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 March 31, 2009OR[
       ]
            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
            23-27581921-32944
            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
            Yes
      X
            NoPPL
      Energy Supply, LLC
            Yes
      X
            NoPPL
      Electric Utilities Corporation
            Yes
      X
            No





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).





PPL
      Corporation
            Yes
            NoPPL
      Energy Supply, LLC
            Yes
            NoPPL
      Electric Utilities Corporation
            Yes
            No





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





Large
      accelerated filer
            Accelerated
              filer
            Non-accelerated
              filer
            Smaller
      reporting
              companyPPL
      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
            No
      XPPL
      Energy Supply, LLC
            Yes
            No
      XPPL
      Electric Utilities Corporation
            Yes
            No
      X





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, 376,049,177 shares outstanding at April 24,
      2009.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 April 24, 2009.





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 MARCH 31, 2009





Table of
Contents


PageGLOSSARY OF TERMS AND ABBREVIATIONS
            iFORWARD-LOOKING INFORMATION
            1PART
      I.  FINANCIAL INFORMATIONItem
      1.  Financial StatementsPPL
      Corporation and SubsidiariesCondensed Consolidated Statements of
      Income
            2Condensed Consolidated Statements of Cash
      Flows
            3Condensed Consolidated Balance
      Sheets
            4Condensed Consolidated Statements of Equity and
      Comprehensive Income
            6PPL
      Energy Supply, LLC and SubsidiariesCondensed Consolidated Statements of
      Income
            8Condensed Consolidated Statements of Cash
      Flows
            9Condensed Consolidated Balance
      Sheets
            10Condensed Consolidated Statements of Equity and
      Comprehensive Income
            12PPL
      Electric Utilities Corporation and SubsidiariesCondensed Consolidated Statements of
      Income
            14Condensed Consolidated Statements of Cash
      Flows
            15Condensed Consolidated Balance
      Sheets
            16Combined Notes to Condensed Consolidated Financial
      Statements
            18Item
      2.  Management's Discussion and Analysis of Financial Condition
      and Results of OperationsPPL Corporation and Subsidiaries
            59PPL Energy Supply, LLC and
Subsidiaries
            71PPL Electric Utilities Corporation and
      Subsidiaries
            82Item 3.  Quantitative and Qualitative
      Disclosures About Market Risk
            87Item 4.  Controls and
      Procedures
            87Item 4T.  Controls and
      Procedures
            87PART
      II.  OTHER INFORMATIONItem 1.  Legal Proceedings
            88Item 1A.  Risk Factors
            88Item 2.  Unregistered Sales of Equity Securities
      and Use of Proceeds
            88Item 6.  Exhibits
            89SIGNATURES
            90COMPUTATION
      OF RATIO OF EARNINGS TO FIXED CHARGESPPL Corporation and Subsidiaries
            91PPL Energy Supply, LLC and
      Subsidiaries
            92PPL Electric Utilities Corporation and
      Subsidiaries
            93CERTIFICATES
      OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL
OFFICER
              PURSUANT
      TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002PPL Corporation
            94PPL Energy Supply, LLC
            96PPL Electric Utilities Corporation
            98CERTIFICATES
      OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL
OFFICER
              PURSUANT
      TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002PPL Corporation
            100PPL Energy Supply, LLC
            102PPL Electric Utilities Corporation
            104





GLOSSARY
OF TERMS AND ABBREVIATIONS





PPL Corporation and its
current and former subsidiaries





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).  The Hyder
non-electricity delivery businesses are substantially liquidated.





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 gas, 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 that
provided natural gas distribution, transmission and storage services, and the
competitive sale of propane, which was a subsidiary of PPL until its sale in
October 2008.





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
primarily owns and operates a business in the U.K. that is focused on the
regulated distribution of electricity.





PPL
Investment Corp.-PPL Investment
Corporation, a subsidiary of PPL Energy Supply.





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.





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.





2008
Form 10-K - Annual Report to the SEC on Form 10-K for the year ended
December 31, 2008.





A.M.
Best - A.M. Best Company, a company that reports on the financial
condition of insurance companies.





AMT- alternative minimum tax.





AOCI
- accumulated other comprehensive income or loss.





APB- Accounting Principles Board.





ARB-
Accounting Research Bulletin.





ARO
- asset retirement obligation.





Baseload
generation-includes the output provided by PPL's nuclear, coal, hydroelectric and
qualifying facilities.





Basis- the commodity price differential between two locations, products or
time periods.





Bcf
- billion cubic feet.





CAIR- the
EPA's Clean Air Interstate Rule.





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





COLA
- license application for a combined construction permit and operating license
from the NRC.





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.





DRIP
- Dividend Reinvestment Plan.





Economic
Stimulus Package - The American Recovery and Reinvestment Act of 2009,
generally referred to as the federal economic stimulus package, which was signed
into law in February 2009.





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.





ESOP
- Employee Stock Ownership Plan.





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, among
other things, interstate transmission and wholesale sales of electricity,
hydroelectric power projects 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.





GAAP
- generally accepted accounting principles in the U.S.





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





ICP
- Incentive Compensation Plan.





ICPKE
- Incentive Compensation Plan for Key Employees.





Intermediate
and peaking generation- includes the output provided by PPL Energy
Supply's oil- and natural gas-fired units.





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.





MACT
- maximum achievable control technology.





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.





MTM
- mark-to-market.





MW
- megawatt, one thousand kilowatts.





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





NERC
- North American Electric Reliability Corporation.





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




NPNS
- the normal purchases and normal sales exception as permitted by derivative
accounting rules.
  NRC
- Nuclear Regulatory Commission, the federal agency that regulates 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.





OCI
- other comprehensive income or loss.





PEDFA-
Pennsylvania Economic Development Financing Authority.





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 default
electricity supply 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.





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





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





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.





RFC-
ReliabilityFirst Corporation (the regional reliability entity that replaced the
Mid-Atlantic Area Coordination Council).





RMC
- Risk Management Committee.





Sarbanes-Oxley
Act of 2002- sets requirements for
management's assessment of internal controls for financial
reporting.  It also requires an independent auditor to make its own
assessment.





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.





Smart
grid-an
electricity distribution system that allows for information to flow from a
customer's electric meter in two directions.  The goal of a smart grid is
to use technologies to increase power grid efficiency, reliability, and
flexibility.





Smart
meter-an electric meter that utilizes smart metering technology.





Smart
metering technology- technology that can measure, among other things,
time of electricity consumption to permit offering rate incentives for usage
during lower cost or demand intervals.





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





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.





Accounting
Pronouncements





EITF
87-24 - Allocation of Interest to Discontinued Operations.





EITF
08-5 - Issuer's Accounting for Liabilities Measured at Fair Value with a
Third-Party Credit Enhancement.





FIN
39 - Offsetting of Amounts Related to Certain Contracts, as amended and
interpreted.





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.





FSP
APB 14-1-Accounting for Convertible Debt Instruments That May Be Settled in Cash
upon Conversion (Including Partial Cash Settlement).





FSPEITF03-6-1-Determining Whether Instruments Granted in Share-Based Payment
Transactions Are Participating Securities.





FSP
FAS 107-1 and APB 28-1 - Interim Disclosures about Fair Value of
Financial Instruments.





FSP
FAS 115-2 and FAS 124-2 - Recognition and Presentation of
Other-Than-Temporary Impairments.





FSP
FAS 132(R)-1 - Employers' Disclosures about Postretirement Benefit Plan
Assets.





FSP
FAS 157-4- Determining Fair
Value When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not
Orderly.





Topic
5M-Other Than
Temporary Impairment of Certain Investments in Equity Securities, previously
entitled Other Than Temporary Impairment of Certain Investments in Debt and
Equity Securities.





SFAS
107-
Disclosures about Fair Value of Financial Instruments.





SFAS
132(R)- Employers' Disclosures about Pensions and Other Postretirement
Benefits.





SFAS
133 - Accounting for Derivative Instruments and Hedging Activities, as
amended and interpreted.





SFAS
141(R) - Business Combinations (revised 2007).





SFAS
157 - Fair Value Measurements, as amended.





SFAS
160 - Noncontrolling Interests in Consolidated Financial Statements, an
amendment of ARB No. 51.





SFAS
161 - Disclosures about Derivative Instruments and Hedging Activities, an
amendment of FASB Statement No. 133.





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 fact 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.  Forward-looking statements involve a number of risks and
uncertainties, and actual results may differ materially from the results
discussed in forward-looking statements.  In addition to the specific
factors discussed in "Item 1A. Risk Factors" in the companies' 2008 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.





·
            fuel
      supply availability;·
            weather
      conditions affecting generation, customer energy use and operating
      costs;·
            operation,
      availability and operating costs of existing generation
      facilities;·
            transmission
      and distribution system conditions and operating costs;·
            collective
      labor bargaining negotiations;·
            the
      outcome of litigation against PPL and its subsidiaries;·
            potential
      effects of threatened or actual terrorism, war or other
      hostilities;·
            the
      commitments and liabilities of PPL and its
subsidiaries;·
            market
      demand and prices for energy, capacity, emission allowances and delivered
      fuel;·
            competition
      in retail and wholesale power markets;·
            liquidity
      of wholesale power markets;·
            defaults
      by counterparties under energy, fuel or other power product
      contracts;·
            market
      prices of commodity inputs for ongoing capital
    expenditures;·
            capital
      market conditions, including the availability of capital or credit,
      changes in interest rates, and decisions regarding capital
      structure;·
            stock
      price performance of PPL;·
            the
      fair value of debt and equity securities and the impact on defined benefit
      costs and resultant cash funding requirements for defined benefit
      plans;


·
            interest
      rates and their affect on pension, retiree medical and nuclear
      decommissioning liabilities;·
            the
      impact of the current financial and economic downturn;·
            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;·
            securities
      and credit ratings;·
            foreign
      currency exchange rates;·
            current
      and future environmental conditions and requirements and the related costs
      of compliance, including environmental capital expenditures, emission
      allowance costs and other expenses;·
            political,
      regulatory or economic conditions in states, regions or countries where
      PPL or its subsidiaries conduct business;·
            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;·
            the
      effect of any business or industry restructuring;·
            development
      of new projects, markets and technologies;·
            performance
      of new ventures; and·
            asset
      acquisitions and dispositions.





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 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 obligation to update the information contained in such statement to
reflect subsequent developments or information.





PARTI.FINANCIAL
      INFORMATIONItem 1. Financial
      StatementsCONDENSED
      CONSOLIDATED STATEMENTS OF INCOMEPPL
      Corporation and Subsidiaries(Unaudited)(Millions
      of Dollars, except share data)Three
      Months Ended March 31,2009
              
              2008Operating
      RevenuesUtility
              
              $
              1,065
              
              
              $
              1,120Unregulated
      retail electric and gas
              
              
              42
              
              
              
              34Wholesale
      energy marketingRealized
              
              
              813
              
              
              
              438Unrealized
      economic activity (Note 14)
              
              
              352
              
              
              
              (180
              )Net
      energy trading margins
              
              
              (12
              )
              
              
              (2
              )Energy-related
      businesses
              
              
              99
              
              
              
              116Total
              
              
              2,359
              
              
              
              1,526Operating
      ExpensesOperationFuel
              
              
              258
              
              
              
              240Energy
      purchasesRealized
              
              
              684
              
              
              
              317Unrealized
      economic activity (Note 14)
              
              
              269
              
              
              
              (259
              )Other
      operation and maintenance
              
              
              373
              
              
              
              377Amortization
      of recoverable transition costs
              
              
              84
              
              
              
              76Depreciation
              
              
              110
              
              
              
              112Taxes,
      other than income
              
              
              73
              
              
              
              75Energy-related
      businesses
              
              
              91
              
              
              
              108Total
              
              
              1,942
              
              
              
              1,046Operating
      Income
              
              
              417
              
              
              
              480Other
      Income - net
              
              
              19
              
              
              
              8Interest
      Expense
              
              
              89
              
              
              
              108Income
      from Continuing Operations Before Income Taxes
              
              
              347
              
              
              
              380Income
      Taxes
              
              
              101
              
              
              
              129Income
      from Continuing Operations After Income Taxes
              
              
              246
              
              
              
              251Income
      from Discontinued Operations (net of income taxes)
              
              
              
              
              
              
              14Net
      Income
              
              
              246
              
              
              
              265Net
      Income Attributable to Noncontrolling Interests
              
              
              5
              
              
              
              5Net
      Income Attributable to PPL Corporation
              
              $
              241
              
              
              $
              260Amounts
      Attributable to PPL Corporation:Income
      from Continuing Operations After Income Taxes
              
              $
              241
              
              
              $
              246Income
      from Discontinued Operations (net of income taxes)
              
              
              
              
              
              
              14Net
      Income
              
              $
              241
              
              
              $
              260Earnings
      Per Share of Common Stock:Income
      from Continuing Operations After Income Taxes Available to PPL
      Corporation Common Shareowners:Basic
              
              $
              0.64
              
              
              $
              0.65Diluted
              
              $
              0.64
              
              
              $
              0.65Net
      Income Available to PPL Corporation Common Shareowners:Basic
              
              $
              0.64
              
              
              $
              0.69Diluted
              
              $
              0.64
              
              
              $
              0.69Dividends
      Declared Per Share of Common Stock
              
              $
              0.345
              
              
              $
              0.335Weighted-Average Shares of
      Common Stock Outstanding(inthousands)Basic
              
              
              375,112
              
              
              
              372,782Diluted
              
              
              375,409
              
              
              
              375,002The
      accompanying Notes to Condensed Consolidated Financial Statements are an
      integral part of the financial
statements.


CONDENSED CONSOLIDATED STATEMENTS OF CASH
      FLOWSPPL
      Corporation and Subsidiaries(Unaudited)(Millions
      of Dollars)Three
      Months Ended March 31,2009
              
              2008Cash
      Flows from Operating ActivitiesNet
      income
              
              $
              246
              
              
              $
              265Adjustments
      to reconcile net income to net cash provided by operating
      activitiesDepreciation
              
              
              110
              
              
              
              112Amortization
      of recoverable transition costs and other
              
              
              93
              
              
              
              94Unrealized
      gains on derivatives and other hedging activities
              
              
              (103
              )
              
              
              (63
              )Deferred
      income taxes and investment tax credits
              
              
              (12
              )
              
              
              (38
              )Gains
      related to the extinguishment of notes
              
              
              (29
              )Impairment
      of assets
              
              
              51
              
              
              
              3Other
              
              
              16
              
              
              
              31Change
      in current assets and current liabilitiesAccounts
      receivable
              
              
              (9
              )
              
              
              61Accounts
      payable
              
              
              (99
              )
              
              
              (52
              )Fuel,
      materials and supplies
              
              
              (12
              )
              
              
              28Prepayments
              
              
              (107
              )
              
              
              (107
              )Taxes
              
              
              51
              
              
              
              137Counterparty
      collateral deposits
              
              
              137
              
              
              
              33Other
              
              
              (35
              )
              
              
              (61
              )Other
      operating activitiesOther
      assets
              
              
              (6
              )
              
              
              11Other
      liabilities
              
              
              18
              
              
              
              (30
              )Net
      cash provided by operating activities
              
              
              310
              
              
              
              424Cash
      Flows from Investing ActivitiesExpenditures
      for property, plant and equipment
              
              
              (270
              )
              
              
              (315
              )Expenditures
      for intangible assets
              
              
              (30
              )
              
              
              (38
              )Proceeds
      from the sale of intangible assets
              
              
              4
              
              
              
              1Purchases
      of nuclear plant decommissioning trust investments
              
              
              (94
              )
              
              
              (47
              )Proceeds
      from the sale of nuclear plant decommissioning trust
      investments
              
              
              87
              
              
              
              40Purchases
      of other investments
              
              
              
              
              
              
              (50
              )Proceeds
      from the sale of other investments
              
              
              
              
              
              
              25Net
      decrease (increase) in restricted cash and cash
      equivalents
              
              
              156
              
              
              
              (78
              )Other
      investing activities
              
              
              (3
              )Net
      cash used in investing activities
              
              
              (150
              )
              
              
              (462
              )Cash
      Flows from Financing ActivitiesIssuance
      of long-term debt
              
              
              
              
              
              
              399Retirement
      of long-term debt
              
              
              (421
              )
              
              
              (91
              )Issuance
      of common stock
              
              
              16
              
              
              
              4Repurchase
      of common stock due to the repurchase program
              
              
              
              
              
              
              (38
              )Payment
      of common stock dividends
              
              
              (126
              )
              
              
              (113
              )Net
      decrease in short-term debt
              
              
              (90
              )
              
              
              (50
              )Other
      financing activities
              
              
              (8
              )
              
              
              (3
              )Net
      cash (used in) provided by financing activities
              
              
              (629
              )
              
              
              108Effect
      of Exchange Rates on Cash and Cash Equivalents
              
              
              
              
              
              
              (2
              )Net
      (Decrease) Increase in Cash and Cash Equivalents
              
              
              (469
              )
              
              
              68Cash
      and Cash Equivalents at Beginning of Period
              
              
              1,100
              
              
              
              430Cash
      and Cash Equivalents included in Assets Held for Sale
              
              
              
              
              
              
              (3
              )Cash
      and Cash Equivalents at End of Period
              
              $
              631
              
              
              $
              495The
      accompanying Notes to Condensed Consolidated Financial Statements are an
      integral part of the financial
statements.


CONDENSED CONSOLIDATED BALANCE
      SHEETSPPL
      Corporation and Subsidiaries(Unaudited)(Millions
      of Dollars)March 31,
                2009
              
              December
      31,
                2008AssetsCurrent
      AssetsCash
      and cash equivalents
              
              $
              631
              
              
              $
              1,100Short-term
      investments
              
              
              150
              
              
              
              150Restricted
      cash and cash equivalents
              
              
              164
              
              
              
              320Accounts
      receivable (less reserve:  2009, $35; 2008, $36)Customer
              
              
              488
              
              
              
              456Other
              
              
              50
              
              
              
              77Unbilled
      revenues
              
              
              564
              
              
              
              599Fuel,
      materials and supplies
              
              
              349
              
              
              
              337Prepayments
              
              
              189
              
              
              
              84Price
      risk management assets
              
              
              1,818
              
              
              
              1,224Other
      intangibles
              
              
              29
              
              
              
              17Other
              
              
              19
              
              
              
              19Total
      Current Assets
              
              
              4,451
              
              
              
              4,383InvestmentsInvestment
      in unconsolidated affiliates - at equity
              
              
              48
              
              
              
              47Nuclear
      plant decommissioning trust funds
              
              
              425
              
              
              
              446Other
              
              
              25
              
              
              
              29Total
      Investments
              
              
              498
              
              
              
              522Property,
      Plant and EquipmentElectric
      plant in serviceTransmission
      and distribution
              
              
              7,867
              
              
              
              8,046Generation
              
              
              9,660
              
              
              
              9,588General
              
              
              843
              
              
              
              84018,370
              
              
              
              18,474Construction
      work in progress
              
              
              1,190
              
              
              
              1,131Nuclear
      fuel
              
              
              443
              
              
              
              428Electric
      plant
              
              
              20,003
              
              
              
              20,033Gas
      and oil plant
              
              
              68
              
              
              
              68Other
      property
              
              
              149
              
              
              
              15620,220
              
              
              
              20,257Less:  accumulated
      depreciation
              
              
              7,938
              
              
              
              7,882Total
      Property, Plant and Equipment
              
              
              12,282
              
              
              
              12,375Regulatory
      and Other Noncurrent AssetsRegulatory
      assets
              
              
              649
              
              
              
              737Goodwill
              
              
              715
              
              
              
              763Other
      intangibles
              
              
              606
              
              
              
              637Price
      risk management assets
              
              
              1,986
              
              
              
              1,392Other
              
              
              603
              
              
              
              596Total
      Regulatory and Other Noncurrent Assets
              
              
              4,559
              
              
              
              4,125Total
      Assets
              
              $
              21,790
              
              
              $
              21,405The
      accompanying Notes to Condensed Consolidated Financial Statements are an
      integral part of the financial
statements.


CONDENSED
      CONSOLIDATED BALANCE SHEETSPPL
      Corporation and Subsidiaries(Unaudited)(Millions
      of Dollars)March 31,
                2009
              
              December
      31,
                2008Liabilities
      and EquityCurrent
      LiabilitiesShort-term
      debt
              
              $
              581
              
              
              $
              679Long-term
      debt
              
              
              495
              
              
              
              696Accounts
      payable
              
              
              663
              
              
              
              766Above
      market NUG contracts
              
              
              19
              
              
              
              25Taxes
              
              
              127
              
              
              
              77Interest
              
              
              129
              
              
              
              130Dividends
              
              
              134
              
              
              
              131Price
      risk management liabilities
              
              
              1,777
              
              
              
              1,324Other
              
              
              685
              
              
              
              474Total
      Current Liabilities
              
              
              4,610
              
              
              
              4,302Long-term
      Debt
              
              
              6,781
              
              
              
              7,142Deferred
      Credits and Other Noncurrent LiabilitiesDeferred
      income taxes and investment tax credits
              
              
              1,744
              
              
              
              1,764Price
      risk management liabilities
              
              
              1,190
              
              
              
              836Accrued
      pension obligations
              
              
              860
              
              
              
              899Asset
      retirement obligations
              
              
              392
              
              
              
              389Other
              
              
              657
              
              
              
              677Total
      Deferred Credits and Other Noncurrent Liabilities
              
              
              4,843
              
              
              
              4,565Commitments
      and Contingent Liabilities (Note 10)EquityPPL
      Corporation Shareowners' Common EquityCommon
      stock - $0.01 par value (a)
              
              
              4
              
              
              
              4Capital
      in excess of par value
              
              
              2,228
              
              
              
              2,196Earnings
      reinvested
              
              
              3,973
              
              
              
              3,862Accumulated
      other comprehensive loss
              
              
              (968
              )
              
              
              (985
              )Total
      PPL Corporation Shareowners' Common Equity
              
              
              5,237
              
              
              
              5,077Noncontrolling
      Interests
              
              
              319
              
              
              
              319Total
      Equity
              
              
              5,556
              
              
              
              5,396Total
      Liabilities and Equity
              
              $
              21,790
              
              
              $
              21,405(a)
              
              780
      million shares authorized; 376 million and 375 million shares issued and
      outstanding at March 31, 2009 and December 31,
    2008.The
      accompanying Notes to Condensed Consolidated Financial Statements are an
      integral part of the financial
statements.


CONDENSED
      CONSOLIDATED STATEMENTS OF EQUITYANDCOMPREHENSIVE
      INCOMEPPL
      Corporation and Subsidiaries(Unaudited)(Millions
      of Dollars, shares in thousands)PPL
      Corporation ShareownersCommon
      stock shares outstanding
                                                                                                        
                                                                                                        Common
      stock
                                                                                                        
                                                                                                        Capital
      in excess of par value
                                                                                                        
                                                                                                        Earnings
      reinvested
                                                                                                        
                                                                                                        Accumulated
      other comprehensive loss
                                                                                                        
                                                                                                        Non-controlling
      interests
                                                                                                        
                                                                                                        TotalDecember
      31, 2008 (a)
                                                                                                        
                                                                                                        374,581
                                                                                                        
                                                                                                        $
                                                                                                        4
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        2,196
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        3,862
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        (985
                                                                                                        )
                                                                                                        
                                                                                                        $
                                                                                                        319
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        5,396Common
      stock issued (b)
                                                                                                        
                                                                                                        1,050
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        34
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        34Common
      stock repurchased
                                                                                                        
                                                                                                        (34
                                                                                                        )
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        (1
                                                                                                        )
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        (1
                                                                                                        )Stock-based
      compensation
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        (1
                                                                                                        )
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        (1
                                                                                                        )Net
      income
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        241
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        5
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        246Dividends,
      dividend equivalents and distributions (c)
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        (130
                                                                                                        )
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        (5
                                                                                                        )
                                                                                                        
                                                                                                        
                                                                                                        (135
                                                                                                        )Other
      comprehensive income (d)
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        17
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        17March
      31, 2009
                                                                                                        
                                                                                                        375,597
                                                                                                        
                                                                                                        $
                                                                                                        4
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        2,228
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        3,973
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        (968
                                                                                                        )
                                                                                                        
                                                                                                        $
                                                                                                        319
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        5,556December
      31, 2007 (a)
                                                                                                        
                                                                                                        373,271
                                                                                                        
                                                                                                        $
                                                                                                        4
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        2,185
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        3,435
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        (68
                                                                                                        )
                                                                                                        
                                                                                                        $
                                                                                                        320
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        5,876Common
      stock issued (b)
                                                                                                        
                                                                                                        534
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        7
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        7Common
      stock repurchased
                                                                                                        
                                                                                                        (824
                                                                                                        )
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        (39
                                                                                                        )
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        (39
                                                                                                        )Stock-based
      compensation
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        17
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        17Net
      income
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        260
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        5
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        265Dividends,
      dividend equivalents and distributions (c)
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        (125
                                                                                                        )
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        (5
                                                                                                        )
                                                                                                        
                                                                                                        
                                                                                                        (130
                                                                                                        )Other
      comprehensive loss (d)
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        (92
                                                                                                        )
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        (92
                                                                                                        )March
      31, 2008
                                                                                                        
                                                                                                        372,981
                                                                                                        
                                                                                                        $
                                                                                                        4
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        2,170
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        3,570
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        (160
                                                                                                        )
                                                                                                        
                                                                                                        $
                                                                                                        320
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        5,904





(a)
                            
                            "Capital
      in excess of par value" and "Earnings reinvested" have been adjusted by
      $13 million in accordance with FSP ABP 14-1.  See Note 2 for
      additional information.(b)
                            
                            The
      three months ended March 31, 2009, includes common stock shares issued
      through the ICP, ICPKE, DRIP, ESOP, and directors retirement
      plan.  The three months ended March 31, 2008, includes common
      stock shares issued through the ICP, ICPKE, directors retirement plan, and
      the 2-5/8% Convertible Senior Notes.  "Capital in excess of par
      value" for the three months ended March 31, 2009, includes $7 million for
      a company contribution to the ESOP.(c)
                            
                            "Earnings
      reinvested" includes dividends and dividend equivalents on PPL Corporation
      common stock and restricted stock units.  "Noncontrolling
      interests" includes dividends and distributions to noncontrolling
      interests.Three
      Months EndedMarch
      31,2009
                            
                            2008(d)
                            
                            Net
      income (e)
                            
                            $
                            246
                            
                            
                            $
                            265Other
      comprehensive income (loss), net of tax expense (benefit):Foreign
      currency translation adjustments, net of tax of $0, $1
                            
                            
                            (92
                            )
                            
                            
                            (59
                            )Net
      unrealized loss on available-for-sale securities, net of tax of $(6),
      $(15)
                            
                            
                            (6
                            )
                            
                            
                            (14
                            )Net
      unrealized gain (loss) on qualifying derivatives, net of tax of $123,
      $(33)
                            
                            
                            182
                            
                            
                            
                            (43
                            )Reclassifications
      to net income:Available-for-sale
      securities, net of tax of $1, $1
                            
                            
                            1
                            
                            
                            
                            1Qualifying
      derivatives, net of tax of $(43), $14
                            
                            
                            (73
                            )
                            
                            
                            17Defined
      benefit plans, net of tax of $3, $4
                            
                            
                            5
                            
                            
                            
                            6Total
      other comprehensive income (loss) attributable to PPL
      Corporation
                            
                            
                            17
                            
                            
                            
                            (92
                            )Comprehensive
      income
                            
                            
                            263
                            
                            
                            
                            173Comprehensive
      income attributable to noncontrolling interests
                            
                            
                            5
                            
                            
                            
                            5Comprehensive
      income attributable to PPL Corporation
                            
                            $
                            258
                            
                            
                            $
                            168(e)
                            
                            2009
      and 2008 includes $5 million of net income attributable to noncontrolling
      interests.The
      accompanying Notes to Condensed Consolidated Financial Statements are an
      integral part of the financial
statements.


CONDENSED CONSOLIDATED STATEMENTS OF
      INCOMEPPL
      Energy Supply, LLC and Subsidiaries(Unaudited)(Millions
      of Dollars)Three
      Months Ended March 31,2009
                
                2008Operating
      RevenuesWholesale
      energy marketingRealized
                
                $
                813
                
                
                $
                438Unrealized
      economic activity (Note 14)
                
                
                352
                
                
                
                (180
                )Wholesale
      energy marketing to affiliate
                
                
                497
                
                
                
                489Utility
                
                
                176
                
                
                
                241Unregulated
      retail electric and gas
                
                
                42
                
                
                
                34Net
      energy trading margins
                
                
                (12
                )
                
                
                (2
                )Energy-related
      businesses
                
                
                96
                
                
                
                114Total
                
                
                1,964
                
                
                
                1,134Operating
      ExpensesOperationFuel
                
                
                258
                
                
                
                240Energy
      purchasesRealized
                
                
                652
                
                
                
                276Unrealized
      economic activity (Note 14)
                
                
                269
                
                
                
                (259
                )Energy
      purchases from affiliate
                
                
                20
                
                
                
                28Other
      operation and maintenance
                
                
                282
                
                
                
                283Depreciation
                
                
                74
                
                
                
                77Taxes,
      other than income
                
                
                20
                
                
                
                19Energy-related
      businesses
                
                
                89
                
                
                
                106Total
                
                
                1,664
                
                
                
                770Operating
      Income
                
                
                300
                
                
                
                364Other
      Income - net
                
                
                13
                
                
                
                6Interest
      Income from Affiliates
                
                
                1
                
                
                
                5Interest
      Expense
                
                
                56
                
                
                
                71Income
      from Continuing Operations Before Income Taxes
                
                
                258
                
                
                
                304Income
      Taxes
                
                
                67
                
                
                
                105Income
      from Continuing Operations After Income Taxes
                
                
                191
                
                
                
                199Income
      from Discontinued Operations (net of income taxes)
                
                
                
                
                
                
                5Net
      Income Attributable to PPL Energy Supply
                
                $
                191
                
                
                $
                204The
      accompanying Notes to Condensed Consolidated Financial Statements are an
      integral part of the financial
statements.


CONDENSED CONSOLIDATED STATEMENTS OF CASH
      FLOWSPPL
      Energy Supply, LLC and Subsidiaries(Unaudited)(Millions
      of Dollars)Three
      Months Ended March 31,2009
                    
                    2008Cash
      Flows from Operating ActivitiesNet
      income
                    
                    $
                    191
                    
                    
                    $
                    204Adjustments
      to reconcile net income to net cash provided by operating
      activitiesDepreciation
                    
                    
                    74
                    
                    
                    
                    77Unrealized
      gains on derivatives and other hedging activities
                    
                    
                    (103
                    )
                    
                    
                    (66
                    )Deferred
      income taxes and investment tax credits
                    
                    
                    44
                    
                    
                    
                    11Gains
      related to the extinguishment of notes
                    
                    
                    (25
                    )Impairment
      of assets
                    
                    
                    47
                    
                    
                    
                    3Other
                    
                    
                    (2
                    )
                    
                    
                    35Change
      in current assets and current liabilitiesAccounts
      receivable
                    
                    
                    45
                    
                    
                    
                    100Accounts
      payable
                    
                    
                    (95
                    )
                    
                    
                    (57
                    )Fuel,
      materials and supplies
                    
                    
                    (12
                    )
                    
                    
                    10Taxes
                    
                    
                    4
                    
                    
                    
                    135Counterparty
      collateral deposits
                    
                    
                    125
                    
                    
                    
                    33Other
                    
                    
                    (49
                    )
                    
                    
                    (13
                    )Other
      operating activitiesOther
      assets
                    
                    
                    (4
                    )
                    
                    
                    5Other
      liabilities
                    
                    
                    5
                    
                    
                    
                    (26
                    )Net
      cash provided by operating activities
                    
                    
                    245
                    
                    
                    
                    451Cash
      Flows from Investing ActivitiesExpenditures
      for property, plant and equipment
                    
                    
                    (205
                    )
                    
                    
                    (255
                    )Expenditures
      for intangible assets
                    
                    
                    (28
                    )
                    
                    
                    (34
                    )Proceeds
      from the sale of intangible assets
                    
                    
                    4
                    
                    
                    
                    1Purchases
      of nuclear plant decommissioning trust investments
                    
                    
                    (94
                    )
                    
                    
                    (47
                    )Proceeds
      from the sale of nuclear plant decommissioning trust
      investments
                    
                    
                    87
                    
                    
                    
                    40Purchases
      of other investments
                    
                    
                    
                    
                    
                    
                    (47
                    )Proceeds
      from the sale of other investments
                    
                    
                    
                    
                    
                    
                    22Net
      decrease (increase) in restricted cash and cash
equivalents
                    
                    
                    159
                    
                    
                    
                    (82
                    )Other
      investing activities
                    
                    
                    
                    
                    
                    
                    (1
                    )Net
      cash used in investing activities
                    
                    
                    (77
                    )
                    
                    
                    (403
                    )Cash
      Flows from Financing ActivitiesIssuance
      of long-term debt
                    
                    
                    
                    
                    
                    
                    399Retirement
      of long-term debt
                    
                    
                    (220
                    )
                    
                    
                    (9
                    )Distributions
      to Member
                    
                    
                    (296
                    )
                    
                    
                    (492
                    )Net
      increase (decrease) in short-term debt
                    
                    
                    5
                    
                    
                    
                    (50
                    )Other
      financing activities
                    
                    
                    (2
                    )
                    
                    
                    (3
                    )Net
      cash used in financing activities
                    
                    
                    (513
                    )
                    
                    
                    (155
                    )Effect
      of Exchange Rates on Cash and Cash Equivalents
                    
                    
                    
                    
                    
                    
                    (2
                    )Net
      Decrease in Cash and Cash Equivalents
                    
                    
                    (345
                    )
                    
                    
                    (109
                    )Cash
      and Cash Equivalents at Beginning of Period
                    
                    
                    464
                    
                    
                    
                    355Cash
      and Cash Equivalents at End of Period
                    
                    $
                    119
                    
                    
                    $
                    246The
      accompanying Notes to Condensed Consolidated Financial Statements are an
      integral part of the financial
statements.


CONDENSED CONSOLIDATED BALANCE
    SHEETSPPL
      Energy Supply, LLC and Subsidiaries(Unaudited)(Millions
      of Dollars)March 31,
                  2009
                
                December
      31,
                  2008AssetsCurrent
      AssetsCash
      and cash equivalents
                
                $
                119
                
                
                $
                464Short-term
      investments
                
                
                150
                
                
                
                150Restricted
      cash and cash equivalents
                
                
                157
                
                
                
                315Accounts
      receivable (less reserve:  2009, $21; 2008, $21)Customer
                
                
                194
                
                
                
                220Other
                
                
                46
                
                
                
                66Unbilled
      revenues
                
                
                411
                
                
                
                408Accounts
      receivable from affiliates
                
                
                156
                
                
                
                159Collateral
      on PLR energy supply to affiliate
                
                
                300
                
                
                
                300Fuel,
      materials and supplies
                
                
                313
                
                
                
                301Prepayments
                
                
                43
                
                
                
                71Price
      risk management assets
                
                
                1,805
                
                
                
                1,221Other
      intangibles
                
                
                29
                
                
                
                17Other
                
                
                7
                
                
                
                6Total
      Current Assets
                
                
                3,730
                
                
                
                3,698InvestmentsInvestment
      in unconsolidated affiliates - at equity
                
                
                48
                
                
                
                47Nuclear
      plant decommissioning trust funds
                
                
                425
                
                
                
                446Other
                
                
                19
                
                
                
                21Total
      Investments
                
                
                492
                
                
                
                514Property,
      Plant and EquipmentElectric
      plant in serviceTransmission
      and distribution
                
                
                3,333
                
                
                
                3,540Generation
                
                
                9,660
                
                
                
                9,588General
                
                
                261
                
                
                
                28613,254
                
                
                
                13,414Construction
      work in progress
                
                
                1,099
                
                
                
                1,031Nuclear
      fuel
                
                
                443
                
                
                
                428Electric
      plant
                
                
                14,796
                
                
                
                14,873Gas
      and oil plant
                
                
                68
                
                
                
                68Other
      property
                
                
                147
                
                
                
                15415,011
                
                
                
                15,095Less:  accumulated
      depreciation
                
                
                5,967
                
                
                
                5,935Total
      Property, Plant and Equipment
                
                
                9,044
                
                
                
                9,160Other
      Noncurrent AssetsGoodwill
                
                
                715
                
                
                
                763Other
      intangibles
                
                
                474
                
                
                
                507Price
      risk management assets
                
                
                1,943
                
                
                
                1,346Other
                
                
                483
                
                
                
                481Total
      Other Noncurrent Assets
                
                
                3,615
                
                
                
                3,097Total
      Assets
                
                $
                16,881
                
                
                $
                16,469The
      accompanying Notes to Condensed Consolidated Financial Statements are an
      integral part of the financial
statements.


CONDENSED
      CONSOLIDATED BALANCE SHEETSPPL
      Energy Supply, LLC and Subsidiaries(Unaudited)(Millions
      of Dollars)March 31,
                  2009
                
                December
      31,
                  2008Liabilities
      and EquityCurrent
      LiabilitiesShort-term
      debt
                
                $
                581
                
                
                $
                584Accounts
      payable
                
                
                600
                
                
                
                684Accounts
      payable to affiliates
                
                
                56
                
                
                
                62Above
      market NUG contracts
                
                
                19
                
                
                
                25Taxes
                
                
                34
                
                
                
                31Interest
                
                
                100
                
                
                
                88Deferred
      revenue on PLR energy supply to affiliate
                
                
                9
                
                
                
                12Price
      risk management liabilities
                
                
                1,776
                
                
                
                1,313Other
                
                
                548
                
                
                
                357Total
      Current Liabilities
                
                
                3,723
                
                
                
                3,156Long-term
      Debt
                
                
                4,840
                
                
                
                5,196Deferred
      Credits and Other Noncurrent LiabilitiesDeferred
      income taxes and investment tax credits
                
                
                1,140
                
                
                
                1,110Price
      risk management liabilities
                
                
                1,190
                
                
                
                836Accrued
      pension obligations
                
                
                504
                
                
                
                556Asset
      retirement obligations
                
                
                392
                
                
                
                389Other
                
                
                378
                
                
                
                414Total
      Deferred Credits and Other Noncurrent Liabilities
                
                
                3,604
                
                
                
                3,305Commitments
      and Contingent Liabilities (Note 10)EquityMember's
      equity
                
                
                4,696
                
                
                
                4,794Noncontrolling
      interests
                
                
                18
                
                
                
                18Total
      Equity
                
                
                4,714
                
                
                
                4,812Total
      Liabilities and Equity
                
                $
                16,881
                
                
                $
                16,469The
      accompanying Notes to Condensed Consolidated Financial Statements are an
      integral part of the financial
statements.


CONDENSED CONSOLIDATED STATEMENTS OF EQUITY AND
      COMPREHENSIVE INCOMEPPL
      Energy Supply, LLC and Subsidiaries(Unaudited)(Millions
      of Dollars)Member's
      equity
                                                    
                                                    Non-controlling
      interests
                                                    
                                                    TotalDecember
      31, 2008
                                                    
                                                    $
                                                    4,794
                                                    
                                                    
                                                    $
                                                    18
                                                    
                                                    
                                                    $
                                                    4,812Net
      income
                                                    
                                                    
                                                    191
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    191Other
      comprehensive income (a)
                                                    
                                                    
                                                    7
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    7Distributions
      to member
                                                    
                                                    
                                                    (296
                                                    )
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    (296
                                                    )March
      31, 2009
                                                    
                                                    $
                                                    4,696
                                                    
                                                    
                                                    $
                                                    18
                                                    
                                                    
                                                    $
                                                    4,714December
      31, 2007
                                                    
                                                    $
                                                    5,205
                                                    
                                                    
                                                    $
                                                    19
                                                    
                                                    
                                                    $
                                                    5,224Net
      income
                                                    
                                                    
                                                    204
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    204Other
      comprehensive loss (a)
                                                    
                                                    
                                                    (87
                                                    )
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    (87
                                                    )Distributions
      to member
                                                    
                                                    
                                                    (492
                                                    )
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    (492
                                                    )March
      31, 2008
                                                    
                                                    $
                                                    4,830
                                                    
                                                    
                                                    $
                                                    19
                                                    
                                                    
                                                    $
                                                    4,849





Three
      Months EndedMarch
      31,2009
                            
                            2008(a)
                            
                            Net
      income
                            
                            $
                            191
                            
                            
                            $
                            204Other
      comprehensive income (loss), net of tax expense (benefit):Foreign
      currency translation adjustments, net of tax of $0, $1
                            
                            
                            (92
                            )
                            
                            
                            (59
                            )Net
      unrealized loss on available-for-sale securities, net of tax of $(6),
      $(15)
                            
                            
                            (6
                            )
                            
                            
                            (14
                            )Net
      unrealized gain (loss) on qualifying derivatives, net of tax of $115,
      $(31)
                            
                            
                            171
                            
                            
                            
                            (41
                            )Reclassifications
      to net income:Available-for-sale
      securities, net of tax of $1, $1
                            
                            
                            1
                            
                            
                            
                            1Qualifying
      derivatives, net of tax of $(43), $15
                            
                            
                            (71
                            )
                            
                            
                            20Defined
      benefit plans, net of tax of $3, $3
                            
                            
                            4
                            
                            
                            
                            6Total
      other comprehensive income (loss) attributable to PPL Energy
      Supply
                            
                            
                            7
                            
                            
                            
                            (87
                            )Comprehensive
      income attributable to PPL Energy Supply
                            
                            $
                            198
                            
                            
                            $
                            117





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


CONDENSED CONSOLIDATED STATEMENTS OF
      INCOMEPPL
      Electric Utilities Corporation and Subsidiaries(Unaudited)(Millions
      of Dollars)Three
      Months Ended March 31,2009
                
                2008Operating
      RevenuesRetail
      electric
                
                $
                890
                
                
                $
                880Wholesale
      electric to affiliate
                
                
                20
                
                
                
                28Total
                
                
                910
                
                
                
                908Operating
      ExpensesOperationEnergy
      purchases
                
                
                32
                
                
                
                41Energy
      purchases from affiliate
                
                
                497
                
                
                
                489Other
      operation and maintenance
                
                
                106
                
                
                
                103Amortization
      of recoverable transition costs
                
                
                84
                
                
                
                76Depreciation
                
                
                33
                
                
                
                32Taxes,
      other than income
                
                
                52
                
                
                
                56Total
                
                
                804
                
                
                
                797Operating
      Income
                
                
                106
                
                
                
                111Other
      Income - net
                
                
                2
                
                
                
                2Interest
      Income from Affiliate
                
                
                2
                
                
                
                3Interest
      Expense
                
                
                28
                
                
                
                26Interest
      Expense with Affiliate
                
                
                1
                
                
                
                3Income
      Before Income Taxes
                
                
                81
                
                
                
                87Income
      Taxes
                
                
                27
                
                
                
                31Net
      Income (a)
                
                
                54
                
                
                
                56Dividends
      on Preferred Securities
                
                
                5
                
                
                
                5Net
      Income Available to PPL Corporation
                
                $
                49
                
                
                $
                51(a)
                
                Comprehensive
      income approximates net income.The
      accompanying Notes to Condensed Consolidated Financial Statements are an
      integral part of the financial
statements.


