfair
        trade
        practices laws.  The factual allegations appear similar to those in
        the Attorney General's complaint.  While PPL and PPL Energy Supply do
        not currently believe that these matters will have a material adverse impact
        on
        the financial condition of PPL and PPL Energy Supply, they cannot predict
        the
        outcome of this matter.
 
 Wallingford
        Cost-Based Rates (*PPL and PPL Energy Supply)*
 
 In
        January 2003, PPL negotiated an agreement with ISO New England that would
        declare that four of the five units at PPL's Wallingford, Connecticut facility
        are "reliability must run" (RMR) units and put those units under cost-based
        rates.  This RMR agreement and the cost-based rates are subject to
        approval by the FERC.  In May 2003, the FERC denied PPL's request for
        approval of the RMR agreement and cost-based rates, but in August 2005, the
        U.S.
        Court of Appeals for the District of Columbia Circuit reversed the FERC's
        denial
        and remanded the case to the FERC for further consideration.  In April
        2006, the FERC conditionally approved the RMR agreement and the cost-based
        rates
        for the four Wallingford units, effective February 1, 2003, subject to refund,
        hearing and settlement procedures.  The FERC ordered a hearing to
        determine whether the Wallingford units needed the RMR agreement, the proposed
        cost-based rates under the RMR agreement and the amounts to be recovered
        for
        past periods under the RMR agreement.  Any rates collected under the
        RMR agreement prior to the completion of the hearing and/or settlement
        proceedings are subject to refund pending the outcome of the
        proceedings.  The hearing has been held in abeyance pending the
        outcome of the settlement proceedings among the interested parties.
 
 In
        September 2006, PPL and certain of the parties filed a written settlement
        with
        the FERC.  The settlement is unopposed and resolves all issues in the
        pending proceeding, including payments to PPL for the past period and going
        forward.  Under the terms of the settlement, PPL would receive a total
        of $44 million in settlement of amounts due under the RMR agreement for the
        period February 1, 2003 through May 31, 2006.  This amount (plus
        interest) would be paid to PPL in approximately equal monthly installments
        over
        a two-year period.  In addition, PPL would enter into a revised RMR
        Agreement effective as of June 1, 2006, under which it would be entitled
        to
        receive $2 million per month for its recovery of fixed costs while the agreement
        remains in effect.  PPL has deferred $20 million of payments related
        to the pending RMR settlement as of June 30, 2007.  In October 2006,
        the administrative law judge assigned to this matter certified the settlement
        to
        the FERC for its consideration as an uncontested settlement.
 
 In
        March
        2007, the FERC approved the settlement agreement, subject to the condition
        that
        the parties file revisions to provide that the FERC will be bound to the
        "just
        and reasonable" and not the "public interest" standard of review in its
        consideration of modifications to the agreement.  In compliance with
        the March 2007 order, PPL and the other settling parties submitted a compliance
        filing to the FERC in April 2007, revising the settlement offer and the RMR
        agreement to accept this condition.  PPL is awaiting the FERC's order
        on the compliance filing.
 
 In
        June
        2007, the RMR agreement terminated in accordance with the settlement to allow
        the four Wallingford RMR units to participate in ISO New England's locational
        forward reserve market.  The ISO New England locational forward
        reserve market provides revenues to peaking generation units that can quickly
        come on line from reserve status to meet reliability requirements.
 
 Montana
        Public Service Commissioner's Litigation*****(PPL and
        PPL Energy Supply)*
 
 In
        May
        2006, one of the commissioners of the Montana PSC commenced an action in
        Montana
        First Judicial District Court against PPL Montana and the Montana PSC seeking
        to
        cause the Montana PSC to reverse its 1999 order consenting to EWG status
        for PPL
        Montana's power plants.  In 1999, the FERC had granted the plants EWG
        status and the authority to sell electricity produced at market-based rates,
        and
        the Montana PSC consented to this status for PPL Montana's plants under a
        provision of federal law.  In September 2006, the Court granted PPL
        Montana's and the Montana PSC's motions to dismiss this action.  The
        plaintiff has appealed the dismissal of the lawsuit to the Montana Supreme
        Court.  PPL and PPL Energy Supply continue to believe that this
        lawsuit is groundless and beyond the statute of limitations period, but cannot
        predict the outcome of this matter.
 
 IRS
        Synthetic Fuels Tax Credits*****(PPL and PPL Energy
        Supply)*
 
 PPL,
        through its subsidiaries, has interests in two synthetic fuel production
        facilities: the Somerset facility located in Pennsylvania and the Tyrone
        facility located in Kentucky.  PPL receives tax credits pursuant to
        Section 29/45K of the Internal Revenue Code based on the sale of synthetic
        fuel
        from these facilities.  Section 29/45K tax credits are currently
        scheduled to expire at the end of 2007.
 
 To
        qualify for the Section 29/45K tax credits, the synthetic fuel must meet
        three
        primary conditions: (i) there must be a significant chemical change in the
        coal
        feedstock, (ii) the product must be sold to an unaffiliated entity, and (iii)
        the production facility must have been placed in service before July 1,
        1998.
 
 In
        addition, Section 29/45K provides for the synthetic fuel tax credit to begin
        to
        phase out when the relevant annual reference price for crude oil, which is
        the
        domestic first purchase price (DFPP), falls within a designated range and
        to be
        eliminated when the DFPP exceeds the range.  The phase-out range is
        adjusted annually for inflation.  Currently, the DFPP is published by
        the IRS annually in April for the prior year and is calculated based on the
        annual average wellhead price per barrel for all unregulated domestic crude
        oil.  At December 31, 2006, PPL had estimated a phase-out of
        approximately 35% of the gross-tax credits in 2006.  Based on the
        final published DFPP reference price for 2006, the phase-out percentage for
        2006
        is now expected to be approximately 33%.  A final calculation of the
        related 2006 tax credits net of the revised phase-out will be made upon receipt
        of all relevant tax information.  PPL does not expect the actual net
        tax credits to be materially different than those estimated at December 31,
        2006.
 
 PPL
        currently estimates the phase-out range for 2007 to begin at about $57 per
        barrel (DFPP) and the tax credits to be totally eliminated at about $71 per
        barrel (DFPP).  PPL currently expects a phase-out of approximately 17%
        of the gross tax credits produced in 2007, based on its estimate of the DFPP
        reference price and the phase-out range applicable for 2007.  If the
        price of crude oil increases above current price levels in 2007, PPL's synthetic
        fuel tax credits for 2007 could be significantly reduced or
        eliminated.  PPL cannot predict or estimate with any certainty the
        final DFPP reference price for crude oil or the phase-out range for
        2007.
 
 The
        synthetic fuel produced at the Somerset and Tyrone facilities has resulted
        in an
        aggregate recognition of tax credits of an estimated $319 million for Somerset
        and $116 million for Tyrone as of June 30, 2007, including estimated amounts
        for
        the first half of 2007.  After considering the estimated 2007
        phase-out of approximately 17%, PPL recognized $14 million and $28 million
        of
        tax credits for Somerset and $11 million and $23 million of tax credits for
        Tyrone for the three and six months ended June 30, 2007.
 
 PPL
        has
        economic hedge transactions for 2007 that are expected to mitigate PPL's
        tax
        credit phase-out risk due to an increase of the DFPP reference price in
        2007.  The mark-to-market value of these hedges is reflected in
        "Energy-related businesses" revenues on the Statement of Income.  Such
        hedge transactions do not mitigate any ongoing operational or production
        risks
        associated with the Tyrone and Somerset facilities.
 
 PPL
        performed impairment reviews of both its synthetic fuel production facilities
        during the second quarter of 2006.  The reviews were prompted by the
        temporary suspension of operations at Somerset in April 2006, the uncertainty
        surrounding the future operations of each of the facilities and continued
        observed and forecasted high crude oil prices at that time.  PPL
        determined that the net book value of the facilities exceeded the projected
        undiscounted cash flows.  Therefore, in the second quarter of 2006,
        PPL recorded charges totaling $10 million ($6 million after tax) to fully
        impair
        its synfuel-related assets based on an internal model and other
        analysis.  The impairment charges were reflected in "Energy-related
        businesses" expenses on the Statements of Income.  The assets of the
        facilities are a component of the Supply segment.
 
 PPL
        also
        purchases synthetic fuel from unaffiliated third parties, at prices below
        the
        market price of coal, for use at its coal-fired power plants.  Fuel
        cost savings for the first half of 2007 were $11 million.  PPL
        estimates that, unless these third parties discontinue their synthetic fuel
        operations and sales to PPL due to the impact of projected DFPP oil prices
        or
        otherwise, its purchases from these parties will result in fuel cost savings
        for
        the remainder of 2007 of $14 million assuming full production throughout
        the
        year.
 
 In
        October 2003, it was reported that the U.S. Senate Permanent Subcommittee
        on
        Investigations, of the Committee on Governmental Affairs, had begun an
        investigation of the synthetic fuel industry and its producers.  That
        investigation is ongoing.  PPL cannot predict when the investigation
        will be completed or the potential results of the investigation.
 
 Energy
        Policy Act of 2005*****(PPL, PPL Energy Supply and
        PPL Electric)*
 
 In
        August
        2005, President Bush signed into law the Energy Policy Act of 2005 (the 2005
        Energy Act).  The 2005 Energy Act is comprehensive legislation that
        will substantially affect the regulation of energy companies.  The Act
        amends federal energy laws and provides the FERC with new oversight
        responsibilities.  Among the important changes that have been or will
        be implemented as a result of this legislation are:
 
 ·
              The
                  Public Utility Holding Company Act of 1935 has been
                  repealed.  PUHCA significantly restricted mergers and
                  acquisitions in the electric utility sector.·
              The
                  FERC has appointed the North American Electric Reliability Council
                  as the
                  electric reliability organization to establish and enforce mandatory
                  reliability standards (Reliability Standards) regarding the bulk
                  power
                  system, and the FERC will oversee this process and independently
                  enforce
                  the Reliability Standards, as further described below.·
              The
                  FERC will establish incentives for transmission companies, such
                  as
                  performance-based rates, recovery of the costs to comply with reliability
                  rules and accelerated depreciation for investments in transmission
                  infrastructure.·
              The
                  Price-Anderson Amendments Act of 1988, which provides the framework
                  for
                  nuclear liability protection, was extended to 2025.·
              Federal
                  support will be available for certain clean coal power initiatives,
                  nuclear power projects and renewable energy
                  technologies.
 
 The
        implementation of the 2005 Energy Act requires proceedings at the state level
        and the development of regulations, some of which have not been finalized,
        by
        the FERC, the DOE and other federal agencies.  PPL cannot predict when
        all of these proceedings and regulations will be finalized.
 
 Upon
        implementation, the Reliability Standards will have the force and effect
        of law,
        and will apply to all users of the bulk power electricity system, including
        electric utility companies, generators and marketers.  The FERC has
        indicated that it intends to vigorously enforce the Reliability Standards
        using,
        among other means, civil penalty authority.  The first group of
        Reliability Standards approved by the FERC became effective in June
        2007.  At this time, although PPL believes it is in compliance,
        PPL cannot predict the impact that the Reliability Standards will have on
        PPL, including its capital and operating expenditures, but such compliance
        costs
        could be significant.
 
 PPL
        also
        cannot predict with certainty the impact of the other provisions of the 2005
        Energy Act and any related regulations on PPL and its subsidiaries.
 
 **Environmental
        Matters - Domestic**
 
 *(PPL,
        PPL Energy Supply and PPL Electric)*
 
 Due
        to
        the environmental issues discussed below or other environmental matters,
        PPL
        subsidiaries may be required to modify, replace or cease operating certain
        facilities to comply with statutes, regulations and actions by regulatory
        bodies
        or courts.  In this regard, PPL subsidiaries also may incur capital
        expenditures or operating expenses in amounts which are not now determinable,
        but could be significant.
 
 **Air***(PPL and PPL Energy Supply)*
 
 The
        Clean
        Air Act deals, in part, with acid rain, attainment of federal ambient ozone
        standards, particulate matter standards and toxic air emissions and visibility
        in the U.S. Amendments to the Clean Air Act requiring additional emission
        reductions are likely to continue to be brought up for consideration in the
        U.S.
        Congress.  The Clean Air Act allows states to develop more stringent
        regulations and in some instances, as further discussed below, Pennsylvania
        and
        Montana have chosen to do so.
 
 Clean
        Air Interstate Rule
 
 Citing
        its authority under the Clean Air Act, the EPA has developed new standards
        for
        ambient levels of ozone and fine particulates in the U.S.  These
        standards have been upheld following court challenges.  To facilitate
        attainment of these standards, the EPA has promulgated the Clean Air Interstate
        Rule (CAIR) for 28 midwestern and eastern states, including Pennsylvania,
        to
        reduce sulfur dioxide emissions by about 50% by 2010 and to extend the current
        seasonal program for reduction in emissions of nitrogen oxides to a year-round
        program starting in 2009.  The CAIR requires further reductions in the
        CAIR region, starting in 2015, in sulfur dioxide of 30% from 2010 levels,
        and
        nitrogen oxides during the ozone season of 17%, from 2009 levels.  The
        CAIR allows these reductions to be achieved through cap-and-trade
        programs.  Pennsylvania has not challenged the CAIR, but the rule has
        been challenged by several states and environmental groups as not being
        sufficiently strict, and by industry petitioners as being too
        strict.  In addition, several Canadian environmental groups have
        petitioned the EPA under the Clean Air Act to revise the CAIR to require
        deeper
        reductions in sulfur dioxide and mercury emissions, and the Ozone Transport
        Commission (OTC) (consisting of Pennsylvania and 11 other states and the
        District of Columbia) has passed a resolution calling for reductions in sulfur
        dioxide and nitrogen oxides that are more stringent than those under
        CAIR.  However, the OTC has not taken any further action in this
        regard.
 
 In
        order
        to continue meeting existing sulfur dioxide reduction requirements of the
        Clean
        Air Act, including CAIR, PPL is installing scrubbers at its Montour and Brunner
        Island plants.  The scrubbers for both Montour units and Unit 3
        at Brunner Island are expected to be in-service during 2008 and the scrubber
        for
        Units 1 and 2 at Brunner Island is expected to be in-service during
        2009.  Based on expected levels of generation and projected emission
        allowance prices, PPL has determined that it is more economic to install
        these
        scrubbers than to purchase significant additional emission allowances to
        make up
        the emission allowance shortfalls that would otherwise occur.  In
        order to meet the year-round reductions in nitrogen oxides under CAIR, PPL's
        current plan is to operate the SCRs at Montour Units 1 and 2 year-round,
        optimize emission reductions from the existing combustion controls and purchase
        any needed emission allowances on the open market.  PPL's current
        installation plan for the scrubbers and other pollution control equipment
        (primarily aimed at sulfur dioxide, particulate, nitrogen oxides and mercury
        emissions reduction) through 2011 reflects a total cost of approximately
        $1.5
        billion.  PPL expects a 30 MW reduction in net generation capability
        at each of the Brunner Island and Montour plants, due to the estimated increases
        in station service usage during the scrubber operation.
 
 Mercury
 
 Also
        citing its authority under the Clean Air Act, the EPA has finalized Clean
        Air
        Mercury Regulations (CAMR) that affect coal-fired plants.  These
        regulations establish a cap-and-trade program to take effect in two phases,
        with
        a first phase to begin in January 2010, and a second phase with more stringent
        caps to begin in January 2018.  Under CAMR, each state is allocated a
        mercury emissions cap and is required to develop state implementing regulations
        that can follow the federal requirements or be more
        restrictive.  Several states, including Pennsylvania, have challenged
        CAMR in the U.S. Court of Appeals for the District of Columbia Circuit as
        not
        being sufficiently strict.  PPL cannot predict the outcome and impact
        of that challenge.
 
 Pennsylvania
        has adopted its own, more stringent mercury rules.  Pennsylvania's
        rules will require that mercury controls be installed on each coal-fired
        generating unit; that the EPA's CAMR caps be met at each unit without the
        benefit of an emissions trading program; and that the second phase of CAMR
        be
        accelerated to begin in 2015.
 
 PPL
        expects that it can achieve the 2010 requirements under Pennsylvania's more
        stringent mercury rules with only the addition of chemical injection
        systems.  This expectation is based on the co-benefits of mercury
        removal from the scrubbers expected to be in place at its Pennsylvania plants
        as
        of 2010, and the SCRs already in place at Montour.  PPL currently
        estimates that the capital cost of such chemical injection systems at its
        Pennsylvania plants will be approximately $20 million.
 
 Because
        an emissions trading program is not allowed under Pennsylvania's mercury
        rules,
        adsorption/absorption technology with fabric filters may be required at most
        of
        PPL's Pennsylvania coal-fired generating units to meet Pennsylvania's
        second-phase caps beginning in 2015.  Based on current analysis and
        industry estimates, PPL estimates that if this technology were required at
        every
        one of its Pennsylvania units the aggregate capital cost of compliance would
        be
        approximately $530 million.
 
 Montana
        also has finalized its own more stringent rules that would require every
        coal-fired generating plant in the state to achieve by 2010 reduction levels
        more stringent than CAMR's 2018 cap.  Because enhanced chemical
        injection technologies may not be sufficiently developed to meet this level
        of
        reductions by 2010, there is a risk that adsorption/absorption technology
        with
        fabric filters at both Colstrip and Corette would be required.  Based
        on current analysis and industry estimates, PPL estimates that its capital
        cost
        to achieve compliance at its Montana units would be approximately $140
        million.
 
 PPL
        expects both Pennsylvania's and Montana's mercury rules to be challenged
        in
        court.  If those rules are overturned and PPL is instead required to
        comply with CAMR, PPL expects that it could achieve the 2010 requirements
        under
        CAMR in both Pennsylvania and Montana with only the addition of chemical
        injection systems and allowance purchases.  In addition to the capital
        cost for the chemical injection systems in Pennsylvania noted above, PPL
        estimates that its share of the capital cost for such systems in Montana
        would
        be approximately $5 million.  With respect to the 2018 requirements
        under CAMR, PPL currently expects that it would be able to comply in
        Pennsylvania by installing adsorption/absorption technology with fabric filters
        on half of its generating capacity at a capital cost of approximately $265
        million.  In Montana, PPL currently expects that it could achieve the
        2018 CAMR requirements with enhanced chemical injection at modest
        cost.
 
 Regional
        Haze and Visibility
 
 In
        addition to the above rules, the Clean Air Visibility Rule was issued by
        the EPA
        on June 15, 2005, to address regional haze or regionally-impaired visibility
        caused by multiple sources over a wide area.  The rule defines Best
        Available Retrofit Technology (BART) requirements for electric generating
        units,
        including presumptive limits for sulfur dioxide and nitrogen oxides controls
        for
        large units.  In 2007, PPL must submit to the Pennsylvania DEP and to
        the EPA (Region 8) its analyses of the visibility impacts of sulfur dioxide,
        nitrogen oxides and particulate matter emissions from plants covered by the
        BART
        rule in each state.  In Pennsylvania, this would include Martins Creek
        Units 3 and 4, Brunner Island Units 2 and 3 and Montour Units 1 and
        2.  In Montana, this would include Colstrip Units 1 and 2 and
        Corette.
 
 The
        EPA
        has stated that the BART rule does not require states to make reductions
        in
        sulfur dioxide or nitrogen oxides beyond those required by CAIR, although
        states
        can establish more stringent rules.  The Pennsylvania DEP is not
        requiring further emission reductions in sulfur dioxide or nitrogen
        oxides.  However, PPL was required to conduct a BART analysis to
        address particulate matter emissions.  PPL has completed the BART
        analysis for the Pennsylvania plants and has submitted the analysis to the
        Pennsylvania DEP.  The analysis indicates that further reductions are
        not needed.  However, the Pennsylvania DEP has not yet acted on this
        report.  PPL cannot predict whether the Pennsylvania DEP will require
        any such additional reductions to address particulate matter
        emissions.  If the Pennsylvania DEP were to do so, the costs are not
        now determinable but could be significant.
 
 In
        Montana, the EPA is administering the BART program.  PPL's analyses to
        date indicate that the costs of additional controls to meet the BART
        requirements at Colstrip and Corette should not be
        significant.  However, the analyses have yet to be submitted and
        reviewed by the EPA.  PPL anticipates submitting its analyses to the
        EPA in the third quarter of 2007.
 
 In
        December 2003, PPL Montana, as operator of the Colstrip facility, received
        an
        Administrative Compliance Order (ACO) from the EPA pursuant to the Clean
        Air
        Act.  The ACO alleges that Units 3 and 4 of the facility have been in
        violation of the Clean Air Act permit at Colstrip since 1980.  The
        permit required Colstrip to submit for review and approval by the EPA an
        analysis and proposal for reducing emissions of nitrogen oxides to address
        visibility concerns upon the occurrence of certain triggering
        events.  The EPA asserted that regulations it promulgated in 1980
        triggered this requirement.  PPL believes that the ACO is
        unfounded.  A settlement in this matter has been reached by PPL and
        the other Colstrip owners as well as the Northern Cheyenne Tribe and EPA
        and was
        entered by the U.S. District Court for the District of Montana.  The
        agreement calls for installation of low nitrogen oxides emissions equipment
        on
        Colstrip Units 3 and 4, payment of a non-material penalty and financing of
        an
        energy efficient project.  PPL Montana's cost of this settlement is
        anticipated to be approximately $4 million.
 
 New
        Source Review
 
 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 subjected them to more stringent "New Source"
        requirements under the Clean Air Act.  The EPA subsequently issued
        notices of violation and commenced enforcement activities against other
        utilities.
 
 However,
        in the past several years, the EPA has shifted its position on New Source
        Review.  In 2003, the EPA issued changes to its regulations that
        clarified what projects are exempt from "New Source" requirements as routine
        maintenance and repair.  However, these regulations were stayed and
        subsequently struck down by the U.S. Court of Appeals for the District of
        Columbia Circuit.  Furthermore, in April 2007, the U.S. Supreme Court
        upheld the annual emissions test under which the EPA had found emissions
        increases at the plants included in its enforcement initiative.  PPL
        is therefore continuing to operate under the "New Source" regulations as
        they
        existed prior to the EPA's 2003 clarifications.
 
 In
        October 2005, the EPA proposed changing its rules on how to determine whether
        a
        project results in an emissions increase and is therefore subject to review
        under the "New Source" regulations.  The EPA's proposed tests are
        consistent with the position of energy companies and industry groups and,
        if
        adopted, would substantially reduce the uncertainties under the current
        regulations.  PPL cannot predict whether these proposed new tests will
        be adopted.  In addition to proposing these new tests, the EPA also
        announced in October 2005 that it will not bring new enforcement actions
        with
        respect to projects that would satisfy the proposed new tests or the EPA's
        2003
        clarifications referenced above.  Accordingly, PPL believes that it is
        unlikely that the EPA will follow up on the information requests that had
        been
        issued to PPL Montana's Corette and Colstrip plants by EPA Region VIII in
        2000
        and 2003, respectively, and to PPL Generation's Martins Creek plant by EPA
        Region III in 2002.  However, states and environmental groups also
        have been bringing enforcement actions alleging violations of "New Source"
        requirements by coal-fired plants, and PPL is unable to predict whether such
        state or citizens enforcement actions will be brought with respect to any
        of its
        affiliates' plants.
 
 Opacity
 
 The
        New
        Jersey DEP and some New Jersey residents raised environmental concerns with
        respect to the Martins Creek plant, particularly with respect to sulfur dioxide
        emissions and the opacity of the plant's plume.  These issues were
        raised in the context of an appeal by the New Jersey DEP of the Air Quality
        Plan
        Approval issued by the Pennsylvania DEP to PPL's Lower Mt. Bethel generating
        plant.  In October 2003, PPL finalized an agreement with the New
        Jersey DEP and the Pennsylvania DEP.  Under the agreement, PPL Martins
        Creek has reduced sulfur dioxide emissions from its Martins Creek power plant
        and will shut down the plant's two 150 MW coal-fired generating units in
        September 2007 and may repower them any time after shutting them down so
        long as
        it follows all applicable state and federal requirements.  Pursuant to
        the agreement, the New Jersey DEP withdrew its challenge to the Air Quality
        Plan
        Approval for the Lower Mt. Bethel facility.  The agreement will not
        result in material costs to PPL.  The agreement does not address the
        issues raised by the New Jersey DEP regarding the visible opacity of emissions
        from the oil-fired units at the Martins Creek plant.  Similar issues
        also are being raised by the Pennsylvania DEP.  PPL is continuing to
        negotiate the matter with the Pennsylvania DEP.  If it is determined
        that actions must be taken to address the visible opacity of these emissions,
        such actions could result in costs that are not now determinable, but could
        be
        significant.
 
 Global
        Climate Change*****(PPL, PPL Energy Supply and PPL
        Electric)*
 
 In
        addition to the requirements related to emissions of sulfur dioxide, nitrogen
        oxides and mercury noted above, there is a growing concern nationally and
        internationally about global climate change and the contribution of emissions
        of
        greenhouse gases, including most significantly, carbon dioxide.  This
        concern has led to increased interest in legislation at the federal level,
        actions at the state level, as well as litigation relating to greenhouse
        gas
        emissions, including a recent U.S. Supreme Court decision holding that the
        EPA
        has the authority to regulate carbon dioxide emissions from motor vehicles
        under
        the Clean Air Act.  Increased pressure for carbon dioxide emissions
        reduction also is coming from investor organizations and the international
        community.
 
 On
        the
        legislative front, in June 2005, the U.S. Senate adopted a resolution declaring
        that mandatory reductions in greenhouse gases are needed.  Despite
        executive branch opposition to any mandatory requirements, several bills
        that
        would cap or tax greenhouse gases from electric utilities are being considered
        by Congress, and the concept of such regulation has received support from
        the
        majority leadership in both the U.S. Senate and U.S. House of
        Representatives.  PPL supports a national program and has publicly
        supported the key concepts of the "Low Carbon Economy Act of 2007" introduced
        in
        the Senate in July 2007.
 
 At
        the
        state level, seven northeastern states signed an MOU in 2005, agreeing to
        establish a cap and trade program, called the Regional Greenhouse Gas Initiative
        (RGGI), commencing in January 2009 for stabilization of carbon dioxide
        emissions, at base levels established in 2005, from electric power plants
        larger
        than 25 MW in capacity.  The MOU also provides for a 10% reduction in
        carbon dioxide emissions from the base levels by the end of 2018.  In
        August 2006, a Model Rule was developed by these seven states that will form
        the
        basis for participants to adopt individual state laws and regulations for
        program implementation.  Three other states have subsequently joined
        RGGI, and several other states are considering joining.  A similar
        effort is under way in the western part of the country with California and
        several other states also having announced their intention to develop a
        cap-and-trade program for carbon dioxide.
 
 Pennsylvania
        and Montana have not, at this time, established any mandatory programs to
        regulate carbon dioxide and other greenhouse gases.  However,
        government officials in each state have declared support for state action
        on
        climate change issues.  PPL has conducted an inventory of its carbon
        dioxide emissions and is continuing to evaluate various options for reducing,
        avoiding, off-setting or sequestering its carbon dioxide
        emissions.  If legislation or regulations are passed at the federal or
        state levels imposing mandatory reductions of carbon dioxide and other
        greenhouse gases on generation facilities, the cost to PPL of such reductions
        could be significant.
 
 **Water/Waste***(PPL and PPL Energy Supply)*
 
 Martins
        Creek Fly Ash Release
 
 In
        August
        2005, there was a release of approximately 100 million gallons of water
        containing fly ash from a disposal basin at the Martins Creek plant used
        in
        connection with the operation of the two 150 MW coal-fired generating units
        at the plant.  This resulted in ash being deposited onto adjacent
        roadways and fields, and into a nearby creek and the Delaware
        River.  The leak was stopped, and PPL has determined that the problem
        was caused by a failure in the disposal basin's discharge
        structure.  PPL has conducted extensive clean-up and is continuing to
        work with the Pennsylvania DEP and other appropriate agencies and consultants
        to
        assess whether the leak caused any environmental damage.  PPL shut
        down the two units in September 2005 and placed the units back in service
        in
        December 2005 after completing the repairs and upgrades to the basin and
        obtaining the Pennsylvania DEP's approval.
 
 The
        Pennsylvania DEP filed a complaint in Commonwealth Court against PPL Martins
        Creek and PPL Generation, alleging violations of various state laws and
        regulations and seeking penalties and injunctive relief.  The Delaware
        Riverside Conservancy and several citizens have been granted the right, without
        objection from PPL, to intervene in the Pennsylvania DEP's
        action.  PPL and the Pennsylvania DEP have reached a tentative
        settlement for the alleged violations.  The Intervenors have objected
        to this settlement.  The proposed settlement requires PPL to pay $1.5
        million in penalties and reimbursement of the DEP's costs, and requires PPL
        to
        submit a report on the completed studies of possible natural resource
        damages.  PPL has completed the studies in conjunction with a group of
        natural resource trustees, along with the Delaware River Basin
        Commission.  PPL expects the trustees and the Delaware River Basin
        Commission to seek to recover their costs and/or any damages they determine
        were
        caused by the leak.  PPL submitted the assessment report to the
        agencies in June 2007.  Studies to date do not show damages
        attributable to the leak.  However, the agencies may require
        additional studies.
 
 In
        March
        2006, several citizens (including some that have intervened in the Pennsylvania
        DEP's lawsuit) and two businesses filed a lawsuit in the Superior Court of
        New
        Jersey, Warren County, alleging that the fly ash leak caused damage to property
        along a 40-mile stretch of the Delaware River and asserting that the named
        plaintiffs are representative of a class of citizens and businesses along
        the
        40-mile stretch of the Delaware River.  PPL exercised its right to
        move this lawsuit to federal court in New Jersey.  The plaintiffs have
        since sought voluntary dismissal of this action without
        prejudice.  This request was granted by the Court, subject to the
        condition that the plaintiffs may not refile any class action.
 
 During
        2005, PPL Energy Supply recognized a $48 million pre-tax charge ($31 million
        after tax) in connection with the then-expected on-site and off-site costs
        relating to the remediation.  Based on its ongoing assessment of the
        expected remediation costs, in the first quarter of 2006 PPL Energy Supply
        reduced the estimate in connection with the current expected costs of the
        leak
        by $3 million, of which $2 million relates to off-site costs and the remainder
        to on-site costs.  In the second quarter 2006, PPL Energy Supply
        further reduced the estimate of off-site costs by $8 million, primarily due
        to
        an insurance claims settlement.  These reductions were included in
        "Other operation and maintenance" on the Statement of Income.  At
        June 30, 2007, management's best estimate of the probable loss associated
        with the Martins Creek ash basin leak remains at $37 million, of which $31
        million related to off-site costs, and the balance to on-site
        costs.  At June 30, 2007, the remaining contingency for this
        remediation was $9 million.  PPL and PPL Energy Supply cannot be
        certain of the outcome of the action initiated by the Pennsylvania DEP, the
        outcome of the natural resource damage assessment, the outcome of any lawsuit
        brought by the citizens and businesses and the exact nature of any other
        regulatory or other legal actions that may be initiated against PPL, PPL
        Energy
        Supply or their subsidiaries as a result of the disposal basin
        leak.
 
 Basin
        Seepage - Pennsylvania
 
 Seepages
        have been detected at active and retired wastewater basins at various PPL
        plants, including the Montour, Brunner Island and Martins Creek generating
        facilities.  PPL has completed an assessment of some of the seepages
        at the Montour and Brunner Island facilities and is working with the
        Pennsylvania DEP to implement abatement measures for those
        seepages.  PPL is continuing to conduct assessments of other seepages
        at the Montour and Brunner Island facilities as well as seepages at the Martins
        Creek facility to determine the appropriate abatement actions.  PPL
        plans to comprehensively address issues related to wastewater basins at all
        of
        its Pennsylvania plants, as part of the process to renew the residual waste
        permits for these basins that expire within the next two years.  PPL
        has an insignificant remaining contingency to assess and/or abate seepage
        from
        certain facilities and has $5 million in the 2007 capital budget to upgrade
        and/or replace certain waste water facilities in response to the seepage
        and
        other facility changes.  The potential cost to address other seepages
        or to replace existing wastewater basins at all of PPL's Pennsylvania plants
        is
        not now determinable, but could be significant.
 