CONDENSED CONSOLIDATED STATEMENTS OF CASH
      FLOWSPPL
      Electric Utilities Corporation and Subsidiaries(Unaudited)(Millions
      of Dollars)Three
      Months Ended March 31,2009
                
                2008Cash
      Flows from Operating ActivitiesNet
      income
                
                $
                54
                
                
                $
                56Adjustments
      to reconcile net income to net cash provided by (used in) operating
      activitiesDepreciation
                
                
                33
                
                
                
                32Amortization
      of recoverable transition costs and other
                
                
                89
                
                
                
                82Deferred
      income taxes and investment tax credits
                
                
                (50
                )
                
                
                (15
                )Other
                
                
                13
                
                
                
                4Change
      in current assets and current liabilitiesAccounts
      receivable
                
                
                (56
                )
                
                
                (68
                )Accounts
      payable
                
                
                (10
                )
                
                
                (38
                )Prepayments
                
                
                (131
                )
                
                
                (115
                )Unbilled
      revenue
                
                
                38
                
                
                
                21Accrued
      taxes
                
                
                40
                
                
                
                12Other
                
                
                20
                
                
                
                (13
                )Other
      operating activitiesOther
      assets
                
                
                3
                
                
                
                (1
                )Other
      liabilities
                
                
                5
                
                
                
                20Net
      cash provided by (used in) operating activities
                
                
                48
                
                
                
                (23
                )Cash
      Flows from Investing ActivitiesExpenditures
      for property, plant and equipment
                
                
                (61
                )
                
                
                (54
                )Net
      decrease in note receivable from affiliate
                
                
                
                
                
                
                277Net
      increase in restricted cash and cash equivalents
                
                
                
                
                
                
                (1
                )Other
      investing activities
                
                
                
                
                
                
                (3
                )Net
      cash (used in) provided by investing activities
                
                
                (61
                )
                
                
                219Cash
      Flows from Financing ActivitiesRetirement
      of long-term debt
                
                
                
                
                
                
                (82
                )Payment
      of common dividends to PPL
                
                
                (25
                )
                
                
                (18
                )Net
      decrease in short-term debt
                
                
                (95
                )Payment
      of dividends on preferred securities
                
                
                (5
                )
                
                
                (5
                )Net
      cash used in financing activities
                
                
                (125
                )
                
                
                (105
                )Net
      (Decrease) Increase in Cash and Cash Equivalents
                
                
                (138)
                
                
                
                91Cash
      and Cash Equivalents at Beginning of Period
                
                
                483
                
                
                
                33Cash
      and Cash Equivalents at End of Period
                
                $
                345
                
                
                $
                124The
      accompanying Notes to Condensed Consolidated Financial Statements are an
      integral part of the financial
statements.


CONDENSED CONSOLIDATED BALANCE
    SHEETSPPL
      Electric Utilities Corporation and Subsidiaries(Unaudited)(Millions
      of Dollars)March 31,
                2009
              
              December
      31,
                2008AssetsCurrent
      AssetsCash
      and cash equivalents
              
              $
              345
              
              
              $
              483Restricted
      cash and cash equivalents
              
              
              1
              
              
              
              1Accounts
      receivable (less reserve:  2009, $14; 2008, $14)Customer
              
              
              292
              
              
              
              233Other
              
              
              4
              
              
              
              11Unbilled
      revenues
              
              
              152
              
              
              
              190Accounts
      receivable from affiliates
              
              
              12
              
              
              
              8Note
      receivable from affiliate
              
              
              300
              
              
              
              300Prepayments
              
              
              138
              
              
              
              7Prepayment
      on PLR energy supply from affiliate
              
              
              9
              
              
              
              12Other
              
              
              53
              
              
              
              50Total
      Current Assets
              
              
              1,306
              
              
              
              1,295Property,
      Plant and EquipmentElectric
      plant in serviceTransmission
      and distribution
              
              
              4,534
              
              
              
              4,506General
              
              
              511
              
              
              
              4895,045
              
              
              
              4,995Construction
      work in progress
              
              
              77
              
              
              
              79Electric
      plant
              
              
              5,122
              
              
              
              5,074Other
      property
              
              
              2
              
              
              
              25,124
              
              
              
              5,076Less:  accumulated
      depreciation
              
              
              1,946
              
              
              
              1,924Total
      Property, Plant and Equipment
              
              
              3,178
              
              
              
              3,152Regulatory
      and Other Noncurrent AssetsRecoverable
      transition costs
              
              
              197
              
              
              
              281Intangibles
              
              
              132
              
              
              
              130Taxes
      recoverable through future rates
              
              
              251
              
              
              
              250Recoverable
      costs of defined benefit plans
              
              
              189
              
              
              
              192Other
              
              
              114
              
              
              
              116Total
      Regulatory and Other Noncurrent Assets
              
              
              883
              
              
              
              969Total
      Assets
              
              $
              5,367
              
              
              $
              5,416The
      accompanying Notes to Condensed Consolidated Financial Statements are an
      integral part of the financial
statements.


CONDENSED
      CONSOLIDATED BALANCE SHEETSPPL
      Electric Utilities Corporation and Subsidiaries(Unaudited)(Millions
      of Dollars)March 31,
                2009
              
              December
      31,
                2008Liabilities
      and EquityCurrent
      LiabilitiesShort-term
      debt
              
              
              
              
              
              $
              95Long-term
      debt
              
              $
              495
              
              
              
              495Accounts
      payable
              
              
              44
              
              
              
              57Accounts
      payable to affiliates
              
              
              192
              
              
              
              186Taxes
              
              
              105
              
              
              
              65Collateral
      on PLR energy supply from affiliate
              
              
              300
              
              
              
              300Other
              
              
              145
              
              
              
              124Total
      Current Liabilities
              
              
              1,281
              
              
              
              1,322Long-term
      Debt
              
              
              1,274
              
              
              
              1,274Deferred
      Credits and Other Noncurrent LiabilitiesDeferred
      income taxes and investment tax credits
              
              
              721
              
              
              
              767Accrued
      pension obligations
              
              
              214
              
              
              
              209Other
              
              
              207
              
              
              
              198Total
      Deferred Credits and Other Noncurrent Liabilities
              
              
              1,142
              
              
              
              1,174Commitments
      and Contingent Liabilities (Note 10)Shareowners'
      EquityPreferred
      securities
              
              
              301
              
              
              
              301Common
      stock - no par value (a)
              
              
              364
              
              
              
              364Additional
      paid-in capital
              
              
              424
              
              
              
              424Earnings
      reinvested
              
              
              581
              
              
              
              557Total
      Shareowners' Equity
              
              
              1,670
              
              
              
              1,646Total
      Liabilities and Equity
              
              $
              5,367
              
              
              $
              5,416





(a)
            
            170
      million shares authorized; 66 million shares issued and outstanding at
      March 31, 2009 and December 31, 2008.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 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, 2008, are
derived from each Registrant's 2008 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 2008 Form
10-K.  The results of operations for the three months ended
March 31, 2009, are not necessarily indicative of the results to be
expected for the full year ending December 31, 2009, or other future periods,
because results for interim periods can be disproportionately influenced by
various factors and developments and seasonal variations.





The
classification of certain prior period amounts has been changed to conform to
the presentation in the March 31, 2009 financial statements.  For
PPL and PPL Energy Supply, these changes include the impact of new accounting
standards adopted.  See Note 2 for additional
information.





(PPL)





Discontinued
Operations for the three months ended March 31, 2008, includes the operating
activity of PPL's natural gas distribution and propane businesses that were sold
in October 2008.  See Note 8 for additional
information.  The Statements of Cash Flows do not separately report
the cash flows of the Discontinued Operations.





(PPL
and PPL Energy Supply)





Discontinued
Operations for the three months ended March 31, 2008, includes activity
related to the Latin American businesses that were dissolved in
2008.  See Note 8 for additional information.  The
Statements of Cash Flows do not separately report the cash flows of the
Discontinued Operations.





2.
            Summary of Significant Accounting
  Policies





(PPL,
PPL Energy Supply and PPL Electric)





The
following accounting policy disclosures represent updates to the "Summary of
Significant Accounting Policies" Note in each Registrant's 2008 Form 10-K and
should be read in conjunction with that discussion.





Foreign Currency Translation(PPL
and PPL Energy Supply)





During
2009 and 2008, the British pound sterling weakened in relation to the U.S.
dollar.  Changes in these exchange rates resulted in a foreign
currency translation loss of $93 million for the three months ended March 31,
2009, which primarily reflected a $226 million reduction to PP&E offset by a
reduction of $133 million to net liabilities.  Changes in exchange
rates resulted in a foreign currency translation loss of $61 million for the
three months ended March 31, 2008, which primarily reflected a $133 million
reduction in PP&E offset by a reduction of $72 million to net
liabilities.  The
adjustments resulting from translation are recorded in
AOCI.





New
Accounting Standards Adopted(PPL, PPL Energy Supply and PPL
Electric)





EITF
08-5





EITF 08-5
applies to liabilities issued with an inseparable third-party credit enhancement
when the liability is measured or disclosed at fair value on a recurring
basis.  An issuer shall disclose the existence of a third-party credit
enhancement, and the fair value measurement of the liability shall not include
the effect of this third-party credit enhancement.





PPL and
its subsidiaries adopted EITF 08-5, prospectively, effective January 1,
2009.  The initial adoption of EITF 08-5 did not have a material
impact on PPL and its subsidiaries' financial statements, as this guidance
currently only impacts the fair value disclosure of certain credit-enhanced debt
instruments.





FSP APB
14-1





FSP APB
14-1 requires an issuer to separately account for the liability and equity
components of convertible debt instruments that may be settled in cash (or other
assets) upon conversion in a manner that reflects the issuer's nonconvertible
debt borrowing rate when interest cost is recognized in subsequent
periods.  The discount that results from separating the liability and
equity components will be amortized over the life of the debt and recognized as
interest expense.  PPL and its subsidiaries adopted FSP APB 14-1
effective January 1, 2009, which required retrospective application to all prior
periods presented.





FSP APB
14-1 was applicable to PPL Energy Supply's 2-5/8% Convertible Senior Notes due
2023 (Convertible Senior Notes), which upon conversion required cash settlement
of the principal amount and permitted settlement of any conversion premium in
cash or PPL common stock.  During 2008, all of the Convertible Senior
Notes were either converted at the election of the holders or redeemed at par as
a result of PPL Energy Supply calling the notes for redemption.  FSP
APB 14-1 required only retrospective application with regard to the Convertible
Senior Notes, as none of these notes were outstanding.  The
retrospective application of this FSP impacted PPL in periods prior to
2006.  As such, PPL reduced the opening balance of "Earnings
reinvested" by $13 million with a corresponding increase to "Capital in excess
of par value."





FSP EITF
03-6-1





FSP EITF
03-6-1 requires that unvested share-based payment awards that contain
nonforfeitable rights to dividends or dividend equivalents be considered
participating securities and be included in the computation of EPS under the
two-class method.  The two-class method treats share-based payment
awards that pay nonforfeitable dividends as a separate class of stock for
purposes of computing EPS.





PPL and
its subsidiaries adopted FSP EITF 03-6-1, retrospectively, effective January 1,
2009.  The adoption did not have a material impact on PPL and its
subsidiaries.  As a result of the application of this FSP, PPL's
restricted stock, restricted stock units, and stock units granted to directors
are now considered participating securities; therefore, PPL is required to
compute EPS under the two-class method.  For the three months ended
March 31, 2008, the retrospective application of this FSP caused PPL's basic EPS
for income from continuing operations after income taxes available to PPL
Corporation common shareowners to change from $0.66 to $0.65 and basic EPS for
net income available to PPL Corporation common shareowners to change from $0.70
to $0.69.  See Note 4 for additional information.





SFAS
141(R)





SFAS
141(R) changes the accounting and reporting for business combinations occurring
after its adoption.  In addition, SFAS 141(R) requires entities to
recognize changes in unrecognized tax benefits acquired in a business
combination, including business combinations that occurred prior to January 1,
2009, in income tax expense rather than in goodwill.  PPL and its
subsidiaries adopted SFAS 141(R), prospectively, effective January 1,
2009.  The January 1, 2009 adoption of SFAS 141(R) did not have a
significant impact on PPL and its subsidiaries; however, the impact in future
periods could be material.





In the
first quarter of 2009, PPL and PPL Energy Supply recorded an income tax benefit
of $14 million as a result of settling an income tax dispute.  Prior
to the adoption of SFAS 141(R), $7 million of this income tax benefit would have
been recorded as a reduction to goodwill.





SFAS 157





Effective
January 1, 2009, PPL and its subsidiaries fully applied SFAS 157 to fair value
measurement concepts used within their financial statements where
applicable.





SFAS 160





The FASB
issued SFAS 160 to improve the relevancy, comparability, and transparency of the
financial information an entity provides when it has a noncontrolling interest
in a subsidiary and when it changes its ownership interest in a
subsidiary.  SFAS 160 requires that the ownership interests in
subsidiaries held by parties other than the parent be presented in the
consolidated statement of financial position within equity, but separate from
the parent's equity, and that the amount of consolidated net income attributable
to the parent and to the noncontrolling interest be presented on the face of the
consolidated statement of income.  SFAS 160 modifies the accounting
for both changes in a parent's ownership interest while the parent retains its
controlling financial interest in its subsidiary and for the deconsolidation of
a subsidiary.  SFAS 160 also requires enhanced disclosures relating to
noncontrolling interests.





PPL and
its subsidiaries adopted SFAS 160, prospectively, effective January 1, 2009,
concurrent with the adoption of SFAS 141(R), except for the presentation and
disclosure requirements, which required retrospective
application.  The adoption of SFAS 160 did not have a material impact
on PPL and its subsidiaries' financial statements.





At March
31, 2009 and December 31, 2008, PPL reflected PPL Electric's preferred
securities of $301 million within "Noncontrolling Interests" on the Balance
Sheets.  Dividend requirements of $5 million were included in "Net
Income Attributable to Noncontrolling Interests" on the Statements of Income for
both the three months ended March 31, 2009 and 2008.





SFAS 161





SFAS 161
applies to all derivative instruments, including bifurcated derivative
instruments and nonderivative instruments that are designated and qualify as
hedging instruments pursuant to SFAS 133, as well as related hedged items
accounted for under SFAS 133.  SFAS 161 requires an entity to expand
disclosures to provide greater transparency about (a) how and why it uses
derivative instruments, (b) how derivative instruments and related hedged items
are accounted for under SFAS 133 and (c) how derivative instruments and related
hedged items affect its financial position, results of operations and cash
flows.





PPL and
its subsidiaries adopted SFAS 161, prospectively, effective January 1,
2009.  The enhanced disclosures required by SFAS 161 are presented in
Note 14.  SFAS 161 was issued to provide greater transparency by
enhancing existing disclosures; therefore, the adoption did not have a material
impact on PPL and its subsidiaries' financial statements.





New
Accounting Standards Pending Adoption





See Note
18 for a discussion of new accounting standards pending adoption.





3.
            Segment and Related
Information





(PPL
and PPL Energy Supply)





See the
"Segment and Related Information" Note in each Registrant's 2008 Form 10-K for a
discussion of reportable segments.  The Supply segment of PPL and PPL
Energy Supply includes the elimination of intersegment
transactions.  Financial data for the segments are:





Three
      Months Ended March 31,PPL
              
              PPL
      Energy Supply2009
              
              2008
              
              2009
              
              2008Income
      Statement DataRevenues
      from external customersSupply
      (a)
              
              $
              1,286
              
              
              $
              396
              
              
              $
              1,781
              
              
              $
              884International
      Delivery
              
              
              183
              
              
              
              250
              
              
              
              183
              
              
              
              250Pennsylvania
      Delivery
              
              
              890
              
              
              
              880$
              2,359
              
              
              $
              1,526
              
              
              $
              1,964
              
              
              $
              1,134Intersegment
      revenuesSupply
              
              $
              497
              
              
              $
              489Pennsylvania
      Delivery
              
              
              20
              
              
              
              28Net
      Income Attributable to PPL/PPL Energy SupplySupply
              
              $
              105
              
              
              $
              102
              
              
              $
              104
              
              
              $
              106International
      Delivery (b)
              
              
              87
              
              
              
              98
              
              
              
              87
              
              
              
              98Pennsylvania
      Delivery (c)
              
              
              49
              
              
              
              60$
              241
              
              
              $
              260
              
              
              $
              191
              
              
              $
              204





PPL
                      
                      PPL
      Energy SupplyMarch 31, 2009
                      
                      December
      31, 2008
                      
                      March 31, 2009
                      
                      December
      31, 2008Balance
      Sheet DataTotal
      assetsSupply
                      
                      $
                      12,485
                      
                      
                      $
                      11,790
                      
                      
                      $
                      12,943
                      
                      
                      $
                      12,270International
      Delivery
                      
                      
                      3,938
                      
                      
                      
                      4,199
                      
                      
                      
                      3,938
                      
                      
                      
                      4,199Pennsylvania
      Delivery
                      
                      
                      5,367
                      
                      
                      
                      5,416$
                      21,790
                      
                      
                      $
                      21,405
                      
                      
                      $
                      16,881
                      
                      
                      $
                      16,469





(a)
            
            Includes
      unrealized gains and losses from economic activity.  See Note 14
      for additional information.(b)
            
            2008
      includes the results of Discontinued Operations of the Latin American
      businesses.  See Note 8 for additional
    information.(c)
            
            2008
      includes the results of Discontinued Operations of PPL's natural gas
      distribution and propane businesses.  See Note 8 for additional
      information.





4.
            Earnings Per Share





(PPL)





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





Basic EPS
is computed by dividing income available to common shareowners by the
weighted-average number of common shares outstanding during the
period.  Diluted EPS is computed by dividing income available to
common shareowners by the weighted-average number of shares outstanding that are
increased for additional shares that would be outstanding if potentially
dilutive non-participating securities were converted to common
shares.  In 2009 and 2008, these securities consisted of stock options
and performance units granted under the incentive compensation
plans.  In 2008, these securities also included PPL Energy Supply's
2-5/8% Convertible Senior Notes (Convertible Senior Notes).





The basic
and diluted EPS computations and reconciliations of the amounts of income and
shares (in thousands) of common stock used in the calculations are:





Three
      MonthsEnded
      March 31,2009
              
              2008Income
      (Numerator)Income
      from continuing operations after income taxes attributable to
      PPL
              
              $
              241
              
              
              $
              246Less
      amounts allocated to participating securities
              
              
              1
              
              
              
              1Income
      from continuing operations after income taxes available to PPL common
      shareowners
              
              $
              240
              
              
              $
              245Income
      from discontinued operations (net of income taxes) available to PPL common
      shareowners
              
              
              
              
              
              $
              14Net
      income attributable to PPL
              
              $
              241
              
              
              $
              260Less
      amounts allocated to participating securities
              
              
              1
              
              
              
              1Net
      income available to PPL common shareowners
              
              $
              240
              
              
              $
              259Shares
      of Common Stock (Denominator)Weighted-average
      shares - Basic EPS
              
              
              375,112
              
              
              
              372,782Add incremental
      non-participating securities:Stock
      options and performance units
              
              
              297
              
              
              
              1,136Convertible
      Senior Notes
              
              
              
              
              
              
              1,084Weighted-average
      shares - Diluted EPS
              
              
              375,409
              
              
              
              375,002Basic
      EPSAvailable
      to PPL common shareowners:Income
      from continuing operations after income taxes
              
              $
              0.64
              
              
              $
              0.65Income
      from discontinued operations (net of income taxes)
              
              
              
              
              
              
              0.04Net
      Income
              
              $
              0.64
              
              
              $
              0.69Diluted
      EPSAvailable
      to PPL common shareowners:Income
      from continuing operations after income taxes
              
              $
              0.64
              
              
              $
              0.65Income
      from discontinued operations (net of income taxes)
              
              
              
              
              
              
              0.04Net
      Income
              
              $
              0.64
              
              
              $
              0.69





During
the three months ended March 31, 2009, PPL issued 370,874 shares of common stock
related to the exercise of stock options, vesting of restricted stock and
restricted stock units and conversion of stock units granted to directors under
its stock-based compensation plans.  In addition, PPL issued 235,013
and 443,858 shares of common stock related to its ESOP and its
DRIP.





For the
three months ended March 31, 2009, there were 2,650,188 stock options and
performance units excluded from the computation of diluted EPS because the
effect would have been antidilutive.





While
they were outstanding, PPL Energy Supply's Convertible Senior Notes could be
converted into shares of PPL common stock under certain circumstances, including
if during a fiscal quarter the market price of PPL's common stock exceeded
$29.83 per share over a certain period during the preceding fiscal quarter or if
PPL Energy Supply called the debt.





During
the three months ended March 31, 2008, a portion of the Convertible Senior Notes
was converted at the election of the holders.  At March 31, 2008, $48
million of Convertible Senior Notes remained outstanding and were subsequently
either converted or redeemed in the second quarter of 2008.  The terms
of the Convertible Senior Notes required cash settlement of the principal amount
and permitted settlement of any conversion premium in cash or PPL common
stock.  Based upon the conversion rate of 40.2212 shares per $1,000
principal amount of notes (or $24.8625 per share), the Convertible Senior Notes
had a dilutive impact when the average market price of PPL common stock equaled
or exceeded $24.87.





5.
            Income Taxes





(PPL,
PPL Energy Supply and PPL Electric)





Reconciliations
of effective income tax rates are:





Three
      Months Ended March 31,PPL
              
              2009
              
              2008Reconciliation
      of Income Tax ExpenseFederal
      income tax on Income from Continuing Operations Before Income Taxes at
      statutory tax rate - 35%
              
              $
              121
              
              
              $
              133Increase
      (decrease) due to:State
      income taxes (a)
              
              
              8
              
              
              
              9Amortization
      of investment tax credits
              
              
              (2
              )
              
              
              (3
              )Federal
      income tax credits (b)
              
              
              
              
              
              
              13Difference
      related to income recognition of foreign affiliates (net of foreign income
      taxes)
              
              
              (11
              )
              
              
              (8
              )Change
      in foreign tax reserves (a)
              
              
              (14
              )
              
              
              (12
              )Change
      in federal tax reserves (a)
              
              
              10
              
              
              
              3Stranded
      cost securitization (a)
              
              
              (1
              )
              
              
              (1
              )Other
              
              
              (10
              )
              
              
              (5
              )(20
              )
              
              
              (4
              )Total
      income tax expense from continuing operations
              
              $
              101
              
              
              $
              129Effective
      income tax rate
              
              
              29.1%
              
              
              
              33.9%





(a)
            
            For
      the three months ended March 31, 2009, PPL recorded a $6 million benefit
      related to federal, state and foreign income tax reserves, which consisted
      of a $14 million benefit reflected in "Change in foreign tax reserves," a
      $1 million benefit reflected in "State income taxes" and a $1 million
      benefit reflected in "Stranded cost securitization," offset by a $10
      million expense reflected in "Change in federal tax
    reserves."For
      the three months ended March 31, 2008, PPL recorded a $10 million benefit
      related to federal, state and foreign income tax reserves, which consisted
      of a $12 million benefit reflected in "Change in foreign tax reserves" and
      a $1 million benefit reflected in "Stranded cost securitization," offset
      by a $3 million expense reflected in "Change in federal tax
      reserves."(b)
            
            In
      March 2008, PPL Energy Supply recorded a $13 million expense to adjust the
      amount of synthetic fuel tax credits recorded during 2007.  See
      Note 10 for additional information.





Three
      Months Ended March 31,PPL Energy
      Supply
              
              2009
              
              2008Reconciliation
      of Income Tax ExpenseFederal
      income tax on Income from Continuing Operations Before Income Taxes at
      statutory tax rate - 35%
              
              $
              90
              
              
              $
              106Increase
      (decrease) due to:State
      income taxes (a)
              
              
              7
              
              
              
              7Amortization
      of investment tax credits
              
              
              (2
              )
              
              
              (2
              )Federal
      income tax credits (b)
              
              
              
              
              
              
              13Difference
      related to income recognition of foreign affiliates (net of foreign income
      taxes)
              
              
              (11
              )
              
              
              (8
              )Change
      in foreign tax reserves (a)
              
              
              (14
              )
              
              
              (12
              )Other
      (a)
              
              
              (3
              )
              
              
              1(23
              )
              
              
              (1
              )Total
      income tax expense from continuing operations
              
              $
              67
              
              
              $
              105Effective
      income tax rate
              
              
              26.0%
              
              
              
              34.5%





(a)
            
            For
      the three months ended March 31, 2009, PPL Energy Supply recorded an $11
      million benefit related to federal, state and foreign income tax reserves,
      which consisted of a $14 million benefit reflected in "Change in foreign
      tax reserves," offset by a $3 million expense reflected in
      "Other."For
      the three months ended March 31, 2008, PPL Energy Supply recorded a $9
      million benefit related to federal, state and foreign income tax reserves,
      which consisted of a $12 million benefit reflected in "Change in foreign
      tax reserves" and a $1 million benefit reflected in "State income taxes,"
      offset by a $4 million expense reflected in "Other."(b)
            
            In
      March 2008, PPL Energy Supply recorded a $13 million expense to adjust the
      amount of synthetic fuel tax credits recorded during 2007.  See
      Note 10 for additional information.





Three
      Months Ended March 31,PPL
      Electric
              
              2009
              
              2008Reconciliation
      of Income Tax ExpenseFederal
      income tax on Income Before Income Taxes at statutory tax rate -
      35%
              
              $
              28
              
              
              $
              30Increase
      (decrease) due to:State
      income taxes
              
              
              3
              
              
              
              4Amortization
      of investment tax credits
              
              
              (1
              )
              
              
              (1
              )Stranded
      cost securitization (a)
              
              
              (1
              )
              
              
              (1
              )Other
      (a)
              
              
              (2
              )
              
              
              (1
              )(1
              )
              
              
              1Total
      income tax expense
              
              $
              27
              
              
              $
              31Effective
      income tax rate
              
              
              33.3%
              
              
              
              35.6%





(a)
            
            For
      the three months ended March 31, 2009, PPL Electric recorded a $2 million
      benefit related to federal and state income tax reserves, which consisted
      of a $1 million benefit reflected in "Stranded cost securitization" and a
      $1 million benefit reflected in "Other."For
      the three months ended March 31, 2008, PPL Electric recorded a $1 million
      benefit related to federal and state income tax reserves reflected in
      "Stranded cost securitization."





Unrecognized
Tax Benefits(PPL, PPL
Energy Supply and PPL Electric)





Changes
to unrecognized tax benefits were as follows:





Three
      Months Ended March 31,2009
                    
                    2008PPLBeginning
      of period (a)
                    
                    $
                    202
                    
                    
                    $
                    204Additions
      based on tax positions of prior years
                    
                    
                    14
                    
                    
                    
                    17Reduction
      based on tax positions of prior years
                    
                    
                    
                    
                    
                    
                    (10
                    )Additions
      based on tax positions related to the current year
                    
                    
                    3
                    
                    
                    
                    5Settlements
                    
                    
                    (26
                    )
                    
                    
                    (12
                    )Lapse
      of applicable statutes of limitations
                    
                    
                    (2
                    )
                    
                    
                    (2
                    )Effects
      of foreign currency translation
                    
                    
                    (4
                    )
                    
                    
                    (2
                    )End
      of period
                    
                    $
                    187
                    
                    
                    $
                    200PPL Energy
      SupplyBeginning
      of period (a)
                    
                    $
                    119
                    
                    
                    $
                    130Additions
      based on tax positions of prior years
                    
                    
                    2Reduction
      based on tax positions of prior years
                    
                    
                    
                    
                    
                    
                    (7
                    )Additions
      based on tax positions related to the current year
                    
                    
                    3
                    
                    
                    
                    2Settlements
                    
                    
                    (26
                    )
                    
                    
                    (12
                    )Effects
      of foreign currency translation
                    
                    
                    (4
                    )
                    
                    
                    (2
                    )End
      of period
                    
                    $
                    94
                    
                    
                    $
                    111


PPLElectricBeginning
      of period
                            
                            $
                            77
                            
                            
                            $
                            68Additions
      based on tax positions of prior years
                            
                            
                            7
                            
                            
                            
                            17Reduction
      based on tax positions of prior years
                            
                            
                            
                            
                            
                            
                            (3
                            )Additions
      based on tax positions related to the current year
                            
                            
                            
                            
                            
                            
                            3Lapse
      of applicable statutes of limitations
                            
                            
                            (2
                            )
                            
                            
                            (2
                            )End
      of period
                            
                            $
                            82
                            
                            
                            $
                            83





(a)
            
            The
      2008 beginning period balance includes a $15 million adjustment to exclude
      recognized uncertain tax positions from unrecognized tax
      benefits.





At
March 31, 2009, the total unrecognized tax benefits and related indirect
effects that if recognized would decrease the effective tax rate
were:





PPL
              
              PPL
      Energy Supply
              
              PPL
      ElectricTotal
      unrecognized tax benefits
              
              $
              187
              
              
              $
              94
              
              
              $
              82Unrecognized
      tax benefits associated with taxable or deductible temporary
      differences
              
              
              (27
              )
              
              
              10
              
              
              
              (37
              )Total
      indirect effect of unrecognized tax benefits on other tax
      jurisdictions
              
              
              (41
              )
              
              
              (13
              )
              
              
              (25
              )Total
      unrecognized tax benefits and related indirect effects that if recognized
      would decrease the effective tax rate
              
              $
              119
              
              
              $
              91
              
              
              $
              20





At March
31, 2009, it was reasonably possible that during the next 12 months the total
amount of unrecognized tax benefits could increase by as much as $1 million or
decrease by up to $111 million for PPL, increase by as much as $1 million or
decrease by up to $91 million for PPL Energy Supply and decrease by up to $9
million for PPL Electric.  These increases and decreases could result from
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 AMT 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 March
31, 2009, PPL, PPL Energy Supply and PPL Electric had accrued interest related
to tax positions of $39 million, $30 million and $6 million.  At
December 31, 2008, PPL, PPL Energy Supply and PPL Electric had accrued interest
related to tax positions of $35 million, $28 million and $7
million.





PPL and
its subsidiaries recognize interest and penalties in "Income Taxes" on their
Statements of Income.  The following amounts were
recognized.





Three
      Months Ended March 31,2009
              
              2008PPL
              
              $
              4
              
              
              $
              (1
              )PPL
      Energy Supply
              
              
              2
              
              
              
              (3
              )PPL
      Electric
              
              
              (1
              )
              
              
              2





The net
expenses (benefits) recognized during the three months ended March 31, 2009
and 2008, for PPL, PPL Energy Supply and PPL Electric were primarily the
result of additional interest accrued or previously accrued interest being
reversed from tax positions of prior years, settlements or adjustments to tax
positions of prior years and the lapse of applicable statutes of
limitations, with respect to certain issues.





6.
            Workforce
Reduction





(PPL,
PPL Energy Supply and PPL Electric)





In
February 2009, PPL announced workforce reductions that resulted in the
elimination of approximately 200 management and staff positions across PPL's
domestic operations, or approximately 6% of PPL's non-union, domestic
workforce.  The majority of the affected employees were separated as
of March 31, 2009.  The charges noted below consisted primarily of
enhanced pension and severance benefits under PPL's Pension Plan and Separation
Policy and were recorded to "Other operation and maintenance" expense on the
Statement of Income.





As a
result of the workforce reductions, PPL recorded a one-time charge of $22
million ($13 million after tax) for the three months ended March 31,
2009.





PPL
Energy Supply eliminated approximately 50 management and staff positions
and recorded a one-time charge of $13 million ($8 million after tax) for the
three months ended March 31, 2009.  Included in this charge was $8
million ($4 million after tax) of allocated costs associated with the
elimination of employees of PPL Services.





PPL
Electric eliminated approximately 50 management and staff positions and
recorded a one-time charge of $9 million ($5 million after tax) for the three
months ended March 31, 2009.  Included in this charge was $3 million ($1
million after tax) of allocated costs associated with the elimination of
employees of PPL Services.





7.
            Credit Arrangements and Financing
    Activities





Credit
Arrangements





(PPL
and PPL Energy Supply)





PPL
Energy Supply had the following credit facilities in place at March 31,
2009:





Expiration
                            Date
                          
                          Capacity
                          
                          Borrowed
                          
                          Letters
      of Credit Issued
                          
                          Unused
      CapacityPPL
      Energy Supply Domestic Credit Facilities364-day
      Syndicated Credit Facility (a)
                          
                          Sept-09
                          
                          
                          $
                          385
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          $
                          385364-day
      Bilateral Credit Facility (b)
                          
                          Mar-10
                          
                          
                          
                          200
                          
                          
                          
                          n/a
                          
                          
                          $
                          177
                          
                          
                          
                          235-year
      Structured Credit Facility (c)
                          
                          Mar-11
                          
                          
                          
                          300
                          
                          
                          
                          n/a
                          
                          
                          
                          259
                          
                          
                          
                          415-year
      Syndicated Credit Facility (d)
                          
                          June-12
                          
                          
                          
                          3,225
                          
                          
                          $
                          285
                          
                          
                          
                          385
                          
                          
                          
                          2,555Total
      PPL Energy Supply Domestic Credit Facilities
                          
                          
                          
                          
                          $
                          4,110
                          
                          
                          $
                          285
                          
                          
                          $
                          821
                          
                          
                          $
                          3,004WPD
      Credit FacilitiesWPDH
      Limited 5-year Syndicated Credit Facility (e)
                          
                          Jan-13
                          
                          
                          £
                          150
                          
                          
                          £
                          145
                          
                          
                          
                          n/a
                          
                          
                          £
                          5WPD
      (South West) 5-year Syndicated Credit Facility (f)
                          
                          Oct-09
                          
                          
                          
                          150
                          
                          
                          
                          57
                          
                          
                          
                          n/a
                          
                          
                          
                          93WPD
      (South West) Uncommitted Credit Facilities (g)
                          
                          
                          
                          
                          
                          65
                          
                          
                          
                          4
                          
                          
                          
                          n/a
                          
                          
                          
                          61WPD
      (South West) Letter of Credit Facility
                          
                          Mar-10
                          
                          
                          
                          4
                          
                          
                          
                          n/a
                          
                          
                          £
                          4Total
      WPD Credit Facilities (h)
                          
                          
                          
                          
                          £
                          369
                          
                          
                          £
                          206
                          
                          
                          £
                          4
                          
                          
                          £
                          159





(a)
            
            Under
      this facility, PPL Energy Supply has the ability to make cash borrowings
      and to cause the lenders to issue letters of credit.  Borrowings
      generally bear interest at LIBOR-based rates plus a spread, depending upon
      the company's public debt rating.(b)
            
            In
      March 2009, PPL Energy Supply's 364-day bilateral credit facility was
      amended.  The amendment included extending the expiration date
      from March 2009 to March 2010 and reducing the capacity from $300 million
      to $200 million.  Under this facility, PPL Energy Supply can
      cause the bank to issue letters of credit but cannot make cash
      borrowings.(c)
            
            Under
      this facility, PPL Energy Supply has the ability to cause the lenders to
      issue letters of credit but cannot make cash borrowings.  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, but related, $300 million five-year credit agreement, also
      expiring in March 2011.(d)
            
            Under
      this facility, PPL Energy Supply has the ability to make cash borrowings
      and to cause the lenders to issue letters of credit.  Borrowings
      generally bear interest at LIBOR-based rates plus a spread, depending upon
      the company's public debt rating.  The borrowing outstanding at
      March 31, 2009, bears interest at 2.14%.(e)
            
            Borrowings
      under this facility bear interest at LIBOR-based rates plus a spread,
      depending on the company's public debt rating.  The cash
      borrowings outstanding at March 31, 2009, were comprised of a
      USD-denominated borrowing of $181 million, which equated to £125 million
      at the time of borrowing and bears interest at approximately 2.43%, and a
      GBP-denominated borrowing of £20 million, which bears interest at
      approximately 2.08%.(f)
            
            Borrowings
      under this facility bear interest at LIBOR-based rates plus a spread,
      depending on the company's public debt rating.  The
      weighted-average interest rate on the borrowings outstanding at March 31,
      2009, was 1.88%.(g)
            
            The
      weighted-average interest rate on the borrowings outstanding under these
      facilities at March 31, 2009, was 1.60%.(h)
            
            At
      March 31, 2009, the available capacity of the WPD credit facilities was
      approximately $228 million.





PPL
Energy Supply closed its commercial paper program in January
2009.





(PPL
and PPL Electric)





PPL
Electric had the following credit facilities in place at March 31,
2009:





Expiration
      Date
              
              Capacity
              
              Borrowed
              
              Letters
      of Credit Issued
              
              Unused
      Capacity5-year
      Syndicated Credit Facility (a)
              
              May-12
              
              
              $
              190
              
              
              
              
              
              
              $
              1
              
              
              $
              189Asset-backed
      Credit Facility (b)
              
              Jul-09
              
              
              
              150
              
              
              
              
              
              
              
              n/a
              
              
              
              150Total
      PPL Electric Credit Facilities
              
              
              
              
              $
              340
              
              
              
              
              
              
              $
              1
              
              
              $
              339





(a)
              
              Under
      this facility, PPL Electric has the ability to make cash borrowings and to
      cause the lenders to issue letters of credit.  Borrowings
      generally bear interest at LIBOR-based rates plus a spread, depending upon
      the company's public debt rating.(b)
              
              PPL
      Electric participates in an asset-backed commercial paper program through
      which PPL Electric obtains financing by selling and contributing its
      eligible accounts receivable and unbilled revenue to a special purpose,
      wholly-owned subsidiary on an ongoing basis.  The subsidiary has
      pledged these assets to secure loans from a commercial paper conduit
      sponsored by a financial institution.  The subsidiary's
      borrowing costs under the credit facility vary based on the commercial
      paper conduit's actual cost to issue commercial paper that supports the
      debt.At
      March 31, 2009 and December 31, 2008, $179 million and $76 million of
      accounts receivable and $150 million and $170 million of unbilled revenue
      were pledged by the subsidiary under the credit agreement related to PPL
      Electric's and the subsidiary's participation in the asset-backed
      commercial paper program.  Based on the accounts receivable and
      unbilled revenue pledged, $150 million was available for borrowing at
      March 31, 2009. PPL Electric's sale to its subsidiary of the accounts
      receivable and unbilled revenue 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.  PPL
      Electric performs certain record keeping and cash collection functions
      with respect to the assets in return for a servicing fee from the
      subsidiary.





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 five-year syndicated credit facility that expires in May 2012 based
on available capacity.  PPL Electric had no commercial paper
outstanding at March 31, 2009.





(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
2009, PPL Capital Funding retired the entire $201 million of its 4.33% Notes
Exchange Series A upon maturity.





(PPL
and PPL Energy Supply)





In March
2009, PPL Energy Supply completed tender offers to purchase up to $250 million
aggregate principal amount of certain of its outstanding senior notes in order
to reduce future interest expense. Pursuant to the offers, PPL Energy Supply
purchased approximately $100 million aggregate principal amount of its 6.00%
Senior Notes due 2036 for $77 million, plus accrued interest, and approximately
$150 million aggregate principal amount of its 6.20% Senior Notes due 2016 for
$143 million, plus accrued interest.  In connection with the
extinguishment of these notes, PPL and PPL Energy Supply recorded a net gain of
$25 million, which is reflected in "Other income - net" on the Statement of
Income.  PPL recorded an additional net gain of $4 million in "Other
income - net" as a result of reclassifying gains and losses on related cash flow
hedges from AOCI into earnings.





In April
2009, the PEDFA issued $231 million aggregate principal amount of Exempt
Facilities Revenue Refunding Bonds, Series 2009A and 2009B due 2038 and Series
2009C due 2037 (PPL Energy Supply, LLC Project), on behalf of PPL Energy
Supply.  The Series 2009A bonds, in an aggregate principal amount of
$100 million, and the Series 2009B bonds, in an aggregate principal amount of
$50 million, were issued in order to refund $150 million aggregate principal
amount of Exempt Facilities Revenue Bonds, Series 2008A and 2008B (PPL Energy
Supply, LLC Project) due 2038 that were issued by the PEDFA in December 2008 on
behalf of PPL Energy Supply, and for which PPL Investment Corp. acted as initial
purchaser.  PPL Investment Corp. received proceeds of $150 million in
connection with this refunding, as the Series 2009A and 2009B bonds were issued
to unaffiliated investors.  The Series 2009C bonds, in an aggregate
principal amount of $81 million, were issued in order to refund $81 million
aggregate principal amount of Exempt Facilities Revenue Bonds, Series 2007 (PPL
Energy Supply, LLC Project) due 2037 that were issued by the PEDFA in December
2007 on behalf of PPL Energy Supply.  Among other things, the
completed refundings were able to take advantage of provisions in the Economic
Stimulus Package that eliminated the application of the AMT to interest payable
on the refinanced indebtedness.





The
Series 2009A, 2009B and 2009C bonds are structured as variable-rate remarketable
bonds.  PPL Energy Supply may convert the interest rate on the bonds
from time to time to a commercial paper rate, daily rate, weekly rate or a term
rate of at least one year.  The bonds
are subject to mandatory purchase under certain circumstances, including upon
conversion to a different interest rate mode, and are subject to mandatory
redemption upon a determination that the interest on the bonds would be included
in the holders' gross income for federal tax purposes.  The
Series 2009A bonds bear interest at an initial rate of 0.90% through June 30,
2009.  The Series 2009B bonds bear interest at an initial rate of
1.25% through September 30, 2009.  The Series 2009C bonds bear
interest at a weekly rate, which was 0.35% at issuance.