 Basin
        Seepage - Montana
 
 In
        May
        2003, approximately 50 plaintiffs brought an action now pending at the Montana
        Sixteenth Judicial District Court, Rosebud County, against PPL Montana and
        the
        other owners of the Colstrip plant alleging property damage from seepage
        from
        the freshwater and wastewater ponds at Colstrip.  In February 2007,
        six plaintiffs filed a separate lawsuit in the same court against the Colstrip
        plant owners asserting similar claims.  PPL Montana has undertaken
        certain groundwater investigation and remediation measures at the Colstrip
        plant
        to address groundwater contamination alleged by the plaintiffs as well as
        other
        groundwater contamination at the plant.  These measures include
        proceeding with extending city water to certain residents who live near the
        plant, some of whom are plaintiffs in the original litigation.  Beyond
        the original estimated reserve of $1 million recorded by PPL Montana in 2004
        (of
        which only an insignificant amount remains at June 30, 2007) for a proposed
        settlement of the property damage claims raised in the original litigation,
        for
        extending city water and for a portion of the remedial investigation costs,
        PPL
        Montana may incur further costs based on its additional groundwater
        investigations and any related remedial measures, which costs are not now
        determinable, but could be significant.
 
 Other
        Issues
 
 The
        EPA
        has significantly tightened the water quality standard for
        arsenic.  The revised standard became effective in January 2006 and at
        this time applies only to drinking water.  The revised standard may
        result in action by individual states that could require several PPL
        subsidiaries to either further treat wastewater or take abatement action
        at
        their power plants, or both.  The cost of complying with any such
        requirements is not now determinable, but could be significant.
 
 The
        EPA
        finalized requirements in 2004 for new or modified cooling water intake
        structures.  These requirements affect where generating facilities are
        built, establish intake design standards, and could lead to requirements
        for
        cooling towers at new and modified power plants.  Another rule that
        was finalized in 2004 addresses existing structures.  Six northeastern
        states challenged the new rules for existing structures as being
        inadequate.  In January 2007, the U.S. Court of Appeals for the Second
        Circuit remanded to the EPA all of the main requirements of the rule for
        further
        analysis and rulemaking.  As a result of this court action, the EPA
        has withdrawn the rule.  Depending on what changes the EPA makes to
        the rule in accordance with this decision, and/or what actions the states
        may
        take on their own, the impacts of the actions could result in stricter standards
        for existing structures that could impose significant costs on PPL
        subsidiaries.
 
 PPL
        has
        reached a settlement with the Pennsylvania DEP concerning the thermal discharge
        from its Brunner Island plant into the Susquehanna River.  The
        settlement commits PPL to install mechanical draft cooling towers at the
        plant.  PPL expects construction of the cooling towers to begin by the
        end of 2007 and for the towers to be in service in the spring of
        2010.  The expected capital cost of the installation of the towers is
        $125 million.
 
 The
        settlement with the Pennsylvania DEP regarding the Brunner Island discharge
        has
        been incorporated into a new National Pollutant Discharge Elimination System
        permit for the plant.  PPL filed an appeal to the permit on issues
        other than the settlement and settlement has been achieved on these other
        issues.  The costs of this settlement are not
        material.
 
 The
        Susquehanna River Basin Commission (SRBC) has alleged that PPL's Susquehanna
        plant should have obtained a water withdrawal permit when it upgraded its
        flow
        meters in 2001 and 2002.  The SRBC has also alleged that Brunner
        Island may have violated the SRBC's consumptive use regulations by using
        more
        water than it was allowed to under SRBC regulations.  PPL is
        negotiating both matters with the SRBC, but does not expect resulting penalties
        to be material.
 
 **Superfund
        and Other Remediation**
 
 *(PPL,
        PPL Energy Supply and PPL Electric)*
 
 PPL
        Electric is a potentially responsible party at several sites listed by the
        EPA
        under the federal Superfund program, including the Columbia Gas Plant
        Site.  Clean-up actions have been or are being undertaken at all of
        these sites, the costs of which have not been significant.  However,
        should the EPA require significantly different or additional measures in
        the
        future, the costs of such measures are not determinable but could be
        significant.
 
 In
        1995,
        PPL Electric and PPL Generation and, in 1996, PPL Gas Utilities entered into
        consent orders with the Pennsylvania DEP to address a number of sites that
        were
        not being addressed under another regulatory program such as Superfund, but
        for
        which PPL Electric, PPL Generation or PPL Gas Utilities may be liable for
        remediation.  These agreements have now been combined into a single
        agreement for the companies.  The Consent Order and Agreement (COA)
        includes 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; oil or other
        contamination that may exist at some of PPL Electric's former generating
        facilities; and potential contamination at abandoned power plant sites owned
        by
        PPL Generation.  This also includes former coal gas manufacturing
        facilities and potential mercury contamination from gas meters and regulators
        at
        PPL Gas Utilities' sites.
 
 As
        of
        June 30, 2007, PPL Electric and PPL Gas Utilities have 118 sites (97
        well-plugging sites and 21 sites requiring remediation as discussed above)
        to
        address under the new combined COA, and currently no PPL Generation sites
        are
        included on the COA site list.  Additional sites formerly owned or
        operated by PPL Electric, PPL Generation or PPL Gas Utilities are added to
        the
        COA on a case-by-case basis.
 
 At
        June
        30, 2007, PPL Electric and PPL Gas Utilities had accrued $3 million and $10
        million, respectively, representing the estimated amounts each will have
        to
        spend for site remediation, including those sites covered by the COA noted
        above.  Depending on the outcome of investigations at sites where
        investigations have not begun or have not been completed, the costs of
        remediation and other liabilities could be substantial.  PPL and its
        subsidiaries also could incur other non-remediation costs at sites included
        in
        the consent orders or other contaminated sites, the costs of which are not
        now
        determinable, but could be significant.
 
 The
        EPA
        is evaluating the risks associated with naphthalene, a chemical by-product
        of
        coal gas manufacturing operations.  As a result of the EPA's
        evaluation, individual states may establish stricter standards for water
        quality
        and soil clean-up.  This could require several PPL subsidiaries to
        take more extensive assessment and remedial actions at former coal gas
        manufacturing facilities.  The costs to PPL of complying with any such
        requirements are not now determinable, but could be significant.
 
 *(PPL
        and PPL Energy Supply)*
 
 Under
        the
        Pennsylvania Clean Streams Law, subsidiaries of PPL Generation are obligated
        to
        remediate acid mine drainage at former mine sites and may be required to
        take
        additional measures to prevent potential acid mine drainage at previously
        capped
        refuse piles.  One PPL Generation subsidiary is pumping mine water at
        two mine sites, and treating water at one of these sites.  Another PPL
        Generation subsidiary has installed a passive wetlands treatment system at
        a
        third site.  At June 30, 2007, PPL Energy Supply had accrued a
        discounted liability of $31 million to cover the costs of pumping and treating
        groundwater at the two mine sites for 50 years and for operating and maintaining
        passive wetlands treatment at the third site.  PPL Energy Supply
        discounted this liability at a rate of 5.82%.  Expected undiscounted
        payments are estimated at $1 million for each of the years from 2007 through
        2011, and the expected payments for the work after 2011 are $116
        million.
 
 In
        1999,
        the Montana Supreme Court held in favor of several citizens' groups that
        the
        right to a clean and healthful environment is a fundamental right guaranteed
        by
        the Montana Constitution.  Currently pending before the Court are
        three cases relating to the manner in which this fundamental right may be
        exercised and the proper measurement of damages for environmental impacts
        to
        property.  These cases were consolidated for purposes of arguments
        before the Court.  The Court's ruling on this consolidated litigation
        could result in significantly more lawsuits under Montana's environmental
        laws.  The effect on PPL Montana of any such increase in legal actions
        is not currently determinable, but could be significant.
 
 *(PPL,
        PPL Energy Supply and PPL Electric)*
 
 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.
 
 Gas
        Seepage*****(PPL)*
 
 PPL
        Gas
        Utilities owns and operates the Meeker gas storage field and has a partial
        ownership interest in the Tioga gas storage field, both located in north-central
        Pennsylvania.  There continues to be an issue with natural gas
        observed in several drinking water wells that the Pennsylvania DEP has been
        working to address.  The Pennsylvania DEP has raised concerns that
        potential leakage of natural gas from the Tioga gas storage field could be
        contributing to this issue.  To help determine the cause of the
        natural gas in the potable water wells, the Pennsylvania DEP enlisted the
        services of the U.S. Geological Survey Department.  The results of the
        U.S. Geological Survey study were published in mid-2007 and indicate that
        gas in the groundwater in the area, including in certain residential wells,
        may
        be due in part to gas stored in the storage fields.  PPL Gas Utilities
        is currently performing a technical review of the report and continues to
        work
        with the Pennsylvania DEP and the co-owner/operator of the Tioga field to
        resolve the issue.  The costs to resolve this issue are not now
        determinable, but could be significant.
 
 Electric
        and Magnetic Fields*****(PPL, PPL Energy Supply and
        PPL Electric)*
 
 Concerns
        have been expressed by some members of the public regarding potential health
        effects of power frequency EMFs, which are emitted by all devices carrying
        electricity, including electric transmission and distribution lines and
        substation equipment.  Government officials in the U.S. and the U.K.
        have reviewed this issue.  The U.S. National Institute of
        Environmental Health Sciences concluded in 2002 that, for most health outcomes,
        there is no evidence of EMFs causing adverse effects.  The agency
        further noted that there is some epidemiological evidence of an association
        with
        childhood leukemia, but that this evidence is difficult to interpret without
        supporting laboratory evidence.  The U.K. National Radiological
        Protection Board (now part of the U.K. Health Protection Agency) concluded
        in
        2004 that, while the research on EMFs does not provide a basis to find that
        EMFs
        cause any illness, there is a basis to consider precautionary measures beyond
        existing exposure guidelines.  In April 2007, the Stakeholder Group on
        Extremely Low Frequency EMF, set up by the U.K. Government, issued its interim
        assessment which describes a number of options for reducing public exposure
        to
        EMFs.  This assessment is being considered by the U.K.
        Government.  PPL and its subsidiaries believe the current efforts to
        determine whether EMFs cause adverse health effects should continue and are
        taking steps to reduce EMFs, where practical, in the design of new transmission
        and distribution facilities.  PPL and its subsidiaries are unable to
        predict what effect, if any, the EMF issue might have on their operations
        and
        facilities either in the U.S. or abroad, and the associated cost, or what,
        if
        any, liabilities they might incur related to the EMF issue.
 
 **Environmental
        Matters - International***(PPL and PPL Energy
        Supply)*
 
 U.K.
 
 WPD's
        distribution businesses are subject to regulatory and statutory requirements
        with respect to environmental matters.  PPL believes that WPD has
        taken and continues to take measures to comply with the applicable laws and
        governmental regulations for the protection of the environment.  There
        are no material legal or administrative proceedings pending against WPD with
        respect to environmental matters.  See "Environmental Matters -
        Domestic - Electric and Magnetic Fields" for a discussion of
        EMFs.
 
 Latin
        America
 
 In
          March
          2007, PPL announced its intention to sell its regulated electricity delivery
          businesses in Latin America.  PPL believes its Latin American
          affiliates have taken and continue to take measures to comply with the
          applicable laws and governmental regulations for the protection of the
          environment.  There are no material legal or administrative
          proceedings pending against PPL's affiliates in Latin America with respect
          to
          environmental matters.
 **Other**
 
 Nuclear
        Insurance*****(PPL and PPL Energy
        Supply)*
 
 PPL
        Susquehanna is a member of certain insurance programs that 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 that 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 June 30,
        2007, this maximum assessment was about $38 million.
 
 In
        the
        event of a nuclear incident at the Susquehanna station, PPL Susquehanna's
        public
        liability for claims resulting from such an incident would be limited to
        about
        $10.8 billion under provisions of The Price-Anderson Act Amendments under
        the
        Energy Policy Act of 2005.  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 Act Amendments under the Energy Policy Act
        of
        2005, PPL Susquehanna could be assessed up to $201 million per incident,
        payable
        at $30 million per year.
 
 Guarantees
        and Other Assurances
 
 *(PPL)*
 
 PPL
        fully
        and unconditionally guarantees all of the debt securities of PPL Capital
        Funding.
 
 *(PPL,
        PPL Energy Supply and PPL Electric)*
 
 The
        table
        below provides an update to those guarantees that are within the scope of
        FIN
        45, "Guarantor's Accounting and Disclosure Requirements for Guarantees,
        Including Indirect Guarantees of Indebtedness of Others, an Interpretation
        of
        FASB Statements No. 5, 57, and 107 and Rescission of FASB Interpretation
        No.
        34," and are specifically disclosed in Note 15 to the Financial Statements
        contained in each Registrant's 2006 Form 10-K.
 
 **Recorded
                  Liability at**
              
              **Exposure
                  at****June
                  30, 2007**
              
              **December
                  31, 2006**
              
              **June
                  30, 2007 (a)**
              
              **Expiration
                  Date****PPL
                  Energy Supply**(b)WPD
                  LLP guarantee of obligations under SIUK Capital Trust I preferred
                  securities (c)Letters
                  of credit issued on behalf of affiliates
              
              
              
              
              
              
              
              $
              8
              (d)
              
              2008Support
                  agreements to guarantee partnerships' obligations for the sale
                  of
                  coal
              
              
              
              
              
              
              
              
              3
              
              
              2007Retroactive
                  premiums under nuclear insurance programs
              
              
              
              
              
              
              
              
              38Nuclear
                  claims under The Price-Anderson Act Amendments under The Energy
                  Policy Act
                  of 2005
              
              
              
              
              
              
              
              
              201
              (e)Contingent
                  purchase price payments to former owners of synfuel
                  projects
              
              
              
              
              
              
              
              
              6
              (g)
              
              2007Indemnifications
                  for entities in liquidation and sales of assets
              
              
              
              
              $
              1
              
              
              316
              (h)
              
              2008
                  to 2012Assignment
                  of Enron claims
              
              
              
              
              
              
              
              
              7
              (i)
              
              
              (i)WPD
                  guarantee of pension and other obligations of unconsolidated
                  entities
              
              $
              4
              
              
              4
              
              
              33
              (f)
              
              2017Tax
                  indemnification related to unconsolidated WPD affiliates
              
              
              
              
              
              
              
              
              10
              (j)
              
              2012**PPL
                  Electric******(b)Guarantee
                  of a portion of an unconsolidated entity's debt
              
              
              
              
              
              
              
              
              7
              (k)
              
              2008
 
 (a)
              
              Represents
                  the estimated maximum potential amount of future payments that
                  could be
                  required to be made under the guarantee.(b)
              
              Other
                  than the exceptions noted in (d) below, all guarantees of PPL Energy
                  Supply and PPL Electric also apply to PPL on a consolidated
                  basis.(c)
              
              These
                  securities were redeemed during February 2007 and, as a result,
                  the
                  guarantee no longer exists.  See Note 7 for additional
                  information on the redemption.(d)
              
              Represents
                  letters of credit issued at the direction of PPL Energy Supply
                  for the
                  benefit of third parties for assurance against nonperformance by
                  PPL and
                  PPL Gas Utilities.  This is not a guarantee by PPL on a
                  consolidated basis.(e)
              
              Amount
                  is per incident.(f)
              
              Neither
                  the expiration date nor the maximum amount of potential payments
                  for
                  certain obligations is explicitly stated in the related
                  agreements.  Therefore, they have been estimated based on the
                  types of obligations.(g)
              
              Actual
                  payments are based primarily upon production levels of the synfuel
                  projects.  See "IRS Synthetic Fuels Tax Credits" within this
                  note for further discussion.(h)
              
              PPL
                  Energy Supply's maximum exposure with respect to certain indemnifications
                  and the expiration of the indemnifications cannot be estimated
                  because, in
                  the case of certain of the indemnification provisions, the maximum
                  potential liability is not capped by the transaction documents
                  and the
                  expiration date is based on the applicable statute of
                  limitations.  The exposure noted is only for those cases in
                  which the agreements provide for a specific limit on the amount
                  of the
                  indemnification.
                
                In
                  connection with the liquidation of wholly owned subsidiaries that
                  have
                  been deconsolidated upon turning the entities over to the liquidators,
                  certain affiliates of PPL Global have agreed to indemnify the liquidators,
                  directors and/or the entities themselves for any liabilities or
                  expenses
                  arising during the liquidation process, including liabilities and
                  expenses
                  of the entities placed into liquidation.  In some cases, the
                  indemnifications are limited to a maximum amount that is based
                  on
                  distributions made from the subsidiary to its parent either prior
                  or
                  subsequent to being placed into liquidation.  In other cases,
                  the maximum amount of the indemnifications is not explicitly stated
                  in the
                  agreements.  The indemnifications generally expire two to seven
                  years subsequent to the date of dissolution of the
                  entities.  The exposure noted only includes those cases in which
                  the agreements provide for a specific limit on the amount of the
                  indemnification, and the expiration date was based on an estimate
                  of the
                  dissolution date of the entities.
                
                PPL
                  Energy Supply has provided indemnification to the purchaser of
                  the
                  Sundance facility for losses arising out of any breach of the
                  representations, warranties and covenants under the related transaction
                  documents and for losses arising with respect to liabilities not
                  specifically assumed by the purchaser, including certain pre-closing
                  environmental and tort liabilities.  The indemnification other
                  than for pre-closing environmental and tort liabilities are triggered
                  only
                  if the purchaser's losses reach $1 million in the aggregate, are
                  capped at
                  50% of the purchase price (or $95 million), and either expired
                  in May 2007
                  or will expire pursuant to applicable statutes of
                  limitation.  The indemnification provision for unknown
                  environmental and tort liabilities related to periods prior to
                  PPL Energy
                  Supply's ownership of the real property on which the facility is
                  located
                  are capped at $4 million in the aggregate and survive for a maximum
                  period
                  of five years after the transaction closing.
                
                Certain
                  of the indemnifications provided to the purchaser of the interest
                  of PPL
                  Southwest Generation Holdings, LLC in the Griffith plant are triggered
                  only if the purchaser's losses reach $750,000 in the aggregate,
                  are capped
                  at 35% of the purchase price (or $41 million), and survive for
                  a period of
                  only 18 months after the June 30, 2006, transaction
                  closing.  For the majority of the indemnification obligations,
                  the purchaser's existing 50% ownership of the Griffith plant prior
                  to
                  closing is taken into account for purposes of determining and calculating
                  the purchaser's losses.(i)
              
              In
                  July 2006, two subsidiaries of PPL Energy Supply assigned their
                  Enron
                  claims to an independent third party (claims purchaser).  In
                  connection with the assignment, the subsidiaries agreed to repay
                  a pro
                  rata share of the purchase price paid by the claims purchaser,
                  plus
                  interest, in the event that any of the assigned claims are disallowed
                  under certain circumstances.  The bankruptcy court overseeing
                  the Enron bankruptcy approved the assigned claims prior to their
                  assignment to the claims purchaser.  The subsidiaries' repayment
                  obligations will remain in effect until the claims purchaser has
                  received
                  all distributions with respect to the assigned claims.(j)
              
              Two
                  WPD unconsolidated affiliates were refinanced during
                  2005.  Under the terms of the refinancing, WPD has indemnified
                  the lender against certain tax and other liabilities.  At this
                  time, WPD believes that the likelihood of such liabilities arising
                  is
                  remote.(k)
              
              Reflects
                  principal payments only.
 
 PPL,
        PPL
        Energy Supply and PPL Electric and their subsidiaries provide other
        miscellaneous guarantees through contracts entered into in the normal course
        of
        business.  These guarantees are primarily in the form of various
        indemnifications or warranties related to services or equipment and vary
        in
        duration.  The obligated amounts of these guarantees often are not
        explicitly stated, and the overall maximum amount of the obligation under
        such
        guarantees cannot be reasonably estimated.  Historically, PPL, PPL
        Energy Supply and PPL Electric and their subsidiaries have not made any
        significant payments with respect to these types of guarantees.  As of
        June 30, 2007, the aggregate fair value of these indemnifications related
        to
        arrangements entered into subsequent to December 31, 2002, was
        insignificant.
 
 **11.**
              **Related
                  Party Transactions**
 
 **Affiliate
        Trust***(PPL and PPL Energy Supply)*
 
 At
        December 31, 2006, PPL's and PPL Energy Supply's Balance Sheets reflected
        $89
        million of "Long-term debt with affiliate trust."  This debt
        represented obligations of WPD LLP under 8.23% Subordinated Debentures maturing
        in February 2027 that were held by SIUK Capital Trust I, a variable interest
        entity whose common securities were owned by WPD LLP but which was not
        consolidated by WPD LLP.  In February 2007, WPD LLP redeemed all of
        the 8.23% Subordinated Debentures that were held by SIUK Capital Trust
        I.  See Note 7 for further discussion of the
        redemption.  Interest expense on this obligation was $3 million for
        the three months ended June 30, 2006, and $2 million and $6 million for the
        six
        months ended June 30, 2007 and 2006.  The redemption resulted in a
        loss of $2 million being recorded during the first quarter of
        2007.  This interest and loss are reflected in "Interest Expense" for
        PPL and "Interest Expense with Affiliates" for PPL Energy Supply on the
        Statement of Income.  See Note 22 in each Registrant's 2006 Form 10-K
        for additional information on the trust.
 
 **PLR
        Contracts***(PPL Energy Supply and PPL Electric)*
 
 PPL
        Electric has entered into power sales agreements with PPL EnergyPlus, effective
        July 2000 and January 2002, in which PPL EnergyPlus will supply all of PPL
        Electric's PLR load through December 31, 2009.  Under these
        contracts, PPL EnergyPlus provides electricity at the predetermined capped
        prices that PPL Electric is authorized to charge its PLR
        customers.  For the three months ended June 30, 2007 and 2006, these
        purchases totaled $422 million and $395 million.  For the six months
        ended June 30, 2007 and 2006, these purchases totaled $903 million and $841
        million.  These purchases include nuclear decommissioning recovery and
        amortization of an up-front contract payment and are included in the Statements
        of Income as "Energy purchases from affiliate" by PPL Electric, and as
        "Wholesale energy marketing to affiliate" by PPL Energy Supply.
 
 Under
        one
        of the PLR contracts, PPL Electric is required to make performance assurance
        deposits with PPL EnergyPlus when the market price of electricity is less
        than
        the contract price by more than its contract collateral
        threshold.  Conversely, PPL EnergyPlus is required to make performance
        assurance deposits with PPL Electric when the market price of electricity
        is
        greater than the contract price by more than its contract collateral
        threshold.  PPL Electric estimated that, at June 30, 2007, the market
        price of electricity would exceed the contract price by $2.9
        billion.  Accordingly, at June 30, 2007, PPL Energy Supply was
        required to provide PPL Electric with performance assurance of $300 million,
        the
        maximum amount required under the contract.  PPL Energy Supply's
        deposit with PPL Electric was $300 million at both June 30, 2007 and
        December 31, 2006.  This deposit is shown on the Balance Sheets
        as "Collateral on PLR energy supply to/from affiliate," a current asset of
        PPL
        Energy Supply and a current liability of PPL Electric.  PPL Electric
        pays interest equal to the one-month LIBOR plus 0.5% on this deposit, which
        is
        included in "Interest Expense with Affiliate" on the Statements of
        Income.  PPL Energy Supply records the receipt of the interest as
        affiliated interest income, which is included in "Other Income - net" on
        the
        Statements of Income.
 
 In
        2001,
        PPL Electric made a $90 million up-front payment to PPL EnergyPlus in connection
        with the PLR contracts.  The up-front payment is being amortized by
        both parties over the term of the PLR contracts.  The unamortized
        balance of this payment, and other payments under the contract, was $29 million
        at June 30, 2007 and $35 million at December 31, 2006.  These
        current and noncurrent balances are reported on the Balance Sheets as
        "Prepayment on PLR energy supply from affiliate" by PPL Electric and as
        "Deferred revenue on PLR energy supply to affiliate" by PPL Energy
        Supply.
 
 Under
          Pennsylvania law and PUC regulations, PPL Electric is required to buy
          electricity generation supply for customers who do not choose a competitive
          supplier.  As previously announced, PPL Electric conducted the first
          of six competitive solicitations for generation supply in 2010, after its
          existing PLR contract expires.  Competitive bids were solicited for
          850 MW of generation supply, or one-sixth of PPL Electric's expected supply
          requirements for these customers in 2010.  An independent company,
          NERA Economic Consulting, managed this competitive solicitation
          process.  NERA compiled the results, which were then presented to the
          PUC on July 24, 2007.  The PUC approved the results on July 26,
          2007.  Additional bids will be sought later this fall and twice each
          in 2008 and 2009 to secure the remainder of supply needed to serve PPL
          Electric's customers in 2010.
 
 PPL
          EnergyPlus was one of the successful bidders in this competitive solicitation
          process and has entered into an agreement with PPL Electric to supply up
          to 671
          MW of total peak load in 2010, at an average price of $91.42 per
          MWh.
 
 Under
          the
          standard Supply Master Agreement for the bid solicitation process, PPL
          Electric
          requires all suppliers to post collateral once credit exposures exceed
          defined
          credit limits.  In no instance is PPL Electric required to post
          collateral to suppliers under these supply contracts.  PPL EnergyPlus
          is required to post collateral with PPL Electric when the market price
          of
          electricity to be delivered by PPL EnergyPlus exceeds the contract price
          for the
          forecasted quantity of electricity to be delivered and this market price
          exposure exceeds a contractual credit limit.  Based on the current
          credit rating of PPL Energy Supply, as guarantor, this credit limit is
          $35
          million.
 **NUG
        Purchases***(PPL Energy Supply and PPL Electric)*
 
 PPL
        Electric has a reciprocal contract with PPL EnergyPlus to sell electricity
        purchased under contracts with NUGs.  PPL Electric purchases
        electricity from the NUGs at contractual rates and then sells the electricity
        at
        the same price to PPL EnergyPlus.  For the three months ended June 30,
        2007 and 2006, these NUG purchases totaled $37 million and $39
        million.  For the six months ended June 30, 2007 and 2006, these NUG
        purchases totaled $74 million and $78 million.  These amounts are
        included in the Statements of Income as "Wholesale electric to affiliate"
        by PPL
        Electric, and as "Energy purchases from affiliate" by PPL Energy
        Supply.
 
 **Allocations
        of Corporate Service Costs***(PPL Energy Supply and PPL
        Electric*)
 
 PPL
        Services provides corporate functions such as financial, legal, human resources
        and information services.  PPL Services bills the respective PPL
        subsidiaries for the cost of such services when they can be specifically
        identified.  The cost of these services that is not directly charged
        to PPL subsidiaries is allocated to certain subsidiaries based on an average
        of
        the subsidiaries' relative invested capital, operation and maintenance expenses,
        and number of employees.  PPL Services allocated the following
        amounts, which PPL management believes are reasonable, to PPL Energy Supply
        and
        PPL Electric, including amounts applied to accounts that are further allocated
        between capital and expense.
 
 **Three
                  Months Ended**
                **June
                  30,**
              
              **Six
                  Months Ended**
                **June
                  30,****2007**
              
              **2006**
              
              **2007**
              
              **2006**PPL
                  Energy Supply
              
              $
              55
              
              $
              52
              
              $
              114
              
              $
              113PPL
                  Electric
              
              
              30
              
              
              28
              
              
              62
              
              
              60
 
 **Divestiture
        of Latin American Businesses***(PPL and PPL Energy
        Supply*)
 
 See
        Note
        8 for details about the July 2007 sale of PPL's Bolivian businesses to a
        group
        organized by their local management and employees of the
        companies.
 
 **Intercompany
        Borrowings**
 
 *(PPL
        Energy Supply)*
 
 PPL
        Energy Supply had no notes receivable from affiliates at June 30, 2007 and
        December 31, 2006.  Interest earned on cash collateral and loans to
        affiliates, included in "Other Income - net" on the Statements of Income,
        was $7
        million and $6 million for the three months ended June 30, 2007 and 2006,
        and
        $12 million and $11 million for the six months ended June 30, 2007 and
        2006.
 
 (*PPL
        Electric)*
 
 In
        August
        2004, a PPL Electric subsidiary issued a $300 million demand note to an
        affiliate.  There was a balance of $300 million outstanding at June
        30, 2007 and December 31, 2006.  Interest is due quarterly at a
        rate equal to the 3-month LIBOR plus 1% in 2007 and 1.25% in
        2006.  This note is shown on the Balance Sheets as "Note receivable
        from affiliate."  Interest earned on the note is included in "Other
        Income - net" on the Statements of Income, and was $4 million and $5 million
        for
        the three months ended June 30, 2007 and 2006.  For the six months
        June 30, 2007 and 2006, interest earned was $9 million and $10
        million.
 
 **Intercompany
        Derivatives***(PPL Energy Supply)*
 
 PPL
        Energy Supply entered into a combination of average rate forwards and average
        rate options with PPL to sell British pounds sterling.  These hedging
        instruments have terms identical to average rate forwards and average rate
        options entered into by PPL with third parties to protect expected income
        denominated in British pounds sterling.  At June 30, 2007, the total
        notional amount of these hedging instruments was £60.1 million (approximately
        $117 million) and the market value of these positions, representing the amount
        PPL Energy Supply would pay to PPL and PPL would pay to third parties upon
        their
        termination, was $3 million and is reflected in "Price risk management
        liabilities" on the Balance Sheet.  No similar hedging instruments
        were outstanding at December 31, 2006.  Gains and losses, both
        realized and unrealized, on these hedging instruments are included in "Other
        income - net" on the Statements of Income.  For the three and six
        months ended June 30, 2007, PPL Energy Supply recorded net losses of $2 million
        and $3 million.  "Other income - net" includes a net loss of $3
        million related to similar average rate forwards and average rate options
        for
        both the three and six months ended June 30, 2006.
 
 PPL
        Energy Supply entered into forward contracts with PPL to sell Chilean
        pesos.  These hedging instruments have terms identical to forward
        sales contracts entered into by PPL with third parties.  At June 30,
        2007, the total notional amount of these contracts was 215 billion Chilean
        pesos
        (approximately $400 million).  Of these forward sales contracts, 161
        billion Chilean pesos (approximately $300 million) are to hedge the net
        investment in Emel, while the remaining 54 billion Chilean pesos (approximately
        $100 million) are to hedge a portion of the proceeds from the anticipated
        sale
        of Emel.  The aggregate market value of these positions, representing
        the amount PPL Energy Supply would pay to PPL and PPL would pay to third
        parties
        upon their termination, was $8 million at June 30, 2007.  Of the $8
        million, $6 million is reflected in accumulated other comprehensive loss
        and
        "Price risk management liabilities" on the Balance Sheet and $2 million is
        reflected in "Other income - net" on the Statement of Income for the three
        and
        six months ended June 30, 2007 and "Price risk management liabilities" on
        the
        Balance Sheet.
 
 PPL
        Energy Supply also entered into forward contracts with PPL to sell British
        pounds sterling.  These hedging instruments have terms identical to
        forward sales contracts entered into by PPL with third parties.  At
        June 30, 2007, the total notional amount of these contracts was £22.5 million
        (approximately $45 million).  These forward sales contracts are to
        partially hedge the net investment in WPD.  The market value of these
        positions, representing the amount PPL Energy Supply would pay to PPL and
        PPL
        would pay third parties upon their termination was insignificant and is
        reflected in accumulated other comprehensive loss and "Price risk management
        liabilities" on the Balance Sheet.
 
 **Trademark
        Royalties***(PPL Energy Supply)*
 
 A
        PPL
        subsidiary owns PPL trademarks and bills certain affiliates for their
        use.  PPL Energy Supply was allocated $9 million of this license fee
        for the three months ended June 30, 2007 and 2006, and $18 million for the
        six
        months ended June 30, 2007 and 2006.  These allocations of the license
        fee are primarily included in "Other operation and maintenance" on the
        Statements of Income.
 
 **12.**
              **Other
                  Income - net**
 
 *(PPL,
        PPL Energy Supply and PPL Electric)*
 
 The
        breakdown of "Other Income - net" was:
 
 **Three
                  Months Ended**
                **June
                  30,**
              
              **Six
                  Months Ended**
                **June
                  30,****2007**
              
              **2006**
              
              **2007**
              
              **2006****PPL****Other
                  Income**Hyder
                  liquidation distribution (Note 8)
              
              $
              2
              
              
              $
              24
              
              
              $
              6
              
              
              $
              24Interest
                  income
              
              
              15
              
              
              
              7
              
              
              
              27
              
              
              
              13Earnings
                  on nuclear decommissioning trust
              
              
              5
              
              
              
              2
              
              
              
              7
              
              
              
              5Gain
                  on sale of investment in an unconsolidated affiliate (Note
                  8)
              
              
              
              
              
              
              (1
              )
              
              
              
              
              
              
              3Equity
                  earnings
              
              
              1
              
              
              
              1
              
              
              
              2
              
              
              
              2Gain
                  on sale of real estate
              
              
              1
              
              
              
              
              
              
              
              6Gain
                  on transfer of international equity investment (Note 8)
              
              
              
              
              
              
              
              
              
              
              5Miscellaneous
                  - International
              
              
              3
              
              
              
              
              
              
              
              3
              
              
              
              2Miscellaneous
                  - Domestic
              
              
              
              
              
              
              2
              
              
              
              3
              
              
              
              6Total
              
              
              27
              
              
              
              35
              
              
              
              59
              
              
              
              55**Other
                  Deductions**Impairment
                  of investment in U.K. real estate(Note
                  8)
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              8Hedging
                  activity
              
              
              3
              
              
              
              3
              
              
              
              4
              
              
              
              3Charitable
                  contributions
              
              
              
              
              
              
              1
              
              
              
              2
              
              
              
              2Taxes,
                  other than income
              
              
              1
              
              
              
              1
              
              
              
              1
              
              
              
              1Miscellaneous
                  - International
              
              
              
              
              
              
              
              
              
              
              1Miscellaneous
                  - Domestic
              
              
              1
              
              
              
              
              
              
              
              3
              
              
              
              3**Other
                  Income - net**
              
              $
              22
              
              
              $
              30
              
              
              $
              48
              
              
              $
              38**PPL
                  Energy Supply****Other
                  Income**Hyder
                  liquidation distribution (Note 8)
              
              $
              2
              
              
              $
              24
              
              
              $
              6
              
              
              $
              24Affiliated
                  interest income (Note 11)
              
              
              7
              
              
              
              6
              
              
              
              12
              
              
              
              11Interest
                  income
              
              
              12
              
              
              
              3
              
              
              
              20
              
              
              
              5Earnings
                  on nuclear decommissioning trust
              
              
              5
              
              
              
              2
              
              
              
              7
              
              
              
              5Gain
                  on sale of investment in an unconsolidated affiliate (Note
                  8)
              
              
              
              
              
              
              (1
              )
              
              
              
              
              
              
              3Equity
                  earnings
              
              
              1
              
              
              
              1
              
              
              
              2
              
              
              
              2Gain
                  on sale of real estate
              
              
              
              
              
              
              
              
              
              
              1Gain
                  on transfer of international equity investment (Note 8)
              
              
              
              
              
              
              
              
              
              
              5Miscellaneous
                  - International
              
              
              3
              
              
              
              
              
              
              
              3
              
              
              
              2Miscellaneous
                  - Domestic
              
              
              
              
              
              
              2
              
              
              
              2
              
              
              
              4Total
              
              
              30
              
              
              
              37
              
              
              
              58
              
              
              
              56**Other
                  Deductions**Impairment
                  of investment in U.K. real estate(Note
                  8)
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              8Hedging
                  activity
              
              
              3
              
              
              
              3
              
              
              
              4
              
              
              
              3Taxes,
                  other than income
              
              
              1
              
              
              
              1
              
              
              
              1
              
              
              
              1Miscellaneous
                  - International
              
              
              
              
              
              
              
              
              
              
              1Miscellaneous
                  - Domestic
              
              
              2
              
              
              
              
              
              
              
              4
              
              
              
              3**Other
                  Income - net**
              
              $
              24
              
              
              $
              33
              
              
              $
              48
              
              
              $
              41
 **PPL
                  Electric****Other
                  Income**Affiliated
                  interest income (Note 11)
              
              $
              4
              
              
              $
              5
              
              
              $
              9
              
              
              $
              10Interest
                  income
              
              
              2
              
              
              
              2
              
              
              
              5
              
              
              
              5Gain
                  on real estate
              
              
              
              
              
              
              
              
              
              
              4Miscellaneous
              
              
              1
              
              
              
              
              
              
              
              1
              
              
              
              1Total
              
              
              7
              
              
              
              7
              
              
              
              19
              
              
              
              16**Other
                  Deductions****Other
                  Income - net**
              
              $
              7
              
              
              $
              7
              
              
              $
              19
              
              
              $
              16
 
 **13.**
              **Derivative
                  Instruments and Hedging
                  Activities**
 
 *(PPL
        and PPL Energy Supply)*
 
 **Fair
        Value Hedges**
 
 PPL
          and
          PPL Energy Supply enter into financial contracts to hedge fluctuations
          in the
          market value of existing debt issuances.  These contracts range in
          maturity through 2046.  PPL and PPL Energy Supply also enter into
          foreign currency forward contracts to hedge the exchange rates associated
          with
          firm commitments denominated in foreign currencies.  These forward
          contracts range in maturity through 2008.
  PPL
          and
          PPL Energy Supply did not recognize significant gains or losses resulting
          from
          hedges of firm commitments that no longer qualified as fair value hedges
          for the
          three and six months ended June 30, 2007 and 2006.  PPL and PPL Energy
          Supply also did not recognize any gains or losses resulting from the ineffective
          portion of fair value hedges in these periods.
 
 **Cash
        Flow Hedges**
 
 PPL
        and
        PPL Energy Supply enter into financial and physical contracts, including
        forwards, futures, swaps and options, to hedge the price risk associated
        with
        electric, gas, oil and other commodities.  These contracts range in
        maturity through 2017.  Additionally, PPL and PPL Energy Supply enter
        into financial interest rate swap contracts to hedge floating interest rate
        risk
        associated with both existing and anticipated debt issuances.  These
        interest rate swap contracts range in maturity through 2018.  PPL and
        PPL Energy Supply also enter into foreign currency contracts to hedge the
        cash
        flows associated with foreign currency-denominated debt, the exchange rates
        associated with firm commitments denominated in foreign currencies and the
        net
        investment of foreign operations.  These contracts range in maturity
        through 2028.
 
 Net
        investment hedge activity is reported in the foreign currency translation
        adjustments component of other comprehensive (loss) income.  PPL's
        cumulative net investment hedges have resulted in after tax losses of $10
        million as of June 30, 2007, and $6 million as of December 31,
        2006.  During the three and six months ended June 30, 2007, PPL and
        PPL Energy Supply recognized net investment hedge losses of $5 million and
        $4
        million in other comprehensive (loss) income.  During the three and
        six months ended June 30, 2006, PPL and PPL Energy Supply recognized
        insignificant amounts in other comprehensive (loss) income related to net
        investment hedge activity.
 
 Cash
        flow
        hedges are discontinued if it is no longer probable that the original forecasted
        transaction will occur by the end of the originally specified time
        period.  During the three and six months ended June 30, 2007, an
        insignificant amount was reclassified from accumulated other comprehensive
        loss.  Other than transactions associated with the sale of the
        Griffith plant, PPL and PPL Energy Supply discontinued an insignificant amount
        of hedges because it was probable that the anticipated forecasted transaction
        would not occur for the three and six months ended June 30, 2006.
 
 For
        the
        three and six months ended June 30, 2007, hedge ineffectiveness associated
        with
        energy derivatives was, after tax, a loss of $2 million and a loss of $5
        million.  For the three and six months ended June 30, 2006, hedge
        ineffectiveness associated with energy derivatives was, after tax, an
        insignificant amount and a gain of $2 million.
 
 Ineffectiveness
        associated with interest rate and foreign currency derivatives was insignificant
        for the three and six months ended June 30, 2007 and 2006.
 
 At
        June
        30, 2007, the deferred net loss, after tax, on derivative instruments included
        in accumulated other comprehensive loss that is expected to be reclassified
        into
        earnings during the next twelve months is $54 million for PPL and $51 million
        for PPL Energy Supply.  Amounts are reclassified as the energy
        contracts go to delivery and as interest payments are made.
 
 This
        table shows the accumulated net unrealized losses on qualifying derivatives
        (excluding net investment hedges), after tax, which are included in accumulated
        other comprehensive loss.
 
 **Three
                  Months Ended**
                **June
                  30,**
              
              **Six
                  Months Ended**
                **June
                  30,****2007**
              
              **2006**
              
              **2007**
              
              **2006****PPL**Beginning
                  of period
              
              $
              (19
              )
              
              $
              (144
              )
              
              $
              (51
              )
              
              $
              (246
              )Net
                  change associated with current period hedging activities and
                  other
              
              
              (119
              )
              
              
              (32
              )
              
              
              (92
              )
              
              
              46Net
                  change from reclassification into earnings (a)
              
              
              1
              
              
              
              56
              
              
              
              6
              
              
              
              80End
                  of period
              
              $
              (137
              )
              
              $
              (120
              )
              
              $
              (137
              )
              
              $
              (120
              )
 **PPL
                  Energy Supply**Beginning
                  of period
              
              $
              (19
              )
              
              $
              (143
              )
              
              $
              (52
              )
              
              $
              (237
              )Net
                  change associated with current period hedging activities and
                  other
              
              
              (124
              )
              
              
              (40
              )
              
              
              (95
              )
              
              
              31Net
                  change from reclassification into earnings (a)
              
              
              
              
              
              
              54
              
              
              
              4
              
              
              
              77End
                  of period
              
              $
              (143
              )
              
              $
              (129
              )
              
              $
              (143
              )
              
              $
              (129
              )
 
 (a)
              
              The
                  three and six months ended June 30, 2006, include $7 million after
                  tax for
                  the acceleration of unrealized gains associated with the Griffith
                  plant
                  that have been recorded as a component of "Income (Loss) from Discontinued
                  Operations," on the Statements of
                  Income.
 
 **Normal
        Purchase/Normal Sale Exception**
 
 PPL's
        and
        PPL Energy Supply's "normal" portfolio includes derivative contracts for
        full
        requirements energy, emission allowances, gas and capacity; these contracts
        range in maturity through 2026.  Due to the "normal" election
        permitted by SFAS 133, "Accounting for Derivative Instruments and Hedging
        Activities," as amended and interpreted, these contracts receive accrual
        accounting.  The net fair value of these contracts that would have
        been recorded on the Balance Sheets, had they not received accrual accounting
        treatment, was:
 
 **(Losses)
                  Gains****June
                  30,****2007**
              
              **December
                  31, 2006**PPL
              
              $
              (76
              )
              
              $
              146PPL
                  Energy Supply
              
              
              (73
              )
              
              
              154
 
 **Economic
        Hedging Activity**
 
 PPL
        and
        PPL Energy Supply have entered into energy derivative transactions that
        economically hedge a specific risk, but do not qualify for hedge accounting
        under SFAS 133.  The unrealized gains and losses on these transactions
        are considered non-trading activities and are reflected on the Statements
        of
        Income in "Wholesale energy marketing" or "Energy-related businesses" revenues,
        or "Fuel" or "Energy purchases" expenses.  For the three and six
        months ended June 30, 2007, the net gain reflected in earnings from these
        transactions, including the amortization of premiums on options, was $19
        million
        and $81 million.
  The
          net
          gain was significantly impacted by PJM's implementation of its Reliability
          Pricing Model (RPM) that developed a long-term pricing signal for capacity
          resources and load serving entities obligations, effective April 1,
          2007.  Prior to the RPM, PPL recorded valuation reserves for capacity
          contracts due to the lack of liquidity and reliable, observable prices
          in the
          marketplace.  With the implementation of the RPM and the completion of
          PJM capacity auctions, forward capacity prices became sufficiently observable
          and PPL reversed reserves of $21 million during both the three and six
          months
          ended June 30, 2007.
 
 **Credit
        Concentration**
 
 *(PPL
        and PPL Energy Supply)*
 
 PPL
        and
        PPL Energy Supply enter into contracts with many entities for the purchase
        and
        sale of energy.  Many 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 fair value of
        these contracts is considered when committing to new business from a credit
        perspective.
 
 PPL
        and
        PPL Energy Supply have credit exposures to energy trading
        partners.  The majority of these exposures is the fair value of
        multi-year contracts for energy sales and purchases.  Therefore, if
        these counterparties fail to perform their obligations under such contracts,
        PPL
        and PPL Energy Supply would not experience an immediate financial loss but
        would
        experience lower revenues or higher costs in future years to the extent that
        replacement sales or purchases could not be made at the same prices as those
        under the defaulted contracts.
 
 PPL
        and
        PPL Energy Supply generally have the right to request collateral from their
        counterparties in the event that the counterparties' credit ratings fall
        below
        investment grade or their exposure exceeds an established credit
        limit.  It is also the policy of PPL and PPL Energy Supply to enter
        into netting agreements with all of their counterparties to limit credit
        exposure.
 
 At
        June
        30, 2007, both PPL and PPL Energy Supply had a credit exposure of $585 million
        to energy trading partners, excluding the effects of netting arrangements.
        No
        individual counterparty accounted for more than 26% of the
        exposure.  Ten counterparties accounted for $404 million, or 69%, of
        the total exposure.  Seven of these counterparties had an investment
        grade credit rating from S&P and accounted for 51% of the top ten
        exposures.  Of the three counterparties that were not rated investment
        grade, one had posted collateral in the form of a letter of credit to cover
        its
        exposure and the other two were current on their obligations as per the terms
        and conditions of the respective contracts.  As a result of netting
        arrangements and forward market prices, PPL's and PPL Energy Supply's credit
        exposure was reduced to zero.
 
 *(PPL
        Electric)*
 
 PPL
        Electric has credit exposure to PPL Energy Supply under the long-term contract
        for PPL EnergyPlus to supply PPL Electric's PLR load, as described in Note
        11.  This is the only credit exposure for PPL Electric that has a
        mark-to-market element.  No other counterparty accounts for more than
        1% of PPL Electric's total credit exposure.
 
 **14.**
              **Restricted
                  Cash**
 
 *(PPL,
        PPL Energy Supply and PPL Electric)*
 
 The
        following table details the components of restricted cash by reporting entity
        and by type.
 
 **June
                  30, 2007****PPL**
              
              **PPL
                  Energy Supply**
              
              **PPL
                  Electric****Current:**Collateral
                  for letters of credit (a)
              
              $
              41
              
              
              
              
              
              
              $
              41Deposits
                  for trading purposes with NYMEX broker
              
              
              86
              
              
              $
              86Counterparty
                  collateral
              
              
              39
              
              
              
              39Client
                  deposits
              
              
              7Miscellaneous
              
              
              2
              
              
              
              1
              
              
              
              1Restricted
                  cash - current
              
              
              175
              
              
              
              126
              
              
              
              42**Noncurrent:**Required
                  deposits of WPD (b)
              
              
              20
              
              
              
              20PPL
                  Transition Bond Company Indenture reserves (c)
              
              
              32
              
              
              
              
              
              
              
              32Restricted
                  cash - noncurrent
              
              
              52
              
              
              
              20
              
              
              
              32Total
                  restricted cash
              
              $
              227
              
              
              $
              146
              
              
              $
              74
 
 **December
                  31, 2006****PPL**
              
              **PPL
                  Energy Supply**
              
              **PPL
                  Electric****Current:**Collateral
                  for letters of credit (a)
              
              $
              42
              
              
              
              
              
              
              $
              42Deposits
                  for trading purposes with NYMEX broker
              
              
              42
              
              
              $
              42Counterparty
                  collateral
              
              
              6
              
              
              
              6Client
                  deposits
              
              
              9Miscellaneous
              
              
              3
              
              
              
              3
              
              
              
              1Restricted
                  cash - current
              
              
              102
              
              
              
              51
              
              
              
              43**Noncurrent:**Required
                  deposits of WPD (b)
              
              
              20
              
              
              
              20PPL
                  Transition Bond Company Indenture reserves (c)
              
              
              33
              
              
              
              
              
              
              
              33Restricted
                  cash - noncurrent
              
              
              53
              
              
              
              20
              
              
              
              33Total
                  restricted cash
              
              $
              155
              
              
              $
              71
              
              
              $
              76
 
 (a)
              
              A
                  deposit with a financial institution of funds from the asset-backed
                  commercial paper program to fully collateralize letters of
                  credit.  See Note 7 for further discussion on the asset-backed
                  commercial paper program.(b)
              
              Includes
                  insurance reserves of $19 million at both June 30, 2007 and December
                  31, 2006.(c)
              
              Credit
                  enhancement for PPL Transition Bond Company's $2.4 billion Series
                  1999-1
                  Bonds to protect against losses or delays in scheduled
                  payments.
 
 **15.**
              **Goodwill**
 
 *(PPL
        and PPL Energy Supply)*
 
 The
        changes in the carrying amounts of goodwill by segment were:
 
 **PPL
                  Energy Supply**
              
              
              
              **PPL****Supply**
              
              **International
                  Delivery**
              
              **Total**
              
              **Pennsylvania
                  Delivery**
              
              **Total**Balance
                  at December 31, 2006
              $
              94
              
              
              $
              1,005
              
              
              $
              1,099
              
              
              $
              55
              
              
              $
              1,154Effect
                  of foreign currency exchange rates
              
              
              
              
              
              1
              
              
              
              1
              
              
              
              
              
              
              
              1Reclassification
                  (a)
              
              
              
              
              
              (144
              )
              
              
              (144
              )
              
              
              
              
              
              
              (144
              )Other
              
              
              
              
              
              1
              
              
              
              1
              
              
              
              
              
              
              
              1Balance
                  at June 30, 2007
              $
              94
              
              
              $
              863
              
              
              $
              957
              
              
              $
              55
              
              
              $
              1,012
 
 (a)
              
              This
                  amount relates to Latin American businesses and has been transferred
                  to
                  "Assets held for sale" on the Balance Sheet as a result of the
                  anticipated
                  sale of these businesses, of which $9 million relates to the El
                  Salvadoran
                  business sold in May 2007.  See Note 8 for additional
                  information.
 
 **16.**
              **Asset
                  Retirement Obligations**
 
 *(PPL
        and PPL Energy Supply)*
 
 The
        change in the carrying amounts of the AROs was:
 
 AROs
                  at December 31, 2006
              
              $
              336Obligations
                  incurred
              
              
              5Accretion
                  expense
              
              
              13Obligations
                  settled
              
              
              (3
              )AROs
                  at June 30, 2007
              
              $
              351
 
 Changes
        in ARO costs and settlement dates, which affect the carrying value of various
        AROs, are reviewed periodically to ensure that any material changes are
        incorporated into the latest estimates of the obligation.
 
 Funds
        in
        the nuclear decommissioning trust are legally restricted for purposes of
        settling PPL's and PPL Energy Supply's ARO related to the decommissioning
        of the
        Susquehanna station.  PPL Electric collects authorized nuclear
        decommissioning costs through the CTC.  These revenues are passed on
        to PPL EnergyPlus under the power supply agreements between PPL Electric
        and PPL
        EnergyPlus.  Similarly, these revenues are passed on to PPL
        Susquehanna under a power supply agreement between PPL EnergyPlus and PPL
        Susquehanna.  These revenues, less applicable taxes, are used to fund
        the nuclear plant decommissioning trust funds and can only be used for future
        decommissioning costs.  The aggregate fair value of the nuclear plant
        decommissioning trust funds was $543 million as of June 30, 2007, and $510
        million as of December 31, 2006.
 
 **17.**
              **New
                  Accounting Standards**
 
 *(PPL,
        PPL Energy Supply and PPL Electric)*
 
 **FIN
        48**
 
 In
        June
        2006, the FASB issued FIN 48, "Accounting for Uncertainty in Income Taxes,
        an
        interpretation of FASB Statement No. 109."  In May 2007, the FASB
        amended this guidance by issuing FSP FIN 48-1, "Definition of Settlement
        in FASB
        Interpretation No. 48."  PPL and its subsidiaries adopted FIN 48, as
        amended, effective January 1, 2007.  See Note 5 for the disclosures
        required by FIN 48.
  **SFAS
        155**
 
 In
        February 2006, the FASB issued SFAS 155, "Accounting for Certain Hybrid
        Financial Instruments, an amendment of FASB Statements No. 133 and
        140."  Among other things, SFAS 155 addresses certain accounting
        issues surrounding securitized financial assets and hybrid financial instruments
        with embedded derivatives that require bifurcation.  PPL and its
        subsidiaries adopted SFAS 155 effective January 1, 2007.  The adoption
        of SFAS 155 did not have an impact on PPL and its subsidiaries.
 
 **SFAS
        157**
 
 In
        September 2006, the FASB issued SFAS 157, "Fair Value
        Measurements."  SFAS 157 provides a definition of fair value as well
        as a framework for measuring fair value.  In addition, SFAS 157
        expands the fair value measurement disclosure requirements of other accounting
        pronouncements to require, among other things, disclosure of the methods
        and
        assumptions used to measure fair value as well as the earnings impact of
        certain
        fair value measurement techniques.  SFAS 157 does not expand the use
        of fair value measurements in existing accounting pronouncements.  PPL
        and its subsidiaries will adopt SFAS 157 prospectively, effective January
        1,
        2008, except for certain items such as financial instruments that were
        previously measured at fair value in accordance with footnote 3 of EITF
        Issue No. 02-3, "Issues Involved in Accounting for Derivative Contracts Held
        for
        Trading Purposes and Contracts Involved in Energy Trading and Risk Management
        Activities," which require a limited form of retrospective
        application.  PPL and its subsidiaries are in the process of
        evaluating the impact of adopting SFAS 157.  The potential impact of
        adoption is not yet determinable, but it could be material.
 
 **SFAS
        159**
 
 In
        February 2007, the FASB issued SFAS 159, "The Fair Value Option for Financial
        Assets and Financial Liabilities, including an amendment of FASB Statement
        No.
        115."  SFAS 159 provides entities with an option to measure, upon
        adoption of this pronouncement and at specified election dates,
 certain
        financial assets and liabilities at fair value, including available-for-sale
        and
        held-to-maturity securities, as well as other eligible items.  The
        fair value option (i) may be applied on an instrument-by-instrument basis,
        with
        a few exceptions,
 (ii)
        is
        irrevocable (unless a new election date occurs), and (iii) is applied to
        an
        entire instrument and not to only specified risks, cash flows, or portions
        of
        that instrument.  An entity shall report unrealized gains and losses
        on items for which the fair value option has been elected in earnings at
        each
        subsequent reporting date.
 
 SFAS
        159
        also establishes presentation and disclosure requirements designed to facilitate
        comparisons between similar assets and liabilities measured using different
        attributes.  Upon adoption of SFAS 159, an entity may elect the fair
        value option for eligible items that exist at that date, and must report
        the
        effect of the first remeasurement to fair value as a cumulative-effect
        adjustment to the opening balance of retained earnings.
 
 PPL
        and
        its subsidiaries will adopt SFAS 159 effective January 1, 2008.  PPL
        and its subsidiaries are in the process of evaluating the impact of adopting
        SFAS 159.  The potential impact of adoption is not yet determinable,
        but it could be material.
 
 **PPL
        CORPORATION AND SUBSIDIARIES**
 
 **Item
        2.  Management's Discussion and Analysis of Financial Condition and
        Results of Operations**
 
 **Overview**
 
 PPL
        is an
        energy and utility holding company with headquarters in Allentown,
        PA.  In PPL's 2006 Form 10-K, descriptions of its domestic and
        international businesses are found in "Item 1. Business -
        Background."  Through its subsidiaries, PPL is primarily engaged in
        the generation and marketing of electricity in two key markets - the
        northeastern and western U.S. - and in the delivery of electricity in
        Pennsylvania, the U.K. and Latin America.  In March 2007, PPL
        announced its intention to sell its regulated electricity delivery businesses
        in
        Latin America.  See Note 8 to the Financial Statements for information
        on the status of planned sales.  PPL's reportable segments are Supply,
        International Delivery and Pennsylvania Delivery.  See "Item 7.
        Management's Discussion and Analysis of Financial Condition and Results of
        Operations - Overview" in PPL's 2006 Form 10-K and Form 8-K dated June 21,
        2007,
        for an overview of PPL's strategy and the risks and the challenges that it
        faces
        in its business.  See "Forward-Looking Information," Note 10 to the
        Financial Statements and the rest of this Item 2 in this Form 10-Q and "Item
        1A.
        Risk Factors" and the rest of Item 7 in PPL's 2006 Form 10-K for more
        information concerning the material risks and uncertainties that PPL faces
        in
        its businesses and with respect to its future earnings.
 
 The
        following information should be read in conjunction with PPL's Condensed
        Consolidated Financial Statements and the accompanying Notes, PPL's 2006
        Form
        10-K and a related  Form 8-K dated June 21, 2007.
 
 Terms
        and
        abbreviations are explained in the glossary.  Dollars are in millions,
        except per share data, unless otherwise noted.
 
 **Results
        of Operations**
 
 The
        following discussion begins with a summary of PPL's
        earnings.  "Results of Operations" continues with a review of results
        by reportable segment and a description of key factors by segment that
        management expects may impact future earnings.  This section ends with
        explanations of significant changes in principal items on PPL's Statements
        of
        Income, comparing the three and six months ended June 30, 2007, with the
        same
        periods in 2006.
 
 **Earnings**
 
 Net
        income and the related EPS were:
 
 **Three
                  Months Ended**
                **June
                  30,**
              
              **Six
                  Months Ended**
                **June
                  30,****2007**
              
              **2006**
              
              **2007**
              
              **2006**Net
                  income
              
              $
              345
              
              
              $
              181
              
              
              $
              548
              
              
              $
              461EPS
                  - basic
              
              $
              0.89
              
              
              $
              0.48
              
              
              $
              1.42
              
              
              $
              1.21EPS
                  - diluted
              
              $
              0.88
              
              
              $
              0.47
              
              
              $
              1.41
              
              
              $
              1.19
 
 The
        changes in net income from period to period were, in part, attributable to
        several special items that management considers significant.  Details
        of these special items are provided within the review of each segment's
        results.
 
 The
        period-to-period changes in significant earnings components, including domestic
        gross energy margins by region and significant income statement line items,
        are
        explained in the "Statement of Income Analysis."
 
 The
        Statements of Income reflect the results of past operations and are not intended
        as any indication of future operating results.  Future operating
        results will necessarily be affected by various and diverse factors and
        developments.  Furthermore, because results for interim periods can be
        disproportionately influenced by various factors and developments and by
        seasonal variations, the results of operations for interim periods do not
        necessarily indicate results or trends for the year.
 
 **Segment
        Results**
 
 Net
        income by segment was:
 
 **Three
                  Months Ended**
                **June
                  30,**
              
              **Six
                  Months Ended**
                **June
                  30,****2007**
              
              **2006**
              
              **2007**
              
              **2006**Supply
              
              $
              132
              
              
              $
              74
              
              
              $
              249
              
              
              $
              217International
                  Delivery
              
              
              183
              
              
              
              79
              
              
              
              211
              
              
              
              160Pennsylvania
                  Delivery
              
              
              30
              
              
              
              28
              
              
              
              88
              
              
              
              84Total
              
              $
              345
              
              
              $
              181
              
              
              $
              548
              
              
              $
              461
 
 Supply
        Segment
 
 The
        Supply segment primarily consists of the domestic energy marketing, domestic
        generation and domestic development operations of PPL Energy
        Supply.
 
 The
        Supply segment results in 2006 reflect the reclassification of PPL's interest
        in
        the Griffith plant's operating revenues and expenses from certain income
        statement line items to "Income (Loss) from Discontinued
        Operations."  See Note 8 to the Financial Statements for further
        discussion.
 
 Supply
        segment net income was:
 
 **Three
                  Months Ended**
                **June
                  30,**
              
              **Six
                  Months Ended**
                **June
                  30,****2007**
              
              **2006**
              
              **2007**
              
              **2006**Energy
                  revenuesExternal
              
              $
              407
              
              
              $
              405
              
              
              $
              685
              
              
              $
              775Intersegment
              
              
              422
              
              
              
              395
              
              
              
              903
              
              
              
              841Energy-related
                  businesses
              
              
              175
              
              
              
              144
              
              
              
              350
              
              
              
              302Total
                  operating revenues
              
              
              1,004
              
              
              
              944
              
              
              
              1,938
              
              
              
              1,918Fuel
                  and energy purchasesExternal
              
              
              343
              
              
              
              366
              
              
              
              644
              
              
              
              704Intersegment
              
              
              38
              
              
              
              39
              
              
              
              75
              
              
              
              80Other
                  operation and maintenance
              
              
              178
              
              
              
              177
              
              
              
              353
              
              
              
              341Depreciation
              
              
              41
              
              
              
              39
              
              
              
              82
              
              
              
              76Taxes,
                  other than income
              
              
              9
              
              
              
              10
              
              
              
              18
              
              
              
              19Energy-related
                  businesses
              
              
              197
              
              
              
              136
              
              
              
              394
              
              
              
              290Total
                  operating expenses
              
              
              806
              
              
              
              767
              
              
              
              1,566
              
              
              
              1,510Other
                  Income - net
              
              
              9
              
              
              
              2
              
              
              
              12
              
              
              
              2Interest
                  Expense
              
              
              40
              
              
              
              30
              
              
              
              75
              
              
              
              57Income
                  Taxes
              
              
              35
              
              
              
              55
              
              
              
              59
              
              
              
              115Minority
                  Interest
              
              
              
              
              
              
              1
              
              
              
              1
              
              
              
              1Loss
                  from Discontinued Operations
              
              
              
              
              
              
              (19
              )
              
              
              
              
              
              
              (20
              )Net
                  Income
              
              $
              132
              
              
              $
              74
              
              
              $
              249
              
              
              $
              217
 
 The
        after-tax changes in net income between these periods were due to the following
        factors, including discontinued operations.
 
 **June
                  30, 2007 vs. June 30, 2006****Three
                  Months Ended**
              
              **Six
                  Months Ended**Eastern
                  U.S. non-trading margins
              
              $
              23
              
              
              $
              20Western
                  U.S. non-trading margins
              
              
              
              
              
              
              (4
              )Net
                  energy trading margins
              
              
              2
              
              
              
              1Other
                  operation and maintenance expenses
              
              
              (6
              )
              
              
              (7
              )Depreciation
              
              
              (1
              )
              
              
              (3
              )Earnings
                  from synfuel projects
              
              
              2
              
              
              
              13Financing
                  costs
              
              
              (4
              )
              
              
              (7
              )Other
              
              
              4
              
              
              
              7Special
                  items
              
              
              38
              
              
              
              12$
              58
              
              
              $
              32
 
 ·
              See
                  "Domestic Gross Energy Margins" for an explanation of non-trading
                  margins
                  by geographic region and for an explanation of net energy trading
                  margins.·
              The
                  improved earnings contribution from synfuel projects for both periods
                  was
                  primarily the result of lower assumed phase-out of synthetic fuel
                  tax
                  credits.  These favorable tax credits were partially offset by
                  greater unrealized gains in 2006 versus 2007 on options purchased
                  to hedge
                  a portion of the risk associated with the phase-out of synthetic
                  fuel tax
                  credits in 2007.·
              Other
                  operation and maintenance expenses were higher for both periods
                  primarily
                  due to increased outage costs at the Eastern U.S. fossil/hydro
                  stations
                  and the Susquehanna nuclear station.·
              Financing
                  costs were higher for both periods primarily due to higher interest
                  expense on long-term debt.
 