In
connection with the issuance of each series of bonds by the PEDFA, PPL Energy
Supply entered into separate loan agreements with the PEDFA pursuant to which
the PEDFA loaned to PPL Energy Supply the proceeds of the Series 2009A, Series
2009B and Series 2009C bonds on payment terms that correspond to those of the
bonds.  PPL Energy Supply issued separate promissory notes to the
PEDFA to evidence its obligations under each of the loan
agreements.





Concurrent
with the issuance of each series of bonds, separate letters of credit, totaling
$237 million, were issued under PPL Energy Supply's $3.2 billion five-year
syndicated credit facility to the trustee in support of each series of
bonds.  The letters of credit permit the trustee to draw amounts to
pay principal of and interest on, and the purchase price of, the Series 2009A,
Series 2009B and Series 2009C bonds when due.  PPL Energy Supply is
required to reimburse any draws on the letters of credit within one business day
of such draw.





Distributions
and Capital Contributions





(PPL)





In
February 2009, PPL announced an increase to its quarterly common stock dividend,
effective April 1, 2009, to 34.5 cents per share (equivalent to $1.38 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
Energy Supply)





During
the three months ended March 31, 2009, PPL Energy Supply distributed $296
million to its parent company, PPL Energy Funding.





(PPL
Electric)





During
the three months ended March 31, 2009, PPL Electric paid common stock
dividends of $25 million to PPL.





8.
            Acquisitions, Development and
  Divestitures





(PPL,
PPL Energy Supply and PPL Electric)





PPL and
its subsidiaries continuously evaluate strategic options 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





License
Renewals(PPL and PPL Energy
Supply)





In 2006,
PPL Susquehanna applied to the NRC for 20-year license renewals for each of the
Susquehanna units to extend their expiration dates from 2022 to 2042 for Unit 1
and from 2024 to 2044 for Unit 2.  In March 2009, the NRC made
available the results of its review of the environmental impact of
relicensing.  A final decision on the license renewal is expected to
be issued in December 2009.  Through March 31, 2009, PPL and PPL
Energy Supply capitalized $15 million of license renewal costs, which are
included in "Other intangibles" within "Other Noncurrent Assets" on the Balance
Sheets.





Development(PPL and PPL Energy
Supply)





In April
2009, PPL announced that it filed a new application with the FERC for approval
to expand the capacity of its Holtwood hydroelectric plant by 125
MW.  The previous application had been withdrawn in December 2008 due
to economic conditions at the time.  PPL reconsidered this project in
light of the availability of tax incentives and potential federal loan
guarantees under the Economic Stimulus Package.  The expansion project
has an expected capital cost of approximately $440 million.  PPL could
begin construction in 2010, with generation operations scheduled to start in
2013.  PPL's ability and decision whether or not to proceed with the
Holtwood facility expansion is subject to government approvals in addition to
the FERC license amendment, the availability of certain federal economic
stimulus incentives, as well as negotiation of acceptable construction and other
related contracts.  PPL cannot predict whether the Holtwood facility
expansion will ultimately proceed to completion.





In March
2009, PPL Montana received FERC approval for its request to redevelop the
Rainbow hydroelectric facility, near Great Falls, Montana, for a total plant
capacity of 60 MW.





In
January 2008, PPL Susquehanna received NRC approval for its request to increase
the generation capacity of the Susquehanna nuclear plant.  The total
expected capacity increase is 159 MW, of which PPL Susquehanna's 90%
ownership share is 143 MW.  The first uprate for Unit 1 totaling
50 MW was completed in May 2008.  The second uprate for Unit 1 will be
completed in 2010.  The Unit 2 uprates will be completed in 2009 and
2011.  PPL Susquehanna's share of the remaining total increase is
98 MW.  PPL Susquehanna's share of the expected capital cost for
this project is $345 million.





In
September 2008, a PPL subsidiary submitted Part I of an application to the DOE
for a federal loan guarantee for the proposed Bell Bend nuclear generating unit
(Bell Bend) to be built adjacent to PPL's Susquehanna plant.  The
subsidiary submitted Part II of the loan guarantee application in December
2008.   There is considerable uncertainty about the likelihood of
DOE financial support for the project due to the current level of appropriations
available to the DOE for this purpose ($18.5 billion appropriated by the U.S.
Congress to date) and the number of projects competing for those
resources.  In February 2009, the DOE selected five projects for a
first tier and five projects for a second tier.  The first tier
projects are to receive further evaluation by the agency.  Bell Bend
was placed in the second tier.  This preliminary tier selection
process is not final, nor does it indicate that only those projects in the first
tier remain eligible for DOE guarantees.  The PPL subsidiary submitted
its first quarterly application update for Bell Bend to the DOE in March 2009,
and plans to continue making quarterly updates throughout 2009 in order to
remain active in the process.  PPL cannot predict whether additional
appropriations will be made for the DOE loan guarantee program, which proposed
nuclear projects will ultimately be granted DOE loan guarantees, or the specific
impact of these and other factors on the potential construction of the Bell Bend
project.





PPL has
made no decision to proceed with construction of Bell Bend and expects that such
decision will not be made for several years given the anticipated lengthy NRC
license approval process.





Additionally,
PPL has announced that it does not expect to proceed to construction absent a
joint arrangement with other interested parties and without a federal loan
guarantee or other acceptable financing structures.  PPL and its
subsidiaries are currently authorized by PPL's Board of Directors to spend up to
$90 million on the COLA and other permits necessary for
construction.  Through March 31, 2009, $62 million of costs
associated with the licensing effort were capitalized and are included in "Other
intangibles" within "Other Noncurrent Assets" on the Balance
Sheets.  PPL deems it probable that these costs are ultimately
recoverable.





Discontinued
Operations





Sale of Gas and Propane
Businesses (PPL)





In
October 2008, PPL completed the sale of its natural gas distribution and propane
businesses, which were included in the Pennsylvania Delivery
segment.  In February 2009, PPL recognized an insignificant charge in
Discontinued Operations in connection with the settlement of a working capital
adjustment.  The following results of operations have been classified
as Discontinued Operations on the Statements of Income.





Three
      Months Ended March 31, 2008Operating
      revenues
              
              $
              94Operating
      expenses
              
              
              76Operating
      income
              
              
              18Interest
      expense (a)
              
              
              2Income
      before income taxes
              
              
              16Income
      tax expense
              
              
              7Income
      from Discontinued Operations
              
              $
              9





(a)
            
            Includes
      $1 million of interest expense allocated pursuant to EITF
      87-24.  The allocation is based upon debt attributable to
      PPL's natural gas distribution and propane
  businesses.





Sale of Latin American
Businesses(PPL
and PPL Energy Supply)





In 2007,
PPL completed the sale of its regulated electricity delivery businesses in
Chile, El Salvador and Bolivia, which were included in the International
Delivery segment.  In 2008, PPL Global recognized income tax
adjustments and other expenses in Discontinued Operations in connection with the
dissolution of the remaining Latin American holding companies.  This
process was substantially completed in 2008.  The following results of
operations have been classified as Discontinued Operations on the Statements of
Income.








Three
      Months Ended March 31, 2008Operating
      expenses
                    
                    $
                    2Operating
      loss
                    
                    
                    (2
                    )Other
      income - net
                    
                    
                    (1
                    )Loss
      before income taxes
                    
                    
                    (3
                    )Income
      tax benefit (a)
                    
                    
                    (8
                    )Income
      from Discontinued Operations
                    
                    $
                    5





(a)
            
            Includes
      $6 million from the recognition of a previously unrecognized tax benefit
      associated with a prior period tax
position.





9.
            Defined Benefits





(PPL
and PPL Energy Supply)





Net
periodic defined benefit costs (credits) were:





Three
      Months Ended March 31,Pension
      Benefits
              
              Other
      PostretirementBenefitsDomestic
              
              WPD2009
              
              2008
              
              2009
              
              2008
              
              2009
              
              2008PPLService
      cost
              
              $
              15
              
              
              $
              15
              
              
              $
              2
              
              
              $
              4
              
              
              $
              1
              
              
              $
              2Interest
      cost
              
              
              36
              
              
              
              35
              
              
              
              37
              
              
              
              49
              
              
              
              7
              
              
              
              8Expected
      return on plan assets
              
              
              (42
              )
              
              
              (45
              )
              
              
              (45
              )
              
              
              (60
              )
              
              
              (4
              )
              
              
              (5
              )Amortization
      of:Transition
      (asset) obligation
              
              
              (1
              )
              
              
              (1
              )
              
              
              
              
              
              
              
              
              
              
              2
              
              
              
              2Prior
      service cost
              
              
              5
              
              
              
              5
              
              
              
              1
              
              
              
              1
              
              
              
              2
              
              
              
              3Actuarial
      loss (gain)
              
              
              1
              
              
              
              (2
              )
              
              
              1
              
              
              
              5
              
              
              
              1
              
              
              
              1Net
      periodic defined benefit costs (credits) prior to special termination
      benefits
              
              
              14
              
              
              
              7
              
              
              
              (4
              )
              
              
              (1
              )
              
              
              9
              
              
              
              11Special
      termination benefits (a)
              
              
              9Net
      periodic defined benefit costs (credits)
              
              $
              23
              
              
              $
              7
              
              
              $
              (4
              )
              
              $
              (1
              )
              
              $
              9
              
              
              $
              11PPL Energy
      SupplyService
      cost
              
              $
              1
              
              
              $
              1
              
              
              $
              2
              
              
              $
              4Interest
      cost
              
              
              2
              
              
              
              2
              
              
              
              37
              
              
              
              49Expected
      return on plan assets
              
              
              (2
              )
              
              
              (2
              )
              
              
              (45
              )
              
              
              (60
              )Amortization
      of:Prior
      service cost
              
              
              
              
              
              
              
              
              
              
              1
              
              
              
              1Actuarial
      loss
              
              
              1
              
              
              
              
              
              
              
              1
              
              
              
              5Net
      periodic defined benefit costs (credits)
              
              $
              2
              
              
              $
              1
              
              
              $
              (4
              )
              
              $
              (1
              )





(a)
            
            Relates
      to the 2009 workforce reduction.  See Note 6 for additional
      information.





10.
            Commitments and
Contingencies





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, limestone, natural gas, oil
and nuclear fuel and extend through 2019.  PPL and PPL Energy Supply
also enter into long-term contracts for the storage and transportation of
natural gas.  The long-term natural gas storage contracts extend
through 2012, and the long-term natural gas transportation contracts extend
through 2032.  Additionally, PPL and PPL Energy Supply have entered
into long-term contracts to purchase power that extend through 2017, excluding
long-term power purchase agreements for the full output of two wind
farms.  These wind farm contracts extend through
2027.





(PPL
and PPL Electric)





In 2007,
PPL Electric began to conduct competitive solicitations to purchase electricity
generation supply in 2010, after its existing PLR contract expires, for
customers who do not choose a competitive supplier.  A total of six
auctions were planned.  Each solicitation is for 850 MW of expected
generation supply.  Average generation supply prices (per MWh),
including Pennsylvania gross receipts tax and an adjustment for line losses, for
the first five solicitations are as follows:





Residential
              
              Small
      Commercial and Small IndustrialJuly
      2007
              
              
              $
              101.77
              
              
              
              $
              105.11October
      2007
              
              
              
              105.08
              
              
              
              
              105.75March
      2008
              
              
              
              108.80
              
              
              
              
              108.76October
      2008
              
              
              
              112.51
              
              
              
              
              111.94April
      2009
              
              
              
              86.74
              
              
              
              
              87.59Average
              
              
              
              102.98
              
              
              
              
              103.84





The fifth
competitive solicitation occurred in March 2009 and was approved by the PUC in
April 2009.  The sixth competitive solicitation is scheduled for
October 2009.





In August
2008, PPL Electric filed a request with the PUC to approve its plan to purchase
the PLR electricity supply that PPL Electric will need for January 2011 through
May 2014.  Under the plan, PPL Electric proposed to buy this
electricity four times a year, beginning in the third quarter of 2009, for 12-
and 24- month periods.  PPL Electric also would seek bids from other
companies to manage its hourly purchases in the competitive electricity
market.  For residential and small-business customers, 90% of the
supply would be acquired through fixed-price contracts of 12 or 24 months, and
10% through hourly purchases in the open market.  All of the power for
large commercial and industrial customers would be purchased on an hourly basis
in the open market.  An independent third party would administer the
process of securing power supply contracts and, with PUC oversight, select the
suppliers that would provide generation supply at the lowest cost to PPL
Electric's customers.





In
November 2008, PPL Electric proposed several amendments to its plan to reflect
passage of Pennsylvania Act 129 (Act 129).  Act 129, among other
things, adopts new PLR electricity supply procurements rules.  PPL
Electric added provisions to purchase 5% of its default service supply through
five-year contracts and an additional 5% through ten-year
contracts.  It reduced the term of its plan by one year, proposing
that the plan end in May 2013, rather than in May 2014.  Finally, PPL
Electric provided support for several findings that the PUC was required to make
under Act 129.





In April
2009, an administrative law judge for the PUC found that PPL Electric's purchase
plan is in the public interest and recommended PUC approval of the
plan.  The PUC Commissioners will review the recommended decision and
issue a final order.  PPL Electric cannot predict the outcome of this
matter.





(PPL
Energy Supply and PPL Electric)





See Note
11 for information on the power supply agreements between PPL EnergyPlus and PPL
Electric.





Energy Sales
Commitments





(PPL
and PPL Energy Supply)





In
connection with its marketing activities or hedging strategyfor certain of its power
plants, PPL Energy Supply has entered into long-term power sales contracts that
extend through 2019, excluding an insignificant contract extending through
2023.  All long-term contracts were executed at prices that
approximated market prices at the time of execution.





PPL
Energy Supply has entered into full-requirement and retail contracts with
various counterparties.  These contracts extend through
2019.  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, the counterparty has the right to
request collateral from PPL Energy Supply.





(PPL
Energy Supply and PPL Electric)





See Note
11 for information on the power supply agreements between PPL EnergyPlus and PPL
Electric.





PPL Montana Hydroelectric
License Commitments(PPL
and PPL Energy Supply)





PPL
Montana has 11 hydroelectric facilities and one storage reservoir licensed by
the FERC under long-term licenses pursuant to the Federal Power
Act.  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 their habitat.  Under this arrangement, PPL Montana has a
remaining commitment to spend $14 million between 2009 and 2015, in addition to
the annual rent 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, which expires in 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 their habitat, and to increase recreational
opportunities.  The MOUs were created to maximize collaboration
between the parties and enhance the possibility to receive matching funds from
relevant federal agencies.  Under this arrangement, PPL Montana has a
remaining commitment to spend $38 million between 2009 and 2040.





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.





(PPL
and PPL Energy Supply)





Montana Power Shareholders'
Litigation





In August
2001, a purported class-action lawsuit was filed by a group of Montana Power
shareholders 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 failed to obtain
shareholder approval for the sale of Montana Power's generation assets to PPL
Montana in 1999, and that the 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 is pending
in the U.S. District Court of Montana, Butte Division, and the judge 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 not established a
schedule to resume the proceeding.  Settlement discussions are
scheduled to resume in June 2009.  PPL and PPL Energy Supply cannot
predict the outcome of this matter.





Montana Hydroelectric
Litigation





In
November 2004, PPL Montana, Avista Corporation (Avista) 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
hydroelectric facilities' use and occupancy of streambeds in Montana can be
collected by the State of Montana.  This request 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 beds of Montana's navigable rivers became state-owned trust
property upon Montana's admission to statehood, and that the use of them for
placement of dam structures, affiliated structures and reservoirs should, under
a 1931 regulatory scheme enacted after all but one of the dams in question were
constructed, trigger lease payments for use of land beneath.  In July
2006, the Montana state court approved a stipulation by the State of Montana
that it is not seeking lease payments or other compensation from PPL Montana for
the period prior to PPL Montana's acquisition of the hydroelectric facilities in
December 1999.





In June
and October 2007, Pacificorp and Avista, respectively, entered into settlement
agreements with the State of Montana providing, in pertinent part, that each
company would make prospective lease payments of $50,000 and $4 million per year
for use of the State's navigable streambed (adjusted annually for inflation and
subject to other future adjustments).  Under these settlement
agreements, the future annual payments resolved the State's claims for both past
and future compensation.





In the
October 2007 trial of this matter, the State of Montana asserted that PPL
Montana should make a prospective lease payment for use of the State's
streambeds of $6 million per year (adjusted annually for inflation) and a
retroactive payment of compensation for the 2000-2006 period (including
interest) of $41 million.  PPL Montana vigorously contested both such
assertions.





In June
2008, the District Court issued a decision awarding compensation of
approximately $34 million for prior years and approximately $6 million for 2007
compensation.  The Court also deferred the determination of
compensation for 2008 and future years to the Montana State Land
Board.





PPL
Montana believes that the District Court's decision and a number of its pretrial
rulings are erroneous.  In October 2008, PPL Montana filed an appeal
of the decision to the Montana Supreme Court and a stay of judgment, including a
stay of the Land Board's authority to assess compensation against PPL Montana
for 2008 and future periods.  PPL Montana timely filed its opening
appellate brief in February 2009.





PPL
Montana believes it is reasonably possible that a liability for prior use and
occupancy of certain Montana streambeds may ultimately be incurred for the
periods 2000 through 2006, and the amount awarded by the District Court
represents the maximum exposure.  PPL Montana has not recorded a loss
accrual for this portion of the State's claim.





For 2007
and subsequent years, PPL Montana believes it is probable that its hydroelectric
projects will be subject to annual estimated compensation ranging from $300,000
to $6 million.  Given that there was no single amount within that
range more likely than any other, PPL Montana is annually accruing
$300,000.





PPL
Montana will continue to assess the loss exposure for the Montana hydroelectric
litigation in future periods.





Regulatory
Issues





Pennsylvania
Activities (PPL
and PPL Electric)





In May
2007, the PUC approved final regulations regarding the obligation of
Pennsylvania electric utilities to provide default electricity supply in 2011
and beyond.  The 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 electricity supply
costs.  The final regulations became effective in September
2007.  See "Energy Purchase Commitments" for details of PPL Electric's
competitive solicitations under the PUC regulations.





In June
2008, the Pennsylvania General Assembly (General Assembly) passed, and the
Governor signed, a bill that would create a $650 million fund for clean energy
projects, conservation and energy efficiency initiatives and pollution control
projects to be funded through revenue bonds and gross receipts tax revenue,
which will increase as rate caps expire.





For the
past few years, PPL and PPL Electric have been working with Pennsylvania
legislators, regulators and other stakeholders to develop constructive measures
to help customers transition to market rates after 2009, including a variety of
rate mitigation, educational and energy conservation programs, consistent with
several initiatives being developed by the State Administration and
legislature.  In this regard, in November 2007, PPL Electric requested
the PUC to approve a plan under which its residential and small commercial
customers could phase-in the impact of price increases when generation rate caps
expire in 2010.  Under the phase-in plan approved by the PUC and
implemented in October 2008, customers can pay additional amounts with their
electric bills beginning in mid-2008 and continuing through 2009, and such
additional amounts, plus accrued interest of 6%, will be applied to their 2010
and 2011 electric bills, mitigating the impact of the rate cap
expiration.  The phase-in plan is available on an "opt-in" basis
(i.e., customers must affirmatively enroll) and is available to customers
enrolled in budget billing.  To date, over 140,000 customers have
enrolled in the program.





In
February 2009, PPL Electric asked the PUC for permission to offer customers a
second option for reducing the potential initial impact of higher electricity
prices resulting from expiration of generation rate caps.  If approved
by the PUC, this option would enable eligible residential and eligible
small-business customers to defer payment of any increase greater than 25% in
their 2010 electric bills.  The 25% will be calculated on an average
rate schedule usage basis, and will be based on a comparison of currently
estimated 2009 bills to currently estimated 2010 bills.  Deferred
amounts, plus interest of 6%, would be repaid by customers over a one- or
two-year period, depending on their level of electricity use.  All
deferrals would be repaid by the end of 2012.  Like the phase-in plan,
the deferral option would be available on an "opt-in" basis.  Pending
PUC approval of this option, customers will be invited to enroll by December 15,
2009.





Also, the
General Assembly passed and the Governor signed into law Act 129 in October
2008.  The law creates an energy efficiency and conservation program
and smart metering technology requirements, adopts new PLR electricity supply
procurement rules, provides remedies for market misconduct, and makes changes to
the existing Alternative Energy Portfolio Standard.





Under Act
129, Electric Distribution Companies (EDC) must develop and file an energy
efficiency and conservation plan with the PUC.  EDC must contract with
a conservation service provider to implement all or a portion of the
plan.  Act 129 requires reduction in consumption of 1% by 2011 and 3%
by 2013, and a reduction in peak demand of 4.5% by 2013.  EDC will be
able to recover the costs of implementing an energy efficiency and conservation
plan.  These costs are capped at 2% of the EDC's 2006
revenue.





Act 129
also requires installation of smart meters under the following
conditions:  for new construction, upon the request of consumers at
their cost, or on a depreciation schedule not exceeding 15 years.  PPL
Electric's current advanced metering technology generally meets the definition
of smart metering technology in Act 129 and does not need to be
replaced.  Under Act 129, EDC will be able to recover the costs of
providing smart metering technology.





Act 129
also requires the default service provider (DSP) to provide electric generation
supply service to customers pursuant to a PUC-approved competitive procurement
plan through auctions, requests for proposal and bilateral contracts at the sole
discretion of the DSP.  Act 129 requires a mix of spot market
purchases, short-term contracts and long-term contracts (4 to 20 years, with
long-term contracts limited to up to 25% of the load unless otherwise approved
by the PUC).  The DSP will be able to recover the costs associated
with a competitive procurement plan.





Under Act
129, the DSP competitive procurement plan must ensure adequate and reliable
service "at least cost to customers" over time.  Act 129 also grants
the PUC authority to extend long-term power contracts up to 20 years, if
necessary, to achieve the "least cost" standard.





Act 129
also provides for market misconduct corrective actions.  In the event
that an EDC, its affiliate or a supplier from whom the EDC has purchased power,
is found guilty of market manipulation, the PUC can direct an EDC to take any
and all reasonable action to quantify the effect of the market misconduct on
Pennsylvania ratepayers and seek recompense.





Act 129
also makes changes to the Alternative Energy Portfolio Standards by adding
Pennsylvania biomass energy and small hydroelectric plants as Tier 1 alternative
energy sources and requiring the PUC automatically to increase the Tier 1
requirements to account for increases in the additional resources.





Act 129
also requires the Pennsylvania Department of Conservation and Natural Resources
to complete a study to identify suitable geological formations for the location
of a state carbon sequestration network.





Act 129
does not address rate mitigation.  The Governor, in his February 2009
budget address, called for a mandatory phase-in of electricity price increases
over a three- or four-year period beginning when rate caps
expire.  This phase-in for PPL Electric would begin in
2010.  Legislation has been introduced that would allow eligible
customers to defer payment of certain increases at the time that rate caps
expire and allow the EDC to recover these deferred amounts following the
expiration of rate caps.  There are several bills that address such a
phase-in.  The provisions of the bills differ as to the permitted
level of increases in customer bills (ranging from 15% to 25%) and the inclusion
of language specifically authorizing EDC to recover associated carrying
costs.  PPL and PPL Electric have expressed strong concern regarding
the potential adverse consequences of some of these measures on the financial
health and credit quality of PPL Electric.





Certain
Pennsylvania legislators have introduced legislation to extend generation rate
caps or otherwise limit cost recovery through rates for Pennsylvania utilities
beyond their transition periods, which in PPL Electric's case would be December
31, 2009.  PPL and PPL Electric have expressed strong concern
regarding the severe potential consequences of such legislation on customer
service, system reliability, adequate future generation supply and PPL
Electric's financial viability.  If such legislation or similar
legislation were ultimately enacted, PPL Electric could experience substantial
operating losses, cash flow shortfalls and other adverse financial
impacts.  In addition, continuing uncertainty concerning PPL
Electric's ability to recover its market supply and other costs of operation
after 2009 could adversely impact its credit quality, financing costs and
availability of credit facilities necessary to operate its
business.  PPL and PPL Electric believe that such an extension of rate
caps, if enacted into law, would violate federal law and the U.S.
Constitution.  At this time, PPL and PPL Electric cannot predict the
final outcome or impact of this legislative and regulatory process.





FERC Transmission
Rates (PPL
and PPL Electric)





In August
2008, PPL Electric asked the FERC for a change in the way transmission rates are
calculated to support continued investment in its transmission system by
switching to formula-based rates.  Under formula-based rates, a fixed
earnings level is set for the utility, and the utility annually adjusts its
transmission rates, subject to FERC review, to reflect changes in
costs.  The process offers an opportunity for public
input.  The proposed rate design would ensure that there is no
over-recovery or under-recovery of the actual costs of providing transmission
delivery service.  The rate change request, if approved, would result
in a monthly increase of $0.74 for an average PPL Electric residential
customer.  This request would not affect generation charges or
distribution rates.  PPL Electric requested that the proposed rate
take effect November 1, 2008.





In
October 2008, the FERC accepted the proposed rate for filing, effective November
1, 2008, subject to refund.  The FERC did not adjust the requested
return on equity of 12.84%, which included 50 basis points for membership in
PJM.  Finally, the FERC set the matter for hearing, but held the
hearings in abeyance to provide time to establish settlement judge
procedures.  Settlement discussions are now underway among PPL
Electric, FERC staff and several intervening parties.  PPL Electric
cannot predict the outcome of this matter.





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 October 2000 through June 2001, of which $17 million has not been paid to
PPL subsidiaries.  Given the myriad of electricity supply problems
faced by the California electric utilities and the California ISO, PPL cannot
predict whether or when it will receive payment.  At March 31,
2009, 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.  In February 2008, the FERC initiated
proceedings to determine whether it would be appropriate to grant additional
refunds.  The FERC also instituted settlement proceedings to explore
whether a settlement is possible.





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.  In August 2007, the U.S. Court of Appeals for the Ninth
Circuit reversed the FERC's decision and ordered the FERC to consider additional
evidence.  The FERC also commenced additional investigations relating
to "gaming" and bidding practices during 2000 and 2001, but neither PPL
EnergyPlus nor PPL Montana believes it is a subject of these
investigations.





In
February 2004, the Montana Public Service Commission 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
RPM Litigation (PPL,
PPL Energy Supply and PPL Electric)





In May
2008, a group of state public utility commissions, state consumer advocates,
municipal entities and electric cooperatives, industrial end-use customers and a
single electric distribution company (collectively, the RPM Buyers) filed a
complaint before the FERC objecting to the prices for capacity under the PJM
Reliability Pricing Model (RPM) that were set in the 2008-09, 2009-10 and
2010-11 RPM base residual auctions.  The RPM Buyers requested that the
FERC reset the rates paid to generators for capacity in those periods to a
significantly lower level.  Thus, the complaint requests that
generators be paid less for those periods through refunds and/or prospective
changes in rates.  The relief requested in the complaint, if granted,
could have a material effect on PPL, PPL Energy Supply and PPL
Electric.  PJM, PPL and numerous other parties have responded to the
complaint, strongly opposing the relief sought by the RPM Buyers.  In
September 2008, the FERC entered an order denying the complaint.  PPL
cannot predict the outcome of this proceeding.





In
December 2008, the PJM submitted amendments to certain provisions governing its
RPM capacity market.  The amendments were intended to permit the
compensation available to suppliers that provide capacity, like PPL Energy
Supply, to increase.  The PJM sought approval of the amendments in
time for them to be implemented for the next capacity auction that will occur in
May 2009 (for service in June 2012 through May 2013).  Numerous
parties, including PPL, protested the PJM's filing.  Certain of the
protesting parties proposed changes to the capacity market auction that would
result in a reduction in compensation to capacity suppliers.  The
changes proposed by the PJM and by other parties in response to the PJM
proposals could significantly affect the compensation available to suppliers of
capacity participating in future RPM auctions.  In April 2009, the
FERC entered an order approving in part and disapproving in part the changes
proposed by PJM.  FERC's order is subject to timely rehearing
petitions and appeals.  PPL cannot predict the outcome of this
proceeding.





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.  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 its 2006 order.  Subsequently, various parties in this
proceeding filed appeals of the order with the U.S. Court of Appeals for the
Ninth Circuit.  In September 2007, a party also filed a complaint with
the FERC seeking additional refunds in the event that the U.S. Court of Appeals
overturns or reverses the FERC 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.





In
January 2008, pursuant to the schedule established by FERC orders, PPL's
subsidiaries made another market-based rate renewal filing for all Eastern
subsidiaries in the PJM, New England and New York regions, including PPL
Electric, PPL EnergyPlus and most of PPL Generation's
subsidiaries.  In October 2008, the FERC renewed these subsidiaries'
market-based rate authority as requested.





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 that 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.  In June 2008,
the U.S. Supreme Court reversed one of the decisions of the U.S. Court of
Appeals for the Ninth Circuit, thus upholding the higher standard of review for
modifying contracts.  The FERC has not yet taken action in response to
these recent court decisions.  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.





IRS Synthetic Fuels Tax
Credits(PPL
and PPL Energy Supply)





PPL,
through its subsidiaries, had interests in two synthetic fuel production
facilities:  the Somerset facility, which was located in Pennsylvania,
and the Tyrone facility, which was located in Kentucky.  PPL received
tax credits pursuant to Section 29/45K of the Internal Revenue Code based on the
sale of synthetic fuel from these facilities.  The Section 29/45K tax
credit program expired at the end of 2007, and production of synthetic fuel at
these facilities and all other synthetic fuel operations ceased as of December
31, 2007.  The facilities were dismantled and retired in
2008.





In April
2008, the IRS published the domestic first purchase price (DFPP) for the prior
year indicating that the DFPP reference price increased above PPL's estimated
price levels for 2007 and the inflation-adjusted phase-out range decreased from
PPL's estimate for 2007.  Therefore, PPL recorded an expense of $13
million ($0.04 per share, basic and diluted, for PPL) in the first quarter of
2008, to "Income Taxes" on the Statement of Income to account for this
difference.





Energy Policy Act of 2005 -
Reliability Standards(PPL,
PPL Energy Supply and PPL Electric)





In August
2005, the Energy Policy Act of 2005 (the 2005 Energy Act) was signed into
law.  The 2005 Energy Act is comprehensive legislation that
substantially affects the regulation of energy companies.  The Act
amends federal energy laws and provides the FERC with new oversight
responsibilities.  Among the important changes implemented under this
legislation is the appointment of the NERC to establish and enforce
mandatory reliability standards (Reliability Standards) regarding the bulk power
system.  The FERC will oversee this process and independently enforce
the Reliability Standards.





The
Reliability Standards have the force and effect of law and apply to certain
users of the bulk power electricity system, including electric utility
companies, generators and marketers.  The FERC has indicated it
intends to enforce vigorously the Reliability Standards using, among other
means, civil penalty authority.  Under the Federal Power Act, the FERC
may assess civil penalties of up to $1 million per day, per violation, for
certain violations.  The first group of Reliability Standards approved
by the FERC became effective in June 2007.





In
September 2007, PPL Electric self-reported to the RFC that PPL Electric had
identified a potential violation of certain reliability requirements and
submitted an accompanying mitigation plan.  In February 2008, the RFC
notified PPL Electric that it had completed its investigation, accepted PPL
Electric's mitigation plan and issued a Notice of Alleged
Violation.  In September 2008, the RFC issued its Notice of Confirmed
Violation concerning this matter.  Any RFC determination remains
subject to the approval of the NERC and the FERC.  At this time, PPL
Electric cannot predict the outcome of this matter.





In the
course of implementing its program to ensure compliance with the Reliability
Standards by those PPL affiliates subject to the standards, PPL anticipates that
certain other instances of potential non-compliance may be identified from time
to time.  PPL cannot predict the fines or penalties that may be
imposed.





U.K. Overhead Electricity
Networks(PPL
and PPL Energy Supply)





In 2002
and for safety reasons, the U.K. Government issued guidance that low voltage
overhead electricity networks within three meters horizontal clearance of a
building should either be insulated or relocated.  This imposed a
retroactive requirement on existing assets that were built with lower
clearances.  In 2008, following extensive discussion, the U.K.
Government determined that the U.K. electricity network should comply with the
guidance issued.  WPD estimates that the cost of compliance will be
approximately $81 million and is expected to be allowed to be recovered through
rates.  The Government has determined that WPD (South Wales) should
comply by 2015 and WPD (South West) by 2018.





To
improve network reliability, in January 2009 the U.K. Government enforced a
regulation requiring network operators to implement a risk-based program over 25
years to clear trees within falling distance of key high-voltage overhead lines.
WPD estimates that the cost of compliance will be approximately $93 million over
the 25-year period and is expected to be allowed to be recovered through
rates.





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, curtail, 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 emissions causing acid deposition, attainment of
federal ambient air quality standards and toxic air emissions and visibility
standards in the U.S.  Amendments to the Clean Air Act requiring
additional emission reductions are likely to continue to be proposed in the U.S.
Congress.  The Clean Air Act allows states to develop more stringent
regulations and in some instances, as discussed below, Pennsylvania and Montana
have chosen to do so.





Clean
Air Interstate Rule (CAIR)





Citing
its authority under the Clean Air Act, in 1997, the EPA developed new standards
for ambient levels of ozone and fine particulates in the U.S.  To
facilitate attainment of these standards, the EPA promulgated the 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 nitrogen oxides emissions to a year-round program starting in
2009.  The CAIR required 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 allowed
these reductions to be achieved through cap-and-trade programs.





In July
2008, the United States Court of Appeals for the D.C. Circuit (the U.S. Circuit
Court) issued a ruling that invalidated CAIR in its entirety, including its
cap-and-trade program.  The U.S. Circuit Court did not overturn the
previously existing cap-and-trade program for sulfur dioxide reductions under
the acid rain program or the previously existing cap-and-trade program for
reductions in nitrogen oxides during the ozone season.





In
December 2008, the U.S. Circuit Court remanded CAIR back to the EPA without
vacating the cap-and-trade program, effectively reinstating, at least
temporarily, CAIR and its annual-reduction requirement for nitrogen oxides and
the market for annual nitrogen oxide allowances.





As a
result of the July 2008 U.S. Circuit Court decision, it was PPL EnergyPlus'
position that the change of law permitted PPL EnergyPlus to terminate certain
put option contracts for annual nitrogen oxide allowances under
CAIR.  The counterparties disputed PPL EnergyPlus' right to terminate
the contracts and two lawsuits were filed in the U.S. District Court for the
Southern District of New York to resolve the disputes.  Both
counterparties sought damages for PPL EnergyPlus' failure to accept delivery of
the emission allowances.  These lawsuits have been dismissed pursuant
to settlement agreements entered into by PPL EnergyPlus and its
counterparties.





PPL
expects to meet the annual nitrogen oxide reductions required by CAIR in
2009.  However, the ultimate disposition of CAIR's cap-and-trade
program and the value of annual nitrogen oxide allowances remain
uncertain.  If the EPA revises CAIR to require more stringent emission
reductions or revises CAIR to eliminate the regional cap-and-trade program, the
costs of compliance are not now determinable, but could be
significant.





In 2006,
the EPA revised the ambient air quality standard for fine particulates and in
2008 the EPA tightened the ambient air quality standard for
ozone.  These more stringent standards could result in requirements to
reduce emissions of sulfur dioxide and nitrogen oxides beyond those required
under the CAIR.  If additional reductions were to be required, the
costs are not now determinable, but could be significant.
 
 To
continue meeting the sulfur dioxide reduction requirements under the acid rain
provisions of the Clean Air Act, and the reductions required by CAIR (remanded
by the U.S. Circuit Court but currently in place), PPL has installed scrubbers
at its Montour plant that are now in service.  PPL is continuing with
installation of scrubbers at its Brunner Island plant.  The
Unit 3 scrubber was placed in-service in April 2009, and the scrubber for
Units 1 and 2 is scheduled to be placed in-service in late fall of
2009.  PPL expects up to a 30 MW reduction in net generation
capability at the Brunner Island plant due to the estimated increase in station
service electrical usage during the scrubber operation.  In addition,
with respect to compliance with annual and ozone season nitrogen oxide reduction
requirements, PPL's plan is to operate the SCRs at Montour Units 1 and 2, to
utilize the existing combustion controls and to purchase any needed emission
allowances on the open market.
  Mercury





Also
citing its authority under the Clean Air Act, in May 2005, the EPA issued the
Clean Air Mercury Regulations (CAMR) that affect coal-fired
plants.  These regulations established 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 requirements to begin in January
2018.  However, in February 2008, the U.S. Circuit Court overturned
the EPA's rule.  Under this decision, the EPA must either properly
remove mercury from regulation under the hazardous air pollutant provisions of
the Clean Air Act or develop standards imposing MACT for electric generating
units.  In January 2009, the EPA stated that it will proceed with
developing MACT standards for mercury emissions from electric generating
units.  The costs of complying with such standards are not now
determinable, but could be significant.





Pennsylvania
adopted mercury rules more stringent than CAMR.  Pennsylvania's rules
establish mercury emission limits for each coal-fired generating facility
beginning in 2010, and require that mercury emission allowances under the EPA's
cap-and-trade program under CAMR be met at each unit without the benefit of an
emissions trading program, and that tighter emission limits based on the second
phase of the CAMR requirements be accelerated to begin in 2015.  In
light of the Court decision overturning CAMR, in September 2008, PPL filed a
complaint with the Pennsylvania Commonwealth Court (Commonwealth Court) seeking
to have the Pennsylvania mercury rule rescinded on the basis that it is
unlawful, invalid and unenforceable under the provisions of the Pennsylvania Air
Pollution Control Act.  In January 2009, the Pennsylvania Commonwealth
Court ruled that the state mercury rule was unlawful, invalid and
unenforceable.  The decision is on appeal to the Pennsylvania Supreme
Court.  Pending final resolution of this matter, PPL is evaluating its
mercury control plans and what steps it needs to take at this time.





Depending
on the outcome of the Pennsylvania mercury rule, PPL may need to have all of the
Brunner Island scrubbers in service by 2010 along with chemical injection
systems to achieve the Phase 1 mercury reduction requirements.  PPL
estimates that the capital cost of such chemical injection systems at Brunner
Island will be approximately $40 million.  For Montour, PPL plans to
operate the SCRs (already in place) year-round along with the scrubbers to
achieve compliance with Phase 1.  PPL is evaluating the mercury
reductions from these systems to determine whether further reductions are
needed.  If additional injection systems are required to assure
compliance, PPL estimates the cost of these systems to be approximately $32
million.





To meet
Pennsylvania's 2015 mercury reduction requirements, adsorption/absorption
technology with fabric filters may be required at most of PPL's Pennsylvania
coal-fired generating units if required reductions cannot be achieved by the
chemical injection systems.  Based on current analysis and industry
estimates, PPL estimates that if this technology were required at every one of
its Pennsylvania coal-fired generating units, the aggregate capital cost of
compliance would be approximately $530 million.





Montana
also has finalized mercury emission rules that require, by 2010, every
coal-fired generating plant in that state to achieve reduction levels more
stringent than the CAMR's 2018 requirements.  PPL is installing
chemical injection systems to meet these requirements.  PPL estimates
that its share of the capital cost for these systems in Montana will be
approximately $15 million.  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 if this technology
were required, its share of the capital cost to achieve compliance at its
Montana units would be approximately $140 million.





Regional
Haze and Visibility





In
addition to the above rules, the Clean Air Visibility Rule was issued by the EPA
in June 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.  Under the BART rule, PPL submitted to the Pennsylvania DEP its
analyses of the visibility impacts of particulate matter emissions from Martins
Creek Units 3 and 4, Brunner Island Units 2 and 3 and Montour Units 1 and
2.  PPL has not received any comments from the DEP on these
submissions.  The EPA had determined that meeting the requirements for
CAIR also met the BART requirements for sulfur dioxide and nitrogen
dioxide.





Also
under the BART rule, PPL submitted to the EPA its analyses of the visibility
impacts of sulfur dioxide, nitrogen oxides and particulate matter emissions for
Colstrip Units 1 and 2 and Corette.  PPL's analyses have shown that
further reductions are not needed.  The EPA has responded to PPL's
reports for Colstrip and Corette and requested further information and
analysis.  PPL completed further analysis and submitted addendums to
its initial reports for Colstrip and Corette.  In February 2009, PPL
received an information request for additional data related to the Colstrip
generating station non-BART affected emission sources. PPL responded to this
request in March 2009.





PPL
cannot predict whether any additional reductions will be required in
Pennsylvania or Montana.  If additional reductions are required, the
costs are not now determinable, but could be significant.





New
Source Review (NSR)





In 1999,
the EPA initiated enforcement actions against several electric generators,
asserting that older, coal-fired power plants operated by those generators have,
over time, been modified in ways that increased their emissions and subjected
them to more stringent NSR requirements under the Clean Air Act.  The
EPA subsequently issued information requests and notices of violation, and
commenced enforcement actions against other generators.  PPL received
such information requests for its Colstrip, Corette and Martins Creek
plants.  Although the EPA announced in 2005 that it would not bring
new enforcement actions under these NSR rules, the Justice Department recently
declared that it is now considering bringing such actions.  In April
2009, PPL received information requests for its Montour and Brunner Island
plants.





In
January 2009, PPL received a notice of violation from the EPA for projects
undertaken at the Keystone plant at which PPL is part owner.  The EPA
alleges that the projects were undertaken without proper NSR
oversight.  PPL cannot predict the outcome of this
proceeding.





States
and environmental groups also have brought enforcement actions alleging
violations of the NSR regulations by coal-fired plants, and PPL is unable to
predict whether such state or citizen enforcement actions will be brought with
respect to any of PPL affiliates' plants.





If PPL's
past activities are found to have violated the NSR regulations, then PPL must
install best available control technology for any pollutant found to have
significantly increased due to a major modification.  The costs to
install and operate such technology are not now determinable, but could be
significant.





Finally,
if the EPA regulates carbon dioxide emissions pursuant to the 2007 U.S. Supreme
Court decision on global climate change (as discussed below), carbon dioxide
emissions could become subject to the NSR provisions of the Clean Air
Act.  The implications are uncertain, as PPL is not aware of any
permitting authorities having implemented the NSR regulations for carbon dioxide
emissions.