 The
        following after-tax amounts, which management considers special items, also
        had
        a significant impact on the Supply segment earnings.  See the
        indicated Notes to the Financial Statements for additional
        information.
 
 **Three
                  Months Ended**
                **June
                  30,**
              
              **Six
                  Months Ended**
                **June
                  30,****2007**
              
              **2006**
              
              **2007**
              
              **2006**Mark-to-market
                  adjustments from certain economic, non-trading hedges
              
              $
              16
              
              
              $
              (8
              )
              
              $
              26
              
              
              $
              (1
              )Loss
                  related to sale of interest in the Griffith plant (Note 8)
              
              
              
              
              
              
              (17
              )
              
              
              
              
              
              
              (17
              )Off-site
                  remediation of ash basin leak (Note 10)
              
              
              
              
              
              
              5
              
              
              
              
              
              
              
              6Impairment
                  of telecommunication assets (Note 8)
              
              
              (2
              )
              
              
              
              
              
              
              (20
              )PJM
                  billing dispute (Note 10)
              
              
              
              
              
              
              
              
              
              
              (1
              )Impairment
                  of synfuel-related assets (Note 10)
              
              
              
              
              
              
              (6
              )
              
              
              
              
              
              
              (6
              )Reduction
                  in Enron reserve (Note 10)
              
              
              
              
              
              
              2
              
              
              
              
              
              
              
              11Total
              
              $
              14
              
              
              $
              (24
              )
              
              $
              5
              
              
              $
              (7
              )
 
 *Outlook*
 
 PPL
        projects significantly higher earnings in its Supply business segment in
        2007
        compared with 2006, excluding the impact of special items.  Based on
        current forward energy prices and hedges already in place, PPL is projecting
        higher energy margins for the balance of 2007, driven primarily by the
        replacement of expiring supply obligations with higher-margin wholesale energy
        contracts in Montana and the Mid-Atlantic region.
 
 While
        PPL
        expects improved baseload power plant performance for the remainder of 2007,
        this performance will be offset by the retirement in September of two coal-fired
        units in Pennsylvania and by planned outages, including the Susquehanna Unit
        1
        outage, which is expected to resolve the control rod friction issues that
        have
        affected plant operations over the past several years.  PPL believes
        these planned outages will improve the overall long-term reliability of its
        generation fleet.  PPL also expects a modest increase in fuel-related
        expenses and increased operation and maintenance expenses.
 
 In
        July
        2007, PPL EnergyPlus was one of the successful bidders in a competitive
        solicitation process for PPL Electric's generation supply in 2010 for retail
        customers who do not choose an alternative competitive supplier.  The
        PUC approved the results of PPL Electric's first of six competitive
        solicitations, which includes a contract executed between PPL Electric and
        PPL
        EnergyPlus to supply up to 671 MW of total peak load in 2010, at an average
        price of $91.42 per MWh.
 
 International
        Delivery Segment
 
 The
        International Delivery segment includes operations of the international energy
        businesses of PPL Global that are primarily focused on the distribution of
        electricity.  Substantially all of PPL Global's remaining
        international businesses are located in the U.K. and Chile.  In May
        and July 2007, PPL Global sold its El Salvadoran and Bolivian
        businesses.  The sale of the Chilean business is expected to be
        completed by the end of 2007.
 
 The
        International Delivery segment results in 2007 and 2006 reflect the
        reclassification of Latin American revenues and expenses to "Income (Loss)
        From
        Discontinued Operations."  See Note 8 to the Financial Statements for
        further discussion.
 
 International
        Delivery segment net income was:
 
 **Three
                  Months Ended**
                **June
                  30,**
              
              **Six
                  Months Ended**
                **June
                  30,****2007**
              
              **2006**
              
              **2007**
              
              **2006**Utility
                  revenues
              
              $
              218
              
              
              $
              185
              
              
              $
              434
              
              
              $
              388Energy-related
                  businesses
              
              
              9
              
              
              
              10
              
              
              
              19
              
              
              
              20Total
                  operating revenues
              
              
              227
              
              
              
              195
              
              
              
              453
              
              
              
              408Other
                  operation and maintenance
              
              
              69
              
              
              
              42
              
              
              
              125
              
              
              
              87Depreciation
              
              
              35
              
              
              
              34
              
              
              
              78
              
              
              
              69Taxes,
                  other than income
              
              
              16
              
              
              
              15
              
              
              
              32
              
              
              
              26Energy-related
                  businesses
              
              
              4
              
              
              
              4
              
              
              
              9
              
              
              
              8Total
                  operating expenses
              
              
              124
              
              
              
              95
              
              
              
              244
              
              
              
              190Other
                  Income - net
              
              
              6
              
              
              
              21
              
              
              
              17
              
              
              
              20Interest
                  Expense
              
              
              45
              
              
              
              43
              
              
              
              94
              
              
              
              86Income
                  Taxes
              
              
              (18
              )
              
              
              9
              
              
              
              (3
              )
              
              
              12Income
                  from Discontinued Operations
              
              
              101
              
              
              
              10
              
              
              
              76
              
              
              
              20Net
                  Income
              
              $
              183
              
              
              $
              79
              
              
              $
              211
              
              
              $
              160
 
 The
        after-tax changes in net income between these periods were due to the following
        factors, including discontinued operations.
 
 **June
                  30, 2007 vs. June 30, 2006****Three
                  Months Ended**
              
              **Six
                  Months Ended**U.K.:Delivery
                  margins
              $
              1
              
              
              $
              (6
              )Depreciation
              
              2
              
              
              
              (1
              )Other
                  operating expenses
              
              (6
              )
              
              
              (9
              )Interest
                  expense
              
              
              
              
              
              (3
              )Income
                  taxes
              
              (1
              )
              
              
              (21
              )Impact
                  of changes in foreign currency exchange rates
              
              6
              
              
              
              13Hyder
                  liquidation distributions (Note 8)
              
              (22
              )
              
              
              (18
              )Gain
                  on transfer of equity investment (Note 8)
              
              
              
              
              
              5Impairment
                  of investment in U.K. real estate (Note 8)
              
              
              
              
              
              6Other
              
              1
              
              
              
              (1
              )Latin
                  American results of operations excluding special items (Note
                  8)
              
              9
              
              
              
              15Change
                  in tax reserves (Note 5)
              
              31
              
              
              
              31Other
              
              
              
              
              
              (2
              )Special
                  items
              
              83
              
              
              
              42$
              104
              
              
              $
              51
 
 ·
              The
                  U.K.'s earnings were negatively impacted for the six months ended
                  June 30,
                  2007, by lower delivery margins, primarily due to a 6% decrease
                  in sales
                  volumes as a result of milder weather in 2007.·
              Higher
                  U.K. income taxes for the six months ended June 30, 2007, were
                  due to the
                  transfer of WPD tax items in the first quarter of 2006.  See
                  Note 5 to the Financial Statements for additional
                  information.·
              Changes
                  in foreign exchange rates increased WPD's portion of revenue and
                  expense
                  line items by 11% in both the three and six months ended June 30,
                  2007,
                  compared with the same periods in
                  2006.
 
 The
        following after-tax amounts, which management considers special items, also
        had
        a significant impact on the International Delivery segment
        earnings.  See the indicated Notes to the Financial Statements for
        additional information.
 
 **Three
                  Months Ended**
                **June
                  30,**
              
              **Six
                  Months Ended**
                **June
                  30,****2007**
              
              **2006**
              
              **2007**
              
              **2006**Divestiture
                  of Latin American businesses (Note 8)
              
              $
              83
              
              
              
              
              
              
              $
              43Reduction
                  in Enron reserve
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              1Total
              
              $
              83
              
              
              
              
              
              
              $
              43
              
              
              $
              1
 
 *Outlook*
  PPL
        projects the earnings from its International Delivery business segment to
        be
        consistent in 2007 compared with 2006, excluding the impact in 2007 of the
        U.K.
        statutory income tax rate reduction noted below and other special
        items.  A U.S. income tax benefit is expected to be offset by
        increased operating expenses and higher income taxes in the U.K. in 2007,
        due to
        the favorable resolution of several tax-related items in 2006.  In
        addition, gains from the sale or liquidation of U.K. non-electricity delivery
        businesses are not expected to continue at the same level in 2007 as occurred
        in
        2006.
  In
        July
        2007, the U.K.'s Finance Act 2007, which includes amendments to existing
        tax
        law, was enacted.  The most significant change to the tax law was a
        reduction in the U.K.'s statutory income tax rate.  Effective April 1,
        2008, the statutory income tax rate will be reduced from 30% to
        28%.  As a result, PPL anticipates recognizing a one-time deferred tax
        benefit during the third quarter of 2007 in the range of $50 to $60
        million.
 
 Pennsylvania
        Delivery Segment
 
 The
        Pennsylvania Delivery segment includes the regulated electric and gas delivery
        operations of PPL Electric and PPL Gas Utilities.
 
 
 Pennsylvania
        Delivery segment net income was:
 
 **Three
                  Months Ended**
                **June
                  30,**
              
              **Six
                  Months Ended**
                **June
                  30,****2007**
              
              **2006**
              
              **2007**
              
              **2006**Operating
                  revenuesExternal
              
              $
              804
              
              
              $
              760
              
              
              $
              1,763
              
              
              $
              1,669Intersegment
              
              
              38
              
              
              
              39
              
              
              
              75
              
              
              
              80Total
                  operating revenues
              
              
              842
              
              
              
              799
              
              
              
              1,838
              
              
              
              1,749Fuel
                  and energy purchasesExternal
              
              
              77
              
              
              
              77
              
              
              
              195
              
              
              
              203Intersegment
              
              
              422
              
              
              
              395
              
              
              
              903
              
              
              
              841Other
                  operation and maintenance
              
              
              112
              
              
              
              107
              
              
              
              217
              
              
              
              209Amortization
                  of recoverable transition costs
              
              
              70
              
              
              
              63
              
              
              
              151
              
              
              
              135Depreciation
              
              
              36
              
              
              
              31
              
              
              
              70
              
              
              
              61Taxes,
                  other than income
              
              
              46
              
              
              
              44
              
              
              
              100
              
              
              
              94Total
                  operating expenses
              
              
              763
              
              
              
              717
              
              
              
              1,636
              
              
              
              1,543Other
                  Income - net
              
              
              7
              
              
              
              7
              
              
              
              19
              
              
              
              16Interest
                  Expense
              
              
              36
              
              
              
              41
              
              
              
              73
              
              
              
              85Income
                  Taxes
              
              
              16
              
              
              
              16
              
              
              
              51
              
              
              
              48Dividends
                  on Preferred Securities
              
              
              4
              
              
              
              4
              
              
              
              9
              
              
              
              5Net
                  Income
              
              $
              30
              
              
              $
              28
              
              
              $
              88
              
              
              $
              84
 
 The
        after-tax changes in net income between these periods were due to the following
        factors.
 
 **June
                  30, 2007 vs. June 30, 2006****Three
                  Months Ended**
              
              **Six
                  Months Ended**Delivery
                  revenues (net of CTC/ITC amortization, interest expense on transition
                  bonds and ancillary charges)
              $
              5
              
              
              $
              10Gas
                  margins
              
              2
              
              
              
              4Other
                  operation and maintenance expenses
              
              (3
              )
              
              
              (5
              )Depreciation
              
              (2
              )
              
              
              (5
              )$
              2
              
              
              $
              4
 
 ·
              Higher
                  delivery revenues were primarily due to 6% and 5% increases in
                  sales
                  volume for the three and six months ended June 30, 2007, due in
                  part to
                  the impact of favorable weather in 2007 on residential and commercial
                  sales and normal load growth.·
              Other
                  operation and maintenance expenses were higher for the six month
                  period
                  primarily due to higher environmental remediation and advertising
                  expenses.·
              Depreciation
                  expenses were higher for both periods primarily due to the purchase
                  in
                  September 2006 of equipment previously
                  leased.
 
 *Outlook*
 
 PPL
          expects the Pennsylvania Delivery segment to have modest earnings growth
          in 2007
          compared with 2006, excluding special items, with load growth being offset
          by
          increased operation and maintenance expenses.
 
 In
          March
          2007, PPL Electric filed a request with the PUC to increase distribution
          rates
          by approximately $84 million (subsequently amended to $77
          million).  The PUC's review of the distribution rate request is
          expected to take about nine months.  The proposed distribution rate
          increase, as amended, would result in a 2.4% increase over PPL Electric's
          present rates and would be effective January 1, 2008.  PPL Electric
          cannot predict the outcome of this proceeding.
 
 In
          May
          2007, the PUC approved PPL Electric's plan to procure default electricity
          supply
          in 2010 for retail customers who do not choose an alternative competitive
          supplier after PPL Electric's PLR contract with PPL EnergyPlus
          expires.  Under the plan, PPL Electric will issue a series of
          competitive bids for such supply in 2007, 2008 and 2009.  The price
          customers pay in 2010 will result from a blend of contracts from these
          competitive bids.  Based on the PUC-approved bid solicitation
          schedule, PPL Electric issued the first series of competitive bids for
          850 MW of
          electricity supply in May 2007; received the competitive bid proposals
          by July
          23, 2007; and obtained PUC approval of the winning proposals on July 26,
          2007.  The average generation supply price, including Pennsylvania
          gross receipts tax, from this first of six competitive solicitations for
          residential customers is $96.30 per MWh and for small commercial and industrial
          customers is $99.46 per MWh.  If the prices paid in this supply
          purchase were to be the same for the remaining five purchases, the average
          residential customer's monthly bill in 2010 would increase by approximately
          28%
          over 2009 levels, while small commercial and industrial bills would increase
          between 18% to 37%.  (The estimated increases exclude any potential
          rate increases from the current rate proceeding.)
 
 In
          May
          2007, the PUC also approved final regulations regarding the obligation
          of
          Pennsylvania electric utilities to provide default electricity supply in
          2011
          and beyond.  The new regulations provide that default service
          providers will acquire electricity supply at prevailing market prices pursuant
          to procurement and implementation plans approved by the PUC.  The
          regulations also address the utilities' recovery of market supply
          costs.  The final regulations will become effective after review by
          several other state agencies and official publication in
          Pennsylvania.
 
 In
          late
          July 2007, PPL completed a review of strategic options for its natural
          gas
          distribution and propane businesses and announced its intention to sell
          these
          businesses.  PPL is currently analyzing the accounting impact of its
          decision to sell these businesses and has not yet determined whether any
          impairment charge would be required in the third quarter of 2007 related
          to this
          decision.  See Note 8 to the Financial Statements for additional
          information.
  **Statement
          of Income Analysis --**
 
 **Domestic
        Gross Energy Margins**
 
 The
        following table provides pre-tax changes in the income statement line items
        that
        comprise domestic gross energy margins.
 
 
 **June
                  30, 2007 vs. June 30, 2006****Three
                  Months Ended**
              
              **Six
                  Months Ended**Utility
              
              $
              75
              
              
              $
              138Unregulated
                  retail electric and gas
              
              
              3Wholesale
                  energy marketing
              
              
              (4
              )
              
              
              (90
              )Net
                  energy trading margins
              
              
              5
              
              
              
              2Other
                  revenue adjustments (a)
              
              
              (22
              )
              
              
              (36
              )Total
                  revenues
              
              
              57
              
              
              
              14Fuel
              
              
              18
              
              
              
              76Energy
                  purchases
              
              
              (41
              )
              
              
              (144
              )Other
                  cost adjustments (a)
              
              
              8
              
              
              
              19Total
                  cost of sales
              
              
              (15
              )
              
              
              (49
              )Domestic
                  gross energy margins
              
              $
              72
              
              
              $
              63
 
 (a)
              
              Adjusted
                  to exclude the impact of any revenues and costs not associated
                  with
                  domestic gross energy margins, consistent with the way management
                  reviews
                  domestic gross energy margins internally.  These exclusions
                  include revenues and energy costs related to the international
                  operations
                  of PPL Global, and the domestic delivery operations of PPL Electric
                  and
                  PPL Gas Utilities.  Also adjusted to include the margins of the
                  Griffith plant prior to its sale in June 2006, which are included
                  in
                  "Income (Loss) from Discontinued Operations," and gains or losses
                  on sales
                  of emission allowances, which are included in "Other operation
                  and
                  maintenance" expenses on the Statements of
                  Income.
 
 Changes
        in Domestic Gross Energy Margins By Region
 
 Domestic
        gross energy margins are generated through PPL's non-trading and trading
        activities.  PPL manages its non-trading energy business on a
        geographic basis that is aligned with its generation
        assets.  Additionally, beginning in 2006, PPL further segregates
        non-trading activities into two categories:  hedge activity and
        economic activity.  Economic activity represents the net unrealized
        effect of derivative transactions that are entered into as economic hedges,
        but
        do not qualify for hedge accounting, or hedge accounting was not elected,
        under
        SFAS 133, "Accounting for Derivative Instruments and Hedging Activities,"
        as amended and interpreted.
 
 **June
                  30, 2007 vs. June 30, 2006****Three
                  Months Ended**
              
              **Six
                  Months Ended**Non-tradingEastern
                  U.S.
              $
              79
              
              
              $
              80Western
                  U.S.
              
              
              
              
              
              (7
              )Net
                  energy trading
              
              (7
              )
              
              
              (10
              )Domestic
                  gross energy margins
              $
              72
              
              
              $
              63
 
 *Eastern
        U.S.*
 
 Eastern
        U.S. non-trading margins were higher in the three and six months ended June
        30,
        2007, compared with the same periods in 2006, primarily due to new supply
        contracts and higher average sales prices.  Also contributing to the
        increase in margins were lower average coal costs, which, for purposes of
        analyzing energy margins, include gains on the sale of emission
        allowances.  Average coal costs, were lower by 24% and 9% for the
        three and six months ended June 30, 2007, compared to the same periods in
        2006.
 
 Partially
        offsetting these improvements was lower coal generation of 11% and 4%, for
        the
        three and six months ended June 30, 2007, due to additional planned outages
        in
        2007.  Additionally, increased customer demand under the PLR contract
        between PPL Electric and PPL EnergyPlus resulted in higher supply
        costs.  PLR sales volumes were up 5% and 7%, for the three and six
        months ended June 30, 2007, compared to the same periods in 2006.
 
 Unrealized
        gains and losses included in Eastern U.S. non-trading margins that resulted
        from
        economic activity and hedge ineffectiveness were a $26 million gain in the
        second quarter of 2007, compared with a $10 million loss in the same period
        in
        2006.  For the six months ended June 30, 2007, these amounts were a
        $37 million gain, compared to a $4 million gain in the same period in
        2006.  The increase in these amounts in 2007 over 2006 was
        significantly impacted by PJM's implementation of its Reliability Pricing
        Model
        (RPM) that developed a long-term pricing signal for capacity resources and
        load
        serving entities obligations, effective April 1, 2007.
 
 Prior
        to
        the RPM, PPL recorded valuation reserves for capacity contracts due to the
        lack
        of liquidity and reliable, observable prices in the marketplace.  With
        the implementation of the RPM and the completion of PJM capacity
        auctions, forward capacity prices became sufficiently observable and PPL
        reversed reserves of $21 million during both the three and six months ended
        June 30, 2007.
 
 *Western
        U.S.*
 
 Western
        U.S. non-trading margins were lower in the six months ended June 30, 2007,
        compared with the same period in 2006, primarily due to higher average coal
        costs, which were up 23%.
 
 *Net
        Energy Trading*
 
 PPL
        enters into energy contracts to take advantage of market
        opportunities.  As a result, PPL may at times create a net open
        position in its portfolio that could result in significant losses if prices
        do
        not move in the manner or direction anticipated.  The margins from
        these trading activities are reflected in the Statements of Income as "Net
        energy trading margins."  These physical and financial contracts cover
        trading activity associated with electricity, gas and oil.
 
 The
        amount of net energy trading margins from unrealized mark-to-market transactions
        was a $7 million gain in the second quarter of 2007, compared to an $8 million
        gain in the same period in 2006.  For the six months ended June 30,
        2007, these amounts were a $5 million loss, compared to a $12 million gain
        in
        the same period in 2006.  The 2006 unrealized gains were primarily due
        to commodity contracts associated with the Griffith plant.
 
 The
        realized physical volumes for electricity and gas associated with energy
        trading
        were:
 
 **Three
                  Months Ended**
                **June
                  30,**
              
              **Six
                  Months Ended**
                **June
                  30,****2007**
              
              **2006**
              
              **2007**
              
              **2006**GWh
              
              
              2,559
              
              
              
              1,694
              
              
              
              5,347
              
              
              
              3,779Bcf
              
              
              2.9
              
              
              
              5.0
              
              
              
              8.2
              
              
              
              9.3
 
 **Utility
        Revenues**
 
 The
        increases in utility revenues were attributable to:
 
 **June
                  30, 2007 vs. June 30, 2006****Three
                  Months Ended**
              
              **Six
                  Months Ended****Domestic:**Retail
                  electric revenue (PPL Electric)PLR
                  electric delivery
              
              $
              29
              
              
              $
              66Electric
                  delivery
              
              
              15
              
              
              
              29Gas
                  revenue (PPL Gas Utilities)
              
              
              
              
              
              
              (2
              )Other
              
              
              (2
              )
              
              
              (1
              )**International:**U.K.
                  retail electric delivery (PPL Global)
              
              
              13
              
              
              
              3Foreign
                  currency exchange rates
              
              
              20
              
              
              
              43$
              75
              
              
              $
              138
 
 The
        increases in utility revenues, excluding foreign currency exchange rate impacts,
        for both periods were primarily due to:
 
 ·
              higher
                  PLR revenues and electric delivery revenues primarily attributable
                  to 6%
                  and 5% increases in sales volume for the three and six months ended
                  June
                  30, 2007, due in part to the impact of favorable weather in 2007
                  on
                  residential and commercial sales and normal load growth;
                  and·
              higher
                  U.K. revenues primarily due to an increase in unit prices effective
                  April
                  1, 2007, and engineering services performed for third parties,
                  partially
                  offset by a 6% decrease in sales volumes as a result of milder
                  weather in
                  2007.
 
 **Energy-related
        Businesses**
 
 Energy-related
        businesses contributed $31 million less to operating income for the three
        months
        ended June 30, 2007, compared with the same period in 2006.  The
        decrease was primarily attributable to a $3 million impairment of held for
        sale
        transport assets (see Note 8) and $32 million of higher pre-tax losses from
        synfuel projects.  The decrease in synfuel projects
        reflects:
 
 ·
              a
                  $31 million lower unrealized gain on options purchased to hedge
                  a portion
                  of the risk associated with the phase-out of the synthetic fuel
                  tax
                  credits; and·
              $11
                  million of higher operating losses due to higher production levels;
                  offset
                  by·
              a
                  $10 million impairment charge on the synfuel-related assets in
                  2006.
 
 Energy-related
        businesses contributed $58 million less to operating income for the six months
        ended June 30, 2007, compared with the same period in 2006.  The
        decrease was primarily attributable to a $34 million impairment of held for
        sale
        transport assets (see Note 8) and $29 million of higher pre-tax losses from
        synfuel projects.  The decrease in synfuel projects
        reflects:
 
 ·
              $33
                  million lower unrealized gains on options purchased to hedge a
                  portion of
                  the risk associated with the phase-out of the synthetic fuel tax
                  credits;
                  and·
              $6
                  million of higher operating losses due to higher production levels;
                  offset
                  by·
              a
                  $10 million impairment charge on the synfuel-related assets in
                  2006.
 
 See
        Note
        10 to the Financial Statements for a detailed discussion of synthetic fuel
        tax
        credits.
 
 **Other
        Operation and Maintenance**
 
 The
        increases in other operation and maintenance expenses were due to:
 
 **June
                  30, 2007 vs. June 30, 2006****Three
                  Months Ended**
              
              **Six
                  Months Ended**Reduction
                  in Enron reserve in 2006 (Note 10)
              
              $
              4
              
              
              $
              19WPD
                  recoverable engineering services
              
              
              14
              
              
              
              14Martins
                  Creek ash basin remediation adjustment in 2006 (Note 10)
              
              
              8
              
              
              
              11Eastern
                  U.S. fossil/hydro station outages
              
              
              13
              
              
              
              10Susquehanna
                  nuclear station outages
              
              
              6
              
              
              
              8Pension
                  and other postretirement benefits
              
              
              4
              
              
              
              8Change
                  in foreign currency exchange rates
              
              
              4
              
              
              
              8Environmental
                  remediation
              
              
              
              
              
              
              6WPD
                  insurance adjustment in 2006
              
              
              5
              
              
              
              5Stock-based
                  compensation
              
              
              2
              
              
              
              4Advertising
              
              
              2
              
              
              
              3Gains
                  on sale of emission allowances
              
              
              (25
              )
              
              
              (36
              )Regulatory
                  asset in 2007 for PPL Gas Utilities rate case
              
              
              
              
              
              
              (4
              )Other
              
              
              (4
              )
              
              
              2$
              33
              
              
              $
              58
 
 **Depreciation**
 
 The
        increases in depreciation expense were due to:
 
 **June
                  30, 2007 vs. June 30, 2006****Three
                  Months Ended**
              
              **Six
                  Months Ended**Additions
                  to PP&E
              
              $
              6
              
              
              $
              14Purchase
                  in September 2006 of equipment previously leased
              
              
              4
              
              
              
              8Foreign
                  currency exchange rates
              
              
              3
              
              
              
              8Reduction
                  of useful lives of certain WPD distribution assets
              
              
              1
              
              
              
              2Extension
                  of useful lives of certain WPD network assets (Note 2)
              
              
              (4
              )
              
              
              (4
              )Impact
                  of not depreciating held for sale transport assets (Note
                  8)
              
              
              (2
              )
              
              
              (4
              )$
              8
              
              
              $
              24
 
 **Taxes,
        Other Than Income**
 
 Taxes,
        other than income increased by $11 million during the six months ended June
        30,
        2007, compared with the same period in 2006.****The increase
        was primarily due to:
 
 ·
              a
                  $7 million increase in domestic gross receipts tax
                  expense;·
              a
                  $3 million increase from changes in the foreign currency exchange
                  rates;·
              a
                  $3 million increase in WPD property taxes, as the 2006 period included
                  a
                  refund credit of $2 million; and·
              a
                  $1 million increase in domestic sales and use tax expense; partially
                  offset by·
              a
                  $3 million decrease in domestic capital stock tax
                  expense.
 
 **Other
        Income - net**
 
 See
        Note
        12 to the Financial Statements for details of other income.
 
 **Financing
        Costs**
 
 The
        increases in financing costs, which include "Interest Expense" and "Dividends
        on
        Preferred Securities of a Subsidiary," were due to:
 
 **June
                  30, 2007 vs. June 30, 2006****Three
                  Months Ended**
              
              **Six
                  Months Ended**Long-term
                  debt interest expense
              
              $
              17
              
              
              $
              25Foreign
                  currency exchange rates
              
              
              4
              
              
              
              8Dividends
                  on 6.25% Series Preference Stock
              
              
              
              
              
              
              4Redemption
                  of 8.23% Subordinated Debentures due 2027 with affiliate
                  (Note 11)
              
              
              (3
              )
              
              
              (2
              )Increases
                  in capitalized interest
              
              
              (8
              )
              
              
              (15
              )Hedging
                  activities
              
              
              (2
              )
              
              
              (1
              )Other
              
              
              (1
              )
              
              
              (1
              )$
              7
              
              
              $
              18
 
 **Income
        Taxes**
 
 The
        decreases in income taxes were due to:
 
 **June
                  30, 2007 vs. June 30, 2006****Three
                  Months Ended**
              
              **Six
                  Months Ended**Higher
                  (lower) pre-tax book income
              
              $
              6
              
              
              $
              (14
              )Change
                  in tax benefits related to nonconventional fuel tax
                  credits
              
              
              (28
              )
              
              
              (38
              )Change
                  in tax expense on foreign earnings
              
              
              8
              
              
              
              (2
              )Transfer
                  of WPD tax items in 2006 (Note 5)
              
              
              
              
              
              
              20Change
                  in tax expense related to tax reserves (Note 5)
              
              
              (33
              )
              
              
              (32
              )Other
              
              
              
              
              
              
              (2
              )$
              (47
              )
              
              $
              (68
              )
 
 See
        Note
        5 to the Financial Statements for details on effective income tax
        rates.
 
 **Discontinued
        Operations**
 
 In
        the
        second quarter of 2007, PPL recorded an $89 million gain, which is net of
        tax
        expense of $5 million, in connection with the sale of its El Salvadoran
        business.  See "Discontinued Operations - Sale of Latin American
        Businesses" in Note 8 to the Financial Statements for information on this
        sale
        and PPL's anticipated sale of its remaining Latin American businesses, along
        with additional information related to the income (loss) from discontinued
        operations recorded in 2006 and 2007.
 
 In
        the
        second quarter of 2006, PPL recorded a $24 million loss, which is net of
        a tax
        benefit of $16 million, in connection with the sale of its ownership interest
        in
        the Griffith plant.  The "Income (Loss) from Discontinued Operations"
        also includes the acceleration of net unrealized gains on derivatives associated
        with the Griffith plant of $7 million after tax.  See "Discontinued
        Operations - Sale of Interest in Griffith Plant" in Note 8 to the Financial
        Statements for information on this sale, along with information regarding
        2006
        operating results recorded prior to the sale.
 
 **Financial
        Condition**
 
 **Liquidity
        and Capital Resources**
 
 PPL
        had
        the following cash and cash equivalents, short-term investments and short-term
        debt as of the dates noted below:
 **June
                    30,**
                  **2007**
                
                
                **December
                    31,**
                  **2006**Cash
                    and cash equivalents
                
                $
                567
                (a)
                
                $
                794Short-term
                    investments
                
                
                351
                
                
                
                359$
                918
                
                
                $
                1,153Short-term
                    debt
                
                $
                96
                
                
                $
                42
 
 (a)
              
              Excludes
                  $14 million of cash related to the Latin American businesses that
                  is
                  included in "Assets held for sale" on the Balance
                  Sheet.
 
 The
        $235
        million decrease in PPL's cash, cash equivalents and short-term investments
        position was primarily the net result of:
 
 ·
              $692
                  million of capital expenditures;·
              the
                  retirement of $568 million of long-term debt (which includes the
                  payment
                  of $29 million to settle related cross-currency swaps);·
              the
                  payment of $225 million of common stock dividends;·
              the
                  repurchase of common stock for $77 million;·
              an
                  increase of $72 million in restricted cash;·
              the
                  classification of $14 million of cash related to the Latin American
                  businesses as held for sale;·
              $619
                  million of cash provided by operating activities;·
              proceeds
                  of $505 million from the issuance of long-term debt;·
              $180
                  million of proceeds from the sale of the El Salvadoran electricity
                  delivery business;·
              a
                  net increase in short-term debt of $61 million (including $7 million
                  related to Latin American businesses);·
              net
                  proceeds of $31 million from the sale of emission allowances;
                  and·
              proceeds
                  of $22 million from the issuance of common
                  stock.
 