Opacity





The New
Jersey DEP and certain New Jersey residents have raised environmental concerns
with respect to 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 studied the issue and as a result installed
chemical injection systems to reduce visible emissions.  If it is
determined that further 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





There is
concern nationally and internationally about global climate change and the
contribution of greenhouse gas emissions including, most significantly, carbon
dioxide from the combustion of fossil fuels.  This concern has led to
increased federal legislative proposals, actions at regional, state and local
levels, as well as litigation relating to greenhouse gas emissions, including an
April 2007 U.S. Supreme Court decision holding that the EPA has the authority to
regulate greenhouse gas emissions from new motor vehicles under the Clean Air
Act.  As a result of this decision, in July 2008 the EPA issued an
"Advance Notice of Proposed Rulemaking," proposing alternative approaches to
regulate carbon dioxide emissions.  Upon taking office in January
2009, President Obama reaffirmed statements he made during the presidential
campaign about his support for mandatory regulation of greenhouse gas emissions,
including a cap-and-trade system.  The new Administrator of the EPA
has indicated that the EPA is moving forward with regulation of greenhouse gas
emissions under the Clean Air Act, though the exact form of such regulation
remains unclear.  In April 2009, the EPA proposed a rule to
require economy-wide reporting of greenhouse gas emissions and the EPA
issued a proposed finding that greenhouse gases contribute to air pollution and
may endanger public health or welfare.  Also, increased pressure for
carbon dioxide emissions reduction is being initiated by investor and
environmental organizations, and the international community.  The
construction and operation of coal-fired power plants have received particularly
intense scrutiny.





PPL
believes future legislation and regulations that cap carbon dioxide emissions
from power plants are likely, although technology to efficiently capture, remove
and sequester carbon dioxide emissions is not presently available on a
commercial scale.  At the federal level, such legislation has received
support from President Obama and 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, including an economy-wide approach,
a gradual phase-in of greenhouse gas emission reduction targets and timetables,
and cost containment measures to limit the cost to the economy.  PPL
is also evaluating a discussion draft recently proposed by Representatives
Waxman and Markey on new clean air energy legislation.





At the
regional level, ten northeastern states signed a Memorandum of Understanding
(MOU) agreeing to establish a greenhouse gas emission cap-and-trade program,
called the Regional Greenhouse Gas Initiative (RGGI).  The program
commenced in January 2009 and calls 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 base levels by 2019.  Similar efforts
are under way in the western U.S. (the Western Regional Climate Action
Initiative (WCI)) and Midwestern states (the Midwestern Greenhouse Gas Reduction
Accord).





Pennsylvania
and Montana have not, at this time, established mandatory programs to regulate
carbon dioxide and other greenhouse gases.  Pennsylvania has not
stated an intention to join RGGI, but has enacted the Pennsylvania Climate
Change Act of 2008 (Act).  That Act established a Climate Change
Advisory Committee to advise the DEP on the development of a Climate Change
Action Plan.  PPL is participating on that Advisory
Committee.  Montana has joined the WCI and is expected to participate
in any greenhouse gas emission control regulations that are adopted by the
WCI.  The WCI, which has a goal of reducing carbon dioxide emissions
15% below the 2005 levels by 2020, currently is developing greenhouse gas
emission allocations, offsets, and reporting recommendations.





PPL has
conducted an inventory of its carbon dioxide emissions and is continuing to
evaluate options for reducing, avoiding, off-setting or sequestering its carbon
dioxide emissions.  In 2008, PPL estimates that its power plants
emitted approximately 28 million tons of carbon dioxide (based on PPL's equity
share of these assets).





PPL
believes that the regulation of greenhouse gas emissions may have a material
impact on its future capital expenditures and operations, but the costs are not
now determinable.  PPL also cannot predict the impact that any pending
or future federal or state climate change legislation requiring more stringent
environmental standards could have on PPL or its subsidiaries.





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 completed
studies, in conjunction with a group of natural resource trustees and the
Delaware River Basin Commission, evaluating the effects of the release on the
river's sediment, water quality and ecosystem.





The
Pennsylvania DEP filed a complaint in Pennsylvania 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 were granted the right,
without objection from PPL, to intervene in the Pennsylvania DEP's
action.  PPL and the Pennsylvania DEP have settled this
matter.  The settlement required a payment of $1.5 million in
penalties and reimbursement of the DEP's costs.  PPL made this payment
in the second quarter of 2008.  The settlement also requires PPL to
submit a report on the completed studies of possible natural resource
damages.  PPL submitted the assessment report to the agencies in June
2007.  PPL met with the agencies in January 2009 to discuss the status
of their natural resource damage assessment and their review of the June 2007
report.  In March 2009, the agencies provided some limited information
on their projection of damages to the Delaware River resources from this release
and cleanup.  PPL has requested that the agencies provide further
details.  At this point, PPL is not certain whether the agencies will
require additional studies, but PPL does expect the trustees and the Delaware
River Basin Commission will seek to recover their costs and/or restoration costs
for damages that they can demonstrate were caused by the release.





Through
March 31, 2009, PPL Energy Supply spent $28 million for remediation and
related costs and an immaterial remediation liability remained.  PPL
and PPL Energy Supply cannot be certain of the outcome of the natural resource
damage assessment or associated costs, the outcome of any lawsuit brought by the
citizens and businesses or 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 release.





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
currently plans to spend up to $50 million to upgrade and/or replace certain
wastewater facilities in response to the seepages and for other facility
changes.  The potential additional cost to address the identified
seepages or other seepages 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 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 the first quarter
of 2008, PPL Montana recorded an additional reserve of $7 million ($0.01 per
share, basic and diluted, for PPL) to "Other operation and maintenance" on the
Statement of Income.  In July 2008, the plaintiffs and the
owner-defendants remaining after dismissal of NorthWestern due to its bankruptcy
executed a settlement agreement.  PPL Montana and the other remaining
owner-defendants funded the settlement, concluding the matter.  PPL
Montana's share of the settlement was approximately $8 million.  In
June 2008, PPL Montana recorded an insignificant reserve for its share of
potential additional settlements with three property owners living near the
original plaintiffs but who were not parties to the lawsuit.  PPL
Montana may incur additional costs related to the potential claims, including
additional groundwater investigations and any related remedial measures, which
are not now determinable, but could be significant.





In
February 2007, six plaintiffs filed a separate lawsuit in the Montana Sixteenth
Judicial District Court against the Colstrip plant owners asserting similar
property damage claims as were asserted by the plaintiffs to the May 2003
complaint.  The lawsuit is in its initial stages of discovery and
investigation, and PPL Montana is unable to predict the outcome of these
proceedings.  PPL Montana has undertaken certain groundwater
investigations and remediation at the Colstrip plant to address groundwater
contamination alleged by the plaintiffs as well as other groundwater
contamination at the plant.  PPL Montana may incur further costs based
on the outcome of this lawsuit and its additional groundwater investigations and
any related remedial measures, which are not now determinable, but could be
significant.





Other
Issues





The EPA
significantly increased the water quality standard for arsenic in January 2006,
but limited the standard to drinking water.  In Pennsylvania, at its
September 2008 meeting, the Environmental Quality Board approved the Triennial
Review, in which the arsenic standard had been proposed as an in-stream water
quality standard.  However, the Pennsylvania Independent Regulatory
Review Commission (IRRC) disapproved the Triennial Review because of a
molybdenum standard inserted by the DEP.  The IRRC determined that the
lower standard was not justified because the DEP did not have sufficient
scientific basis for the change.  The Triennial Review will not be
finalized until the DEP either submits data to prove the scientific basis for
the standard or drops the new standard from the Triennial
Review.  Therefore, the arsenic standard will not go into effect until
the Triennial Review is finalized.  Once finalized, the revised
arsenic standard may result in action by individual states that could require
several PPL subsidiaries to further treat wastewater and/or take abatement
action at their power plants.  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
finalized in 2004 that addressed existing structures has been withdrawn
following a January 2007 decision by the U.S. Court of Appeals for the Second
Circuit.  In April 2008, the U.S. Supreme Court granted petitions for
writs of certiorari filed by Utility Water Act Group, Public Service Enterprise
Group, Inc. and Entergy Corporation, and subsequently ruled that the EPA has
discretion to use cost-benefit analysis in determining the best technology
available for minimizing adverse environmental impact.  It is expected
that the EPA will incorporate this option in its revisions of the
rule.  How the cost-benefit analysis will be employed, other issues
raised by the Second Circuit Court (that were not reviewed by the U.S. Supreme
Court), and actions the states may take on their own, could result in stricter
standards for existing structures that could impose significant costs on PPL
subsidiaries.





The EPA
released its 2008 Effluent Guidelines Plan and has chosen not to revise the
steam electric effluent guidelines.  Instead, the EPA plans to
continue to study the industry's wastewater discharges, with a focus on
coal-fired plants and "particular interest" in Flue Gas Desulfurization
wastewater treatment, ash sluice water management and water reuse
opportunities.  The EPA plans to continue to study the industry
through 2009 and 2010 annual reviews, including sampling at selected
plants.





PPL has
signed a consent order with the Pennsylvania DEP under which it will take
further actions to minimize the possibility of fish kills at its Brunner Island
plant.  Fish are attracted to warm water in power plant discharge
channels, especially during cold weather.  In the past, fish kills
have occurred at Brunner Island when debris at intake pumps resulted in a unit
trip or reduction in load, causing a sudden change in water temperature in the
discharge channel when fish were present.





PPL paid
a nominal penalty to the DEP for fish kills that occurred in October 2007 and
March 2008.  In addition, PPL had committed to construct a barrier to
prevent debris from entering the intake area.  However, due to
potential impacts in the floodplain, PPL was not able to obtain the necessary
authorization from local townships and an alternative plan is being
developed.  PPL has also committed to investigate alternatives to
completely exclude fish from the discharge area.  PPL will need to
implement one of these alternatives if a fish kill occurs after construction of
the cooling towers at Brunner Island is completed in 2010.  The costs
of these measures are not now determinable, but could be
significant.





The EPA
and several states, including Montana, are considering establishing regulations
under the Resource Conservation and Recovery Act that could impact the disposal
and management of coal combustion products (CCPs), including ash and scrubber
wastes and other by-products.  The large ash release at a Tennessee
Valley Authority site in Tennessee in December 2008 and subsequent widespread
media coverage have significantly increased the likelihood of new federal
regulatory requirements for CCPs.  As a precursor to developing
regulations, the EPA issued letters in March 2009 to power plant owners,
including PPL subsidiaries, requesting information on the structural integrity
of their CCP disposal and associated water treatment
impoundments.  PPL has responded to the requests.  PPL
cannot predict at this time what the EPA's regulations may require and what
impact, if any, they would have on PPL's facilities.





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 and
the Ward Transformer site.  Clean-up actions have been or are being
undertaken at all of these sites, the costs of which have not been significant
to PPL.  However, should the EPA require different or additional
measures in the future, or should PPL's share of costs at multi-party sites
increase significantly more than currently expected, the costs to PPL could be
significant.





PPL
Electric has been remediating several sites that were not being addressed under
another regulatory program such as Superfund, but for which PPL Electric may be
liable for remediation.  These include a number of coal gas
manufacturing facilities formerly owned or operated by a predecessor to PPL
Electric.





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.  As a result of the EPA's evaluation,
individual states may establish stricter standards for water quality and soil
cleanup.  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 steps 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 March 31, 2009, PPL Energy Supply had accrued a
discounted liability of $24 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 based on risk-free rates at the time of the mine
closures.  The weighted average rate used was
8.18%.  Expected undiscounted payments are estimated at $1 million for
each of the years from 2009 through 2013, and the expected payments for the work
after 2013 are $144 million.





(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.





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 that EMFs cause adverse effects.  The agency
further noted that there is some epidemiological evidence of an association with
childhood leukemia, but that the evidence is difficult to interpret without
supporting laboratory evidence.  The U.K. National Radiological
Protection Board (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 the U.K., and the associated cost, or what, if
any, liabilities they might incur related to the EMF issue.





Environmental Matters - WPD(PPL
and PPL Energy Supply)





WPD's
distribution businesses are subject to environmental regulatory and statutory
requirements.  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 - Superfund and Other
Remediation - Electric and Magnetic Fields" for a discussion of
EMFs.





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 March 31,
2009, this maximum assessment was $38 million.  Effective April 1,
2009, this maximum assessment was $37 million.





In the
event of a nuclear incident at the Susquehanna station, PPL Susquehanna's public
liability for claims resulting from such incident would be limited to $12.5
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 $235 million per incident, payable
at $35 million per year.





At
March 31, 2009, the property, replacement power and nuclear incident
insurers maintained an A.M. Best financial strength rating of A
("Excellent").





Guarantees and Other
Assurances





(PPL,
PPL Energy Supply and PPL Electric)





In the
normal course of business, PPL, PPL Energy Supply and PPL Electric enter into
agreements that provide financial performance assurance to third parties on
behalf of certain subsidiaries.  Such agreements include, for example,
guarantees, stand-by letters of credit issued by financial institutions and
surety bonds issued by insurance companies.  These agreements are
entered into primarily to support or enhance the creditworthiness attributed to
a subsidiary on a stand-alone basis or to facilitate the commercial activities
in which these subsidiaries enter.





(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
and are specifically disclosed in Note 15 to the Financial Statements
contained in each Registrant's 2008 Form 10-K.  Other than noted in
footnote (i), the probability of expected payment/performance under each of
these guarantees is remote.





Recorded
      Liability atMarch 31,
      2009
              
              December
      31, 2008
              
              Exposure atMarch 31, 2009 (a)
              
              Expiration
      DatePPLIndemnifications
      for sale of PPL Gas Utilities
              
              
              
              
              
              
              
              $
              300
              (b)PPL
      Energy Supply(c)Letters
      of credit issued on behalf of affiliates
              
              
              
              
              
              
              
              
              10
              (d)
              
              2009
      to 2011Retroactive
      premiums under nuclear insurance programs
              
              
              
              
              
              
              
              
              38
              (e)Nuclear
      claims under The Price-Anderson Act Amendments under The Energy Policy Act
      of 2005
              
              
              
              
              
              
              
              
              235
              (f)Indemnifications
      for entities in liquidation and sales of assets
              
              $
              1
              
              $
              1
              
              
              8
              (g)
              
              2010
      to 2012Indemnification
      to operators of jointly-owned facilities
              
              
              
              
              
              
              
              
              6
              (h)WPD
      guarantee of pension and other obligations of unconsolidated
      entities
              
              
              2
              
              
              2
              
              
              28
              (i)
              
              2017Tax
      indemnification related to unconsolidated WPD affiliates
              
              
              
              
              
              
              
              
              7
              (j)
              
              2012Guarantee
      of a portion of an unconsolidated entity's debt
              
              
              1
              
              
              1
              
              
              22
              (k)
              
              2018





(a)
                        
                        Represents
      the estimated maximum potential amount of future payments that could be
      required to be made under the guarantee.(b)
                        
                        PPL
      has provided indemnification to the purchaser of PPL Gas Utilities and
      Penn Fuel Propane, LLC for damages arising out of any breach of the
      representations, warranties and covenants under the related transaction
      agreement and for damages arising out of certain other matters, including
      certain pre-closing unknown environmental liabilities relating to former
      manufactured gas plant properties or off-site disposal sites, if any,
      outside of Pennsylvania.  The indemnification provisions for
      most representations and warranties, including tax and environmental
      matters, are capped at 15% of the purchase price ($45.0 million), in the
      aggregate, and are triggered (i) only if the individual claim exceeds
      $50,000, and (ii) only if, and only to the extent that, in the aggregate,
      total claims exceed 1.5% of the purchase price ($4.5
      million).  The indemnification provisions for most
      representations and warranties survive for a period of one year after the
      closing.  Certain representations and warranties, including
      those having to do with transaction authorization and title, survive
      indefinitely, are capped at the purchase price and are not subject to the
      above threshold or deductible.  The indemnification provision
      for the tax matters representations survives for the duration of the
      applicable statute of limitations, and the indemnification provision for
      the environmental matters representations survives for a period of three
      years after the transaction closing.  The indemnification
      relating to unknown environmental liabilities for manufactured gas plants
      and disposal sites outside of Pennsylvania could survive more than three
      years, but only with respect to applicable property or sites identified by
      the purchaser prior to the third anniversary of the transaction
      closing.  The indemnification for covenants survives until the
      applicable covenant is performed and is not subject to any
      cap.(c)
                        
                        Other
      than the letters of credit, all guarantees of PPL Energy Supply and PPL
      Electric also apply to PPL on a consolidated basis.(d)
                        
                        Standby
      letter of credit arrangements under PPL Energy Supply's $300 million
      five-year credit facility for the purposes of protecting various third
      parties against nonperformance by PPL.  This is not a guarantee
      by PPL on a consolidated basis.(e)
                        
                        PPL
      Susquehanna is contingently obligated to pay this amount related to
      potential retroactive premiums that could be assessed under its nuclear
      insurance programs.  See "Nuclear Insurance" for additional
      information.(f)
                        
                        This
      is the maximum amount PPL Susquehanna could be assessed for each incident
      at any of the nuclear reactors covered by this Act.  See
      "Nuclear Insurance" for additional information.(g)
                        
                        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 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.  In 2009, $212 million of
      previously disclosed exposure expired.In
      addition to the $8 million exposure disclosed above, PPL Energy Supply has
      provided indemnification to the purchaser of a generating 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 is triggered only if the purchaser's
      losses reach $1 million in the aggregate, capped at 50% of the purchase
      price (or $95 million), and either expired in May 2007 or will expire
      pursuant to applicable statutes of limitations.  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 is capped at $4 million in the
      aggregate and survives for a maximum period of five years after the
      transaction closing.(h)
                        
                        In
      December 2007, a subsidiary of PPL Energy Supply executed revised owners
      agreements for two jointly-owned facilities, the Keystone and Conemaugh
      generating stations.  The agreements require that in the event
      of any default by an owner, the other owners fund contributions for the
      operation of the generating stations, based upon their ownership
      percentages.  The maximum obligation among all owners, for each
      station, is currently $20 million.  The non-defaulting owners,
      who make up the defaulting owner's obligations, are entitled to the
      generation entitlement of the defaulting owner, based upon their ownership
      percentage.  The agreements do not have an expiration
      date.(i)
                        
                        As
      a result of the privatization of the utility industry in the U.K., certain
      electric associations' roles and responsibilities were discontinued or
      modified.  As a result, certain obligations, primarily
      pension-related, associated with these organizations have been guaranteed
      by the participating members.  Costs are allocated to the
      members based on predetermined percentages as outlined in specific
      agreements.  However, if a member becomes insolvent, costs can
      be reallocated to and are guaranteed by the remaining
      members.  At March 31, 2009, WPD has recorded an estimated
      discounted liability based on its current allocated percentage of the
      total expected costs for which the expected payment/performance is
      probable.  Neither the expiration date nor the maximum amount of
      potential payments for certain obligations is explicitly stated in the
      related agreements.  Therefore, they have been estimated based
      on the types of obligations.(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.(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
indemnification or warranties related to services or equipment and vary in
duration.  The amounts of these guarantees often are not explicitly
stated, and the overall maximum amount of the obligation under such guarantees
cannot be reasonably estimated.  Historically, PPL, PPL Energy Supply
and PPL Electric and their subsidiaries have not made any significant payments
with respect to these types of guarantees and the probability of
payment/performance under these guarantees is remote.  At
March 31, 2009, the aggregate fair value of the indemnities related to
arrangements entered into subsequent to December 31, 2002 was
insignificant.





11.
            Related Party
Transactions





PLR
Contracts(PPL Energy
Supply and PPL Electric)





PPL
Electric has power purchase agreements with PPL EnergyPlus, effective July 2000
and January 2002, in which PPL EnergyPlus will supply PPL Electric's entire 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 March 31, 2009 and 2008, these purchases totaled $497 million
and $489 million.  These purchases include nuclear decommissioning
recovery and amortization of an up-front contract payment and are included in
the Statements of Income as "Wholesale energy marketing to affiliate" by PPL
Energy Supply, and as "Energy purchases from affiliate" by PPL
Electric.





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 March 31, 2009, the
fair value of the contract was approximately $429
million.  Accordingly, at March 31, 2009, 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 March 31, 2009 and
December 31, 2008.  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 "Interest Income from
Affiliates" on the Statements of Income.  For the three months ended
March 31, 2009 and 2008, interest related to this deposit was $1 million
and $3 million.





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 $9 million and
$12 million at March 31, 2009 and December 31, 2008.  These
balances are reflected on the Balance Sheets as "Deferred revenue on PLR energy
supply to affiliate" by PPL Energy Supply, and as "Prepayment on PLR energy
supply from affiliate" by PPL Electric.  The prepayment will be fully
amortized during 2009.





Under
Pennsylvania law and PUC regulations, PPL Electric is required to buy
electricity generation supply for customers who do not choose a competitive
supplier.  PPL Electric has conducted five of its six planned
competitive solicitations for generation supply in 2010, after its existing PLR
contract expires.  Competitive bids have been solicited for 4,250 MW,
or 83%, of PPL Electric's expected generation supply requirements for these
customers in 2010.  An independent company, NERA Economic Consulting
(NERA), is managing this competitive solicitation process.  NERA
compiles the results and presents them to the PUC.  See Note 10
for additional information on the results of the completed
solicitations.  The sixth competitive solicitation is scheduled for
October 2009.





PPL
EnergyPlus was one of the successful bidders in the first 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:  (a) 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 (b) 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.  At March 31, 2009, PPL Energy Supply provided
PPL Electric with an insignificant letter of credit as performance
assurance.





At March
31, 2009, PPL Electric had credit exposure to PPL EnergyPlus under the PLR
contracts and its solicitations for generation supply in 2010 of $429
million.  As a result of netting and collateral arrangements, PPL
Electric's credit exposure was reduced to zero.





PPL
Energy Supply has credit exposure to PPL Electric under the PLR contracts and
the solicitations for generation supply in 2010.  At March 31, 2009,
PPL Energy Supply's credit exposure with PPL Electric was $492 million,
excluding the effects of netting arrangements.  As a result of netting
arrangements, PPL Energy Supply's credit exposure was reduced to $63
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
March 31, 2009 and 2008, these NUG purchases totaled $20 million and $28
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 charges 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 distributed
between capital and expense.





Three
      Months Ended March 31,2009
      (a)
              
              2008PPL
      Energy Supply
              
              $
              55
              
              
              $
              51PPL
      Electric
              
              
              32
              
              
              
              27




(a)
              
              Excludes
      allocated costs associated with the February 2009 workforce
      reduction.  See Note 6 for additional
    information.
  Intercompany
Borrowings





(PPL
Energy Supply)





PPL
Energy Supply had no notes receivable from affiliates at March 31, 2009 and
December 31, 2008.  Interest earned on loans to affiliates, included
in "Interest Income from Affiliates" on the Statements of Income, was
insignificant and $2 million for the three months ended March 31, 2009 and
2008.





(PPL Electric)





In August
2004, a PPL Electric subsidiary issued a $300 million demand note to an
affiliate.  There was a $300 million balance outstanding at March 31,
2009 and December 31, 2008.  Interest is due quarterly at a rate
equal to the 3-month LIBOR plus 1%.  This note is shown on the Balance
Sheet as "Note receivable from affiliate."  Interest earned on the
note is included in "Interest Income from Affiliate" on the Statements of
Income, and was $2 million and $3 million for the three months ended
March 31, 2009 and 2008.





Intercompany Derivatives(PPL
Energy Supply)





In 2009
and 2008, 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 the translation of expected income denominated in British pounds
sterling to U.S. dollars.  At March 31, 2009, the total exposure
hedged was £68 million and the net fair value of these positions was not
significant.  No similar hedging instruments were outstanding at
December 31, 2008.  Gains and losses, both realized and unrealized, on
these types of hedging instruments are included in "Other income - net" on the
Statements of Income.  PPL Energy Supply recorded a net gain of $1
million and a net loss of $1 million for the three months ended March 31,
2009 and 2008.





PPL
Energy Supply is also party to forward contracts with PPL to sell British pounds
sterling to protect the value of a portion of its net investment in
WPD.  These hedging instruments have terms identical to forward sales
contracts entered into by PPL with third parties.  The total notional
amount of the contracts outstanding at March 31, 2009, was £60 million
(approximately $119 million based on contracted rates).  The fair
value of these positions was $32 million and $34 million at March 31, 2009 and
December 31, 2008, and is reflected in the foreign currency translation
adjustment component of AOCI on the Balance Sheets.  Additionally, $16
million was reflected in "Current Assets - Price risk management assets" on the
Balance Sheets at March 31, 2009 and December 31, 2008, and $16 million and $18
million was reflected in "Other Noncurrent Assets - Price risk management
assets" on the Balance Sheets at March 31, 2009 and December 31,
2008.





Trademark Royalties(PPL
Energy Supply)





A PPL
subsidiary owns PPL trademarks and bills certain affiliates for their
use.  PPL Energy Supply was allocated $11 million and $9 million of
this license fee for the three months ended March 31, 2009 and
2008.  These allocations are primarily included in "Other operation
and maintenance" on the Statements of Income.





Intercompany Insurance(PPL
Electric)





PPL Power
Insurance Ltd. (PPL Power Insurance) is a subsidiary of PPL that provides
insurance coverage to PPL and its subsidiaries for property damage,
general/public liability and workers' compensation.





PPL
Electric recorded recoveries on various insurance claims with PPL Power
Insurance of $3 million and $6 million for the three months ended March 31, 2009
and 2008, which were primarily included as offsets to "Other operation and
maintenance" on the Statements of Income.  PPL Electric paid premiums
of $2 million for both periods.





12.
            Other Income - net





(PPL,
PPL Energy Supply and PPL Electric)





The
breakdown of "Other Income - net" was:





Three
      Months Ended March 31,PPL
              
              2009
              
              2008Other
      IncomeGains
      related to the extinguishment of notes (Note 7)
              
              $
              29Interest
      income
              
              
              7
              
              
              $
              10Hyder
      liquidation distributions
              
              
              
              
              
              
              2Earnings
      on securities in the nuclear plant decommissioning trust
      funds (a)
              
              
              (16
              )
              
              
              (1
              )Miscellaneous
      - Domestic
              
              
              3
              
              
              
              1Total
              
              
              23
              
              
              
              12Other
      DeductionsMiscellaneous
      - Domestic
              
              
              4
              
              
              
              3Miscellaneous
      - International
              
              
              
              
              
              
              1Other
      Income - net
              
              $
              19
              
              
              $
              8PPL Energy
      SupplyOther
      IncomeGains
      related to the extinguishment of notes (Note 7)
              
              $
              25Interest
      income
              
              
              4
              
              
              $
              7Hyder
      liquidation distributions
              
              
              
              
              
              
              2Earnings
      on securities in the nuclear plant decommissioning trust
      funds (a)
              
              
              (16
              )
              
              
              (1
              )Miscellaneous
      - Domestic
              
              
              3
              
              
              
              1Total
              
              
              16
              
              
              
              9Other
      DeductionsMiscellaneous
      - Domestic
              
              
              3
              
              
              
              2Miscellaneous
      - International
              
              
              
              
              
              
              1Other
      Income - net
              
              $
              13
              
              
              $
              6PPL
      ElectricOther
      IncomeInterest
      income
              
              $
              2
              
              
              $
              2Other
      Income - net
              
              $
              2
              
              
              $
              2





(a)
            
            The
      three months ended March 31, 2009 and 2008, include charges of $17 million
      and $3 million for other-than-temporary impairments of securities held in
      the trust funds, which were recorded in the Supply
  segment.





13.
            Fair Value
Measurements





(PPL,
PPL Energy Supply and PPL Electric)





Fair
value is the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the
measurement date (an exit price).  PPL and its subsidiaries use, as
appropriate, a market approach (generally, data from market transactions), an
income approach (generally, present value techniques), and/or a cost approach
(generally, replacement cost) to measure the fair value of an asset or
liability.  These valuation approaches incorporate inputs such as
observable, independent market data and/or unobservable data that management
believes are predicated on the assumptions market participants would use to
price an asset or liability.  These inputs may incorporate, as
applicable, certain risks such as nonperformance risk, which includes credit
risk.





Recurring
Fair Value Measurements





March 31,
      2009
              
              December
      31, 2008Fair
      Value Measurements Using
              
              
              
              Fair
      Value Measurements UsingTotal
              
              Level
      1
              
              Level
      2
              
              Level
      3
              
              Total
              
              Level
      1
              
              Level
      2
              
              Level
      3PPLAssetsCash
      and cash equivalents
              
              $
              631
              
              
              $
              631
              
              
              
              
              
              
              
              
              
              
              $
              1,100
              
              
              $
              1,100Short-term
      investments
              
              
              150
              
              
              
              150
              
              
              
              
              
              
              
              
              
              
              
              150
              
              
              
              150Restricted
      cash and cash equivalents
              
              
              190
              
              
              
              190
              
              
              
              
              
              
              
              
              
              
              
              347
              
              
              
              347Price
      risk management assets:Energy
      commodities
              
              
              3,640
              
              
              
              14
              
              
              $
              3,456
              
              
              $
              170
              
              
              
              2,460
              
              
              
              19
              
              
              $
              2,143
              
              
              $
              298Interest
      rate/foreign exchange
              
              
              164
              
              
              
              
              
              
              
              119
              
              
              
              45
              
              
              
              156
              
              
              
              
              
              
              
              152
              
              
              
              43,804
              
              
              
              14
              
              
              
              3,575
              
              
              
              215
              
              
              
              2,616
              
              
              
              19
              
              
              
              2,295
              
              
              
              302Nuclear
      plant decommissioning trust funds:Cash
      and cash equivalents
              
              
              6
              
              
              
              6
              
              
              
              
              
              
              
              
              
              
              
              7
              
              
              
              7Equity
      securities
              
              
              179
              
              
              
              179
              
              
              
              
              
              
              
              
              
              
              
              166
              
              
              
              166Commingled
      equity index funds
              
              
              76
              
              
              
              
              
              
              
              76
              
              
              
              
              
              
              
              85
              
              
              
              
              
              
              
              85Debt
      securities:U.S.
      Treasury
              
              
              59
              
              
              
              59
              
              
              
              
              
              
              
              
              
              
              
              77
              
              
              
              77Municipality
              
              
              63
              
              
              
              
              
              
              
              63
              
              
              
              
              
              
              
              61
              
              
              
              
              
              
              
              61Corporate
              
              
              28
              
              
              
              
              
              
              
              28
              
              
              
              
              
              
              
              33
              
              
              
              
              
              
              
              33Other
              
              
              14
              
              
              
              
              
              
              
              14
              
              
              
              
              
              
              
              17
              
              
              
              
              
              
              
              17425
              
              
              
              244
              
              
              
              181
              
              
              
              
              
              
              
              446
              
              
              
              250
              
              
              
              196Auction
      rate securities
              
              
              22
              
              
              
              
              
              
              
              
              
              
              
              22
              
              
              
              24
              
              
              
              
              
              
              
              
              
              
              
              24$
              5,222
              
              
              $
              1,229
              
              
              $
              3,756
              
              
              $
              237
              
              
              $
              4,683
              
              
              $
              1,866
              
              
              $
              2,491
              
              
              $
              326LiabilitiesPrice
      risk management liabilities:Energy
      commodities
              
              $
              2,949
              
              
              $
              8
              
              
              $
              2,887
              
              
              $
              54
              
              
              $
              2,133
              
              
              $
              15
              
              
              $
              2,008
              
              
              $
              110Interest
      rate/foreign exchange
              
              
              18
              
              
              
              
              
              
              
              18
              
              
              
              
              
              
              
              27
              
              
              
              
              
              
              
              27$
              2,967
              
              
              $
              8
              
              
              $
              2,905
              
              
              $
              54
              
              
              $
              2,160
              
              
              $
              15
              
              
              $
              2,035
              
              
              $
              110PPL Energy
      SupplyAssetsCash
      and cash equivalents
              
              $
              119
              
              
              $
              119
              
              
              
              
              
              
              
              
              
              
              $
              464
              
              
              $
              464Short-term
      investments
              
              
              150
              
              
              
              150
              
              
              
              
              
              
              
              
              
              
              
              150
              
              
              
              150Restricted
      cash and cash equivalents
              
              
              169
              
              
              
              169
              
              
              
              
              
              
              
              
              
              
              
              328
              
              
              
              328Price
      risk management assets:Energy
      commodities
              
              
              3,640
              
              
              
              14
              
              
              $
              3,456
              
              
              $
              170
              
              
              
              2,460
              
              
              
              19
              
              
              $
              2,143
              
              
              $
              298Interest
      rate/foreign exchange
              
              
              108
              
              
              
              
              
              
              
              63
              
              
              
              45
              
              
              
              107
              
              
              
              
              
              
              
              103
              
              
              
              43,748
              
              
              
              14
              
              
              
              3,519
              
              
              
              215
              
              
              
              2,567
              
              
              
              19
              
              
              
              2,246
              
              
              
              302Nuclear
      plant decommissioning trust funds:Cash
      and cash equivalents
              
              
              6
              
              
              
              6
              
              
              
              
              
              
              
              
              
              
              
              7
              
              
              
              7Equity
      securities
              
              
              179
              
              
              
              179
              
              
              
              
              
              
              
              
              
              
              
              166
              
              
              
              166Commingled
      equity index funds
              
              
              76
              
              
              
              
              
              
              
              76
              
              
              
              
              
              
              
              85
              
              
              
              
              
              
              
              85Debt
      securities:U.S.
      Treasury
              
              
              59
              
              
              
              59
              
              
              
              
              
              
              
              
              
              
              
              77
              
              
              
              77Municipality
              
              
              63
              
              
              
              
              
              
              
              63
              
              
              
              
              
              
              
              61
              
              
              
              
              
              
              
              61Corporate
              
              
              28
              
              
              
              
              
              
              
              28
              
              
              
              
              
              
              
              33
              
              
              
              
              
              
              
              33Other
              
              
              14
              
              
              
              
              
              
              
              14
              
              
              
              
              
              
              
              17
              
              
              
              
              
              
              
              17425
              
              
              
              244
              
              
              
              181
              
              
              
              
              
              
              
              446
              
              
              
              250
              
              
              
              196Auction
      rate securities
              
              
              17
              
              
              
              
              
              
              
              
              
              
              
              17
              
              
              
              19
              
              
              
              
              
              
              
              
              
              
              
              19$
              4,628
              
              
              $
              696
              
              
              $
              3,700
              
              
              $
              232
              
              
              $
              3,974
              
              
              $
              1,211
              
              
              $
              2,442
              
              
              $
              321LiabilitiesPrice
      risk management liabilities:Energy
      commodities
              
              $
              2,949
              
              
              $
              8
              
              
              $
              2,887
              
              
              $
              54
              
              
              $
              2,133
              
              
              $
              15
              
              
              $
              2,008
              
              
              $
              110Interest
      rate/foreign exchange
              
              
              17
              
              
              
              
              
              
              
              17
              
              
              
              
              
              
              
              16
              
              
              
              
              
              
              
              16$
              2,966
              
              
              $
              8
              
              
              $
              2,904
              
              
              $
              54
              
              
              $
              2,149
              
              
              $
              15
              
              
              $
              2,024
              
              
              $
              110PPL
      ElectricAssetsCash
      and cash equivalents
              
              $
              345
              
              
              $
              345
              
              
              
              
              
              
              
              
              
              
              $
              483
              
              
              $
              483Restricted
      cash and cash equivalents
              
              
              15
              
              
              
              15
              
              
              
              
              
              
              
              
              
              
              
              15
              
              
              
              15$
              360
              
              
              $
              360
              
              
              
              
              
              
              
              
              
              
              $
              498
              
              
              $
              498





A
reconciliation of assets and liabilities classified as Level 3 at March 31,
2009, is as follows:





Fair
      Value Measurements Using Level 3 InputsEnergy
      Commodities, net
              
              Interest
      Rate/Foreign Exchange
              
              Auction
      Rate Securities
              
              TotalPPLBalance
      at December 31, 2008
              
              $
              188
              
              
              $
              4
              
              
              $
              24
              
              
              $
              216Total
      realized/
                unrealized
      gains (losses):Included
      in earnings
              
              
              (21
              )
              
              
              
              
              
              
              
              
              
              
              (21
              )Included
      in OCI
              
              
              (10
              )
              
              
              3
              
              
              
              (2
              )
              
              
              (9
              )Purchases,
      sales, issuances and settlements, net
              
              
              36
              
              
              
              
              
              
              
              
              
              
              
              36Transfers
      (out of) and/or into Level 3
              
              
              (77
              )
              
              
              38
              
              
              
              
              
              
              
              (39
              )Balance
      at March 31, 2009
              
              $
              116
              
              
              $
              45
              
              
              $
              22
              
              
              $
              183PPL Energy
      SupplyBalance
      at December 31, 2008
              
              $
              188
              
              
              $
              4
              
              
              $
              19
              
              
              $
              211Total
      realized/
                unrealized gains
      (losses):Included
      in earnings
              
              
              (21
              )
              
              
              
              
              
              
              
              
              
              
              (21
              )Included
      in OCI
              
              
              (10
              )
              
              
              3
              
              
              
              (2
              )
              
              
              (9
              )Purchases,
      sales, issuances and settlements, net
              
              
              36
              
              
              
              
              
              
              
              
              
              
              
              36Transfers
      (out of) and/or into Level 3
              
              
              (77
              )
              
              
              38
              
              
              
              
              
              
              
              (39
              )Balance
      at March 31, 2009
              
              $
              116
              
              
              $
              45
              
              
              $
              17
              
              
              $
              178





Gains and
losses on assets and liabilities classified as Level 3 and included in earnings
for the three months ended March 31, 2009, are reported in the Statement of
Income as follows for PPL and PPL Energy Supply:





Energy
      CommoditiesWholesale
      Energy Marketing
              
              Net
      Energy Trading Margins
              
              Energy
      PurchasesTotal
      gains (losses) included in earnings for the period
              
              $
              4
              
              
              $
              (9
              )
              
              $
              (16
              )Change
      in unrealized gains (losses) relating to positions still held at the
      reporting date
              
              
              2
              
              
              
              (1
              )
              
              
              (1
              )






A
reconciliation of assets and liabilities classified as Level 3 at March 31,
2008, is as follows:





Fair
      Value Measurements UsingLevel
      3 InputsEnergy
      Commodities, net
                
                Auction
      Rate Securities
                
                TotalPPLBalance
      at December 31, 2007
                
                $
                134
                
                
                
                
                
                
                $
                134Total
      realized/
                  unrealized gains
      (losses):Included
      in OCI
                
                
                73
                
                
                
                
                
                
                
                73Purchases,
      sales, issuances and settlements, netTransfers
      into Level 3
                
                
                
                
                
                $
                40
                
                
                
                40Balance
      at March 31, 2008
                
                $
                207
                
                
                $
                40
                
                
                $
                247PPL Energy
      SupplyBalance
      at December 31, 2007
                
                $
                134
                
                
                
                
                
                
                $
                134Total
      realized/
                  unrealized gains
      (losses):Included
      in OCI
                
                
                73
                
                
                
                
                
                
                
                73Purchases,
      sales, issuances and settlements, netTransfers
      into Level 3
                
                
                
                
                
                $
                35
                
                
                
                35Balance
      at March 31, 2008
                
                $
                207
                
                
                $
                35
                
                
                $
                242





Gains and
losses on assets and liabilities classified as Level 3 and included in earnings
for the three months ended March 31, 2008, were insignificant for PPL and
PPL Energy Supply.
 
 Price Risk Management
Assets/Liabilities - Energy Commodities
 
 To the
extent possible, fair value measurements utilize various inputs that include
quoted prices for similar contracts or market-corroborated inputs.  In
certain instances, these instruments may be valued using models, including
standard option valuation models and standard industry models.  For
example, the fair value of a structured deal that delivers power to an illiquid
delivery point may be measured by valuing the nearest liquid trading point plus
the value of the basis between the two points.  The basis input may be
from market quotes, FTR prices, or historical prices.
 
 When
unobservable inputs are significant to the fair value measurement, a contract is
classified as Level 3.  Additionally, Level 2 and Level 3 fair value
measurements include adjustments for credit risk based on PPL's own
creditworthiness (for net liabilities) and its counterparties' creditworthiness
(for net assets).  PPL's credit department continues to assess all
reasonably available market information and currently uses probabilities of
default to calculate the credit adjustment.  PPL assumes that observable
market prices include sufficient adjustments for liquidity and modeling risks,
but for Level 3 fair value measurements, PPL also assesses the need for
additional adjustments for liquidity or modeling risks.  The contracts
classified as Level 3 represent contracts for which the delivery dates are
beyond the dates for which independent prices are available or for power basis,
which PPL generally values using historical prices.
 
 Price Risk Management
Assets/Liabilities -Interest Rate/Foreign
Exchange
 
 The
valuation inputs for PPL Energy Supply's cross-currency swaps include forward
interest rates and foreign exchange rates, which are observable, and credit
valuation adjustments.  Given the duration of these swaps, PPL Energy
Supply cannot practicably obtain market information to value credit risk and
therefore relies on its own models.  These models use projected
probabilities of default based on historical observances.  When the
credit adjustment is significant to the overall valuation, the contracts are
classified as Level 3.
 
 Auction Rate
Securities
 
 PPL and
PPL Energy Supply's auction rate securities are recorded in "Investments -
Other" on the Balance Sheet and include Federal Family Education Loan Program
guaranteed student loan revenue bonds as well as various municipal bond issues,
all of which are rated investment grade.  Auction rate securities are
classified as Level 3 because failed auctions limit the amount of observable
market data that is available for measuring the fair value of these
securities.
 
 At
March 31, 2009 and December 31, 2008, the par value of these auction rate
securities totaled $29 million for PPL and $24 million for PPL Energy
Supply.  Contractual maturities for these auction rate securities are
a weighted average of approximately 27 years.  Despite failed auctions
in 2008 and 2009, PPL and PPL Energy Supply continued to earn interest on these
investments at contractually prescribed interest rates.
 