 Convertible
        Senior Notes
 
 The
        terms
        of PPL Energy Supply's 2.625% Convertible Senior Notes due 2023 include a
        market
        price trigger that permits holders to convert the notes during any fiscal
        quarter if the closing sale price of PPL's common stock exceeds $29.83 for
        at
        least 20 trading days in the 30 consecutive trading days ending on the last
        trading day of the preceding fiscal quarter.  Holders of the
        Convertible Senior Notes were entitled to convert their notes at any time
        during
        the first and second quarters of 2007 and are also entitled to convert their
        notes any time during the third quarter of 2007 as a result of the market
        price
        trigger being met.  When holders elect to convert the Convertible
        Senior Notes, PPL Energy Supply is required to settle the principal amount
        in
        cash and any conversion premium in cash or PPL common stock.  During
        the six months ended June 30, 2007, Convertible Senior Notes in an aggregate
        principal amount of $10 million were presented for conversion.  The
        total conversion premium related to these conversions was $8 million, which
        was
        settled with 181,574 shares of PPL common stock, along with an insignificant
        amount of cash in lieu of fractional shares.  At June 30, 2007, $93
        million of Convertible Senior Notes remain outstanding.  PPL and PPL
        Energy Supply have, and expect to continue to have, access to sufficient
        liquidity sources to fund any such conversions.
 
 Credit
        Facilities
 
 In
        January 2007, WPD (South West) terminated its £150 million three-year committed
        credit facility, which was to expire in October 2008.  This facility
        was replaced by a new £150 million five-year committed credit facility at WPDH
        Limited that expires in January 2012, with the option to extend the expiration
        date by a maximum of two years.
 
 In
        March
        2007, PPL Energy Supply extended the expiration date of its 364-day
        reimbursement agreement to March 2008.  Under the agreement, PPL Energy
        Supply can cause the bank to issue up to $200 million of letters of credit
        but cannot make cash borrowings.
 
 In
        May
        2007, PPL Energy Supply entered into a $3.4 billion Second Amended and Restated
        Five-Year Credit Agreement, which amended its previously existing $1.9 billion
        credit facility and extended the term of the previously existing facility
        to
        June 2012.  Under certain conditions, PPL Energy Supply may elect to
        have the principal balance of the loans outstanding on the final maturity
        date
        of the facility continue as non-revolving term loans for a period of one
        year
        from that final maturity date.  Also, under certain conditions, PPL
        Energy Supply may request that the facility's principal amount be increased
        by
        up to $500 million.  PPL Energy Supply has the ability to cause the
        lenders under this facility to issue letters of credit.  The
        additional capacity under this facility is expected to support potential
        collateral requirements under contracts that PPL Energy Supply anticipates
        entering into in connection with expanding its wholesale marketing and trading
        business.
 
 In
        May
        2007, Emel arranged uncommitted credit lines in the amount of 32.4 billion
        Chilean pesos (approximately $62 million), with authorization to borrow up
        to
        $20 million as required for working capital needs.
 
 In
        May
        2007, PPL Electric entered into a $200 million Third Amended and Restated
        Five-Year Credit Agreement, which extended the term of its existing credit
        facility to May 2012.  Under certain conditions, PPL Electric may
        elect to have the principal balance of the loans outstanding on the final
        maturity date of the facility continue as non-revolving term loans for a
        period
        of one year from that final maturity date.  Also, under certain
        conditions, PPL Electric may request that the facility's principal amount
        be
        increased by up to $100 million.  PPL Electric has the ability to
        cause the lenders under this facility to issue letters of credit.
 
 In
        July
        2007, PPL Electric and a subsidiary extended the expiration date of the credit
        agreement related to its participation in an asset-backed commercial paper
        program to July 2008.
 
 Financings
 
 In
        December 2006, Elfec issued $11 million of 6.05% UFV (inflation-adjusted
        bolivianos) denominated bonds with serial maturities from 2012 through
        2014.  Of these bonds, $5 million were issued in exchange for existing
        bonds with maturities in 2007 and 2008.  Cash proceeds of $6 million
        were used in January 2007 to refinance bonds with maturities in
        2007.  These transactions were reflected in PPL's January 2007
        financial statements due to the one-month lag in foreign subsidiary
        reporting.
 
 In
          March
          2007, PPL Capital Funding issued $500 million of 2007 Series A Junior
          Subordinated Notes due 2067 (Notes).  The Notes are fully and
          unconditionally guaranteed by PPL as to payment of principal, interest
          and
          premium, if any.  The Notes mature in March 2067, and are callable at
          par value beginning in March 2017.  Prior to such time, the Notes may
          be redeemed at PPL Capital Funding's option at make-whole redemption
          prices.  The Notes bear interest at 6.70% from the date of issuance
          through March 2017.  After March 2017, and continuing up to the
          maturity date, the Notes bear interest at three-month LIBOR plus 2.665%,
          reset
          quarterly.  PPL Capital Funding may defer interest payments on the
          Notes, from time to time, on one or more occasions for up to ten consecutive
          years.  Deferred interest payments will accumulate additional interest
          at a rate equal to the interest rate then applicable to the
          Notes.  During any period in which PPL Capital Funding defers interest
          payments on the Notes, subject to certain exceptions, neither PPL Capital
          Funding nor PPL may (i) declare or pay any cash dividend or distribution
          on its
          capital stock, (ii) redeem, purchase, acquire or make a liquidation payment
          with
          respect to any of its capital stock, or (iii) make any payments on any
          debt or
          any guarantee of debt by PPL that is equal or junior in right of payment
          to the
          Notes or the related guarantee by PPL.
 
 PPL
          Capital Funding received $493 million of proceeds, net of a discount and
          underwriting fees, from the issuance of the Notes.  Of the proceeds,
          $281 million were used to pay at maturity PPL Capital Funding's 8.375%
          Medium-Term Notes due June 2007.  The remainder of the net proceeds
          was used for general corporate purposes, including capital expenditures
          relating
          to the installation of pollution control equipment by PPL Energy Supply
          subsidiaries.
 
 In
          connection with the issuance of the Notes, PPL and PPL Capital Funding
          entered
          into a Replacement Capital Covenant, in which PPL and PPL Capital Funding
          agreed
          for the benefit of holders of a designated series of unsecured long-term
          indebtedness of PPL or PPL Capital Funding ranking senior to the Notes
          that (i)
          PPL Capital Funding will not redeem or purchase the Notes, or otherwise
          satisfy,
          discharge or defease the principal amount of the Notes and (ii) neither
          PPL nor
          any of its other subsidiaries will purchase the Notes on or before March
          30,
          2037, except, subject to certain limitations, to the extent that the applicable
          redemption or repurchase price or principal amount defeased does not exceed
          a
          specified amount of proceeds from the sale of qualifying replacement capital
          securities during the 180-day period prior to the date of that redemption,
          repurchase or defeasance.  The designated series of covered debt
          currently benefiting from the Replacement Capital Covenant is PPL Capital
          Funding's 4.33% Notes Exchange Series A Due March 1, 2009.
 
 In
          July
          2007, PPL Capital Funding issued $100 million of 6.85% Senior Notes due
          2047
          (6.85% Notes).  The 6.85% Notes are not subject to redemption prior to
          July 1, 2012.  On or after July 1, 2012, PPL Capital Funding may, at
          its option, redeem the 6.85% Notes, in whole or in part, at par.  PPL
          Capital Funding received $97 million of proceeds, net of underwriting fees,
          from
          the issuance of the 6.85% Notes.  The proceeds will be used for
          general corporate purposes, including capital expenditures relating to
          the
          installation of pollution control equipment by PPL Energy Supply
          subsidiaries.
  Early
          Redemption of Debt
 
 In
        February 2007, WPD LLP redeemed all of the 8.23% Subordinated Debentures
        due
        2027 that were held by SIUK Capital Trust I.  Upon redemption, WPD LLP
        paid a premium of 4.115%, or approximately $3 million, on the principal amount
        of $85 million of subordinated debentures.  WPD LLP received $3
        million when its investment in SIUK Capital Trust I was liquidated in
        connection with this redemption.  Additionally, payment of $29 million
        was made to settle related cross-currency swaps.
 
 Common
        Stock Repurchase Program
 
 In
        June
        2007, PPL's Board of Directors authorized the repurchase by PPL of up to
        $750
        million of its common stock from time to time, in open market purchases,
        pre-arranged trading plans or privately negotiated transactions.  The
        specific amount and timing of repurchases will be based on a variety of factors,
        including potential share repurchase price, strategic investment considerations
        and other market and economic factors.  During the second quarter of
        2007, PPL repurchased 1,675,000 shares of its common stock for $77
        million.  Through July 31, 2007, a total of 3,559,100 shares were
        repurchased for $166 million.
 
 Proceeds
        from Divestitures
 
 Proceeds
        from the sales and planned divestitures discussed in Note 8 to the Financial
        Statements are expected to be used to invest in growth opportunities in PPL's
        core electricity supply and delivery businesses and/or for the repurchase
        of
        securities, including PPL common stock.
 
 Rating
        Agency Decisions
 
 Moody's,
        S&P and Fitch periodically review the credit ratings on the debt and
        preferred securities of PPL and its subsidiaries.  Based on their
        respective independent reviews, the rating agencies may make certain ratings
        revisions or ratings affirmations.
 
 A
        credit
        rating reflects an assessment by the rating agency of the creditworthiness
        associated with an issuer and particular securities that it
        issues.  The credit ratings of PPL and its subsidiaries are based on
        information provided by PPL and other sources.  The ratings of
        Moody's, S&P and Fitch are not a recommendation to buy, sell or hold any
        securities of PPL or its subsidiaries.  Such ratings may be subject to
        revisions or withdrawal by the agencies at any time and should be evaluated
        independently of each other and any other rating that may be assigned to
        the
        securities.  A downgrade in PPL's or its subsidiaries' credit ratings
        could result in higher borrowing costs and reduced access to capital
        markets.
 
 The
        rating agencies took the following actions related to PPL and its key rated
        subsidiaries during the six months ended June 30, 2007:
 
 ·
              In
                  connection with PPL Capital Funding's issuance in March 2007 of
                  the 2007
                  Series A Junior Subordinated Notes due 2067, Moody's, S&P and Fitch
                  assigned ratings of Baa3, BB+ and BBB- to the junior subordinated
                  debt of
                  PPL Capital Funding.·
              Also
                  in March 2007, Fitch affirmed its BBB rating of PPL Montana's 8.903%
                  Pass
                  Through Certificates due 2020.
 
 Capital
        Expenditures
 
 The
        schedule below shows PPL's capital expenditure projections as of June 30,
        2007,
        for the years 2007 through 2011.
 
 **Projected****2007**
              
              **2008**
              
              **2009**
              
              **2010**
              
              **2011**Construction
                  expenditures (a)Generating
                  facilities
              
              $
              361
              
              $
              264
              
              $
              306
              
              $
              321
              
              $
              317Transmission
                  and distribution facilities
              
              
              602
              
              
              560
              
              
              627
              
              
              697
              
              
              759Environmental
              
              
              612
              
              
              408
              
              
              129
              
              
              37
              
              
              77Other
              
              
              91
              
              
              64
              
              
              61
              
              
              60
              
              
              66Total
                  Construction Expenditures
              
              
              1,666
              
              
              1,296
              
              
              1,123
              
              
              1,115
              
              
              1,219Nuclear
                  fuel
              
              
              81
              
              
              102
              
              
              163
              
              
              169
              
              
              164Total
                  Capital Expenditures
              
              $
              1,747
              
              $
              1,398
              
              $
              1,286
              
              $
              1,284
              
              $
              1,383
 
 (a)
              
              Construction
                  expenditures include AFUDC and capitalized interest, which are
                  expected to
                  be $243 million for the 2007-2011
                  period.
 
 PPL's
        capital expenditure projections for the years 2007-2011 total $7.1
        billion.  Capital expenditure plans are revised periodically to
        reflect changes in operational, market and regulatory conditions.  The
        above schedule has been revised from that which was presented in PPL's 2006
        Form
        10-K, primarily to reflect:
 
 ·
              the
                  PJM-approved regional transmission expansion project;·
              a
                  reduction due to the sales of the Latin American
                  businesses;·
              estimated
                  costs to submit a combined construction and operating license with
                  the NRC
                  for a possible third nuclear generating unit adjacent to the Susquehanna
                  station; and·
              increased
                  nuclear fuel prices for the Susquehanna
                  station.
 
 See
        Note
        8 to the Financial Statements for additional information.
 
 PPL
        plans
        to fund all of its capital expenditures in 2007 with cash on hand, cash from
        operations and the issuance of debt securities.
 
 For
        additional information on PPL's liquidity and capital resources, see "Item
        7.
        Management's Discussion and Analysis of Financial Condition and Results of
        Operations," in PPL's 2006 Form 10-K.
 
 **Risk
        Management - Energy Marketing & Trading and Other**
 
 Market
        Risk
 
 *Commodity
        Price Risk (Non-trading)*
 
 PPL's
        non-trading commodity derivative contracts mature at various times through
        2017.  PPL segregates its non-trading activities as either hedge or
        economic.  Transactions that are accounted for as hedge activity
        qualify for hedge accounting treatment under SFAS 133.  The
        non-trading economic category includes transactions that address a specific
        risk, but are not eligible for hedge accounting or hedge accounting is not
        elected.  Included in the non-trading economic category are certain
        load-following energy obligations and related supply contracts, capacity
        swaps,
        FTRs, crude oil swaps to hedge rail transportation charges and hedges of
        synthetic fuel tax credits.  Although they do not receive hedge
        accounting treatment, these contracts are considered non-trading.  The
        fair value of the non-trading economic contracts that do not qualify for
        accrual
        or hedge accounting treatment as of June 30, 2007, including net premiums
        on
        options, was $62 million.  The following chart sets forth PPL's net
        fair market value of all non-trading commodity derivative
        contracts.
 
 **Three
                  Months Ended**
                **June
                  30,**
              
              **Six
                  Months Ended**
                **June
                  30,****2007**
              
              **2006**
              
              **2007**
              
              **2006**Fair
                  value of contracts outstanding at the beginning of the
                  period
              
              $
              (13
              )
              
              $
              (111
              )
              
              $
              (111
              )
              
              $
              (284
              )Contracts
                  realized or otherwise settled during the period
              
              
              (37
              )
              
              
              1
              
              
              
              (14
              )
              
              
              12Fair
                  value of new contracts at inception
              
              
              (4
              )
              
              
              
              
              
              
              19Other
                  changes in fair values
              
              
              (190
              )
              
              
              11
              
              
              
              (138
              )
              
              
              173Fair
                  value of contracts outstanding at the end of the period
              
              $
              (244
              )
              
              $
              (99
              )
              
              $
              (244
              )
              
              $
              (99
              )
 
 The
        following chart segregates estimated fair values of PPL's non-trading commodity
        derivative contracts at June 30, 2007, based on whether the fair values are
        determined by quoted market prices or other more subjective means.
 
 **Fair
                  Value of Contracts at Period-End**
                **Gains
                  (Losses)****Maturity**
                **Less
                  Than**
                **1
                  Year**
              
              **Maturity**
                **1-3
                  Years**
              
              **Maturity**
                **4-5
                  Years**
              
              **Maturity**
                **in
                  Excess**
                **of
                  5 Years**
              
              **Total
                  Fair**
                **Value****Source
                  of Fair Value**Prices
                  actively quoted
              
              $
              6
              
              
              $
              (7
              )
              
              $
              (32
              )
              
              
              
              
              
              $
              (33
              )Prices
                  provided by other external sources
              
              
              (103
              )
              
              
              (150
              )
              
              
              (130
              )
              
              $
              (28
              )
              
              
              (411
              )Prices
                  based on models and other valuation methods
              
              
              65
              
              
              
              10
              
              
              
              13
              
              
              
              112
              
              
              
              200Fair
                  value of contracts outstanding at the end of the period
              
              $
              (32
              )
              
              $
              (147
              )
              
              $
              (149
              )
              
              $
              84
              
              
              $
              (244
              )
 
 The
        "Prices actively quoted" category includes the fair value of exchange-traded
        natural gas futures contracts quoted on the NYMEX, which has quoted prices
        through 2012.
 
 The
        "Prices provided by other external sources" category includes PPL's forward
        positions and options in natural gas and electricity and natural gas basis
        swaps
        at points for which over-the-counter (OTC) broker quotes are
        available.
 
 The
        "Prices based on models and other valuation methods" category includes the
        value
        of transactions for which an internally developed price curve was constructed
        as
        a result of the long-dated nature of the transaction or the illiquidity of
        the
        market point, or the value of options not quoted by an exchange or OTC
        broker.  This category includes the fair value of transactions
        completed in auction markets, where contract prices represent the market
        value
        for load-following bundled energy prices delivered at illiquid delivery
        points.  The transaction prices associated with the contracts did not
        equal the wholesale bilateral market prices at inception
        (Day 1).  However, EITF 02-3, "Issues Involved in Accounting for
        Derivative Contracts Held for Trading Purposes and Contracts Involved in
        Energy
        Trading and Risk Management Activities," does not generally permit Day 1
        gains and losses to be recognized unless the fair value is derived principally
        from observable market inputs.  Therefore, PPL recorded a reserve for
        the modeled Day 1 gain, which is netted against the above fair
        values.
 
 Because
        of PPL's efforts to hedge the value of the energy from its generation assets,
        PPL sells electricity, capacity and related services and buys fuel on a forward
        basis, resulting in open contractual positions.  If PPL is unable to
        deliver firm capacity and energy or to accept the delivery of fuel under
        its
        agreements, under certain circumstances it could be required to pay
        damages.  These damages would be based on the difference between the
        market price and the contract price of the commodity.  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
        own counterparties) with which it has energy contracts and other factors
        could
        affect PPL's ability to meet its obligations, or cause significant increases
        in
        the market price of replacement energy.  Although PPL attempts to
        mitigate these risks, there can be no assurance that it will be able to fully
        meet its firm obligations, that it will not be required to pay damages for
        failure to perform, or that it will not experience counterparty non-performance
        in the future.
 
 As
        of
        June 30, 2007, PPL estimated that a 10% adverse movement in market prices
        across
        all geographic areas and time periods would have decreased the value of the
        commodity contracts in its non-trading portfolio by approximately $480
        million.  For purposes of this calculation, an increase in the market
        price for electricity is considered an adverse movement because PPL's
        electricity portfolio is generally in a net sales position, and the decrease
        in
        the market price for fuel is considered an adverse movement because PPL's
        commodity fuels portfolio is generally in a net purchase
        position.  PPL enters into those commodity contracts to reduce the
        market risk inherent in the generation of electricity.
 
 Starting
        in 2007, PPL elected to use an alternative method for disclosing quantitative
        information about certain market risk sensitive instruments.  This
        method utilizes a VaR model to measure commodity price risk in its non-trading
        and trading portfolios.  This approach is consistent with how PPL's
        Risk Manager assesses the market risk of its commodity business.  VaR
        is a statistical model that attempts to predict risk of loss, under normal
        market conditions, based on historical market price volatility.  PPL
        calculates VaR using a Monte Carlo simulation technique, which uses historical
        data from the past 12 month period.  The VaR is the estimated nominal
        loss of earnings based on a one-day holding period at a 95% confidence
        interval.  As of June 30, 2007, the VaR for PPL's non-trading
        portfolio was $14 million.  This excludes the activity for PPL's
        synthetic fuel tax credit hedges.  Additional information regarding
        these hedges can be found in the "Synthetic Fuel Tax Credit Risk" section
        below.
 
 *Commodity
        Price Risk (Trading)*
 
 PPL's
        trading contracts mature at various times through 2011.  The following
        chart sets forth PPL's net fair market value of trading contracts.
 
 **Three
                  Months Ended**
                **June
                  30,**
              
              **Six
                  Months Ended**
                **June
                  30,****2007**
              
              **2006**
              
              **2007**
              
              **2006**Fair
                  value of contracts outstanding at the beginning of the
                  period
              
              $
              45
              
              
              $
              12
              
              
              $
              41
              
              
              $
              5Contracts
                  realized or otherwise settled during the period
              
              
              (14
              )
              
              
              (7
              )
              
              
              (27
              )
              
              
              (18
              )Fair
                  value of new contracts at inception
              
              
              
              
              
              
              (1
              )
              
              
              16
              
              
              
              3Other
                  changes in fair values
              
              
              17
              
              
              
              15
              
              
              
              18
              
              
              
              29Fair
                  value of contracts outstanding at the end of the period
              
              $
              48
              
              
              $
              19
              
              
              $
              48
              
              
              $
              19
 
 PPL
        will
        reverse a gain of approximately $3 million of the $48 million unrealized
        trading
        gains over the next three months as the transactions are realized.
 
 The
        following chart segregates estimated fair values of PPL's trading portfolio
        at
        June 30, 2007, based on whether the fair values are determined by quoted
        market
        prices or other more subjective means.
 
 **Fair
                  Value of Contracts at Period-End**
                **Gains
                  (Losses)****Maturity**
                **Less
                  Than**
                **1
                  Year**
              
              **Maturity**
                **1-3
                  Years**
              
              **Maturity**
                **4-5
                  Years**
              
              **Maturity**
                **in
                  Excess**
                **of
                  5 Years**
              
              **Total
                  Fair**
                **Value****Source
                  of Fair Value**Prices
                  actively quoted
              
              $
              (11
              )
              
              $
              3
              
              
              $
              2
              
              
              
              
              
              
              $
              (6
              )Prices
                  provided by other external sources
              
              
              10
              
              
              
              7
              
              
              
              (1
              )
              
              
              
              
              
              
              16Prices
                  based on models and other valuation methods
              
              
              18
              
              
              
              21
              
              
              
              (1
              )
              
              
              
              
              
              
              38Fair
                  value of contracts outstanding at the end of the period
              
              $
              17
              
              
              $
              31
              
              
              $
              
              
              
              
              
              
              
              $
              48
 
 See
        "Commodity Price Risk (Non-trading)" above for information on the various
        sources of fair value.
 
 As
        of
        June 30, 2007, PPL estimated that a 10% adverse movement in market prices
        across
        all geographic areas and time periods would have decreased the value of the
        commodity contracts in its trading portfolio by $32 million, compared to
        $24
        million as of June 30, 2006.
 
 As
        of
        June 30, 2007, the VaR for PPL's trading portfolio was $2
        million.  This excludes the activity for PPL's synthetic fuel tax
        credit hedges.  Additional information regarding these hedges can be
        found in the "Synthetic Fuel Tax Credit Risk" section below.
 
 *Synthetic
        Fuel Tax Credit Risk*
 
 At
        this
        time, PPL expects that the high level and the volatility of crude oil prices
        will reduce the amount of synthetic fuel tax credits that PPL receives through
        its synthetic fuel production.  The tax credits are reduced if the
        annual average wellhead price of domestic crude oil falls within a phase-out
        range.  The tax credits are eliminated if this reference price exceeds
        the phase-out range.  See "Regulatory Issues - IRS Synthetic Fuels Tax
        Credits" in Note 10 to the Financial Statements for more information regarding
        the phase-out of the tax credits.
 
 PPL
        implemented a risk management strategy to hedge a portion of the variability
        of
        cash flows associated with its 2006 and 2007 synthetic fuel tax credits by
        hedging the risk that the 2006 and 2007 annual average wellhead price for
        domestic crude oil will be within the phase-out range.
 
 PPL
        has
        net purchased options for 2007 that are expected to mitigate PPL's tax credit
        phase-out risk due to an increase of the average wellhead price in
        2007.  These positions did not qualify for hedge accounting
        treatment.  The mark-to-market value of these positions at June 30,
        2007, was a gain of $21 million.
 
 As
        of
        June 30, 2007, PPL estimated that a 10% adverse movement in market prices
        of
        crude oil would have decreased the value of the synthetic fuel hedges by
        $27
        million.  For purposes of this calculation, a decrease in the market
        price for crude oil is considered an adverse movement.
 
 *Commodity
        Price Risk Summary*
 
 In
        accordance with its marketing and hedge strategy, PPL may not elect to fully
        hedge its generation output or fuel requirements.  PPL estimates that
        for its entire portfolio, including all generation, emissions and physical
        and
        financial energy positions, a 10% adverse change in power prices across all
        geographic zones and time periods would decrease expected 2007 gross margins
        by
        $11 million.  Similarly, a 10% adverse movement in all fossil fuel
        prices would decrease 2007 gross margins by $8 million.
 
 *Interest
        Rate Risk*
 
 PPL
        and
        its subsidiaries have issued debt to finance their operations, which exposes
        them to interest rate risk.  PPL utilizes various financial derivative
        products to adjust the mix of fixed and floating interest rates in its debt
        portfolio, adjust the duration of its debt portfolio and lock in 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 changes
        in the fair value of PPL's debt portfolio due to changes in the absolute
        level
        of interest rates.
 
 At
        June
        30, 2007, PPL's potential annual exposure to increased interest expense,
        based
        on a 10% increase in interest rates, was $9 million.
 
 PPL
        is
        also exposed to changes in the fair value of its domestic and international
        debt
        portfolios.  At June 30, 2007, 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 $343 million.
 
 PPL
        utilizes various risk management instruments to reduce its exposure to the
        expected future cash flow variability of its debt instruments.  These
        risks include exposure to adverse interest rate movements for outstanding
        variable rate debt and for future anticipated financing.  While PPL is
        exposed to changes in the fair value of these instruments, any changes in
        the
        fair value of these instruments are recorded in equity and then reclassified
        into earnings in the same period during which the item being hedged affects
        earnings.  At June 30, 2007, the market value of these instruments,
        representing the amount PPL would receive upon their termination, was $7
        million.  At June 30, 2007, PPL estimated that its potential exposure
        to a change in the fair value of these instruments, through a 10% adverse
        movement in the hedged exposure, was $17 million.
 
 PPL
        also
        utilizes various risk management instruments to adjust the mix of fixed and
        floating interest rates in its debt portfolio.  While PPL is exposed
        to changes in the fair value of these instruments, any change in market value
        is
        recorded with an equal and offsetting change in the value of the debt being
        hedged.  At June 30, 2007, PPL estimated that its potential additional
        exposure to a change in the fair value of these instruments, through a 10%
        adverse movement in interest rates, was $19 million.
 
 WPDH
        Limited holds a net position in cross-currency swaps totaling $702 million
        to
        hedge the interest payments and principal of its U.S. dollar-denominated
        bonds
        with maturity dates ranging from December 2007 to December 2028.  The
        estimated value of this position at June 30, 2007, being the amount PPL would
        pay to terminate it, including accrued interest, was $176 million.  At
        June 30, 2007, PPL estimated that its potential additional exposure to a
        change
        in the market value of these instruments, through a 10% adverse movement
        in
        foreign currency exchange rates and interest rates, was $127
        million.
 
 *Foreign
        Currency Risk*
 
 PPL
        is
        exposed to foreign currency risk, primarily through investments in affiliates
        in
        the U.K. and Latin America.  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, anticipated transactions and net investments.  In
        addition, PPL enters into financial instruments to protect against foreign
        currency translation risk of expected earnings.
 
 To
        economically hedge 2007 expected income in Chilean pesos, PPL entered into
        average rate forwards totaling 12.4 billion Chilean pesos.  The
        settlement date of these forwards is November 2007.  At June 30, 2007,
        the market value of these positions, representing the amount PPL would pay
        upon
        their termination, was insignificant.  PPL estimated that its
        potential additional exposure to a change in the market value of these
        instruments, through a 10% adverse movement in foreign currency exchange
        rates,
        was $1 million at June 30, 2007.
 
 To
        economically hedge 2007 expected income denominated in British pounds sterling,
        PPL entered into a combination of average rate forwards and average rate
        options, which total £60.1 million at June 30, 2007.  These forwards
        and options have termination dates ranging from September 2007 to December
        2007.  At June 30, 2007, the market value of these positions,
        representing the amount PPL would pay upon their termination, was $3
        million.  PPL estimated that its potential additional exposure to a
        change in the market value of these instruments, through a 10% adverse movement
        in foreign currency exchange rates, was $7 million at June 30,
        2007.
 
 PPL
        executed forward sale contracts totaling 215 billion Chilean
        pesos.  Of these forward sale contracts, 161 billion Chilean pesos are
        to hedge PPL's net investment in Emel, while the remaining 54 billion Chilean
        pesos are to hedge a portion of the proceeds from the anticipated sale of
        Emel.  The settlement date of these forwards is December
        2007.  At June 30, 2007, the market value of these positions,
        representing the amount PPL would pay upon their termination, was $8
        million.  PPL estimated that its potential additional exposure to a
        change in the market value of these instruments, through a 10% adverse movement
        in foreign currency exchange rates, was $44 million at June 30,
        2007.
 
 PPL
        executed forward sale contracts totaling £22.5 million.  These forward
        sale contracts are to partially hedge its net investment in WPD.  The
        settlement date of these forwards is January 2008.  At June 30, 2007,
        the market value of these positions, representing the amount PPL would pay
        upon
        their termination was insignificant.  PPL estimated that its potential
        additional exposure to a change in the market value of these instruments,
        through a 10% adverse movement in foreign currency exchange rates, was $4
        million at June 30, 2007.
 
 PPL
        has
        entered into a forward contract to purchase 5.1 million Euros in order to
        protect against fluctuations in the Euro exchange rate, in connection with
        the
        purchase of equipment.  The settlement date of this contract is
        January 2008.  At June 30, 2007, the market value of this position,
        representing the amount PPL would receive upon its termination, was
        insignificant.  PPL estimated that its potential exposure to a change
        in the market value of this instrument, through a 10% adverse movement in
        foreign currency exchange rates, was insignificant at June 30,
        2007.
 
 *Nuclear
        Decommissioning Trust Funds - Securities Price Risk*
 
 In
        connection with certain NRC requirements, PPL Susquehanna maintains trust
        funds
        to fund certain costs of decommissioning the Susquehanna nuclear
        station.  As of June 30, 2007, 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 sufficient 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 actively monitors the investment performance and
        periodically reviews asset allocation in accordance with its nuclear
        decommissioning trust policy statement.  At June 30, 2007, a
        hypothetical 10% increase in interest rates and a 10% decrease in equity
        prices
        would have resulted in an estimated $41 million reduction in the fair value
        of
        the trust assets.  See Note 21 in PPL's 2006 Form 10-K for more
        information regarding the nuclear decommissioning trust funds.
 
 **Related
        Party Transactions**
 
 PPL
        is
        not aware of any material ownership interests or operating responsibility
        by
        senior management of PPL, PPL Energy Supply or PPL Electric in outside
        partnerships, including leasing transactions with variable interest entities,
        or
        other entities doing business with PPL.
 
 For
        additional information on related party transactions, see Note 11 to the
        Financial Statements.
 
 **Acquisitions,
        Development and Divestitures**
 
 PPL
        continuously evaluates strategic options for its business segments and from
        time
        to time, PPL and its subsidiaries are involved in negotiations with third
        parties regarding acquisitions and dispositions of businesses and assets,
        joint
        ventures and development projects, which may or may not result in definitive
        agreements.  Any such transactions may impact future financial
        results.  See Note 8 to the Financial Statements for information
        regarding such recent transactions.
 
 PPL
        is
        currently planning incremental capacity increases of 343 MW at several existing
        domestic generating facilities.  Offsetting this increase is an
        expected 30 MW reduction in generation capability at each of the Brunner
        Island
        and Montour plants, due to the estimated increases in station service usage
        during the scrubber operation.  See Note 10 to the Financial
        Statements for additional information, as well as information regarding the
        planned shut down of two 150 MW generating units at PPL Martins Creek in
        September 2007.
 
 PPL
        is
        continuously reexamining development projects based on market conditions
        and
        other factors to determine whether to proceed with these projects, sell them,
        cancel them, expand them, execute tolling agreements or pursue other
        opportunities.
 
 **Environmental
        Matters**
 
 See
        Note
        10 to the Financial Statements for a discussion of environmental
        matters.
 
 **New
        Accounting Standards**
 
 See
        Note
        17 to the Financial Statements for a discussion of new accounting standards
        recently adopted or pending adoption.
 
 **Application
        of Critical Accounting Policies**
 
 PPL's
        financial condition and results of operations are impacted by the methods,
        assumptions and estimates used in the application of critical accounting
        policies.  The following accounting policies are particularly
        important to the financial condition or results of operations of PPL, and
        require estimates or other judgments of matters inherently uncertain: price
        risk
        management, pension and other postretirement benefits, asset impairment,
        leasing, loss accruals and asset retirement obligations.
 
 See
        "Item
        7. Management's Discussion and Analysis of Financial Condition and Results
        of
        Operations," in PPL's 2006 Form 10-K for a discussion of each critical
        accounting policy.  PPL's senior management has reviewed these
        critical accounting policies, and the estimates and assumptions regarding
        them,
        with its Audit Committee.  In addition, PPL's senior management
        reviewed the Form 10-K disclosures regarding the application of these critical
        accounting policies with the Audit Committee.
 
 In
        June
        2006, the FASB issued FIN 48, "Accounting for Uncertainty in Income Taxes,
        an
        interpretation of FASB Statement No. 109."  In May 2007, the FASB
        amended this guidance by issuing FSP FIN 48-1, "Definition of Settlement
        in FASB
        Interpretation No. 48."  PPL and its subsidiaries adopted FIN 48, as
        amended, effective January 1, 2007.  The adoption of FIN 48 alters the
        methodology PPL previously used to account for income tax
        uncertainties.  Effective with the adoption of FIN 48, uncertain tax
        positions are no longer considered to be contingencies assessed in accordance
        with SFAS 5, "Accounting for Contingencies."  The following is an
        update to the "Income Tax Uncertainties" section of the "Loss Accruals" critical
        accounting policy disclosed in PPL's 2006 Form 10-K, which reflects the adoption
        of FIN 48.
 
 
 Similar
        to SFAS 5, FIN 48 continues to require significant management judgment in
        determining the amount of benefit to be recognized in relation to an uncertain
        tax position.  FIN 48 requires PPL to evaluate its tax positions
        following a two-step process.  The first step requires an entity to
        determine whether, based on the technical merits supporting a particular
        tax
        position, it is more likely than not (greater than a 50 percent chance) that
        the
        tax position will be sustained.  This determination assumes that the
        relevant taxing authority will examine the tax position and is aware of all
        the
        relevant facts surrounding the tax position.  The second step requires
        an entity to recognize in the financial statements the benefit of a tax position
        that meets the more-likely-than-not recognition criterion.  The
        measurement of the benefit equals the largest amount of benefit that has
        a
        likelihood of realization, upon settlement, that exceeds 50
        percent.  PPL's management considers a number of factors in assessing
        the benefit to be recognized, including negotiation of a
        settlement.
 
 On
        a
        quarterly basis, PPL reassesses its uncertain tax positions by considering
        information known at the reporting date.  Based on management's
        assessment of new information, PPL may subsequently recognize a tax benefit
        for
        a previously unrecognized tax position, derecognize a previously recognized
        tax
        position, or remeasure the benefit of a previously recognized tax
        position.
 
 The
        balance sheet classification of unrecognized tax benefits also requires
        significant management judgment.  FIN 48 requires an entity to
        classify unrecognized tax benefits as current, to the extent management expects
        to settle an uncertain tax position, by paying cash, within one year of the
        reporting date.
 
 Significant
        management judgment is also required in developing valuation allowances for
        deferred tax assets.  Valuation allowances are initially recorded and
        reevaluated each reporting period by assessing the likelihood of the ultimate
        realization of a deferred tax asset.  Management considers a number of
        factors in assessing the realization of a deferred tax asset, including
        forecasts of future taxable income and available tax planning
        strategies.  Any tax planning strategy utilized in this assessment
        must meet the recognition and measurement criteria of FIN 48.  See
        Note 5 to the Financial Statements for the disclosures required by FIN
        48.
 
 **PPL
        ENERGY SUPPLY, LLC AND SUBSIDIARIES**
 
 **Item
        2.  Management's Discussion and Analysis of Financial Condition and
        Results of Operations**
 
 **Overview**
 
 PPL
        Energy Supply is an energy company with headquarters in Allentown,
        PA.  In PPL Energy Supply's 2006 Form 10-K, descriptions of its
        domestic and international businesses are found in "Item 1. Business -
        Background."  Through its subsidiaries, PPL Energy Supply is primarily
        engaged in the generation and marketing of electricity in two key markets
        - the
        northeastern and western U.S. - and in the delivery of electricity in the
        U.K.
        and Latin America.  In March 2007, PPL announced its intention to sell
        its regulated electricity delivery businesses in Latin America.  See
        Note 8 to the Financial Statements for information on the status of the planned
        sales.  PPL Energy Supply's reportable segments are Supply and
        International Delivery.  See "Item 7. Management's Discussion and
        Analysis of Financial Condition and Results of Operations - Overview" in
        PPL
        Energy Supply's 2006 Form 10-K and Form 8-K dated June 21, 2007, for an overview
        of PPL Energy Supply's strategy and the risks and the challenges that it
        faces
        in its business.  See "Forward-Looking Information," Note 10 to the
        Financial Statements and the rest of this Item 2 in this Form 10-Q and "Item
        1A.
        Risk Factors" and the rest of Item 7 in PPL Energy Supply's 2006 Form 10-K
        for
        more information concerning the material risks and uncertainties that PPL
        Energy
        Supply faces in its businesses and with respect to its future
        earnings.
 
 The
        following information should be read in conjunction with PPL Energy Supply's
        Condensed Consolidated Financial Statements and the accompanying Notes, PPL
        Energy Supply's 2006 Form 10-K and a related Form 8-K dated June 21,
        2007.
 
 Terms
        and
        abbreviations are explained in the glossary.  Dollars are in millions
        unless otherwise noted.
 
 **Results
        of Operations**
 
 The
        following discussion begins with a summary of PPL Energy Supply's
        earnings.  "Results of Operations" continues with a review of results
        by reportable segment and a description of key factors by segment that
        management expects may impact future earnings.  This section ends with
        explanations of significant changes in principal items on PPL Energy Supply's
        Statements of Income, comparing the three and six months ended June 30, 2007,
        with the same periods in 2006.
 
 **Earnings**
 
 Net
        income was:
 
 **Three
                  Months Ended**
                **June
                  30,**
              
              **Six
                  Months Ended**
                **June
                  30,****2007**
              
              **2006**
              
              **2007**
              
              **2006**$
              320
              
              
              $
              158
              
              
              $
              467
              
              
              $
              388
 
 The
        changes in net income from period to period were, in part, attributable to
        several special items that management considers significant.  Details
        of these special items are provided within the review of each segment's
        results.
 
 The
        period-to-period changes in significant earnings components, including domestic
        gross energy margins by region and significant income statement line items,
        are
        explained in the "Statement of Income Analysis."
 
 The
        Statements of Income reflect the results of past operations and are not intended
        as any indication of future operating results.  Future operating
        results will necessarily be affected by various and diverse factors and
        developments.  Furthermore, because results for interim periods can be
        disproportionately influenced by various factors and developments and by
        seasonal variations, the results of operations for interim periods do not
        necessarily indicate results or trends for the year.
 
 **Segment
        Results**
 
 Net
        income by segment was:
 
 **Three
                  Months Ended**
                **June
                  30,**
              
              **Six
                  Months Ended**
                **June
                  30,****2007**
              
              **2006**
              
              **2007**
              
              **2006**Supply
              
              $
              137
              
              
              $
              79
              
              
              $
              256
              
              
              $
              228International
                  Delivery
              
              
              183
              
              
              
              79
              
              
              
              211
              
              
              
              160Total
              
              $
              320
              
              
              $
              158
              
              
              $
              467
              
              
              $
              388
 
 Supply
        Segment
 
 The
        Supply segment primarily consists of the domestic energy marketing, domestic
        generation and domestic development operations of PPL Energy
        Supply.
 
 The
        Supply segment results in 2006 reflect the reclassification of PPL's interest
        in
        the Griffith plant's operating revenues and expenses from certain income
        statement line items to "Income (Loss) from Discontinued
        Operations."  See Note 8 to the Financial Statements for further
        discussion.
 
 Supply
        segment net income was:
 
 **Three
                  Months Ended**
                **June
                  30,**
              
              **Six
                  Months Ended**
                **June
                  30,****2007**
              
              **2006**
              
              **2007**
              
              **2006**Energy
                  revenues
              
              $
              830
              
              
              $
              799
              
              
              $
              1,589
              
              
              $
              1,615Energy-related
                  businesses
              
              
              174
              
              
              
              135
              
              
              
              347
              
              
              
              285Total
                  operating revenues
              
              
              1,004
              
              
              
              934
              
              
              
              1,936
              
              
              
              1,900Fuel
                  and energy purchases
              
              
              380
              
              
              
              407
              
              
              
              719
              
              
              
              783Other
                  operation and maintenance
              
              
              192
              
              
              
              188
              
              
              
              380
              
              
              
              365Depreciation
              
              
              39
              
              
              
              36
              
              
              
              77
              
              
              
              69Taxes,
                  other than income
              
              
              10
              
              
              
              9
              
              
              
              18
              
              
              
              19Energy-related
                  businesses
              
              
              196
              
              
              
              128
              
              
              
              392
              
              
              
              275Total
                  operating expenses
              
              
              817
              
              
              
              768
              
              
              
              1,586
              
              
              
              1,511Other
                  Income - net
              
              
              18
              
              
              
              12
              
              
              
              31
              
              
              
              21Interest
                  Expense
              
              
              27
              
              
              
              19
              
              
              
              54
              
              
              
              35Income
                  Taxes
              
              
              41
              
              
              
              60
              
              
              
              70
              
              
              
              126Minority
                  Interest
              
              
              
              
              
              
              1
              
              
              
              1
              
              
              
              1Loss
                  from Discontinued Operations
              
              
              
              
              
              
              (19
              )
              
              
              
              
              
              
              (20
              )Net
                  Income
              
              $
              137
              
              
              $
              79
              
              
              $
              256
              
              
              $
              228
 
 The
        after-tax changes in net income between these periods were due to the following
        factors, including discontinued operations.
 
 **June
                  30, 2007 vs. June 30, 2006****Three
                  Months Ended**
              
              **Six
                  Months Ended**Eastern
                  U.S. non-trading margins
              
              $
              23
              
              
              $
              20Western
                  U.S. non-trading margins
              
              
              
              
              
              
              (4
              )Net
                  energy trading margins
              
              
              2
              
              
              
              1Other
                  operation and maintenance expenses
              
              
              (11
              )
              
              
              (13
              )Depreciation
              
              
              (2
              )
              
              
              (5
              )Financing
                  costs
              
              
              (2
              )
              
              
              (6
              )Earnings
                  from synfuel projects
              
              
              2
              
              
              
              13Other
                  income – net
              
              
              1
              
              
              
              2Other
              
              
              7
              
              
              
              8Special
                  items
              
              
              38
              
              
              
              12$
              58
              
              
              $
              28
 
 ·
              See
                  "Domestic Gross Energy Margins" for an explanation of non-trading
                  margins
                  by geographic region and for an explanation of net energy trading
                  margins.·
              The
                  improved earnings contribution from synfuel projects for both periods
                  was
                  primarily the result of lower assumed phase-out of synthetic fuel
                  tax
                  credits.  These favorable tax credits were partially offset by
                  greater unrealized gains in 2006 versus 2007 on options purchased
                  to hedge
                  a portion of the risk associated with the phase-out of synthetic
                  fuel tax
                  credits in 2007.·
              Other
                  operation and maintenance expenses were higher for both periods
                  primarily
                  due to increased outage costs at the Eastern U.S. fossil/hydro
                  stations
                  and the Susquehanna nuclear station.·
              Financing
                  costs were higher for both periods primarily due to higher interest
                  expense on long-term debt.
 
 The
        following after-tax amounts, which management considers special items, also
        had
        a significant impact on the Supply segment earnings.  See the
        indicated Notes to the Financial Statements for additional
        information.
 
 **Three
                  Months Ended**
                **June
                  30,**
              
              **Six
                  Months Ended**
                **June
                  30,****2007**
              
              **2006**
              
              **2007**
              
              **2006**Mark-to-market
                  adjustments from certain economic, non-trading hedges
              
              $
              16
              
              
              $
              (8
              )
              
              $
              26
              
              
              $
              (1
              )Loss
                  related to sale of interest in the Griffith plant (Note 8)
              
              
              
              
              
              
              (17
              )
              
              
              
              
              
              
              (17
              )Off-site
                  remediation of ash basin leak (Note 10)
              
              
              
              
              
              
              5
              
              
              
              
              
              
              
              6Impairment
                  of telecommunication assets (Note 8)
              
              
              (2
              )
              
              
              
              
              
              
              (20
              )PJM
                  billing dispute (Note 10)
              
              
              
              
              
              
              
              
              
              
              (1
              )Impairment
                  of synfuel-related assets (Note 10)
              
              
              
              
              
              
              (6
              )
              
              
              
              
              
              
              (6
              )Reduction
                  in Enron reserve (Note 10)
              
              
              
              
              
              
              2
              
              
              
              
              
              
              
              11Total
              
              $
              14
              
              
              $
              (24
              )
              
              $
              5
              
              
              $
              (7
              )
 
 *Outlook*
 
 PPL
        Energy Supply projects significantly higher earnings in its Supply business
        segment in 2007 compared with 2006, excluding the impact of special
        items.  Based on current forward energy prices and hedges already in
        place, PPL Energy Supply is projecting higher energy margins for the balance
        of
        2007, driven primarily by the replacement of expiring supply obligations
        with
        higher-margin wholesale energy contracts in Montana and the Mid-Atlantic
        region.
 
 While
        PPL
        Energy Supply expects improved baseload power plant performance for the
        remainder of 2007, this performance will be offset by the retirement in
        September of two coal-fired units in Pennsylvania and by planned outages,
        including the Susquehanna Unit 1 outage, which is expected to resolve the
        control rod friction issues that have affected plant operations over the
        past
        several years.  PPL Energy Supply believes these planned outages will
        improve the overall long-term reliability of its generation
        fleet.  PPL Energy Supply also expects a modest increase in
        fuel-related expenses and increased operation and maintenance
        expenses.
 
 In
        July
        2007, PPL EnergyPlus was one of the successful bidders in a competitive
        solicitation process for PPL Electric's generation supply in 2010 for retail
        customers who do not choose an alternative competitive supplier.  The
        PUC approved the results of PPL Electric's first of six competitive
        solicitations, which includes a contract executed between PPL Electric and
        PPL
        EnergyPlus to supply up to 671 MW of total peak load in 2010, at an average
        price of $91.42 per MWh.
 
 International
        Delivery Segment
 
 The
        International Delivery segment includes operations of the international energy
        businesses of PPL Global that are primarily focused on the distribution of
        electricity.  Substantially all of PPL Global's remaining
        international businesses are located in the U.K. and Chile.  In May
        and July 2007, PPL Global sold its El Salvadoran and Bolivian
        businesses.  The sale of the Chilean business is expected to be
        completed by the end of 2007.
 
 The
        International Delivery segment results in 2007 and 2006 reflect the
        reclassification of Latin American revenues and expenses to "Income (Loss)
        from
        Discontinued Operations."  See Note 8 to the Financial Statements for
        further discussion.
 
 International
        Delivery segment net income was:
 
 **Three
                  Months Ended**
                **June
                  30,**
              
              **Six
                  Months Ended**
                **June
                  30,****2007**
              
              **2006**
              
              **2007**
              
              **2006**Utility
                  revenues
              
              $
              218
              
              
              $
              185
              
              
              $
              434
              
              
              $
              388Energy-related
                  businesses
              
              
              9
              
              
              
              10
              
              
              
              19
              
              
              
              20Total
                  operating revenues
              
              
              227
              
              
              
              195
              
              
              
              453
              
              
              
              408Other
                  operation and maintenance
              
              
              69
              
              
              
              42
              
              
              
              125
              
              
              
              87Depreciation
              
              
              35
              
              
              
              34
              
              
              
              78
              
              
              
              69Taxes,
                  other than income
              
              
              16
              
              
              
              15
              
              
              
              32
              
              
              
              26Energy-related
                  businesses
              
              
              4
              
              
              
              4
              
              
              
              9
              
              
              
              8Total
                  operating expenses
              
              
              124
              
              
              
              95
              
              
              
              244
              
              
              
              190Other
                  Income - net
              
              
              6
              
              
              
              21
              
              
              
              17
              
              
              
              20Interest
                  Expense
              
              
              45
              
              
              
              43
              
              
              
              94
              
              
              
              86Income
                  Taxes
              
              
              (18
              )
              
              
              9
              
              
              
              (3
              )
              
              
              12Income
                  from Discontinued Operations
              
              
              101
              
              
              
              10
              
              
              
              76
              
              
              
              20Net
                  Income
              
              $
              183
              
              
              $
              79
              
              
              $
              211
              
              
              $
              160
 
 The
        after-tax changes in net income between these periods were due to the following
        factors, including discontinued operations.
 
 **June
                  30, 2007 vs. June 30, 2006****Three
                  Months Ended**
              
              **Six
                  Months Ended**U.K.:Delivery
                  margins
              $
              1
              
              
              $
              (6
              )Depreciation
              
              2
              
              
              
              (1
              )Other
                  operating expenses
              
              (6
              )
              
              
              (9
              )Interest
                  expense
              
              
              
              
              
              (3
              )Income
                  taxes
              
              (1
              )
              
              
              (21
              )Impact
                  of changes in foreign currency exchange rates
              
              6
              
              
              
              13Hyder
                  liquidation distributions (Note 8)
              
              (22
              )
              
              
              (18
              )Gain
                  on transfer of equity investment (Note 8)
              
              
              
              
              
              5Impairment
                  of investment in U.K. real estate (Note 8)
              
              
              
              
              
              6Other
              
              1
              
              
              
              (1
              )Latin
                  American results of operations excluding special items (Note
                  8)
              
              9
              
              
              
              15Change
                  in tax reserves (Note 5)
              
              31
              
              
              
              31Other
              
              
              
              
              
              (2
              )Special
                  items
              
              83
              
              
              
              42$
              104
              
              
              $
              51
 
 ·
              The
                  U.K.'s earnings were negatively impacted for the six months ended
                  June 30,
                  2007, by lower delivery margins, primarily due to a 6% decrease
                  in sales
                  volumes as a result of milder weather in 2007.·
              Higher
                  U.K. income taxes for the six months ended June 30, 2007, were
                  due to the
                  transfer of WPD tax items in the first quarter of 2006.  See
                  Note 5 to the Financial Statements for additional
                  information.·
              Changes
                  in foreign exchange rates increased WPD's portion of revenue and
                  expense
                  line items by 11% in both the three and six months ended June 30,
                  2007,
                  compared with the same periods in
                  2006.
 
 The
        following after-tax amounts, which management considers special items, also
        had
        a significant impact on the International Delivery segment
        earnings.  See the indicated Notes to the Financial Statements for
        additional information.
 
 **Three
                  Months Ended**
                **June
                  30,**
              
              **Six
                  Months Ended**
                **June
                  30,****2007**
              
              **2006**
              
              **2007**
              
              **2006**Divestiture
                  of Latin American businesses (Note 8)
              
              $
              83
              
              
              
              
              
              
              $
              43Reduction
                  in Enron reserve
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              1Total
              
              $
              83
              
              
              
              
              
              
              $
              43
              
              
              $
              1
 
 *Outlook*
  PPL
        Energy Supply projects the earnings from its International Delivery business
        segment to be consistent in 2007 compared with 2006, excluding the impact
        in
        2007 of the U.K. tax rate reduction noted below and other special
        items.  A U.S. income tax benefit is expected to be offset by
        increased operating expenses and higher income taxes in the U.K. in 2007,
        due to
        the favorable resolution of several tax-related items in 2006.  In
        addition, gains from the sale or liquidation of U.K. non-electricity delivery
        businesses are not expected to continue at the same level in 2007 as occurred
        in
        2006.
 
 In
        July
        2007, the U.K.'s Finance Act 2007, which includes amendments to existing
        tax
        law, was enacted.  The most significant change to the tax law was a
        reduction in the U.K.'s statutory income tax rate.  Effective April 1,
        2008, the statutory income tax rate will be reduced from 30% to
        28%.  As a result, PPL Energy Supply anticipates recognizing a
        one-time deferred tax benefit during the third quarter of 2007 in the range
        of
        $50 to $60 million.
 
 **Statement
        of Income Analysis --**
 
 **Domestic
        Gross Energy Margins**
 
 The
        following table provides pre-tax changes in the income statement line items
        that
        comprise domestic gross energy margins.
 
 **June
                  30, 2007 vs. June 30, 2006****Three
                  Months Ended**
              
              **Six
                  Months Ended**Wholesale
                  energy marketing
              
              $
              (4
              )
              
              $
              (90
              )Wholesale
                  energy marketing to affiliate
              
              
              27
              
              
              
              62Unregulated
                  retail electric and gas
              
              
              3Net
                  energy trading margins
              
              
              5
              
              
              
              2Other
                  revenue adjustments (a)
              
              
              26
              
              
              
              40Total
                  revenues
              
              
              57
              
              
              
              14Fuel
              
              
              18
              
              
              
              83Energy
                  purchases
              
              
              (43
              )
              
              
              (143
              )Energy
                  purchases from affiliate
              
              
              (2
              )
              
              
              (4
              )Other
                  cost adjustments (a)
              
              
              12
              
              
              
              15Total
                  cost of sales
              
              
              (15
              )
              
              
              (49
              )Domestic
                  gross energy margins
              
              $
              72
              
              
              $
              63
 
 (a)
              
              Adjusted
                  to exclude the impact of any revenues and costs not associated
                  with
                  domestic gross energy margins, consistent with the way management
                  reviews
                  domestic gross energy margins internally.  These exclusions
                  include revenues and energy costs related to the international
                  operations
                  of PPL Global.  Also adjusted to include the margins of the
                  Griffith plant prior to its sale in June 2006, which are included
                  in
                  "Income (Loss) from Discontinued Operations," and gains or losses
                  on sales
                  of emission allowances, which are included in "Other operation
                  and
                  maintenance" expenses on the Statements of
                  Income.
 
 Changes
        in Domestic Gross Energy Margins By Region
 
 Domestic
        gross energy margins are generated through PPL Energy Supply's non-trading
        and
        trading activities.  PPL Energy Supply manages its non-trading energy
        business on a geographic basis that is aligned with its generation
        assets.  Additionally, beginning in 2006, PPL Energy Supply further
        segregates non-trading activities into two categories:  hedge activity
        and economic activity.  Economic activity represents the net
        unrealized effect of derivative transactions that are entered into as economic
        hedges, but do not qualify for hedge accounting, or hedge accounting was
        not
        elected, under SFAS 133, "Accounting for Derivative Instruments and Hedging
        Activities," as amended and interpreted.
 
 **June
                  30, 2007 vs. June 30, 2006****Three
                  Months Ended**
              
              **Six
                  Months Ended**Non-tradingEastern
                  U.S.
              $
              79
              
              
              $
              80Western
                  U.S.
              
              
              
              
              
              (7
              )Net
                  energy trading
              
              (7
              )
              
              
              (10
              )Domestic
                  gross energy margins
              $
              72
              
              
              $
              63
 
 *Eastern
        U.S.*
 
 Eastern
        U.S. non-trading margins were higher in the three and six months ended June
        30,
        2007, compared with the same periods in 2006, primarily due to new supply
        contracts and higher average sales prices.  Also contributing to the
        increase in margins were lower average coal costs, which, for purposes of
        analyzing energy margins, include gains on the sales of emission
        allowances.  Average coal costs were lower by 24% and 9% for the three
        and six months ended June 30, 2007, compared to the same periods in
        2006.
 
 Partially
        offsetting these improvements was lower coal generation of 11% and 4%, for
        the
        three and six months ended June 30, 2007, due to additional planned outages
        in
        2007.  Additionally, increased customer demand under the PLR contract
        between PPL Electric and PPL EnergyPlus resulted in higher supply
        costs.  PLR sales volumes were up 5% and 7%, for the three and six
        months ended June 30, 2007, compared to the same periods in 2006.
 
 Unrealized
        gains and losses included in Eastern U.S. non-trading margins that resulted
        from
        economic activity and hedge ineffectiveness were a $26 million gain in the
        second quarter of 2007, compared with a $10 million loss in the same period
        in
        2006.  For the six months ended June 30, 2007, these amounts were a
        $37 million gain, compared to a $4 million gain in the same period in
        2006.  The increase in these amounts in 2007 over 2006 was
        significantly impacted by PJM's implementation of its Reliability Pricing
        Model
        (RPM) that developed a long-term pricing signal for capacity resources and
        load
        serving entity obligations, effective April 1, 2007.
 
 Prior
        to
        the RPM, PPL Energy Supply recorded valuation reserves for capacity contracts
        due to the lack of liquidity and reliable, observable prices in the
        marketplace.  With the implementation of the RPM and the
        completion of PJM capacity auctions, forward capacity prices became sufficiently
        observable and PPL Energy Supply reversed reserves of $21 million during
        both
        the three and six months ended June 30, 2007.
 
 *Western
        U.S.*
 
 Western
        U.S. non-trading margins were lower in the six months ended June 30, 2007,
        compared with the same period in 2006, primarily due to higher average coal
        costs, which were up 23%.
 
 *Net
        Energy Trading*
 
 PPL
        Energy Supply enters into energy contracts to take advantage of market
        opportunities.  As a result, PPL Energy Supply may at times create a
        net open position in its portfolio that could result in significant losses
        if
        prices do not move in the manner or direction anticipated.  The
        margins from these trading activities are reflected in the Statements of
        Income
        as "Net energy trading margins."  These physical and financial
        contracts cover trading activity associated with electricity, gas and
        oil.
 
 The
        amount of net energy trading margins from unrealized mark-to-market transactions
        was a $7 million gain in the second quarter of 2007, compared to an $8 million
        gain in the same period in 2006.  For the six months ended June 30,
        2007, these amounts were a $5 million loss, compared to a $12 million gain
        in
        the same period in 2006.  The 2006 unrealized gains were primarily due
        to commodity contracts associated with the Griffith plant.
 
 The
        realized physical volumes for electricity and gas associated with energy
        trading
        were:
 
 **Three
                  Months Ended**
                **June
                  30,**
              
              **Six
                  Months Ended**
                **June
                  30,****2007**
              
              **2006**
              
              **2007**
              
              **2006**GWh
              
              
              2,559
              
              
              
              1,694
              
              
              
              5,347
              
              
              
              3,779Bcf
              
              
              2.9
              
              
              
              5.0
              
              
              
              8.2
              
              
              
              9.3
 
 **Utility
        Revenues**
 
 The
        increases in utility revenues were attributable to:
 
 **June
                  30, 2007 vs. June 30, 2006****Three
                  Months Ended**
              
              **Six
                  Months Ended****International:**U.K.
                  retail electric delivery (PPL Global)
              
              $
              13
              
              
              $
              3Foreign
                  currency exchange rates
              
              
              20
              
              
              
              43$
              33
              
              
              $
              46
 
 The
        increases in U.K. utility revenues, excluding foreign currency exchange rate
        impacts, for both periods were primarily due to an increase in unit prices
        effective April 1, 2007, and engineering services performed for third
        parties.  These increases were partially offset by a 6% decrease in
        sales volumes as a result of milder weather in 2007.
 
 **Energy-related
        Businesses**
 
 Energy-related
        businesses contributed $30 million less to operating income for the three
        months
        ended June 30, 2007, compared with the same period in 2006.  The
        decrease was primarily attributable to a $3 million impairment of held for
        sale
        transport assets (see Note 8) and $32 million of higher pre-tax losses from
        synfuel projects.  The decrease in synfuel projects
        reflects:
 
 ·
              a
                  $31 million lower unrealized gain on options purchased to hedge
                  a portion
                  of the risk associated with the phase-out of the synthetic fuel
                  tax
                  credits; and·
              $11
                  million of higher operating losses due to higher production levels;
                  offset
                  by·
              a
                  $10 million impairment charge on the synfuel-related assets in
                  2006.
 
 Energy-related
        businesses contributed $57 million less to operating income for the six months
        ended June 30, 2007, compared with the same period in 2006.  The
        decrease was primarily attributable to a $34 million impairment of held for
        sale
        transport assets (see Note 8) and $29 million of higher pre-tax losses from
        synfuel projects.  The decrease in synfuel projects
        reflects:
 
 ·
              $33
                  million lower unrealized gains on options purchased to hedge a
                  portion of
                  the risk associated with the phase-out of the synthetic fuel tax
                  credits;
                  and·
              $6
                  million of higher operating losses due to higher production levels;
                  offset
                  by·
              a
                  $10 million impairment charge on the synfuel-related assets in
                  2006.
 
 See
        Note
        10 to the Financial Statements for a detailed discussion of synthetic fuel
        tax
        credits.
 
 **Other
        Operation and Maintenance**
 
 The
        increases in other operation and maintenance expenses were due to:
 
 **June
                  30, 2007 vs. June 30, 2006****Three
                  Months Ended**
              
              **Six
                  Months Ended**Reduction
                  in Enron reserve in 2006 (Note 10)
              
              $
              4
              
              
              $
              19WPD
                  recoverable engineering services
              
              
              14
              
              
              
              14Martins
                  Creek ash basin remediation adjustment in 2006 (Note 10)
              
              
              8
              
              
              
              11Eastern
                  U.S. fossil/hydro station outages
              
              
              13
              
              
              
              10Susquehanna
                  nuclear station outages
              
              
              6
              
              
              
              8Change
                  in foreign currency exchange rates
              
              
              4
              
              
              
              8Pension
                  and other postretirement benefits
              
              
              2
              
              
              
              6WPD
                  insurance adjustment in 2006
              
              
              5
              
              
              
              5Stock-based
                  compensation
              
              
              2
              
              
              
              3Gains
                  on sale of emission allowances
              
              
              (25
              )
              
              
              (36
              )Other
              
              
              (2
              )
              
              
              5$
              31
              
              
              $
              53
 
 **Depreciation**
 
 The
        increases in depreciation expense were due to:
 
 **June
                  30, 2007 vs. June 30, 2006****Three
                  Months Ended**
              
              **Six
                  Months Ended**Additions
                  to PP&E
              
              $
              4
              
              
              $
              10Foreign
                  currency exchange rates
              
              
              3
              
              
              
              8Reduction
                  of useful lives of certain WPD distribution assets
              
              
              1
              
              
              
              2Purchase
                  in September 2006 of equipment previously leased
              
              
              
              
              
              
              1Extension
                  of useful lives of certain WPD network assets (Note 2)
              
              
              (4
              )
              
              
              (4
              )$
              4
              
              
              $
              17
 
 **Taxes,
        Other Than Income**
 
 Taxes,
        other than income increased by $5 million during the six months ended June
        30,
        2007, compared with the same period in 2006.****The increase
        was primarily due to:
 
 ·
              a
                  $3 million increase from changes in the foreign currency exchange
                  rates;
                  and·
              a
                  $3 million increase in WPD property taxes, as the 2006 period included
                  a
                  refund credit of $2 million; partially offset by·
              a
                  $2 million decrease in domestic capital stock tax
                  expense.
 
 **Other
        Income - net**
 
 See
        Note
        12 to the Financial Statements for details of other income.
 