 At March
31, 2009 and December 31, 2008, PPL concluded the fair values of its auction
rate securities were $22 million and $24 million.  PPL Energy Supply
concluded the fair values of its auction rate securities were $17 million and
$19 million at these same periods.  The temporary declines from par value
were $7 million and $5 million at March 31, 2009 and December 31, 2008, for PPL
and PPL Energy Supply.  Because they have the intent and ability to
hold these securities until they can be liquidated at par value, PPL and
PPL Energy Supply believe they do not have significant exposure to realize
losses on these securities.  Based upon the evaluation of available
information, PPL and PPL Energy Supply believe these investments continue to be
of high credit quality and do not anticipate having to sell these securities to
fund operations.  As such, the declines in fair values are deemed
temporary due to general market conditions and have been reflected in AOCI for
PPL and PPL Energy Supply.


At March
31, 2009 and December 31, 2008, PPL and PPL Energy Supply estimated the fair
value of auction rate securities based on the following criteria:  (i)
the underlying structure and credit quality of each security; (ii) the present
value of future estimated interest and principal payments discounted using
interest rates for bonds with a credit rating and remaining term to maturity
similar to the stated maturity of the auction rate securities; and (iii)
consideration of the impact of auction failures or redemption at
par.  The estimated fair value of these securities could change
significantly based on future market conditions.





Nonrecurring Fair Value Measurements(PPL
and PPL Energy Supply)





Due to a
significant decline in market prices at March 31, 2009, PPL Energy Supply
assessed the recoverability of certain sulfur dioxide emission
allowances.  As a result, sulfur dioxide emission allowances with a
carrying amount of $45 million were written down to their estimated fair value
of $15 million, resulting in an impairment charge of $30
million.  This charge, recorded in the Supply segment for PPL and PPL
Energy Supply, is included in "Other operation and maintenance" on the Statement
of Income for the three months ended March 31, 2009.





When
available, observable market prices were used to value the sulfur dioxide
emission allowances.  When observable market prices were not
available, fair value was modeled using prices from observable transactions and
appropriate discount rates.  The modeled values were significant to
the overall fair value measurement.





March
      31, 2009Fair
      Value Measurements UsingTotal
              
              Level
      1
              
              Level
      2
              
              Level
      3
              
              LossSulfur
      dioxide emission allowances (a)
              
              $
              15
              
              
              
              
              
              
              
              
              
              
              $
              15
              
              
              $
              (30
              )





(a)
            
            Current
      and long-term sulfur dioxide emission allowances are included in "Other
      intangibles" in their respective areas on the Balance
    Sheet.





Normal
Purchases and Normal Sales(PPL, PPL Energy Supply and PPL
Electric)
 
 PPL and
PPL Energy Supply enter into full-requirement energy contracts, power purchase
agreements, certain retail energy and physical capacity contracts and certain
contracts to purchase emission allowances expected to be
consumed.  These contracts range in maturity through 2023 and qualify
for NPNS.  PPL Electric has also entered into contracts that qualify
for NPNS.  See "Energy Purchase Commitments" within Note 10 for
information about PPL Electric's competitive solicitations.  All of
these contracts are accounted for using the accrual method of accounting;
therefore, there were no amounts recorded on the Balance Sheets at
March 31, 2009 and December 31, 2008.  The estimated fair value
of these contracts was:


Net
      Asset (Liability)March
      31, 2009
              
              December
      31, 2008PPL
              
              $
              391
              
              
              $
              136PPL
      Energy Supply
              
              
              658
              
              
              
              239PPL
      Electric
              
              
              (267
              )
              
              
              (103
              )





14.
            Derivative Instruments and Hedging
    Activities





Risk
Management Objectives





(PPL,
PPL Energy Supply and PPL Electric)





PPL has a
risk management policy approved by the Board of Directors to manage market risk
and counterparty credit risk.  The RMC, comprised of senior management
and chaired by the Vice President-Risk Management, oversees the risk management
function.  Key risk control activities designed to ensure compliance
with the risk policy and detailed programs include, but are not limited to,
credit review and approval, validation of transactions and market prices,
verification of risk and transaction limits, VaR analyses, sensitivity analyses,
and daily portfolio reporting, including open positions, mark-to-market
valuations, and other risk management metrics.





Market
risk is the potential loss PPL and its subsidiaries may incur as a result of
price changes associated with a particular financial or commodity
instrument.





PPL and
PPL Energy Supply are exposed to market risk from:





·
            commodity
      price risk for energy and energy-related products associated with the sale
      of electricity from its generating assets and other electricity marketing
      activities and the purchase of fuel and fuel-related commodities for
      generating assets, as well as for proprietary trading
      activities;·
            interest
      rate and price risk associated with debt used to finance operations, as
      well as debt and equity securities in PPL's nuclear decommissioning trust
      funds and PPL's defined benefit plans; and·
            foreign
      currency exchange rate risk associated with investments in U.K.
      affiliates, as well as purchases of equipment in currencies other than
      U.S. dollars.





PPL and
PPL Energy Supply utilize forward contracts, futures contracts, options, swaps
and structured deals such as tolling agreements as part of the risk management
strategy to minimize unanticipated fluctuations in earnings caused by changes in
commodity prices, interest rates and foreign currency exchange
rates.  All derivatives are recognized on the balance sheet at their
fair value, unless they qualify for NPNS.





PPL
Electric is exposed to market risk from its load-following supply agreements for
its customers through 2010.





Credit
risk is the potential loss PPL and its subsidiaries may incur due to a
counterparty's non-performance, including defaults on payments and energy
commodity deliveries.





PPL and
PPL Energy Supply are exposed to credit risk from:





·
            commodity
      derivatives with its energy trading partners, which include other energy
      companies, fuel suppliers, and financial institutions;·
            interest
      rate derivatives with financial institutions; and·
            foreign
      currency derivatives with financial
  institutions.





PPL
Electric is exposed to credit risk from its load-following supply agreements for
its customers through 2010.





The
majority of the credit risk stems from PPL Energy Supply's and PPL Electric's
commodity derivatives for multi-year contracts for energy sales and
purchases.  If the counterparties fail to perform their obligations
under such contracts, PPL and its subsidiaries 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
its subsidiaries have credit policies to manage its credit risk, including the
use of an established credit approval process, daily monitoring of counterparty
positions, and the use of master netting agreements.  These agreements
generally include credit mitigation provisions, such as margin, prepayment or
collateral requirements.  PPL and its subsidiaries may request the
additional credit assurance, in certain circumstances, in the event that the
counterparties' credit ratings fall below investment grade or their exposures
exceed an established credit limit.





Commodity
Price Risk (Non-trading)




(PPL and PPL Energy
Supply)




Commodity
price risk is one of PPL's and PPL Energy Supply's most significant risks due to
the level of investment that PPL and PPL Energy Supply maintain in their
generation assets, as well as the extent of their marketing and proprietary
trading activities.  Several factors influence price levels and
volatilities.  These factors include, but are not limited to, seasonal
changes in demand, weather conditions, available generating assets within
regions, transportation availability and reliability within and between regions,
market liquidity, and the nature and extent of current and potential federal and
state regulations.





To hedge
the impact of market price fluctuations on PPL's and PPL Energy Supply's
energy-related assets, liabilities and other contractual arrangements, PPL
EnergyPlus sells and purchases physical energy at the wholesale level under FERC
market-based tariffs throughout the U.S. and enters into financial
exchange-traded and over-the-counter contracts.  Certain contracts
qualify for NPNS or are non-derivatives and are therefore not reflected in the
Financial Statements until delivery.  See Note 13 for additional
information on NPNS.  PPL and PPL Energy Supply segregate their
remaining non-trading activities into two categories:  cash flow hedge
activity and economic activity.





Cash Flow
Hedges





PPL and
PPL Energy Supply enter into financial and physical derivative contracts,
including forwards, futures, swaps and options, to hedge the price risk
associated with electric, gas, oil and other commodities.  Many of
these contracts have qualified for hedge accounting.  These contracts
range in maturity through 2017.  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
periods.In certain instances, amounts previously recorded in AOCI
are reclassified to earnings.  Such reclassifications during the three
months ended March 31, 2009 and 2008 were insignificant.





For the
three months ended March 31, 2009 and 2008, hedge ineffectiveness associated
with energy derivatives was, after tax, a gain of $12 million and
insignificant.





Additionally,
during the three months ended March 31, 2009, certain power and gas cash flow
hedges failed hedge effectiveness testing.  Hedge accounting is not
permitted for the quarter in which this occurs and, accordingly, the entire
change in fair value for the periods that failed was recorded to the income
statement, resulting in an after-tax gain of $67 million.  These
transactions were not dedesignated as hedges, since prospective regression
analysis demonstrates these hedges are expected to be highly effective over
their term.  The fair value of these positions increased significantly
due to the continued decline in power and gas prices during the three months
ended March 31, 2009.





At March
31, 2009, the accumulated net unrealized after-tax losses on qualifying energy
derivatives that are expected to be reclassified into earnings during the next
12 months were $18 million for PPL and PPL Energy Supply.  Amounts are
reclassified upon delivery of the energy contracts.





Economic
Activity





PPL
Energy Supply also uses derivative contracts to economically hedge the impact of
market price fluctuations on its energy-related assets, liabilities and other
contractual arrangements, which do not receive hedge accounting
treatment.  PPL Energy Supply refers to these transactions as economic
activity.  The economic activity category includes energy derivative
transactions that have previously qualified or could potentially qualify for
hedge accounting; however, these transactions have either been disqualified from
hedge accounting or management has not elected to designate them as accounting
hedges.  This category also includes transactions entered into to
optimize the economic value of PPL Energy Supply's generation assets or to hedge
their wholesale or retail load obligations.  These contracts range in
maturity through 2012.  Additionally, the ineffective portion of
qualifying cash flow hedges, including the entire change in fair value for
certain cash flow hedges that failed effectiveness testing during the current
period as discussed in the preceding "Cash Flow Hedges" section, is also
included when PPL Energy Supply reports its economic activity.





Examples
of transactions represented in this category include certain purchase contracts
used to supply full-requirement sales contracts; FTRs or basis swaps used to
hedge basis risk associated with the sale of generation or supplying
full-requirement sales contracts; spark spreads (sale of electricity with the
simultaneous purchase of fuel); retail gas activities; fair value hedges of fuel
inventory; and fuel oil swaps used to hedge price escalation clauses in coal
transportation and other fuel-related contracts.  PPL Energy Supply
also uses options, which include the sale of call options and the purchase of
put options tied to a particular generating unit.  Since PPL Energy
Supply owns the physical generating capacity, its price exposure is limited to
the cost of the particular generating unit and does not expose PPL Energy Supply
to uncovered market price risk.  PPL Energy Supply also purchases call
options or sells put options to create a net purchase position to cover an
overall short position in its non-trading portfolio.





The
unrealized gains (losses) for this activity are reflected in the Statements of
Income as follows:





Three
      Months Ended March 31,2009
              
              2008RevenuesUnregulated
      retail electric and gas
              
              $
              1Wholesale
      energy marketing
              
              
              352
              
              
              $
              (180
              )ExpensesFuel
              
              
              2
              
              
              
              7Energy
      purchases
              
              
              (269
              )
              
              
              259





The net
unrealized gains recorded in "Wholesale energy marketing" for the three months
ended March 31, 2009, resulted primarily from certain full-requirement sales
contracts in which PPL Energy Supply did not elect NPNS and from hedge
ineffectiveness as discussed in the "Cash Flow Hedges" section
above.  The net unrealized losses recorded in "Energy purchases" for
the three months ended March 31, 2009, resulted primarily from certain
purchase contracts to supply the full-requirement sales contracts noted above
for which PPL Energy Supply did not elect hedge treatment and from hedge
ineffectiveness.  Since power prices have decreased significantly
during the period, these fixed-price contracts have resulted in unrealized gains
and losses.





Commodity
Price Risk (Trading)





(PPL
and PPL Energy Supply)





PPL
Energy Supply also executes energy contracts to take advantage of market
opportunities.  As a result, PPL Energy Supply may at times create a
net open position in its portfolio that could result in significant losses if
prices do not move in the manner or direction anticipated.





Commodity
Volumetric Activity





(PPL
and PPL Energy Supply)





PPL
Energy Supply currently employs four primary strategies to maximize the value of
its wholesale energy portfolio.  As further discussed below, these
strategies include the sales of baseload generation, optimization of
intermediate and peaking generation, marketing activities, and proprietary
trading activities.  These transactions may be accounted for as either
accounting hedges or economic hedges.





Sales of Baseload
Generation





PPL
Energy Supply has a formal hedging program for its baseload generation fleet,
which includes 7,598 MWs of generating capacity.  The objective of
this program is to provide a reasonable level of near-term cash flow and
earnings certainty for the next three years; however, in certain instances, PPL
Energy Supply will sell power and purchase fuel beyond this three-year
period.  PPL Energy Supply sells its expected generation output on a
forward basis using both derivative and non-derivative
instruments.  Both are included in the following tables.





The
following table presents the expected sales, in GWh, of baseload generation
based on the five-year business plan assumptions for 2009-2013.  These
expected sales could be impacted by several factors, including plant
availability.





2009
      (a)
                
                2010
                
                2011
                
                2012
                
                2013
      - 2016 (b)39,060
                
                
                52,446
                
                
                52,416
                
                
                53,187
                
                
                210,908





(a)
            
            Represents
      expected sales from April 1, 2009 to December 31, 2009.(b)
            
            Amount
      based on 2013 volumes with no assumed change for 2014 through
      2016.





The
following table presents the percentage of expected baseload generation sales
shown above that has been sold forward under fixed price contracts and the
related percentage of fuel that has been purchased or committed at March 31,
2009:





Fuel
      Purchases % (c)Year
              
              Derivative
      Sales % (a)
              
              Total
      Power Sales % (b)
              
              Coal
              
              Nuclear2009
      (d)
              
              
              14%
              (e)
              100%
              
              
              
              100%
              
              
              
              100%2010
              
              
              79%
              
              
              
              91%
              
              
              
              98%
              
              
              
              100%2011
              
              
              51%
              
              
              
              59%
              
              
              
              77%
              
              
              
              100%2012
              
              
              29%
              
              
              
              36%
              
              
              
              59%
              
              
              
              100%2013-2016
              
              
              1%
              
              
              
              5%
              
              
              
              45%
              
              
              
              77%





(a)
            
            Excludes
      non-derivative contracts and contracts that qualify for
      NPNS.  Volumes for option contracts factor in the probability of
      an option being exercised and may be less than the notional amount of the
      option.  Percentages are based on fixed-price contracts
      only.(b)
            
            Amount
      represents derivative and non-derivative contracts. Volumes for option
      contracts factor in the probability of an option being exercised and may
      be less than the notional amount of the option.  Percentages are
      based on fixed-price contracts only.(c)
            
            Coal
      and nuclear contracts receive accrual accounting treatment, as they are
      not derivative contracts.Percentages are
      based on both fixed- and variable-priced contracts.(d)
            
            Represents
      the time period from April 1, 2009 to December 31,
2009.(e)
            
            The
      majority of PPL Energy Supply's baseload generation for 2009 is allocated
      to supplying the PLR contract with PPL Electric.  This contract
      is not a derivative contract.  The PLR contract expires on
      December 31, 2009.





In
addition to the fuel purchases above, PPL Energy Supply attempts to economically
hedge the fuel price risk that is within its fuel-related contracts and coal
transportation contracts, which are tied to changes in crude oil or diesel
prices.  The following table presents the volumes (in thousands of
barrels) of derivative contracts used in support of this strategy at March 31,
2009:





Contract
      Type
              
              2009
      (a)
              
              2010
              
              2011
              
              2012Oil
      Swaps
              
              
              405
              
              
              420
              
              
              408
              
              180





(a)
            
            Represents
      the time period from April 1, 2009 to December 31,
  2009.





Optimization of Intermediate
and Peaking Generation





In
addition to its baseload generation activities, PPL Energy Supply attempts to
optimize the overall value of its intermediate and peaking fleet, which includes
4,402 MWs of gas and oil-fired generation.  PPL Energy Supply uses
both option and non-option contracts to support this strategy.  The
following table presents the volumes of derivative contracts used in support of
this strategy at March 31, 2009:





Units
              
              2009
      (a)
              
              2010Net
      Power Sales:Options
      (b)
              
              
              GWh
              
              
              104
              
              
              186Non-option
      contracts
              
              
              GWh
              
              
              1,688
              
              
              69Net
      Power/Fuel Purchases:Options
      (b)
              
              
              GWh
              
              
              229Non-option
      contracts
              
              
              Bcf
              
              
              20.2
              
              
              0.9





(a)
            
            Represents
      the time period from April 1, 2009 to December 31,
2009.(b)
            
            Volumes
      for option contracts factor in the probability of an option being
      exercised and may be less than the notional amount of the
      option.





Marketing
Activities





PPL
Energy Supply's marketing portfolio is comprised of full-requirement energy
sales contracts and their related supply contracts, long-term power purchase
agreements, retail gas sales contracts and other marketing
activities.  The full-requirement sales contracts and their related
supply contracts make up a significant component of the marketing
portfolio.  The obligations under the full-requirement sales contracts
include supplying a bundled product of energy, capacity, renewable energy
credits (RECs), and other ancillary products.  PPL Energy Supply uses
a variety of strategies to hedge its full-requirement sales contracts, including
purchasing energy at a liquid trading hub or directly at the load delivery zone,
purchasing capacity and RECs in the market and supplying the energy, capacity
and RECs with its generation.  The
following table presents the volumes of (sales)/purchase contracts, excluding
FTRs and basis swaps, used in support of these activities at March 31,
2009:


Units
                            
                            2009
      (a)
                            
                            2010
                            
                            2011
                            
                            2012
                            
                            2013
      - 2017Energy
      sales contracts (b)
                            
                            
                            GWh
                            
                            
                            (16,968
                            )
                            
                            (25,441
                            )
                            
                            (9,390
                            )
                            
                            (3,402
                            )
                            
                            (8,938
                            )Related
      supply contractsEnergy
      purchases
                            
                            
                            GWh
                            
                            
                            16,465
                            
                            
                            21,592
                            
                            
                            7,824
                            
                            
                            2,673
                            
                            
                            6,306Volumetric
      hedges (c)
                            
                            
                            GWh
                            
                            
                            (193
                            )
                            
                            525Volumetric
      hedges (c)
                            
                            
                            Bcf
                            
                            
                            (3.0
                            )
                            
                            (0.4
                            )Generation
      supply
                            
                            
                            GWh
                            
                            
                            531
                            
                            
                            3,922
                            
                            
                            1,639
                            
                            
                            1,900
                            
                            
                            8,938
 (a)
                
                Represents
      the time period from April 1, 2009 to December 31,
2009.(b)
                
                The
      majority of PPL Energy Supply's full-requirement sales contracts receive
      accrual accounting as they qualify for NPNS or are not derivative
      contracts.  Also included in these volumes are the sales from
      PPL EnergyPlus to PPL Electric to supply PPL Electric's 2009 and 2010 load
      obligation.(c)
                
                PPL
      Energy Supply uses power and gas options, swaps and futures to hedge the
      volumetric risk associated with full-requirement sales contracts since the
      demand for power varies hourly.
 
 Through
May 2012, total capacity sales are 153,490 MW-months and total capacity
purchases are 6,040 MW-months.  These capacity obligations correspond
to capacity which is purchased from PJM’s Reliability Pricing Model and ISO New
England’s Forward Capacity Market auctions, for which prices have been set
through May 2012.  PPL Energy Supply has minimal price risk associated
with these obligations.  Additionally, PPL Energy Supply has
additional capacity sales of 155 MW-months through 2013 and capacity purchases
of 14,400 MW-months through 2016.
 
 As noted
above, PPL Energy Supply's marketing activities also include its retail gas
portfolio.  PPL Energy Supply has sold a total of 3.4 Bcf of gas to
retail customers through 2012.
 
 FTRs
and Other Basis Positions
 
 PPL
Energy Supply buys and sells FTRs and other basis positions to mitigate the
basis risk between delivery points related to the sales of its generation and
the supply of its full-requirement sales contracts, as well as for proprietary
trading purposes.  The following table presents the volumes of FTR and
basis (sales)/purchase contracts at March 31, 2009:
 
 Commodity
                
                
                Units
                
                2009
      (a)
                
                2010
                
                2011
                
                2012FTRs
                
                
                GWh
                
                
                19,169
                
                
                739
                
                
                192Power
      Basis Swaps
                
                
                GWh
                
                
                (3,003
                )
                
                (8,409
                )
                
                (876
                )
                
                (878
                )Gas
      Basis Swaps
                
                
                Bcf
                
                
                14.0
                
                
                1.9
                
                
                1.0
 
 (a)
              
              Represents
      the time period from April 1, 2009 to December 31,
  2009.




Proprietary Trading
Activity





At March
31, 2009, PPL Energy Supply's proprietary trading positions, excluding FTRs and
basis contracts, were not significant.





Interest
Rate Risk





(PPL
and PPL Energy Supply)





PPL and
its subsidiaries have issued debt to finance its operations, which results in an
exposure to interest rate risk.  PPL and its subsidiaries utilize
various financial derivative instruments to adjust the mix of fixed and floating
interest rates in its debt portfolio, adjust the duration of its debt portfolio
and lock in benchmark interest rates 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 and its subsidiaries' debt portfolio due to changes
in benchmark interest rates.





Cash Flow
Hedges





Interest
rate risks include exposure to adverse interest rate movements for outstanding
variable rate debt and for future anticipated financing.  PPL and PPL
Energy Supply may enter into financial interest rate swap contracts that qualify
as cash flow hedges to hedge floating interest rate risk associated with both
existing and anticipated debt issuances.  For PPL, these interest rate
swap contracts range in maturity through 2039 and had a notional value of $275
million at March 31, 2009.  For the three months ended March 31, 2009
and 2008, hedge ineffectiveness associated with these derivatives was not
significant.  No contracts were outstanding at PPL Energy Supply at
March 31, 2009.


WPDH
Limited holds a net notional position in cross-currency swaps totaling $302
million to hedge the interest payments and principal of its U.S.
dollar-denominated senior notes with maturity dates ranging from December 2017
to December 2028.  For the three months ended March 31, 2009 and 2008,
hedge ineffectiveness associated with these contracts was
zero.
 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
periods.  In certain instances, amounts previously recorded in AOCI
are reclassified to earnings.  PPL reclassified a net after-tax gain
of $2 million for the three months ended March 31, 2009.  There were
no such reclassifications for PPL Energy Supply for the three months ended March
31, 2009.  PPL and PPL Energy Supply had no such reclassifications in
2008.


At March
31, 2009, the accumulated net unrealized after-tax gains on qualifying
derivatives that are expected to be reclassified into earnings during the next
12 months were insignificant for PPL and $3 million for PPL Energy
Supply.  Amounts are reclassified as the hedged interest payments are
made.





Fair Value
Hedges





PPL and
PPL Energy Supply are exposed to changes in the fair value of their domestic and
international debt portfolios.  To manage this risk, PPL and PPL
Energy Supply may enter into financial contracts to hedge fluctuations in the
fair value of existing debt issuances due to changes in benchmark interest
rates.  At March 31, 2009, PPL held contracts that range in maturity
through 2047 and had a notional value of $450 million.  PPL Energy
Supply did not hold any such contracts at March 31, 2009.  PPL and PPL
Energy Supply did not recognize any gains or losses resulting from the
ineffective portion of fair value hedges or from a portion of the hedging
instrument being excluded from the assessment of hedge effectiveness for the
three months ended March 31, 2009 and 2008.  Additionally, PPL and PPL
Energy Supply did not recognize any gains or losses resulting from hedges of
debt issuances that no longer qualified as fair value hedges for the three
months ended March 31, 2009 and 2008.





Foreign
Currency Risk





(PPL
and PPL Energy Supply)





PPL and
PPL Energy Supply are exposed to foreign currency risk, primarily through
investments in U.K. affiliates.  In addition, PPL's and PPL Energy
Supply's domestic operations 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.





Cash Flow
Hedges


PPL and
PPL Energy Supply may enter into foreign currency derivatives associated with
foreign currency-denominated debt and the exchange rate associated with firm
commitments denominated in foreign currencies; however, at March 31, 2009, there
were no existing contracts of this nature.  Amounts previously
classified in AOCI are reclassified as the hedged interest payments are made and
as the related equipment is depreciated.
 
 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
periods.  In certain instances, amounts previously recorded in AOCI
are reclassified to earnings.  There were no such reclassifications
during the three months ended March 31, 2009 and 2008.





Fair Value
Hedges





PPL and
PPL Energy Supply enter into foreign currency forward contracts to hedge the
exchange rates associated with firm commitments denominated in foreign
currencies; however, at March 31, 2009, there were no existing contracts of this
nature.  PPL and PPL Energy Supply did not recognize any gains or
losses resulting from the ineffective portion of fair value hedges or from a
portion of the hedging instrument being excluded from the assessment of hedge
effectivenessfor the three months ended March 31, 2009 and
2008.  Additionally, PPL and PPL Energy Supply did not recognize any
gains or losses resulting from hedges of firm commitments that no longer
qualified as fair value hedges for the three months ended March 31, 2009 and
2008.





Net Investment
Hedges





PPL and
PPL Energy Supply may enter into foreign currency contracts to protect the value
of a portion of their net investment in WPD.  The total notional
amount of the contracts outstanding at March 31, 2009 was £60
million.  The settlement dates of these contracts range from June 2009
through June 2011.  At March 31, 2009, the fair value of these
positions was a gain of $32 million.  For the three months ended March
31, 2009 and 2008, PPL and PPL Energy Supply recognized net investment hedge
gains, after tax, of $1 million and $2 million in the foreign currency
translation adjustment component of OCI.  At March 31, 2009, $17
million of accumulated net investment hedge gains, after tax, were included in
the foreign currency translation adjustment component of AOCI compared with $16
million of gains at December 31, 2008.  See Note 11 for additional
information.





Economic
Activity





PPL and
PPL Energy Supply may enter into foreign currency contracts as an economic hedge
of anticipated earnings valued in British pounds sterling.  At March
31, 2009, the total exposure hedged was £68 million and the net fair value of
these positions was not significant.  These contracts have termination
dates ranging from April 2009 to December 2009.  No similar hedging
instruments were outstanding at December 31, 2008.  Gains and
losses, both realized and unrealized, on these contracts are included in "Other
income - net" on the Statements of Income.  For the three months ended
March 31, 2009, PPL and PPL Energy Supply recorded a net gain of $1
million.  For the three months ended March 31, 2008, PPL and PPL
Energy Supply recorded a net loss of $1 million.  See Note 11 for
additional information.





Accounting
and Reporting





(PPL
and PPL Energy Supply)





All
derivative instruments are recorded at fair value on the balance sheet as an
asset or liability (unless they qualify for NPNS), and changes in the
derivatives' fair value are recognized currently in earnings unless specific
hedge accounting criteria are met.





Gains and
losses associated with non-trading bilateral sales of electricity at major
market delivery points are netted with purchases that offset the sales at those
same delivery points.  A major market delivery point is any delivery
point with liquid pricing available.





PPL and
PPL Energy Supply reflect their net realized and unrealized gains and losses
associated with all derivatives that are held for trading purposes in the "Net
energy trading margins" line on the Statements of Income.





The
circumstances and intent existing at the time that derivative contracts are
entered into are used to determine their accounting designation, which is
subsequently verified by an independent internal group on a daily
basis.  The following summarizes the guidelines that have been
provided to the marketers who are responsible for contract designation for
derivative energy contracts.





·
            Any
      wholesale and retail contracts to sell electricity and the related
      capacity that do not meet the definition of a derivative receive accrual
      accounting.·
            Physical
      electricity-only transactions can receive cash flow hedge treatment if all
      of the qualifications are met.·
            Physical
      capacity-only transactions to sell excess capacity from PPL's generation
      qualify for NPNS.  The forward value of these transactions is
      not recorded in the financial statements and has no earnings impact until
      delivery.·
            Any
      physical energy sale or purchase not intended to hedge an economic
      exposure is considered speculative, with unrealized gains or losses
      recorded immediately through earnings.·
            Financial
      transactions, which can be settled in cash, do not qualify for NPNS
      because they do not require physical delivery.  These
      transactions can receive cash flow hedge treatment if they lock in the
      cash flows PPL will receive or pay for energy expected to be sold or
      purchased in the spot market.·
            PPL
      purchases FTRs for both proprietary trading activities and hedging
      purposes.  FTRs, although economically effective as electricity
      basis hedges, do not currently qualify for hedge accounting
      treatment.  Unrealized and realized gains and losses from FTRs
      that were entered into for trading purposes are recorded in "Net energy
      trading margins" on the Statements of Income.  Unrealized and
      realized gains and losses from FTRs that were entered into to offset
      probable transmission congestion expenses are recorded in "Energy
      purchases" on the Statements of Income.·
            Physical
      and financial transactions for gas and oil to meet fuel and retail
      requirements can receive cash flow hedge treatment if they lock in the
      price PPL will pay and meet the definition of a
  derivative.·
            Certain
      option contracts may receive hedge accounting treatment.  Those
      that are not eligible are marked to fair value through
      earnings.





Unrealized
gains or losses on cash flow hedges are recorded in OCI, excluding
ineffectiveness that is recognized immediately in earnings.  These
unrealized gains and losses become realized when the contracts settle and are
recognized in earnings when the hedged transactions occur.





The
following is a summary of certain guidelines that have been provided to PPL's
Finance Department, which is responsible for contract designation for interest
rate and foreign currency derivatives.





·
                Transactions
      to lock in an interest rate prior to a debt issuance can be designated as
      cash flow hedges.  Any unrealized gains or losses on
      transactions receiving cash flow hedge treatment are recorded in OCI and
      are amortized as a component of interest expense when the hedged
      transactions occur.·
                Transactions
      entered into to hedge fluctuations in the fair value of existing debt can
      be designated as fair value hedges.  To the extent that the
      change in the fair value of the derivative offsets the change in the fair
      value of the existing debt, there is no earnings impact, as both changes
      are reflected in interest expense.  Realized gains and losses
      over the life of the hedge are reflected in interest
    expense.·
                Transactions
      entered into to hedge the value of a net investment of foreign operations
      can be designated as net investment hedges.  To the extent that
      the derivatives are highly effective at hedging the value of the net
      investment, gains and losses are recorded in the foreign currency
      translation adjustment component of OCI and will not be recorded in
      earnings until the investment is substantially
  liquidated.·
                Derivative
      transactions that do not qualify for hedge accounting treatment are marked
      to fair value through earnings.  These transactions generally
      include hedges of earnings translation risk associated with
      subsidiaries that report their financial statements in a currency other
      than the U.S. dollar.  As such, these transactions eliminate
      earnings volatility due solely to changes in foreign currency exchange
      rates.




(PPL)





The
following table presents the fair values and location of derivative instruments
recorded on the Balance Sheet at March 31, 2009:





Assets
                                
                                LiabilitiesBalance
      Sheet Location
                                
                                Fair
      Value
                                
                                Balance
      Sheet Location
                                
                                Fair
      ValueDerivatives
      designated as hedging instrumentsInterest
      rate swaps
                                
                                Price
      Risk Management Assets - current
                                
                                $
                                13
                                
                                
                                Price
      Risk Management Liabilities - current
                                
                                $
                                1Price
      Risk Management Assets - noncurrent
                                
                                
                                43
                                
                                
                                Price
      Risk Management Liabilities - noncurrentCross-currency
      swaps contracts
                                
                                Price
      Risk Management Assets - current
                                
                                
                                7
                                
                                
                                Price
      Risk Management Liabilities - current
                                
                                
                                1Price
      Risk Management Assets - noncurrent
                                
                                
                                69
                                
                                
                                Price
      Risk Management Liabilities - noncurrent
                                
                                
                                16Foreign
      exchange contracts
                                
                                Price
      Risk Management Assets - current
                                
                                
                                16
                                
                                
                                Price
      Risk Management Liabilities - currentPrice
      Risk Management Assets - noncurrent
                                
                                
                                16
                                
                                
                                Price
      Risk Management Liabilities - noncurrentCommodity
      contracts
                                
                                Price
      Risk Management Assets - current
                                
                                
                                309
                                
                                
                                Price
      Risk Management Liabilities - current
                                
                                
                                246Price
      Risk Management Assets - noncurrent
                                
                                
                                919
                                
                                
                                Price
      Risk Management Liabilities - noncurrent
                                
                                
                                254Total
      derivatives designated as hedging instruments
                                
                                
                                
                                
                                1,392
                                
                                
                                
                                
                                
                                518Derivatives
      not designated as hedging instruments (a)Commodity
      contracts
                                
                                Price
      Risk Management Assets - current
                                
                                
                                1,473
                                
                                
                                Price
      Risk Management Liabilities - current
                                
                                
                                1,529Price
      Risk Management Assets - noncurrent
                                
                                
                                939
                                
                                
                                Price
      Risk Management Liabilities - noncurrent
                                
                                
                                920Total
      derivatives not designated as hedging instruments
                                
                                
                                
                                
                                2,412
                                
                                
                                
                                
                                
                                2,449Total
      derivatives
                                
                                
                                
                                $
                                3,804
                                
                                
                                
                                
                                $
                                2,967





(a)
              
              $73
      million of gains associated with derivatives that were no longer
      designated as hedging instruments are recorded in AOCI at March 31,
      2009.




The
after-tax balances of accumulated net unrealized gains (losses) (excluding net
investment hedges) in AOCI were $88 million and $(21) million at March 31, 2009
and December 31, 2008.  The after-tax balances of accumulated net
unrealized losses (excluding net investment hedges) in AOCI were $218 million
and $192 million at March 31, 2008 and December 31, 2007.





The
pre-tax effect of derivative instruments recognized in income or OCI for the
three months ended March 31, 2009:





Derivatives
      in Fair Value Hedging Relationships
              
              Location
      of Gain (Loss) Recognized in Income on Derivative
              
              Amount
      of Gain (Loss) Recognized in Income on Derivative
              
              Hedged
      Items in Fair Value Hedging Relationships
              
              Location
      of Gain (Loss) Recognized in Income on Related Hedged Item
              
              Amount
      of Gain (Loss) Recognized in Income on Related Hedged
  ItemInterest
      rate swaps
              
              Interest
      expense
              
              $
              2
              
              
              Fixed
      rate debt
              
              Interest
      expense
              
              $
              6$
              2
              
              
              
              
              
              
              $
              6








Derivatives
      in Cash Flow Hedging Relationships
                      
                      Amount
      of Gain (Loss) Recognized in OCI on Derivative (Effective
      Portion)
                      
                      Location
      of Gain (Loss) Reclassified from AOCI into Income
                        (Effective
      Portion)
                      
                      Amount
      of Gain (Loss) Reclassified from AOCI into Income
                      
                      Location
      of Gain (Loss) Recognized in Income on Derivative (Ineffective Portion and
      Amount Excluded from Effectiveness Testing)
                      
                      Amount
      of Gain (Loss) Recognized in Income on Derivative (Ineffective Portion and
      Amount Excluded from Effectiveness Testing)Interest
      rate swaps
                      
                      $
                      19
                      
                      
                      Interest
      expense
                      
                      $
                      (2
                      )
                      
                      Interest
      expenseOther
      Income
                      
                      
                      4
                      
                      
                      Other
      IncomeCross-currency
      swaps
                      
                      
                      10
                      
                      
                      Interest
      expense
                      
                      
                      1
                      
                      
                      Interest
      expenseOther
      Income
                      
                      
                      22
                      
                      
                      Other
      IncomeCommodity
      contracts
                      
                      
                      276Wholesale
      energy marketing
                      
                      
                      166
                      
                      
                      Wholesale
      energy marketing
                      
                      $
                      29Fuel
                      
                      
                      1
                      
                      
                      Fuel
                      
                      
                      1Energy
      purchases
                      
                      
                      (103
                      )
                      
                      Energy
      purchases
                      
                      
                      (3
                      )Total
      commodity
                      
                      
                      276
                      
                      
                      
                      
                      
                      64
                      
                      
                      
                      
                      
                      27Total
                      
                      $
                      305
                      
                      
                      
                      
                      $
                      89
                      
                      
                      
                      
                      $
                      27






Derivatives
      in Net Investment Hedging Relationships
                                
                                Amount
      of Gain (Loss) Recognized in OCI on Derivative
                                  (Effective
      Portion)
                                
                                Location
      of Gain (Loss) Reclassified from AOCI into Income
                                  (Effective
      Portion)
                                
                                Amount
      of Gain (Loss) Reclassified from AOCI into Income
                                
                                Location
      of Gain (Loss) Recognized in Income on Derivative (Ineffective Portion and
      Amount Excluded from Effectiveness Testing)
                                
                                Amount
      of Gain (Loss) Recognized in Income on Derivative (Ineffective Portion and
      Amount Excluded from Effectiveness Testing)Foreign
      exchange contracts
                                
                                $
                                1







Derivatives
      Not Designated as Hedging Instruments
                        
                        Location
      of Gain (Loss) Recognized in Income on Derivative
                        
                        Amount
      of Gain (Loss) Recognized in Income on DerivativeForeign
      exchange contracts
                        
                        Other
      Income
                        
                        $
                        1Commodity
      contracts
                        
                        Unregulated
      retail electric and gas
                        
                        
                        3Wholesale
      energy marketing
                        
                        
                        284Net
      energy trading margins (a)
                        
                        
                        (13
                        )Fuel
                        
                        
                        (8
                        )Energy
      purchases
                        
                        
                        (384
                        )Total
                        
                        
                        
                        $
                        (117
                        )




(a)
            
            Differs
      from statement of income due to intramonth transactions which PPL defines
      as spot activity.








(PPL
Energy Supply)





The
following table presents the fair values and location of derivative instruments
recorded on the Balance Sheet at March 31, 2009:





Assets
                                          
                                          LiabilitiesBalance
      Sheet Location
                                          
                                          Fair
      Value
                                          
                                          Balance
      Sheet Location
                                          
                                          Fair
      ValueDerivatives
      designated as hedging instrumentsCross-currency
      swaps contracts
                                          
                                          Price
      Risk Management Assets - current
                                          
                                          $
                                          7
                                          
                                          
                                          Price
      Risk Management Liabilities - current
                                          
                                          $
                                          1Price
      Risk Management Assets - noncurrent
                                          
                                          
                                          69
                                          
                                          
                                          Price
      Risk Management Liabilities - noncurrent
                                          
                                          
                                          16Foreign
      exchange contracts
                                          
                                          Price
      Risk Management Assets - current
                                          
                                          
                                          16
                                          
                                          
                                          Price
      Risk Management Liabilities - currentPrice
      Risk Management Assets - noncurrent
                                          
                                          
                                          16
                                          
                                          
                                          Price
      Risk Management Liabilities - noncurrentCommodity
      contracts
                                          
                                          Price
      Risk Management Assets - current
                                          
                                          
                                          309
                                          
                                          
                                          Price
      Risk Management Liabilities - current
                                          
                                          
                                          246Price
      Risk Management Assets - noncurrent
                                          
                                          
                                          919
                                          
                                          
                                          Price
      Risk Management Liabilities - noncurrent
                                          
                                          
                                          254Total
      derivatives designated as hedging instruments
                                          
                                          
                                          
                                          
                                          1,336
                                          
                                          
                                          
                                          
                                          
                                          517Derivatives
      not designated as hedging instruments (a)Commodity
      contracts
                                          
                                          Price
      Risk Management Assets - current
                                          
                                          
                                          1,473
                                          
                                          
                                          Price
      Risk Management Liabilities - current
                                          
                                          
                                          1,529Price
      Risk Management Assets - noncurrent
                                          
                                          
                                          939
                                          
                                          
                                          Price
      Risk Management Liabilities - noncurrent
                                          
                                          
                                          920Total
      derivatives not designated as hedging instruments
                                          
                                          
                                          
                                          
                                          2,412
                                          
                                          
                                          
                                          
                                          
                                          2,449Total
      derivatives
                                          
                                          
                                          
                                          $
                                          3,748
                                          
                                          
                                          
                                          
                                          $
                                          2,966




(a)
              
              $73
      million of gains associated with derivatives that were no longer
      designated as hedging instruments are recorded in AOCI at March 31,
      2009.








The
after-tax balances of accumulated net unrealized gains (losses) (excluding net
investment hedges) in AOCI were $88 million and $(12) million at March 31, 2009
and December 31, 2008.  The after-tax balances of accumulated net
unrealized losses (excluding net investment hedges) in AOCI were $209 million
and $188 million at March 31, 2008 and December 31, 2007.





The
pre-tax effect of derivative instruments recognized in income or OCI for the
three months ended March 31, 2009:





Derivatives
      in Cash Flow Hedging Relationships
                                                        
                                                        Amount
      of Gain (Loss) Recognized in OCI on Derivative (Effective
      Portion)
                                                        
                                                        Location
      of Gain (Loss) Reclassified from AOCI into Income
                                                          (Effective
      Portion)
                                                        
                                                        Amount
      of Gain (Loss) Reclassified from AOCI into Income
                                                        
                                                        Location
      of Gain (Loss) Recognized in Income on Derivative (Ineffective Portion and
      Amount Excluded from Effectiveness Testing)
                                                        
                                                        Amount
      of Gain (Loss) Recognized in Income on Derivative (Ineffective Portion and
      Amount Excluded from Effectiveness Testing)Cross-currency
      swaps
                                                        
                                                        $
                                                        10
                                                        
                                                        
                                                        Interest
      expense
                                                        
                                                        $
                                                        1
                                                        
                                                        
                                                        Interest
      expenseOther
      income
                                                        
                                                        
                                                        22
                                                        
                                                        
                                                        Other
      incomeCommodity
      contracts
                                                        
                                                        
                                                        276Wholesale
      energy marketing
                                                        
                                                        
                                                        166
                                                        
                                                        
                                                        Wholesale
      energy marketing
                                                        
                                                        $
                                                        29Fuel
                                                        
                                                        
                                                        1
                                                        
                                                        
                                                        Fuel
                                                        
                                                        
                                                        1Energy
      purchases
                                                        
                                                        
                                                        (103
                                                        )
                                                        
                                                        Energy
      purchases
                                                        
                                                        
                                                        (3
                                                        )Total
      commodity
                                                        
                                                        
                                                        276
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        64
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        27Total
                                                        
                                                        $
                                                        286
                                                        
                                                        
                                                        
                                                        
                                                        $
                                                        87
                                                        
                                                        
                                                        
                                                        
                                                        $
                                                        27





Derivatives
      in Net Investment Hedging Relationships
                                
                                Amount
      of Gain (Loss) Recognized in OCI on Derivative
                                  (Effective
      Portion)
                                
                                Location
      of Gain (Loss) Reclassified from AOCI into Income
                                  (Effective
      Portion)
                                
                                Amount
      of Gain (Loss) Reclassified from AOCI into Income
                                
                                Location
      of Gain (Loss) Recognized in Income on Derivative (Ineffective Portion and
      Amount Excluded from Effectiveness Testing)
                                
                                Amount
      of Gain (Loss) Recognized in Income on Derivative (Ineffective Portion and
      Amount Excluded from Effectiveness Testing)Foreign
      exchange contracts
                                
                                $
                                1






Derivatives
      Not Designated as Hedging Instruments
                        
                        Location
      of Gain (Loss) Recognized in Income on Derivative
                        
                        Amount
      of Gain (Loss) Recognized in Income on DerivativeForeign
      exchange contracts
                        
                        Other
      income
                        
                        $
                        1Commodity
      contracts
                        
                        Wholesale
      energy marketing
                        
                        
                        284Unregulated
      retail electric and gas
                        
                        
                        3Net
      Energy trading margins (a)
                        
                        
                        (13
                        )Fuel
                        
                        
                        (8
                        )Energy
      purchases
                        
                        
                        (384
                        )Total
                        
                        
                        
                        $
                        (117
                        )




(a)
            
            Differs
      from statement of income due to intramonth transactions which PPL defines
      as spot activity.





Master
Netting Arrangements





(PPL,
PPL Energy Supply and PPL Electric)





As
permitted by FIN 39, PPL and its subsidiaries have elected not to offset net
derivative positions in the financial statements.  Accordingly, PPL
and its subsidiaries do not offset such derivative positions against the fair
value of amounts (or amounts that approximate fair value) recognized for the
right to reclaim cash collateral (a receivable) or the obligation to return cash
collateral (a payable) under master netting arrangements.





PPL's and
PPL Energy Supply's obligation to return counterparty cash collateral under
master netting arrangements was $146 million at March 31, 2009 and $22
million at December 31, 2008.





PPL
Electric's obligation to return cash collateral to PPL Energy Supply under
master netting arrangements was $300 million at March 31, 2009 and December
31, 2008.  See Note 11 for additional information.





PPL and
PPL Electric have not posted any cash collateral under master netting
arrangements.





Credit
Risk-Related Contingent Features





(PPL
and PPL Energy Supply)





Certain
of PPL's and PPL Energy Supply's derivative contracts contain credit contingent
provisions which would permit the counterparties with which PPL or PPL Energy
Supply is in a net liability position to require the transfer of additional
collateral upon a decrease in PPL's or PPL Energy Supply's credit
rating.  Most of these provisions would require PPL or PPL Energy
Supply to transfer additional collateral or permit the counterparty to terminate
the contract if PPL's or PPL Energy Supply's credit rating were to fall below
investment grade.  Some of these provisions also would allow the
counterparty to require additional collateral upon each decrease in the credit
rating at levels that remain above investment grade.  In either case,
if PPL's or PPL Energy Supply's credit rating were to fall below investment
grade (i.e., below BBB- for S&P or Fitch, or Baa3 for Moody's), and assuming
no assignment to an investment grade affiliate where allowed, most of these
credit contingent provisions require either immediate payment of the net
liability as a termination payment or immediate and ongoing full
collateralization by PPL or PPL Energy Supply on derivative instruments in net
liability positions.
 Additionally,
certain of PPL's and PPL Energy Supply's derivative contracts contain credit
contingent provisions that require PPL or PPL Energy Supply to provide "adequate
assurance" of performance if the other party has reasonable grounds for
insecurity regarding PPL's or PPL Energy Supply's performance of its obligation
under the contract.  A counterparty demanding adequate assurance could
require a transfer of additional collateral or other security, including letters
of credit, cash and guarantees from a creditworthy entity.  This would
typically involve negotiations among the parties.  However, amounts
disclosed below represent assumed immediate payment or immediate and ongoing
full collateralization for derivative instruments in net liability positions
with "adequate assurance" provisions.
 
 To
determine net liability positions, PPL and PPL Energy Supply use the fair value
of each agreement, such as an International Swaps and Derivatives Association,
Inc. contract.  The aggregate fair value of all derivative instruments
with the credit contingent provisions described above that were in a net
liability position at March 31, 2009, was $450 million for which PPL and PPL
Energy Supply had posted collateral of $349 million in the normal course of
business.  At March 31, 2009, if the credit contingent provisions
underlying these derivative instruments were triggered due to a credit downgrade
below investment grade, PPL and PPL Energy Supply would have been required to
post an additional $174 million of collateral to their
counterparties.


Credit
Concentration





(PPL,
PPL Energy Supply and PPL Electric)





PPL and
its subsidiaries 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 fair 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)





At March
31, 2009, PPL had credit exposure of $4.1 billion to energy trading partners,
excluding the effects of netting arrangements.  As a result of netting
arrangements and collateral, PPL's credit exposure was reduced to $795
million.  One of the counterparties accounted for 17% of this exposure
and no other individual counterparty accounted for more than 9% of the
exposure.  Ten counterparties accounted for $560 million, or 70%, of
the total exposure.  Eight of these counterparties had an investment
grade credit rating from S&P and accounted for 67% of the top 10
exposure.  The two counterparties that are not rated investment grade
have posted collateral in the form of a letter of credit as per the terms and
conditions of their respective contracts and are current on their
obligations.





(PPL
Energy Supply)





At March
31, 2009, PPL Energy Supply had credit exposure of $4.2 billion to energy
trading partners, excluding the effects of netting arrangements.  As a
result of netting arrangements and collateral, PPL Energy Supply's credit
exposure was reduced to $841 million.  One of the counterparties
accounted for 16% of this exposure and no other individual counterparty
accounted for more than 9% of the exposure.  Ten counterparties
accounted for $589 million or 70% of the total exposure.  Eight of
these counterparties had an investment grade credit rating from S&P and
accounted for 69% of the top 10 exposure.  The two counterparties that
are not rated investment grade have posted collateral in the form of a letter of
credit as per the terms and conditions of their respective contracts and are
current on their obligations.





PPL
Energy Supply has credit exposure to PPL Electric under the long-term contract
for PPL EnergyPlus to supply PPL Electric's PLR load.  This exposure
is excluded from the exposure discussed above.  See Note 11 for
additional information on the related party credit exposure.





(PPL
Electric)





At March
31, 2009, PPL Electric had no credit exposure as a result of its bids for the
2010 PLR supply.  There were nine successful bidders, all of which had
an investment grade credit rating from S&P.  PPL EnergyPlus was
one of the successful bidders in the first competitive solicitation
process.  The fifth competitive solicitation occurred in March 2009
and was approved by the PUC in April 2009.





Additionally,
PPL Electric has credit exposure to PPL Energy Supply under the PLR
contracts.  This exposure is excluded from the exposure discussed
above.  See Note 11 for additional information on the related party
credit exposure.





15.
            Goodwill





(PPL
and PPL Energy Supply)





The
changes in the carrying amounts of goodwill by segment were:





Supply
              
              International
      Delivery
              
              TotalBalance
      at December 31, 2008
              $
              94
              
              
              $
              669
              
              
              $
              763Effect
      of foreign currency exchange rates
              
              
              
              
              
              (48
              )
              
              
              (48
              )Balance
      at March 31, 2009
              $
              94
              
              
              $
              621
              
              
              $
              715








16.
            Asset Retirement
Obligations





(PPL
and PPL Energy Supply)





The
change in the carrying amounts of AROs were:





AROs
      at December 31, 2008
              $
              389Accretion
      expense
              
              7Revisions
      to estimates
              
              1Obligations
      settled
              
              (5
              )AROs
      at March 31, 2009
              $
              392





The most
significant ARO recorded by PPL and PPL Energy Supply relates to the
decommissioning of the Susquehanna nuclear station.  The accrued
nuclear decommissioning obligation was $328 million and $322 million at March
31, 2009 and December 31, 2008.





Assets in
the nuclear plant decommissioning trust funds are legally restricted for
purposes of settling PPL's and PPL Energy Supply's ARO related to the
decommissioning of the Susquehanna station.  The aggregate fair value
of these assets was $425 million and $446 million at March 31, 2009 and
December 31, 2008.  See Note 13 for additional information on the
fair value of these assets.





17.
            Restricted Cash and Cash
  Equivalents





(PPL,
PPL Energy Supply and PPL Electric)





The
following table details the components of restricted cash and cash equivalents
by reporting entity and by type.





March 31,
      2009PPL
              
              PPL
      Energy Supply
              
              PPL
      ElectricCurrent:Funds
      deposited with trustee to defease First Mortgage
      Bonds (a)
              
              $
              1
              
              
              
              
              
              
              $
              1Deposits
      for trading purposes (b)
              
              
              71
              
              
              $
              71Counterparty
      collateral
              
              
              84
              
              
              
              84Client
      deposits
              
              
              6Miscellaneous
              
              
              2
              
              
              
              2Total
      current
              
              
              164
              
              
              
              157
              
              
              
              1Noncurrent:Required
      deposits of WPD (c)
              
              
              12
              
              
              
              12Funds
      deposited with Trustee to defease First Mortgage
      Bonds (a)
              
              
              14
              
              
              
              
              
              
              
              14Total
      noncurrent
              
              
              26
              
              
              
              12
              
              
              
              14$
              190
              
              
              $
              169
              
              
              $
              15











December
      31, 2008PPL
              
              PPL
      Energy Supply
              
              PPL
      ElectricCurrent:Funds
      deposited with Trustee to defease First Mortgage
      Bonds (a)
              
              $
              1
              
              
              
              
              
              
              $
              1Deposits
      for trading purposes (b)
              
              
              301
              
              
              $
              301Counterparty
      collateral
              
              
              12
              
              
              
              12Client
      deposits
              
              
              4Miscellaneous
              
              
              2
              
              
              
              2Total
      current
              
              
              320
              
              
              
              315
              
              
              
              1Noncurrent:Required
      deposits of WPD (c)
              
              
              13
              
              
              
              13Funds
      deposited with Trustee to defease First Mortgage
      Bonds (a)
              
              
              14
              
              
              
              
              
              
              
              14Total
      noncurrent
              
              
              27
              
              
              
              13
              
              
              
              14$
              347
              
              
              $
              328
              
              
              $
              15





(a)
                
                The
      carrying amount of related First Mortgage Bonds was $10 million at March
      31, 2009 and December 31, 2008.(b)
                
                Represents
      margin posted by PPL EnergyPlus in connection with trading
      activities.  The decrease from December 31, 2008, relates
      primarily to decreases in market prices and the realization of certain
      transactions.(c)
                
                Primarily
      consists of insurance
reserves.





18.
            New Accounting Standards Pending
  Adoption





(PPL,
PPL Energy Supply and PPL Electric)





FSP
FAS 107-1 and APB 28-1





FSP FAS
107-1 and APB 28-1 applies to all financial instruments within the scope of SFAS
107 and requires a publicly traded company to include disclosures about the fair
value of its financial instruments in interim reporting periods.





PPL and
its subsidiaries will adopt FSP FAS 107-1 and APB 28-1, prospectively, effective
April 1, 2009.  This FSP does not require disclosures for earlier
periods presented for comparative purposes at initial adoption. In periods after
initial adoption, this FSP requires comparative disclosures only for periods
ending after initial adoption.  The adoption of FSP FAS 107-1 and APB
28-1 is not expected to have a material impact on PPL and its subsidiaries'
financial statements as this guidance only impacts disclosures about the fair
value of financial instruments.





FSP
FAS 115-2 and FAS 124-2





FSP FAS
115-2 and FAS 124-2 modifies the existing requirement that an entity have the
intent and ability to hold an impaired debt security to recovery in order to
conclude an impairment was temporary.  Instead, an
other-than-temporary impairment is triggered if (1) an entity has the intent to
sell the security, (2) it is more likely than not that an entity will be
required to sell the security before recovery, or (3) an entity does not expect
to recover the entire amortized cost basis of the security, referred to as a
credit
loss.





In
addition, the FSP changes the presentation of an other-than-temporary impairment
loss in the income statement if the reason for recognition is a credit
loss.  If an entity has the intent to sell the security or it is more
likely than not that it will be required to sell the security before recovery,
then the impairment loss recognized in earnings will equal the entire difference
between the security's amortized cost basis and its fair
value.  However, if the entity does not intend to sell the security
and it is not more likely than not that the entity will be required to sell the
security before recovery, but the security has suffered a credit loss, the
impairment loss will be separated into the credit loss component, which is
recognized in earnings, and the remainder of the impairment loss, which is
recorded in OCI.





PPL and
its subsidiaries will adopt FSP FAS 115-2 and FAS 124-2, prospectively,
effective April 1, 2009.  Related SEC guidance, Topic 5M, was also
amended to no longer apply to debt securities.  The adoption of FSP
FAS 115-2 and FAS 124-2 and the related SEC guidance is not expected to have a
material impact on PPL and its subsidiaries' financial statements.





FSP
FAS 132(R)-1





FSP FAS
132(R)-1 amends SFAS 132(R) to provide guidance on an employer's disclosures
about plan assets of defined benefit plans.  The objectives of the
disclosures are to provide users of financial statements with an understanding
of:





·
            how
      investment allocation decisions are made, including the factors that are
      pertinent to an understanding of investment policies and
      strategies,·
            the
      major categories of plan assets,·
            the
      inputs and valuation techniques used to measure the fair value of plan
      assets,·
            the
      effect of fair value measurements using significant unobservable inputs
      (Level 3) on changes in plan assets for the period, and·
            significant
      concentrations of risk within plan
assets.





PPL and
its subsidiaries will adopt FSP FAS 132(R)-1, prospectively, effective December
31, 2009.  FSP FAS 132(R)-1 was issued to provide greater transparency
within disclosures; therefore, the adoption is not expected to have a material
impact on PPL and its subsidiaries' financial statements.





FSP
FAS 157-4





FSP FAS
157-4 provides additional guidance for estimating fair value when the volume and
level of activity for the asset or liability have significantly
decreased.  It also includes guidance on identifying circumstances
that indicate a transaction is not orderly.  This FSP emphasizes that
the objective of a fair value measurement remains the same; that is, fair value
is the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the
measurement date under current market conditions.





PPL and
its subsidiaries will adopt FSP FAS 157-4, prospectively, effective April 1,
2009.  This FSP does not require disclosures for earlier periods
presented for comparative purposes at initial adoption. In periods after initial
adoption, this FSP requires comparative disclosures only for periods ending
after initial adoption.  The adoption of FSP FAS 157-4 is not expected
to have a material impact on PPL and its subsidiaries' financial statements.


PPL
CORPORATIONAND 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.  Refer to "Item 1. Business - Background" in PPL's 2008 Form 10-K
for descriptions of its reportable segments, which are Supply, International
Delivery and Pennsylvania Delivery.  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 PA and the U.K.  See "Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations - Overview" in PPL's 2008 Form
10-K for a discussion of PPL's strategy and the risks and challenges that it
faces in its business.  See "Forward-Looking Information," Note 10 to
the Financial Statements and the remainder of Item 2 in this Form 10-Q, and
"Item 1A. Risk Factors" and the rest of Item 7 in PPL's 2008 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.





Market
Events





The
downturn in the financial markets has increased the complexity of managing
credit risk, responding to liquidity needs, measuring derivatives and other
financial instruments at fair value, and managing market price
risk.  Bank credit capacity has been reduced dramatically and the cost
of renewing or establishing new credit facilities has increased significantly,
thereby introducing uncertainties as to businesses' ability to enter into
long-term energy commitments or reliably estimate the longer-term cost and
availability of credit.





Credit
Risk





Credit
risk is the risk that PPL would incur a loss as a result of nonperformance by
counterparties of their contractual obligations.  PPL maintains credit
policies and procedures to limit counterparty credit risk.  The
continued volatility and downturn in financial and commodity markets during the
first quarter of 2009 have generally increased PPL's exposure to credit
risk.  See Note 14 to the Financial Statements and "Risk Management -
Energy Marketing & Trading and Other - Credit Risk" in PPL's 2008 Form 10-K
for more information on credit risk.





Liquidity
Risk





The
downturn in financial markets generally continues to make obtaining new sources
of bank and capital markets funding and issuing commercial paper more difficult
and costly.  During this challenging period, PPL expects to continue
to have access to adequate sources of liquidity through operating cash flows,
cash and cash equivalents, short-term investments and its credit
facilities.  See "Financial Condition - Liquidity and Capital
Resources" for an expanded discussion of PPL's liquidity position and a
discussion of financing transactions.





Valuations in Inactive
Markets





The
downturn in the financial markets has generally made it difficult to determine
the fair value of certain assets and liabilities in inactive
markets.  Management has reviewed the activity in the energy and
financial markets in which PPL transacts, concluding that all of these markets
were active at March 31, 2009, with the exception of the market for auction
rate securities.  See Note 13 to the Financial Statements and
"Financial Condition - Liquidity and Capital Resources - Auction Rate
Securities" for a discussion of these investments.  The FASB recently
issued FSP FAS 157-4 that addresses how to determine fair value when the volume
and level of activity for the asset or liability has significantly decreased and
how to identify transactions that are not orderly.  See Note 18 to the
Financial Statements for additional information.





Securities Price
Risk





Declines
in the market price of debt and equity securities resulted in unrealized losses
that have reduced the asset values of PPL's investments in its nuclear plant
decommissioning trust funds and defined benefit plans.





PPL
actively monitors the performance of the investments held in its nuclear plant
decommissioning trust funds and periodically reviews the funds' investment
allocations.  See "Financial Condition - Risk Management - Energy
Marketing & Trading and Other - Nuclear Plant Decommissioning Trust Funds -
Securities Price Risk" for additional information on securities price
risk.





PPL's
defined benefit plans' assets continued to experience net negative investment
returns in the first quarter of 2009, impacting the funded status of those
plans.  Determination of the funded status of defined benefit plans,
contribution requirements and net periodic defined benefit costs for future
years are subject to changes in various assumptions, in addition to the actual
performance of the assets in the plans.  See "Application of Critical
Accounting Policies - Defined Benefits" in PPL's 2008 Form 10-K for a discussion
of the assumptions and sensitivities regarding those assumptions.





The Economic Stimulus
Package





The
Economic Stimulus Package is intended to stimulate the U.S. economy through
federal tax relief, expansion of unemployment benefits and other social stimulus
provisions, domestic spending for education, health care and infrastructure,
including the energy sector.  A portion of the benefits included in
the Economic Stimulus Package are offered in the form of loan fee reductions,
expanded loan guarantees and secondary market incentives, including delayed
recognition for tax purposes of income related to the cancellation of certain
types of debt.  See "Financial Condition - Liquidity and Capital
Resources" for a discussion of the applicability to the purchase of notes by PPL
Energy Supply.





Funds
from the Economic Stimulus Package will be allocated to various federal
agencies, such as the DOE, and will also be provided to state agencies through
block grants.  The DOE plans to use a portion of the funds for "smart
grid" programs, and has initiated a process for that purpose.  The
Commonwealth of Pennsylvania is accepting applications for funding for energy
projects such as wind, hydroelectric, solar and other projects.  As
discussed in Note 8 to the Financial Statements, PPL has reconsidered its
Holtwood expansion project in view of the tax incentives and potential loan
guarantees for renewable energy projects contained in the Economic Stimulus
Package.  PPL and its subsidiaries continue to review the Economic
Stimulus Package's provisions to determine the impact on PPL's possible
expansion plans, transmission projects and other business-related
activities.





The
following information should be read in conjunction with PPL's Condensed
Consolidated Financial Statements and the accompanying Notes and with PPL's 2008
Form 10-K.





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
"Statement of Income Analysis," which includes explanations of significant
changes in principal items on PPL's Statements of Income, comparing the three
months ended March 31, 2009, with the same period in 2008.





The
results for interim periods can be disproportionately influenced by various
factors and developments and by seasonal variations, and as such, the results of
operations for interim periods do not necessarily indicate results or trends for
the year or for future operating results.





Earnings





Net
income attributable to PPL and the related EPS were:





Three
      Months Ended March 31,2009
              
              2008Net
      income attributable to PPL
              
              $
              241
              
              
              $
              260EPS
      - basic
              
              $
              0.64
              
              
              $
              0.69EPS
      - diluted
              
              $
              0.64
              
              
              $
              0.69





The
changes in net income attributable to PPL 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 earnings.





Segment
Results





Net
income attributable to PPL by segment was:





Three
      Months Ended March 31,2009
              
              2008Supply
              
              $
              105
              
              
              $
              102International
      Delivery
              
              
              87
              
              
              
              98Pennsylvania
      Delivery
              
              
              49
              
              
              
              60Total
              
              $
              241
              
              
              $
              260





Supply
Segment





The
Supply segment primarily consists of the domestic energy marketing, domestic
generation and domestic development operations of PPL Energy
Supply.  Supply segment net income attributable to PPL
was:





Three
      Months Ended March 31,2009
                          
                          2008Energy
      revenuesExternal
      (a)
                          
                          $
                          1,194
                          
                          
                          $
                          289Intersegment
                          
                          
                          497
                          
                          
                          
                          489Energy-related
      businesses
                          
                          
                          92
                          
                          
                          
                          107Total
      operating revenues
                          
                          
                          1,783
                          
                          
                          
                          885Fuel
      and energy purchasesExternal
      (a)
                          
                          
                          1,179
                          
                          
                          
                          257Intersegment
                          
                          
                          20
                          
                          
                          
                          28Other
      operation and maintenance
                          
                          
                          233
                          
                          
                          
                          227Depreciation
                          
                          
                          51
                          
                          
                          
                          44Taxes,
      other than income
                          
                          
                          8
                          
                          
                          
                          2Energy-related
      businesses
                          
                          
                          88
                          
                          
                          
                          105Total
      operating expenses
                          
                          
                          1,579
                          
                          
                          
                          663Other
      Income - net
                          
                          
                          13Interest
      Expense
                          
                          
                          47
                          
                          
                          
                          41Income
      Taxes
                          
                          
                          65
                          
                          
                          
                          79Net
      Income Attributable to PPL
                          
                          $
                          105
                          
                          
                          $
                          102





(a)
            
            Includes
      unrealized gains and losses from economic activity.  See
      Note 14 to the Financial Statements for additional
      information.





The
after-tax changes in net income attributable to PPL between these periods were
due to the following factors.





Domestic
      gross energy margins
              
              $
              (4
              )Other
      operation and maintenance
              
              
              16Depreciation
              
              
              (4
              )Taxes,
      other than income
              
              
              (4
              )Other
      income - net
              
              
              12Interest
      expense
              
              
              (3
              )Income
      taxes
              
              
              (3
              )Other
              
              
              1Special
      items
              
              
              (8
              )$
              3





·
            See
      "Domestic Gross Energy Margins" for further discussion.·
            Other
      operation and maintenance decreased primarily due to lower outage costs at
      the Susquehanna nuclear plant as a result of the timing of the 2009
      refueling outage.·
            Other
      income - net increased primarily due to gains related to the
      extinguishment of notes.





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 March 31,2009
              
              2008MTM
      adjustments from economic activity (Note 14)
              
              $
              50
              
              
              $
              50Impairment
      of nuclear decommissioning trust investments (a)
              
              
              (3
              )Impairments
      and other impacts - emission allowances (Note 13)
              
              
              (15
              )Other
      asset impairments
              
              
              (2
              )Workforce
      reduction charge (Note 6)
              
              
              (6
              )Montana
      basin seepage litigation (Note 10)
              
              
              
              
              
              
              (5
              )Synthetic
      fuel tax adjustment (Note 10)
              
              
              
              
              
              
              (13
              )Total
              
              $
              24
              
              
              $
              32





(a)
            
            Represents
      other-than-temporary impairment charges on securities, including realized
      gains and losses from sales of previously impaired
    securities.





2009
Outlook





Excluding
special items, PPL projects higher earnings for its Supply segment in 2009
compared with 2008, driven by higher energy margins as a result of higher
expected baseload generation and margins from marketing and trading activities,
despite higher coal expense, partially offset by higher operation and
maintenance expenses and depreciation.





International Delivery
Segment





The
International Delivery segment consists primarily of the electricity
distribution operations in the U.K.  In the first quarter of 2008, the
International Delivery segment recognized income tax adjustments and other
expenses in Discontinued Operations as the dissolution of the remaining Latin
American holding companies commenced.  See Note 8 to the Financial
Statements for additional information.  International Delivery segment
net income attributable to PPL was:





Three
      Months Ended March 31,2009
              
              2008Utility
      revenues
              
              $
              176
              
              
              $
              241Energy-related
      businesses
              
              
              7
              
              
              
              9Total
      operating revenues
              
              
              183
              
              
              
              250Other
      operation and maintenance
              
              
              34
              
              
              
              46Depreciation
              
              
              26
              
              
              
              36Taxes,
      other than income
              
              
              13
              
              
              
              17Energy-related
      businesses
              
              
              3
              
              
              
              3Total
      operating expenses
              
              
              76
              
              
              
              102Other
      Income - net
              
              
              2
              
              
              
              3Interest
      Expense
              
              
              13
              
              
              
              38Income
      Taxes
              
              
              9
              
              
              
              20Income
      from Discontinued Operations
              
              
              
              
              
              
              5Net
      Income Attributable to PPL
              
              $
              87
              
              
              $
              98





The
after-tax changes in net income attributable to PPL between these periods were
due to the following factors.





U.K.Delivery
      margins
              
              $
              2Other
      operating expenses
              
              
              4Interest
      expense
              
              
              15Income
      taxes
              
              
              9Foreign
      currency exchange rates
              
              
              (34
              )Hyder
      liquidation distributions
              
              
              (2
              )U.S.
      Income taxes
              
              
              2Discontinued
      operations (Note 8)
              
              
              (5
              )Other
              
              
              1Special
      items
              
              
              (3
              )$
              (11
              )





·
            Lower
      U.K. interest expense on the Index-Linked Senior Unsecured Notes primarily
      due to lower inflation rates.·
            Lower
      U.K. income taxes primarily due to a favorable settlement of an uncertain
      tax position, partially offset by changes in other uncertain tax
      positions.·
            Changes
      in U.K. foreign currency exchange rates negatively impacted WPD earnings
      between the periods.  The weighted-average exchange rate for the
      British pound sterling was approximately $1.45 for the first three months
      of 2009 versus approximately $1.98 for the same period in
      2008.  This decreased WPD-related revenue and expense line items
      by 27%.





The
following after-tax amounts, which management considers special items, impacted
the International Delivery segment earnings.





Three
      Months Ended March 31,2009
                
                2008Asset
      impairments
                
                $
                (1
                )Workforce
      reduction charge (Note 6)
                
                
                (2
                )Total
                
                $
                (3
                )





2009
Outlook





Excluding
special items, PPL projects lower earnings for its International Delivery
segment in 2009 compared with 2008, primarily as a result of less favorable
foreign currency exchange rates.





Pennsylvania Delivery
Segment





The
Pennsylvania Delivery segment for both 2008 and 2009 includes the regulated
electric delivery operations of PPL Electric.  The Pennsylvania
Delivery segment results in 2008 also include the revenues and expenses of PPL's
natural gas distribution and propane businesses.  These revenues and
expenses are included in Discontinued Operations.  In October 2008,
PPL sold its natural gas distribution and propane businesses.  See
Note 8 to the Financial Statements for additional information.





Pennsylvania
Delivery segment net income attributable to PPL was:





Three
      Months Ended March 31,2009
                          
                          2008Operating
      revenuesExternal
                          
                          $
                          890
                          
                          
                          $
                          880Intersegment
                          
                          
                          20
                          
                          
                          
                          28Total
      operating revenues
                          
                          
                          910
                          
                          
                          
                          908Fuel
      and energy purchasesExternal
                          
                          
                          32
                          
                          
                          
                          41Intersegment
                          
                          
                          497
                          
                          
                          
                          489Other
      operation and maintenance
                          
                          
                          106
                          
                          
                          
                          104Amortization
      of recoverable transition costs
                          
                          
                          84
                          
                          
                          
                          76Depreciation
                          
                          
                          33
                          
                          
                          
                          32Taxes,
      other than income
                          
                          
                          52
                          
                          
                          
                          56Total
      operating expenses
                          
                          
                          804
                          
                          
                          
                          798Other
      Income - net
                          
                          
                          4
                          
                          
                          
                          5Interest
      Expense
                          
                          
                          29
                          
                          
                          
                          29Income
      Taxes
                          
                          
                          27
                          
                          
                          
                          30Income
      from Discontinued Operations
                          
                          
                          
                          
                          
                          
                          9Noncontrolling
      Interests
                          
                          
                          5
                          
                          
                          
                          5Net
      Income Attributable to PPL
                          
                          $
                          49
                          
                          
                          $
                          60





The
after-tax changes in net income attributable to PPL between these periods were
due to the following factors.





Delivery
      revenues (net of CTC/ITC amortization, interest expense on transition
      bonds and ancillary charges)
              
              $
              1Other
      operation and maintenance
              
              
              7Interest
      expense
              
              
              (3
              )Discontinued
      operations (Note 8)
              
              
              (9
              )Other
              
              
              (1
              )Special
      items
              
              
              (6
              )$
              (11
              )





·
            Other
      operation and maintenance decreased primarily due to higher PUC-reportable
      storm costs in 2008 and decreased contractor expenses in
    2009.





The
following after-tax amounts, which management considers special items, also had
a significant impact on the Pennsylvania Delivery segment
earnings.





Three
      Months Ended March 31,2009
              
              2008Asset
      impairments
              
              $
              (1
              )Workforce
      reduction charge (Note 6)
              
              
              (5
              )Total
              
              $
              (6
              )





2009
Outlook





Excluding
special items, PPL projects lower earnings for its Pennsylvania Delivery segment
in 2009 compared with 2008, due to the divestiture of PPL's natural gas
distribution and propane businesses and slightly lower results from the
electricity delivery business.  Slightly higher revenues are expected
to be offset by higher other operation and maintenance expenses.





See Note
10 to the Financial Statements for a discussion of items that could impact
earnings beyond 2009, including the PUC-approved plan to procure default
electricity supply for 2010, Pennsylvania legislative and other regulatory
activities and a FERC-approved transmission rate.





Statement
of Income Analysis --





Domestic
Gross Energy Margins





Non-GAAP Financial
Measure





The
following discussion includes financial information prepared in accordance with
GAAP, as well as a non-GAAP financial measure, "Domestic Gross Energy
Margins."  The presentation of "Domestic Gross Energy Margins" is
intended to supplement the investor's understanding of PPL's domestic
non-trading and trading activities by combining applicable income statement line
items and related adjustments to calculate a single financial
measure.  PPL believes that "Domestic Gross Energy Margins" are useful
and meaningful to investors because they provide them with the results of PPL's
domestic non-trading and trading activities as another criterion in making their
investment decisions.  PPL's management also uses "Domestic Gross
Energy Margins" in measuring certain corporate performance goals used in
determining variable compensation.  Other companies may use different
measures to present the results of their non-trading and trading
activities.  Additionally, "Domestic Gross Energy Margins" are not
intended to replace "Operating Income," which is determined in accordance with
GAAP, as an indicator of overall operating performance.  The following
table provides a reconciliation between "Operating Income" and "Domestic Gross
Energy Margins" as defined by PPL.





Three
      Months Ended March 31,2009
              
              2008Operating
      Income (a)
              
              $
              417
              
              
              $
              480Adjustments:Energy-related
      businesses, net (b)
              
              
              (8
              )
              
              
              (8
              )Other
      operation and maintenance (a)
              
              
              373
              
              
              
              377Amortization
      of recoverable transition costs (a)
              
              
              84
              
              
              
              76Depreciation
      (a)
              
              
              110
              
              
              
              112Taxes,
      other than income (a)
              
              
              73
              
              
              
              75Revenue
      adjustments (c)
              
              
              (897
              )
              
              
              (426
              )Expense
      adjustments (c)
              
              
              243
              
              
              
              (285
              )Domestic
      gross energy margins
              
              $
              395
              
              
              $
              401





(a)
            
            As
      reported on the Statements of Income.(b)
            
            Amount
      represents the net of "Energy-related businesses" revenue and expense as
      reported on the Statements of Income.(c)
            
            The
      components of these adjustments are detailed in the table
      below.





The
following table provides the income statement line items and other adjustments
that comprise domestic gross energy margins.





Three
      Months Ended March 31,2009
              
              2008
              
              ChangeRevenueUtility
      (a)
              
              $
              1,065
              
              
              $
              1,120
              
              
              $
              (55
              )Unregulated
      retail electric and gas (a)
              
              
              42
              
              
              
              34
              
              
              
              8Wholesale
      energy marketing (a)
              
              
              1,165
              
              
              
              258
              
              
              
              907Net
      energy trading margins (a)
              
              
              (12
              )
              
              
              (2
              )
              
              
              (10
              )Revenue
      adjustments (b)WPD
      utility revenue
              
              
              (176
              )
              
              
              (241
              )
              
              
              65Domestic
      delivery component of utility revenue
              
              
              (354
              )
              
              
              (354
              )Other
      utility revenue
              
              
              (14
              )
              
              
              (12
              )
              
              
              (2
              )MTM
      adjustments from economic activity (c)
              
              
              (353
              )
              
              
              180
              
              
              
              (533
              )Gains
      from sale of emission allowances (d)
              
              
              
              
              
              
              1
              
              
              
              (1
              )Total
      revenue adjustments
              
              
              (897
              )
              
              
              (426
              )
              
              
              (471
              )1,363
              
              
              
              984
              
              
              
              379ExpenseFuel
      (a)
              
              
              258
              
              
              
              240
              
              
              
              18Energy
      purchases (a)
              
              
              953
              
              
              
              58
              
              
              
              895Expense
      adjustments (b)MTM
      adjustments from economic activity (c)
              
              
              (267
              )
              
              
              266
              
              
              
              (533
              )Domestic
      electric ancillaries (e)
              
              
              (12
              )
              
              
              (12
              )Gross
      receipts tax (f)
              
              
              31
              
              
              
              30
              
              
              
              1Other
              
              
              5
              
              
              
              1
              
              
              
              4Total
      expense adjustments
              
              
              (243
              )
              
              
              285
              
              
              
              (528
              )968
              
              
              
              583
              
              
              
              385Domestic
      gross energy margins
              
              $
              395
              
              
              $
              401
              
              
              $
              (6
              )





(a)
            
            As
      reported on the Statements of Income.(b)
            
            To
      include/exclude the impact of any revenues and expenses not associated
      with domestic gross energy margins, consistent with the way management
      reviews domestic gross energy margins internally.(c)
            
            See
      Note 14 to the Financial Statements for additional information regarding
      economic activity.(d)
            
            Included
      in "Other operation and maintenance" on the Statements of
      Income.(e)
            
            Included
      in "Energy purchases" on the Statements of Income.(f)
            
            Included
      in "Taxes, other than income" on the Statements of
  Income.





Domestic Gross Energy
Margins By Region





Domestic
gross energy margins are generated through PPL's various strategies to maximize
the value of its wholesale energy portfolio. The most significant of these
strategies include the sales of baseload generation, optimization of
intermediate and peaking generation and its marketing and proprietary trading
activities.  PPL also manages these activities on a geographic basis
that is aligned with its generation assets.





Three
      Months Ended March 31,2009
              
              2008
              
              ChangeGeneration
      related margins:Eastern
      U.S.
              
              $
              297
              
              
              $
              315
              
              
              $
              (18
              )Western
      U.S.
              
              
              84
              
              
              
              72
              
              
              
              12Marketing
      and trading margins:Eastern
      U.S.
              
              
              15
              
              
              
              25
              
              
              
              (10
              )Western
      U.S.
              
              
              (1
              )
              
              
              (11
              )
              
              
              10Domestic
      gross energy margins
              
              $
              395
              
              
              $
              401
              
              
              $
              (6
              )





Eastern
U.S.





Eastern
U.S. generation related margins were $18 million lower during the three months
ended March 31, 2009, compared with the same period in 2008.  This
decrease was primarily due to 10% higher average baseload generation fuel
prices, primarily due to higher coal prices.  Partially offsetting
these lower margins was a 2.2% increase in PLR sales prices in accordance with
the PUC Final Order.





Eastern
U.S. marketing and trading margins were $10 million lower during the three
months ended March 31, 2009, compared with the same period in
2008.  This decrease was primarily due to lower FTR results, partially
offset by higher margins on full-requirement supply contracts.





Western
U.S.





Western
U.S. generation related margins were $12 million higher during the three months
ended March 31, 2009, compared with the same period in 2008.  This
increase was primarily due to higher wholesale volumes of 19% and increased
generation from the hydroelectric units of 19%.





Western
U.S. marketing and trading margins were $10 million higher during the three
months ended March 31, 2009, compared with the same period in
2008.  The increase consists of $5 million of higher realized trading
margins and $5 million of higher unrealized trading margins.





Utility
Revenues





The
decrease in utility revenues was attributable to:





Three
      Months Ended
                March 31, 2009vs.March 31, 2008Domestic:Retail
      electric revenue (PPL Electric)PLR
              
              $
              9Other
              
              
              1U.K.:Electric
      delivery revenue
              
              
              (1
              )Foreign
      currency exchange rates
              
              
              (64
              )$
              (55
              )





The
change in utility revenues, excluding U.K. currency exchange rate impacts, was
primarily due to higher PLR revenues, which was attributable to favorable
weather during the first quarter of 2009, partially offset by the impact of
economic conditions.





Other
Operation and Maintenance





The
decrease in other operation and maintenance expenses was due to:





Three
      Months Ended
                  March 31,
      2009 vs. March 31, 2008Impairment
      of emission allowances (Note 13)
                
                $
                30Workforce
      reduction charge (Note 6)
                
                
                22Outage
      costs at Western and Eastern U.S. fossil/hydroelectric
      stations
                
                
                4Defined
      benefit costs
                
                
                2Contractor
      expenses
                
                
                (4
                )PUC-reportable
      storm costs
                
                
                (4
                )Stock-based
      compensation
                
                
                (4
                )Uncollectible
      accounts
                
                
                (6
                )Montana
      basin seepage litigation (Note 10)
                
                
                (7
                )U.K.
      foreign currency exchange rates
                
                
                (8
                )Outage
      costs at Susquehanna nuclear station
                
                
                (23
                )Other
      - Domestic
                
                
                (1
                )Other
      - U.K.
                
                
                (5
                )$
                (4
                )





Amortization
of Recoverable Transition Costs





Amortization
of recoverable transition costs increased by $8 million for the three months
ended March 31, 2009, compared with the same period in 2008.  The
amortization of recoverable transition costs is based on a PUC amortization
schedule, adjusted for ITC and CTC recoveries in customer rates and related
expenses.  Since the amortization substantially matches the revenue
recorded based on recovery in customer rates, there is minimal impact on
earnings.





Depreciation





The
decrease in depreciation expense was due to:





Three
      Months Ended
                        March 31,
      2009 vs. March 31, 2008Additions
      to PP&E (a)
                      
                      $
                      9U.K.
      foreign currency exchange rates
                      
                      
                      (9
                      )Other
                      
                      
                      (2
                      )$
                      (2
                      )





(a)
            
            Primarily
      attributable to the completion of the Susquehanna uprate and the Montour
      scrubber projects in the second quarter of
2008.





Taxes,
Other Than Income





The
decrease in taxes, other than income was due to:





Three
      Months Ended
                        March 31,
      2009 vs. March 31, 2008Property
      tax expense (a)
                      
                      $
                      7Pennsylvania
      gross receipts tax expense
                      
                      
                      (2
                      )U.K.
      foreign currency exchange rates
                      
                      
                      (4
                      )Other
                      
                      
                      (3
                      )$
                      (2
                      )





(a)
            
            Primarily
      due to a $7 million property tax credit recorded by PPL Montana during the
      three months ended March 31, 2008.





Other
Income - net





See Note
12 to the Financial Statements for details of other income.





Interest
Expense





The
decrease in interest expense was due to:





Three
      Months Ended
                      March 31, 2009vs.March 31, 2008Long-term
      debt interest expense
                    
                    $
                    8Short-term
      debt interest expense
                    
                    
                    4U.K.
      foreign currency exchange rates
                    
                    
                    (4
                    )Hedging
      activities
                    
                    
                    (9
                    )Inflation
      adjustment on U.K. Index-linked Senior Unsecured Notes
                    
                    
                    (19
                    )Other
                    
                    
                    1$
                    (19
                    )





Income
Taxes





The
decrease in income taxes was due to:





Three
      Months Ended
                March 31, 2009vs.March 31, 2008Tax
      reserve adjustments
              
              $
              4Tax
      on foreign earnings
              
              
              (1
              )Nonconventional
      fuel and other tax credits
              
              
              (13
              )Lower
      pre-tax book income
              
              
              (19
              )Other
              
              
              1$
              (28
              )





See Note
5 to the Financial Statements for additional information on income taxes
including details on effective income tax rates.





Discontinued
Operations





See
"Discontinued Operations" in Note 8 to the Financial Statements for information
related to PPL's Latin American businesses, which were dissolved in 2008 and
PPL's natural gas distribution and propane businesses, which were sold in
2008.





Financial
Condition





Liquidity
and Capital Resources





PPL
continues to focus on maintaining a strong credit profile and liquidity position
while the downturn in the financial markets continues to make obtaining new
sources of bank and capital markets funding difficult and costly in
2009.  PPL expects to continue to have adequate liquidity available
through operating cash flows, cash and cash equivalents, short-term investments
and its credit facilities.





PPL had
the following at:





March 31, 2009
              
              December
      31, 2008Cash
      and cash equivalents
              
              $
              631
              
              
              $
              1,100Short-term
      investments (a)
              
              
              150
              
              
              
              150$
              781
              
              
              $
              1,250Short-term
      debt
              
              $
              581
              
              
              $
              679





(a)
            
            Represents
      tax-exempt bonds issued by the PEDFA in December 2008 on behalf of PPL
      Energy Supply and purchased by a subsidiary of PPL Energy Supply upon
      issuance.  Such bonds were refunded in April
      2009.  See "Financing Activities" below for further
      discussion.





The $469
million decrease in PPL's cash and cash equivalents position was primarily the
net result of:





·
            the
      payment of $421 million to retire $451 million aggregate principal amount
      of long-term debt;·
            $270
      million of capital expenditures;·
            the
      payment of $126 million of common stock dividends;·
            a
      net decrease in short-term debt of $90 million (excluding the impact of
      U.K. foreign currency exchange rates);·
            $26
      million in net expenditures for intangible assets;·
            $310
      million of cash provided by operating activities;·
            a
      decrease of $156 million in restricted cash and cash equivalents;
      and·
            proceeds
      of $16 million from the issuance of common
  stock.