 **Interest
        Expense**
 
 The
        increases in interest expense, which includes "Interest Expense with
        Affiliates," were due to:
 
 **June
                  30, 2007 vs. June 30, 2006****Three
                  Months Ended**
              
              **Six
                  Months Ended**Long-term
                  debt interest expense
              
              $
              17
              
              
              $
              35Foreign
                  currency exchange rates
              
              
              4
              
              
              
              8Redemption
                  of 8.23% Subordinated Debentures due 2027 with affiliate
                  (Note 11)
              
              
              (3
              )
              
              
              (2
              )Increases
                  in capitalized interest
              
              
              (8
              )
              
              
              (15
              )Other
              
              
              
              
              
              
              1$
              10
              
              
              $
              27
 
 **Income
        Taxes**
 
 The
        decreases in income taxes were due to:
 
 **June
                  30, 2007 vs. June 30, 2006****Three
                  Months Ended**
              
              **Six
                  Months Ended**Higher
                  (lower) pre-tax book income
              
              $
              6
              
              
              $
              (19
              )Change
                  in tax benefits related to nonconventional fuel tax
                  credits
              
              
              (27
              )
              
              
              (37
              )Change
                  in tax expense on foreign earnings
              
              
              8
              
              
              
              (2
              )Transfer
                  of WPD tax items in 2006 (Note 5)
              
              
              
              
              
              
              20Change
                  in tax expense related to tax reserves (Note 5)
              
              
              (32
              )
              
              
              (31
              )Other
              
              
              (1
              )
              
              
              (2
              )$
              (46
              )
              
              $
              (71
              )
 
 See
        Note
        5 to the Financial Statements for details on effective income tax
        rates.
 
 **Discontinued
        Operations**
 
 In
        the
        second quarter of 2007, PPL recorded an $89 million gain, which is net of
        tax
        expense of $5 million, in connection with the sale of its El Salvadoran
        business.  See "Discontinued Operations - Sale of Latin American
        Businesses" in Note 8 to the Financial Statements for information on this
        sale
        and PPL's anticipated sale of its remaining Latin American businesses, along
        with additional information related to the income (loss) from discontinued
        operations recorded in 2006 and 2007.
 
 In
        the
        second quarter of 2006, PPL recorded a $24 million loss, which is net of
        a tax
        benefit of $16 million, in connection with the sale of its ownership interest
        in
        the Griffith plant.  The "Income (Loss) from Discontinued Operations"
        also includes the acceleration of net unrealized gains on derivatives associated
        with the Griffith plant of $7 million after tax.  See "Discontinued
        Operations - Sale of Interest in Griffith Plant" in Note 8 to the Financial
        Statements for information on this sale, along with information regarding
        2006
        operating results recorded prior to the sale.
 
 **Financial
        Condition**
 
 **Liquidity
        and Capital Resources**
 
 PPL
        Energy Supply had the following cash and cash equivalents and short-term
        investments as of the dates noted below:
 **June
                    30,**
                  **2007**
                
                
                **December
                    31,**
                  **2006**Cash
                    and cash equivalents
                
                $
                492
                (a)
                
                $
                524Short-term
                    investments
                
                
                346
                
                
                
                328$
                838
                
                
                $
                852
 
 (a)
              
              Excludes
                  $14 million of cash related to the Latin American businesses that
                  is
                  included in "Assets held for sale" on the Balance
                  Sheet.
 
 The
        $14
        million decrease in PPL Energy Supply's cash, cash equivalents and short-term
        investments position was primarily the net result of:
 
 ·
              $539
                  million of capital expenditures;·
              distributions
                  to Member of $463 million;·
              the
                  retirement of $130 million of long-term debt (which includes the
                  payment
                  of $29 million to settle related cross-currency swaps);·
              an
                  increase of $74 million in restricted cash;·
              the
                  classification of $14 million of cash related to the Latin American
                  businesses as held for sale;·
              $500
                  million of contributions from Member;·
              $490
                  million of cash provided by operating activities;·
              $180
                  million of proceeds from the sale of the El Salvadoran electricity
                  delivery business; and·
              net
                  proceeds of $31 million from the sale of emission
                  allowances.
 
 Convertible
        Senior Notes
 
 The
        terms
        of PPL Energy Supply's 2.625% Convertible Senior Notes due 2023 include a
        market
        price trigger that permits holders to convert the notes during any fiscal
        quarter if the closing sale price of PPL's common stock exceeds $29.83 for
        at
        least 20 trading days in the 30 consecutive trading days ending on the last
        trading day of the preceding fiscal quarter.  Holders of the
        Convertible Senior Notes were entitled to convert their notes at any time
        during
        the first and second quarters of 2007 and are also entitled to convert their
        notes any time during the third quarter of 2007 as a result of the market
        price
        trigger being met.  When holders elect to convert the Convertible
        Senior Notes, PPL Energy Supply is required to settle the principal amount
        in
        cash and any conversion premium in cash or PPL common stock.  During
        the six months ended June 30, 2007, Convertible Senior Notes in an aggregate
        principal amount of $10 million were presented for conversion.  The
        total conversion premium related to these conversions was $8 million, which
        was
        settled with 181,574 shares of PPL common stock, along with an insignificant
        amount of cash in lieu of fractional shares.  At June 30, 2007, $93
        million of Convertible Senior Notes remain outstanding.  PPL and PPL
        Energy Supply have, and expect to continue to have, sufficient liquidity
        sources
        to fund any such conversions.
 
 Credit
        Facilities
 
 In
        January 2007, WPD (South West) terminated its £150 million three-year committed
        credit facility, which was to expire in October 2008.  This facility
        was replaced by a new £150 million five-year committed credit facility at WPDH
        Limited that expires in January 2012, with the option to extend the expiration
        date by a maximum of two years.
 
 In
        March
        2007, PPL Energy Supply extended the expiration date of its 364-day
        reimbursement agreement to March 2008.  Under the agreement, PPL Energy
        Supply can cause the bank to issue up to $200 million of letters of credit
        but
        cannot make cash borrowings.
 
 In
        May
        2007, PPL Energy Supply entered into a $3.4 billion Second Amended and Restated
        Five-Year Credit Agreement, which amended its previously existing $1.9 billion
        credit facility and extended the term of the previously existing facility
        to
        June 2012.  Under certain conditions, PPL Energy Supply may elect to
        have the principal balance of the loans outstanding on the final maturity
        date
        of the facility continue as non-revolving term loans for a period of one
        year
        from that final maturity date.  Also, under certain conditions, PPL
        Energy Supply may request that the facility's principal amount be increased
        by
        up to $500 million.  PPL Energy Supply has the ability to cause the
        lenders under this facility to issue letters of credit.  The
        additional capacity under this facility is expected to support potential
        collateral requirements under contracts that PPL Energy Supply anticipates
        entering into in connection with expanding its wholesale marketing and trading
        business.
 
 In
        May
        2007, Emel arranged uncommitted credit lines in the amount of 32.4 billion
        Chilean pesos (approximately $62 million), with authorization to borrow up
        to
        $20 million as required for working capital needs.
 
 Financings
 
 In
        December 2006, Elfec issued $11 million of 6.05% UFV (inflation-adjusted
        bolivianos) denominated bonds with serial maturities from 2012 through
        2014.  Of these bonds, $5 million were issued in exchange for existing
        bonds with maturities in 2007 and 2008.  Cash proceeds of $6 million
        were used in January 2007 to refinance bonds with maturities in
        2007.  These transactions were reflected in PPL's January 2007
        financial statements due to the one-month lag in foreign subsidiary
        reporting.
 
 Early
        Redemption of Debt
 
 In
        February 2007, WPD LLP redeemed all of the 8.23% Subordinated Debentures
        due
        2027 that were held by SIUK Capital Trust I.  Upon redemption, WPD LLP
        paid a premium of 4.115%, or approximately $3 million, on the principal amount
        of $85 million of subordinated debentures.  WPD LLP received $3
        million when its investment in SIUK Capital Trust I was liquidated in
        connection with this redemption.  Additionally, payment of $29 million
        was made to settle related cross-currency swaps.
 
 Proceeds
        from Divestitures
 
 Proceeds
        from the sales and planned divestitures discussed in Note 8 to the Financial
        Statements are expected to be used to invest in growth opportunities in PPL's
        core electricity supply and delivery businesses and/or for the repurchase
        of
        securities, including PPL common stock.
 
 Rating
        Agency Decisions
 
 Moody's,
        S&P and Fitch periodically review the credit ratings on the debt and
        preferred securities of PPL Energy Supply and its subsidiaries.  Based
        on their respective independent reviews, the rating agencies may make certain
        ratings revisions or ratings affirmations.
 
 A
        credit
        rating reflects an assessment by the rating agency of the creditworthiness
        associated with an issuer and particular securities that it
        issues.  The credit ratings of PPL Energy Supply and its subsidiaries
        are based on information provided by PPL Energy Supply and other
        sources.  The ratings of Moody's, S&P and Fitch are not a
        recommendation to buy, sell or hold any securities of PPL Energy Supply or
        its
        subsidiaries.  Such ratings may be subject to revisions or withdrawal
        by the agencies at any time and should be evaluated independently of each
        other
        and any other rating that may be assigned to the securities.  A
        downgrade in PPL Energy Supply's or its subsidiaries' credit ratings could
        result in higher borrowing costs and reduced access to capital
        markets.
 
 Moody's
        and S&P did not take any actions related to PPL Energy Supply and its key
        rated subsidiaries during the six months ended June 30, 2007.  In
        March 2007, Fitch affirmed its BBB rating of PPL Montana's 8.903% Pass Through
        Certificates due 2020.
 
 Capital
        Expenditures
 
 The
        schedule below shows PPL Energy Supply's capital expenditure projections
        as of
        June 30, 2007, for the years 2007 through 2011.
 
 **Projected****2007**
              
              **2008**
              
              **2009**
              
              **2010**
              
              **2011**Construction
                  expenditures (a)Generating
                  facilities
              
              $
              361
              
              $
              264
              
              $
              306
              
              $
              321
              
              $
              317Transmission
                  and distribution facilities
              
              
              311
              
              
              288
              
              
              295
              
              
              305
              
              
              311Environmental
              
              
              612
              
              
              408
              
              
              129
              
              
              37
              
              
              77Other
              
              
              41
              
              
              26
              
              
              27
              
              
              26
              
              
              26Total
                  Construction Expenditures
              
              
              1,325
              
              
              986
              
              
              757
              
              
              689
              
              
              731Nuclear
                  fuel
              
              
              81
              
              
              102
              
              
              163
              
              
              169
              
              
              164Total
                  Capital Expenditures
              
              $
              1,406
              
              $
              1,088
              
              $
              920
              
              $
              858
              
              $
              895
 
 (a)
              
              Construction
                  expenditures include AFUDC and capitalized interest, which are
                  expected to
                  be $229 million for the 2007-2011
                  period.
 
 PPL
        Energy Supply's capital expenditure projections for the years 2007-2011 total
        $5.2 billion.  Capital expenditure plans are revised periodically to
        reflect changes in operational, market and regulatory conditions.  The
        above schedule has been revised from that which was presented in PPL Energy
        Supply's 2006 Form 10-K, primarily to reflect:
 
 ·
              a
                  reduction due to the sales of the Latin American
                  businesses;·
              estimated
                  costs to submit a combined construction and operating license with
                  the NRC
                  for a possible third nuclear generating unit adjacent to the Susquehanna
                  station; and·
              increased
                  nuclear fuel prices for the Susquehanna
                  station.
 
 See
        Note
        8 to the Financial Statements for additional information.
 
 PPL
        Energy Supply plans to fund all of its capital expenditures in 2007 with
        cash on
        hand, cash from operations, contributions from Member and the issuance of
        debt
        securities.
 
 For
        additional information on PPL Energy Supply's liquidity and capital resources,
        see "Item 7. Management's Discussion and Analysis of Financial Condition
        and
        Results of Operations," in PPL Energy Supply's 2006 Form 10-K.
 
 **Risk
        Management - Energy Marketing & Trading and Other**
 
 Market
        Risk
 
 *Commodity
        Price Risk (Non-trading)*
 
 PPL
        Energy Supply's non-trading commodity derivative contracts mature at various
        times through 2017.  PPL Energy Supply segregates its non-trading
        activities as either hedge or economic.  Transactions that are
        accounted for as hedge activity qualify for hedge accounting treatment under
        SFAS 133.  The non-trading economic category includes transactions
        that address a specific risk, but are not eligible for hedge accounting or
        hedge
        accounting is not elected.  Included in the non-trading economic
        category are certain load-following energy obligations and related supply
        contracts, capacity swaps, FTRs, crude oil swaps to hedge rail transportation
        charges and hedges of synthetic fuel tax credits.  Although they do
        not receive hedge accounting treatment, these contracts are considered
        non-trading.  The fair value of the non-trading economic contracts
        that do not qualify for accrual or hedge accounting treatment as of June
        30,
        2007, including net premiums on options, was $62 million.  The
        following chart sets forth PPL Energy Supply's net fair market value of all
        non-trading commodity derivative contracts.
 
 **Three
                  Months Ended**
                **June
                  30,**
              
              **Six
                  Months Ended**
                **June
                  30,****2007**
              
              **2006**
              
              **2007**
              
              **2006**Fair
                  value of contracts outstanding at the beginning of the
                  period
              
              $
              (13
              )
              
              $
              (96
              )
              
              $
              (111
              )
              
              $
              (278
              )Contracts
                  realized or otherwise settled during the period
              
              
              (38
              )
              
              
              (4
              )
              
              
              (20
              )
              
              
              5Fair
                  value of new contracts at inception
              
              
              (4
              )
              
              
              
              
              
              
              19Other
                  changes in fair values
              
              
              (190
              )
              
              
              5
              
              
              
              (133
              )
              
              
              178Fair
                  value of contracts outstanding at the end of the period
              
              $
              (245
              )
              
              $
              (95
              )
              
              $
              (245
              )
              
              $
              (95
              )
 
 The
        following chart segregates estimated fair values of PPL Energy Supply's
        non-trading commodity derivative contracts at June 30, 2007, based on whether
        the fair values are determined by quoted market prices or other more subjective
        means.
 
 **Fair
                  Value of Contracts at Period-End**
                **Gains
                  (Losses)****Maturity**
                **Less
                  Than**
                **1
                  Year**
              
              **Maturity**
                **1-3
                  Years**
              
              **Maturity**
                **4-5
                  Years**
              
              **Maturity**
                **in
                  Excess**
                **of
                  5 Years**
              
              **Total
                  Fair**
                **Value****Source
                  of Fair Value**Prices
                  actively quoted
              
              $
              6
              
              
              $
              (7
              )
              
              $
              (32
              )
              
              
              
              
              
              $
              (33
              )Prices
                  provided by other external sources
              
              
              (103
              )
              
              
              (151
              )
              
              
              (130
              )
              
              $
              (28
              )
              
              
              (412
              )Prices
                  based on models and other valuation methods
              
              
              65
              
              
              
              10
              
              
              
              13
              
              
              
              112
              
              
              
              200Fair
                  value of contracts outstanding at the end of the period
              
              $
              (32
              )
              
              $
              (148
              )
              
              $
              (149
              )
              
              $
              84
              
              
              $
              (245
              )
 
 The
        "Prices actively quoted" category includes the fair value of exchange-traded
        natural gas futures contracts quoted on the NYMEX, which has quoted prices
        through 2012.
 
 The
        "Prices provided by other external sources" category includes PPL Energy
        Supply's forward positions and options in natural gas and electricity and
        natural gas basis swaps at points for which over-the-counter (OTC) broker
        quotes
        are available.
 
 The
        "Prices based on models and other valuation methods" category includes the
        value
        of transactions for which an internally developed price curve was constructed
        as
        a result of the long-dated nature of the transaction or the illiquidity of
        the
        market point, or the value of options not quoted by an exchange or OTC
        broker.  This category includes the fair value of transactions
        completed in auction markets, where contract prices represent the market
        value
        for load-following bundled energy prices delivered at illiquid delivery
        points.  The transaction prices associated with the contracts did not
        equal the wholesale bilateral market prices at inception
        (Day 1).  However, EITF 02-3, "Issues Involved in Accounting for
        Derivative Contracts Held for Trading Purposes and Contracts Involved in
        Energy
        Trading and Risk Management Activities," does not generally permit Day 1
        gains and losses to be recognized unless the fair value is derived principally
        from observable market inputs.  Therefore, PPL Energy Supply recorded a
        reserve for the modeled Day 1 gain, which is netted against the above fair
        values.
 
 Because
        of PPL Energy Supply's efforts to hedge the value of the energy from its
        generation assets, PPL Energy Supply sells electricity, capacity and related
        services and buys fuel on a forward basis, resulting in open contractual
        positions.  If PPL Energy Supply were unable to deliver firm capacity
        and energy or to accept the delivery of fuel under its agreements, under
        certain
        circumstances it could be required to pay damages.  These damages
        would be based on the difference between the market price and the contract
        price
        of the commodity.  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 own counterparties) with which
        it
        has energy contracts and other factors could affect PPL Energy Supply's ability
        to meet its obligations, or cause significant increases in the market price
        of
        replacement energy.  Although PPL Energy Supply attempts to mitigate
        these risks, there can be no assurance that it will be able to fully meet
        its
        firm obligations, that it will not be required to pay damages for failure
        to
        perform, or that it will not experience counterparty non-performance in the
        future.
 
 As
        of
        June 30, 2007, PPL Energy Supply estimated that a 10% adverse movement in
        market
        prices across all geographic areas and time periods would have decreased
        the
        value of the commodity contracts in its non-trading portfolio by approximately
        $480 million.  For purposes of this calculation, an increase in the
        market price for electricity is considered an adverse movement because PPL
        Energy Supply's electricity portfolio is generally in a net sales position,
        and
        the decrease in the market price for fuel is considered an adverse movement
        because PPL Energy Supply's commodity fuels portfolio is generally in a net
        purchase position.  PPL Energy Supply enters into those commodity
        contracts to reduce the market risk inherent in the generation of
        electricity.
 
 Starting
        in 2007, PPL Energy Supply elected to use an alternative method for disclosing
        quantitative information about market risk sensitive
        instruments.  This method utilizes a VaR model to measure commodity
        price risk in its non-trading and trading portfolios.  This approach
        is consistent with how PPL's Risk Manager assesses the market risk of its
        commodity business.  VaR is a statistical model that attempts to
        predict risk of loss, under normal market conditions, based on historical
        market
        price volatility.  PPL Energy Supply calculates VaR using a Monte
        Carlo simulation technique, which uses historical data from the past 12 month
        period.  The VaR is the estimated nominal loss of earnings based on a
        one-day holding period at a 95% confidence interval.  As of
        June 30, 2007, the VaR for PPL Energy Supply's non-trading portfolio was
        $14 million.  This excludes the activity for PPL Energy Supply's
        synthetic fuel tax credit hedges.  Additional information regarding
        these hedges can be found in the "Synthetic Fuel Tax Credit Risk" section
        below.
 
 *Commodity
        Price Risk (Trading)*
 
 PPL
        Energy Supply's trading contracts mature at various times through
        2011.  The following chart sets forth PPL Energy Supply's net fair
        market value of trading contracts.
 
 **Three
                  Months Ended**
                **June
                  30,**
              
              **Six
                  Months Ended**
                **June
                  30,****2007**
              
              **2006**
              
              **2007**
              
              **2006**Fair
                  value of contracts outstanding at the beginning of the
                  period
              
              $
              45
              
              
              $
              12
              
              
              $
              41
              
              
              $
              5Contracts
                  realized or otherwise settled during the period
              
              
              (14
              )
              
              
              (7
              )
              
              
              (27
              )
              
              
              (18
              )Fair
                  value of new contracts at inception
              
              
              
              
              
              
              (1
              )
              
              
              16
              
              
              
              3Other
                  changes in fair values
              
              
              17
              
              
              
              15
              
              
              
              18
              
              
              
              29Fair
                  value of contracts outstanding at the end of the period
              
              $
              48
              
              
              $
              19
              
              
              $
              48
              
              
              $
              19
 
 PPL
        Energy Supply will reverse a gain of approximately $3 million of the $48
        million
        unrealized trading gains over the next three months of 2007 as the transactions
        are realized.
 
 The
        following chart segregates estimated fair values of PPL Energy Supply's trading
        portfolio at June 30, 2007, based on whether the fair values are determined
        by
        quoted market prices or other more subjective means.
 
 **Fair
                  Value of Contracts at Period-End**
                **Gains
                  (Losses)****Maturity**
                **Less
                  Than**
                **1
                  Year**
              
              **Maturity**
                **1-3
                  Years**
              
              **Maturity**
                **4-5
                  Years**
              
              **Maturity**
                **in
                  Excess**
                **of
                  5 Years**
              
              **Total
                  Fair**
                **Value****Source
                  of Fair Value**Prices
                  actively quoted
              
              $
              (11
              )
              
              $
              3
              
              
              $
              2
              
              
              
              
              
              
              $
              (6
              )Prices
                  provided by other external sources
              
              
              10
              
              
              
              7
              
              
              
              (1
              )
              
              
              
              
              
              
              16Prices
                  based on models and other valuation methods
              
              
              18
              
              
              
              21
              
              
              
              (1
              )
              
              
              
              
              
              
              38Fair
                  value of contracts outstanding at the end of the period
              
              $
              17
              
              
              $
              31
              
              
              $
              
              
              
              
              
              
              
              $
              48
 
 See
        "Commodity Price Risk (Non-trading)" above for information on the various
        sources of fair value.
 
 As
        of
        June 30, 2007, PPL Energy Supply estimated that a 10% adverse movement in
        market
        prices across all geographic areas and time periods would have decreased
        the
        value of the commodity contracts in its trading portfolio by $32 million,
        compared to $24 million as of June 30, 2006.
 
 As
        of
        June 30, 2007, the VaR for PPL Energy Supply's trading portfolio was $2
        million.  This excludes the activity for PPL Energy Supply's synthetic
        fuels tax credits.  Additional information regarding these hedges can
        be found in the "Synthetic Fuel Tax Credit Risk" section below.
 
 *Synthetic
        Fuel Tax Credit Risk*
 
 At
        this
        time, PPL Energy Supply expects that the high level and the volatility of
        crude
        oil prices will reduce the amount of synthetic fuel tax credits that PPL
        Energy
        Supply receives through its synthetic fuel production.  The tax
        credits are reduced if the annual average wellhead price of domestic crude
        oil
        falls within a phase-out range.  The tax credits are eliminated if
        this reference price exceeds the phase-out range.  See "Regulatory
        Issues - IRS Synthetic Fuels Tax Credits" in Note 10 to the Financial Statements
        for more information regarding the phase-out of the tax credits.
 
 PPL
        Energy Supply implemented a risk management strategy to hedge a portion of
        the
        variability of cash flows associated with its 2006 and 2007 synthetic fuel
        tax
        credits by hedging the risk that the 2006 and 2007 annual average wellhead
        price
        for domestic crude oil will be within the phase-out range.
 
 PPL
        Energy Supply has net purchased options for 2007 that are expected to mitigate
        PPL Energy Supply's tax credit phase-out risk due to an increase of the average
        wellhead price in 2007.  These positions did not qualify for hedge
        accounting treatment.  The mark-to-market value of these positions at
        June 30, 2007, was a gain of $21 million.
 
 As
        of
        June 30, 2007, PPL Energy Supply estimated that a 10% adverse movement in
        market
        prices of crude oil would have decreased the value of the synthetic fuel
        hedges
        by $27 million.  For purposes of this calculation, a decrease in the
        market price for crude oil is considered an adverse movement.
 
 *Commodity
        Price Risk Summary*
 
 In
        accordance with its marketing and hedge strategy, PPL Energy Supply may not
        elect to fully hedge its generation output or fuel requirements.  PPL
        Energy Supply estimates that for its entire portfolio, including all generation,
        emissions and physical and financial energy positions, a 10% adverse change
        in
        power prices across all geographic zones and time periods would decrease
        expected 2007 gross margins by $11 million.  Similarly, a 10% adverse
        movement in all fossil fuel prices would decrease 2007 gross margins by $8
        million.
 
 *Interest
        Rate Risk*
 
 PPL
        Energy Supply and its subsidiaries have issued debt to finance their operations,
        which exposes them to interest rate risk.  Both PPL and PPL Energy
        Supply manage interest rate risk for PPL Energy Supply by using various
        financial derivative products to adjust the mix of fixed and floating interest
        rates in PPL Energy Supply's debt portfolio, adjust the duration of its debt
        portfolio and lock in 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 changes in the fair value of PPL Energy
        Supply's debt portfolio due to changes in the absolute level of interest
        rates.
 
 At
        June
        30, 2007, PPL Energy Supply's potential annual exposure to increased interest
        expense, based on a 10% increase in interest rates, was $4 million.
 
 PPL
        Energy Supply is also exposed to changes in the fair value of its domestic
        and
        international debt portfolios.  At June 30, 2007, PPL Energy Supply
        estimated that its potential exposure to a change in the fair value of its
        debt
        portfolio, through a 10% adverse movement in interest rates, was $285
        million.
 
 PPL
        and
        PPL Energy Supply utilize various risk management instruments to reduce PPL
        Energy Supply's exposure to the expected future cash flow variability of
        its
        debt instruments.  These risks include exposure to adverse interest
        rate movements for outstanding variable rate debt and for future anticipated
        financing.  While PPL Energy Supply is exposed to changes in the fair
        value of these instruments, any changes in the fair value of these instruments
        are recorded in equity and then reclassified into earnings in the same period
        during which the item being hedged affects earnings.  At June 30,
        2007, PPL Energy Supply had none of these instruments outstanding.
 
 PPL
        and
        PPL Energy Supply also utilize various risk management instruments to adjust
        the
        mix of fixed and floating interest rates in PPL Energy Supply's debt
        portfolio.  While PPL Energy Supply is exposed to changes in the fair
        value of these instruments, any change in market value is recorded with an
        equal
        and offsetting change in the value of the debt being hedged.  At June
        30, 2007, PPL Energy Supply estimated that its additional potential exposure
        to
        a change in the fair value of these instruments, through a 10% adverse movement
        in interest rates, was $2 million.
 
 WPDH
        Limited holds a net position in cross-currency swaps totaling $702 million
        to
        hedge the interest payments and principal of its U.S. dollar-denominated
        bonds
        with maturity dates ranging from December 2007 to December 2028.  The
        estimated value of this position at June 30, 2007, being the amount PPL Energy
        Supply would pay to terminate it, including accrued interest, was $176
        million.  At June 30, 2007, PPL Energy Supply estimated that its
        potential additional exposure to a change in the market value of these
        instruments, through a 10% adverse movement in foreign currency exchange
        rates
        and interest rates, was $127 million.
 
 *Foreign
        Currency Risk*
 
 PPL
        Energy Supply is exposed to foreign currency risk, primarily through investments
        in affiliates in the U.K. and Latin America.  In addition, PPL Energy
        Supply may make purchases of equipment in currencies other than U.S.
        dollars.
 
 PPL
        and
        PPL Energy Supply have adopted a foreign currency risk management program
        designed to hedge certain foreign currency exposures, including firm
        commitments, recognized assets or liabilities, anticipated transactions and
        net
        investments.  In addition, PPL and PPL Energy Supply enter into
        financial instruments to protect against foreign currency translation risk
        of
        expected earnings.
 
 To
        economically hedge 2007 expected income in Chilean pesos, PPL Energy Supply
        entered into average rate forwards totaling 12.4 billion Chilean
        pesos.  The settlement date of these forwards is November
        2007.  At June 30, 2007, the market value of these positions,
        representing the amount PPL Energy Supply would pay upon their termination,
        was
        insignificant.  PPL Energy Supply estimated that its potential
        additional exposure to a change in the market value of these instruments,
        through a 10% adverse movement in foreign currency exchange rates, was $1
        million at June 30, 2007.
 
 To
        economically hedge 2007 expected income denominated in British pounds sterling,
        PPL entered into a combination of average rate forwards and average rate
        options, which total £60.1 million at June 30, 2007.  In connection
        with these transactions, PPL Energy Supply entered into average rate forwards
        and average rate options with PPL that have terms identical to those executed
        by
        PPL.  These forwards and options have termination dates ranging from
        September 2007 to December 2007.  At June 30, 2007, the market value
        of these positions, representing the amount PPL Energy Supply would pay upon
        their termination, was $3 million.  PPL Energy Supply estimated that
        its potential additional exposure to a change in the market value of these
        instruments, through a 10% adverse movement in foreign currency exchange
        rates,
        was $7 million at June 30, 2007.
 
 PPL
        executed forward sale contracts totaling 215 billion Chilean
        pesos.  In connection with these transactions, PPL Energy Supply
        entered into forward contracts with PPL that have terms identical to those
        executed by PPL.  Of these forward sale contracts, 161 billion Chilean
        pesos are to hedge PPL Energy Supply's net investment in Emel, while 54 billion
        Chilean pesos are to partially hedge the proceeds from the anticipated sale
        of
        Emel.  The settlement date of these forwards is December
        2007.  At June 30, 2007, the market value of these positions,
        representing the amount PPL Energy Supply would pay upon their termination,
        was
        $8 million.  PPL Energy Supply estimated that its potential additional
        exposure to a change in the market value of these instruments, through a
        10%
        adverse movement in foreign currency exchange rates, was $44 million at June
        30,
        2007.
 
 PPL
        executed forward sale contracts totaling £22.5 million.  In connection
        with these transactions, PPL Energy Supply entered into forward contracts
        with
        PPL that have terms identical to those executed by PPL.  These forward
        sale contracts are to partially hedge PPL Energy Supply's net investment
        in
        WPD.  The settlement date of these forwards is January
        2008.  At June 30, 2007, the market value of these positions,
        representing the amount PPL would pay upon their termination was
        insignificant.  PPL estimated that its potential additional exposure
        to a change in the market value of these instruments, through a 10% adverse
        movement in foreign currency exchange rates, was $4 million at June 30,
        2007.
 
 PPL
        Energy Supply has entered into a forward contract to purchase 5.1 million
        Euros
        in order to protect against fluctuations in the Euro exchange rate, in
        connection with the purchase of equipment.  The settlement date of
        this contract is January 2008.  At June 30, 2007, the market value of
        this position, representing the amount PPL Energy Supply would receive upon
        its
        termination, was insignificant.  PPL Energy Supply estimated that its
        potential exposure to a change in the market value of this instrument, through
        a
        10% adverse movement in foreign currency exchange rates, was insignificant
        at
        June 30, 2007.
 
 *Nuclear
        Decommissioning Trust Funds - Securities Price Risk*
 
 In
        connection with certain NRC requirements, PPL Susquehanna maintains trust
        funds
        to fund certain costs of decommissioning the Susquehanna nuclear
        station.  As of June 30, 2007, 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
        sufficient 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 actively monitors the
        investment performance and periodically reviews asset allocation in accordance
        with its nuclear decommissioning trust policy statement.  At
        June 30, 2007, a hypothetical 10% increase in interest rates and a 10%
        decrease in equity prices would have resulted in an estimated $41 million
        reduction in the fair value of the trust assets.  See Note 21 in PPL
        Energy Supply's 2006 Form 10-K for more information regarding the nuclear
        decommissioning trust funds.
 
 **Related
        Party Transactions**
 
 PPL
        Energy Supply is not aware of any material ownership interests or operating
        responsibility by senior management of PPL Energy Supply in outside
        partnerships, including leasing transactions with variable interest entities,
        or
        other entities doing business with PPL Energy Supply.
 
 For
        additional information on related party transactions, see Note 11 to the
        Financial Statements.
 
 **Acquisitions,
        Development and Divestitures**
 
 PPL
        continuously evaluates strategic options for its business segments and from
        time
        to time, PPL Energy Supply and its subsidiaries are involved in negotiations
        with third parties regarding acquisitions and dispositions of businesses
        and
        assets, joint ventures and development projects which may or may not result
        in
        definitive agreements.  Any such transactions may impact future
        financial results.  See Note 8 to the Financial Statements for
        information regarding such recent transactions.
 