Auction Rate
Securities





PPL's
investment in auction rate securities continues to be impacted by auction
failures and the resulting illiquidity in 2009.  PPL held auction rate
securities with an aggregate par value of $29 million at March 31, 2009 and
December 31, 2008.  PPL concluded that the fair value of its auction
rate securities was $22 million at March 31, 2009 and $24 million at December
31, 2008, a temporary decline of $7 million and $5 million from par
value.  Because PPL intends and has the ability to hold these auction
rate securities until they can be liquidated at par value, PPL believes that it
does not have significant exposure to realize losses on these
securities.  Based upon the evaluation of available information, PPL
believes these investments continue to be of high credit
quality.  Additionally, PPL does not anticipate having to sell these
securities to fund operations.  As such, the decline in fair value is
deemed temporary due to general market conditions. See Note 13 to the Financial
Statements for further discussion of auction rate securities.





Credit
Facilities





At March
31, 2009, PPL's total committed borrowing capacity under credit facilities and
the use of this borrowing capacity were:





Committed
      Capacity
              
              Borrowed
              
              Letters
      of Credit Issued
              
              UnusedCapacityPPL
      Energy Supply Domestic Credit Facilities (a)
              
              $
              4,110
              
              
              $
              285
              
              
              $
              821
              
              
              $
              3,004PPL
      Electric Credit Facilities (b)
              
              
              340
              
              
              
              
              
              
              
              1
              
              
              
              339Total
      Domestic Credit Facilities (c)
              
              $
              4,450
              
              
              $
              285
              
              
              $
              822
              
              
              $
              3,343WPDH
      Limited Credit Facility
              
              ₤
              150
              
              
              ₤
              145
              
              
              
              
              
              
              ₤
              5WPD
      (South West) Credit Facilities
              
              
              154
              
              
              
              57
              
              
              ₤
              4
              
              
              
              93Total
      WPD Credit Facilities (d)
              
              ₤
              304
              
              
              ₤
              202
              
              
              ₤
              4
              
              
              ₤
              98





(a)
            
            In
      March 2009, PPL Energy Supply's 364-day bilateral credit facility was
      amended.  The amendment included extending the expiration date
      from March 2009 to March 2010 and reducing the capacity from $300 million
      to $200 million.(b)
            
            Committed
      capacity includes a $150 million credit facility related to an
      asset-backed commercial paper program.  At March 31, 2009, based
      on accounts receivable and unbilled revenue pledged, $150 million was
      available for borrowing under the asset-backed credit
      facility.(c)
            
            The
      commitments under PPL's domestic credit facilities are provided by a
      diverse bank group consisting of 23 banks, with no one bank providing more
      than 14% of the total committed capacity.(d)
            
            At
      March 31, 2009, the unused capacity of WPD's committed credit facilities
      was approximately $140 million.





See Note
7 to the Financial Statements for further discussion of PPL's credit
facilities.





Commercial
Paper





As
discussed below under "Rating Agency Decisions," S&P lowered its rating on
PPL Energy Supply's commercial paper to A-3 from A-2 in January
2009.  Since PPL Energy Supply does not expect to need to issue any
commercial paper during 2009 and there is essentially no liquidity in commercial
paper markets for paper with an A-3 rating, PPL Energy Supply closed its
commercial paper program in January 2009 and requested that Moody's, S&P and
Fitch each withdraw their ratings on its commercial paper program, which each
rating agency subsequently did.





Market
conditions to issue commercial paper with ratings of P-2, A-2 and F-2 by
Moody's, S&P and Fitch continue to be challenging and
costly.  Based on its current cash position and anticipated cash
flows, PPL Electric currently does not expect to need to issue any commercial
paper during 2009, but it may do so from time to time to facilitate short-term
cash flow needs if market conditions improve.





Financing
Activities





In March
2009, PPL Capital Funding retired the entire $201 million of its 4.33% Notes
Exchange Series A upon maturity.





In March
2009, PPL Energy Supply completed tender offers to purchase up to $250 million
aggregate principal amount of certain of its outstanding senior notes in order
to reduce future interest expense.  Pursuant to the offers, PPL Energy
Supply purchased approximately $100 million aggregate principal amount of its
6.00% Senior Notes due 2036 for $77 million, plus accrued interest, and
approximately $150 million aggregate principal amount of its 6.20% Senior Notes
due 2016 for $143 million, plus accrued interest.  See Note 7 to the
Financial Statements for further discussion.  Under the Economic
Stimulus Package, PPL will be permitted to defer recognition of income related
to the extinguishment of these notes for tax purposes.  No amounts
will be included in taxable income for the first five
years.  Beginning in 2014, income related to the extinguishment of
these notes will be included in taxable income ratably over five
years.





In April
2009, the PEDFA issued $231 million aggregate principal amount of Exempt
Facilities Revenue Refunding Bonds, Series 2009A and 2009B due 2038 and Series
2009C due 2037 (PPL Energy Supply, LLC Project), on behalf of PPL Energy
Supply.  The Series 2009A bonds, in an aggregate principal amount of
$100 million, and the Series 2009B bonds, in an aggregate principal amount of
$50 million, were issued in order to refund $150 million aggregate principal
amount of Exempt Facilities Revenue Bonds, Series 2008A and 2008B (PPL Energy
Supply, LLC Project) due 2038 that were issued by the PEDFA in December 2008 on
behalf of PPL Energy Supply, and for which PPL Investment Corp. acted as initial
purchaser.  PPL Investment Corp. received proceeds of $150 million in
connection with this refunding as the Series 2009A and 2009B bonds were issued
to unaffiliated investors.  The Series 2009C bonds, in an aggregate
principal amount of $81 million, were issued in order to refund $81 million
aggregate principal amount of Exempt Facilities Revenue Bonds, Series 2007 (PPL
Energy Supply, LLC Project) due 2037 that were issued by the PEDFA in December
2007 on behalf of PPL Energy Supply.  Among other things, the
completed refundings were able to take advantage of provisions in the Economic
Stimulus Package that eliminated the application of the AMT to interest payable
on the refinanced indebtedness.





The
Series 2009A, 2009B and 2009C bonds are structured as variable-rate remarketable
bonds.  PPL Energy Supply may convert the interest rate on the bonds
from time to time to a commercial paper rate, daily rate, weekly rate or a term
rate of at least one year.  The bonds
are subject to mandatory purchase under certain circumstances, including upon
conversion to a different interest rate mode, and are subject to mandatory
redemption upon a determination that the interest on the bonds would be included
in the holders' gross income for federal tax purposes.  The
Series 2009A bonds bear interest at an initial rate of 0.90% through June 30,
2009.  The Series 2009B bonds bear interest at an initial rate of
1.25% through September 30, 2009.  The Series 2009C bonds bear
interest at a weekly rate, which was 0.35% at issuance.





In
connection with the issuance of each series of bonds by the PEDFA, PPL Energy
Supply entered into separate loan agreements with the PEDFA pursuant to which
the PEDFA loaned to PPL Energy Supply the proceeds of the Series 2009A, Series
2009B and Series 2009C bonds on payment terms that correspond to those of the
bonds.  PPL Energy Supply issued separate promissory notes to the
PEDFA to evidence its obligations under each of the loan
agreements.





Concurrent
with the issuance of each series of bonds, separate letters of credit, totaling
$237 million, were issued under PPL Energy Supply's $3.2 billion five-year
syndicated credit facility to the trustee in support of each series of
bonds.  The letters of credit permit the trustee to draw amounts to
pay principal of and interest on, and the purchase price of, the Series 2009A,
Series 2009B and Series 2009C bonds when due.  PPL Energy Supply is
required to reimburse any draws on the letters of credit within one business day
of such draw.





Common Stock
Dividends





In
February 2009, PPL announced an increase to its quarterly common stock dividend,
effective April 1, 2009, to 34.5 cents per share (equivalent to $1.38 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.





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.





In
January 2009, S&P completed a review of PPL, PPL Energy Supply and PPL
Electric and revised its outlook for all three entities to negative from
stable.  At that time, S&P affirmed the BBB issuer rating of PPL
and PPL Energy Supply and affirmed the A- issuer rating of PPL
Electric.  As a result of the negative outlook at PPL Energy Supply,
S&P lowered the commercial paper rating of PPL Energy Supply to A-3 from
A-2.  S&P stated in its press release regarding PPL and PPL Energy
Supply that the revision in the outlook for PPL and PPL Energy Supply is based
primarily on lower than expected cash flows for 2008 combined with concerns over
further pressure on financial metrics in 2009.  S&P stated in its
press release regarding PPL Electric that the revision in its outlook reflects
the linkage with PPL along with their expectation that PPL Electric's financial
metrics could weaken beginning in 2010.





At the
request of PPL Energy Supply, Fitch, in January 2009, and Moody's and S&P,
in February 2009, each withdrew their commercial paper rating for PPL Energy
Supply.





In
February 2009, S&P revised its outlook to negative from stable for each of
WPDH Limited, WPD LLP, WPD (South Wales) and WPD (South West) and affirmed the
issuer and short-term debt ratings of each of the entities.  S&P
stated in its press release that the revision in the outlook is a reflection of
the change to PPL's outlook and is not a result from any change in WPD's
stand-alone credit profile.





Ratings
Triggers





PPL and
PPL Energy Supply have various derivative and non-derivative contracts,
including contracts for the sale and purchase of electricity and fuel, commodity
transportation and storage, tolling arrangements, and interest rate and foreign
currency trades, which contain provisions requiring PPL and PPL Energy Supply to
post additional collateral, or permit the counterparty to terminate the
contract, if PPL's or PPL Energy Supply's credit rating were to fall below
investment grade.  See Note 14 to the Financial Statements for a
discussion of "Credit Risk-Related Contingent Features," including a discussion
of the potential additional collateral that would have been required for
derivative contracts in a net liability position at March 31,
2009.  At March 31, 2009, if PPL's and PPL Energy Supply's credit
ratings had been below investment grade, PPL and PPL Energy Supply would have
been required to post an additional $296 million of collateral to counterparties
for both derivative and non-derivative commodity and commodity-related contracts
used in its generation, marketing and trading operations and interest rate and
foreign currency contracts.





Capital
Expenditures





The
schedule below shows PPL's capital expenditure projections at March 31,
2009.





Projected2009
              
              2010
              
              2011
              
              2012
              
              2013Construction
      expenditures (a)Generating
      facilities
              
              $
              283
              
              $
              588
              
              $
              630
              
              $
              472
              
              $
              428Transmission
      and distribution facilities
              
              
              524
              
              
              974
              
              
              1,078
              
              
              943
              
              
              992Environmental
              
              
              210
              
              
              68
              
              
              98
              
              
              114
              
              
              6Other
              
              
              69
              
              
              82
              
              
              51
              
              
              52
              
              
              50Total
      Construction Expenditures
              
              
              1,086
              
              
              1,712
              
              
              1,857
              
              
              1,581
              
              
              1,476Nuclear
      fuel
              
              
              151
              
              
              161
              
              
              178
              
              
              181
              
              
              184Total
      Capital Expenditures
              
              $
              1,237
              
              $
              1,873
              
              $
              2,035
              
              $
              1,762
              
              $
              1,660





(a)
            
            Construction
      expenditures include AFUDC and capitalized interest, which are expected to
      be $286 million for the 2009-2013
period.





PPL's
capital expenditure projections for the years 2009-2013 total $8.6
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 2008 Form
10-K, primarily due to PPL's April 2009 announcement that it filed a new
application with the FERC for approval to expand the capacity of its Holtwood
hydroelectric plant by 125 MW.  See Note 8 to the Financial Statements
for additional information.





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 2008 Form 10-K.





Risk
Management - Energy Marketing & Trading and Other





Market
Risk





Commodity
Price Risk (Non-trading)





PPL
segregates its non-trading activities into two categories:  hedge
activity and economic activity.  Transactions that are accounted for
as hedge activity qualify for hedge accounting treatment under SFAS
133.  The majority of PPL's energy transactions qualify for accrual or
hedge accounting.  The economic activity category includes
transactions that address a specific risk, but were not eligible for hedge
accounting or for which hedge accounting was not elected.  Although
they do not receive hedge accounting treatment, these transactions are
considered non-trading activity.  The net fair value of economic
positions at March 31, 2009 and December 31, 2008, was a net liability of
$60 million and a net liability of $52 million.





To hedge
the impact of market price fluctuations on PPL's energy-related assets,
liabilities and other contractual arrangements discussed above, PPL EnergyPlus
sells and purchases physical energy at the wholesale level under FERC
market-based tariffs throughout the U.S. and enters into financial
exchange-traded and over-the-counter contracts.  PPL's non-trading
commodity derivative contracts mature at various times through
2017.





The
following chart sets forth the net fair value of PPL's non-trading commodity
derivative contracts.  See Notes 13 and 14 to the Financial Statements
for additional information.





Three
      Months Ended March 31,2009
              
              2008Fair
      value of contracts outstanding at the beginning of the
    period
              
              $
              402
              
              
              $
              (305
              )Contracts
      realized or otherwise settled during the period
              
              
              98
              
              
              
              37Fair
      value of new contracts entered into during the period
              
              
              (77
              )
              
              
              100Changes
      in fair value attributable to changes in valuation techniques
      (a)
              
              
              
              
              
              
              55Other
      changes in fair values
              
              
              305
              
              
              
              (155
              )Fair
      value of contracts outstanding at the end of the period
              
              $
              728
              
              
              $
              (268
              )





(a)
            
            Amount
      represents the reduction of valuation reserves related to capacity and FTR
      contracts upon the adoption of SFAS
157.





The
following chart segregates fair values of PPL's non-trading commodity derivative
contracts at March 31, 2009, based on whether the fair values are determined by
quoted market prices for identical instruments or other more subjective
means.





Net
      Asset (Liability)Maturity
                Less
      Than
                1
      Year
              
              Maturity
                1-3
      Years
              
              Maturity
                4-5
      Years
              
              Maturity
                in
      Excess
                of
      5 Years
              
              Total
      Fair
                ValueSource
      of Fair ValuePrices
      quoted in active markets for identical instruments
              
              $
              4
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              4Prices
      based on significant other observable inputs
              
              
              (87
              )
              
              $
              491
              
              
              $
              148
              
              
              $
              44
              
              
              
              596Prices
      based on significant unobservable inputs
              
              
              (6
              )
              
              
              4
              
              
              
              19
              
              
              
              111
              
              
              
              128Fair
      value of contracts outstanding at the end of the period
              
              $
              (89
              )
              
              $
              495
              
              
              $
              167
              
              
              $
              155
              
              
              $
              728





Because
of PPL's efforts to hedge the value of 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 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, nonperformance 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 nonperformance
in the future.





Commodity
Price Risk (Trading)





PPL's
trading contracts mature at various times through 2014.  The following
chart sets forth PPL's net fair value of trading contracts.  See Note
13 to the Financial Statements for additional information.





Three
      Months Ended March 31,2009
                  
                  2008Fair
      value of contracts outstanding at the beginning of the
    period
                  
                  $
                  (75
                  )
                  
                  $
                  16Contracts
      realized or otherwise settled during the period
                  
                  
                  33Fair
      value of new contracts entered into during the period
                  
                  
                  26
                  
                  
                  
                  (8
                  )Other
      changes in fair values
                  
                  
                  (21
                  )
                  
                  
                  14Fair
      value of contracts outstanding at the end of the period
                  
                  $
                  (37
                  )
                  
                  $
                  22





PPL will
reverse unrealized losses of approximately $2 million over the next three months
as the transactions are realized.





The
following chart segregates fair values of PPL's trading portfolio at March 31,
2009, based on whether the fair values are determined by quoted market prices
for identical instruments or other more subjective means.





Net
      Asset (Liability)Maturity
                Less
      Than
                1
      Year
              
              Maturity
                1-3
      Years
              
              Maturity
                4-5
      Years
              
              Maturity
                in
      Excess
                of
      5 Years
              
              Total
      Fair
                ValueSource
      of Fair ValuePrices
      quoted in active markets for identical instruments
              
              $
              2
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              2Prices
      based on significant other observable inputs
              
              
              3
              
              
              $
              (19
              )
              
              $
              (11
              )
              
              
              
              
              
              
              (27
              )Prices
      based on significant unobservable inputs
              
              
              (9
              )
              
              
              (3
              )
              
              
              
              
              
              
              
              
              
              
              (12
              )Fair
      value of contracts outstanding at the end of the period
              
              $
              (4
              )
              
              $
              (22
              )
              
              $
              (11
              )
              
              
              
              
              
              $
              (37
              )





VaR
Models





PPL
utilizes a VaR model to measure commodity price risk in domestic gross energy
margins for its non-trading and trading portfolios.  This approach is
consistent with how PPL's RMC assesses the market risk of its commodity
business.  VaR is a statistical model that attempts to estimate the
value of potential loss over a given holding period under normal market
conditions at a given confidence level.  PPL calculates VaR using a
Monte Carlo simulation technique based on a five-day holding period at a 95%
confidence level.  On March 31, 2009 and December 31, 2008, the
VaR for PPL's portfolios using end-of-quarter results for the period was as
follows:





Trading
      VaR
              
              Non-Trading
      VaRMarch
      31,
              
              Dec.
      31,
              
              March
      31,
              
              Dec.
      31,2009
              
              2008
              
              2009
              
              200895%
      Confidence Level, Five-Day Holding PeriodPeriod
      End
              
              $
              1
              
              
              $
              3
              
              
              $
              10
              
              
              $
              10Average
      for the Period
              
              
              1
              
              
              
              10
              
              
              
              9
              
              
              
              14High
              
              
              2
              
              
              
              22
              
              
              
              10
              
              
              
              20Low
              
              
              1
              
              
              
              3
              
              
              
              8
              
              
              
              9





The
trading portfolio includes all speculative positions, regardless of delivery
period.  All positions not considered speculative are considered
non-trading.  PPL's non-trading portfolio includes PPL's entire
portfolio, including generation, with delivery periods through the next 12
months.  Both the trading and non-trading VaR computations exclude
FTRs due to the absence of liquid spot and forward markets.  The fair
value of the FTR positions at March 31, 2009 was an unrealized loss of $19
million as follows:





2009
              
              2010
              
              2011Trading
      (a)
              
              $
              (7
              )Non-trading
              
              
              (9
              )
              
              $
              (2
              )
              
              $
              (1
              )Total
              
              $
              (16
              )
              
              $
              (2
              )
              
              $
              (1
              )





(a)
            
            The
      amount of trading losses expected to be realized in the next three months
      is approximately $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
instruments to adjust the mix of fixed and floating interest rates in its debt
portfolio, adjust the duration of its debt portfolio and lock in benchmark
interest rates 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 March
31, 2009, PPL's potential annual exposure to increased interest expense, based
on a 10% increase in interest rates, was $2 million.





PPL is
also exposed to changes in the fair value of its domestic and international debt
portfolios.  PPL estimated that a 10% decrease in interest rates at
March 31, 2009, would increase the fair value of its debt portfolio by $293
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 March 31, 2009, the fair value of these instruments was
a net asset of $8 million.  PPL estimated that a 10% adverse movement
in interest rates at March 31, 2009, would decrease the net asset by $15
million.





PPL also
utilizes various risk management instruments to adjust the mix of fixed and
floating interest rates in its debt portfolio.  The change in fair
value of these instruments, as well as the offsetting change in the value of the
hedged exposure of the debt, is reflected in earnings.  At March 31,
2009, the fair value of these instruments was an asset of $52
million.  PPL estimated that a 10% adverse movement in interest rates
at March 31, 2009, would decrease the asset by $6 million.





WPDH
Limited holds a net notional position in cross-currency swaps totaling $302
million to hedge the interest payments and principal of its U.S.
dollar-denominated senior notes with maturity dates ranging from December 2017
to December 2028.  While PPL is exposed to changes in the fair value
of these instruments, any change in the fair value of these instruments is
recorded in equity and reclassified into earnings in the same period during
which the item being hedged affects earnings.  The estimated fair
value of this position at March 31, 2009, was a net asset of $59
million.  WPDH Limited estimated that a 10% adverse movement in
foreign currency exchange rates and interest rates at March 31, 2009, would
decrease the net asset by $30 million.





Foreign
Currency Risk





PPL is
exposed to foreign currency risk, primarily through investments in U.K.
affiliates.  In addition, PPL's domestic operations 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
protect the value of a portion of its net investment in WPD, PPL executed
forward contracts to sell British pounds sterling.  The total notional
amount of the contracts outstanding at March 31, 2009, was £60
million.  The settlement dates of these contracts range from June 2009
through June 2011.  At March 31, 2009, the fair value of these
positions was an asset of $32 million.  PPL estimated that a 10%
adverse movement in foreign currency exchange rates at March 31, 2009, would
decrease the asset by $8 million.





To
economically hedge the translation of 2009 expected income denominated in
British pounds sterling to U.S. dollars, PPL entered into a combination of
average rate forwards and average rate options to sell British pounds
sterling.  At March 31, 2009, the total exposure hedged was £68
million.  These forwards and options have termination dates ranging
from April 2009 to December 2009.  At March 31, 2009, the net fair
value of these positions was not significant.  PPL estimated that a
10% adverse movement in foreign currency exchange rates at March 31, 2009 would
decrease the net position by $2 million.





Nuclear
Plant 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.  At March 31, 2009, these funds were invested primarily
in domestic equity securities and fixed-rate, fixed-income
securities.  These securities are reflected at fair value on PPL's
Balance Sheet.  The mix of securities is designed to provide returns
sufficient 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 primarily
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
March 31, 2009, a hypothetical 10% increase in interest rates and a 10%
decrease in equity prices would have resulted in an estimated $28 million
reduction in the fair value of the trusts' assets.  See Note 13 to the
Financial Statements and Note 23 in PPL's 2008 Form 10-K for additional
information regarding the nuclear decommissioning trust funds.





Credit
Risk





See Note
14 to the Financial Statements and "Risk Management - Energy Marketing &
Trading and Other - Credit Risk" in PPL's 2008 Form 10-K for information on
credit risk.





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.





PPL is
currently planning incremental capacity increases of 262 MW primarily at its
existing generating facilities.  Offsetting the planned capacity
increases is an expected reduction of up to 30 MW in net generation capability
at the Brunner Island plant due to the estimated increase in station service
usage during scrubber operations.





See Notes
8 and 10 to the Financial Statements for additional information.





PPL
continuously reexamines development projects based on market conditions and
other factors to determine whether to proceed with the projects, sell, cancel or
expand them, execute tolling agreements or pursue other options.





Environmental
Matters





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





New Accounting
Standards





See Notes
2 and 18 to the Financial Statements for a discussion of new accounting
standards adopted and 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, defined benefits, asset impairment, leasing, loss accruals, AROs and
income tax uncertainties.  See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations," in PPL's 2008 Form
10-K for a discussion of each critical accounting policy.


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.  Refer to "Item 1. Business - Background" in PPL Energy Supply's
2008 Form 10-K for descriptions of its reportable segments, which are Supply and
International Delivery.  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.  See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations - Overview" in PPL Energy Supply's
2008 Form 10-K for a discussion of PPL Energy Supply's strategy and the risks
and challenges that it faces in its business.  See "Forward-Looking
Information," Note 10 to the Financial Statements and the remainder of Item 2 in
this Form 10-Q, and "Item 1A. Risk Factors" and the rest of Item 7 in PPL Energy
Supply's 2008 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.





Market
Events





The
downturn in the financial markets has increased the complexity of managing
credit risk, responding to liquidity needs, measuring derivatives and other
financial instruments at fair value, and managing market price
risk.  Bank credit capacity has been reduced dramatically and the cost
of renewing or establishing new credit facilities has increased significantly,
thereby introducing uncertainties as to businesses' ability to enter into
long-term energy commitments or reliably estimate the longer-term cost and
availability of credit.





Credit
Risk





Credit
risk is the risk that PPL Energy Supply would incur a loss as a result of
nonperformance by counterparties of their contractual
obligations.  PPL Energy Supply maintains credit policies and
procedures to limit counterparty credit risk.  The continued
volatility and downturn in financial and commodity markets during the first
quarter of 2009 have generally increased PPL Energy Supply's exposure to credit
risk.  See Notes 11 and 14 to the Financial Statements and "Risk
Management - Energy Marketing & Trading and Other – Credit Risk" in PPL
Energy Supply's 2008 Form 10-K for more information on credit risk.





Liquidity
Risk





The
downturn in financial markets generally continues to make obtaining new sources
of bank and capital markets funding more difficult and costly.  During
this challenging period, PPL Energy Supply expects to continue to have access to
adequate sources of liquidity through operating cash flows, cash and cash
equivalents, short-term investments and its credit facilities.  See
"Financial Condition - Liquidity and Capital Resources" for an expanded
discussion of PPL Energy Supply's liquidity position and a discussion of
financing transactions.





Valuations in Inactive
Markets





The
downturn in the financial markets has generally made it difficult to determine
the fair value of certain assets and liabilities in inactive
markets.  Management has reviewed the activity in the energy and
financial markets in which PPL Energy Supply transacts, concluding that all of
these markets were active at March 31, 2009, with the exception of the
market for auction rate securities.  See Note 13 to the Financial
Statements and "Financial Condition - Liquidity and Capital Resources - Auction
Rate Securities" for a discussion of these investments.  The FASB
recently issued FSP FAS 157-4 that addresses how to determine fair value when
the volume and level of activity for the asset or liability has significantly
decreased and how to identify transactions that are not orderly.  See
Note 18 to the Financial Statements for additional information.





Securities Price
Risk





Declines
in the market price of debt and equity securities resulted in unrealized losses
that have reduced the asset values of PPL Energy Supply's investments in its
nuclear plant decommissioning trust funds and defined benefit
plans.





PPL
Energy Supply actively monitors the performance of the investments held in its
nuclear plant decommissioning trust funds and periodically reviews the funds'
investment allocations.  See "Financial Condition - Risk Management -
Energy Marketing & Trading and Other - Nuclear Plant Decommissioning Trust
Funds - Securities Price Risk" for additional information on securities price
risk.





PPL
Energy Supply's subsidiaries sponsor various defined benefit plans and
participate in and are allocated costs from defined benefit plans sponsored by
PPL.  These defined benefit plans' assets continued to experience net
negative investment returns in the first quarter of 2009, impacting the funded
status of those plans.  Determination of the funded status of defined
benefit plans, contribution requirements and net periodic defined benefit costs
for future years are subject to changes in various assumptions, in addition to
the actual performance of the assets in the plans.  See "Application
of Critical Accounting Policies - Defined Benefits" in PPL's 2008 Form 10-K for
a discussion of the assumptions and sensitivities regarding those
assumptions.








The Economic Stimulus
Package





The
Economic Stimulus Package is intended to stimulate the U.S. economy through
federal tax relief, expansion of unemployment benefits and other social stimulus
provisions, domestic spending for education, health care and infrastructure,
including the energy sector.  A portion of the benefits included in
the Economic Stimulus Package are offered in the form of loan fee reductions,
expanded loan guarantees and secondary market incentives, including delayed
recognition for tax purposes of income related to the cancellation of certain
types of debt.  See "Financial Condition - Liquidity and Capital
Resources" for a discussion of the applicability to the purchase of notes by PPL
Energy Supply.





Funds
from the Economic Stimulus Package will be allocated to various federal
agencies, such as the DOE, and will also be provided to state agencies through
block grants.  The DOE plans to use a portion of the funds for "smart
grid" programs, and has initiated a process for that purpose.  The
Commonwealth of Pennsylvania is accepting applications for funding for energy
projects such as wind, hydroelectric, solar and other projects.  As
discussed in Note 8 to the Financial Statements, PPL Energy Supply has
reconsidered its Holtwood expansion project in view of the tax incentives and
potential loan guarantees for renewable energy projects contained in the
Economic Stimulus Package.  PPL Energy Supply and its subsidiaries
continue to review the Economic Stimulus Package's provisions to determine the
impact on PPL Energy Supply's possible expansion plans and other
business-related activities.





The
following information should be read in conjunction with PPL Energy Supply's
Condensed Consolidated Financial Statements and the accompanying Notes and with
PPL Energy Supply's 2008 Form 10-K.





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
"Statement of Income Analysis," which includes explanations of significant
changes in principal items on PPL Energy Supply's Statements of Income,
comparing the three months ended March 31, 2009, with the same period in
2008.





The
results for interim periods can be disproportionately influenced by various
factors and developments and by seasonal variations, and as such, the results of
operations for interim periods do not necessarily indicate results or trends for
the year or for future operating results.








Earnings





Net
income attributable to PPL Energy Supply was $191 million for the three months
ended March 31, 2009, compared with $204 million for the same period in
2008.





The
changes in net income attributable to PPL Energy Supply 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 earnings.





Segment
Results





Net
income attributable to PPL Energy Supply by segment was:





Three
      Months Ended March 31,2009
              
              2008Supply
              
              $
              104
              
              
              $
              106International
      Delivery
              
              
              87
              
              
              
              98Total
              
              $
              191
              
              
              $
              204





Supply
Segment





The
Supply segment primarily consists of the domestic energy marketing, domestic
generation and domestic development operations of PPL Energy
Supply.  Supply segment net income attributable to PPL Energy Supply
was:





Three
      Months Ended March 31,2009
                          
                          2008Energy
      revenues (a)
                          
                          $
                          1,692
                          
                          
                          $
                          779Energy-related
      businesses
                          
                          
                          89
                          
                          
                          
                          105Total
      operating revenues
                          
                          
                          1,781
                          
                          
                          
                          884Fuel
      and energy purchases (a)
                          
                          
                          1,199
                          
                          
                          
                          285Other
      operation and maintenance
                          
                          
                          248
                          
                          
                          
                          237Depreciation
                          
                          
                          48
                          
                          
                          
                          41Taxes,
      other than income
                          
                          
                          7
                          
                          
                          
                          2Energy-related
      businesses
                          
                          
                          86
                          
                          
                          
                          103Total
      operating expenses
                          
                          
                          1,588
                          
                          
                          
                          668Other
      Income - net (b)
                          
                          
                          12
                          
                          
                          
                          8Interest
      Expense
                          
                          
                          43
                          
                          
                          
                          33Income
      Taxes
                          
                          
                          58
                          
                          
                          
                          85Net
      Income Attributable to PPL Energy Supply
                          
                          $
                          104
                          
                          
                          $
                          106





(a)
            
            Includes
      unrealized gains and losses from economic activity.  See
      Note 14 to the Financial Statements for additional
      information.(b)
            
            Includes
      interest income from affiliates.





The
after-tax changes in net income attributable to PPL Energy Supply between these
periods were due to the following factors.








Domestic
      gross energy margins
              
              $
              (4
              )Other
      operation and maintenance
              
              
              13Depreciation
              
              
              (4
              )Taxes,
      other than income
              
              
              (3
              )Other
      income - net
              
              
              6Interest
      expense
              
              
              (6
              )Other
              
              
              4Special
      items
              
              
              (8
              )$
              (2
              )





·
            See
      "Domestic Gross Energy Margins" for further discussion.·
            Other
      operation and maintenance decreased primarily due to lower outage costs at
      the Susquehanna nuclear plant as a result of the timing of the 2009
      refueling outage.·
            Other
      income - net increased primarily due to gains related to the
      extinguishment of notes.·
            Interest
      expense increased primarily due to interest 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 March 31,2009
              
              2008MTM
      adjustments from economic activity (Note 14)
              
              $
              50
              
              
              $
              50Impairment
      of nuclear decommissioning trust investments (a)
              
              
              (3
              )Impairments
      and other impacts - emission allowances (Note 13)
              
              
              (15
              )Other
      asset impairments
              
              
              (2
              )Workforce
      reduction charge (Note 6)
              
              
              (6
              )Montana
      basin seepage litigation (Note 10)
              
              
              
              
              
              
              (5
              )Synthetic
      fuel tax adjustment (Note 10)
              
              
              
              
              
              
              (13
              )Total
              
              $
              24
              
              
              $
              32





(a)
            
            Represents
      other-than-temporary impairment charges on securities, including realized
      gains and losses from sales of previously impaired
    securities.





2009
Outlook





Excluding
special items, PPL Energy Supply projects higher earnings for its Supply segment
in 2009 compared with 2008, driven by higher energy margins as a result of
higher expected baseload generation and margins from marketing and trading
activities, despite higher coal expense, partially offset by higher operation
and maintenance expenses and depreciation.





International Delivery
Segment





The
International Delivery segment consists primarily of the electricity
distribution operations in the U.K.  In the first quarter of 2008, the
International Delivery segment recognized income tax adjustments and other
expenses in Discontinued Operations as the dissolution of the remaining Latin
American holding companies commenced.  See Note 8 to the Financial
Statements for additional information.  International Delivery segment
net income attributable to PPL Energy Supply was:





Three
      Months Ended March 31,2009
              
              2008Utility
      revenues
              
              $
              176
              
              
              $
              241Energy-related
      businesses
              
              
              7
              
              
              
              9Total
      operating revenues
              
              
              183
              
              
              
              250Other
      operation and maintenance
              
              
              34
              
              
              
              46Depreciation
              
              
              26
              
              
              
              36Taxes,
      other than income
              
              
              13
              
              
              
              17Energy-related
      businesses
              
              
              3
              
              
              
              3Total
      operating expenses
              
              
              76
              
              
              
              102Other
      Income - net
              
              
              2
              
              
              
              3Interest
      Expense
              
              
              13
              
              
              
              38Income
      Taxes
              
              
              9
              
              
              
              20Income
      from Discontinued Operations
              
              
              
              
              
              
              5Net
      Income Attributable to PPL Energy Supply
              
              $
              87
              
              
              $
              98





The
after-tax changes in net income attributable to PPL Energy Supply between these
periods were due to the following factors.





U.K.Delivery
      margins
              
              $
              2Other
      operating expenses
              
              
              4Interest
      expense
              
              
              15Income
      taxes
              
              
              9Foreign
      currency exchange rates
              
              
              (34
              )Hyder
      liquidation distributions
              
              
              (2
              )U.S.
      Income taxes
              
              
              2Discontinued
      operations (Note 8)
              
              
              (5
              )Other
              
              
              1Special
      items
              
              
              (3
              )$
              (11
              )





·
            Lower
      U.K. interest expense on the Index-Linked Senior Unsecured Notes primarily
      due to lower inflation rates.·
            Lower
      U.K. income taxes primarily due to a favorable settlement of an uncertain
      tax position, partially offset by changes in other uncertain tax
      positions.·
            Changes
      in U.K. foreign currency exchange rates negatively impacted WPD earnings
      between the periods.  The weighted-average exchange rate for the
      British pound sterling was approximately $1.45 for the first three months
      of 2009 versus approximately $1.98 for the same period in
      2008.  This decreased WPD-related revenue and expense line items
      by 27%.





The
following after-tax amounts, which management considers special items, impacted
the International Delivery segment earnings.





Three
      Months Ended March 31,2009
                
                2008Asset
      impairments
                
                $
                (1
                )Workforce
      reduction charge (Note 6)
                
                
                (2
                )Total
                
                $
                (3
                )





2009
Outlook





Excluding
special items, PPL Energy Supply projects lower earnings for its International
Delivery segment in 2009 compared with 2008, primarily as a result of less
favorable foreign currency exchange rates.





Statement
of Income Analysis --





Domestic
Gross Energy Margins





Non-GAAP Financial
Measure





The
following discussion includes financial information prepared in accordance with
GAAP, as well as a non-GAAP financial measure, "Domestic Gross Energy
Margins."  The presentation of "Domestic Gross Energy Margins" is
intended to supplement the investor's understanding of PPL Energy Supply's
domestic non-trading and trading activities by combining applicable income
statement line items and related adjustments to calculate a single financial
measure.  PPL Energy Supply believes that "Domestic Gross Energy
Margins" are useful and meaningful to investors because they provide them with
the results of PPL Energy Supply's domestic non-trading and trading activities
as another criterion in making their investment decisions.  PPL Energy
Supply's management also uses "Domestic Gross Energy Margins" in measuring
certain corporate performance goals used in determining variable
compensation.  Other companies may use different measures to present
the results of their non-trading and trading
activities.  Additionally, "Domestic Gross Energy Margins" are not
intended to replace "Operating Income," which is determined in accordance with
GAAP, as an indicator of overall operating performance.  The following
table provides a reconciliation between "Operating Income" and "Domestic Gross
Energy Margins" as defined by PPL Energy Supply.





Three
      Months Ended March 31,2009
              
              2008Operating
      Income (a)
              
              $
              300
              
              
              $
              364Adjustments:Utility
      (a)
              
              
              (176
              )
              
              
              (241
              )Energy-related
      businesses, net (b)
              
              
              (7
              )
              
              
              (8
              )Other
      operation and maintenance (a)
              
              
              282
              
              
              
              283Depreciation
      (a)
              
              
              74
              
              
              
              77Taxes,
      other than income (a)
              
              
              20
              
              
              
              19Revenue
      adjustments (c)
              
              
              (358
              )
              
              
              176Expense
      adjustments (c)
              
              
              260
              
              
              
              (269
              )Domestic
      gross energy margins
              
              $
              395
              
              
              $
              401





(a)
            
            As
      reported on the Statements of Income.(b)
            
            Amount
      represents the net of "Energy-related businesses" revenue and expense as
      reported on the Statements of Income.(c)
            
            The
      components of these adjustments are detailed in the table
      below.





The
following table provides the income statement line items and other adjustments
that comprise domestic gross energy margins.





Three
      Months Ended March 31,2009
                                
                                2008
                                
                                ChangeRevenueWholesale
      energy marketing (a)
                                
                                $
                                1,165
                                
                                
                                $
                                258
                                
                                
                                $
                                907Wholesale
      energy marketing to affiliate (a)
                                
                                
                                497
                                
                                
                                
                                489
                                
                                
                                
                                8Unregulated
      retail electric and gas (a)
                                
                                
                                42
                                
                                
                                
                                34
                                
                                
                                
                                8Net
      energy trading margins (a)
                                
                                
                                (12
                                )
                                
                                
                                (2
                                )
                                
                                
                                (10
                                )Revenue
      adjustments (b)Miscellaneous
      wholesale energy marketing to affiliate
                                
                                
                                (3
                                )
                                
                                
                                (4
                                )
                                
                                
                                1Miscellaneous
      unregulated retail electric and gas
                                
                                
                                (1
                                )
                                
                                
                                
                                
                                
                                
                                (1
                                )MTM
      adjustments from economic activity (c)
                                
                                
                                (353
                                )
                                
                                
                                180
                                
                                
                                
                                (533
                                )Gains
      from sale of emission allowances (d)
                                
                                
                                
                                
                                
                                
                                1
                                
                                
                                
                                (1
                                )Other
                                
                                
                                (1
                                )
                                
                                
                                (1
                                )Total
      revenue adjustments
                                
                                
                                (358
                                )
                                
                                
                                176
                                
                                
                                
                                (534
                                )1,334
                                
                                
                                
                                955
                                
                                
                                
                                379ExpenseFuel
      (a)
                                
                                
                                258
                                
                                
                                
                                240
                                
                                
                                
                                18Energy
      purchases (a)
                                
                                
                                921
                                
                                
                                
                                17
                                
                                
                                
                                904Energy
      purchases from affiliate (a)
                                
                                
                                20
                                
                                
                                
                                28
                                
                                
                                
                                (8
                                )Expense
      adjustments (b)MTM
      adjustments from economic activity (c)
                                
                                
                                (267
                                )
                                
                                
                                266
                                
                                
                                
                                (533
                                )Other
                                
                                
                                7
                                
                                
                                
                                3
                                
                                
                                
                                4Total
      expense adjustments
                                
                                
                                (260
                                )
                                
                                
                                269
                                
                                
                                
                                (529
                                )939
                                
                                
                                
                                554
                                
                                
                                
                                385Domestic
      gross energy margins
                                
                                $
                                395
                                
                                
                                $
                                401
                                
                                
                                $
                                (6
                                )





(a)
            
            As
      reported on the Statements of Income.(b)
            
            To
      include/exclude the impact of any revenues and expenses not associated
      with domestic gross energy margins, consistent with the way management
      reviews domestic gross energy margins internally.(c)
            
            See
      Note 14 to the Financial Statements for additional information regarding
      economic activity.(d)
            
            Included
      in "Other operation and maintenance" on the Statements of
      Income.





Domestic Gross Energy
Margins By Region





Domestic
gross energy margins are generated through PPL Energy Supply's various
strategies to maximize the value of its wholesale energy
portfolio.  The most significant of these strategies include the sales
of baseload generation, optimization of intermediate and peaking generation and
its marketing and proprietary trading activities.  PPL Energy Supply
also manages these activities on a geographic basis that is aligned with its
generation assets.





Three
      Months Ended March 31,2009
                  
                  2008
                  
                  ChangeGeneration
      related margins:Eastern
      U.S.
                  
                  $
                  297
                  
                  
                  $
                  315
                  
                  
                  $
                  (18
                  )Western
      U.S.
                  
                  
                  84
                  
                  
                  
                  72
                  
                  
                  
                  12Marketing
      and trading margins:Eastern
      U.S.
                  
                  
                  15
                  
                  
                  
                  25
                  
                  
                  
                  (10
                  )Western
      U.S.
                  
                  
                  (1
                  )
                  
                  
                  (11
                  )
                  
                  
                  10Domestic
      gross energy margins
                  
                  $
                  395
                  
                  
                  $
                  401
                  
                  
                  $
                  (6
                  )





Eastern
U.S.





Eastern
U.S. generation related margins were $18 million lower during the three months
ended March 31, 2009, compared with the same period in 2008.  This
decrease was primarily due to 10% higher average baseload generation fuel
prices, primarily due to higher coal prices.  Partially offsetting
these lower margins was a 2.2% increase in PLR sales prices in accordance with
the PUC Final Order.





Eastern
U.S. marketing and trading margins were $10 million lower during the three
months ended March 31, 2009, compared with the same period in
2008.  This decrease was primarily due to lower FTR results, partially
offset by higher margins on full-requirement supply contracts.





Western
U.S.





Western
U.S. generation related margins were $12 million higher during the three months
ended March 31, 2009, compared with the same period in 2008.  This
increase was primarily due to higher wholesale volumes of 19% and increased
generation from the hydroelectric units of 19%.