 PPL
        Energy Supply is currently planning incremental capacity increases of 343
        MW at
        several existing domestic generating facilities.  Offsetting this
        increase is an expected 30 MW reduction in generation capability at each
        of the
        Brunner Island and Montour plants, due to the estimated increases in station
        service usage during the scrubber operation.  See Note 10 to the
        Financial Statements for additional information, as well as information
        regarding the planned shut down of two 150 MW generating units at PPL Martins
        Creek in September 2007.
 
 PPL
        Energy Supply is continuously reexamining development projects based on market
        conditions and other factors to determine whether to proceed with these
        projects, sell them, cancel them, expand them, execute tolling agreements
        or
        pursue other opportunities.
 
 **Environmental
        Matters**
 
 See
        Note
        10 to the Financial Statements for a discussion of environmental
        matters.
 
 **New
        Accounting Standards**
 
 See
        Note
        17 to the Financial Statements for a discussion of new accounting standards
        recently adopted or pending adoption.
 
 **Application
        of Critical Accounting Policies**
 
 PPL
        Energy Supply's financial condition and results of operations are impacted
        by
        the methods, assumptions and estimates used in the application of critical
        accounting policies.  The following accounting policies are
        particularly important to the financial condition or results of operations
        of
        PPL Energy Supply, and require estimates or other judgments of matters
        inherently uncertain: price risk management, pension and other postretirement
        benefits, asset impairment, leasing, loss accruals and asset retirement
        obligations.
 
 See
        "Item
        7. Management's Discussion and Analysis of Financial Condition and Results
        of
        Operations," in PPL Energy Supply's 2006 Form 10-K for a discussion of each
        critical accounting policy.  PPL's senior management has reviewed
        these critical accounting policies, and the estimates and assumptions regarding
        them, with its Audit Committee.  In addition, PPL's senior management
        reviewed the Form 10-K disclosures regarding the application of these critical
        accounting policies with the Audit Committee.
 
 In
        June
        2006, the FASB issued FIN 48, "Accounting for Uncertainty in Income Taxes,
        an
        interpretation of FASB Statement No. 109."  In May 2007, the FASB
        amended this guidance by issuing FSP FIN 48-1, "Definition of Settlement
        in FASB
        Interpretation No. 48."  PPL Energy Supply and its subsidiaries
        adopted FIN 48, as amended, effective January 1, 2007.  The adoption
        of FIN 48 alters the methodology PPL Energy Supply previously used to account
        for income tax uncertainties.  Effective with the adoption of FIN 48,
        uncertain tax positions are no longer considered to be contingencies assessed
        in
        accordance with SFAS 5, "Accounting for Contingencies."  The following
        is an update to the "Income Tax Uncertainties" section of the "Loss Accruals"
        critical accounting policy disclosed in PPL Energy Supply's 2006 Form 10-K,
        which reflects the adoption of FIN 48.
 
 Similar
        to SFAS 5, FIN 48 continues to require significant management judgment in
        determining the amount of benefit to be recognized in relation to an uncertain
        tax position.  FIN 48 requires PPL Energy Supply to evaluate its tax
        positions following a two-step process.  The first step requires an
        entity to determine whether, based on the technical merits supporting a
        particular tax position, it is more likely than not (greater than a 50 percent
        chance) that the tax position will be sustained.  This determination
        assumes that the relevant taxing authority will examine the tax position
        and is
        aware of all the relevant facts surrounding the tax position.  The
        second step requires an entity to recognize in the financial statements the
        benefit of a tax position that meets the more-likely-than-not recognition
        criterion.  The measurement of the benefit equals the largest amount
        of benefit that has a likelihood of realization, upon settlement, that exceeds
        50 percent.  PPL Energy Supply's management considers a number of
        factors in assessing the benefit to be recognized, including negotiation
        of a
        settlement.
 
 On
        a
        quarterly basis, PPL Energy Supply reassesses its uncertain tax positions
        by
        considering information known at the reporting date.  Based on
        management's assessment of new information, PPL Energy Supply may subsequently
        recognize a tax benefit for a previously unrecognized tax position, derecognize
        a previously recognized tax position, or remeasure the benefit of a previously
        recognized tax position.
 
 The
        balance sheet classification of unrecognized tax benefits also requires
        significant management judgment.  FIN 48 requires an entity to
        classify unrecognized tax benefits as current, to the extent management expects
        to settle an uncertain tax position, by paying cash, within one year of the
        reporting date.
 
 Significant
        management judgment is also required in developing valuation allowances for
        deferred tax assets.  Valuation allowances are initially recorded and
        reevaluated each reporting period by assessing the likelihood of the ultimate
        realization of a deferred tax asset.  Management considers a number of
        factors in assessing the realization of a deferred tax asset, including
        forecasts of future taxable income and available tax planning
        strategies.  Any tax planning strategy utilized in this assessment
        must meet the recognition and measurement criteria of FIN 48.  See
        Note 5 to the Financial Statements for the disclosures required by FIN
        48.
 
 **PPL
        ELECTRIC UTILITIES CORPORATION AND
        SUBSIDIARIES**
 
 **Item
        2.  Management's Discussion and Analysis of Financial Condition and
        Results of Operations**
 
 **Overview**
 
 PPL
        Electric provides electricity delivery service in eastern and central
        Pennsylvania.  Its headquarters are in Allentown, PA.  In
        PPL Electric's 2006 Form 10-K, a description of its business is found in
        "Item
        1. Business - Background" and an overview of its strategy and the risks and
        the
        challenges that it faces in its business are discussed in "Item 7. Management's
        Discussion and Analysis of Financial Condition and Results of Operations
        -
        Overview."  See "Forward-Looking Information," Note 10 to the
        Financial Statements and the rest of this Item 2 in this Form 10-Q and "Item
        1A.
        Risk Factors" and the rest of Item 7 in PPL Electric's 2006 Form 10-K for
        more
        information concerning the material risks and uncertainties that PPL Electric
        faces in its business and with respect to its future earnings.
 
 The
        following information should be read in conjunction with PPL Electric's
        Condensed Consolidated Financial Statements and the accompanying Notes and
        in
        conjunction with PPL Electric's 2006 Form 10-K.
 
 Terms
        and
        abbreviations are explained in the glossary.  Dollars are in millions
        unless otherwise noted.
 
 **Results
        of Operations**
 
 The
        following discussion, which explains significant changes in principal items
        on
        PPL Electric's Statements of Income, compares the three and six months ended
        June 30, 2007, with the same periods in 2006.
 
 The
        Statements of Income reflect the results of past operations and are not intended
        as any indication of future operating results.  Future operating
        results will necessarily be affected by various and diverse factors and
        developments.  Furthermore, because results for interim periods can be
        disproportionately influenced by various factors and developments and by
        seasonal variations, the results of operations for interim periods do not
        necessarily indicate results or trends for the year.
 
 **Earnings**
 
 Income
        available to PPL was:
 
 **Three
                  Months Ended**
                **June
                  30,**
              
              **Six
                  Months Ended**
                **June
                  30,****2007**
              
              **2006**
              
              **2007**
              
              **2006**$
              30
              
              
              $
              30
              
              
              $
              82
              
              
              $
              81
 
 The
        after-tax changes in income available to PPL between these periods were due
        to:
 
 **June
                  30, 2007 vs. June 30, 2006****Three
                  Months Ended**
              
              **Six
                  Months Ended**Delivery
                  revenues (net of CTC/ITC amortization, interest expense on transition
                  bonds and ancillary charges)
              
              $
              5
              
              
              $
              10Operation
                  and maintenance expenses
              
              
              (2
              )
              
              
              (4
              )Depreciation
              
              
              (3
              )
              
              
              (5
              )$
              
              
              
              $
              1
 
 The
        period-to-period changes in significant earnings components are explained
        in the
        "Statement of Income Analysis."
 
 PPL
        Electric's period-to-period earnings were affected by a number of factors,
        including higher delivery revenues which were primarily due to 6% and 5%
        increases in sales volumes for the three and six months ended June 30, 2007,
        due
        in part to the impact of favorable weather in 2007 on residential and commercial
        sales and normal load growth.
 
 *Outlook*
 
 PPL
        Electric expects to have modest earnings growth in 2007 compared with 2006,
        excluding special items, with load growth being offset by increased operation
        and maintenance expenses.
 
 In
        March
        2007, PPL Electric filed a request with the PUC to increase distribution
        rates
        by approximately $84 million (subsequently amended to $77
        million).  The PUC's review of the distribution rate request is
        expected to take about nine months.  The
        proposed distribution rate increase, as amended, would result in a 2.4% increase
        over PPL Electric's present rates and would be effective January 1,
        2008.  PPL Electric cannot predict the outcome of this
        proceeding.
 
 In
        May
        2007, the PUC approved PPL Electric's plan to procure default electricity
        supply
        in 2010 for retail customers who do not choose an alternative competitive
        supplier after PPL Electric's PLR contract with PPL EnergyPlus
        expires.  Under the plan, PPL Electric will issue a series of
        competitive bids for such supply in 2007, 2008 and 2009.  The price
        customers pay in 2010 will result from a blend of contracts from these
        competitive bids.  Based on the PUC-approved bid solicitation
        schedule, PPL Electric issued the first series of competitive bids for 850
        MW of
        electricity supply in May 2007; received the competitive bid proposals by
        July
        23, 2007; and obtained PUC approval of the winning proposals on July 26,
        2007.  The average generation supply price, including Pennsylvania
        gross receipts tax, from this first of six competitive solicitations for
        residential customers is $96.30 per MWh and for small commercial and industrial
        customers is $99.46 per MWh.  If the prices paid in this supply
        purchase were to be the same for the remaining five purchases, the average
        residential customer's monthly bill in 2010 would increase by approximately
        28%
        over 2009 levels, while small commercial and industrial bills would increase
        between 18% to 37%.  (The estimated increases exclude any potential
        rate increases from the current rate proceeding.)
 
 In
        May
        2007, the PUC also approved final regulations regarding the obligation of
        Pennsylvania electric utilities to provide default electricity supply in
        2011
        and beyond.  The new regulations provide that default service
        providers will acquire electricity supply at prevailing market prices pursuant
        to procurement and implementation plans approved by the PUC.  The
        regulations also address the utilities' recovery of market supply
        costs.  The final regulations will become effective after review by
        several other state agencies and official publication in
        Pennsylvania.
 
 **Statement
        of Income Analysis --**
 
 **Retail
        Electric**
 
 The
        increases in revenues from retail electric operations were attributable
        to:
 
 **June
                  30, 2007 vs. June 30, 2006****Three
                  Months Ended**
              
              **Six
                  Months Ended**PLR
                  electric delivery
              
              $
              29
              
              
              $
              66Electric
                  delivery
              
              
              15
              
              
              
              29Other
              
              
              (2
              )
              
              
              (1
              )$
              42
              
              
              $
              94
 
 Higher
        PLR revenues and electric delivery revenues were primarily attributable to
        6%
        and 5% increases in sales volume for the three and six months ended June
        30,
        2007, due in part to the impact of favorable weather in 2007 on residential
        and
        commercial sales and normal load growth.
 
 **Wholesale
        Electric to Affiliate**
 
 PPL
        Electric has a contract to sell to PPL EnergyPlus the electricity that PPL
        Electric purchases under contracts with NUGs.  The decreases of $2
        million and $4 million in wholesale revenue to affiliate for the three and
        six
        months ended June 30, 2007, compared with the same periods in 2006, were
        primarily due to lower generation at several NUG facilities during
        2007.  PPL Electric therefore had less electricity to purchase from
        the NUG facilities, and then sell to PPL EnergyPlus in 2007.
 
 **Energy
        Purchases from Affiliate**
 
 The
        increases in energy purchases from affiliate of $27 million and $62 million
        for
        the three and six months ended June 30, 2007, compared with the same periods
        in
        2006, reflect an increase in PLR load, as well as higher prices for energy
        purchased under the power supply contracts with PPL EnergyPlus needed to
        support
        the PLR load.
 
 
 **Other
        Operation and Maintenance**
 
 The
        increases in other operation and maintenance expenses were due
        to:
 
 **June
                  30, 2007 vs. June 30, 2006****Three
                  Months Ended**
              
              **Six
                  Months Ended**Advertising
              
              $
              2
              
              
              $
              3Insurance
                  premiums
              
              
              1
              
              
              
              3$
              3
              
              
              $
              6
 
 **Depreciation**
 
 Depreciation
        expense increased $5 million and $8 million in the three and six months ended
        June 30, 2007, compared with the same periods in 2006.  These
        increases were primarily due to the purchase in September 2006 of equipment
        previously leased.
 
 **Taxes,
        Other Than Income**
 
 Taxes,
        other than income increased by $6 million during the six months ended June
        30,
        2007, compared with the same period in 2006.****The increase
        was primarily due to a $7 million increase in domestic gross receipts tax
        expense resulting from a 5% increase in sales volume, offset by a $1 million
        decrease in domestic capital stock tax expense.
 
 **Other
        Income - net**
 
 See
        Note
        12 to the Financial Statements for details of other income.
 
 **Financing
        Costs**
 
 The
        decreases in financing costs, which include "Interest Expense," "Interest
        Expense with Affiliate" and "Dividends on Preferred Securities," were due
        to:
 
 **June
                  30, 2007 vs. June 30, 2006****Three
                  Months Ended**
              
              **Six
                  Months Ended**Long-term
                  debt interest expense primarily due to the repayment of transition
                  bonds
              
              $
              (5
              )
              
              $
              (12
              )Dividends
                  on 6.25% Series Preference Stock
              
              
              
              
              
              
              4Other
              
              
              
              
              
              
              1$
              (5
              )
              
              $
              (7
              )
 
 **Financial
        Condition**
 
 **Liquidity
        and Capital Resources**
 
 PPL
        Electric had the following cash and cash equivalents, short-term investments
        and
        short-term debt as of the dates noted below:
 **June
                    30,**
                  **2007**
                
                **December
                    31,**
                  **2006**Cash
                    and cash equivalents
                
                $
                17
                
                
                $
                150Short-term
                    investments
                
                
                
                
                
                
                26$
                17
                
                
                $
                176Short-term
                    debt
                
                $
                96
                
                
                $
                42
 
 The
        $159
        million decrease in PPL Electric's cash, cash equivalents and short-term
        investments position was primarily the result of:
 
 ·
              the
                  retirement of $157 million of long-term debt;·
              $138
                  million of capital expenditures; and·
              the
                  payment of $74 million of common stock dividends to PPL; partially
                  offset
                  by·
              $159
                  million of cash provided by operating activities; and·
              a
                  net increase in short-term debt of $54
                  million.
 
 Credit
        Facilities
 
 In
        May
        2007, PPL Electric entered into a $200 million Third Amended and Restated
        Five-Year Credit Agreement, which extended the term of its existing credit
        facility to May 2012.  Under certain conditions, PPL Electric may
        elect to have the principal balance of the loans outstanding on the final
        maturity date of the facility continue as non-revolving term loans for a
        period
        of one year from that final maturity date.  Also, under certain
        conditions, PPL Electric may request that the facility's principal amount
        be
        increased by up to $100 million.  PPL Electric has the ability to
        cause the lenders under this facility to issue letters of credit.
 
 In
        July
        2007, PPL Electric and a subsidiary extended the expiration date of the credit
        agreement related to its participation in an asset-backed commercial paper
        program to July 2008.
 
 Rating
        Agency Decisions
 
 Moody's,
        S&P and Fitch periodically review the credit ratings on the debt and
        preferred securities of PPL Electric and PPL Transition Bond
        Company.  Based on their respective independent reviews, the rating
        agencies may make certain ratings revisions or ratings
        affirmations.
 
 A
        credit
        rating reflects an assessment by the rating agency of the creditworthiness
        associated with an issuer and particular securities that it
        issues.  The credit ratings of PPL Electric and PPL Transition Bond
        Company are based on information provided by PPL Electric and other
        sources.  The ratings of Moody's, S&P and Fitch are not a
        recommendation to buy, sell or hold any securities of PPL Electric or PPL
        Transition Bond Company.  Such ratings may be subject to revisions or
        withdrawal by the agencies at any time and should be evaluated independently
        of
        each other and any other rating that may be assigned to the
        securities.  A downgrade in PPL Electric's or PPL Transition Bond
        Company's credit ratings could result in higher borrowing costs and reduced
        access to capital markets.
 
 Moody's,
        S&P and Fitch did not take any actions related to PPL Electric or PPL
        Transition Bond Company during the six months ended June 30, 2007.
 
 Capital
        Expenditures
 
 The
        schedule below shows PPL Electric's capital expenditure projections as of
        June
        30, 2007, for the years 2007 through 2011.
 
 **Projected****2007**
              
              **2008**
              
              **2009**
              
              **2010**
              
              **2011**Construction
                  expenditures (a)Transmission
                  and distribution facilities
              
              $
              272
              
              $
              253
              
              $
              313
              
              $
              373
              
              $
              430Other
              
              
              24
              
              
              20
              
              
              17
              
              
              17
              
              
              21Total
                  Capital Expenditures
              
              $
              296
              
              $
              273
              
              $
              330
              
              $
              390
              
              $
              451
 
 (a)
              
              Construction
                  expenditures include AFUDC, which is expected to be $13 million
                  for the
                  2007-2011 period.
 
 PPL
        Electric's capital expenditure projections for the years 2007-2011 total
        $1.7
        billion.  Capital expenditure plans are revised periodically to
        reflect changes in operational, market and regulatory conditions.  The
        above schedule has been revised from that which was presented in PPL Electric's
        2006 10-K, primarily to reflect the cost for the PJM-approved regional
        transmission expansion project. See
        Note
        8 to the Financial Statements for additional information.
 
 PPL
        Electric plans to fund all of its capital expenditures in 2007 with cash
        on hand
        and cash from operations.
 
 For
        additional information on PPL Electric's liquidity and capital resources,
        see
        "Item 7. Management's Discussion and Analysis of Financial Condition and
        Results
        of Operations," in PPL Electric's 2006 Form 10-K.
 
 **Risk
        Management**
 
 Market
        Risk
 
 *Commodity
        Price Risk - PLR Contracts*
 
 PPL
        Electric and PPL EnergyPlus have power supply agreements under which PPL
        EnergyPlus sells to PPL Electric (under a predetermined pricing arrangement)
        energy and capacity to fulfill PPL Electric's PLR obligation through
        2009.  As a result, PPL Electric has shifted any electric price risk
        relating to its PLR obligation to PPL EnergyPlus through 2009.  See
        Note 11 to the Financial Statements for information on the PLR
        contracts.
 
 *Interest
        Rate Risk*
 
 PPL
        Electric has issued debt to finance its operations, which exposes it to interest
        rate risk.  At June 30, 2007, PPL Electric's potential annual exposure
        to increased interest expense, based on a 10% increase in interest rates,
        was
        insignificant.
 
 PPL
        Electric is also exposed to changes in the fair value of its debt
        portfolio.  At June 30, 2007, 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 $34 million.
 
 **Related
        Party Transactions**
 
 PPL
        Electric is not aware of any material ownership interests or operating
        responsibility by senior management of PPL Electric in outside partnerships,
        including leasing transactions with variable interest entities, or other
        entities doing business with PPL Electric.
 
 For
        additional information on related party transactions, see Note 11 to the
        Financial Statements.
 
 **Environmental
        Matters**
 
 See
        Note
        10 to the Financial Statements for a discussion of environmental
        matters.
 
 **New
        Accounting Standards**
 
 See
        Note
        17 to the Financial Statements for a discussion of new accounting standards
        recently adopted or pending adoption.
 
 **Application
        of Critical Accounting Policies**
 
 PPL
        Electric's financial condition and results of operations are impacted by
        the
        methods, assumptions and estimates used in the application of critical
        accounting policies.  The following accounting policies are
        particularly important to the financial condition or results of operations
        of
        PPL Electric, and require estimates or other judgments of matters inherently
        uncertain: pension and other postretirement benefits and loss
        accruals.
 
 See
        "Item
        7. Management's Discussion and Analysis of Financial Condition and Results
        of
        Operations," in PPL Electric's 2006 Form 10-K for a discussion of each critical
        accounting policy.  PPL's senior management has reviewed these
        critical accounting policies, and the estimates and assumptions regarding
        them,
        with its Audit Committee.  In addition, PPL's senior management
        reviewed the Form 10-K disclosures regarding the application of these critical
        accounting policies with the Audit Committee.
 
 In
        June
        2006, the FASB issued FIN 48, "Accounting for Uncertainty in Income Taxes,
        an
        interpretation of FASB Statement No. 109."  In May 2007, the FASB
        amended this guidance by issuing FSP FIN 48-1, "Definition of Settlement
        in FASB
        Interpretation No. 48."  PPL Electric and its subsidiaries adopted FIN
        48, as amended, effective January 1, 2007.  The adoption of FIN 48
        alters the methodology PPL Electric previously used to account for income
        tax
        uncertainties.  Effective with the adoption of FIN 48, uncertain tax
        positions are no longer considered to be contingencies assessed in accordance
        with SFAS 5, "Accounting for Contingencies."  The following is an
        update to the "Income Tax Uncertainties" section of the "Loss Accruals" critical
        accounting policy disclosed in PPL Electric's 2006 Form 10-K, which reflects
        the
        adoption of FIN 48.
 
 Similar
        to SFAS 5, FIN 48 continues to require significant management judgment in
        determining the amount of benefit to be recognized in relation to an uncertain
        tax position.  FIN 48 requires PPL Electric to evaluate its tax
        positions following a two-step process.  The first step requires an
        entity to determine whether, based on the technical merits supporting a
        particular tax position, it is more likely than not (greater than a 50 percent
        chance) that the tax position will be sustained.  This determination
        assumes that the relevant taxing authority will examine the tax position
        and is
        aware of all the relevant facts surrounding the tax position.  The
        second step requires an entity to recognize in the financial statements the
        benefit of a tax position that meets the more-likely-than-not recognition
        criterion.  The measurement of the benefit equals the largest amount
        of benefit that has a likelihood of realization, upon settlement, that exceeds
        50 percent.  PPL Electric's management considers a number of factors
        in assessing the benefit to be recognized, including negotiation of a
        settlement.
 
 On
        a
        quarterly basis, PPL Electric reassesses its uncertain tax positions by
        considering information known at the reporting date.  Based on
        management's assessment of new information, PPL Electric may subsequently
        recognize a tax benefit for a previously unrecognized tax position, derecognize
        a previously recognized tax position, or remeasure the benefit of a previously
        recognized tax position.
 
 The
        balance sheet classification of unrecognized tax benefits also requires
        significant management judgment.  FIN 48 requires an entity to
        classify unrecognized tax benefits as current, to the extent management expects
        to settle an uncertain tax position, by paying cash, within one year of the
        reporting date.
 
 Significant
        management judgment is also required in developing valuation allowances for
        deferred tax assets.  Valuation allowances are initially recorded and
        reevaluated each reporting period by assessing the likelihood of the ultimate
        realization of a deferred tax asset.  Management considers a number of
        factors in assessing the realization of a deferred tax asset, including
        forecasts of future taxable income and available tax planning
        strategies.  Any tax planning strategy utilized in this assessment
        must meet the recognition and measurement criteria of FIN 48.  See
        Note 5 to the Financial Statements for the disclosures required by FIN
        48.
 
 **PPL
        CORPORATION**
 **PPL
        ENERGY SUPPLY, LLC**
 **PPL
        ELECTRIC UTILITIES CORPORATION**
 
 **Item
        3. Quantitative and Qualitative Disclosures About Market
        Risk**
 
 Reference
        is made to "Risk Management - Energy Marketing & Trading and Other" for PPL
        and PPL Energy Supply and "Risk Management" for PPL Electric in Management's
        Discussion and Analysis of Financial Condition and Results of
        Operations.
 
 **Item
        4.  Controls and
        Procedures**
 
 (a)
              
              Evaluation
                  of disclosure controls and procedures.The
                  registrants' principal executive officers and principal financial
                  officers, based on their evaluation of the registrants' disclosure
                  controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
                  of
                  the Securities Exchange Act of 1934) have concluded that, as of
                  June 30,
                  2007, the registrants' disclosure controls and procedures are effective
                  to
                  ensure that material information relating to the registrants and
                  their
                  consolidated subsidiaries is recorded, processed, summarized and
                  reported
                  within the time periods specified by the SEC's rules and forms,
                  particularly during the period for which this quarterly report
                  has been
                  prepared.  The aforementioned principal officers have concluded
                  that the disclosure controls and procedures are also effective
                  to ensure
                  that information required to be disclosed in reports filed under
                  the
                  Exchange Act is accumulated and communicated to management, including
                  the
                  principal executive and principal financial officers, to allow
                  for timely
                  decisions regarding required disclosure.(b)
              
              Change
                  in internal controls over financial reporting.The
                  registrants' principal executive officers and principal financial
                  officers
                  have concluded that there were no changes in the registrants' internal
                  control over financial reporting during the registrants' second
                  fiscal
                  quarter that have materially affected, or are reasonably likely
                  to
                  materially affect, the registrants' internal control over financial
                  reporting.
 
 **PART
        II.  OTHER INFORMATION**
 
 **Item
                  1.   Legal
                  Proceedings**For
                  additional information regarding various pending administrative
                  and
                  judicial proceedings involving regulatory, environmental and other
                  matters, which information is incorporated by reference into this
                  Part II,
                  see:·
              
              "Item
                  3. Legal Proceedings" in PPL's, PPL Energy Supply's and PPL Electric's
                  2006 Form 10-K; and·
              
              Note
                  10 of the registrants' "Combined Notes to Condensed Consolidated
                  Financial
                  Statements" in Part I of this
                  report.
 
 **Item
                  1A.  Risk
                  Factors**There
                  have been no material changes in PPL's, PPL Energy Supply's and
                  PPL
                  Electric's risk factors from those disclosed in "Item 1A. Risk
                  Factors" of
                  the 2006 Form 10-K.
 
 **Item
        2.  Unregistered Sales of Equity Securities
        and Use of Proceeds**
 
 Issuer
        Purchases of Equity Securities:
 
 **(a)**
              **(b)**
              **(c)**
              **(d)****Period**
              **Total
                  Number of**
                **Shares
                  (or Units)**
                **Purchased
                  (1)**
              **Average
                  Price Paid**
                **per
                  Share**
                **(or
                  Unit)**
              **Total
                  Number of**
                **Shares
                  (or Units)**
                **Purchased
                  as Part of**
                **Publicly
                  Announced**
                **Plans
                  or Programs (2)**
              **Maximum
                  Number (or**
                **Approximate
                  Dollar Value) of Shares (or Units) that May Yet Be Purchased Under
                  the
                  Plans or Programs (2)**April
                  1 to April 30, 2007May
                  1 to May 31, 2007June
                  1 to June 30, 2007
              1,690,384
              
              $46.16
              1,675,000
              $672,667,290Total
              1,690,384
              
              
              1,675,000
              $672,667,290
 
 (1)
              
              Includes
                  15,384 shares of common stock withheld by PPL as a result of net
                  settlement of restricted stock awards, as permitted under the terms
                  of
                  PPL's Incentive Compensation Plan and Incentive Compensation Plan
                  for Key
                  Employees.(2)
              
              In
                  June 2007, PPL announced a program to repurchase from time to time
                  up to
                  $750 million of its common stock in open market purchases, pre-arranged
                  trading plans or privately negotiated transactions.
  **Item
                    4.  Submission of Matters to a Vote of
                    Security Holders**At
                    PPL's Annual Meeting of Shareowners held on May 23, 2007, the
                    shareowners:
 
 (1)
                Elected
                    the three nominees for the office of director. The votes for
                    individual
                    nominees were:**Number
                    of Votes****For**
                
                **Withhold
                    Authority**Stuart
                    Heydt
                
                284,709,294
                
                39,982,183Craig
                    A. Rogerson
                
                302,638,157
                
                22,053,320W.
                    Keith Smith
                
                302,241,982
                
                22,449,495
 
 (2)
                
                Ratified
                    the appointment of Ernst & Young LLP as independent registered public
                    accounting firm for the year ending December 31, 2007.  The vote
                    was 320,368,553 in favor and 1,508,881 against, with 2,814,043
                    abstaining.(3)
                
                Approved
                    a shareowner proposal that recommended that the "Board take each
                    step
                    necessary for adoption of a simple majority vote to apply to
                    the greatest
                    extent possible."  The vote was 188,074,472 in favor and
                    77,300,762 against, with 6,101,283 abstaining and 53,214,960
                    broker
                    non-votes.At
                    PPL Electric's Annual Meeting of Shareowners held on May 24,
                    2007, the
                    shareowners:(1)
                
                Elected
                    all six nominees for the office of director.  Dean A.
                    Christiansen, David G. DeCampli, Paul A. Farr, Robert J. Grey, James H.
                    Miller and William H. Spence were elected with 66,368,056 votes
                    cast for
                    each director, no votes cast against and no votes
                    abstaining.
  **Item
                  6.  Exhibits**10(a)
              -
              Form
                  of Provider of Last Resort Supply Master Agreement, dated as of
                  July 26,
                  2007, between PPL Electric Utilities Corporation and PPL EnergyPlus,
                  LLC10(b)
              -
              Form
                of Fifth Amendment to Credit and Security Agreement, dated as of
                July 30,
                2007, by and among PPL Receivables Corporation, PPL Electric Utilities
                Corporation, Variable Funding Capital Company LLC (successor to Blue
                Ridge
                Asset Funding Corporation) and Wachovia Bank, National
                Association12(a)
              -
              PPL
                  Corporation and Subsidiaries Computation of Ratio of Earnings to
                  Combined
                  Fixed Charges and Preferred Stock Dividends12(b)
              -
              PPL
                  Energy Supply, LLC and Subsidiaries Computation of Ratio of Earnings
                  to
                  Fixed Charges12(c)
              -
              PPL
                  Electric Utilities Corporation and Subsidiaries Computation of
                  Ratio of
                  Earnings to Combined Fixed Charges and Preferred Stock
                  DividendsCertifications
                  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, for
                  the
                  quarterly period ended June 30, 2007, filed by the following officers
                  for
                  the following companies:31(a)
              -
              James
                  H. Miller for PPL Corporation31(b)
              -
              Paul
                  A. Farr for PPL Corporation31(c)
              -
              James
                  H. Miller for PPL Energy Supply, LLC31(d)
              -
              Paul
                  A. Farr for PPL Energy Supply, LLC31(e)
              -
              David
                  G. DeCampli for PPL Electric Utilities Corporation31(f)
              -
              J.
                  Matt Simmons, Jr. for PPL Electric Utilities
                  Corporation
 
 Certifications
                  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, for
                  the
                  quarterly period ended June 30, 2007, furnished by the following
                  officers
                  for the following companies:32(a)
              -
              James
                  H. Miller for PPL Corporation32(b)
              -
              Paul
                  A. Farr for PPL Corporation32(c)
              -
              James
                  H. Miller for PPL Energy Supply, LLC32(d)
              -
              Paul
                  A. Farr for PPL Energy Supply, LLC32(e)
              -
              David
                  G. DeCampli for PPL Electric Utilities Corporation32(f)
              -
              J.
                  Matt Simmons, Jr. for PPL Electric Utilities
                  Corporation
 
 SIGNATURES
 
 Pursuant
        to the requirements of the Securities Exchange Act of 1934, the Registrants
        have
        duly caused this report to be signed on their behalf by the undersigned
        thereunto duly authorized.  The signature for each undersigned company
        shall be deemed to relate only to matters having reference to such company
        or
        its subsidiaries.
 
 **PPL
                  Corporation**(Registrant)**PPL
                  Energy Supply, LLC**(Registrant)**PPL
                  Electric Utilities Corporation**(Registrant)Date:  August
                  2, 2007
              /s/
                  J. Matt Simmons, Jr.J.
                  Matt Simmons, Jr.Vice
                  President and Controller(Principal
                  Accounting Officer)