Western
U.S. marketing and trading margins were $10 million higher during the three
months ended March 31, 2009, compared with the same period in
2008.  This increase consists of $5 million of higher realized trading
margins and $5 million of higher unrealized trading margins.





Utility
Revenues





The
decrease in utility revenues was attributable to:





Three
      Months Ended
                March 31, 2009vs.March 31, 2008U.K.
      electric delivery revenue
              
              $
              (1
              )U.K.
      foreign currency exchange rates
              
              
              (64
              )$
              (65
              )





Other
Operation and Maintenance





The
decrease in other operation and maintenance expenses was due to:





Three
      Months Ended
                      March 31, 2009vs.March 31, 2008Impairment
      of emission allowances (Note 13)
                    
                    $
                    30Workforce
      reduction charge (Note 6)
                    
                    
                    13Outage
      costs at Western and Eastern U.S. fossil/hydroelectric
      stations
                    
                    
                    4Allocation
      of certain corporate service costs (Note 11)
                    
                    
                    4Trademark
      royalty fees from a PPL subsidiary (Note 11)
                    
                    
                    2Stock-based
      compensation
                    
                    
                    (5
                    )Uncollectible
      accounts
                    
                    
                    (6
                    )Montana
      basin seepage litigation (Note 10)
                    
                    
                    (7
                    )U.K.
      foreign currency exchange rates
                    
                    
                    (8
                    )Outage
      costs at Susquehanna nuclear station
                    
                    
                    (23
                    )Other
      - U.K.
                    
                    
                    (5
                    )$
                    (1
                    )





Depreciation





The
decrease in depreciation expense was due to:





Three
      Months Ended
                      March 31, 2009vs.March 31, 2008Additions
      to PP&E (a)
                    
                    $
                    8U.K.
      foreign currency exchange rates
                    
                    
                    (9
                    )Other
                    
                    
                    (2
                    )$
                    (3
                    )





(a)
            
            Primarily
      attributable to the completion of the Susquehanna uprate and the Montour
      scrubber projects in the second quarter of
2008.





Taxes,
Other Than Income





The
increase in taxes, other than income was due to:





Three
      Months Ended
                        March 31,
      2009 vs. March 31, 2008Property
      tax expense (a)
                      
                      $
                      7U.K.
      foreign currency exchange rates
                      
                      
                      (4
                      )Other
                      
                      
                      (2
                      )$
                      1





(a)
            
            Primarily
      due to a $7 million property tax credit recorded by PPL Montana during the
      three months ended March 31, 2008.





Other
Income - net





See Note
12 to the Financial Statements for details of other income.





Interest
Income from Affiliates





Interest
income from affiliates decreased by $4 million for the three months ended March
31, 2009, compared with the same period in 2008.  The decrease was the
result of reduced average balances outstanding on a note receivable with an
affiliate and lower average interest rates on this note, and a decline in the
floating interest rate on the $300 million collateral deposit related to the PLR
contract.





Interest
Expense





The
decrease in interest expense was due to:





Three
      Months Ended
                March 31, 2009vs.March 31, 2008Long-term
      debt interest expense
              
              $
              7Short-term
      debt interest expense
              
              
              3U.K.
      foreign currency exchange rates
              
              
              (4
              )Inflation
      adjustment on U.K. Index-linked Senior Unsecured Notes
              
              
              (19
              )Other
              
              
              (2
              )$
              (15
              )





Income
Taxes





The
decrease in income taxes was due to:





Three
      Months Ended
                March 31, 2009vs.March 31, 2008Tax
      on foreign earnings
              
              $
              (1
              )Tax
      reserve adjustments
              
              
              (2
              )Nonconventional
      fuel and other tax credits
              
              
              (13
              )Lower
      pre-tax book income
              
              
              (23
              )Tax
      return adjustments
              
              
              1$
              (38
              )





See Note
5 to the Financial Statements for additional information on income taxes
including details on effective income tax rates.





Discontinued
Operations





See
"Discontinued Operations" in Note 8 to the Financial Statements for information
related to PPL's Latin American businesses, which were dissolved in
2008.





Financial
Condition





Liquidity
and Capital Resources





PPL
Energy Supply continues to focus on maintaining a strong credit profile and
liquidity position while the downturn in the financial markets continues to make
obtaining new sources of bank and capital markets funding difficult and costly
in 2009.  PPL Energy Supply expects to continue to have adequate
liquidity available through operating cash flows, cash and cash equivalents,
short-term investments and its credit facilities.





PPL
Energy Supply had the following at:





March 31,
      2009
              
              December
      31, 2008Cash
      and cash equivalents
              
              $
              119
              
              
              $
              464Short-term
      investments (a)
              
              
              150
              
              
              
              150$
              269
              
              
              $
              614Short-term
      debt
              
              $
              581
              
              
              $
              584





(a)
            
            Represents
      tax-exempt bonds issued by the PEDFA in December 2008 on behalf of PPL
      Energy Supply and purchased by a subsidiary of PPL Energy Supply upon
      issuance.  Such bonds were refunded in April
      2009.  See "Financing Activities" below for further
      discussion.





The $345
million decrease in PPL Energy Supply's cash and cash equivalents position was
primarily the net result of:





·
            distributions
      to Member of $296 million;·
            the
      payment of $220 million to retire $250 million aggregate principal amount
      of long-term debt;·
            $205 million
      of capital expenditures;·
            $24
      million in net expenditures for intangible assets;·
            $245 million
      of cash provided by operating activities; and·
            a
      decrease of $159 million in restricted cash and cash
      equivalents.





Auction Rate
Securities





PPL
Energy Supply's investment in auction rate securities continues to be impacted
by auction failures and the resulting illiquidity in 2009.  PPL Energy
Supply held auction rate securities with an aggregate par value of $24 million
at March 31, 2009 and December 31, 2008.  PPL Energy Supply
concluded that the fair value of its auction rate securities was $17 million at
March 31, 2009 and $19 million at December 31, 2008, a temporary decline of
$7 million and $5 million from par value.  Because PPL Energy Supply
intends and has the ability to hold these auction rate securities until they can
be liquidated at par value, PPL Energy Supply believes that it does not have
significant exposure to realize losses on these securities.  Based
upon the evaluation of available information, PPL Energy Supply believes these
investments continue to be of high credit quality.  Additionally, PPL
Energy Supply does not anticipate having to sell these securities to fund
operations.  As such, the decline in fair value is deemed temporary
due to general market conditions.  See Note 13 to the Financial
Statements for further discussion of auction rate securities.





Credit
Facilities





At March
31, 2009, PPL Energy Supply's total committed borrowing capacity under credit
facilities and the use of this borrowing capacity were:





Committed
      Capacity
              
              Borrowed
              
              Letters
      of Credit Issued
              
              UnusedCapacityPPL
      Energy Supply Domestic Credit Facilities (a)
              
              $
              4,110
              
              
              $
              285
              
              
              $
              821
              
              
              $
              3,004WPDH
      Limited Credit Facility
              
              ₤
              150
              
              
              ₤
              145
              
              
              
              
              
              
              ₤
              5WPD
      (South West) Credit Facilities
              
              
              154
              
              
              
              57
              
              
              ₤
              4
              
              
              
              93Total
      WPD Credit Facilities (b)
              
              ₤
              304
              
              
              ₤
              202
              
              
              ₤
              4
              
              
              ₤
              98





(a)
            
            In
      March 2009, PPL Energy Supply's 364-day bilateral credit facility was
      amended.  The amendment included extending the expiration date
      from March 2009 to March 2010 and reducing the capacity from $300 million
      to $200 million.
              
              The
      commitments under PPL Energy Supply's domestic credit facilities are
      provided by a diverse bank group consisting of 23 banks, with no one bank
      providing more than 15% of the total committed
capacity.(b)
            
            At
      March 31, 2009, the unused capacity of WPD's committed credit facilities
      was approximately $140 million.





See Note
7 to the Financial Statements for further discussion of PPL Energy Supply's
credit facilities.








Commercial
Paper





As
discussed below under "Rating Agency Decisions," S&P lowered its rating on
PPL Energy Supply's commercial paper to A-3 from A-2 in January
2009.  Since PPL Energy Supply does not expect to need to issue any
commercial paper during 2009 and there is essentially no liquidity in commercial
paper markets for paper with an A-3 rating, PPL Energy Supply closed its
commercial paper program in January 2009 and requested that Moody's, S&P and
Fitch each withdraw their ratings on its commercial paper program, which each
rating agency subsequently did.





Financing
Activities





In March
2009, PPL Energy Supply completed tender offers to purchase up to $250 million
aggregate principal amount of certain of its outstanding senior notes in order
to reduce future interest expense.  Pursuant to the offers, PPL Energy
Supply purchased approximately $100 million aggregate principal amount of its
6.00% Senior Notes due 2036 for $77 million, plus accrued interest, and
approximately $150 million aggregate principal amount of its 6.20% Senior Notes
due 2016 for $143 million, plus accrued interest.  See Note 7 to the
Financial Statements for further discussion.  Under the Economic
Stimulus Package, PPL Energy Supply will be permitted to defer recognition of
income related to the extinguishment of these notes for tax
purposes.  No amounts will be included in taxable income for the first
five years.  Beginning in 2014, income related to the extinguishment
of these notes will be included in taxable income ratably over five
years.





In April
2009, the PEDFA issued $231 million aggregate principal amount of Exempt
Facilities Revenue Refunding Bonds, Series 2009A and 2009B due 2038 and Series
2009C due 2037 (PPL Energy Supply, LLC Project), on behalf of PPL Energy
Supply.  The Series 2009A bonds, in an aggregate principal amount of
$100 million, and the Series 2009B bonds, in an aggregate principal amount of
$50 million, were issued in order to refund $150 million aggregate principal
amount of Exempt Facilities Revenue Bonds, Series 2008A and 2008B (PPL Energy
Supply, LLC Project) due 2038 that were issued by the PEDFA in December 2008 on
behalf of PPL Energy Supply, and for which PPL Investment Corp. acted as initial
purchaser.  PPL Investment Corp. received proceeds of $150 million in
connection with this refunding as the Series 2009A and 2009B bonds were issued
to unaffiliated investors.  The Series 2009C bonds, in an aggregate
principal amount of $81 million, were issued in order to refund $81 million
aggregate principal amount of Exempt Facilities Revenue Bonds, Series 2007 (PPL
Energy Supply, LLC Project) due 2037 that were issued by the PEDFA in December
2007 on behalf of PPL Energy Supply.  Among other things, the
completed refundings were able to take advantage of provisions in the Economic
Stimulus Package that eliminated the application of the AMT to interest payable
on the refinanced indebtedness.





The
Series 2009A, 2009B and 2009C bonds are structured as variable-rate remarketable
bonds.  PPL Energy Supply may convert the interest rate on the bonds
from time to time to a commercial paper rate, daily rate, weekly rate or a term
rate of at least one year.  The bonds
are subject to mandatory purchase under certain circumstances, including upon
conversion to a different interest rate mode, and are subject to mandatory
redemption upon a determination that the interest on the bonds would be included
in the holders' gross income for federal tax purposes.The Series
2009A bonds bear interest at an initial rate of 0.90% through June 30,
2009.  The Series 2009B bonds bear interest at an initial rate of
1.25% through September 30, 2009.  The Series 2009C bonds bear
interest at a weekly rate, which was 0.35% at issuance.





In
connection with the issuance of each series of bonds by the PEDFA, PPL Energy
Supply entered into separate loan agreements with the PEDFA pursuant to which
the PEDFA loaned to PPL Energy Supply the proceeds of the Series 2009A, Series
2009B and Series 2009C bonds on payment terms that correspond to those of the
bonds.  PPL Energy Supply issued separate promissory notes to the
PEDFA to evidence its obligations under each of the loan
agreements.





Concurrent
with the issuance of each series of bonds, separate letters of credit, totaling
$237 million, were issued under PPL Energy Supply's $3.2 billion five-year
syndicated credit facility to the trustee in support of each series of
bonds.  The letters of credit permit the trustee to draw amounts to
pay principal of and interest on, and the purchase price of, the Series 2009A,
Series 2009B and Series 2009C bonds when due.  PPL Energy Supply is
required to reimburse any draws on the letters of credit within one business day
of such draw.





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.





In
January 2009, S&P completed a review of PPL Energy Supply, upon which it
revised its outlook to negative from stable and affirmed its BBB issuer
rating.  As a result of the negative outlook, S&P lowered PPL
Energy Supply's commercial paper rating to A-3 from A-2.  S&P
stated in its press release that the revision in the outlook for PPL Energy
Supply is based primarily on lower than expected cash flows for 2008 combined
with concerns over further pressure on financial metrics in 2009.





At the
request of PPL Energy Supply, Fitch, in January 2009, and Moody's and S&P,
in February 2009, each withdrew their commercial paper rating for PPL Energy
Supply.





In
February 2009, S&P revised its outlook to negative from stable for each of
WPDH Limited, WPD LLP, WPD (South Wales) and WPD (South West) and affirmed the
issuer and short-term debt ratings of each of the entities.  S&P
stated in its press release that the revision in the outlook is a reflection of
the change to PPL's outlook to negative from stable and is not a result from any
change in WPD's stand-alone credit profile.





Ratings
Triggers





PPL
Energy Supply has various derivative and non-derivative contracts, including
contracts for the sale and purchase of electricity and fuel, commodity
transportation and storage, tolling arrangements, and interest rate and foreign
currency trades, which contain provisions requiring PPL Energy Supply to post
additional collateral, or permit the counterparty to terminate the contract, if
PPL Energy Supply's credit rating were to fall below investment
grade.  See Note 14 to the Financial Statements for a discussion of
"Credit Risk-Related Contingent Features," including a discussion of the
potential additional collateral that would have been required for derivative
contracts in a net liability position at March 31, 2009.  At March 31,
2009, if PPL Energy Supply's credit rating had been below investment grade, PPL
Energy Supply would have been required to post an additional $296 million of
collateral to counterparties for both derivative and non-derivative commodity
and commodity-related contracts used in its generation, marketing and trading
operations and interest rate and foreign currency
contracts.





Capital
Expenditures





The
schedule below shows PPL Energy Supply's capital expenditure projections at
March 31, 2009.





Projected2009
              
              2010
              
              2011
              
              2012
              
              2013Construction
      expenditures (a)Generating
      facilities
              
              $
              283
              
              $
              588
              
              $
              630
              
              $
              472
              
              $
              428Transmission
      and distribution facilities
              
              
              251
              
              
              428
              
              
              448
              
              
              460
              
              
              477Environmental
              
              
              210
              
              
              68
              
              
              98
              
              
              114
              
              
              6Other
              
              
              14
              
              
              17
              
              
              6
              
              
              7
              
              
              6Total
      Construction Expenditures
              
              
              758
              
              
              1,101
              
              
              1,182
              
              
              1,053
              
              
              917Nuclear
      fuel
              
              
              151
              
              
              161
              
              
              178
              
              
              181
              
              
              184Total
      Capital Expenditures
              
              $
              909
              
              $
              1,262
              
              $
              1,360
              
              $
              1,234
              
              $
              1,101





(a)
            
            Construction
      expenditures include AFUDC and capitalized interest, which are expected to
      be $206 million for the 2009-2013
period.





PPL
Energy Supply's capital expenditure projections for the years 2009-2013 total
$5.9 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 2008 Form 10-K, primarily due to PPL's April 2009 announcement that it
filed a new application with the FERC for approval to expand the capacity of its
Holtwood hydroelectric plant by 125 MW.  See Note 8 to the Financial
Statements for additional information.





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 2007 Form 10-K.





Risk
Management - Energy Marketing & Trading and Other





Market
Risk





Commodity
Price Risk (Non-trading)





PPL
Energy Supply segregates its non-trading activities into two
categories:  hedge activity and economic
activity.  Transactions that are accounted for as hedge activity
qualify for hedge accounting treatment under SFAS 133.  The majority
of PPL Energy Supply's energy transactions qualify for accrual or hedge
accounting.  The economic activity category includes transactions that
address a specific risk, but were not eligible for hedge accounting or for which
hedge accounting was not elected.  Although they do not receive hedge
accounting treatment, these transactions are considered non-trading
activity.  The net fair value of economic positions at March 31, 2009
and December 31, 2008, was a net liability of $60 million and a net
liability of $52 million.





To hedge
the impact of market price fluctuations on PPL Energy Supply's energy-related
assets, liabilities and other contractual arrangements discussed above, PPL
EnergyPlus sells and purchases physical energy at the wholesale level under FERC
market-based tariffs throughout the U.S. and enters into financial
exchange-traded and over-the-counter contracts.  PPL Energy Supply's
non-trading commodity derivative contracts mature at various times through
2017.





The
following chart sets forth the net fair value of PPL Energy Supply's non-trading
commodity derivative contracts.  See Notes 13 and 14 to the Financial
Statements for additional information.





Three
      Months Ended March 31,2009
              
              2008Fair
      value of contracts outstanding at the beginning of the
    period
              
              $
              402
              
              
              $
              (305
              )Contracts
      realized or otherwise settled during the period
              
              
              98
              
              
              
              37Fair
      value of new contracts entered into during the period
              
              
              (77
              )
              
              
              100Changes
      in fair value attributable to changes in valuation techniques
      (a)
              
              
              
              
              
              
              55Other
      changes in fair values
              
              
              305
              
              
              
              (155
              )Fair
      value of contracts outstanding at the end of the period
              
              $
              728
              
              
              $
              (268
              )





(a)
            
            Amount
      represents the reduction of valuation reserves related to capacity and FTR
      contracts upon the adoption of SFAS
157.





The
following chart segregates fair values of PPL Energy Supply's non-trading
commodity derivative contracts at March 31, 2009, based on whether the fair
values are determined by quoted market prices for identical instruments or other
more subjective means.





Net
      Asset (Liability)Maturity
                Less
      Than
                1
      Year
              
              Maturity
                1-3
      Years
              
              Maturity
                4-5
      Years
              
              Maturity
                in
      Excess
                of
      5 Years
              
              Total
      Fair
                ValueSource
      of Fair ValuePrices
      quoted in active markets for identical instruments
              
              $
              4
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              4Prices
      based on significant other observable inputs
              
              
              (87
              )
              
              $
              491
              
              
              $
              148
              
              
              $
              44
              
              
              
              596Prices
      based on significant unobservable inputs
              
              
              (6
              )
              
              
              4
              
              
              
              19
              
              
              
              111
              
              
              
              128Fair
      value of contracts outstanding at the end of the period
              
              $
              (89
              )
              
              $
              495
              
              
              $
              167
              
              
              $
              155
              
              
              $
              728





Because
of PPL Energy Supply's efforts to hedge the value of 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,
nonperformance 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 nonperformance in the
future.





Commodity
Price Risk (Trading)





PPL
Energy Supply's trading contracts mature at various times through
2014.  The following chart sets forth PPL Energy Supply's net fair
value of trading contracts.  See Note 13 to the Financial Statements
for additional information.





Three
      Months Ended March 31,2009
                  
                  2008Fair
      value of contracts outstanding at the beginning of the
    period
                  
                  $
                  (75
                  )
                  
                  $
                  16Contracts
      realized or otherwise settled during the period
                  
                  
                  33Fair
      value of new contracts entered into during the period
                  
                  
                  26
                  
                  
                  
                  (8
                  )Other
      changes in fair values
                  
                  
                  (21
                  )
                  
                  
                  14Fair
      value of contracts outstanding at the end of the period
                  
                  $
                  (37
                  )
                  
                  $
                  22





PPL
Energy Supply will reverse unrealized losses of approximately $2 million over
the next three months as the transactions are realized.





The
following chart segregates fair values of PPL Energy Supply's trading portfolio
at March 31, 2009, based on whether the fair values are determined by quoted
market prices for identical instruments or other more subjective
means.





Net
      Asset (Liability)Maturity
                Less
      Than
                1
      Year
              
              Maturity
                1-3
      Years
              
              Maturity
                4-5
      Years
              
              Maturity
                in
      Excess
                of
      5 Years
              
              Total
      Fair
                ValueSource
      of Fair ValuePrices
      quoted in active markets for identical instruments
              
              $
              2
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              2Prices
      based on significant other observable inputs
              
              
              3
              
              
              $
              (19
              )
              
              $
              (11
              )
              
              
              
              
              
              
              (27
              )Prices
      based on significant unobservable inputs
              
              
              (9
              )
              
              
              (3
              )
              
              
              
              
              
              
              
              
              
              
              (12
              )Fair
      value of contracts outstanding at the end of the period
              
              $
              (4
              )
              
              $
              (22
              )
              
              $
              (11
              )
              
              
              
              
              
              $
              (37
              )





VaR
Models





PPL
Energy Supply utilizes a VaR model to measure commodity price risk in domestic
gross energy margins for its non-trading and trading portfolios.  This
approach is consistent with how PPL's RMC assesses the market risk of its
commodity business.  VaR is a statistical model that attempts to
estimate the value of potential loss over a given holding period under normal
market conditions at a given confidence level.  PPL Energy Supply
calculates VaR using a Monte Carlo simulation technique based on a five-day
holding period at a 95% confidence level.  On March 31, 2009 and
December 31, 2008, the VaR for PPL Energy Supply's portfolios using
end-of-quarter results for the period was as follows:





Trading
      VaR
              
              Non-Trading
      VaRMarch
      31,
              
              Dec.
      31,
              
              March
      31,
              
              Dec.
      31,2009
              
              2008
              
              2009
              
              200895%
      Confidence Level, Five-Day Holding PeriodPeriod
      End
              
              $
              1
              
              
              $
              3
              
              
              $
              10
              
              
              $
              10Average
      for the Period
              
              
              1
              
              
              
              10
              
              
              
              9
              
              
              
              14High
              
              
              2
              
              
              
              22
              
              
              
              10
              
              
              
              20Low
              
              
              1
              
              
              
              3
              
              
              
              8
              
              
              
              9





The
trading portfolio includes all speculative positions, regardless of delivery
period.  All positions not considered speculative are considered
non-trading.  PPL Energy Supply's non-trading portfolio includes PPL
Energy Supply's entire portfolio, including generation, with delivery periods
through the next 12 months.  Both the trading and non-trading VaR
computations exclude FTRs due to the absence of liquid spot and forward
markets.  The fair value of the FTR positions at March 31, 2009 was an
unrealized loss of $19 million as follows:





2009
              
              2010
              
              2011Trading
      (a)
              
              $
              (7
              )Non-trading
              
              
              (9
              )
              
              $
              (2
              )
              
              $
              (1
              )Total
              
              $
              (16
              )
              
              $
              (2
              )
              
              $
              (1
              )





(a)
            
            The
      amount of trading losses expected to be realized in the next three months
      is approximately $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.  PPL and PPL Energy Supply
utilize various financial derivative instruments 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 benchmark interest rates 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 March
31, 2009, PPL Energy Supply's potential annual exposure to increased interest
expense, based on a 10% increase in interest rates, was $1 million.





PPL
Energy Supply is also exposed to changes in the fair value of its domestic and
international debt portfolios.  PPL Energy Supply estimated that a 10%
decrease in interest rates at March 31, 2009, would increase the fair value of
its debt portfolio by $199 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 March 31,
2009, 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.  The change in fair value of these instruments, as well as
the offsetting change in the value of the hedged exposure of the debt, is
reflected in earnings.  At March 31, 2009, PPL Energy Supply had none
of these instruments outstanding.





WPDH
Limited holds a net notional position in cross-currency swaps totaling $302
million to hedge the interest payments and principal of its U.S.
dollar-denominated senior notes with maturity dates ranging from December 2017
to December 2028.  While PPL is exposed to changes in the fair value
of these instruments, any change in the fair value of these instruments is
recorded in equity and reclassified into earnings in the same period during
which the item being hedged affects earnings.  The estimated fair
value of this position at March 31, 2009 was a net asset of $59
million.  WPDH Limited estimated that a 10% adverse movement in
foreign currency exchange rates and interest rates at March 31, 2009, would
decrease the net asset by $30 million.





Foreign
Currency Risk





PPL
Energy Supply is exposed to foreign currency risk, primarily through investments
in U.K. affiliates.  In addition, PPL Energy Supply's domestic
operations 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 Energy Supply enters into financial
instruments to protect against foreign currency translation risk of expected
earnings.





To
protect the value of a portion of its net investment in WPD, PPL executed
forward contracts to sell British pounds sterling.  The total notional
amount of the contracts outstanding at March 31, 2009, was £60
million.  The settlement dates of these contracts range from June 2009
through June 2011.  At March 31, 2009, the fair value of these
positions was an asset of $32 million.  PPL Energy Supply estimated
that a 10% adverse movement in foreign currency exchange rates at March 31,
2009, would decrease the asset by $8 million.





To
economically hedge the translation of 2009 expected income denominated in
British pounds sterling to U.S. dollars, PPL entered into a combination of
average rate forwards and average rate options to sell British pounds
sterling.  At March 31, 2009, the total exposure hedged was £68
million.  These forwards and options have termination dates ranging
from April 2009 to December 2009.  At March 31, 2009, the net fair
value of these positions was not significant.  PPL estimated that a
10% adverse movement in foreign currency exchange rates at March 31, 2009, would
decrease the net position by $2 million.





Nuclear
Plant 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.  At March 31, 2009, these funds were invested primarily
in domestic equity securities and fixed-rate, fixed-income
securities.  These securities are reflected at fair value on PPL
Energy Supply's Balance Sheet.  The mix of securities is designed to
provide returns sufficient 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 primarily 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 March 31, 2009, a
hypothetical 10% increase in interest rates and a 10% decrease in equity prices
would have resulted in an estimated $28 million reduction in the fair value of
the trusts' assets.  See Note 13 to the Financial Statements and Note
23 in PPL Energy Supply's 2008 Form 10-K for additional information
regarding the nuclear decommissioning trust funds.





Credit
Risk





See Notes
11 and 14 to the Financial Statements and "Risk Management - Energy Marketing
& Trading and Other - Credit Risk" in PPL Energy Supply's 2008 Form 10-K for
information on credit risk.





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
Energy Supply 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.





PPL
Energy Supply is currently planning incremental capacity increases of 262 MW
primarily at its existing generating facilities.  Offsetting the
planned capacity increases is an expected reduction of up to 30 MW in net
generation capability at the Brunner Island plant due to the estimated increase
in station service usage during scrubber operations.





See Notes
8 and 10 to the Financial Statements for additional information.





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





Environmental
Matters





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





New Accounting
Standards





See Notes
2 and 18 to the Financial Statements for a discussion of new accounting
standards adopted and 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, defined benefits, asset impairment,
leasing, loss accruals, AROs and income tax uncertainties.  See "Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations," in PPL Energy Supply's 2008 Form 10-K for a discussion of each
critical accounting policy.





PPL ELECTRIC UTILITIES CORPORATION AND
SUBSIDIARIES





Item
2.  Management's Discussion and Analysis of Financial Condition and
Results of Operations





Overview





PPL
Electric, with headquarters in Allentown, Pennsylvania, provides electricity
delivery service in eastern and central Pennsylvania.  Refer to "Item
1. Business - Background" and "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations - Overview" in PPL Electric's 2008
Form 10-K for a description of its business, discussion of its strategy, and the
risks and challenges that it faces in its business.  See
"Forward-Looking Information," Note 10 to the Financial Statements and the
remainder of Item 2 in this Form 10-Q, and "Item 1A. Risk Factors" and the rest
of Item 7 in PPL Electric's 2008 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.





Market
Events





The
downturn in the financial markets has increased the complexity of managing
credit risk, responding to liquidity needs, measuring financial instruments at
fair value, and managing market price risk.  Bank credit capacity has
been reduced dramatically and the cost of renewing or establishing new credit
facilities has increased significantly, thereby introducing uncertainties as to
businesses' ability to enter into long-term energy commitments or reliably
estimate the longer-term cost and availability of credit.





Credit
Risk





Credit
risk is the risk that PPL Electric would incur a loss as a result of
nonperformance by counterparties of their contractual obligations. The continued volatility
and downturn in financial and commodity markets during the first quarter of 2009
have generally increased PPL Electric's exposure to credit risk.  See
Notes 11 and 14 to the Financial Statements and "Risk Management - Credit Risk"
in PPL Electric's 2008 Form 10-K for more information on credit
risk.





Liquidity
Risk





The
downturn in financial markets generally continues to make obtaining new sources
of bank and capital markets funding and issuing commercial paper more difficult
and costly.  During this challenging period, PPL Electric expects to
continue to have access to adequate sources of liquidity through operating cash
flows, cash and cash equivalents and its credit facilities.  See
"Financial Condition - Liquidity and Capital Resources" for additional
information.








Securities Price
Risk





PPL
Electric participates in and is allocated costs from defined benefit plans
sponsored by PPL.  PPL's defined benefit plans' assets continued to
experience net negative investment returns in the first quarter of 2009,
impacting the funded status of those plans.  Determination of the
funded status of defined benefit plans, contribution requirements and net
periodic defined benefit costs for future years are subject to changes in
various assumptions, in addition to the actual performance of the assets in the
plans.  See "Application of Critical Accounting Policies - Defined
Benefits" in PPL Electric's 2008 Form 10-K for a discussion of the assumptions
and sensitivities regarding those assumptions.





The Economic Stimulus
Package





The
Economic Stimulus Package is intended to stimulate the U.S. economy through
federal tax relief, expansion of unemployment benefits and other social stimulus
provisions, domestic spending for education, health care and infrastructure,
including the energy sector.  A portion of the benefits included in
the Economic Stimulus Package are offered in the form of loan fee reductions,
expanded loan guarantees and secondary market incentives.  Funds from
the Economic Stimulus Package will be allocated to various federal agencies,
such as the DOE, and will also be provided to state agencies through block
grants.  The DOE plans to use a portion of the funds for "smart grid"
programs, and has initiated a process for that purpose.  PPL Electric
and its subsidiaries continue to review the Economic Stimulus Package's
provisions to determine the impact on PPL Electric's transmission projects and
other business-related activities.





The
following information should be read in conjunction with PPL Electric's
Condensed Consolidated Financial Statements and the accompanying Notes and with
PPL Electric's 2008 Form 10-K.





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 Electric's
earnings.  "Results of Operations" continues with a description of key
factors that management expects may impact future earnings.  This
section ends with "Statement of Income Analysis," which includes explanations of
significant changes in principal items on PPL Electric's Statements of Income,
comparing the three months ended March 31, 2009, with the same period in
2008.





The
results for interim periods can be disproportionately influenced by various
factors and developments and by seasonal variations, and as such, the results of
operations for interim periods do not necessarily indicate results or trends for
the year or for future operating results.





Earnings





Net
income available to PPL was $49 million for the three months ended
March 31, 2009, compared with $51 million for the same period in
2008.





The
after-tax changes in net income available to PPL between these periods were due
to the following factors.





Delivery
      revenues (net of CTC/ITC amortization, interest expense on transition
      bonds and ancillary charges)
              
              $
              1Other
      operation and maintenance
              
              
              6Interest
      expense
              
              
              (3
              )Special
      items
              
              
              (6
              )$
              (2
              )





Other
operation and maintenance expenses decreased primarily due to higher
PUC-reportable storm costs in 2008 and decreased contractor expenses in
2009.





The
following after-tax amounts, which management considers special items, also had
a significant impact on earnings.





Three
      Months Ended March 31,2009
              
              2008Asset
      impairments
              
              $
              (1
              )Workforce
      reduction charge (Note 6)
              
              
              (5
              )Total
              
              $
              (6
              )





2009
Outlook





Excluding
special items, PPL Electric projects lower earnings in 2009 compared with
2008.  Slightly higher revenues are expected to be offset by higher
other operation and maintenance expenses.





See Note
10 to the Financial Statements for a discussion of items that could impact
earnings beyond 2009, including the PUC-approved plan to procure default
electricity supply for 2010, Pennsylvania legislative and other regulatory
activities and a FERC-approved transmission rate.





Statement
of Income Analysis --





Operating
Revenues





Retail
Electric





The
increase in revenues from retail electric operations was attributable
to:





Three
      Months Ended
                March 31, 2009vs.March 31, 2008PLR
              
              $
              9Other
              
              
              1$
              10





Higher
PLR was attributable to favorable weather during the first quarter of 2009,
partially offset by the impact of economic conditions.





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 decrease of $8
million in wholesale electric to affiliate for the three months ended
March 31, 2009, compared with the same period in 2008, was primarily due to
the expiration of two NUG contracts during 2008.  Substantially, all
of the remaining NUG contracts will expire by 2010.





Energy
Purchases





The
decrease of $9 million in energy purchases for the three months ended
March 31, 2009, compared with the same period in 2008, was primarily due to
the expiration of two NUG contracts in 2008.  Substantially all of the
remaining NUG contracts will expire by 2010.





Energy
Purchases from Affiliate





Energy
purchases from affiliate increased by $8 million for the three months ended
March 31, 2009, compared with the same period in 2008.  The increase
was attributable to favorable weather during the first quarter of 2009,
partially offset by the impact of economic conditions, as well as higher prices
for energy purchased under the power supply contracts with PPL EnergyPlus that
were needed to support that load.





Other
Operation and Maintenance





The
increase in other operation and maintenance expenses was due to:





Three
      Months Ended
                      March 31, 2009vs.March 31, 2008Workforce
      reduction charge (Note 6)
                    
                    $
                    9Allocation
      of certain corporate service costs (Note 11)
                    
                    
                    4Insurance
      recovery of storm costs (Note 11)
                    
                    
                    3PUC-reportable
      storm costs
                    
                    
                    (4
                    )Contractor
      expenses
                    
                    
                    (4
                    )Other
                    
                    
                    (5
                    )$
                    3





Amortization
of Recoverable Transition Costs





Amortization
of recoverable transition costs increased by $8 million for the three months
ended March 31, 2009, compared with the same period in 2008.  The
amortization of recoverable transition costs is based on a PUC amortization
schedule, adjusted for ITC and CTC recoveries in customer rates and related
expenses.  Since the amortization substantially matches the revenue
recorded based on recovery in customer rates, there is minimal impact on
earnings.





Taxes,
Other Than Income





Taxes,
other than income decreased by $4 million during the three months ended March
31, 2009, compared with the same period in 2008.  The decrease was
primarily due to a $2 million decrease in Pennsylvania gross receipts tax
expense and a $1 million decrease in domestic sales and use tax
expense.





Other
Income - net





See Note
12 to the Financial Statements for details of other income.





Interest
Income from Affiliate





Interest
income from affiliate decreased by $1 million for the three months ended March
31, 2009, compared with the same period in 2008.  The decrease was
primarily the result of a lower average interest rate on a note receivable with
an affiliate due to the floating interest rate, which was partially offset by an
increased average balance on this note.





Financing
Costs





The
changes in financing costs, which consists of "Interest Expense" and "Interest
Expense with Affiliate," were due to:





Three
      Months Ended
                March 31, 2009vs.March 31, 2008Long-term
      debt interest expense primarily due to new issuances in
    2008
              
              $
              7Interest
      on PLR contract collateral (Note 11)
              
              
              (2
              )Repayment
      of transition bonds in 2008
              
              
              (5
              )$





Income
Taxes





The
decrease in income taxes was due to:





Three
      Months Ended
                March 31, 2009vs.March 31, 2008Tax
      reserve adjustments
              
              $
              (1
              )Lower
      pre-tax book income
              
              
              (2
              )Other
              
              
              (1
              )$
              (4
              )





See Note
5 to the Financial Statements for additional information on income taxes
including details on effective income tax rates.








Financial
Condition





Liquidity
and Capital Resources





PPL
Electric continues to focus on maintaining a strong credit profile and liquidity
position while the downturn in the financial markets continues to make obtaining
new sources of bank and capital markets funding difficult and costly in
2009.  PPL Electric expects to continue to have adequate liquidity
available through operating cash flows, cash and cash equivalents and its credit
facilities.





PPL
Electric had the following at:





March 31,
      2009
              
              December
      31, 2008Cash
      and cash equivalents
              
              $
              345
              
              
              $
              483Short-term
      debt
              
              
              
              
              
              
              95





The $138
million decrease in PPL Electric's cash and cash equivalents position was
primarily the net result of:





·
            a
      net decrease in short-term debt of $95 million;·
            the
      payment of $25 million of common stock dividends to
PPL;·
            $61 million
      of capital expenditures; and·
            $48 million
      of cash provided by operating
activities.





Credit
Facilities





At March
31, 2009, PPL Electric's total committed borrowing capacity under its credit
facilities and the use of this borrowing capacity were:





Committed
      Capacity
              
              Borrowed
              
              Letters
      of Credit Issued
              
              UnusedCapacity5-year
      Syndicated Credit Facility (a)
              
              $
              190
              
              
              
              
              
              
              $
              1
              
              
              $
              189Asset-backed
      Credit Facility (b)
              
              
              150
              
              
              
              
              
              
              
              
              
              
              
              150Total
      PPL Electric Credit Facilities
              
              $
              340
              
              
              
              
              
              
              $
              1
              
              
              $
              339





(a)
            
            The
      commitments under this credit facility are currently provided by a diverse
      bank group consisting of 20 banks, with no one bank providing more than
      18% of the total committed capacity.(b)
            
            At
      March 31, 2009, based on accounts receivable and unbilled revenue pledged,
      $150 million was available for borrowing under the asset-backed credit
      facility.





See Note
7 to the Financial Statements for further discussion of PPL Electric's credit
facilities.





Commercial
Paper





Market
conditions to issue commercial paper with ratings of P-2, A-2 and F-2 by
Moody's, S&P and Fitch continue to be challenging and
costly.  Based on its current cash position and anticipated cash
flows, PPL Electric currently does not expect to need to issue any commercial
paper during 2009, but it may do so from time to time to facilitate short-term
cash flow needs if market conditions improve.





Rating Agency
Decisions





Moody's,
S&P and Fitch periodically review the credit ratings on the debt and
preferred securities of PPL Electric.  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 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.  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 credit ratings could result
in higher borrowing costs and reduced access to capital markets.





Moody's
and Fitch did not take any actions related to PPL Electric during the first
quarter of 2009.  In January 2009, S&P completed a review of PPL
Electric, upon which it revised its outlook to negative from stable and affirmed
the A- issuer rating of PPL Electric.  S&P stated in its press
release that the revision in its outlook reflects the linkage with PPL, whose
outlook was also revised to negative from stable, along with their expectation
that PPL Electric's financial metrics could weaken beginning in
2010.





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 2008 Form 10-K.





Risk
Management





Market
Risk





Commodity
Price Risk - PLR Contracts through 2009





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 regarding credit risk
associated with the PLR contracts with PPL EnergyPlus.





Commodity
Price Risk - PLR Contracts Subsequent to 2009





PPL
Electric will provide PLR service beginning January 1, 2010 under a PUC-approved
plan through which PPL Electric will fully recover all incurred costs including
administrative costs.  The plan covers the period through December 31,
2010.  Under the plan, PPL Electric has entered into various
full-requirement power purchase agreements with multiple wholesale suppliers
that include fixed prices.  As a result, PPL Electric has shifted any
electric price risk relating to its PLR obligation to those wholesale suppliers
through 2010.  PPL Electric has filed with the PUC a plan with a
similar structure, including cost recovery, covering the period from January 1,
2011 through May 31, 2013.  PUC approval of the plan is
pending.  See Note 10 the Financial Statements for information on the
PUC-approved procurement plan and other ongoing Pennsylvania regulatory and
legislative activities.


Interest
Rate Risk





PPL
Electric has issued debt to finance its operations, which exposes it to interest
rate risk.  At March 31, 2009, PPL Electric's potential annual
exposure to increased interest expense, based on a 10% increase in interest
rates, was not significant.





PPL
Electric is also exposed to changes in the fair value of its debt
portfolio.  PPL Electric estimated that a 10% decrease in interest
rates at March 31, 2009, would increase the fair value of its debt portfolio by
$51 million.





Credit
Risk





See Notes
11 and 14 to the Financial Statements and "Risk Management - Credit Risk" in PPL
Electric's 2008 Form 10-K for information on credit risk.





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 Notes
2 and 18 to the Financial Statements for a discussion of new accounting
standards adopted and 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: defined benefits, loss accruals, income tax uncertainties and
regulation.  See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations," in PPL Electric's 2008 Form 10-K
for a discussion of each critical accounting policy.





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





PPL
      Corporation(a)
            
            Evaluation
      of disclosure controls and procedures.The
      registrant's principal executive officer and principal financial officer,
      based on their evaluation of the registrant's 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 March 31, 2009, the
      registrant's disclosure controls and procedures are effective to ensure
      that material information relating to the registrant and its 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 officer, to allow for timely
      decisions regarding required disclosure.(b)
            
            Change
      in internal controls over financial reporting.The
      registrant's principal executive officer and principal financial officer
      have concluded that there were no changes in the registrant's internal
      control over financial reporting during the registrant's first fiscal
      quarter that have materially affected, or are reasonably likely to
      materially affect, the registrant's internal control over financial
      reporting.





Item
4(T).  Controls and Procedures





PPL
      Energy Supply, LLC and PPL Electric Utilities
  Corporation(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 March 31,
      2009, 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' first 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 ProceedingsFor
      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
      2008 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 FactorsThere
      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 2008 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
            Maximum
      Number (or
              Approximate
      Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the
      Plans or Programs (2)January
      1 to January 31, 2009
            33,325
            $31.61
            
            $57,495February
      1 to February 28, 2009
            
            
            
            $57,495March
      1 to March 31, 2009
            
            
            
            $57,495Total
            33,325
            $31.61
            
            $57,495





(1)
            
            Represents
      shares of common stock withheld by PPL at the request of its executive
      officers to pay taxes upon the vesting of the officers' restricted stock
      awards, as permitted under the terms of PPL's ICP and
    ICPKE.(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
      6.  Exhibits10(a)
              -
              Eighth
      Amendment, dated as of March 30, 2009, to Reimbursement Agreement, dated
      as of March 31, 2005, among PPL Energy Supply, LLC, The Bank of Nova
      Scotia, as Issuer and Administrative Agent, and the Lenders party thereto
      from time to time12(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 March 31, 2009, 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
CorporationCertifications
      pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, for the
      quarterly period ended March 31, 2009, 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:  May
      1, 2009
            /s/  J.
      Matt Simmons, Jr.J.
      Matt Simmons, Jr.Vice
      President and Controller(Principal
      Accounting Officer)